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Operator
Greetings, and welcome to the AmeriCold Reality Trust fourth quarter 2022 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone wants to require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your hosts, Scott Henderson, Senior Vice President, Capital Markets, and Investor Relations.
Scott Henderson
Good afternoon. Thank you for joining us today for AmeriCold Realty Trust's fourth 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 Chappell, Chief Commercial Officer, Rob Chambers, and Chief Financial Officer, Mark Smirnoff. 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 to speak only as of the date they are made. 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 Corrie Vida 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.
George Chappell
Thank you, Scott, and welcome to our fourth quarter 2022 earnings conference call. This afternoon, I will provide an update on our four near-term priorities and summarize our financial and operating results. I will then discuss the current market conditions that are underpinning our 2023 guidance. Rob will provide an update on our recent customer initiatives, and Mark will comment on our capital markets activity, along with a detailed walkthrough of our full year 2023 guidance. Turning to our four near-term priorities. First, we continue to effectively reprice our warehouse business to offset inflationary pressures in our cost structure. and protect margin dollars. Additionally, as our longer-term customer agreements come up for renewal, we are repricing these agreements, which will move us back towards our historical warehouse margin percentages. For the fourth quarter, rent and storage revenue per economic occupied pallet in our same store on a constant currency basis increased by 8.9% versus the prior year. Service revenue per throughput pallet increased by 9.8%. During the fourth quarter, we saw inflationary pressures in our business begin to moderate sequentially. However, we continue to implement targeted pricing and power surcharge initiatives to address known inflation, and we will exit the first quarter at a run rate covering all known inflation incurred through the fourth quarter. Moving through the first quarter, we expect the majority of inflationary pressures to continue to be in power costs, in select markets, and in certain warehouse supply costs. As such, we will maintain our targeted pricing and power surcharge initiatives. Consistent with our last call, at this time and based on current market conditions, we do not anticipate significant moves in our overall labor rates going forward. As I mentioned previously, we have added tighter controls, created more robust processes, and strengthened our team to ensure that we have an accurate, timely view of each cost component, and we are in a strong position to take action quickly if required. Second, we are focused on differentiating our platform by providing best-in-class customer service. We are continuing to see a positive shift in our customer service levels with the increase in our perm to temp ratio. which I will discuss momentarily. As we expected, our service levels are improving as our newer associates get more familiar with the AmeriCold operating system and our workforce ratio improves. We expect this trend to continue with our efforts to reduce turnover. As I have mentioned on previous calls, we strongly believe that servicing our customers at best-in-class levels will ultimately lead to increased market share and has meaningfully contributed to our recent increase in occupancy. For the fourth quarter 2022, our same store economic occupancy increased by 634 basis points over fourth quarter 2021 to 85%, a level not seen since the fourth quarter 2019, a pre-COVID year. We operated efficiently and provided best in class customer service at this level. and we believe we can continue to drive occupancy higher than pre-COVID levels. We cannot underscore enough the importance of our customer service initiatives, which are helping drive our strong incremental occupancy and market share gains. Third, we continue to focus on labor management with the goal of optimizing our mix of permanent and temporary associates in our facilities, while also reducing our turnover rate. As we have mentioned in previous calls, 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. During the fourth quarter, we are very pleased to have achieved a perm to temp hours ratio of 73.27. This is 11 points higher than our fourth quarter 2021 levels and better than our pre-COVID levels of 70.30. we are making progress toward our longer-term goal of achieving a consistent 80-20 ratio. Next, our turnover rate is still significantly elevated when compared to both last year and pre-COVID levels, but we are making improvements. Normalizing for the exit of a large retail customer and the corresponding associates in our third-party managed segment, we ended December 2022 at an annualized turnover trend approximately 17 percentage points higher than that of December 2021. Compared to December 2019, a pre-COVID year, we were approximately 22 percentage points higher. On a sequential basis, we improved our turnover rate slightly from the third quarter. As a result, For the near future, we expect to continue to be staffed with a relatively higher ratio of newer associates who take time to move up the learning curve, which impacts our productivity and corresponding service margins. A stable, well-trained workforce is critical to operating efficiently and returning to pre-COVID margins in our warehouse services business. Our final focus area is ensuring that our development projects are delivered on time and on budget, and then deliver the underwritten returns. During the fourth quarter, we opened two new facilities, one in Dublin, Ireland, and one in Barcelona, Spain. Both projects are ramping to expected stabilized returns in line with our underwriting. Additionally, please note, throughout 2022, we have taken significant steps to enhance the quality and expertise of our development platform. We have revamped our process on how we are executing current projects and how we evaluate new projects. We have also significantly enhanced our development team. We have recruited best-in-class talent from strong global automation organizations such as Dematic, Siemens, and Vondelande, to name a few. We have five automated facilities coming online this year. and we look forward to each of them being a productive part of the food supply chain in support of our customers in creating shareholder value. Our capabilities around underwriting, capital deployment, and operating our developments have vastly improved. In short, our development platform is much stronger than it was at the start of 2022. Given the enhancements we have made in our development team, and the strong improvement in occupancy across several key markets, we have identified certain critical markets where customer demand is outstripping capacity. We are actively underwriting customer-driven expansions in these select markets, which Rob will discuss momentarily. Turning to our full-year results, for 2022, we delivered AFFO per share of $1.11 on the higher end of our increased guidance range. This performance was primarily driven by our global warehouse same-store pool, which generated revenue growth of 8.5% and NOI growth of 6.7% versus prior year, both on a constant currency basis. Our strong same-store revenue results were driven by a combination of our ongoing pricing initiatives and sustainable economic occupancy growth, partially offset by reduced throughput volumes. Rent and storage revenue per economic occupied pallet in our same store on a constant currency basis increased 7.3% versus prior year. Service revenue per throughput pallet increased by 7.7%. As for occupancy, we delivered a 345 basis point increase in economic occupancy