Americold Realty Trust, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Americold is a global temperature-controlled warehouse, logistics and real estate REIT operating 243 warehouses. Amounts below are in U.S. dollars; financial statement amounts are in millions unless otherwise noted.
Financial results and key metrics
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total revenue | $667.9 | $757.8 | $1,994.0 | $2,193.2 |
| Operating income | $33.0 | $23.2 | $86.0 | $54.8 |
| Net loss | $(2.1) | $(8.9) | $(109.5) | $(22.4) |
| Basic loss per share | $(0.01) | $(0.03) | $(0.40) | $(0.08) |
| Cash provided by operating activities | Not separately presented for the quarter | $193.2 | $182.9 | |
| Interest expense | $35.6 | $30.4 | $106.4 | $82.7 |
Q3 revenue declined 11.9%; nine-month revenue declined 9.1%. The company reported warehouse segment NOI of $177.8 million for Q3, up 6.7%, and $525.5 million for nine months, up 13.3%. These are non-GAAP segment measures. Q3 warehouse margin rose to 29.5% from 27.8%; nine-month margin was also 29.5%, versus 27.2%.
Same-store economic occupancy was 84.0% in Q3, up 345 basis points year over year, and 84.5% for the nine-month period, up 597 basis points. Same-store throughput fell 9.0% in Q3 and 6.7% year to date. Rent and storage growth and lower Q3 power costs supported warehouse results, while weaker throughput weighed on warehouse-services contribution.
Management-reported non-GAAP measures for Q3 were NAREIT FFO of $54.6 million, Core FFO of $69.6 million and Adjusted FFO of $88.2 million. For nine months, they were $55.3 million, $192.9 million and $243.6 million, respectively. These measures are not GAAP earnings or cash flow and include company-defined adjustments.
Cash, debt and liquidity
- Cash and restricted cash were $53.8 million at September 30, 2023, versus $53.1 million at year-end 2022. Nine-month operating cash flow was $193.2 million; investing cash use was $258.4 million and financing cash provided was $69.1 million.
- Principal debt was $2.931 billion, down from $3.082 billion at December 31, 2022. Including sale-leaseback and financing lease obligations, debt-like obligations totaled $3.166 billion. Revolver borrowings were $359.2 million, versus $500.1 million at year-end.
- Management reported an effective interest rate of 4.02% and weighted-average debt maturity of approximately 5.5 years, assuming extension options. 89% of debt and debt-like obligations was fixed rate or effectively fixed through swaps. A 100-basis-point rate increase was estimated to increase annual interest expense by approximately $3.6 million.
- The company was in compliance with debt covenants. It said available funding sources were expected to be adequate for its liquidity needs; the filing does not provide a clear total of undrawn revolver availability.
- The company issued 13.2 million shares through its ATM program for net proceeds of $412.9 million during the nine months. It paid $179.6 million in distributions during the period.
Material changes and unusual items
- The prior-year comparison includes a large third-party managed customer whose warehouse-management business transitioned to another provider in Q4 2022. This drove much of the sharp year-over-year decline in third-party managed revenue and also contributed to lower transportation revenue alongside weaker market demand and a UK business-model transition.
- Nine-month results included a $56.6 million loss on the Comfrio put option and a $22.0 million impairment of a related-party loan. Comfrio was acquired in May 2023 and sold in August; the filing reports a $10.5 million nine-month discontinued-operations loss, including disposal costs and operating and investment losses.
- The April 2023 cyber incident caused temporary operational disruption. Management estimated Q2 warehouse revenue and NOI impacts of approximately $15 million and $9 million, respectively. Cyber-related charges, net of insurance recoveries, were $5.4 million in Q3 and $24.4 million for nine months. The company accrued $4.0 million for customer reimbursement claims and expects additional, though diminished, incident costs in Q4.
- Interest expense increased 28.7% for the first nine months, reflecting higher rates on floating-rate borrowings and higher average borrowings, partly offset by interest-rate hedges.
- Project Orion, a technology and business-process transformation including a new cloud-based ERP system, is expected to be substantially complete within three years. The company had incurred $42.9 million of implementation costs, of which $31.2 million was deferred in other assets.
Outlook, risks and contingencies
The filing provides no specific earnings or FFO guidance. Management described ongoing pricing and contractual rate increases, occupancy improvements, cost-reduction initiatives and investments in expansions and developments. It also cited reduced consumer demand and throughput, labor and power costs, inflation, rising interest rates, construction costs, foreign exchange movements, and development ramp-up costs as business risks. Warehouse occupancy is seasonal, and power costs typically rise during the third and fourth quarters.
The cyber investigation identified unauthorized access to personal information; the company was working to identify affected individuals and make legally required notifications. It cautioned that further claims, investigations, costs, fines or penalties could arise and that insurance recovery timing and coverage are uncertain. Management said disclosure controls were effective at quarter-end, while its review of the incident’s impact on internal controls over financial reporting remained ongoing; additional testing and compensating controls had been used. The company also disclosed ongoing PFS litigation for which a liability could not be reasonably estimated, but management did not expect a material adverse impact.
Important facts for investors to verify
- How cyber-related customer claims, data notifications, remediation costs and insurance recoveries develop, including whether coverage disputes arise.
- Whether warehouse pricing and occupancy gains can offset persistently lower throughput and the steep reduction in third-party managed and transportation activity.
- Future interest expense, refinancing needs and covenant headroom, particularly given variable-rate revolver borrowings and scheduled 2026 debt maturities.
- Project Orion’s remaining cost, implementation progress and realized operating benefits, alongside expansion and development returns.
- The effect of ATM share issuance and REIT distributions on per-share results and funding needs; nine-month net loss also reflects substantial Comfrio-related charges.