Americold Realty Trust(COLD) - 2022 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION This section presents Americold Realty Trust's financial statements, management's discussion, and market risk disclosures Item 1. Financial Statements This section presents Americold's unaudited consolidated financial statements, including balance sheets, operations, equity, cash flows, and detailed notes - Americold Realty Trust, Inc. converted from a Maryland real estate investment trust to a Maryland corporation on May 25, 2022, but continues to operate as a REIT for U.S. federal income tax purposes[34] - The company formed a joint venture, Americold LATAM Holdings Ltd, on May 31, 2022, contributing its Chilean business and retaining a 15% equity interest, resulting in a recognized loss of approximately $4.1 million[39] - A gain of $3.4 million was recognized during Q2 2022 from the extinguishment of New Markets Tax Credit agreements after their seven-year compliance period[40] - Impairment charges totaling $6.6 million were recorded for the nine months ended September 30, 2022, including $3.2 million for goodwill in the Third-party managed segment due to a strategic shift, $2.2 million for assets under construction, and $1.2 million for warehouse segment assets[41] - The company's business and financial results were negatively impacted by COVID-19 disruptions, labor availability and cost, and inflation, leading to lower occupancy and throughput volumes[44] - Out-of-cycle rate increases were initiated to address inflationary pressures[46] - On July 1, 2022, Americold acquired De Bruyn Cold Storage in Tasmania, Australia, for $16.0 million, allocated to the Warehouse segment[48] - The company refinanced its senior unsecured credit facility in August 2022, extending it to approximately $2.0 billion and updating the base interest rate to SOFR from LIBOR, incorporating a sustainability-linked pricing component[63] - Aggregate share-based compensation charges were $22.1 million for the nine months ended September 30, 2022, up from $14.8 million in the prior year[92] - As of September 30, 2022, the Company had $676.8 million of remaining unsatisfied performance obligations from non-cancellable customer contracts with an original expected duration exceeding one year[150] 1.1 Condensed Consolidated Balance Sheets (Unaudited) Total assets decreased to $8,001,904 thousand by September 30, 2022, while total equity declined to $3,822,591 thousand Balance Sheet Highlights (in thousands) | Metric | Sep 30, 2022 | Dec 31, 2021 | Change | | :----- | :----------- | :----------- | :----- | | Total Assets | $8,001,904 | $8,216,197 | $(214,293) | | Total Liabilities | $4,179,313 | $4,187,121 | $(7,808) | | Total Equity | $3,822,591 | $4,029,076 | $(206,485) | 1.2 Condensed Consolidated Statements of Operations (Unaudited) The company reported a net loss of $8,937 thousand for Q3 2022, a shift from prior year net income, despite a 6.9% revenue increase Statements of Operations Highlights (in thousands) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | Change | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change | | :-------------------- | :-------------------------- | :-------------------------- | :----- | :-------------------------- | :-------------------------- | :----- | | Total Revenues | $757,780 | $708,808 | +6.9% | $2,193,231 | $1,998,310 | +9.8% | | Total Operating Expenses | $734,610 | $677,250 | +8.5% | $2,138,405 | $1,929,562 | +10.8% | | Operating Income | $23,170 | $31,558 | -26.6% | $54,826 | $68,748 | -20.3% | | Net (Loss) Income | $(8,937) | $5,308 | N/A | $(22,429) | $(22,327) | N/A | | Net (Loss) Income per Common Share - Basic | $(0.03) | $0.02 | N/A | $(0.08) | $ (0.09) | N/A | 1.3 Condensed Consolidated Statements of Comprehensive Loss (Unaudited) Total comprehensive loss for Q3 2022 was $25,688 thousand, significantly higher due to increased unrealized foreign currency losses Statements of Comprehensive Loss Highlights (in thousands) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | Change | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change | | :-------------------- | :-------------------------- | :-------------------------- | :----- | :-------------------------- | :-------------------------- | :----- | | Net (Loss) Income | $(8,937) | $5,308 | N/A | $(22,429) | $(22,327) | N/A | | Change in unrealized net loss on foreign currency | $(25,038) | $(9,485) | +163.9% | $(37,720) | $(13,141) | +187.0% | | Total Comprehensive Loss | $(25,688) | $(3,560) | +624.4% | $(50,248) | $(31,436) | +59.8% | 1.4 Condensed Consolidated Statements of Equity (Unaudited) Total equity decreased to $3,822,591 thousand by September 30, 2022, primarily due to net losses and distributions Statements of Equity Highlights (in thousands) | Metric | Dec 31, 2021 | Sep 30, 2022 | Change | | :-------------------- | :----------- | :----------- | :----- | | Total Equity | $4,029,076 | $3,822,591 | $(206,485) | | Net Loss (9 months) | $(17,407) | $(22,429) | N/A | | Distributions on common stock, restricted stock and OP units (9 months) | $(178,911) | $(179,074) | N/A | | Accumulated Other Comprehensive Income (Loss) | $4,522 | $(23,194) | $(27,716) | 1.5 Condensed