© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Thank you for standing by. This is the conference operator. Welcome to the Americold Realty Trust Second Quarter 2020 Earnings Call. As a reminder, all participants are in a listen only mode and this conference is being recorded. After the presentation, there will be an opportunity to ask questions. [Operator Instructions]
I would now like to turn the conference over to Scott Henderson, VP, Capital Markets and Investor Relations. Please go ahead
Good afternoon. Thank you for joining us today for Americold Realty Trust second quarter 2022 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.americold.com.
This afternoon's conference call is hosted by Americold's Chief Executive Officer; George Chappelle; Chief Commercial Officer; Rob Chambers; and Chief Financial Officer, Marc Smernoff. 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. Full definitions of these non-GAAP financial measures and reconciliations to the 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.
Thank you, Scott, and welcome to our second quarter 2022 earnings conference call. This afternoon, I will provide an update on the four near-term priorities that we are focused on, summarize our results and comment on recent external growth activity. I will then discuss our outlook for the remainder of the year. Rob will then provide an update on recent customer initiatives, and Marc will review our financial results in more detail.
Let me start with the four near-term priorities that we are focused on. First, we continue to make great progress in repricing our Warehouse business to offset inflationary pressures in our cost structure. Exiting the second quarter, we committed to covering all known inflation incurred through the end of the first quarter, which we have achieved. The progress of these price initiatives can be seen on Page 8 of our IR supplemental. Rent and storage revenue per economic occupied pallet in our same store on a constant currency basis increased by 6.6%. Service revenue per throughput pallet increased by 7.9%.
As a reminder, some of these increases were implemented during the second quarter, meaning the full run rate will not be seen until the third quarter results. As it relates to the second quarter, the majority of the inflationary pressures we saw were in power costs and in warehouse supplies costs. We have implemented additional targeted pricing and power surcharge initiatives to address this known inflation, and we will exit the third quarter at a run rate covering all known inflation incurred through the second quarter.
Moving through the third quarter, we expect the majority of the inflationary pressures to continue to be both in power and warehouse supplies. If this is the case, we will continue to revisit our pricing in power surcharge initiatives. Second, we continue to focus on labor management with the goal of optimizing our mix of permanent and temporary associates in our facilities, while also significantly reducing our turnover rate. Temporary associates cost more per labor hour and are less productive than permanent Americold associates. Higher turnover is also costly and drives inefficiencies in our business.
As a reminder, prior to mid-2021, in the aggregate, we were staffed at approximately 70% permanent hours to 30% temporary hours on our warehouse portfolio. Throughout the back half of 2021, this ratio move closer to 60-40. During the second quarter, we made significant improvement and returned to 70-30. However, our turnover rate is still significantly elevated when compared to both last year and pre-COVID levels. We ended June this year at an annualized turnover trend approximately 22 percentage points higher than that of June of 2021.
Compared to 2019, a pre-COVID year and more in line with historical levels, we were approximately 30 percentage points higher than 2019. While higher turnover rates can be expected during this environment as we work to increase our perm-to-temp ratio, we certainly are very focused on reducing this metric. Please keep in mind that a new associate is not fully productive for approximately three months. We expect to see continuing improvement throughout the year as a result of our team's efforts, but it will certainly take time during this challenging labor environment to continue to drive our perm-to-temp ratio and reduce turnover.
Third, we are focused on differentiating our platform by providing best-in-class customer service. While relying on temporary labor during 2021, we were less productive and less efficient, and we know it negatively impacted customer service. Additionally, throughout '21 and into 2022, we have had significantly higher turnover, which also negatively impacted customer service for the same reasons. Please note, as I said last call, I do not think these are Americold specific issues. I believe this labor market impacted all companies in the services industry that are dependent on skilled labor.
The benefit of a productive, stable and predominantly permanent workforce, fully trained on the Americold operating system is servicing our customers at best-in-class levels and, ultimately, leads to increased market share. Our final focus area is ensuring that our development projects are delivered on time and on budget and then deliver the appropriate returns. Our Dunkirk project became operational in the second quarter, on time and on budget, and is on track to stabilize as this flows in our IR supplemental. We continue to make progress in this area and look forward to successful delivery of our projects.
Turning to the current operating environment and our second quarter results. A significant amount of our food manufacturing customers are beginning to see some improvement in the labor market, which has enabled them to begin ramping up their production levels. Additionally, while end consumer demand for temperature-controlled food remains strong, the challenging inflationary market has started to change consumer behavior. Some consumers are buying less at the grocery store as they are stretched by inflation.
These two factors, increased production by our food manufacturers combined with slightly less consumer buying, has resulted in meaningful increases in both our physical and economic occupancy. For the quarter, in our same-store pool, we saw economic occupancy increase by 288 basis points over second quarter 2021. This is the first time economic occupancy has increased year-over-year since the second quarter of 2020. As we have discussed, economic occupancy improvement is very accretive to the bottom line. We are encouraged by this and believe this improvement is sustainable throughout the remainder of the year.
