Q4 2019 Earnings Call
Greetings and welcome to the Americold Realty Trust fourth quarter 2019 earnings Conference call.
This time, all participants are not listen only mode.
Question and answer session will follow the formal presentation.
But I want to require operator assistance during the conference. Please press star zero on your telephone keypad.
Please note this conference is being recorded.
I'll now turn the conference over to your host Scott Anderson Investor Relations.
Good afternoon, we would like to thank you for joining us today for Americold Realty Trust's fourth quarter 2019 earnings conference call.
In addition to the press release distributed this afternoon.
While the supplemental package with additional detail on our results, which is available in the Investor section on our website at Www Dot Americold dotcom.
On today's call management's prepared remarks and answers to your questions may contain forward looking statements.
Forward looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ from those discussed today.
A number of factors could cause actual results to differ materially from those anticipated.
Forward looking statements are based on current expectations assumptions and beliefs as well as information available to us at this time and speak only as of today. They are made and management undertakes no obligation to update publicly any of them in light of new information for future events.
During this call we will discuss certain non-GAAP financial measures.
More information about these non-GAAP financial measures reconciliations to the comparable GAAP financial measures is contained in the supplemental information package available on the company's website.
We also would like to note that numbers presented at today's prepared remarks have been rounded to the nearest familiar with the exception upper share amounts.
This afternoon conference calls hosted by Miracles, Chief Executive Officer, but bowler Executive Vice President and Chief Financial Officer, Mark Smirnoff.
Management will make some prepared comments after which we will open up the coal to your questions.
No I will turn the call over different.
Thank you.
<unk> fourth quarter 20, Nike Inc. earnings Conference call.
Good afternoon, I will provide highlights of our full year results and comment on current market conditions.
I will then take a moment to update you on our growth activity in a few exciting internal developments here at Americold.
Mark will follow with the review about fourth quarter and full year results in more detail and then discuss our balance sheet and outlook for 2020.
After our prepared remarks, well open the call for your question.
A full year 2019 results reflect the continued execution of our strategy to drive long term cash flow growth and shareholder value.
We did that it's in three ways.
Why organically growing our core business.
By completing and integrating strategic acquisitions.
Developing advanced temperature controlled warehouses.
We're very pleased with our results on all.
And ended the year with a portfolio that contained in excess of 1 billion refrigerated cubic feet.
This is up a good growth is even more notable in light of our ability to maintain a financial flexibility and low leverage.
For the full year 2019, we grew total revenue by 11.2% and total company in a wide by 17.9%.
This was driven by growth in our warehouse segment revenue and that'll why up 17% and 19.5% respectively.
These strong results came from our recent acquisitions and organic growth.
I'm also very pleased to report that our global warehouse same store pool generated total revenue growth in end of why growth of 3.5% and 5.1% respectively on a constant currency basis.
We delivered same store NOI growth that was approximately 160 basis points higher than our same store revenue growth and we believe this highlights the strength of the Americold operating platform.
Now, let me discuss our acquisition of development activity in more detail.
In 29 to 18, we acquired 27 facilities, which added approximately 170 million cubic feet to our portfolio for a total of $1.4 billion.
That's comprised of Port flush holdings, a single facility in development land parcel in Savannah, Georgia.
Well the Weve cold storage, a 22 facility portfolio that was previously the fifth largest cold storage operator in need Wes.
Near cold storage facility, operator outside of Atlanta.
And Nhw, a two facility operator in Chambersburg, Pennsylvania Perrigo, Maryland.
With respect to these 2019 acquisitions, we remain focused on integration.
But much of the second half of 29, King and transitioning cloverleaf upstream they functions to our headquarters and on track to capture the expected synergies.
Well for transactions, we're focused on implementing our commercial business practices to drive revenue growth and rolling out the Americold operating system to drive efficiency gains.
We're very pleased with our progress today transitioning these acquisitions onto our platform.
We will fully captured the upside from these investments by year three of our ownership.
We're off to a strong start and 2020, we acquired Newport Cold a single facility located in Saint Paul Minnesota for $56 million.
Additionally, we expanded our infrastructure and presence in Canada through the completion of our acquisition of noble coal logistics, which consists of the four facilities in Toronto, Calgary and Halifax for approximately 257 million U.S. dollars.
Finally, we announced today than Americold would be entering into a strategic joint venture with Super Frio alluding to temperature controlled storage operator in Brazil.
Brazil is a key market in the global food chain as it is leaving us order of beef poultry and other commodities.
This joint venture provides an attractive entry point in a high consumption market, what the population up 210 million people and the world ninth largest economy.
Super Frio is a leading operator in the country and is very similar to a miracle than their strategic approach to running their business.
Super Real currently operates 60 locations comprised of 35 million cubic feet.
Under the terms of the agreement Americold will acquire 15% of Super Frio for approximately 28 million U.S. dollars.
