Americold Realty Trust 10-Q for FY2022 Q2
Americold Realty Trust (COLD)
10-Q
2022-08-05
For: 2022-06-30
View Original
Added on
April 06, 2026
About this 10-Q
Americold Realty Trust filed this 10-Q on August 5, 2022, covering the quarter ended June 30, 2022 (FY2022 Q2).
Headline figures
Quarter ended June 30, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $729.76M
- up 11.5% from $654.71M a year earlier
- Net income
- $3.94M
- compared with a net loss of $13.37M a year earlier
- Diluted EPS
- $0.01
- compared with -$0.05 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||||||
| For the quarterly period ended | ||||||||
or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
| For the transition period from to , | |||||
Commission File Number: 001-34723
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification Number) | ||||||||||
| (Address of principal executive offices) | (Zip Code) | ||||||||||
(678 ) 441-1400
(Registrant’s telephone number, including area code)
_________________________
| Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. | |||||||||||||||||||||||||||||||||||||||||||||||
| x | No | ¨ | |||||||||||||||||||||||||||||||||||||||||||||
| Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter periods that the registrant was required to submit such files). | |||||||||||||||||||||||||||||||||||||||||||||||
| x | No | ¨ | |||||||||||||||||||||||||||||||||||||||||||||
| Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act (check one): | |||||||||||||||||||||||||||||||||||||||||||||||
| x | ☐ | Accelerated filer | |||||||||||||||||||||||||||||||||||||||||||||
| ☐ | Non-accelerated filer | Smaller reporting company | |||||||||||||||||||||||||||||||||||||||||||||
| Emerging growth company | |||||||||||||||||||||||||||||||||||||||||||||||
| If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. | |||||||||||||||||||||||||||||||||||||||||||||||
| Yes | ¨ | No | ¨ | ||||||||||||||||||||||||||||||||||||||||||||
| Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934) | |||||||||||||||||||||||||||||||||||||||||||||||
| Yes | No | x | |||||||||||||||||||||||||||||||||||||||||||||
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol(s) | Name of each exchange on which registered | |||||||||||||||
| (NYSE) | |||||||||||||||||
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
| Class | Outstanding at August 3, 2022 | |||||||
| Common Stock, $0.01 par value per share | ||||||||
TABLE OF CONTENTS | |||||
| Page | |||||
| PART I - FINANCIAL INFORMATION | |||||
| Item 1. Financial Statements | |||||
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | |||||
| Item 3. Quantitative and Qualitative Disclosures About Market Risk | |||||
| Item 4. Controls and Procedures | |||||
| PART II - OTHER INFORMATION | |||||
| Item 1. Legal Proceedings | |||||
| Item 1A. Risk Factors | |||||
| Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | |||||
| Item 3. Defaults Upon Senior Securities | |||||
| Item 4. Mine Safety Disclosures | |||||
| Item 5. Other Information | |||||
| Item 6. Exhibits | |||||
| SIGNATURES | |||||
1
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains statements about future events and expectations that constitute forward-looking statements. Forward-looking statements are based on our beliefs, assumptions and expectations of our future financial and operating performance and growth plans, taking into account the information currently available to us. These statements are not statements of historical fact. Forward-looking statements involve risks and uncertainties that may cause our actual results to differ materially from the expectations of future results we express or imply in any forward-looking statements, and you should not place undue reliance on such statements. Factors that could contribute to these differences include the following:
•the impact of supply chain disruptions, including, among others, the impact on labor availability, raw material availability, manufacturing and food production, construction materials and transportation;
•uncertainties and risks related to public health crises, including the ongoing COVID-19 pandemic;
•adverse economic or real estate developments in our geographic markets or the temperature-controlled warehouse industry;
•rising interest rates and inflation in operating costs, including as a result of the ongoing COVID-19 pandemic;
•labor and power costs;
•labor shortages;
•general economic conditions;
•risks associated with the ownership of real estate generally and temperature-controlled warehouses in particular;
•acquisition risks, including the failure to identify or complete attractive acquisitions or the failure of acquisitions to perform in accordance with projections and to realize anticipated cost savings and revenue improvements;
•our failure to realize the intended benefits from our recent acquisitions and including synergies, or disruptions to our plans and operations or unknown or contingent liabilities related to our recent acquisitions;
•risks related to expansions of existing properties and developments of new properties, including failure to meet target completion dates and budgeted or stabilized returns within expected time frames, or at all, in respect thereof;
•a failure of our information technology systems, systems conversions and integrations, cybersecurity attacks or a breach of our information security systems, networks or processes could cause business disruptions or loss of confidential information;
•risks related to privacy and data security concerns, and data collection and transfer restrictions and related foreign regulations;
•defaults or non-renewals of significant customer contracts, including as a result of the ongoing COVID-19 pandemic;
•uncertainty of revenues, given the nature of our customer contracts;
•our failure to obtain necessary outside financing;
•risks related to, or restrictions contained in, our debt financings;
•decreased storage rates or increased vacancy rates;
•risks related to current and potential international operations and properties;
•difficulties in expanding our operations into new markets, including international markets;
•risks related to the partial ownership of properties, including as a result of our lack of control over such investments and the failure of such entities to perform in accordance with projections;
•our failure to maintain our status as a REIT;
•possible environmental liabilities, including costs, fines or penalties that may be incurred due to necessary remediation of contamination of properties presently or previously owned by us;
2
•financial market fluctuations;
•actions by our competitors and their increasing ability to compete with us;
•geopolitical conflicts, such as the ongoing conflict between Russia and Ukraine;
•changes in applicable governmental regulations and tax legislation, including in the international markets;
•additional risks with respect to the addition of European operations and properties;
•changes in real estate and zoning laws and increases in real property tax rates;
•our relationship with our associates, the occurrence of any work stoppages or any disputes under our collective bargaining agreements and employment related litigation;
•liabilities as a result of our participation in multi-employer pension plans;
•uninsured losses or losses in excess of our insurance coverage;
•the potential liabilities, costs and regulatory impacts associated with our in-house trucking services and the potential disruptions associated with our use of third-party trucking service providers to provide transportation services to our customers;
•the cost and time requirements as a result of our operation as a publicly traded REIT;
•changes in foreign currency exchange rates;
•the impact of anti-takeover provisions in our constituent documents and under Maryland law, which could make an acquisition of us more difficult, limit attempts by our stockholders to replace our directors and affect the price of our common stock, $0.01 par value per share; and
•the potential dilutive effect of our common stock offerings.
The risks included here are not exhaustive, and additional factors could adversely affect our business and financial performance, including factors and risks included in other sections of this Quarterly Report on Form 10-Q. Words such as “anticipates,” “believes,” “continues,” “estimates,” “expects,” “goal,” “objectives,” “intends,” “may,” “opportunity,” “plans,” “potential,” “near-term,” “long-term,” “projections,” “assumptions,” “projects,” “guidance,” “forecasts,” “outlook,” “target,” “trends,” “should,” “could,” “would,” “will” and similar expressions are intended to identify such forward-looking statements. Examples of forward-looking statements included in this Quarterly Report on Form 10-Q include, among others, statements about our expected acquisitions and expected expansion and development pipeline and our targeted return on invested capital on expansion and development opportunities. We qualify any forward-looking statements entirely by these cautionary factors. Other risks, uncertainties and factors, including those discussed under “Risk Factors”, in our Annual Report on Form 10-K for the year ended December 31, 2021 and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, could cause our actual results to differ materially from those projected in any forward-looking statements we make. We assume no obligation to update or revise these forward-looking statements for any reason, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.
As used in this report, unless the context otherwise requires, references to “we,” “us,” “our,” “our Company” and “the Company” refer to Americold Realty Trust, Inc., a Maryland corporation, and its consolidated subsidiaries, including Americold Realty Operating Partnership, L.P., a Delaware limited partnership and the subsidiary through which we conduct our business, which we refer to as “our Operating Partnership” or “the Operating Partnership.”
In addition, unless otherwise stated herein, when we refer to “cubic feet” in one of our temperature-controlled facilities, we refer to refrigerated cubic feet (as opposed to total cubic feet, refrigerated and otherwise) therein.
3
| Americold Realty Trust, Inc. and Subsidiaries | |||||||||||
| Condensed Consolidated Balance Sheets (Unaudited) | |||||||||||
| (In thousands, except shares and per share amounts) | |||||||||||
| June 30, 2022 | December 31, 2021 | ||||||||||
| Assets | |||||||||||
| Property, buildings and equipment: | |||||||||||
| Land | $ | $ | |||||||||
| Buildings and improvements | |||||||||||
| Machinery and equipment | |||||||||||
| Assets under construction | |||||||||||
| Accumulated depreciation | ( | ( | |||||||||
| Property, buildings and equipment – net | |||||||||||
| Operating lease right-of-use assets | |||||||||||
| Accumulated depreciation – operating leases | ( | ( | |||||||||
| Operating leases – net | |||||||||||
| Financing leases: | |||||||||||
| Buildings and improvements | |||||||||||
| Machinery and equipment | |||||||||||
| Accumulated depreciation – financing leases | ( | ( | |||||||||
| Financing leases – net | |||||||||||
| Cash, cash equivalents and restricted cash | |||||||||||
Accounts receivable – net of allowance of $ | |||||||||||
| Identifiable intangible assets – net | |||||||||||
| Goodwill | |||||||||||
| Investments in partially owned entities | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| Liabilities and equity | |||||||||||
| Liabilities: | |||||||||||
| Borrowings under revolving line of credit | $ | $ | |||||||||
| Accounts payable and accrued expenses | |||||||||||
Mortgage notes, senior unsecured notes and term loans – net of unamortized deferred financing costs of $ | |||||||||||
| Sale-leaseback financing obligations | |||||||||||
| Financing lease obligations | |||||||||||
| Operating lease obligations | |||||||||||
| Unearned revenue | |||||||||||
| Pension and postretirement benefits | |||||||||||
| Deferred tax liability – net | |||||||||||
| Multi-employer pension plan withdrawal liability | |||||||||||
| Total liabilities | |||||||||||
Commitments and contingencies (Note 7) | |||||||||||
| Equity | |||||||||||
| Stockholders’ equity: | |||||||||||
Common stock, $ | |||||||||||
| Paid-in capital | |||||||||||
| Accumulated deficit and distributions in excess of net earnings | ( | ( | |||||||||
| Accumulated other comprehensive (loss) income | ( | ||||||||||
| Total stockholders’ equity | |||||||||||
| Noncontrolling interests: | |||||||||||
| Noncontrolling interests in operating partnership | |||||||||||
| Total equity | |||||||||||
| Total liabilities and equity | $ | $ | |||||||||
| See accompanying notes to condensed consolidated financial statements. | |||||||||||
4
| Americold Realty Trust, Inc. and Subsidiaries | |||||||||||||||||||||||||||||||||||
| Condensed Consolidated Statements of Operations (Unaudited) | |||||||||||||||||||||||||||||||||||
| (In thousands, except per share amounts) | |||||||||||||||||||||||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||||||||||||||
| Rent, storage and warehouse services | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
| Third-party managed services | |||||||||||||||||||||||||||||||||||
| Transportation services | |||||||||||||||||||||||||||||||||||
| Total revenues | |||||||||||||||||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||||||||||||||
| Rent, storage and warehouse services cost of operations | |||||||||||||||||||||||||||||||||||
| Third-party managed services cost of operations | |||||||||||||||||||||||||||||||||||
| Transportation services cost of operations | |||||||||||||||||||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||||||||||||||
| Selling, general and administrative | |||||||||||||||||||||||||||||||||||
| Acquisition, litigation and other, net | |||||||||||||||||||||||||||||||||||
| Impairment of long-lived assets | |||||||||||||||||||||||||||||||||||
| Total operating expenses | |||||||||||||||||||||||||||||||||||
| Operating income | |||||||||||||||||||||||||||||||||||
| Other income (expense): | |||||||||||||||||||||||||||||||||||
| Interest expense | ( | ( | ( | ( | |||||||||||||||||||||||||||||||
| Loss on debt extinguishment, modifications and termination of derivative instruments | ( | ( | ( | ( | |||||||||||||||||||||||||||||||
| Other, net | ( | ( | |||||||||||||||||||||||||||||||||
| Loss before income taxes | ( | ( | ( | ( | |||||||||||||||||||||||||||||||
| Income tax (expense) benefit | |||||||||||||||||||||||||||||||||||
| Current | ( | ( | ( | ( | |||||||||||||||||||||||||||||||
| Deferred | ( | ( | |||||||||||||||||||||||||||||||||
| Total income tax benefit (expense) | ( | ( | |||||||||||||||||||||||||||||||||
| Net income (loss) | $ | $ | ( | $ | ( | $ | ( | ||||||||||||||||||||||||||||
| Net income (loss) attributable to noncontrolling interests | ( | ( | |||||||||||||||||||||||||||||||||
| Net income loss attributable to Americold Realty Trust, Inc. | $ | $ | ( | $ | ( | $ | ( | ||||||||||||||||||||||||||||
| Weighted average common stock outstanding – basic | |||||||||||||||||||||||||||||||||||
| Weighted average common stock outstanding – diluted | |||||||||||||||||||||||||||||||||||
| Net income (loss) per common share - basic | $ | $ | ( | $ | ( | $ | ( | ||||||||||||||||||||||||||||
| Net income (loss) per common share - diluted | $ | $ | ( | $ | ( | $ | ( | ||||||||||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
5
| Americold Realty Trust, Inc. and Subsidiaries | |||||||||||||||||||||||
| Condensed Consolidated Statements of Comprehensive Loss (Unaudited) | |||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Net income (loss) | $ | $ | ( | $ | ( | $ | ( | ||||||||||||||||
| Other comprehensive (loss) income - net of tax: | |||||||||||||||||||||||
| Adjustment to accrued pension liability | ( | ( | |||||||||||||||||||||
| Change in unrealized net (loss) gain on foreign currency | ( | ( | ( | ||||||||||||||||||||
| Unrealized gain on cash flow hedge | |||||||||||||||||||||||
| Other comprehensive (loss) income - net of tax attributable to Americold Realty Trust, Inc. | ( | ( | ( | ||||||||||||||||||||
| Other comprehensive (loss) income attributable to noncontrolling interests | ( | ( | |||||||||||||||||||||
| Total comprehensive loss | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| See accompanying notes to condensed consolidated financial statements. | |||||||||||||||||||||||
6
| Americold Realty Trust, Inc. and Subsidiaries | |||||||||||||||||||||||
| Condensed Consolidated Statements of Equity (Unaudited) | |||||||||||||||||||||||
| (In thousands, except shares and per share amounts) | |||||||||||||||||||||||
| Common Stock | Accumulated Deficit and Distributions in Excess of Net Earnings | Accumulated Other Comprehensive (Loss) Income | Noncontrolling Interests in Operating Partnership | ||||||||||||||||||||
| Number of Shares | Par Value | Paid-in Capital | |||||||||||||||||||||
| Total | |||||||||||||||||||||||
| Balance - December 31, 2021 | $ | $ | $ | ( | $ | $ | $ | ||||||||||||||||
| Net loss | — | — | — | ( | — | ( | ( | ||||||||||||||||
| Other comprehensive income | — | — | — | — | |||||||||||||||||||
| Distributions on common stock, restricted stock and OP units | — | — | — | ( | — | ( | ( | ||||||||||||||||
| Stock-based compensation expense | — | — | — | — | |||||||||||||||||||
| Common stock issuance related to stock-based payment plans, net of shares withheld for employee taxes | ( | — | — | — | ( | ||||||||||||||||||
| Common stock issuance related to employee stock purchase plan | — | — | — | ||||||||||||||||||||
| Balance - March 31, 2022 | $ | $ | $ | ( | $ | $ | $ | ||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||
| Other comprehensive loss | — | — | — | — | ( | ( | ( | ||||||||||||||||
| Distributions on common stock, restricted stock and OP units | — | — | — | ( | — | ( | ( | ||||||||||||||||
| Stock-based compensation expense | — | — | — | — | |||||||||||||||||||
| Common stock issuance related to stock-based payment plans, net of shares withheld for employee taxes | ( | — | — | — | ( | ||||||||||||||||||
| Deconsolidation of previously consolidated entities | — | — | — | — | ( | ||||||||||||||||||
| Balance - June 30, 2022 | $ | $ | $ | ( | $ | ( | $ | $ | |||||||||||||||
7
| Common Stock | Accumulated Deficit and Distributions in Excess of Net Earnings | Accumulated Other Comprehensive Loss | Noncontrolling Interests in Operating Partnership and Consolidated Joint Venture | ||||||||||||||||||||
| Number of Shares | Par Value | Paid-in Capital | |||||||||||||||||||||
| Total | |||||||||||||||||||||||
| Balance - December 31, 2020 | $ | $ | $ | ( | $ | ( | $ | $ | |||||||||||||||
| Net (loss) income | — | — | — | ( | — | ( | |||||||||||||||||
| Other comprehensive loss | — | — | — | – | ( | ( | ( | ||||||||||||||||
| Distributions on common shares, restricted stock and OP units | — | — | — | ( | — | ( | ( | ||||||||||||||||
| Stock-based compensation expense | — | — | — | — | |||||||||||||||||||
| Common share issuance related to stock-based payment plans, net of shares withheld for employee taxes | ( | — | — | — | ( | ||||||||||||||||||
| Balance - March 31, 2021 | $ | $ | $ | ( | $ | ( | $ | $ | |||||||||||||||
| Net loss | — | — | — | ( | — | ( | ( | ||||||||||||||||
| Other comprehensive income | — | — | — | – | |||||||||||||||||||
| Distributions on common shares, restricted stock and OP units | — | — | — | ( | — | ( | ( | ||||||||||||||||
| Stock-based compensation expense | — | — | — | — | |||||||||||||||||||
| Common share issuance related to stock-based payment plans, net of shares withheld for employee taxes | ( | — | — | — | ( | ||||||||||||||||||
| Issuance of common stock | — | — | — | ||||||||||||||||||||
| Balance - June 30, 2021 | $ | $ | $ | ( | $ | ( | $ | $ | |||||||||||||||
See accompanying notes to condensed consolidated financial statements.
8
| Americold Realty Trust, Inc. and Subsidiaries | |||||||||||
| Condensed Consolidated Statements of Cash Flows (Unaudited) | |||||||||||
| (In thousands) | |||||||||||
| Six Months Ended June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Operating activities: | |||||||||||
| Net loss | $ | ( | $ | ( | |||||||
| Adjustments to reconcile net loss to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Amortization of deferred financing costs and pension withdrawal liability | |||||||||||
| Amortization of above/below market leases | |||||||||||
| Loss on debt extinguishment, modifications and termination of derivative instruments | |||||||||||
| Foreign exchange loss (gain) | ( | ||||||||||
| Loss from investments in partially owned entities | |||||||||||
| Gain on extinguishment of New Market Tax Credit structure | ( | ||||||||||
| Loss on deconsolidation of subsidiary contributed to joint venture | |||||||||||
| Stock-based compensation expense | |||||||||||
| Deferred income taxes (benefit) expense | ( | ||||||||||
| Gain on other asset disposals | ( | ( | |||||||||
| Impairment of long-lived assets | |||||||||||
| Provision for doubtful accounts receivable | |||||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable | ( | ( | |||||||||
| Accounts payable and accrued expenses | ( | ||||||||||
| Other | ( | ||||||||||
| Net cash provided by operating activities | |||||||||||
| Investing activities: | |||||||||||
| Proceeds from sale of investments in partially owned entities | |||||||||||
| Investment in partially owned entities | ( | ( | |||||||||
| Proceeds from sale of property, buildings and equipment | |||||||||||
| Business combinations, net of cash acquired | ( | ||||||||||
| Acquisitions of property, buildings and equipment, net of cash acquired | ( | ||||||||||
| Additions to property, buildings and equipment | ( | ( | |||||||||
| Purchase of noncontrolling interest holders share in consolidated joint venture | ( | ||||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Financing activities: | |||||||||||
| Distributions paid on common shares, restricted stock units and noncontrolling interests in Operating Partnership | ( | ( | |||||||||
| Proceeds from stock options exercised | |||||||||||
| Proceeds from employee stock purchase plan | |||||||||||
| Remittance of withholding taxes related to employee share-based transactions | ( | ( | |||||||||
| Proceeds from revolving line of credit | |||||||||||
| Repayment on revolving line of credit | ( | ( | |||||||||
| Repayment of sale-leaseback financing obligations | ( | ( | |||||||||
| Repayment of financing lease obligations | ( | ( | |||||||||
| Payment of debt issuance and extinguishment costs | ( | ( | |||||||||
| Repayment of term loan and mortgage notes | ( | ( | |||||||||
| Net proceeds from issuance of common shares | |||||||||||
| Net cash provided by financing activities | |||||||||||
| Net decrease in cash, cash equivalents and restricted cash | ( | ( | |||||||||
| Effect of foreign currency translation on cash, cash equivalents and restricted cash | ( | ( | |||||||||
| Cash, cash equivalents and restricted cash: | |||||||||||
| Beginning of period | |||||||||||
| End of period | $ | $ | |||||||||
9
| Americold Realty Trust, Inc. and Subsidiaries | |||||||||||
| Condensed Consolidated Statements of Cash Flows, Continued (Unaudited) | |||||||||||
| (In thousands) | |||||||||||
| Six Months Ended June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Supplemental disclosures of non-cash investing and financing activities: | |||||||||||
| Addition of property, buildings and equipment on accrual | $ | $ | |||||||||
| Addition of property, buildings and equipment under financing lease obligations | $ | $ | |||||||||
| Addition of property, buildings and equipment under operating lease obligations | $ | $ | |||||||||
| Supplemental cash flow information: | |||||||||||
| Interest paid – net of amounts capitalized | $ | $ | |||||||||
| Income taxes paid – net of refunds | $ | $ | |||||||||
| As of June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Allocation of purchase price of property, buildings and equipment to: | |||||||||||
| Land | $ | ||||||||||
| Buildings and improvements | |||||||||||
| Machinery and equipment | |||||||||||
Cash paid for acquisition of property, buildings and equipment | $ | $ | |||||||||
| As of June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Deconsolidation of Chile joint venture | |||||||||||
| Land | $ | ( | $ | ||||||||
| Buildings and improvements | ( | ||||||||||
| Machinery and equipment | ( | ||||||||||
| Assets under construction | ( | ||||||||||
| Accumulated depreciation | |||||||||||
| Cash, cash equivalents and restricted cash | ( | ||||||||||
| Accounts receivable | ( | ||||||||||
| Goodwill | ( | ||||||||||
| Other Assets | ( | ||||||||||
| Accounts payable and accrued expenses | |||||||||||
| Mortgage notes, senior unsecured notes and term loans – net of unamortized deferred financing costs | |||||||||||
| Deferred tax liability – net | |||||||||||
| Accumulated other comprehensive loss | ( | ||||||||||
| Net carrying value of Chile assets and liabilities deconsolidated | $ | ( | $ | ||||||||
| Recognition of investment in unconsolidated LATAM joint venture | $ | $ | |||||||||
See accompanying notes to condensed consolidated financial statements.
10
Americold Realty Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
1. General
The Company
Americold Realty Trust, Inc. together with all of its consolidated subsidiaries (ART, Americold, the Company, us or we), is a real estate investment trust (REIT) organized under Maryland law. The Company is the world’s largest publicly traded REIT focused on the ownership, operation and development of temperature-controlled warehouses. The Company is organized as a self-administered and self-managed REIT with proven operating, acquisition and development experience.
On May 25, 2022, the Company completed its conversion from a Maryland real estate investment trust to a Maryland corporation, pursuant to the Articles of Conversion, as approved by the stockholders at its annual shareholder meeting on May 17, 2022. Each issued and outstanding share of beneficial interest in Americold Realty Trust was converted into one share of Common Stock in Americold Realty Trust, Inc. As a result of this conversion, several references in this Form 10-Q have been updated accordingly. Despite this conversion, the Company continues to operate as a REIT for U.S. federal income tax purposes.
Basis of Presentation and Principles of Consolidation
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of (1) assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements, and (2) revenues and expenses during the reporting period. Actual results could differ from those estimates.
Summary of Significant Accounting Policies
The following disclosure regarding certain of our significant accounting policies should be read in conjunction with Note 2 to the consolidated financial statements included in our 2021 Annual Report on Form 10-K as filed with the SEC, which provides additional information with regard to the accounting policies set forth herein and other significant accounting policies.
