Americold Realty Trust — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018; comparisons are with Q1 2017 unless noted. Americold owns and operates temperature-controlled warehouses and related businesses. At quarter-end, it operated 158 warehouses across five countries, with 933.9 million cubic feet of capacity.
Financial performance
| Metric | Q1 2018 | Q1 2017 |
|---|---|---|
| Total revenue | $391.1 million | $372.9 million |
| Operating income | $35.9 million | $36.8 million |
| Net income (loss) | $(8.6) million | $4.4 million |
| Net loss per common share | $(0.08) | $(0.04) |
| Cash from operating activities | $50.4 million | $45.7 million |
| Cash used in investing activities | $(27.9) million | $(52.2) million |
| Cash from (used in) financing activities | $121.1 million | $(11.3) million |
Revenue increased 4.9%. Warehouse revenue rose 3.9% to $286.5 million, while warehouse segment contribution (NOI, a non-GAAP measure) increased 7.2% to $89.6 million; its margin improved to 31.3% from 30.3%. Same-store warehouse occupancy fell to 76.3% from 78.0%, but higher rates per occupied pallet helped lift same-store contribution 6.5%. Third-party managed contribution increased 26.4% to $3.8 million. Transportation contribution was nearly flat at $3.6 million, with margin down 40 basis points to 9.4%. Quarry contribution declined to $0.3 million from $0.9 million.
Operating income edged down despite revenue growth, while net results were affected principally by a $21.4 million charge for debt extinguishment and modification, largely the write-off of prior financing costs. Interest expense declined 11.7% to $24.5 million following refinancing. Management-reported non-GAAP measures were NAREIT FFO attributable to common shareholders of $12.0 million versus $19.0 million, Core FFO of $34.8 million versus $22.7 million, Adjusted FFO of $39.9 million versus $26.8 million, and Core EBITDA of $71.7 million versus $67.3 million. These measures are not substitutes for GAAP results or cash flow.
Capital, debt and liquidity
Americold completed its IPO on January 23, 2018, issuing 33.35 million shares at $16 per share and receiving approximately $493.6 million in net proceeds. All Series B preferred shares converted into common shares; Series A preferred shares were redeemed. Common shares outstanding increased to 142.5 million at March 31 from 69.4 million at year-end.
At March 31, cash and cash equivalents were $193.9 million, restricted cash was $19.4 million, and total debt principal was $1.414 billion (carrying value, net of financing costs and discounts, was $1.398 billion). The company had no revolving borrowings; its amended revolving facility commitment was $450 million, with $33.6 million of letters of credit supported by the facility. Total commitments under the senior secured credit facilities were $925 million. Total debt principal was $1.754 billion at December 31, 2017. Americold reported compliance with debt covenants.
IPO proceeds and a new $525 million Term Loan A were used primarily to repay the $806.9 million Term Loan B and construction loans, and for working capital. Cash capital additions were $28.3 million; recurring maintenance capital expenditures were $6.4 million. Debt maturities include $615.0 million in year three and $482.4 million in year five, including scheduled principal amortization. A 100-basis-point increase in interest rates was estimated to add approximately $5.8 million to annual interest expense on variable-rate debt.
Outlook, risks and unusual items
No numerical full-year earnings or revenue guidance is provided in the supplied filing text. Management expects current cash, operating cash flows and access to credit and capital markets to meet short- and long-term funding needs, including operations, capital expenditures, debt service and distributions. It cited favorable customer mix, fixed-commitment storage contracts and contractual rate increases as warehouse revenue drivers. Warehouse occupancy is seasonal, typically lowest in May and June; management considers approximately 85% average portfolio occupancy optimal, subject to local conditions.
Key exposures include variable interest rates, foreign currency movements, power and labor costs, customer defaults or non-renewals, customer concentration, acquisitions and development execution, and REIT qualification. One customer accounted for more than 10% of revenue; much of that revenue was pass-through expense reimbursement. Approximately 52% of the workforce was covered by collective bargaining agreements, with agreements covering about 14% due to expire in 2018. The filing describes a Kansas litigation matter with a potential claim based on a historical settlement; management states liability is remote. Environmental and ammonia-release risks are also discussed; recorded environmental liabilities were nominal. Management reported no material change in risk factors from the 2017 Form 10-K.
Unusual or notable items include elevated SG&A, up 29.0% to $31.9 million, reflecting IPO-related compensation awards, a $2.6 million award-modification charge, and higher public-company and professional fees. The company had not completed its accounting for all effects of the Tax Cuts and Jobs Act. Disclosure controls were reported effective as of March 31, 2018.
Important facts for investors to verify
- Whether occupancy and pallet volumes recover: same-store occupancy declined 170 basis points and same-store throughput fell 2.4%, despite improved pricing and margins.
- Debt maturity and refinancing exposure, particularly the year-three and year-five principal amounts, plus sensitivity to rising rates.
- Whether growth in adjusted FFO and Core EBITDA translates into sustainable GAAP earnings and cash generation; review the company’s adjustments and recurring capital needs.
- Customer concentration and the extent to which reported third-party managed revenue represents pass-through reimbursements rather than margin-generating business.
- Developments in the Kansas litigation, labor negotiations, and the company’s remaining tax accounting under the Tax Cuts and Jobs Act.