Consolidated Statements of Cash Flows (Unaudited) Operating cash flow increased by 11.3% to $182,883 thousand, while investing and financing cash flows significantly decreased Statements of Cash Flows Highlights (in thousands) | Metric | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change | | :-------------------- | :-------------------------- | :-------------------------- | :----- | | Net cash provided by operating activities | $182,883 | $164,319 | +11.3% | | Net cash used in investing activities | $(288,008) | $(945,491) | -69.5% | | Net cash provided by financing activities | $74,473 | $315,269 | -76.4% | | Net decrease in cash, cash equivalents and restricted cash | $(30,652) | $(465,903) | -93.4% | 1.6 Notes to Condensed Consolidated Financial Statements (Unaudited) This section details accounting policies, significant transactions, financial instruments, and segment information, including joint ventures and impairment charges 1.6.1 General Information Americold is the world's largest publicly traded REIT for temperature-controlled warehouses, converting to a Maryland corporation in May 2022 - Americold Realty Trust, Inc. is the world's largest publicly traded REIT focused on the ownership, operation, and development of temperature-controlled warehouses[33] - On May 25, 2022, the Company converted from a Maryland real estate investment trust to a Maryland corporation, while continuing to operate as a REIT for U.S. federal income tax purposes[34] 1.6.2 Formation of Latin America Joint Venture Americold formed the LATAM JV on May 31, 2022, contributing its Chilean business for a 15% stake and recognizing a $4.1 million loss - Americold formed a joint venture, Americold LATAM Holdings Ltd (LATAM JV), on May 31, 2022, with Cold LATAM Limited to grow its business in Latin America (excluding Brazil)[39] - Americold contributed its Chilean business to the LATAM JV and retained a 15% equity interest, recognizing a loss of approximately $4.1 million upon deconsolidation[39] - The JV partner committed to invest approximately $209.0 million for an 85% equity interest in the LATAM JV[39] 1.6.3 Extinguishment of New Market Tax Credit ("NMTC") Arrangement A $3.4 million gain was recognized in Q2 2022 from the extinguishment of New Markets Tax Credit agreements - A gain of $3.4 million was recognized in the second quarter of 2022 from the extinguishment of New Markets Tax Credit (NMTC) agreements[40] 1.6.4 Impairment of Indefinite and Long-Lived Assets Americold recorded $6.6 million in impairment charges for the nine months ended September 30, 2022, including goodwill and assets under construction Impairment Charges (in millions) | Impairment Type | 9 Months Ended Sep 30, 2022 | | :-------------- | :-------------------------- | | Goodwill | $3.2 | | Assets under construction | $2.2 | | Buildings and improvements | $1.2 | | Total Impairment Charges | $6.6 | - The goodwill impairment in the Third-party managed segment is due to a strategic shift focusing on the core warehouse portfolio and winding down business with a large customer[41] 1.6.5 Significant Risks and Uncertainties The company faces significant risks from COVID-19, labor shortages, inflation, and geopolitical conflicts, impacting operations and costs - COVID-19, labor availability, and inflation negatively impacted the food supply chain, customer production, and operating costs, leading to lower occupancy and throughput[44] - Americold initiated out-of-cycle rate increases in customer contracts during the second half of 2021 and Q3 2022 to address significant inflationary pressures on storage, services, and transportation costs[46] - Global supply chain volatility due to the Russia-Ukraine conflict could impact operations, particularly in Europe, though no material impact has been observed to date[47] 1.6.6 Business Combinations Americold acquired De Bruyn Cold Storage in Australia for $16.0 million on July 1, 2022, allocating assets to the Warehouse segment - On July 1, 2022, Americold acquired De Bruyn Cold Storage in Tasmania, Australia, for $16.0 million (A$23.5 million)[48] Acquired Assets (in millions) | Acquired Asset (De Bruyn Cold Storage) | Amount | | :------------------------------------- | :----- | | Land | $1.0 | | Buildings and improvements | $8.6 | | Machinery and equipment | $3.4 | | Goodwill | $3.1 | 1.6.7 Acquisition, Litigation and Other, net Acquisition, litigation and other, net expenses decreased to $20.6 million for the nine months ended September 30, 2022, benefiting from a litigation settlement Acquisition, Litigation and Other, Net Expenses (in thousands) | Component | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :----------------------- | :-------------------------- | :-------------------------- | | Acquisition and integration related costs | $15,879 | $22,851 | | Litigation (gain) loss | $179 | $942 | | Severance costs | $5,060 | $2,850 | | Cyber incident related costs, net of insurance recoveries | $(785) | $3,539 | | Total acquisition, litigation and other, net | $20,612 | $31,011 | - A $2.2 million benefit was recognized during Q3 2022 due to a favorable litigation settlement[52] 1.6.8 Debt Total indebtedness increased to $2,973,315 thousand by