To the Americold Realty Trust First Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Kara Smith, Investor Relations.
Good afternoon. We would like to thank you for joining us today for Americold Realty Trust's Q1 2019 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 Investors section on our website at www.americold.com. On today's call, management's prepared remarks and answers to your questions may contain forward looking statements. Forward looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ from those discussed today.
A number of factors could cause actual results to differ materially from those anticipated. Forward looking statements are based on current expectations, assumptions and beliefs as well as information available to us at this time and speak only as of the date they are made. 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. More information about 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.
We would also like to note that numbers presented in today's prepared remarks have been rounded to the nearest 1,000,000 with the exception of per share amounts. This afternoon's conference call is hosted by Americold's Chief Executive Officer, Fred Boehler and Executive Vice President and Chief Financial Officer, Mark Smernoff. Management will make some prepared comments, after which we will open up the call to your questions. Now, I will turn the call over to Fred.
Thanks, Kara. Thank you and welcome to our Q1 2019 earnings conference call. This afternoon, I will provide highlights for the Q1 and discuss our exciting transaction activity completed post quarter end. Mark will follow with a summary of our Q1 results and then review our balance sheet, capital markets activity and outlook. After our prepared remarks, we will open the call for your questions.
Beginning with the Q1, we reported revenue growth in our Global Warehouse segment of 1.1% and NOI growth of 1.44%. We would note this quarter we were meaningfully impacted by currency fluctuations associated with the strength of the U. S. Dollar and adjusting for that impact, revenue growth in our Global Warehouse segment would have been 3.4% and our NOI would have grown by 2.7%. With regard to our overall business, fundamentals in the temperature controlled warehouse industry remains strong.
Demand continues to be steady supported by consumption growth and favorable secular trends. At the same time, high barriers to entry, including high cost, customer relationships and operational expertise serve to keep supply growth in line with market growth. We believe owning the right assets in the right locations together with our customer centric focus through which we partner with our customers to integrate their supply chain is the right long term approach for consistent and profitable growth. Turning to our development activity, we continue to make progress on all fronts. In Chicago, at our state of the art expansion project, we have received certificate of occupancy for Phase 1 of the building and our large anchor customer began inbounding product at the end of the quarter.
We expect that Phase 2 of the building will be completed this quarter and we have signed an agreement with a customer for 7% of the capacity taken total commitments to 45% of capacity. In Australia, we continue to work with our customer on the detailed design phase of the project. At the end of April, we completed the purchase of a land site in Sydney. Finally, in Savannah, we plan to break ground in the next 2 months as expected on our 15,000,000 cubic foot state of the art temperature control facility focused on the import and export of protein product. At this point, we continue to firm up customer commitments for that space.
Further, at the end of the quarter, we announced the significant expansion and redevelopment of our Atlanta major market campus consisting of our Tradewater facility, which some of you on this call may have toured, our Gateway facility and the surrounding facilities. Specifically, we intend to invest $126,000,000 to $136,000,000 in this campus. This project will result in increased capacity and position Americold to support existing customer growth, add new customers and improve our efficiency and profitability. At our Gateway facility, we plan to redevelop 2 thirds of the business, which was vacant and plan to build a fully automated facility with approximately 46,600 pallet positions. And at Tradewater, we intend to build a semi automated expansion, which will add 13,600 pallet positions.
Work has already begun related to these projects and we expect that we will deliver the Tradewater expansion late in the Q1 of 2020 with the campus completed by the end of Q2 2021. We have underwritten this project to achieve returns consistent with our redevelopment and expansion projects. These plans are supported by incremental demand from existing customers as well as overall market demand that we have previously turned away due to lack of capacity. Post quarter end, we made 2 exciting announcements that substantially accelerated our external growth activity. First, we have closed on our acquisition of privately held Cloverleaf Cold Storage, previously the 5th largest owner and operator of temperature controlled space for $1,240,000,000 The portfolio consists of 22 temperature controlled facilities containing 132,000,000 refrigerated cubic feet, which adds scale, density and diversification of commodity and customer to our existing geographic reach.
91% of the portfolio's revenues are from warehouse rent, storage and services, which is consistent with our business. We view this portfolio as an irreplaceable and strategic part of the U. S. Food production network and the commodity mix is primarily from the protein market. From a customer perspective, the portfolio serves over 350 customers.
The top 10 customers, all of which overlap with our existing customer base account for approximately 56% of total revenue with the average length of relationship of 45 years. Further, 21 of the 22 properties are owned, which is very important to us as we believe full control of the underlying real estate is an integral part of our value creation strategy. The assets we acquired were well maintained and as a result, we do not anticipate meaningful CapEx spending beyond typical annual maintenance costs. Further, the portfolio same store growth profile lines up well with our existing portfolio. Over the next 3 years, we believe there is significant opportunity to commercialize these contracts, bring these facilities onto the Americold operating system and introduce our engineered standards.
Additionally, the portfolio includes an attractive entitled development pipeline. We expect to add up to 20,300,000 refrigerated cubic feet to the existing portfolio by the end of the Q2 of 2020 via 3 expansion projects which are currently underway and a potential development in the planning stages. With regard to the Greenfield development in Waco, Texas, we are currently reviewing the project with our combined organization to evaluate the sizing and scale. We believe this acquisition was a strategic opportunity to add immediate size, scale, diversification and in place cash flow as well as long term growth to our portfolio. While we are excited about acquiring the 5th largest portfolio in the U.
