Americold Realty Trust — Q3 2019 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2019. Americold owns, operates and develops temperature-controlled warehouses; at quarter-end it operated 176 facilities across the U.S., Australia, New Zealand, Argentina and Canada. The Operating Partnership conducts substantially all operations and holds the debt and assets.
Financial performance and position
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $466.2 million | $402.0 million | $1,297.7 million | $1,187.8 million |
| Operating income | $39.4 million | $43.6 million | $84.9 million | $128.8 million |
| Net income | $27.1 million | $24.5 million | $27.4 million | $45.3 million |
| Diluted earnings per share | $0.14 | $0.17 | $0.15 | $0.31 |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $151.9 million | $125.2 million |
| Adjusted FFO | $52.4 million | $41.4 million | $154.8 million | $121.1 million |
- Q3 revenue rose 16.0%; warehouse revenue increased 23.0%, largely reflecting acquired facilities, improved customer mix, commercial terms and rate escalations. Warehouse segment contribution (NOI), a non-GAAP measure, increased 21.1% to $113.4 million; segment margin was 31.0% versus 31.5%.
- For the nine-month period, revenue grew 9.3%, but operating income fell 34.1% and net income fell 39.6%. Results included $30.2 million of acquisition, litigation and other charges, $13.5 million of impairments, and a $4.3 million gain on sale of a partially owned entity. The 2018 comparison included an $8.4 million real-estate sale gain and a $21.4 million debt-extinguishment charge.
- Cash provided by operations increased 21.4% year over year. Investing cash outflow was $1.49 billion, principally reflecting the acquisitions and $151.1 million of property additions. Financing cash inflow was $1.44 billion, mainly from the April equity offering and new senior notes.
- At September 30, cash and cash equivalents were $310.1 million; total assets were $4.14 billion and total liabilities were $2.30 billion. Debt principal was $1.71 billion ($1.70 billion net of financing costs). The $800 million revolving facility had no borrowings outstanding; approximately $29 million of letters of credit were issued.
- Debt included $950 million of senior unsecured notes, a $475 million term loan and $285.1 million of mortgage debt. The largest disclosed maturity is $739.2 million in the year ending September 2023. The company reported covenant compliance. A 100-basis-point rate increase was estimated to raise annual interest expense by about $1.5 million after swaps.
Material changes and management commentary
- Americold acquired PortFresh in February for about $35.9 million, and Cloverleaf and Lanier in May for about $1.24 billion and $82.6 million, respectively. The acquisitions added facilities and contributed to revenue growth; the Cloverleaf purchase-price allocation remained preliminary.
- The April follow-on offering generated about $1.21 billion net proceeds, principally used to fund Cloverleaf. The company also issued $350 million of 4.10% notes due 2030. A new ATM program permits up to $500 million of share sales; none were sold in Q3. Forward sale agreements cover 6.0 million and 8.25 million shares and had not been settled as of September 30.
- Same-store warehouse NOI increased 2.1% for the first nine months, while same-store physical occupancy fell 233 basis points to 73.8% and economic occupancy declined 145 basis points to 78.0%. Management attributed occupancy trends to harvest timing, customer production plans and portfolio optimization; higher revenue per occupied pallet partly offset lower occupancy.
- Management described a strategic shift away from lower-margin transportation services. Nine-month transportation revenue declined 6.9%, while segment contribution rose 16.5% and margin increased to 12.1%.
- Expansion and development spending included projects in Atlanta, Savannah and acquired Cloverleaf facilities. The Atlanta redevelopment was expected to be completed in Q2 2021; Savannah construction was expected to finish in Q2 2020. The filing provides no specific full-year earnings or revenue guidance.
Risks, contingencies and unusual items
- Risks include acquisition integration and execution, customer defaults or non-renewals, occupancy and rate pressure, labor, power and healthcare costs, interest rates, foreign exchange, financing availability, environmental exposures and potential dilution from equity and forward-sale issuances.
- One customer represented more than 10% of revenue in both comparison periods; much of this revenue was reimbursed third-party managed-service expense, generally offset by corresponding costs.
- Material litigation includes a Kansas settlement-agreement dispute, Preferred Freezer Services claims and a California employment putative class action. Management said loss amounts were not reasonably estimable for the first two matters and did not expect these matters to materially affect the financial statements.
- The company recorded $13.5 million of impairment charges in the first half, including Atlanta redevelopment, an idle warehouse subsequently sold, and international transportation assets. No Q3 impairment was recorded.
- Disclosure controls were reported effective; management reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether Cloverleaf, Lanier and PortFresh deliver expected integration benefits, operating performance and returns, and how final purchase accounting changes reported results.
- Trends in same-store physical and economic occupancy, customer concentration, renewal terms and revenue per pallet.
- Debt maturities and refinancing capacity, covenant headroom, interest-rate exposure and the effects of outstanding or settled forward-sale agreements and future ATM share issuance.
- How recurring maintenance and development capital spending affects cash available for distributions; distributions declared were $0.6159 per share for the first nine months.
- Developments in the disclosed litigation, environmental obligations, and management’s plans and spending for redevelopment and expansion projects.