Americold Realty Trust, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022; comparisons are to the same 2021 periods. Americold is a global temperature-controlled warehouse owner and operator, with 249 warehouses and approximately 1.5 billion refrigerated cubic feet at quarter-end. It completed its conversion from a Maryland real estate investment trust to a Maryland corporation on May 25, 2022, while continuing to elect REIT tax treatment.
Financial performance and position
| Metric | Q2 2022 | Six months 2022 | Comparable 2021 |
|---|---|---|---|
| Revenue | $729.8 million, up 11.5% | $1.435 billion, up 11.3% | Q2 $654.7 million; first half $1.290 billion |
| Operating income | $23.7 million | $31.7 million | Q2 $22.9 million; first half $37.2 million |
| Net income (loss) | $4.0 million; $0.01 per diluted share | $(13.5) million; $(0.05) per diluted share | Q2 $(13.4) million; first half $(27.6) million |
| Operating cash flow | Not provided separately for the quarter | $133.2 million | First half $127.8 million |
| Investing cash flow | Not provided separately for the quarter | $(192.0) million | First half $(438.8) million |
| Financing cash flow | Not provided separately for the quarter | $52.2 million | First half $7.1 million |
Q2 operating margin was approximately 3.2%, compared with 3.5% a year earlier; first-half operating margin was approximately 2.2%, versus 2.9%. The Q2 net profit followed a pretax loss of $8.1 million and reflected a $12.1 million income tax benefit. First-half results included a $12.8 million tax benefit, but remained loss-making.
- Segment contribution (NOI): Q2 total was $168.3 million, up from $155.3 million. Warehouse contribution was $151.0 million, up 4.6%, while its margin declined to 26.8% from 28.7%. Third-party managed contribution was $3.7 million, and transportation contribution rose to $13.6 million from $9.3 million. These are non-GAAP measures.
- First-half segment contribution: Total was $326.6 million versus $312.6 million. Warehouse contribution increased 2.3% to $297.2 million; transportation increased to $22.1 million from $16.0 million; managed services increased to $7.2 million from $6.1 million.
- Balance sheet and debt: Cash and restricted cash were $74.6 million; total assets were $8.14 billion and total liabilities $4.24 billion. Principal borrowings were $2.956 billion, with total debt and debt-like obligations, including lease and sale-leaseback obligations, of $3.223 billion. Approximately 70% of debt and debt-like obligations was fixed-rate; the stated effective interest rate was 3.39%. Debt covenants were met at June 30.
- Liquidity and distributions: Management said expected funding sources were adequate for short- and long-term needs. The company had approximately $809.4 million of availability under its $900 million ATM equity program and no ATM activity in the first half. It paid $119.5 million in distributions during the first half.
- Capital spending: First-half additions to property, buildings and equipment were $181.7 million. Maintenance capital expenditures were $36.2 million, while growth and expansion capital expenditures were $113.1 million.
Material changes and operating trends
- Revenue growth reflected pricing actions, contractual rate escalations, improved same-store economic occupancy, and contributions from 2021 acquisitions and completed developments. Q2 same-store economic occupancy rose to 78.1% from 75.3%; first-half occupancy rose to 77.8% from 76.3%.
- Higher costs outpaced warehouse revenue growth. First-half warehouse operating costs increased 15.7%, compared with revenue growth of 11.7%; same-store warehouse contribution declined 1.6% on a reported basis for the first half. Labor inefficiencies, inflation, power, and other service costs were cited as pressures.
- Same-store throughput pallets declined 1.5% in Q2 and 1.1% in the first half, despite higher revenue per pallet. Management attributed lower throughput partly to business mix and continuing food-production and supply-chain disruptions.
- Corporate SG&A rose 32.5% in Q2 and 30.1% in the first half, driven by performance compensation, professional fees, and share-based compensation.
- The stronger U.S. dollar reduced reported warehouse revenue by $12.1 million in Q2 and $19.9 million in the first half, relative to constant-currency comparisons.
Outlook, risks, contingencies and unusual items
- Outlook: The filing provides no quantified full-year guidance in the supplied text. Management expects long-term end-consumer food demand to remain consistent with historical levels, but says occupancy and throughput may remain below pre-pandemic levels until customers restore production and rebuild inventories. It planned to continue monitoring and implementing pricing increases in 2022, while cautioning that it may not fully offset inflation.
- Key risks: COVID-19 impacts, labor shortages and cost, inflation and power prices, supply-chain and transportation disruption, rising interest rates, customer defaults or non-renewals, foreign exchange movements, and the Russia-Ukraine conflict. Management said the conflict had not materially affected operations to date, but could affect European power costs and logistics.
- LATAM joint venture: Americold contributed its Chilean business and retained a 15% interest; the partner committed approximately $209 million for an 85% interest, with remaining contributions due through 2025. Americold recorded an approximately $4.1 million deconsolidation loss and a $6.5 million deferred tax benefit. The company has a call right beginning in 2026; the partner may require a sale of Americold’s interest by the end of 2028 if Americold does not exercise its call.
- Other unusual items: A $3.4 million gain from extinguishing New Markets Tax Credit arrangements partly offset the JV-related loss and losses from partially owned entities. AOCI included substantial foreign-currency effects; Q2 comprehensive loss was $18.5 million despite positive net income.
- Legal and environmental matters: The company reported ongoing litigation, including the PFS action, for which a liability could not be reasonably estimated; management did not expect a material adverse impact. Environmental liabilities recorded were nominal, with no material unrecorded environmental liabilities reported.
- Interest-rate exposure: Management estimated a 100-basis-point increase in market rates would raise annual interest expense by approximately $9.1 million, based on variable-rate debt at quarter-end. Revolving facilities mature in 2024, while certain mortgage loans mature in May 2023.
Important facts for investors to verify
- Whether occupancy, throughput and customer food production recover, and whether pricing increases catch up with labor, power and other cost inflation.
- Cash generation after maintenance and growth capital spending, distributions, and debt service; also verify the company’s refinancing plans for the May 2023 mortgage maturities.
- Performance and funding of the LATAM JV, including the partner’s remaining capital contributions and the terms and value of future call rights.
- How much of reported earnings and future comparability depends on tax benefits, currency movements, acquisition-related costs and other adjustments; review GAAP results alongside company-defined non-GAAP measures.
- Customer concentration, receivables and bad-debt trends: one customer represented more than 10% of revenue, and the allowance for doubtful accounts was $10.5 million at quarter-end.