Americold Realty Trust

NYSE:COLD

Earnings Call Analysis

Americold Projects Strong Growth into 2024

In 2023, Americold delivered a solid AFFO per share of $1.27, driven by a 4.3% revenue growth and a 12.8% NOI growth in the Global Warehouse same-store pool. The company achieved record economic occupancy and benefited from pricing initiatives and productivity gains. Leadership enhancements include hiring Jay Wells as CFO, with strategic realignments to strengthen customer experiences and growth. For 2024, Americold forecasts slightly lower economic occupancy but expects continued margin improvements and a full-year 2024 AFFO per share range of $1.32 to $1.42, aiming for a midpoint of $1.37. Future developments include a new major market distribution center and a dedication to social responsibility through partnerships such as Feed the Children.

Robust Occupancy Levels Despite Minor Declines

Americold displayed a quarter highlighted by persistent demand, with economic occupancy in the fourth quarter reaching 83.7%. Although there was a minor decrease from the previous year, the full year record of 84.3% occupancy demonstrated sustained high demand for Americold's storage facilities.

Record Revenue from Commitment Contracts and Improved Revenue Metrics

The company notched a revenue milestone with record-high fixed commitment storage contracts in the fourth quarter, and revenue per economic occupied pallet increased by 3.4%, showcasing solid growth in the value generated per unit of storage provided. Service revenue per throughput pallet also went up by a notable 9.1%.

Strategic Expansion through Automation and Global Partnerships

Americold completed strategic automated facility projects in multiple locations, thus becoming a leader in full-supply-chain automated solutions. The company made significant strides with a $130 million greenfield development in Kansas City and a $35 million development in Dubai, both of which capitalize on key strategic collaborations with Canadian Pacific Kansas City and DP World, respectively, totalling potential developments worth $500 million to $1 billion from these partnerships.

Impressive Margin Gains Amidst Volume Declines

Despite a fall in throughput volumes, Americold celebrated a substantial improvement in AFFO per share to $0.38, a significant gain of over 31% from the prior year, and reached record levels for the quarter. Additionally, the services margins impressively rose to 6.1%, illustrating the company's ability to successfully manage variable costs and enhance productivity under pressure.

Forward Outlook Showing Persistent Growth and Sustainability

With current occupancy and throughput expectations, Americold forecasts an economic occupancy range from flat to a 100 basis point decline compared to 2023, suggesting slight caution amid record-setting previous performance. The company also anticipates a slight 1% to 3% decrease in throughput volumes due to economic factors but expects 6.5% to 10% same-store constant currency NOI growth, marking confidence in its business robustness and underlying growth trajectory.

Navigating Impairments with Growth in Core Business Areas

A significant $237 million noncash goodwill impairment was reported related to Americold's European warehouse business, influenced by challenging interest rates and economic conditions. Yet, the business managed to grow its European warehouse NOI by roughly 32%, reaffirming the strength in core operations despite macro headwinds.

Sustainable AFFO Growth and Strategic Focus

Americold saw its AFFO per share grow by 19% when adjusted for extraordinary events, highlighting the resilience and efficiency of the company. This growth occurred even as the company faced the exit of a large retail customer, further underscoring its strategic and operational effectiveness.

Earnings Call Transcript 2023-Q4

[Operator]

Greetings, and welcome to the Americold Realty Trust Fourth Quarter 2023 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I'd now like to turn the conference over to your host, [ Kevin Reed ], Vice President of Investor Relations. Thank you, and you may proceed, sir.

[Unknown Executive]

Good afternoon. Thank you for joining us today for Americold Realty Trust's Fourth Quarter 2023 Earnings Conference Call. In addition to the press release distributed this afternoon, we have filed a supplemental package with additional detail on our results, which is available in the Investor Relations section on our website at www.ir.americold.com. This afternoon's conference call is hosted by Americold's Chief Executive Officer, George Chappelle; President of Americas, Rob Chambers; and Chief Financial Officer, Jay Wells. Management will make some prepared comments, after which we will open up the call to your questions.

On today's call, management's prepared remarks may contain forward-looking statements. Forward-looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ from those discussed today. A number of factors could cause actual results to differ materially from those anticipated. Forward-looking statements are based on current expectations, assumptions and beliefs as well as information available to us at this time and speak only as of the date they are made, and management undertakes no obligation to update publicly any of them in light of new information or future events.

During this call, we will discuss certain non-GAAP financial measures, including core EBITDA and AFFO. The full definitions of these non-GAAP financial measures and reconciliations to comparable GAAP financial measures are contained in the supplemental information package available on the company's website. Now I will turn the call over to George.

[George Chappelle, executive]

Thank you, Kevin, and welcome to our fourth quarter 2023 earnings conference call. This afternoon, I will discuss key operational metrics and financial results for the quarter and for the full year. I will then discuss the current market conditions that are underpinning our 2024 guidance. Rob will provide an update on our recent customer initiatives and growth activity, and Jay will provide a detailed walk-through for our full year 2024 guidance.

Turning to our core business priorities. First, customer service continues to support strong occupancy in our portfolio. For the fourth quarter, our same-store economic occupancy remained strong at 83.7%, which was 53 basis points decrease over last year and a 30 basis point decline sequentially from the third quarter.

As a reminder, we delivered 4 quarters in a row of record-setting economic occupancy in the mid-80s, including the first 3 quarters in 2023. Last year's fourth quarter economic occupancy was aided by a counter seasonal inventory build as food manufacturers produced ahead of end consumer demand as they were seeing labor improvements, but this did not repeat this year.

Considering this, the slight fourth quarter decline from prior year, combined with 4 quarters in a row of record-setting economic occupancy in the mid-80s, continues to demonstrate our assets remain in very high demand. To further emphasize just how high the demand is for our assets, 2023 full year same-store economic occupancy was 84.3%, which is an Americold full year record, significantly beating our last record same-store economic occupancy of 80.5% by almost 400 basis points. We are very proud of this achievement.

We also derived 52.2% of rent and storage revenue from fixed commitment storage contracts in the fourth quarter, which is 180 basis points higher than the third quarter's level and sets another record for this metric at Americold. Our high occupancy percentage and rising fixed commitment percentages continue to highlight our ability to grow our market share.