S, we also believe there is meaningful opportunity to partner with smaller operators and bring them into the Americold family. As such, we also closed on the acquisition of Lanier Cold Storage for $82,000,000 Consisting of 2 cold storage warehouses, the acquisition adds 14,000,000 refrigerated cubic feet and approximately 51,000 pallet positions in the key poultry market of Gainesville, Georgia. We view this transaction as a tuck in acquisition that expands our growing poultry capability. Similar to Cloverleaf, we believe there are opportunities to realize synergies, commercialize contracts and implement Americold's operating system and engineered standards. These two acquisitions meaningfully benefit Americold from the tenant concentration perspective.
With the addition of Cloverleaf and Lanier, our tenant concentration in our top 25 customers further diversifies and drops by 500 basis points to 59% of warehouse segment revenues on a pro form a basis. Additionally, we continue to work to optimize our company future objectives. With that in mind, we recently announced our hiring of Sanjay Lal, our new Chief Information Officer. Sanjay shares our vision and has significant experience integrating complex networks and we are very excited to have him on board. Finally, in March, our legacy financial sponsors, Yucaipa and Goldman Sachs exited their investment in Americold through a successful secondary offering.
We thank both groups for their years of support as we transition from a privately held company to a publicly traded REIT. With the exit of these shareholders, our Board has evolved as well. And in March, the Board elected Mark Patterson as Chairman. Mark has an extensive real estate background and significant Board experience and we are pleased to have him in this leadership role. I'll now turn the call over to Mark to provide more details on our results, balance sheet and recent capital markets activity.
Thank you, Fred, and good afternoon, everyone. Today, we will provide updates on our actual performance as well as certain metrics on a constant currency basis as our results were meaningfully impacted by the strength of the U. S. Dollar this quarter. In addition, certain items may not be comparable to prior year due to the changes in our capital structure in the Q1 of 2018.
For the Q1 2019, we reported total revenue of $393,000,000 and total contribution or NOI of $99,000,000 which reflects a 0.5% increase and a 1.4% increase over the prior year respectively. On a constant currency basis, these growth rates would have been 2.8% and 3% respectively. Core EBITDA was $71,000,000 for the Q1 of 2019, a slight decrease of 0.8% year over year. As a result, our core EBITDA margin contracted by 24.3 basis points to 18.1%. On a constant currency basis, core EBITDA would have been $72,000,000 an increase of 0.7% year over year.
While our overall operations remain on plan, in addition to currency, we had certain items this quarter that impacted our comparison year over year. With regard to workers' comp, we had a $1,000,000 unfavorable comparison year over year. Recall that in 2018 in the Q1, we had a $1,000,000 favorable comparison for workers' comp that did not recur. Also, healthcare costs were higher by $1,000,000 year over year driven by the timing and nature of activity incurred during the Q1 of 2019. It is important to remember that these modest quarterly variations are normal in our business, which is one of the reasons we believe it is important to look at our results on an annual basis.
We reported a net loss of $5,000,000 compared to a net loss of 9,000,000 dollars for the same quarter of the prior year. Please note, our net income was impacted by several items, including a 12,600,000 dollars asset impairment charge related to our redevelopment in Atlanta and the sale of an idle facility. The acceleration of equity grants due to changes in board and management composition and related severance charges. Our first quarter core FFO was $40,000,000 or $0.26 per diluted share. Our first quarter AFFO was $44,000,000 or $0.29 per diluted share.
Add backs to core FFO include the same items as previously listed. As a reminder, the full definition and reconciliation of core EBITDA, core FFO and AFFO to reported net income can be found in our supplemental. For the Q1 2019, Global Warehouse segment revenues were $290,000,000 which reflects growth of 1.1% year over year or 3.4% on a constant currency basis. Segment NOI was $91,000,000 which reflects growth of 1.4% or 2.7% on a constant currency basis. Global warehouse margin was 31.4% for the Q1, a modest improvement compared to 31.3% for the same quarter in the prior year.
At quarter end, 43% of our rent and storage revenue or $222,000,000 on an annualized basis were derived from customers with fixed commitment storage contracts. This compares to $220,000,000 in the Q4 2018 $198,000,000 in the Q1 of 2018, which translates to an increase of 20 basis points and 4 10 basis points on our fixed commitment percentage respectively. I will now turn to our same store results in our Global Warehouse segment. We define same store as facilities that have at least 24 months of normalized operations. For the Q1 2019, 137 of our 144 warehouses were included within our same store pool.
Our same store pool has 2 additions this quarter, Dallas and Eastpointe and one removal of a leased facility in Idaho that was moved to non same store in anticipation of our exit from that lease in the Q3 of 2019. We continue to focus on owning and controlling our assets and therefore are currently working with the tenants of that building to transition their business to other sites within our portfolio. Additionally, we would note that our same store results, specifically our volume metrics this quarter reflect 2 items. The timing of the Easter holiday relative to the Q1 of last year and one less working day during the quarter. Again, the seasonal basis of our business is why we believe that our annual results are the best way to track our progress.
