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?

Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. With participants using speaker equipment, it may be necessary to pick up your hands before pressing the star keys. One moment, please, while we poll for questions. And our first question is from Nate Crossett with Battenberg. Please proceed with your question.

Hey, good evening, guys. Good evening. Hey, I was curious. I appreciate all the color you gave in the remarks, but how are volumes trending so far year to date? Like how far are we off normalized levels right now? And are you expecting volumes to go back to normal once we're fully opened up? Or are there any structural changes that occurred last year that would affect volumes permanently?

Yeah, nothing structural. You know, what's affecting the supply chain today, remember, you know, now we have 5,000 customers. Every single one of those customers is in a different state with their supply chains and their inventory positions and, you know, their efficiencies within their manufacturing plant. So it's a little difficult to say when, you know, when the full supply chain, the full food supply chain will be back to normal because, again, every customer is in a different position. So, you know, look, from a volume standpoint, you know, the business continues to flow through. You know, we wouldn't judge or guide based on what we're seeing over a couple week period. You know, we just know that over the long run, over the full year basis, that consumer consumption will remain, you know, pretty consistent with what it has in past years. But the way that that flows through our buildings is going to be different, just like last year was different on a quarterly cadence basis.

Okay, that's helpful. I just wanted to ask also about your ability to push rent and service prices if we really start to see inflation pick up. And I'm just curious, the month-to-month contracts give you any benefit here? It sounds like you're going the other way to try and get more fixed contracts. So maybe you can just help us think about inflation for you guys.

Yeah, I think a couple ways to think about that, you know, whether it's a customer that's under a firm commitment contract, of which fixed might be a component of, or a month-to-month. Remember that if anything happens that's government regulated or government mandated, like we're seeing, you know, some states might do some things. They've been, you know, pushing rate per hour, for example, at grocery chains in California and that type of thing. If we get anything that's government mandated, we're able to pass that through to our customers, even in the middle of a contract. So fixed commitments does. As for just kind of general rates and other costs, I think we've said the last couple quarters that we do expect a lot of these COVID costs related with PPE and sanitation. Some of the inefficiency in our operation due to staggered breaks and that type of thing will remain in our business. And so it has become a part of our cost base. And remember, we use an activity-based costing system when determining and pricing new business. So we will certainly incorporate that into the pricing of our business for new business, as well as in our thought processes for general rate increases to the mass public.

Okay. So I guess just one follow-on on that would be, what's kind of the long-term margin guidance for your business? How much higher could we go over the next few years?

Yeah, I think the best way to think about that is as you think about our same score guidance, both the results from last year as well as the full guidance for this year. And you see, you know, our NOI, we're expecting to outpace revenue growth, and you've seen that convert to expanded margins in that segment. You know, and I just remind everyone, too, our goal here is to maximize the cash flow our four walls generate. And so, as you see year over year, very strong cash flow growth against the difficult backdrop of COVID. So, Nate, implied in that is, you know, what I would take away from that is our core business, if our customer mix and everything remained the same, right, we would expect to see margin growth in that 100 to 200 basis point, basis on the same store basis. However, remember that the other variable that comes into play is business mix and customer mix. So, for example, I might bring on a large retailer as a part of our business, and they typically run with lower margins. So our margin percents may not rise, but again, to Mark's point, the cash flow will increase and our core business under the same store guidance will continue to improve. So hopefully that helps. There's a couple different variables there that impact it.

That's helpful. Thanks, guys. Our next question is from Emmanuel Kortman with Citi. Please proceed with your question.

Hey, guys. Just thinking to the cybersecurity incident and especially the revenue impact you pointed out there, could there be broader customer repercussions that just haven't surfaced yet or, you know, them breaking contracts, anything like that, since you sort of had to send their product elsewhere?

Yeah, Manny, thanks for the question. No, actually, we've really – been given accolades from our customers on our ability to be able to respond and get back to business, if you will. As a matter of fact, a couple of our customers actually had cyber incidents within a matter of weeks right after we did, and we actually provided them with some assistance and consultation and how we got through it. So, You know, our customers were very, very pleased with the way that we responded, you know, to the business. So, you know, it's no different than, you know, a weather storm, you know, like we're incurring right now. If a facility goes down and customer products en route, you know, sometimes that has to get diverted. you know, to maybe one of our facilities, maybe a competitor's facility to keep that supply chain flow going. But it reverts right back the moment you're able to go in business. So it's a momentary blip, and that business comes right back. We, again, we haven't had any threats of business leaving because the cyber track has been quite opposite.

