Americold Realty Trust, Inc.

Greetings. Welcome to the AmeriCorps Realty Trust first quarter 2020 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Scott Henderson. You may begin.

Good afternoon. We would like to thank you for joining us today for AmeriCold Realty Trust's first quarter 2020 earnings conference call. In addition to the press release distributed this afternoon, we have filed a supplemental package with additional details on our results, which is available in the investor section on our website at www.americold.com. On today's call, management's prepared remarks and answers to your questions may contain forward-looking statements. Forward-looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ from those discussed today. A number of factors could cause actual results to differ materially from those anticipated. Forward-looking statements are based on current expectations, assumptions, and beliefs, as well as information available to us at this time and speak only as of the date they are made. And management undertakes no obligations to update publicly any of them in light of new information or future events. During this call, we will discuss certain non-GAAP financial measures. More information about these non-GAAP financial measures and reconciliations to the comparable GAAP financial measures is contained in the supplemental information package available on the company's website. We also would like to note that numbers presented in today's prepared remarks have been rounded to the nearest million with the exception of per share amounts. This afternoon's conference call is hosted by AmeriCold's Chief Executive Officer, Fred Bowler, and Executive Vice President and Chief Financial Officer, Mark Smirnoff. Management will make some prepared comments, after which we will open up the call to your questions. Now, I will turn the call over to Fred.

Thank you, and welcome to our first quarter 2020 earnings conference call. We hope everyone on this call and their families are well. This afternoon, I will provide a brief overview of the temperature control food supply chain and how it's been impacted by the COVID-19 pandemic. I will then discuss our first quarter 2020 results and activity and how these results were influenced by COVID-19. Mark will then review our quarterly results in more detail and discuss our balance sheet and guidance for 2020. After our prepared remarks, we'll open the call for your questions. Let me begin by saying I have never been prouder of the AmeriCold family than I am today, in the midst of this COVID-19 pandemic. Our global network of temperature-controlled infrastructure and the services we provide are an integral part of the temperature-controlled food supply chain. Our people are our greatest asset. And this has been underscored by our nearly 13,000 team members at 183 sites around the world who have been working tirelessly day after day to help make sure grocery store shelves are stocked. Our infrastructure is absolutely mission critical, and our team is truly essential and deeply proud of their role in protecting and providing access to food at this time. I am very grateful for their dedication and want to thank them for their incredible efforts. Further, the resilience of our diversified citizens model has never been more evident. Keeping our people safe and healthy has been and continues to be a priority. In addressing COVID-19, we took immediate action at the onset by mobilizing a global response team, following the guidance of the CDC, and enhancing our standard protocols to help protect our associates and safeguard the integrity of our supply chain. Since the start of COVID-19, we have invested in additional cleaning efforts and sanitation supplies at our facilities, and standard shifts and breaks is appropriate. We are taking the temperature of each person, including all associates, contractors, and visitors who enter our facility. We are making masks and gloves available to all. I'd also like to point out that although we are classified as essential workers in the supply chain, the nature of our work is naturally socially distanced. and very different than workers in the manufacturing line or in a grocery store. While actual COVID-19 cases have not had a material impact on our business, we remain vigilant in limiting the risk to our associates in operation. The broader effects of COVID-19 have also added significantly more visibility to the food supply chain. So before we discuss results, I would like to take a moment to discuss the supply chain, starting with the consumer endpoints. The grocery store. A typical grocery store in the U.S. carries about a 30-day supply of food to meet normal consumer demand. These grocery stores are supplied by retail distribution centers, which also carry, on average, another 30-day supply of product. This inventory is generally owned by the retail establishment. Approximately 22% of AmeriCold's warehouse revenues is generated through the ownership and operation of some of these retail distribution centers. These retail distribution centers receive product from major market