Business context and reporting period
Americold Realty Trust (NYSE: COLD) filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2020. It owns and operates temperature-controlled warehouses and related logistics businesses. At quarter-end, it operated 183 warehouses across the U.S., Australia, New Zealand, Argentina and Canada, and held a 14.99% interest in a Brazilian cold-storage joint venture.
Financial performance and position
Unless otherwise noted, amounts are in millions of dollars.
- Second quarter: Revenue was $482.5, up 10.1% from $438.5 a year earlier. Operating income was $56.5 versus $29.1; net income was $32.7 versus $4.9; diluted EPS was $0.16 versus $0.03. Results included a $19.4 gain on a warehouse sale.
- First half: Revenue was $966.6 versus $831.5; operating income was $104.2 versus $45.5; net income was $56.2 versus $0.3; diluted EPS was $0.27 versus approximately $0.00. Results included $21.9 of gains on real estate sales and $3.7 of impairment charges.
- Segment contribution (NOI, a non-GAAP measure): Warehouse NOI was $120.1 in Q2, up 5.5%; same-store warehouse NOI was down 0.5% (up 0.7% constant currency). First-half warehouse NOI was $246.9, up 20.7%, with same-store NOI up 4.6%. Q2 transportation NOI rose 13.5% to $4.8, while revenue declined 4.5%; the company attributed improved margin to its shift toward higher-margin services.
- Cash flow: First-half operating cash flow was $164.0, compared with $79.8 in 2019. Investing cash outflow was $443.0, including acquisitions and capital spending; financing cash inflow was $374.3. Cash and restricted cash totaled $331.8 at June 30, including $298.7 of unrestricted cash.
- Debt and liquidity: Debt principal was $1,838.7 ($1,824.4 net of financing costs), up from $1,708.4 at December 31, 2019. The company had no revolver borrowings against its $800 million 2020 revolving facility; $22.8 of letters of credit were outstanding. It reported compliance with debt covenants and a 4.15% weighted-average effective debt rate at quarter-end.
- Capital and distributions: The company issued 3.09 million shares through its 2020 ATM program for $110.4 gross proceeds and entered a forward sale agreement for 472,551 shares representing $17.2 gross proceeds. The quarterly dividend declared was $0.21 per share.
Material changes versus the prior comparable period
- Revenue and warehouse NOI growth reflected the 2019–2020 acquisitions, including Nova Cold and Newport Cold in January 2020, as well as contractual escalations and stronger grocery-related demand. Acquisitions contributed substantially to reported growth; same-store results were more moderate.
- COVID-19 effects varied by customer sector: grocery demand supported activity, while protein and food-service throughput were pressured by outbreaks, closures and reduced activity. Same-store Q2 throughput fell 3.1%; same-store economic occupancy increased to 78.9%, while physical occupancy declined to 70.8%.
- Warehouse operating costs rose, including a $4.3 front-line appreciation bonus and higher sanitation, protective-equipment and labor costs. Q2 warehouse margin declined to 32.3% from 33.7%; warehouse services margin fell to 6.3% from 10.1%.
- The company refinanced its credit facilities in March 2020, replacing the prior term loan and revolver with a five-year term loan and a four-year $800 million revolver. It also completed the Nova Cold and Newport Cold acquisitions and invested in the Brazil JV.
- Q2 acquisition, litigation and other charges fell to $2.8 from $18.0 a year earlier, largely reflecting lower acquisition-related costs. Depreciation, depletion and amortization increased to $52.4 from $40.4, largely due to acquisitions and placed-in-service development.
Outlook, risks, contingencies and unusual items
- The filing provides no specific earnings or operating guidance. Management said it could not reliably predict the pandemic’s future effects, but stated that there had been no significant operational disruption through June 30. It expected elevated labor and health-and-safety costs to continue and said anticipated funding sources were adequate for short- and long-term requirements.
- COVID-19 could adversely affect customers, collections, occupancy and throughput, asset values, credit losses, financing availability and costs. The allowance for doubtful accounts was $10.5 at June 30. Foreign currency movements also affected reported results.
- The July 1, 2020 sale of the quarry followed a $3.7 impairment charge recorded in Q2. A separate warehouse sale generated the $19.4 Q2 gain; an Australian land sale generated an additional $2.5 gain in the first half.
- Fenway Polar Representative filed a lawsuit seeking damages in excess of $400 million concerning the sale of Preferred Freezer Services. The company disputes the claims; management said a liability could not be reasonably estimated and did not expect a material adverse impact. A separate PFS action remains pending, with a $550,000 legal-fee reimbursement stipulated for payment at case conclusion.
- The company entered a preliminary $2.5 settlement in an employment putative class action, subject to court approval. For the longstanding Kansas settlement litigation, management said a liability could not be reasonably estimated and believed the matter would not materially affect the financial statements.
- Other risk considerations include debt covenants, interest-rate and foreign-currency exposure, acquisition integration, labor costs and collective bargaining; approximately 48% of the workforce was covered by collective bargaining agreements.
Most important facts for investors to verify
- How much reported revenue and NOI growth is attributable to acquisitions versus same-store performance, and whether pandemic-related customer mix and throughput effects persist.
- Whether COVID-related labor, sanitation and other operating costs remain elevated, and how they affect warehouse-services margins.
- Cash generation relative to maintenance and development spending, distributions, acquisition plans and debt maturities.
- Debt capacity, covenant headroom, floating-rate exposure and potential dilution from ATM and forward-sale share issuances.
- Developments in the Fenway/PFS and employment litigation, including any changes to expected exposure or settlement status.