Second, turning to our priorities around labor management. During the fourth quarter, we achieved a perm-to-temp hours ratio of 75:25. This is 200 basis points improvement to our fourth quarter 2022 permanent labor levels and on a sequential basis, roughly flat to the third quarter 2023 due to seasonality when we tend to use more temporary labor in the second half of the year, making the year-over-year metric more relevant.

Additionally, we continued to make progress on turnover, ending the year approximately 13 percentage points lower compared to prior year. Compared to the end of 2019, a pre-COVID year, we ended December at approximately 9 percentage points higher. We are also introducing a new labor metric, which is the total percentage of Americold's hourly workforce that has less than 12 months experience with us. This metric, different than retention, should correlate very well to increasing productivity and warehouse services margins as it measures the longevity of the hourly associate level necessary to delivering sustainable, reliable services performance.

We ended the year with our percentage of hourly associates with less than 12 months on the job at 32%, down from COVID high of 41%, but still higher than our 2019 average of 23%. Continued progress in this area, along with the hiring and retention metrics we currently disclose, will provide the foundation for predictable, stable warehouse services margins for the future.

Third, we continue to make progress on our in-process development projects. During the fourth quarter, we completed our customer-dedicated automated facility in Plainville, Connecticut that supports a global retailer. At this point, all 5 of our automated developments that we outlined at the beginning of 2023 have been completed. With the completion of these 5 facilities, Americold is the first and only cold storage company to deliver automated solutions at all 3 key nodes of the supply chain: production advantage, major market distribution and retail distribution.

On our 2 customer dedicated automated retail distribution facilities in Lancaster, Pennsylvania and Plainville, Connecticut while completed are currently ramping. Given the level of complexity and the importance of customer service to over 750 retail stores, we are being thoughtful on our ramp-up plan, and we are extending the stabilization dates. Combined, these facilities will redistribute over 75 million cases per year, and the level of testing and customer integration is the most complex in our portfolio. Rob will go into greater detail on this shortly.

Lastly, we continue to effectively reprice our warehouse business. For the fourth quarter, rent and storage revenue per economic occupied pallet in our same-store on a constant currency basis increased by 3.4% versus the prior year, which was partially offset by the reduction of power surcharges in certain markets. Service revenue per throughput pallet increased by 9.1%.

Turning to growth today. We are excited to announce an approximately $130 million greenfield development in Kansas City, Missouri as part of our collaboration with Canadian Pacific Kansas City or CPKC, one of North America's largest railroad companies. CPKC owns the first and only single-line transnational railroad, linking Canada, the United States and Mexico. Our agreement with CPKC is a strategic collaboration in which Americold will build, own and operate cold storage facilities on the land located on CPKC's railroad network.

In this inaugural project in Kansas City, we intend to build a conventional facility that will support multiple customers' product coming from and going to Mexico, which will be transported on CPKC's railroad. This network solution provides a cheaper, faster and more environmentally friendly process for CPKC and Americold's mutual food manufacturing customers to import and export their products.

Additionally, in December, we announced our plans through our RSA JV to build a conventional multi-customer major market distribution center in Dubai at DP World's Port of Jebel Ali Free Zone for $35 million. This planned development will be the first of its kind to combine Americold's global temperature controls infrastructure with DP World's port infrastructure and end-to-end logistics solutions.

This strategic combination will result in an unprecedented optimization of temperature-sensitive food flows in and out of the countries of the Gulf Cooperation Council and provide redistribution opportunities across the region. These partnerships with CPKC and DP World illustrate Americold's unique ability to create value by collaborating with global leaders in adjacent areas of the supply chain.

Our investment in these partnerships will grow significantly over the next few years as we continue to identify opportunities to jointly grow our business. We expect $500 million to $1 billion of development opportunities combined from these 2 strategic partnerships.

Turning to our fourth quarter results. We delivered AFFO per share of $0.38, a strong increase of over 31% versus prior year's quarter and a record level for quarterly AFFO per share. Our performance was primarily driven by our Global Warehouse same-store pool, which generated NOI growth of 8% versus prior year on a constant currency basis. Our strong same-store pool results were driven by our pricing initiatives, record-setting fixed commit levels, aggressive variable cost management and improved warehouse services productivity.

Throughput volumes declined by approximately 760 basis points versus prior year, improving the year-over-year decline sequentially by 140 basis points and consistent with implied fourth quarter guidance. While food manufacturers utilize promotional spending to bring more end consumers into the store, the temporary changes to end consumer demand and behaviors due to the challenging economic environment continued to weigh on throughput volumes.

The bright spot for warehouse services in the quarter was our performance on margins. As you may recall, in the third quarter, despite the 900 basis point drop in throughput volumes, we were able to deliver services margins of 2.8%, which was approximately 30 basis points better than the first half of the year through aggressive variable cost management. We accelerated this progress in the fourth quarter and overcame a 760 basis point drop in throughput volumes by achieving services margins of 6.1%.

On a sequential basis, this is an incremental 330 basis point improvement versus third quarter 2023, which resulted in an incremental $10.5 million in same-store services NOI or roughly an incremental $0.04 in AFFO per share for the fourth quarter of 2023. On a year-over-year basis, the impact was equally impressive with an incremental $11.1 million in same-store services NOI. These productivity improvements are quickly taking hold after 2 years of hard work and give us a high degree of confidence of achieving our target of 9% services margins during the second half of 2024, likely during the fourth quarter.

Turning to our full year results. For 2023, we delivered AFFO per share of $1.27, which is the midpoint we guided to last quarter. Accounting for the $0.03 per share that we estimate we lost during the cyber event in the second quarter, our full year AFFO would have been $1.30, which is an increase of 17% over full year 2022 or an increase of 19% when adjusted for the exit of a large retail customer in our third-party managed business in the fourth quarter of 2022.

This exceptional performance was primarily driven by our Global Warehouse same-store pool, which generated revenue growth of 4.3% and NOI growth of 12.8% versus prior year, both on a constant currency basis. Our strong same-store revenue results were driven by a combination of record-setting same-store economic occupancy of 84.3%, which was almost 400 basis points better than any year in our history, our ongoing price initiatives and improving services margins, driven by increasing productivity. Our record-setting occupancy is attributed to 2 main factors: first, our intense focus on customer service, which led to an enhanced win rate on customer opportunities; and second, our enhanced commercialization efforts, which drove our fixed commits to record levels.