Super three always currently owned by Patrizio inexperienced resilient based private equity firm affiliated with Blackstone.
The company is executing an acquisition and development, both planned and the Brazilian market.
We will cowen but that our pro rata share.
Americold will have a feed on Super Brios board and retains the exclusive option to acquire the remaining 85% of the company started again 2023.
We are investing with a best in class local market operator in Super Frio, and partner and Potrero, both of which have still on market knowledge of Brazil.
We are excited to expand our global platform with death, and our Canadian investment.
Now turning to our development pipeline.
We delivered our stated the art expansion project in Chicago at the end of the second quarter 29 team.
We are now fully focused on ramping the project the stabilization.
Our expectation is unchanged from last quarter.
We expect this asset the continued aware throughout 2020 and deliver its underwritten stabilized returns in fiscal year 2021.
We will continue to update you on our progress.
Also during the fourth quarter, we completed two of the expansion projects that we purchased as a part about quantum leap acquisition at Chesapeake, Virginia, and North Little Rock, Arkansas.
The first quarter 2020, we also delivered the expansion project in Columbus, Ohio.
We believe we're on track to achieve stabilization at each of these facilities over the first 12 months.
We continue to make progress on the rest of our active development pipeline, which consist of two projects currently underway in Savannah in Atlanta, totaling approximately 33 million cubic feet and representing approximately $211 million of investment.
Now I'd like to take a moment to update you on our activities in Australia.
At this time, we're not moving forward with the developments contemplated under the previously announced letter of intent, we executed with the top customer.
This is because the scope of the projects materially changed.
Let me emphasize that we maintain a good relationship with this customer who we have served for over 30 years.
We continue to work with them on their future supply chain needs.
To that again, we are announcing a new 42 million U.S. dollar expansion project in Auckland New Zealand.
This expansion will add 4.6 million cubic feet to an existing facility that exclusively houses the same customer.
We have signed a definitive agreement under which they will anchor than new expansion with room to upsize in the future.
Construction is scheduled to start at the second quarter 2020 with completion in the second quarter 2021, and stabilization as expected one year thereafter.
As this agreement demonstrates we have plenty of opportunities to grow our customer base over the long term.
At this time, our development pipeline remains robust with over $1.2 billion a potential opportunities.
All of this external growth was supported by our strong low levered balance sheet.
About 2019, we remain good stewards of capital.
De risks our growth by proactively raising capital to fund acquisitions and development with forward components where possible.
We should private placement debt and they'll benefit from multiple investment grade credit ratings, which reduced our cost of capital.
We transformed our shareholder base increased our flow through the successful secondary offering completed by our legacy financial sponsors who have fully exited their investment.
Additionally, we launched an ATM program to further diversify our capital sourcing options.
As we stand now at the start of 2020 market conditions underpinning the temperature controlled storage industry remain attractive.
Demand growth is tied to population that consumption growth, along with customer driven ships and supply chain optimization strategies.
This is coupled with the continued shift in consumer preferences towards healthy perishable food, which increases the need for temperature controlled storage.
We are well positioned to capitalize on these trends with our outsized market share and are fully integrated infrastructure.
From a supply perspective, various remain high for new development over the course of many years, we've invested millions of dollars in technology process and infrastructure and other facilities.
Just as important is our deep relationship with our customers, who trust us to maintain the integrity of their brands.
Our customer centric focus and leading supply chain innovation combined with our portfolio that has the right now sets in the white locations will serve us well as we deliver consistent and profitable growth over the long term.
Before I turn the call over the Mark I'd like to comment on a few exciting internal developments here at a medical.
As an organization, we continue to focus on our corporate responsibility to serve the public good by maintaining the integrity of the food supply and reducing waste.
Further we remain committed to sustainability as we seek to reduce our energy consumption.
2018, the global Cold chain Alliance awarded 56, Abarca buildings gold and silver certifications as a part of their energy excellence recognition program.
We are pleased to announce them a 29 team the GC C. A has certified an additional 76 facilities. We now have 132 sites certified by the GC C, a which represents 77% of our warehouse segment portfolio.
I'm very pleased with our team's dedication to this important sustainability effort.
From a personnel standpoint, we continue to promote safety for Americold associates as the top priority 2019 was another exceptional year in terms of record low incidence set up the facilities.
This is our fifth consecutive year of reduction and we're very proud of our industry leading safety performance.
Additionally, we continue to ensure our bench of executive talent deep and positions us for growth.
Over the course of 29 team, we made several key executive hires and walking three new directors to our board.
During the first quarter 2020, we announced the hiring a broad chambers as chief commercial officer, they had or business development effort.
Rob was most recently got a publicly traded logistics company.
Prior to that he was here with us it Americold as vice President of commercial finance, where he was instrumental in developing our commercial business rules and underwriting process.
Wobbly global business development and focus on growing in expanding our customer base.
We're excited to have brought back out our team.