over the prior year. This increase in occupancy is attributable to two factors. First, Our food manufacturers continue to ramp production levels. And second, our intense focus on customer service led to an enhanced win rate on customer opportunities. In addition to new business, our customers publicly recognized AmeriCold's performance. Let me give you a few examples. Unilever awarded AmeriCold's Sykeston, Missouri facility with its Ice Cream Site of the Year Award. Butterball awarded our Russellville, Arkansas facility with its Site of the Year Award. And in Australia, Yum! Brand's Kentucky Fried Chicken business awarded us with its Supplier of the Year award, to name a few. We appreciate this recognition, and we look forward to continued progress around our customer service initiatives. In summary, throughout 2022, we significantly repriced our warehouse business, drove strong improvements in economic occupancy, improved our customer service, and were laser focused on controlling the controllable, in the face of a challenging labor and power environment. We are very pleased with the progress we have made this year, thanks to the hard work of our 15,000-plus associates. Now on to current market conditions that are underpinning our 2023 guidance, which Mark will go through in more detail. For full year 2023, we expect our economic occupancy to continue to improve, driven by food manufacturers continuing to ramp production and our best-in-class customer service. However, given the continued inflationary environment coupled with a broader slowdown in end consumer spending, we do expect lower throughput volumes as end consumers reduce overall basket sizes and the amount of pantry stocking. From a pricing standpoint, we expect to continue to cover inflation to benefit from our normal course annual rate escalations, to reprice our longer-term agreements that come up for renewal, and lastly, to underwrite new business appropriately. From an operational standpoint, we anticipate continued headwinds from a challenging labor market. As a result, we expect higher than average turnover in our facilities to continue throughout 2023. The impact of this will be continued pressure on service margins. Additionally, we are expecting improved NOI contribution from our development projects as they ramp up throughout 2023. Lastly, we expect base interest rates to keep increasing in 2023, which impacts the cost of our floating rate debt. Against this backdrop, we are guiding to a full year 2023 AFFO per share range of $1.14 to $1.24. During the course of this year, we will be accelerating the integration of global acquisitions through the implementation of new best-in-class cloud-based back office systems to enable standard processes, capture synergies, and implement the AmeriCold operating system. This new technology will position us well for growth globally, reduce time to integrate future acquisitions, and provide enhanced business analytics to further optimize our existing business. Mark will go into more detail in his section of today's call. Lastly, let me comment on our ESG initiatives, which is a key priority for us here at AmeriCold. Last year, we disclosed that we completed our submission to the carbon disclosure project for 2022. We recently received our inaugural carbon disclosure project score of C, which is in line with supply chain companies within CDP's defined peer set. We are committed to transparency around our ESG initiatives, and are pleased to be part of the CDP's annual process going forward. Additionally, I'm pleased to report that 19 of our facilities in the United States were certified Energy Star last year, making us a 2022 premier member of Energy Star's certification nation. To become certified, buildings must meet strict energy performance standards set by the U.S. Environmental Protection Agency. We are committed to certifying additional facilities in 2023. With that, I will turn it over to Rob.
Scott
Thank you, George. Over the past year, we have seen our food manufacturing customers continue to ramp production levels and fill rates meaningfully improve. These overall industry trends are driving higher economic occupancy across our portfolio. As a result, we have seen increasing demand for our facilities and services across all nodes in our network, production advantage sites, major market distribution centers, and retail distribution centers. We are also winning incremental wallet share from our top customers based on our keen focus on delivering best-in-class customer service and our network of critical infrastructure. We expect this to continue. At this point, I would like to provide some brief comments on our overall pricing initiatives. First, as our longer-term customer agreements come up for renewal, We will continue to revisit our pricing structures in order to move us back to our historical warehouse margin percentages. Please note that this is a multi-year process as the vast majority of our agreements are on three to seven-year terms. Second, we will continue to benefit from our in-place annual contractual rate escalations on these current customer agreements. Third, as it relates to these agreements, we will maintain our in-year targeted pricing and power surcharge initiatives to address known inflation, which, as George mentioned, has begun to moderate in certain areas of our business. And fourth, all new business and shorter-term agreements are being priced with a current and forward view of our cost structure. As for 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 $419 million compared to $357 million at the end of the fourth quarter of 2021. On a combined pro forma basis, we derived 41.9% of rent and storage revenue from fixed commitment storage contracts, which is an approximately 260 basis point improvement over the fourth quarter of 2021. Enhanced commercialization, which includes our fixed commitment initiatives, is a critical component of our strategy. We look forward to continuing to improve this metric, which will drive improvements in our economic occupancy. Over the past few quarters, we are encouraged to have seen an acceleration of the customer's adoption of this commercial structure, which provides certainty of space for our customers as overall industry occupancy increases. Within our global warehouse segment, we had no material changes to the composition of our top 25 customers who account for approximately 47% of our global warehouse revenue on a pro forma basis. We are pleased to know that we have increased our wallet share with the vast majority of our top 25 customers for our focus on best-in-class customer service and network of strategically located mission-critical infrastructures. Additionally, our churn rate remained low at approximately 3.2% of total warehouse revenues, consistent with historical churn rates. Turning to development. As you can see from our development schedule on page 38 of our IR Supplemental, we have five projects that have been or will be completed in 2023 and are expected to generate a meaningful amount of NOI over the next three years. These include the following. Two customer-dedicated automated development projects for a large retailer, one in Lancaster, Pennsylvania, and one in Plainville, Connecticut. A customer-dedicated automated expansion project for a large food manufacturer in Russellville, Arkansas. A multi-tenant automated expansion project anchored by large food manufacturers in Atlanta, Georgia. And a multi-tenant automated expansion project anchored by a large retailer and a large food manufacturer in Spearwood, Australia. We recently completed our customer-dedicated automated facility in Lancaster, Pennsylvania, and we anticipate starting the process of inbounding product into the facility over the next 30 days. We are very excited about achieving this milestone and we look forward to servicing our customer and delivering on the expected returns