Americold Realty Trust, Inc.

Greetings. Welcome to AmeriCold Realty Trust's fourth quarter and full year 2020 earnings call. At this time, all participants are on 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, SVP Capital Markets, Treasury, and IR. You may begin.

Good afternoon. We would like to thank you for joining us today for AmeriCold Realty Trust's fourth quarter 2020 earnings conference call. In addition to the press release distributed this afternoon, we have filed a supplemental package with additional detail 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 risk 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 obligation 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, including Core EBITDA, Core FFO, and AFFO. The full definitions of 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 I 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 AmeriCorps' 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 fourth quarter 2020 earnings conference call. We hope everyone on this call and their families are well. This afternoon, I will discuss our fourth quarter and full year 2020 results and activity. I will then update you on our external growth initiatives, discuss our view of market conditions for the year ahead, and then comment on our ongoing ESG efforts. Mark will then review our quarterly and full year results in more detail, as well as our capital markets activity, and provide guidance for 2021. After our prepared remarks, we will open the call for your questions. Let me start by stating that while the events of 2020 were challenging for all of us, we are very proud of the consistency and stability of our core business and America's ability to deliver results in line with our pre-COVID guidance. The COVID pandemic continues to be a black swan event, and it's had significant impact on many people, families, and businesses around the world. Against this year's challenging backdrop of the COVID pandemic, we continue to deliver strong results. This is attributed to our portfolio's diversity and scale, the effectiveness of the AmeriCold operating system, and our commercial processes. For the full year 2020, our global warehouse same-store pool generated total revenue and NOI growth of 2.3% and 5.6% on a constant currency basis. Due to the strength of our platform, we were able to overcome the supply chain disruption and financial impact of COVID while still achieving our guidance targets. We grew AFFO per share by 10.3%. overcoming these events while maintaining a low levered and flexible balance sheet. In the fourth quarter, consistent with what we have seen since COVID began, inventory flows and activity did not revert back to normal levels. And our global warehouse same store revenue decreased by 1.4% on a constant currency basis. However, as a result of the diversity and scale of our portfolio, and the strength of the AmeriCold operating system, we were able to overcome the fluctuation in customer supply chains and achieve global warehouse same-store NOI growth of 3.3% on a constant currency basis. In addition to the strong results we saw in our core business, we continue to execute on our external growth strategy throughout 2020. We continue to actively work with our customers as they seek to expand their temperature-controlled supply chains on a global scale, as evidenced by our $461 million of development starts in 2020. As we look ahead, we will continue to be strategic with our expansion and development projects and focus on opportunities to serve our customers while growing the overall value of our network. As part of our agro acquisition, we acquired two development projects. In Lurgan, Northern Ireland, we are working on a $9 million expansion project expected to be completed in mid-2021. In addition, agro acquired land adjacent to its existing facility in Dublin, Ireland, which will allow for further development in that market. We are currently underwriting this project. Please see our supplemental for more detail on the Lurgan project, which has targeted ROICs consistent with our previous development projects. Now, let me summarize our acquisition activity. On December 30, 2020, we closed on the $1.7 billion acquisition of Agro Merchants Group. Agro was previously the fourth largest temperature control warehouse company globally and the third largest in Europe. The agro portfolio included 46 facilities located in 10 countries, totaling 236 million refrigerated cubic feet, and which serve over 2,900 customers. This acquisition established our strategic footprint in Europe, further diversified our customer base and commodity mix, and provided significant internal and external value creation opportunities. Hans Kroos, who previously worked at Agro as President of Europe and was also CEO of Closterboro, the second largest European platform, has joined AmeriCold to lead operations in this region. He is a seasoned industry executive with significant experience in the temperature-controlled storage industry in Europe. At this time, we are focusing on the integration of the AmeriCold operating system and commercial processes throughout the Agro portfolio. which as previously stated will take up to five years to fully complete. Also in the fourth quarter, we completed the acquisition of Hall's Warehouse Corp. for $480 million. The Hall's acquisition allowed us to add an integrated portfolio of eight facilities located