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Operator
Greetings and welcome to the AmeriCold Realty Trust fourth quarter and full year 2021 earnings call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Scott Henderson, Investor Relations. Thank you, Scott. You may begin.
Scott Henderson
Good afternoon. Thank you for joining us today for AmeriCold Realty Trust's fourth quarter 2021 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 Chappell, Chief Commercial Officer Rob Chambers, and Chief Financial Officer Mark Smirnoff. Management will make some prepared remarks, 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 risk 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 is contained in the supplemental information package available on the company's website. Now, I will turn the call over to George Chappell.
George Chappell
Thank you, Scott, and welcome to our fourth quarter 2021 earnings conference call. This afternoon, I will summarize our 2021 results and then discuss current market conditions that are impacting our full year 2022 guidance. Rob will then provide an update on our recent pricing initiatives and Mark will review results in more detail providing commentary on full year guidance. But before I begin, I would like to take a moment to comment on my appointment as permanent CEO that was announced this afternoon. Having spent decades in operational roles in the food industry, I've been responsible for many cold storage operations, including providers like AmeriCold and many of its competitors. I've always considered AmeriCold the industry leader in quality and customer service. As I've worked with the team over the past few months, I've been impressed by their commitment to delivering operational excellence and disciplined growth. I am very excited to be here and look forward to getting to know more of you in the future. On to our results. While in-consumer demand for temperature-controlled food remains strong, COVID-related supply chain and labor disruptions continue to impact the global food supply chain. At the time of our last earnings call in early November, Delta was the dominant COVID variant and it seemed to be peaking in various regions of the world. Businesses, including us and our customers, were making progress in adapting to Delta. However, by late November, the Omicron variant began to rapidly spread worldwide. This highly contagious variant introduced more uncertainty and disruption into an already strained supply chain. The impact of Omicron can be seen in our results. For the full year, our global warehouse same-store pool generated total revenue growth of 0.3%, while we experienced an NOI decline of 5.8% on a constant currency basis. KFFO per share was $1.15 in line with our guidance. The main factors that led to these results were the following. First, a meaningful decrease in the year-over-year economic and physical occupancy across the same store pool of 327 basis points and 500 basis points respectively. These same pressures were also felt in the non-same store pool, which is made up of recent acquisitions and completed development. Second, as discussed on last quarter's call, There was a significant increase in our labor, power, and other expenses beginning in the latter part of the third quarter. As you know, we are not able to offset all of this cost pressure immediately through price increases in our warehouse segment business. There is a lag period. Rob will provide an update on our progress in this area. However, we remain on track to exit the first quarter with a run rate to cover all known inflation in our cost structure. Third, a reduction in throughput volumes also created a drag on contribution dollars in our warehouse business. For the full year, our same store pool throughput volume decreased 2.8%. The non-same store pool was also impacted by throughput volume decline. While we've made significant progress on the price increases in our warehouse business, we also need the throughput volume to recover for our contribution dollars to fully normalize. Let me now discuss current market conditions that are underpinning our 2022 AFFO per share guidance of $1 to $1.10. Many of these challenging conditions carry over from 2021. Beginning with the revenue side, as in many of other labor-intensive industries, labor availability continues to be a challenge for our food production customers, which negatively impacts their production levels. This, in turn, negatively impacts our economic and physical occupancy, as well as throughput volumes. We are confident our manufacturing customers have the desire to increase production and satisfy rising demand. However, the labor challenges continue to be a barrier. Once labor normalizes, we are confident inventory will return to historic norms. Economic and physical occupancy in our portfolio and the overall cold storage industry continues to be significantly below pre-COVID levels. Our economic and physical occupancy for the 2021 same-store pool averaged approximately 77% and 68.4% respectively. Our 2019 same-store pool, the most recent pre-COVID year, averaged 79.4% and 75.4%. A similar pattern exists in the USDA data. Overall total holdings in cold storage are down 8 to 10% throughout 2021 versus 2019 levels. Our commercialization efforts, particularly our fixed commit structures, helped us to mitigate part of the decline in overall holdings. True put volumes have been equally impacted over the year, driven by the same challenges. These are expected to be lower than pre-COVID levels in the near term. The fast rise of the Omicron variant further strained an already challenging labor environment. Many of our customers saw an increase in absenteeism late in 2021 and into 2022, as did we. Omicron has delayed labor recovery by three to six months and proven how fragile the operating environment is. On to the cost side of the equation. Inflation in the global food supply chain remains a significant concern. In many of our markets, we raised wages beginning in the third quarter last year to remain competitive. While we believe we are paying competitive wages today, inflation remains a concern and there is still a possibility wages will rise again. We have taken action through price increases to address the cost pressures we faced last year. We will seek to offset additional inflation through operating efficiencies, but we may take further pricing actions outside of our normal course general rate increases if needed. As a reminder, there is a lag period between when cost increases occur and when the price increase is going to affect. Rob will discuss this in more detail. Omicron has proven that our ability to predict when economic and physical occupancy levels will fully recover is impossible. So, we'll refrain from doing so going forward. The global food supply chain continues to be strained and is not operating anywhere near normalized levels. Our 2022 guidance has these assumptions embedded in our range, which Mark will discuss. I have outlined some significant near-term challenges in our business due to the large amount of uncertainty created by COVID, inflation, and the challenged labor environment. The good news is that structurally our business model remains intact and end consumer demand for temperature-controlled food remains strong. Prior to COVID, industry standard fill rate objectives were 98.5%. Now it is not uncommon to see fill rates in the 70% range. During my many years in the food industry, I've never seen general fill rates at such a low level. Additionally, our retail customers have struggled to keep store shelves fully stocked. All of our customers are keenly focused on producing more food, returning to normalized inventory levels in support of higher fill rates, and satisfying unmet consumer demand. At the end of the day, the state of the current food supply chain is a challenge for all participants, food producers, retailers, food service companies, restaurants, the cold storage industry, including Ameri-co, and ultimately the end consumer. We are absolutely confident that our food manufacturing customers want to satisfy unmet demand. When they are able to produce more, we are fully prepared to accept their inventory and support their business with our strategic network of facilities and best-in-class customer service. At this point, I wanted to quickly highlight the recognition we received from Newsweek for our ESG efforts. For 2022, AmeriCode is included in Newsweek's list of America's most responsible companies. We are very proud of this achievement. Additionally, in 2021, the Global Cold Chain Alliance awarded 41 of our facilities gold silver, or bronze certifications as part of its Energy Excellence Recognition Program, bringing our total at year-end to 203. As of today, 84% of our warehouse segment portfolio is now certified in this program. Lastly, for the past two years, the AmeriCold team has continued to work in an unprecedented, extremely challenging operating environment in order to protect the integrity of the global food supply chain. We firmly believe that our success continues to rely on having a best-in-class team, and we continue to take action to ensure this remains the case. Over the past year, we've adjusted wages and offered enhanced incentive programs for our frontline associates and will continue to do so to remain competitive in the marketplace and ensure AmeriCorps remains a rewarding place to work. With that, I will turn it over to Rob.