distribution centers, which are located in major distribution hubs such as Atlanta, Dallas, and Northeast Pennsylvania, and carry product from multiple manufacturers. Many of you on this call have been to our Tradewater site here in Atlanta, which is a great example of a major market distribution center. That facility, and others like it, stores customer product from all over the country and typically represents another 30-day supply of inventory. Major market distribution centers are supplied by production advantage sites, which are usually either attached or adjacent to food manufacturing facilities. Food manufacturing facilities are located across the U.S. in areas where land availability and local climate support individual commodities. They process and package the protein and the agricultural goods that are grown regionally. At these sites, product is brought down to temperature, preserved, and stored until it is forward deployed. AmeriCult's production advantage sites also carry, on average, a 30-day supply of food and are dedicated to specific customers. The food supply at point of manufacture in the inventory and major market distribution centers is owned by the manufacturers. As we have discussed in the past, food manufacturers outsource 96% of their bulk storage needs to companies like AmeriFold. Approximately 76% of AmeriFold's warehouse revenue is generated by food manufacturers. As you can see, at any given time, there is typically four months of goods in the supply chain, spread across multiple nodes, many of which are owned and operated by AmeriFold. we have one of the most diversified networks, both location and product-wide. Please see page 24 of our Q1 2020 supplemental for more information on this diversity. This diversity helps us withstand changes in food supply and demand. Before I go further, I'd like to address one portion of the food supply chain that has been in the press recently, the protein supply chain. For perspective, pork is 7%, and beef is 3% of our business. In the same way that grocery stores need to adjust to remain open as essential businesses, protein manufacturers are working to overcome certain challenges at this time. As demonstrated by the recent executive order, they are an essential part of the nation's food supply chain, and we are critical partners with vital infrastructure that supports them. As production ramps up at the plant, that have experienced short-term shutdowns, our facilities will continue to serve them. It is also important to note that our fixed commitment structure reduces volatility in our cash flows from potential temporary shutdowns. Finally, as we have stated in the past, proteins are substitutable. For example, consumers will shift from pork to chicken as needed. Our incredibly diverse portfolio enables us to minimize volatility from these shifts, This example of a protein supply chain also relates to other areas of the food supply, such as agriculture. Typically, the general supply of food is not meaningfully impacted by the macroeconomic climate, though individual food items may be. People are going to eat, but what they eat and where they eat may change. Consumption is served through a balance of food service and retail. where food is either consumed via food service channels like restaurants, schools, universities, hotels, hospitals, sporting events, and government programs, and the remainder via retail at grocery stores, big box stores, and convenience stores. In general, when the economy is good, heavier weighting goes towards the food service side, and when the economy isn't doing well, it shifts to heavier retail. With COVID-19, we've seen an unexpected and very rapid shift in food service to retail, creating disruption. The supply chain was tugged, first with the consumer rush to retail as everyone stocked up. Retailers who were operating in ordinary course were challenged with responding to the almost instantaneous and significant shift of consumption happening through the channel as grocery stores were emptied. please keep in mind that the supply chain was designed for steady state and holiday demand, not an unexpected event like this, akin to a sustained hurricane hitting the entire country at once. This created a ripple effect as retail distribution centers surged to replenish the stores. Major market distribution centers surged to restock retail distribution centers. Production advantage sites surged to restock major market distribution centers. and food manufacturers had to adjust production for retail-centric products. Every part of our infrastructure was tasked with excess activity to replenish these various nodes in the supply chain. Food service products are now sitting longer because of reduced demand, but we are still preserving products and collecting the associated rent and storage fees. Retail is now taking up more space, but it's flowing through at a higher rate than normal. I'd also like to address e-commerce for a minute. There is a lot of talk in the market about growth of grocery e-commerce and the implications for temperature-controlled infrastructure. While we expect to see