This occupancy improvement, which aligns directionally with the cold storage industry data provided by the USDA, demonstrates the mission-critical aspect of our infrastructure and services within the temperature-controlled food supply chain. Food manufacturers' product flows through our production advantage facilities, distribution centers and retail distribution centers, and then it ultimately arrives at a grocery store or restaurant where it can be purchased by end consumers.
On the cost side, while the majority of inflation is in our power and warehouse supply costs, we continue to see labor inflation in select markets. Additionally, even though we are moving more towards the historical perm-to-temp ratio in our staffing model, our turnover ratio is significantly elevated. This level of turnover negatively impacts our productivity and efficiency. It is also costly as we have to recruit, hire and train new permanent associates. All of these labor challenges are seen in our warehouse services margin.
For the quarter, our Global Warehouse same-store pool generated total revenue and NOI growth of 8.1% and 3.1%, respectively, both on a constant currency basis. AFFO per share was $0.27. The main factors that led to these results were a meaningful increase in pricing and occupancy, partially offset by continued inflation in our cost structure and labor inefficiencies in our services and warehouse business and the strengthening of the U.S. dollar.
Now let me turn to our external growth activity. We continue to execute on strategic investments and acquisitions that will help us better serve our customers on a global scale. Many countries within South America have a large agricultural and food-producing economies and have strong population growth. Today, we announced the recent formation of a Latin American focused joint venture with Patria, an experienced Brazilian-based private equity firm affiliated with Blackstone.
As a reminder, we are currently 15% partners with Patria in SuperFrio, a Brazil-focused JV. LatAm, the name for this new JV is focused on high-growth food production in Latin American countries outside of Brazil, such as Mexico, Chile, Uruguay and Colombia. LatAm has its own professional management team separate and apart from the SuperFrio platform. Under the terms of the agreement, the total equity commitment for this platform is just under $300 million, of which Americold's commitment is 15% or $45 million. Americold has a seat on the Board and retains the exclusive option to acquire our partner's 85% ownership starting in 2026.
The investment period is expected to be over the next four to five years. Americold has recently contributed its Chilean asset to seed the JV, which has effectively prefunded the majority of our equity commitment. We are very excited about this new growth opportunity. Additionally, during the quarter, we completed the purchase of one port facility in Poland that we previously leased. As we've discussed in the past, we would prefer to own versus lease as it provides us with more control over our facilities over the long term.
Also subsequent to quarter end, we acquired DeBruin cold storage in Tasmania, Australia. DeBruin consists of one facility totaling approximately 2 million cubic feet, and it is the largest cold storage operator in Tasmania. It is strategically located at the port of Bernie and near the port of Devonport. DeBrun's customer mix includes dairy, potato and seafood producers and a significant amount of these customers are current customers of Americold.
Additionally, this acquisition has enabled Americold to already win new business from a large quick service restaurant customer who is looking for a partner with the footprint in both Victoria and Tasmania. Finally, subsequent to quarter end, we also completed the purchase of one facility in New Zealand that we previously leased.
On to full year guidance. At this point, we are maintaining our full year 2022 AFFO per share guidance in the range of $1 to $1.10. Marc will provide commentary around the individual components. We are encouraged by the recent success of our pricing initiatives and the improvement in occupancy and its positive effect on our core warehouse business.
While we expect this to continue throughout the remainder of the year, the operational headwinds are as follows: a continued reduction of throughput volumes as inflation impacts and consumer buying habits.
Continued inflation in our business, primarily power and warehouse supplies in select labor markets with continued pricing offsets that will lag 30 to 60 days in most cases. Labor and efficiencies and elevated turnover in our services in the warehouse business due to a challenging labor market and uncertainty around COVID continues to be a potential disruption.
Below the NOI level, we are also seeing the following macroeconomic headwinds: higher interest expense on our floating rate debt due to increasing base rates and a stronger U.S. dollar, which negatively affects earnings from international markets due to currency translation.
Finally, as it relates to ESG, which is a key priority for us here at Americold, I am happy to report we recently completed our submission to the Carbon Disclosure Project in GRESB for 2022. We expect to receive our GRESB score in the fourth quarter, and look forward to receiving our first CDP score later this year.
With that, I will turn it over to Rob.
Thank you, George. For the second quarter, we are pleased to report total company revenue and NOI growth of 11% and 8%, respectively. This revenue and NOI growth occurred across all three segments, primarily driven by our warehouse business. We are seeing positive results in the top line fundamentals in our warehouse business across both food manufacturers and retailers.
First, we have seen a strong improvement in economic occupancy, and we believe this is sustainable for the rest of the year. Second, we continue to be successful with our pricing initiatives. As we have discussed on previous calls, we will continue our pricing initiatives within our Global Warehouse business in order to address known cost increases from inflation.