11
Americold Realty Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements - (Unaudited)
Formation of Latin America Joint Venture
On May 31, 2022, we formed a joint venture, Americold LATAM Holdings Ltd (the “LATAM JV”), with Cold LATAM Limited (our “JV partner”), in an effort to help us grow our business and market presence in the Latin America region, excluding Brazil. Our JV partner committed to invest approximately $209.0 million in exchange for 85 % of the total equity interests, and we contributed our Chilean business upon formation of the joint venture and retained the remaining 15 % equity interests in the joint venture. Our JV partner’s contribution commitment includes an initial contribution of $8 million at closing and the remainder as a contribution receivable to the LATAM JV. The JV partner must complete its remaining contribution payments over the next four-year period through December 31, 2025 and in doing so, it retains its 85 % equity ownership during this period. As a result of this transaction, we recognized a loss of approximately $4.1 million within “Other, net” on the Condensed Consolidated Statement of Operations (net of accumulated foreign currency translation loss related to the Chilean business) upon the deconsolidation of this entity and subsequent recognition of our subsidiary’s 15 % equity investment in the LATAM JV at its estimated fair value of $37.0 million within “Investments in partially owned entities” on the Condensed Consolidated Balance Sheet. The fair value of the Company’s retained equity investment is based on Level 2 measurements within the fair value hierarchy based on the cash paid and contribution receivable committed to by our JV partner for their 85 % interest, as well as fair value measurement performed in December 2020 when the Chilean business was acquired. Under the terms of the JV agreement, the Company has a call right that enables it to purchase all remaining issued and outstanding shares of the LATAM JV starting in 2026 through 2028, as calculated in accordance with the JV agreement. Upon expiration of the Company’s call option, if unexercised, the JV partner has a call right that requires the Company to sell all of its interest in the LATAM JV by December 31, 2028, with the exercise price based upon the same calculation as the Company’s call option in accordance with the JV agreement.
Extinguishment of New Market Tax Credit (“NMTC”) Arrangement
During the second quarter of 2022, we recognized a gain of $3.4 million within “Other, net” on the Condensed Consolidated Statement of operations upon extinguishment of New Markets Tax Credit (“NMTC”) agreements which were dissolved immediately following the conclusion of the seven-year compliance period during which the tax credits were recognized. The NMTC deferred contribution liability was previously recorded within “Accounts payable and accrued expenses” on the Condensed Consolidated Balance Sheets. For a more detailed description of the NMTC arrangement, refer to Note 17 of the consolidated financial statements in the Company’s 2021 Annual Report on Form 10-K as filed with the SEC.
Impairment of Long-Lived Assets
There were no 1.5
Future Adoption of Accounting Standards
Reference Rate Reform
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848). This ASU contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. During the first quarter of 2020, the Company has elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index
12
Americold Realty Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements - (Unaudited)
Significant Risks and Uncertainties
The COVID-19 pandemic has caused, and is likely to continue to cause severe economic, market and other disruptions worldwide, which could lead to future material impairments of our assets, increases in our allowance for credit losses and changes in judgments in determining the fair value of our assets. Conditions in the bank lending, capital and other financial markets may deteriorate, and our access to capital and other sources of funding may become constrained or more costly, which could materially and adversely affect the availability and terms of future borrowings, renewals, re-financings and other capital raises.
The Company is closely monitoring the impact of the ongoing COVID-19 pandemic and any variants on all aspects of its business in all geographies, including how it will impact its customers and business partners. The three and six months ended June 30, 2022 and the year ended December 31, 2021 were negatively impacted by COVID-19 related disruptions and other macro-economic conditions in (i) the food supply chain; (ii) our customers’ production of goods; (iii) the labor market impacting availability and cost; and (iv) the impact of inflation on the cost to provide our services. Despite the current headwinds, we expect that end-consumer demand for food will remain consistent over the long-term with historic levels. However, current end-consumer demand coupled with food production and transportation challenges since the outset of the pandemic has driven down holdings in our facilities. As a result, occupancy and throughput volume continue at lower than historical levels experienced prior to COVID-19. We expect this to continue until our customers are able to ramp production back up to pre-pandemic levels for an extended period of time and rebuild inventory in the supply chain.
The unprecedented labor environment continues to be challenging for many companies, including our food manufacturing customers. Labor availability continues to be the primary constraint on food production, along with the continuing spread of COVID-19 and related variants, which also impacts the labor market.
Our business has also been impacted due to inflation during the back half of 2021 and during the three and six months ended June 30, 2022. We believe we are positioned to address continued inflationary pressure as it arises; however, many of our contracts require that we experience sustained cost increases for an extended period of time ranging up to 60 days before we are able to initiate rate increases or seek remedies under our contracts. As a result of the significant impact of inflation on the cost of providing our storage, services and transportation to customers, during the second half of 2021 we initiated out-of-cycle rate increases in our customer contracts (many of which contain provisions for inflationary price escalators), and expect to continue to monitor and implement further inflation and pricing increases required into 2022. We can give no assurance that we will be able to offset the entire impact of inflation or future inflationary cost increases through increased storage or service charges or by operational efficiencies.
Additionally, global supply chains have been volatile following the invasion of Ukraine by Russia which has resulted in sanctions against Russia from the U.S. and a number of European countries. While we do not expect our global operations and specifically our European operations to be directly impacted by this event currently, changes could occur that could impact our operations.
13
Americold Realty Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements - (Unaudited)
2. Business Combinations
3. Acquisition, Litigation and Other, net
The components of the charges and credits included in “Acquisition, litigation and other, net” in our Condensed Consolidated Statements of Operations are as follows (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| Acquisition, litigation and other, net | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Acquisition and integration related costs | $ | $ | $ | $ | |||||||||||||||||||
| Litigation | |||||||||||||||||||||||
| Severance costs | |||||||||||||||||||||||
| Terminated site operations costs | |||||||||||||||||||||||
| Cyber incident related costs, net of insurance recoveries | ( | ( | ( | ||||||||||||||||||||
| Other | ( | ( | |||||||||||||||||||||
| Total acquisition, litigation and other, net | $ | $ | $ | $ | |||||||||||||||||||
Acquisition related costs include costs associated with business transactions, whether consummated or not, such as advisory, legal, accounting, valuation and other professional or consulting fees. We also include integration costs pre- and post-acquisition that reflect work being performed to facilitate merger and acquisition integration, such as work associated with information systems and other projects including spending to support future acquisitions, and primarily consist of professional services. We consider acquisition related costs to be corporate costs regardless of the segment or segments involved in the transaction. Refer to Note 3 of the consolidated financial statements in the Company’s 2021 Annual Report on Form 10-K as filed with the SEC for further information regarding acquisitions completed during 2021.
Severance costs represent certain contractual and negotiated severance and separation costs from exited former executives, reduction in headcount due to synergies achieved through acquisitions or operational efficiencies and reduction in workforce costs associated with exiting or selling non-strategic warehouses or businesses.
14
Americold Realty Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements - (Unaudited)
Terminated site operations costs relates to repair expenses incurred to return leased sites to their original physical state at lease inception in connection with the termination of the applicable underlying lease. These terminations were part of our strategic efforts to exit or sell non-strategic warehouses as opposed to ordinary course lease expirations. Repair and maintenance expenses associated with our ordinary course operations are reflected as operating expenses on our Condensed Consolidated Statement of Operations.
Cyber incident related costs include third-party fees incurred in connection with the cyber incident that occurred in November 2020, as well as any incremental costs, internal and external, incurred to restore operations at our facilities and damage claims. Any subsequent reimbursements from insurance coverage for expenses incurred in connection with the event are also reflected within this category.
Other costs are those expenses incurred which are subject to an insurance claim, including deductibles, which are recorded at the time the claim is submitted to the insurer. Subsequent reimbursement of expenses in excess of the deductible are also reflected within this category upon receipt from the insurer. Occasionally, we may subsequently decide to withdraw an insurance claim if costs are less than initially estimated and below the deductible, among other reasons, resulting in the reversal of the unused portion of a deductible previously recorded to this category.
15
Americold Realty Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements - (Unaudited)
4. Debt
The Company’s outstanding indebtedness as of June 30, 2022 and December 31, 2021 was as follows (in thousands):
| June 30, 2022 | December 31, 2021 | ||||||||||||||||||||||
| Indebtedness | Stated Maturity Date | Contractual Interest Rate | Effective Interest Rate as of June 30, 2022 | Carrying Amount | Estimated Fair Value | Carrying Amount | Estimated Fair Value | ||||||||||||||||
2013 Mortgage Loans | |||||||||||||||||||||||
Senior note | 5/2023 | $ | $ | $ | $ | ||||||||||||||||||
Mezzanine A | 5/2023 | ||||||||||||||||||||||
Mezzanine B | 5/2023 | ||||||||||||||||||||||
Total 2013 Mortgage Loans | |||||||||||||||||||||||
Chile Mortgages(14) | 2022 - 2029 | ||||||||||||||||||||||
Senior Unsecured Notes | |||||||||||||||||||||||
Series A Notes | 1/2026 | ||||||||||||||||||||||
Series B Notes | 1/2029 | ||||||||||||||||||||||
Series C Notes | 1/2030 | ||||||||||||||||||||||
Series D Notes(5) | 1/2031 | ||||||||||||||||||||||
Series E Notes(6) | 1/2033 | ||||||||||||||||||||||
Total Senior Unsecured Notes | |||||||||||||||||||||||
2020 Senior Unsecured Term Loan Tranche A-1(1) | 3/2025 | L+ | |||||||||||||||||||||
2020 Senior Unsecured Term Loan Tranche A-2(2)(4) | 3/2025 | C+ | |||||||||||||||||||||
Total 2020 Senior Unsecured Term Loan A Facility | |||||||||||||||||||||||
2020 Senior Unsecured Revolving Credit Facility-1(2)(3)(7) | 3/2024 | C+ | |||||||||||||||||||||
2020 Senior Unsecured Revolving Credit Facility-2(3)(8)(9) | 3/2024 | SONIA+ | |||||||||||||||||||||
2020 Senior Unsecured Revolving Credit Facility-3(1)(3) | 3/2024 | L+ | |||||||||||||||||||||
2020 Senior Unsecured Revolving Credit Facility-4(3)(10)(11) | 3/2024 | BBSW+ | |||||||||||||||||||||
2020 Senior Unsecured Revolving Credit Facility-5(3)(12)(13) | 3/2024 | E+ | |||||||||||||||||||||
| Total 2020 Senior Unsecured Revolving Credit Facility | $ | $ | $ | $ | |||||||||||||||||||
| Total principal amount of indebtedness | $ | $ | $ | $ | |||||||||||||||||||
Less: unamortized deferred financing costs | ( | n/a | ( | n/a | |||||||||||||||||||
Total indebtedness, net of unamortized deferred financing costs | $ | $ | $ | $ | |||||||||||||||||||
(1) L = one-month LIBOR.
(2) C = one-month CDOR.
(3) The Company has the option to extend the 2020 Senior Unsecured Revolving Credit Facility up to two times for a six-month period each.
16
Americold Realty Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements - (Unaudited)
(4) The 2020 Senior Unsecured Term Loan Tranche A-2 is denominated in Canadian dollars and aggregates to CAD $250.0 million. The carrying value in the table above is the US dollar equivalent as of June 30, 2022.
(5) The Senior Unsecured Notes Series D is denominated in Euros and aggregates to €400.0 million. The carrying value in the table above is the US dollar equivalent as of June 30, 2022.
(6) The Senior Unsecured Notes Series E is denominated in Euros and aggregates to €350.0 million. The carrying value in the table above is the US dollar equivalent as of June 30, 2022.
(7) The Senior Unsecured Revolving Credit Facility Draw 1 as of June 30, 2022, is denominated in CAD and aggregates to CAD $55.0 million. The carrying value in the table above is the US dollar equivalent as of June 30, 2022.
(8) The Senior Unsecured Revolving Credit Facility Draw 2 as of June 30, 2022, is denominated in GBP and aggregates to GBP £68.5 million. The carrying value in the table above is the US dollar equivalent as of June 30, 2022.
(9) SONIA = Sterling Overnight Interbank Average Rate.
(10) BBSW = Bank Bill Swap Rate
(11) The Senior Unsecured Revolving Credit Facility Draw 4 as of June 30, 2022, is denominated in AUD and aggregates to AUD 114.0 million. The carrying value in the table above is the US dollar equivalent as of June 30, 2022.
(12) The Senior Unsecured Revolving Credit Facility Draw 5 as of June 30, 2022, is denominated in EUR and aggregates to EUR 20.5 million. The carrying value in the table above is the US dollar equivalent as of June 30, 2022.
(13) E = Euro Interbank Offered Rate (EURIBOR).
There have been no new debt agreements entered into during 2022. Refer to our 2021 Form 10-K and below for details regarding our debt instruments.
Debt Covenants
Our Senior Unsecured Credit Facilities, the Senior Unsecured Notes and 2013 Mortgage Loans all require financial statement reporting, periodic reporting of compliance with financial covenants, other established thresholds and performance measurements, and compliance with affirmative and negative covenants that govern our allowable business practices. The affirmative and negative covenants include, among others, continuation of insurance, maintenance of collateral (in the case of the 2013 Mortgage Loans), the maintenance of REIT status, and restrictions on our ability to enter into certain types of transactions or take on certain exposures. As of June 30, 2022, we were in compliance with all debt covenants.
Loss on debt extinguishment, modifications and termination of derivative instruments
In the first quarter of 2021, the Company repaid $200 million of principal on the Senior Unsecured Term Loan A Facility and recorded $2.9 million to “Loss on debt extinguishment, modifications and termination of derivative instruments” in the accompanying Condensed Consolidated Statements of Operations, representing the write-off of unamortized deferred financing costs. Additionally, the Company recorded a reclassification from other comprehensive income to earnings to “Loss on debt extinguishment, modification, and termination of derivative instruments” related to the amortization of the portion deferred following the termination of interest rate swaps related to the Senior Unsecured Term Loan A Facility for $0.6 1.3 million and $1.4 million during the six months ended June 30, 2022 and June 30, 2021, respectively.
5. Fair Value Measurements
17
Americold Realty Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements - (Unaudited)
liabilities; and Level 3, defined as unobservable inputs that are not corroborated by market data. The carrying amounts of cash and cash equivalents, restricted cash, accounts receivable, accounts payable, accrued expenses and revolving line of credit approximate their fair values due to the short-term maturities of the instruments.
The Company’s mortgage notes, senior unsecured notes and term loans are reported at their aggregate principal amount less unamortized deferred financing costs on the accompanying Condensed Consolidated Balance Sheets. The fair value of these financial instruments is estimated based on the present value of the expected coupon and principal payments using a discount rate that reflects the projected performance of the collateral asset as of each valuation date. The inputs used to estimate the fair value of the Company’s mortgage notes, senior unsecured notes and term loans are comprised of Level 2 inputs, including senior industrial commercial real estate loan spreads, corporate industrial loan indexes, risk-free interest rates, and Level 3 inputs, such as future coupon and principal payments, and projected future cash flows.
The Company’s financial assets and liabilities recorded at fair value on a recurring basis include derivative instruments. The fair value of interest rate swap and cross currency swap agreements, which are designated as cash flow hedges, and foreign currency forward contracts designated as net investment hedges, is based on inputs other than quoted market prices that are observable (Level 2). The fair value of foreign currency forward contracts is based on adjusting the spot rate utilized at the balance sheet date for translation purposes by an estimate of the forward points observed in active markets (Level 2). Additionally, the fair value of derivatives includes a credit valuation adjustment to appropriately incorporate nonperformance risk for the Company and the respective counterparty. Although the credit valuation adjustments associated with derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by us and our counterparties, the significance of the impact on the overall valuation of our derivative positions is insignificant. The Company’s cash equivalent money market funds and restricted cash assets are valued at quoted market prices in active markets for identical assets (Level 1), which the Company receives from the financial institutions that hold such investments on its behalf. The fair value hierarchy discussed above is also applicable to the Company’s pension and other post-retirement plans. The Company uses the fair value hierarchy to measure the fair value of assets held by various plans. The Company recognizes transfers between levels within the hierarchy as of the beginning of the reporting period. There were no transfers between levels within the hierarchy as of June 30, 2022 and 2021, respectively.
The Company’s assets and liabilities recorded at fair value on a non-recurring basis include long-lived assets when events or changes in circumstances indicate that the carrying amounts may not be recoverable. The Company estimates the fair values using unobservable inputs classified as Level 3 of the fair value hierarchy.
The Company’s assets and liabilities measured or disclosed at fair value are as follows:
| Fair Value | Fair Value | ||||||||||||||||
| Hierarchy | June 30, 2022 | December 31, 2021 | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Measured at fair value on a recurring basis: | |||||||||||||||||
| Cross-currency swap asset | Level 2 | $ | $ | ||||||||||||||
| Disclosed at fair value: | |||||||||||||||||
Mortgage notes, senior unsecured notes and term loans(1) | Level 3 | $ | $ | ||||||||||||||
(1)The carrying value of mortgage notes, senior unsecured notes and term loans is disclosed in Note 4.
18
Americold Realty Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements - (Unaudited)
6. Stock-Based Compensation
On January 4, 2018, the Company’s Board of Trustees adopted the Americold Realty Trust 2017 Equity Incentive Plan (2017 Plan), which permits the grant of various forms of equity- and cash-based awards from a reserved pool of 9,000,000 common shares of the Company. The details of the 2017 Plan are disclosed in greater detail in the 2021 Form 10-K as filed with the SEC.
All share-based compensation cost is measured at the grant date, based on the estimated fair value of the award. The Company issues time-based, performance-based and market performance-based equity awards. Time-based awards and cliff vesting market performance-based awards are recognized on a straight-line basis over the associates’ requisite service period, as adjusted for estimate of forfeitures. Performance-based awards are recognized ratably over the vesting period using a graded vesting attribution model upon the achievement of the performance target, as adjusted for estimate of forfeitures. The only performance-based awards issued by the Company were granted in 2016 and 2017.
The Company implemented an Employee Stock Purchase Plan (ESPP) which became effective on December 8, 2020. Refer to our 2021 Annual Report on Form 10-K for details of our ESPP. The share-based compensation cost of the ESPP options are measured based on grant date at fair value and are recognized on a straight-line basis over the offering period. The ESPP did not have a material impact on share-based compensation expense during each of the six months ended June 30, 2022 and 2021.
Aggregate share-based compensation charges were $7.0 million and $5.5 million during the three months ended June 30, 2022 and 2021, respectively, and $15.4 million and $10.5 million during the six months ended June 30, 2022 and 2021, respectively. Routine share-based compensation expense is included as a component of “Selling, general and administrative” expense on the accompanying Condensed Consolidated Statements of Operations. As of June 30, 2022, there was $37.0 million of unrecognized share-based compensation expense related to stock options and restricted stock units, which will be recognized over a weighted-average period of 1.9 years. As of June 30, 2022 and December 31, 2021, the Company accrued $1.2 million and $1.5 million, respectively, of dividend equivalents on unvested units payable to associates and directors.
Restricted Stock Units Activity
Restricted stock units are nontransferable until vested. Prior to the issuance of a common share, the grantees of restricted stock units are not entitled to vote the shares. Time-based restricted stock unit awards vest in equal annual increments over the vesting period. Performance-based and market performance-based restricted stock unit awards cliff vest upon the achievement of the performance target, as well as completion of the performance period.
19
Americold Realty Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements - (Unaudited)
The following table summarizes restricted stock unit grants under the 2017 Plan during the six months ended June 30, 2022 and 2021, respectively:
| Six Months Ended June 30, | Grantee Type | Number of Restricted Stock Units Granted | Vesting Period | Grant Date Fair Value (in thousands) | ||||||||||
| 2022 | Directors | $ | ||||||||||||
| 2022 | Associates | $ | ||||||||||||
| 2021 | Directors | $ | ||||||||||||
| 2021 | Associates | $ | ||||||||||||
Restricted stock units granted for the six months ended June 30, 2022 consisted of: (i) 4,810 were time-based restricted stock units with a one year vesting period issued to non-employee directors as part of their annual compensation, (ii) 361,902 time-based graded vesting restricted stock units with various vesting periods ranging from to three years issued to certain associates and (iii) 131,176 market performance-based cliff vesting restricted stock units with a three-year vesting period issued to certain associates. The vesting of such market performance-based awards will be determined based on our total shareholder return (TSR) relative to the MSCI US REIT Index (RMZ), computed for the performance period that began January 1, 2022 and will end December 31, 2024.
Restricted stock units granted for the six months ended June 30, 2021 consisted of (i) 6,616 were time-based restricted stock units with a one year vesting period issued to non-employee directors as part of their annual compensation, (ii) 194,410 time-based graded vesting restricted stock units with various vesting periods ranging from to three years issued to certain associates and (iii) 108,781 market performance-based cliff vesting restricted stock units with a three-year vesting period issued to certain associates. The vesting of such market performance-based awards will be determined based on our total shareholder return (TSR) relative to the MSCI US REIT Index (RMZ), computed for the performance period that began January 1, 2021 and will end December 31, 2023.
In January 2021, following the completion of the applicable market-performance period, the Compensation Committee determined that the high level had been achieved for the 2018 awards and, accordingly, 799,591 units vested immediately, representing a vesting percentage of 150 %.
In January 2022, following the completion of the applicable market-performance period, the Compensation Committee determined that the 51st percentile had been achieved for the 2019 awards and, accordingly, 194,111 units vested immediately, representing a vesting percentage of 91.4 %.
20
Americold Realty Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements - (Unaudited)
The following table provides a summary of restricted stock awards activity during the six months ended June 30, 2022:
| Six Months Ended June 30, 2022 | ||||||||||||||||||||
| Restricted Stock | Number of Time-Based Restricted Stock Units | Aggregate Intrinsic Value (in millions) | Number of Market Performance-Based Restricted Stock Units(2) | Aggregate Intrinsic Value (in millions) | ||||||||||||||||
Non-vested as of December 31, 2021 | $ | $ | ||||||||||||||||||
Granted | ||||||||||||||||||||
Market-performance adjustment(3) | ( | |||||||||||||||||||
Vested | ( | ( | ||||||||||||||||||
Forfeited | ( | ( | ||||||||||||||||||
Non-vested as of June 30, 2022 | $ | $ | ||||||||||||||||||
Shares vested, but not released(1) | ||||||||||||||||||||
Total outstanding restricted stock units | $ | $ | ||||||||||||||||||
(1)For certain vested restricted stock units, common share issuance is contingent upon the first to occur of: (1) termination of service; (2) change in control; (3) death; or (4) disability, as defined in the 2010 Plan. The weighted average grant date fair value of these units is $9.38 per unit. This is also comprised of 46,890 vested time-based restricted stock units which belong to an active member of the Board of Directors and the date of issuance is therefore unknown at this time. The weighted average grant date fair value of these units is $8.42 per unit. The weighted average grant date fair value of these units is $13.43 per unit. The holders of these vested restricted stock units are entitled to receive distributions, but are not entitled to vote the shares until common shares are issued in exchange for these vested restricted stock units.
(2)The number of market performance-based restricted stock units are reflected within this table based upon the number of shares issuable upon achievement of the performance metric at target.
(3)Represents the decrease in the number of original market-performance units awarded based on the final performance criteria achievement at the end of the defined performance period.
The weighted average grant date fair value of restricted stock units granted during the six months ended June 30, 2022 was $26.62 per unit, for vested and converted restricted stock units was $30.28 , for forfeited restricted stock units was $30.27 . The weighted average grant date fair value of non-vested restricted stock units was $29.26 and $31.40 per unit as of June 30, 2022 and December 31, 2021, respectively.
OP Units Activity
Our Board of Directors and certain members of management may elect to receive their awards in the form of either OP units or restricted stock units (applicable to time-vested and market-performance based awards). The terms of the OP units mirror the terms of the restricted stock units granted in the respective period.
21
Americold Realty Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements - (Unaudited)
The following table summarizes OP unit grants during the six months ended June 30, 2022 and June 30, 2021:
| Six Months Ended June 30, | Grantee Type | Number of OP Units Granted | Vesting Period | Grant Date Fair Value (in thousands) | ||||||||||
| 2022 | Directors | $ | ||||||||||||
| 2022 | Associates | $ | ||||||||||||
| 2021 | Directors | $ | ||||||||||||
| 2021 | Associates | $ | ||||||||||||
OP units granted for the year ended June 30, 2022 consisted of: (i) 35,593 time-based OP units with a one year vesting period issued to non-employee directors as part of their annual compensation, (ii) 98,994 time-based graded vesting OP units with various vesting periods ranging from to three years issued to certain associates in connection with the annual grant provided in March and (iii) 243,986 market performance-based cliff vesting OP units with a three-year vesting period issued to certain associates in connection with the annual grant provided in March.