In addition to new business, our customers publicly recognized Americold's performance. For example, Butterball awarded our Lowell, Arkansas facility with its Site of the Year award. We appreciate this recognition and look forward to continued progress around our customer service initiatives.

Before turning to our 2024 guidance, let me comment briefly on our recent leadership changes that strengthen our team and best position us for profitable growth. In January, we hired Jay Wells as Chief Financial Officer. Jay is a veteran public company financial executive with more than 30 years' experience building and leading international teams and has considerable financial planning and transaction expertise. He joined Americold from Primo Water, a leading publicly traded water company, which operated across 21 different countries, including North America and Europe, where he served as Chief Financial Officer from 2012 to 2023. We are very excited to have Jay on the team and look forward to introducing him to the investment community over the next several weeks.

We also announced that we realigned our executive leadership team to drive synergies and further enhance our customers' experiences across geographies, with Rob Chambers assuming the role of President, Americas and Richard Winnall assuming the role of President, International. Both Rob and Richard have been with Americold for many years, and these changes to our leadership structure will allow our team to more quickly and effectively implement strategic initiatives across all markets and locations to better serve our customers.

Lastly, [ Kevin Reed ] recently joined Americold as our Vice President of Investor Relations. Kevin joins us from ICR, an investor relations consulting firm where he worked with Americold and many other REIT clients over the years. We are very excited to have Kevin on the team.

Now on to the current market conditions that are underpinning our 2024 guidance. For the full year 2024, within the same store, we expect our economic occupancy to be slightly drawn from the full year 2023 level, which, as I commented on earlier, was an all-time record at 84.3%. Given the current economic environment, we expect lower throughput volumes on a full year-over-year basis. However, we expect this decline to be most pronounced in the first quarter with a gradual improvement throughout the year.

From a pricing standpoint, we expect to continue to cover inflation, to benefit from our normal course annual rate escalations, to reprice our longer-term agreements that come up for renewal and lastly, to underwrite new business appropriately. From an operational standpoint, we expect to continue to see warehouse services margins improve. However, please note the first half of the year may not be as strong as this recent fourth quarter 2023, given the continued declining throughput volume assumptions.

Against this backdrop, we are guiding to a full year 2024 AFFO per share range of $1.32 to $1.42 with a midpoint of $1.37. At the midpoint, this represents an approximately 8% increase from 2023 and approximately 5.5% increase when adjusted for the $0.03 of lost earnings previously disclosed as a result of our second quarter 2023 cyber event. At the midpoint, same-store revenue growth is expected to be 4% and NOI growth 8.3%, driven by our continued pricing initiatives, aggressive variable cost management and improved warehouse services productivity.

Lastly, before I hand it over to Rob, in line with our company value of giving back and our commitment to fighting hunger, we united with Feed the Children and their community partners to assist families across 5 states over the holiday season. Food and essential personal items were delivered to 400 families in underserved communities in each state, benefiting 2,000 families in total. This initiative was part of our ongoing partnership with Feed the Children to focus resources on communities where we can have meaningful impact, which will continue in 2024. With that, I will turn it over to Rob.

[Robert Chambers, executive]

Thank you, George. As George mentioned, our company delivered strong results during the fourth quarter, economic occupancy at 83.7% for the same-store pool and another quarter of record-setting fixed commitment percentage levels for our total warehouse segment. At quarter end, within our Global Warehouse segment, rent and storage revenue from fixed commitment contracts increased on an absolute dollar basis to $577 million compared to $420 million at the end of the fourth quarter of 2022.

On a combined pro forma basis, we derived 52.2% of rent and storage revenue from fixed commitment storage contracts, which is an approximately 1,000-plus basis point improvement over the fourth quarter of 2022. Since our IPO in 2018, we have added over $379 million in annualized fixed storage revenue, a testament that speaks to both the benefits our customers derive from the structure along with our best-in-class commercial practices.

Turning to pricing. For the fourth quarter, rent and storage revenue per economic occupied pallet in our same-store on a constant currency basis increased by 3.4% versus the prior year. Please note that during the fourth quarter, power surcharges decreased in certain markets, which was a headwind to our increase by approximately 100 to 150 basis points. Service revenue per throughput pallet increased by 9.1%. We remain very focused on our pricing initiatives to ensure that we both offset inflationary pressures and price our business to reflect the value of the service we provide to our customers.

We continue to take a surgical approach to pricing the renewal of existing business with embedded rent escalation that reflects the current operating environment, and we continue to price new business with a forward view of our cost structure and the current market rates. Lastly, this past January, we implemented the majority of our annual General Rate Increases, or GRIs, for 2024.

Within our Global Warehouse segment, we had no material changes to the composition of our top 25 customers, who account for approximately 49% of our Global Warehouse revenue on a pro forma basis. Our churn rate remained low at approximately 3.2% of total warehouse revenues, consistent with historical churn rates. Given our strong operating metrics, we are continuing to accelerate the underwriting process and evaluating development opportunities across the 3 primary areas of focus that George has mentioned previously: our CPKC and DP World collaborations, expansion projects and customer-dedicated build-to-suit developments. Combined, this macro backdrop, along with our strengthened development platform, positions us well to capitalize on these potential opportunities.

Let me comment on today's announcement. First, we are excited about announcing our plans to build a conventional, multi-customer major market distribution center on CPKC's intermodal terminal in Kansas City. That will be approximately 22,000 pallet positions and 14 million cubic feet for a total investment to be approximately $130 million. This facility will be anchored by some of the world's largest protein, dairy and produce customers. We expect to break ground on this facility in the second quarter of 2024.

The combination of the location of this facility and the value-added services we are offering is the first of its kind in the cold storage industry, and we are incredibly proud of this accomplishment. The unique services offered in this facility include inspection and free clearance of products shipping across the U.S.-Mexican border. By utilizing our facility and the associated services we offer, along with CPKC's rail, our mutual customers get the benefit of reduced transit times and reduced transit costs while at the same time utilizing less energy and reducing their carbon footprint.