Scott
Thank you, George. I'll provide a brief update on our pricing initiatives related to our warehouse business and comment on our commercialization efforts. As we discussed on our last call, beginning in the third quarter, we raised hourly wages in many of our locations to retain our associates and recruit top talent. The impact of these wage increases is reflected in our fourth quarter results. In order to offset these and other inflationary pressures, we have taken action by increasing the pricing of our warehouse business. Please remember, our pricing for our customers is very prescriptive, and we do not take a one-size-fits-all approach. As you can see on page 37 of our IR supplemental, we were able to increase our service revenue per throughput pallet in our same store on a constant currency basis by 3.8%, with this improvement accelerating through the quarter. The most meaningful increases occurred in December, up 5.9% versus prior year's month of December. As a reminder, our customer mix is made up of the following. Approximately 30% of our warehouse revenue is with smaller customers, where our pricing can be adjusted at any time with a 30 to 45-day notice. We took action on this customer group, and almost all of this increase is in our fourth quarter results. Approximately 70% of our warehouse revenue is with our top 100 customers. About half of these customers have contracts with formulaic mechanisms in place to allow for us to equitably adjust our pricing as long as there's been a demonstrable increase in our costs. The remaining half of these customers have come to the table clauses that require a good faith negotiation to increase price. For the top 100, we initiated these conversations in the third and fourth quarter of 2021, and a meaningful amount of these pricing increases are in our fourth quarter of 2021 results. The remaining will be reflected in our results throughout the rest of the first quarter of 2022. Second quarter 2022 results should show a full period of all pricing increases in place. As a reminder for our top 100 customers, we usually need to see the elevated cost for at least 60 days before we can either trigger our price increases or begin negotiations. This is the lag period that George mentioned. Please remember, our normal course escalators, or general rate increases, GRIs as we call them, have historically ranged from 2% to 4% across both storage and services rates for our customers. These are used to cover normal levels of inflation and our cost to serve our customers. not just labor, but power costs, property taxes and insurance, and warehouse supplies and equipment. If we see that our costs are outpacing our GRIs, we will revisit our pricing initiatives again and take similar action with our customers. 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 $356 million, compared to $284 million at the end of the fourth quarter of 2020. On a combined pro forma basis, we derived 39.3% of rent and storage revenue from fixed commitment storage contracts. 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. Additionally, our churn rate remained low, at approximately 3.3% of total warehouse revenues. This metric demonstrates we're not losing a meaningful amount of customers. They're simply not using as much of our infrastructure and services while their production volumes are lower. Finally, our global development pipeline remains strong. Now, I'll turn it over to Mark.
George
Thank you, Rob. Today, we will provide updates on our fourth quarter and full year results. I will also provide our outlook for 2022. For the fourth quarter, we reported total company revenue of $716 million and total company NOI of $161 million, which reflects a 37% increase and a 6% increase year-over-year respectively. Corporate SG&A totaled $49 million for the fourth quarter of 2021, as compared to $40 million in the prior year. reflecting our external growth over the past year, net of synergies, and higher stock compensation expenses. This growth was partially offset by a decrease in our annual performance-based cash incentive compensation expense. Core EBITDA was $124 million for the fourth quarter of 2021, an increase of 5.6% year-over-year. Our core EBITDA margin decreased 511 basis points, 17.3%. Our fourth quarter AFFO was 82 million for 31 cents per diluted share. Now I will turn to our results within our global warehouse segment. For the fourth quarter of 2021, global warehouse segment revenue was 554 million, an increase of 36% compared to the prior year. This growth was driven by the recently completed acquisitions and ramp of recently completed development projects paired with contractual and market-driven rate escalation. This growth was partially offset by the impact of food supply chain disruption resulting in lower economic occupancy and throughput in our same store portfolio. Warehouse segment NOI was 151 million for the fourth quarter of 2021, an increase of 3.6%. The increase in warehouse NOI is driven by our recently completed acquisitions, largely offset by the impact of inflationary pressures across our global portfolio. Global warehouse segment margin was 27.2% for the fourth quarter of 2021, an 849 basis point decrease compared to the same quarter of the prior year due to lower margin acquisitions and inflationary cost pressures. Now I will turn to our same store results within our global warehouse segment. For the fourth quarter of 2021, our same store global warehouse segment revenue was $379 million, up 2.5% year over year and 2.7% on a constant currency basis. Same store global warehouse NOI was $126 million, down 8.2% year over year and a decrease of 8.1% on a constant currency basis. same-store global warehouse NOI margin decreased 389 basis points to 33.2%. The ongoing disruption in food production, combined with the challenging labor market and elevated inflation, continued to weigh on our same-store results. For the fourth quarter, same-store global rent and storage revenue increased by 2.9% year-over-year and increased by 3.1% on a constant currency basis. This was driven primarily by rate escalation, partially offset by a decline in economic occupancy. Our same-store economic occupancy was 79.5%, which reflects a decrease of 129 basis points from last year's fourth quarter economic occupancy, as we were impacted by reduced food production levels but stable consumer demand. The occupancy decline was partially offset by a 4.9% increase and our constant currency average storage rate per economic pallet driven by rate escalations and business mix. Consistent with the fourth quarter seasonal increase on a sequential basis, economic occupancy improved approximately 285 basis points from the third quarter. Our same-store global rent and storage NOI increased by 2.8% year-over-year and 3% on