The Company reports activity in AOCI for foreign currency translation adjustments, ofincluding the translation adjustment for investments in foreign subsidiaries,partially owned entities, unrealized gains and losses on cash flow hedge derivatives, and minimum pension liability adjustments net(net of tax.tax). The activity in AOCI for the three and six months ended March 31, 2018June 30, 2021 and 20172020 is as follows:follows (in thousands):
57
|
| | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2017 |
| United States | Australia | New Zealand | Argentina | Canada | Total |
| (In thousands) |
Warehouse rent and storage | $ | 98,706 |
| $ | 9,384 |
| $ | 4,425 |
| $ | 2,358 |
| $ | — |
| $ | 114,873 |
|
Warehouse services | 123,549 |
| 28,128 |
| 3,497 |
| 967 |
| — |
| 156,141 |
|
Third-party managed | 52,486 |
| 1,504 |
| — |
| — |
| 4,327 |
| 58,317 |
|
Transportation | 21,272 |
| 13,269 |
| 199 |
| 1,441 |
| — |
| 36,181 |
|
Quarry | 2,553 |
| — |
| — |
| — |
| — |
| 2,553 |
|
Total revenues (1) | 298,566 |
| 52,285 |
| 8,121 |
| 4,766 |
| 4,327 |
| 368,065 |
|
Lease revenue (2) | 4,849 |
| — |
| — |
| — |
| — |
| 4,849 |
|
Total revenues from contracts with all customers | $ | 303,415 |
| $ | 52,285 |
| $ | 8,121 |
| $ | 4,766 |
| $ | 4,327 |
| $ | 372,914 |
|
| |
(1) | Revenues are within the scope of ASC 606: Revenue From Contracts With Customers. Elements of contracts or arrangements that are in the scope of other standards (e.g., leases) are separated and accounted for under those standards.
|
| |
(2) | Revenues are within the scope of Topic 840, Leases. |
Americold Realty Trust and Subsidiaries
Notes to Condensed Consolidated Financial Statements
- (Unaudited)
| | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2021 |
| North America | Europe | Asia-Pacific | South America | | Total |
| (In thousands) |
Warehouse rent and storage | $ | 331,285 | | $ | 36,874 | | $ | 30,254 | | $ | 5,328 | | | $ | 403,741 | |
Warehouse services | 431,466 | | 53,262 | | 83,730 | | 3,174 | | | 571,632 | |
Third-party managed | 134,702 | | 0 | | 10,543 | | 0 | | | 145,245 | |
Transportation | 79,352 | | 64,450 | | 10,470 | | 800 | | | 155,072 | |
| | | | | | |
Total revenues (1) | 976,805 | | 154,586 | | 134,997 | | 9,302 | | | 1,275,690 | |
Lease revenue (2) | 13,812 | | 0 | | 0 | | 0 | | | 13,812 | |
Total revenues from contracts with all customers | $ | 990,617 | | $ | 154,586 | | $ | 134,997 | | $ | 9,302 | | | $ | 1,289,502 | |
| | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2020 |
| North America | Europe | Asia-Pacific | South America | | Total |
| (In thousands) |
Warehouse rent and storage | $ | 286,466 | | $ | 0 | | $ | 25,640 | | $ | 2,465 | | | $ | 314,571 | |
Warehouse services | 355,509 | | 0 | | 70,694 | | 1,302 | | | 427,505 | |
Third-party managed | 129,482 | | 0 | | 8,393 | | 0 | | | 137,875 | |
Transportation | 55,549 | | 0 | | 14,276 | | 953 | | | 70,778 | |
Other | 4,448 | | 0 | | 0 | | 0 | | | 4,448 | |
Total revenues (1) | 831,454 | | 0 | | 119,003 | | 4,720 | | | 955,177 | |
Lease revenue (2) | 11,414 | | 0 | | 0 | | 0 | | | 11,414 | |
Total revenues from contracts with all customers | $ | 842,868 | | $ | 0 | | $ | 119,003 | | $ | 4,720 | | | $ | 966,591 | |
(1)Warehouse services revenue includes sales of product that Americold purchases on the spot market, repackages, and sells to customers. Such revenues totaled $6.4 million for the six months ended June 30, 2021. This revenue is generated by an entity acquired in December 2020, therefore there was no related revenue during the six months ended June 30, 2020.
(2)Revenues are within the scope of ASC 606, Revenue From Contracts with Customers. Elements of contracts or arrangements that are in the scope of other standards (e.g., leases) are separated and accounted for under those standards.
(3)Revenues are within the scope of Topic 842, Leases.
Performance Obligations
Substantially all our revenue for warehouse storage and handling services, and management and incentive fees earned under third-party managed and other contracts is recognized over time as the customer benefits equally throughout the period until the contractual term expires. Typically, revenue is recognized over time using an output measure (e.g. passage of time) to measure progress. Revenue recognized at a point in time upon delivery when the customer typically obtains control, include most accessorial services, transportation services, reimbursed costs and quarry product shipments.
For arrangements containing non-cancellable contract terms, any variable consideration related to storage renewals or incremental handling charges above stated minimums are 100% constrained and not included in aggregate amount of the transaction price allocated to the unsatisfied performance obligations disclosed below, given the degree in difficulty in estimation. Payment terms are generally 0 - 30 days upon billing, which is typically monthly, either in advance or subsequent to the performance of services. The same payment terms typically apply for arrangements containing variable consideration.
Americold Realty Trust and Subsidiaries
Notes to Condensed Consolidated Financial Statements - (Unaudited)
The Company has no material warranties or obligations for allowances, refunds or other similar obligations.
At March 31, 2018,As of June 30, 2021, the Company had $390.9$642.6 million of remaining unsatisfied performance obligations from contracts with customers subject to a non-cancellable termterms and within contracts that have an original expected duration exceeding one year. These obligations also do not include variable consideration beyond the non-cancellable term, which due to the inability to quantify by estimate, is fully constrained. The Company expects to recognize approximately 17%16% of these remaining performance obligations as revenue in 2018, an additional 19% by 2019 with 2021, and the remaining 64%remaining 84% to be recognized over a weighted average period of 7.514.0 years through 2029.2038.
As part of the Company’s adoption of ASU 2014-09 in the first quarter of 2018, the Company elected to use the practical expedient under ASC 606-10-65-1(f)(3), pursuant to which the Company has excluded disclosures of transaction prices allocated to remaining performance obligations and when the Company expects to recognize such revenue for all periods prior to the date of initial application of ASU 2014-09.
Contract Balances
The timing of revenue recognition, billings and cash collections results in accounts receivable (contract assets), and unearned revenue (contract liabilities) on the consolidated balance sheets.accompanying Condensed Consolidated Balance Sheets. Generally, billing occurs monthly, subsequent to revenue recognition, resulting in contract assets. However, the Company may bill and receive advances or deposits from customers, particularly on storage and handling services, before revenue is recognized, resulting in contract liabilities. These assets and liabilities are reported on the consolidated balance sheetsaccompanying Condensed Consolidated Balance Sheets on a contract-by-contract basis at the end of each reporting period. Changes in the contract asset and liability balances during the three and six months ended March 31, 2018,June 30, 2021, were not materially impacted by any other factors.
Opening and closing receivables balances related to contracts with customers accounted for under ASC 606 were $177.0$319.8 million and $198.7$321.5 million at March 31, 2018as of June 30, 2021 and December 31, 2017,2020, respectively, and $183.3 million and $198.4 million at March 31, 2017and $213.2 million as of June 30, 2020 and December 31, 2016,2019, respectively. All other trade receivable balances relate to contracts accounted for under ASC 840.842.
Opening and closing balances in unearned revenue related to contracts with customers were $18.2$20.3 million and $18.8$19.2 million at March 31, 2018as of June 30, 2021 and December 31, 2017,2020, respectively, and $17.1$15.3 million and $17.9$16.4 million at March 31, 2017as of June 30, 2020 and December 31, 2016,2019, respectively. Substantially all revenue that was included in the contract liability
Americold Realty Trust and Subsidiaries
Notes to Condensed Consolidated Financial Statements
balances at the beginning of 20182020 and 20172019 has been recognized as of March 31, 2018June 30, 2021 and March 31, 2017,June 30, 2020, respectively, and represents revenue from the satisfaction of monthly storage and handling services with inventory that turns on average inventory turns of approximatelyevery 30 days.
19. Subsequent Events
On August 3, 2021, the Company entered into an equity purchase agreement to acquire Newark Facility Management for $390 million. The Company expects the transaction to close in September 2021.
Item 2. ManagementManagement’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements included in this quarterly reportQuarterly Report on Form 10-Q. In addition, the following discussion contains forward-looking statements, such as statements regarding our expectation for future performance, liquidity and capital resources, that involve risks, uncertainties and assumptions that could cause actual results to differ materially from our expectations. Our actual results may differ materially from those contained in or implied by any forward-looking statements. Factors that could cause such differences include those identified below and those described under Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2017.2020.
MANAGEMENT'SMANAGEMENT’S OVERVIEW
We are the world’s largest ownerpublicly traded REIT focused on the ownership, operation, acquisition and operatordevelopment of temperature-controlled warehouses. We are organized as a self-administered and self-managed REIT with proven operating, development and acquisition expertise. As of March 31, 2018,June 30, 2021, we operated a global network of 158246 temperature-controlled warehouses encompassing 933.9 millionover 1.4 billion cubic feet, with 140200 warehouses in the United States, sixNorth America, 27 in Europe, 16 warehouses in Australia, seven warehouses in New Zealand, two warehouses in ArgentinaAsia-Pacific, and three warehouses in Canada. We also own and operate a limestone quarry through a separate business segment.South America. In addition, we hold atwo minority interestinterests in the China JV,Brazilian-based joint ventures, one with SuperFrio, which owns or operates 1333 temperature-controlled warehouses located in China. We view and manage our business through three primary business segments, warehouse, third–party managed and transportation. Additionally we operate a quarry and have a minority investment in the China JV.one with Comfrio, which owns or operates 24 temperature-controlled warehouses.
Components of Our Results of Operations
Warehouse. Our primary source of revenues consists of rent, and storage, and warehouse services fees. Our rent, and storage, and warehouse services revenues are the key drivers of our financial performance. Rent and storage revenues consist of recurring, periodic charges related to the storage of frozen, and perishable food andor other products in our warehouses by our customers. We also provide these customers with a wide array of handling and other warehouse services, such as (1) receipt, handling and placement of products into our warehouses for storage and preservation, (2) retrieval of products from storage upon customer request, (3) blast freezing, which involves the rapid freezing of non-frozen products, including individual quick freezing for agricultural produce and seafood, (4) case-picking, which involves selecting product cases to build customized pallets, (5) kitting and repackaging, which involves assembling custom product packages for delivery to retailers and consumers, and labeling services, (6) order assembly and load consolidation, (7) exporting and importing support services, (8) container handling, (9) cross-docking, which involves transferring inbound products to outbound trucks utilizing our warehouse docks without storing them in our warehouses, and (10) government-approved temperature-controlled storage and inspection services.services, (11) fumigation, (12) pre-cooling and cold treatment services, and (13) ripening. We refer to these handling and other warehouse services as our value-added services.
Cost of operations for our warehouse segment consistsconsist of power, other facilities costs, labor, and other service costs. Labor, ourthe largest component of the cost of operations from our warehouse segment, consists primarily of employee wages, benefits, and workers’ compensation. Trends in our labor expense are influenced by changes in headcount and compensation levels, changes in customer requirements, workforce productivity, labor availability, governmental policies and regulations, variability in costs associated with medical insurance.insurance and the impact of workplace safety programs, inclusive of the number and severity of workers’ compensation claims. Labor expense can also be impacted as a result of discretionary bonuses. In response to the COVID-19 pandemic, we have incorporated certain activities such as staggered break schedules, social distancing, and other changes to processes that can create inefficiencies, all of which we expect to continue to incur going forward. Our second largest cost of operations from our warehouse segment is power utilized in the operation of our temperature-controlled
warehouses. As a result, trends in the price for power in the regions where we operate may have a significant effect on our financial results. We may from time to time hedge our exposure to changes in power prices through forwardfixed rate agreements or, to the extent possible and appropriate, increasethrough rate escalations or power surcharge provisions within our customer contracts. Additionally, business mix impacts power expense depending on the rates we charge our customers for storage in our warehouses.temperature zone or type of freezing capabilities required. Other facilities costs include utilities
other than power, property insurance, property taxes, sanitation (which include incremental supplies as a result of COVID-19), repairs and maintenance on real estate, rent under real property operating leases, where applicable, security, and other related facilities costs. Other services costs include equipment costs, warehouse consumables (e.g., shrink-wrap and uniforms), PPE to maintain the health and safety of our associates, warehouse administration and other related services costs.
Third-Party Managed. We receive a reimbursement of substantially all expenses for warehouses that we manage on behalf of third-party owners, with all reimbursements recognized as revenues under the relevant accounting guidance. We also earn management fees, incentive fees upon achieving negotiated performance and cost-savings results, or an applicable mark-up on costs. Cost of operations for our third-party managed segment is reimbursed on a pass-through basis (typically within two weeks).
Transportation. We charge transportation fees, including fuel surcharges, to our customers for whom we arrange the transportation of their products. Cost of operations for our transportation segment consists primarily of third-party carrier charges, which are impacted by factors affecting those carriers. We supplemented our regional, national and truckload consolidation business with the Hall’s acquisition, which services the Northeast corridor of the U.S. with an owned and maintained fleet. Our acquisition of Agro Merchants further expands our Transportation service offering. Agro Merchants operates its own fleet of temperature-controlled vehicles in the U.S., Ireland and UK and also offers a variety of non-asset based transportation management services. These include multi-modal global freight forwarding services to support our customers’ needs.
Quarry. In addition to our primary business segments, we own and operate a limestone quarry in Carthage, Missouri. Revenues are generated from the sale of limestone mined at our quarry. Cost of operations for our quarry consists primarily of labor, equipment, fuel and explosives.
Other Consolidated Operating Expenses. We also incur depreciation depletion and amortization expenses, and corporate-level selling, general and administrative expenses and corporate-level acquisition, litigation and other expenses.
Our depreciation depletion and amortization charges result primarily from the capital-intensive nature of our business. The principal components of depreciation relate to our warehouses, including buildings and improvements, refrigeration equipment, racking, leasehold improvements, material handling equipment, furniture and fixtures, and our computer hardware and software. Depletion relates to the reduction of mineral resources resulting from the operation of our limestone quarry. Amortization relates primarily to intangible assets for customer relationships and below-market leases.relationships.
Our corporate-level selling, general and administrative expenses consist primarily of wages and benefits for management, administrative, business development, account management, project management, marketing, engineering, supply-chain solutions, human resources and information technology personnel, as well as expenses related to equity incentive plans, communications and data processing, travel, professional fees, bad debts,debt, training, office equipment and supplies. Trends in corporate-level selling, general and administrative expenses are influenced by changes in headcount and compensation levels and achievement of incentive compensation targets, and variability in costs associated with pension obligations.targets. To position ourselves to meet the challenges of the current business environment, we have implemented a shared services support structure to better manage costs and enhance the efficiency of our operations.
Our corporate-level acquisition, litigation and other expenses consist of costs that we view outside of selling, general and administrative expenses with a high level of variability from period-to-period, and include the following:
•Acquisition related costs include costs associated with transactions, whether consummated or not, such as advisory, legal, accounting, valuation and other professional or consulting fees. We also
include integration costs pre- and post-acquisition that reflect work being performed to facilitate merger and acquisition integration, such as employee retention expense and work associated with information systems and other projects including spending to support future acquisitions, which primarily consist of professional services.
•Litigation costs incurred in order to defend ourselves from litigation charges outside of the normal course of business and related settlement costs.
•Severance costs representing certain contractual and negotiated severance and separation costs from exited former executives, reduction in headcount due to synergies achieved through acquisitions or operational efficiencies, and reduction in workforce costs associated with exiting or selling non-strategic warehouses.
•Equity acceleration costs representing the unrecognized expense for share-based awards that vest and convert to common shares in advance of the original negotiated vesting date and any other equity award changes resulting in accounting for the award as a modification.
•Non-offering related equity issuance expenses whether incurred through our initial public offering, follow-on offerings or secondary offerings.
•Terminated site operations costs represent expenses incurred to return leased sites to their original physical state at lease inception in connection with the termination of the applicable underlying lease. These terminations were part of our strategic efforts to exit or sell non-strategic warehouses as opposed to ordinary course lease expirations. Repair and maintenance expenses associated with our ordinary course operations are reflected as operating expenses on our condensed consolidated statement of operations.
•Other costs relate to insurance claim deductibles and related recoveries (second quarter 2021) and additional superannuation pension costs related to prior years upon review by the Australian Tax Office (third quarter 2020).
Key Factors Affecting Our Business and Financial Results
Acquisitions and Joint Ventures
On May 28, 2021, we acquired Bowman Stores for £75.5 million, or $107.1 million USD, based on the spot rate on the date of the transaction. The acquisition was funded using cash drawn on our 2020 Senior Unsecured Revolving Credit Facility.
On May 5, 2021, we acquired KMT Brrr! for $70.8 million. The acquisition was funded using cash drawn on our 2020 Senior Unsecured Revolving Credit Facility.
On March 1, 2021, we acquired Liberty Freezers for C$55.0 million. The acquisition was funded using cash drawn on our 2020 Senior Unsecured Revolving Credit Facility.
On December 30, 2020, we completed the acquisition of Agro Merchants for total consideration of $1.59 billion, including cash received of $47.5 million. This was comprised of cash consideration totaling $1.08 billion, of which $49.7 million was deferred, and the issuance of 14,166,667 common shares of beneficial interest to Oaktree and Agro management, with a fair value of $512.1 million based upon the closing share price on December 29, 2020 of $36.15. Financing lease and sale-leaseback obligations associated with the acquisition totaled $112.7 million and when added to the total consideration transferred brings the total transaction cost to approximately $1.7 billion. Agro Merchants operated more than 236 million cubic feet of temperature-controlled warehouse and distribution space across 46 facilities and provided transportation services in the United States, Europe, Australia and Chile. The Chile facility and operations were subject to a joint venture agreement whereby
there was a non-controlling interest holder with a 35% ownership interest. The results of this facility were consolidated in our results of operations. During the second quarter of 2021, we purchased the 35% ownership interest from the third party, and now own 100% of this facility and the operations. Since the date of acquisition, we have reported the results of the facilities within our warehouse segment, and the results of Agro’s transportation services within our transportation segment.
On November 2, 2020, we completed the acquisition of New Jersey based Hall’s Warehouse Corporation for $489.2 million. Hall’s consisted of eight facilities near the Port of Newark. Hall’s also provides transportation services to its customers. Since the date of acquisition, we have reported the results of the facilities within our warehouse segment, and the results of Hall’s transportation services within our transportation segment.
On August 31, 2020, we completed the acquisition of Caspers Cold Storage for cash consideration of approximately $25.6 million utilizing available cash on hand. Caspers consisted of a single temperature-controlled warehouse located in Tampa, Florida. Since the date of acquisition, we have reported the results of this facility within our warehouse segment.
Additionally, on August 31, 2020, we completed the acquisition of AM-C Warehouses for cash consideration of approximately $82.7 million utilizing available cash on hand. AM-C Warehouses consisted of an owned facility in Mansfield, Texas and a leased facility in Grand Prairie, Texas. Since the date of acquisition, we have reported the results of these facilities within our warehouse segment.
On March 6, 2020, we acquired a 14.99% ownership interest in Superfrio Armazéns Gerais S.A. for Brazil Real Dollars of $117.8 million, or approximately USD $25.7 million, inclusive of certain legal fees. We funded the purchase price using cash on hand. Our pro-rata share of SuperFrio’s results are included within “(Loss) income from investments in partially owned entities”. As of June 30, 2021, SuperFrio owns or operates 33 temperature-controlled warehouses in Brazil.
On January 2, 2020, we completed the purchase of all outstanding shares of Nova Cold for cash consideration of C$338.7 million (USD $260.6 million), net of cash received. Nova Cold consisted of four temperature-controlled facilities in Toronto, Calgary and Halifax. The acquisition was funded utilizing proceeds from the settlement of our April 2019 forward sale agreement combined with cash drawn on our 2018 Senior Unsecured Revolving Credit Facility. Since the date of acquisition, we have reported the results of these facilities within our warehouse segment.
Also, on January 2, 2020, we completed the purchase of all outstanding membership interests of Newport Cold for cash consideration of $57.7 million, net of cash received, utilizing available cash on hand. Newport Cold consists of a single temperature-controlled warehouse located in St. Paul, Minnesota. Since the date of acquisition, we have reported the results of this facility within our warehouse segment.
Refer to Note 2, 3 and 4 of the Notes to the Condensed Consolidated Financial Statements for further information.
COVID-19
We are continuing to closely monitor the impact of the COVID-19 pandemic on all aspects of our business and geographies, including how it will impact our customers and business partners. While we did not incur significant disruptions during 2020 from the COVID-19 pandemic, the six-months ended June 30, 2021 were negatively impacted by COVID-19 related disruptions in (1) the food supply chain; (ii) our customers’ production of goods; and (iii) the labor market impacting availability and cost. COVID-19 restrictions in certain markets where we or our customers operate continue to impact the food supply chain and our business. As a result, occupancy and throughput volume continue at lower than normal levels experienced prior to COVID-19. As the Company continues to protect its employees from the spread of COVID-19, it is incurring elevated labor related costs and incremental health and safety supplies costs relative to its pre-pandemic experience. The extent to which COVID-19 impacts our operations will depend on future developments, which are highly uncertain and cannot be predicted with any degree of confidence, including the scope, severity, duration and geographies of the outbreak, the occurrence of additional waves or spikes in infection rates (including the spread of variant strains), the actions taken to contain the COVID-19 pandemic or mitigate its impact as requested or mandated by governmental authorities or otherwise voluntarily taken by individuals or businesses, and the direct and indirect economic effects of the outbreak and containment measures, among others. Our business is deemed an “essential business” as defined by the Department of Homeland Security, which means that our associates are able to continue working in our facilities during “shelter-in-place” or “stay-at-home” orders. The outbreak of COVID-19 in the United States and other countries in which we operate, has significantly adversely impacted global economic activity and has contributed to significant volatility and negative pressure in financial markets. The global impact of the outbreak has led many nations, states and local authorities to periodically institute “shelter-in-place” or “stay-at-home” orders, mandate business and school closures and restrict travel. Certain states and cities, including where we own properties, have development sites and where our principal place of business is located, have also reacted by instituting restrictions on travel, “shelter in place” rules, restrictions on types of business that may continue to operate, and/or restrictions on the types of construction projects that may continue during peak outbreaks. These restrictions vary widely by jurisdiction and may continue to change as the COVID-19 pandemic progresses. The negative impacts of the COVID-19 pandemic are pervasive across a broad spectrum of industries, including industries in which we, our customers and business partners operate. Negative impacts from COVID-19 may negatively impact the business and operations of our customers and business partners (including our suppliers). Further, the impacts of a potentially worsening of global economic conditions and the continued disruptions to, and volatility in, the credit and financial markets, consumer and business spending as well as other unanticipated consequences continue to remain unknown. The impacts of locations of outbreaks and actions mandated by governmental authorities or taken voluntarily by businesses and individuals to contain or mitigate the spread of COVID-19 and the timing of the repeal or loosening of such restrictions are also unknown. As a result, we cannot at this time predict the impact of the COVID-19 pandemic, but it could have a material adverse effect on our business, financial condition, liquidity, results of operations and prospects. Refer to our Annual Report on Form 10-K/A for the year ended December 31, 2020 for further considerations, “Risk Factors - Risks Related to Public Health Crises - We face various risks and uncertainties related to public health crises, including the recent and ongoing global outbreak of the novel coronavirus and variants (COVID-19). The COVID-19 pandemic is growing and its impacts are uncertain and hard to measure and may have a material adverse effect on us.”