In summary, 2019 was another exciting and transformative year here at Americold, we're very grateful to our entire team for their efforts to lead innovation in our industry continues to serve our customers drive same store growth complete acquisition and execute on our development.
We are off to a great start and 2020.
I'll now turn the call over the Mark who will provide more details on a quarterly dissolved balance sheet and outlook for 2020.
Thank you Fred and good afternoon, everyone.
Today, we will provide updates on our actual performance as well as certain metrics on a constant currency basis.
I will also provide details on our guidance for 2020.
Well the fourth quarter, we reported total company revenue of 486 million and total company, an ally of 138 million.
Reflects a 16.9% increase and a 26.8% increase year over year, respectively.
For EBITDA was 109 million for the fourth quarter 2019, an increase of 28.8% year over year. This is driven by our 2019 acquisition and solid growth within our core portfolio.
Our core EBITDA margin grew by 208 basis points to 22.4%.
Please note our strong core EBITDA growth and margin improvement overcame a falling factors.
The J curve associated with implementing in aligning our recent acquisitions to the Americas hold operating system practices.
The startup expenses related to our recent development project.
And the currency translation impact of the strengthening of the U.S. dollar.
For the fourth quarter 2019 reported net income of 21 million compared to net income of 3 million for the same quarter the prior year.
Our fourth quarter core FFO was 65 million or 33 cents per diluted share our fourth quarter after that though what 60 million or 30 cents per diluted share.
As a reminder, the full definition and reconciliation of core EBITDA core FFO and AFFO to reported net income can be found in our supplemental.
For the fourth quarter 2019, Global warehouse segment revenue was 384 million, which reflects growth of 25.6% year over year.
Global warehouse segment, and a lie with 130 million, which reflects growth of 28.9%.
Global warehouse segment margin was 33.8% for the fourth quarter, and 86 basis point increase compared to the same quarter of the prior year.
This increase in margin was primarily due to improvements in our core business accretive acquisition.
Same store economic occupancy growth and the benefit of the Americold operating system.
At year end 251 million of our rent and storage revenue was derived from customers with fixed commitment storage contract as compared to 244 million at the end of the third quarter, a party 19, and 220 million at the end of 2018.
For the fourth quarter of 2019, 40.6%, a rat and storage revenue was generated from fixed commitment storage contract on a combined pro forma basis, which is a 60 basis point increase over the sequential quarter.
As of December 31st 2019, our global portfolio consisted of 178 facilities to more than we reported at the end of the third quarter 2019, due to the acquisition of the Pennsylvania, Maryland facilities completed in November.
We ended the year 167 facilities in our global warehouse segment portfolio and 11 facilities in our third party managed segment portfolio.
Now I will turn to our same store results in the global warehouse segment.
For the fourth quarter 2019, our same store global warehouse segment revenue was 308 million, which reflects growth of 3.4% year over year and 4.5% on a constant currency basis.
Same store global warehouse and ally was 107 million, which reflects growth of 9.1% year over year and 10% on a constant currency basis.
Same store global warehouse, and why margin increased 182 basis points to 34.8%.
Drilling into these results a little further for the fourth quarter.
Same store global rent and storage revenue grew by 1% year over year or 1.8% on a constant currency basis. This was driven by improvements in economic occupancy, partially offset by business mix and the impact of the strength of the U.S. dollar.
Our same store economic occupancy was 84.6%, which reflect an increase of 112 basis points from the prior year.
Our same store rent and storage and alike grew by 1.4% year over year or 2.2% on a constant currency basis.
Same store global rent and storage and align margin increased 30 basis point the 69.3%.
The answer why growth and margin expansion was the result of continued portfolio management combined with our efforts to grow our fixed commitment storage contract and disciplined cost controls to the Americas operating system of our power and facility related costs.
Same store global warehouse services revenue for the fourth quarter increased 5.2% year over year or 6.5% on a constant currency basis.
This revenue increase resulted from a favorable mix, which generated 6.9% growth in our same store warehouse services revenue per throughput pallet on a constant currency basis.
Our same store global warehouse services, and a why increased 85.8% year over year for 88% on a constant currency basis, driven by cost control embedded within the Americas operating system.
Better pricing at a more favorable customer mix.
Finally, the same store warehouse services and a wide margin was 9.4% for the quarter expansion of 406 basis points driven by the same factors.
Within our global warehouse segment, we had no material changes to the composition of our top 25 customers, who on a pro forma basis account for approximately 60% of our global warehouse revenue and you have been with us on average for over 30 years.
Additionally, our churn rate was approximately 3% of total warehouse revenue a 40 basis point reduction from the prior year end.
We continue to focus on customer service and active portfolio management as we seek to optimize our customer mix and retain customers over the long term.
Corporate SGN, a totaled 33 million for the fourth quarter 2019, as compared to 28 million for the comparable prior year quarter.
