Americold Realty Trust — 2019 Form 10-K Summary
Business context and reporting period
Annual report for the fiscal year ended December 31, 2019, with selected fourth-quarter data. Americold is a publicly traded REIT focused on temperature-controlled warehouses and related cold-chain services. At year-end it operated 178 warehouses across the United States, Australia, New Zealand, Argentina and Canada, with more than one billion cubic feet of capacity. The business is managed through warehouse, third-party managed, transportation and other (quarry) segments.
The 2019 results include partial-year contributions from PortFresh, Cloverleaf, Lanier and MHW, acquired during the year. Nova Cold and Newport Cold were acquired in January 2020 and are subsequent events, not part of 2019 operating results.
Financial and operating performance
| Metric | 2019 | 2018 |
|---|---|---|
| Total revenue | $1.784 billion | $1.604 billion |
| Operating income | $131.5 million | $180.0 million |
| Net income attributable to Americold | $48.2 million | $48.0 million |
| Diluted earnings per common share | $0.26 | $0.31 |
| Cash from operating activities | $236.2 million | $188.2 million |
| Cash used in investing activities | $1.605 billion | $125.7 million |
| Cash from financing activities | $1.395 billion | $84.9 million |
| Cash and cash equivalents at year-end | $234.3 million | $208.1 million |
| Total debt reported on balance sheet | $1.869 billion | $1.511 billion |
Warehouse revenue rose 17.0% to $1.377 billion; the filing attributes about $168.6 million of the increase to acquired facilities. Same-store warehouse revenue increased 1.9% (3.5% in constant currency), and same-store contribution (NOI) rose 3.9% (5.1% in constant currency). Warehouse segment contribution (NOI) was $447.6 million, up 19.5%, with a 32.5% margin versus 31.8% in 2018. These are company-defined non-GAAP measures.
Total segment contribution (NOI) increased to $478.3 million from $405.6 million. By contrast, operating income fell 26.9%, reflecting substantially higher depreciation and amortization, acquisition/litigation/other charges, and asset impairments. Adjusted FFO was $214.5 million versus $170.4 million; FFO was $176.9 million versus $130.6 million. These supplemental REIT measures are not GAAP earnings or operating cash flow.
Year-end debt principal was $1.708 billion, before deferred financing costs; the balance-sheet total debt figure also reflects financing obligations. The $800 million revolving facility was undrawn at year-end, subject to approximately $23 million of letters of credit. The company reported compliance with debt covenants. Net debt to Core EBITDA was 4.2x versus 4.3x in 2018. The weighted-average effective interest rate on total debt was 4.57% at year-end. Of $475 million of variable-rate debt, $325 million was hedged, leaving $150 million exposed; management estimated a 100-basis-point rate increase would add about $1.5 million to annual interest expense.
Common-share dividends paid were $0.75 per share in 2019; $0.82 per share was declared for the year, including the December declaration paid in January 2020. The filing reported a current annualized dividend of $0.80 per share.
Material changes versus the prior period
- Revenue growth was driven substantially by acquisitions and expansion, while same-store warehouse revenue grew more modestly. Same-store physical occupancy declined to 75.3% from 77.0%, and economic occupancy to 79.5% from 80.3%; higher revenue per occupied pallet partly offset lower occupancy.
- Acquisitions drove a sharp rise in investing outflows and debt. The April 2019 follow-on offering generated approximately $1.21 billion net, principally supporting the Cloverleaf acquisition; the company also issued $350 million of Series C notes.
- Operating cash flow grew 25.5%, while reported net income was nearly flat. Diluted EPS declined, with the weighted-average basic share count increasing from 141.4 million to 179.6 million.
- Transportation revenue fell 8.8% as Americold exited certain lower-margin services; transportation contribution rose 14.8% and its margin improved to 12.5% from 9.9%.
- Third-party managed contribution fell 20.3%, mainly due to lower volume from a large domestic customer and exited or non-renewed sites.
Outlook, commentary, risks and unusual items
The filing provides no numerical full-year 2020 earnings or operating guidance. Management describes plans to grow through acquisitions, development and expansion, improve occupancy and commercial terms, and pursue energy efficiency and operating-cost initiatives. It expected the Atlanta redevelopment to finish in the second quarter of 2021, Savannah development in the second quarter of 2020, and an Auckland expansion to proceed in 2020 with completion in 2021. After year-end, the Sydney development plan changed; the customer exercised its option to acquire the land and reimburse Americold for the land purchase and related costs.
Material 2019 items included $40.6 million of acquisition, litigation and other charges, including acquisition/integration costs, severance, equity acceleration and legal settlement costs; $13.5 million of long-lived-asset impairments, principally the Atlanta redevelopment and an idle facility; $2.7 million of unused bridge-loan commitment fees; and a $4.3 million gain on sale of the China joint-venture interest. 2018, by comparison, included $47.6 million of debt-extinguishment and modification charges.
Key risks include customer concentration and the short-term or non-committed nature of many storage arrangements; acquisition integration and development execution; substantial debt and refinancing or interest-rate exposure; labor availability and collective bargaining; power costs and refrigeration outages; environmental, food-safety and ammonia-related liabilities; currency and country risks; and REIT qualification and distribution requirements. The filing also identifies the then-recent coronavirus outbreak as a potential public-health and international-operations risk, but does not quantify an impact on 2020 results. Americold estimated potential multiemployer pension withdrawal liability of up to $566.7 million, with approximately $533.7 million estimated to be subject to customer indemnification; collection is not assured. The PFS litigation and Kansas settlement-related case remained unresolved, with loss amounts not reasonably estimable; a separate employment class action had a preliminary $2.5 million settlement subject to court approval.
Important facts for investors to verify
- How much of warehouse growth and future earnings is attributable to acquisitions versus same-store performance, and whether acquired operations meet expected returns.
- Actual customer fixed commitments, occupancy and renewal trends, especially given customer concentration and lower same-store physical occupancy.
- Debt maturity and covenant headroom, revolver availability, variable-rate exposure, and the effect of financing obligations beyond stated debt principal.
- The cash required for recurring maintenance and growth capital expenditures, and how dividends are funded relative to operating cash flow and REIT distribution needs.
- Progress and cost outcomes for the Atlanta, Savannah and Auckland projects, and confirmation of the Sydney land reimbursement.
- Resolution and potential cash exposure from pension withdrawal liabilities, litigation and other contingencies; also the completion of purchase accounting for the 2020 acquisitions.
- Internal-control scope: management and the auditor excluded 2019 acquisitions representing 36% of year-end assets and 10% of annual revenue from the 2019 internal-control assessment.