For the Q1 2019, our same store Global Warehouse segment revenues were $282,000,000 which reflects growth of 0 point 4% year over year and 2.7% on a constant currency basis. Global same store rent and storage revenue grew by 0.2% year over year or 2.1% on a constant currency basis. For the Q1, our same store economic occupancy was 78.6%, which reflects a decline of 186 basis points from the prior year, while partially offsetting a 249 basis point decline in fiscal occupancy. As we continue to make progress with our fixed commitment storage contract, our first quarter same store economic occupancy was 424 basis points higher than our corresponding fiscal occupancy of 74.3%. We would remind you that our reported fiscal occupancy is the weighted average across our portfolio and reflects seasonal fluctuation.
Global same store warehouse services revenue for the Q1 increased 0.6% year over year or 3.2% on a constant currency basis. Our favorable mix resulted in growth of 3.2% in our same store warehouse services revenue per throughput pallet offsetting the 2.5% lower throughput pallet volume associated with this mix as well as the timing of Easter and one less business day in the quarter. Our same store warehouse services contribution was $6,000,000 a decrease of 1,000,000 dollars or 14.4 percent. Warehouse services contribution margin decreased 62.8 basis points to 3.6% in the quarter, which again was impacted by the unfavorable prior year comparison for workers' comp and current period healthcare costs. In total, our Q1 2019 global same store warehouse NOI was $88,000,000 up 0.2% over the prior year results driven by the same factors previously discussed.
On a constant currency basis, same store NOI grew by 1.5% and adjusting for the workers' comp benefit realized in the Q1 of 2018, same store NOI growth would have been 2.6%. Within our Global Warehouse segment, we had no material changes to the composition of our top 25 customers who account for approximately 64% of our global warehouse revenue and who have been with us on average for over 30 years. Additionally, our Q1 churn rate was approximately 5% of total warehouse revenue, a 100 basis point increase from the Q1 of 2018 driven by active portfolio management, our 4 10 basis point growth in fixed storage commitment and normal cost normal first movement by smaller market customers. Corporate SG and A totaled $31,100,000 for the Q1 of 2019 as compared to $28,100,000 for the comparable prior year quarter. This increase is primarily a result of higher public company costs in the Q1 and stock based compensation, partially offset by the impact of foreign currency translation.
We would also note that our SG and A as a percent of revenue will vary from quarter to quarter and should be viewed on an annual basis. We still expect to be within our previously provided guidance range for the full year. Additionally, we reported a new financial statement line item referred to as acquisition, litigation and other within our statement of operations for the Q1 of 2019 due to various material charges incurred in the quarter, which totaled $8,500,000 Additionally, we reclassified certain costs from SG and A in the comparable prior quarter to conform with this new presentation. This caption represents certain corporate costs that are highly variable from period to period and further details can be found in our supplemental. Now, let me update you on the development and acquisition spending during the Q1 for the project Fred outlined to you.
In Chicago, our total estimated cost and stabilized returns remain consistent with our previously stated range and we are onboarding customers into Phase 1. We do want to point out that unlike our build to suit facility in Middleborough, Massachusetts, which was fully occupied upon completion, there will be time and costs associated with operating our facility in Chicago before it reaches stabilization. In Australia, we completed the purchase of a land site in Sydney for 39,700,000 dollars In Savannah, we completed our $36,000,000 acquisition of PortFresh and the associated land parcels this quarter and incurred only nominal costs associated with our development project. We expect to break ground in the Q2 of 2019. Turning now to our balance sheet and capital markets activity.
We continue to work to match fund our new growth opportunities with our capital raising activity, while maintaining strong liquidity, capacity and flexibility to execute our strategic plan. In March, we completed a secondary offering of 46,500,000 shares held by our legacy financial sponsors, including the exercise of the underwriters option for $27.75 per share. As Fred mentioned, with this offering, our legacy financial sponsors, Yucaipa and Goldman Sachs fully exited their investment and Americold did not receive any proceeds. Regarding our transaction activity post quarter end, let me now discuss the financial impact of our Cloverleaf and Lanier acquisition as well as our related capital markets activity. On May 1, we closed our acquisition of Cloverleaf Cold Storage for a purchase price of $1,240,000,000 which translates to a 17.9 times pro form a run rate 2018 EBITDA multiple and a corresponding 5.6 percent EBITDA yield.
This purchase price results in an approximate 7% NOI entry yield, which is exclusive of SG and A expense. The transaction is accretive day 1 on a leverage neutral basis and we expect this acquisition will take 3 years to stabilize. We believe Cloverleaf represents a meaningful value creation opportunity when taking into account the following factors. We expect to fully integrate this acquisition and begin the implementation of the Americold operating system, our commercial processes and our engineered standards. As we implement these programs over the next 36 months, we expect this new portfolio will achieve the same store revenue and NOI growth trajectory as our existing same store portfolio.
On the cost side, we believe the synergies are meaningful, but will take time to be fully realized. Specifically, we have identified at least $10,000,000 in cost savings that we expect to eliminate. Our target is to capture 70% to 80% of these costs in the next 12 months. But keep in mind, we expect a small J curve with elevated expenses incurred in the near term to achieve these eventual savings. We expect to realize the remainder of the $10,000,000 cost savings in year 2.
With the Cloverleaf acquisition, we acquired an in process development pipeline. The total cost for the 3 expansions and 1 entitled development is expected to be approximately $90,000,000 to $100,000,000 of which $13,000,000 has been spent. We expect the returns on these projects after providing for 1 year of stabilization to be consistent with our stated return on projects of these types. Additionally, on May 1, we closed our acquisition of Lanier Cold Storage for a purchase price of $82,000,000 which translates to a 13.7 times entry EBITDA multiple and a 7.3% EBITDA yield. This purchase price results in an approximate 7.9 percent NOI entry yield, which is exclusive of SG and A expense.