OP units granted for the year ended June 30, 2021 consisted of: (i) 17,863 were time-based OP units with a one year vesting period issued to non-employee directors as part of their annual compensation, (ii) 60,472 time-based graded vesting OP units with various vesting periods ranging from to three years issued to certain associates and (iii) 198,007 market performance-based cliff vesting OP units with a three-year vesting period issued to certain associates.
The following table provides a summary of the OP unit awards activity during the six months ended June 30, 2022:
| Six Months Ended June 30, 2022 | |||||||||||||||||
| OP Units | Number of Time-Based OP Units | Aggregate Intrinsic Value (in millions) | Number of Market Performance-Based OP Units | Aggregate Intrinsic Value (in millions) | |||||||||||||
Non-vested as of December 31, 2021 | $ | $ | |||||||||||||||
Granted | |||||||||||||||||
Vested | ( | ||||||||||||||||
Forfeited | ( | ( | |||||||||||||||
Non-vested as of June 30, 2022 | $ | $ | |||||||||||||||
Shares vested, but not released | |||||||||||||||||
Total outstanding OP units | $ | $ | |||||||||||||||
The weighted average grant date fair value of OP units granted for the six months ended June 30, 2022 was $26.45 per unit, for vested OP units was $32.32 and forfeited OP units was $31.94 . The weighted average grant date fair value of non-vested OP units was $29.30 and $31.30 per unit as of June 30, 2022 and December 31, 2021, respectively.
22
Americold Realty Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements - (Unaudited)
Stock Options Activity
The following table provides a summary of option activity for the six months ended June 30, 2022:
| Options | Shares (In thousands) | Weighted-Average Exercise Price | Weighted-Average Remaining Contractual Terms (Years) | ||||||||
Outstanding as of December 31, 2021 | $ | ||||||||||
Granted | |||||||||||
Exercised | ( | ||||||||||
Forfeited or expired | |||||||||||
Outstanding as of June 30, 2022 | |||||||||||
Exercisable as of June 30, 2022 | $ | ||||||||||
The total grant date fair value of stock option awards that vested during the six months ended June 30, 2022 and 2021 was approximately $0.1 million and $0.6 million, respectively. The total intrinsic value of options exercised for the six months ended June 30, 2022 and 2021 was $0.9 million and $5.6 million, respectively.
7. Income Taxes
8. Commitments and Contingencies
Legal Proceedings
In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company and its legal counsel evaluate the merits of any legal proceedings or unasserted claims, as well as the perceived merits of the amount of relief sought or expected to be sought. If the assessment of a contingency suggests that a loss is probable, and the amount can be reasonably estimated, then a loss is recorded.
In addition to the matters discussed below, the Company may be subject to litigation and claims arising from the ordinary course of business. In the opinion of management, after consultation with legal counsel, the outcome of such matters is not expected to have a material impact on the Company’s financial condition, results of operations, or cash flows.
Kansas Breach of Settlement Agreement Litigation
This case was served against the Company in Wyandotte County, Kansas, on January 17, 2013, alleging breach of a 1994 Settlement Agreement reached with customers of our predecessor company, Americold Corporation. The
23
Americold Realty Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements - (Unaudited)
plaintiffs originally brought claims in 1992 arising from a fire the previous year in an underground warehouse facility.
In 1994, a settlement was reached whereby Americold Corporation agreed to the entry of a $58.7 million judgment against it and assigned its rights to proceed against its insurer to satisfy the judgment. The settlement agreement contained a standard “cooperation provision” in which Americold Corporation agreed to execute any additional documents necessary to fulfill the intent of the settlement agreement. The plaintiffs then sued Americold Corporation’s insurer to recover on the consent judgment. The case was ultimately dismissed in 2012, and the Kansas Supreme Court ruled that the 1994 consent judgment had expired and was not revivable as a matter of law.
On September 24, 2012, the plaintiffs filed a separate claim in the district court of Wyandotte County, Kansas, alleging that the Company and one of its subsidiaries, Americold Logistics, LLC, as successors to Americold Corporation, are liable for the full amount of the judgment, based upon the allegation that the Company failed to execute a document or take action to keep the judgment alive and viable.
On February 7, 2013, the Company removed the case to the U.S. federal court and ultimately filed a motion for summary judgment, which the plaintiffs vigorously opposed. On October 4, 2013, the court granted the Company’s motion and dismissed the case in full. The Court of Appeals ordered that the case be remanded to the Kansas State Court and the judgment in favor of Americold be vacated, finding U.S. federal diversity jurisdiction did not exist over the Company. The Company petitioned the U.S. Supreme Court for certiorari and oral argument occurred on January 19, 2016.
On March 7, 2016, the United States Supreme Court ruled that there was no federal diversity jurisdiction. Following the decision, the United States District Court for the District of Kansas entered an Order vacating the summary judgment and remanding the case to Kansas state court.
Preferred Freezer Services, LLC Litigation
On February 11, 2019, Preferred Freezer Services, LLC (“PFS”) moved by Order to Show Cause in the Supreme Court of the State of New York, New York County, asserting breach of contract and other claims against the Company and seeking to preliminarily enjoin the Company from acting to acquire certain properties leased by PFS. In its complaint and request for preliminary injunctive relief, PFS alleged that the Company breached a confidentiality agreement entered into in connection with the Company’s participation in a bidding process for the sale of PFS by contacting PFS’s landlords and by using confidential PFS information in bidding for the properties leased by PFS (the “PFS Action”).
PFS’s request for a preliminary injunction was denied after oral argument on February 26, 2019. On March 1, 2019, PFS filed an application for interim injunctive relief from the Appellate Division of the Supreme Court, First Judicial Department (the “First Department”).
On April 2, 2019, while its application to the First Department was pending, PFS voluntarily dismissed its state court action, and First Department application, and re-filed substantially the same claims against the Company in the U.S. District Court for the Southern District of New York. In addition to an order enjoining Americold from making offers to purchase the properties leased by PFS, PFS sought compensatory, consequential and/or punitive damages. The Company filed a motion to require PFS to reimburse the Company for its legal fees it incurred for the state court action before PFS is allowed to proceed in the federal court action. On February 18, 2020, the Court granted Americold’s request for an award of legal fees from PFS but declined to stay the case pending
24
Americold Realty Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements - (Unaudited)
payment of that award. As to the amount of the award, the Company and PFS have entered into a stipulation that PFS will pay Americold $550,000 to reimburse the Company for its legal fees upon the conclusion of the case. PFS has since amended its complaint, and Americold has filed a motion to dismiss that amended complaint.
The Company denies the allegations of the PFS Action and the Fenway Action and believes the plaintiffs’ claims are without merit and intends to vigorously defend itself against the allegations. Given the status of the proceedings to date, a liability cannot be reasonably estimated. The Company believes the ultimate outcome of this matter will not have a material adverse impact on its condensed consolidated financial statements.
Environmental Matters
The Company is subject to a wide range of environmental laws and regulations in each of the locations in which the Company operates. Compliance with these requirements can involve significant capital and operating costs. Failure to comply with these requirements can result in civil or criminal fines or sanctions, claims for environmental damages, remediation obligations, the revocation of environmental permits, or restrictions on the Company’s operations.
The Company records accruals for environmental matters when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated based on current law and existing technologies. The Company adjusts these accruals periodically as assessment and remediation efforts progress or as additional technical or legal information become available. The Company recorded nominal environmental liabilities in accounts payable and accrued expenses as of June 30, 2022 and December 31, 2021. The Company believes it is in compliance with applicable environmental regulations in all material respects. Under various U.S. federal, state, and local environmental laws, a current or previous owner or operator of real estate may be liable for the entire cost of investigating, removing, and/or remediating hazardous or toxic substances on such property. Such laws often impose liability whether or not the owner or operator knew of, or was responsible for, the contamination. Even if more than one person may have been responsible for the contamination, each person covered by the environmental laws may be held responsible for the entire clean-up cost. There are no material unrecorded liabilities as of June 30, 2022. Most of the Company’s warehouses utilize ammonia as a refrigerant. Ammonia is classified as a hazardous chemical regulated by the Environmental Protection Agency, and an accident or significant release of ammonia from a warehouse could result in injuries, loss of life, and property damage.
Occupational Safety and Health Act (OSHA)
The Company’s warehouses located in the U.S. are subject to regulation under OSHA, which requires employers to provide employees with an environment free from hazards, such as exposure to toxic chemicals, excessive noise levels, mechanical dangers, heat or cold stress, and unsanitary conditions. The cost of complying with OSHA and similar laws enacted by states and other jurisdictions in which we operate can be substantial, and any failure to comply with these regulations could expose us to substantial penalties and potentially to liabilities to employees who may be injured at our warehouses. The Company records accruals for OSHA matters when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated. The Company believes that it is in substantial compliance with all OSHA regulations and that no material unrecorded liabilities exist as of June 30, 2022 and December 31, 2021.
25
Americold Realty Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements - (Unaudited)
9. Accumulated Other Comprehensive (Loss) Income
The Company reports activity in AOCI for foreign currency translation adjustments, including the translation adjustment for investments in partially owned entities, unrealized gains and losses on cash flow hedge derivatives, and minimum pension liability adjustments (net of tax). The activity in AOCI for the three and six months ended June 30, 2022 and 2021 is as follows (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
Pension and other postretirement benefits: | |||||||||||||||||||||||
(Loss) gain arising during the period | $ | ( | $ | $ | ( | $ | |||||||||||||||||
Amortization of prior service cost (1) | |||||||||||||||||||||||
| Total pension and other postretirement benefits, net of tax | $ | ( | $ | $ | ( | $ | |||||||||||||||||
Foreign currency translation adjustments: | |||||||||||||||||||||||
| Cumulative translation adjustment | $ | ( | $ | $ | ( | $ | ( | ||||||||||||||||
| Derecognition of cumulative foreign currency translation upon deconsolidation of entity contributed to a joint venture | |||||||||||||||||||||||
| Derivative net investment hedges | |||||||||||||||||||||||
| Total foreign currency translation (loss) gain | $ | ( | $ | $ | ( | $ | ( | ||||||||||||||||
Designated derivatives: | |||||||||||||||||||||||
| Cash flow hedge derivatives | $ | $ | $ | $ | |||||||||||||||||||
Net amount reclassified from AOCI to net (loss) gain (2) (3) (4) | ( | ( | ( | ( | |||||||||||||||||||
| Total unrealized gains on derivative contracts | $ | $ | $ | $ | |||||||||||||||||||
| Total change in other comprehensive (loss) income | $ | ( | $ | $ | ( | $ | ( | ||||||||||||||||
(1)Amounts reclassified from AOCI for pension liabilities are recognized in “Selling, general and administrative” in the accompanying condensed consolidated statements of operations.
(2)Expense of a nominal amount will be reclassified to Interest Expense during each of the three months ended June 30, 2022 and 2021, and six months ended June 30, 2022 and 2021, related to derivatives designated as foreign exchange contracts.
(3)In conjunction with the termination of the interest rate swaps in 2020, the Company recorded $0.6 1.3 million and $1.4 million during the six months ended June 30, 2022 and 2021, respectively. The Company recorded an increase to “Loss on debt extinguishment, modifications and termination of derivative instruments” related to this transaction.
(4)Included in the three months ended June 30, 2022 and 2021, respectively, was $11.5 million and $1.6 million and during the six months ended June 30, 2022 and 2021, respectively, was $7.7 million and $4.0 million in net amount reclassified from AOCI to foreign exchange gain (loss), net which is included within “Other, net” in the condensed consolidated statements of operations.
10. Segment Information
Our principal operations are organized into three reportable segments: Warehouse, Third-party managed and Transportation. The details of these segments remain materially unchanged from those disclosed in the 2021 Form 10-K as filed with the SEC.
Our reportable segments are strategic business units separated by service offerings. Each reportable segment is managed separately and requires different operational and marketing strategies. The accounting polices used in the preparation of our reportable segments financial information are the same as those used in the preparation of its condensed consolidated financial statements.
26
Americold Realty Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements - (Unaudited)
Our chief operating decision maker uses revenues and segment contribution to evaluate segment performance. We calculate segment contribution as earnings before interest expense, taxes, depreciation and amortization, and exclude selling, general and administrative expense, acquisition, litigation and other, net, impairment of long-lived assets, gain or loss on sale of real estate and all components of non-operating other income and expense. Selling, general and administrative functions support all the business segments. Therefore, the related expense is not allocated to segments as the chief operating decision maker does not use it to evaluate segment performance.
Segment contribution is not a measurement of financial performance under GAAP, and may not be comparable to similarly titled measures of other companies. You should not consider our segment contribution as an alternative to operating income determined in accordance with GAAP.
The following table presents segment revenues and contributions with a reconciliation to loss before income tax for the three and six months ended June 30, 2022 and 2021 (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Segment revenues: | |||||||||||||||||||||||
| Warehouse | $ | $ | $ | $ | |||||||||||||||||||
| Third-party managed | |||||||||||||||||||||||
| Transportation | |||||||||||||||||||||||
| Total revenues | |||||||||||||||||||||||
| Segment contribution: | |||||||||||||||||||||||
| Warehouse | |||||||||||||||||||||||
| Third-party managed | |||||||||||||||||||||||
| Transportation | |||||||||||||||||||||||
| Total segment contribution | |||||||||||||||||||||||
| Reconciling items: | |||||||||||||||||||||||
| Depreciation and amortization | ( | ( | ( | ( | |||||||||||||||||||
| Selling, general and administrative | ( | ( | ( | ( | |||||||||||||||||||
| Acquisition, litigation and other, net | ( | ( | ( | ( | |||||||||||||||||||
| Impairment of long-lived assets | ( | ( | |||||||||||||||||||||
| Interest expense | ( | ( | ( | ( | |||||||||||||||||||
| Loss on debt extinguishment, modifications and termination of derivative instruments | ( | ( | ( | ( | |||||||||||||||||||
| Other, net | ( | ( | |||||||||||||||||||||
| Loss before income tax benefit | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
27
Americold Realty Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements - (Unaudited)
The following table details our assets by reportable segments, with a reconciliation to total assets reported for each of the periods presented in the accompanying Condensed Consolidated Balance Sheets.
| June 30, 2022 | December 31, 2021 | ||||||||||
| (In thousands) | |||||||||||
| Assets: | |||||||||||
| Warehouse | $ | $ | |||||||||
| Managed | |||||||||||
| Transportation | |||||||||||
| Total segments assets | |||||||||||
| Reconciling items: | |||||||||||
| Corporate assets | |||||||||||
| Investments in partially owned entities | |||||||||||
| Total reconciling items | |||||||||||
| Total assets | $ | $ | |||||||||
11. Income (loss) per Common Share
Basic and diluted earnings per common share are calculated by dividing the net income or loss attributable to common stockholders by the basic and diluted weighted-average number of common shares outstanding in the period, respectively, using the allocation method prescribed by the two-class method. The Company applies this method to compute earnings per share because it distributes non-forfeitable dividend equivalents on restricted stock units and OP units granted to certain employees and non-employee directors who have the right to participate in the distribution of common dividends while the restricted stock units and OP units are unvested.
The shares issuable upon settlement of forward sale agreements are reflected in the diluted earnings per share calculations using the treasury stock method. Under this method, the number of the Company’s common shares used in calculating diluted earnings per share is deemed to be increased by the excess, if any, of the number of common shares that would be issued upon full physical settlement of the forward sale agreements over the number of common shares that could be purchased by the Company in the market (based on the average market price during the period) using the proceeds receivable upon full physical settlement (based on the adjusted forward sale price at the end of the reporting period). If and when the Company physically or net share settles the forward sale agreements, the delivery of common shares would result in an increase in the number of shares outstanding and dilution to earnings per share.
A reconciliation of the basic and diluted weighted-average number of common shares outstanding for the three and six months ended June 30, 2022 and 2021 is as follows (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Weighted average common shares outstanding – basic | |||||||||||||||||||||||
| Dilutive effect of share-based awards | |||||||||||||||||||||||
| Weighted average common shares outstanding – diluted | |||||||||||||||||||||||
28
Americold Realty Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements - (Unaudited)
For the six months ended June 30, 2022 and 2021, potential common shares under the treasury stock method and the if-converted method were antidilutive because the Company reported a net loss for both periods. Consequently, the Company did not have any adjustments between basic and diluted loss per share related to share-based awards or equity forward contracts.
The table below presents the number of antidilutive potential common shares that are not considered in the calculation of diluted loss per share (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Employee stock options | |||||||||||||||||||||||
| Restricted stock units | |||||||||||||||||||||||
| OP units | |||||||||||||||||||||||
| Equity forward contracts | |||||||||||||||||||||||
29
Americold Realty Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements - (Unaudited)
12. Revenue from Contracts with Customers
Disaggregated Revenue
The following tables represent a disaggregation of revenue from contracts with customers for the three and six months ended June 30, 2022 and 2021 by segment and geographic region:
| Three Months Ended June 30, 2022 | ||||||||||||||||||||
| North America | Europe | Asia-Pacific | South America | Total | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Warehouse rent and storage | $ | $ | $ | $ | $ | |||||||||||||||
Warehouse services(1) | ||||||||||||||||||||
Third-party managed | ||||||||||||||||||||
Transportation | ||||||||||||||||||||
Total revenues (2) | ||||||||||||||||||||
Lease revenue (3) | ||||||||||||||||||||
Total revenues from contracts with all customers | $ | $ | $ | $ | $ | |||||||||||||||
| Three Months Ended June 30, 2021 | ||||||||||||||||||||
| North America | Europe | Asia-Pacific | South America | Total | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Warehouse rent and storage | $ | $ | $ | $ | $ | |||||||||||||||
Warehouse services(1) | ||||||||||||||||||||
Third-party managed | ||||||||||||||||||||
Transportation | ||||||||||||||||||||
Total revenues (2) | ||||||||||||||||||||
Lease revenue (3) | ||||||||||||||||||||
Total revenues from contracts with all customers | $ | $ | $ | $ | $ | |||||||||||||||
(1)Warehouse services revenue includes sales of product that Americold purchases on the spot market, repackages, and sells to customers. Such revenues totaled $4.2 million and $3.5 million for the three months ended June 30, 2022 and June 30, 2021, respectively.
(2)Revenues are within the scope of ASC 606, Revenue From Contracts with Customers. Elements of contracts or arrangements that are in the scope of other standards (e.g., leases) are separated and accounted for under those standards.
(3)Revenues are within the scope of Topic 842, Leases.
30
Americold Realty Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements - (Unaudited)
| Six Months Ended June 30, 2022 | ||||||||||||||||||||
| North America | Europe | Asia-Pacific | South America | Total | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Warehouse rent and storage | $ | $ | $ | $ | $ | |||||||||||||||
Warehouse services | ||||||||||||||||||||
Third-party managed | ||||||||||||||||||||
Transportation | ||||||||||||||||||||
Total revenues (1) | ||||||||||||||||||||
Lease revenue (2) | ||||||||||||||||||||
Total revenues from contracts with all customers | $ | $ | $ | $ | $ | |||||||||||||||
| Six Months Ended June 30, 2021 | ||||||||||||||||||||
| North America | Europe | Asia-Pacific | South America | Total | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Warehouse rent and storage | $ | $ | $ | $ | $ | |||||||||||||||
Warehouse services | ||||||||||||||||||||
Third-party managed | ||||||||||||||||||||
Transportation | ||||||||||||||||||||
Total revenues (1) | ||||||||||||||||||||
Lease revenue (2) | ||||||||||||||||||||
Total revenues from contracts with all customers | $ | $ | $ | $ | $ | |||||||||||||||
(1)Warehouse services revenue includes sales of product that Americold purchases on the spot market, repackages, and sells to customers. Such revenues totaled $7.4 million and $6.4 million for the six months ended June 30, 2022 and June 30, 2021, respectively.
(2)Revenues are within the scope of ASC 606, Revenue From Contracts with Customers. Elements of contracts or arrangements that are in the scope of other standards (e.g., leases) are separated and accounted for under those standards.
(3)Revenues are within the scope of Topic 842, Leases.
Performance Obligations
Substantially all our revenue for warehouse storage and handling services, and management and incentive fees earned under third-party managed and other contracts is recognized over time as the customer benefits throughout the period until the contractual term expires. Typically, revenue is recognized over time using an output measure (e.g. passage of time) to measure progress. Revenue recognized at a point in time upon delivery when the customer typically obtains control, include most accessorial services, transportation services, reimbursed costs and quarry product shipments.
For arrangements containing non-cancellable contract terms, any variable consideration related to storage renewals or incremental handling charges above stated minimums are 100 % constrained and not included in aggregate amount of the transaction price allocated to the unsatisfied performance obligations disclosed below, given the degree in difficulty in estimation. Payment terms are generally 0 - 30 days upon billing, which is typically monthly, either in advance or subsequent to the performance of services. The same payment terms typically apply for arrangements containing variable consideration.
The Company has no material warranties or obligations for allowances, refunds or other similar obligations.
31
Americold Realty Trust, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements - (Unaudited)
As of June 30, 2022, the Company had $670.5 million of remaining unsatisfied performance obligations from contracts with customers subject to non-cancellable terms and have an original expected duration exceeding one year. These obligations also do not include variable consideration beyond the non-cancellable term, which due to the inability to quantify by estimate, is fully constrained. The Company expects to recognize approximately 17 % of these remaining performance obligations as revenue in 2022, and the remaining 83 % to be recognized over a weighted average period of 13.1 years through 2038.
Contract Balances
The timing of revenue recognition, billings and cash collections results in accounts receivable (contract assets), and unearned revenue (contract liabilities) on the accompanying Condensed Consolidated Balance Sheets. Generally, billing occurs monthly, subsequent to revenue recognition, resulting in contract assets. However, the Company may bill and receive advances on storage and handling services, before revenue is recognized, resulting in contract liabilities. These assets and liabilities are reported on the accompanying Condensed Consolidated Balance Sheets on a contract-by-contract basis at the end of each reporting period. Changes in the contract asset and liability balances during the three and six months ended June 30, 2022, were not materially impacted by any other factors.
Accounts receivable balances related to contracts with customers accounted for under ASC 606 were $400.5 million and $375.1 million as of June 30, 2022 and December 31, 2021, respectively. All other trade receivable balances relate to contracts accounted for under ASC 842.
32
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q. In addition, the following discussion contains forward-looking statements, such as statements regarding our expectation for future performance, liquidity and capital resources, that involve risks, uncertainties and assumptions that could cause actual results to differ materially from our expectations. Our actual results may differ materially from those contained in or implied by any forward-looking statements. Factors that could cause such differences include those identified below and those described under Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021 and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022.
On May 25, 2022, we consummated our previously-disclosed conversion from a Maryland real estate investment trust to a Maryland corporation (the “Conversion”). Upon the consummation of the Conversion, each of our issued and outstanding shares of beneficial interest was converted into one share of common stock, and the rights of our stockholders began to be governed by the Maryland General Corporation Law and our Articles of Incorporation and Bylaws. The Conversion did not result in any change in CUSIP, trading symbol, federal tax identification number, or any material change in business, offices, assets, liabilities, obligations or net worth, or any change in directors, officers or employees. Despite this conversion, the Company continues to operate as a REIT for U.S. federal income tax purposes.
MANAGEMENT’S OVERVIEW
We are the world’s largest publicly traded REIT focused on the ownership, operation, acquisition and development of temperature-controlled warehouses. We are organized as a self-administered and self-managed REIT with proven operating, development and acquisition expertise. As of June 30, 2022, we operated a global network of 249 temperature-controlled warehouses encompassing approximately 1.5 billion cubic feet, with 202 warehouses in North America, 27 in Europe, 18 warehouses in Asia-Pacific, and two warehouses in South America. In addition, we hold three minority interests in South American joint ventures, one with SuperFrio, which owns or operates 38 temperature-controlled warehouses in Brazil, one with Comfrio, which owns or operates 28 temperature-controlled warehouses in Brazil, and one with the LATAM JV, which owns one temperature-controlled warehouse in Chile. The LATAM joint-venture was created during the second quarter of 2022 and intends to grow our presence in Latin America, excluding Brazil, through development and acquisition over time.
