Americold Realty Trust — Q3 2018 Form 10-Q
Business context and reporting period. Americold owns and operates temperature-controlled warehouses and related logistics businesses as a REIT. This filing covers the quarter and nine months ended September 30, 2018. At quarter-end, it operated 156 warehouses across the U.S., Australia, New Zealand, Argentina and Canada; it also held a minority interest in a China joint venture.
Financial performance and liquidity
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Revenue | $402.0 million | $389.5 million | $1,187.8 million | $1,141.9 million |
| Operating income | $43.6 million | $27.4 million | $128.8 million | $93.0 million |
| Net income (loss) | $24.5 million | $(4.6) million | $45.3 million | $(8.6) million |
| Diluted earnings (loss) per share | $0.17 | $(0.17) | $0.31 | $(0.44) |
| Cash provided by operating activities | Not provided for quarter | Not provided for quarter | $125.2 million | $127.1 million |
- Revenue rose 3.2% in Q3 and 4.0% year to date. Operating margin was approximately 10.8% for Q3 and 10.8% for the nine-month period, compared with 7.0% and 8.1%, respectively, in 2017.
- Warehouse segment contribution (NOI, a non-GAAP measure) increased 8.8% in Q3 to $93.6 million, with margin expanding to 31.5% from 29.6%. For nine months, contribution grew 7.7% to $274.0 million and margin rose to 31.4% from 30.0%.
- Nine-month adjusted FFO, a non-GAAP measure, was $121.1 million versus $70.6 million. The filing cautions that FFO measures are not substitutes for GAAP earnings or operating cash flow.
- Cash and cash equivalents were $226.8 million, with another $38.4 million restricted, at September 30. Principal debt was $1.391 billion (carrying amount, net of financing costs and discount, $1.377 billion), down from $1.754 billion principal at December 31, 2017. The $450 million revolving facility had no borrowings; $32.7 million of letters of credit used facility capacity. The company reported compliance with debt covenants.
- Weighted-average effective interest rate on total debt was 5.53%. A 100-basis-point increase in market rates was estimated to raise annual interest expense by approximately $5.7 million.
- Nine-month investing cash outflow was $77.6 million, including $96.1 million in property and equipment additions, partly offset by $18.5 million of asset-sale proceeds. Common-share distributions declared were $0.54 per share for the nine months.
Changes versus prior period
- Net income improved from a loss in both comparison periods. Results benefited from stronger warehouse contribution, lower interest expense following refinancing, and lower prior-year impairments and unusual charges. Nine-month results also included a $21.4 million debt-extinguishment and modification charge related primarily to writing off old financing costs.
- Warehouse revenue and contribution increased, supported by new business, improved commercial terms, contractual rate increases and facility maturation. Same-store occupancy declined to 77.0% in Q3 from 77.7%, while same-store revenue per occupied pallet increased 3.6%. Same-store throughput fell 3.4%, offset in part by higher service revenue per throughput pallet.
- Transportation contribution improved as the company shifted toward higher-value services; quarry contribution declined in Q3 amid lower customer demand.
- Americold completed its IPO in January, issuing 33.35 million shares and receiving approximately $493.6 million net proceeds. Series B preferred shares converted to common shares. A September follow-on offering issued 4 million shares for approximately $92.0 million net proceeds; a further 6 million shares were subject to a forward sale agreement and had not been settled by quarter-end.
Outlook, risks and unusual items
- The filing provides no specific full-year earnings or revenue guidance. Management said current funding sources were expected to meet short- and long-term liquidity needs.
- Americold announced plans for approximately $600 million of investment over four years to develop at least three automated Australian distribution centers for a major customer. The project is expected to be funded through offering proceeds, borrowings and available cash.
- Subsequent to quarter-end, the company priced $600 million of unsecured notes: $200 million at 4.68% for seven years and $400 million at 4.86% for ten years. It also entered into a commitment to recast its credit facilities, including increasing the revolver to $800 million, moving to unsecured facilities and reducing interest margins; closing was expected in Q4, subject to the note transaction. The company expected $17–19 million of defeasance costs and a $3.4 million financing-cost write-off in connection with its planned defeasance of the 2010 CMBS financing.
- After quarter-end, an affiliate agreed to buy land for approximately $46.6 million for a planned customer facility; the customer agreed to acquire the land if construction does not substantially commence under specified parameters.
- Risks include customer concentration (one customer generated $157.4 million, over 10% of nine-month revenue), foreign currency exposure and Argentina’s adoption of highly inflationary accounting, labor and power costs, warehouse occupancy and customer renewal risk, and interest-rate exposure. Approximately 56% of the workforce was covered by collective bargaining agreements; agreements covering about 4% were due to expire in Q4 2018.
- A Kansas lawsuit seeks damages tied to a historical settlement agreement; management said liability could not be reasonably estimated. Management reported no material unrecorded environmental liabilities and no other material litigation expected to materially affect the company.
Important facts for investors to verify
- Whether the planned credit-facility recast and debt-note issuance closed on expected terms, and the final defeasance costs and debt profile.
- Whether the Australian customer investment proceeds on schedule and delivers expected returns, and how the forward sale agreement affects dilution when settled.
- Whether occupancy and throughput stabilize, and whether pricing and service mix continue to offset lower volumes and foreign-exchange headwinds.
- How customer concentration, union negotiations, the Kansas litigation and variable-rate debt affect operating and financial risk.