That's good to hear. And then in terms of the reduced protein volumes, is that a reduction in consumer demand based on sort of the way people are aware or the way people are eating, or is that more on the supply constraints with the processing plants, or is it a combination of both?

Yeah, it's really a supply issue if you think about it. you know, we usually carry a lot of inventory, you know, about 30 days' worth of inventory for each one of those different proteins across the states. And, you know, when COVID hit and the manufacturers were hit with their plant shutdowns and inefficiencies and that type of thing, their outflow, you know, slowed. So what happened is consumers, because they're their demand remained steady, they basically took down all that inventory, right? So instead of carrying 30 days of inventory, they might only be down to seven. So the fundamental issue that we're having is, you know, the manufacturers are almost in a hand-to-mouth, in some cases, of producing and that it's going right through our warehouses onto our end customers. Hence, you know, why you don't see the big inventory build that's happening. So as the manufacturers start to improve their efficiency through, you know, higher safety or, you know, the COVID going away, ultimately, you know, those volumes will come back and they'll rebuild those inventories.

And last one for me, it might be Charlie for this, but is there anything coming out of the agroacquisition in Europe specifically that's making you shift or rethink the way you're doing business here or vice versa, something you're really anxious to push into process there?

You know, I mean, look, we're obviously learning about all of their unique business. Site by site, it's kind of hard when you're not standing. I'm a visual person, so when you're not standing on the floor and looking at their operations, it makes it a little bit more difficult. But no, they do some different things. They do some packaging and heavier import and export volume. We believe that that is great business and it's something that we can leverage and do more of here stateside, for example. And then vice versa, you know, we have all of the big who's who in, you know, food manufacturing and grocery retail. We think that now that we have the platform in Europe, you know, that's going to open up other opportunities, business opportunities, either to fill space in existing nodes or build new greenfield opportunities. So, you know, it's very early, but I will say that we are having conversations with customers. about potential opportunities down the road. The only thing I'd tack on to that too is also back to our blocking and tackling. As we get to know each other and learn about their business, we continue to believe that there will be benefit from the AmeriCold operating system and our commercialization practices as we roll that out across their enterprises.

Thanks, everyone. Thanks, man. And our next question is from Michael Carroll with RBC Capital Markets. Please proceed with your question.

Yeah, thanks. Frank, can you provide some color on the investment opportunities that you're seeing right now, I guess specifically on the development side? It looks like the top end of your development start guidance is higher than the traditional run rate. I mean, are you seeing sizable near-term start opportunities that's pushing that number higher?

Yeah, thanks, Mike. Well, as you know, last year was, Last year was $75 to $200, and we ended up at about $461 million. So obviously we've got some nice momentum with some great projects, and the pipeline continues to be very, very healthy. So conversations are happening. We have nothing to announce at this time, but we're very excited about the pipeline that we have in front of us.

Okay, and then can you kind of talk about your views on the uptake and speculative development we're seeing in the temperature control space? I mean, I think in your prepared remarks you kind of highlighted the barriers to entry, so I'm assuming you don't think it's going to impact your operating environment, but it seems like the activity is kind of really picking up there. I mean, does that make you think about your developments differently, or is that going to impact your operating results sometime in the future?

No, not at all. Look, there's a couple developers that are out there, very, very small percentage of the overall development that's going on. And, you know, none of them have leased up facilities. So they are true spec. You know, it's going to take an operator like ourselves or one of our competitors to go lease that building or a food processor. But You know, these developers aren't going to be able to do the business themselves. That's where that barrier of entry is. So they could build the building, but who's going to operate it, right? And so that's the missing connection there. I haven't seen one successful yet. But, again, there's a couple guys out there in a couple different markets, and we really think that it's a very immaterial process. Mike, just to add on to that, I would just remind you, too, when you look across our development, it's very targeted on large customer build pursuits, so high credit quality customers who are building dedicated assets for them with a very defined purpose. or we're leveraging across major markets where we already have a footprint and we may not have a large anchor tenant taking the whole building, but we have a number of large tenants that as they grow, they need more space. So we're just expanding our existing footprint in that market. Our growth is very targeted and disciplined.