a constant currency basis. This was due to rate escalation partially offset by lower economic occupancy and higher costs inclusive of power, property taxes, and insurance year-over-year. Same-store global rent and storage NOI margin decreased five basis points to 68.4% due to the same factors. Same-store global warehouse service revenue for the fourth quarter increased by 2.3% year-over-year and 2.4% on a constant currency basis. This revenue growth was driven by rate increases in business mix, which increased our constant currency warehouse service revenue per throughput pallet by 3.8%. This was partially offset by a 1.3% decline in throughput. Our same-star global warehouse services NOI decreased by 46.3% year-over-year and 46.4% on a constant currency basis. This was primarily driven by higher cost of labor and warehouse supplies due to elevated inflation. Same-store warehouse services NOI margin was 7.5% for the quarter, a decrease of 684 basis points from the prior year. Now let me summarize our full year 2021 results. Total revenues were $2.7 billion, and global warehouse segment revenues were $2.1 billion, a 36.6% and a 34.6% increase respectively. Total NOI was $630 million, and global warehouse segment NOI was $586 million, an increase of 14.2% and 12.7% respectively. For the same store pool, global warehouse segment revenue grew by 1.3% or 0.3% on a constant currency basis. and same-star NOI decreased 4.9% or 5.8% on a constant currency basis. Core EBITDA was $475 million, an increase of 11.4% or 11% on a constant currency basis. And AFFO was $299 million or $1.15 per diluted share using a weighted average share count of $261 million. We announced $168 million of development starts and completed $766 million of global acquisitions. At this point, I will briefly comment on a one-time retentive stock grant we awarded to certain non-EVP associates in the fourth quarter. The grant is being amortized over the next two years with $4 million already incorporated in our Q4 results. Our non-cash share-based compensation expense will increase by approximately $11 million in 2022 and $5 million in 2023. As a reminder, we excluded non-cash share-based compensation from ASFO. Now turning to external growth. Today we announced an expansion project in Barcelona for approximately $15 million. This is a conventional build and will support the growth of existing and new customers in consumer packaged goods and protein sectors. Spain is a key producer and exporter of protein, and our two distribution sites in Barcelona are within 20 miles of the port, which is one of the largest ports in the Mediterranean. We're excited to continue to grow our footprint in the strategic market. Turning to acquisitions, on November 12th, we closed on the previously announced acquisition of a newly completed cold storage facility in Denver, which replaced a smaller lease facility we exited within the market. On November 15th, we closed on the previously announced acquisition of Blago Cold Stores in Brisbane, Australia. All of these investments were or will be match-funded using a combination of cash, equity forwards that we had previously raised, and our multi-currency revolver. Now, turning to our balance sheet and capital markets activity. During the quarter, we exercised $1.4 million of previously raised forward shares for approximately $55 million in net proceeds to help fund our developments and acquisitions. Additionally, in December, we closed on a $150 million increase to our multi-currency revolver and $50 million increase to our term loan A. These actions improve our already strong liquidity and increases our fixed rate debt position. At quarter end, total debt outstanding was 3.1 billion. We have total liquidity of 803 million consisting of cash on hand and revolver availability. Our net debt to pro forma core EBITDA was approximately 6.1 times. Turning to our full year 2022 guidance. For the full year, we expect ASFO per share in the range of $1 to $1.10. Please refer to page 46 of our IR supplemental for detail on the additional assumptions embedded in this guidance. While George already provided an update on the current environment, let me provide some additional commentary around this guidance. COVID-related supply chain and labor disruptions continue to impact the global food supply chain in 2022, and this can be seen in our occupancy and throughput. Achieving the high end of our guidance range would result from macroeconomic factors driving an improvement in food manufacturing, which would result in higher levels of occupancy and throughput volumes. The lower end implies that occupancy levels and throughput volumes deteriorate. The low end of guidance implies wage and inflationary costs running at elevated levels above our expectations, taking into account the lag Rob previously mentioned. The high end implies inflationary pressure is moderate. Please note that we ended 2021 with total SG&A expense inclusive of stock compensation of 182 million. Our 2022 range is 210 million to 229 million inclusive of stock compensation. At the midpoint, the increase is approximately 37 million. The key drivers of this increase are the resumption of performance-based annual cash incentive compensation, incremental non-cash share-based compensation expense from the stock retention grants I discussed earlier, increased IT spend as we begin to transition to more software-as-a-service solutions, and inflationary pressures on corporate salaries and other overheads such as travel, insurance, and benefits. We are guiding to development starts in 2022 in the range of 100 to 200 million this year. Additionally, please note that we have six development projects that are expected to be completed later this year. As a reminder, these projects will initially be a drag on overall warehouse NOI as they ramp to stabilization. We estimate an initial in-year startup cost associated with these projects of 10 to 12 million in the aggregate. Our 2022 same store pool now includes 216 facilities, which is approximately 90% of the total properties in our warehouse segment. I would like to point out that our new same store pool includes almost all the properties from our AMC, Kaspers, Falls, and Agro acquisition that were completed in 2020. We have not yet fully implemented our commercialization practices such as fixed commitment or the AmeriCold operating system into these facilities. While both our legacy properties and recent acquisitions continue to be impacted by the current market environment, our legacy sites continue to benefit from our operational practices and business systems, which help offset some of the pressures felt in this environment. Finally, 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. Now let me turn the call back to George for some closing remarks.