33
Components of Our Results of Operations
Warehouse. Our primary source of revenues consists of rent, storage, and warehouse services fees. Our rent, storage, and warehouse services revenues are the key drivers of our financial performance. Rent and storage revenues consist of recurring, periodic charges related to the storage of frozen, perishable or other products in our warehouses by our customers. We also provide these customers with a wide array of handling and other warehouse services, such as (1) receipt, handling and placement of products into our warehouses for storage and preservation, (2) retrieval of products from storage upon customer request, (3) blast freezing, which involves the rapid freezing of non-frozen products, including individual quick freezing for agricultural produce and seafood, (4) case-picking, which involves selecting product cases to build customized pallets, (5) kitting and repackaging, which involves assembling custom product packages for delivery to retailers and consumers, and labeling services, (6) order assembly and load consolidation, (7) exporting and importing support services, (8) container handling, (9) cross-docking, which involves transferring inbound products to outbound trucks utilizing our warehouse docks without storing them in our warehouses, (10) government-approved temperature-controlled storage and inspection services, (11) fumigation, (12) pre-cooling and cold treatment services, (13) produce grading and bagging, (14) protein boxing, (15) e-commerce fulfillment, and (16) ripening. We refer to these handling and other warehouse services as our value-added services.
Cost of operations for our warehouse segment consist of power, other facilities costs, labor, and other service costs. Labor, the largest component of the cost of operations from our warehouse segment, consists primarily of employee wages, benefits, and workers’ compensation. Trends in our labor expense are influenced by changes in headcount, changes in compensation levels and associated performance incentives, the use of third-party labor to support our operations, changes in terms of collective bargaining agreements, changes in customer requirements and associated work content, workforce productivity, labor availability, governmental policies and regulations, variability in costs associated with medical insurance and the impact of workplace safety programs, inclusive of the number and severity of workers’ compensation claims. Labor expense can also be impacted as a result of discretionary bonuses. In response to the COVID-19 pandemic, we have incorporated certain activities such as staggered break schedules, social distancing, and other changes to process that can create inefficiencies, all of which we expect to continue to incur going forward. Our second largest cost of operations from our warehouse segment is power utilized in the operation of our temperature-controlled warehouses. As a result, fluctuations in the price for power in the regions where we operate may have a significant effect on our financial results. We may from time to time hedge our exposure to changes in power prices through fixed rate agreements or, to the extent possible and appropriate, through rate escalations or power surcharge provisions within our customer contracts. Additionally, business mix impacts power expense depending on the temperature zone or type of freezing required. Other facilities costs include utilities other than power, property insurance, property taxes, sanitation (which include incremental supplies as a result of COVID-19), repairs and maintenance on real estate, rent under real property operating leases, where applicable, security, and other related facilities costs. Other services costs include equipment costs, warehouse consumables (e.g., shrink-wrap and uniforms), personal protective equipment to maintain the health and safety of our associates, warehouse administration and other related services costs.
Third-Party Managed. We receive a reimbursement of substantially all expenses for warehouses that we manage on behalf of third-party owners, with all reimbursements recognized as revenues under the relevant accounting guidance. We also earn management fees, incentive fees upon achieving negotiated performance and cost-savings results, or an applicable mark-up on costs. Cost of operations for our third-party managed segment is reimbursed on a pass-through basis (typically within two weeks).
Transportation. We charge transportation fees, which may also include fuel and capacity surcharges, to our customers for whom we arrange the transportation of their products. Cost of operations for our transportation segment consists primarily of third-party carrier charges, which are impacted by factors affecting those carriers,
34
including driver and equipment availability in certain markets. Additionally, in certain markets we employ drivers and assets to serve our customers. Costs to operate these assets include, wages, fuel, tolls, insurance and maintenance.
Other Consolidated Operating Expenses. We also incur depreciation and amortization expenses, corporate-level selling, general and administrative expenses and corporate-level acquisition, litigation and other, net expenses.
Our depreciation and amortization charges result primarily from the capital-intensive nature of our business. The principal components of depreciation relate to our warehouses, including buildings and improvements, refrigeration equipment, racking, leasehold improvements, material handling equipment, furniture and fixtures, and our computer hardware and software. Amortization relates primarily to intangible assets for customer relationships.
Our corporate-level selling, general and administrative expenses consist primarily of wages and benefits for management, administrative, business development, account management, project management, marketing, engineering, supply-chain solutions, human resources and information technology personnel, as well as expenses related to equity incentive plans, communications and data processing, travel, professional fees, bad debt, training, office equipment and supplies. Trends in corporate-level selling, general and administrative expenses are influenced by changes in headcount and compensation levels and achievement of incentive compensation targets. To position ourselves to meet the challenges of the current business environment, we have implemented a shared services support structure to better manage costs and enhance the efficiency of our operations. We have begun to integrate our recent acquisitions into this shared services structure.
Our corporate-level acquisition, litigation and other, net consists of costs that we view outside of selling, general and administrative expenses with a high level of variability from period-to-period, and include the following:
•Acquisition related costs include costs associated with transactions, whether consummated or not, such as advisory, legal, accounting, valuation and other professional or consulting fees. We also include integration costs pre- and post-acquisition that reflect work being performed to facilitate merger and acquisition integration, such as employee retention expense and work associated with information systems and other projects including spending to support future acquisitions, which primarily consist of professional services.
•Litigation costs incurred in order to defend ourselves from litigation charges outside of the normal course of business and related settlement costs.
•Severance costs representing certain contractual and negotiated severance and separation costs from exited former executives, reduction in headcount due to synergies achieved through acquisitions or operational efficiencies, and reduction in workforce costs associated with exiting or selling non-strategic warehouses.
•Equity acceleration costs representing the unrecognized expense for share-based awards that vest and convert to common shares in advance of the original negotiated vesting date and any other equity award changes resulting in accounting for the award as a modification.
•Non-offering related equity issuance expenses whether incurred through our initial public offering, follow-on offerings or secondary offerings.
•Terminated site operations costs represent expenses incurred to return leased sites to their original physical state at lease inception in connection with the termination of the applicable underlying lease. These terminations were part of our strategic efforts to exit or sell non-strategic warehouses as opposed to ordinary course lease expirations. Repair and maintenance expenses associated with our ordinary course operations are reflected as operating expenses on our condensed consolidated statement of operations.
35
•Cyber incident related costs include third-party fees incurred in connection with the cyber incident that occurred in November 2020, as well as any incremental costs, internal and external, incurred to restore operations at our facilities and damage claims. Any subsequent reimbursements from insurance coverage for expenses incurred in connection with the event are also reflected within this category.
•Other costs relate to insurance claims, including deductibles, and related recoveries.
36
Key Factors Affecting Our Business and Financial Results
Market Conditions and COVID-19
During the three and six months ended June 30, 2022 and the year ended December 31, 2021, our business and financial results were negatively impacted by COVID-19 related disruptions and other macro-economic conditions in (i) the food supply chain; (ii) our customers’ production and transportation of goods; (iii) the labor market impacting availability and cost; and (iv) the impact of inflation on the cost to provide our services. Despite the current headwinds, we expect that end-consumer demand for food will remain consistent with historic levels over the long-term. However, current end-consumer demand coupled with food production and transportation challenges since the outset of the pandemic has driven down holdings in our facilities. As a result, occupancy and throughput volume continue at lower than historical levels experienced prior to COVID-19. We expect this to continue until our customers are able to ramp production back up to pre-pandemic levels for an extended period of time and rebuild inventory in the supply chain.
The unprecedented labor environment continues to be challenging for many companies, including our food manufacturing customers. Labor availability continues to be the primary constraint on food production, along with the continuing spread of COVID-19 and related variants, which also impacts the labor market.
Our business has also been impacted due to inflation during the back half of 2021 and during the three and six months ended June 30, 2022. We believe we are positioned to address continued inflationary pressure as it arises; however, many of our contracts require that we experience sustained cost increases for an extended period of time ranging up to 60 days before we are able to initiate rate increases or seek remedies under our contracts. As a result of the significant impact of inflation on the cost of providing our storage, services and transportation to customers, during the second half of 2021 we initiated out-of-cycle rate increases in our customer contracts (many of which contain provisions for inflationary price escalators), and expect to continue to monitor and implement further inflation and pricing increases required into 2022. We can give no assurance that we will be able to offset the entire impact of inflation or future inflationary cost increases through increased storage or service charges or by operational efficiencies.
Additionally, global supply chains have been volatile following the invasion of Ukraine by Russia which has resulted in sanctions against Russia from the U.S. and a number of European countries. While we do not have warehouses or operations in Russia or Ukraine, our global operations and specifically our European operations may be impacted as a result of the ongoing conflict, including increased power costs and disruptions in inventory transportation, logistics systems and supply chain management. To date, our operations have not been materially impacted by the ongoing conflict.
Refer to “Item 1A - Risk Factors” of our 2021 Annual Report on Form 10-K and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022 as filed with the SEC.
Acquisitions and Joint Ventures
There have been no acquisitions during the six months ended June 30, 2022. Refer to Note 2 of the Notes to the Condensed Consolidated Financial Statements and Note 3 of our 2021 Annual Report on Form 10-K for further information regarding acquisitions.
On June 2, 2022, we formed a joint venture, Americold LATAM Holdings Ltd (the “LATAM JV”), with Cold Latam Limited (our “JV partner”), in an effort to help us grow our business and market presence in Latin
37
America, excluding Brazil. Our JV partner committed to invest approximately $209.0 million in exchange for 85% of the total equity interests, and we contributed our Chilean business upon formation of the joint venture and retained the remaining 15% equity interests in the joint venture.
Seasonality
We are involved in providing services to food producers, distributors, retailers and e-tailers whose businesses, in some cases, are seasonal or cyclical. In order to mitigate the volatility in our revenue and earnings caused by seasonal business, we have implemented fixed commitment contracts with certain of our customers. Our customers with fixed commitment contracts pay for guaranteed warehouse space in order to maintain their required inventory levels, which is especially helpful to them during periods of peak physical occupancy. The timing of Easter fluctuates between the first and second quarter of the year, however, on average the first and second quarter revenue and NOI are relatively consistent. On a portfolio-wide basis, physical occupancy rates are generally the lowest during May and June. Physical occupancy rates typically exhibit a gradual increase after May and June as a result of annual harvests and our customers building inventories in connection with end-of-year holidays and generally peak between mid-September and early December as a result thereof. The external temperature reaches annual peaks for a majority of our portfolio during the third quarter of the year resulting in increase power expense that negatively impacts NOI, and moderates during the fourth quarter. Typically, we have higher than average physical occupancy levels in October or November, which also tends to result in higher revenues. In light of the ongoing COVID-19 pandemic, we have seen variability in physical occupancy levels as compared to the typical seasonality trends.
Additionally, the involvement of our customers in a cross-section of the food industry mitigates, in part, the impact of seasonality as peak demand for various products occurs at different times of the year (for example, demand for ice cream is typically highest in the summer while demand for frozen turkeys usually peaks in the late fall). Our southern hemisphere operations in Australia, New Zealand and South America also help balance the impact of seasonality in our global operations, as their growing and harvesting cycles are complementary to North America and Europe. Each of our warehouses sets its own operating hours based on demand, which is heavily driven by growing seasons and seasonal consumer demand for certain products.
Foreign Currency Translation Impact on Our Operations
Our consolidated revenues and expenses are subject to variations caused by the net effect of foreign currency translation on revenues and expenses incurred by our operations outside the United States. Future fluctuations of foreign currency exchange rates and their impact on our Condensed Consolidated Statements of Operations are inherently uncertain. As a result of the relative size of our international operations, these fluctuations may be material on our results of operations. Our revenues and expenses from our international operations are typically denominated in the local currency of the country in which they are derived or incurred. Therefore, the impact of foreign currency fluctuations on our results of operations and margins is partially mitigated.
The following table shows a comparison of underlying average exchange rates of the foreign currencies that impacted our U.S. dollar-reported revenues and expenses during the periods discussed herein together with a comparison against the exchange rates of such currencies at the end of the applicable periods presented herein. The rates below represent the U.S. dollar equivalent of one unit of the respective foreign currency. Amounts presented in constant currency within our Results of Operations are calculated by applying the average foreign exchange rate from the comparable prior year period to actual local currency results in the current period, rather than the actual exchange rates in effect during the respective period. While constant currency metrics are a non-GAAP calculation and do not represent actual results, the comparison allows the reader to understand the impact of the underlying operations in addition to the impact of changing foreign exchange rates.
38
Foreign exchange rates as of June 30, 2022 | Average foreign exchange rates used to translate actual operating results for the three months ended June 30, 2022 | Average foreign exchange rates used to translate actual operating results for the six months ended June 30, 2022 | Foreign exchange rates as of June 30, 2021 | Prior period average foreign exchange rate used to adjust actual operating results for the three months ended June 30, 2022(1) | Prior period average foreign exchange rate used to adjust actual operating results for the six months ended June 30, 2022(1) | ||||||||||||||||||
| Argentinian peso | 0.008 | 0.008 | 0.009 | 0.010 | 0.011 | 0.011 | |||||||||||||||||
| Australian dollar | 0.690 | 0.715 | 0.719 | 0.750 | 0.769 | 0.771 | |||||||||||||||||
| Brazilian real | 0.190 | 0.204 | 0.198 | 0.201 | 0.191 | 0.187 | |||||||||||||||||
| British Pound | 1.218 | 1.257 | 1.300 | 1.383 | 1.394 | 1.386 | |||||||||||||||||
| Canadian dollar | 0.777 | 0.784 | 0.786 | 0.807 | 0.811 | 0.800 | |||||||||||||||||
| Chilean Peso | 0.001 | 0.001 | 0.001 | 0.001 | 0.001 | 0.001 | |||||||||||||||||
| Euro | 1.048 | 1.065 | 1.094 | 1.186 | 1.208 | 1.207 | |||||||||||||||||
| New Zealand dollar | 0.624 | 0.651 | 0.664 | 0.698 | 0.716 | 0.717 | |||||||||||||||||
| Poland Zloty | 0.223 | 0.229 | 0.236 | 0.262 | 0.267 | 0.266 | |||||||||||||||||
(1)Represents the relevant average foreign exchange rates in effect in the comparable prior period applied to the activity for the current period. The average foreign currency exchange rates we apply to our operating results are derived from third party reporting sources for the periods indicated.
Focus on Our Operational Effectiveness and Cost Structure
We continuously seek to execute on various initiatives aimed at streamlining our business processes and reducing our cost structure, including: realigning and centralizing key business processes and fully integrating acquired assets and businesses; implementing standardized operational processes; integrating and launching new information technology tools and platforms; instituting key health, safety, leadership and training programs; and capitalizing on the purchasing power of our network. Through the realignment of our business processes, we have acquired new talent and strengthened our service offerings. In order to reduce costs in our facilities, we have invested in energy efficiency projects, including LED lighting, thermal energy storage, motion-sensor technology, variable frequency drives for our fans and compressors, third party efficiency reviews and real-time monitoring of energy consumption, rapid open and close doors, and alternative-power generation technologies to improve the energy efficiency of our warehouses. We have also performed fine-tuning of our refrigeration systems, deployed efficient energy management practices, such as time-of-use and awareness, and have increased our participation in Power Demand Response programs with some of our power suppliers. These initiatives have allowed us to reduce our consumption of kilowatt hours and energy spend.
As part of our initiatives to streamline our business processes and to reduce our cost structure, we have evaluated and exited less strategic and profitable markets or business lines, including the sale of certain warehouse assets, the exit of certain leased facilities, the exit of certain managed warehouse agreements, the exit of the China JV during 2019, and the sale of our quarry business during 2020. Through our process of active portfolio management, we continue to evaluate our markets and offerings.
39
Strategic Shift within Our Transportation Segment
Several years ago, we initiated a strategic shift in our transportation segment services and solutions. The intention of this strategic shift was to better focus our business on the operation of our temperature-controlled warehouses. Specifically, we have gradually exited certain commoditized, non-scalable, or low margin services we historically offered to our customers, in favor of more profitable and value-added programs, such as regional, national, truckload and retailer-specific multi-vendor consolidation services. We designed each value-added program to improve efficiency and reduce transportation and logistics costs to our warehouse customers, whose transportation spend typically represents the majority of their supply-chain costs. We believe this efficiency and cost reduction helps to drive increased client retention, as well as maintain high occupancy levels in our temperature-controlled warehouses. Over the last several years, we have made significant progress in implementing our strategic initiative of growing our transportation service offering in a way that complements our temperature-controlled warehouse business, such as adding a dedicated fleet service offering through acquisitions. We intend to continue executing this strategy in the future.
Historically Significant Customer
For the three and six months ended June 30, 2022 and 2021, one customer accounted for more than 10% of our total revenues. For the three months ended June 30, 2022 and 2021, revenues attributable to this customer were $75.2 million and $64.1 million, respectively. For the six months ended June 30, 2022 and 2021, revenues attributable to this customer were $153.2 million and $130.0 million, respectively. The substantial majority of this customer’s business relates to our third-party managed segment. We are reimbursed for substantially all expenses we incur in managing warehouses on behalf of third-party owners. We recognize these reimbursements as revenues under applicable accounting guidance, but these reimbursements generally do not affect our financial results because they are offset by the corresponding expenses that we recognize in our third-party managed segment cost of operations. Of the revenues received from this customer, $73.0 million and $63.3 million represented reimbursements for certain expenses we incurred during the three months ended June 30, 2022 and 2021, respectively, and $147.8 million and $124.6 million for the six months ended June 30, 2022 and 2021, respectively, were offset by matching expenses included in our third party managed cost of operations.
Economic Occupancy of our Warehouses
We define average economic occupancy as the aggregate number of physically occupied pallets and any additional pallets otherwise contractually committed for a given period, without duplication. We estimate the number of contractually committed pallet positions by taking into account the actual pallet commitment specified in each customers’ contract, and subtracting the physical pallet positions. We regard economic occupancy as an important driver of our financial results. Historically, providers of temperature-controlled warehouse space have offered storage services to customers on an as-utilized, on-demand basis. We actively seek to enter into contracts that implement our commercial business rules which contemplate, among other things, fixed storage commitments in connection with establishing new customer relationships. Additionally, we actively seek opportunities to transition our current customers to contracts that feature a fixed storage commitment when renewing existing agreements or upon the change in the anticipated profile of our customer. This strategy mitigates the impact of changes in physical occupancy throughout the course of the year due to seasonality, as well as other factors that can impact physical occupancy while ensuring our customers have the necessary space they need to support their business.
40
Throughput at our Warehouses
The level and nature of throughput at our warehouses is an important factor impacting our warehouse services revenues in our warehouse segment. Throughput refers to the volume of pallets that enter and exit our warehouses. Higher levels of throughput drive warehouse services revenues in our warehouse segment as customers are typically billed on a basis that takes into account the level of throughput of the goods they store in our warehouses. The nature of throughput may be driven by the expected turn of the underlying product or commodity. Throughput pallets can be influenced both by the food manufacturers as well as shifts in demand preferences. Food manufacturers’ production levels, which respond to market conditions, labor availability, supply chain dynamics and consumer preferences, may impact inbound pallets. Similarly, a change in inventory turnover due to shift in customer demand may impact outbound pallets.
How We Assess the Performance of Our Business
Segment Contribution (Net Operating Income or “NOI”)
We evaluate the performance of our primary business segments based on their contribution (NOI) to our overall results of operations. We use the term “segment contribution (NOI)” to mean a segment’s revenues less its cost of operations (excluding any depreciation and amortization, impairment charges, corporate-level selling, general and administrative expenses and corporate-level acquisition, litigation and other, net). We use segment contribution (NOI) to evaluate our segments for purposes of making operating decisions and assessing performance in accordance with FASB ASC, Topic 280, Segment Reporting.
We also analyze the “segment contribution (NOI) margin” for each of our business segments, which we calculate as segment contribution (NOI) divided by segment revenues.
In addition to our segment contribution (NOI) and segment contribution (NOI) margin, we analyze the contribution (NOI) of our warehouse rent and storage operations and our warehouse services operations within our warehouse segment. We calculate the contribution (NOI) of our warehouse rent and storage operations as rent and storage revenues less power and other facilities cost. We calculate the contribution (NOI) of our warehouse services operations as warehouse services revenues less labor and other service costs. We calculate the contribution (NOI) margin for each of these operations as the applicable contribution (NOI) measure divided by the applicable revenue measure. We believe the presentation of these contribution (NOI) and contribution (NOI) margin measures helps investors understand the relative revenues, costs and earnings resulting from each of these separate types of services we provide to our customers in the same manner reviewed by our management in connection with the operation of our business. These contribution (NOI) measures within our warehouse segment are not measurements of financial performance under U.S. GAAP, and these measures should be considered as supplements, but not as alternatives, to our results calculated in accordance with U.S. GAAP. We provide reconciliations of these measures in the discussions of our comparative results of operations below.
Same Store Analysis
We define our “same store” population once a year at the beginning of the current calendar year. Our same store population includes properties that were owned or leased for the entirety of two comparable periods and that have reported at least twelve months of consecutive normalized operations prior to January 1 of the prior calendar year. We define “normalized operations” as properties that have been open for operation or lease after development or significant modification, including the expansion of a warehouse footprint or a warehouse rehabilitation subsequent to an event, such as a natural disaster or similar event causing disruption to operations. In addition, our definition of “normalized operations” takes into account changes in the ownership structure (e.g., purchase of a
41
previously leased warehouse would result in different charges in the compared periods), which would impact comparability in our warehouse segment contribution (NOI).
Acquired properties will be included in the “same store” population if owned by us as of the first business day of each year, of the prior calendar year and still owned by us as of the end of the current reporting period, unless the property is under development. The “same store” pool is also adjusted to remove properties that were sold or entering development subsequent to the beginning of the current calendar year. As such, the “same store” population for the period ended June 30, 2022 includes all properties that we owned at January 3, which had both been owned and had reached “normalized operations” by January 3, 2022.
We calculate “same store contribution (NOI)” as revenues for the same store population less its cost of operations (excluding any depreciation and amortization, impairment charges, corporate-level selling, general and administrative expenses, corporate-level acquisition, litigation and other, net and gain or loss on sale of real estate). In order to derive an appropriate measure of period-to-period operating performance, we also calculate our same store contribution (NOI) on a constant currency basis to remove the effects of foreign currency exchange rate movements by using the comparable prior period exchange rate to translate from local currency into U.S. dollars for both periods. We evaluate the performance of the warehouses we own or lease using a “same store” analysis, and we believe that same store contribution (NOI) is helpful to investors as a supplemental performance measure because it includes the operating performance from the population of properties that is consistent from period to period and also on a constant currency basis, thereby eliminating the effects of changes in the composition of our warehouse portfolio and currency fluctuations on performance measures.
The following table shows the number of same-store warehouses in our portfolio as of June 30, 2022. The number of warehouses owned or operated in as of June 30, 2022 and excluded as same-store warehouses for the period ended June 30, 2022 is listed below. While not included in the non-same store warehouse count in the table below, the results of operations for the non-same store warehouses includes the partial period impact of sites that were exited during the periods presented.
| Total Warehouses | 249 | ||||||||||
| Same Store Warehouses | 213 | ||||||||||
Non-Same Store Warehouses (1) | 27 | ||||||||||
| Third-Party Managed Warehouses | 9 | ||||||||||
(1) During the second quarter of 2022, we purchased a facility that was previously leased, which is now included in the non-same store population as a result. Additionally, a recently constructed facility received its certificate of occupancy and began operations.
As of June 30, 2022, our portfolio consisted of 249 total warehouses, including 240 within the warehouse segment and nine in the third-party managed segment. In addition, we hold minority interests in three Brazilian-based joint ventures, Superfrio, which owns or operates 38 temperature-controlled warehouses, and Comfrio, which owns or operates 28 temperature-controlled warehouses. Finally, we hold a minority interest in a recently created LATAM joint venture, which owns one temperature-controlled warehouse, which we contributed to the joint venture during the second quarter of 2022. Our joint venture partner is expected to contribute assets to this joint venture over time.
Same store contribution (NOI) is not a measurement of financial performance under U.S. GAAP. In addition, other companies providing temperature-controlled warehouse storage and handling and other warehouse services may not define same store or calculate same store contribution (NOI) in a manner consistent with our definition or calculation. Same store contribution (NOI) should be considered as a supplement, but not as an alternative, to our
42
results calculated in accordance with U.S. GAAP. We provide reconciliations of these measures in the discussions of our comparative results of operations below.