This increase is primarily a result of additional investments made to support our expanded development pipeline. The S. DNA absorbed by recent acquisitions net of realized synergies higher Sox compliance costs and increased stock compensation expense.
Additionally, we incurred total cost of 10 million for the fourth quarter as shown in the acquisition litigation and other line within our statement of operations, which primarily reflects M&A related professional fees litigation costs and severance costs.
Finally, we believe the best way to measure our successes on an annual basis due to the seasonal nature of our business to recap our full year 2019 growth.
No revenues were 1.78 billion and global warehouse segment revenues were 1.38 billion, an 11.2% and 17% increase respectively.
Total contribution or an ally was 478 million an increase of 17.9%.
Global warehouse segment, and Allied was 448 million an increase of 19.5%.
For the same store pool Global warehouse segment revenue grew 1.9% EUR, 3.5% on a constant currency basis, and same store segment, and Allied grew 3.9% or 5.1% on a constant currency basis.
EBITDA was 367 million an increase of 19.7% were 21% on a constant currency basis.
Net income was 48 million.
Core funds from operation was 220 million or $1.19 cents per diluted share and after FFO was 215 million or $1.17 cents per diluted share using a weighted average share count of 184 million.
Now, let me update you on our development and acquisition activity.
In aggregate, we spent 211 million in 2019 on expansion and development capital, including 56 million in the fourth quarter, mostly related to spending at our Atlanta major market expansion in our Savannah, Georgia Newbuilds.
We delivered our automated expansion project in Chicago in late second quarter and two of the expansions that we acquired as part of globally in late fourth quarter.
We delivered the third acquired development project in Ohio, Shortly after year end.
In our supplemental we have provided additional disclosure unexpected yield and target stabilization dates for these projects.
Also at the end of 2019, we acquired two facilities in Pennsylvania, and Maryland for 54 million.
Fourth quarter, and we completed the previously announced acquisition of Dovecote logistic in Canada for 337 million Canadian dollars, which translates to approximately 257 million U.S. dollars.
Also we completed the acquisition of Newport Cold in Minnesota for 56 million.
Again, we have enhances disclosure in our supplemental and now outline our expected net entry and why yield and are expected your three yield at stabilization.
Today, we also announced that we'd be entering into a strategic joint venture with Brazil based Super Frio, whereby we will invest 118 million, Brazil, real which translates to approximately 28 million U.S. dollars for 15% ownership in the business.
This transaction will result in an implied 9% forward and Hawaii yield for the entire in place business.
Which we expect to improve through accretive acquisitions and development in that market.
We believe this valuation reflects the quality of the operator and the facilities and our exclusive call right to purchase the remainder of the business in 2023.
We expect to fund our pro rata share of the joint ventures acquisition and development activity over the next two years, which we expect to be up to 127 million Brazilian real or approximately 30 million U.S. dollars.
The investment is accretive on a leveraged neutral basis, and we intend to fund it with cash on hand.
Well not hedge our currency exposure at this time and we expect to close the transaction in the first quarter.
Finally regarding our customer in Australia as Fred mentioned, we are starting a new expansion project in New Zealand with this customer for 65 million, New Zealand dollars or approximately 42 million U.S. dollars.
Also with regard to the projects for which we will not be moving forward. Our customer is expected to reimburse us for a certain development costs that happened capitalize including our cost for the purchase of land in Sydney.
Now turning to our balance sheet.
As of December 31st 2019, total debt outstanding with 1.9 billion of which 76% was an unsecured structure and 92% was at a fixed rate.
Our real estate debt has a weighted average remaining term of 6.3 years and carries a weighted average contractual interest rate of 4.23%.
At quarter end, we had total liquidity of approximately 1.4 billion and we had no activity on our ATM program.
Our net debt to pro form a core EBITDA was approximately 4.2 times, which demonstrates our commitment to prudent balance sheet management as we maintain modest leverage while executing our growth plans.
Pro forma for the closing of our Nova Cold and Newport acquisitions on January 2nd and the initial upcoming Super free all investment in our New <unk>, New Zealand development. Our total liquidity is approximately 1 billion consisting of the revolver availability cash on hand at approximately 133.
<unk> million.
Of equity forward from our September 2018, offering.
We used our April 2019 forward to fund a portion of the noble Cold acquisition on January 2nd which increased our fully diluted.
Shares outstanding to approximately 205 million.
Our pro forma net debt to core EBITDA was approximately 4.5 times as a result of these transactions.
I'd like to remind you that our recent acquisitions.
The initial Brazilian joint venture investment and remaining development Savannah, Atlanta, and just announced off when New Zealand projects are all fully funded at this point.
Now I'd like to take a moment to provide our outlook for 2021st I'd like to discuss the integration of 32 facilities that we have acquired since the start of 2019 as well as our development activity, both which have a meaningful impact on our 2020 expectations.
First by the end of 2019, we have taken action to eliminate all 10 million in total cost savings that we expected to realize from the cloverleaf integration. The capture of these synergies as reflected in our SGN a guidance.