Also in December, we announced our plans through our RSA JV to build a conventional, multi-customer major market distribution center in Dubai at DP World's Port Jebel Ali Free Zone. This facility will be approximately 40,000 pallet positions and 8 million cubic feet, and we estimate this total investment to be approximately USD 35 million. The facility will be anchored by global food producers exporting products into the Middle East, North Africa and India, along with local market producers and distributors. We expect to break ground on this facility in April of this year.

The combination of Americold's global cold chain infrastructure and value-added services with DP World's port and logistics infrastructure is expected to create a global end-to-end cold chain that unlocks unprecedented value for global food customers. Over the next 5 years, we expect $500 million to $1 billion of development opportunities combined from the CPKC and DP World partnerships.

Second, as it relates to expansions. First, in the fourth quarter, we began ramping volume in our newly expanded facility in Spearwood, Australia. This automated expansion was completed on time and on budget and is supporting both food manufacturing and retail customers. The facility is ramping ahead of plan driven by both customer demand in the market and the high level of service the automation is providing.

Second, we are making progress on our 11,000 pallet position expansion in Dubai and our RSA JV that we broke ground on in the third quarter of 2023. And third, we are expecting to begin construction on our 37,000 pallet position expansion at our Allentown, Pennsylvania site in the second quarter of this year. In addition to these in-progress expansions, we are also currently underwriting several additional new expansion projects in markets where demand currently outstrips capacity. Expect more announcements in the coming quarters.

Our third development priority is our customer-dedicated build-to-suit facilities. The pipeline here continues to grow and progress as customers refocus their efforts on long-term planning. Our long-term relationships with these customers position us well to secure these build-to-suit opportunities.

Finally, let me provide an update on our 2 recently completed customer-dedicated automated facilities located in Lancaster, Pennsylvania and Plainville, Connecticut. As a reminder, these retail distribution centers are highly automated sites for one of the world's largest grocery retailers that combined will serve approximately 750 individual stores in the Northeast and mid-Atlantic U.S.

As you will see in our IR supplement on Page 39, we've extended the expected stabilization dates to the third quarter 2025 for the Pennsylvania facility and to the fourth quarter 2025 for the Connecticut facility. We made the decision in consultation with our retail customer, and we felt it was prudent to extend our ramp-up times and our stabilization dates due to the following 2 reasons.

First, the work being done inside these facilities is individual case pick selection, which is being completed by our automation systems. This is a high level of complexity that is taking some additional time to achieve our desired service levels. And second, it is taking additional time for these facilities to be integrated into our customer's supply chain. The decision on the timing of adding new volumes is one we make jointly with our customer, and we are taking the necessary time to ensure a smooth transition.

While this change impacts our overall non-same-store pool NOI in 2024 due to the shift in timing, we strongly feel it is the appropriate approach, and that is reflected in our 2024 guidance. Please note that our stabilization return expectations have not changed, and we look forward to servicing our customer and delivering on the expected returns outlined for these projects.

In summary, 2023 was a year where we added tremendous value for our customers. And our customers responded by awarding us record levels of new business that led to our infrastructure reaching record occupancy and commitment levels. Five new automated facilities were completed, the announcement of 3 new development projects, the signing of our partnership deals with DP World and CPKC and now the announcement of a new development in Kansas City. We are able to continue to price the business to reflect the value that we're creating and deliver on both our customer service and our commercial objectives. Now I'll turn it over to Jay.

[Jay Wells, executive]

Thank you, Rob. Before commenting on our 2024 guidance, I want to say that I'm honored to have recently joined Americold as CFO, and I look forward to working with the team to continue to strengthen the company's financial foundation and position the business for future success. I also look forward to getting to know the investment community over the next several months.

Moving to our balance sheet. At the end of the quarter, total net debt outstanding was $3.2 billion. We had total liquidity of $797 million, consisting of cash on hand and revolver availability. Our net debt to pro forma core EBITDA was approximately 5.6x. And as Rob discussed, we have announced our expansion in Allentown, Pennsylvania and our greenfield development in Kansas City, Missouri, both of which are expected to ramp up spending in the second quarter of this year. Please see Page 39 of the IR supplement for additional details on our development projects.

Turning to our full year 2024 guidance. We expect AFFO per share in the range of $1.32 to $1.42. Before reviewing the individual components of this guidance that are set forth on Page 42 of the IR supplement, let me quickly comment on the new 2024 same-store pool for the Global Warehouse segment.

Our new pool is now 227 facilities, which is approximately 95% of the total number of properties in our warehouse segment. A summary of the 2024 same-store pool historic performance for 2023 is presented on Page 38 of the IR supplement. We have 10 facilities that are in our 2024 non-same-store pools.

Now turning to the individual components of our AFFO guidance and starting with our Global Warehouse segment. We expect full year 2024 same-store constant currency revenue growth to be in the range of 2.5% to 5.5%. Let me provide more detail around the key drivers of this growth. With our segment occupancy and throughput volumes, we expect economic occupancy to be in the range of flat to a decline of 100 basis points compared to 2023 as we are lapping a record-setting year for occupancy and are expecting to continue to see a temporary change in end consumer demand in the first half of 2024 due to the challenging economic environment, partially offset by the benefit of recent commercialization efforts.

We expect a slight decline in throughput volumes of 1% to 3% as end consumer demand has slowed and basket sizes have shrunk due to the current economic environment. With respect to pricing, we expect constant currency rent and storage revenue per economic occupied pallet growth to be in the range of 3% to 4%. We expect constant currency service revenue per throughput pallet growth to be in the range of 7% to 8%. The pricing guidance reflects our continued pricing and power surcharge initiative to cover known inflation. It also reflects our annual contractual escalation and GRI step-ups and the commercialization of market-based pricing for contracts that we underwrite or renew.

For the full year, we are now expecting same-store constant currency NOI growth to be in the range of 6.5% to 10%, which is 400 to 450 basis points higher than the corresponding revenue growth.