Foreign Currency Translation Impact on Our Operations
Our consolidated revenues and expenses are subject to variations caused by the net effect of foreign currency translation on revenues and expenses incurred by our operations outside the United States. Future fluctuations of foreign currency exchange rates and their impact on our consolidated statementsCondensed Consolidated Statements of operationsOperations are inherently uncertain. As a result of the relative size of our international operations, these fluctuations may be
material on our results of operations. Our revenues and expenses from our international operations are typically denominated in the local currency of the country in which they are derived or incurred. Therefore, the impact of foreign currency fluctuations on our results of operations and margins is partially mitigated.
The following table shows a comparison of underlying average exchange rates of the foreign currencies that impacted our U.S. dollar-reported revenues and expenses during the periods discussed herein together with a comparison against the exchange rates of such currencies at the end of the applicable periods presented herein. The rates below represent the U.S. dollar equivalent of one unit of the respective foreign currency. Amounts presented in constant currency within our Results of Operations are calculated by applying the average foreign exchange rate from the comparable prior year period to actual local currency results in the current period, rather than the actual exchange rates in effect during the respective period. While constant currency metrics are a non-GAAP calculation and do not represent actual results, the comparison allows the reader to understand the impact of the underlying operations in addition to the impact of changing foreign exchange rates.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Foreign exchange rates as of June 30, 2021 | Average foreign exchange rates used to translate actual operating results for the three months ended June 30, 2021 | Average foreign exchange rates used to translate actual operating results for the six months ended June 30, 2021 | Foreign exchange rates as of June 30, 2020 | Prior period average foreign exchange rate used to adjust actual operating results for the three months ended June 30, 2021(1) | Prior period average foreign exchange rate used to adjust actual operating results for the six months ended June 30, 2021(1) | |
Canadian Dollar | | 0.807 | | 0.811 | | 0.800 | | 0.734 | | 0.726 | | 0.731 | | |
Euro | | 1.186 | | 1.208 | | 1.207 | | N/A | 1.127 | | 1.116 | | |
British Pound | | 1.383 | | 1.394 | | 1.386 | | N/A | 1.243 | | 1.258 | | |
Poland Zloty | | 0.262 | | 0.267 | | 0.266 | | N/A | 0.237 | | 0.244 | | |
Australian Dollar | | 0.750 | | 0.769 | | 0.771 | | 0.689 | | 0.668 | | 0.656 | | |
New Zealand Dollar | | 0.698 | | 0.716 | | 0.717 | | 0.644 | | 0.626 | | 0.623 | | |
Argentinian Peso | | 0.010 | | 0.011 | | 0.011 | | 0.014 | | 0.015 | | 0.015 | | |
Chilean Peso | | 0.001 | | 0.001 | | 0.001 | | N/A | 0.001 | | 0.001 | | |
Brazilian Real | | 0.201 | | 0.191 | | 0.187 | | 0.182 | | 0.186 | | N/A | |
|
| | | | | | | | | |
| | March 31, 2018 compared to March 31, 2017 |
| | Average foreign exchange rate used to adjust operating results for the three months ended March 31, 2018 (1) | | Foreign exchange rates as of March 31, 2018 | | Foreign exchange rates as of March 31, 2017 |
Australian dollar | | 0.758 |
| | 0.769 |
| | 0.764 |
|
New Zealand dollar | | 0.711 |
| | 0.723 |
| | 0.700 |
|
Argentinian peso | | 0.063 |
| | 0.050 |
| | 0.065 |
|
Canadian dollar | | 0.756 |
| | 0.775 |
| | 0.751 |
|
(1)Represents the relevant average foreign exchange rates in effect in the comparable prior period applied to the activity for the current period. The average foreign currency exchange rates we apply to our operating results are derived from third party reporting sources for the periods indicated.
| |
(1) | Represents the relevant average foreign exchange rates in effect in the comparable prior period applied to the activity for the current period. The average foreign currency exchange rates we apply to our operating results are derived from third party reporting sources for the periods indicated. |
Focus on Our Operational Effectiveness and Cost Structure
We continuously seek to implementexecute on various initiatives aimed at streamlining our business processes and reducing our cost structure. Commencing in 2013, we realignedstructure, including: realigning and centralizedcentralizing key business processes; implementedprocesses and fully integrating acquired assets and businesses; implementing standardized operational processes; integratedintegrating and launchedlaunching new information technology tools and platforms; institutedinstituting key health, safety, leadership and training programs; and added a strategic sourcing function to capitalizecapitalizing on the purchasing power of our network. Through the realignment of our business processes, we have improved retention of our key talent and reduced employee turnover, acquired new talent and strengthened our service offerings. In order to reduce costs in our facilities, we have invested in energy efficiency projects, including LED lighting, thermal energy storage, motion-sensor technology, variable frequency drives for our fans and compressors, third party efficiency reviews and real-time monitoring of energy consumption, rapid open and close doors, and alternative-power generation technologies to improve the energy efficiency of our warehouses. We have also performed fine-tuning of our refrigeration systems, deployed efficient energy management practices, such as time-of-use and awareness, and have increased our participation in Power Demand Response programs with some of our power suppliers. These initiatives have allowed us to reduce our consumption of kilowatt hours and energy spend. In 2016, we implemented a strategic effort to exit certain leased facilities and transition customers within our warehouse portfolio to consolidate occupancy, reduce costs and increase contribution from the warehouses
where these customers were transitioned. In executing these initiatives, we believe that we have enhanced our ability to serve our customers at the highest quality level and efficiently manage our warehouses.
As part of our initiatives to streamline our business processes and to reduce our cost structure, we have evaluated and exited less strategic and profitable markets or business lines, including the sale of certain warehouse assets. Weassets, the exit of certain leased facilities, the exit of certain transportation operations, the exit of certain managed warehouse agreements, the exit of the China JV, and the sale of our quarry business. Through our process of active portfolio management, we continue to evaluate our markets and offerings.
Strategic Shift within Our Transportation Segment
In orderSeveral years ago, we initiated a strategic shift in our transportation segment services and solutions. The intention of this strategic shift was to better focus our business on the operation of our temperature-controlled warehouses, we have undertaken a strategic shift in the solutions we provide in our transportation segment. As a result of this strategic shift,warehouses. Specifically, we have gradually exited certain commoditized, non-scalable, or low margin services we historically offered to our customers, including traditional brokered transportation services. We continue to offerin favor of more profitable and value addedvalue-added programs, such as regional, national, truckload and regional cross-dock, regional andretailer-specific multi-vendor consolidation service, and dedicated transportation services. We designed each of these programsvalue-added program to improve efficiency and reduce transportation and logistics costs to our warehouse customers, whose transportation spend typically represents the majority of their supply-chain costs. We believe this efficiency and cost reduction helps to drive increased client retention, as well as maintain high occupancy levels in our temperature-controlled warehouses. Over the last several years, we have made significant progress in implementing our strategic initiative of growing our transportation service offering in a way that complements our temperature-controlled warehouse business, for example, we have also added a dedicated fleet service offering through acquisitions such as Agro and Hall’s. We intend to continue executing this strategy in the future.
Historically Significant Customer
For the three and six months ended March 31, 2018June 30, 2021 and 2017,2020, one customer accounted for more than 10% of our total revenues, with $52.3revenues. For the three months ended June 30, 2021 and 2020, sales to this customer were $64.1 million and $48.3$64.4 million, respectively. For the six months ended June 30, 2021 and 2020, sales to this customer were $130.0 million and $120.0 million, respectively. The substantial majority of this customer'scustomer’s business relates to our third-party managed segment. We are reimbursed for substantially all expenses we incur in managing warehouses on behalf of third-party owners. TheseWe recognize these reimbursements are recognized as revenues under applicable accounting guidance, but these reimbursements generally do not affect our financial results because they are offset by the corresponding expenses that are recognizedwe recognize in our third-party managed segment cost of operations. Of the revenues received from this customer, $48.2$63.3 million and $44.6$59.8 million represented reimbursements for certain expenses we incurred during the three months ended March 31, 2018June 30, 2021 and 2017,2020, respectively, thatand $124.6 million and $110.8 million for the six months ended were June 30, 2021 and 2020, respectively, were offset by matching expenses included in our third-partythird party managed cost of operations.
Economic Occupancy of our Warehouses
OccupancyWe define average economic occupancy as the aggregate number of physically occupied pallets and any additional pallets otherwise contractually committed for a given period, without duplication. We estimate the number of contractually committed pallet positions by taking into account the actual pallet commitment specified in our warehouses iseach customers’ contract, and subtracting the physical pallet positions. We regard economic occupancy as an important driver of our financial results. Physical occupancyHistorically, providers of temperature-controlled warehouse space have offered storage services to customers on an individual warehouse is impacted by a number of factors, including the type of warehouse (i.e., distribution, public, production advantaged or leased facility), specific customer needs in the markets served by the warehouse, timing of harvests or protein production for customers of the warehouse, the existence of leased but unoccupied pallets and the adverse effect of weather or market conditions on the customers of the warehouse. On a portfolio-wide basis, physical occupancy rates and warehouse revenues generally peak between mid-September and early Decemberas-utilized, on-demand basis. We actively seek to enter into contracts that implement our commercial business rules which contemplate, among other things, fixed storage commitments in connection with the holiday season and the peak harvest season in the United States. Physical occupancy rates and warehouse revenues on a portfolio-wide basis are generally the lowest during May and June. Our target occupancy acrossestablishing new customer relationships. Additionally, we actively seek opportunities to transition our warehouse portfolio varies by warehouse and warehouse type because our warehouses are configured to accommodate the individual needs of our customers. We generally regard approximately 85% average physical occupancy across our temperature-controlled warehouse portfolio as optimal, subject to relevant local market conditions and individual customer needs. We do not believe that a 100% occupancy rate is an ideal target for utilization of our warehouses because optimizing pallet throughput and efficient delivery of relevant value-added services require a certain amount of free pallet position capacity at all times in order to be able to efficiently place, store and retrieve products from pallet positions, particularly during periods of greatest occupancy or highest volume. Our occupancy metrics account for the physical occupancy of our warehouses. Ascurrent customers continue to transition to contracts that feature a fixed storage commitment when renewing existing agreements or upon the change in the anticipated profile of our
customer. This strategy mitigates the impact of changes in physical occupancy throughout the course of the year due to seasonality, as
financial occupancy may be greater than ourwell as other factors that can impact physical occupancy as we maywhile ensuring our customers have the opportunitynecessary space they need to sell space which is not being utilized by our fixed storage commitment customers.support their business.
Throughput at our Warehouses
The level and nature of throughput at our warehouses is an important factor impacting our warehouse services revenues in our warehouse segment. Throughput refers to the volume of pallets that enter and exit our warehouses. Higher levels of throughput drive warehouse services revenues in our warehouse segment as customers are typically billed on a basis that takes into account the level of throughput of the goods they store in our warehouses. The nature of throughput may be driven by the expected turn of the underlying product or commodity. Throughput pallets can be influenced both by the food manufacturers as well as shifts in demand preferences. Food manufacturers’ production levels, which respond to market conditions and consumer preferences, may impact inbound pallets. Similarly, a change in inventory turnover due to shift in customer demand may impact outbound pallets.
How We Assess the Performance of Our Business
Segment Contribution (NOI)(Net Operating Income or “NOI”)
We evaluate the performance of our primary business segments based on their contribution (NOI) to our overall results of operations. We use the term “segment contribution (NOI)” to mean a segment’s revenues less its cost of operations (excluding any depreciation, depletion and amortization, impairment charges, and corporate-level selling, general and administrative and corporate-level acquisition, litigation and other expenses). We use segment contribution (NOI) to evaluate our segments for purposes of making operating decisions and assessing performance in accordance with FASB ASC, Topic 280, Segment Reporting.
We also analyze the “segment contribution (NOI) margin” for each of our business segments, which we calculate as segment contribution (NOI) divided by segment revenues.
In addition to our segment contribution (NOI) and segment contribution (NOI) margin, we analyze the contribution (NOI) of our warehouse rent and storage operations and our warehouse services operations within our warehouse segment. We calculate the contribution (NOI) of our warehouse rent and storage operations as rent and storage revenues less power and other facilities cost. We calculate the contribution (NOI) of our warehouse services operations as warehouse services revenues less labor and other service costs. We calculate the contribution (NOI) margin for each of these operations as the applicable contribution (NOI) measure divided by the applicable revenue measure. We believe the presentation of these contribution (NOI) and contribution (NOI) margin measures helps investors understand the relative revenues, costs and earnings resulting from each of these separate types of services we provide to our customers in the same manner reviewed by our management in connection with the operation of our business. These contribution (NOI) measures within our warehouse segment are not measurements of financial performance under U.S. GAAP, and these measures should be considered as supplements, but not as alternatives, to our results calculated in accordance with U.S. GAAP. We provide reconciliations of these measures in the discussions of our comparative results of operations below.
Same Store Analysis
We refer to a “same store” as a warehouse we owned or leased for the entirety of two comparable periods and which has reported at least twelve months of consecutive normalized operations prior to the commencement of the earlier period being considered. We define “normalized operations” as a site open for operation or lease after a warehouse acquisition, development or significant modification, including the expansion of a warehouse footprint or a warehouse rehabilitation subsequent to an extraordinary event, such as natural disasters or similar events. In addition, our definition of “normalized operations” takes into account changes in the ownership structure (e.g., acquisition of a previously leased warehouse would result in different charges in the compared periods), which would impact comparability in our warehouse segment contribution (NOI). Warehouses are excluded from the same store population as of the beginning of the fiscal quarter following the occurrence of such events. We evaluate our same store portfolio on a quarterly basis.
We calculate “same store contribution (NOI)” as revenues for the same store population less its cost of operations (excluding any depreciation, depletion and amortization, impairment charges and corporate-level selling, general and administrative expenses). In order to derive an appropriate measure of period-to-period operating performance, we also calculate our same store contribution (NOI) on a constant currency basis to remove the effects of foreign currency exchange rate movements by using the comparable prior period exchange rate to translate from local currency into U.S. dollars for both periods. We evaluate the performance of the warehouses we own or lease using a “same store” analysis, and we believe that same store contribution (NOI) is helpful to investors as a supplemental performance measure because it includes the operating performance from the population of properties that is consistent from period to period and also on a constant currency basis, thereby eliminating the effects of changes in the composition of our warehouse portfolio and currency fluctuations on performance measures.
The following table shows the number of same-store warehouses in our portfolio and the number of warehouses excluded as same-store warehouses during the first quarter of 2018.
|
| |
| March 31, 2018 |
Total Warehouses | 158 |
Same Store Warehouses (1)
| 138 |
Non-Same Store and Managed Warehouses | 20 |
| |
(1) | During the first quarter of 2018, one of the warehouses in our portfolio was reclassified from the same store to the non-same store population in anticipation of our exit from the lease of such warehouse facility in the second quarter of 2018. |
Same store contribution (NOI) is not a measurement of financial performance under U.S. GAAP. In addition, other companies providing temperature-controlled warehouse storage and handling and other warehouse services may not define same store or calculate same store contribution (NOI) in a manner consistent with our definition or calculation. Same store contribution (NOI) should be considered as a supplement, but not as an alternative, to our results calculated in accordance with U.S. GAAP. We provide reconciliations of these measures in the discussions of our comparative results of operations below.
Constant Currency Metrics
As discussed above under “Key Factors Affecting Our Business and Financial Results—Foreign Currency Translation Impact on Our Operations,” our consolidated revenues and expenses are subject to variations caused by the net effect of foreign currency translation on revenues generated and expenses incurred by our operations outside the United States, variations which we cannot control. As a result, in order to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency fluctuations, we analyze our business performance based on certain constant currency reporting that represents current period results translated into U.S. dollars at the relevant average foreign exchange rates applicable in the comparable prior period. We believe that the presentation of constant currency results provides a measurement of our ongoing operations that is meaningful to investors because it excludes the impact of these foreign currency movements that we cannot control. Constant currency results are not measurements of financial performance under U.S. GAAP, and our constant currency results should be considered as a supplement, but not as an alternative, to our results calculated in accordance with U.S. GAAP. We provide reconciliations of these measures in the discussions of our comparative results of operations below. Our discussion of the drivers of our performance below are based upon U.S. GAAP.
RESULTS OF OPERATIONS
Comparison of Results for the Three Months Ended March 31, 2018 and 2017
Warehouse Segment
The following table presents the operating results of our warehouse segment for the three months ended March 31, 2018 and 2017.
|
| | | | | | | | | | | | | | | | | |
| Three months ended March 31, | | Change |
| 2018 actual | | 2018 constant currency(1) | | 2017 actual | | Actual | | Constant currency |
| (Dollars in thousands) | | | | |
Rent and storage | $ | 125,727 |
| | $ | 125,676 |
| | $ | 119,666 |
| | 5.1 | % | | 5.0 | % |
Warehouse services | 160,790 |
| | 159,881 |
| | 156,141 |
| | 3.0 | % | | 2.4 | % |
Total warehouse segment revenues | 286,517 |
| | 285,557 |
| | 275,807 |
| | 3.9 | % | | 3.5 | % |
| | | | | | | | | |
Power | 16,114 |
| | 16,148 |
| | 15,428 |
| | 4.4 | % | | 4.7 | % |
Other facilities costs (2) | 26,782 |
| | 26,786 |
| | 26,258 |
| | 2.0 | % | | 2.0 | % |
Labor | 128,336 |
| | 127,670 |
| | 124,101 |
| | 3.4 | % | | 2.9 | % |
Other services costs (3) | 25,715 |
| | 25,610 |
| | 26,500 |
| | (3.0 | )% | | (3.4 | )% |
Total warehouse segment cost of operations | 196,947 |
| | 196,214 |
| | 192,287 |
| | 2.4 | % | | 2.0 | % |
Warehouse segment contribution (NOI) | $ | 89,570 |
| | $ | 89,343 |
| | $ | 83,520 |
| | 7.2 | % | | 7.0 | % |
| | | | | | | | | |
Warehouse rent and storage contribution (NOI) (4) | $ | 82,831 |
| | $ | 82,742 |
| | $ | 77,980 |
| | 6.2 | % | | 6.1 | % |
Warehouse services contribution (NOI) (5) | $ | 6,739 |
| | $ | 6,601 |
| | $ | 5,540 |
| | 21.6 | % | | 19.2 | % |
| | | | | | | | | |
Total warehouse segment margin | 31.3 | % | | 31.3 | % | | 30.3 | % | | 100 bps |
| | 100 bps |
|
Rent and storage margin(6) | 65.9 | % | | 65.8 | % | | 65.2 | % | | 70 bps |
| | 60 bps |
|
Warehouse services margin(7) | 4.2 | % | | 4.1 | % | | 3.5 | % | | 70 bps |
| | 60 bps |
|
| |
(1) | The adjustments from our U.S. GAAP operating results to calculate our operating results on a constant currency basis are the effect of changes in foreign currency exchange rates relative to the comparable prior period. |
| |
(2) | Includes real estate rent expense of $3.7 million and $3.7 million for the three months ended March 31, 2018 and 2017, respectively.
|
| |
(3) | Includes non-real estate rent expense of $3.4 million and $3.4 million for the three months ended March 31, 2018 and 2017, respectively.
|
| |
(4) | Calculated as rent and storage revenues less power and other facilities costs. |
| |
(5) | Calculated as warehouse services revenues less labor and other services costs. |
| |
(6) | Calculated as warehouse rent and storage contribution (NOI) divided by warehouse rent and storage revenues. |
| |
(7) | Calculated as warehouse services contribution (NOI) divided by warehouse services revenues. |
Warehouse segment revenues were $286.5 million for the three months ended March 31, 2018, an increase of $10.7 million, or 3.9%, compared to $275.8 million for the three months ended March 31, 2017. On a constant currency basis, our warehouse segment revenues were $285.6 million for the three months ended March 31, 2018, an increase of $9.8 million, or 3.5%, period-over-period. These increases were primarily driven by customer mix, whereby a greater proportion of customers paid higher average rates per pallet, combined with an increase in the number of fixed commitment storage contracts and contractual rate escalation. Our domestic operations accounted for the majority of the change in customer composition and increase in fixed commitment storage contracts. The foreign currency translation of revenues incurred by our foreign operations had a $1.0 million favorable impact during the three months ended March 31, 2018.
Warehouse segment cost of operations was $196.9 million for the three months ended March 31, 2018, an increase of $4.7 million, or 2.4%, compared to $192.3 million for the three months ended March 31, 2017. On a constant currency basis, our warehouse segment cost of operations was $196.2 million for the three months ended March 31, 2018, an increase of $3.9 million, or 2.0%, compared to $192.3 million for the three months ended March 31, 2017. This change was driven primarily by an increase in more labor-intensive warehouse services partially offset by lower worker's compensation expenses relative to the three months ended March 31, 2017.
Warehouse segment contribution (NOI) was $89.6 million for the three months ended March 31, 2018, an increase of $6.1 million, or 7.2%, compared to $83.5 million for the three months ended March 31, 2017. On a constant currency basis, warehouse segment contribution was $89.3 million for the three months ended March 31, 2018, an increase of $5.8 million, or 7.0%, period-over-period. Again, favorable changes in our customer mix, higher number of fixed commitment storage contracts and contractual rate escalation led to improved contribution margins for our warehouse segment during the first quarter of 2018 compared to the same period in 2017.
Same Store Analysis
Effective January 1, 2020, we define our “same store” population once a year at the beginning of the current calendar year. Our same store population includes properties that were owned or leased for the entirety of two comparable periods and that have reported at least twelve months of consecutive normalized operations prior to January 1 of the prior calendar year. We define “normalized operations” as properties that have been open for operation or lease after development or significant modification, including the expansion of a warehouse footprint
or a warehouse rehabilitation subsequent to an event, such as anatural disaster or similar event causing disruption to operations. In addition, our definition of “normalized operations” takes into account changes in the ownership structure (e.g., purchase of a previously leased warehouse would result in different charges in the compared periods), which would impact comparability in our warehouse segment contribution (NOI).
Acquired properties will be included in the “same store” population if owned by us as of the first business day of each year, of the prior calendar year and still owned by us as of the end of the current reporting period, unless the property is under development. The “same store” pool is also adjusted to remove properties that were sold or entering development subsequent to the beginning of the current calendar year. As such, the “same store” population for the period ended June 30, 2021 includes all properties that we owned at January 2, which had both been owned and had reached “normalized operations” by January 2, 2020.
We calculate “same store contribution (NOI)” as revenues for the same store population less its cost of operations (excluding any depreciation and amortization, impairment charges, corporate-level selling, general and administrative expenses, corporate-level acquisition, litigation and other expenses and gain or loss on sale of real estate). In order to derive an appropriate measure of period-to-period operating performance, we also calculate our same store contribution (NOI) on a constant currency basis to remove the effects of foreign currency exchange rate movements by using the comparable prior period exchange rate to translate from local currency into U.S. dollars for both periods. We evaluate the performance of the warehouses we own or lease using a “same store” analysis, and we believe that same store contribution (NOI) is helpful to investors as a supplemental performance measure because it includes the operating performance from the population of properties that is consistent from period to period and also on a constant currency basis, thereby eliminating the effects of changes in the composition of our warehouse portfolio and currency fluctuations on performance measures.