George Chappell
Thanks, Mark. I'd like to reiterate how pleased I am to join AmeriCold on a permanent basis and lead the company's next chapter. We are committed to providing best-in-class service for our customers, and I'd like to thank our customers for their confidence in us. I'm also incredibly proud of our 16,000-plus associates who are the heart of our business. I want to extend a special thank you to each of them for their hard work and dedication every day. I look forward to spending more time with them in the near future. Thank you again for joining us today, and we will now open the call for your questions. Operator, please open the call for Q&A.
Operator
Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. In the interest of time, we ask that all participants limit themselves to one question and one follow-up. One moment, please, while we poll for questions.
Rob
Thank you. Our first question is from Dave Rogers with Baird.
Operator
Please proceed with your question.
Dave
Good evening, everyone. I wanted to start with you, George, if I could. First, congratulations on your appointment as CEO. But two questions around that, if I could. You, the board, and management were pretty clear that this was not a possible outcome, and so probably comes as a little bit of a surprise. So, one, I wanted to give you the chance to talk about kind of what the change of heart was that kind of brought you to this permanent position. And then, two, you know, maybe what do you see as kind of the focus of your tenor here as the CEO in replacement of Fred?
George Chappell
Yeah, thank you, Dave. Appreciate the question. I consistently said when asked that, look, AmeriCold was the industry leader in cold storage and that anybody would have been privileged to lead the company. I certainly felt that way from the very beginning. In my case, I was coming out of retirement, even though it was a relatively short retirement, and those decisions aren't individual decisions, so it took a little bit of time to work through. But what I can tell you is once the decision was made, joining AmeriCold was probably the easiest professional decision I've ever made in my life. And like I said in my prepared remarks, I couldn't be more happy to be here. So moving on to the second part of your question, I'd say the top three priorities for me is starting literally immediately are one, labor management, enhancing our recruitment and retention processes, reducing our dependence on temp labor, increasing our ratio of permanent labor. And we know when we increase permanent labor, we get, number one, far more productivity, which transfers into lower costs per throughput pallet. So that's one. Number two, I think the industry has suffered in customer service, driven by COVID and labor issues. I want to make sure that when we build back our labor force, we come back with customer service levels that are not only at pre-COVID levels, but best in class. I can tell you as a customer, nothing means more than best in class customer service, and we're committing to getting back to those levels. And then last, ensuring our development projects remain on track. We believe in each of those business cases. But as you know, development projects are not immune to the current macroeconomic environment, nor are they immune to the supply chain issues. So they require constant attention. They're very complex builds. And we remain dedicated to making sure they stay on track, particularly with respect to the business case. So I hope that answers your question.
Dave
It did. Thank you. And if I could follow up one on operations, maybe related to Rob's comments around pricing and the increases that you've been able to achieve. Rob, thanks for your pointing out page 37. It's a good table. But how do we kind of track through the pricing increases on that table? We can see the labor increases, but as you look at kind of either same store revenues on a throughput basis or economic or physical occupancy, you know, they really haven't caught up in the fourth quarter relative to those labor cost increases. So maybe a little bit more color on that, you know, and how you're thinking about that tracking through 2022. Yeah, sure.
Scott
Thank you. I mean, for us, what we've thought about is we've engaged in conversations with the majority of those customers, with our customers, and ultimately, I think we still consistently feel like will be the full impact of the price increases that we put in will be felt really coming out of the first quarter into the second quarter. And at that point, we will have offset the inflation that we've seen, particularly on the services side of the business.
Operator
Thank you. Our next question comes from Mike Mueller with JP Morgan. Please proceed with your question.
Mike Mueller
Yeah, hi. The sequential revenue growth in service revenue per throughput pallet, it was about 3.8% in the quarter. In the prior few quarters, it was mid to high fours year-over-year growth. So I was wondering what drove that deceleration?
George
Yeah, there's a number of things that factor into that, which include business mix. So, you know, obviously it's, you know, going in and throughout the year, you had lower throughput volume overall. We had a slight shift overall in business mix to less volume, less value-added services. So with that lower volume, you tend to have less value-added services. And I think given the state of the supply chain, some of the challenges, what we saw is product moving through more quickly and less value-added services being done within our warehouse to get the product more quickly to the end consumer.
spk05
But Mike, it's Scott. I just want to follow up. The 3.8% was the revenue for throughput pallet in the same store. It actually, as Rob called out, accelerated throughout the year. So that was the average for the quarter. But remember, as Rob worked the prices in there, you saw that increase to 5.9% in December. As those increases, as those price increases came in, that's the way it worked its way through the quarter.
Mike Mueller
Yeah, I got that. Definitely picked up on that. Appreciate that. And then I guess in your conversations with customers, have you had any instances where customers who were on fixed commitments have actually wanted to back off just because of the past couple of years' experience?
Scott
We haven't. I think all of our customers, as George mentioned, recognize that there is a goal to get back to pre-COVID production levels. And as folks are able to bring labor back on, I think everybody's going to be rising around a similar time frame. And so that leads everybody to wanting to make sure that that space is available for them when the production ultimately does come back. So we haven't. And even in our prepared remarks, we reference the fact that our fixed commitments have continued to grow quarter over quarter and year over year. So it's still a structure we're very comfortable with.
Operator
Thank you. Our next question comes from Craig Millman with KeyBank Capital Markets. Please proceed with your question.
