Americold Realty Trust — 2018 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2018. The filing also provides unaudited fourth-quarter results. Americold is a publicly traded REIT operating primarily through its operating partnership and focuses on temperature-controlled warehousing and related services.
Business context and reporting period
At year-end, Americold operated 155 warehouses with 918.7 million cubic feet of capacity across the United States, Australia, New Zealand, Argentina and Canada. Its segments are warehouse, third-party managed, transportation and other (principally a limestone quarry); it also holds a minority interest in a China joint venture.
The company completed its IPO in January 2018, raising approximately $493.6 million net, and a September follow-on offering that raised approximately $92.5 million net. A further 6 million shares sold under a forward sale agreement had not been settled at year-end.
Financial results and key metrics
| Metric | FY 2018 | FY 2017 |
|---|---|---|
| Total revenue | $1.604 billion | $1.544 billion |
| Operating income | $180.0 million | $137.0 million |
| Net income (loss) attributable to Americold Realty Trust | $48.0 million | $(0.6) million |
| Operating cash flow | $188.2 million | $163.3 million |
| Cash and cash equivalents at year-end | $208.1 million | $48.9 million |
| Net debt / Core EBITDA | 4.3x | 6.6x |
- Warehouse revenue was $1.177 billion, up 2.7% reported and 3.7% on a constant-currency basis. Warehouse segment contribution (NOI) rose 7.5% to $374.5 million; segment margin increased to 31.8% from 30.4%.
- Same-store warehouse NOI increased 6.9%, while same-store physical occupancy declined 140 basis points to 77.2%. Higher rates and revenue per pallet helped offset lower occupied pallets and throughput.
- FFO was $130.6 million; Core FFO was $175.0 million; Adjusted FFO was $170.4 million. These are non-GAAP supplemental measures, not substitutes for GAAP earnings or cash flow.
- Cash flow from investing was $(125.7) million and cash flow from financing was $84.9 million. Capital spending included $44.0 million of recurring maintenance and $75.7 million of growth and expansion expenditures.
- At year-end, reported debt was $1.511 billion in selected financial data; net debt was $1.317 billion. The balance sheet presents mortgage notes, unsecured notes and term loans net at $1.351 billion. The filing’s debt measures differ in scope; investors should reconcile them. The $800 million revolving facility was undrawn, with approximately $29.6 million of letters of credit outstanding.
- Fourth-quarter revenue was $415.8 million, operating income $51.2 million, net income attributable to common shareholders $2.7 million, and diluted EPS $0.02.
Material changes versus prior period
- Revenue grew 3.9% and operating income rose 31.4%. Operating improvement reflected new business, customer rate and contract improvements, facility maturation and operating efficiencies.
- Net income improved from a small attributable loss in 2017. 2018 results included $47.6 million of debt extinguishment and modification charges, largely from refinancing and defeasance costs; lower interest expense ($93.3 million versus $114.9 million) and a $3.6 million tax benefit partly offset those charges.
- Debt fell from $1.901 billion to $1.511 billion in the selected financial data, and cash increased substantially following equity and debt offerings, refinancing and debt repayment. Weighted-average common shares also increased materially, from 70.0 million to 141.4 million, reflecting the IPO and subsequent equity events.
- Transportation segment contribution increased 21.5% as the company shifted toward higher-margin consolidation and dedicated services. Third-party managed contribution increased 15.1%; quarry contribution was $0.6 million versus approximately breakeven.
Outlook, risks, contingencies and unusual items
- The filing gives no numerical earnings or FFO guidance. Management expects existing cash, operating cash flow and credit-facility capacity to support near-term needs, while identifying acquisitions, developments and capital improvements as continuing funding requirements. Management’s stated portfolio occupancy benchmark is approximately 85%, subject to property and customer requirements.
- The company plans a multi-year Australian customer project involving at least three automated distribution centers, funded through offering proceeds, credit-facility borrowings and available cash. A January 2019 acquisition for $35.2 million, including adjacent land, was disclosed as a subsequent event.
- Customer concentration and contract flexibility are important risks: the 25 largest warehouse customers generated 63% of warehouse segment revenue; one represented 9.1%. Only 44.8% of warehouse segment revenue came from contracts with fixed storage commitments or leases.
- Other significant exposures include variable-rate debt, foreign exchange movements, power and labor costs, specialized and geographically concentrated properties, food-safety and environmental obligations, cybersecurity, union negotiations, and possible customer defaults. Argentina was treated as highly inflationary beginning July 1, 2018.
- Estimated multiemployer pension withdrawal liability was as much as $511.7 million, with approximately $455.8 million estimated to be covered by customer indemnities; collection is not assured. The balance sheet recorded $8.9 million of multiemployer withdrawal liability.
- The filing describes pending Kansas settlement-agreement litigation and a February 2019 Preferred Freezer Services lawsuit. Management said it could not reasonably estimate liability in the Kansas matter and believed the ultimate outcomes would not materially affect the financial statements. These are management assessments, not guarantees.
- The company reported compliance with debt covenants and effective disclosure controls. The external auditor issued an unqualified opinion on the financial statements; it did not audit internal control over financial reporting.
Most important facts an investor should verify
- Reconcile the filing’s different debt totals, maturities and available revolver capacity, and assess the large 2023 maturity concentration.
- Track same-store occupancy, occupied pallets, throughput, pricing and fixed-commitment revenue to determine whether rate gains can persist amid lower utilization.
- Assess dependence on major customers and whether the Australian automated-center project meets its investment, timing and return expectations.
- Review the underlying assumptions and collectability of the pension withdrawal indemnities, and monitor litigation and any new environmental or operational claims.
- Consider dilution from the unsettled 6 million-share forward sale, equity awards and future capital needs, alongside the REIT’s distribution requirements and cash generation.