The following table shows the number of same-store warehouses in our portfolio as of June 30, 2021. The number of warehouses owned or operated in as of June 30, 2021 and excluded as same-store warehouses for the period ended June 30, 2021 is listed below. While not included in the non-same store warehouse count in the table below, the results of operations for the non-same store warehouses includes the partial period impact of sites that were exited during the periods presented.
| | | | | | | |
Total Warehouses | 246 | | |
Same Store Warehouses | 162 | | |
Non-Same Store Warehouses (1) | 75 | | |
Third-Party Managed Warehouses | 9 | | |
(1) During the second quarter of 2021, we completed the acquisition of Bowman Stores resulting in the addition of one facility and the acquisition of KMT Brrr! resulting in the addition of two facilities. Additionally, we entered into a lease of a facility in Australia resulting in an increase to our total warehouses.
As of June 30, 2021, our portfolio consisted of 246 total warehouses, including 237 within the warehouse segment and nine in the third-party managed segment. In addition, we hold minority interests in two Brazilian joint ventures, Superfrio, which owns or operates 33 temperature-controlled warehouses, and Comfrio, which owns or operates 24 temperature-controlled warehouses.
Same store contribution (NOI) is not a measurement of financial performance under U.S. GAAP. In addition, other companies providing temperature-controlled warehouse storage and handling and other warehouse services may not define same store or calculate same store contribution (NOI) in a manner consistent with our definition or calculation. Same store contribution (NOI) should be considered as a supplement, but not as an alternative, to our results calculated in accordance with U.S. GAAP. We provide reconciliations of these measures in the discussions of our comparative results of operations below.
Constant Currency Metrics
As discussed above under “Key Factors Affecting Our Business and Financial Results—Foreign Currency Translation Impact on Our Operations,” our consolidated revenues and expenses are subject to variations outside our control that are caused by the net effect of foreign currency translation on revenues generated and expenses incurred by our operations outside the United States. As a result, in order to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency fluctuations, we analyze our business performance based on certain constant currency reporting that represents current period results translated into U.S. dollars at the relevant average foreign exchange rates applicable in the comparable prior period. We believe that the presentation of constant currency results provides a measurement of our ongoing operations that is meaningful to investors because it excludes the impact of these foreign currency movements that we cannot control. Constant currency results are not measurements of financial performance under U.S. GAAP, and our constant currency results should be considered as a supplement, but not as an alternative, to our results calculated in accordance with U.S. GAAP. The constant currency performance measures should not be considered a substitute for, or superior to, the measures of financial performance prepared in accordance with U.S. GAAP. We provide reconciliations of these measures in the discussions of our comparative results of operations below. Our discussion of the drivers of our performance below are based upon U.S. GAAP.
RESULTS OF OPERATIONS
Comparison of Results for the Three Months Ended June 30, 2021 and 2020
Warehouse Segment
The following table presents the operating results of our warehouse segment for the three months ended June 30, 2021 and 2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Change |
| 2021 actual | | 2021 constant currency(1) | | 2020 actual | | Actual | | Constant currency |
| (Dollars in thousands) | | | | |
Rent and storage | $ | 212,277 | | | $ | 207,878 | | | $ | 163,664 | | | 29.7 | % | | 27.0 | % |
Warehouse services | 291,457 | | | 282,712 | | | 208,747 | | | 39.6 | % | | 35.4 | % |
Total warehouse segment revenues | 503,734 | | | 490,590 | | | 372,411 | | | 35.3 | % | | 31.7 | % |
| | | | | | | | | |
Power | 32,180 | | | 31,574 | | | 22,069 | | | 45.8 | % | | 43.1 | % |
Other facilities costs (2) | 51,562 | | | 50,467 | | | 34,645 | | | 48.8 | % | | 45.7 | % |
Labor | 224,411 | | | 217,575 | | | 165,458 | | | 35.6 | % | | 31.5 | % |
Other services costs (3) | 51,202 | | | 50,283 | | | 30,107 | | | 70.1 | % | | 67.0 | % |
Total warehouse segment cost of operations | $ | 359,355 | | | $ | 349,899 | | | $ | 252,279 | | | 42.4 | % | | 38.7 | % |
| | | | | | | | | |
Warehouse segment contribution (NOI) | $ | 144,379 | | | $ | 140,691 | | | $ | 120,132 | | | 20.2 | % | | 17.1 | % |
Warehouse rent and storage contribution (NOI) (4) | $ | 128,535 | | | $ | 125,837 | | | $ | 106,950 | | | 20.2 | % | | 17.7 | % |
Warehouse services contribution (NOI) (5) | $ | 15,844 | | | $ | 14,854 | | | $ | 13,182 | | | 20.2 | % | | 12.7 | % |
| | | | | | | | | |
Total warehouse segment margin | 28.7 | % | | 28.7 | % | | 32.3 | % | | -360 bps | | -358 bps |
Rent and storage margin(6) | 60.6 | % | | 60.5 | % | | 65.3 | % | | -480 bps | | -481 bps |
Warehouse services margin(7) | 5.4 | % | | 5.3 | % | | 6.3 | % | | -88 bps | | -106 bps |
(1)The adjustments from our U.S. GAAP operating results to calculate our operating results on a constant currency basis are the effect of changes in foreign currency exchange rates relative to the comparable prior period.
(2)Includes real estate rent expense of $10.1 million and $3.0 million, on an actual basis, for the second quarter of 2021 and 2020, respectively.
(3)Includes non-real estate rent expense (equipment lease and rentals) of $2.9 million and $2.4 million, on an actual basis, for the second quarter of 2021 and 2020, respectively.
(4)Calculated as rent and storage revenues less power and other facilities costs.
(5)Calculated as warehouse services revenues less labor and other services costs.
(6)Calculated as warehouse rent and storage contribution (NOI) divided by warehouse rent and storage revenues.
(7)Calculated as warehouse services contribution (NOI) divided by warehouse services revenues.
Warehouse segment revenues were $503.7 million for the three months ended June 30, 2021, an increase of $131.3 million, or 35.3%, compared to $372.4 million for the three months ended June 30, 2020. On a constant currency basis, our warehouse segment revenues were $490.6 million for the three months ended June 30, 2021, an increase of $118.2 million, or 31.7%, from the three months ended June 30, 2020. Approximately $120.6 million of the increase, on an actual currency basis, was driven by acquisitions completed between July 2020 and June 2021. We acquired 64 warehouse facilities as a result of the Agro, Hall’s, AM-C, Caspers, Liberty, Bowman, and KMT Brrr! acquisitions between July 1, 2020 and June 30, 2021. As a result, these facilities are reflected in the entirety of the current period but none of the comparable prior period. Revenue growth was also due to contractual rate escalations, our recently completed developments and an increase in services revenue in our same store pool. This was partially offset by a decrease in storage revenue in our same store pool, driven by the decline in holdings due to lower food production. The foreign currency translation of
revenues earned by our foreign operations had a net $13.1 million favorable impact during the three months ended June 30, 2021, which was mainly driven by the weakening of the U.S. dollar against the Australian dollar and the Euro.
Warehouse segment cost of operations was $359.4 million for the three months ended June 30, 2021, an increase of $107.1 million, or 42.4%, compared to the three months ended June 30, 2020. On a constant currency basis, our warehouse segment cost of operations was $349.9 million for the three months ended June 30, 2021, an increase of $97.6 million, or 38.7%, from the three months ended June 30, 2020. Approximately $92.6 million of the increase, on an actual basis, was driven by the additional facilities in the warehouse segment we acquired in connection with the aforementioned acquisitions. In addition, we incurred increases in our cost of operations related to power, labor, property tax and insurance costs, all of which are reflective of current market trends. This was partially offset by the appreciation bonus we paid to front-line associates to recognize the dedication and efforts of our associates during the COVID-19 pandemic during the second quarter of 2020, which totaled $4.3 million. Additionally, the foreign currency translation of expenses incurred by our foreign operations had a net $9.5 million unfavorable impact during the three months ended June 30, 2021.
For the three months ended June 30, 2021, warehouse segment contribution (NOI), increased $24.2 million, or 20.2%, to $144.4 million for the second quarter of 2021 compared to $120.1 million for the second quarter of 2020. The foreign currency translation of our results of operations had a $3.7 million favorable impact to the warehouse segment contribution period-over-period due to the weakening of the U.S. dollar. On a constant currency basis, warehouse segment NOI increased 17.1% from the three months ended June 30, 2020. Approximately $28.0 million of the increase, on an actual basis, was primarily driven by the additional facilities in the warehouse segment as a result of the aforementioned acquisitions, and the growth and modest synergies experienced period-over-period during overlapping periods of ownership for sites acquired during 2020. The growth is also attributable to contractual rate escalations and the impact of the appreciation bonus paid during the second quarter of 2020. The increase was partially offset by the following factors that impacted our same-store facilities: lower holdings driven by the impact of COVID-19 on the food manufacturing supply chain and increased costs including property insurance and taxes, labor, power and facility leasing costs.
Same Store and Non-Same Store Analysis
We had 138162 same stores for the three months ended March 31, 2018.June 30, 2021. Please see “—How“How We Assess the Performance of Our Business—Same Store Analysis” above for a reconciliation of the change in the same store portfolio from yearperiod to year.period. Amounts related to the acquisitions of Agro, AM-C Warehouses, Bowman Stores, Caspers, Halls, KMT Brrr! and Liberty Freezers, one recently leased warehouse in Australia, as well as certain expansion and development projects not yet stabilized are reflected within non-same store results.
The following table presents revenues, cost of operations, contribution (NOI) and margins for our same stores and non-same stores with a reconciliation to the total financial metrics of our warehouse segment for the three months ended March 31, 2018June 30, 2021 and 2017.2020. |
| | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | Change |
| 2018 actual | | 2018 constant currency(1) | | 2017 actual | | Actual | | Constant currency |
Same store revenues: | (Dollars in thousands) | | | | |
Rent and storage | $ | 122,977 |
| | $ | 122,926 |
| | $ | 116,661 |
| | 5.4 | % | | 5.4 | % |
Warehouse services | 157,502 |
| | 156,594 |
| | 152,999 |
| | 2.9 | % | | 2.3 | % |
Total same store revenues | 280,479 |
| | 279,520 |
| | 269,660 |
| | 4.0 | % | | 3.7 | % |
Same store cost of operations: | | | | | | | | | |
Power | 15,659 |
| | 15,694 |
| | 14,729 |
| | 6.3 | % | | 6.6 | % |
Other facilities costs | 25,286 |
| | 25,290 |
| | 24,418 |
| | 3.6 | % | | 3.6 | % |
Labor | 125,435 |
| | 124,768 |
| | 121,022 |
| | 3.6 | % | | 3.1 | % |
Other services costs | 24,973 |
| | 24,869 |
| | 25,785 |
| | (3.1 | )% | | (3.6 | )% |
Total same store cost of operations | $ | 191,353 |
| | $ | 190,621 |
| | $ | 185,954 |
| | 2.9 | % | | 2.5 | % |
| | | | | | | | | |
Same store contribution (NOI) | $ | 89,126 |
| | $ | 88,899 |
| | $ | 83,706 |
| | 6.5 | % | | 6.2 | % |
Same store rent and storage contribution (NOI)(2) | $ | 82,032 |
| | $ | 81,942 |
| | $ | 77,514 |
| | 5.8 | % | | 5.7 | % |
Same store services contribution (NOI)(3) | $ | 7,094 |
| | $ | 6,957 |
| | $ | 6,192 |
| | 14.6 | % | | 12.4 | % |
| | | | | | | | | |
Total same store margin | 31.8 | % | | 31.8 | % | | 31.0 | % | | 80 bps |
| | 80 bps |
|
Same store rent and storage margin(4) | 66.7 | % | | 66.7 | % | | 66.4 | % | | 30 bps |
| | 30 bps |
|
Same store services margin(5) | 4.5 | % | | 4.4 | % | | 4.0 | % | | 50 bps |
| | 40 bps |
|
| | | | | | | | | |
Non-same store revenues: | | | | | | | | | |
Rent and storage | $ | 2,750 |
| | $ | 2,750 |
| | $ | 3,005 |
| | (8.5 | )% | | (8.5 | )% |
Warehouse services | 3,288 |
| | 3,287 |
| | 3,142 |
| | 4.6 | % | | 4.6 | % |
Total non-same store revenues | 6,038 |
| | 6,037 |
| | 6,147 |
| | (1.8 | )% | | (1.8 | )% |
Non-same store cost of operations: | | | | | | | | | |
Power | 455 |
| | 454 |
| | 699 |
| | (34.9 | )% | | (35.1 | )% |
Other facilities costs | 1,496 |
| | 1,496 |
| | 1,840 |
| | (18.7 | )% | | (18.7 | )% |
Labor | 2,902 |
| | 2,902 |
| | 3,079 |
| | (5.7 | )% | | (5.7 | )% |
Other services costs | 741 |
| | 741 |
| | 715 |
| | 3.6 | % | | 3.6 | % |
Total non-same store cost of operations | $ | 5,594 |
| | $ | 5,593 |
| | $ | 6,333 |
| | (11.7 | )% | | (11.7 | )% |
| | | | | | | | | |
Non-same store contribution (NOI) | $ | 444 |
| | $ | 444 |
| | $ | (186 | ) | | (338.7 | )% | | (338.7 | )% |
Non-same store rent and storage contribution (NOI)(2) | $ | 799 |
| | $ | 800 |
| | $ | 466 |
| | 71.5 | % | | 71.7 | % |
Non-same store services contribution (NOI)(3) | $ | (355 | ) | | $ | (356 | ) | | $ | (652 | ) | | (45.6 | )% | | (45.4 | )% |
| | | | | | | | | |
Total warehouse segment revenues | $ | 286,517 |
| | $ | 285,557 |
| | $ | 275,807 |
| | 3.9 | % | | 3.5 | % |
Total warehouse cost of operations | $ | 196,947 |
| | $ | 196,214 |
| | $ | 192,287 |
| | 2.4 | % | | 2.0 | % |
Total warehouse segment contribution | $ | 89,570 |
| | $ | 89,343 |
| | $ | 83,520 |
| | 7.2 | % | | 7.0 | % |
| |
(1) | The adjustments from our U.S. GAAP operating results to calculate our operating results on a constant currency basis is the effect of changes in foreign currency exchange rates relative to the comparable prior period. |
| |
(2) | Calculated as rent and storage revenues less power and other facilities costs. |
| |
(3) | Calculated as warehouse services revenues less labor and other services costs. |
| |
(4) | Calculated as same store rent and storage contribution (NOI) divided by same store rent and storage revenues. |
| |
(5) | Calculated as same store warehouse services contribution (NOI) divided by same store warehouse services revenues. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Change |
| 2021 actual | | 2021 constant currency(1) | | 2020 actual | | Actual | | Constant currency |
Number of same store sites | 162 | | | | 162 | | n/a | | n/a |
Same store revenues: | (Dollars in thousands) | | | | |
Rent and storage | $ | 150,984 | | | $ | 149,320 | | | $ | 152,893 | | | (1.2) | % | | (2.3) | % |
Warehouse services | 209,258 | | | 203,647 | | | 199,832 | | | 4.7 | % | | 1.9 | % |
Total same store revenues | 360,242 | | | 352,967 | | | 352,725 | | | 2.1 | % | | 0.1 | % |
Same store cost of operations: | | | | | | | | | |
Power | 21,754 | | | 21,623 | | | 20,816 | | | 4.5 | % | | 3.9 | % |
Other facilities costs | 33,043 | | | 32,615 | | | 32,132 | | | 2.8 | % | | 1.5 | % |
Labor | 161,052 | | | 156,443 | | | 154,934 | | | 3.9 | % | | 1.0 | % |
Other services costs | 28,109 | | | 27,941 | | | 27,622 | | | 1.8 | % | | 1.2 | % |
Total same store cost of operations | $ | 243,958 | | | $ | 238,622 | | | $ | 235,504 | | | 3.6 | % | | 1.3 | % |
| | | | | | | | | |
Same store contribution (NOI) | $ | 116,284 | | | $ | 114,345 | | | $ | 117,221 | | | (0.8) | % | | (2.5) | % |
Same store rent and storage contribution (NOI)(2) | $ | 96,187 | | | $ | 95,082 | | | $ | 99,945 | | | (3.8) | % | | (4.9) | % |
Same store services contribution (NOI)(3) | $ | 20,097 | | | $ | 19,263 | | | $ | 17,276 | | | 16.3 | % | | 11.5 | % |
| | | | | | | | | |
Total same store margin | 32.3 | % | | 32.4 | % | | 33.2 | % | | -95 bps | | -84 bps |
Same store rent and storage margin(4) | 63.7 | % | | 63.7 | % | | 65.4 | % | | -166 bps | | -169 bps |
Same store services margin(5) | 9.6 | % | | 9.5 | % | | 8.6 | % | | 96 bps | | 81 bps |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Change |
| 2021 actual | | 2021 constant currency(1) | | 2020 actual | | Actual | | Constant currency |
Number of non-same store sites(6) | 75 | | | | 10 | | n/a | | n/a |
Non-same store revenues: | (Dollars in thousands) | | | | |
Rent and storage | $ | 61,293 | | | $ | 58,558 | | | $ | 10,771 | | | 469.1 | % | | 443.7 | % |
Warehouse services | 82,199 | | | 79,065 | | | 8,915 | | | 822.0 | % | | 786.9 | % |
Total non-same store revenues | 143,492 | | | 137,623 | | | 19,686 | | | 628.9 | % | | 599.1 | % |
Non-same store cost of operations: | | | | | | | | | |
Power | 10,426 | | | 9,951 | | | 1,253 | | | 732.1 | % | | 694.2 | % |
Other facilities costs | 18,519 | | | 17,852 | | | 2,513 | | | 636.9 | % | | 610.4 | % |
Labor | 63,359 | | | 61,132 | | | 10,524 | | | 502.0 | % | | 480.9 | % |
Other services costs | 23,093 | | | 22,342 | | | 2,485 | | | 829.3 | % | | 799.1 | % |
Total non-same store cost of operations | $ | 115,397 | | | $ | 111,277 | | | $ | 16,775 | | | 587.9 | % | | 563.4 | % |
| | | | | | | | | |
Non-same store contribution (NOI) | $ | 28,095 | | | $ | 26,346 | | | $ | 2,911 | | | 865.1 | % | | 805.0 | % |
Non-same store rent and storage contribution (NOI)(2) | $ | 32,348 | | | $ | 30,755 | | | $ | 7,005 | | | 361.8 | % | | 339.0 | % |
Non-same store services contribution (NOI)(3) | $ | (4,253) | | | $ | (4,409) | | | $ | (4,094) | | | (3.9) | % | | (7.7) | % |
| | | | | | | | | |
Total non-same store margin | 19.6 | % | | 19.1 | % | | 14.8 | % | | 479 bps | | 436 bps |
Non-same store rent and storage margin(4) | 52.8 | % | | 52.5 | % | | 65.0 | % | | -1226 bps | | -1252 bps |
Non-same store services margin(5) | (5.2) | % | | (5.6) | % | | (45.9) | % | | 4075 bps | | 4035 bps |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Change |
| 2021 actual | | 2021 constant currency(1) | | 2020 actual | | Actual | | Constant currency |
Total warehouse segment revenues | $ | 503,734 | | | $ | 490,590 | | | $ | 372,411 | | | 35.3 | % | | 31.7 | % |
Total warehouse cost of operations | $ | 359,355 | | | $ | 349,899 | | | $ | 252,279 | | | 42.4 | % | | 38.7 | % |
Total warehouse segment contribution | $ | 144,379 | | | $ | 140,691 | | | $ | 120,132 | | | 20.2 | % | | 17.1 | % |
(1)The adjustments from our U.S. GAAP operating results to calculate our operating results on a constant currency basis is the effect of changes in foreign currency exchange rates relative to the comparable prior period.
(2)Calculated as rent and storage revenues less power and other facilities costs.
(3)Calculated as warehouse services revenues less labor and other services costs.
(4)Calculated as rent and storage contribution (NOI) divided by rent and storage revenues.
(5)Calculated as warehouse services contribution (NOI) divided by warehouse services revenues.
(6)Non-same store warehouse count of 75 includes one recently leased warehouse in Australia, one warehouse acquired through the Bowman stores acquisition on May 28, 2021, two warehouses acquired through the KMT Brrr! acquisition on May 5, 2021, four warehouses acquired through the Liberty Freezers acquisition on March 1, 2021, 46 warehouses acquired through the Agro acquisition on December 30, 2020, eight warehouses acquired through the Hall’s acquisition on November 2, 2020, and three warehouses acquired through the Casper’s and AM-C warehouse acquisitions on August 31, 2020. The results of these acquisitions are reflected in the results above since date of ownership.
n/a - not applicable, the change in actual and constant currency metrics does not apply to site count.
The following table provides certain operating metrics to explain the drivers of our same store performance.
|
| | | | | | | | | | |
| Three Months Ended March 31, | | Change |
| 2018 | | 2017 | |
Same store rent and storage: | | | | | |
Occupancy(1) | | | | | |
Average occupied pallets (in thousands) | 2,375 |
| | 2,416 |
| | (1.7 | )% |
Average physical pallet positions (in thousands) | 3,112 |
| | 3,096 |
| | 0.5 | % |
Occupancy percentage | 76.3 | % | | 78.0 | % | | -170 bps |
|
Same store rent and storage revenues per occupied pallet | $ | 51.77 |
| | $ | 48.30 |
| | 7.2 | % |
Constant currency same store rent and storage revenues per occupied pallet | $ | 51.75 |
| | $ | 48.30 |
| | 7.1 | % |
| | | | | |
Same store warehouse services: | | | | | |
Throughput pallets (in thousands) | 6,499 |
| | 6,657 |
| | (2.4 | )% |
Same store warehouse services revenues per throughput pallet | $ | 24.24 |
| | $ | 22.98 |
| | 5.5 | % |
Constant currency same store warehouse services revenues per throughput pallet | $ | 24.10 |
| | $ | 22.98 |
| | 4.9 | % |
| | | | | |
Non-same store rent and storage: | | | | | |
Occupancy | | | | | |
Average occupied pallets (in thousands) | 72 |
| | 53 |
| | 35.8 | % |
Average physical pallet positions (in thousands) | 100 |
| | 88 |
| | 13.6 | % |
Occupancy percentage | 71.6 | % | | 61.0 | % | | |
| | | | | |
Non-same store warehouse services: | | | | | |
Throughput pallets (in thousands) | 147 |
| | 142 |
| | 3.5 | % |
| |
(1) | We define average physical occupancy as the average number of occupied pallets divided by the estimated number of average physical pallet positions in our warehouses for the applicable period. We estimate the number of physical pallet positions by taking into account actual racked space and by estimating unracked space on an as-if racked basis. We base this estimate on a formula utilizing the total cubic feet of each room within the warehouse that is unracked divided by the volume of an assumed rack space that is consistent with the characteristics of the relevant warehouse. On a warehouse by warehouse basis, rack space generally ranges from three to four feet depending upon the type of facility and the nature of the customer goods stored therein. The number of our pallet positions is reviewed and updated quarterly, taking into account changes in racking configurations and room utilization. |
| | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Change |
Units in thousands except per pallet and site number data - unaudited | 2021 | | 2020 | |
Number of same store sites | 162 | | | 162 | | | n/a |
Same store rent and storage: | | | | | |
| | | | | |
Economic occupancy(1) | | | | | |
Average occupied economic pallets | 2,830 | | | 2,971 | | | (4.7) | % |
Economic occupancy percentage | 75.2 | % | | 79.2 | % | | -403 bps |
Same store rent and storage revenues per economic occupied pallet | $ | 53.35 | | | $ | 51.45 | | | 3.7 | % |
Constant currency same store rent and storage revenues per economic occupied pallet | $ | 52.76 | | | $ | 51.45 | | | 2.5 | % |
| | | | | |
Physical occupancy(2) | | | | | |
Average physical occupied pallets | 2,515 | | | 2,705 | | | (7.0) | % |
Average physical pallet positions | 3,763 | | | 3,750 | | | 0.3 | % |
Physical occupancy percentage | 66.8 | % | | 72.1 | % | | -531 bps |
Same store rent and storage revenues per physical occupied pallet | $ | 60.03 | | | $ | 56.52 | | | 6.2 | % |
Constant currency same store rent and storage revenues per physical occupied pallet | $ | 59.37 | | | $ | 56.52 | | | 5.0 | % |
| | | | | |
Same store warehouse services: | | | | | |
Throughput pallets (in thousands) | 7,351 | | | 7,333 | | | 0.3 | % |
Same store warehouse services revenues per throughput pallet | $ | 28.47 | | | $ | 27.25 | | | 4.5 | % |
Constant currency same store warehouse services revenues per throughput pallet | $ | 27.70 | | | $ | 27.25 | | | 1.7 | % |
| | | | | |
Number of non-same store sites(3) | 75 | | | 10 | | | n/a |
Non-same store rent and storage: | | | | | |
| | | | | |
Economic occupancy(1) | | | | | |
Average economic occupied pallets | 1,114 | | | 194 | | | 474.2 | % |
Economic occupancy percentage | 75.3 | % | | 64.7 | % | | 1062 bps |
Non-same store rent and storage revenues per economic occupied pallet | $ | 55.03 | | | $ | 55.63 | | | (1.1) | % |
Constant currency non-same store rent and storage revenues per economic occupied pallet | $ | 52.57 | | | $ | 55.63 | | | (5.5) | % |
| | | | | |
Physical occupancy(2) | | | | | |
Average physical occupied pallets | 1,092 | | | 186 | | | 486.6 | % |
Average physical pallet positions | 1,479 | | | 299 | | | 394.6 | % |
Physical occupancy percentage | 73.8 | % | | 62.2 | % | | 1164 bps |
Non-same store rent and storage revenues per physical occupied pallet | $ | 56.13 | | | $ | 57.87 | | | (3.0) | % |
Constant currency non-same store rent and storage revenues per physical occupied pallet | $ | 53.63 | | | $ | 57.87 | | | (7.3) | % |
| | | | | |
Non-same store warehouse services: | | | | | |
Throughput pallets (in thousands) | 2,568 | | | 384 | | | 569.3 | % |
Non-same store warehouse services revenues per throughput pallet | $ | 32.01 | | | $ | 23.23 | | | 37.8 | % |
Constant currency non-same store warehouse services revenues per throughput pallet | $ | 30.79 | | | $ | 23.23 | | | 32.5 | % |
Average
(1)We define average economic occupancy as the aggregate number of physically occupied pallets and any additional pallets otherwise contractually committed for a given period, without duplication. We estimate the number of contractually committed pallet positions by taking into account actual pallet commitments specified in each customer’s contract, and subtracting the physical pallet positions.