Okay, great. And then I guess last one, Mark, can you talk a little bit about the Rochelle run rate? I guess what NOI did they generate on that asset during the fourth quarter and What's the ramp up into the stabilization? I mean, how big of an impact is this that you can't get the automation up and running, at least fully?

If the automation is up and running, I just want to state that. So all the automation is up and running. This is just a matter of any time you introduce automation with software that's in between layers talking to different types of equipment, it needs to be fine-tuned. It's literally like an orchestra. It all has to work together. And, you know, because of COVID and because all of this automation is European-based, it's been difficult during the COVID time to get resources over here. You know, while they're working virtually and, you know, we have had them on the ground in some occasions, we haven't been able to keep them here long enough to really optimize it. So what we have is we have extra labor. that is in that building to ensure that our customer's volume is flowing through the facility. So again, the good news here is it's fully sold. It's all operating. It's just not operating as efficient as we would like. And all of that is taken into consideration in our results in the fourth quarter, as well as our forward look at 2021.

So what's the NOI impact in, like, let's say first quarter of 21? I mean, versus Stables, is it, what, a million lower than expected, or how big of a magnitude is that?

Look, Mike, the way I would say it is, you know, we feel very confident in Q3 that we're going to be on the full run rate. You know, we're ramping towards it, as Fred said. We're, you know, incurring additional labor right now to support the business, and as we fine-tune that we'll see those yields, you know, approach what we've disclosed, so full approach. You know, we're obviously getting the return there because the building is – the customers are in. The building is performing that way. We're just running excess labor at this time.

Okay, great. Thank you. And our next question is from Dave Rogers with Baird. Please proceed with your question, Dave.

Hey, Brad. Hey, Mark. Good evening. I wanted to get back to you with comments about inevitability, Mark, and the quarterly comparison. You had a tough work against 4Q19, and I think you've kind of explained it as food service, protein, cyber impact, and economic occupancy. I guess when you give us some good details, but I guess protein doesn't sound like it'll correct. Food service won't correct, and cyber will. That kind of leads us to economic occupancy as we think about the first quarter performance against a really, really tough comp. Can you give a little more color on, you know, getting to those numbers for the year, how you start the year, and whether the cloverleaf impact is just substantial enough to kind of offset any negative potential comp as you start the year?

Dave, just one point, and then I'll let Mark dig into it. But, look, the backdrop is really this. unstable customer supply chains. That's what's driving all of it. So it's very difficult to predict exactly when, you know, those stock holdings will increase. You know, we're really at the mercy of COVID and the impact that it's having on our 5,000 customers. But Mark, I don't know if you want to. Yeah, no, look, I would just, you know, point out, and Dave, you can look at this, but the USDA reported you know, holdings of certain protein, you know, especially pork in particular was down, you know, 30% from prior year. You know, poultry was down depending anywhere from 10 to 12%, depending on the category. So, you know, clearly the production side, as Fred mentioned, and we mentioned in our prepared remarks, has been disrupted as a result of COVID. I would remind people, I think, if you recall during the first quarter call, we remind people that we thought we had approximately a 6 million NOI lift as it related to the COVID activity in the first quarter. Look, that's going to be a tough come. But I remind you, our guidance is full-year guidance. You know, we had a very difficult year in this year of COVID, and we delivered very strong, you know, same-store results. You know, growing NOI is 5.6% on a currency basis. And, you know, we think the business is strong. It's further diversified through our recent acquisitions, and we're well-positioned to execute as we move into this year.

Okay, thank you for the caller. Maybe shift, Fred, to you on the acquisition pipeline. I mean, you haven't completed anything big in about six weeks or so, so curious on how you're feeling about the upcoming year and the ability to source new deals. When you first came public, you talked about a lot of small tuck-ins. You've done some bigger deals. Where are we at now in the life cycle?

Yeah, Dave, thanks for the six-week hiatus. Yeah, no, look, it's an extremely fragmented industry. Obviously, the middle has been hollowed out a lot by the two big players. But there are tremendous tuck-in opportunities. But, again, I would just remind everybody that our acquisition strategy is different. We're very, very focused on doing tuck-ins that are a true strategic fit that could be fully integrated into AmeriCold. And, you know, so we're looking for certain qualities in and around, you know, the customer, the quality of the asset, new customer, current customer, and the culture within those operations. So, you know, we're looking for specific things. If it makes sense. We will strike on it. We are active. So there's nothing slowing down on the acquisition front. But it is opportunistic and lumpy, which is, you know, why we don't give direct guidance.