September 30, 2022, with rising interest rates and a refinanced credit facility Debt Overview (in thousands) | Debt Type | Sep 30, 2022 | Dec 31, 2021 | Weighted-Average Effective Interest Rate (Sep 30, 2022) | | :----------------------- | :----------- | :----------- | :-------------------------------------- | | Senior Unsecured Notes | $1,685,150 | $1,802,750 | 3.33% | | Senior Unsecured Term Loans | $555,775 | $372,800 | 4.72% | | Senior Unsecured Revolving Credit Facility | $468,286 | $399,314 | 4.13% | | 2013 Mortgage Loans | $264,104 | $269,545 | 5.97% | | Total principal amount of indebtedness | $2,973,315 | $2,854,170 | | - On August 23, 2022, the company extended and upsized its senior unsecured credit facility from $1.5 billion to approximately $2.0 billion, updating the base interest rate to SOFR from LIBOR and incorporating a sustainability-linked pricing component[63] - The company was in compliance with all debt covenants as of September 30, 2022[66] 1.6.9 Derivative Financial Instruments Americold uses derivatives to manage interest rate and foreign currency risks, with derivative assets increasing to $27,928 thousand by September 30, 2022 - The company entered into several interest rate swap agreements to hedge an aggregate of $200 million USD and C$250 million variable interest rate debt, following an increase in variable interest rate exposure from the 2022 Senior Unsecured Credit Facility refinancing[74] - Cross-currency swaps are used to manage foreign currency exchange rate risk on intercompany loans, hedging $153.5 million AUD and $37.5 million NZD balances[75] Derivative Financial Instruments (in thousands) | Derivative Type | Sep 30, 2022 (Assets) | Dec 31, 2021 (Assets) | | :----------------------------- | :-------------------- | :-------------------- | | Foreign exchange contracts | $17,099 | $2,015 | | Interest rate contracts | $10,829 | $0 | | Total derivatives | $27,928 | $2,015 | 1.6.10 Fair Value Measurements Americold categorizes fair value measurements into Level 1, Level 2, and Level 3 inputs, primarily using Level 2 for derivatives and a combination for debt instruments - Derivative instruments (interest rate swaps, cross-currency swaps, foreign currency forward contracts) are valued using Level 2 inputs[85] - Mortgage notes, senior unsecured notes, and term loans are valued using a combination of Level 2 (e.g., loan spreads, interest rates) and Level 3 (e.g., future cash flows) inputs[84] Fair Value Measurements (in thousands) | Asset/Liability | Fair Value Hierarchy | Sep 30, 2022 | Dec 31, 2021 | | :----------------------------- | :------------------- | :----------- | :----------- | | Interest rate swap assets | Level 2 | $10,829 | $0 | | Cross currency swap assets | Level 2 | $17,099 | $2,015 | | Total Mortgage notes, senior unsecured notes and term loans | Level 3 | $2,705,416 | $2,939,237 | 1.6.11 Stock-Based Compensation Aggregate share-based compensation charges increased to $22.1 million for the nine months ended September 30, 2022, with $29.2 million unrecognized expense remaining - Aggregate share-based compensation charges were $22.1 million for the nine months ended September 30, 2022, compared to $14.8 million for the same period in 2021[92] - As of September 30, 2022, $29.2 million of unrecognized share-based compensation expense remains, to be recognized over a weighted-average period of 1.8 years[92] Restricted Stock Units Granted (9 Months Ended Sep 30) | Restricted Stock Units Granted | 2022 | 2021 | | :----------------------------------------------------- | :--- | :--- | | Directors | 4,810 | 6,616 | | Associates | 529,883 | 321,150 | OP Units Granted (9 Months Ended Sep 30) | OP Units Granted | 2022 | 2021 | | :--------------------------------------- | :--- | :--- | | Directors | 35,593 | 17,863 | | Associates | 342,980 | 258,479 | 1.6.12 Income Taxes Americold reported a $16.1 million income tax benefit for the nine months ended September 30, 2022, driven by operating losses and a deferred tax benefit Income Tax Benefit (Expense) (in thousands) | Metric | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change | | :-------------------- | :-------------------------- | :-------------------------- | :----- | | Total Income Tax Benefit (Expense) | $16,145 | $(7,957) | +$24,102 | - The income tax benefit for the nine months ended September 30, 2022, was primarily due to increased operating losses from U.S. and foreign operations and a $6.5 million deferred tax benefit from the deconsolidation of Chilean operations[302] 1.6.13 Commitments and Contingencies The company is involved in legal proceedings and environmental matters, with management believing outcomes will not materially impact financial statements - Americold is involved in ongoing legal proceedings, including the Kansas Breach of Settlement Agreement Litigation and Preferred Freezer Services, LLC Litigation, but management believes the ultimate outcome will not have a material adverse impact on its financial statements[123] - The company records accruals for environmental matters and OSHA compliance when liabilities are probable and reasonably estimable, and believes it is in compliance with applicable regulations in all material