Executive Summary / Key Takeaways

• Lineage is the world's largest temperature-controlled warehouse REIT, leveraging its expansive global network and technological leadership to navigate volatile food supply chain dynamics and competitive pressures.
• Despite facing near-term headwinds from customer inventory rationalization and macroeconomic uncertainty, particularly around tariffs impacting import/export volumes, the company's operational focus on cost control and productivity is supporting margins.
• Landmark agreements with Tyson Foods (TSN), involving significant acquisitions and automated greenfield developments, underscore Lineage's ability to partner with major customers and strategically deploy capital, positioning the company for future growth beyond current market softness.
• Proprietary technology like LinOS is demonstrating double-digit productivity improvements in pilots, representing a key differentiator and potential driver of future margin expansion and competitive advantage against rivals.
• Management maintains its 2025 guidance, anticipating a return to same-store warehouse growth in the second half of the year driven by normal seasonality and easier comps, while acknowledging near-term unpredictability.

Setting the Scene: The Cold Chain Giant's Strategic Foundation

Lineage, Inc. stands as the undisputed global leader in the temperature-controlled warehouse real estate sector, a critical, yet often overlooked, segment of the industrial market essential for the global food supply chain. From its origins as a single warehouse approximately 16 years ago, the company has grown exponentially, primarily through a disciplined and aggressive acquisition strategy, completing over 115 deals to build a network exceeding 480 facilities worldwide. This vast scale provides significant network effects, enabling Lineage to offer comprehensive solutions across warehousing and integrated logistics, serving a diversified base of over 13,000 customers.

The industry itself is characterized by its foundational importance to the growing fresh and frozen food segment, yet it is also fragmented and susceptible to macroeconomic shifts. Recent years have seen notable volatility, including post-COVID inventory rebalancing, inflationary pressures impacting consumer demand, and the emergence of new competitive supply in select markets. Lineage's overarching strategy is built on leveraging its scale and operational expertise to consolidate the fragmented market, drive efficiencies, and partner with customers to navigate these complexities.

A core differentiator for Lineage is its deep commitment to technology and automation. The company has invested heavily in developing proprietary systems, culminating in over 100 patents. Central to this is LinOS, a proprietary warehouse execution system utilizing advanced algorithms to optimize operations. Early pilots of LinOS in conventional buildings are reportedly exceeding expectations, demonstrating double-digit productivity improvements. This technology is designed to attack the largest controllable cost, labor (a $1.4 billion global expense), by improving efficiency, reducing waste, and enhancing service levels. The strategic intent is clear: to lower the cost structure, create a meaningful competitive advantage, and deepen the company's moat against competitors. The recent opening of the fully automated Hazleton, Pennsylvania facility, powered by LinOS, exemplifies this technological leadership and its potential to transform warehouse operations.

In the competitive landscape, Lineage primarily faces Americold Realty Trust (COLD), a major peer in temperature-controlled warehousing, and to a lesser extent, general industrial REITs like Prologis (PLD) and diversified REITs like Realty Income (O) that may have tangential exposure or partnerships. While competitors like Americold also operate extensive networks, Lineage's scale is currently unmatched. Its investment-grade balance sheet, achieved post-IPO, provides superior access to capital compared to many peers, enabling a more aggressive pace of accretive acquisitions and developments. Lineage's technological focus, particularly on proprietary systems like LinOS, offers a distinct edge in operational efficiency and service customization compared to more standardized offerings from some rivals. However, the industry's capital-intensive nature and the operational complexities of temperature-controlled logistics present significant barriers to entry for new players, reinforcing the competitive position of established leaders like Lineage.

Performance Reflecting Strategic Execution Amidst Headwinds

Lineage's recent financial performance reflects the interplay between its strategic execution and the prevailing market headwinds. In the first quarter of 2025, total revenue decreased by 2.6% year-over-year to $1,292 million. This decline was primarily driven by a decrease in the same warehouse pool, where revenues were impacted by lower average rates and reduced average occupancy. Same warehouse storage revenues specifically saw a 5.6% decrease, with economic occupancy declining by 150 basis points as customers continued to rationalize inventory levels in response to higher interest rates and inflation. Same warehouse services revenues also decreased by 2.6%, influenced by lower rates and a 1.8% decrease in throughput pallets.

