Company Reports

We believe that there are several attractive opportunities across the US REIT sector for investors to consider. Following the recovery of many REIT sector fundamentals from the pandemic by mid-2021, we viewed the REIT sector as fairly valued through early 2022. However, the past two years have seen the rapid rise in interest rates and a slowing economy, which has led to major valuation declines across the sector. Our analysis of the REIT sector over the past 25 years suggests that the relative stock performance of REITs is negatively correlated with interest rate movements. The second and third quarters of 2023 saw large interest rate increases with the 10-year Treasury approaching 5%, which led to the sector underperforming. This occurred even as many REITs reported same-store net operating income, or NOI, growth at historical highs in 2022 due to high inflation. Higher interest rates, lower liquidity, tighter capital market conditions, and decelerating same-store NOI growth all led to a significant correction in the stock price for many REITs.

Americold Realty owns and operates cold storage warehouses that mainly store perishable food products but also other temperature-sensitive items like pharmaceuticals, florals, and chemicals. The company’s main line of business is the warehouse rent and storage segment, which accounted for 89% of the company’s revenue in 2023. While these warehouses vary in size and exact temperature, four-fifths of Americold’s warehouses are in North America and we consider Americold’s facilities as among the best in terms of quality and location. The company provides ancillary warehouse services like flash freezing and picking/packing to serve, attract, and retain customers. The company also has a transportation services segment where it brokers, manages, and operates transportation for its customers. The remainder of the revenue comes from the third-party managed segment, where it operates facilities on behalf of customers who own cold storage space but do not have expertise in operating it.

No-moat-rated Americold Realty Trust reported mixed fourth-quarter results. The core warehouse rent and storage segment, which had performed strongly in the past few quarters, slowed substantially, but this was offset by a strong rebound in the profitability of the warehouse services segment, which had been under considerable pressure after the pandemic. The firm reported adjusted funds from operations of $0.38 per share, 31% higher than the $0.29 in adjusted FFO during the fourth quarter of 2022. Core EBITDA, which removes the impact of higher interest expense and is less prone to quarterly fluctuations, was reported at $160.3 million in the fourth quarter, up 17.1% from the $136.8 million in core EBITDA in the year-ago quarter. We plan to reduce our $33 fair value estimate by a mid-single-digit percentage as we incorporate these results.

No-moat-rated Americold Realty reported mixed third-quarter results with strong performance in the warehouse rent and storage segment but disappointing results in the warehouse services segment. The firm reported adjusted funds from operations, or AFFO, of $0.32 per share, 10.3% higher than the $0.29 in adjusted FFO during the third quarter of 2022. Core EBITDA, which removes the impact of higher interest expenses and is less prone to quarterly fluctuations, was reported at $144.1 million in the third quarter up 9.2% compared with the $131.9 million in core EBITDA during the third quarter of the previous year. Management has tightened its 2023 AFFO guidance to $1.24-$1.30 per share, which is approximately 14.4% higher than the full-year 2022 AFFO at the midpoint. We do not plan to change our $33 fair value estimate for the company as we incorporate the third-quarter results.

The share prices of U.S. real estate investment trusts have fallen by approximately 30% from their 2021 highs because of higher interest rates and stress in some commercial real estate sectors. We think that the correction is overdone and the current valuations offer an attractive entry point for patient investors. Our core REIT coverage is trading at a discount of approximately 25% to our fair value estimate. We estimate that the average REIT within our U.S. coverage is currently trading at a dividend yield that is 126 basis points higher than the historical average. We see marked differences in valuation across different REIT sectors in the United States. For instance, the industrial sector is fairly valued, with stock valuations already accounting for future growth, but other sectors like offices, hotels, and malls are trading at attractive discounts.

Americold owns and operates cold storage warehouses that mainly store perishable food products but also other temperature-sensitive items like pharmaceuticals, florals, and chemicals. The company’s main line of business is the warehouse rent and storage segment, which accounted for 79% of the company’s revenue in 2022. While these warehouses vary in size and exact temperature, four-fifths of Americold’s warehouses are in North America and we consider Americold’s facilities as among the best in terms of quality and location. The company provides ancillary warehouse services like flash freezing and picking/packing to serve, attract, and retain customers. The company also has a transportation services segment where it brokers, manages, and operates transportation for its customers. The remainder of the revenue comes from the third-party managed segment, where it operates facilities on behalf of customers who own cold storage space but do not have expertise in operating it.