Second let me note that we continue to incur meaningful expenses as we work to bring all of our recent acquisitions onto the Americold operating platform. We view these cost as critical to achieve our targeted yield the stabilization by the end of year three and believe the work, we do and 2020 will set the stage for long term growth.
Given the size of these acquisitions relative to our overall portfolio, none of which are in our same store pool, we have incorporated this impact into our guidance.
Finally during 2020, we expect to continue to incur startup expenses in our completed development as we hire and train employees bring down temperature calibrate our system and automation work workable and onboard new customers.
We typically expect this ramp period to stabilization to take 12 months best We've previously mentioned on our last call. We expect our cargo project will take between 12, an 18 month.
Sure and part of this period, our operational expenses, including our startup expenses may exceed the revenue generated from that site.
This is reflected in our guidance.
Well this in mind for the full year, we expect an AFFO per share in the range of $1.22 cents to $1.30 cents.
Our assumptions are as follows.
Global warehouse segment same store revenue growth to range between two and 4% on an actual and constant currency basis.
Global warehouse segment same store NOI growth to be 100 to 200 basis points higher than the associated revenue.
Managed transportation segment and a lie in the range of 28 to 31 million.
Total SGN expense of 135 to 140 million.
Current income tax expense of 11 to 13 million.
Deferred income tax benefit of one to 3 million.
Non real estate depreciation and amortization expense of 66 to 68 million.
Total recurring maintenance capital expenditures in the range of 65 to 75 million.
Development starts of 75 to 200 million.
And finally, please refer to our supplemental for currency translation rates embedded in this guidance.
Please keep in mind that the ranges for these metrics do not include the impact of acquisitions dispositions or capital markets activity beyond which had been previously announced.
Lastly in 2020, we've revised our methodology around our same store pool, which will reflect 136 facilities at the beginning of the year.
Our revised definition now requires that for a facility to be in the same store pool and must meet that definition at the beginning of the year.
Now, let me turn the call back to Fred for some closing remarks.
Thanks, Mark since the start up 29 team we have closed six acquisitions completed four development projects started three additional development projects and entered into a new joint venture.
As we move into 2020, we're starting with strong momentum and we will continue to expand our platform to position americold for our customers around the globe.
We would like to welcome the many new associates to they know called family, who joined US as a part of our recent acquisitions and I'd like to thank all of our team members for their continued hard work and dedication to our success.
Finally, we thank our shareholders for their continued support as we focus on driving growth and creating value through 2020 and beyond.
Thanks, again for joining us today, and we will now open the call for your questions operator.
[noise]. Thank you at this time, we will be conducting a question and answer session. We ask that you. Please limit yourself to one question and one follow up question.
If you would like to ask a question. Please press star one on your telephone keypad for participants using speaker equipment and may be necessary to pick up your handset before pressing the star Keith a.
A confirmation tonal indicate your line is in the question Q.
You May press star to if he would like to remove yourself from the Q.
Once again as a friendly reminder, please limit yourself to one question and one follow up question. One moment. Please while we poll for questions.
Our first questions come from the line of Nate crossing of Barenboim capital markets. Please proceed with your question.
Hey, guys. Good evening and I guess, just a question on the Sydney project, what does it mean, when you say the scope of the project changed.
I mean that wasn't was 600 million dollar potential project.
Sounds like that tenant is gonna be at this how their location. So that's what's the total scope of that new project I guess.
Yeah, you know I think if you go back gosh, it's been a year and a half almost two years now and we southern the sudden entered into an ally with with this particular customer and it was more than one side. It was multi site is looking out there at their supply chain.
Yeah. Once we enter that al why you start to get into detailed design and as you are going through detailed design things kind of changed in shifted and you know remember that we continued to do the current work for them today. The flows talking about potentially I'm getting into a new new infrastructure. If you will for the future.
And yeah, we've we've gone through several different iterations with them and you know as I sit here today, we look at it and we say you know we're probably not gonna proceed.
And the way that was originally intended whoever we continue to work with them a as evidenced by the new build that we're doing the over an awful in new Zealand for them.
With a with a new 15 year commitment a anchoring that facility and then you know we continue to work with them around the rest of of Australia few well, but at this time, we know that stocking.
Be like what we originally had had hope and yeah, we'll continue to work with them in.
As we move forward okay. So.
That's helpful. Thank you. So we're thinking about the drivers of growth. This year is it more just M&A in same store in margin improvement because it looks like there's a less development capex spend that you're guiding to.
Now, we all know the trend in the space seem to be good but I.
I would've thought they'd been more kind of new starts our development Capex spend if there was a lot of new demand out there for cold start I wish.
[laughter] excuse me, it's hard to comment on timing.
In specific and so we've been guiding.
$75 million to $200 million and in new starts.
You know for the last two years here.