Constant Currency Metrics
As discussed above under “Key Factors Affecting Our Business and Financial Results—Foreign Currency Translation Impact on Our Operations,” our consolidated revenues and expenses are subject to variations outside our control that are caused by the net effect of foreign currency translation on revenues generated and expenses incurred by our operations outside the United States. As a result, in order to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency fluctuations, we analyze our business performance based on certain constant currency reporting that represents current period results translated into U.S. dollars at the relevant average foreign exchange rates applicable in the comparable prior period. We believe that the presentation of constant currency results provides a measurement of our ongoing operations that is meaningful to investors because it excludes the impact of these foreign currency movements that we cannot control. Constant currency results are not measurements of financial performance under U.S. GAAP, and our constant currency results should be considered as a supplement, but not as an alternative, to our results calculated in accordance with U.S. GAAP. The constant currency performance measures should not be considered a substitute for, or superior to, the measures of financial performance prepared in accordance with U.S. GAAP. We provide reconciliations of these measures in the discussions of our comparative results of operations below. Our discussion of the drivers of our performance below are based upon U.S. GAAP.
43
RESULTS OF OPERATIONS
Comparison of Results for the Three Months Ended June 30, 2022 and 2021
Warehouse Segment
The following table presents the operating results of our warehouse segment for the three months ended June 30, 2022 and 2021.
| Three Months Ended June 30, | Change | ||||||||||||||||||||||||||||
| 2022 Actual | 2022 Constant Currency(1) | 2021 Actual | Actual | Constant Currency | |||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||
| Rent and storage | $ | 242,351 | $ | 247,225 | $ | 212,277 | 14.2 | % | 16.5 | % | |||||||||||||||||||
| Warehouse services | 322,028 | 329,225 | 291,457 | 10.5 | % | 13.0 | % | ||||||||||||||||||||||
| Total warehouse segment revenues | 564,379 | 576,450 | 503,734 | 12.0 | % | 14.4 | % | ||||||||||||||||||||||
| Power | 36,070 | 37,180 | 32,180 | 12.1 | % | 15.5 | % | ||||||||||||||||||||||
Other facilities costs (2) | 57,676 | 58,757 | 51,562 | 11.9 | % | 14.0 | % | ||||||||||||||||||||||
| Labor | 250,711 | 256,194 | 224,411 | 11.7 | % | 14.2 | % | ||||||||||||||||||||||
Other services costs (3) | 68,937 | 70,713 | 51,202 | 34.6 | % | 38.1 | % | ||||||||||||||||||||||
| Total warehouse segment cost of operations | $ | 413,394 | $ | 422,844 | $ | 359,355 | 15.0 | % | 17.7 | % | |||||||||||||||||||
| Warehouse segment contribution (NOI) | 150,985 | 153,606 | 144,379 | 4.6 | % | 6.4 | % | ||||||||||||||||||||||
Warehouse rent and storage contribution (NOI) (4) | 148,605 | 151,288 | 128,535 | 15.6 | % | 17.7 | % | ||||||||||||||||||||||
Warehouse services contribution (NOI) (5) | 2,380 | 2,318 | 15,844 | (85.0) | % | (85.4) | % | ||||||||||||||||||||||
| Total warehouse segment margin | 26.8 | % | 26.6 | % | 28.7 | % | -191 bps | -201 bps | |||||||||||||||||||||
Rent and storage margin(6) | 61.3 | % | 61.2 | % | 60.6 | % | 77 bps | 64 bps | |||||||||||||||||||||
Warehouse services margin(7) | 0.7 | % | 0.7 | % | 5.4 | % | -470 bps | -473 bps | |||||||||||||||||||||
(1)The adjustments from our U.S. GAAP operating results to calculate our operating results on a constant currency basis are the effect of changes in foreign currency exchange rates relative to the comparable prior period.
(2)Includes real estate rent expense of $10.7 million and $10.1 million, on an actual basis, for the second quarter of 2022 and 2021, respectively.
(3)Includes non-real estate rent expense (equipment lease and rentals) of $2.6 million and $2.9 million, on an actual basis, for the second quarter of 2022 and 2021, respectively.
(4)Calculated as rent and storage revenues less power and other facilities costs.
(5)Calculated as warehouse services revenues less labor and other services costs.
(6)Calculated as warehouse rent and storage contribution (NOI) divided by warehouse rent and storage revenues.
(7)Calculated as warehouse services contribution (NOI) divided by warehouse services revenues.
Warehouse segment revenues were $564.4 million for the three months ended June 30, 2022, an increase of $60.6 million, or 12.0%, compared to $503.7 million for the three months ended June 30, 2021. On a constant currency basis, our warehouse segment revenues were $576.5 million for the three months ended June 30, 2022, an increase of $72.7 million, or 14.4%, from the three months ended June 30, 2021. This growth was driven by $38.0 million of growth in our same store pool on a constant currency basis primarily due to our pricing initiatives, rate escalations, and improvements in economic occupancy, partially offset by a slight decline in throughput. Approximately $27.1 million of the increase, on a constant currency basis, was driven by acquisitions completed between May 2021 and June 2022, including the growth experienced period-over-period during overlapping periods of ownership. We acquired two facilities on May 5, 2021 as a result of the KMT Brrr! acquisition and one facility on May 28, 2021 as a result of the Bowman Stores acquisition, and the results of these acquisitions are reflected since the date of our ownership for the comparable prior period. Additionally, we acquired two facilities
44
on August 2, 2021 as a result of the ColdCo acquisition, one facility on September 1, 2021 as a result of the Newark Facility Management acquisition and three facilities on November 15, 2021 as a result of the Lago Cold Stores acquisition (including one leased facility that was exited upon expiration during the first quarter of 2022), and therefore we did not have ownership of these facilities for the entirety of the prior comparable period. Approximately $7.6 million of the increase, on a constant currency basis, was related to growth in our our recently completed expansion and developments in our non-same store pool. The foreign currency translation of revenues earned by our foreign operations had a net $12.1 million unfavorable impact during the three months ended June 30, 2022, which was mainly driven by the strengthening of the U.S. dollar against our foreign subsidiaries’ currencies.
Warehouse segment cost of operations was $413.4 million for the three months ended June 30, 2022, an increase of $54.0 million, or 15.0%, compared to the three months ended June 30, 2021. On a constant currency basis, our warehouse segment cost of operations was $422.8 million for the three months ended June 30, 2022, an increase of $63.5 million, or 17.7%, from the three months ended June 30, 2021. The cost of operations for our same store pool increased $33.6 million on a constant currency basis, across most of our cost categories, reflective of labor inefficiencies and inflationary pressure. Approximately $20.5 million of the increase, on a constant currency basis, was driven by the additional facilities in the warehouse segment we acquired in connection with the aforementioned acquisitions. Approximately $9.4 million of the increase was related to growth in our recently completed expansions and developments in our non-same store pool, including incremental start-up costs of $2.4 million during the second quarter of 2022, which have not yet stabilized. These increases are offset by the foreign currency translation of expenses incurred by our foreign operations which had a net $9.5 million favorable impact during the three months ended June 30, 2022.
For the three months ended June 30, 2022, warehouse segment contribution (NOI), increased $6.6 million, or 4.6%, to $151.0 million for the second quarter of 2022 compared to $144.4 million for the second quarter of 2021. On a constant currency basis, warehouse segment NOI increased 6.4% from the three months ended June 30, 2021. The NOI for our same store pool increased $4.4 million on a constant currency basis, attributable to revenue and cost of operations factors previously described. Approximately $6.5 million of the increase, on a constant currency basis, was driven by the additional facilities in the warehouse segment as a result of the aforementioned acquisitions, as well as the growth and modest synergies experienced period-over-period during overlapping periods of ownership for sites acquired during 2021. Warehouse segment NOI was negatively impacted by the start-up costs incurred in connection with our expansion and development projects in the non-same store pool as they continue to ramp up prior to stabilization. The foreign currency translation of our results of operations had a $2.6 million unfavorable impact to warehouse segment NOI period-over-period due to the strengthening of the U.S. dollar.
Same Store and Non-Same Store Analysis
We had 213 same stores for the three months ended June 30, 2022. Please see “How We Assess the Performance of Our Business—Same Store Analysis” above for a reconciliation of the change in the same store portfolio from period to period. Amounts related to the acquisitions of Bowman Stores, ColdCo, KMT Brrr!, Lago Cold Stores, Liberty, Newark, one recently leased warehouse in Australia, a recently constructed facility in Denver purchased in November 2021, a leased facility which we purchased during the second quarter of 2022, as well as certain expansion and development projects not yet stabilized are reflected within non-same store results.
The following table presents revenues, cost of operations, contribution (NOI) and margins for our same stores and non-same stores with a reconciliation to the total financial metrics of our warehouse segment for the three months ended June 30, 2022 and 2021.
45
| Three Months Ended June 30, | Change | ||||||||||||||||||||||||||||
| 2022 Actual | 2022 Constant Currency(1) | 2021 Actual | Actual | Constant Currency | |||||||||||||||||||||||||
| Number of same store sites | 213 | 213 | n/a | n/a | |||||||||||||||||||||||||
| Same store revenues: | (Dollars in thousands) | ||||||||||||||||||||||||||||
| Rent and storage | $ | 211,562 | $ | 215,439 | $ | 194,608 | 8.7 | % | 10.7 | % | |||||||||||||||||||
| Warehouse services | 286,634 | 293,008 | 275,843 | 3.9 | % | 6.2 | % | ||||||||||||||||||||||
| Total same store revenues | 498,196 | 508,447 | 470,451 | 5.9 | % | 8.1 | % | ||||||||||||||||||||||
| Same store cost of operations: | |||||||||||||||||||||||||||||
| Power | 30,701 | 31,570 | 29,119 | 5.4 | % | 8.4 | % | ||||||||||||||||||||||
| Other facilities costs | 49,813 | 50,657 | 46,545 | 7.0 | % | 8.8 | % | ||||||||||||||||||||||
| Labor | 217,406 | 222,292 | 206,813 | 5.1 | % | 7.5 | % | ||||||||||||||||||||||
| Other services costs | 56,148 | 57,628 | 46,096 | 21.8 | % | 25.0 | % | ||||||||||||||||||||||
| Total same store cost of operations | $ | 354,068 | $ | 362,147 | $ | 328,573 | 7.8 | % | 10.2 | % | |||||||||||||||||||
| Same store contribution (NOI) | $ | 144,128 | $ | 146,300 | $ | 141,878 | 1.6 | % | 3.1 | % | |||||||||||||||||||
Same store rent and storage contribution (NOI)(2) | $ | 131,048 | $ | 133,212 | $ | 118,944 | 10.2 | % | 12.0 | % | |||||||||||||||||||
Same store services contribution (NOI)(3) | $ | 13,080 | $ | 13,088 | $ | 22,934 | (43.0) | % | (42.9) | % | |||||||||||||||||||
| Total same store margin | 28.9 | % | 28.8 | % | 30.2 | % | -123 bps | -138 bps | |||||||||||||||||||||
Same store rent and storage margin(4) | 61.9 | % | 61.8 | % | 61.1 | % | 82 bps | 71 bps | |||||||||||||||||||||
Same store services margin(5) | 4.6 | % | 4.5 | % | 8.3 | % | -375 bps | -385 bps | |||||||||||||||||||||
| Three Months Ended June 30, | Change | ||||||||||||||||||||||||||||
| 2022 Actual | 2022 Constant Currency(1) | 2021 Actual | Actual | Constant Currency | |||||||||||||||||||||||||
Number of non-same store sites(6) | 27 | 24 | n/a | n/a | |||||||||||||||||||||||||
| Non-same store revenues: | (Dollars in thousands) | ||||||||||||||||||||||||||||
| Rent and storage | $ | 30,789 | $ | 31,786 | $ | 17,669 | n/r | n/r | |||||||||||||||||||||
| Warehouse services | 35,394 | 36,217 | 15,614 | n/r | n/r | ||||||||||||||||||||||||
| Total non-same store revenues | 66,183 | 68,003 | 33,283 | n/r | n/r | ||||||||||||||||||||||||
| Non-same store cost of operations: | |||||||||||||||||||||||||||||
| Power | 5,369 | 5,610 | 3,061 | n/r | n/r | ||||||||||||||||||||||||
| Other facilities costs | 7,863 | 8,100 | 5,017 | n/r | n/r | ||||||||||||||||||||||||
| Labor | 33,305 | 33,902 | 17,598 | n/r | n/r | ||||||||||||||||||||||||
| Other services costs | 12,789 | 13,085 | 5,106 | n/r | n/r | ||||||||||||||||||||||||
| Total non-same store cost of operations | $ | 59,326 | $ | 60,697 | $ | 30,782 | n/r | n/r | |||||||||||||||||||||
| Non-same store contribution (NOI) | $ | 6,857 | $ | 7,306 | $ | 2,501 | n/r | n/r | |||||||||||||||||||||
Non-same store rent and storage contribution (NOI)(2) | $ | 17,557 | $ | 18,076 | $ | 9,591 | n/r | n/r | |||||||||||||||||||||
Non-same store services contribution (NOI)(3) | $ | (10,700) | $ | (10,770) | $ | (7,090) | n/r | n/r | |||||||||||||||||||||
| Total non-same store margin | 10.4 | % | 10.7 | % | 7.5 | % | n/r | n/r | |||||||||||||||||||||
Non-same store rent and storage margin(4) | 57.0 | % | 56.9 | % | 54.3 | % | n/r | n/r | |||||||||||||||||||||
Non-same store services margin(5) | (30.2) | % | (29.7) | % | (45.4) | % | n/r | n/r | |||||||||||||||||||||
46
| Three Months Ended June 30, | Change | ||||||||||||||||||||||||||||
| 2022 Actual | 2022 Constant Currency(1) | 2021 Actual | Actual | Constant Currency | |||||||||||||||||||||||||
| Total warehouse segment revenues | $ | 564,379 | $ | 576,450 | $ | 503,734 | 12.0 | % | 14.4 | % | |||||||||||||||||||
| Total warehouse cost of operations | $ | 413,394 | $ | 422,844 | $ | 359,355 | 15.0 | % | 17.7 | % | |||||||||||||||||||
| Total warehouse segment contribution | $ | 150,985 | $ | 153,606 | $ | 144,379 | 4.6 | % | 6.4 | % | |||||||||||||||||||
(1)The adjustments from our U.S. GAAP operating results to calculate our operating results on a constant currency basis is the effect of changes in foreign currency exchange rates relative to the comparable prior period.
(2)Calculated as rent and storage revenues less power and other facilities costs.
(3)Calculated as warehouse services revenues less labor and other services costs.
(4)Calculated as rent and storage contribution (NOI) divided by rent and storage revenues.
(5)Calculated as warehouse services contribution (NOI) divided by warehouse services revenues.
(6)Non-same store warehouse count of 27 includes one recently leased warehouse in Australia, one recently constructed facility in Denver we purchased in November 2021, three facilities acquired through the Lago Cold Stores acquisition on November 15, 2021, one warehouse acquired through the Newark Facility Management acquisition on September 1, 2021, two facilities acquired through the ColdCo acquisition on August 2, 2021, one warehouse acquired through the Bowman stores acquisition on May 28, 2021, two warehouses acquired through the KMT Brrr! acquisition on May 5, 2021, four warehouses acquired through the Liberty Freezers acquisition on March 1, 2021, and 12 facilities under development or expansion, one of which was completed during the second quarter of 2022. During the third quarter of 2021, a leased facility from the Liberty Freezers acquisition was exited upon expiration of the lease. During the first quarter of 2022, a leased facility from the Lago Cold Stores acquisition was exited upon expiration of the lease, and we ceased operations within a facility that is being prepared for lease to a third-party. During the second quarter of 2022, we purchased a previously leased facility. The results of the facilities exited are included in the results above, and the results of these acquisitions are reflected in the results above since date of ownership.
n/a - not applicable, the change in actual and constant currency metrics does not apply to site count.
n/r - not relevant
The following table provides certain operating metrics to explain the drivers of our same store performance.
47
| Three Months Ended June 30, | Change | ||||||||||||||||
| Units in thousands except per pallet and site number data - unaudited | 2022 | 2021 | |||||||||||||||
| Number of same store sites | 213 | 213 | n/a | ||||||||||||||
| Same store rent and storage: | |||||||||||||||||
Economic occupancy(1) | |||||||||||||||||
| Average occupied economic pallets | 3,798 | 3,656 | 3.9 | % | |||||||||||||
| Economic occupancy percentage | 78.1 | % | 75.3 | % | 288 bps | ||||||||||||
| Same store rent and storage revenues per economic occupied pallet | $ | 55.71 | $ | 53.23 | 4.7 | % | |||||||||||
| Constant currency same store rent and storage revenues per economic occupied pallet | $ | 56.73 | $ | 53.23 | 6.6 | % | |||||||||||
Physical occupancy(2) | |||||||||||||||||
| Average physical occupied pallets | 3,503 | 3,343 | 4.8 | % | |||||||||||||
| Average physical pallet positions | 4,860 | 4,859 | 0.0 | % | |||||||||||||
| Physical occupancy percentage | 72.1 | % | 68.8 | % | 328 bps | ||||||||||||
| Same store rent and storage revenues per physical occupied pallet | $ | 60.39 | $ | 58.22 | 3.7 | % | |||||||||||
| Constant currency same store rent and storage revenues per physical occupied pallet | $ | 61.49 | $ | 58.22 | 5.6 | % | |||||||||||
| Same store warehouse services: | |||||||||||||||||
| Throughput pallets (in thousands) | 9,032 | 9,171 | (1.5) | % | |||||||||||||
| Same store warehouse services revenues per throughput pallet | $ | 31.74 | $ | 30.08 | 5.5 | % | |||||||||||
| Constant currency same store warehouse services revenues per throughput pallet | $ | 32.44 | $ | 30.08 | 7.9 | % | |||||||||||
Number of non-same store sites(3) | 27 | 24 | n/a | ||||||||||||||
| Non-same store rent and storage: | |||||||||||||||||
Economic occupancy(1) | |||||||||||||||||
| Average economic occupied pallets | 407 | 288 | n/r | ||||||||||||||
| Economic occupancy percentage | 71.1 | % | 75.2 | % | n/r | ||||||||||||
| Non-same store rent and storage revenues per economic occupied pallet | $ | 75.74 | $ | 61.39 | n/r | ||||||||||||
| Constant currency non-same store rent and storage revenues per economic occupied pallet | $ | 78.19 | $ | 61.39 | n/r | ||||||||||||
Physical occupancy(2) | |||||||||||||||||
| Average physical occupied pallets | 380 | 264 | n/r | ||||||||||||||
| Average physical pallet positions | 572 | 383 | n/r | ||||||||||||||
| Physical occupancy percentage | 66.4 | % | 69.0 | % | n/r | ||||||||||||
| Non-same store rent and storage revenues per physical occupied pallet | $ | 81.03 | $ | 66.92 | n/r | ||||||||||||
| Constant currency non-same store rent and storage revenues per physical occupied pallet | $ | 83.66 | $ | 66.92 | n/r | ||||||||||||
| Non-same store warehouse services: | |||||||||||||||||
| Throughput pallets (in thousands) | 1,023 | 748 | n/r | ||||||||||||||
| Non-same store warehouse services revenues per throughput pallet | $ | 34.59 | $ | 20.87 | n/r | ||||||||||||
| Constant currency non-same store warehouse services revenues per throughput pallet | $ | 35.40 | $ | 20.87 | n/r | ||||||||||||
(1)We define average economic occupancy as the aggregate number of physically occupied pallets and any additional pallets otherwise contractually committed for a given period, without duplication. We estimate the number of contractually committed pallet positions by taking into account actual pallet commitments specified in each customer’s contract, and subtracting the physical pallet positions.
48
(2)We define average physical occupancy as the average number of occupied pallets divided by the estimated number of average physical pallet positions in our warehouses for the applicable period. We estimate the number of physical pallet positions by taking into account actual racked space and by estimating unracked space on an as-if racked basis. We base this estimate on a formula utilizing the total cubic feet of each room within the warehouse that is unracked divided by the volume of an assumed rack space that is consistent with the characteristics of the relevant warehouse. On a warehouse by warehouse basis, rack space generally ranges from three to four feet depending upon the type of facility and the nature of the customer goods stored therein. The number of our pallet positions is reviewed and updated quarterly, taking into account changes in racking configurations and room utilization.
(3)Non-same store warehouse count of 27 includes one recently leased warehouse in Australia, one recently constructed facility in Denver we purchased in November 2021, three facilities acquired through the Lago Cold Stores acquisition on November 15, 2021, one warehouse acquired through the Newark Facility Management acquisition on September 1, 2021, two facilities acquired through the ColdCo acquisition on August 2, 2021, one warehouse acquired through the Bowman stores acquisition on May 28, 2021, two warehouses acquired through the KMT Brrr! acquisition on May 5, 2021, four warehouses acquired through the Liberty Freezers acquisition on March 1, 2021, and 12 facilities under development or expansion, one of which was completed during the second quarter of 2022. During the third quarter of 2021, a leased facility from the Liberty Freezers acquisition was exited upon expiration of the lease. During the first quarter of 2022, a leased facility from the Lago Cold Stores acquisition was exited upon expiration of the lease, and we ceased operations within a facility that is being prepared for lease to a third-party. During the second quarter of 2022, we purchased a previously leased facility. The results of the facilities exited are included in the results above, and the results of these acquisitions are reflected in the results above since date of ownership.
Economic occupancy at our same stores was 78.1% for the three months ended June 30, 2022, a increase of 288 basis points compared to 75.3% for the quarter ended June 30, 2021. Economic occupancy growth as compared to the prior year was due to improvements in the labor market which allowed our customers to increase food production levels. Additionally, while end-consumer demand for temperature-controlled food remains strong, the challenging inflationary market has started to change consumer behavior. Some consumers are buying less at the grocery store as they are stretched by inflation, which also had a positive impact on our holdings. Same store rent and storage revenues per economic occupied pallet increased 4.7% period-over-period, primarily driven by our pricing initiative and contractual rate escalations and business mix. On a constant currency basis, our same store rent and storage revenues per occupied pallet increased 6.6% period-over-period. Our economic occupancy at our same stores for the three months ended June 30, 2022 was 606 basis points higher than our corresponding average physical occupancy of 72.1%.
Throughput pallets at our same stores were 9.0 million pallets for the three months ended June 30, 2022, a decrease of 1.5% from 9.2 million pallets for the three months ended June 30, 2021. This decrease was the result of a slight change in business mix. Same store warehouse services revenue per throughput pallet increased 5.5% compared to the prior year primarily as a result of our pricing initiative and contractual rate escalations, offset by unfavorable foreign currency translation as previously discussed. On a constant currency basis, our same store services revenue per throughput pallet increased 7.9% compared to the prior year.
49
Third-Party Managed Segment
The following table presents the operating results of our third-party managed segment for the three months ended June 30, 2022 and 2021.
| Three Months Ended June 30, | Change | ||||||||||||||||||||||||||||
| 2022 Actual | 2022 Constant Currency(1) | 2021 Actual | Actual | Constant Currency | |||||||||||||||||||||||||
| Number of managed sites | 9 | 9 | n/a | n/a | |||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||
| Third-party managed revenues | $ | 83,486 | $ | 83,918 | $ | 72,173 | 15.7 | % | 16.3 | % | |||||||||||||||||||
| Third-party managed cost of operations | 79,765 | 80,116 | 70,480 | 13.2 | % | 13.7 | % | ||||||||||||||||||||||
| Third-party managed segment contribution | $ | 3,721 | $ | 3,802 | $ | 1,693 | 119.8 | % | 124.6 | % | |||||||||||||||||||
| Third-party managed margin | 4.5 | % | 4.5 | % | 2.3 | % | 211 bps | 218 bps | |||||||||||||||||||||
(1)The adjustments from our U.S. GAAP operating results to calculate our operating results on a constant currency basis are the effect of changes in foreign currency exchange rates relative to the comparable prior period.