With regards to the new 2024 non-same-store pool, as can be seen on Page 38 of the IR supplement, the new non-same-store pool generated negative $12 million of NOI for the full year 2023 and positive $4.7 million of NOI in the fourth quarter of 2023 with the fourth quarter results being impacted by a short-term reduction in expense. For the full year 2024, we expect the new non-same-store pool to generate NOI in the range of negative $3 million to positive $9 million. As Rob mentioned earlier, we have extended the stabilization dates for our Pennsylvania and Connecticut facilities to late 2025, and our guidance reflects the impact of this change.

Turning to our managed and Transportation segments' NOI. For the full year, we expect these segments combined to generate approximately $45 million to $50 million of NOI compared to approximately $48 million of NOI in 2023.

Turning to our SG&A expense. For the full year, we expect total SG&A to be in the range of $247 million to $261 million, inclusive of $23 million to $25 million of stock compensation expense and $5 million to $7 million of Orion amortization. Similar to how we exclude stock comp expense from our total SG&A expense, we will also exclude this amortization charge to arrive at what we call core SG&A expense. For the full year, we expect core SG&A to be in the range of $219 million to $229 million. This range is higher than our 2023 core SG&A expense of $203 million primarily due to higher costs associated with investment in cybersecurity measures and additional investments resulting from Project Orion's move to a SaaS environment. Speaking of Project Orion, we continue to make good progress and remain confident that Project Orion will deliver the benefits previously discussed.

Turning to our interest expense. For the full year, we expect interest expense to be approximately $141 million to $149 million. This range is higher than our 2023 interest expense of $140 million primarily resulting from lower interest capitalization as we completed a significant number of developments last year. With respect to full year cash taxes, we expect 2024 cash tax to be approximately $9 million to $12 million. As a reminder, most of the corporate income taxes we pay at Americold relate to our international operations.

Turning to our maintenance capital expenditures. For the full year, we expect this investment to be approximately $80 million to $90 million. In 2024, we expect to announce development starts aggregating between $200 million and $300 million. Please keep in mind that our guidance does not include the impact of acquisitions, dispositions or capital markets activity beyond that which has been previously announced, and please refer to the IR supplement for detail on the additional assumptions embedded in this guidance.

Before I turn the call back to George, I want to discuss the $237 million noncash goodwill impairment that we took in the fourth quarter of 2023 related to our European warehouse business. The goodwill impairment was driven by higher interest rates and a weakened macroeconomic environment in Europe. Please note, despite the goodwill impairment, in 2023, we grew the European warehouse business NOI by approximately 32% and expect this business to continue to deliver strong results.

Now let me turn the call back to George for some closing remarks.

[George Chappelle, executive]

Thanks, Jay. There is a lot to be proud of in 2023 such as growing AFFO per share of 19% when adjusting for the impact of the cyber event and the exit of a large retail customer in our third-party managed business while setting records in economic occupancy in the fixed commit contracts, completing 5 automated developments and increasing services margins in the face of declining throughput, all done with an eye towards building reliable and predictable earnings.

As we start 2024, our development strategy is coming to life with our 2 strategic partnerships delivering high-quality growth opportunities that we are now turning into reality. As evidenced by our development guidance, we expect a very strong year for low-risk, accretive development starts. Our internal growth is underpinned by record-setting occupancy in fixed commit contracts in addition to services margin expansion supported by best-in-class labor management processes and tools that will not only add tens of millions of warehouse services NOI but do it in a way that's predictable and sustainable even as throughput is variable.

All of this is enabled by the best-in-class customer service our 15,000 associates around the world deliver day in and day out. To our associates, I say thank you for all that you do in support of our customers and our company. Thank you again for joining us today, and we will now open up the call for your questions. Operator?

[Operator]

[Operator Instructions] The first question comes from Nick Thillman from Baird.

[Nicholas Thillman, analyst]

Maybe just touching a little bit on throughput and particularly, just the commentary of now being down year-on-year after maybe in the third quarter, you guys mentioned the potential build in the second half of the year. Maybe give a little more clarity on that, maybe the cadence on that? And also, if you're seeing any differentiation between your facilities maybe at the upper end, near the producer and then more like end consumer, if there's any variability there?

[George Chappelle, executive]

Yes. Thanks for the question, Nick. I would say, no, there's no variation in terms of where the facilities are in the supply chain. As you know, the supply chain works pretty much in unison. But I would say on throughput, we still expect a very weak first half of the year and a much stronger second half of the year.

You're right, at the midpoint -- we're guiding at this point down 200 basis points year-over-year, at the midpoint. But we do think throughput is going to be a real challenge in the first half. And getting all the way back in the second half is probably a pretty long put, to be honest. I think we get most of the way back, at least on what we know today, and that's where the guide has landed.

[Nicholas Thillman, analyst]

That's helpful. But maybe part -- pairing that a little bit with what -- the occupancy commentary being down -- or flat to down slightly next year. Is there any concern around throughput, maybe people starting taper expectations for cold storage demand and maybe occupancy could bleed from here as we're looking out into '25? Or maybe what are the thoughts your customers are having on expansions at this point?

[George Chappelle, executive]

Well, occupancy, as you know, we set a record year-over-year at over 84%, up 400 basis points from our previous high. We're clearly stealing market share across the network. I mean the frozen food industry isn't growing at that rate. So we have stolen a lot of market share over the last 4 quarters with 4 record occupancies, and we're guiding to just 50 bps down at the midpoint from a record occupancy. So we'll have our second best record occupancy, I guess, with this guide.

So we don't have occupancy concerns at all. And we do believe that when throughput comes back, we'll see a lot of demand for increased builds. We just announced an expansion in Pennsylvania, as you know. We have our CPKC build for us kicking off and DP World opportunities across the world. So we're very bullish on our development opportunities. We're very bullish on our occupancy. Throughput is the weakness, it has been. But we think second half of the year, we finally make some progress coming back.

[Robert Chambers, executive]

And the only thing I would add is our development pipeline remains well over $1 billion. So it is as robust as it's ever been.

[Operator]

The next question comes from Mike Mueller from JPMorgan.

[Michael Mueller, analyst]

I guess on the development front, can you give us a sense as to -- should we be thinking of all new development for the foreseeable future coming via the 2 development partnerships and really only expansions being on balance sheet? Is that the right way to think of it?