Similar to Cloverleaf, we expect to fully integrate Lanier into our platform and realize cost synergies and drive incremental growth through the implementation of the Americold operating system, our commercial processes and our engineered standards, which will increase our yield over the long term. As of March 31, 2019, our portfolio consisted of 155 mission critical facilities. This reflects the acquisition of PortFresh and Savannah, which closed during the Q1 and the expiration of our managed agreement for a site in Sioux Falls, South Dakota. We would note that the run rate EBITDA associated with Sioux Falls was $600,000 in 2018. Inclusive of the 22 facilities we purchased with our acquisition of Cloverleaf and the 2 facilities we acquired from Lanier, our total portfolio consists of 179 facilities.
Of these, 167 are in our warehouse segment and 12 are managed. And our total portfolio exceeds over 1,000,000,000 cubic feet. To fund our recently announced growth activity in April, we completed a follow on offering of 50,310,000 shares including the exercise of the underwriters option at $29.75 per share. The 50,310,000 shares is inclusive of a forward contract for 8,250,000 shares to be settled within 1 year. At closing, net proceeds to the company were $1,200,000,000 prior to the forward offering, which we used to fund the bulk of the purchase price for Cloverleaf and Lanier.
We expect to use the proceeds from the forward contract to fund our Atlanta major market expansion and the development pipeline associated with Cloverleaf. Subsequent to quarter end, we also priced $350,000,000 of senior unsecured notes in an institutional private placement offering at an interest rate of 4.1% and a duration of 10.7 years. We expect to use the funds as long term debt financing for the Cloverleaf and Lanier acquisition. We expect to close the private placement this week subject to customary closing conditions. Pro form a for our post quarter end capital markets activity inclusive of our equity offering and debt private placement and pro form a for the recent closings of Cloverleaf and Lanier, we had total liquidity of $1,500,000,000 This is inclusive of $139,000,000 $237,000,000 of net proceeds from our September 2018 and our April 2019 equity forward, respectively.
Our total debt outstanding was $1,900,000,000 of which 75% was in an unsecured structure and 80% was at a fixed rate. Our net debt to core EBITDA was approximately 4.0x. Our real estate debt has a weighted average term of 7 years and carries a weighted average contractual interest rate of 4.54%. Before I turn the call back to Fred, we would like to provide some perspective on our outlook for 2019, which we are updating to reflect our recent activity. In 2019, we expect the following.
We reiterate our Global Warehouse segment same store revenue growth range between 2% to 4% and we continue to expect same store NOI growth to range between 100 basis points to 200 basis points higher than the associated revenue growth, both on a constant currency basis. This is unchanged and not impacted by our investment activity. Selling, general and administrative expense as a percent of total revenue is expected to range between 6.8% and 7.2%. This range is unchanged, but reflects the inclusion of both Cloverleaf and Lanier. Recurring maintenance and IT capital expenditures are expected in the range of $56,000,000 to $66,000,000 which reflects the addition of Cloverleaf and Lanier portfolio.
Growth and expansion capital expenditures are expected to be $275,000,000 to $350,000,000 This includes spending related to the company's announced projects in Chicago, Savannah, Atlanta and Australia as well as the 3 expansions associated with Cloverleaf. Anticipated AFFO payout ratio of 67% to 70% reflecting the recently increased dividend and capital markets activity. Full year weighted average fully diluted share count of 182 to 186,000,000 shares reflective of our capital markets activity and inclusive of the 6,000,000 share equity forward issued in September 2018 with an outstanding settlement date of no later than September 2019. I will now turn the call back to Fred. Thanks, Mark.
We are proud of all we have accomplished since the start of the year. We continue to leverage our portfolio, operations, talent and technology to profitably serve our customers and drive long term shareholder value. We are very excited about the external growth pipeline, including our recent acquisitions and our development projects, which we believe represent significant long term growth and value creation opportunities for the company. I'd like to thank all of our associates for their continued outstanding contributions to advance this business. I'd also like to welcome the 1600 employees that have just joined us from Cloverleaf, Zero Mountain and Lanier.
We are excited about what this combined team of just under 13,000 employees can do to add value to our customers and shareholders. Thanks again for joining us today and we will now open the call for your questions. Operator?
Our first question comes from the line of Ki Bin Kim with SunTrust. Please proceed with your question.
Thanks. First off, congratulations on the Cloverleaf deal. So I just wanted to focus a little bit more on the core operations. And everything I want to talk about here is going to be on a constant currency basis. I'm just trying to get a sense of like how much the Easter shift mattered.
I mean the one extra day in the quarter, I'm not sure how much that matters. It seems like very little to me. But your same store revenue declined same store revenue growth declined to 2.7% versus 4.5% last quarter. NOI went up on a constant currency basis 1.5% versus 6.9% last quarter. So just trying to get a better sense of like the puts and takes.
Yes. So I'll make a quick comment and then turn it over to Mark on the financial side, but just kind of understanding Easter flow and typically what happens is obviously production starts to ramp up, storage starts to ramp up ahead of the holiday. And then about 2 weeks before Easter, product really starts to flow from a throughput standpoint out of our warehouses down the channel to retail warehouses, which then in turn get the product to the store. Usually Easter is a little bit earlier in the year. It's very, very late this year.