outlined for this project. Please note, we have also extended out the target completion and expected stabilization dates for the sister project in Plainville, Connecticut, for the same retail customer. This change is being made in consultation with our retail customer to continue testing and commissioning the automated systems, while at the same time focusing on the launch of the other facility in Pennsylvania. We now expect the Connecticut facility to be completed in the third quarter of this year and stabilize in the first quarter of 2025. Our stabilized return expectations have not changed. While this impacts our overall non-same-store pool NOI in 2023 due to this shift in timing, we, along with our customer, feel strongly it is the prudent approach, and this is reflected in our 2023 guidance. As George mentioned, we have strengthened our development platform, and we have seen strong occupancy improvement across several key distribution markets. In these markets, customer demand is outstripping capacity, and we are evaluating and underwriting customer-driven projects to address this demand. Our development pipeline is robust, and we are confident that we have built a world-class team to deliver on current and future projects. At this point, I would like to comment on the recent partnership agreement we have entered into with DP World, a top five global port owner and operator. DP World and AmeriCold have entered into an agreement to explore opportunities for AmeriCold on a case-by-case basis to develop, own, and operate state-of-the-art cold storage facilities on DP World's strategically located 80-plus ports located around the world. DP World will benefit from increased traffic through its port locations, which will translate to incremental revenue due to our facilities. We will be fulfilling a need in DP World service offerings, which will be beneficial to all parties involved, customers, DP World, and AmeriCorps. As one of the world's largest port owners and operators, DP World is an integral part of the supply chain, moving approximately 10% of global trade through its seamless, interconnected global network of ports and terminals, logistics hubs, and marine services. We are already seeing the benefit of this relationship through customer synergies that are resulting in incremental occupancy in AmeriCold's current network. We are very excited about this opportunity and look forward to providing updates on new development opportunities at DP World's port locations. Lastly, I want to thank all of our AmeriCold associates who worked hard every day during the fourth quarter, our busiest time of the year, to ensure that we played our part in getting food through the supply chain and available for families as we gathered for the holiday season. We are encouraged by the growth we've experienced in our occupancy across our portfolio, and it is a direct reflection of the great work of our associates, the innovation of our solutions, and the criticality of our infrastructure. We thank our customers for their partnership and the opportunity to fulfill our mission of helping our customers feed the world. Now, I will turn it over to Mark.
George
Thank you, Rob. Today, I will discuss our capital markets activity and then turn to FY 2023 guidance. During the quarter, our capital markets activity included using proceeds from our delayed draw term loan to pay off our $264 million TMBS loan that would have matured in May 2023. Following this repayment, we have no secured real estate debt outstanding. On December 5th, we entered into interest rate swaps to fix the base interest rates on the remaining floating portion of our unsecured term loans into the year 2027. As a result of these hedging transactions, the only remaining floating rate debt in our capital structure is the outstanding amounts drawn under our unsecured revolver. At year end 2022, 85% of our total debt outstanding is fixed and our nearest maturity is our 200 million notes due 2026. At quarter end, total debt outstanding was $3.3 billion. We had total liquidity of $682 million, consisting of cash on hand and revolver availability. Our net debt to pro forma core EBITDA was approximately 6.6 times. At this point, we have invested approximately $471 million on development projects in process, which reflects almost one turn of leverage. We have approximately 76 million remaining to invest on announced in-process development projects over the next year. As George and Rob discussed, we have five scheduled deliveries of large automated facilities in FY 2023. And combined with the maturation of the three projects we delivered last year, we expect the company to organically de-lever as all these projects ramp to stabilization. We are cognizant of our leverage levels and continue to explore alternative sources of capital, which allows us to continue to support our customers' growth. Turning to our full year 2023 guidance. For the full year, we expect AFFO per share in the range of $1.14 to $1.24. Please see page 42 of the IR supplement for the individual components. At this point, I'll comment on the primary building blocks to get to AFFO per share and provide a bridge for each as it relates to last year's results. Starting with our global warehouse segment, let me quickly comment on the new 2023 same store pool. Our new pool is now 221 facilities, which is approximately 93% of the total number of properties in our warehouse segment. The summary of the 2023 same store pool historical performance for 2022 is presented on page 37 of the supplement. We have 17 facilities in the 2023 non-same store pool. For the full year 2023, we expect constant currency revenue growth in the same store to be in the range of 3% to 6%. Let me provide more detail around the key drivers of this growth. for occupancy and throughput volumes. For the full year, we expect economic occupancy to increase by approximately 50 to 150 basis points as we expect food manufacturers to continue to ramp up production, the benefit of recent commercialization efforts, and softer throughput volumes. For the full year, we expect a slight decline in throughput volumes of 1% to 2% as end consumer demand slows and basket sizes shrink due to the current economic environment. For pricing, for the full year, we expect constant currency rent and storage revenue per economic occupied pallet growth to be in the range of 4% to 6%. Also for the full year, we expect constant currency service revenue per throughput pallet growth to be in the range of 4% to 6%. This pricing guidance for both rent and storage revenue per economic occupied pallet and service revenue per throughput pallet reflects our continued pricing and power surcharge initiative to cover known inflation, our in-place annual contractual escalation and GRI step-ups, and the commercialization of market-based pricing for contracts that we underwrite or renew. For the full year, we are now expecting same-store constant currency NOI growth to be in the range of 4% to 9%, which is 100 to 300 basis points higher than the corresponding revenue growth. Please note the following guidance metrics are provided on an actual dollar basis, not on a constant currency basis. With regard to the new 2023 non-same-store pool, as can be seen on page 37 of the supplement, The new non-same-store pool generated negative 2.3 million in NOI in the fourth quarter of 2022. Our expectation is that the non-same-store pool will continue to generate negative NOI during the first two quarters of 2023, at slightly more of a loss than what the pool did in the fourth quarter of 2022 due to a ramp-up of startup costs for five projects. We expect the pool to generate positive NOI in the second half of 2023. For the full year 2023, we expect the new non-same store pool to generate approximately 0 to 15 million of NOI. Turning to our managed and transportation segments NOI. For the full year, we expect these segments