[George Chappelle, executive]

No. No, that's not the right way to think about it, Mike. For instance, the CPKC development is on balance sheet. The JVs are only right now with a couple of DP World developments. One JV we started in Dubai. The second goes into our Dubai build. But you shouldn't even think of the DP World builds as all JVs. So DP World and CPKC opportunities, you should think of as just developments through another strategic partnership, just like a customer build or an expansion.

You know we announced some expansion, customer-dedicated builds, there are a lot in the pipeline. Rob just quantified the pipeline and in there are customer-dedicated builds. I don't think many customers are really going hard on builds at the moment with throughput where it is and a consumer that lacks the disposable income they once had. So I would expect customer build development is probably not in the first half of the year, but they're certainly still in the pipeline. And when the economy and the consumer gets a little more healthy, we expect those to roll in right along our DP World and CPKC developments and expansions we still have underwriting.

[Operator]

The next question comes from Jessica Zheng from Green Street.

[Jessica Zheng, analyst]

So I noticed you're projecting a much faster stabilization time line for the new Kansas City project versus your other conventional projects. Could you kind of walk us through the reasoning there? And do you expect similar lease-up time frame for most of your other CPKC projects or DP World projects?

[George Chappelle, executive]

I think that the CPKC projects should follow a similar time line to Kansas City because they're all going to fall into a certain category of very high churn, almost cross-stocking type operations where you're taking truckloads of product and containers and reloading and restaging onto rail and vice versa on the way back from Mexico. So I would expect the facilities in the CPKC environment to all match a certain profile and match the CPKC stabilization dates fairly close. It's not -- they're not going to be identical, but it's going to be very similar.

They'll have almost nothing in common with the DP World initiatives. It's a different supply chain solution driven by a different supply chain process, over sea versus over rail. But they, in turn, will look very similar because they're satisfying a different need. So I'd say within each partner, they'll look very similar, but there aren't various similarities to -- amongst partners, if that makes sense.

[Jessica Zheng, analyst]

Okay. Great. That's very helpful. And then just shifting gears a bit to food production volumes. Broadly speaking, where do you think food production volumes are today versus optimal levels? Could producers start cutting back on production volume if the slowdown in demand persists?

[George Chappelle, executive]

Well, I would say right now, production volumes are at very low levels. I mean we have the weakest time of the year, which is the first quarter, with a very weak consumer. So I would say production volumes are very low. We have said that in the second half of the year, we expect a pickup in consumer demand and a corresponding pickup in manufacturers producing, and that's the way we laid out our guidance.

What I will say is coming out of CAGNY this week, which is where a lot of major food producers have their first annual investor conference, there was a sentiment pretty much across the board that manufacturers thought the second quarter could be a little better than we see it. It's relatively new news. We think if that were to occur, that helps us a lot and would be incremental to what we're looking at today because, again, we're skewed more towards the second half of the year. So that's relatively new news just this week out of CAGNY, but I was very pleasantly surprised to read those comments coming out of CAGNY and see that there is some kind of consensus around maybe a better second quarter than we were planning on. So that's probably the bright spot in all of this, but again, that's coming out of CAGNY this week. So it will be interesting to see how things shape up in the coming weeks.

[Operator]

The next question comes from Samir Khanal from Evercore.

[Samir Khanal, analyst]

Can you walk us through the trends in throughput in 4Q that you saw kind of on a monthly basis and kind of what you saw into January? Because when I listened to the food manufacturer sort of, let's call it October, November time period, they saw a bit of improvement. So I'm just trying to understand how you are sort of still down about 7% to 8% versus their numbers being much better.

[George Chappelle, executive]

Yes. No, good question, Samir. I would say the way it materialized, and I think I know where you're going in terms of the LA REIT conference that we attended. I personally wasn't there, but obviously, I understand the messaging. So when we get into the fourth quarter, October and the first part of November looked really good. I mean it looked really good. And even going into Thanksgiving, they've looked reasonably good. And then what we saw in the network was going into December, it was very clear to us that manufacturers were geared up to produce pretty much what they could sell in 2023. And once they cross that boundary, which would typically be somewhere in around middle of December, they shut it down really hard because there was no motivation, I believe, on their part to produce anything that was just going to go into inventory. They would much rather have the production volume this year than last year.

So I think that the earlier -- in the quarter, all of October, probably half of November was consistent with exactly what you just said and what we saw. And what really surprised us was a pretty hard shutdown in the second half of December, and that took the numbers a little south.

I will say, as we said in the script, on a year-over-year basis, comparison-wise, sequentially improved, 140 bps. So there was improvement in the quarter. It wasn't sequential because of the last month. But on a year-over-year basis, Q4 to Q3, the improvement was there. So not as much as we had hoped and not as much as we saw in the first half of the quarter, but it did materialize if you look at it year-over-year.

[Samir Khanal, analyst]

Okay. Got it. And then, I guess, my follow-up or second question here is I know you're hitting records in occupancy here. But why wouldn't occupancy continue to go up here, given you're pretty bullish about the overall business, fixed commits continue to go up? I'm just trying to understand how you get to that decline of 100 basis points in occupancy.

[George Chappelle, executive]

I just think that, look, we had a -- we blew away the record, right, of our economic occupancy, really, 400 basis points. What we want to see is throughput pick up, and we want to see turns pick up, and we want to see all the [indiscernible] pick up. I mean that's what we're looking for. Occupancy, I think we're at levels where we're not going to see huge growth. And quite frankly, keeping within 50 points of the -- 50 basis points of the record we just said, I think, is quite an accomplishment.

So the secret now is to get the throughput going. I don't think there's any motivation for manufacturers to build more inventory at this point. It would appear to us they have plenty, and certainly, retailers are no longer saying more inventory is needed in the system. What we need, I believe, now is higher throughput, and the occupancy will take care of itself. The fact that we're not declining, I think, is a testament to our assets and the market share we have stolen from competitors. Our goal to keep it this year is really, I think, what we need to do in occupancy and then get the throughput going.

[Robert Chambers, executive]

And Samir, if you remember -- and we mentioned this a little bit in George's prepared remarks, I mean, there was a countercyclical build this time last year. And so just kind of coming out of the gate early, the comp is a pretty challenging one, first quarter of the year.

[Operator]

The next question comes from Michael Carroll from RBC Capital Markets.