No-moat-rated Americold Realty reported solid second-quarter results on the back of pricing initiatives, rate escalations, and higher economic occupancy. The firm reported adjusted funds from operations of $0.28 per share, 3.7% higher than the $0.27 in adjusted FFO during the second quarter of 2022. Core EBITDA, which removes the impact of higher interest expenses and is less prone to quarterly fluctuations, was reported at $134.6 million in the second quarter, up approximately 12% compared with the $120.2 million in core EBITDA during the second quarter of the previous year. Management has increased its 2023 AFFO guidance to $1.20-$1.30 per share, which is approximately 3.3% higher than previous guidance at the midpoint on account of strong fundamental performance. We do not plan to change our $33 fair value estimate for the company as we incorporate the second-quarter results.

No-moat-rated Americold Realty's strong first-quarter results were driven by pricing initiatives, rate escalations, higher economic occupancy, and incremental revenue from recently completed expansion and development projects. The firm reported adjusted funds from operations of $0.29 per share, 11.5% higher than the $0.26 in adjusted funds from operations during the first quarter of 2022. Core EBITDA, which is less prone to quarterly fluctuations, was reported at $133 million in the first quarter, up approximately 20% compared with the $111 million in core EBITDA during the first quarter of the previous year. Management has slightly increased its 2023 adjusted funds from operations guidance to $1.16-$1.26 per share on account of higher warehouse same-store net operating income growth, which was partially offset by lower transportation and managed NOI, higher SG&A expenses, and higher interest costs. We do not plan to change our $33 fair value estimate as we incorporate the first-quarter results.

Americold Realty owns and operates cold storage warehouses that mainly store perishable food products but also other temperature-sensitive items like pharmaceuticals, florals, and chemicals. The company’s main line of business is the warehouse rent and storage segment, which accounted for 79% of the company’s revenue in 2022. While these warehouses vary in size and exact temperature, four fifths of Americold’s warehouses are in North America and we consider Americold’s facilities as among the best in terms of quality and location. The company provides ancillary warehouse services like flash freezing and picking/packing to serve, attract, and retain customers. The company also had a transportation services segment where it brokers, manages, or operates transportation for its customers. The remainder of the revenue comes from the third-party managed segment, where it operates facilities on behalf of customers who own cold storage space but do not have expertise in operating it.

No-moat-rated Americold Realty reported decent results in the fourth quarter as food manufacturers continued to ramp up production in recent months. The firm reported adjusted funds from operations of $0.29 per share, 6.4% lower than the $0.31 in adjusted FFO during the fourth quarter of 2021. The year-over-year decline in AFFO was partly due to quarterly fluctuations in expenses like maintenance capital expenditure. Core EBITDA, which is less prone to quarterly fluctuations, increased by 10.5% compared with the previous year. Our 2023 AFFO estimate of $1.22 per share is mostly in line with management's 2023 full-year AFFO guidance of $1.14-$1.24 per share. We do not plan to change our $31.50 fair value estimate for the company as we incorporate the fourth-quarter results.

No-moat-rated Americold Realty reported a strong set of numbers in the third quarter, as food manufacturers continued to ramp up production with supply chain issues and labor shortages abating in recent months. The firm reported adjusted funds from operations of $0.29 per share, 7.4% higher than the $0.27 in adjusted FFO during the third quarter of 2021. The company also increased its full-year AFFO guidance by 4.7% to a midpoint of $1.10 per share from $1.05 per share on better-than-expected same-store performance. The shares of the company jumped 14% in response to the third-quarter results. We do not plan to materially change our $31.50 fair value estimate for the company as we fully incorporate the third-quarter results.

Americold Realty owns and operates cold storage warehouses that mainly store perishable food products but also other temperature-sensitive items like pharmaceuticals, florals, and chemicals. The company’s main line of business is the warehouse rent and storage segment, which accounted for 77% of the company’s revenue in 2021. While these warehouses vary in size and exact temperature, four fifths of Americold’s warehouses are in North America and we consider Americold’s facilities as among the best in terms of quality and location. The company also provides ancillary services like flash freezing, picking/packing, and transportation, but they accounted for only 11% of revenue and largely serve to attract and retain customers. The remainder of Americold’s revenue comes from the third-party managed segment, where it operates facilities on behalf of customers who own cold storage space but do not have expertise in operating it.

With the United States experiencing historically high inflation growth, many investors are wondering if real estate provides a natural hedge against inflation and if the REIT sector should therefore outperform the broader equity market. Many REITs in our coverage have reported rent and revenue growth at or near historic peaks over the past several quarters, with inflation being one of the largest reasons for the high growth. Given this and some historical evidence that REITs outperformed in the 1970s and early 1980s when inflation was similarly high, some investors are questioning why REITs have not outperformed in 2022.