(2)We define average physical occupancy as the average number of occupied pallets divided by the estimated number of average physical pallet positions in our warehouses for the applicable period. We estimate the number of physical pallet positions by taking into account actual racked space and by estimating unracked space on an as-if racked basis. We base this estimate on a formula utilizing the total cubic feet of each room within the warehouse that is unracked divided by the volume of an assumed rack space that is consistent with the characteristics of the relevant warehouse. On a warehouse by warehouse basis, rack space generally ranges from three to four feet depending upon the type of facility and the nature of the customer goods stored therein. The number of our pallet positions is reviewed and updated quarterly, taking into account changes in racking configurations and room utilization.
(3)Non-same store warehouse count of 75 includes one recently leased warehouse in Australia, one warehouse acquired through the Bowman stores acquisition on May 28, 2021, two warehouses acquired through the KMT Brrr! acquisition on May 5, 2021, four warehouses acquired through the Liberty Freezers acquisition on March 1, 2021, 46 warehouses acquired through the Agro acquisition on December 30, 2020, eight warehouses acquired through the Hall’s acquisition on November 2, 2020, and three warehouses acquired through the Casper’s and AM-C warehouse acquisitions on August 31, 2020. The results of these acquisitions are reflected in the results above since date of ownership.
Economic occupancy at our same stores was 76.3%75.2% for the three months ended March 31, 2018,June 30, 2021, a decrease of 170 bps403 basis points compared to 78.0%79.2% for the quarter ended June 30, 2020. Storage levels were lower than prior year levels due to ongoing supply chain disruption as a result of the COVID-19 pandemic, as well as food manufacturers producing at less than full capacity. As such, our customers’ existing inventories have continued to be drawn down to support steady consumer demand. Additionally, recent acquisitions came into the same store pool during the first quarter of 2021 which have a lower percentage of fixed commitment revenue compared to our legacy same stores. Our economic occupancy at our same stores for the three months ended March 31, 2017. This changeJune 30, 2021 was primarily the result838 basis points higher than our corresponding average physical occupancy of a66.8%. The decrease of 1.7%531 basis points in average occupied pallets. The decrease inphysical occupancy compared to 72.1% for the average occupied pallets is primarily associated withquarter ended June 30, 2020 was partially driven by the timing of Easter in 2018 and a decline in the number of occupied pallets in our West region of the United States due to lower average inventory in our "harvest sites" that service some of our largest fruit and vegetables suppliers. factors mentioned above. Same store rent and storage revenues per economic occupied pallet increased 7.2%3.7% period-over-period, primarily driven by customer mix, whereby a greater proportion of customers paid higher average rates per pallet, an increaseimprovements in the number of fixed commitment storage contracts entered into with our warehouse customers,commercial terms and contractual rate escalation.escalations and business mix. On a constant currency basis, the increase in our same store rent and storage revenues per occupied pallet was approximately the same as the change in same store rent and storage revenues per occupied pallet including the effect of foreign currency fluctuations. This was attributable to the fact that the increase in same store rent and storage revenues from our domestic operations was substantially higher than the increase in same store rent and storage revenues from our foreign operations.increased 2.5% period-over-period.
Throughput pallets at our same stores were 6.57.4 million pallets for the three months ended March 31, 2018, a decreaseJune 30, 2021, an increase of 2.4%0.3% from 6.77.3 million pallets for the three months ended March 31, 2017.June 30, 2020. This decreasemodest increase was primarily attributablethe result of the food manufacturers efforts to a shiftincrease production to support steady consumer demand. Food manufacturers have been unable to rebuild holdings in the inbound/outbound profile of certain domestic customers from higher inventory turn customerssupply chain due to lower inventory turn customers with more profitable volumes.challenges in the labor market. Same store warehouse services revenuesrevenue per throughput pallet increased 5.5% period-over-period4.5% compared to the prior year primarily as a result of an increase in
higher priced repackaging, blast freezing,contractual rate escalations and case-picking warehouse services and, in part, a favorable net effect of foreign currency translation as the increase in warehouse services revenues from our foreign operations was greater than the increase from the same revenues stream at our domestic operations.previously discussed. On a constant currency basis, our same store services revenuesrevenue per throughput pallet increased 4.9% period-over-period.1.7% compared to the prior year.
Third-Party Managed Segment
The following table presents the operating results of our third-party managed segment for the three months ended March 31, 2018June 30, 2021 and 2017.2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Change |
| 2021 actual | | 2021 constant currency(1) | | 2020 actual | | Actual | | Constant currency |
Number of managed sites | 9 | | | | | 11 | | | n/a | | n/a |
| (Dollars in thousands) | | | | |
Third-party managed revenues | $ | 72,173 | | | $ | 71,340 | | | $ | 72,954 | | | (1.1) | % | | (2.2) | % |
Third-party managed cost of operations | 70,480 | | | 69,797 | | | 69,655 | | | 1.2 | % | | 0.2 | % |
Third-party managed segment contribution | $ | 1,693 | | | $ | 1,543 | | | $ | 3,299 | | | (48.7) | % | | (53.2) | % |
| | | | | | | | | |
Third-party managed margin | 2.3 | % | | 2.2 | % | | 4.5 | % | | -218 bps | | -236 bps |
|
| | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | Change |
| 2018 actual | | 2018 constant currency(1) | | 2017 actual | | Actual | | Constant currency |
Number of managed sites | 12 |
| | | | 12 |
| | | | |
| (Dollars in thousands) | | | | |
Third-party managed revenues | $ | 63,876 |
| | $ | 63,522 |
| | $ | 58,367 |
| | 9.4 | % | | 8.8 | % |
Third-party managed cost of operations | 60,099 |
| | 59,823 |
| | 55,379 |
| | 8.5 | % | | 8.0 | % |
Third-party managed segment contribution | $ | 3,777 |
| | $ | 3,699 |
| | $ | 2,988 |
| | 26.4 | % | | 23.8 | % |
| | | | | | | | | |
Third-party managed margin | 5.9 | % | | 5.8 | % | | 5.1 | % | | 80 bps |
| | 70 bps |
|
| |
(1) | The adjustments from our U.S. GAAP operating results to calculate our operating results on a constant currency basis are the effect of changes in foreign currency exchange rates relative to the comparable prior period. |
(1)The adjustments from our U.S. GAAP operating results to calculate our operating results on a constant currency basis are the effect of changes in foreign currency exchange rates relative to the comparable prior period.
Third-party managed revenues were $63.9$72.2 million for the three months ended March 31, 2018, an increaseJune 30, 2021, a decrease of $5.5$0.8 million, or 9.4%1.1%, compared to $58.4$73.0 million for the three months ended March 31, 2017.June 30, 2020. On a constant currency basis, third-party managed revenues were $63.5$71.3 million for the three months ended March 31, 2018, an increaseJune 30, 2021, a decrease of $5.2$1.6 million, or 8.8%2.2%, period-over-period. These increases were attributablefrom the three months ended June 30, 2020. This decrease was primarily a result of the exit of two Canadian managed sites during the second half of 2020, partially offset by higher labor costs, a portion of which is passed through to higher business volume from our largest third-party managed customers, in the United States and Australia.our domestic managed operations. Additionally, our foreign operations experienced slightly higher volumes, as well as favorable impact of foreign currency translation.
Third-party managed cost of operations was $60.1$70.5 million for the three months ended March 31, 2018,June 30, 2021, an increase of $4.7$0.8 million, or 8.5%1.2%, compared to $55.4$69.7 million for the three months ended March 31, 2017. On a constant currency basis, third-partyJune 30, 2020. Third-party managed cost of operations was $59.8 million forincreased as a result of the three months ended March 31, 2018, an increase of $4.4 million, or 8.0%, period-over-period.higher labor costs domestically as discussed in the revenue trends above.
Third-party managed segment contribution (NOI) was $3.8$1.7 million for the three months ended March 31, 2018, an increaseJune 30, 2021, a decrease of $0.8$1.6 million, or 26.4%48.7%, compared to $3.0$3.3 million for the three months ended March 31, 2017. On a constant currency basis, third-party managed segment contribution (NOI) was $3.7 million for the three months ended March 31, 2018, an increase of $0.7 million, or 23.8%, period-over-period. Improved margins in this segment were primarily driven by new business from our largest retail customer in Australia.June 30, 2020.
Transportation Segment
The following table presents the operating results of our transportation segment for the three months ended March 31, 2018June 30, 2021 and 2017.2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Change |
| 2021 actual | | 2021 constant currency(1) | | 2020 actual | | Actual | | Constant currency |
| (Dollars in thousands) | | | | |
Transportation revenues | $ | 78,800 | | | $ | 80,686 | | | $ | 34,861 | | | 126.0 | % | | 131.5 | % |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Transportation cost of operations | 69,550 | | | 71,784 | | | 30,089 | | | 131.1 | % | | 138.6 | % |
Transportation segment contribution (NOI) | $ | 9,250 | | | $ | 8,902 | | | $ | 4,772 | | | 93.8 | % | | 86.5 | % |
| | | | | | | | | |
Transportation margin | 11.7 | % | | 11.0 | % | | 13.7 | % | | -195 bps | | -266 bps |
|
| | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | Change |
| 2018 actual | | 2018 constant currency(1) | | 2017 actual | | Actual | | Constant currency |
| (Dollars in thousands) | | | | |
Transportation revenues | $ | 38,345 |
| | $ | 38,070 |
| | $ | 36,181 |
| | 6.0 | % | | 5.2 | % |
| | | | | | | | | |
Brokered transportation | 28,121 |
| | 28,022 |
| | 25,884 |
| | 8.6 | % | | 8.3 | % |
Other cost of operations | 6,630 |
| | 6,477 |
| | 6,744 |
| | (1.7 | )% | | (4.0 | )% |
Total transportation cost of operations | 34,751 |
| | 34,499 |
| | 32,628 |
| | 6.5 | % | | 5.7 | % |
Transportation segment contribution (NOI) | $ | 3,594 |
| | $ | 3,571 |
| | $ | 3,553 |
| | 1.2 | % | | 0.5 | % |
| | | | | | | | | |
Transportation margin | 9.4 | % | | 9.4 | % | | 9.8 | % | | -40 bps |
| | -40 bps |
|
| |
(1) | (1)The adjustments from our U.S. GAAP operating results to calculate our operating results on a constant currency basis are the effect of changes in foreign currency exchange rates relative to the comparable prior period. |
Our transportation segment continued its strategic shift to focuscalculate our operating results on more profitable solutions, which create value for our customers while driving and supporting our warehouse business including consolidation offerings. a constant currency basis are the effect of changes in foreign currency exchange rates relative to the comparable prior period.
Transportation revenues were $38.3$78.8 million for the three months ended March 31, 2018,June 30, 2021, an increase of $2.2$43.9 million, or 6.0%126.0%, compared to $36.2$34.9 million for the three months ended March 31, 2017. On a constant currency basis,June 30, 2020. The increase was primarily due to the revenue associated with transportation revenues were $38.1 million foroperations from the year ended March 31, 2018, an increase of $1.9 million, or 5.2%, period-over-period. The strategic shift in our transportation segment resulted in higher revenue of $1.8 million Hall’s acquisition, which closed
on newNovember 2, 2020, the Agro acquisition, which closed on December 30, 2020 and incremental business primarily from our domestic operations, which now focus on providing multi-vendor consolidation programs and dedicated transportation services. Our international operations led to a much lesser extent the KMT Brrr! acquisition which closed in early May 2021. The increase was partially offset by the net decrease in revenue increasefrom the rationalization of $0.4 million primarily from incremental transportation services in Australia.certain domestic legacy market operations.
Transportation cost of operations was $34.8$69.6 million for the three months ended March 31, 2018,June 30, 2021, an increase of $2.1$39.5 million, or 6.5%131.1%, compared to $32.6$30.1 million for the three months ended March 31, 2017. OnJune 30, 2020. The increase was driven by the acquisitions and revenue trends mentioned above and a constant currency basis, transportation cost of operationsreduction in market capacity due to the COVID-19 pandemic, which has caused an increase in carrier fees.
Transportation segment contribution (NOI) was $34.5$9.3 million for the three months ended March 31, 2018,June 30, 2021, an increase of $1.9 million, or 5.7%, period-over-period. Brokered93.8% compared to the three months ended June 30, 2020. Transportation segment margin decreased 195 basis points from the three months ended June 30, 2020, to 11.7% from 13.7%. The decrease in margin was primarily due to the acquisition of lower-margin transportation costs werebusiness compared to our legacy operations, coupled with higher than a year ago primarilycarrier fees as a result of an increase in domestic consolidation programs. The strategic shift referenced above led to a decline in other cost of operations for the segment.COVID-19 pandemic.
Transportation segment contribution (NOI)
Other Consolidated Operating Expenses
Depreciation and amortization. Depreciation and amortization expense was $3.6$84.5 million for the three months ended March 31, 2018,June 30, 2021, an increase of 1.2% as$32.1 million, or 61.2%, compared to the three months ended March 31, 2017. Transportation segment margin decreased 40 basis points period-over-period, to 9.4% from 9.8%. Despite increased margins and greater efficiencies in our domestic transportation operations, the overall decrease in margins resulted from slightly lower margins in our international transportation business due to a shift in the customer mix in Australia. On a constant currency basis, transportation segment contribution was $3.6$52.4 million for the three months ended March 31, 2018, an increase of 0.5%, period-over-period.
Quarry Revenues and Cost of Operations
The following table presents the operating results of our quarry segment for the three months ended March 31, 2018 and 2017.
|
| | | | | | | | | | |
| Three Months Ended March 31, | | Change |
| 2018 | | 2017 | |
| (Dollars in thousands) | | |
Quarry revenues | $ | 2,403 |
| | $ | 2,559 |
| | (6.1 | )% |
Quarry cost of operations | 2,057 |
| | 1,656 |
| | 24.2 | % |
Quarry segment contribution (NOI) | $ | 346 |
| | $ | 903 |
| | (61.7 | )% |
| | | | | |
Quarry margin | 14.4 | % | | 35.3 | % | | n/m |
|
n/m: not meaningful
Quarry revenues were $2.4 million for the three months ended March 31, 2018, a decrease of $0.2 million or 6.1% compared to $2.6 million for the three months ended March 31, 2017. Lower revenues in our quarry operations were attributable to lower demand from our construction and industrial customers. Demand from these customers was higher in the comparable prior period as favorable weather conditions led to an early start of the 2017 construction season.
Quarry cost of operations was $2.1 million for the three months ended March 31, 2018, an increase of $0.4 million, or 24.2%, compared to $1.7 million for the three months ended March 31, 2017.June 30, 2020. This increase was primarily due to higher maintenance costs for production equipment.the acquisitions in late 2020 and 2021.
Quarry segment contribution (NOI) was $0.3 million for the three months ended March 31, 2018, as compared to a contribution (NOI) of $0.9 million for the three months ended March 31, 2017, largely driven by the economic factors described above.
Other Consolidated Operating Expenses
Selling, general and administrative. Corporate-level selling, general and administrative expenses were $31.9$42.5 million for the three months ended March 31, 2018,June 30, 2021, an increase of $7.2$10.1 million, or 29.0%31.3%, compared to $24.8$32.3 million for the three months ended March 31, 2017.June 30, 2020. Included in these amounts are business development expenses attributable to ournew business pursuits, supply chain solutions and underwriting, facility development, customer onboarding,on-boarding, and engineering and consulting services to support our customers in the cold chain. WeWe believe these costs are comparable to leasing costs for other publicly tradedpublicly-traded REITs. The increase in corporate-level selling, generalwas driven by costs assumed from the Agro and administrativeHall’s acquisitions, net of synergies realized and higher third-party professional fees.
Acquisition, litigation and other. Corporate-level acquisition, litigation and other expenses period-over period was primarily duewere $3.9 million for the three months ended June 30, 2021, an increase of $1.1 million compared to higher stock-based compensation expensethe three months ended June 30, 2020. During the three months ended June 30, 2021, we incurred for i) the issuance$3.1 million of retention equity awards to certain employeesacquisition related expenses primarily comprised of professional fees and non-employee directorsintegration related costs in connection with the IPO; ii) the issuance of new long-term incentive equity awardscompleted and potential acquisitions, and $0.8 million related to certain employees in February 2018; and iii) the modification of certain terms governing equity awards issuedinsurance claim deductibles partially offset by recoveries under the 2010 Equity Incentive Plan in January 2018. Included in corporate-level selling, general and administrative expense forclaims. During the first quarterthree months ended June 30, 2020, we incurred $2.7 million of 2018 were also higheracquisition related expenses primarily composed of professional fees and integration related costs in connection with potential acquisitions.
Impairment of long-lived assets. For the three and six months ended June 30, 2021, we have, and willrecorded impairment charges totaling $1.5 million, related to costs incurred for development projects which management determined it would not continue to incur, in preparation for our annual assessment of internal control over financial reporting, higher audit fees as a public company, and other professional fees.pursue. For the three months ended June 30, 2020, we recorded an impairment charge of $3.7 million related to the anticipated sale of our quarry business, which was subsequently completed on July 1, 2020.
Gain from sale of real estate. For the three months ended June 30, 2020, we recorded a $19.4 million gain from the sale of owned property. On June 19, 2020, we completed the sale of a facility in our Warehouse segment, and began to transition the business to other nearby facilities, resulting in the aforementioned gain from sale of real estate.
Other Expense and Income
The following table presents other items of expense and income for the three months ended June 30, 2021 and 2020.
| | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Change |
| 2021 | | 2020 | | % |
Other (expense) income: | (Dollars in thousands) | | |
Interest expense | $ | (26,579) | | | $ | (23,178) | | | 14.7 | % |
Interest income | 191 | | | 261 | | | (26.8) | % |
| | | | | |
Loss on debt extinguishment, modifications and termination of derivative instruments | (925) | | | — | | | 100.0 | % |
Foreign currency exchange (loss) gain, net | (140) | | | 315 | | | 144.4 | % |
Other income - net | 184 | | | 44 | | | 318.2 | % |
Loss from investments in partially owned entities | (61) | | | (129) | | | (52.7) | % |
| | | | | |
Interest expense. Interest expense was $26.6 million for the three months ended June 30, 2021, an increase of $3.4 million, or 14.7%, compared to $23.2 million for the three months ended June 30, 2020. The increase was primarily due to the issuance of the Series D and Series E Senior Unsecured Notes in December 2020. This was partially offset by the decrease in interest expense on our Senior Unsecured Term Loan A Facility due to the early principal repayment of $100.0 million and $200.0 million in December 2020 and January 2021, respectively. The effective interest rate of our outstanding debt decreased from 4.15% in the second quarter of 2020 to 3.16% in the second quarter of 2021.
Interest income. Interest income was $0.2 million for the three months ended June 30, 2021, which decreased by $0.1 million when compared to the $0.3 million for three months ended June 30, 2020. This change was primarily driven by a lower interest rate of 0.10% earned during the second quarter of 2021 compared to 0.20% during the second quarter of 2020, paired with lower average cash balances in 2021 compared to 2020.
Loss on debt extinguishment, modifications and termination of derivative instruments. Loss on debt extinguishment, modifications, and termination of derivative instruments of $0.9 million for the three months ended June 30, 2021 was primarily driven by the amortization of fees paid for the termination of interest rate swaps during 2020.
Other income - net. Other income - net was $0.2 million for the three months ended June 30, 2021. The increase of $0.1 million was primarily driven by the gain on disposal of miscellaneous personal property.
Loss from investments in partially owned entities. During the second quarter of 2021 we incurred $0.1 million as our portion of net loss from the SuperFrio joint venture, partially offset by net income from the Comfrio joint venture stemming from a gain on sale of real estate during the current period. During the second quarter of 2020, we entered into the Superfrio joint venture for which we recorded a nominal amount as our portion of loss for the second quarter of 2020.
Income Tax Expense
Income tax expense for the three months ended June 30, 2021 was $9.0 million, an increase of $7.8 million from an income tax expense of $1.2 million for the three months ended June 30, 2020. The change in income tax expense was primarily attributable to the tax effects of the rate change from 19% to 25% in the United Kingdom, enacted during the second quarter of 2021, for which we recorded deferred income tax expense of $14.5 million and a decrease in our valuation allowance for which we recorded a deferred tax benefit of $3.7 million attributable
to recent acquisitions. The remainder was primarily attributable to losses generated from our foreign operations during the quarter ended June 30, 2021 which did not occur during the three months ended June 30, 2020.