Our pipeline is still in excess of $1.2 billion or we have several several great projects that are out there and you know I know that some of those will come to fruition here as a matter of timing. When you know again, that's higher than the scale of those differ depending on the particular customer that we're building for.
Another key attribute and a reminder to everyone is you know we don't <unk> build on spec and so you're most of our build most of our development projects are driven by you know real customer demand and you know engagement with those customers and as a result that that timing can kind of move around.
Yeah, well one thing I'd, just add to that as it relates to external growth. We also don't provide guidance on M&A. So as you've heard us say over the time that M&A in our industry can be somewhat lumpy that's not to say, we're not active having already you know completed two transactions this year, but there's no further died.
And then what's been a book fourth in the overall guidance.
Okay. That's helpful I'll get back into queue. Thanks.
Thanks.
The next questions come from a line of Emmanuel Korchman of Citi. Please proceed with your question.
Hey, everyone maybe for Mark just just following up on that.
Talk about the pipeline of developments can you talk about what your pipeline on acquisitions looks like and split that between U.S. opportunities and international wins.
Yeah, you know I mean, what I would say is kind of what we always say the pipeline of acquisition opportunities is plentiful both in existing countries as well as you know the potential to to expand into into others. Yeah. We we work with.
And talk to a lot of different folks and I think I've joked before you got to kiss a lot of frogs to find the right. One that we're looking for and I remember, we're not just acquiring ticket bag. Yeah. We're we're pretty pretty picking in choosy. If you will in terms of identifying the right acquisitions that we know that can be full.
The integrated into our enterprise. So those are gonna be lumpy I can't I can't comment on size and scale of those because it's a it's so unpredictable in terms of when or if those will come to fruition.
Great and just switching to guidance or we do appreciate that added line items that youve given us.
Hi, I'm gonna be annoying first second and say what you haven't given us as a payout ratio. So what used to give US you don't give us. So how do we think about the dividend in the payout ratio in comparison to the new way if AFFO per share guidance that you have given us.
Yes, yes, absolutely are our board evaluates hard our position you on a quarterly basis and determines the dividend. So we would expect further guidance around the dividends to be announced.
Later this quarter consistent with prior years.
But I guess I'd, just how do you think about the guidance for the year in sort of cash flow.
You know allocation what level are you assuming in the guidance that you've given <unk> at this point I think especially given the robust development pipeline that Fred mentioned, we would expect payout ratios to be consistent with prior periods.
Probably about 65 to six years.
Thanks.
Our next questions come from the line of Michael Carroll of RBC capital markets. Please proceed with your questions.
Yeah. Thanks, I just wanted to go back to the a the Woolworths project in Australia. So what is that customer plan on doing right now if they don't want to have the the I guess the three large automated facilities on do they still have [laughter] I guess growing needs for attempt to control space are you going to be.
Fighting that for them.
Yes, Yeah remember you know as as a reminder, we currently have all of their infrastructure for the the bulk of their temperature control needed. So we continue to operate those facilities and you know like I said, we're kind of exploring other alternatives. So you know is it for for example, hypothetically is it better too.
Build.
A single Greenfield automated facility or is it by their to expand onto an existing facility or is it by their to add a conventional facility and instead of automation. So all three of those things continue to be explored so, but we have a bulk of of their business today.
And we'll continue to do so as we have for the last 30 years.
Okay, and then should we expect I guess, some smaller projects to be announced because obviously they had a pretty big growth strategy before that seems to be off the table, but should we still expect I'm glad I know they did have what a 40 million dollar project in New Zealand is there other $40 million to $50 million projects on tap for the rest this year.
Potentially our pipelines over $1.2 billion.
Okay, Great and then just last from me can you talk a little bit about your plans with Ah, Brazil, I mean, how much do you want to our can you scale in that market or do you plan on just making this initial investments.
With that joint venture partner and see where that goes currently.
Yeah, Yeah, we're really excited about this this this partnership with Patrizio down there in Brazil Super Frio is one of the leaders in there and you know there they're very much like us they use the same operating system.
Have have a lot of similarities in terms of customer base and how they commercialize that businesses.
So we really like that platform down there. Its currently 16 sites and as we mentioned you know they've got growth expectations, both from a development and from an acquisition standpoint, the marketplace down there's very similar to what we see here in the U.S.. It's very fragmented. So there are lots of opportunities and again.
Go about it pretty much the same way that we do here and yeah. We'll continue that partnership over the next two years and we have that ability to to abide out in 2023.
Thanks.
Sure.
Next question is come from the line of Dave Rodgers of Baird. Please proceed with your questions.
Hey, guys. Good afternoon, I wanted to ask about the physical occupancy in the trends. There you had been trending lower in the first three quarters of the year a year in the fourth quarter on the same store basis, you did step back up so can you talk a little bit about kind of what your expectations are for physical occupancy as you move into next year the today.