combined to generate approximately 50 to 57 million of NOI. In 2022, excluding the approximately 11 months of NOI from our managed business that we exited in the fourth quarter last year, these segments generated approximately 53 million of NOI. Please note, the lower end of our guidance range assumes some level of transportation decline in the face of broader economic headwinds. Turning to our SG&A expense. For the full year, we expect total SG&A to be in the range of $216 to $234 million, inclusive of $24 to $25 million of stock compensation expense. As a reminder, we exclude stock compensation expense from our total SG&A expense to arrive at what we call core SG&A expense, which is what truly impacts AFFO. For the full year, we expect core SG&A to be in the range of $192 to $209 million, The midpoint of this 2023 range is slightly down from our 2022 core SG&A expense of $203 million, primarily due to last year's core SG&A expense being elevated from the company achieving the higher end of its performance-based annual cash incentive compensation program. Turning to our interest expense. For the full year, we expect interest expense to be approximately $134 to $140 million. This range is higher than our 2022 interest expense of $116 million due to our expectation of full year 2023 average indebtedness being higher than that of 2022. Additionally, approximately 15% of our total outstanding debt is currently floating, and we expect base interest rates to continue to increase into 2023. Onto our cash tax expense, which is the number that impacts AFFO. For the full year, we expect this expense to be approximately $5 to $9 million. As a reminder, most of the corporate income taxes we pay at AmeriCold relate to our international operations. Turning to our maintenance capital expenditures, for the full year, we expect this investment to be approximately $80 to $90 million. We expect to announce development starts aggregating between 100 to 200 million. 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. Finally, please refer to our IR supplement for detail on the additional assumptions embedded in this guidance. Lastly, as George mentioned, We are accelerating our global integration and beginning a multi-year investment into a new cloud-based ERP billing human capital management and facility maintenance system to upgrade our current capabilities and bring recent global acquisitions onto a common platform. During this implementation period, which we expect to be approximately three years, we'll be making an aggregate $100 million investment into this system. which includes approximately $50 million capital investment, along with another $50 million of one-time implementation and integration expenses. We expect slightly under half of this investment to be made in FY 2023. We believe the vast majority of the benefits from this investment will come from NOI enhancement, net SG&A savings, lower IT maintenance capital expenditures, and working capital efficiencies. Starting in 2025, ramping into 2026, and fully stabilizing in 2027, we expect this investment to add approximately 15 to 20 million of incremental recurring AFFO. During this three-year period, the portion of the investment being capitalized will not impact recurring maintenance CapEx, and as a result, will not impact AFFO. Additionally, during this three-year period, we'll be excluding the impact of the expense portion of the investment from our CORI BIDDA and AFFO calculations. Now let me turn the call back to George for some closing remarks.
George Chappell
Thanks, Mark. Overall, I'm very pleased with our performance in 2022 and our path forward. We made good progress on our four near-term priorities. We continue to enhance our internal capabilities around controlling but we can control. We made significant progress on our customer service initiatives, and we are very proud of the recognition and awards we have received from our customers. Our core same-store pool continued to recover nicely as we saw economic occupancy meaningfully improve, and we continue to price to offset inflation. We can expect to see service NOI margins improve as we move towards our optimal perm-to-temp ratio and stabilize our turnover rate. Finally, we extended debt duration on our balance sheet and took steps to minimize the impact of rising interest rates. In the face of many challenging macro headwinds this last year, I would like to thank the AmeriCold team for their hard work and contributions to our performance. Thank you again for joining us today, and we will now open the call for your questions. Operator.
Operator
Thank you. Ladies and gentlemen, if you would like to ask a question, please press star 1 on your telephone keypad. Under confirmation, it will indicate your line is in the 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. We also ask that, due to the interest of time, you limit yourselves to one question and one follow-up. One moment, please. We'll recall for questions. Our first question comes from the line of Dave Rogers with Baird. Please proceed.
Dave Rogers
Yeah, good afternoon, everybody. First for Mark and George, it looks like based on your guidance that your occupancy and margin growth will be weighted and same-store NOI growth weighted probably toward the first half of the year. So I wanted to confirm that. And then as I think about the second half of the year, George, what do you think the biggest components, once you catch up on occupancy and margin to where you were, I guess what are the biggest components? Is it just down to labor and efficiency at that point to drive margin higher?
George Chappell
Yeah, let me answer the second part first, and then I'll turn it over to Mark. But you're absolutely right, Dave. The second half of this year, and really ongoing if you go back to our previous discussions, it's all about labor, getting permanent labor in that you can give the three months of time it takes to be a productive permanent employee. and limit the need for contract labor, which as we've said all along, costs more and is far less productive. So it's all about getting the permanent to temp ratio up closer to the 80% we believe is right for this business, getting them to be with us for longer than three months so they learn our processes, they learn our systems, and they become much more productive. And then you'll see our services margin increase commensurately. That's by far and away the top priority throughout the year. Occupancy, I'd say the comp in the first half of the year is much easier than the comp in the second half of the year. So that drives some profitability into the first half versus the second half. And Mark, I don't know if you have more to add on that.
George
Yeah, I think the one thing just to build on that is I mentioned in my prepared remarks, and George and Rob both mentioned, we have a number of deliveries of large automated facilities. coming on this year. And as you see from the new same store pool, that pool is carrying a slight loss into the year based on Q4 performance. And we expect that loss to continue to grow through the first half of the year and then recover as those buildings become operational throughout the year. I will remind everyone that the full year guide for the non-same store pool is to make between zero and 15 million. So it does end positive for the pool, but there is that impact of the J curve in the first half.
Dave Rogers
And then if I could ask just to follow up on throughput, obviously a big topic in the fourth quarter. As you look forward and you look back, I guess, at the COVID area, throughput really kind of accelerated, I guess, during COVID and drove results for you guys. And now it's kind of reversing out. How long do you anticipate that to take before it really stabilizes out and you get back to a normalization? Do you have any read on that from the fourth quarter and moving into January and early February?