Third-party managed revenues were $83.5 million for the three months ended June 30, 2022, an increase of $11.3 million, or 15.7%, compared to $72.2 million for the three months ended June 30, 2021. On a constant currency basis, third-party managed revenues were $83.9 million for the three months ended June 30, 2022, an increase of $11.7 million, or 16.3%, from the three months ended June 30, 2021. This increase was a result of higher pass-through labor expenses and related costs due to inflation and the challenging labor market.
Third-party managed cost of operations was $79.8 million for the three months ended June 30, 2022, an increase of $9.3 million, or 13.2%, compared to $70.5 million for the three months ended June 30, 2021. Third-party managed cost of operations increased as a result of the higher labor costs as discussed in the revenue trends above.
Third-party managed segment contribution (NOI) was $3.7 million for the three months ended June 30, 2022, an increase of $2.0 million, or 119.8%, compared to $1.7 million for the three months ended June 30, 2021.
Transportation Segment The following table presents the operating results of our transportation segment for the three months ended June 30, 2022 and 2021.
| Three Months Ended June 30, | Change | ||||||||||||||||||||||||||||
| 2022 Actual | 2022 Constant Currency(1) | 2021 Actual | Actual | Constant Currency | |||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||
| Transportation revenues | $ | 81,891 | $ | 86,794 | $ | 78,800 | 3.9 | % | 10.1 | % | |||||||||||||||||||
| Transportation cost of operations | 68,306 | 72,875 | 69,550 | (1.8) | % | 4.8 | % | ||||||||||||||||||||||
| Transportation segment contribution (NOI) | $ | 13,585 | $ | 13,919 | $ | 9,250 | 46.9 | % | 50.5 | % | |||||||||||||||||||
| Transportation margin | 16.6 | % | 16.0 | % | 11.7 | % | 485 bps | 430 bps | |||||||||||||||||||||
(1)The adjustments from our U.S. GAAP operating results to calculate our operating results on a constant currency basis are the effect of changes in foreign currency exchange rates relative to the comparable prior period.
Transportation revenues were $81.9 million for the three months ended June 30, 2022, an increase of $3.1 million, or 3.9%, compared to $78.8 million for the three months ended June 30, 2021. The increase was primarily due to higher rates in our consolidation business, the KMT Brrr! acquisition which closed in early May 2021, acquisitions and expansions in Australia, and the higher revenue associated with brokered transportation costs, inflation in wage and fuel rates and capacity surcharges due to challenges with driver availability. This is partially
50
offset by the net decrease in revenue from the rationalization of certain domestic market operations and the unfavorable impact of foreign currency translation.
Transportation cost of operations was $68.3 million for the three months ended June 30, 2022, a decrease of $1.2 million, or 1.8%, compared to $69.6 million for the three months ended June 30, 2021. The increase was due to capacity constraints driving spot market higher than contract rate, which has caused an increase in carrier fees, higher wage and fuel costs impacted by inflation and the acquisitions mentioned above. This is partially offset by the net decrease of costs from the exit of certain domestic market operations and favorable impact of foreign currency translation.
Transportation segment contribution (NOI) was $13.6 million for the three months ended June 30, 2022, an increase of 46.9% compared to the three months ended June 30, 2021. Transportation segment margin increased 485 basis points from the three months ended June 30, 2021, to 16.6%. The increase in margin was primarily due to the rate increases implemented during 2022, paired with the exit of certain less profitable market operations.
Other Consolidated Operating Expenses
Depreciation and amortization. Depreciation and amortization expense was $82.7 million for the three months ended June 30, 2022, a decrease of $1.8 million, or 2.1%, compared to $84.5 million for the three months ended June 30, 2021. This decrease was primarily due to the impact of foreign currency remeasurement.
Selling, general and administrative. Corporate-level selling, general and administrative expenses were $56.3 million for the three months ended June 30, 2022, an increase of $13.8 million, or 32.5%, compared to $42.5 million for the three months ended June 30, 2021. Included in these amounts are business development expenses attributable to new business pursuits, supply chain solutions and underwriting, facility development, customer on-boarding, and engineering and consulting services to support our customers in the cold chain. We believe these costs are comparable to leasing costs for other publicly-traded REITs. The increase was driven by the resumption of performance-based compensation expense in connection with the short-term incentive plan, higher third-party legal and professional fees and higher share-based compensation expense in connection with the November 2021 retention grant.
Acquisition, litigation and other, net. Corporate-level acquisition, litigation and other, net expenses were $5.7 million for the three months ended June 30, 2022, an increase of $1.7 million compared to the three months ended June 30, 2021. During the three months ended June 30, 2022, we incurred $3.8 million of acquisition and integration related costs, $1.2 million of litigation settlement costs, $0.9 million of severance related expenses due to the realignment of certain international operations, $0.8 million of facility termination costs in connection with a site we intend to vacate upon lease expiration, partially offset by an aggregate $1.0 million insurance claim recoveries. Refer to Note 3 of the condensed consolidated financial statements for details. During the three months ended June 30, 2021, we incurred $3.1 million of acquisition related expenses primarily comprised of professional fees and integration related costs in connection with completed and potential acquisitions, and $0.8 million of insurance claim deductibles partially offset by recoveries under the claims.
Impairment of long-lived assets. There were no impairment charges recorded during the three months ended June 30, 2022. For the three months ended June 30, 2021, we recorded impairment charges of $1.5 million related to costs incurred for development projects which management determined it would not continue to pursue.
51
Other Expense and Income
The following table presents other items of expense and income for the three months ended June 30, 2022 and 2021.
| Three Months Ended June 30, | Change | ||||||||||||||||
| 2022 | 2021 | % | |||||||||||||||
| Other (expense) income: | (Dollars in thousands) | ||||||||||||||||
| Interest expense | $ | (26,545) | $ | (26,579) | (0.1) | % | |||||||||||
| Loss on debt extinguishment, modifications and termination of derivative instruments | $ | (627) | $ | (925) | (32.2) | % | |||||||||||
| Other, net | $ | (4,609) | $ | 141 | n/r | ||||||||||||
Interest expense. Interest expense was $26.5 million for the three months ended June 30, 2022, which is flat compared to $26.6 million for the three months ended June 30, 2021. While the effective interest rate of our outstanding debt increased from 3.16% in the second quarter of 2021 to 3.39% in the second quarter of 2022, the majority of our debt is at a fixed interest rate.
Loss on debt extinguishment, modifications and termination of derivative instruments. Loss on debt extinguishment, modifications, and termination of derivative instruments of $0.6 million and $0.9 million for the three months ended June 30, 2022 and 2021, respectively, was related to the amortization of fees paid for the termination of interest rate swaps during 2020.
Other expense, net. Other expense, net was $4.6 million for the three months ended June 30, 2022, a decrease of $4.5 million, compared to $0.1 million for the three months ended June 30, 2021. This is primarily due to our loss from partially owned entities of $3.6 million as a result of higher interest expense as our joint ventures have debt that is indexed to inflation, paired with a $4.1 million loss in connection with the deconsolidation of our Chile operations upon contribution to the LATAM joint venture. These charges are partially offset by a $3.4 million gain related to the planned dissolution of the New Market Tax Credit entities during the quarter.
Income Tax Benefit (Expense)
Income tax benefit for the three months ended June 30, 2022 was $12.1 million, an increase of $21.0 million from an income tax expense of $9.0 million for the three months ended June 30, 2021. The change in income tax expense was primarily attributable to the tax effects of the rate change from 19% to 25% in the United Kingdom, enacted during the second quarter of 2021, for which we recorded deferred income tax expense of $14.5 million in 2021. Additionally, we recognized a $6.5 million deferred tax benefit during the second quarter of 2022 in connection with the deconsolidation of our Chilean operations upon contribution to the LATAM JV.
52
Comparison of Results for the Six Months Ended June 30, 2022 and 2021
Warehouse Segment
The following table presents the operating results of our warehouse segment for the six months ended June 30, 2022 and 2021.
| Six Months Ended June 30, | Change | ||||||||||||||||||||||||||||
| 2022 Actual | 2022 Constant Currency(1) | 2021 Actual | Actual | Constant Currency | |||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||
| Rent and storage | $ | 472,108 | $ | 479,670 | $ | 417,553 | 13.1 | % | 14.9 | % | |||||||||||||||||||
| Warehouse services | 633,196 | 645,502 | 571,632 | 10.8 | % | 12.9 | % | ||||||||||||||||||||||
| Total warehouse segment revenues | 1,105,304 | 1,125,172 | 989,185 | 11.7 | % | 13.7 | % | ||||||||||||||||||||||
| Power | 69,105 | 70,806 | 58,384 | 18.4 | % | 21.3 | % | ||||||||||||||||||||||
Other facilities costs (2) | 114,247 | 116,116 | 102,093 | 11.9 | % | 13.7 | % | ||||||||||||||||||||||
| Labor | 494,872 | 504,063 | 438,959 | 12.7 | % | 14.8 | % | ||||||||||||||||||||||
Other services costs (3) | 129,837 | 132,622 | 99,189 | 30.9 | % | 33.7 | % | ||||||||||||||||||||||
| Total warehouse segment cost of operations | $ | 808,061 | $ | 823,607 | $ | 698,625 | 15.7 | % | 17.9 | % | |||||||||||||||||||
| Warehouse segment contribution (NOI) | $ | 297,243 | $ | 301,565 | $ | 290,560 | 2.3 | % | 3.8 | % | |||||||||||||||||||
Warehouse rent and storage contribution (NOI) (4) | $ | 288,756 | $ | 292,748 | $ | 257,076 | 12.3 | % | 13.9 | % | |||||||||||||||||||
Warehouse services contribution (NOI) (5) | $ | 8,487 | $ | 8,817 | $ | 33,484 | (74.7) | % | (73.7) | % | |||||||||||||||||||
| Total warehouse segment margin | 26.9 | % | 26.8 | % | 29.4 | % | -248 bps | -257 bps | |||||||||||||||||||||
Rent and storage margin(6) | 61.2 | % | 61.0 | % | 61.6 | % | -40 bps | -54 bps | |||||||||||||||||||||
Warehouse services margin(7) | 1.3 | % | 1.4 | % | 5.9 | % | -452 bps | -449 bps | |||||||||||||||||||||
(1)The adjustments from our U.S. GAAP operating results to calculate our operating results on a constant currency basis are the effect of changes in foreign currency exchange rates relative to the comparable prior period.
(2)Includes real estate rent expense of $21.3 million and $19.4 million, on an actual basis, for the six months ended June 30, 2022 and 2021, respectively.
(3)Includes non-real estate rent expense (equipment lease and rentals) of $5.7 million and $5.8 million, on an actual basis, for the six months ended June 30, 2022 and 2021, respectively.
(4)Calculated as rent and storage revenues less power and other facilities costs.
(5)Calculated as warehouse services revenues less labor and other services costs.
(6)Calculated as warehouse rent and storage contribution (NOI) divided by warehouse rent and storage revenues.
(7)Calculated as warehouse services contribution (NOI) divided by warehouse services revenues.
Warehouse segment revenues were $1.11 billion for the six months ended June 30, 2022 an increase of $116.1 million, or 11.7%, compared to $989.2 million for the six months ended June 30, 2021. On a constant currency basis, our warehouse segment revenues were $1.13 billion for the six months ended June 30, 2022, an increase of $136.0 million, or 13.7%, from the six months ended June 30, 2021. This growth was driven by $65.5 million of growth in our same store pool on a constant currency basis primarily due to our pricing initiative and rate escalations and a slight improvement in economic occupancy, partially offset by COVID-19 and the related labor challenges which continued to negatively impact food production during the first half of 2022. Approximately $57.8 million of the increase, on a constant currency basis, was driven by acquisitions completed during 2021, including the growth experienced period-over-period during overlapping periods of ownership. We acquired four facilities on March 1, 2021 as a result of the Liberty acquisition (including one leased facility that was exited upon expiration during the fourth quarter of 2021), two facilities on May 5, 2021 as a result of the KMT Brrr! acquisition, one facility on May 28, 2021 as a result of the Bowman Stores acquisition, two facilities on August 2, 2021 as a result of the ColdCo acquisition, one facility on September 1, 2021 as a result of the Newark Facility
53
Management acquisition and three facilities on November 15, 2021 as a result of the Lago Cold Stores acquisition (including one leased facility that was exited upon expiration during the first quarter of 2022), and therefore we did not have ownership of these facilities for the entirety of the prior comparable period. Revenue growth was also due to our recently completed expansion and developments in our non-same store pool, which increased approximately $12.7 million, on a constant currency basis. The foreign currency translation of revenues earned by our foreign operations had a $19.9 million unfavorable impact during the six months ended June 30, 2022, which was mainly driven by the strengthening of the U.S. dollar over the local currencies in our foreign subsidiaries.
Warehouse segment cost of operations was $808.1 million for the six months ended June 30, 2022, an increase of $109.4 million, or 15.7%, compared to the six months ended June 30, 2021. On a constant currency basis, our warehouse segment cost of operations was $823.6 million for the three months ended June 30, 2022, an increase of $125.0 million, or 17.9%, from the six months ended June 30, 2021. The cost of operations for our same store pool increased $66.6 million on a constant currency basis, across most of our cost categories, reflective of the labor inefficiencies and inflationary pressure. Labor was also impacted by employee absenteeism and associated disruption throughout the first quarter of 2022 due to the Omicron variant. Approximately $42.0 million of the increase, on a constant currency basis, was driven by the additional facilities in the warehouse segment we acquired in connection with the aforementioned acquisitions. We also incurred higher costs of $16.4 million related to our recently completed and in progress expansion and development projects, inclusive of incremental start-up costs of $4.4 million during the first six months of 2022, which have not yet stabilized. Additionally, the foreign currency translation of expenses incurred by our foreign operations had a net $15.5 million favorable impact during the six months ended June 30, 2022.
For the six months ended June 30, 2022, warehouse segment contribution (NOI), increased $6.7 million, or 2.3%, to $297.2 million for the six months ended June 30, 2022, compared to $290.6 million for the six months ended June 30, 2021. On a constant currency basis, warehouse segment NOI increased $11.0 million period-over-period. Approximately $15.9 million of the increase, on a constant currency basis, was driven by the additional facilities in the warehouse segment as a result of the aforementioned acquisitions, including the growth and synergies experienced period-over-period during overlapping periods of ownership. The NOI for our same store pool decreased $1.1 million on a constant currency basis, attributable to revenue and cost of operations factors previously described. This was the result of the various factors previously discussed, and notably the lag in timing of implementing our price initiative as compared to the inflationary pressure on our cost of operations. Additionally, warehouse segment NOI was negatively impacted by the start-up costs incurred in connection with our expansion and development projects in the non-same store pool as they continue to ramp up prior to stabilization. The foreign currency translation of our results of operations had a $4.3 million unfavorable impact to the warehouse segment contribution period-over-period.
Same Store and Non-Same Store Analysis
We had 213 same stores for the six months ended June 30, 2022. Please see “How We Assess the Performance of Our Business—Same Store Analysis” above for a reconciliation of the change in the same store portfolio from period to period. Amounts related to the acquisitions of Bowman Stores, ColdCo, KMT Brrr!, Lago Cold Stores, Liberty, Newark, one recently leased warehouse in Australia, a recently constructed facility in Denver purchased in November 2021, a leased facility which we purchased during the second quarter of 2022, as well as certain expansion and development projects not yet stabilized are reflected within non-same store results.
The following table presents revenues, cost of operations, contribution (NOI) and margins for our same stores and non-same stores with a reconciliation to the total financial metrics of our warehouse segment for the six months ended June 30, 2022 and 2021.
54
| Six Months Ended June 30, | Change | ||||||||||||||||||||||||||||
| 2022 Actual | 2022 Constant Currency(1) | 2021 Actual | Actual | Constant Currency | |||||||||||||||||||||||||
| Number of same store sites | 213 | 213 | n/a | n/a | |||||||||||||||||||||||||
| Same store revenues: | (Dollars in thousands) | ||||||||||||||||||||||||||||
| Rent and storage | $ | 413,868 | $ | 419,875 | $ | 387,000 | 6.9 | % | 8.5 | % | |||||||||||||||||||
| Warehouse services | 564,742 | 575,799 | 543,160 | 4.0 | % | 6.0 | % | ||||||||||||||||||||||
| Total same store revenues | 978,610 | 995,674 | 930,160 | 5.2 | % | 7.0 | % | ||||||||||||||||||||||
| Same store cost of operations: | |||||||||||||||||||||||||||||
| Power | 59,028 | 60,373 | 53,492 | 10.3 | % | 12.9 | % | ||||||||||||||||||||||
| Other facilities costs | 98,531 | 99,994 | 92,908 | 6.1 | % | 7.6 | % | ||||||||||||||||||||||
| Labor | 431,142 | 439,416 | 406,838 | 6.0 | % | 8.0 | % | ||||||||||||||||||||||
| Other services costs | 107,857 | 110,248 | 90,215 | 19.6 | % | 22.2 | % | ||||||||||||||||||||||
| Total same store cost of operations | $ | 696,558 | $ | 710,031 | $ | 643,453 | 8.3 | % | 10.3 | % | |||||||||||||||||||
| Same store contribution (NOI) | $ | 282,052 | $ | 285,643 | $ | 286,707 | (1.6) | % | (0.4) | % | |||||||||||||||||||
Same store rent and storage contribution (NOI)(2) | $ | 256,309 | $ | 259,508 | $ | 240,600 | 6.5 | % | 7.9 | % | |||||||||||||||||||
Same store services contribution (NOI)(3) | $ | 25,743 | $ | 26,135 | $ | 46,107 | (44.2) | % | (43.3) | % | |||||||||||||||||||
| Total same store margin | 28.8 | % | 28.7 | % | 30.8 | % | -200 bps | -214 bps | |||||||||||||||||||||
Same store rent and storage margin(4) | 61.9 | % | 61.8 | % | 62.2 | % | -24 bps | -36 bps | |||||||||||||||||||||
Same store services margin(5) | 4.6 | % | 4.5 | % | 8.5 | % | -393 bps | -395 bps | |||||||||||||||||||||
| Six Months Ended June 30, | Change | ||||||||||||||||||||||||||||
| 2022 Actual | 2022 Constant Currency(1) | 2021 Actual | Actual | Constant Currency | |||||||||||||||||||||||||
| Number of non-same store sites | 27 | 24 | n/a | n/a | |||||||||||||||||||||||||
| Non-same store revenues: | (Dollars in thousands) | ||||||||||||||||||||||||||||
| Rent and storage | $ | 58,240 | $ | 59,795 | $ | 30,552 | n/r | n/r | |||||||||||||||||||||
| Warehouse services | 68,454 | 69,704 | 28,473 | n/r | n/r | ||||||||||||||||||||||||
| Total non-same store revenues | 126,694 | 129,499 | 59,025 | n/r | n/r | ||||||||||||||||||||||||
| Non-same store cost of operations: | |||||||||||||||||||||||||||||
| Power | 10,077 | 10,433 | 4,891 | n/r | n/r | ||||||||||||||||||||||||
| Other facilities costs | 15,716 | 16,122 | 9,186 | n/r | n/r | ||||||||||||||||||||||||
| Labor | 63,730 | 64,647 | 32,121 | n/r | n/r | ||||||||||||||||||||||||
| Other services costs | 21,980 | 22,374 | 8,974 | n/r | n/r | ||||||||||||||||||||||||
| Total non-same store cost of operations | $ | 111,503 | $ | 113,576 | $ | 55,172 | n/r | n/r | |||||||||||||||||||||
| Non-same store contribution (NOI) | $ | 15,191 | $ | 15,923 | $ | 3,853 | n/r | n/r | |||||||||||||||||||||
Non-same store rent and storage contribution (NOI)(2) | $ | 32,447 | $ | 33,240 | $ | 16,475 | n/r | n/r | |||||||||||||||||||||
Non-same store services contribution (NOI)(3) | $ | (17,256) | $ | (17,317) | $ | (12,622) | n/r | n/r | |||||||||||||||||||||
| Total non-same store margin | 12.0 | % | 12.3 | % | 6.5 | % | n/r | n/r | |||||||||||||||||||||
Non-same store rent and storage margin(4) | 55.7 | % | 55.6 | % | 53.9 | % | n/r | n/r | |||||||||||||||||||||
Non-same store services margin(5) | (25.2) | % | (24.8) | % | (44.3) | % | n/r | n/r | |||||||||||||||||||||
55
| Six Months Ended June 30, | Change | ||||||||||||||||||||||||||||
| 2022 Actual | 2022 Constant Currency(1) | 2021 Actual | Actual | Constant Currency | |||||||||||||||||||||||||
| Total warehouse segment revenues | $ | 1,105,304 | $ | 1,125,172 | $ | 989,185 | 11.7 | % | 13.7 | % | |||||||||||||||||||
| Total warehouse cost of operations | $ | 808,061 | $ | 823,607 | $ | 698,625 | 15.7 | % | 17.9 | % | |||||||||||||||||||
| Total warehouse segment contribution | $ | 297,243 | $ | 301,565 | $ | 290,560 | 2.3 | % | 3.8 | % | |||||||||||||||||||
(1)The adjustments from our U.S. GAAP operating results to calculate our operating results on a constant currency basis is the effect of changes in foreign currency exchange rates relative to the comparable prior period.
(2)Calculated as rent and storage revenues less power and other facilities costs.
(3)Calculated as warehouse services revenues less labor and other services costs.
(4)Calculated as rent and storage contribution (NOI) divided by rent and storage revenues.
(5)Calculated as warehouse services contribution (NOI) divided by warehouse services revenues.
(6)Non-same store warehouse count of 27 includes one recently leased warehouse in Australia, one recently constructed facility in Denver we purchased in November 2021, three facilities acquired through the Lago Cold Stores acquisition on November 15, 2021, one warehouse acquired through the Newark Facility Management acquisition on September 1, 2021, two facilities acquired through the ColdCo acquisition on August 2, 2021, one warehouse acquired through the Bowman stores acquisition on May 28, 2021, two warehouses acquired through the KMT Brrr! acquisition on May 5, 2021, four warehouses acquired through the Liberty Freezers acquisition on March 1, 2021, and 12 facilities under development or expansion, one of which was completed during the second quarter of 2022. During the third quarter of 2021, a leased facility from the Liberty Freezers acquisition was exited upon expiration of the lease. During the first quarter of 2022, a leased facility from the Lago Cold Stores acquisition was exited upon expiration of the lease, and we ceased operations within a facility that is being prepared for lease to a third-party. During the second quarter of 2022, we purchased a previously leased facility. The results of the facilities exited are included in the results above, and the results of these acquisitions are reflected in the results above since date of ownership.
n/a - not applicable, the change in actual and constant currency metrics does not apply to site count
n/r - not relevant
The following table provides certain operating metrics to explain the drivers of our same store performance.