We are relaunching coverage of cold-storage REIT Americold Realty Trust with a fair value estimate of $31.50 after taking a fresh look. Our valuation implies that the company is currently fairly valued. Americold Realty is the world's second-largest owner and operator of temperature-controlled warehouses, which mainly store perishable food products but also other temperature-sensitive items like pharmaceuticals, florals, and chemicals. We assign a no-moat rating, a stable moat trend, and a standard capital allocation rating to the company.

Americold Realty owns and operates cold storage warehouses that mainly store perishable food products but also other temperature-sensitive items like pharmaceuticals, florals, and chemicals. The company’s main line of business is the warehouse rent and storage segment, which accounted for 77% of the company’s revenue in 2021. While these warehouses vary in size and exact temperature, four fifths of Americold’s warehouses are in North America and we consider Americold’s facilities as among the best in terms of quality and location. The company also provides ancillary services like flash freezing, picking/packing, and transportation, but they accounted for only 11% of revenue and largely serve to attract and retain customers. The remainder of Americold’s revenue comes from the third-party managed segment, where it operates facilities on behalf of customers who own cold storage space but do not have expertise in operating it.

Americold Realty has built its business by owning and operating cold storage facilities as well as providing ancillary services to attract and retain tenants. The company is the only publicly traded real estate investment trust in the United States focused on cold storage facilities. Over 80% of its revenue derives from the U.S., where Americold is the second-largest player by market share behind rival Lineage Logistics. Although cold storage shares similarities with traditional industrial real estate, it is a unique space that contributes less than 3% of total industrial square footage in the U.S. While industrial real estate typically features multiyear commitments for space, much of cold storage space is rented on an as-needed basis, adding some risk of short-term shocks to food supply or demand but also allowing pricing to recalibrate more quickly.

No-moat Americold Realty Trust reported lackluster second-quarter results as inflation, supply chain issues, and labor shortages continued to affect it. The firm reported adjusted funds from operations of $0.27 per share, 3.5% lower than the $0.28 in adjusted FFO during the second quarter of 2021, and maintained its 2022 annual AFFO guidance of $1.00-$1.10 per share. We do not plan to materially change our $36 fair value estimate as we fully incorporate the second-quarter results into our model.

Americold Realty reported first-quarter earnings that were in line with our expectations, leading us to reaffirm our $36 fair value estimate for the no-moat company. Physical occupancy for the same-store portfolio flattened out at 70.7% in the first quarter, in line with the same period in 2021 and only 10 basis points below the fourth quarter of 2021. Same-store revenue was up 4.5% year over year and 6.0% in constant-currency terms as rent per occupied pallet improved to $59.10. However, same-store expenses were up 8.7% as electricity costs were up 15.9% and costs related to other services were up 17.1%. As a result, Americold saw same-store net operating income fall 4.7% and 3.6% on a constant-currency basis. The higher operating expenses also caused a slight decline in adjusted funds from operations as Americold reported a $0.26 per share figure that was below the $0.30 reported in the first quarter of 2021 but in line with our expectations.

Americold Realty has built its business by owning and operating cold storage facilities as well as providing ancillary services to attract and retain tenants. The company is the only publicly traded real estate investment trust in the United States focused on cold storage facilities. Over 80% of its revenue derives from the U.S., where Americold is the second-largest player by market share behind rival Lineage Logistics. Although cold storage shares similarities with traditional industrial real estate, it is a unique space that contributes less than 3% of total industrial square footage in the U.S. While industrial real estate typically features multiyear commitments for space, much of cold storage space is rented on an as-needed basis, adding some risk of short-term shocks to food supply or demand but also allowing pricing to recalibrate more quickly.

Fourth-quarter results for Americold Realty were relatively in line with our expectations, leading us to reaffirm our $37.50 fair value estimate for the no-moat company. While same-store physical occupancy is down 260 basis points year over year to 70.8%, sequentially occupancy is up 290 basis points over the third quarter. Despite the occupancy decline, same-store revenue was up 2.5% year over year as rent per occupied pallet increased 6.9%. However, same-store operating expenses were up 8.9% in the fourth quarter, driven by a 9.1% increase in labor costs. As a result, same-store net operating income margins fell 390 basis points year over year to 33.2% and same-store NOI fell 8.2%. The drop in portfolio income led to Americold reporting adjusted funds from operations of $0.31 per share in the fourth quarter, which was in line with our fourth-quarter estimate, 4 cents better than the third quarter of 2021, but 6 cents worse than the fourth quarter of 2020.