George Chappell
Well, If we look at what we believe the causes are, we've had about a year now of pricing in the food industry in almost every category that nets out to somewhere between 10% and 15% increases year over year. You combine that with interest rates rising and squeezing disposable income, and what you get is less buying power in the store per individual, smaller basket sizes, less foot traffic, very little if any pantry loading, right? You're buying food for short durations and you'll come back and buy more when you need it. And that's really started to accelerate with the latest interest rate increases and some of the earnings releases of large food manufacturers across our country. They're all citing the same dynamics as being soft on throughput. So when will that turn around? Well, I mean, you've got to find some way to increase disposable income because it's very unlikely any price increases are going to roll back, right? They're all driven by macroeconomic issues around labor. And I don't know anybody, including us, who's planning on labor costs reducing over time. In fact, it may slightly increase over time. So it's really, Dave, down to when consumers have more disposable income in their pockets. And I don't really have a good way to get a read on that, given we still have interest rate increases in front of us, at least with the latest news.
Dave
Thanks, George. Appreciate the time. Thanks, Dave. Our next question comes from the line of Samir Khanal with Evercore ISI.
Operator
Please proceed.
Samir
Hi, good afternoon, everybody. George, maybe help me walk through occupancy a little bit. I know it's averaging 80 percent for the year. You know, you'll go back in history. It's sort of, you know, the level you were at sort of pre-COVID. Help me understand why you think this time it's going to be, you know, you've talked about being up 50 to 100 base points. I'm just trying to understand why you think it's different this time around where occupancy can go even higher.
George Chappell
Yeah, well, I think it will go higher partially because of the throughput question I just answered. So, if you combine the reduction in throughput driven by less disposable income that consumers have and higher prices at retail. with the fact that food manufacturers are recovering their production. So I think it was Kraft who came out recently and said they hit 90% service level. They think they can get to 98%, which is the industry norm, by the end of the year. So I think they would be a fairly typical manufacturer in the U.S. food industry, and they clearly believe they can ramp up production, and some of our other customers not only believe it but are doing it also. So if you combine the recovery of food manufacturing industry with the slowdown in purchases at the consumer level, inventory is going to rise. So that's why I believe our inventory will rise, and that's why our guide is 50 to 150 basis points higher. Now, why do I believe we can operate at higher levels? That's pretty simple. We hit 85% occupancy in the fourth quarter, and we had great customer service. So we were able to take in every truck we had to, turn it around and get it back out well within the metrics our customers expect. We weren't the most efficient in the world on the handling side for the reasons I mentioned. New employees, less than three months on the job, higher content of contract hours given that fourth quarter is our busiest quarter. But if we can get through the fourth quarter as well as we did, and we did a really good job on customer service at the 85% level, I have no doubt we can grow occupancy, you know, 50 to 150 basis points this year. And I believe it will happen for the reasons I mentioned around throughput and food manufacturers ramping up.
Scott
So, Samir, one point, this is Rob, that I would add to what George just said is I think also The acceleration we're seeing around the adoption of the fixed commitment structure is another reason why we're confident that our economic occupancy can go higher than pre-COVID. I mean, just in the last 12 months, we increased our fixed commitment revenue by 17%, the amount of fixed commitment revenue. So I think if that trend continues, and we can help smooth out the seasonality a bit of the business, that it's going to allow us to see increases in economic occupancy as well.
Samir
Got it. And then I guess just as another question here, you know, one thing we were trying to flesh out was your revenue growth guidance here of 3% to 6%, call it 4.5% at the midpoint. You know, you've done 8, 3, and 22. You know, we would have thought maybe that, four and a half would have been higher considering the business continues to recover. You look at the USDA data, that's trending in the right direction. Look, I know you had the big occupancy pick up in 22. I get that, but I'm just trying to make sure we're not missing anything. Just trying to see how much conservatism you've baked in that range at this point. Thanks.
George Chappell
Yeah, I'd say that the difference between 2022 and 2023 in revenue growth is driven by the pricing differential in the year. So 2022, Remember, we were fighting inflation every quarter. I think we ended every quarter with in the next quarter we'll offset inflation in the previous quarter. We had numerous significant price increases throughout the year. We don't see that in 2023. In 2023, we see labor moderating. We see power starting to moderate a little bit in Europe. So it's likely surcharges will reduce in Europe. We don't see the need for significant power surges and or price increases to offset labor and Asia PAC. So it's really the effect of inflation and power moderating, at least that's our view for now, and the lack of pricing beyond our normal annual price increases, which gets you to the range that we've put in our guide. But without the off-cycle price increases fighting inflation throughout the year, which happened in 2022.
Dave
Thank you. Yep.
Operator
Our next question comes from the line of Mike Mueller with J.P. Morgan. Please proceed.
Mike Mueller
Yeah, hi. I guess in the comments of the tech investment, the $100 million in tech investment that's not going to be impacting AFFO, I guess, capex or expenses. Talked about 15 to 20 million recurring FFO. If we're thinking about a P&L, where exactly does that flow through down the road? Where are the key line items that we're going to see that benefit materialize in?
George
Yeah, so for the AFFO impact side of that, you'll see it in a number of ways. You'll see it principally in NOI enhancement. flowing through the warehouse portfolio once fully stabilized. Secondarily, you'll see it in net SG&A savings. And then lastly, as it relates to AFFO, you will see it in lower IT capital expenditures. Remember, there's a geography shift, so you have lower capex and a little more SG&A spend, but there is still net SG&A savings. So those will be the three principal line items that they'll have.
Dave
Got it. Okay. Thank you.
Operator
Our next question comes from the line of Michael Carroll with RBC Capital Markets. Please proceed.
Michael Carroll
Yeah, thanks. Can you provide some more details on the DP World Agreement? I mean, is this an exclusive relationship that you guys have with DP World? And And it looks like a number of those ports are international. So are you looking to expand more broadly in your existing international markets like Australia and Europe, or are you looking to go into new international markets with this relationship?
Scott
Yeah, thanks, Mike. So what it does is it gives us the first right of the ability to look at these opportunities, and we'll look at opportunities globally on a case-by-case basis, underwrite each one on a standalone basis. And if there's an opportunity that we think makes good sense, we'll move forward. So it does give us that first look. So we're really excited about the opportunities. We're really excited about the partnership. And it is very much a global relationship. And so It will include regions where we do business today, and it could include new opportunities and be a great way to enter new markets for us into the future.