[Michael Carroll, analyst]

Could you provide some more color on the slower ramp-up that you're seeing in the non-same-store NOI pool? I know that the pool is changing versus the guidance that you provide in 2023, and that might be a lot of it. But is it also like the delay in the stabilization in Lancaster and Plainville? Is that like kind of the reason why you're seeing more of a flattish trend within those NOI results?

[George Chappelle, executive]

Yes. I'll hand it to Rob for a little more detail, Mike. But I think you just stated what I wanted to clarify. It's not the non-same-store pool, it's 2 properties in the non-same-store pool, which are very complex. I think I mentioned 75 million cases a year distributed when they're fully ramped up in the retail space where it's palleted and 100% cases out, et cetera. And so Rob will go into more detail, but I just want to clarify, it's 2 properties in the non-same-store pool. The rest of the non-same-store pool is performing very, very well.

[Robert Chambers, executive]

Yes. That's exactly right. I mean -- so our 2 customer-dedicated facilities in Pennsylvania and Connecticut, the most highly automated facilities that we have in our network, 100% case pick selection. Those are facilities that are directly servicing retail stores. So service level is incredibly important. And we've just made a joint decision with our customer that it's appropriate to make sure that we take the necessary time to ensure a smooth transition and the highest possible service levels. So we just anticipate ramping those facilities throughout the course of this year, which is a bit slower than prior expectations.

[Michael Carroll, analyst]

So why is it taking so long to ramp up those buildings? I can't remember if you delayed the stabilization on a couple of those projects already. Is this something different of why you're delaying the stabilization again?

[Robert Chambers, executive]

I would say it is something different. I mean the original reason why we had to delay these projects a bit was just simply because of the logistics of getting the components over into the country from Europe during COVID. So they were slower to come out of the ground because of COVID delays. Now what we're focused on is making sure that we're providing the right level of service as we burn in the equipment, which is very, very complex.

So these are -- it's 2 totally different reasons for why the projects are later to be delivered now than the original expectation. But as I said in the prepared remarks, we still have an extremely high degree of confidence of what we will deliver on our expected stabilization returns.

[Michael Carroll, analyst]

Okay. And then just last one real quick. I know, George, in your prepared remarks, I think you said that CPKC and DP World relationships, you see $500 million to $1 billion of opportunities there on the development side. What does that number pertain to? Is that the current projects you're considering today? Or is that just a longer-term target?

[George Chappelle, executive]

It's a combination of both, Mike. I mean we have the 2 we announced, the Dubai build, which is a JV with our partner, RSA, and obviously, with CPKC, Kansas City build. If you look at the pipeline we're working on right now, that would get you close to, let's say, the $300 million, $400 million, $500 million range. And we're scratching the surface on the pipeline. We don't have the pipeline fully built out for either partners.

So when we say $500 million to $1 billion, we're probably halfway there already just based on what we're researching and underwriting and building the business cases for. And the next tranche to get to $1 billion are opportunities that we haven't even started to uncover yet. So it's a really great relationship with both partners. They have some very good market intelligence on where we should hunt. And so far, it's been very accurate as you can see from 2 builds in a relatively short time with 2 strategic partners.

So we're very excited about it. We feel really good about the pipeline we quoted, and we're seeing really quality opportunities. So that's how we get to the $500 million to $1 billion.

[Operator]

The next question comes from Bill Crow from Raymond James.

[William Crow, analyst]

George, is the weakness of the consumer surprising you at all?

[George Chappelle, executive]

I would say, Bill, it's surprising -- I'm old enough to have been through this maybe once or twice before. And I would say no. I've seen volume decline in the face of a significant macroeconomic issue before. The consumers are sensitive to spending. It takes pretty big swings in the economy for it to show itself as wide as it has in this environment.

But if you look at interest rates and inflation alone, I think we can all understand how disposable income is at the levels it is. And people have to make choices. And part of that is spending less at the grocery store on discretionary spends, which aren't happening. So that's consistent with what all our manufacturing partners are seeing, consistent with what our retail partners are seeing.

We've called out the second half of the year, as I've said before, it's not typical for the first half of the year for the food business to see a big influx of demand. There are very few holidays to center that around. And that's why the second half of the year is typically a better time of the year to see a recovery.

But again, I'll mention that CAGNY this year was held. It's the biggest food investor conference of the season. And several large manufacturers were more bullish on the second quarter than the second half. So there's a little bit of hope there and -- that we see an earlier recovery than we've built into our guidance, but that's very new news, and it remains to be seen how it plays out.

[William Crow, analyst]

And you can give me a shorter answer to this, but I want to reframe that question just a little bit. Does the consumers' reaction to discounting at the retail level -- is that different than what you've seen before? Because it didn't seem to stimulate demand like it has before.

[George Chappelle, executive]

No, it wasn't different than I've seen before. I think it did stimulate demand, quite frankly. If you look at year-over-year, we were down 900 bps in the third quarter. Year-over-year, down 760 bps in the fourth quarter, so an improvement of 140 bps. I think without the promotional spending that every large manufacturer calls out, by the way, in their releases because it was not an insignificant amount of spending. No, I think it did what it was supposed to do, and I think it would have been worse than I just described had they not done it.

[Operator]

The next question comes from Craig Mailman from Citi.

[Craig Mailman, analyst]

George, maybe just following up with all this discussion in throughput and commentary from some of your producer customers. I mean it doesn't feel like much has changed for the consumer. It feels like there's ebbs and flow when your customers ramp production and then throttle it back. I mean how do you feel confident that the back half of the year, given sort of the limited visibility, is going to see this ramp if the consumer outlook doesn't improve significantly?

[George Chappelle, executive]

I'm basing it on a couple of things, Craig. One is the sentiment of our larger customers, both retail and manufacturing. And two is the economic environment hopefully improving in the second half with interest rate reductions planned, at least at one time a little more bullish, I get that, but still planned for the second half of the year that would free up disposable income for consumers. Generally, that builds consumer confidence, and that generally builds throughput increases in our customers.

So it's based on the economic news of interest rate declines, which, again, may be a little less bullish than it once was, but still people are saying in the second half of the year, it will come. And it also comes from coming into the part of the year when you should see natural growth with summer grilling season and then the holiday season. So it's based on a number of factors in our largest partners. And the economic news, we still believe, will happen.

