But we will spend the remainder to get to the $80 million to $90 million of CapEx the remainder of the year. So it will go up the remaining three quarters. But we did spend more this quarter than we did Q1 or prior year. So we’re not cutting any type of spend to deliver on these numbers.
Craig Mailman: Okay. So you guys kept throughput the same. So throughput beats your expectations and it’s at 0 end or even positive by the end of the year, right, which again, I think your initial expectations had assumed or at least implicitly assumed some rate cuts that maybe aren’t going to happen. So the consumer could stay a little bit weaker. But just let’s say you’re plus zero to 3 versus zero to negative 3. Are the margins still able to stay at 9% with potentially higher needs for labor? Is that kind of how it works, or do – if you get a rapid increase in throughput, do margins suffer in the near-term as you guys have [technical difficulty] side?
George Chappelle: The commitment, Craig, on the 9% margin aligns with our current plan. I don’t – there’s no danger that we see of anything being compressed with throughput going up or down. But to be clear, we have not changed our throughput guide. Our throughput guide in our initial guide, compared to the guide now is identical. We haven’t changed the numbers. I did mention a little bit of positive news around April. New news not in our guide, and it was the first month throughput increase year-over-year doesn’t mean it’ll happen next month. But again, we’re looking for positive signs on throughput here. And that’s one we found very, very recently with April having just closed. So, our guide remains the same.
If throughput changes, it’s not going to change our margin profile. We’re managing the business in line with the variable nature of the throughput. We’ve now done it at a level that gives us 100% confidence in the 9% margins for the remainder of the year.
Operator: Thank you. Next question comes from the line of Ki Bin Kim with Truist Securities. Please go ahead.
Ki Bin Kim: Thank you. Good afternoon. Just to follow-up on the previous questions. On the labor efficiency that you’re achieving, maybe you can wrap it around different set of KPIs like services provided per employee or worker idle times, maybe that’s come down. Maybe something a little bit closer to on the ground.
George Chappelle: I don’t have any of that data to disclose. Even I will remind you the metrics that we’ve been disclosing for over two and a half years we said would have to improve for us to improve our services margin. They all have improved. Our permanent employee content in the company has never been higher at 78%. Our retention is now back to pre-COVID levels. We’re climbing up the ladder of associates in the job for greater than 12 months. That’s probably more of a timing issue than anything else right now. We believe we’re actually at pre-COVID levels. So those are our disclosures around labor. We said when they improved the services margin would improve. We said they correlate really, really well. And they have improved and we’ve delivered record services margins. So I think our labor disclosures is very sufficient to track the performance of the margins and the handling area of the company. And it’s proven to be very accurate this quarter.
Ki Bin Kim: Okay. And going back to your throughput comments about it being positive slightly in April. Do you think that was concentrated to any kind of particular tenant that might have had, I don’t know, like a big harvest or something? Or was that pretty wide across the system? And second to that, your physical occupancy being down 760 basis points, if you can provide an April update on that as well. Thank you.
George Chappelle: I would say our physical occupancy, and maybe I’ll ask Rob to comment on this. We would expect the gap in physical occupancy in a normal seasonal year to be widest between fixed commits in the physical, exactly this time of year at the end of the first quarter and then go from a seasonal flow there. But maybe, Rob, if you want to comment on the fixed impact, that would be good.
Rob Chambers: Sure. So that’s right, George. I mean, our expectation is that, gap is going to be the widest now, this time of year. I think our expectation as we go through the rest of the year is that the gap between physical and economic occupancy will close. As far as whether or not we saw any specific customer or any specific node in the supply chain, then that was maybe there was a bigger gap I would say protein is the one sector, and you see that in our customers’ earnings releases, where protein is one that’s down more than others like our consumer packaged goods or retail sector. So we want to see continued improvement in the protein sector, and we think we’ll see the gap between physical and economic occupancy close between now and the end of the year.
Operator: Thank you. Next question comes from the line of Michael Carroll with RBC. Please go ahead.
Michael Carroll: Yeah, thanks. I just want to focus on the full year guide. I mean, if you annualize the first quarter number, I think that would put you above the new range that you set out. And I know 1Q is usually the low point of the year. You expect throughput to trend a little bit higher. You expect occupancy to rebound with seasonality. It seems like even the non-established NOI was peaking to the negative side this quarter, and it should recover. So why didn’t you not increase your guidance by more? I guess, why does that imply the quarterly run rate should trend a little bit lower throughout the year?
Jay Wells: And I’ll take this one. As I mentioned earlier, our maintenance CapEx were higher than Q1 of last year, was only $17.9 million. So that means we’re going to incur at the midpoint another $67 million of maintenance CapEx in the following three quarters. So, that does cause a reduction in AFFO and part of why it’s more flattening out for the remainder of the year within our guidance.
