Americold Realty Trust (NYSE: COLD) — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Americold is a temperature-controlled warehouse REIT operating 246 warehouses across four regions, with over 1.4 billion cubic feet of capacity. Amounts below are in U.S. dollars unless stated otherwise.
Financial and operating results
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $654.7 million | $482.5 million | $1,289.5 million | $966.6 million |
| Operating income | $22.9 million | $56.5 million | $37.1 million | $104.2 million |
| Net income (loss) attributable to Americold | $(13.4) million | $32.7 million | $(27.8) million | $56.2 million |
| Diluted earnings (loss) per share | $(0.05) | $0.16 | $(0.11) | $0.27 |
| Net cash from operating activities | Not provided for the quarter | $127.8 million | $164.0 million |
- Revenue growth reflected acquisitions, contractual rate increases, development activity and foreign-currency effects. Q2 revenue increased 35.7% year over year; six-month revenue increased 33.4%.
- Warehouse segment contribution (NOI), a non-GAAP measure, rose 20.2% to $144.4 million in Q2 and 17.7% to $290.6 million for the first half. Warehouse segment margin declined to 28.7% from 32.3% in Q2 and to 29.4% from 32.8% for the first half.
- Same-store warehouse NOI declined 0.8% in Q2 and 3.1% for the first half. Same-store economic occupancy was 75.2% in Q2, down 403 basis points, and 76.0% for the first half, down 498 basis points. Higher rates and service revenue per pallet partly offset lower storage levels and throughput.
- Adjusted FFO, a non-GAAP measure, was $71.7 million in Q2 versus $61.1 million, and $147.7 million for the first half versus $128.3 million.
- Cash, cash equivalents and restricted cash were $316.1 million at June 30, down from $621.1 million at year-end 2020. First-half investing cash use was $438.8 million, primarily for acquisitions and property investment; financing provided $7.1 million.
- Debt principal was $2.58 billion, including $139.1 million drawn on the revolving facility; net debt carrying value was $2.57 billion. The $1.0 billion revolving facility matures in 2024, subject to extension options. Effective interest rate was 3.16%; 81.9% of debt was fixed-rate. The company reported covenant compliance.
Material changes versus the prior comparable period
- Growth was substantially acquisition-driven: the company acquired Liberty Freezers, KMT Brrr! and Bowman Stores in 2021, following the 2020 Agro and Hall’s acquisitions, among others. Acquisitions contributed materially to revenue and operating costs; depreciation and amortization rose 61.2% in Q2 and 55.4% for the first half.
- Profitability fell despite higher revenue. Q2 operating income declined to $22.9 million from $56.5 million; the prior-year quarter included a $19.4 million real-estate sale gain. First-half results also included a prior-year $21.9 million real-estate gain. Current-period costs included higher depreciation, SG&A, acquisition-related expense and interest.
- Transportation revenue more than doubled in Q2, largely from acquired operations, but transportation margin declined to 11.7% from 13.7%, reflecting lower-margin acquired business and higher carrier fees.
- First-half operating cash flow decreased $36.2 million year over year. The company cited higher acquisition/integration costs and SG&A, partly offset by increased segment contribution.
- Common shares outstanding increased to 261.0 million from 251.7 million at year-end 2020. The company settled forward equity agreements and issued shares; it also established a new $900 million ATM equity program.
Outlook, commentary, risks and unusual items
- The filing does not provide a clear numerical full-year earnings or operating guidance range. Management described funding sources as adequate for expected short- and long-term needs, including operations, debt service, distributions, acquisitions and development.
- Management reported that COVID-19-related supply-chain disruption, customer production constraints and labor availability continued to depress occupancy and throughput versus pre-pandemic levels, while increasing labor and health-and-safety costs. The duration and financial effects remain uncertain.
- Development and expansion spending continued, including automated facilities in Connecticut and Pennsylvania and projects in Atlanta, Auckland, Calgary, Russellville and other markets. Some projects were completed or nearing completion; additional projects were announced. The company also agreed on August 3, 2021 to acquire Newark Facility Management for $390 million, with closing expected in September 2021.
- Q2 tax expense included the effect of the UK corporate tax rate increase from 19% to 25%; management reported a $14.5 million deferred tax expense and a $3.7 million deferred tax benefit from a valuation-allowance decrease related to acquisitions.
- Acquisition accounting for Agro and Hall’s remained preliminary; final valuations and related depreciation, amortization and tax effects could change, potentially materially. First-half acquisition, litigation and other charges were $24.7 million, including $16.6 million of acquisition/integration costs and $4.5 million of cyber-incident-related costs.
- Material risks include COVID-19 and food-supply-chain conditions, labor and power costs, customer concentration and contract renewals, acquisition integration, development execution, interest rates, foreign exchange, access to capital and legal/environmental exposures. One customer accounted for over 10% of revenue in both periods, with most related revenue in third-party managed services and substantial pass-through reimbursements.
- Significant disclosed litigation includes the Kansas settlement-agreement matter and PFS/Fenway-related claims. Management said liabilities could not be reasonably estimated and did not expect these matters to have a material adverse financial impact; the Fenway case was dismissed with prejudice, with an appeal pending.
Most important facts for investors to verify
- How quickly same-store occupancy, storage holdings and throughput recover, and whether higher pricing offsets weaker volumes and rising operating costs.
- How much reported growth and future earnings depend on acquired operations, and whether acquisition synergies and preliminary purchase-price assumptions are realized.
- Whether operating cash generation can support acquisitions, development, maintenance capital spending and distributions without increased borrowing or equity issuance.
- Debt capacity, covenant headroom, floating-rate exposure and the effect of future interest-rate changes; the filing estimates a 100-basis-point rate increase would raise annual interest expense by approximately $4.7 million.
- The final purchase accounting for Agro and Hall’s, the outcome of material legal claims, and the closing, funding and expected contribution of the proposed Newark acquisition.