strong growth in e-commerce, that doesn't necessarily translate to outsized growth in the infrastructure to support it. E-commerce does not drive additional demand. It is simply another acquisition point for consumers. As we have also discussed previously, temperature-controlled product that is purchased online by end consumers to be delivered to their homes is mostly serviced out of individual grocery stores. We know that grocers carefully select their store location, typically within three to five miles of the targeted population. As a result, the best place for grocers to serve last-mile logistics, including both home delivery and click-and-pick, is the store itself. This is because transportation costs are typically the most expensive part of the supply chain, so utilizing space that is closest to the end consumer is the most advantageous. Increased e-commerce demand is pushing retailers to invest in automated solutions in the back room of their stores for added efficiency. The supply chain and infrastructure requirement to get product to these stores remains unchanged. As we've seen with the surge in e-commerce orders as a result of COVID-19, the increased demand has been filled by the grocery store, which has been supplied by the retail distribution center, or by a restaurant, which has been supplied by a food distributor. Both channels were supplied by major market distribution centers, which in turn were supplied by the production advantage sites and food manufacturers. In summary, Our diverse infrastructure is built to withstand shifts in food demand. Our incredibly large, diverse portfolio spread across multiple locations, multiple customers, facility types, product types, and nodes in the supply chain enables us to minimize volatility driven by specific commodity disruption. Having one standard operating system across our fully integrated network enables us to service our customers efficiently. regardless of shift in demand. Professionalizing commercialization helps to stabilize our revenue stream and ensure customers have space when they need it. Our fixed commitment model has demonstrated a real benefit for our customers during this pandemic as they have rushed to find space and service as a result of the change in demand. Those with fixed commitments have protected space, ensuring efficient operation. Those without fixed commitments have faced challenges in obtaining space and in many cases were unable to secure optimal support. Now turning to our results. In the first quarter, our global warehouse same-store pool generated total revenue growth and NOI growth of 6.8% and 11.1% respectively on a constant currency basis. Our first quarter results reflect the impact of nationwide stay-at-home orders which affected the business as follows. Our retail customers experienced a pronounced increase in consumer buying at grocery stores. As a result, throughput at our retail distribution centers increased significantly, resulting in higher services revenue at these sites. As I mentioned earlier, we also saw an increase in product through other nodes of the supply chain, mainly our major market distribution centers. Some product produced by our food manufacturer customers for food service and export channels remained in storage being preserved at our production advantage sites and major market distribution centers. While we saw increased economic occupancy in this type of customer, the reduction in throughput resulted in lower services revenue. Additionally, we would note that the increase many of us are seeing in delivery to home and buy online, pick up in store shopping does not meaningfully impact us. Once again, those methods of distribution are generally serviced by local grocery stores, and our infrastructure supports it accordingly. Let me now make a few points to provide further detail on our first quarter activity. During the first quarter, all 183 of our facilities remained fully operational. While we have always operated in accordance with strict safety standards to ensure the quality of product flowing through our facilities, cleaning and sanitation processes were enhanced, and we put additional protocols in place to safely manage our labor resources as well as those of our transportation partners. These incremental activities occurred late in the first quarter and are reflected in our operating expenses. We also continue to grow externally during the first quarter with the completion of our previously announced acquisitions, including Newport Coal, Novacold Logistics, and a 15% interest in a strategic joint venture with Brasilia-based Superfrito. Regarding our development pipeline, we delivered our expansion project in Columbus, Ohio early in the first quarter and are now fully operational. With respect to our ongoing developments in Savannah and Atlanta, we can report that construction serving the food supply chain in the state of Georgia is considered essential, and so we have been able to continue at both sites. Savannah has a temporary certificate of occupancy, and we have started operations on time and on budget to support certain customers. At our