Americold Realty Trust — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; comparisons are with Q1 2019 unless stated otherwise. Americold is a global temperature-controlled warehouse REIT. At quarter-end, it operated 183 warehouses, with more than one billion cubic feet of capacity, and held a 14.99% interest in a Brazilian joint venture.
Financial performance
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Total revenue | $484.1 million | $393.1 million | +23.2% |
| Operating income | $47.7 million | $16.4 million | +190.4% |
| Operating margin | 9.9% | 4.2% | +5.7 percentage points |
| Net income (loss) | $23.5 million | $(4.6) million | Returned to profitability |
| Diluted EPS | $0.11 | $(0.03) | Improved |
| Net cash provided by operating activities | $80.5 million* | $53.0 million | +51.9% |
Warehouse revenue increased 31.6% to $381.1 million, including approximately $77.3 million from acquired facilities. Same-store warehouse revenue rose 5.0% (6.8% in constant currency), and same-store NOI increased 9.8% (11.1% constant currency). Same-store economic occupancy improved to 81.8% from 78.4%; same-store NOI margin was 33.3%, up 147 basis points. Transportation revenue fell 3.2%, while its NOI rose 10.3% and margin improved to 13.4% as the company exited lower-margin business.
Depreciation, depletion and amortization rose 71.5% to $51.6 million, primarily reflecting acquisitions and assets placed in service. Interest expense increased 10.6% to $23.9 million, although the reported effective interest rate on total debt declined to 4.30% from 4.57% at year-end 2019. Q1 2020 included a $2.5 million gain on sale of real estate; Q1 2019 included $12.6 million of impairment charges. Acquisition, litigation and other costs declined to $1.7 million from $8.5 million.
Cash flows and investment: Investing activities used $358.1 million, including $315.6 million for Nova Cold and Newport and $25.7 million invested in the Brazil JV; property additions were $62.3 million. Financing activities provided $315.1 million, including $233.6 million from settlement of the 2019 equity forward agreement. Cash and cash equivalents were $263.0 million at March 31, versus $234.3 million at December 31, 2019; restricted cash was another $6.2 million.
Debt, liquidity and shareholder distributions
Principal debt was $1.834 billion ($1.819 billion net of deferred financing costs), versus $1.708 billion of principal at year-end. The company had no revolver borrowings at quarter-end and reported approximately $1.4 billion of total borrowing capacity under its new credit facility; $22.8 million of letters of credit were outstanding. The new facility includes a $800 million revolving credit facility maturing in 2024 and $602.1 million of term loans maturing in 2025. Management reported compliance with debt covenants. The company declared a quarterly distribution of $0.21 per share, compared with $0.20 a year earlier.
Material changes, outlook and risks
- Acquisitions and investment: Americold acquired Nova Cold for approximately $259.5 million and Newport Cold for $56.1 million in January 2020, and bought a 14.99% interest in Brazil’s SuperFrio for approximately $25.7 million. These additions materially affect year-over-year revenue and costs; growth should not be read as purely organic.
- COVID-19: Management reported no significant disruption in the quarter, but said the future effects were not predictable and could materially affect operations, customers’ ability to pay, asset values, credit losses, liquidity, financing access and development activity. Higher grocery demand and food-service inventory buildup supported warehouse throughput and occupancy late in the quarter; employee health and safety measures increased operating costs. The Auckland expansion was delayed after construction activity shut down.
- Guidance: The filing provides no clear quantified full-year earnings or operating guidance. Management said it expected current funding sources to meet short- and long-term liquidity needs, while emphasizing COVID-19 uncertainty.
- Contingencies: A preliminary $2.5 million settlement of an employment class action was subject to court approval. The company said liabilities in the Kansas litigation and Preferred Freezer Services litigation could not be reasonably estimated and did not expect either matter to materially affect its financial statements. It also disclosed potential environmental, labor, customer-credit and pension risks.
- Capital and dilution: A new $500 million at-the-market equity program was established after quarter-end on April 16, replacing the prior program; the filing reported no activity under the new program at that time. The 2018 forward sale agreement remained unsettled at quarter-end and could increase shares outstanding upon settlement.
Important facts for investors to verify
- Reconcile operating cash flow: the cash-flow statement reports $80.5 million, while MD&A states $81.6 million for the same quarter.
- Assess how much of revenue and NOI growth came from acquisitions versus same-store performance, and whether occupancy, throughput and margins persist after temporary pandemic-related demand shifts.
- Monitor COVID-19 impacts on customer collections, operating costs, construction schedules, capital-market access and the company’s stated liquidity expectations.
- Review debt maturities, variable-rate exposure, hedges and covenant headroom; the filing estimates a $2.8 million annual interest-expense change for a 100-basis-point rate move after hedging.
- Track the $2.5 million employment settlement approval, the two litigation matters with unestimable liabilities, and potential share issuance under the ATM and forward sale agreement.
*The statement of cash flows reports $80.5 million; MD&A gives $81.6 million. Figures are presented as reported, and the discrepancy is not resolved in the filing text provided.