So usually it kind of straddles 2 quarters, Q1, Q2. So you got a build happening in the Q1 and then then sometimes the release of product to the stores happens also in the Q1 when there's an early Easter. Sometimes it can straddle and the outflow will happen in the 1st 2 weeks. So in this particular case, Easter was so late that the whole flow outbound to the stores really occurred in the Q2 versus the Q1. And then just to answer the final part about the one less workday, each workday translates to about $2,000,000 of services revenue, which impacts our overall growth rate in this quarter by 70 basis points.
70 basis points to the NOI or to the revenue?
To revenue.
Right. So on the 2.7% same store revenue growth, I mean, if I'm sure you guys can look at it neutralizing the shift of Easter. If you neutralize it, what would that be?
As we said, we reiterate looking at our business on the full year basis. And if we think about it, we reiterated our same store guidance in the same store portfolio, which on the top line revenue was roughly 2% to 4% on an annual basis constant currency. So the 2.7% constant currency is right in line with our what we'd expect the portfolio to perform.
Okay.
Okay, your total pallet position, if you look at it year over year, is down 50 basis points. I'm just a little curious why there's even a change in total pallet volition assuming in the same
store pool? Yes. So remember the same store pool does change period to period. As an example, this quarter, we pulled out the attached Rochelle facility, which is attached to our development project because that now will no longer comp as the same store given that we started launching the next phase of the expansion of that building and we added 2 additional sites. So what that changes is the impact of the same store.
But the other thing that does go on period over period is their way depending on what's sold, different changes in the customer business profile, we may need to rewrap or readjust the facility to accommodate the business or the customers what's been sold into those buildings. Okay. So the reason I
asked that is that the economic occupancy went down 186 basis points or physical occupancy went down 250 basis points. But if you actually look at the physical occupied pallet change, it went down 370 basis points, right? The only reason the occupancy number looks better is because of the pad position, well, not only, but part of the reason why the occupancy number looks a little bit less worse is that the pad position has changed, the denominator. So the physical occupied pallet position change of negative 3 70 basis points, like how much of that is explained by Easter?
There could be to a degree, again, with as late as Easter was, there are still builds going on in the 1st week of April, for example. So there could be a slight piece of that. I'd say moreover what we're seeing is because of our growth in the fixed committed space, which you can see is profitable and proving to be fruitful for us as an overall organization, that limits our ability to sell into that space, right? So if it's reserved and it's accounted for, even if it's not physically occupied, we're not selling into that space because it's reserved for our clients' needs. So again, we're making that trade off.
We think that the financials are proven out that that trade off is positive. So kind of that physical occupancy indicator is becoming muted somewhat by our drive towards economic occupancy and the fixed commitments.
I see. All right. Thank you.
Thanks Ki Bin.
Our next question comes from the line of Michael Carroll with RBC Capital Markets. Please proceed with your question.
Yes, thanks. Fred, I wanted
to touch on the company's recent acquisitions. I know most of these deals seem to be focused on production advantage facilities. Is there a specific reason for that? Are these there are better valuations out there for those types of assets? Does it improve your platform more or less than other types of facilities?
Or is it just the available opportunities that you saw in the marketplace?
Yes. I think it's more related. Remember, we've talked a lot about our different asset types and the kind of value that we put on it and we believe that the broader market has put on it as they've understood our supply chain, those assets that are production attached are just as valuable as those assets in the Tier 1 distribution market. Without those assets, food doesn't get to market. So we think the value proposition is the same even though that asset is sitting in Sioux City versus sitting in New York City.
So again, if you don't have that asset to that plant, the product never makes it into the market itself. So we think these are critical infrastructure that's needed to help facilitate the movement of those goods from that point of manufacture to market. So I wouldn't say that we're out there targeting any specific production type versus distribution type versus retail. We're looking at all the opportunities. We're looking at the returns that can be achieved via any.
So quite honestly, we just don't discriminate against any of the baricits. Types. And if you marry that up against what you're seeing from our development side, we are bringing state of the art development to major markets. So with reference of our Chicago project that we're nearing completion on, the launch of the Atlanta major market, the projects associated with the Australia build, all those are bringing state of the art product to major distribution hubs. So we're kind of balancing the portfolio in that way.
Okay. And then when you're looking at your current acquisition pipeline today, I mean, can you break that out of, I mean, how sizable is it? Or is there a good mix between the production advantage and distribution centers and we'll expect more of a breakout, I guess, going forward?
I would say that it is a mixed pipeline in terms of opportunities. Some are distribution, some are production advantage. I'd say the majority of opportunities we're looking at are at either end of those supply chains as I think we've talked about before. I can't think of anything that we're looking at right now that's in kind of a tertiary market like the Green Bay, Wisconsin type of thing. While that asset is still critically important because again it's supporting local manufacturing the consumers that do exist in Green Bay.
We see most of the needs, most of the trends in the production support, production advantaged operations as well as the distribution and retail operations. Okay. And then That was on purpose of it.
Okay. And then Mark, can you talk a little bit about the J curve that you're talking about in terms of the expense synergies from the recent acquisitions? Are you going to have to spend more money to bring those on, so we should expect a pickup in G and A and then over time you will see that coming down? Is that what we should expect?