Comparison of Results for the Six Months Ended June 30, 2021 and 2020
Warehouse Segment
The following table presents the operating results of our warehouse segment for the six months ended June 30, 2021 and 2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | Change |
| 2021 actual | | 2021 constant currency(1) | | 2020 actual | | Actual | | Constant currency |
| (Dollars in thousands) | | | | |
Rent and storage | $ | 417,553 | | | $ | 409,564 | | | $ | 325,973 | | | 28.1 | % | | 25.6 | % |
Warehouse services | 571,632 | | | 554,605 | | | 427,506 | | | 33.7 | % | | 29.7 | % |
Total warehouse segment revenues | 989,185 | | | 964,169 | | | 753,479 | | | 31.3 | % | | 28.0 | % |
| | | | | | | | | |
Power | 58,384 | | | 57,324 | | | 41,773 | | | 39.8 | % | | 37.2 | % |
Other facilities costs (2) | 102,093 | | | 100,166 | | | 66,747 | | | 53.0 | % | | 50.1 | % |
Labor | 438,959 | | | 425,813 | | | 335,596 | | | 30.8 | % | | 26.9 | % |
Other services costs (3) | 99,189 | | | 97,334 | | | 62,458 | | | 58.8 | % | | 55.8 | % |
Total warehouse segment cost of operations | $ | 698,625 | | | $ | 680,637 | | | $ | 506,574 | | | 37.9 | % | | 34.4 | % |
| | | | | | | | | |
Warehouse segment contribution (NOI) | $ | 290,560 | | | $ | 283,532 | | | $ | 246,905 | | | 17.7 | % | | 14.8 | % |
Warehouse rent and storage contribution (NOI) (4) | $ | 257,076 | | | $ | 252,074 | | | $ | 217,453 | | | 18.2 | % | | 15.9 | % |
Warehouse services contribution (NOI) (5) | $ | 33,484 | | | $ | 31,458 | | | $ | 29,452 | | | 13.7 | % | | 6.8 | % |
| | | | | | | | | |
Total warehouse segment margin | 29.4 | % | | 29.4 | % | | 32.8 | % | | -340 bps | | -336 bps |
Rent and storage margin(6) | 61.6 | % | | 61.5 | % | | 66.7 | % | | -514 bps | | -516 bps |
Warehouse services margin(7) | 5.9 | % | | 5.7 | % | | 6.9 | % | | -103 bps | | -122 bps |
(1)The adjustments from our U.S. GAAP operating results to calculate our operating results on a constant currency basis are the effect of changes in foreign currency exchange rates relative to the comparable prior period.
(2)Includes real estate rent expense of $19.4 million and $5.8 million, on an actual basis, for the six months ended June 30, 2021 and 2020, respectively.
(3)Includes non-real estate rent expense (equipment lease and rentals) of $5.8 million and $5.3 million, on an actual basis, for the six months ended June 30, 2021 and 2020, respectively.
(4)Calculated as rent and storage revenues less power and other facilities costs.
(5)Calculated as warehouse services revenues less labor and other services costs.
(6)Calculated as warehouse rent and storage contribution (NOI) divided by warehouse rent and storage revenues.
(7)Calculated as warehouse services contribution (NOI) divided by warehouse services revenues.
Warehouse segment revenues were $989.2 million for the six months ended June 30, 2021 an increase of $235.7 million, or 31.3%, compared to $753.5 million for the six months ended June 30, 2020. On a constant currency basis, our warehouse segment revenues were $964.2 million for the six months ended June 30, 2021, an increase of $210.7 million or 28.0%, from the six months ended June 30, 2020. Approximately $229.8 million of the increase, on an actual currency basis, was driven by acquisitions completed during 2020 and 2021, including the growth experienced period-over-period during overlapping periods of ownership. We acquired 61 warehouse facilities as a result of the Agro, Hall’s, AM-C, Caspers and Liberty acquisitions between July 1, 2020 and March 31, 20182021. As a result, these facilities are reflected in the entirety of the current period but none of the comparable prior period. Additionally, we acquired two facilities on May 5, 2021 as a result of the KMT Brrr! acquisition and 2017, corporate-levelone facility on May 28, 2021 as a result of the Bowman Stores acquisition, and the results of these facilities are
included in the current period since the date of acquisition. Revenue growth was also due to contractual rate escalations and our recently completed developments. This was partially offset by COVID-19 and the related labor challenges which continued to impact food production. The foreign currency translation of revenues earned by our foreign operations had a $25.0 million favorable impact during the six months ended June 30, 2021, which was mainly driven by the weakening of the U.S. dollar over the Australian dollar, Euro, and Canadian dollar.
Warehouse segment cost of operations was $698.6 million for the six months ended June 30, 2021, an increase of $192.1 million, or 37.9%, compared to the six months ended June 30, 2020. On a constant currency basis, our warehouse segment cost of operations was $680.6 million for the three months ended June 30, 2021, an increase of $174.1 million, or 34.4%, from the six months ended June 30, 2020. Approximately $175.0 million of the increase, on an actual basis, was driven by the additional facilities in the warehouse segment we acquired in connection with the aforementioned acquisitions. In addition, we incurred increases in our cost of operations in response to COVID-19, power, labor, property tax and insurance costs, all of which are reflective of current market trends. This is partially offset by the appreciation bonus we paid to front-line associates to recognize the dedication and efforts of our associates during the COVID-19 pandemic during the second quarter of 2020, which totaled $4.3 million. Additionally, the foreign currency translation of expenses incurred by our foreign operations had a net $18.0 million unfavorable impact during the six months ended June 30, 2021.
For the six months ended June 30, 2021, warehouse segment contribution (NOI), increased $43.7 million, or 17.7%, to $290.6 million for the six months ended June 30, 2021, compared to $246.9 million for the six months ended June 30, 2020. The foreign currency translation of our results of operations had a $7.0 million favorable impact to the warehouse segment contribution period-over-period. On a constant currency basis, warehouse segment NOI increased $36.6 million. Approximately $54.8 million of the increase, on an actual basis, was driven by the additional facilities in the warehouse segment as a result of the aforementioned acquisitions, including the growth and synergies experienced period-over-period during overlapping periods of ownership. The remainder of the increase was driven by contractual rate escalations, the impact of the appreciation bonus paid during the second quarter of 2020 and disciplined cost controls through the Americold Operating System of our other services costs, which allowed us to generate higher contribution margins. The increases were partially offset by the currency translation impact of the strengthening of the U.S. dollar, lower holdings driven by the impact of COVID-19 on the food manufacturing supply chain and the increase in costs including power, property insurance and taxes and facility leasing costs.
Same Store and Non-Same Store Analysis
We had 162 same stores for the six months ended June 30, 2021. Please see “How We Assess the Performance of Our Business—Same Store Analysis” above for a reconciliation of the change in the same store portfolio from period to period. Amounts related to the acquisitions of Agro, AM-C Warehouses, Bowman Stores, Caspers, Halls, KMT Brrr! and Liberty Freezers, one recently leased warehouse in Australia, as well as certain expansion and development projects not yet stabilized are reflected within non-same store results.
The following table presents revenues, cost of operations, contribution (NOI) and margins for our same stores and non-same stores with a reconciliation to the total financial metrics of our warehouse segment for the six months ended June 30, 2021 and 2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | Change |
| 2021 actual | | 2021 constant currency(1) | | 2020 actual | | Actual | | Constant currency |
Number of same store sites | 162 | | | | 162 | | n/a | | n/a |
Same store revenues: | (Dollars in thousands) | | | | |
Rent and storage | $ | 300,150 | | | $ | 296,836 | | | $ | 305,698 | | | (1.8) | % | | (2.9) | % |
Warehouse services | 415,343 | | | 404,021 | | | 408,693 | | | 1.6 | % | | (1.1) | % |
Total same store revenues | 715,493 | | | 700,857 | | | 714,391 | | | 0.2 | % | | (1.9) | % |
Same store cost of operations: | | | | | | | | | |
Power | 39,611 | | | 39,347 | | | 39,244 | | | 0.9 | % | | 0.3 | % |
Other facilities costs | 65,982 | | | 65,208 | | | 61,959 | | | 6.5 | % | | 5.2 | % |
Labor | 319,956 | | | 310,763 | | | 313,841 | | | 1.9 | % | | (1.0) | % |
Other services costs | 55,217 | | | 54,843 | | | 57,198 | | | (3.5) | % | | (4.1) | % |
Total same store cost of operations | $ | 480,766 | | | $ | 470,161 | | | $ | 472,242 | | | 1.8 | % | | (0.4) | % |
| | | | | | | | | |
Same store contribution (NOI) | $ | 234,727 | | | $ | 230,696 | | | $ | 242,149 | | | (3.1) | % | | (4.7) | % |
Same store rent and storage contribution (NOI)(2) | $ | 194,557 | | | $ | 192,281 | | | $ | 204,495 | | | (4.9) | % | | (6.0) | % |
Same store services contribution (NOI)(3) | $ | 40,170 | | | $ | 38,415 | | | $ | 37,654 | | | 6.7 | % | | 2.0 | % |
| | | | | | | | | |
Total same store margin | 32.8 | % | | 32.9 | % | | 33.9 | % | | -109 bps | | -98 bps |
Same store rent and storage margin(4) | 64.8 | % | | 64.8 | % | | 66.9 | % | | -207 bps | | -212 bps |
Same store services margin(5) | 9.7 | % | | 9.5 | % | | 9.2 | % | | 46 bps | | 29 bps |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | Change |
| 2021 actual | | 2021 constant currency(1) | | 2020 actual | | Actual | | Constant currency |
Number of non-same store sites | 75 | | | | 10 | | n/a | | n/a |
Non-same store revenues: | (Dollars in thousands) | | | | |
Rent and storage | $ | 117,403 | | | $ | 112,728 | | | $ | 20,275 | | | 479.1 | % | | 456.0 | % |
Warehouse services | 156,289 | | | 150,584 | | | 18,813 | | | 730.8 | % | | 700.4 | % |
Total non-same store revenues | 273,692 | | | 263,312 | | | 39,088 | | | 600.2 | % | | 573.6 | % |
Non-same store cost of operations: | | | | | | | | | |
Power | 18,773 | | | 17,977 | | | 2,529 | | | 642.3 | % | | 610.8 | % |
Other facilities costs | 36,111 | | | 34,958 | | | 4,788 | | | 654.2 | % | | 630.1 | % |
Labor | 119,003 | | | 115,050 | | | 21,755 | | | 447.0 | % | | 428.8 | % |
Other services costs | 43,972 | | | 42,491 | | | 5,260 | | | 736.0 | % | | 707.8 | % |
Total non-same store cost of operations | $ | 217,859 | | | $ | 210,476 | | | $ | 34,332 | | | 534.6 | % | | 513.1 | % |
| | | | | | | | | |
Non-same store contribution (NOI) | $ | 55,833 | | | $ | 52,836 | | | $ | 4,756 | | | 1,073.9 | % | | 1,010.9 | % |
Non-same store rent and storage contribution (NOI)(2) | $ | 62,519 | | | $ | 59,793 | | | $ | 12,958 | | | 382.5 | % | | 361.4 | % |
Non-same store services contribution (NOI)(3) | $ | (6,686) | | | $ | (6,957) | | | $ | (8,202) | | | 18.5 | % | | 15.2 | % |
| | | | | | | | | |
Total non-same store margin | 20.4 | % | | 20.1 | % | | 12.2 | % | | 823 bps | | 790 bps |
Non-same store rent and storage margin(4) | 53.3 | % | | 53.0 | % | | 63.9 | % | | -1066 bps | | -1087 bps |
Non-same store services margin(5) | (4.3) | % | | (4.6) | % | | (43.6) | % | | 3932 bps | | 3898 bps |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | Change |
| 2021 actual | | 2021 constant currency(1) | | 2020 actual | | Actual | | Constant currency |
Total warehouse segment revenues | $ | 989,185 | | | $ | 964,169 | | | $ | 753,479 | | | 31.3 | % | | 28.0 | % |
Total warehouse cost of operations | $ | 698,625 | | | $ | 680,637 | | | $ | 506,574 | | | 37.9 | % | | 34.4 | % |
Total warehouse segment contribution | $ | 290,560 | | | $ | 283,532 | | | $ | 246,905 | | | 17.7 | % | | 14.8 | % |
(1)The adjustments from our U.S. GAAP operating results to calculate our operating results on a constant currency basis is the effect of changes in foreign currency exchange rates relative to the comparable prior period.
(2)Calculated as rent and storage revenues less power and other facilities costs.
(3)Calculated as warehouse services revenues less labor and other services costs.
(4)Calculated as rent and storage contribution (NOI) divided by rent and storage revenues.
(5)Calculated as warehouse services contribution (NOI) divided by warehouse services revenues.
(6)Non-same store warehouse count of 75 includes one recently leased warehouse in Australia, one warehouse acquired through the Bowman stores acquisition on May 28, 2021, two warehouses acquired through the KMT Brrr! acquisition on May 5, 2021, four warehouses acquired through the Liberty Freezers acquisition on March 1, 2021, 46 warehouses acquired through the Agro acquisition on December 30, 2020, eight warehouses acquired through the Hall’s acquisition on November 2, 2020, and three warehouses acquired through the Casper’s and AM-C warehouse acquisitions on August 31, 2020. The results of these acquisitions are reflected in the results above since date of ownership.
n/a - not applicable, the change in actual and constant currency metrics does not apply to site count
The following table provides certain operating metrics to explain the drivers of our same store performance.
| | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | |
Units in thousands except per pallet and site number data - unaudited | 2021 | | 2020 | | Change |
Number of same store sites | 162 | | | 162 | | | n/a |
Same store rent and storage: | | | | | |
| | | | | |
Economic occupancy(1) | | | | | |
Average occupied economic pallets | 2,858 | | | 3,033 | | | (5.8) | % |
Economic occupancy percentage | 76.0 | % | | 80.9 | % | | -498 bps |
Same store rent and storage revenues per economic occupied pallet | $ | 105.01 | | | $ | 100.80 | | | 4.2 | % |
Constant currency same store rent and storage revenues per economic occupied pallet | $ | 103.85 | | | $ | 100.80 | | | 3.0 | % |
| | | | | |
Physical occupancy(2) | | | | | |
Average physical occupied pallets | 2,538 | | | 2,799 | | | (9.3) | % |
Average physical pallet positions | 3,763 | | | 3,747 | | | 0.4 | % |
Physical occupancy percentage | 67.4 | % | | 74.7 | % | | -725 bps |
Same store rent and storage revenues per physical occupied pallet | $ | 118.25 | | | $ | 109.20 | | | 8.3 | % |
Constant currency same store rent and storage revenues per physical occupied pallet | $ | 116.94 | | | $ | 109.20 | | | 7.1 | % |
| | | | | |
Same store warehouse services: | | | | | |
Throughput pallets (in thousands) | 14,476 | | | 15,080 | | | (4.0) | % |
Same store warehouse services revenues per throughput pallet | $ | 28.69 | | | $ | 27.10 | | | 5.9 | % |
Constant currency same store warehouse services revenues per throughput pallet | $ | 27.91 | | | $ | 27.10 | | | 3.0 | % |
| | | | | |
Number of non-same store sites(3) | 75 | | | 10 | | | n/a |
Non-same store rent and storage: | | | | | |
| | | | | |
Economic occupancy(1) | | | | | |
Average economic occupied pallets | 1,102 | | | 178 | | | 519.1 | % |
Economic occupancy percentage | 76.7 | % | | 63.4 | % | | 1332 bps |
Non-same store rent and storage revenues per economic occupied pallet | $ | 106.49 | | | $ | 114.02 | | | (6.6) | % |
Constant currency non-same store rent and storage revenues per economic occupied pallet | $ | 102.25 | | | $ | 114.02 | | | (10.3) | % |
| | | | | |
Physical occupancy(2) | | | | | |
Average physical occupied pallets | 1,079 | | | 171 | | | 531.0 | % |
Average physical pallet positions | 1,437 | | | 280 | | | 413.2 | |
Physical occupancy percentage | 75.1 | % | | 60.9 | % | | 1421 bps |
Non-same store rent and storage revenues per physical occupied pallet | $ | 108.82 | | | $ | 118.76 | | | (8.4) | % |
Constant currency non-same store rent and storage revenues per physical occupied pallet | $ | 104.49 | | | $ | 118.76 | | | (12.0) | % |
| | | | | |
Non-same store warehouse services: | | | | | |
Throughput pallets (in thousands) | 4,973 | | | 835 | | | 495.6 | % |
Non-same store warehouse services revenues per throughput pallet | $ | 31.43 | | | $ | 22.52 | | | 39.6 | % |
Constant currency non-same store warehouse services revenues per throughput pallet | $ | 30.28 | | | $ | 22.52 | | | 34.5 | % |
(1)We define average economic occupancy as the aggregate number of physically occupied pallets and any additional pallets otherwise contractually committed for a given period, without duplication. We estimate the number of contractually committed pallet positions by taking into account actual pallet commitments specified in each customer’s contract, and subtracting the physical pallet positions.
(2)We define average physical occupancy as the average number of occupied pallets divided by the estimated number of average physical pallet positions in our warehouses for the applicable period. We estimate the number of physical pallet positions by taking into account actual racked space and by estimating unracked space on an as-if racked basis. We base this estimate on a formula utilizing the total cubic feet of each room within the warehouse that is unracked divided by the volume of an assumed rack space that is consistent with the characteristics of the relevant warehouse. On a warehouse by warehouse basis, rack space generally ranges from three to four feet depending upon the type of facility and the nature of the customer goods stored therein. The number of our pallet positions is reviewed and updated quarterly, taking into account changes in racking configurations and room utilization.
(3)Non-same store warehouse count of 75 includes one recently leased warehouse in Australia, one warehouse acquired through the Bowman stores acquisition on May 28, 2021, two warehouses acquired through the KMT Brrr! acquisition on May 5, 2021, four warehouses acquired through the Liberty Freezers acquisition on March 1, 2021, 46 warehouses acquired through the Agro acquisition on December 30, 2020, eight warehouses acquired through the Hall’s acquisition on November 2, 2020, and three warehouses acquired through the Casper’s and AM-C warehouse acquisitions on August 31, 2020. The results of these acquisitions are reflected in the results above since date of ownership.
Economic occupancy at our same stores was 76.0% for the six months ended June 30, 2021, a decrease of 498 basis points compared to 80.9% for the six months ended June 30, 2020. Storage levels were lower than prior year levels due to ongoing supply chain disruption as a result of the COVID-19 pandemic, as well as food manufacturers producing at less than full capacity. As such, our customers’ existing inventories have continued to be drawn down to support steady consumer demand. Additionally, recent acquisitions came into the same store pool during the first quarter of 2021 which have a lower percentage of fixed commitment revenue compared to our legacy same stores. Our second quarter 2020 economic occupancy at our same stores was 851 basis points higher than our corresponding average physical occupancy of 67.4%. The decrease of 725 basis points in average physical occupancy compared to 74.7% for the six months ended June 30, 2020 was driven by supply chain fluctuations caused by the COVID-19 pandemic. Same store rent and storage revenues per economic occupied pallet increased 4.2% period-over-period, primarily driven by improvements in our commercial terms and contractual rate escalations. On a constant currency basis, our same store rent and storage revenues per occupied pallet increased 3.0% period-over-period.
Throughput pallets at our same stores were 14.5 million pallets for the six months ended June 30, 2021, a decrease of 4.0% from the six months ended June 30, 2020. This decrease was the result of the COVID-19 related impacts in various sectors and commodities, and was primarily driven by the unprecedented surge in demand in retail during the first half of 2020. As food manufacturers production has not reached full pre-pandemic capacity, throughput has been impacted, with modest improvement during the second quarter of 2021. Food manufacturers have been unable to rebuild holdings in the supply chain due to challenges in the labor market. Same store warehouse services revenues per throughput pallet increased 5.9% period-over-period, as a result of a more favorable customer mix, contractual rate escalations and an increase in higher priced value-added services within the retail sector such as case-picking, blast freezing and repackaging and contractual rate escalations, paired with favorable foreign currency translation as previously discussed. On a constant currency basis, our same store services revenues per throughput pallet increased 3.0% from the six months ended June 30, 2020.
Third-Party Managed Segment
The following table presents the operating results of our third-party managed segment for the six months ended June 30, 2021 and 2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | Change |
| 2021 actual | | 2021 constant currency(1) | | 2020 actual | | Actual | | Constant currency |
Number of managed sites | 9 | | | | | 11 | | | n/a | | n/a |
| (Dollars in thousands) | | | | |
Third-party managed revenues | $ | 145,245 | | | $ | 143,602 | | | $ | 137,875 | | | 5.3 | % | | 4.2 | % |
Third-party managed cost of operations | 139,170 | | | 137,800 | | | 130,807 | | | 6.4 | % | | 5.3 | % |
Third-party managed segment contribution | $ | 6,075 | | | $ | 5,802 | | | $ | 7,068 | | | (14.0) | % | | (17.9) | % |
| | | | | | | | | |
Third-party managed margin | 4.2 | % | | 4.0 | % | | 5.1 | % | | -94 bps | | -109 bps |
(1)The adjustments from our U.S. GAAP operating results to calculate our operating results on a constant currency basis are the effect of changes in foreign currency exchange rates relative to the comparable prior period.
Third-party managed revenues were $145.2 million for the six months ended June 30, 2021, an increase of $7.4 million, or 5.3%, compared to $137.9 million for the six months ended June 30, 2020. On a constant currency basis, third-party managed revenues were $143.6 million for the six months ended June 30, 2021, an increase of $5.7 million, or 4.2%, from the six months ended June 30, 2020. This increase was a result of higher business volume and higher pass-through labor expenses in our domestic and foreign managed operations due to the consumer demand shift to retail paired with the favorable impact of foreign currency translation related to our Australian managed revenues. This increase was partially offset by the exit of two Canadian managed sites during the second half of 2020.
Third-party managed cost of operations was $139.2 million for the six months ended June 30, 2021, an increase of $8.4 million, or 6.4%, compared to $130.8 million for the six months ended June 30, 2020. On a constant currency basis, third-party managed cost of operations was $137.8 million for the six months ended June 30, 2021, an increase of $7.0 million, or 5.3%, from the six months ended June 30, 2020. Third-party managed cost of operations increased as a result of the revenue trends described above.
Third-party managed segment contribution (NOI) was $6.1 million for the six months ended June 30, 2021, a decrease of $1.0 million, or 14.0%, compared to $7.1 million for the six months ended June 30, 2020. On a constant currency basis, third-party managed segment contribution (NOI) was $5.8 million for the six months ended June 30, 2021, a decrease of $1.3 million, or 17.9%.
Transportation Segment
The following table presents the operating results of our transportation segment for the six months ended June 30, 2021 and 2020. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | Change |
| 2021 actual | | 2021 constant currency(1) | | 2020 actual | | Actual | | Constant currency |
| (Dollars in thousands) | | | | |
Transportation revenues | $ | 155,072 | | | $ | 154,264 | | | $ | 70,778 | | | 119.1 | % | | 118.0 | % |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Total transportation cost of operations | 139,119 | | | 138,828 | | | 61,201 | | | 127.3 | % | | 126.8 | % |
Transportation segment contribution (NOI) | $ | 15,953 | | | $ | 15,436 | | | $ | 9,577 | | | 66.6 | % | | 61.2 | % |
| | | | | | | | | |
Transportation margin | 10.3 | % | | 10.0 | % | | 13.5 | % | | -324 bps | | -352 bps |
(1)The adjustments from our U.S. GAAP operating results to calculate our operating results on a constant currency basis are the effect of changes in foreign currency exchange rates relative to the comparable prior period.
Transportation revenues were $155.1 million for the six months ended June 30, 2021, an increase of $84.3 million, or 119.1%, compared to $70.8 million for the six months ended June 30, 2020. The increase was primarily due to the revenue associated with transportation operations from the Hall’s acquisition, which closed on November 2, 2020, the Agro acquisition, which closed on December 30, 2020 and to a much lesser extent the KMT Brrr! acquisition which closed in early May 2021. Furthermore, this is offset by the net decrease in revenue from the rationalization of certain domestic market operations. On a constant currency basis, transportation revenues were $154.3 million for the six months ended June 30, 2021, an increase of $83.5 million, or 118.0%, from the six months ended June 30, 2020.