George Chappell
Go ahead, George. Sorry, Mike. I just want to add real quick that they have a view as to where cold storage is needed based on the expertise they have in the ports they serve around the world, so it's While we have right of first refusal, we also have their insight as to where they believe cold storage is needed, and the level of business intelligence they have is very, very impressive. So that's another side benefit.
Michael Carroll
Great. And then are they the ones bringing you the opportunities, or is it vice versa? And then just one modeling question, is this going to be on a land lease? I'm assuming. So you're going to be building the project and then be leasing the land from DP World?
Scott
It's a combination of both. We have instances where we're bringing some opportunities and instances where they're bringing opportunities to us and should be a great partnership. And yes, it will be land lease opportunities.
Dave
Okay, great. Thank you.
Operator
Our next question comes from the line of Vince Taboney with Green Street. Please proceed.
Vince Taboney
Hi, good afternoon. So your occupancy in the fourth quarter was higher than 2019 levels, while the USDA data for all cold storage commodity stock was down about 7% versus 19 levels. So just what do you think is driving the delta in performance there? And does this kind of indicate that AmeriCold is gaining market share since the pandemic?
George Chappell
Yeah, I think there's two components to that. One is the USDA data is a subset of the data that we have in our warehouses. So let me give you a big example. One is the prepared foods part of our business. So items that you would typically find at Walmart, Kroger, Publix, in the frozen food section, finished goods items that consumers buy. That is not captured in the USDA data. The USDA data is more commodity-based and used for inputs into the manufacturing process. So the data will never align 100% and can diverge, as you just mentioned, as more of the food processors pick up their volume and the USDA data can remain flat on the raw material side for manufacturing. So I hope that's clear, the USDA data being a subset of what we store in our facilities.
Scott
I think the other thing that we benefit from is the fact that we Our book of business is skewed towards some of the larger food manufacturers. We talk about how just 25% or 25 customers make up 47% of our global warehouse revenue. So those customers, those large food manufacturers, as they've been able to get people back, they can certainly turn the volume on much faster than some of the smaller food manufacturers that may be more prevalent in other books of business. So for us, we've benefited by... you know, having the big blue chip customers as a significant portion of our overall percentage of our portfolio and seeing them recover faster and therefore, you know, for us as their main provider, be able to take advantage of that from an occupancy perspective.
Scott Henderson
And he mentioned market share too, Rob.
Scott
Yeah, and I guess lastly, from a market share standpoint, I do think, you know, what we've been able to see is an enhanced win rate that's allowed us to grab increasing wallet share with those big key accounts and large customers, food manufacturers. So for us, all of that kind of sums together and has resulted in strong occupancy gains.
Vince Taboney
That's a really helpful color. Thank you. Just switching gears for my second question. You mentioned delivering five automated facilities this year. Once those are stabilized, how much higher are the NOI margins for new automated facilities versus older ones?
George Chappell
I mean, the yields are in our supplemental. That's what we've underwritten to, and those are our targets. There's really no divergence from what you read in the supplement versus what we're targeting. So that can be computed. But the five that we're turning on now, this year, 2023, They're all state-of-the-art facilities. I mean, these are brand new facilities utilizing the best technology, the best hardware, the best suppliers we can find to implement them. And we would consider both in the retail side, two that are coming online, and the food manufacturing side, three that are coming online. We would consider them absolutely best in class for today, for sure. There's no better technology out there that went into these facilities. that we can find.
Vince Taboney
No, just to clarify, I didn't ask my question well. Maybe just like the NOI margin, not the development margin or development yield. Once it's stabilized, your overall portfolio is right around 30% NOI margin, roughly. Like our new automated builds, 40% NOI margin. Is it materially different than a traditional older facility?
George
No, you're correct. So The benefit of the automation is you're putting much more capital investment up front for lower operating costs on the back end as the automation and the machinery is replacing a lot of the direct labor. So we do expect those portfolios to operate at enhanced margins relative to our overall legacy portfolio conventional sites. So as those come on, you will see on an overall portfolio basis the margin increase expand within the overall warehouse pool.
Vince Taboney
Are you able to quantify how much higher the margins could be? Even ballpark could be helpful.
George
Yes. Look, I'd say if you look at ballparks, those sites, it varies by exact application, but they could be anywhere from 10 percentage points to 15 plus.
Dave
Got it. Thank you.
Operator
All right, question comes from the line of Craig Mailman with Citi. Please proceed.
Craig Mailman
Hey, guys. Mark, I just want to hit on a couple of the guidance items here. On the GNA, you guys did $55 million X the non-cash comp this quarter. Was there something in there one time that would make that a bad run rate?
George
Yeah, as I said, for the full year guide, and as you saw our earnings accelerate through the year, So based on our performance-based bonus, that would have accelerated commensurate with our earnings. And that's why, if you heard in my prepared remarks, I did mention our guide for next year on core SG&A is actually slightly down year over year. And part of the reason it is down because we've reset the bar back on the performance-based cash compensation. So from a modeling perspective, I would look to the new guide. more so than the run rate exiting Q4.
Craig Mailman
Even with the growth, some of the hires that George was talking about on the development side, general inflation, and the growth in earnings, you don't think that there's going to be a pickup in G&A. I only ask because it's kind of a swing there. Everyone else is kind of baking in higher labor costs next year and overhead, and you guys are going the other way. It just seems... A little bit counterintuitive with inflation still running hot. You guys have your people more?
George
Yeah, Craig, I will say that if you've looked at our SG&A over the last couple of years, we've been commenting that we've been investing in our G&A in order to support the growth that we have in the delivery. And so we have the requisite support that we've mentioned within the business. We do continue to look at gaining synergies and streamlining operations through weekend as we've tucked in net acquisitions as well. So you do have some of the benefit of that netting in. But overall, I would focus on the full year guide that we provided, not the Q4 run rate.