Yes, I think that's what's meant by a slight thing. So there will be a slight increase in cost as we rationalize the cost structure to the extent there's certain redundant or headcount that's eliminated. Typically, there may be a severance charge associated with that or some periods as we transition and we have duplicate roles. So that's where the J curve comes. Obviously, we're going to need to invest to bring their systems integrated into our systems or put our systems directly in their operations.
So, that's a little bit of investment. But we do think that the J curve component of it, you probably see more really in the next quarter or 2, and then you really start to see the benefit fully realized consistent with the comments in our prepared remarks.
Okay. And then last one for me, the Rochelle development, where is the occupancy at that right now? And I guess, what was the negative contribution from that asset that was just completed that was delivered in 1Q?
Yes. It's actually the asset, because it was an expansion, the base business is still generating positive cash flow. So there isn't a next sort of negative carry yet. But where we get the ramp up is just even though that's a highly automated site, you still need to fully staff it with the automation tech, the maintenance tech, even some warehousemen that support the individual receipt off a truck and to put it into the automation system. So those costs are typically ramped up in advance.
Of the Phase 1, we just started inbounding. We're really at the early phases, but we're actually ahead of our guidance with the customer in terms of their inbound path. So consistent with other developments of this type, we expect this asset will stabilize over this 1st year and we expect to be at full run rate by 1 year from now.
Okay, great. Thank you.
Thanks.
Our next question comes from the line of Michael Mueller with JPMorgan. Please proceed with your question.
Great. Hi. Hi, Michael. Last Easter question here for you. So it sounds like based on what you said at the start of Q2, your occupancy comp should be higher than what it was last year.
Is that correct? And also post Easter, are you at about even where you were last year on an occupancy basis?
Yes. I would say that what I tried to explain is there's multiple variables that are driving occupancy. So if I was just isolating and looking at Easter independently, what you said would be correct. But I'll just remind you that there's other things at play here in terms of harvest timing, the exact week that harvest come, promotional campaigns from retailers and when they're pushing product and then that phenomenon associated with our fixed commitments and what that's doing to our ability to be able to sell space that maybe in the past we would have. As I remind people, I don't want people to lose sight of even though our physical occupancy and even economic was down, our overall revenues in both the total warehouse as well as just the rent storage line, sub line item were up as were our earnings, right?
Yes. So this is part of the active portfolio. Yes.
Got it. And then second question, how did the EBITDA yield going in and I guess the expected stabilized EBITDA yields compare to the NOI yields for PortFresh and Lanier?
Yes. So as we mentioned in our prepared remarks, if you look on an NOI basis, so think about the NOI yield as being the 4 wall cash flow driven off the box. There's the PortFresh on the operation side was a 7
Lanier was slightly higher at
a 7.9 percent NOI yield. Obviously, different scope, different scale of operations. So when you look at the EBITDA yield, slightly different. Obviously, with Cloverleaf being a month, that was the 5th largest portfolio of U. S.
Temperature controlled infrastructure. So they had a much larger G and A component associated with them.
Sure. So would the EBITDA yield on PortFresh and Lanier be fairly close to the NOI yield?
Yes. As we said in our prepared remarks, they were much closer. So the EBITDA yield of Lanier going in sorry, 7.3 percent EBITDA yield, where the Cloverleaf on a trailing basis was the 5.6%.
Okay. I missed the linear one. Sorry about that. Okay. Thank you.
Yes. Thanks.
Our next question comes from the line of Dave Rodgers with Robert W. Baird. Please proceed with your question.
Yes. Hey, good afternoon, guys. Wanted to ask about the fixed pallet positions and maybe a broader question. The more of those that you add into the portfolio, what's the impact to margin? And I guess I think the more the economic occupancy moves up and physical maybe stays the same or drops, I think that margin would be enhanced through that.
So maybe you could explain that and then also maybe what's implied in your guidance for NOI versus revenue growth in 2019?
Yes, sure. So I'll take the first part of it and then turn it over to Mark. So yes, as we move to fixed commitments, there's definitely margin improvement associated with that. And that margin improvement comes really from 2 places. Number 1, no doubt, in the down season, when there's not as much physical occupancy and we're getting paid the rent for the space, so we don't have the labor there, that's going to enhance margins, right?
Number 2, during the busiest part of the season, one of the greatest impacts that we saw, and I mentioned it in the last quarterly call, our Q4 last year was the smoothest quarter that we've ever had. Why? Because we didn't overfill the warehouse. We had committed space. We were getting paid for that space, and we were able to operate that warehouse efficiently, which was closer in line with the 85% to 90% to be more efficient, not have to spend as much overtime, not as much double handling, which is also margin enhancing.
And it obviously translates to benefit to our customers as well because the less handling, less touches I have, the more responsive we can be from a customer service standpoint, get their product out to market. So it was really good from a margin enhancing opportunity and superior from a customer service, customer satisfaction standpoint. I think the 3rd piece that comes out of this fixed commitment piece is seeing how efficient that we are in it and knowing what the demand is in these core markets because the ones that this affects the most are your primary distribution markets. It opens up opportunities for us to add capacity into the marketplace and be able to kind of repeat that same story with new business, new volume that needs to come into the market. And again, that's why we feel so good about the expansion in Chicago and we feel great about the new one that we just announced here in Atlanta.