I guess how would you characterize that pipeline? Obviously, comparing against Agro would be difficult. But, I mean, how would you characterize that versus a year ago, sir?

I'd say that we're looking at a good number of companies across multiple continents. So I can't really give an exact number or an exact dollar value, but it's a healthy pipeline that we're continuing to be excited about.

Sure, that's fair. Last one for me, maybe a follow-up to an early question on the employee side of the equation. You talked about the cost side of it. Are you having difficulty sourcing employees? I mean, do you have a number of open positions or anything that would kind of give you some pause in terms of the ability to continue to drive the business going into 21?

Yeah, no, we feel real good right now. I will say that we had some lumpiness. you know, throughout 2020. And I think we've spoken about this a couple times. You know, obviously when retail spiked through the roof at the end of the first quarter, we had to scramble to get a lot of associates to help with that work content. And the good news is we were able to attract a lot of people because, you know, unfortunately a lot of people were getting laid off of other jobs. And then when the stimulus checks came out and the lift in unemployment kicked in, we kind of struggled a bit, you know, because quite honestly, people were being paid more to stay at home than, you know, to do a warehouse job. So that made it a little bit more difficult. Once that ended, it started to pick back up again, and we are well positioned and well staffed.

Good to hear. Thank you both. And our next question is from Joshua Dandelion with Bank of America. Steve, we'll see what your question is.

Yeah. Hey, guys. I hope you're all doing well. Hey, Josh. I know you have the two Brazil JVs. The one came from Argo, and I believe on that one there was an option where you could take down the rest of the JV at year end, January 1 of this year. Any – What's the latest on that? Will you guys kind of run the two JVs separately or maybe combining them or is there anything to do there at this point?

Yeah, what I would say is that we're continuing to evaluate our options there. You know, we have options on both of them. You know, great, great strategic partners down there. So we're excited about, you know, the addition of our venture with Comfrio. And we'll continue to assess and, you know, obviously want to optimize everything that we can. But we're working with our various partners to determine what that looks like into the future.

Okay. Yeah, it'll be exciting to see. And then maybe kind of follow up on an earlier question. You entered Europe, Canada, Brazil last year. Do you think we'll see you guys focus on expanding in those regions first or potentially maybe throw in another country or region into the mix?

Yeah. Yeah, look, there's a lot of countries within Europe that we're not in. So obviously that's avails itself to opportunities now that we have a foothold in the continent itself. So there is a lot of countries there that will be opportunities. And there's a lot of expansion and development opportunities that will come out of this. There's a lot of common customers that we have that do business both here with us in a major way and also in Europe. We've had discussions with us in the past about building in Europe, but we haven't been able to do that because we didn't have that presence. That will certainly open up opportunities. As for entering another continent or something majorly outside of the scope of where we are, look, we continue to assess You know, it's really important, as you look at some of these other areas that we're not in, to understand the supply chain infrastructure as it pertains to the temperature control aspects. And unfortunately, a lot of those countries are not quite there yet, which is why we haven't entered them in a material way. But, you know, look, we're very, very active, have lots of conversations with lots of folks around the world, and when the timing's right, we'll enter more new markets. But there's certainly plentiful opportunities within the markets we're in. I'll remind you that in Europe, Agro, well, actually the top 10, you know, temperature control providers in Europe only represent 20% of the marketplace. So that's 80% of the market is available through, you know, onesie-twosie types of types of opportunities. So we think there's tremendous opportunities in every country that we operate today, plus some additional tangential countries. Great. Appreciate that. Thanks, Josh.

And our next question is from Keebin Kim with Truist. Please proceed with your question.

Hi, everyone. So you talked about some of the different factors that impacted your fourth quarter results, such as protein volumes and cyber attack. But before, you guys used to talk about just maybe the changing nature of consumption patterns, just in the consumer endpoint. How did that all play out in the fourth quarter in the holiday season? And did that make any kind of impact on your theme store revenue overall?