Craig Millman
Thanks, everyone. And George, I apologize. I kind of cut off on Dave's first question, but I just wanted to kind of follow up. Just because when we had chats around Nary, I kind of asked you directly if you thought you'd be kind of the guy permanently in the seat and you were almost adamant that you wouldn't be. And it's been You know, not that long of a time period since. I mean, could you just go through kind of what changed in your view that got you comfortable with being the permanent guy and also just how deep you got and the search firms got into interviewing external candidates?
George Chappell
Yeah. Well, what I can tell you is that there was nothing professional or a miracle-based, let's say, in my comments when I said I was not a candidate. It was about being retired and being retired with a family and working through the decision to come back to work full time, which everybody knows is a massive commitment. So it had nothing to do with a miracle. It had nothing to do with the industry. It had nothing to do other than the personal situation I was in at the time and the decision to leave that that personal situation and go back to working full time. And that did take a while to make sure it was the right decision for me in my particular circumstances. So that was it. When it comes to the search process, I know it was extensive. I know that it had a number of highly qualified candidates. I think I mentioned, and it probably was with you, that it would attract a lot of incredibly talented people because AmeriCold is an industry leader that has been an industry leader for a long time and has the capability to attract that type of a talent. So that's really it. I can't really add any more to it.
Craig Millman
That's helpful. Then just on the expense side, it sounds like you're through on your top tenants. You kind of gave some retention bonuses or true-ups to kind of non-executives. It sounds like about $16 million in total. I don't know if it's more than that. I know you said there was $4 million maybe in the fourth quarter, so maybe $20 million?
George
Correct. It's about $20 million spread over. It'll hit three years, but it's $4 million that was already in this fourth quarter, $11 million, which will impact next year – 2022 and $5 million impact in 2023. Okay.
Craig Millman
And then I'm just trying to figure out what kind of cushion you guys gave yourselves in 2022 above that 2% to 4% to absorb some maybe higher use of contract labor in the near term or just kind of higher wages above and beyond normal inflation?
spk06
Craig, could you reference the two, what two to four percent are you referencing? We just want to make sure.
Craig Millman
Just the normal cushion you guys have in your contracts to pass through costs.
George
Yeah, so I think, you know, what our guide implies, and if you look in particular in our same store where we're guiding actually negative two to flat, really while we're getting the benefit of all the rate increases Rob's mentioned, Our guidance is that the disruption in the industry, and I think you've seen this both in the USDA report, both for last year and even the January report that was just filed just the other day, that the starting inventory, the state of the inventory has not yet fully recovered. We're still seeing negative year-over-year comps, which are weighing in. to the overall guidance. So, you know, if you think about our outlook for the year and the implications that that same sort of guide entails is we, you know, at the midpoint, you know, we don't expect to see a significant recovery in 2022 or degradation. You know, as I mentioned in my prepared remarks, if we do see improvement in occupancy, that will help us get to the upper end of our range. It will also drive associated throughput. If we see degradation of occupancy and associated throughput, that'll get us closer to the lower end of the range.
Operator
Thank you. Our next question comes from Emmanuel Corchman with Citi. Please proceed with your question.
Emmanuel Corchman
Hey, it's Michael Bellarmine here with Manny. George, in your opening comments, you said your ability to predict when economic and physical occupancy levels will fully recover was impossible. And I assume the same goes for the expense recapture in terms of amount and timing that you just don't yet have the confidence and it's basically impossible to understand. You ended your comments with, you know, some about sort of what you're doing for your customers and all that. I'm wondering if you can spend some time on the investor side of things. Obviously, it's been a pretty tumultuous four months. And actually, if you go back prior to you getting there, There was a number of missteps that arguably led to the board deciding to bring three new members on and terminate the prior CEO. And so what I really want to understand from your vantage point now that you've made the decision, you made the decision to join the board and offer your advice as a retiree. You've now made the decision to be active and fix the problems. What confidence do you give to a shareholder, both that could be existing or that could be wanting to buy your stock, about when you believe earnings will recover. And I'm sure you've looked at the numbers. Last year, it was supposed to be $1.50 for this year. That's where the street was thinking prior to the declines after the 3-2 print. Even this year, it was supposed to be $1.40 if you go back a year. So being at $1, 50% down, at what point will those earnings come back so that shareholders can start underwriting that level, and what confidence can you give them?
George Chappell
Yeah, no, very good question, and I appreciate the sentiment. Look, my objective is to, in the short term, control what we can control, right? That's labor management. I mentioned getting back to a permanent workforce that on a percentage basis is far higher than it is today. It's controlling our development projects to ensure that they come in on time, on budget, and if the yield was published. What I can't control is the recovery of the food industry, when it occurs and how fast it occurs. What I can tell you based on my years in the food industry is that when you have service levels at 70%, which I referenced in my prepared remarks, And you also have unmet demand, the likes of which is higher than anything I ever experienced in decades in the food industry with very large manufacturers. What I contend with is they want to produce more. They view that as a huge opportunity, and they will do everything they can to produce more. So my confidence that it will come back, historic inventory levels, at a miracle, specifically and in the cold chain in general, will come back. I can't be more confident of that. What I can't tell you is when, but when it does, if we do a good job on things we can control, labor and development being the two biggest ones, I'm confident that investors will see the type of performance they expect from us. The issue is when it comes back, and In my prepared marks, I was being as honest as I could. I can't tell you when it's going to happen.
Emmanuel Corchman
George, can you help us? Again, I remember when we spoke at Mayreit, I even re-read our note. It was pretty definitive that you weren't going to take the CEO seat. Look, I'm extraordinarily happy that you're in it, but obviously it does come as a surprise. Can you just talk through a little bit on the timing? Because I assume acting as an interim CEO – the decision that you were making may be very different than if you were sitting in the seat for the longer term. I view it as a caretaker versus someone who's strategically thinking about the business, the organization, the management team. There's a lot of things that you would do as a permanent CEO that you wouldn't do as an interim. When was the switch made and how much time due diligence have you really spent in the organization? And I recognize you've been now, it's been four months, but what activities have you done? But how much more is coming, right? Is the board active? You have three new board members, including yourself. I don't know if you're going to add someone else in for an independence perspective, but I got a new board. Are they going to receive review? Are you going to rechange the executive management team? How much more change just from an organization? What about all the industry stuff? But clearly the board thought there was an issue in the way the company was being run. So I think I'm really trying to get at is what else should we be expecting in terms of changes from an organizational capital deployment, everything that goes into it from a CEO perspective.