And then on the overall margin space, we still expect in the same store NOI margin to outpace the growth of the top line revenue roughly by the 100 basis points, 200 basis points. And you see that through the leveraging of fixed expenses, particularly on the real estate side of the business. So as we served in the Q1, if you look through the detailed results, we were able to leverage our overall power costs and related fixed costs in the warehouse. We expanded our margins roughly by 49%. So we are leveraging that overall fixed cost structure.
Obviously, we have slightly higher core operational costs between the healthcare and the comp of the non recurring benefit of last year and workers' comp. So normalizing those, we continue to make progress on our core performance in our warehouse and we are continuing to see improved performance that should drive margin growth in the services side. So those things combined help drive that outperformance.
I appreciate all that detail. Maybe shifting to acquisitions, you had a couple of questions earlier on it. But, Fred, what's your appetite right now? It sounds like the pipeline out there just isn't in the market, but there's quite a few things coming to market. Are you guys continuing to be very active out in the acquisition market?
What's your pipeline look like today?
I'm sure my CIO, Jay, is sitting listening to this call and I would just tell him that he shouldn't be sitting listening to the call, he needs to be active. So Jay is busy out there. We have a pipeline and we'll continue to work that pipeline. I think as we've discussed in the past, some of those take a while, right? And you've got to nurture those relationships for a period of time before they can come to fruition.
So we will continue. I think the thing that we love about these acquisitions is both PortFresh and Lanier, we would consider tuck in, just not a tremendous amount of effort that's needed from an integration standpoint. We fold them right into existing regions and districts and the operators take over and run those operations the same way they've been accustomed to with the Americold operations. Cloverleaf is obviously a little bit bigger. But again, one of the benefits that we have with those guys is they've already done a lot of streamlining.
They're on one system. There's a couple straggler warehouses that were in the process of being converted that will convert on to either one of our WMSs or the WMS that they were already going on. But very little integration, heavy lifting from a system standpoint. The operations will be split up into our existing regions and into districts and again run just like other operations. So our ability to digest additional tuck ins is pretty straightforward.
Bigger acquisitions, we would obviously time and strategize that accordingly. But again, pipeline is healthy and we continue to pursue it.
Great. Thank you.
Our next question comes from the line of Joshua Dennerlein with Bank of America. Please proceed with your question.
Hey, guys. For the Easter impact in the one less day in the quarter, how much of the impact was that on your FFO, AFFO and EBITDA? Is there
a way to quantify that? I think the best thing, as I reiterate, is overall Easter happens every year and we encourage people to look at our results, especially this is a prime example on the full year basis and on the full year basis, we don't expect the timing of Easter to impact the overall result or for our guidance to differ as a result of.
It. Okay. And should is there one more day, one more work day in 2Q that's something we should be factoring in?
I apologize, I don't have that right in the top of my head, but I'll look and get that.
All right. No worries. And then I saw in the press release you mentioned there was like an impairment you took on the potential future sale of an idle plant during 2Q 2019. What happened with that plant? And then I also saw you mentioned a 3rd party managed contract ran out during 1Q.
How come that I guess that warehouse didn't renew the contract? Was that strategic on your part or was it more their part?
Yes, I'll list the first part, you can hit. So when we went public, we actually had, I think, roughly about 5 or 6 idle assets in the overall portfolio. This sale would represent the final cleanup item of those assets with Rydal and not in production. It actually was a legacy plant attached facility to a canning operation in Georgia that was actually a triple net lease of ours. So it was one that we didn't operate.
It was leased from us by the tenant. But they shut down operations and we found a buyer to sell those. So that's the last what I'm excited in terms of the last of the hanging Chad now of the portfolio. So we're looking forward to that close and having that behind us. Yes.
And this particular managed site was actually I think it was geared up to do this. This was kind of the endpoint of that agreement over time. It was kind of a loose JV type of structure where there is an agreement for a buyout at the end of the agreement. So this was planned to ultimately phase over into their manufacturing operations in terms of running it. So it was something that we kind of foresaw and expect.
You'll see in our cash flow, we received $2,000,000 in connection with the exit of that JV.
Okay. All right. Great. And then I guess just are there any maybe production advantage facilities that you're keeping an eye on that are older that maybe the attached manufacturing plant would potentially close over the next few years? Is there anything we should be aware of?
Yes. We have no expectation of any closures associated with those sites. Those manufacturing plants continue to and they invest in those manufacturing plants, which are obviously just as old as ours, if not over. So there's they're just huge investments in those plants. So you don't see too many of those big operations get abandoned.
And all of our production advantaged sites are attached to our high credit worthy types of customers. So we don't expect anything to happen there. And then, sorry, just I think you asked the question earlier on business days. So Q2 has one more business day than Q1 did, but it has the same number of business days as the prior quarter, as the prior year quarter. Prior year.
Yes.
Our next question comes from the line of Bill Crow with Raymond James. Please proceed with your question.
Hey, good evening guys. Just a couple of questions for me. Can you remind us what happens to your fixed commitment lease percentage when you factor in the new acquisitions that you've made, in particular Cloverleaf, which I believe doesn't have any fixed commitment leases?
That is correct. I mean, obviously, it will decrease because they don't have any. But that speaks to the opportunity that we'll have as we go forward because as I mentioned in the prepared comments, their top 10 customers overlap our customer set, and that represents 50 6%. Most of those contracts most of those customers, we already have agreements on and we'll be working over the course of this year to move them on back on to fixed commitments. So we fully expect that to progress through the year.
