Americold Realty Trust — Q2 2018 Form 10-Q
Reporting period: Three and six months ended June 30, 2018. Americold owns and operates temperature-controlled warehouses and related logistics businesses; it reported 156 warehouses across five countries. The company completed its IPO in January 2018.
Financial and operating performance
- Q2 revenue: $394.7 million, up 4.0% from $379.5 million. Operating income was $40.9 million versus $28.7 million; net income was $29.4 million versus a net loss of $8.4 million. Q2 included an $8.4 million after-tax gain on a warehouse sale.
- Six-month revenue: $785.8 million, up 4.4%. Net income was $20.8 million versus a $4.0 million loss. Results included a $21.4 million debt-extinguishment and modification charge, partly offset by the $8.4 million real-estate sale gain.
- Margins and segments: Q2 warehouse segment contribution (NOI, a non-GAAP measure) rose 7.1% to $90.8 million; its margin improved 150 basis points to 31.6%. Same-store warehouse NOI increased 8.1%, although same-store occupancy fell 140 basis points to 74.8%. Q2 third-party managed and transportation contribution rose 10.8% and 16.1%, respectively.
- Cash flow and investment: Six-month operating cash flow was $76.9 million, down from $82.8 million, largely due to working capital. Investing used $46.9 million, including $65.0 million of property and intangible additions, partly offset by $18.1 million of asset-sale proceeds. Cash, cash equivalents and restricted cash totaled $190.8 million at June 30.
- Debt and liquidity: Mortgage notes and term loans had $1.400 billion principal outstanding ($1.386 billion net carrying value), down from $1.754 billion principal at year-end 2017. No revolving-credit borrowings were outstanding; the facility commitment was $450 million, subject to borrowing-base terms, with $33.6 million of letters of credit issued. The company reported covenant compliance. Weighted-average effective debt interest was 5.43%.
- Other metrics: Total assets were $2.475 billion and shareholders’ equity was $642.8 million. Common distributions declared were $0.19 per share for Q2. Adjusted FFO was $39.8 million for Q2 and $79.7 million for the first half; these are non-GAAP measures.
Material changes versus the prior comparable period
- Revenue growth came from warehouse rate escalations, customer mix and new business, as well as higher managed-services and transportation volumes. Warehouse NOI growth outpaced revenue growth.
- Same-store occupancy and throughput declined, while revenue per occupied pallet and revenue per throughput pallet increased. Management attributed this to customer mix, pricing and more value-added services.
- Interest expense decreased 18.9% in Q2 and 15.3% for the first half, reflecting lower debt following the IPO-related refinancing. The refinancing also generated the first-half debt-extinguishment charge.
- The IPO raised approximately $493.6 million net, expanded the common share count, enabled redemption or conversion of preferred shares, and supported the refinancing. YF ART Holdings owned approximately 38.3% of common shares at quarter-end; Goldman-affiliated funds owned approximately 16.6%.
Outlook, commentary and risks
- Management said it expects available cash, operating cash flow and borrowing capacity to meet short- and long-term liquidity needs, including capital expenditures, debt service and distributions. No quantified earnings or revenue guidance was provided.
- Management described warehouse occupancy as seasonal, generally lowest in May and June, and cited approximately 85% portfolio occupancy as an optimal target, depending on facility and market needs. Q2 same-store occupancy was below that level.
- Argentina met the accounting definition of a highly inflationary economy in Q2; beginning in Q3, its subsidiary’s financial statements would be remeasured using the U.S. dollar as functional currency, potentially increasing foreign-exchange gains or losses.
- A 100-basis-point interest-rate increase was estimated to add approximately $5.8 million to annual interest expense on variable-rate debt. Risks also include customer concentration (one customer exceeded 10% of revenue), labor and power costs, contract renewals, currency movements, and warehouse occupancy.
- Approximately 55% of the workforce was covered by collective bargaining agreements; agreements covering approximately 14% were due to expire in 2018. The company reported a pending Kansas settlement-agreement lawsuit and an estimated $13.7 million multi-employer pension withdrawal liability, payable over 30 years. Management did not expect ordinary-course legal matters to materially affect results.
- The company was evaluating the impact of the new lease accounting standard, effective for it in 2019, and expected to complete its assessment in Q4 2018. Management reported effective disclosure controls as of June 30.
Most important facts for investors to verify
- Whether revenue and NOI growth persist while occupancy and throughput remain below prior-year levels, and whether pricing offsets volume declines.
- How much of reported earnings and adjusted FFO reflects recurring operations versus the property-sale gain, IPO-related compensation and costs, and refinancing charges.
- Debt maturities and refinancing needs, floating-rate exposure, borrowing-base availability, and continued compliance with credit covenants.
- The impact of Argentina’s highly inflationary accounting treatment and foreign-exchange movements on future earnings and equity.
- Customer concentration, labor-contract expirations, and developments in the Kansas litigation and pension withdrawal liability.