No, look, at the end of the day, everything that had to do with each quarter last year was COVID impacted. So we can point to kind of discreet transactional types of situations that are clear. We mention protein all the time because protein's in the news, and people understand why protein has been hit from a manufacturing standpoint. So we use that as an example. supply chain. So, you know, consumer behavior hasn't really changed a whole lot between third quarter and fourth quarter, meaning the mix between, you know, kind of food service and retail. And we really haven't seen a noticeable change this year yet either. And that's why, you know, look, it's hard to predict. I wish I had a crystal ball to tell know, when consumer behavior is going to get back to normal, if it ever gets back to normal, it's just really hard to predict. And as such, it's very difficult to compare quarter over quarter, certainly on a year-on-year basis, and even in sequential quarters. But again, over the course of four quarters, the course of the full year, we do expect consumption overall, because remember, we're will remain consistent.

Got it. And what is actually in the other service cost bucket, because that was down 13% year-over-year in the fourth quarter, and I'm just curious if that's at all sustainable.

Yeah. So other service costs would include, like, our material handling equipment, maintenance, Do it include consumables used in the operation? So it could be pallets or shrink wrap. Those are the principal costs that drive that bucket. Obviously, your PPE and those types of things would also be included in there from a COVID perspective.

Yeah. And then going back to your guidance, just because you do have a very tough comp coming up in the first quarter and we're basically halfway through it, just so that the street isn't too far off in reality. Any kind of additional details you can share just to help us mentally think about what can happen?

Yeah, I'll just reiterate what we said on C1 last year, which is, you know, we felt like just the timing of the surge and the impact of COVID really was much more pronounced in terms of a flipping the switch in activity. And we called out last year approximately $6 million of NOI as being the contribution of that all hit in the quarter. Now, you know, as we mentioned here, you know, we continue to say our business is best looked at at the full year basis. But as you look in Q1, we don't believe that type of surge of activity is going to recur. Yeah, it absolutely won't recur. And the key to remember, though, is that's not $6 million that gets pulled out of the full year. That $6 million, as we described it last year, was a pull ahead. So we felt the negative impact of that in Q2 of last year. So, you know, again, on the full annual basis, the volume flowed. It just flowed different because everybody hoarded at the end of that first quarter. So that's why, again, every quarter, I think, as we go through this year, it's going to be difficult to compare to the light quarter from the year before, but on a full year basis, yeah, we're very, very comfortable with our guidance.

Just last question for me. In your guidance for 2021, your managed and transport NOI guidance is $50 million, and in 2020, I think, if this is apples to apples, I think it was $31 million. I guess, first of all, is my math correct? And second, what's causing the uplift?

Yeah, so that principally came through additional activity that came through both, you know, as an example, the halls and agro acquisitions, they had a much larger transportation component than, you know, our legacy business. So a lot of that's driven by the acquisition, yeah.

And then, Keven, just to follow up, Keven, sorry, just want to make sure, the first quarter of last year, we said about 50%, about half of that outside growth came from COVID related. So we just put it on a percentage basis of about half.

Okay. Thank you, guys.

Yep. Thanks, Peter.

And our next question is from Mike Mueller with JPMorgan.

Please proceed with your question. Yeah, hi, just one quick one here. And I know you're not going to give out specifics, but directionally, what is what is guide factoring in in terms of economic occupancy levels and throughput, considering both were down quite a bit in 2020? I mean, does it assume more of a status quo scenario or some recovery? Just any color would be helpful.

Yeah, if you look across, just to be clear, on the full year basis, last year, economic occupancy was up a little over 100 base points. So, you know, that's not inconsistent with our view. As you look on throughput, clearly throughput was down. You know, mix does matter in our business. You know, so throughput, I think, in total was down 2.7%, obviously very much driven, as Fred mentioned, by, you know, changes and fluctuations in the supply chain due to COVID. You know, As we go forward this year, and I just want to remind people, you know, how we manage, how we drive our business is to really focus on how we maximize four-wall cash flow. And you can get it through a number of ways. No two customers are alike. I think we've talked about that. Lots of our customers have very different profiles. So, you know. Overall, as Fred said, we think this will be another unique year due to COVID and just the impact of timing of when things start to reopen and hopefully return to more normal levels. But we hardly think 2021 will look like any legacy normalized year. It's going to be unique to its own and unique from 2020.

Got it. Okay. Thank you.

Thanks. And our next question is from Bill Crow with Raymond James. Please proceed with your question.