Transportation cost of operations was $139.1 million for the six months ended June 30, 2021, an increase of $77.9 million, or 127.3%, compared to $61.2 million for the six months ended June 30, 2020. On a constant currency basis, transportation cost of operations was $138.8 million for the six months ended June 30, 2021, an increase of $77.6 million, or 126.8%, from the six months ended June 30, 2020. The increase was driven by the acquisitions mentioned above and due to a reduction in market capacity due to the COVID-19 pandemic, which has caused an increase in carrier fees. Additionally, this is partially offset by the net decrease of costs from the exit of certain domestic market operations.
Transportation segment contribution (NOI) was $16.0 million for the six months ended June 30, 2021, an increase of $6.4 million compared to the six months ended June 30, 2020. Transportation segment margin decreased 324 basis points from the six months ended June 30, 2020, to 10.3% from 13.5%. On a constant currency basis, transportation segment contribution was $15.4 million for the six months ended June 30, 2021, an increase of $5.9 million compared to the six months ended June 30, 2020. The decrease in margin was primarily due to the acquisition of lower-margin transportation business compared to our legacy operations, coupled with higher carrier fees as a result of the COVID-19 pandemic.
Other Consolidated Operating Expenses
Depreciation and amortization. Depreciation and amortization expense was $161.7 million for the six months ended June 30, 2021, an increase of $57.7 million, or 55.4%, compared to $104.0 million for the six months ended June 30, 2020. This increase was primarily due to the acquisitions in late 2020 and 2021.
Selling, general and administrative. Corporate-level selling, general and administrative expenses were 8.2% and 6.6%$87.5 million for the six months ended June 30, 2021, an increase of $18.3 million, or 26.4%, respectively, of total revenues.
compared to
$69.2 million for the six months ended June 30, 2020. Included in these amounts are business development expenses attributable to new business pursuits, supply chain solutions and underwriting, facility development, customer on-boarding, and engineering and consulting services to support our customers in the cold chain. We believe these costs are comparable to leasing costs for other publicly-traded REITs. The increase was driven by costs assumed from the Agro and Hall’s acquisitions, net of synergies realized and higher third-party professional fees.
Acquisition, litigation and other. Corporate-level acquisition, litigation and other expenses were $24.7 million for the six months ended June 30, 2021, an increase of $20.2 million compared to the six months ended June 30, 2020. During the six months ended June 30, 2021, we incurred $16.6 million of acquisition related expenses primarily composed of professional fees and integration related costs, including severance and employee retention expenses, in connection with completed and potential acquisitions, primarily related to the Agro acquisition. We also incurred $4.5 million of ongoing costs related to the cyber event that occurred in late 2020. During the six months ended June 30, 2020, we incurred $3.4 million of acquisition related expenses primarily composed of employee retention, professional fees and integration related costs in connection with completed and potential acquisitions. Additionally, we incurred $1.1 million of severance related to reduction in headcount as a result of the synergies from acquisitions and realignment of our international operations during the first half of 2020.
Impairment of long-lived assets. For the six months ended June 30, 2021, we recorded impairment charges totaling $1.5 million, resulting from the write off of costs incurred for development projects which management determined it would not continue to pursue. For the six months ended June 30, 2020, we recorded impairment charges of $3.7 million, which related to the anticipated sale of our quarry business, which was subsequently completed on July 1, 2020.
Gain from sale of real estate. For the six months ended June 30, 2020, we recorded a $21.9 million gain from the sale of real estate. On January 31, 2020, we received official notice from a customer to exercise its contractual call option to purchase land from us in Sydney, Australia, which we previously purchased for future development. We received sale proceeds upon exercise of the call option during the first quarter of 2020, resulting in a $2.5 million gain on sale. Additionally, on June 19, 2020, we completed the sale of a facility in our Warehouse segment, and began to transition the business to other nearby facilities, resulting in a $19.4 million gain from sale of real estate.
Other IncomeExpense and ExpenseIncome
The following table presents other items of income and expense for the yearssix months ended March 31, 2018June 30, 2021 and 2017.2020.
| | | Three Months Ended March 31, | | Change | | Six Months Ended June 30, | | Change |
| 2018 | | 2017 | | % | | 2021 | | 2020 | | % |
Other (expense) income: | (In thousands) | | | Other (expense) income: | (Dollars in thousands) | | |
Interest expense | $ | (24,495 | ) | | $ | (27,727 | ) | | (11.7 | )% | Interest expense | $ | (52,535) | | | $ | (47,048) | | | 11.7 | % |
Interest income | 623 |
| | 257 |
| | 142.4 | % | Interest income | $ | 415 | | | $ | 848 | | | (51.1) | % |
Loss on debt extinguishment and modification | (21,385 | ) | | (171 | ) | | n/m |
| |
| Loss on debt extinguishment, modifications and termination of derivative instruments | | Loss on debt extinguishment, modifications and termination of derivative instruments | $ | (4,424) | | | $ | (781) | | | n/r |
Foreign currency exchange gain (loss) | 680 |
| | (2,773 | ) | | n/m |
| Foreign currency exchange gain (loss) | $ | 33 | | | $ | (177) | | | n/r |
Other income (expense) - net | 56 |
| | (467 | ) | | (112.0 | )% | |
Other expense - net | | Other expense - net | $ | 689 | | | $ | 915 | | | (24.7) | % |
Loss from investments in partially owned entities | | Loss from investments in partially owned entities | $ | (761) | | | $ | (156) | | | n/r |
n/m:r: not meaningfulrelevant
Interest expense. Interest expense was $24.5$52.5 million for the threesix months ended March 31, 2018, a decreaseJune 30, 2021, an increase of $3.2$5.5 million, or 11.7%, compared to $27.7$47.0 million for the threesix months ended March 31, 2017. In connection withJune 30, 2020. The increase was primarily due to the IPO, we usedissuance of the net proceeds fromSeries D and Series E Senior Unsecured Notes in December 2020. This was partially offset by the equity offering and the 2018decrease in interest expense on our Senior SecuredUnsecured Term Loan A Facility due to paythe early principal repayment of $100.0 million and $200.0 million in fullDecember 2020 and January 2021, respectively. The effective interest rate of our 2015 Senior Secured Term Loan B Facility, which had a balance outstanding of approximately $703.0 million duringdebt has decreased from 4.22% for the first quarter of 2017. In addition,six months ended June 30, 2020 to 3.24% for the six months ended June 30, 2021, however, outstanding principal has increased from $1.8 billion as of March 31, 2017 we had a balance outstandingJune 30, 2020 to $2.6 billion as of $29.0 million under our 2015 Senior Secured Revolving Credit Facility, but had no outstanding balance under our 2018 Senior Secured Revolving Credit Facility during the first quarter of 2018.June 30, 2021.
Interest income. Interest income of $0.6was $0.4 million for the threesix months ended March 31, 2018 was 142.4% higherJune 30, 2021, a decrease of $0.4 million when compared to the amount$0.8 million reported for threethe six months ended March 31, 2017.June 30, 2020. This period-over-period change was primarily driven by a lower interest rate of 0.12% earned during the increase in net cash provided by our financing activities in January 2018.six months ended June 30, 2021 as compared to 0.82% during the six months ended June 30, 2020.
Loss on debt extinguishment, modifications and modification. We recognized a $21.4 million charge primarily to write-off unamortizedtermination of derivative instruments. Loss on debt issuance costs in connection with the refinancingextinguishment, modifications, and termination of our 2015 Senior Secured Credit Facilities. A small portionderivative instruments of that charge includes certain financing costs we incurred in connection with the issuance of our 2018 Senior Secured Credit Facilities that could not be capitalized.
Foreign currency exchange gain (loss). We reported a foreign currency exchange gain of $0.7$4.4 million for the threesix months ended March 31, 2018 as compared to a $2.8June 30, 2021 was primarily driven by the early repayment of $200 million foreign currency exchange loss forof principal on the three months ended March 31, 2017. The periodic re-measurement of an intercompany loan denominated in Australian dollars, issued from our Australian subsidiary to one of our U.S. corporate subsidiaries,Senior Unsecured Term Loan A Facility, which resulted in a foreign currency exchange gain incharge of $2.9 million for the write-off of unamortized deferred financing costs. Additionally, we recorded a charge of $1.4 million for the amortization of fees paid for the termination of interest rate swaps during 2020. During the first quarter of 2018 as2020 we refinanced our Senior Unsecured Credit Facility, which resulted in the U.S. dollar strengthened againstwrite-off of certain unamortized deferred financing costs.
Other income, net. During the Australian dollar assix months ended June 30, 2021, we reported other income of $0.7 million, compared to the three months ended March 31, 2017. In addition, the balance outstanding under this intercompany loan was $15.0 million higher during the first quarter of 2017.
Other income (expense) - net. In this line item, which represents income or expense outside our operating segments, we reported a netother income of $0.1$0.9 million for the threesix months ended March 31, 2018 as comparedJune 30, 2020. During the six months ended June 30, 2021, other income was mainly due to a net gain from asset disposals. During the six months ended June 30, 2020, other income was mainly due to a lease restoration payment received from a tenant in one of our facilities, and net gains from asset disposals.
Loss from investments in partially owned entities. During the six months ended June 30, 2021, we incurred $0.8 million as our portion of net loss from the SuperFrio and Comfrio joint ventures. During the six months ended June 30, 2020, we entered into the Superfrio joint venture for which we recorded a nominal amount as our portion of loss for the period of our ownership.
Income Tax Expense
Income tax expense for the six months ended June 30, 2021 was $8.2 million, a decrease of $0.5$6.5 million when compared to $1.7 million for the threesix months ended March 31, 2017. ThisJune 30, 2021. The change is attributedin income tax expense was primarily attributable to higher pension expensethe tax effects of the rate change from 19% to 25% in 2017 as a resultthe United Kingdom, enacted during the second quarter of a lump sum settlement.
Income Tax Benefit (Expense)
Income tax benefit2021, for the three months ended March 31, 2018 was $0.1 million, which represented a change of $1.6 million, or 106.0% from anwe recorded deferred income tax expense of $1.5$14.5 million and a decrease in our valuation allowance for which we recorded a deferred tax benefit of $3.7 million attributable to recent acquisitions. The remainder was primarily attributable to losses generated from our foreign operations which did not occur during the threesix months ended
June 30, 2020.
March 31, 2017. This change was mainly driven by a reduction in the projected annual effective tax rate associated with the enactment of the TCJA and lower income reported by our taxable REIT foreign subsidiaries.
Non-GAAP Financial Measures
We use the following Non-GAAPnon-GAAP financial measures as supplemental performance measures of our business: FFO, Core FFO, Adjusted FFO, EBITDAre and Core EBITDA.
| | |
|
We calculate funds from operations, or FFO, in accordance with the standards established by the Board of Governors of the National Association of Real Estate Investment Trusts, or NAREIT. NAREIT defines FFO as net income or loss determined in accordance with U.S. GAAP, excluding extraordinary items as defined under U.S. GAAP and gains or losses from sales of previously depreciated operating real estate assets, plus specified non-cash items, such as real estate asset depreciation and amortization, real estate asset impairment and after adjustmentsour share of reconciling items for unconsolidated partnerships and joint ventures. partially owned entities. We believe that FFO is helpful to investors as a supplemental performance measure because it excludes the effect of depreciation, amortization and gains or losses from sales of real estate, all of which are based on historical costs, which implicitly assumes that the value of real estate diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, FFO can facilitate comparisons of operating performance between periods and among other equity REITs. |
We calculate core funds from operations, or Core FFO, as FFO adjusted for the effects of gain or loss on the sale of non-real estate assets, non-offering related IPO expenses, stock-basednon-real estate asset impairment, acquisition, litigation and other, share-based compensation expense for the IPO retention grants, severance and reduction in workforce costs, acquisition, diligence and other pursuit costs, loss on debt extinguishment, modifications and modification,termination of derivative instruments and foreign currency exchange gain or loss. We also adjust for the impact of Core FFO attributable to partially owned entities. We have elected to reflect our share of Core FFO attributable to partially owned entities since the Brazil joint ventures are strategic partnerships, which we continue to actively participate in on an ongoing basis. The previous joint venture, the China JV, was considered for disposition during the periods presented. We believe that Core FFO is helpful to investors as a supplemental performance measure because it excludes the effects of certain items which can create significant earnings volatility, but which do not directly relate to our core business operations. We believe Core FFO can facilitate comparisons of operating performance between periods, while also providing a more meaningful predictor of future earnings potential. |
However, because FFO and Core FFO add back real estate depreciation and amortization and do not capture the level of recurring maintenance capital expenditures necessary to maintain the operating performance of our properties, both of which have material economic impacts on our results from operations, we believe the utility of FFO and Core FFO as a measure of our performance may be limited. |
We calculate adjusted funds from operations, or Adjusted FFO, as Core FFO adjusted for the effects of amortization of loandeferred financing costs, debt discountspension withdrawal liability and above or below market leases, straight-line net rent, provision or benefit from deferred income taxes, stock-basedshare-based compensation expense from grants of stock options and restricted stock units under our equity incentive plans, excluding IPO grants, non-real estate depreciation depletion orand amortization, (including in respect of the China JV), and recurring maintenance capital expenditures. We also adjust for AFFO attributable to our share of reconciling items of partially owned entities. We believe that Adjusted FFO is helpful to investors as a meaningful supplemental comparative performance measure of our ability to make incremental capital investments in our business and to assess our ability to fund distribution requirements from our operating activities. |
FFO, Core FFO and Adjusted FFO are used by management, investors and industry analysts as supplemental measures of operating performance of equity REITs. FFO, Core FFO and Adjusted FFO should be evaluated along with U.S. GAAP net income and net income per diluted share (the most directly comparable U.S. GAAP measures) in evaluating our operating performance. FFO, Core FFO and Adjusted FFO do not represent net income or cash flows from operating activities in accordance with U.S. GAAP and are not indicative of our results of operations or cash flows from operating activities as disclosed in our consolidated statements of operations included elsewhere in this Quarterly Report on Form 10-Q. FFO, Core FFO and Adjusted FFO should be considered as supplements, but not alternatives, to our net income or cash flows from operating activities as indicators of our operating performance. Moreover, other REITs may not calculate FFO in accordance with the NAREIT definition or may interpret the NAREIT definition differently than we do. Accordingly, our FFO may not be comparable to FFO as calculated by other REITs. In addition, there is no industry definition of Core FFO or Adjusted FFO and, as a result, other REITs may also calculate Core FFO or Adjusted FFO, or other similarly-captioned metrics, in a manner different than we do. The table abovebelow reconciles FFO, Core FFO and Adjusted FFO to net (loss) income, which is the most directly comparable financial measure calculated in accordance with U.S. GAAP. |
90
| | | | | | | | | | | | | | | | | | | | | | | |
Reconciliation of Net (Loss) Income to NAREIT FFO, Core FFO, and Adjusted FFO |
(in thousands) |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Net (loss) income | $ | (13,399) | | | $ | 32,662 | | | $ | (27,635) | | | $ | 56,173 | |
Adjustments: | | | | | | | |
Real estate related depreciation | 44,871 | | | 35,558 | | | 97,151 | | | 71,000 | |
Net gain on sale of real estate, net of withholding taxes | — | | | (19,414) | | | — | | | (21,510) | |
Net gain on asset disposals | (13) | | | (3) | | | (52) | | | (3) | |
Impairment charges on certain real estate assets | 1,528 | | | 3,181 | | | 1,528 | | | 3,181 | |
| | | | | | | |
Our share of reconciling items related to partially owned entities | 861 | | | 122 | | | 1,127 | | | 156 | |
NAREIT Funds from operations | 33,848 | | | 52,106 | | | 72,119 | | | 108,997 | |
| | | | | | | |
| | | | | | | |
Adjustments: | | | | | | | |
Net gain on sale of non-real estate assets | (304) | | | (252) | | | (423) | | | (417) | |
Non-real estate asset impairment | — | | | 486 | | | — | | | 486 | |
| | | | | | | |
| | | | | | | |
Acquisition, litigation and other | 3,922 | | | 2,801 | | | 24,673 | | | 4,489 | |
Share-based compensation expense, IPO grants | — | | | 203 | | | 163 | | | 576 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Loss on debt extinguishment, modifications and termination of derivative instruments | 925 | | | — | | | 4,424 | | | 781 | |
| | | | | | | |
Foreign currency exchange loss (gain) | 140 | | | (315) | | | (33) | | | 177 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Our share of reconciling items related to partially owned entities | 89 | | | 79 | | | 243 | | | 79 | |
Core FFO applicable to common shareholders | 38,620 | | | 55,108 | | | 101,166 | | | 115,168 | |
Adjustments: | | | | | | | |
Amortization of deferred financing costs and pension withdrawal liability | 1,085 | | | 1,196 | | | 2,233 | | | 2,742 | |
Amortization of below/above market leases | 362 | | | — | | | 401 | | | 76 | |
Straight-line net rent | (170) | | | (108) | | | (325) | | | (217) | |
Deferred income taxes expense (benefit) | 6,568 | | | (967) | | | 4,566 | | | (3,069) | |
Share-based compensation expense, excluding IPO grants | 5,467 | | | 4,261 | | | 10,334 | | | 8,195 | |
Non-real estate depreciation and amortization | 39,588 | | | 16,841 | | | 64,519 | | | 33,003 | |
| | | | | | | |
Maintenance capital expenditures (a) | (20,488) | | | (15,284) | | | (36,219) | | | (27,722) | |
Our share of reconciling items related to partially owned entities | 711 | | | 56 | | | 989 | | | 78 | |
Adjusted FFO applicable to common shareholders | $ | 71,743 | | | $ | 61,103 | | | $ | 147,664 | | | $ | 128,254 | |
(a)Maintenance capital expenditures include capital expenditures made to extend the life of, and provide future economic benefit from, our existing temperature-controlled warehouse network and its existing supporting personal property and information technology.
|
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Reconciliation of Net Earnings to NAREIT FFO, Core FFO, and AFFO |
(In thousands) |
| Three Months Ended March 31, |
| 2018 | | 2017 |
Net (loss) income | $ | (8,639 | ) | | $ | 4,384 |
|
Adjustments: | | | |
Real estate related depreciation and depletion | 22,174 |
| | 21,433 |
|
Real estate depreciation on China JV | 270 |
| | 268 |
|
NAREIT Funds from operations | 13,805 |
| | 26,085 |
|
Less distributions on preferred shares of beneficial interest | (1,818 | ) | | (7,109 | ) |
NAREIT Funds from operations attributable to common shareholders | $ | 11,987 |
| | $ | 18,976 |
|
Adjustments: | | | |
Net gain on sale of non-real estate assets | (148 | ) | | (99 | ) |
Non-offering related IPO expenses (a) | 1,245 |
| | — |
|
Stock-based compensation expense, IPO grants | 965 |
| | — |
|
Severance and reduction in workforce costs (b) | 11 |
| | — |
|
Terminated site operations costs | — |
| | (3 | ) |
Strategic alternative costs | — |
| | 842 |
|
Loss on debt extinguishment and modification | 21,385 |
| | 171 |
|
Foreign currency exchange (gain) loss | (680 | ) | | 2,773 |
|
Core FFO applicable to common shareholders | $ | 34,765 |
| | $ | 22,660 |
|
Adjustments: | | | |
Amortization of deferred financing costs and debt discount | 1,674 |
| | 2,023 |
|
Amortization of below/above market leases | 38 |
| | 38 |
|
Straight-line net rent | (5 | ) | | (12 | ) |
Deferred income taxes benefit | (1,156 | ) | | (748 | ) |
Stock-based compensation expense, excluding IPO grants | 3,553 |
| | 587 |
|
Non-real estate depreciation and amortization | 7,234 |
| | 7,975 |
|
Non-real estate depreciation and amortization on China JV | 156 |
| | 151 |
|
Recurring maintenance capital expenditures (c) | (6,383 | ) | | (5,905 | ) |
Adjusted FFO applicable to common shareholders | $ | 39,876 |
| | $ | 26,769 |
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(a) | Represents one-time costs and professional fees associated with becoming a public company. |
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(b) | Represents one-time severance from and reduction in workforce costs associated with exiting or selling non-strategic warehouses. |
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(c) | Recurring maintenance capital expenditures include capital expenditures made to extend the life of, and provide future economic benefit from, our existing temperature-controlled warehouse network and its existing supporting personal property and information technology. |
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We calculate EBITDA for Real Estate, or EBITDAre, in accordance with the standards established by the Board of Governors of NAREIT, defined as, earnings before interest expense, taxes, depreciation depletion and amortization, gains or lossesnet gain on dispositionsale of depreciated property, including gains or losses on changereal estate, net of control, impairment write-downs of depreciated property and of investments in unconsolidated affiliates caused by a decrease in value of depreciated property in the affiliate,withholding taxes, and adjustment to reflect share of EBITDAre of unconsolidated affiliates.partially owned entities. EBITDAre is a measure commonly used in our industry, and we present EBITDAre to enhance investor understanding of our operating performance. We believe that EBITDAre provides investors and analysts with a measure of operating results unaffected by differences in capital structures, capital investment cycles and useful life of related assets among otherwise comparable companies. |
We also calculate our Core EBITDA as EBITDAre further adjusted for impairment charges on intangibleacquisition, litigation and long-lived assets, gain or loss on depreciable real property asset disposals, severance and reduction in workforce costs, non-offering related IPOother expenses, loss on debt extinguishment, modifications and modification, stock-basedtermination of derivative instruments, share-based compensation expense, foreign currency exchange gain or loss, impairment of long-lived assets, loss onfrom investments in partially owned entities, net gain on sale of non-real estate assets and reduction in EBITDAre from partially owned entities. We believe that the presentation of Core EBITDA provides a measurement of our operations that is meaningful to investors because it excludes the effects of certain items that are otherwise included in EBITDAre but which we do not believe are indicative of our core business operations. EBITDAre and Core EBITDA are not measurements of financial performance under U.S. GAAP, and our EBITDAre and Core EBITDA may not be comparable to similarly titled measures of other companies. You should not consider our EBITDAre and Core EBITDA as alternatives to net income or cash flows from operating activities determined in accordance with U.S. GAAP. Our calculations of EBITDAre and Core EBITDA have limitations as analytical tools, including:
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•these measures do not reflect our historical or future cash requirements for recurring maintenance capital expenditures or growth and expansion capital expenditures;
•these measures do not reflect changes in, or cash requirements for, our working capital needs;
•these measures do not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on our indebtedness;
•these measures do not reflect our tax expense or the cash requirements to pay our taxes; and
•although depreciation, depletion and amortization are non-cash charges, the assets being depreciated, depleted and amortized will often have to be replaced in the future and these measures do not reflect any cash requirements for such replacements.
