Americold Realty Trust (NYSE: COLD) — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. The filing was signed March 1, 2022. Americold is a REIT focused on owning and operating temperature-controlled warehouses, with third-party management and transportation businesses. At year-end it operated 250 warehouses with approximately 1.5 billion cubic feet of capacity.
Financial performance
| Metric | 2021 | 2020 | Change / context |
|---|---|---|---|
| Total revenue | $2.715 billion | $1.988 billion | Up 36.6%; growth principally reflected acquisitions and expanded periods of ownership. |
| Operating income | $72.9 million | $168.5 million | Down 56.7%, as costs and depreciation rose substantially. |
| Net income (loss) | $(30.3) million | $24.6 million | Net loss attributable to Americold was $(30.5) million. |
| Diluted earnings (loss) per share | $(0.12) | $0.11 | 2021 loss made potential common shares antidilutive. |
| Operating cash flow | $273.1 million | $293.7 million | Down 7.0%. |
| Investing cash flow | $(1.239) billion | $(2.249) billion | Included acquisition spending and capital investment. |
| Financing cash flow | $431.5 million | $2.330 billion | Included equity proceeds and revolving-credit borrowings, partly offset by repayments and distributions. |
| Cash, cash equivalents and restricted cash | $83.0 million | $621.1 million | Substantial year-over-year decrease. |
| Total debt, including sale-leaseback and finance-lease obligations | $3.120 billion | $2.959 billion | Net debt was $3.048 billion, versus $2.366 billion. |
| Distributions paid | $227.5 million | $167.1 million | 2021 quarterly distribution increased to $0.22 per share; current annualized rate disclosed as $0.88. |
Operating segments and margins
- Warehouse: Revenue was $2.085 billion, up 34.6%; segment contribution (NOI), a non-GAAP measure, was $586.4 million, up 12.7%. NOI margin fell to 28.1% from 33.6%. Same-store NOI declined 4.9%, while same-store economic occupancy decreased to 77.0% from 80.3% and physical occupancy to 68.4% from 73.4%.
- Third-party managed: Revenue rose 8.8% to $317.3 million; NOI increased 14.2% to $14.0 million, with a 4.4% margin.
- Transportation: Revenue rose 119.5% to $312.1 million, largely reflecting acquisitions. NOI increased 56.2% to $29.4 million, but margin declined to 9.4% from 13.2% as acquired operations and higher carrier costs pressured profitability.
- Other: The limestone quarry sold in July 2020; no 2021 revenue was reported for that business.
Adjusted FFO, a non-GAAP measure, increased to $299.5 million from $267.9 million; Core FFO decreased to $232.8 million from $255.7 million. These measures are supplemental and are not substitutes for GAAP earnings or operating cash flow.
Material changes versus 2020
- Revenue and the warehouse portfolio expanded substantially, driven primarily by 2020 and 2021 acquisitions, including Agro, Liberty Freezers, KMT Brrr!, Bowman Stores, ColdCo, Newark Facility Management and Lago.
- Costs grew faster than revenue in the warehouse segment: total warehouse operating costs increased 45.7%, compared with revenue growth of 34.6%. Management cited acquisitions, inflation, wage increases, labor scarcity, power, property taxes, insurance and development activity.
- Warehouse same-store performance weakened amid lower food-production holdings and throughput. Higher rates per occupied pallet and per throughput pallet partly offset lower occupancy and volumes.
- Depreciation and amortization rose 48.1% to $319.8 million. Corporate acquisition, litigation and other expenses increased to $51.6 million from $36.3 million, including $39.3 million of acquisition and integration costs and $8.9 million of severance-related costs.
- Interest expense increased 8.4% to $99.2 million. The company reported $2.8 billion of principal debt outstanding at year-end, compared with $2.6 billion a year earlier; the effective interest rate for the year was 3.14%, versus 3.94%.
Outlook, risks and unusual items
- Outlook: The filing provides no specific consolidated revenue, earnings or FFO guidance. Management expected occupancy and throughput to remain below pre-pandemic historical levels until customers could restore production and rebuild inventories. It expected to continue customer rate increases into 2022 to address inflation, but said it could not assure full cost recovery.
- Acquisitions and development: Management intends to pursue acquisitions, expansions and development, including automated build-to-suit facilities. It cautioned that integration, construction delays, cost escalation, financing availability and returns may differ from expectations. Year-end construction commitments were $202.3 million.
- Liquidity and leverage: The company relied on operating cash, revolving-credit borrowings and equity issuance to fund investment and distributions. It had $399.3 million drawn on its revolving facility and $21.6 million of letters of credit outstanding; all debt covenants were reported in compliance. A 100-basis-point rate increase was estimated to add approximately $7.7 million of annual interest expense on variable-rate debt.
- Labor and supply chain: COVID-19-related supply chain disruption, customer production constraints, labor shortages and inflation affected operating costs and warehouse utilization. About 37% of employees were covered by collective bargaining agreements; 26 agreements were due for renegotiation in 2022.
- Pension exposure: Estimated potential multiemployer-plan withdrawal liability was as much as $819.6 million. The company estimated customers were contractually obligated to indemnify approximately $790.8 million, but stated recovery was not assured. The balance sheet included an $8.2 million withdrawal-liability amount.
- Brazil joint venture: A Comfrio joint-venture partner exercised a put right. The parties disputed a purchase price ranging from $14 million to $77 million and entered binding arbitration; additional interest could apply.
- Legal matter: In the Kansas settlement litigation, the Kansas Supreme Court upheld an adverse appellate decision on February 25, 2022. The company said its liability could not then be reasonably estimated and stated it believed the matter would not materially affect its consolidated financial statements.
- Management and controls: George Chappelle was appointed permanent CEO on February 24, 2022, after serving as interim CEO from November 2021. The auditor issued an unqualified opinion. Management and the auditor reported effective internal controls, but 2021 assessment and audit scope excluded businesses acquired during 2021, representing 7% of year-end assets and 2% of annual revenue.
Important facts for investors to verify
- How much of reported growth and future earnings reflects acquisitions versus sustainable same-store improvement, especially given the decline in same-store NOI and occupancy.
- Whether inflation-related pricing actions recover labor, power, insurance and other cost increases, and whether warehouse service margins stabilize.
- Cash available after maintenance capital expenditures, development spending, debt service and REIT distributions; also review the sharp decline in cash balances and higher net debt.
- The outcome and potential financial effect of Comfrio put-right arbitration, the Kansas litigation and any multiemployer pension withdrawal or indemnification claims.
- Progress integrating acquired businesses and completing committed developments within budget, schedule and targeted returns; also confirm covenant headroom and refinancing exposure.
- Whether customer production, inventory rebuilding, labor availability and transportation capacity support a recovery in occupancy and throughput.