56
| Six Months Ended June 30, | |||||||||||||||||
| Units in thousands except per pallet and site number data - unaudited | 2022 | 2021 | Change | ||||||||||||||
| Number of same store sites | 213 | 213 | n/a | ||||||||||||||
| Same store rent and storage: | |||||||||||||||||
Economic occupancy(1) | |||||||||||||||||
| Average occupied economic pallets | 3,785 | 3,700 | 2.3 | % | |||||||||||||
| Economic occupancy percentage | 77.8 | % | 76.3 | % | 156 bps | ||||||||||||
| Same store rent and storage revenues per economic occupied pallet | $ | 109.34 | $ | 104.60 | 4.5 | % | |||||||||||
| Constant currency same store rent and storage revenues per economic occupied pallet | $ | 110.93 | $ | 104.60 | 6.0 | % | |||||||||||
Physical occupancy(2) | |||||||||||||||||
| Average physical occupied pallets | 3,468 | 3,380 | 2.6 | % | |||||||||||||
| Average physical pallet positions | 4,865 | 4,852 | 0.3 | % | |||||||||||||
| Physical occupancy percentage | 71.3 | % | 69.7 | % | 162 bps | ||||||||||||
| Same store rent and storage revenues per physical occupied pallet | $ | 119.35 | $ | 114.49 | 4.2 | % | |||||||||||
| Constant currency same store rent and storage revenues per physical occupied pallet | $ | 121.08 | $ | 114.49 | 5.8 | % | |||||||||||
| Same store warehouse services: | |||||||||||||||||
| Throughput pallets (in thousands) | 17,885 | 18,077 | (1.1) | % | |||||||||||||
| Same store warehouse services revenues per throughput pallet | $ | 31.58 | $ | 30.05 | 5.1 | % | |||||||||||
| Constant currency same store warehouse services revenues per throughput pallet | $ | 32.19 | $ | 30.05 | 7.1 | % | |||||||||||
Number of non-same store sites(3) | 27 | 24 | n/a | ||||||||||||||
| Non-same store rent and storage: | |||||||||||||||||
Economic occupancy(1) | |||||||||||||||||
| Average economic occupied pallets | 404 | 261 | n/r | ||||||||||||||
| Economic occupancy percentage | 70.9 | % | 75.0 | % | n/r | ||||||||||||
| Non-same store rent and storage revenues per economic occupied pallet | $ | 144.02 | $ | 117.01 | n/r | ||||||||||||
| Constant currency non-same store rent and storage revenues per economic occupied pallet | $ | 147.87 | $ | 117.01 | n/r | ||||||||||||
Physical occupancy(2) | |||||||||||||||||
| Average physical occupied pallets | 376 | 237 | n/r | ||||||||||||||
| Average physical pallet positions | 570 | 348 | n/r | ||||||||||||||
| Physical occupancy percentage | 66.0 | % | 68.1 | % | n/r | ||||||||||||
| Non-same store rent and storage revenues per physical occupied pallet | $ | 154.83 | $ | 128.93 | n/r | ||||||||||||
| Constant currency non-same store rent and storage revenues per physical occupied pallet | $ | 158.97 | $ | 128.93 | n/r | ||||||||||||
| Non-same store warehouse services: | |||||||||||||||||
| Throughput pallets (in thousands) | 2,029 | 1,372 | n/r | ||||||||||||||
| Non-same store warehouse services revenues per throughput pallet | $ | 33.73 | $ | 20.75 | n/r | ||||||||||||
| Constant currency non-same store warehouse services revenues per throughput pallet | $ | 34.35 | $ | 20.75 | n/r | ||||||||||||
(1)We define average economic occupancy as the aggregate number of physically occupied pallets and any additional pallets otherwise contractually committed for a given period, without duplication. We estimate the number of contractually committed pallet positions by taking into account actual pallet commitments specified in each customer’s contract, and subtracting the physical pallet positions.
57
(2)We define average physical occupancy as the average number of occupied pallets divided by the estimated number of average physical pallet positions in our warehouses for the applicable period. We estimate the number of physical pallet positions by taking into account actual racked space and by estimating unracked space on an as-if racked basis. We base this estimate on a formula utilizing the total cubic feet of each room within the warehouse that is unracked divided by the volume of an assumed rack space that is consistent with the characteristics of the relevant warehouse. On a warehouse by warehouse basis, rack space generally ranges from three to four feet depending upon the type of facility and the nature of the customer goods stored therein. The number of our pallet positions is reviewed and updated quarterly, taking into account changes in racking configurations and room utilization.
(3)Non-same store warehouse count of 27 includes one recently leased warehouse in Australia, one recently constructed facility in Denver we purchased in November 2021, three facilities acquired through the Lago Cold Stores acquisition on November 15, 2021, one warehouse acquired through the Newark Facility Management acquisition on September 1, 2021, two facilities acquired through the ColdCo acquisition on August 2, 2021, one warehouse acquired through the Bowman stores acquisition on May 28, 2021, two warehouses acquired through the KMT Brrr! acquisition on May 5, 2021, four warehouses acquired through the Liberty Freezers acquisition on March 1, 2021, and 12 facilities under development or expansion, one of which was completed during the second quarter of 2022. During the third quarter of 2021, a leased facility from the Liberty Freezers acquisition was exited upon expiration of the lease. During the first quarter of 2022, a leased facility from the Lago Cold Stores acquisition was exited upon expiration of the lease, and we ceased operations within a facility that is being prepared for lease to a third-party. During the second quarter of 2022, we purchased a previously leased facility. The results of the facilities exited are included in the results above, and the results of these acquisitions are reflected in the results above since date of ownership.
(4)n/r - not relevant
Economic occupancy at our same stores was 77.8% for the six months ended June 30, 2022, a increase of 156 basis points compared to 76.3% for the six months ended June 30, 2021. Economic occupancy was slightly higher than the prior year due to improvements in the labor market which allowed our customers to increase food production levels during the second quarter of 2022, partially offset by food production challenges throughout the first quarter of 2022 as a result of the Omicron variant impacting employee absenteeism. Additionally, while end-consumer demand for temperature-controlled food remains strong, the challenging inflationary market has started to change consumer behavior. Some consumers are buying less at the grocery store as they are stretched by inflation, which also had a positive impact on our holdings. Same store rent and storage revenues per economic occupied pallet increased 4.5% period-over-period, primarily driven by our pricing initiative and contractual rate escalations, partially offset by unfavorable foreign currency translation. On a constant currency basis, our same store rent and storage revenues per occupied pallet increased 6.0% period-over-period. Our economic occupancy at our same stores was 652 basis points higher than our corresponding average physical occupancy of 71.3%.
Throughput pallets at our same stores were 17.9 million pallets for the six months ended June 30, 2022, a decrease of 1.1% from the six months ended June 30, 2021. This decrease was the result of a change in business mix year over year. Same store warehouse services revenues per throughput pallet increased 5.1% period-over-period, as a result of by our our pricing initiative and contractual rate escalations and an increase in higher priced value-added services within the retail sector such as case-picking, blast freezing and repackaging, partially offset by unfavorable foreign currency translation as previously discussed. On a constant currency basis, our same store services revenues per throughput pallet increased 7.1% from the six months ended June 30, 2021.
Third-Party Managed Segment
The following table presents the operating results of our third-party managed segment for the six months ended June 30, 2022 and 2021.
58
| Six Months Ended June 30, | Change | ||||||||||||||||||||||||||||
| 2022 Actual | 2022 Constant Currency(1) | 2021 Actual | Actual | Constant Currency | |||||||||||||||||||||||||
| Number of managed sites | 9 | 9 | n/a | n/a | |||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||
| Third-party managed revenues | $ | 169,346 | $ | 170,117 | $ | 145,245 | 16.6 | % | 17.1 | % | |||||||||||||||||||
| Third-party managed cost of operations | 162,124 | 162,747 | 139,170 | 16.5 | % | 16.9 | % | ||||||||||||||||||||||
| Third-party managed segment contribution | $ | 7,222 | $ | 7,370 | $ | 6,075 | 18.9 | % | 21.3 | % | |||||||||||||||||||
| Third-party managed margin | 4.3 | % | 4.3 | % | 4.2 | % | 8 bps | 15 bps | |||||||||||||||||||||
(1)The adjustments from our U.S. GAAP operating results to calculate our operating results on a constant currency basis are the effect of changes in foreign currency exchange rates relative to the comparable prior period.
Third-party managed revenues were $169.3 million for the six months ended June 30, 2022, an increase of $24.1 million, or 16.6%, compared to $145.2 million for the six months ended June 30, 2021. On a constant currency basis, third-party managed revenues were $170.1 million for the six months ended June 30, 2022, an increase of $24.9 million, or 17.1%, from the six months ended June 30, 2021. The increase was a result of higher business volume in our domestic managed operations paired with higher pass-through costs associated with this business, primarily labor and related costs due to inflation and the challenging labor market.
Third-party managed cost of operations was $162.1 million for the six months ended June 30, 2022, an increase of $23.0 million, or 16.5%, compared to $139.2 million for the six months ended June 30, 2021. On a constant currency basis, third-party managed cost of operations was $162.7 million for the six months ended June 30, 2022, an increase of $23.6 million, or 16.9%, from the six months ended June 30, 2021. Third-party managed cost of operations increased as a result of the revenue trends described above.
Third-party managed segment contribution (NOI) was $7.2 million for the six months ended June 30, 2022, an increase of $1.1 million, or 18.9%, compared to $6.1 million for the six months ended June 30, 2021. On a constant currency basis, third-party managed segment contribution (NOI) was $7.4 million for the six months ended June 30, 2022, an increase of $1.3 million, or 21.3%.
59
Transportation Segment
The following table presents the operating results of our transportation segment for the six months ended June 30, 2022 and 2021.
| Six Months Ended June 30, | Change | ||||||||||||||||||||||||||||
| 2022 Actual | 2022 Constant Currency(1) | 2021 Actual | Actual | Constant Currency | |||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||
| Transportation revenues | $ | 160,801 | $ | 167,746 | $ | 155,072 | 3.7 | % | 8.2 | % | |||||||||||||||||||
| Total transportation cost of operations | 138,687 | 145,113 | 139,119 | (0.3) | % | 4.3 | % | ||||||||||||||||||||||
| Transportation segment contribution (NOI) | $ | 22,114 | $ | 22,633 | $ | 15,953 | 38.6 | % | 41.9 | % | |||||||||||||||||||
| Transportation margin | 13.8 | % | 13.5 | % | 10.3 | % | 346 bps | 320 bps | |||||||||||||||||||||
(1)The adjustments from our U.S. GAAP operating results to calculate our operating results on a constant currency basis are the effect of changes in foreign currency exchange rates relative to the comparable prior period.
Transportation revenues were $160.8 million for the six months ended June 30, 2022, an increase of $5.7 million, or 3.7%, compared to $155.1 million for the six months ended June 30, 2021. On a constant currency basis, transportation revenues were $167.7 million for the six months ended June 30, 2022, an increase of $12.7 million, or 8.2%, from the six months ended June 30, 2021. The increase was primarily due to higher rates in our consolidation business, the KMT Brrr! acquisition which closed in early May 2021, acquisitions and expansions in Australia, and the higher revenue associated with brokered transportation costs, inflation in wage and fuel rates and capacity surcharges due to challenges with driver availability. This is partially offset by the net decrease in revenue from the rationalization of certain domestic market operations and the unfavorable impact of foreign currency translation.
Transportation cost of operations was $138.7 million for the six months ended June 30, 2022, a decrease of $0.4 million, or 0.3%, compared to $139.1 million for the six months ended June 30, 2021. On a constant currency basis, transportation cost of operations was $145.1 million for the six months ended June 30, 2022, an increase of $6.0 million, or 4.3%, from the six months ended June 30, 2021. The decrease was due to the decrease of costs from the exit of certain domestic market operations paired with the favorable impact of foreign currency translation, partially offset by capacity constraints driving spot market higher than contract rate, which has caused an increase in carrier fees, higher wage and fuel costs impacted by inflation and the acquisitions mentioned above.
Transportation segment contribution (NOI) was $22.1 million for the six months ended June 30, 2022, an increase of $6.2 million compared to the six months ended June 30, 2021. Transportation segment margin increased 346 basis points from the six months ended June 30, 2021, to 13.8% from 10.3%. On a constant currency basis, transportation segment contribution was $22.6 million for the six months ended June 30, 2022, an increase of $6.7 million compared to the six months ended June 30, 2021. The increase in margin was primarily due to the rate increases implemented during 2022.
Other Consolidated Operating Expenses
Depreciation and amortization. Depreciation and amortization expense was $165.3 million for the six months ended June 30, 2022, an increase of $3.6 million, or 2.3%, compared to $161.7 million for the six months ended June 30, 2021. This increase was primarily due to the acquisitions and recently completed developments in 2021.
Selling, general and administrative. Corporate-level selling, general and administrative expenses were $113.9 million for the six months ended June 30, 2022, an increase of $26.3 million, or 30.1%, compared to
60
$87.5 million for the six months ended June 30, 2021. Included in these amounts are business development expenses attributable to new business pursuits, supply chain solutions and underwriting, facility development, customer on-boarding, and engineering and consulting services to support our customers in the cold chain. We believe these costs are comparable to leasing costs for other publicly-traded REITs. The increase was driven by the resumption of performance-based compensation expense in connection with the short-term incentive plan, higher third-party legal and professional fees, and higher share-based compensation expense in connection with the November 2021 retention grant.
Acquisition, litigation and other, net. Corporate-level acquisition, litigation and other, net expenses were $15.7 million for the six months ended June 30, 2022, a decrease of $8.9 million compared to the six months ended June 30, 2021. During the six months ended June 30, 2022, we incurred $10.1 million of acquisition and integration related expenses, an aggregate $3.5 million of severance related expenses due to the realignment of certain international operations and senior leadership changes, $2.4 million of litigation fees and $0.8 million of facility termination costs in connection with a site we intend to vacate upon lease expiration, partially offset by an aggregate $1.0 million insurance claim recoveries. During the six months ended June 30, 2021, we incurred $16.6 million of acquisition related expenses composed of professional fees and integration related costs, including severance and employee retention expenses, in connection with completed and potential acquisitions, primarily related to the Agro acquisition. We also incurred $4.5 million of costs related to the cyber event that happened in late 2020.
Impairment of long-lived assets. There were no impairment charges recorded during the six months ended June 30, 2022. For the six months ended June 30, 2021, we recorded impairment charges of $1.5 million related to costs incurred for development projects which management determined it would not continue to pursue.
61
Other Expense and Income
The following table presents other items of income and expense for the six months ended June 30, 2022 and 2021.
| Six Months Ended June 30, | Change | ||||||||||||||||
| 2022 | 2021 | % | |||||||||||||||
| Other (expense) income: | (Dollars in thousands) | ||||||||||||||||
| Interest expense | $ | (52,318) | $ | (52,535) | (0.4) | % | |||||||||||
| Loss on debt extinguishment, modifications and termination of derivative instruments | $ | (1,244) | $ | (4,424) | (71.9) | % | |||||||||||
| Other, net | $ | (4,363) | $ | 317 | n/r | ||||||||||||
Interest expense. Interest expense was $52.3 million for the six months ended June 30, 2022, a decrease of $0.2 million, or 0.4%, compared to $52.5 million for the six months ended June 30, 2021. Our effective interest rate of our outstanding debt was relatively consistent at 3.24% for the six months ended June 30, 2021 and 3.23% for the six months ended June 30, 2022, as the majority of our debt is at a fixed rate.
Loss on debt extinguishment, modifications and termination of derivative instruments. Loss on debt extinguishment, modifications, and termination of derivative instruments of $1.2 million for the six months ended June 30, 2022 decreased as compared to the six months ended June 30, 2021 primarily due to the early repayment of $200 million of principal on the Senior Unsecured Term Loan A Facility during the first quarter of 2021, which resulted in a charge of $2.9 million for the write-off of unamortized deferred financing costs. Additionally, during the six months ended June 30, 2022 and 2021, we recorded $1.3 million and $1.4 million, respectively, for the amortization of fees paid for the interest rate swaps terminated during 2020.
Other expense, net. Other expense was $4.4 million for the six months ended June 30, 2022, a decrease of $4.7 million, compared to other income of $0.3 million for the six months ended June 30, 2021. This is primarily due to our loss from partially owned entities of $5.8 million as a result of higher interest expense as our joint ventures have debt that is indexed to inflation, paired with a $4.1 million loss in connection with the deconsolidation of our Chilean operations upon contribution to the LATAM JV. These charges are partially offset by a $3.4 million gain related to the planned dissolution of the New Market Tax Credit entities during 2022 and a $1.0 million foreign exchange gain for the six months ended June 30, 2022.
Income Tax Benefit (Expense)
Income tax benefit for the six months ended June 30, 2022 was $12.8 million, an increase of $21.0 million when compared to $8.2 million of income tax expense for the six months ended June 30, 2021. The change in income tax expense was primarily attributable to the tax effects of the rate change from 19% to 25% in the United Kingdom, enacted during the second quarter of 2021, for which we recorded deferred income tax expense of $14.5 million in 2021. Additionally, we recognized a $6.5 million deferred tax benefit during the second quarter of 2022 in connection with the deconsolidation of our Chilean operations upon contribution to the LATAM JV.
62
Non-GAAP Financial Measures
We use the following non-GAAP financial measures as supplemental performance measures of our business: FFO, Core FFO, Adjusted FFO, EBITDAre and Core EBITDA.
We calculate funds from operations, or FFO, in accordance with the standards established by the Board of Governors of the National Association of Real Estate Investment Trusts, or NAREIT. NAREIT defines FFO as net income or loss determined in accordance with U.S. GAAP, excluding extraordinary items as defined under U.S. GAAP and gains or losses from sales of previously depreciated operating real estate assets, plus specified non-cash items, such as real estate asset depreciation and amortization and our share of reconciling items for partially owned entities. We believe that FFO is helpful to investors as a supplemental performance measure because it excludes the effect of depreciation, amortization and gains or losses from sales of real estate, all of which are based on historical costs, which implicitly assumes that the value of real estate diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, FFO can facilitate comparisons of operating performance between periods and among other equity REITs. | ||
| We calculate core funds from operations, or Core FFO, as FFO adjusted for the effects of gain or loss on the sale of non-real estate assets, acquisition, litigation and other, net, share-based compensation expense for the IPO retention grants, loss on debt extinguishment, modifications and termination of derivative instruments, foreign currency exchange loss, gain on extinguishment of New Market Tax Credit structure, and loss on deconsolidation of subsidiary contributed to joint venture. We also adjust for the impact of Core FFO attributable to partially owned entities. We have elected to reflect our share of Core FFO attributable to partially owned entities since the Brazil joint ventures are strategic partnerships, which we continue to actively participate in on an ongoing basis. The previous joint venture, the China JV, was considered for disposition during the periods presented. We believe that Core FFO is helpful to investors as a supplemental performance measure because it excludes the effects of certain items which can create significant earnings volatility, but which do not directly relate to our core business operations. We believe Core FFO can facilitate comparisons of operating performance between periods, while also providing a more meaningful predictor of future earnings potential. | ||
| However, because FFO and Core FFO add back real estate depreciation and amortization and do not capture the level of maintenance capital expenditures necessary to maintain the operating performance of our properties, both of which have material economic impacts on our results from operations, we believe the utility of FFO and Core FFO as a measure of our performance may be limited. | ||
| We calculate adjusted funds from operations, or Adjusted FFO, as Core FFO adjusted for the effects of amortization of deferred financing costs and pension withdrawal liability, amortization of above or below market leases, straight-line net rent, benefit from deferred income taxes, share-based compensation expense from grants of stock options and restricted stock units under our equity incentive plans, excluding IPO grants, non-real estate depreciation and amortization and maintenance capital expenditures. We also adjust for AFFO attributable to our share of reconciling items of partially owned entities. We believe that Adjusted FFO is helpful to investors as a meaningful supplemental comparative performance measure of our ability to make incremental capital investments in our business and to assess our ability to fund distribution requirements from our operating activities. | ||
| FFO, Core FFO and Adjusted FFO are used by management, investors and industry analysts as supplemental measures of operating performance of equity REITs. FFO, Core FFO and Adjusted FFO should be evaluated along with U.S. GAAP net income and net income per diluted share (the most directly comparable U.S. GAAP measures) in evaluating our operating performance. FFO, Core FFO and Adjusted FFO do not represent net income or cash flows from operating activities in accordance with U.S. GAAP and are not indicative of our results of operations or cash flows from operating activities as disclosed in our consolidated statements of operations included elsewhere in this Quarterly Report on Form 10-Q. FFO, Core FFO and Adjusted FFO should be considered as supplements, but not alternatives, to our net income or cash flows from operating activities as indicators of our operating performance. Moreover, other REITs may not calculate FFO in accordance with the NAREIT definition or may interpret the NAREIT definition differently than we do. Accordingly, our FFO may not be comparable to FFO as calculated by other REITs. In addition, there is no industry definition of Core FFO or Adjusted FFO and, as a result, other REITs may also calculate Core FFO or Adjusted FFO, or other similarly-captioned metrics, in a manner different than we do. The table below reconciles FFO, Core FFO and Adjusted FFO to net (loss) income, which is the most directly comparable financial measure calculated in accordance with U.S. GAAP. | ||
63
| Reconciliation of Net (Loss) Income to NAREIT FFO, Core FFO, and Adjusted FFO | |||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Net income (loss) | $ | 3,953 | $ | (13,399) | $ | (13,492) | $ | (27,635) | |||||||||||||||
| Adjustments: | |||||||||||||||||||||||
| Real estate related depreciation | 51,738 | 44,871 | 103,938 | 97,151 | |||||||||||||||||||
| Net loss (gain) on asset disposals | 4 | (13) | 67 | (52) | |||||||||||||||||||
| Impairment charges on certain real estate assets | — | 1,528 | — | 1,528 | |||||||||||||||||||
| Our share of reconciling items related to partially owned entities | 1,346 | 861 | 2,379 | 1,127 | |||||||||||||||||||
| NAREIT Funds from operations | 57,041 | 33,848 | 92,892 | 72,119 | |||||||||||||||||||
| Adjustments: | |||||||||||||||||||||||
| Net loss (gain) on sale of non-real estate assets | 72 | (304) | (163) | (423) | |||||||||||||||||||
| Acquisition, litigation and other | 5,663 | 3,922 | 15,738 | 24,673 | |||||||||||||||||||
| Share-based compensation expense, IPO grants | — | — | — | 163 | |||||||||||||||||||
| Loss on debt extinguishment, modifications and termination of derivative instruments | 628 | 925 | 1,244 | 4,424 | |||||||||||||||||||
| Foreign currency exchange loss (gain) | 1,290 | 140 | 965 | (33) | |||||||||||||||||||
| Gain on extinguishment of New Market Tax Credit structure | (3,410) | — | (3,410) | — | |||||||||||||||||||
| Loss on deconsolidation of subsidiary contributed to joint venture | 4,148 | — | 4,148 | — | |||||||||||||||||||
| Our share of reconciling items related to partially owned entities | (36) | 89 | 311 | 243 | |||||||||||||||||||
| Core FFO applicable to common shareholders | 65,396 | 38,620 | 111,725 | 101,166 | |||||||||||||||||||
| Adjustments: | |||||||||||||||||||||||
| Amortization of deferred financing costs and pension withdrawal liability | 1,160 | 1,085 | 2,306 | 2,233 | |||||||||||||||||||
| Amortization of below/above market leases | 549 | 362 | 1,057 | 401 | |||||||||||||||||||
| Straight-line net rent | 77 | (170) | 281 | (325) | |||||||||||||||||||
| Deferred income taxes (benefit) expense | (12,886) | 6,568 | (14,775) | 4,566 | |||||||||||||||||||
| Share-based compensation expense, excluding IPO grants | 7,032 | 5,467 | 15,381 | 10,334 | |||||||||||||||||||
| Non-real estate depreciation and amortization | 30,952 | 39,588 | 61,372 | 64,519 | |||||||||||||||||||
Maintenance capital expenditures (a) | (20,118) | (20,488) | (36,224) | (36,219) | |||||||||||||||||||
| Our share of reconciling items related to partially owned entities | 1,713 | 711 | 1,606 | 989 | |||||||||||||||||||
| Adjusted FFO applicable to common shareholders | $ | 73,875 | $ | 71,743 | $ | 142,729 | $ | 147,664 | |||||||||||||||
(a)Maintenance capital expenditures include capital expenditures made to extend the life of, and provide future economic benefit from, our existing temperature-controlled warehouse network and its existing supporting personal property and information technology.