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We use EBITDAre and Core EBITDA as measures of our operating performance and not as measures of liquidity. The table below reconciles EBITDAre and Core EBITDA to net (loss) income, which is the most directly comparable financial measure calculated in accordance with U.S. GAAP. |
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Reconciliation of Net (Loss) Income to NAREIT EBITDAre and Core EBITDA |
(In thousands) |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Net (loss) income | $ | (13,399) | | | $ | 32,662 | | | $ | (27,635) | | | $ | 56,173 | |
Adjustments: | | | | | | | |
Depreciation and amortization | 84,459 | | | 52,399 | | | 161,670 | | | 104,003 | |
Interest expense | 26,579 | | | 23,178 | | | 52,535 | | | 47,048 | |
Income tax expense | 8,974 | | | 1,196 | | | 8,183 | | | 1,287 | |
Net gain on sale of real estate, net of withholding taxes | — | | | (19,414) | | | — | | | (21,510) | |
Adjustment to reflect share of EBITDAre of partially owned entities | 1,838 | | | 237 | | | 2,487 | | | 297 | |
NAREIT EBITDAre | $ | 108,451 | | | $ | 90,258 | | | $ | 197,240 | | | $ | 187,298 | |
Adjustments: | | | | | | | |
Acquisition, litigation and other | 3,922 | | | 2,801 | | | 24,673 | | | 4,489 | |
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Loss from investments in partially owned entities | 61 | | | 129 | | | 761 | | | 156 | |
Impairment of long-lived assets | 1,528 | | | 3,667 | | | 1,528 | | | 3,667 | |
Loss (gain) on foreign currency exchange | 140 | | | (315) | | | (33) | | | 177 | |
Share-based compensation expense | 5,467 | | | 4,464 | | | 10,497 | | | 8,771 | |
Loss on debt extinguishment, modifications and termination of derivative instruments | 925 | | | — | | | 4,424 | | | 781 | |
Net gain on sale of non-real estate assets | (317) | | | (255) | | | (475) | | | (420) | |
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Reduction in EBITDAre from partially owned entities | (1,838) | | | (237) | | | (2,487) | | | (297) | |
Core EBITDA | $ | 118,339 | | | $ | 100,512 | | | $ | 236,128 | | | $ | 204,622 | |
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Reconciliation of Net Earnings to NAREIT EBITDAre and Core EBITDA |
(In thousands) |
| Three Months Ended March 31, |
| 2018 | | 2017 |
Net (loss) income | $ | (8,639 | ) | | $ | 4,384 |
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Adjustments: | | | |
Depreciation, depletion and amortization | 29,408 |
| | 29,408 |
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Interest expense | 24,495 |
| | 27,727 |
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Income tax expense | (89 | ) | | 1,494 |
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Adjustment to reflect share of EBITDAre of partially owned entities | 557 |
| | 571 |
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NAREIT EBITDAre | $ | 45,732 |
| | $ | 63,584 |
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Adjustments: | | | |
Severance and reduction in workforce costs (a) | 11 |
| | — |
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Terminated site operations cost | — |
| | (3 | ) |
Non-offering related IPO expenses (b) | 1,245 |
| | — |
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Strategic alternative costs | — |
| | 842 |
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Loss from partially owned entities | 139 |
| | 27 |
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(Gain) loss on foreign currency exchange | (680 | ) | | 2,773 |
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Stock-based compensation expense | 4,518 |
| | 587 |
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Loss on debt extinguishment and modification | 21,385 |
| | 171 |
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Gain on real estate and other asset disposals | (137 | ) | | (102 | ) |
Reduction in EBITDAre from partially owned entities | (557 | ) | | (571 | ) |
Core EBITDA | $ | 71,656 |
| | $ | 67,308 |
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(a) | Represents one-time severance from reduction in workforce costs associated with exiting or selling non-strategic warehouses. |
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(b) | Represents one-time costs and professional fees associated with becoming a public company. |
LIQUIDITY AND CAPITAL RESOURCES
OverviewThe Company and the Operating Partnership have filed a registration statement on Form S-3 with the SEC registering, among other securities, debt securities of the Operating Partnership, which will be fully and unconditionally guaranteed by the Company. Separate consolidated financial statements of the Operating Partnership have not been presented in accordance with the amendments to Rule 3-10 of Regulation S-X. Furthermore, as permitted under Rule 13-01(a)(4)(vi), the Company has excluded the summarized financial information for the Operating Partnership as the assets, liabilities and results of operations of the Company and the Operating Partnership are not materially different than the corresponding amounts presented in the consolidated financial statements of the Company, and management believes such summarized financial information would be repetitive and not provide incremental value to investors.
We currently expect that our principal sources of funding for working capital, facility acquisitions, business combinations, expansions, maintenance and renovation of our properties, developments projects, debt service and distributions to our shareholders will include:
•current cash balances;
•cash flows from operations;
borrowings under •our 20182020 Senior SecuredUnsecured Revolving Credit Facilities;Facility;
•our outstanding equity forward sale agreements;
•our ATM Equity Programs and related forward sale agreements; and
•other forms of secured or unsecured debt financings and equity offerings.
We expect that our funding sources as noted above are adequate and will continue to be adequate to meet our short-term liquidity requirements and capital commitments. These liquidity requirements and capital commitments include:
•operating activities and overall working capital;
•capital expenditures;
•debt service obligations; and
•quarterly shareholder distributions.
We expect to utilize the same sources of capital we will rely on to meet our short-term liquidity requirements to also meet our long-term liquidity requirements, which include funding our operating activities, our debt service obligations and shareholder distributions, and our future development and acquisition activities. As previously discussed, the COVID-19 pandemic has created disruption among several industries. The outbreak of COVID-19 has significantly adversely impacted global economic activity and has contributed to significant volatility and negative pressure in financial markets. While we did not incur significant disruption during the six months ended June 30, 2021 from the COVID-19 pandemic, we are unable to predict the impact that the pandemic may have on the sources of capital upon which we rely.
REIT Qualification
To maintain our qualificationWe are a well-known seasoned issuer with an effective shelf registration statement filed on April 16, 2020, which registered an indeterminate amount of common shares, preferred shares, depositary shares and warrants, as a REIT, we must make distributions to our common shareholders aggregating annually at least 90%well as debt securities of our REIT taxable income excluding capital gains. While historically we have satisfied this requirementthe Operating Partnership, which will be fully and unconditionally guaranteed by making cash distributions to our shareholders,us. As circumstances warrant, we may chooseissue equity securities from time to satisfy this requirement by making distributionstime on an opportunistic basis, dependent upon market conditions and available pricing. We may use the proceeds for general corporate purposes, which may include the repayment of other property, including, in limited circumstances, our own common shares. Cash flowsoutstanding indebtedness, the funding of development, expansion and acquisition opportunities and to increase working capital.
On May 10, 2021, we entered into an equity distribution agreement pursuant to which we may sell, from our operations, which are included in net cash provided by operating activities in our consolidated statementstime to time, up to an aggregate sales price of cash flows, were sufficient to cover distributions on$900.0 million of our common shares through an ATM equity program (the “2021 ATM Equity Program”). Sales of our common shares made pursuant to the 2021 ATM Equity Program may be made in negotiated transactions or transactions that are deemed to be “at the market” offerings as defined in Rule 415 under the Securities Act, including sales made directly on the NYSE, or sales made to or through a market maker other than on an exchange, or as otherwise agreed between the applicable Agent and us. Sales may also be made on a forward basis pursuant to separate forward sale agreements. We intend to use the net proceeds from sales of our then outstanding preferredcommon shares pursuant to the 2021 ATM Equity Program for general corporate purposes, which may include funding acquisitions and development projects.
During the threesix months ended March 31, 2018 and 2017.
As a resultJune 30, 2021, there were 1,530,034 common shares sold under the 2021 ATM Equity Program under forward sale agreements which must be settled by July 1, 2022 for gross proceeds of this requirement,$59.6 million. After considering the forward sale agreements entered into during the six months ended June 30, 2021, we cannot rely on retained earnings to fund our business needs tohad approximately $840.4 million availability remaining for distribution under the same extent2021 ATM Equity Program as other entities that are not REITs. If we do not have sufficient funds available to us from our operations to fund our business needs, we will need to find alternative ways to fund those needs. Such alternatives may include, among other things, divesting ourselves of temperature-controlled warehouses (whether or not the sales price is optimal or otherwise meets our strategic long-term objectives), incurring additional indebtedness or issuing equity securities in public or private transactions, the availability and attractiveness of the terms of which cannot be assured.June 30, 2021.
Security Interests in Customers’ Products
By operation of law and in accordance with our customer contracts (other than leases), we typically receive warehouseman’s liens on products held in our warehouses to secure customer payments. Such liens permit us to take control of the products and sell them to third parties in order to recover any monies receivable on a delinquent account, but such products may be perishable or otherwise not readily saleable by us. Historically, in instances where we have warehouseman’s liens and our customer sought bankruptcy protection, we have been successful in receiving “critical vendor” status, which has allowed us to fully collect on our accounts receivable during the pendency of the bankruptcy proceeding.
Our bad debt expense was $0.1$0.9 million and $0.2$0.9 million for the three months ended March 31, 2018June 30, 2021 and 2017,2020, respectively, and $1.8 million and $1.5 million for the six months ended June 30, 2021 and 2020, respectively. As of March 31, 2018,June 30, 2021, we maintained bad debt allowances of approximately $5.8$15.2 million, which we believed to be adequate.
Dividends and Distributions
We are required to distribute 90% of our taxable income (excluding capital gains) on an annual basis in order to continue to qualify as a REIT for federal income tax purposes. Accordingly, we intend to make, but are not contractually bound to make, regular quarterly distributions to shareholders from cash flows from our operating activities. While historically we have satisfied this distribution requirement by making cash distributions to our shareholders, we may choose to satisfy this requirement by making distributions of cash or other property. All such distributions are at the discretion of our Board of Trustees. We consider market factors and our performance in addition to REIT requirements in determining distribution levels. We have distributed at least 100% of our taxable income annually since inception to minimize corporate-level federal income taxes. Amounts accumulated for distribution to shareholders are invested primarily in interest-bearing accounts and short-term interest-bearing securities, which are consistent with our intention to maintain our status as a REIT.
As a result of this distribution requirement, we cannot rely on retained earnings to fund our ongoing operations to the same extent that other companies which are not REITs can. We may need to continue to raise capital in the debt and equity markets to fund our working capital needs, as well as potential developments in new or existing properties, acquisitions or investments in existing or newly created joint ventures. In addition, we may be required
to use borrowings under our revolving credit facility, if necessary, to meet REIT distribution requirements and maintain our REIT status.
For further information regarding dividends and distributions, see Note 10 to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.
Outstanding and Available Indebtedness
The following table presentssummarizes our outstanding and available indebtedness as of March 31, 2018 and December 31, 2017. June 30, 2021. |
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| Stated maturity date | | Contractual interest rate (5) | | Effective interest rate (6) as of March 31, 2018 | | March 31, 2018 | | December 31, 2017 |
2010 Mortgage Loans cross-collateralized and cross-defaulted by 46 warehouses: | | | | | | (In thousands) |
Component A-1 | 1/2021 | | 3.86% | | 4.40% | | $ | 52,641 |
| | $ | 56,941 |
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Component A-2-FX | 1/2021 | | 4.96% | | 5.38% | | 150,334 |
| | 150,334 |
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Component A-2-FL (1) | 1/2021 | | L+1.51% | | 3.80% | | 48,654 |
| | 48,654 |
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Component B | 1/2021 | | 6.04% | | 6.48% | | 60,000 |
| | 60,000 |
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Component C | 1/2021 | | 6.82% | | 7.28% | | 62,400 |
| | 62,400 |
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Component D | 1/2021 | | 7.45% | | 7.92% | | 82,600 |
| | 82,600 |
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2013 Mortgage Loans cross-collateralized and cross-defaulted by 15 warehouses: | | | | | | | | |
Senior note | 5/2023 | | 3.81% | | 4.14% | | 192,654 |
| | 194,223 |
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Mezzanine A | 5/2023 | | 7.38% | | 7.55% | | 70,000 |
| | 70,000 |
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Mezzanine B | 5/2023 | | 11.50% | | 11.75% | | 32,000 |
| | 32,000 |
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ANZ Term Loans secured by mortgages in properties owned by relevant subsidiaries: | | | | | | | | |
Australia Term Loan (2), (4) | 6/2020 | | BBSY+1.40% | | 4.59% | | 156,046 |
| | 158,645 |
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New Zealand Term Loan (3), (4) | 6/2020 | | BKBM+1.40% | | 5.15% | | 31,834 |
| | 31,240 |
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2018 Senior Secured Term A Facility (4) secured by stock pledge in qualified subsidiaries | 1/2023 | | L+2.50% | | 4.90% | | $ | 475,000 |
| | $ | — |
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2015 Senior Secured Term Loan B Facility (4) | 12/2022 | | L+3.75% | | 5.79% | | — |
| | 806,918 |
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Total principal amount of mortgage notes and term loans | | 1,414,163 |
| | 1,753,955 |
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Less deferred financing costs | | | | | | | (15,611 | ) | | (25,712 | ) |
Less debt discount | | | | | | | (325 | ) | | (6,285 | ) |
Total mortgage notes and term loans, net of deferred financing costs and debt discount | | $ | 1,398,227 |
| | $ | 1,721,958 |
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2018 Senior Secured Revolving Credit Facility secured by stock pledge in qualified subsidiaries (4) , (5) | 1/2021 | | L+2.50% | | n/a | | $ | — |
| | $ | — |
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Construction Loan: | | | | | | | | | |
Warehouse Clearfield, UT secured by mortgage (4) | 2/2019 | | LIBOR + 3.25% or prime rate + 2.25% | | 5.18% | | $ | — |
| | $ | 19,671 |
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Less deferred financing costs | | | | | | | — |
| | (179 | ) |
| | | | | | | $ | — |
| | $ | 19,492 |
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Debt Summary: | |
Fixed rate | $ | 2,112,508 | |
Variable rate - unhedged | 465,755 | |
Total outstanding indebtedness | 2,578,263 | |
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(1)Percent of total debt: | Component A-2-FL of the 2010 Mortgage Loans has a variable interest |
Fixed rate equal to one-month LIBOR plus 1.51%, with one-month-LIBOR subject to a floor of 1.00% per annum. In addition, we maintain an interest | 81.94 | % |
Variable rate cap on the variable rate tranche that caps one-month LIBOR at 6.0%. The variable interest rate at March 31, 2018 was 3.39% per annum. | 18.06 | % |
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(2) | As of March 31, 2018, the outstanding balance was AUD$203.0 million and the variableEffective interest rate was 3.28% per annum (1.88% BBSY plus 1.40% margin) of which 75% is fixed via an interest rate swap at 4.06% per annum (2.66% BBSY plus 1.40% margin).
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(3) | As of March 31, 2018, the outstanding balance was NZD$44.0 million and the variable interest rate was 3.33% per annum (1.93% BKBM plus 1.40% margin), of which 75% is fixed via an interest rate swap at 4.93% per annum (3.53% BKBM plus 1.40% margin).
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(4) | References in this table to LIBOR are references to one-month LIBOR and references to BBSY and BKBM are to Australian Bank Bill Swap Bid Rate and New Zealand Bank Bill Reference Rate, respectively. |
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(5) | Unused line, letter of credit and financing fees increase the stated interest rate. |
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(6) | The effective interest rate includes effects of amortization of the deferred financing costs and debt discount. The weighted average effective interest rate for total debt was 5.39% and 5.68% as of March 31, 2018 and December 31, 2017, respectively.June 30, 2021 | 3.16 | % |
2018 Senior Secured Credit Facilities
On December 26, 2017,
As of June 30, 2021, we closed into escrowhad approximately $2.6 billion of outstanding debt as set forth in the table above, which excludes deferred financing costs.
The variable rate debt shown above bears interest at interest rates based on various one-month LIBOR, CDOR, and GBP LIBOR rates, depending on the respective agreement governing the debt, including our 2018 Senior Secured Credit Facilities, consisting of a five-year, $525.0 million Senior Secured Term Loan A Facility and a three-year, $400.0 million 2018 Senior Secured Revolving Credit Facility. Our 2018 Senior Secured Credit Facilities also have an additional $400.0 million accordion option. Our 2018 Senior Secured Revolving Credit Facility has a one-year extension option subject to certain conditions. We used the net proceeds from the IPO transactions, together with $517.0 million of net proceeds from our Senior Secured Term Loan A Facility, to repay the entire $806.9 million aggregate principal amount of indebtedness outstanding under our Senior Secured Term Loan B Facility plus accrued and unpaid interest, to repay $20.9 million of indebtedness outstanding under our Clearfield, Utah and Middleboro, Massachusetts construction loans, and for working capital.
On February 6, 2018, we amended the credit agreement with the lenders of our 2018 Senior Revolving Credit Facility (the 2018 Credit Agreement) to increase the aggregateglobal revolving credit commitmentsfacilities. As of June 30, 2021, our debt had a weighted average term to initial maturity of approximately 7.0 years, assuming exercise of extension options.
For further information regarding outstanding indebtedness, please see Note 6 to our condensed consolidated financial statements included in this Quarterly Report on this facility by $50.0 millionForm 10-Q.
CreditRatings
Our capital structure and financial practices have earned us investment grade credit ratings from three nationally recognized credit rating agencies. We have investment grade ratings of BBB with a stable outlook from Fitch, BBB with an Under Review with Positive Implications outlook from DBRS Morningstar, and an investment grade rating of Baa3 with a stable outlook from Moody’s. These credit ratings are important to $450.0 million. Concurrently, we utilized cash on handour ability to repay $50.0 million onissue debt at favorable rates of interest, among other terms. Refer to our Senior Secured Term Loan A facility. As a result of these modifications, our total aggregate commitments under its 2018 Senior Credit Facilities remain unchanged at $925.0 million.
Borrowings under our 2018 Senior Secured Credit Facilities bear interest, at our election, at the then-applicable margin plus an applicable LIBOR or base rate interest rate. The base rate is the greatest of the bank prime rate, the one-month LIBOR rate plus one percent or the federal funds rate plus one-half of one percent. The applicable margin varies between (i) in the case of LIBOR-based loans, 2.35% and 3.00% and (ii) in the case of base rate loans, 1.35% and 2.00%, in each case, based onrisk factor “Adverse changes in our total leverage. In addition, any undrawn portion ofcredit ratings could negatively impact our 2018 Senior Secured Revolving Credit Facility will be subject to an annual 0.30% commitment fee at times that we are utilizing at least 50% offinancing activity” in our outstanding revolving credit commitments or an annual 0.40% commitment fee at times that we are utilizing less than 50% of our revolving credit commitments, in each case, based upon the actual daily unused portion of our 2018 Senior Secured Revolving Credit Facility.Annual Report on Form 10-K.
At the completion of the IPO, borrowings under our 2018 Senior Secured Credit Facilities bore interest at a floating rate of one-month LIBOR plus 2.50%. In addition, we applied approximately $33.6 million of our 2018 Senior Secured Revolving Credit Facility to backstop certain outstanding letters of credit.
Our operating partnership is the borrower under our 2018 Senior Secured Credit Facilities, which are guaranteed by our company and certain eligible subsidiaries of our operating partnership and secured by a pledge in the stock of certain subsidiaries of our operating partnership. Our 2018 Senior Secured Revolving Credit Facility is structured to include a borrowing base, which will allow us to borrow against the lesser of our Senior Secured Term Loan A Facility balance outstanding and $450.0 million in revolving credit commitments, and the value of certain owned real estate assets, ground, capital and operating leased assets, with credit given for income from third-party managed warehouses. At March 31, 2018, the gross value of our assets included in the calculations under our 2018 Credit Agreement, was in excess of $1.8 billion, and had an effective borrowing base collateral value (after concentration limits and advance rates as calculated under the terms of our 2018 Credit Agreement) in excess of $1.1 billion.
Our 2018 Senior Secured Credit Facilities contain representations, covenants and other terms customary for a publicly traded REIT. In addition, our 2018 Senior Secured Credit Facilities contain certain financial covenants, as defined in the credit agreement, including:
a maximum leverage ratio of less than or equal to 60% of our total asset value;
a minimum borrowing base coverage ratio of greater than or equal to 1.00 to 1.00;
a minimum pro forma fixed charge coverage ratio of greater than or equal to 1.40 to 1.00 increasing to 1.50 to 1.00 in the first quarter of 2018;
a minimum borrowing base debt service coverage ratio of greater than or equal to 2.00 to 1.00;
a minimum tangible net worth requirement of greater than or equal to $900 million plus 70% of any future net equity proceeds following the completion of the IPO transactions; and
a maximum recourse secured debt ratio of less than or equal to 20% of our total asset value.
Our 2018 Senior Secured Credit Facilities are fully recourse to our operating partnership.
ANZ Loans
In June 2015, we entered into syndicated facility agreements in each of Australia and New Zealand, which we refer to collectively as the ANZ Loans, and separately as the Australian term loan and the New Zealand term loan. The ANZ Loans are non-recourse to us and our U.S. subsidiaries.
The Australian term loan is an AUD$203.0 million five-year syndicated facility. The $151.1 million net proceeds that we borrowed under this facility were used to repay the AUD$19.0 million mortgage loan on one of our facilities, return AUD$30.0 million of capital to our domestic subsidiary owning the equity of our Australian subsidiary, repay an intercompany loan totaling CAD$47.6 million, and return AUD$70.0 million to the United States in the form of a long-term intercompany loan and working capital. This facility is secured by our owned real property and equity of certain of our Australian subsidiaries and bears interest at a floating rate of Australian Bank Bill Swap Bid Rate plus 1.4%. The Australian term loan is fully prepayable without penalty.
The New Zealand term loan is a NZD$44.0 million five-year syndicated facility. The $29.3 million net proceeds that we borrowed under this facility were used to repay an intercompany loan plus interest totaling NZD$28.3 million, make a NZD$14.3 million dividend, and fund working capital. The facility is secured by our owned real property, leased assets and equity of certain of our New Zealand subsidiaries, and bears interest at a floating rate of New Zealand Bank Bill Swap Bid Rate plus 1.4%. The New Zealand term loan is fully prepayable without penalty.
As part of the ANZ Loans, we entered into interest rate swaps to effectively fix the interest rates on 75% of the notional balances.
2013 Mortgage Loans
On May 1, 2013, we entered into a mortgage financing in an aggregate principal amount of $322.0 million, which we refer to as the 2013 Mortgage Loans. The debt consists of a senior debt note and two mezzanine notes. The components are cross-collateralized and cross-defaulted. The senior debt note requires monthly principal payments. The mezzanine notes require no principal payments until the stated maturity date in May 2023. The interest rates on the notes are fixed and range from 3.81% to 11.50% per annum. The senior debt note and the two mezzanine notes remain subject to yield maintenance provisions. We used the net proceeds of these loans to refinance certain of the 2006 Mortgage Loans, as described below, acquire two warehouses, and fund general corporate purposes.
The 2013 Mortgage Loans are collateralized by 15 warehouses. The terms governing the 2013 Mortgage Loans require us to maintain certain cash amounts in accounts that are restricted as to their use for the respective warehouses. As of March 31, 2018, the amount of restricted cash associated with the 2013 Mortgage Loans was $3.5 million. Additionally, if we do not maintain certain financial thresholds, including a debt service coverage ratio of 1.10x, the cash generated will further be temporarily restricted and limited to the use for scheduled debt service and operating costs. The debt service coverage ratio as of March 31, 2018 was 1.71x. The 2013 Mortgage Loans are non-recourse to us subject to customary non-recourse carve-outs.
2010 Mortgage Loans
On December 15, 2010, we entered into a mortgage financing in an aggregate principal amount of $600.0 million, which we refer to as the 2010 Mortgage Loans. The debt includes six separate components, which are comprised of independent classes of certificates and seniority. The components are cross-collateralized and cross-defaulted. No principal payments are required on five of the six components until the stated maturity date in January 2021, and one component requires monthly principal payments of $1.4 million. Interest is payable monthly in an amount equal to the aggregate interest accrued on each component. The interest rates on five of the six components are fixed, and range from 3.86% to 7.45% per annum. One component has a variable interest rate equal to one-month LIBOR plus 1.51%, with one-month-LIBOR subject to a floor of 1.00% per annum. In addition, we maintain an interest rate cap on the variable rate tranche that caps one-month LIBOR at 6.0%. The fair value of the interest rate cap was nominal at March 31, 2018. The floating rate interest component is pre-payable anytime without penalty; however, the fixed rate components remain subject to yield maintenance provisions. We used the net proceeds of these loans to refinance existing term loans, fund the acquisition of the acquired Versacold entities, and for general corporate purposes.