Despite the top-line pressures, Lineage demonstrated operational resilience. Same warehouse cost of operations decreased by 1.6%, primarily due to lower labor and other warehouse costs, reflecting the company's ongoing focus on productivity and cost control initiatives. This operational discipline helped mitigate the impact on profitability, although Global Warehousing segment NOI still decreased by 6.5% to $360 million in the quarter. The Global Integrated Solutions segment also saw a revenue decrease of 3.1% to $348 million, mainly due to lower volumes, but maintained a stable NOI margin of 16.4% as cost controls offset the volume decline.

Consolidated results were significantly impacted by non-operating items. Net interest expense saw a substantial 56.8% decrease in Q1 2025 compared to the prior year, falling to $60 million. This dramatic reduction was a direct benefit of the significant debt paydown undertaken with the proceeds from the company's IPO in July 2024, which lowered average borrowings and the effective interest rate (4.3% vs 6.1% in Q1 2024, or 2.8% vs 5.0% including hedging). General and administrative expenses increased by 24.2%, largely due to stock-based compensation related to becoming a public company. Acquisition, transaction, and other expenses also rose due to IPO-related costs and fair value adjustments on put options. A notable positive impact came from a net gain of $21 million in restructuring, impairment, and gain/loss on disposals, primarily from insurance recoveries related to the Kennewick warehouse fire. Overall, the company reported breakeven GAAP net income for Q1 2025, a significant improvement from a loss in the prior year, largely driven by the lower interest expense.

Looking back at the full year 2024, Lineage delivered a 4% increase in adjusted EBITDA and a 6.5% increase in AFFO per share, demonstrating growth even amidst the challenging market backdrop. The company's adjusted EBITDA margin expanded by 100 basis points in 2024 and an impressive 310 basis points over two years, highlighting the effectiveness of its operational efficiency programs, particularly in the Global Warehousing segment where NOI margin increased by 390 basis points since 2022. This track record of margin expansion underscores Lineage's ability to control costs and improve productivity, a key factor in its investment thesis.

As of March 31, 2025, Lineage maintained a solid liquidity position with $195 million in cash and $1.5 billion available under its Revolving Credit Facility. The IPO significantly strengthened the balance sheet, reducing the net debt to adjusted EBITDA leverage ratio to under 5x and securing investment-grade credit ratings.

This financial strength is crucial for funding ongoing operations, meeting REIT distribution requirements (at least 90% of taxable income annually), and, critically, supporting the company's growth strategy through capital deployment.

Strategic Momentum and Outlook

Lineage's strategic momentum remains robust, particularly in its pursuit of accretive growth opportunities. The company continues to execute on a significant pipeline of M&A and development projects, leveraging its enhanced balance sheet capacity. A prime example is the recently announced landmark agreement with Tyson Foods. This multi-faceted deal involves the acquisition of four existing cold storage warehouses for $247 million and a commitment to design, build, and operate two large, fully automated cold storage warehouses estimated to cost over $740 million, with Tyson Foods as an anchor customer. These agreements represent a total capital deployment of approximately $1 billion over the coming years and are expected to generate over $100 million in annual EBITDA once stabilized. This partnership highlights Lineage's ability to secure large-scale, long-term contracts with major food producers, utilizing its automation and technology expertise.

Beyond the Tyson deal, Lineage closed the acquisition of three warehouse campuses from Bellingham Cold Storage for $121 million in April 2025, expanding its presence in the strategic Pacific Northwest and gaining a footprint at the Port of Bellingham. These follow other recent acquisitions like ColdPoint Logistics and Luik Natie, which bolster network density in key regions and port markets. The company is also advancing its development pipeline, including expansions in Europe, with projects like the Bergen op Zoom facility in the Netherlands poised to become the largest cold storage in Europe. These completed and in-process development projects are expected to contribute over $100 million in incremental future NOI growth, with approximately a quarter of that anticipated to flow through in 2025.