George Chappell
Yes, thanks for the question. First off, though, I never considered myself a caretaker. I had joined the board. I had a very vested interest in AmeriCold being successful as a board member. I was given the support of the board to act as a leader, not as a caretaker. And there's very little that's changed in my posture or my decision making literally since I arrived as the interim leader. So the mindset has been a mindset and energy has been consistent throughout the time period. So there's absolutely zero change. In terms of changes in the company, I've said a number of times, in my mind, there is nothing flawed with the business model of Maricol. It is a vital component of the Fool's cold chain. It's not an optional component. It's a vital component. Our task right now is to get our house in order and the things we can control. I mentioned labor management and I mentioned the development projects and be ready to accept all of the inventory we possibly can when food producers can produce and to service customers at service levels that are at least 98.5% if not higher when that occurs. That would have been exactly what I said had somebody asked me what the goal was four months ago, and it's the exact same answer today.
Operator
Thank you. Our next question comes from Michael Carroll with RBC Capital Markets. Please proceed with your question.
Michael Carroll
Yeah, thanks. Obviously, the macro environment still remains fairly dynamic right now. I guess with the current Russia conflict, It seems like that's going to materially impact fertilizer and food exports. Will this or could this further disrupt food production, and how has this impacted your recovery outlook or expectations on the business?
George Chappell
Obviously, very recent news. Will it have an impact on our European business? I'm sure it will. It's hard to imagine that something of this magnitude, as unfortunate as it is, would not have an impact on our European business. How that manifests itself, I honestly don't know. I'm sure you could theorize that energy may be an issue for sure, and there could be some others. You mentioned a couple. I can't really predict it, but I can tell you we're extremely focused on it. We were on the phone with our European team this morning. We discussed it, but I think it's waiting to see at least for the next couple weeks to see what happens.
Michael Carroll
Okay, then within your – I mean, you obviously have a pretty global portfolio, and the supply chain is pretty interlinked. I mean, will the weakness mainly be in Europe, or could you see issues in your Australian and South American and potentially your U.S. portfolio? I guess, how insulated is the U.S. portfolio from this?
George
Look, I think if you step back and look, you know, the U.S. portfolio is being impacted, and the supply chain challenges that are being discussed are really global in nature. So they're not unique to Europe. They're not unique to the U.S. They're not unique to the other geographies that we operate in. So we're seeing global challenges, similar challenges around the globe, around labor, labor availability, power, inflation. So we're addressing those on all fronts, Mike. So I don't think we see unique things. You know, if you step back, many of the geographies that we serve tend to be breadbasket geographies where there are producers of food that we do export around the globe, right? So, you know, we'll have to be seeing how import flows, import-export flows change as a result of what's going on in Europe, but the general markets we serve are breadbaskets.
George Chappell
Yeah, and maybe I'll just add, if I was to think of, impacts in geographies such as North America or Australia, New Zealand, it probably is more on the import export side and how those flows change given recent events, and less so in country impacts. That's at least what we think today, but But we'll see. Again, as you can imagine, incredibly fluid situation and very new.
Rob
Thank you. Our next question comes from Samir Kunal with Evercore ISI.
Operator
Please proceed with your question.
George
Good afternoon, everybody. Hey, Mark, you talked about the guidance a little bit earlier. Maybe help us understand what's sort of baked into the low end of guidance. I know you talked about a factoring in that deterioration of occupancy. I mean, can you help us sort of quantify that? Just trying to understand a bit more how the worst case scenario and maybe on the other side of the high end, what occupancy you're assuming.
George
Yeah, so if you look at, you know, our economic occupancy and these occupancies, just to remind everyone, are the average for the quarter. But we're roughly carrying in... Q4 roughly 144 basis point decline year-over-year across the portfolio. And so roughly, if you think about our guidance going into next year, it really carries that rough year-over-year decline forward. So we're thinking somewhere occupancy should be on a year-over-year basis anywhere between 100 to 200 basis points down on average throughout the year. So what gets us improvement obviously is if we see a more quick recovery and we see greater occupancy and throughput, that will drive us up to the upper end of the range if the market continues to deteriorate. So just as George mentioned his remarks, all of us as end consumers remain strong, but the challenges definitely persist in the industry in terms of labor availability and food production. So if those continue to be challenged and degrade from where they are today, that could put pressure on and move us towards the lower end of the guide.
George
Got it. And I guess, George, a second question here is, I guess, what have you heard from your food manufacturing customers, given your background, as to when you think we'll get back to sort of a normalized inventory level? I know you said it's sort of There's a lot of uncertainty out there, but based on kind of your context, what are you hearing directly from them?
George Chappell
What I'm hearing is that when they can attract the labor that they need in terms of numbers, have the time to train them, make them productive, and then get the right flow and cadence of how they produce efficiently, then inventories will build, and that makes perfect sense to me. That's exactly how it's done. What they cannot offer is timing, and it gets back to, you know, some of the comments in my prepared remarks. I mean, we've seen cases where optimism started to take hold, and then it, you know, three steps back with Omicron, and I I think that has really been a shock to the system in terms of how quickly things can change. And it's prevented people from attempting to predict the future, quite frankly. And I can certainly understand that. Again, I know they're motivated, you know, beyond motivated to ramp up. It's, you know, producing food for sale is what they do. And I spent a lot of time in that. I can tell you it's something they take very seriously. But until the labor bearer is removed, they're really handcuffed. And again, timing is just something people aren't even willing to discuss because it's just very variable based on labor availability.