respects[125][126] 1.6.14 Accumulated Other Comprehensive (Loss) Income AOCI showed a total change in other comprehensive loss of $27,716 thousand for the nine months ended September 30, 2022, driven by translation adjustments Accumulated Other Comprehensive (Loss) Income (in thousands) | Metric | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :-------------------- | :-------------------------- | :-------------------------- | | Cumulative translation adjustment | $(187,853) | $(13,141) | | Derecognition of cumulative foreign currency translation upon deconsolidation of entity contributed to a joint venture | $4,970 | $0 | | Total change in other comprehensive loss | $(27,716) | $(9,098) | 1.6.15 Segment Information Americold operates in Warehouse, Third-party managed, and Transportation segments, with performance evaluated by revenues and segment contribution (NOI) - Americold's principal operations are organized into three reportable segments: Warehouse, Third-party managed, and Transportation[129] - Segment performance is evaluated using revenues and segment contribution (NOI), calculated as earnings before interest expense, taxes, depreciation and amortization, and excluding selling, general and administrative expense, acquisition, litigation and other, net, impairment, and gain/loss on sale of real estate[131] Segment Revenues (in thousands) | Segment Revenues | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Warehouse | $598,977 | $542,047 | $1,704,281 | $1,531,232 | | Third-party managed | $82,436 | $87,782 | $251,782 | $233,027 | | Transportation | $76,367 | $78,979 | $237,168 | $234,051 | | Total Revenues | $757,780 | $708,808 | $2,193,231 | $1,998,310 | Segment Contribution (NOI) (in thousands) | Segment Contribution (NOI) | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :---------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Warehouse | $166,662 | $144,992 | $463,905 | $435,552 | | Third-party managed | $3,660 | $4,551 | $10,882 | $10,626 | | Transportation | $10,836 | $6,251 | $32,950 | $22,204 | | Total Segment Contribution | $181,158 | $155,794 | $507,737 | $468,382 | 1.6.16 Loss (Income) per Common Share Basic and diluted net loss per common share for Q3 2022 was $(0.03), with potential common shares being antidilutive due to net losses Loss (Income) per Common Share | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :-------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net (Loss) Income per Common Share - Basic | $(0.03) | $0.02 | $(0.08) | $(0.09) | | Net (Loss) Income per Common Share - Diluted | $(0.03) | $0.02 | $(0.08) | $(0.09) | - Potential common shares from employee stock options, restricted stock units, OP units, and equity forward contracts were antidilutive for the three and nine months ended September 30, 2022 and 2021, due to the company reporting a net loss[141][142] 1.6.17 Revenue from Contracts with Customers Total revenues from contracts with customers for Q3 2022 were $757.8 million, with $676.8 million in remaining performance obligations Revenue from Contracts with Customers (in thousands) | Revenue Source | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :---------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Warehouse rent and storage | $249,147 | $217,480 | $699,675 | $620,794 | | Warehouse services | $338,729 | $316,813 | $971,925 | $888,445 | | Third-party managed | $82,436 | $87,782 | $251,782 | $233,027 | | Transportation | $76,367 | $78,979 | $237,168 | $234,051 | | Lease revenue | $11,101 | $8,180 | $32,681 | $21,993 | | Total revenues from contracts with all customers | $757,780 | $708,808 | $2,193,231 | $1,998,310 | - As of September 30, 2022, the company had $676.8 million of remaining unsatisfied performance obligations from non-cancellable contracts with an original expected duration exceeding one year, with 92% expected to be recognized over a weighted average period of 14.5 years through 2038[150] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section discusses Americold's financial condition and operational results, highlighting macroeconomic impacts, strategic initiatives, and segment performance 2.1 Management's Overview Americold is the world's largest publicly traded REIT for temperature-controlled warehouses, operating a global network and expanding through a new LATAM JV - Americold operates a global network of 249 temperature-controlled warehouses, including 202 in North America, 27 in Europe, 18 in Asia-Pacific, and two in South America, as of September 30, 2022[157] - The company's primary revenue sources are rent, storage, and value-added warehouse services (e.g., blast freezing, case-picking, e-commerce fulfillment)[158][160] - Key operating costs for the warehouse segment include labor (wages, benefits) and power, with fluctuations in power prices significantly impacting financial results[161] - A Latin America joint venture (LATAM JV) was formed in Q2 2022 to grow market presence in the region (excluding Brazil)[157] 2.2 Key Factors Affecting Our Business and Financial Results Americold's results are impacted by COVID-19, labor shortages, inflation, acquisitions, and foreign currency fluctuations, with rate increases implemented - COVID-19, labor availability, and inflation negatively impacted food supply chains, customer production, and operating costs, resulting in lower occupancy and throughput[170] - Americold initiated out-of-cycle rate increases in customer contracts during the second half of 2021 and Q3 2022 to address inflationary pressures, but cannot assure full offset[172] - The acquisition of De Bruyn Cold Storage in Tasmania, Australia, for $16.0 million was completed on July 1, 2022, and a LATAM JV was formed on June 2, 2022, to expand in Latin America[175][177] - Physical occupancy rates are typically lowest in May-June and peak between mid-September and early December due to harvests and holiday inventory build-up, while Q3 generally sees increased power expenses due to higher external temperatures[179] - Foreign currency translation had an unfavorable impact on revenues and expenses due to the strengthening of the U.S. dollar against foreign currencies[181][214] 2.3 How We Assess the Performance of Our Business Americold assesses performance using Segment Contribution (NOI), Same Store Analysis, and Constant Currency Metrics to evaluate underlying business trends - Segment Contribution (NOI) is calculated as a segment's revenues less its cost of operations, excluding depreciation, amortization, impairment, corporate SG&A, and acquisition/litigation/other net expenses[195] - Same Store Analysis includes properties owned or leased for the entirety of two comparable periods with at least twelve months of normalized operations, adjusted for acquisitions, sales, and developments, and is presented on a constant currency basis[198][202] - Constant Currency Metrics translate current period results into U.S. dollars using prior period average foreign exchange rates to assess underlying business performance, excluding foreign currency fluctuations[208] Warehouse Count | Warehouse Count | Sep 30, 2022 | | :-------------- | :----------- | | Total Warehouses | 249 | | Same Store Warehouses | 212 | | Non-Same Store Warehouses | 28 | | Third-Party Managed Warehouses | 9 | 2.4 Results of Operations This section details Americold's financial performance for the three and nine months ended September 30, 2022, across its operating segments 2.4.1 Comparison of Results for the Three Months Ended September 30, 2022 and 2021 Total revenues increased by 6.9% to $757.8 million for Q3 2022, but operating income decreased by 26.6%, leading to a net loss 2.4.1.1 Warehouse Segment Warehouse segment revenues increased by 10.5% to $599.0 million for Q3 2022, driven by pricing and improved occupancy, with NOI rising by 14.9% Warehouse Segment Performance (in thousands) | Metric | 3 Months Ended Sep 30, 2022 (Actual) | 3 Months Ended Sep 30, 2021 (Actual) | Change (Actual) | 3 Months Ended Sep 30, 2022 (Constant Currency) | Change (Constant Currency) | | :-------------------- | :----------------------------------- | :----------------------------------- | :-------------- | :---------------------------------------------- | :------------------------- | | Total Warehouse Segment Revenues | $598,977 | $542,047 | +10.5% | $613,571 | +13.2% | | Total Warehouse Segment Cost of Operations | $432,315 | $397,055 | +8.9% | $443,734 | +11.8% | | Warehouse Segment Contribution (NOI) | $166,662 | $144,992 | +14.9% | $169,837 | +17.1% | | Total Warehouse Segment Margin | 27.8% | 26.7% | +108 bps | 27.7% | +93 bps | Same Store Operating Metrics | Same Store Operating Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | Change | | :-------------------------- | :-------------------------- | :-------------------------- | :----- | | Economic occupancy percentage | 80.7% | 76.3% | +437 bps | | Average occupied economic pallets (in thousands) | 3,910 | 3,699 | +5.7% | | Throughput pallets (in thousands) | 9,146 | 9,263 | (1.3)% | - Same store rent and storage revenues per economic occupied pallet increased 5.9% (8.1% constant currency) due to pricing initiatives, contractual rate escalations, and business mix[229] 2.4.1.2 Third-Party Managed Segment Third-party managed revenues decreased by 6.1% to $82.4 million for Q3 2022, leading to a 19.6% decline in segment contribution (NOI) Third-Party Managed Segment Performance (in thousands) | Metric | 3 Months Ended Sep 30, 2022 (Actual) | 3 Months Ended Sep 30, 2021 (Actual) | Change (Actual) | 3 Months Ended Sep 30, 2022 (Constant Currency) | Change (Constant Currency) | | :-------------------- | :----------------------------------- | :----------------------------------- | :-------------- | :---------------------------------------------- | :------------------------- | | Third-party managed revenues | $82,436 | $87,782 | (6.1)% | $82,870 | (5.6)% | | Third-party managed cost of operations | $78,776 | $83,231 | (5.4)% | $79,133 | (4.9)% | | Third-party managed segment contribution | $3,660 | $4,551 | (19.6)% | $3,737 | (17.9)% | | Third-party managed margin | 4.4% | 5.2% | -74 bps | 4.5% | -67 bps | - The decrease in revenues and contribution was driven by lower business volumes in domestic managed operations and a reduction in certain direct pass-through costs[234][235] 2.4.1.3 Transportation Segment Transportation revenues decreased by 3.3% to $76.4 million for Q3 2022, but