4% revenue guidance does that assume some increase in occupancy and rate and can you kinda talk about where that occupancy increase income from thanks.
Yeah, I think that number we reported a this this quarter was the economic occupancy yeah remember, we continue to shift our businesses and you saw the progress and the in the fixed commitments.
Economic occupancy, yes, we continue to expect it to to pick up yeah, we like where it settled into the fourth quarter as you'll recall, we don't really want it to get that much higher because then you start to drive inefficiency within the operations, which actually resulted in less cash flow. So we're trying to drive four wall cash.
Well as as our primary focus and you can see that we're doing that regardless of what the physical occupancy might be and that's just a function of how we commercialize our business so rate throughput fixed commitments. So so yes, we expect that we'll continue to make progress as we do our portfolio management model.
More new customers and then of course open up new capacity for our development opportunities.
I guess just listening to that answer Fred on it with 2% to 4% revenue guidance on the same store do you expect most of that then to come through rate, if you're happy with where occupancy is today.
Yeah, you know again, I think there's lots of occupancy opportunities because the seasonality of our business right. So yeah. We're always trying to find ways to do you know fine off cycle type of businesses that we can put into facilities that maybe have you know a a lower physical occupancy during the summer.
<unk> for example, so yeah, we believe that there's still white space to fill up most of our occupancy is driven by key markets.
During the fourth quarter. So actually if you look at core markets, where our major distribution points are getting product to the consumer during the most critical time of the air those markets are.
And during the fourth quarter as we've talked about those are pushing 90, 92% right. So the number we're quoting is across our entire enterprise. So we do have sites that have lower physical occupancy during the fourth quarter than the 85%, Yes, and Dave just just to reiterate as you've heard us say before.
Yeah, we're working on maximizing the mix as Fred said that drives the most for all cash flow. So theres, one metric more than anything other not rate and occupancy is how do we drive axles for all castle.
Great and then maybe just a follow up on that is there and mechanism where you would take out a patrizio has there been a predetermine price for that and the second is can you just comment on the income tax expense in deferred benefit in the 2020 guidance versus what you did in 2019 and the reason for the change there. Thank you.
Yeah. So just on the first part in terms of the takeout Apologia, Yes says we as we said we have the exclusive option I'm too to buy out the other 85% of the business because we bought into 15% come 2023.
And then as it relates to the taxes. So that's the taxes reflects growth in the overall business as well as our recent acquisition.
Into Canada, which obviously will be paying corporate level tax for operations in Canada at that level consistent with what we pay in Australia. So the combination and tax reflects growth of the of our core businesses abroad, where we do pay cash taxes.
Thank you.
Thanks.
Our next questions come from the line of Ki bin Kim of Suntrust Robinson Humphrey. Please proceed with your question.
Thanks, Good evening everyone.
I'm going back to the Australia development for $600 million I was wondering if you can just provide a lot more details behind it because I. It was a big deal I. It was important catalyst for your company in your stock.
So I'm just curious.
How much of the scope change.
Did you lose any of that business for the three buildings to competing developers so or other owners.
It wasn't a point of pricing or does.
Something very different than that.
It's it's a combination of of things quite frankly.
They they do own their own dry that work they bought up a a fully automated facility that yeah. They were tied up where they've had some other things going on their businesses or changes that I can't really comment on but you can read the press found them they've made a lot of divestitures and some other adjustments to their business.
And then you know just during this time horizon number one I just want to realize everybody. It was a letter of intent it wasn't a binding contract.
It was it is an intent to work with each other so we did not lose the business to anybody else.
Wasn't what was that play but over the course of the two years you know automation costs. You know certainly increased steel prices went up you know so construction costs and Australia landed cost in Australia, all of that kind of factored into.
If you will the dances, we're going through detailed design, then and negotiation. So no. We haven't lost the business. We have all the businesses and and proceed continuing to as I mentioned, we'll continue to work with them and again, that's strong pipeline that we have I'm confident that we'll have additional.
I used to put capital to work.
Figures, so you're saying that three buildings that were originally contemplated there isn't a.
Another party doing doing part of that business, if instead of an Arab there or not there are not three automated buildings going up for this customer.
Okay.
And.
As a microphone the center part of the reason that all just going a different route instead of like a centralized warehouse, maybe doing had no worries that well that part of the <unk> I don't you know I'm no. That's I mean kind of a separate separate a process I know they are experimenting with micro fulfillment, but remember that microphone that's done in the back.
End of the store and does it really supply it doesn't really change the supply chain in terms of does the physical distribution centers. So I can't comment further on what they may be doing that's probably something for you to look out.
Okay and.
It sounds like in the comments, though you left yourself a little bit of an opening that you might do further development business what Dan.
Could you just expand upon that.
Yeah, I mean, I I again, I would say that you know, we we have a pipeline of $1.2 billion.
You know they they are part of that we just announced the 42 million. That's Ah that we're going to put to work in Auckland.
