George Chappelle: So let me start with the second one first. The 9% is the we said was the run rate we would hit in the second half of the year, so we would achieve that run rate. We wouldn’t end the year at 9%, certainly, but we would achieve that in the second half of the year, and we would able to maintain it going forward. The first question sorry, what was the first question?
Craig Mailman: You guys had thought you’d have 100 basis points to 200 basis points decline was only 80 basis points, but physical was actually down over 200 basis points, which kind of trended with the USDA. So I’m just trying together you guys have said throughput is going to be weak, but are you seeing that even normally seasonal should be picking up now? Are you seeing in the fourth quarter Q4 ahead of Thanksgiving? Or is it still much weaker on a year over year basis?
George Chappelle: No, sorry, I forgot that. But, we are seeing sequential improvement in throughput, which should translate into sequential improvement in occupancy. Due to the seasonal lift you just mentioned around Thanksgiving and Christmas, we still believe that will occur and we’re starting to see the results materialize in October. The gap between physical and economic did widen, but we believe that the reason why fixed commit their office because people are planning to use that space in the fourth quarter, they’ve reserved it. We see throughput coming, so, I would expect that gap to narrow in the fourth quarter as large manufacturers are reserving space for their product to support the holiday season.
Operator: The next question we have is from Mike Mueller of JPMorgan.
Mike Mueller: I was wondering, can you give us some color in terms of the economics of the Safeway acquisition and what occupancy levels look like and just economics on the transaction?
George Chappelle: Yes. As we said, roughly, we invested $37 million and we expect a net entry NOI yield of approximately 9%. So, as we comment I think Rob commented in his in prepared remarks. The site’s located in New Jersey and Southern New Jersey, and it supports our existing infrastructure we have out in that market, which is a very strong market for us.
Rob Chambers: I think the only thing I would add to that, this is Rob, is just that we’ll look to do, with that, acquisition like we do with all acquisitions, implement both our best in class commercial practices and the Americold operating system, which we think should improve that entry yield over time.
Operator: The next question we have is from Michael Carroll of RBC.
Michael Carroll: How abnormal is it for the throughput trend to change that quickly? I mean, if we were in normal times, I’m assuming that this is not a normal time. I mean, how much would we should we expect throughput would vary from quarter-to-quarter?
George Chappelle: I don’t know that I can say how much we expect quarter-to-quarter, but what I can say is we saw a very, very sharp drop, there’s no doubt about it, particularly in the beginning part of the third quarter. It did, as I say, come back pretty strong in the latter part of third quarter and we continue to see throughput improved sequentially through October, but it was a very sharp drop, no question about it, and, I wouldn’t consider it normal, but I also wouldn’t consider it something that’s never happened before. It’s just it’s not an annual occurrence, let’s put it that way. And I think it reflects an economic environment that’s fairly unique at the same time.
Michael Carroll: And then the weakness, was it concentrated in any particular customer, I guess property type like your production facilities, your distribution centers or any part of the region of the company or was it just broad based across the portfolio?
George Chappelle: I would say it was broad based across the portfolio, based as we said, we believe on a consumer that has less money walking into the grocery store and is facing higher prices.
Operator: The next question we have is from Ki Bin Kim of Truist Securities.
Ki Bin Kim : So, we noticed your job postings were down about 40% quarter-over-quarter. I’m guessing that’s tied to your variable cost control initiatives. But I just want to tie that to your commentary about this decrease in throughput volume being perhaps temporary, because we’ve obviously learned that it’s kind of hard to retain employees, maybe it’s easier to hire than retain, but to make a hiring change like that suggests that maybe this is a little bit longer lasting, so maybe you can provide some more color around it.
George Chappelle: Yes, I think it relates to the last question. I mean, the throughput decline was significant and fairly abrupt in the early part of Q3. So you’re correct in looking at the job postings and seeing a sharp decline because, what we did was take very quick action when we saw throughput decline very abruptly in the first part of third quarter. That’s how you manage variable costs really well. You have to respond very quickly or every day you don’t, you’re essentially losing money. So I think the fact that you noticed that we cut a lot of job postings tied to a real precipitous drop in throughput, is exactly the correct observation and was very intentional on our part to get labor in line with the work content, which, as I said, dropped pretty dramatically.
Ki Bin Kim : And if you look at the cost structure for your — this is stick with the services business, how much is fixed for a variable? And I know the difficulty in answering that question because it’s not linear by a step function, but just trying to get a better sense of how much variable cost can be extracted?
George Chappelle: I think a good measure would be 50-50. It’s about 50% fixed, 50% variable, what should give you an idea, that if we manage the variable side of this business as well as we can, which is not just labor, it’s our maintenance CapEx combined with our labor, if we do that well on 50% of the cost structure, we should be able to expand margins and that’s why I say we can still make progress with throughput down. And remember, in occupancy when we were — about two years ago, we said when occupancy comes back, it comes back at a very high revenue to EBITDA rate because it’s incremental. Throughput will do the same thing for that 50% of fixed, right? So we do a really good job on the variable side, and I think this is the first quarter we can point to where we really did.
We stay on that track through the first half of next year. In the second half, if throughput improves as many people predict, we should see a really incremental benefit as we absorb more fixed cost and get the benefit of the incremental volume on the variable side. So I’m really encouraged by the progress we’ve made in this area. We’ve been doing lot of work as everybody knows around productivity. I would point to this quarter as the first one where productivity really showed up in the results.
Operator: The next question we have is from Nick Thillman of Baird.
Nick Thillman : Please go ahead. Hey, good evening. George, maybe going back to some of your initial comments on SNAP and like lower end consumer. Obviously, you have the COVID SNAP benefits burn off here in February, but now you have the cost of living adjustments kind of kicking in here in October. Is that any way of maybe kicking throughput up or maybe just putting some numbers around just the low end consumer exposure you have in the portfolio?