During this inflationary period, we must do this in order to protect our margin dollars. We successfully exited the second quarter with price increases in place in order to cover known inflation from the first quarter. Some of these increases were implemented during the second quarter, meaning the full run rate will not be seen until third quarter results.
As George mentioned, the progress of these price initiatives can be seen on Page 8 of our IR supplemental. Rent and storage revenue for economic occupied pallet in our same-store on a constant currency basis increased by 6.6%. Service revenue per throughput pallet increased by 7.9%. Conversations with customers continue to be productive around our pricing initiatives.
We are being very targeted and data-driven in our approach. As a result, we continue to demonstrate Americold's ability to protect margin dollars through pricing increases to offset inflationary pressures. With occupancy now beginning to return, our focus is on ensuring we provide best-in-class service.
On to our commercialization efforts. At quarter end, within our Global Warehouse segment, rent and storage revenue from fixed commitment contracts increased on an absolute dollar basis to $379 million compared to $333 million at the end of the second quarter of 2021. On a combined pro forma basis, we derived 40.5% of rent and storage revenue from fixed commitment storage contracts.
While we have consistently grown the absolute dollars across both our legacy and acquisition businesses, we are pleased to see this metric back in the 40s. As a reminder, it dipped into the mid-30s when we acquired Agro at the end of 2020. Enhanced commercialization, which includes our fixed commitment initiatives, is a critical component of our M&A strategy.
We look forward to continuing to improve this metric. Within our Global Warehouse segment, we had no material changes to the composition of our top 25 customers who account for approximately 48% of our global warehouse revenue on a pro forma basis. Additionally, our churn rate remained low at approximately 3.3% of total warehouse revenues, consistent with historical churn rates.
With regard to our development projects, our Dunkirk project, a dedicated build-to-suit facility for a large private consumer packaged goods manufacturer became operational this quarter. This was a conventional build for a top 25 customer who is on a fixed commitment pricing structure with an initial 20-year term. This is a great example of how we continue to work with our customers to find ways to support their production and supply chains with long-term critical infrastructure.
In the second half of this year, we are completing one of the two highly automated build-to-suit facilities for an industry-leading global retailer. This facility is in Pennsylvania. The second facility in Connecticut will be completed next year. We look forward to getting these sites operational, and these will showcase Americold's leading position as a best-in-class operator and owner of highly automated sites for retail customers.
Additionally, in the second half of this year, we are completing two conventional multi-tenant developments in Ireland and Spain. Our business development team has made significant progress in signing up new and existing customers to take meaningful pallet positions in both of these facilities.
Lastly, I want to thank our Americold associates, who allowed us to deliver a successful 4th of July holiday for our customers and end consumers. Our infrastructure and service offerings continue to be best in class, and that certainly is resonating with our customers. As we have previously stated, there will be clear winners and losers as occupancy begins to recover. We are already seeing business increase with new and existing customers across our portfolio.
Americold continues to be well positioned to earn a significant share of more volume recovery based on our long track record of customer service, our innovative solutions and our comprehensive and integrated network. Our pipeline for both global development and business plan for existing infrastructure remains strong as customers continue to look for ways to drive efficiencies into their supply chains. Americold is committed to supporting those initiatives, and we remain grateful for the opportunity to facilitate our customers' growth.
Now, I'll turn it over to Marc.
Thank you, Rob. For the second quarter, we reported total company revenue of $730 million, which reflects an 11% increase year-over-year, and, as Rob mentioned, growth across all segments of our business, principally driven by our Warehouse segment. Total company NOI was $168 million, an 8% increase, reflecting an improvement in the operating environment and investment activity, offset by higher costs and inefficiencies. Our total company NOI margin decreased by 66 basis points to 23.1%.
Corporate SG&A totaled $56 million for the second quarter of 2022 as compared to $42 million for the prior year. As we discussed on our last call, and in line with our expectations, we had increases in our annual performance-based bonus expense and in our stock compensation expense, which was primarily driven by the one-time retentive stock grant awarded in the fourth quarter of 2021. Additionally, as discussed and in line with our expectations, we had increases in our IT spend, insurance, legal and professional fees and travel combined with other inflationary pressures, partially offset by synergies from recent acquisitions.
Core EBITDA was $120 million for the second quarter of 2022, an increase of 1.6% year-over-year. Our core EBITDA margin decreased 160 basis points to 16.5%. Our second quarter AFFO was $74 million or $0.27 per diluted share compared to $72 million or $0.28 per diluted share in the prior year quarter.
Now I'll turn to our results within our Global Warehouse segment. For the second quarter of 2022, Global Warehouse segment revenue was $564 million, an increase of 12% compared to prior year. This growth was primarily driven by our pricing initiatives and economic occupancy improvement in the same-store pool, paired with the recently completed acquisitions and the ramp of recently completed development projects.
Warehouse segment NOI was $151 million for the second quarter of 2022, an increase of 4.6%. This increase was a result of the same drivers above offset by lower services contribution in our same-store pool. Additionally, approximately $2.4 million in startup costs related to our development projects are also weighing on these results. Global Warehouse segment margin was 26.8% for the second quarter of 2022, a 191-basis-point decrease compared to the same quarter of the prior year.