segment contribution (NOI) significantly increased by 73.3% due to rate increases Transportation Segment Performance (in thousands) | Metric | 3 Months Ended Sep 30, 2022 (Actual) | 3 Months Ended Sep 30, 2021 (Actual) | Change (Actual) | 3 Months Ended Sep 30, 2022 (Constant Currency) | Change (Constant Currency) | | :-------------------- | :----------------------------------- | :----------------------------------- | :-------------- | :---------------------------------------------- | :------------------------- | | Transportation revenues | $76,367 | $78,979 | (3.3)% | $82,174 | +4.0% | | Transportation cost of operations | $65,532 | $72,728 | (9.9)% | $71,486 | (1.7)% | | Transportation segment contribution (NOI) | $10,835 | $6,251 | +73.3% | $10,688 | +71.0% | | Transportation margin | 14.2% | 7.9% | +627 bps | 13.0% | +509 bps | - The significant increase in transportation segment contribution and margin was primarily due to rate increases implemented in 2022 and the exit of certain less profitable market operations[242] 2.4.1.4 Other Consolidated Operating Expenses Depreciation and amortization increased by 18.6% to $83.7 million, while SG&A rose by 25.4% for Q3 2022, alongside impairment charges and real estate loss Other Consolidated Operating Expenses (in thousands) | Expense | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | Change | | :--------------------- | :-------------------------- | :-------------------------- | :----- | | Depreciation and amortization | $83,669 | $70,569 | +18.6% | | Selling, general and administrative | $57,119 | $45,545 | +25.4% | | Acquisition, litigation and other, net | $4,874 | $6,338 | -23.1% | | Impairment of indefinite and long-lived assets | $6,616 | $1,784 | +270.9% | | Loss from sale of real estate | $5,710 | $0 | N/A | - The increase in selling, general and administrative expenses was driven by the resumption of performance-based compensation, higher third-party legal and professional fees, and increased travel costs[244] - Impairment charges included $3.2 million for goodwill in the Third-party managed segment due to a strategic shift[246] 2.4.1.5 Other Expense and Income Interest expense increased by 20.2% to $30.4 million for Q3 2022 due to rising rates, with other net expense significantly increasing from foreign currency loss Other Expense and Income (in thousands) | Expense/Income | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | Change | | :---------------------------- | :-------------------------- | :-------------------------- | :----- | | Interest expense | $(30,402) | $(25,303) | +20.2% | | Loss on debt extinguishment, modifications and termination of derivative instruments | $(1,040) | $(627) | +65.9% | | Other, net | $(2,593) | $(57) | N/A | | Loss from investments in partially owned entities | $(1,440) | $(489) | +194.5% | - The effective interest rate on outstanding debt increased from 3.09% in Q3 2021 to 3.95% in Q3 2022, primarily due to rising interest rates on the Senior Unsecured Credit Facility[250] - Other, net expense increased due to a $2.1 million increase in foreign currency exchange loss and a $1.4 million increase in loss on asset disposals[252] 2.4.1.6 Income Tax Benefit (Expense) Americold reported an income tax benefit of $3.4 million for Q3 2022, a $3.2 million increase, primarily due to losses from foreign operations Income Tax Benefit (Expense) (in thousands) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | Change | | :-------------------- | :-------------------------- | :-------------------------- | :----- | | Total Income Tax Benefit (Expense) | $3,368 | $226 | +$3,142 | - The increase in income tax benefit was primarily due to losses generated by foreign operations[255] 2.4.2 Comparison of Results for the Nine Months Ended September 30, 2022 and 2021 Total revenues increased by 9.8% to $2,193.2 million for the nine months ended September 30, 2022, but operating income decreased by 20.3% 2.4.2.1 Warehouse Segment Warehouse segment revenues increased by 11.3% to $1.70 billion for the nine months ended September 30, 2022, driven by pricing and occupancy, with NOI rising by 6.5% Warehouse Segment Performance (in thousands) | Metric | 9 Months Ended Sep 30, 2022 (Actual) | 9 Months Ended Sep 30, 2021 (Actual) | Change (Actual) | 9 Months Ended Sep 30, 2022 (Constant Currency) | Change (Constant Currency) | | :-------------------- | :----------------------------------- | :----------------------------------- | :-------------- | :---------------------------------------------- | :------------------------- | | Total Warehouse Segment Revenues | $1,704,281 | $1,531,232 | +11.3% | $1,738,745 | +13.6% | | Total Warehouse Segment Cost of Operations | $1,240,376 | $1,095,680 | +13.2% | $1,267,341 | +15.7% | | Warehouse Segment Contribution (NOI) | $463,905 | $435,552 | +6.5% | $471,404 | +8.2% | | Total Warehouse Segment Margin | 27.2% | 28.4% | -122 bps | 27.1% | -133 bps | Same Store Operating Metrics | Same Store Operating Metric | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change | | :-------------------------- | :-------------------------- | :-------------------------- | :----- | | Economic occupancy percentage | 78.7% | 76.2% | +249 bps | | Average