major market project in Atlanta, we have remained on plan with construction, and the demand pipeline remains strong. Finally, due to COVID-19, we are delayed on our expansion project in New Zealand due to the government shutdown of all construction activity. We are hopeful we will restart in the second quarter. In the midst of this pandemic, our food manufacturer customers and our retail customers want to make sure they are adequately prepared from a supply chain perspective for periods of dislocation. As a leader in temperature-controlled storage with an integrated network, we are uniquely positioned to support them in this effort. At this time, our development pipeline remains robust. As we look ahead, we believe market conditions overall remain favorable for our business. First, in the near term, we expect that stay-at-home orders, state reopen plans, and social distancing guidelines resulting from COVID-19 will continue to influence our business. Our first quarter results show the effect of families stocking up on food to fill their freezers, much like one would see in preparation for a big storm or a hurricane. They also reflect the impact from reduced food consumption at restaurants, sporting events, schools, universities, and hotels, which ultimately resulted in products sitting and being preserved in our sites. In the second quarter, we have seen a slight sequential slowdown in grocery activity, but still elevated from normal levels. Thus, we are starting to see a leveling off in the second quarter as it relates to our retail customers. Since COVID-19, some restaurants continue to operate by providing curbside pickup and drive-thru service. As some states slowly open, we will see how consumer behavior responds as it relates to food consumption in the food service channel. Second, we want to note that any benefit we typically see from Easter was masked by the increase in food shopping due to COVID-19 in terms of its benefit to our business in the second quarter. Finally, we want to remind you that food manufacturers and retailers are still working hard to adjust to this unprecedented situation, and we will work diligently to continue to support them. Over the long term, barriers remain high for new development, while customer relationships and an integrated network remain more important than ever. our decades-long investment in technology, process, and infrastructure continues to be crucial to our ability to serve current and prospective customers. Our customer-centric focus and leading supply chain innovation, combined with our portfolio that has the right assets in the right location, will serve us well as we seek to deliver consistent and profitable growth. In a post-COVID-19 world, we believe our customers, and ultimately their customers, will continue to focus on building and maintaining resilient supply chains. AmeriCold is well positioned for this environment. Before I turn the call over to Mark, I would again like to thank our associates for their dedicated work during this difficult time. Thank you, Fred, and good afternoon, everyone. Today, we will provide updates on our actual performance, as well as certain metrics on a constant currency basis. We will also highlight areas of our business that were impacted by COVID-19. Let me begin by echoing Fred's comments, which bear repeating. Our results this quarter capture the impact of increased overall activity by our two largest customer types, food manufacturers and retailers. We are focused on being strong partners to our customers as we provide mission-critical infrastructure that enables them to Both sets of customers were responding to elevated end-customer purchases driven by COVID-19 and stay-at-home requirements across the country. This activity was above what we typically see in the first quarter. For the first quarter, we reported total company revenue of $484 million and total company NOI of $135 million, which reflects a 23.1% increase and a 30% 7.2% increase year-over-year, respectively. Core EBITDA was $104 million for the first quarter of 2020, an increase of 46.5% year-over-year. This was driven by our 2019 and 2020 acquisitions and solid growth within our core portfolio, including increased activity due to COVID-19. Our Core EBITDA margin grew by 343 basis points, 21.5%. For the first quarter 2020, we reported net income of $24 million compared to a net loss of $5 million for the same quarter of the prior year. Our first quarter core FFO was $60 million, or $0.29 per diluted share. Our first quarter AFFO was $67 million, or $0.33 per diluted share. As a reminder, the full definition and reconciliation of core EBITDA, core FFO, and AFFO reported net income can be found in our supplemental. For the first quarter of 2020, global warehouse segment revenue was $381 million, which reflects growth of 31.6% year-over-year. Global warehouse segment NOI was $127 million, which reflects growth of 39.6%. Global warehouse segment margin was 33.3% for the first quarter. a 191 basis point increase compared to the same quarter of the prior year. This NOI growth and increase in margin was primarily due