Rob
Thank you. Our next question is from Keebin Kim with Truist Securities.
Operator
Please proceed with your question.
ROB MENTIONED
Thanks, Don. Good evening, everyone. Just going back to your ability to push on inflationary costs to your tenants, I might have missed it, but I don't think I got a full answer on that in terms of what percent of your customers, including those that are variable, I guess you pushed it all through, but especially those on a fixed contract basis, what percent of your customers are actually taking on the increases? How much of the increases are being pushed through?
Scott
We've had conversations across our entire customer portfolio, inclusive of our top 100 customers, those outside of the top 100, and those customers on fixed commitment contracts. The issues that AmeriCold's experienced from a cost standpoint are extremely macro in nature. They're not specific to AmeriCold. The conversations have been very rational and Our contracts do allow, as we described in the prepared remarks, for cost changes beyond our control, which is what the majority of these costs are. And so we've been able to have the conversations across our entire customer base.
George Chappell
And maybe I can add, having been a customer in the not-too-distant past, that a strength of AmeriCold is to be very analytical in the discussions. TO PUT FORTH A PRICE INCREASE JUSTIFIED ON ACTUAL DATA ON CUSTOMER PERFORMANCE AND A COST BASE THAT THE CUSTOMER CAN RELATE TO. I THINK THAT'S INCREDIBLY HELPFUL WHEN PASSING THESE PRICE INCREASES THROUGH AND A BIG PART OF THE REASON THAT THEY HAVE HIT 100% OF THE PORTFOLIO AND HAVE GONE THROUGH THE SYSTEM EXACTLY AS ROB MENTIONED AND IN LINE WITH OUR GUIDANCE LAST QUARTER THAT EXITING THE FIRST QUARTER OF THIS YEAR, WE WILL recovered all known inflation in our cost structure that schedule.
ROB MENTIONED
Okay. And in terms of your GNA increase, you're guiding towards almost a $40 million increase. I don't cover all REITs, but that's probably got to be one of the biggest ones, especially in light of your stock price, which is a challenged situation. I just think that GNA increase deserves a little more attention. Can you just help us understand why that size of magnitude and break it down a little bit further so we understand what's happening?
George
Yeah. Thank you, Vince, Mark. As I said in my prepared remarks, the key drivers of the increase are really the resumption of performance-based cash incentive compensation. So obviously with the performance in 2021, that was not accrued or included in the year-end results. It wasn't earned. But we do in our plan going forward, we do plan for that in the ordinary course. Additionally, on top of that, we talked about in my prepared remarks the incremental $11 million of non-cash share expense related to the retention program, the share-based retention program that was put in place this year. So those two items make up more than half of that increase. On top of that, one of the things we're doing in IT is we're transitioning more of our software as we integrate businesses to a software-as-a-service platform. So what that does is it puts a little more operational expense in G&A, but it actually saves us maintenance capex over time. So from an AFFO perspective, those types of investments should be neutral. And then the last thing we continue to see is just inflationary cost pressure still on overall wage environment, insurance, travel, et cetera, et cetera. So those other additional costs that are embedded in our G&A, your normal annual treadmill costs are what make up the balance.
Operator
Thank you. Our next question comes from Joshua Dennerlein with Bank of America. Please proceed with your question.
Joshua Dennerlein
Yeah. Hey, everyone. I wanted to ask about the 8K, the executive severance benefits plan. Is the change in control payouts new? Or if it's not new, is it different than what it was previously? And if so, why?
George
No, they're consistent with what they previously were. I think we've changed our function in terms of employment agreements going to the standard program. And you'll see that the terms of the benefits are very consistent if you look at our proxy from last year.
Joshua Dennerlein
Okay. Okay. I guess maybe why was this needed, like the new one? Couldn't the old one? Is it just because you have a new CEO or –
George
Yeah, I think it's something in terms of one of the things that our board's been working on in terms of moving to one of the best practices that they see in the industry and we're following the best practice.
Joshua Dennerlein
Okay, I got it. And then I wanted to ask about on page 37, should we be more focused on the economic occupancy or the physical occupancy for the same store rent and storage revenues per occupied pallet? Because I see that the It looks like 4Q21 on the physical side was declined versus what you had in 3Q. Yes.
George
Yeah, so definitely the economic occupancy is what truly drives our financial results. So we really encourage people to look at the economic occupancy. The physical occupancy, we always show it because obviously, you know, one of the things that drives throughput is the physical holdings of product in the network. And clearly, as you see with the physical holdings, just as you heard, you know, as mentioned in our prepared remarks, the challenges in the overall food supply chain are definitely weighing on food producers' ability to produce, and that's showing up in our physical occupancy.
Operator
Thank you. Our next question comes from Vince Tabone with Green Street. Please proceed with your question.
Vince Tabone
Hi, good evening. Could you elaborate on the operating efficiencies you mentioned that will help offset wage inflation? Given the majority of the wage increases were given in the back half of 21, I was surprised to see that guidance implies same-store expenses to be down in 22. Any discolor you can give on these fronts would be helpful.
George Chappell
Yeah, when I referred to operating efficiency, it's really the mix between temp and perm labor. which we want to dramatically shift to permanent labor. And then second, the productivity you get with a permanent workforce once you have the ability to train them and get them to work in a rhythm where they're consistently doing the same job for a period of time, which you never get the chance to do with temp labor. So that in and of itself drives efficiencies around labor for throughput pallet, et cetera, et cetera, and that's what I was referring to on the productivity front.
Vince Tabone
Got it. That's helpful. And then how should we think about just expenses and how they're trending as occupancy recovers? I know we're focused a lot on this year, but maybe thinking a little bit 23 and beyond, as occupancy rebounds, How much more employees' expense load do you think will be next to support the growing volumes? Or maybe conversely, how much can you cut labor expenses this year when inventory or occupancy could be down again?