Craig Mailman
Okay. And on the interest expense side, you guys are moving the Plainville delivery to out two quarters, so that saves you a couple million bucks on cap G&A. Is there a cap interest? Is there also a cap interest on the, I think you said about $50 million, $100 million you're going to spend on the systems upgrade? Is that also offsetting interest expense?
George
It's probably a diminished amount. Most of the cap interest is related to the large capital projects. As you can see, last year, roughly, we capitalized just under $12 million in interest expense related to the development projects and roughly $3 million in the fourth quarter. So it kind of gives you a sense of the run rate going forward.
Craig Mailman
Right. No, I was just looking at the run rate of the interest expense in the fourth quarter that gets you like $132 million by itself, which is, you know, and that doesn't even account for the forward curve going up on the $500 million you guys have floating. So I'm just trying to think of if you have cap interest burden off and you're already there, I'm just trying to figure out the other kind of puts that you guys have and take that interest expense and keep it lower.
George
Yeah, the other benefit is when we swapped into fixed, we swapped into the fixed with a longer duration. So if you look at the shape of the curve, we're actually in certain cases lowering our interest rate expense, moving from floating rate interest down to fixed. And so some of that's in the benefit of the overall full-time.
Craig Mailman
Right. And just separately outside of guidance, just, George, you kind of talk about throughput being down, but margins going higher and, you know, options going higher because people are producing more, but at the same time, the economy is slowing. I mean, at a certain point, don't your customers stop producing as much if they're already at kind of inventory levels that can sustain the demand. And so I'm just trying to figure out if, you know, linear obviously growth this year into a slowing economy with slowing throughput, how that translates into margin expansion.
George Chappell
Yeah, I think the throughput, Craig, reduction has far less of an impact on us versus the increase in production from our manufacturing customers. So our manufacturing customers have not reached optimal fill rates yet, so they have a ways to go in building inventory to get there. We also know they're not producing the full portfolio of their products because they can't cycle through the schedule efficiently enough yet to do that. And we also know that there's been a real slowdown or even disappearance in some cases of new product development and new product launches. All those numbers are still way off from pre-COVID. So we have a ways to go to build back reliable inventory and get to fill rates of pre-COVID based on a full portfolio of products. So That's one point in why we're still bullish on occupancy and why we still think our margins will expand by taking our workforce from a relatively new workforce to an experienced and productive workforce. The throughput component in relative terms is a minor adjustment as opposed to what I just described on the build side for manufacturers.
Dave
Our next question comes from the line of Bill Crow with Raymond James.
Operator
Please proceed.
spk13
Hey, good evening. Thanks. George, if I could just follow up on that last one, and then I do have a follow-up question, but your customers, your public customers seem to have been rewarded for producing less and charging more and getting higher margins. I'm having the same issue understanding why they're going to pick up production if it's just going to go sit in a a warehouse that has become increasingly expensive to utilize?
George Chappell
Well, as we've always said, our costs for warehousing are relatively minor, low single-digit percentages of a typical product cost, a fully loaded product cost. But to get to the main part of your question, they're going to continue to produce because they're still not producing efficiently. They can't produce all of their products, and they can't produce them in efficient cycles to to get back to the product cost that they had pre-COVID. And they've all pretty much said that. They've said that they are trying to stretch their manufacturing cycles longer. They're getting there, but slowly. Their fill rates are not at 98%. I think Kraft, again, they quoted 90. I'd say that's probably typical, give or take a few hundred basis points by manufacturer. Our retailers still have out-of-stocks, unexpected deliveries, late deliveries, et cetera. So the supply chain is not operating normally. It's operating better than it was in, you know, let's say the second half of last year, but it's not operating normally. And until it does, they'll need to continue to produce more. And again, the throughput issue is definitely real. But it's not nearly the driver that the production side of the business is, at least with respect to us. So there's nothing in our warehouse cost that would prevent any manufacturer from continuing to build inventory to support their business and drive better service levels. It's exactly what we saw in the second half of last year, and that's what we expect to continue to see, at least for the first half of this coming year. And then we might see normalization in terms of better throughputs in the second half of the year. It really comes down to what the manufacturers are capable of. And hopefully consumers get a little bit more disposable income in their pocket and use that to reestablish buying habits in food stores that existed pre-COVID.
spk13
All right. Thanks. My follow-up question is really on the labor front. We've talked before that there wasn't really an amount out there that would draw a stable workforce to your facilities. You kept pushing up rates and you still had the turnover and the issues. Are you sensing any change in the workforce at all from their psychological change of wanting to come to work, needing to come to work, anything else going on out there that might help you?
George Chappell
I don't think so. I mean, we have made progress. The fourth quarter we quoted perm to temp at 73.27. That's actually above pre-COVID levels. So we are getting people in the door. Retention is still high. We said it's roughly 20 percentage points or a little higher than that than pre-COVID. So we're still having a much higher washout rate than we would like and that we need to make us efficient. But we are making progress. And I think I've said all along that the progress was going to be slow. It takes a lot of work to bring some new associate into the business, teach them the business, train them to be efficient and productive. And as we've said all along, we have to pay a premium in our business because the work is more difficult than, let's say, an ambient warehouse, the work that would be done there. So not a lot's changed. We've made progress, as the numbers say. But we still have a lot more to go, and I think it was last call I said that I don't expect us to normalize any time in 2023. I expect steady progress, and that's exactly the same way I feel now. We won't completely normalize in 2023, but we should continue to make steady progress. And even at the rate we've been making progress, we should exit this year far better off than we are right now, if not back to normalized levels.
Operator
Our next question comes from the line of Anthony Powell with Barclays. Please proceed.
Anthony Powell
Hi, good evening. I had a question on the prepared foods versus, I guess, the raw commodities difference. Is it a long-term benefit for you to have more exposure to prepared foods if consumers are consuming more of those as they have less time and want more convenience? And on the other side, is it a risk if we go into a more deeper recession and consumers need to save money and they buy fewer of these prepared foods?