I will say that their assets, just like ours and just like most of the industry, are, as I say, running hot. So they're all full warehouses that are supporting those production attached facilities, mostly in the protein industry.
And that was kind of the direction I wanted to go to next. We've talked I think on this call a couple of quarters ago about whether you were seeing any positive impact from some of the trade issues with China. And I don't think you had, but that was seems to be kind of in the protein space more than anything else. I'm just wondering whether you could gauge what impact that's having on Cloverleaf's facilities at this point?
Yes, not much. A lot of it has been domestic based and not a problem. We do think I mean, we'll see what happens given the issues that they're having African swine fever and the pork reduction that they're seeing in China right now, that's the main commodity for that marketplace. And we could see a pickup. I think Tyson just reported recently and talked about their forecast for pickup production, which just means to increase throughput for us.
Okay. And then finally, for those of us who don't study currency markets every day, any change since the Q1 and the headwinds that you're facing?
On a year over year basis, the biggest currency that impacted it's our largest international operation is Australia, which is roughly down about a little over 9% in the Q1. If we look at where current rates are relative to where they were a year ago, we probably expect some continued headline pressure from currency into the Q2. But when you look at the back end of the year, we think that that rate environment is not too dissimilar than the current rate environment. So Flatten
out. Yes.
So this should flatten out in the back half.
Okay. Appreciate the time. Thanks.
Sure. Thanks.
Our last question comes from the line of Nate Crossett with Berenberg. Please proceed with your question.
Hi, thanks for taking my question. Just on M and A pipeline, maybe you can give us a little color on what markets in the U. S. You would like to maybe have a little bit more exposure to? And then on international, I know you have a lot going on in Australia, but was curious to hear your comments on other markets, specifically Europe.
Sure. What I would say about the countries that we're in, so U. S, Australia, New Zealand primarily, what I would say is in terms of the market coverage we have, it's pretty expansive today. But again, there's more demand in those existing markets. So what I would say is we're looking at acquisitions.
We're not necessarily looking to a specific market or a specific geography. We're looking at the quality of the operations in whatever market that they happen to be in. So again, we're not kind of discriminating, if you will, between product type, the type of operation it is. We're just looking for the quality of earnings that makes sense because the market demands are there. So it doesn't really matter if they overlap with us or not.
In terms of looking at other geographies, I would say that we are paying close attention to those other geographies. We believe that there are opportunities in areas such as Europe. Now Europe's a little bit flatter in terms of upside potential and it's pretty built out. But there could be opportunities there and as well as supporting some other opportunities into more emerging markets kind of surrounding Europe, if you will. So we'll continue to look at that space.
We're looking at that space pretty much everywhere. But I would say that our primary focus right now and our pipeline is quite heavily filled with opportunities within our existing countries.
Okay, that's helpful. And then one on labor costs. I just wanted to get your take. And I know you had a $1,000,000 benefit last year that made it a tougher comp. But are you seeing any notable changes in labor costs the last few months?
Because we've seen from other REITs that have a logistics component that labor costs have gone up more than they've expected because it's been more difficult to find and retain workers? I'm just curious.
Yes. I would say that we have not seen additional pressure. We where our wage hikes and increases were right in line with what we expected them to be. We think there's other ways to gain employee engagement and reduce turnover than just throwing money. We do give people we do pay for performance through incentive systems.
So we think that, that helps in terms of our comparison versus market pay. And we just we have a much more engaging environment, trying to drive involvement and that type of thing. So there's other things that we're doing to try to create that stickiness as well as, again, we continue to focus and look for opportunities where we need to automate. And I think you've heard in our last 3 major builds, there's considerable automation in those major markets where we're kind of struggling with hiring people, if you will. There's a lot more competition for those resources.
So Chicago is automated, Atlanta, both major pieces that we're expanding here in the market are also automated. Remember that labor cost increase that we talked about is really just in one specific niche. It's not with labor rate, it's with workers' comp. And so that usually fluctuates on a quarter to quarter basis. We still feel comfortable with our overall workers' comp expenditure over the course of the year.
It's just you can't predict when things are going to happen, right, when incidents occur and the degree of severity associated with those incidents. So our safety program is, I'd say, industry leading, and we'll continue to stay focused on that. And I fully expect that for the full year, we'll come in where we thought we would.
Okay. That's helpful. Thanks, guys.
Sure. Thank you.
Ladies and gentlemen, we have reached the end of the question and answer session. And I would like to turn the call back to management for closing remarks.
Great. Thanks for joining us tonight. I just want to reiterate that I think that this Q1 was an exciting quarter for us. Again, positive trends. This is our 6th quarter in a row of positive improvement from an NOI and from a revenue standpoint.
So that's exciting. Really excited about the acquisitions. We've been talking about it over the last several quarters, and said that the pipeline was rich and heavy. I mean, we're working on a number of things. And a couple of those obviously just came to fruition, and we're very pleased to be affiliated with Cloverleaf and Zero Mountain and Lanier.
And we're excited to integrate those operations into the family. And as I mentioned, Jay is going to continue to work and there'll be other opportunities that will expose themselves. So we reiterate and feel bullish about the business overall and reemphasize that our annual guidance is intact. So with that, I'd like to thank you again, and we'll see you next quarter.
This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.