George
Yeah, so the way we manage our business on the throughput side is the labor force is highly variable, and they're managed based on the work contents presented. So obviously, as we start to see more production come up, greater volume come in, we will increase our spend on variable labor to support that volume. But there's embedded margin in that. And so with that higher throughput, we'll earn not only greater dollars from storing that product, but we also earn margin handling that product on behalf of our customers.
Operator
Thank you. Our next question comes from Anthony Powell with Barclays. Please proceed with your question.
Anthony Powell
Hi, good evening. The question on your development, I guess you have starts of $100 million, $200 million this year. What returns are you looking at, and are the returns still in those low teens given all the labor cost increases and whatnot? How have returns, I guess, trended, or how should they trend going forward?
George
Yes, so if you look at page 41 of our supplement, which details, you know, we're still seeing development opportunities and this is a cash on cash on levered basis where we believe we can generate yield, stabilized yield in the low double digits. So, you know, with that. I remind people the yields that we quote upon stabilization include not only the return for the infrastructure, but also the return for the services that we provide within that infrastructure.
Anthony Powell
And that hasn't changed. I guess, why hasn't that changed? Why hasn't that gone down, I guess, given higher labor costs and what's allowed you to kind of maintain those levels given the environment? Yeah.
George
I think because that's how we price. So, you know, obviously the cost side is an input to which we margin up to, you know, drive our returns.
George Chappell
Yeah, just as Rob is pricing inflation in the existing portfolio, he's pricing inflation exactly the same way in a development project. So it's accounted for identically.
Anthony Powell
Got it. All right. And I guess on the guidance, so the guidance doesn't assume any kind of additional needed discussion with customers in terms of price increases, right? So it assumes that what you've done already is all you need to do. Is that right?
George
Yeah. As I think we said in the prepared remarks, we've priced what we've seen. If we continue to see inflation beyond the embedded normal escalation in our contract, that would Rob mentioned and George mentioned both in their prepared remarks, there tends to be a slight lag where we need to experience that for a period of days and then we can work to implement the rate increase.
Rob
Thank you. Our next question is from Bill Crow with Raymond James.
Operator
Please proceed with your question.
George
Yeah, thanks. Good evening. George, maybe it's just me, but the picture that you know, I think has been painted tonight as of a company that's not been particularly well run. And you talk about the challenges delivering service to your customers and that sort of thing. I guess the very fact that you're on this call indicates that there's been a problem. And I guess I'm trying to, you know, I guess maybe one, did Agro make a mistake selling to to AmeriCold and is that really prompted your decision to come full-time and to kind of resurrect that? Or number two, going back to Keebin's comment, if it has been kind of a challenging business over the past couple of years, why is Q&A going up $40 million and how much of that is staying at headquarters versus workers out in the field?
George Chappell
Yeah, I'll let Mark address the G&A question, but the first part of your question is I don't think AmeriCold has been run poorly. Just to be perfectly clear, if you look at the companies I'm aware of in the food industry and others in the cold chain, like agro-emergence, the macroeconomic environment driven by COVID and unavailable labor, something I've never experienced in my career, I've experienced high-cost labor before. I've never experienced unavailable labor to this degree. I think that's what has really impacted service levels. That's what has really disrupted companies. And as we've said a lot of times, AmeriCold is not immune to those macroeconomic issues. So to clarify, now it's still our job to build back to where we were and beyond when it comes to customer service. when it comes to our labor mix between permanent and temp labor, and when it comes to ensuring our development projects deliver. Those are all things we can control. Those are all things we have to make sure emerge stronger than they were pre-COVID. But I don't think it's a miracle being run in a poor way. It's the macroeconomic environment that impacted every company in the food supply chain. So Mark, if you want to address the G&A.
George
Yeah, so on the G&A front, as I mentioned previously, you know, it's the step up is, you know, this is a performance driven culture. And I think you've heard that through what George said. Clearly last year, was not a performance where the leadership team or the management team and the operators of the business earned their full incentive. But when we do plan, we set aggressive targets and we plan to pay those cash incentives. So that's part of just the year-over-year step up. The next piece is quite the contrary. AmeriCold is thought of as industry leaders. We develop talent. and our leaders are well thought of throughout the industry. So as part of that, we approved a retentive grant to protect that talent that we have across the organization. As I mentioned, that's approximately $11 million next year of that increase. The final two buckets, as I said, is We're transitioning, and as we're integrating systems and integrating our recent acquisitions, we're moving away from buying software to entering into agreements with our software providers where it's software as a service. So that manifests itself in our G&A, and what you'll see over time is a reduction in the maintenance capital spend around IT. If you think about those, they're both a component to AFFO, and they'll net offset each other over time. It's a geography question. The final one is there is normal inflationary impact overall in the environment, both on corporate salaries and other overheads such as travel, insurance, and just associated benefits. So hopefully that helps you bridge the gap.
George
Yeah, I appreciate that, Mark. Can you tell me how your thoughts about external growth, acquisitions, and development might have changed over the last year? six or eight months as your cost of capital has gone from kind of an advantage for you to a pretty significant handicap?
George
Yeah, look, I think, you know, obviously we're very aware of the recent impact to our cost of capital, but I think our core business model, you know, is designed around how do we continue to support our customers and their growth? And we accomplish that a number of ways. You know, we're focused on driving organic growth through the portfolio, We're focused on supporting our customers through dedicated development projects that support their business. As I mentioned in my prepared remarks, we have six deliveries of projects in 2022. Four of those are customer-dedicated, and those tend to be the larger projects. And then lastly, we remain focused on strategic acquisitions that enhance the platform and enhance our ability to serve our customers around the globe.
Rob
Thank you. This completes our question and answer session. Thank you for your participation. You may now disconnect.
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