64
| We calculate EBITDA for Real Estate, or EBITDAre, in accordance with the standards established by the Board of Governors of NAREIT, defined as, earnings before interest expense, taxes, depreciation and amortization, and adjustment to reflect share of EBITDAre of partially owned entities. EBITDAre is a measure commonly used in our industry, and we present EBITDAre to enhance investor understanding of our operating performance. We believe that EBITDAre provides investors and analysts with a measure of operating results unaffected by differences in capital structures, capital investment cycles and useful life of related assets among otherwise comparable companies. | ||
We also calculate our Core EBITDA as EBITDAre further adjusted for acquisition, litigation and other, net, loss from investments in partially owned entities, asset impairment, foreign currency exchange loss or gain, share-based compensation expense, loss on debt extinguishment, modifications and termination of derivative instruments, net gain on other asset disposals, gain on extinguishment of New Market Tax Credit, loss on deconsolidation of subsidiary contributed to joint venture, and reduction in EBITDAre from partially owned entities. We believe that the presentation of Core EBITDA provides a measurement of our operations that is meaningful to investors because it excludes the effects of certain items that are otherwise included in EBITDAre but which we do not believe are indicative of our core business operations. EBITDAre and Core EBITDA are not measurements of financial performance under U.S. GAAP, and our EBITDAre and Core EBITDA may not be comparable to similarly titled measures of other companies. You should not consider our EBITDAre and Core EBITDA as alternatives to net income or cash flows from operating activities determined in accordance with U.S. GAAP. Our calculations of EBITDAre and Core EBITDA have limitations as analytical tools, including: | ||
•these measures do not reflect our historical or future cash requirements for maintenance capital expenditures or growth and expansion capital expenditures;
•these measures do not reflect changes in, or cash requirements for, our working capital needs;
•these measures do not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on our indebtedness;
•these measures do not reflect our tax expense or the cash requirements to pay our taxes; and
•although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future and these measures do not reflect any cash requirements for such replacements.
| We use EBITDAre and Core EBITDA as measures of our operating performance and not as measures of liquidity. The table below reconciles EBITDAre and Core EBITDA to net (loss) income, which is the most directly comparable financial measure calculated in accordance with U.S. GAAP. | ||
65
| Reconciliation of Net Loss to NAREIT EBITDAre and Core EBITDA | ||||||||||||||
| (In thousands) | ||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||
| Net income (loss) | $ | 3,953 | $ | (13,399) | $ | (13,492) | $ | (27,635) | ||||||
| Adjustments: | ||||||||||||||
| Interest expense | 26,545 | 26,579 | 52,318 | 52,535 | ||||||||||
| Income taxes (benefit) expense | (12,069) | 8,974 | (12,777) | 8,183 | ||||||||||
| Depreciation and amortization | 82,690 | 84,459 | 165,310 | 161,670 | ||||||||||
| Adjustment to reflect share of EBITDAre of partially owned entities | 6,215 | 1,838 | 9,413 | 2,487 | ||||||||||
| NAREIT EBITDAre | $ | 107,334 | $ | 108,451 | $ | 200,772 | $ | 197,240 | ||||||
| Adjustments: | ||||||||||||||
| Acquisition, litigation and other, net | 5,663 | 3,922 | 15,738 | 24,673 | ||||||||||
| Loss on partially owned entities | 3,647 | 61 | 5,759 | 761 | ||||||||||
| Asset impairment | — | 1,528 | — | 1,528 | ||||||||||
| Foreign currency exchange loss (gain) | 1,290 | 140 | 965 | (33) | ||||||||||
| Share-based compensation expense | 7,032 | 5,467 | 15,381 | 10,498 | ||||||||||
| Loss on debt extinguishment, modifications, and termination of derivative instruments | 627 | 925 | 1,244 | 4,424 | ||||||||||
| Net loss (gain) on other asset disposals | 76 | (317) | (96) | (475) | ||||||||||
| Gain on extinguishment of New Market Tax Credit structure | (3,410) | — | (3,410) | — | ||||||||||
| Loss on deconsolidation of subsidiary contributed to joint venture | 4,148 | — | 4,148 | — | ||||||||||
| Reduction in EBITDAre from partially owned entities | (6,215) | (1,838) | (9,413) | (2,487) | ||||||||||
| Core EBITDA | $ | 120,192 | $ | 118,339 | $ | 231,088 | $ | 236,129 | ||||||
66
LIQUIDITY AND CAPITAL RESOURCES
The Company and the Operating Partnership have filed a registration statement on Form S-3 with the SEC registering, among other securities, debt securities of the Operating Partnership, which will be fully and unconditionally guaranteed by the Company. Separate consolidated financial statements of the Operating Partnership have not been presented in accordance with the amendments to Rule 3-10 of Regulation S-X. Furthermore, as permitted under Rule 13-01(a)(4)(vi), the Company has excluded the summarized financial information for the Operating Partnership as the assets, liabilities and results of operations of the Company and the Operating Partnership are not materially different than the corresponding amounts presented in the consolidated financial statements of the Company, and management believes such summarized financial information would be repetitive and not provide incremental value to investors.
We currently expect that our principal sources of funding for working capital, facility acquisitions, business combinations, expansions, maintenance and renovation of our properties, developments projects, debt service and distributions to our stockholders will include:
•current cash balances;
•cash flows from operations;
•our 2020 Senior Unsecured Revolving Credit Facility;
•our ATM Equity Programs; and
•other forms of debt financings and equity offerings.
We expect that our funding sources as noted above are adequate and will continue to be adequate to meet our short-term liquidity requirements and capital commitments. These liquidity requirements and capital commitments include:
•operating activities and overall working capital;
•capital expenditures;
•capital contributions and investments in joint ventures;
•debt service obligations; and
•quarterly stockholder distributions.
We expect to utilize the same sources of capital we will rely on to meet our short-term liquidity requirements to also meet our long-term liquidity requirements, which include funding our operating activities, our debt service obligations and stockholder distributions, and our future development and acquisition activities.
We are a well-known seasoned issuer with an effective shelf registration statement filed on April 16, 2020, which registered an indeterminate amount of common shares, preferred shares, depositary shares and warrants, as well as debt securities of the Operating Partnership, which will be fully and unconditionally guaranteed by us. As circumstances warrant, we may issue equity securities from time to time on an opportunistic basis, dependent upon market conditions and available pricing. We may use the proceeds for general corporate purposes, which may include the repayment of outstanding indebtedness, the funding of development, expansion and acquisition opportunities and to increase working capital.
On May 10, 2021, we entered into an equity distribution agreement pursuant to which we may sell, from time to time, up to an aggregate sales price of $900.0 million of our common shares through an ATM equity program (the “2021 ATM Equity Program”). Sales of our common stock made pursuant to the 2021 ATM Equity Program may be made in negotiated transactions or transactions that are deemed to be “at the market” offerings as defined in Rule 415 under the Securities Act, including sales made directly on the NYSE, or sales made to or through a
67
market maker other than on an exchange, or as otherwise agreed between the applicable Agent and us. Sales may also be made on a forward basis pursuant to separate forward sale agreements. We intend to use the net proceeds from sales of our common stock pursuant to the 2021 ATM Equity Program for general corporate purposes, which may include funding acquisitions and development projects. There was no activity under the 2021 ATM Equity Program during the six months ended June 30, 2022, and we have approximately $809.4 million availability remaining for distribution under the 2021 ATM Equity Program as of June 30, 2022.
Security Interests in Customers’ Products
By operation of law and in accordance with our customer contracts (other than leases), we typically receive warehouseman’s liens on products held in our warehouses to secure customer payments. Such liens permit us to take control of the products and sell them to third parties in order to recover any monies receivable on a delinquent account, but such products may be perishable or otherwise not readily salable by us. Historically, in instances where we have warehouseman’s liens and our customer sought bankruptcy protection, we have been successful in receiving “critical vendor” status, which has allowed us to fully collect on our accounts receivable during the pendency of the bankruptcy proceeding.
Our bad debt expense was $2.5 million and $0.9 million for the three months ended June 30, 2022 and 2021, respectively, and $3.8 million and $1.8 million for the six months ended June 30, 2022 and 2021, respectively. As of June 30, 2022, we maintained bad debt allowances of approximately $10.5 million, which we believed to be adequate.
Collective Bargaining Agreements
As of June 30, 2022, approximately 37% of the Company’s labor force is covered by collective bargaining agreements. Collective bargaining agreements covering less than 4% of the labor force are set to expire through the end of the year.
Dividends and Distributions
We are required to distribute 90% of our taxable income (excluding capital gains) on an annual basis in order to continue to qualify as a REIT for federal income tax purposes. Accordingly, we intend to make, but are not contractually bound to make, regular quarterly distributions to stockholders from cash flows from our operating activities. While historically we have satisfied this distribution requirement by making cash distributions to our stockholders, we may choose to satisfy this requirement by making distributions of cash or other property. All such distributions are at the discretion of our Board of Directors. We consider market factors and our performance in addition to REIT requirements in determining distribution levels. We have distributed at least 100% of our taxable income annually since inception to minimize corporate-level federal income taxes. Amounts accumulated for distribution to stockholders are invested primarily in interest-bearing accounts which are consistent with our intention to maintain our status as a REIT.
As a result of this distribution requirement, we cannot rely on retained earnings to fund our ongoing operations to the same extent that other companies which are not REITs can. We may need to continue to raise capital in the debt and equity markets to fund our working capital needs, as well as potential developments in new or existing properties, acquisitions or investments in existing or newly created joint ventures. In addition, we may be required to use borrowings under our revolving credit facility, if necessary, to meet REIT distribution requirements and maintain our REIT status.
68
For further information regarding dividends and distributions, see Note 14 to our consolidated financial statements included in our 2021 Annual Report on Form 10-K as filed with the SEC.
Outstanding Indebtedness
The following table summarizes our outstanding indebtedness as of June 30, 2022:
| Debt Summary: | |||||
| Fixed rate | $ | 2,002,221 | |||
| Variable rate - unhedged | 953,530 | ||||
| Total mortgage notes, senior unsecured notes, term loans and borrowings under revolving line of credit | 2,955,751 | ||||
| Sale-leaseback financing obligations | 175,340 | ||||
| Financing lease obligations | 91,926 | ||||
| Total debt and debt-like obligations | $ | 3,223,017 | |||
| Percent of total debt and debt-like obligations: | |||||
| Fixed rate | 70 | % | |||
| Variable rate | 30 | % | |||
Effective interest rate as of June 30, 2022 | 3.39 | % | |||
The variable rate debt shown above bears interest at interest rates based on various one-month LIBOR, CDOR, BBSW, and SONIA rates, depending on the respective agreement governing the debt, including our global revolving credit facilities. As of June 30, 2022, our debt had a weighted average term to initial maturity of approximately 5.5 years, assuming exercise of extension options.
For further information regarding outstanding indebtedness, please see Note 4 to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q and Note 9 to our consolidated financial statements included in our 2021 Annual Report on Form 10-K as filed with the SEC.
Credit Ratings
Our capital structure and financial practices have earned us investment grade credit ratings from three nationally recognized credit rating agencies. We have investment grade ratings of BBB with a stable outlook from Fitch, BBB with a Positive Trends outlook from DBRS Morningstar, and an investment grade rating of Baa3 with a stable outlook from Moody’s. These credit ratings are important to our ability to issue debt at favorable rates of interest, among other terms. Refer to our risk factor “Adverse changes in our credit ratings could negatively impact our financing activity” in our Annual Report on Form 10-K.
Maintenance Capital Expenditures and Repair and Maintenance Expenses
We utilize a strategic and preventative approach to maintenance capital expenditures and repair and maintenance expenses to maintain the high quality and operational efficiency of our warehouses and ensure that our warehouses meet the “mission-critical” role they serve in the cold chain.
69
Maintenance Capital Expenditures
Maintenance capital expenditures are capitalized investments made to extend the life of, and provide future economic benefit from, our existing temperature-controlled warehouse network and its existing supporting personal property and information technology systems. Examples of maintenance capital expenditures related to our existing temperature-controlled warehouse network include replacing roofs and refrigeration equipment, and upgrading our racking systems. Examples of maintenance capital expenditures related to personal property include expenditures on material handling equipment (e.g., fork lifts and pallet jacks) and related batteries. Examples of maintenance capital expenditures related to information technology include expenditures on existing servers, networking equipment and current software. Maintenance capital expenditures do not include acquisition costs contemplated when underwriting the purchase of a building or costs which are incurred to bring a building up to Americold’s operating standards. The following table sets forth our maintenance capital expenditures for the three and six months ended June 30, 2022 and 2021.
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| (In thousands, except per cubic foot amounts) | |||||||||||||||||||||||
| Real estate | $ | 17,825 | $ | 17,974 | $ | 31,689 | $ | 30,902 | |||||||||||||||
| Personal property | 1,457 | 1,428 | 2,431 | 3,210 | |||||||||||||||||||
| Information technology | 836 | 1,086 | 2,104 | 2,107 | |||||||||||||||||||
Maintenance capital expenditures | $ | 20,118 | $ | 20,488 | $ | 36,224 | $ | 36,219 | |||||||||||||||
| Maintenance capital expenditures per cubic foot | $ | 0.014 | $ | 0.014 | $ | 0.025 | $ | 0.025 | |||||||||||||||
Repair and Maintenance Expenses
We incur repair and maintenance expenses that include costs of normal maintenance and repairs and minor replacements that do not materially extend the life of the property or provide future economic benefits. Repair and maintenance expenses consist of expenses related to our existing temperature-controlled warehouse network and its existing supporting personal property and are reflected as operating expenses on our income statement. Examples of repair and maintenance expenses related to our warehouse portfolio include ordinary repair and maintenance on roofs, racking, walls, doors, parking lots and refrigeration equipment. Examples of repair and maintenance expenses related to personal property include ordinary repair and maintenance expenses on material handling equipment (e.g., fork lifts and pallet jacks) and related batteries. The following table sets forth our repair and maintenance expenses for the three and six months ended June 30, 2022 and 2021.
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| (In thousands, except per cubic foot amounts) | |||||||||||||||||||||||
| Real estate | $ | 10,288 | $ | 5,949 | $ | 19,131 | $ | 14,325 | |||||||||||||||
| Personal property | 13,809 | 13,622 | 28,255 | 25,076 | |||||||||||||||||||
| Repair and maintenance expenses | $ | 24,097 | $ | 19,571 | $ | 47,386 | $ | 39,401 | |||||||||||||||
| Repair and maintenance expenses per cubic foot | $ | 0.016 | $ | 0.014 | $ | 0.032 | $ | 0.027 | |||||||||||||||
70
External Growth, Expansion and Development Capital Expenditures
External growth expenditures represent asset acquisitions or business combinations. Expansion and development capital expenditures are capitalized investments made to support both our customers and our warehouse expansion and development initiatives. It also includes investments in enhancing our information technology platform. Examples of capital expenditures associated with expansion and development initiatives include funding of construction costs, increases to warehouse capacity and pallet positions, acquisitions of reusable incremental material handling equipment, and implementing energy efficiency projects, such as thermal energy storage, LED lighting, motion-sensor technology, variable frequency drives for our fans and compressors, rapid-close doors and alternative-power generation technologies. Examples of capital expenditures to enhance our information technology platform include the delivery of new systems and software and customer interface functionality.
Acquisitions
There were no acquisitions completed during the six months ended June 30, 2022. For information regarding acquisitions completed during 2021, refer to our 2021 Annual Report on Form 10-K which includes details of the purchase price allocation for each acquisition.
Expansion and development
The expansion and development expenditures for the six months ended June 30, 2022 are primarily driven by $23.0 million related to our two fully-automated, build-to-suit, development sites in Connecticut and Pennsylvania, $15.4 million for the Spearwood, Australia expansion, $11.5 million million related to the Dunkirk, NY development, $11.1 million in our Dublin expansion, $4.3 million for the Barcelona expansion, $19.1 million related to our Russellville expansion and $3.2 million related to Atlanta Major Market Strategy Phase 2.
Expansion and development initiatives also include $3.3 million of corporate initiatives, which are projects designed to reduce future spending over the course of time. This category reflects return on investment projects, conversion of leases to owned assets, and other cost-saving initiatives.
Finally, we incurred approximately $21.3 million during the six months ended June 30, 2022 for contemplated future expansion or development projects.
The following table sets forth our acquisition, expansion and development capital expenditures for the three and six months ended June 30, 2022 and 2021.
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||
| Acquisitions, net of cash acquired and adjustments | $ | (209) | $ | 173,373 | $ | (812) | $ | 215,329 | |||||||||||||||
| Expansion and development initiatives | 53,646 | 83,844 | 112,167 | 167,112 | |||||||||||||||||||
| Information technology | 1,020 | 2,045 | 1,761 | 3,573 | |||||||||||||||||||
| Growth and expansion capital expenditures | $ | 54,457 | $ | 259,262 | $ | 113,116 | $ | 386,014 | |||||||||||||||
71
Historical Cash Flows
| Six Months Ended June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| (In thousands) | |||||||||||
| Net cash provided by operating activities | $ | 133,242 | $ | 127,753 | |||||||
| Net cash used in investing activities | $ | (191,960) | $ | (438,822) | |||||||
| Net cash provided by financing activities | $ | 52,219 | $ | 7,079 | |||||||
Operating Activities
For the six months ended June 30, 2022, our net cash provided by operating activities was $133.2 million, an increase of $5.5 million, compared to $127.8 million for the six months ended June 30, 2021. The increase is primarily due to an increase in segment contribution, partially offset by higher selling, general and administrative expenses.
Investing Activities
Our net cash used in investing activities was $192.0 million for the six months ended June 30, 2022 compared to $438.8 million for the six months ended June 30, 2021. Additions to property, buildings and equipment were $181.7 million, reflecting maintenance capital expenditures and investments in our various expansion and development projects. Additionally, we invested $6.9 million in acquisitions of property, buildings, and equipment for the buyout of a previously leased facility. Finally, we invested $4.4 million in the formation of the LATAM joint venture and capital contributions to the SuperFrio joint venture.
Net cash used in investing activities was $438.8 million for the six months ended June 30, 2021. Cash used in connection with business combinations during 2021 was $215.3 million and related to the Bowman Stores, Liberty Freezers and KMT Brrr! acquisitions. Additions to property, buildings and equipment were $207.3 million reflecting maintenance capital expenditures and investments in our various expansion and development projects. Additionally, we invested $6.3 million in the SuperFrio joint venture for the six months ended June 30, 2021, and paid $11.6 million to purchase the noncontrolling interest holders share in the Chilean business.
Financing Activities
Net cash provided by financing activities was $52.2 million for the six months ended June 30, 2022 compared to $7.1 million for the six months ended June 30, 2021. Cash provided by financing activities for the current period primarily consisted of $198.3 million in proceeds from our 2020 Senior Unsecured Credit Facility, net of repayments, offset by $119.5 million of quarterly dividend distributions paid and $20.8 million aggregate lease repayments.
Net cash provided by financing activities was $7.1 million for the six months ended June 30, 2021. This primarily consisted of $214.8 million net proceeds from equity forward contracts settled during the period upon the issuance of common shares, $140.8 million in proceeds from our revolving line of credit, net of repayments, and $5.2 million of proceeds received upon exercise of stock options, offset by cash outflows of $203.5 million for repayments on term loan and mortgage notes, $110.8 million of quarterly dividend distributions paid, $15.8 million in payment of withholding taxes related to share-based payment arrangements and $20.5 million of aggregate lease repayments.
72
SIGNIFICANT ACCOUNTING POLICIES UPDATE
See Note 1 to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.
NEW ACCOUNTING PRONOUNCEMENTS
See Note 1 to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.
73
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
Our future income and cash flows relevant to financial instruments are dependent upon prevalent market interest rates. Market risk refers to the risk of loss from adverse changes in market prices and interest rates.
As of June 30, 2022, we had $175.0 million of outstanding USD-denominated variable-rate debt and $250 million of outstanding CAD-denominated variable-rate debt. This consisted of our Senior Unsecured Term Loan A Facility bearing interest at one-month LIBOR for the USD tranche and one-month CDOR for the CAD tranche, plus a margin of up to 0.95%. Additionally, we had C$55.0 million, £68.5 million, AUD$114 million, $320 million USD, and €20.5 million outstanding of Senior Unsecured Revolving Credit Facility draws. At June 30, 2022, one-month LIBOR was at approximately 1.67%, one-month CDOR was at 2.17%, one-month SONIA was at 1.19%, one-month AUD BBSW was approximately 1.04%, and one-month EURIBOR was approximately (0.51%). The interest rate paid on borrowings can never drop below 0%, although the associated benchmark rate does. Therefore, a 100 basis point increase in market interest rates would result in an increase in annual interest expense to service our variable-rate debt of approximately $9.1 million, and a 100 basis point decrease in market interest rates would result in a $9.0 million decrease in annual interest expense.
Foreign Currency Risk
As it relates to the currency of countries where we own and operate warehouse facilities and provide logistics services, our foreign currency risk exposure at June 30, 2022 was not materially different than what we disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021. The information concerning market risk in Item 7A under the caption “Quantitative and Qualitative Disclosures about Market Risk” of our Annual Report on Form 10-K for the year ended December 31, 2021, is hereby incorporated by reference in this Quarterly Report on Form 10-Q.
Item 4. Controls and Procedures
Evaluation of Controls and Procedures
In accordance with Rule 13a-15(b) of the Exchange Act, the Company’s management, with the participation of the Chief Executive Officer and the Chief Financial Officer, carried out an evaluation of the effectiveness of the Company’s “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act, as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2022.
Our management is responsible for establishing and maintaining adequate “internal control over financial reporting,” as defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Our management, including the Chief Executive Officer and Chief Financial Officer do not expect that our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.
74
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rule 13a - 15(f) of the Exchange Act) identified in connection with the evaluation required by Rule 13a-15(d) under the Exchange Act during the quarter ended June 30, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
75
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we may be party to a variety of legal proceedings arising in the ordinary course of our business. We are not a party to, nor is any of our property a subject of, any material litigation or legal proceedings or, to the best of our knowledge, any threatened litigation or legal proceedings which, in the opinion of management, individually or in the aggregate, would have a material impact on our business, financial condition, liquidity, results of operations and prospects.
See Note 8 - Commitments and Contingencies to our Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for information regarding material legal proceedings in which we are involved.
Item 1A. Risk Factors
Investing in our common shares involves risks and uncertainties. You should consider and read the information contained in our 2021 Annual Report on Form 10-K, including the risk factors identified in Item 1A of Part I thereof (Risk Factors) and in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022. Any of the risks discussed in our 2021 Annual Report on Form 10-K and in other reports we file with the SEC, and other risks we have not anticipated or discussed, could have a material adverse impact on our business, financial condition or results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
None.
76
Item 6. Exhibits
Index to Exhibits
| Exhibit No. | Description | |||||||
Articles of Conversion (incorporated by reference to Exhibit 2.1 to Americold Realty Trust, Inc.'s Current Report on Form 8-K filed on May 25, 2022 (File No. 001-34723)) | ||||||||
Articles of Incorporation of Americold Realty Trust, Inc. (incorporated by reference to Exhibit 3.1 to Americold Realty Trust, Inc.'s Current Report on Form 8-K filed on May 25, 2022 (File No. 001-34723)) | ||||||||
Bylaws of Americold Realty Trust, Inc. (incorporated by reference to Exhibit 3.2 to Americold Realty Trust, Inc.'s Current Report on Form 8-K filed on May 25, 2022 (File No. 001-34723)) | ||||||||
| Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 - Americold Realty Trust | ||||||||
| Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 - Americold Realty Trust | ||||||||
| Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 - Americold Realty Trust | ||||||||
| Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 - Americold Realty Trust | ||||||||
| 101 | The following financial statements of Americold Realty Trust’s Form 10-Q for the quarter ended June 30, 2022, formatted in XBRL interactive data files: (i) Condensed Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021; (ii) Condensed Consolidated Income Statements for the three and six months ended June 30, 2022 and 2021; (iii) Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2022 and 2021; (iv) Condensed Consolidated Statements of Equity for the three and six months ended June 30, 2022 and 2021; (v) Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2022 and 2021; and (vi) Notes to Condensed Consolidated Financial Statements. | |||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). | |||||||
77
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| AMERICOLD REALTY TRUST, INC. | ||||||||||||||
| (Registrant) | ||||||||||||||
| Date: | August 5, 2022 | By: | /s/ Marc J. Smernoff | |||||||||||
| Name: | Marc J. Smernoff | |||||||||||||
| Title: | Chief Financial Officer and Executive Vice President | |||||||||||||
| (On behalf of the registrant and as principal financial officer) | ||||||||||||||
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO RULE 13a-14(a) OF THE EXCHANGE ACT, AS AMENDED,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, George Chappelle Jr., certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Americold Realty Trust, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 5, 2022
/s/ George F. Chappelle Jr. | ||
George F. Chappelle Jr. | ||
Chief Executive Officer and Director | ||
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO RULE 13a-14(a) OF THE EXCHANGE ACT, AS AMENDED,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Marc Smernoff, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Americold Realty Trust, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 5, 2022
/s/ Marc J. Smernoff | ||
Marc J. Smernoff | ||
Chief Financial Officer and Executive Vice President | ||
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with this Quarterly Report on Form 10-Q of Americold Realty Trust, Inc. (the “Company”) for the fiscal period ended June 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, George Chappelle Jr., Chief Executive Officer and Trustee of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
1.The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and
2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: August 5, 2022
/s/ George F. Chappelle Jr. | ||
George F. Chappelle Jr. | ||
Chief Executive Officer and Director | ||
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with this Quarterly Report on Form 10-Q of Americold Realty Trust, Inc. (the “Company”) for the fiscal period ended June 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Marc Smernoff, Chief Financial Officer and Executive Vice President of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
1.The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and
2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: August 5, 2022
/s/ Marc J. Smernoff | ||
Marc J. Smernoff | ||
Chief Financial Officer and Executive Vice President | ||