near the Port of Newark, New Jersey. With the acquisition of Hall's and the acquisition of Agro, we have strengthened our presence in the Northeast, and we now operate 11 facilities totaling almost 90 million cubic feet in New Jersey alone. In addition to agro and halls in 2020, we completed the acquisitions of NovaCold Logistics in Canada, Newport Cold in Minnesota, AMC Warehouses in Texas, Casper's Cold Storage in Florida. The NovaCold transaction enabled us to establish a platform in Canada, a key strategic market for us. and the Newport, Colt, AMC, and Casper's transactions allowed us to bolster our presence in important U.S. legacy markets. In total, we closed on approximately $2.6 billion of acquisitions in 2020 and added 62 facilities totaling 342 million cubic feet to our global network. Finally, we also completed our initial investment into our Brazilian JV with SuperFREO, And through Agro, we inherited a joint venture with Brazil-based Comfria. Over the past year, we have grown our global platform and scale significantly by entering key strategic markets across nine countries in Europe, North America, and South America. At this point, our platform supports customers in 13 countries across four continents. As we look ahead, We will continue to focus our M&A activity on strategic transactions that enhance our network. We also continue to maintain a large development pipeline made up of customer dedicated build suits and multi-tenant major market builds. Now, let me take a few moments to discuss our outlook for 2021. We all welcome the news of the vaccine in November 2020. At the same time, we experienced a second wave of COVID that sparked new lockdown measures across the globe. As such, we expect that the factors that impacted our business in 2020 will remain in 2021. This includes continued supply chain variability, food service levels well below historic norms, elevated retail activity, protein production at less than full capacity, and continued sanitation and PPE costs. We will also continue to be impacted by inefficiencies due to our social distancing, staggered schedules, and other changes in staffing and processes. With that said, we still expect that food consumption will stay relatively consistent with previous years. As a reminder, our portfolio is diversified by geography, customer, commodity facility type, and node in the supply chain. This helps us to reduce volatility from shifts in consumption behavior and even specific commodity disruptions. As we experience throughout 2020, we expect that there will be changes in consumer behavior as individual states, regions, and countries shift between being open or locked down. While we do not know when things will return to normal, we remind you that AmeriCold's infrastructure serves all parts of the food supply chain, both food service and retail. We are well positioned to support these fluctuating dynamics. From a new supply perspective, barriers to entry in our business remain high, and our platform is difficult to replicate. AmeriCold has an integrated global network of temperature-controlled infrastructure which we continue to enhance through acquisitions and development. Over many years, we have invested significant capital into our business, and we benefit from our deep customer relationships, proprietary technology, the AmeriCold operating system, and the commercialization of our business. Before I turn the call over to Mark, let me comment on our ESG efforts. We believe that our core mission serves the public good, as we maintain the integrity of the food supply by reducing food waste. In the markets we serve, our facilities help effectively eliminate spoilage. For perspective, the United Nations estimates that globally, approximately 14% of food produced is lost between harvest and retail, with this number being closer to 25% in developing markets without advanced temperature control supply chains. As a part of our AmeriCold operating system, which seeks to drive efficiency, we remain committed to improving our energy efficiency and enhancing the sustainability of our infrastructure. In 2020, the Global Coal Chain Alliance awarded 29 of our facilities gold or silver certifications as a part of its Energy Excellence Recognition Program, bringing our total at year-end to 161. Excluding our 2020 acquired facilities, over 95% of our legacy warehouse segment portfolio is now certified gold or silver in this program. As we look ahead, we will continue to pursue certifications for facilities in our legacy portfolio, as well as for facilities from our recent acquisitions. Further, we continue to harness new technology to drive energy efficiency in our facilities. including utilizing variable frequency drives for our fans and compressors, thermal energy storage, and improved blast freezing technology. We also continue to focus on LED lighting, solar power, and rainwater harvesting, to name a few. From a personnel standpoint, we continue to work each day to support our associates, who are our greatest asset. This was especially true in 2020, as our industry was deemed an essential servant and our team members perform tirelessly day after day to ensure the integrity of the food supply chain. As you've heard me mention before, safety is a top priority in Maricold. We continue to be industry leaders, and 2020 was our sixth consecutive year with an improvement in our total recordable incident rate. We