Michael Carroll: Okay. And then that typically doesn’t happen in the past because, I mean, if you look at historically, I mean, you’ve shown your occupancy kind of offset that as your occupancy is right around 80% today, and it’s implying that’s probably going to go up a few hundred basis points when that occupancy offset that CapEx increase?
George Chappelle: I don’t really, this is George. I don’t understand that point, Mike. I mean, we have an occupancy guide that’s in our revised guide, and we have to hit the mid to hit the $1.42, everything else would fall in line with that. And one of the anomalies that is in our business is we typically have a very low CapEx spend in the first quarter, because projects tend to start a little later in January and ramping up after the New Year, etcetera. And as Jay said, if you flow the remaining CapEx for the three quarters, we believe that accounts for everything that you’re describing, is the reason why you can’t just multiply the $0.38 by 4 and get to a number for the year versus what we’re projecting.
Operator: Thank you. Next question comes from the line of Todd Thomas with KeyBanc Capital Markets, Inc. Please go ahead.
Todd Thomas: Hi. Thanks. Good afternoon. First, I just wanted to follow-up on occupancy. It looked like that countercyclical build continued into the second quarter last year. So within the full year economic occupancy guidance that you maintained flat to down 100 basis points, do the year-over-year occupancy headwinds, do they worsen in the second quarter before improving? Or do you see the improvement beginning sooner than that? And then I guess just following-up, I wanted to see if you could discuss what you’re seeing so far in the second quarter to that end in terms of economic occupancy as we’re through the first week or so in May.
George Chappelle: I would say when it comes to economic occupancy, the way I look at it is, if you take where we ended the year at the end of the first quarter, which was 345 basis points down from prior year and exactly in line with where we believed it would end. It was driven by the counter seasonal inventory. That’s the drop in occupancy. We’ve explained that, etcetera. If you look for the remaining part of the year, the next three quarters, we would have to sequentially improve occupancy, economic occupancy over that time period, 400 basis points to get to our midpoint guide. We’re very comfortable with that within the context of a year that is back to our counter seasonal environment. So that’s how we view the guide going forward, and that’s why we are comfortable with the guide and have not changed it.
When it comes to April and economic occupancy, I don’t have any data on that. I mentioned the throughput data because it was something we were tracking, but I don’t have any data on economic occupancy for April, other than to say it’s in line with our guide for the year, because if it wasn’t, we would have been aware of that.
Todd Thomas: Okay. And then the fixed commitment level, you improved that again by 200 basis points. Is there more upside than you previously thought in terms of where you think that can be in terms of fixed commits across the portfolio?
George Chappelle: Rob, why don’t you take that one where you are closer to that?
Rob Chambers: Yeah. I mean, we’ve said that we can get that into the 60s. And so, I mean, that in and of itself is a relatively wide range, but that’s still what our target is. There’s always going to be a portion of this business that is going to be transactional. Right now, we have a line of sight to getting fixed commitments into the 60% range, and I think that’s what we’re comfortable with at the moment as our target. We’re okay with a portion of this business being transactional, but right now, we’re focused on getting this into the 60s.
Operator: Thank you. Next question comes from the line of Young Ku with Wells Fargo. Please go ahead.
Young Ku: Hi, great. Thank you. I just want to go back to guidance, specifically your non-same-store NOI guidance. There was about a $6 million swing at the midpoint. Can you provide some background in terms of what drove that change? And then how much of that is due to revenue versus OpEx?
George Chappelle: I’ll take a little bit on this one, and then hand it over to Rob. I mean, as Rob mentioned on the call, it’s really looking at our retail automated facilities in Plainville and Lancaster, which where we are being very discreet in our ramp up there. And it is not pushing out the – favorability dates. It’s not pushing out the return on invested capital. It is just a much – not a much, but a slower ramp up. But let me hand it over to you, Rob, if you want to add more color to that.
Rob Chambers: Yeah. What I would say is, we delivered five automated facilities last year, and three of them supporting food manufacturing all ramping up in line with our expectations. And then it’s our two retail developments in Pennsylvania and Connecticut that are progressing and ramping up but ramping up slower than we had previously anticipated as we fine-tune the automation. And so, we’ve made a decision with our customer jointly to slow that ramp. So, specific to the question about is it really more a revenue or a cost side? It’s really going to be on the revenue side, which will flow down to the earnings, because we’ll see less volume through those facilities than we had originally planned in our guide. But I think, we think that taking more time now to optimize the automation will allow for a more smooth ramp and ultimately to be able to continue to hit our stabilization dates in returns.
Operator: Thank you. This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.