The 2010 Mortgage Loans were initially collateralized by 53 warehouses. In November 2014, we sold one of the warehouses collateralizing the 2010 Mortgage Loans for $9.5 million, and $6.0 million of the proceeds were used to pay down the 2010 Mortgage Loans. In 2015, we sold three warehouses for $9.4 million, and $6.1 million of the proceeds were used to pay down the 2010 Mortgage Loans. In 2017, we used a portion of the net proceeds from incremental borrowings under our Existing Senior Secured Term Loan B Facility to pay down $26.2 million of the 2010 Mortgage Loans. As a result, two warehouses were transferred from the collateral base of the 2010 Mortgage Loans to the Existing Senior Secured Revolving Credit Facility borrowing base, and one was released and positioned for sale. The terms governing the 2010 Mortgage Loans require us to maintain certain cash amounts in accounts that are restricted as to their use for the respective warehouses. As of March 31, 2018, the amount of restricted cash associated with the 2010 Mortgage Loans was $13.8 million. Additionally, if we do not maintain certain financial thresholds, including a debt service coverage ratio of 1.50x, the cash generated will further be temporarily restricted and limited to the use for scheduled debt service and operating costs. The debt service coverage ratio as of March 31, 2018 was 3.0x. The 2010 Mortgage Loans are non-recourse to us subject to customary non-recourse carve-outs.
Recurring Maintenance Capital Expenditures and Repair and Maintenance Expenses
We utilize a strategic and preventative approach to recurring maintenance capital expenditures and repair and maintenance expenses to maintain the high quality and operational efficiency of our warehouses and ensure that our warehouses meet the “mission-critical” role they serve in the cold chain.
96
Recurring Maintenance Capital Expenditures
Recurring maintenanceMaintenance capital expenditures are capitalized investments made to extend the life of, and provide future economic benefit from, our existing temperature-controlled warehouse network and its existing supporting personal property and information technology systems. Examples of recurring maintenance capital expenditures related to our existing temperature-controlled warehouse network include replacing roofs replacingand refrigeration equipment, re-rackingand upgrading our warehouses, and implementing energy efficiency projects, such as LED lighting, motion-sensor technology, variable frequency drives for our fans and compressors, third-party tune-ups and real-time monitoring of energy consumption, rapid-close doors and alternative-power generation technologies.racking systems. Examples of recurring maintenance capital expenditures related to personal property include expenditures on material handling equipment (e.g., fork lifts and pallet jacks) and related batteries. Examples of recurring maintenance capital expenditures related to information technology include expenditures on existing servers, networking equipment and current software. Maintenance capital expenditures do not include acquisition costs contemplated when underwriting the purchase of a building or costs which are incurred to bring a building up to Americold’s operating standards. The following table sets forth our recurring maintenance capital expenditures for the three and six months ended March 31, 2018June 30, 2021 and 2017. 2020.
| | | Three Months Ended March 31, | | Three Months Ended June 30, | | Six Months Ended June 30, |
2018 | | 2017 | 2021 | | 2020 | | 2021 | | 2020 |
| (In thousands, except per cubic foot amounts) | | (In thousands, except per cubic foot amounts) | | | |
Real estate | $ | 5,809 |
| | $ | 5,143 |
| Real estate | $ | 17,974 | | | $ | 14,140 | | | $ | 30,902 | | | $ | 23,530 | |
Personal property | 252 |
| | 347 |
| Personal property | 1,428 | | | 762 | | | 3,210 | | | 3,061 | |
Information technology | 322 |
| | 415 |
| Information technology | 1,086 | | | 382 | | | 2,107 | | | 1,132 | |
Total recurring maintenance capital expenditures | $ | 6,383 |
| | $ | 5,905 |
| |
Maintenance capital expenditures | | Maintenance capital expenditures | $ | 20,488 | | | $ | 15,284 | | | $ | 36,219 | | | $ | 27,723 | |
| | | | | | | | | | | |
Total recurring maintenance capital expenditures per cubic foot | $ | 0.007 |
| | $ | 0.006 |
| |
Maintenance capital expenditures per cubic foot | | Maintenance capital expenditures per cubic foot | $ | 0.014 | | | $ | 0.014 | | | $ | 0.025 | | | $ | 0.025 | |
Repair and Maintenance Expenses
We incur repair and maintenance expenses that include costs of normal maintenance and repairs and minor replacements that do not materially extend the life of the property or provide future economic benefits. Repair and maintenance expenses consist of expenses related to our existing temperature-controlled warehouse network and its existing supporting personal property and are reflected as operating expenses on our income statement. Examples of repair and maintenance expenses related to our warehouse portfolio include ordinary repair and maintenance on roofs, racking, walls, doors, parking lots and refrigeration equipment. Examples of repair and maintenance expenses related to personal property include ordinary repair and maintenance expenses on material handling equipment (e.g., fork lifts and pallet jacks) and related batteries. The following table sets forth our repair and maintenance expenses for the three and six months ended March 31, 2018June 30, 2021 and 2017.2020.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
2021 | | 2020 | | 2021 | | 2020 |
| (In thousands, except per cubic foot amounts) |
Real estate | $ | 5,949 | | | $ | 7,148 | | | $ | 14,325 | | | $ | 13,945 | |
Personal property | 13,622 | | | 7,214 | | | 25,076 | | | 15,398 | |
Repair and maintenance expenses | $ | 19,571 | | | $ | 14,362 | | | $ | 39,401 | | | $ | 29,343 | |
| | | | | | | |
Repair and maintenance expenses per cubic foot | $ | 0.014 | | | $ | 0.013 | | | $ | 0.027 | | | $ | 0.027 | |
|
| | | | | | | |
| Three Months Ended March 31, |
2018 | | 2017 |
| (In thousands, except per cubic foot amounts) |
Real estate | $ | 5,197 |
| | $ | 5,316 |
|
Personal property | 7,992 |
| | 7,295 |
|
Total repair and maintenance expenses | $ | 13,189 |
| | $ | 12,611 |
|
| | | |
Repair and maintenance expenses per cubic foot | $ | 0.014 |
| | $ | 0.013 |
|
External Growth, Expansion and ExpansionDevelopment Capital Expenditures
GrowthExternal growth expenditures represent asset acquisitions or business combinations. Expansion and expansiondevelopment capital expenditures are capitalized investments made to support both our customers and our warehouse expansion and development initiatives and enhanceinitiatives. It also includes investments in enhancing our information technology platform.
Examples of growth and expansion capital expenditures associated with expansion and development initiatives include funding of construction costs, increases to warehouse capacity and pallet positions, and acquisitions of reusable incremental material handling equipment.equipment, and implementing energy efficiency projects, such as thermal energy storage, LED lighting, motion-sensor technology, variable frequency drives for our fans and compressors, rapid-close doors and alternative-power generation technologies. Examples of growth and expansion capital expenditures to enhance our information technology platform include expenditures related to the delivery of new systems and software and customer interface functionality.
Acquisitions
The acquisitions completed during the six months ended June 30, 2021 relate to Bowman Stores, KMT Brrr! and Liberty Freezers. The acquisitions completed during the six months ended June 30, 2020 relate to Newport and Nova Cold. Refer to Notes 2 and 3 of the Condensed Consolidated Financial Statements for details of the purchase price allocation for each acquisition.
Expansion and development
The expansion and development expenditures for the six months ended June 30, 2021 are primarily driven by $63.5 million related to our two fully-automated, build-to-suit, development sites in Connecticut and Pennsylvania, $15.7 million related to the Atlanta major markets strategy project, $16.2 million related to our Russellville expansion, $7.0 million related to our Calgary, Canada expansion and $17.8 million related to the Auckland, New Zealand expansion project. The Atlanta and Auckland projects were substantially completed during the second quarter of 2021, with the remaining spend to be incurred during the third quarter of 2021.
During the three months ended June 30, 2021, we announced new development projects. The Atlanta major market phase 2 project began, and we invested $8.7 million in this project. Additionally, the Dunkirk NY expansion begin, and we invested $4.5 million in this project. Finally, we invested $6.7 million in our newly announced Dublin expansion.
As a result of the Agro Acquisition on December 30, 2020, we acquired an expansion project in Lurgan, Northern Ireland, which was completed during the second quarter of 2021. We incurred $4.1 million during the six months ended June 30, 2021 for this expansion project.
Expansion and development initiatives also include $7.4 million of corporate initiatives, which are projects designed to reduce future spending over the course of time. This category reflects return on investment projects, conversion of leases to owned assets, and other cost-saving initiatives.
Finally, we incurred approximately $15.5 million for contemplated future expansion or development projects.
The following table sets forth our growthacquisition, expansion and expansiondevelopment capital expenditures for the three and six months ended March 31, 2018June 30, 2021 and 2017.2020.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
2021 | | 2020 | | 2021 | | 2020 |
| (In thousands) |
Acquisitions, net of cash acquired and adjustments | $ | 173,373 | | | $ | 85 | | | $ | 215,329 | | | $ | 315,668 | |
Expansion and development initiatives | 83,844 | | | 85,193 | | | 167,112 | | | 114,779 | |
Information technology | 2,045 | | | 2,029 | | | 3,573 | | | 2,980 | |
Growth and expansion capital expenditures | $ | 259,262 | | | $ | 87,307 | | | $ | 386,014 | | | $ | 433,427 | |
|
| | | | | | | |
| Three Months Ended March 31, |
2018 | | 2017 |
| (In thousands) |
Expansion and development initiatives | $ | 18,236 |
| | $ | 37,152 |
|
Information technology | 800 |
| | 1,431 |
|
Total growth and expansion capital expenditures | $ | 19,036 |
| | $ | 38,583 |
|
Historical Cash Flows
| | | Three Months Ended March 31, | | Six Months Ended June 30, |
| 2018 | | 2017 | | 2021 | | 2020 |
| (In thousands) | | (In thousands) |
Net cash provided by operating activities | $ | 50,361 |
| | $ | 45,684 |
| Net cash provided by operating activities | $ | 127,753 | | | $ | 163,980 | |
Net cash used in investing activities | (27,919 | ) | | (52,240 | ) | Net cash used in investing activities | $ | (438,822) | | | $ | (443,025) | |
Net cash provided by (used in) financing activities | 121,087 |
| | (11,301 | ) | |
Net cash provided by financing activities | | Net cash provided by financing activities | $ | 7,079 | | | $ | 374,312 | |
Operating Activities
For the threesix months ended March 31, 2018,June 30, 2021, our net cash provided by operating activities was $50.4$127.8 million, an increasea decrease of $4.7$36.2 million, or 10.2%, compared to $45.7$164.0 million for the threesix months ended March 31, 2017.June 30, 2020. The decrease is primarily due to higher acquisition and integration related costs and selling, general and administrative expense. This change is mainly attributable towas partially offset by higher segment contribution as a 7.0%, increase inresult of our operating segments contribution, a favorable changes in working capital, and $3.2 million less cash paid for interest during the first quarter of 2018, with $23.1 million interest paid for the three months ended March 31, 2018 compared to $26.3 million paid for the three months ended March 31, 2017.recent acquisitions.
Investing Activities
Our net cash used in investing activities was $27.9$438.8 million for the threesix months ended March 31, 2018June 30, 2021 compared to net$443.0 million for the six months ended June 30, 2020. Cash used in connection with business combinations during 2021 was $215.3 million and related to the Bowman Stores, Liberty Freezers and KMT Brrr! acquisitions. Additions to property, buildings and equipment were $207.3 million, reflecting maintenance capital expenditures and investments in the Ahold, Atlanta, New Zealand, Calgary and Russellville expansion and development projects. Additionally, we invested $6.3 million in the SuperFrio joint venture for the six months ended June 30, 2021, and paid $11.6 million to purchase the noncontrolling interest holders share in the Chilean business, which we now wholly-own.
Net cash used in investing activities of $52.2$443.0 million for the threesix months ended March 31, 2017. AdditionsJune 30, 2020 primarily related to cash used for the acquisitions of Newport and Nova Cold totaling $315.7 million, cash used for additions to property, plant,buildings and equipment of $28.3$173.2 million accounted for the use of cash in investing activitiesreflecting maintenance capital expenditures and included outlays mainly associated with construction in progress and expansion of certain warehouse facilitiesinvestments in the United States. NetAhold, Savannah and Atlanta expansion and development projects, and our initial investment of $26.2 million in the SuperFrio joint venture. These investments were offset by $69.1 million in proceeds of $0.4 million from the sale of fixed assets partially offsetland and property, buildings and equipment related to the additions to property, plantsale of land in Sydney and equipment.the sale of the Boston facility.
Financing Activities
Net cash provided by financing activities was $121.1$7.1 million for the threesix months ended March 31, 2018June 30, 2021 compared to net cash used in financing activities of $11.3$374.3 million for the threesix months ended March 31, 2017.June 30, 2020. Cash provided by financing activities for the current period primarily consisted of $525.0$214.8 million net proceeds from equity forward contracts settled during the period upon the issuance of common shares, $210.8 million in proceeds from our revolving line of credit, and $5.2 million of proceeds received upon exercise of stock options, offset by cash outflows of $203.5 million for repayments on term loan and mortgage notes, $110.8 million of quarterly dividend distributions paid, $70.0 million in repayments on the revolving line of credit, $15.8 million in payment of withholding taxes related to share-based payment arrangements and $19.3 million of financing lease payments.
Net cash provided by financing activities was $374.3 million for the six months ended June 30, 2020 and primarily consisted of $340.6 million net proceeds from equity offerings under our prior ATM equity program and the April 2019 equity forward contract settled in January 2020, the $177.1 million received in connection with the issuancerefinancing of our Senior SecuredUnsecured Term Loan A Facility, and $493.6$186.8 million netin proceeds from the IPO.our revolving credit facility. These cash inflows were partially offset by $806.9$177.1 million paid to extinguishof repayment on the revolving credit facility using the proceeds from our refinancing of our Senior SecuredUnsecured Term Loan, B facility, $50.0$81.0 million prepayment on our Senior Secured Term Loan A Facility, $28.5of quarterly dividend distributions paid, $53.3 million of repayments on our term loan and mortgage notes construction loans and lease obligations, $8.7$8.3 million paid forof payments related to debt issuance costscosts.
associated with the issuance of our Senior Secured Term Loan A Facility, and $3.2 million of stub period dividend distributions paid to both preferred and common shareholders of record as of the day prior to the IPO effective date.
Contractual Obligations
The following table summarizes our contractual obligations as of March 31, 2018:
|
| | | | | | | | | | | | | | | | | | | |
| Payments due by period |
| Total | | Less than 1 Year | | 1-3 Years | | 3-5 Years | | More than 5 Years |
Principal on mortgage and term loans | $ | 1,414,163 |
| | $ | 24,069 |
| | $ | 640,155 |
| | $ | 489,483 |
| | $ | 260,456 |
|
Interest on mortgage and term loans (1) | 243,049 |
| | 71,539 |
| | 114,184 |
| | 54,806 |
| | 2,520 |
|
Sale leaseback financing obligations (2) | 232,572 |
| | 16,638 |
| | 33,949 |
| | 35,188 |
| | 146,797 |
|
Capital lease obligations, including interest | 44,022 |
| | 11,478 |
| | 17,384 |
| | 8,846 |
| | 6,314 |
|
Operating leases | 108,446 |
| | 31,463 |
| | 48,558 |
| | 11,093 |
| | 17,332 |
|
Total (3), (4) | $ | 2,042,252 |
| | $ | 155,187 |
| | $ | 854,230 |
| | $ | 599,416 |
| | $ | 433,419 |
|
| |
(1) | Interest payable is based on interest rates in effect at March 31, 2018. Amounts include variable-rate interest payments, which are calculated utilizing the applicable interest rates as of March 31, 2018. |
| |
(2) | Sale leaseback financing obligations are subject to multiple expiration dates and bear interest rates that vary from 7.0% to 19.6%. |
| |
(3) | The table above excludes $0.8 million of estimated tax exposures, including interest and penalties, related to positions taken on U.S. federal and state income tax returns for our TRSs as of March 31, 2018. |
| |
(4) | The table also excludes $2.4 million aggregate fair value as of March 31, 2018 of two interest rate swap agreements expiring in June 2020. |
Off-Balance Sheet Arrangements
As of March 31, 2018, we had no material off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
CRITICAL ACCOUNTING POLICIES UPDATE
See Note 2 to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.
NEW ACCOUNTING PRONOUNCEMENTS
See Note 2 to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
Our future income and cash flows relevant to financial instruments are dependent upon prevalent market interest rates. Market risk refers to the risk of loss from adverse changes in market prices and interest rates.
As of March 31, 2018,June 30, 2021, we had $570.6$125 million of outstanding USD-denominated variable-rate debt and $250 million of outstanding CAD-denominated variable-rate debt. Approximately $523.7 million of this debtThis consisted of certain mortgage notes, construction loans and our Senior SecuredUnsecured Term Loan A Facility bearing interest at one-month LIBOR for the USD tranche and one-month CDOR for the CAD tranche, plus a margin ranging from 1.51%up to 2.50%0.95%. Additionally, we had C$55.0 million and in the case£68.5 million outstanding of the certain mortgage notes subject to a 1.0% LIBOR floor. The majority of the remaining variable rate debt is related to our Australian and New Zealand entities and bears interest at variable rates determined by reference to the Australian Bank Bill Swap Bid Rate (BBSY) and the New Zealand Bank Bill Reference Rate (BKBM), respectively, plus, in each case, 1.4%.Senior Unsecured Revolving Credit Facility draws. At March 31, 2018,June 30, 2021, one-month LIBOR was at approximately 1.88%0.10%, one-month CDOR was at 0.41%, and one-month LIBOR GBP was at 0.06%, therefore a 100 basis point increase in market interest rates would result in an increase in annual interest expense to service our variable-rate debt of approximately $5.8$4.7 million. A 100 basis point decrease in market interest rates would result in only a $5.7$1.2 million decrease in annual interest expense to service our variable-rate debt.expense.
Foreign Currency Risk
OurAs it relates to the currency of countries where we own and operate warehouse facilities and provide logistics services, our foreign currency risk exposure at March 31, 2018 hasJune 30, 2021 was not materially changed from thatdifferent than what we disclosed in our Annual Report on Form 10-K for the year ended December 31, 2017.2020. The information concerning market risk in Item 7A under the caption “Quantitative and Qualitative Disclosures about Market Risk” of our Annual Report on Form 10-K for the year ended December 31, 2017,2020, is hereby incorporated by reference in this report.Quarterly Report on Form 10-Q.
Item 4. Controls and Procedures
Evaluation of Controls and Procedures
In accordance with Rule 13a-15(b) of the Exchange Act, the Company’s management, with the participation of the Chief Executive Officer and the Chief Financial Officer, carried out an evaluation of the effectiveness of the Company’s “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act, as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2018.June 30, 2021.
Our management is responsible for establishing and maintaining adequate “internal control over financial reporting,” as defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Our management, including the Chief Executive Officer and Chief Financial Officer doesdo not expect that our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.
Changes in Internal Control over Financial Reporting
There were no changesOn December 30, 2020, we acquired Agro, refer to Note 3 - Business Combinations of this Form 10-Q for further discussion of the acquisition. We are currently in the process of integrating the internal controls and procedures of Agro into our internal controls over financial reporting. Changes to certain processes, information technology systems and other components of internal control over financial reporting (as defined in Rule 13a - 15(f) of the Exchange Act) resulting from the acquisition of Agro may occur and will be evaluated by management as such integration activities are implemented. As provided under the Sarbanes-Oxley Act of 2002 and the applicable rules and regulations of the Securities and Exchange Commission, we intend to include the internal controls and procedures of Agro in our annual assessment of the effectiveness of our internal control over financial reporting for our 2021 fiscal year.
Excluding the Agro acquisition, there has not been any change in our internal control over financial reporting (as defined in Rule 13a - 15(f) of the Exchange Act) identified in management’sconnection with the evaluation pursuant to Rulesrequired by Rule 13a-15(d) or 15d-15(d) ofunder the Exchange Act during the period covered by this
Quarterly Report on Form 10-Qquarter ended June 30, 2021 that has materially affected, or areis reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we may be party to a variety of legal proceedings arising in the ordinary course of our business. We are not a party to, nor is any of our property a subject of, any material litigation or legal proceedings or, to the best of our knowledge, any threatened litigation or legal proceedings which, in the opinion of management, individually or in the aggregate, would have a material impact on our business, financial condition, liquidity, results of operations and prospects.
See Note 14 - Commitments and Contingencies to our Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for information regarding material legal proceedings in which we are involved.
Item 1A. Risk Factors
There have been no material changes from the riskRisk factors disclosedthat could harm our business, results of operations and financial condition are discussed in Part I, Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2017.2020.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults uponUpon Senior Securities
None.
Item 4. Mine Safety Disclosures
Information concerning mine safety violations and other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K (17 CFR 229.104) is included in Exhibit 95.1 to this Quarterly Report on Form 10-Q.None.
Item 5. Other Information
On May 15, 2018, the Compensation Committee of the Company’s Board of Trustees (the “Committee”) took certain actions relating to the compensation of Marc Smernoff, the Company’s Chief Financial Officer and Executive Vice President. The Committee approved an increase in Mr. Smernoff’s annual base salary to $525,000 from $450,000, effective as of May 15, 2018. The Committee also approved an agreement with Mr. Smernoff pursuant to which the Company will pay Mr. Smernoff a one-time cash payment of $100,000 (the “Special Bonus”) and relocation expenses upon the relocation of Mr. Smernoff’s family to the Atlanta, Georgia metropolitan area. The relocation expenses are subject to repayment pursuant to the Company’s relocation policy. In addition, if Mr. Smernoff’s family does not remain in the Atlanta, Georgia metropolitan area for at least one year, Mr. Smernoff will be required to repay 100% of the Special Bonus, and if Mr. Smernoff’s family remains in the Atlanta, Georgia metropolitan area for at least one year but less than two years, Mr. Smernoff will be required to repay 50% of the Special Bonus.
None.
Item 6. Exhibits
Index to Exhibits
|
| | | | | | | |
Exhibit No. | | Description |
10.1 |
| |
| | First Amendment to Shareholders2020 Note and Guaranty Agreement dated March 8, 2018, by and among the Company and the shareholders of the Company signatories thereto |
10.2# |
| | |
10.3# |
| | |
10.4# |
| | |
10.5# |
| | |
31.1 |
| | - Americold Realty Trust |
|
| | - Americold Realty Trust |
|
| | - Americold Realty Trust |
|
| | - Americold Realty Trust |
95.1 |
| | |
101.INS101 |
| | The following financial statements of Americold Realty Trust’s Form 10-Q for the quarter ended June 30, 2021, formatted in XBRL Instance Documentinteractive data files: (i) Condensed Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020; (ii) Condensed Consolidated Income Statements for the three and six months ended June 30, 2021 and 2020; (iii) Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2021 and 2020; (iv) Condensed Consolidated Statements of Equity for the three and six months ended June 30, 2021 and 2020; (v) Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2021 and 2020; and (vi) Notes to Condensed Consolidated Financial Statements. |
101.SCH104 |
| | Cover Page Interactive Data File (formatted as Inline XBRL Taxonomy Extension Schema Documentand contained in Exhibit 101). |
101.CAL# |
| | XBRL Extension Calculation Linkbase DocumentThis document has been identified as a management contract or compensatory plan or arrangement. |
101.DEF |
| | XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB |
| | XBRL Taxonomy Extension Labels Linkbase Document |
101.PRE |
| | XBRL Taxonomy Extension Presentation Linkbase Document |
# This document has been identified as a management contract or compensatory plan or arrangement.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | | | | | | | | | | |
| | AMERICOLD REALTY TRUST |
| | (Registrant) | |
| | | | |
| | | | |
Date: | August 6, 2021 | AMERICOLD REALTY TRUST |
By: | | (Registrant) | |
| | | | |
| | | | |
Date: | May 15, 2018 | By: | /s/ Marc J. Smernoff |
| | Name: | Marc J. Smernoff |
| | Title: | Chief Financial Officer and Executive Vice President |
| | (On behalf of the registrant and as principal financial officer) |