also continue to invest in sanitation, PPE, and other health safety measures. Finally, We continue to invest in training and advanced programs to help our associates develop. In summary, we are very proud of our work in 2020, which was a landmark year in many ways. We are very grateful to our entire team for their hard work to support our customers and communities, drive same-store growth against significant challenges, and meaningfully expand our business through numerous development projects and strategic global acquisitions. I'll now turn the call over to Mark, who will provide more details on our results, balance sheet, and outlook for 2021. Thank you, Fred, and good afternoon, everyone. Today, we'll provide updates on our 2020 performance, summarize the impact of our 2020 transactions and capital markets activity, and introduce our outlook for 2021. For the fourth quarter, we reported total company revenue of $524 million, and total company NOI of $152 million, which reflects a 7.8% increase and an 11% increase year-over-year, respectively. Core EBITDA was $117 million for the fourth quarter of 2020, an increase of 7.5% year-over-year. This was driven by our 2019 and 2020 acquisitions and developments, excluding agro, as well as solid growth within our core portfolio. This was partially offset by higher COVID-related costs and higher corporate SG&A. Our core EBITDA margin remained relatively flat at 22.4%. For the fourth quarter 2020, we reported a net loss of $44 million compared to net income of $21 million for the same quarter of the prior year. The net loss was driven by three items. First, a $45 million non-cash charge related to a currency hedge for our recent debt private placement. Second, an increase in our acquisition, litigation, and other expense to $27 million, primarily due to acquisition activity and the cybersecurity incident. Finally, we incurred an $8 million expense resulting from breaking certain interest rate swap agreements on our unsecured term loan. It is important to note that all three of these expenses are excluded from Core EBITDA, Core FFO, and AFFO. Our fourth quarter Core FFO was $82 million, or $0.39 for diluted share. Our fourth quarter AFFO was $77 million, or $0.37 for diluted share. For the fourth quarter 2020, global warehouse segment revenue was $408 million, which reflects growth of 6% year over year. Global warehouse segment NOI was 146 million, which reflects growth of 12%. Global warehouse segment NOI margin was 35.7% for the fourth quarter, a 196 basis point increase compared to the same quarter of the prior year. The NOI growth was primarily due to improvements in our core business, higher retail activity, accretive acquisitions and the benefit of the AmeriCold operating system, offset by reduced throughput in protein and food service sectors. Our NOI growth and margin expansion was partially offset by COVID-related expenses, coupled with the revenue impact of the cybersecurity incident. With respect to these incremental COVID expenses, Total sanitation and PPE costs were approximately $1 million for the fourth quarter, which was consistent with last quarter. As a reminder, we also incurred higher COVID-related soft costs, including labor inefficiencies. We now underwrite these costs and expect to reduce their impact to our margins over time. At quarter end, we derived 40.7% of rent and storage revenue from fixed commitment storage contracts on a combined pro forma basis, which is a 140 basis point decrease from the sequential quarter, primarily driven by our acquisition activity. Fixed commitment revenue increased on an absolute dollar basis to $284 million. As we integrate our recent acquisitions, many of which have a limited percentage of fixed commitment contracts, we believe we have an opportunity to better commercialize the business which benefits both our customer and AmeriCold. Please note that Agro, which currently has very little revenue from fixed commitment contracts, is not included in this pro forma number. At the end of the year, our global portfolio consisted of 238 facilities, including the 46 we acquired from Agro. Our total facility count includes 229 facilities, in our global warehouse segment portfolio and nine facilities in our third-party managed segment. Now I will turn to our same store results in our global warehouse segment. As a reminder, a facility is counted as same store if it meets our definition at the beginning of the year, and the same store for 2020 included 135 facilities. Additionally, in a typical year, The fourth quarter is the strongest in terms of activity due to the impact of the fall harvest and the holidays. Shifts in consumption patterns from COVID meaningfully impact our quarterly year-over-year comparables. This is why we focus on our business on an annual basis. For the fourth quarter of 2020, our same-store global warehouse segment revenue was $302 million. which reflects a decrease of 0.5% year-over-year and a decrease of 1.4% on a constant currency basis. Same Star Global Warehouse NOI was $111 million, which reflects an increase of 4% year-over-year and an increase of 3.3% on a constant currency basis. Our revenue was impacted by lower services revenue, primarily due to the ongoing impact of reduced protein volumes and food service activity. same-store global warehouse NOI margins increased 157 basis points to 36.7% as we continued to benefit from the