Now I'll turn to our same-store results within our Global Warehouse segment. For the second quarter of 2022, our same-store Global Warehouse segment revenue was $498 million, up 5.9% year-over-year and 8.1% on a constant currency basis. This was driven by increased revenue in both rent and storage and warehouse services.
Our actual results were partially offset by the strength of the U.S. dollar. Same-store Global Warehouse NOI was $144 million, up 1.6% year-over-year and 3.1% on a constant currency basis. This was driven by NOI growth in rent and storage business, offset by lower contribution from the warehouse services. Same-store Global Warehouse NOI margin decreased 123 basis points to 28.9%.
For the second quarter, same-store global rent and storage revenue increased by 8.7% year-over-year and increased by 10.7% on a constant currency basis. This was driven primarily by rate escalation and a meaningful increase in economic occupancy. Our same-store economic occupancy was 78.1%, which reflects an increase of 288 basis points from last year's second quarter economic occupancy.
As George mentioned, the economic occupancy increase was driven by increased production by our food manufacturers combined with changes to end consumer buying behaviors due to inflationary pressures. The occupancy increase was coupled with a 6.6% increase in our constant currency same-store rent and storage revenue per economic pallet driven by our pricing initiatives and rate escalations.
Our same-store global rent in store NOI increased by 10.2% year-over-year and 12% on a constant currency basis. This was due to the previously described revenue growth, partially offset by the inflationary pressures on costs inclusive of power, facility maintenance, property taxes and other facility costs year-over-year. Same-store global storage NOI margin increased 82 basis points to 61.9% due to the same factors.
As we have said previously, economic occupancy growth is highly accretive to our overall results. Same-store Global Warehouse services revenue for the second quarter increased by 3.9% year-over-year and 6.2% on a constant currency basis. This revenue growth was driven by our pricing initiatives, which increased our constant currency same-store warehouse services revenue for throughput pallet by 7.9%. These results were partially offset by changes in business mix and a 1.5% decline in throughput, which includes the impact of the inflationary environment on end consumer demand.
Our same-store warehouse services NOI margin was 4.6% for the quarter, a decrease of 375 basis points from the prior year. This was primarily driven by higher labor costs and lower efficiencies due to the current labor environment and the time it takes to train new associates on the Americold operating system, combined with the higher cost of warehouse supplies and other service costs due to elevated inflation.
Regarding our recent investment activity, as George mentioned, we closed on our Polish lease buyout for approximately €7 million on April 28. We closed on our LATAM JV on June 1. Subsequent to quarter end, we closed on our Australian acquisition for approximately AUD25 million on July 1. Finally, we closed on our New Zealand lease buyout and renovation for approximately NZD18 million on August 1. The acquisition in two lease buyouts were funded using a combination of cash and our multicurrency revolver.
Now turning to our balance sheet. At quarter end, total debt outstanding was $3.2 billion. We had total liquidity of $597 million, consisting of cash on hand and revolver availability. Our net debt to pro forma core EBITDA was approximately 6.6x. At this point, we have invested approximately $463 million in development projects in process, which reflects almost two turn of leverage. We have approximately $130 million remaining to invest on announced in-process development projects over the next 18 months.
Now let me discuss our outlook for the remainder of 2022. We are maintaining our guidance for AFFO per share in the range of $1 to $1.10. While we are encouraged by the improvement in economic occupancy and our continued pricing initiatives, headwinds remain which impact bottom line results. Let me provide some additional commentary around our guidance.
At the revenue and NOI level, we expect economic occupancy improvement in our same-store pool to be in the range of 100 to 300 basis points for the full year. We expect throughput volume declines of 1% to 3% for the full year. Given these expectations, combined with the inflationary environment and our ongoing pricing initiatives, for the full year on a constant currency basis, we expect same-store revenue growth will exceed our previous guidance.
We now expect it to be 3% to 5% positive. We expect to see NOI growth as well. However, we expect this growth to be 0to 200 basis points lower than the associated revenue growth. In the non-same-store pool, we continue to see ramp-up costs as we work to stabilize our recently completed developments and start-up costs in our soon-to-be completed developments. These are headwinds to our overall warehouse segment NOI growth.
Below the NOI level, at quarter end, our floating rate debt exposure was 30%. We expect continued headwinds from increasing base rates for the second half of the year. We expect continued currency translation headwinds due to the strengthening of the U.S. dollar against most currencies in our business. Year-to-date, our AFFO per share was negatively impacted by approximately $0.01 due to FX with this accelerating in the second quarter.
Finally, please keep in mind that our guidance does not include the impact of acquisitions, dispositions or capital markets activity beyond which has been previously announced. Please refer to our IR supplemental for detail on the additional assumptions embedded in this guidance.
Now let me turn the call back to George for some closing remarks.