Management is maintaining its previously issued 2025 guidance, projecting adjusted EBITDA between $1,350 million and $1,400 million and AFFO per share between $3.40 and $3.60. This guidance includes the expected contributions from the Tyson Foods and Bellingham Cold Storage acquisitions, estimated at approximately $25 million of adjusted EBITDA and $0.05 of AFFO per share for the balance of the year. The decision to maintain the overall guidance range, despite these accretive deals, reflects management's cautious stance regarding near-term macroeconomic uncertainty, particularly the potential impact of evolving tariff policies on customer behavior and trade flows.

The outlook assumes a return to normal seasonality after the inventory rebalancing phase concluded in mid-2024. This implies challenging year-over-year comparisons in the first half of 2025, with Q2 expected to see declines similar to Q1. However, management anticipates a return to same-store warehouse growth in the second half of the year, driven by easier comps and the typical seasonal pickup in activity. The level of this second-half growth remains difficult to predict precisely due to the ongoing macro uncertainty and customer hesitancy regarding major supply chain decisions. Lineage's guidance does not factor in potential upside from future unannounced acquisitions, a significant market improvement beyond normal seasonality, or the full, long-term benefits of technology initiatives like LinOS, which are expected to contribute more meaningfully from 2026 onwards.

Risks and Challenges

While Lineage possesses significant strengths, the investment thesis is subject to several pertinent risks and challenges. The primary near-term concern is the impact of macroeconomic uncertainty, particularly the unpredictability surrounding U.S. tariff policies. This has led to customer hesitancy and delays in supply chain decision-making, which could continue to pressure throughput volumes and potentially impact pricing power in certain segments. Although only about 15% of U.S. throughput is directly tied to import/exports, the broader uncertainty affects domestic planning as well.

The industry also faces competitive pressures from new supply, including speculative development, which has come online in recent years, particularly in certain markets like Florida. While management expects the pace of new deliveries to slow, this added capacity could weigh on occupancy and pricing in affected areas. Furthermore, the inherent operational complexities of temperature-controlled warehousing, including managing labor costs (despite productivity efforts), energy expenses, and maintaining sophisticated refrigeration systems, pose ongoing challenges. Incidents like the Kennewick and Big Bear fires, while expected to be largely covered by insurance, highlight the potential for operational disruptions and associated costs.

Financially, while the balance sheet has strengthened, Lineage still carries a significant debt load. Rising interest rates, although partially mitigated by hedging and recent debt paydown, could increase financing costs. As a REIT, the requirement to distribute a large portion of taxable income limits the ability to retain earnings for reinvestment, potentially necessitating reliance on debt and equity markets for funding growth and working capital needs. The company is also party to various legal and regulatory proceedings inherent in its operations, including potential liabilities related to environmental matters and labor claims, although management does not currently anticipate a material adverse effect from these.

Conclusion

Lineage's position as the world's largest temperature-controlled warehouse REIT, underpinned by its vast network, technological leadership, and strategic growth engine, forms a compelling long-term investment thesis. The company has demonstrated its operational capability to manage costs and improve efficiency even in a challenging market, as evidenced by its margin expansion and performance in 2024 and early 2025. The recent landmark agreements with Tyson Foods highlight Lineage's unique ability to secure large-scale partnerships and strategically deploy capital in accretive opportunities, reinforcing its market leadership and positioning for future growth.

While near-term uncertainty, particularly related to tariffs and customer inventory adjustments, presents headwinds and limits visibility on the precise trajectory of the second-half recovery, management's maintained guidance signals confidence in delivering growth for the full year 2025. The ongoing rollout of proprietary technology like LinOS offers a tangible path to further operational efficiency gains and a strengthened competitive moat. Investors should weigh the potential for long-term compounding growth driven by market consolidation, technological innovation, and strategic capital deployment against the near-term volatility and competitive pressures inherent in the industry. Lineage's ability to execute on its robust pipeline and leverage its structural advantages will be key determinants of its success in navigating the evolving cold chain landscape.