AmeriCold operating system and our commercialization efforts. For the fourth quarter, same-store global rent and storage revenue grew by 0.6% year-over-year and by 0.1% on a constant currency basis. This was driven by contractual rate escalations, partially offset by a decline in economic occupancy. Our same-store economic occupancy was 82.7%, which reflects a decrease of 166 basis points from the prior year, as we were impacted by reduced protein volumes and food services activity. Our same-store global rent and storage NOI decreased by 0.3% year-over-year and decreased by 0.7% on a constant currency basis. This was due to business mix as well as increased costs year-over-year, including COVID-related sanitation expenses, higher property taxes, and increased property insurance expense, partially offset by lower power expenses. Same sort of global rent and storage NOI margin decreased 58 basis points to 68.9% due to the same factors. Same-store global warehouse services revenue for the fourth quarter decreased by 1.2% year-over-year and decreased by 2.6% on a constant currency basis. However, our same-store global warehouse services NOI increased by 25.9% year-over-year, or 24.2% on a constant currency basis. Same-store warehouse services NOI margin was 12.6% for the quarter. which resulted in a margin increase of 272 basis points. This growth was primarily due to the discipline cost control embedded in the AmeriCold operating system, which resulted in a decrease in labor expenses and other services expenses, partially offset by incremental COVID PPE costs and inefficiencies. Our 2020 acquisition activity has enhanced the diversity of our customer base while growing our wallet share with key customers. Within our global warehouse segment, we had no material changes to the composition of our top 25 customers, who on a pro forma basis, excluding agro, account for approximately 55% of our global warehouse revenue, down approximately 500 basis points from 2019 year end. Additionally, our churn rate was approximately 3.4% of total warehouse revenues. Corporate SG&A totaled $40 million for the fourth quarter of 2020, as compared to $33 million for the comparable prior year quarter. The increase was driven by higher headcounts to support our development pipeline, SG&A absorbed net of synergies through our recent acquisitions, and higher share-based compensation. With respect to the cybersecurity incident that occurred in mid-November, let me state that AmeriCorp prioritizes all forms of safety and security including our IT infrastructure. While all of our facilities remained operational, this incident resulted in us being less efficient at many of our facilities for a few days. Additionally, due to our commitment to our customers, we had to turn away product in certain instances, which resulted in approximately $2 million of lost revenue. In the fourth quarter, we recorded an expense of $8 million associated with this incident, which falls into our acquisition, litigation, and other expense line item. Included in this $8 million is the cost of cybersecurity experts and legal counsel, as well as incremental labor expense. This expense is excluded from Core EBITDA, Core FFO, and AFFO this quarter. Any future insurance proceeds will be recorded as income and also excluded from these metrics. Let me update you on our Rochelle expansions. You'll note that we moved our stabilization back for Rochelle to Q3 2021 in our supplemental. As we said on last quarter's call, we have sold all available pallet positions, the majority of which are under fixed commitments. Our customer's product is moving through the facility. However, the automation is not performing at optimal levels at the moment. The engineers who are tasked with implementing our automation are based in Europe, and has had challenges traveling to the U.S. due to continued COVID-related travel restrictions. As a result, we are utilizing more labor in the facility, which is pressuring margins and not enabling us to stabilize the facility at targeted yields in the first quarter. We expect the automation issues to be addressed over the next six months and for the project to be stabilized in the third quarter. This impact is reflected in our fourth quarter results and embedded in our 2021 guidance. On to our full year results. As previously communicated, we believe our business is most appropriately evaluated on an annual basis. We are very proud of these results against the backdrop of COVID. Let me summarize our full year results. Total revenues were $1.99 billion and total warehouse segment revenue were $1.55 billion and 11.4% and 12.5% increase respectively. Total contribution or NOI was $551 million, an increase of 15.3%. Global warehouse segment NOI was $520 million, an increase of 16.3%. For the same store pool, global warehouse segment revenue grew 1.9% or 2.3% on a constant currency basis. And same-store segment NOI grew 5.3%, or 5.6%, on a constant currency basis. Core EBITDA was $426 million, an increase of 16%, or 16.3%, on a constant currency basis. Net income was $25 million. Core funds from operation was $256 million, or $1.24 per diluted share. And AFFO was $268 million, or $1.29 per diluted share using a weighted average share count of 207 million. We grew AFFO per share by 10.3%. Finally, we announced 461 million of development starts and completed 2.6 billion of global acquisitions. Now turning to our