occupied economic pallets (in thousands) | 3,821 | 3,694 | +3.4% | | Throughput pallets (in thousands) | 26,999 | 27,304 | (1.1)% | - Same store rent and storage revenues per economic occupied pallet increased 5.0% (6.8% constant currency) due to pricing initiatives and contractual rate escalations[274] - Warehouse services contribution (NOI) decreased by 50.7% to $22.3 million, and its margin declined by 280 bps to 2.3%, primarily due to labor inefficiencies and inflationary pressure[257] 2.4.2.2 Third-Party Managed Segment Third-party managed revenues increased by 8.0% to $251.8 million for the nine months ended September 30, 2022, with segment contribution (NOI) slightly up by 2.4% Third-Party Managed Segment Performance (in thousands) | Metric | 9 Months Ended Sep 30, 2022 (Actual) | 9 Months Ended Sep 30, 2021 (Actual) | Change (Actual) | 9 Months Ended Sep 30, 2022 (Constant Currency) | Change (Constant Currency) | | :-------------------- | :----------------------------------- | :----------------------------------- | :-------------- | :---------------------------------------------- | :------------------------- | | Third-party managed revenues | $251,782 | $233,027 | +8.0% | $252,987 | +8.6% | | Third-party managed cost of operations | $240,900 | $222,401 | +8.3% | $241,880 | +8.8% | | Third-party managed segment contribution | $10,882 | $10,626 | +2.4% | $11,107 | +4.5% | | Third-party managed margin | 4.3% | 4.6% | -24 bps | 4.4% | -17 bps | - The increase in revenues was a result of higher business volume in domestic managed operations and higher pass-through costs, primarily labor and related costs due to inflation[279] 2.4.2.3 Transportation Segment Transportation revenues increased by 1.3% to $237.2 million for the nine months ended September 30, 2022, with segment contribution (NOI) significantly up by 48.4% Transportation Segment Performance (in thousands) | Metric | 9 Months Ended Sep 30, 2022 (Actual) | 9 Months Ended Sep 30, 2021 (Actual) | Change (Actual) | 9 Months Ended Sep 30, 2022 (Constant Currency) | Change (Constant Currency) | | :-------------------- | :----------------------------------- | :----------------------------------- | :-------------- | :---------------------------------------------- | :------------------------- | | Transportation revenues | $237,168 | $234,051 | +1.3% | $249,920 | +6.8% | | Total transportation cost of operations | $204,218 | $211,847 | (3.6)% | $216,598 | +2.2% | | Transportation segment contribution (NOI) | $32,950 | $22,204 | +48.4% | $33,322 | +50.1% | | Transportation margin | 13.9% | 9.5% | +441 bps | 13.3% | +385 bps | - The significant increase in transportation segment contribution and margin was primarily due to rate increases implemented during 2022[287] 2.4.2.4 Other Consolidated Operating Expenses Depreciation and amortization increased by 7.2% to $249.0 million, while SG&A rose by 28.5% for the nine months ended September 30, 2022 Other Consolidated Operating Expenses (in thousands) | Expense | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change | | :--------------------- | :-------------------------- | :-------------------------- | :----- | | Depreciation and amortization | $248,979 | $232,239 | +7.2% | | Selling, general and administrative | $170,994 | $133,072 | +28.5% | | Acquisition, litigation and other, net | $20,612 | $31,011 | -33.6% | | Impairment of indefinite and long-lived assets | $6,616 | $3,312 | +99.7% | | Loss from sale of real estate | $5,710 | $0 | N/A | - The increase in selling, general and administrative expenses was driven by the resumption of performance-based compensation, higher third-party legal and professional fees, and increased travel costs[290] - Impairment charges included $3.2 million for goodwill in the Third-party managed segment due to a strategic shift[292] 2.4.2.5 Other Expense and Income Interest expense increased by 6.3% to $82.7 million for the nine months ended September 30, 2022, with other net expense increasing due to deconsolidation loss Other Expense and Income (in thousands) | Expense/Income | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change | | :---------------------------- | :-------------------------- | :-------------------------- | :----- | | Interest expense | $(82,720) | $(77,838) | +6.3% | | Loss on debt extinguishment, modifications and termination of derivative instruments | $(2,284) | $(5,051) | -54.8% | | Other, net | $(1,197) | $1,021 | N/A | | Loss from investments in partially owned entities | $(7,199) | $(1,250) | N/A | - Other, net expense increased due to a $4.1 million loss from the deconsolidation of Chilean operations upon contribution to the LATAM JV and a $3.1 million increase in foreign currency exchange loss, partially offset by a $3.4 million gain from the dissolution of NMTC entities[299] - Loss from investments in partially owned entities increased by $5.9 million due to higher interest expense incurred by joint ventures given rising interest rates[300] 2.4.2.6 Income Tax Benefit (Expense) Americold reported a $16.1 million income tax benefit for the nine months ended September 30, 2022, driven by operating losses and a deferred tax benefit Income Tax Benefit (Expense) (in thousands) | Metric | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change | | :-------------------- | :-------------------------- | :-------------------------- | :----- | | Total Income Tax Benefit (Expense) | $16,145 | $(7,957) | +$24,102 | - The income tax benefit was primarily due to a $13.8 million increase in deferred tax benefit from higher operating losses and a $6.5 million deferred tax benefit from the deconsolidation of Chilean operations[302] 2.5 Non-GAAP Financial Measures Americold uses non-GAAP measures like FFO, Core FFO, Adjusted FFO, EBITDAre, and Core EBITDA to evaluate operating performance and funding capacity - FFO, Core FFO, Adjusted FFO, EBITDAre, and Core EBITDA are used as supplemental performance measures to evaluate operating performance and ability to fund distributions[304][305][309] Funds from Operations (FFO) (in thousands) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | NAREIT Funds from operations applicable to common shareholders | $55,034 | $54,211 | $147,926 | $126,330 | | Core FFO applicable to common shareholders | $67,091 | $61,476 | $178,816 | $162,642 | | Adjusted FFO applicable to common shareholders | $79,333 | $69,595 | $222,062 | $217,259 | EBITDAre and Core EBITDA (in thousands) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | NAREIT EBITDAre | $110,859 | $102,808 | $311,631 | $299,995 | | Core EBITDA | $131,857 | $114,661 | $362,945 | $350,789 | Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses Americold's exposure to market risks, primarily focusing on interest rate risk and foreign currency risk management 3.1 Interest Rate Risk Americold manages interest rate risk on its variable-rate debt using swaps, with a 100 bps increase impacting annual interest expense by $6.4 million - As of September 30, 2022, Americold had $375.0 million USD and $250 million CAD of outstanding variable-rate debt[356] - Interest rate swaps effectively fix the floating rates on $200 million USD and $250 million CAD of the term loan, leaving $175 million USD variable-rate debt[356] - A 100 basis point increase in market interest rates would result in an approximate $6.4 million increase in annual interest expense for the variable-rate debt[356] 3.2 Foreign Currency Risk Americold's foreign currency risk exposure at September 30, 2022, remained consistent with prior disclosures in its 2021 Annual Report - Foreign currency risk exposure at September 30, 2022, was not materially different from what was disclosed in the 2021 Annual Report on Form 10-K[357] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2022, with no material changes in internal control 4.1 Evaluation of Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of September 30, 2022 - The company's Chief Executive Officer and Chief Financial Officer concluded that disclosure controls and procedures were effective as of September 30, 2022[358] 4.2 Changes in Internal Control over Financial Reporting No material changes in internal control over financial reporting were identified during the quarter ended September 30, 2022 - No material changes in internal control over financial reporting were identified during the quarter ended September 30, 2022[362] PART II - OTHER INFORMATION This section provides other information, including legal proceedings, risk factors, equity sales, defaults, and exhibits Item 1. Legal Proceedings No material litigation or legal proceedings are currently ongoing that would significantly impact the company's financial condition or operations - No material litigation or legal proceedings are currently ongoing that would have a material impact on the company's business, financial condition, liquidity, results of operations, and prospects, other than those disclosed in Note 9[364] Item 1A. Risk Factors Investors should consider the risk factors detailed in the 2021 Annual Report on Form 10-K and the Q1 2022 Quarterly Report - Investors should consider the risk factors identified in Item 1A of the 2021 Annual Report on Form 10-K and the Quarterly Report on Form 10-Q for the quarter ended March 31, 2022[366] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or use of proceeds occurred during the reporting period - None[367] Item 3. Defaults Upon Senior Securities No defaults upon senior securities occurred during the reporting period - None[368] Item 4. Mine Safety Disclosures No mine safety disclosures are applicable for the reporting period - None[369] Item 5. Other Information No other information is reported in this item for the period - None[370] Item 6. Exhibits This section lists all exhibits filed with the Quarterly Report on Form 10-Q, including various agreements and certifications - The report includes exhibits such as waiver and release forms, offer letters, credit agreements, CEO/CFO certifications (Sarbanes-Oxley Act), and XBRL interactive data files[372] SIGNATURES This section contains the official signatures for the report SIGNATURES The report is duly signed on behalf of Americold Realty Trust, Inc. by Marc J. Smernoff, Chief Financial Officer and Executive Vice President, on November 4, 2022 - The report was signed by Marc J. Smernoff, Chief Financial Officer and Executive Vice President, on November 4, 2022[376]