Good evening, guys. We're going to do this call again in, what, 70 days or something like that. Are we going to be talking about the winter weather and the impact it had on your results?

When you think about the impact of the winter weather, usually what happens is two things. The product that's in our warehouse stays longer, which sometimes can mean incremental storage expense, and the other impact can be more activity. I will tell you, You know, the way these usually happen is these aren't big surprises. So people see storms coming and people tend to work through their supply chain in anticipation of those events. So they'll try to get more food into the stores faster or product moved and repositioned. So we tend to see that. You know, I will say, you know, our facilities, you know, continue to be operational. We'll be up and running. You know, you may have a day or so delay, but nothing, we don't expect anything material. Yeah, we don't find it to be really material. I mean, think about last year alone. I mean, number one, we did have winter storms, you know, during the course of the year. We do every year. And, you know, as we went into the summer, we had the highest hurricane, you know, number. Not huge impacts, but again, And it just kind of loops through. The supply chain to staff is just like Mark said. So we don't expect so. It would be more impactful if it spanned over a quarter end. Yeah. And, you know, right now it's not.

That's right. Okay. And then the other question is, are you kind of underwriting the vaccine distribution in a more fluid way? economic environment in the second half of the year?

How are you thinking about that? We are not. We are considering it to be pretty similar to last year over the course of the year. You know, again, first of all, remember, there's going to be nothing miraculous. There won't be a light switch event like there was at the end of the first quarter of last year, right? So if all of a sudden all of us were vaccinated tomorrow, I don't think everybody's going to go rush back to those restaurants. Food services are going to all of a sudden snap back overnight, right? That's going to be kind of a drawn-out, elongated type of process. And, you know, we think it's going to take less. If all of a sudden all of our manufacturers, like, you know, the large carcass protein guys, miraculously we're able to get back up to 100% efficiency tomorrow, yeah, that would have an impact. All of a sudden the volume would start flowing and they'd start filling up those facilities again and we'd have more storage. But again, I think that's going to be drawn out over the course of the year, Bill.

Okay. Appreciate it. Thanks for your time.

Sure. And our next question is from Vince Tabone with Green Street Advisors. Please proceed with your questions.

Hi, good evening. As food service ramps back up, do you see this as an opportunity to potentially gain share of wallet with customers as they potentially rethink their supply chains moving forward?

You know, most of our customers, I mean, the answer is yes and no. You know, there could be some new opportunities with new up-and-comers or startups in manufacturing, mostly on the smaller scale type of basis. But most of our large customers actually manufacture goods for both food service and retail. So it's usually them just switching over their lines. and starting to repackage and reformulate for food service again. So we don't expect any dramatic swing, which is why we weren't really impacted that much on a full-year basis last year with that massive switch between food service and retail. So, again, our theory is consumption happens. You know, what we eat and where we eat may change, but people are going to eat. So on a full-year basis, it all works itself out.

Got it. That's helpful. Thank you. And then just on the timing, as we think about a potential rebound in restaurant traffic, what's the kind of lag and lead time in the whole food supply chain that if we think restaurant volumes are going to be stronger in the fourth quarter, when does that start flowing through your revenue and the whole food supply chain? What's the lag time there?

Yeah, it is a lead up to it. I mean, in general, the rule of thumb is most of our customers carry about, you know, 30 days in the inventory in their forward positions, and then, you know, another 30 days of inventory closer to their point of manufacturing. So, you know, they'll start building up as they see that steady flow. So, right now, we're still holding inventory for food service, right, and still kind of trickling that out to food distribution companies like you know, U.S. foods. Again, like I said with Bill, you know, we're not expecting, there's not going to be a switch where all of a sudden food service comes roaring back. It's going to take a while, you know, for food service to climb itself back. And that gives the supply chains the opportunity to get out in front of it.

Got it. Thank you.

And we have reached the end of the question and answer session. And I will now turn the call over to Fred Broehler for closing remarks.

Great, thanks. And thanks, everyone, for participating tonight. Again, I'm very pleased with our business performance in 2020, especially given the backdrop of the pandemic. Our business proved its ability to deliver even under the toughest conditions. I'm proud of all of our AmeriCold associates for their hard work and dedication to deliver 2020 and set us up for what we believe will be another strong year in 2021. So thanks again, and everyone please have a good and safe evening.

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.