balance sheet and capital markets activity. Our platform to drive strong internal and external growth is supported by a low-levered flexible balance sheet. During the fourth quarter, we completed an equity offering to fund growth initiatives. With the exercise of the Green Chew, which was comprised of forward shares, we raised total growth proceeds of approximately $1.4 billion. At the end of December, we settled 31.9 million forward shares to partially fund the closing of the agro-transaction and issued 14.2 million common shares to Oak Tree Capital and Agro Management, which are subject to a lockup period through May of this year. We simultaneously closed and funded our 750 million euro dollar unsecured debt private placement. We did not utilize our ATM program during the fourth quarter. As of December 31st, we had 251.7 million shares outstanding. At year end, total debt outstanding was 3 billion, Our real estate debt had a weighted average remaining term of 7.6 years and carries weighted average contractual interest rate of 3%. We had total liquidity of approximately $1.7 billion consisting of cash on hand, revolver availability, and $392 million of outstanding equity forwards. Our net debt to pro forma core EBITDA was approximately 4.4 times. In January, of this year using cash on our balance sheet, we were paid $200 million outstanding on our US dollar unsecured term loan. Concurrently, we closed on an amendment to our unsecured credit facility and increased our line of credit from $800 million to $1 billion. Performing for this pay down and amendment, our liquidity remained at $1.7 billion. Now let me discuss our outlook for 2021. As a reminder, our core business remains fairly steady on an annual basis due to the consistency of overall food consumption, the scale and diversity of our portfolio, and our strong market share. Let me first comment on certain factors that underpin our 2021 guidance. First, we expect to continue to incur costs related to COVID with respect to sanitation and PPE, as well as soft costs including labor and efficiency from social distancing. Second, As Fred mentioned, consumer behavior with respect to COVID and the timing of a potential full global reopening remains unknown. As of now, we do not expect the flow of product during 2021 to return to normal pre-COVID quarterly cadence. Third, while we will continue to stress the importance of looking at our business on an annual basis, we recognize quarter over quarter comparisons are inevitable. Please keep in mind that quarterly results in 2020 had a unique cadence due to COVID. Finally, with respect to our 2021 same store pool, our portfolio now includes a total of 162 sites driven by our acquisition and development sites that now meet our same store criteria. All of this factored into our guidance for AFFO per share in the range of $1.36 to $1.46. Our assumptions are as follows. Global warehouse segment same-store revenue growth to range between 2 and 4% on a constant currency basis. Global warehouse same-store NOI growth to be 100 to 200 basis points higher than the associated revenue growth on a constant currency basis. Managed and transportation segment NOI in a range of 46 to 54 million. Total SG&A expense of $190 to $196 million, including non-cash share-based compensation expense of $21 to $23 million. Current income tax expense of $9 to $13 million. Deferred income tax benefit of $1 to $2 million. Non-real estate depreciation and amortization expense of $85 to $92 million. Total recurring maintenance capital expenditures in the range of 90 to 100 million. Development starts of 175 to 300 million. And finally, please refer to our supplemental for currency translation rate embedded in this guidance. Please keep in mind that our guidance does not include the impact of acquisitions, dispositions, or capital market activity beyond which has been previously announced. Additionally, please note that both deferred income tax benefit and non-real estate depreciation and amortization expense line items, both non-cash items that do not affect AFFO, are subject to change over the course of the year as the accounting for the agro acquisition is finalized. This is part of the reason that we ask you to continue focusing on AFFO per share as the earnings metric in evaluating our annual results. Now let me turn the call back to Fred for some closing remarks. Thanks, Mark. We are very proud of our team's hard work throughout 2020 to support our customers and our communities as a part of the mission-critical part of the global temperature-controlled food supply chain. Though 2020 presented significant challenges, our team rose to the occasion, and our core business remains steady and consistent on an annual basis. Also during the year, we continued to drive internal growth on our platform and took advantage of several attractive opportunities to drive external growth through targeted development and strategic global acquisitions. Through it all, we have maintained a conservative, low-levered balance sheet as we executed our growth strategy. We are pleased to welcome the agro team to the AmeriCold family, and we look forward to growing our global business. Finally, We again want to thank all of our frontline associates and the entire Miracle team across the globe for their hard work and dedication. Thanks again for joining us today, and we will now open the call for your questions. Operator?