Thanks, Marc. Overall, during this quarter, we made significant progress on our four near-term priorities. We also saw economic occupancy improvement in our warehouse business, and we continue to demonstrate that we can achieve pricing in our warehouse business to overcome inflation. We still have plenty to do, but I want to thank all of our associates for their hard work and contributions to our performance. I am extremely proud of their efforts and cannot express my gratitude to them enough.
Thank you again for joining us today, and we will now open the call for your questions. Operator?
Thank you. We will now begin the question-and-answer session. [Operator Instructions] Your first question today comes from Dave Rodgers. Please go ahead.
Marc, I wanted to start with you on the revenue guidance. Thanks for the additional details that you just provided a moment ago. I guess I wanted to dive in, you have 7% year-to-date on a constant currency basis, and the guide is really 3% to 5%. So despite the components that you gave us, what's the challenge that you see in the second half of the year? It sounds like rate continues to work well. You've already got a good jump on occupancy. I know throughput is an offset. It just seems like that's too much of an offset in the guidance and maybe there's some conservatism. So I'd love a little additional color, please.
Yes. I think the color is, as we ramp through the year, our pricing initiatives really started very late in the third quarter and kind of ramp through the fourth quarter. So as we move throughout the year, going to -- the comp gets tougher from a top line revenue growth just as we start to ramp against our pricing initiatives.
I mean do you expect to like lose occupancy? Or does the occupancy improvement in the second half of the year slowed down for you guys as you kind of look out?
No, it's not so much. I think our occupancy guidance for the full year is roughly as we quoted. We're looking for roughly 100 to 300 basis points of overall occupancy growth year-over-year. But I think where the challenge is when you look at the actual rate comp will start to slow down. So, you'll get benefit from occupancy improvement on overall revenue, but the comp on revenue per either throughput pallet or through economically occupied pallet gets tougher as we get later into the year.
Okay. Maybe a follow-up for you, George. I wanted to ask with your crystal ball kind of what you see as the trajectory of the recovery and stabilization for the business? I think you've talked before, it could take a couple of quarters, could take six or eight quarters. As you look at labor for the manufacturers, as you look at your own labor and you've made some strides and have some more to go, what do you sense is kind of the trajectory of the recovery for the business when you look out maybe late this year or sometime into next year, et cetera?
Well, it's clear to me that full recovery is not this year. I mean we're seeing labor improvement, but I classify it as more of a trickle than a constant flow. It's great that production has increased, but it's increased a minimal amount. I think consumer demand being down a little bit is helping build inventory. I think that's a good thing for the food supply chain in the short term. But I don't see full recovery this year, and I'd even push it out to mid next year, if I had to guess.
Your next question comes from Mike Mueller with JPMorgan. Please go ahead.
I just have a question. You were talking about, I guess, higher inflation, causing changes in consumer habits and maybe more inventory build happening because less goods were being bought at the stores. But what about the old argument of everybody eats 2,000 calories a day, and if you're not buying the food at the store, you're seeing it go out food services and restaurants, et cetera. I mean how should we think about that dynamic?
Well, I think the consumer demand is definitely going to be impacted by higher inflation, less disposable income and people will trade down. I think, historically, in my experience, people trade down into categories that cost less, but provide similar nutritional benefit than what you just described. Good news for us is we typically store and ship products that are in categories that people trade into versus out of in times like this. So I don't know that it will necessarily be a big drag on our business. But certainly, consumers have less money to spend. And as a result, we'll make choices that are different than they used to make even a few months ago.
I also think, Mike, the other thing that weighs in on that is there's -- due to the inflationary environment, you tend to see smaller basket sizes, which I think we're starting to see the retailers report. And you're seeing less pantry stocking that we saw through the COVID cycle as inflation weighs on the average consumer.
Got it. And for the quick follow-up, can you talk about the occupancy trends for July?
Yes. Good question. The trends for July are in line with our guidance. We're seeing occupancy year-over-year improvement well within the range that we updated the guidance on. So as we said in the prepared remarks, we expect that to continue through the year and July certainly backs that up.
Your next question comes from Michael Carroll with RBC. Please go ahead.
I wanted to touch back on to the guidance question. And it looks like in 2021, which was obviously a difficult second half, I mean you did about $0.57 of AFFO, but now your guidance is kind of applying about $0.52 in 2022, despite occupancy being up pretty significantly, you're able to pass on those higher labor costs. I guess what's the disconnect? I mean why would 2022 AFFO drop below what it was in 2021?
Yes. As we mentioned in our prepared remarks, we're very pleased by the progress of the core business in terms of driving NOI growth, but there are headwinds, inclusive of higher interest rate environment, which creates higher interest expense and the strength of the U.S. dollar, which has a translation impact on our earnings from our foreign operations.
Can you kind of quantify how big of an FX impact do you expect to see in 2022? Do you -- are you underwriting more currency exchange or movement than that has already occurred?