[Craig Mailman, analyst]

Okay. And then from a guidance perspective, it sounds like the G&A increase, it's predominantly IT spending related to kind of cyber initiatives. Is that kind of sticky G&A that you guys are going to be spending year in and year out now and you're not going to back out related to the incident?

[George Chappelle, executive]

Yes. I'll hand this one to Jay. Go ahead, Jay.

[Jay Wells, executive]

It really is for additional cybersecurity, will continue to be in expense. So on that side, sticky. And related to Project Orion, we're moving from basically a server-based type IT approach to the cloud. And under the general accounting rules, you can capitalize it if you put it on a server and can touch it, but you don't capitalize it if you put it in the cloud. So it basically is going to be continued expenses because we're in a SaaS environment going forward.

[Operator]

The next question comes from Ki Bin Kim from Truist Securities.

[Ki Bin Kim, analyst]

So your economic occupancy dipped a little bit year-over-year, but your physical occupancy was down over 400 basis points. So a couple of questions. One, doesn't that physical occupancy declines eventually have -- weigh on economic occupancy? Obviously, if customers have just less inventory to store, I would imagine it would weigh on it. Yes. So let me stay with that one first.

[George Chappelle, executive]

Yes. I would tell you, Ki Bin, that in the first quarter, particularly, but the first half of the year, you should always see a gap between economic occupancy and physical occupancy because almost by definition, when you go to a fixed commit contract with us, you're reserving space for the second half of the year. I mean with most of our customers, that's true. There may be some that aren't as seasonal as others. But for most of our customers, they would be paying for space in the first quarter and then sometimes the first half of the year that they intend to use in the second half of the year. So I'll turn it over to Rob for a little more detail, but it's not unusual, and you should not expect really for economic occupancy and physical to be very close in the first quarter.

[Robert Chambers, executive]

Yes. And I would just add that as we look out over the course of the year, the conversations we're already having with our customers about either renewals of existing fixed commitments or the transition from a transactional environment into a fixed commitment scenario, we're very confident that, that percentage is going to continue to increase our fixed -- the amount of contracts under fixed commitment. So even if we see a little bit of dip in the physical occupancy, I think we'll overcome that through our continued progress that we'll make moving customers onto our fixed structure.

[Ki Bin Kim, analyst]

And how much is the European slowdown or the farmer protest seem to be growing? How much is that impacting your business?

[George Chappelle, executive]

Not at all. I mean right now, I think as Jay mentioned, we're very happy with the European business. We actually grew and aligned our European business last year, 30%. We plan on growing another 20% this year. And to make a further point on the business, we ended the year this year on an NOI basis. I think it was close to $10 million higher than when we bought the company. I mean so we've grown the business pretty significantly since we bought it.

I mean the impairment is a calculation that Jay explained, but we're very happy with the business. We're growing NOI year-over-year, which you'll see in the results pretty significantly. It's generating more profit -- significantly more profit than when we bought it. And we're on a very nice glide path in Europe, very bullish on it.

[Ki Bin Kim, analyst]

And if I can just squeeze a third one in. Going back to the G&A topic, your G&A in 2018 was $115 million. And for your guidance in 2024, you're looking at $255 million. I'm just curious like there doesn't seem to be a kind of like scalability or economies of scale with your G&A. Any kind of broad observations? I know there's cybersecurity and your transition to the cloud, but it just seems to be running hotter than I would say most people expected.

[George Chappelle, executive]

I can't take you all the way back to the beginning, but I can tell you that the 2 pieces we called out this year, I think we're very transparent on for a number of quarters. I mean we talked about cybersecurity investment back in the second quarter of last year, and we talked about that going into SG&A. And we've talked about our software being cloud-based, which from an accounting standpoint, means that the expense of that goes into SG&A and out of CapEx or OpEx.

So I just -- I don't have the data in front of me to go all the way back as far as we'd like. But I can tell you that recent increases are exactly around the 2 things we've highlighted for a couple of quarters now.

[Operator]

The next question comes from Josh Dennerlein from Bank of America.

[Joshua Dennerlein, analyst]

Just a follow-up on the throughput comments that you're flagging with a slowdown in mid-December, call it. Does the 2024 guidance assume like a pickup starting in 1Q from that minus 7.4%? Or I guess kind of what's the trajectory that you're factoring into guidance?

[George Chappelle, executive]

I would say that certainly not 1Q, we don't expect -- we're not modeling an improvement. 2Q, we're modeling the slightest of improvements, mostly because we do see that Memorial Day and then going to the summer should provide a natural lift. Now that could be better for the reason I mentioned earlier around CAGNY and a lot of the manufacturers there -- large manufacturers being more bullish on the second quarter throughput than I just described, but that's where our guide is.

And then the second half of the year is where all the growth is. So that's -- which gets us to our mid of down 200 bps. So again, it's really a second half recovery in our guide. And if the CAGNY recent news is real, that would be incremental to the guide because we do not have a lot of improvement in the second quarter, very little.

[Joshua Dennerlein, analyst]

Okay. No, that's helpful. And then I just want to -- maybe back to a question that was on the occupancy guide. It sounds like the occupancy assumption is like flat to down. I think in the past, you've kind of made a message that you could build occupancy, and that was kind of driven by like your kind of view of driving a higher profit per box. Just kind of trying to reconcile the 2 comments here. Is this kind of like the optimal occupancy for your boxes or something kind of...

[George Chappelle, executive]

No, no, we've said we can get to the low 90s and we can. It's simply that setting the record we have, which is -- again, I've mentioned it a couple of times, which is really stealing share. I mean the frozen food industry did not grow 400 bps in the second half of last year. So when you consider it that way, it has nothing to do with our ability to get to the low 90s. We know we can do that. We just don't know how much further we can go in this environment, setting the record we set and doing it the way we did. We're going to attempt to keep growing it. There's no question. But I think after the 400 bp improvement at any time in our history, we're just wondering how far we can go in the short term. That's all.

[Operator]

Thank you very much. Ladies and gentlemen, we have reached the end of the question-and-answer session. This does conclude today's conference, and you may now disconnect your lines. Thank you very much for your participation.