to improvements in our core business, accretive acquisitions, increased customer holdings due to COVID-19, same-store economic occupancy growth, and the benefit of the AmeriCold operating system. These results were partially offset by the strength of the U.S. dollar and and the significant incremental expense we undertook to address COVID-19. These included sanitation, higher labor costs, and added certain inefficiencies due to social distancing, staggered break schedules, and other changes to processes. At quarter end, $258 million of our annualized rent and storage revenue was derived from customers with fixed commitment storage contracts as compared to $251 million for the fourth quarter of 2019 and $222 million for the first quarter of 2019. Our recent acquisitions have a lower percentage of fixed commitment contracts as a percent of rent and storage revenue. For the first quarter of 2020, 40.1% of rent and storage revenue was generated from fixed commitment storage contracts on a combined pro forma basis, which is a 50 basis point decrease over the sequential quarter. We view this as an opportunity as we bring these acquisitions onto AmeriCold's commercialization standards. As of March 31st, 2020, our global portfolio consisted of 183 facilities, five more than we had reported at the end of the fourth quarter of 2019, due to the acquisition of Newport Cold and Nova Cold Logistics in the quarter. Our total facility count includes 172 facilities in our global warehouse segment portfolio and 11 facilities in our third-party managed segment. Now I will turn to our same store results in the global warehouse segment, which reflects 136 facilities. As a reminder, a facility is counted as same store if it meets our definition at the beginning of the year. For the first quarter of 2020, our same store global warehouse segment revenue year-over-year and 6.8% on a constant currency basis. Same Store Global Warehouse NOI was $97 million, which reflects growth of 9.8% year-over-year and 11.1% on a constant currency basis. Same Store Global Warehouse NOI margin increased 147 basis points to 33.3%. For the first quarter, Same Store Global rent and storage revenue grew by 4.4% year over year, or 5.7% on a constant currency basis. This was driven by increased customer activity due to COVID-19, increased economic occupancy from higher commodity holdings, and a slowdown in food service activity and exports. This was partially offset by the impact of the strength of the U.S. dollar. Our same-star economic occupancy was 81.8%, which reflects an increase of 337 basis points from the prior year. Our same-store global rent and storage NOI grew by 6.2% year-over-year, or 7.3% on a constant currency basis. Same-store global rent and storage NOI margin increased 117 basis points to 68.8%. The NOI growth and margin expansion was a result of the revenue metric cited above, Additionally, this was driven by continued portfolio management, efforts to grow our commitments towards contracts, disciplined cost control through the AmeriCold operating system, and the impact of currency translation on costs in our international segment. This was partially offset by higher property taxes, property insurance, and increased annexation costs from COVID-19. Same-store global warehouse services revenue for the first quarter grew 5.4% year-over-year, or 7.5% on a constant currency basis. This revenue increase resulted primarily from increased customer throughput due to COVID-19 and a favorable mix, which shifted late in the quarter toward higher grocery activity. This generated 4.7% growth in our same-store warehouse services revenue for a throughput palette on a constant currency basis. As Fred previously mentioned, any benefit we would have seen from the Easter holiday was masked by higher grocery activity. Our Same Star Global Warehouse Services NOI was up 51.5% year-over-year, or 54.7% on a constant currency basis, again driven by increased customer activity, including a higher use of grocery-related value-added services. While the late quarter surge in volume and implementation of social distancing guidelines did cause inefficiencies, we attribute this growth to cost control embedded within the AmeriCorps operating system, disciplined underwriting, and more favorable customer mix. Finally, same-store warehouse services' NOI margin was 6.4% for the quarter, an expansion of 195 basis points driven by the same factors. I would also note that while this pandemic continues to evolve, we did not see a material increase in our healthcare costs related to COVID-19 in the first quarter. In the global warehouse segment, we had no material changes to the composition of our top 25 customers, who on a pro forma basis account for approximately 58% of our global warehouse revenue and who have been with us on average for over 30 years. Our recent acquisition activity has enhanced our wallet share of our key customers while providing further diversification. Additionally, our churn rate was approximately 3.4% of total warehouse revenue. We are proud of our customer service during this COVID-19 pandemic. Corporate SG&A