Yes. So as I mentioned in the prepared remarks, roughly FX year-to-date cost us about $0.01 a share, but you definitely saw the dollar accelerate as we move through the -- or strengthen as we move through the quarter. So I think those are the biggest drivers. We also -- as we commented earlier, and you can see in our guidance, one other item below NOI is also SG&A, which is still in our overall guidance range that we gave at the beginning of the year, but that is also a detail.
Your next question comes from Samir Khanal with Evercore. Please go ahead.
I guess, George, you talked about the power costs being high and pushing cost to customers. And I think you said you exited 3Q with sort of all the increases on in 2Q, but are you -- can you go back, I guess, to the same customer and negotiate higher prices again in the event that costs continue to be high and inflation is worse than we think? I mean, can you go back and sort of negotiate contracts again?
Yes, we can. In fact, we've done it now three or four times already. And if a 5th time is necessary, we will do it. As we've said, it's not exactly the same based on the inflation we see. So power surcharges just go right on the invoice. That's not a negotiation that the industry is conditioned to that, and we certainly provide the data to customers that backs up the changes when we do it.
It's a very fluid process, typically only takes 30 days to implement. The labor inflation, we've highlighted the different methods we use, whether you're in our top 100 or outside of our top 100, but we will do it a fifth time, if necessary. It's -- we've said we've committed to, we're not going to let inflation structurally change our margin structure, and we're as committed to that today as we were when we first made that statement.
Okay. Got it. And then I guess, on an earlier question about how defensive your business is in a recession. I mean I guess what are you factoring into guidance to incorporate that slowdown? And even as we think about '23, right, we're not even in sort of -- I mean there's a view that, yes, maybe there is a potential recession here. But is the sense that from a modeling perspective, like that throughput pallet that continues to decline? Is that the way to think about it? Or what's kind of the assumptions when we do sort of going through recession within the next 12 months, if that were to happen?
Yes. So I guess if you look at our business and our business would be aligned with the food industry really when it comes to recession, which I hope does not occur or is not a deep recession. But the characteristics of our business are that we typically store and forward food products that are center of the eye Walmart, center of the eye at Kroger.
They're typically categories that people trade into in a recession versus out of due to the price points. And there is a thought also that if a recession were to occur, hiring could increase or availability of people would increase. So I would say no business I know of this recession proof, but the food industry and our part of it tends to be somewhat recession resistant.
And I think, on that point, our guidance around decline in throughput pallets is reflective of our view on the impact for the balance of the year.
Your next question comes from Joshua Dennerlein with Bank of America. Please go ahead.
Just trying to get a sense of the macro environment impact on your guidance. How big of an impact is the rising interest rates? What were you factor in the last quarter versus like this quarter?
Yes. As you think about it, based on the amount of floating rate debt that we have roughly, on a full year basis, a 100 basis point move in interest rate would be approximately $10 million of incremental cost -- so hopefully, that helps you get a metric.
So a 100-basis-point move in the 10-year is $10 million for the full year. Then you -- is that...
Yes, 100-basis-point move in base rates would translate to $10 million on a full year basis.
Okay. And what's the base rate? Is it SOFR or like a...
Effectively, SOFR.
Your next question comes from Ki Bin Kim with Trust. Please go ahead.
I just wanted to go back to your comments about July occupancy. I was just curious about the recovery in economic occupancy and the labor situation. How that cadence looks like throughout the quarter? There's always an element of seasonality to your business. So it's hard to just look at the numbers at face value. So if you can just provide some color around that.
Yes. So in June -- in the second quarter, we were 288 basis points higher year-over-year. We revised our guidance on occupancy to be 100 basis points to 300 basis points higher for the full year. And July is coming in well within that range. So we expect to hit the revised occupancy guidance. And if you extrapolate that, we should be within 100 to 300 basis points higher month-over-month for the remainder of the year.
And you mentioned the full impact of expense pass-throughs were not reflected in 2Q. Can you just talk about what additional upside there is, whatever metric that you're looking at?
Yes, what we're saying is in the second quarter, we still experienced inflation in labor, warehouse supplies and power. And due to the nature of the lags, various different lags with those -- each of those inflationary items, we would not have it all priced in, in the second quarter. So there's pricing in the third quarter that offsets that inflation that is rolling into the third quarter. And as we experience more inflation in the third quarter, we'll price that in the fourth quarter. So essentially, we're lagging a quarter with each inflationary item.
Okay. And if I can squeeze a third one in, your guidance for same-store revenue is 3% to 5%. Year-to-date, you've already done 7%. Clearly, occupancies moving in the right direction, you have a little bit more uplift from getting a full impact of expense pass-throughs. Your guidance implies about 1% same-store revenue in the back half. I mean I'm trying to get a sense, is that just being conservative because even the throughput coming down, I don't think, could take your -- and it's hard to believe that you'll get 1% same-store revenue in the second half.