George Chappell
Well, I think the strength of our portfolio is that we're in multiple commodities, multiple nodes in the network, and we serve all customers, whether they're manufacturers, retailers, or even import-exporters. So I think one of the great things about AmeriCold and what makes it so strong and resilient is the fact that we have the breadth of portfolio I just described. When it comes to the prepared food side of the business and pricing that's gone on there and the throughput discussion we've had, all that's normal course of business in the prepared foods world. None of that's new. I think it's accentuated because of the macroeconomic environment we're in at the moment coming out of the pandemic, et cetera. So I wouldn't say it's normal, but all the things that are going on have happened in the past, just at lower levels given the environment. I guess that's a long way of saying we do participate in the prepared food business heavily. We like the business like we like all aspects of our business, and we don't see it as a significant risk to our performance going forward.
Anthony Powell
Okay, thanks. And one quick one on guidance. Is there any foreign exchange either benefit or headwind on a year-over-year basis in the FSL guidance?
George
Yeah, our hedging strategies really serve to mute the impact of FX. So while operationally we try to hedge by having both our revenue and operational costs in the same currency in our foreign operations, in our largest markets we also hedge through the debt portion of the capital structure. So generally the benefit that you see in the operations or the pain you see in the operations, the opposite will be felt through below the line through how we manage the debt side of the capital structure.
Dave
So overall, it tends to be very minimal impact on the AFFO line. Our next question comes from the line of Josh Dennerlein with Bank of America.
Operator
Please proceed.
spk03
Yeah. Hey, guys. Thanks for the time. George, just wanted to kind of follow up on your comments on the development platform. You mentioned you overhauled the team and how you go about the development process. Just really curious to hear just kind of more color there and why you thought that was necessary.
George Chappell
Yeah. The reason we thought it was necessary was really setting ourselves up for this year. I mean, five large automated projects coming online is a is something we've been waiting for, and we're happy it's here. But it also, probably middle of last year, maybe a little earlier than that, it was clear that we needed to bring in some real top talent to be able to keep these projects on track five at a time and launch them all reliably, which we'll do this year. As a result, we've strengthened the team in all areas, whether it's planning, whether it's finance, whether it's the technical aspects of automation and engineering that goes with that, software engineering. We have a new leader that comes with 25 years of experience with Siemens, I think probably known as one of the best automation companies in the world. So we've put a lot of effort into making sure that we have a team that is top notch and can pull off five large complex automated projects successfully in a very short time frame. So that's the rationale as to why we brought in another team and we believe we'll get the benefits of it this year.
spk02
Okay. And do you think over kind of the medium term you'll be able to do more developments or Maybe better returns as well?
George Chappell
I think we'll definitely be able to do more developments. And as you can see in our guide, we have $100 million to $200 million dedicated to doing just that. What remains to be seen is if they'll be automated or conventional. And the problem with automated developments right now, if there is a problem, is the cost has gone up anywhere from 25% to 35%. on the materials and labor to execute them. And that's a material difference when it comes to our customers affording them. It's not immaterial. So if that were to roll back, I think automation would become much more popular. If it doesn't, I think conventional will go forward because I think the industry and certainly our customers need more capacity. They're letting us know that. we will react to that because our primary purpose here is to serve our customer needs, and we would never let a customer expansion opportunity slip by us. So right now, if I had to hedge it, I would say that we're probably more leaning towards the conventional side, giving the cost environment. But if things change on the cost side, I could easily see a few go the automation way. But either way, we have a team capable of executing and We will, you know, be very aggressive on putting some developments in the plan this year.
Dave
Thanks, sir. Thanks. Our next question comes from the line of Kee Bin Kim with Truist.
Operator
Please proceed.
Samir
Thanks. Good evening, everyone. I just wanted to go back to the DP world topic. Can you just... help us understand what the total scope of the partnership would look like, the ownership structure, and in terms of the income and ownership of the development properties, would it be just on a pro rata basis or would you have to pay them a fee?
Scott
Yeah, no. I mean, the scope of the arrangement, it's a global partnership. It gives us the opportunity to evaluate opportunities on a case-by-case basis. If we find one where we want to go forward, AmeriCold would develop, we would own, and we would operate the cold storage facility that would be built on DP World's land at one of their global ports. And we would sign a land lease that would benefit DP World. They would also get the benefit of increased traffic through the ports, particularly in locations that today have none or very little cold chain infrastructure. So it would be a traditional type of structure where we develop, we own, we operate, but it would be mutually beneficial for both parties involved. And for DP World, it would be as a result of a land lease and increased traffic through their port locations.
Samir
And in terms of scope, I know it's early, but what do you think the total dollars could be?
Scott
We haven't gotten to a point where we're ready to really even put anything like that out there. I can tell you we're already evaluating multiple opportunities across several different geographies, but not at a point in time where we would be comfortable with an amount from the total partnership.
Operator
Our next question comes from the line of Nate Crossett with BNP Paribas. Please proceed.
spk01
Hey, good evening. Maybe just following up there, how would you guys go about funding these opportunities? Because I think in the prepared remarks you mentioned alternative sources of capital. Does that mean JV or what's maybe the tolerance of equity issuance here?
George Chappell
Yeah, we are talking about JVs when we mention alternate forms of capital. And we've been mentioning this for a while. We've done a lot of work around this area. We feel like that there are partners out there that would work with us in a structure that we would like, which is an important part of establishing a JV. But we're very confident that we can arrive at a very solid relationship that we can manage and we like the structure of, and that would be the way we would fund many of the opportunities we're discussing.
spk01
Okay, that's helpful. And then just on the balance sheet, you know, getting rid of all that secured debt, does that give you potential for higher credit ratings?
George
Look, it's definitely a step towards it. I think as you look at the platform, and I mentioned in my prepared remarks, we are cognizant of where our leverage levels is. But as I said, roughly almost a turn of that leverage relates to in-process development, which will be moving from being built to moving to operational. So as the earnings come on, we will organically delever back down. So definitely, look, we're happy to have made the step to move to a fully you know, unsecured debt structure for a real estate debt, and we think that suits us long-term in terms of being able to raise cost-efficient capital.
Dave
Thank you.
Operator
There are no further questions at this time, and this will conclude today's conference. You may disconnect your lines, and thank you for your participation.
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