totaled $37 million for the first quarter of 2020 as compared to $31 million for the comparable prior year quarter. This increase is primarily a result of the SG&A absorbed with our recent acquisition, net of realized synergies, and additional investments made to support our expanded development pipeline. Additionally, this was driven by increased stock compensation expense and additions to our executive management. Now let me update you on our development and acquisition activities. We spent $30 million in the first quarter on expansion and development capital mostly related to spending at our Atlanta major market expansion and our Savannah, Georgia new build. We will officially deliver our Savannah new build in the second quarter and have started inbounding products. At our automated expansion project in Chicago, we have seen strong demand and have signed up customers for over 80% of space. We'll be onboarding them throughout the remainder of the year. The automation ramp-up has slowed because of COVID-related travel restrictions of our European-based automation partners. However, we do not expect this to materially change the timing of stabilization. Finally, from a demand perspective, we are similarly well-positioned at each of the three expansion projects we acquired as part of the Globally Backed position. As a reminder, our supplemental has additional disclosure on expected yields and target stabilization dates for these projects. As Fred mentioned, our expansion projects for our major customer in Auckland, New Zealand, we were substantially on hold during the first quarter. We are assessing the impacts of this COVID-19-related delay and will provide updates in the future. Additionally, in the first quarter, we received $64.5 million Australian dollars from the sale of our land in Sydney and associated carrying costs. Finally, during the quarter, we completed previously announced acquisitions of NovaCold Logistics in Canada and Newport Cold in Minnesota. Additionally, we closed our strategic investment in a joint venture with Brazil-based Superfrio. Now, turning to our balance sheet. We believe that maintaining prudent leverage, access to multiple sources of capital, and ample liquidity is important at any part in the cycle, but especially in the current environment. We are committed to maintaining a strong, flexible balance sheet as we finance our business and growth plan. As of March 31, 2020, our total debt outstanding was $2 billion, of which 77% was in an unsecured structure and 86% was at a fixed rate. Our real estate debt is a weighted average remaining term of six and a half years and carries a weighted average contractual interest rate of 3.89%. listing of cash on hand, revolver availability, and $135 million of outstanding equity forward. We had no activity on our ATM program during the quarter. Our net debt to pro forma quarry that's off was approximately 4.2 times. Finally, during these uncertain times, we have maintained our day sales outstanding, or DSO, as our customer cash collections remain strong. Our DSO has been consistent from year end to the end of quarter one and now in April. During the quarter, we completed the refinancing of our unsecured credit facility as we expanded its capacity to $1.225 billion in U.S. dollars and $250 million Canadian dollars. We also tightened the credit spread on the revolver and term loan by five basis points and enhanced our flexibility by improving financial covenants and extending final maturity on this facility until 2025. Now I'd like to take a moment to discuss our outlook for 2020. Our first quarter results were certainly driven by elevated customer activity in response to COVID-19. Let us remind you that we look at our business on an annual basis. There is some uncertainty related to the timing of stage reopening plans and the resulting consumer behavior. However, we believe that food consumption will remain fairly constant and we continue to benefit from the scale and diversity of our portfolio as well as our strong market share. At this time, we are maintaining our ASFO per share guidance in the range of $1.22 to $1.30. Please refer to our supplemental for updates on certain components related to tax and currency translation rates embedded in this guidance. Please keep in mind that our guidance does not include the impact of acquisitions, dispositions, or capital markets activity beyond which has been previously announced. Now let me turn the call back to Fred for some closing remarks. Thanks, Mark. The events of the past few months have been unprecedented, and uncertainty remains high as major sectors of the economy remain significantly slowed down. However, in a miracle, our infrastructure has been proven to be essential. Our business has demonstrated its resilience, and our team of associates are proud to be important members of the global food supply chain. They have risen to the occasion to support our customers with incredible dedication, and I cannot thank them enough for their tremendous effort. Thanks again for joining us today, and we will now open the call for your questions. Operator?