Yes. I think certainly throughput, we don't expect to have that level of impact. It comes down to the fourth quarter of last year being -- having a lot of price in that quarter. That's basically when our pricing actions began to hit the business for the fourth quarter of last year. So as we comp the fourth quarter, the revenue increase year-over-year is going to decrease. And it's really just that item that is causing us to guide to that level.
[Operator Instructions] Your next question comes from Craig Mailman with Citigroup. Please go ahead.
I don't want to speak for everyone on the call, but it seems like a consistent theme that we're all trying to get a bridge, right, for why you guys maintain guidance? Because as I listen to you, you guys had $0.53 in the first half of the year, and I know you can't annualize the business because -- but as you think about kind of fourth quarter relative to first quarter, occupancy is going to be up a couple of hundred basis points as is your pricing.
I understand that there's going to be a lag on the power surcharge piece of the business. You're going to have the floating rate debt piece of the business, maybe something on FX. But on the other side of the coin, if the consumer does slow, your tenants are going to have a chance to actually build inventories faster than what you would think, right?
Your throughput business may not be as high, but from at least economic occupancy standpoint, you could have some power -- some upside there. So I guess what I'm trying to get at is, again, I know someone referenced that $0.52 kind of gets you to the 105 in the back half of the year. And I just wanted to try to put some per share numbers around some of the drags. I understand 100 basis points on rate debt is $10 million. That's about $0.04 on an annual basis, so maybe a $0.01 share drag per quarter and similar thing on FX, right?
So maybe you get $0.02 a share per quarter there. But then on the flip side, you're getting the operate upside. So I know it's kind of a long preamble there, but I'm just really trying to get to per share bridge to weight out to people...
Yes, I can try to jump in and bridge some of the other items outside the ones that we've already called out. I would look to the timing of our maintenance capital spend. You'll see that our maintenance capital spend against our full year guidance ramps up through the back half of the year obviously, and it's -- our forecast implies that we're growing that spend relative to last year as our asset base has grown.
We also -- if you recall, in our initial year guidance, I commented that will have start-up costs. And obviously, as we get closer to the end of the year, given what Rob discussed about big projects starting to come online, we'll start seeing some higher drag from those development projects in terms of the initial start-up costs. So those are just a few of the items in addition to the other comments that we mentioned that do put some pressure on the back half of the year.
And the SG&A, Marc, that you called out going.
Yes.
Right. No, I get that, but that's on kind of -- you guys are talking big picture, I'm looking for actual impacts on a per share basis. to bridge the gap, right? Like you guys are filling out a bunch of stuff on the headwind side of things. But to try to -- and I would love to also see right 2Q you guys didn't get a full quarter of the price increases, right? So that's going to continue. On the power surcharge side of things, you're basically 30 days behind, right?
So you will get some of that back throughout the year. So what's the real drag from that? And then Dunkirk, I get that there's going to be a drag to it, but you guys have conditioned the Street with the J curve on the NOI coming online. And so that should be in people's kind of thought process. So I'm just trying to think what's incremental that kind of gets you from that $0.53 to $0.52 with better fundamentals and the ability to reprice.
Yes. Craig, as I said, I would first look to the timing of maintenance capital spend. If you look to the midpoint of our guide, it's roughly a $12 million increase over the back half from the front half. That's where if you think about our weighted average shares outstanding anywhere between $0.04 to $0.05 right there. So that's just timing of how that capital is deployed.
Your next question comes from Bill Crow with Raymond James. Please go ahead.
George, can I get a clarification before I ask my question. I heard you reference the second quarter of 2023 is it was more of a stabilized point. But I'm trying to figure out was that reference to labor, was that to margins, was that occupancy? Is that kind of -- because I think the time frame for the recovery accelerated a little bit and maybe towards that mid-'23 when we were at NAREIT, but could you just tell me what you're referring to?
Yes. I think the context of the question was the labor market specifically, and my comments were, I don't see the labor market coming back to, let's say, fully normalized pre-COVID levels this year for sure. And I'm very doubtful. It will happen in the first half of next year as well. I think it takes a long time to rehire the people that we lost, and I'm talking from an industry standpoint now, the food industry. And then you have to train them.
You have to get them to stay. Turnover, as we mentioned in our prepared remarks, is an issue when people believe they can work in this environment and then find out that they really can't. And then all that has to stabilize. And I don't see any stabilization at the levels of employees that were in the food industry pre-COVID anytime before the back half of next year. That was the context of the comment.
Okay. And then we should just assume that it will be even beyond that before, say, occupancy gets back to 2019 levels and kind of margins improve, right? It sounds like those would lag the workforce stabilization. Is that fair?
I think that's fair. I mean, you should see some improvement when we get back to those levels, but it takes time, right? You have to -- the biggest variable is when does the workforce become as productive as they were pre-COVID. The numbers can -- of people employed can be at levels, but productivity is a big piece of it. So I agree with that, yes.
Okay. And then -- thanks for the clarification, multipart clarification. But one question for you is, on the operating cost increases, has the second derivative started to decline? Are we -- have we gone past peak as far as the rate of increase of costs?
I don't know if we've gone past peak, but it's changed a bit. And it really matters what geography specifically you're talking about. So in the U.S., it seems like the labor inflation has subsided to a degree, but warehouse supplies, which is probably driven by labor in our suppliers business, and power have increased. So it's a little bit of a mix change there.
Europe, our European business is now full on with labor inflation. That's it lagged the U.S., but it's there now, and we're dealing with it exactly the same way we did in the U.S. But in addition to power increases that we've talked about in the past, Europe now has significant labor inflation. So it's a little bit of a moving target. But specific to labor in the U.S., I'd say, yes, that has, to a degree, subsided.
Your next question comes from Vince Tibone with Green Street Advisors. Please go ahead.
Looking at Page 27 of the supplemental, economic occupancy is higher in the second quarter of this year as compared to 2Q '19. I understand the portfolio has changed a lot over this period. But what I'm trying to get at is maybe how much occupancy upside you think this could be from current levels once food production levels normalize?
Well, again, we have our guided 100 to 300 basis points higher on an annualized basis. So that should -- we don't think we'll exceed that or we would have raised it. So for this year, 100 to 300 basis points is where we'll land. We feel pretty confident about that. And ideally, throughput picks up, right? I mean when the system normalizes and by the system, I mean the food supply chain, you should see higher output from manufacturers. You should see occupancy rise, but you should also see throughput increase, and that has not happened. So that would suppress inventory to a degree. So you need to factor that in.
Got it. But just -- so you still -- I mean I'm trying to kind of look at maybe more '23 and beyond, like you feel like there's like structural occupancy upside from food production? Or is the second quarter kind of pulls some of that forward because the throughput was down? Do you see what I'm trying to get at?
Well, we said I'd be referring to the occupancy gain we've recently made, we said there are two factors: increased production and slowing consumer demand due to less disposable income in the average consumer today. Those dynamics should change over time. And when we normalize, we should normalize back to inventory levels that reflect not only higher production but higher throughputs driven by normalized consumer demand. So, I'm not sure if I'm answering your question correctly.
No, that's helpful just to clarify. So like is that on a seasonally adjusted basis, like in the second quarter, do you think for a second quarter level, do you think that's higher or lower or about the same stabilized occupancy once everything normalizes versus the actual in the second quarter this year.
It's really hard to say. I'm not sure I can predict that, to be honest. I can say I wouldn't expect it to be worse, let's put it that way.
Your next question comes from Anthony Powell with Barclays. Please go ahead.
Question on the relationship between, I guess, end consumer demand and production. And right now, you're seeing a benefit from consumers buying less, but over the medium term, shouldn't that eventually result in producing less because there's less stuff to be bought? And if we go into a downturn, does that mean there will be more pressure on end consumer demand?
Yes. I think -- the first question, I think there is a long way for manufacturers to go on the production side before they would be comfortable that they reached inventory levels that they feel like not only meet consumer demand, but allow them to run their facilities efficiently, right? So there's a lot of room. I mentioned earlier that the occupancy improvement we've seen is more of a trickle than anything substantial. So I think there's a lot of room there. And I certainly hope consumer demand picks up. I mean, that will ultimately make the food supply chain normalize back to pre-COVID levels. So I'm hoping that's a short-term issue, not a long-term issue.
Maybe on the labor, the turnover you're seeing. We've seen a lot of announcements about warehouse employees being kind of laid off or sort of in there, but you still seem to see a lot of turnover in your business. When people leave your facilities, where are they going? And I guess, how do you see the competitive landscape for labor evolving the next several quarters?
Well, the first question is when they leave us, I don't know where they go. I can't answer that. But I think the labor market will remain very competitive. I think I mentioned through at least the first half of next year. And our turnover is related to individuals who join our company and believe that they can work in our environment and just find that the environment is harsher than they believed it was we deal with that all the time.
We have programs to address it with cold acclimation programs and better onboarding processes, but we've got to become a better employer of choice. We've got to have better onboarding practices. We've got to have better check-in practices with employees. We're strengthening all those processes now, but it will remain competitive, and I expect turnover to be the biggest challenge we faced certainly in the second half of next year -- second half of this year and into the first half of next year.
Is it harder to staff your new developments versus your kind of legacy developments? Or is it kind of the same issues in both portfolios?
It's typically a completely different dynamic. Most of our new developments incorporate some type of automation, which means you're hiring systems, professionals, IT professionals, engineering professionals where our more conventional facilities have been in the system a lot longer.
We're hiring hourly workforce that is going to -- more $20 an hour workforce that's going to do much more labor in a manual way than any automated way. So the two completely different skill sets in two completely different markets, both of which are tight to find people, but for different reasons.
Thank you. This concludes the question-and-answer session as well as today's conference call. You may now disconnect your lines. Thank you for participating, and have a pleasant day.