Which is on their behalf. So we we currently how's them in several facilities a across New Zealand I'm, often being the largest one we're expanding that sites to support their growth and weve entered into a definitive agreement not an ally.
The feather that contract for for 15 years for them to be the anchor on that expansion.
So I think that just shows the continuing working relationship that we have with them and our partnership with them as we continue to move forward.
<unk>, but it's not like.
There's a chance for development to happen again in Australia, that's not what you meant right.
There there's always a chance we continue to convert the conversations have not been called off I got to is the way that I would describe it so there isn't and and we just don't see it happening right. Now. So we're just we're just kind of taken that often.
Hopefully it develops in the something into the future but.
No, we can't control down, 100% and we kinda out there timing and after mercy when it comes out.
Okay. Thank you guys.
Our next question it's come from the line of Michael Mueller of JP Morgan. Please proceed with your question.
Hi, I'm.
If we start off with your AFFO guidance at back Capex, and then back out the non real estate depreciation in the tax benefit we get about 21 to about 32 is that your core AFFO guidance for the year.
Yeah, those what we did as we provided the core reconciling items and that's not inconsistent with our thought I think Mike. The key thing, we really do want to emphasize about our businesses. We believe the F. O is the best metric to understand our overall business just because there's so.
Again operational component as well as true cash capex in the business that we want to make sure as being captured which isn't necessarily captured in either the navy definition of ethanol or even our adjusted definition of core. So we we view as the most relevant metric for our business is that that's approximates the cash flow we.
Right to be our adjusted funds from operation.
Got it yeah. It's just the I phone numbers get reported a lot and obviously come up and did come up in discussions quite a bit. So yeah. Okay and the second question was for Brazil, What's the magic about 2023, what happens then.
Where you can buy it out.
Hi, Mike, Yes, yeah it.
We're investing for private equity investor that has a.
Finite life of their fun and so we're working with them and and you know we have the plan with them to grow the business through that period and that wasn't ideal.
Date for us to make a decision and as Fred mentioned earlier, we have a exclusive call right. If we want to purchase and the rest of business.
Got it okay that was that thank you.
Our next questions come from the line of Bill Crow Raymond James. Please proceed with your question.
Good evening guys.
I apologize for asking one more on Australia.
Right. The health of the tenant has anything changed with them is scope change in because their their outlook has changed.
No apps, absolutely not there you know there there the premier.
Grocer in that marketplace.
Yeah, there their business continues to be strong I'm. So no no underwriting concerns for whatsoever, that's fine.
Yeah, <unk> seasonality came up earlier and I'm just wondering if you can help us thinking about seasonality is involved in a 2020 should we consider that kind of the same contribution per quarter that we saw on 20 team would play out again in 2020 or has that changed because of your acquisitions.
No it's pretty much the same pattern you know I mean, the there's there's some commodities that have no different types of patterns, but you know like like ice cream or like some of the harvest Sip you will but the basketball of our of our product follows the same same cyclical.
Validate every single year I'm, you know fourth quarter, you know kind of the end of third quarter. You know fourth quarter is you know the busiest time of of the year for us that's when all the volume is getting pushed out yeah. The supported Thanksgiving and Christmas I think you saw that in our fourth quarter results and if you.
Go back a year ago, you see the same thing.
All right and then two quick financial questions for you GNS continues to ramp up in a given the J curves were dealing with and postpone developments and different things.
Just.
[laughter] I'm trying to get my arms around that.
Pace at which it's ramping up viz a viz.
What its delivery to the bottom line and at the top end your guidance I think it'd be about 8% increase.
And 2020, so at what point do you get to get to the size of the headquarters you need. So we don't see GNS continued ramp up at this rate that's.
Four or five times sheep.
Yeah, no absolutely and I think there's two things around that just to understand so we maintain a lot of our own in house development resources. So the engineering teams. Our project management offices that are working on our development project. We have a tremendous is we just announced a we have you know exactly for completed projects, where we don't even have the benefit of the.
Stabilized earnings yet in our stream so those will be ramping up throughout this year and really beginning to stabilize in 2021 and beyond and then we have other development projects under way. So I think what you see and this is typical of development you see those costs come on in advance and then you get the benefit as those projects ramp and reached.
Well as Asian, which you'll start to see the DNA and leverage, especially as you're looking at as a percentage revenue.
All right and then finally from me.
Since we spent.
In our last quarter talking over $3 million health care costs.
No.
[laughter] $10 million acquisition litigation and other charge, if you could give us some details.
That its.
I think it's 40 million Bucks for the years, so how do we think about.
What was in there for the fourth quarter and what happens going forward.
Yes, it's if you turn if you look at page 22 of our supplemented it's broken out the vast majority of that 40 million for the year is M&A related costs.
Typically for a professional fees a success fees to bankers.
Synergies related to rationalizing the headcount from the globally facility. So we have a lot of severance costs would you see down in the line well and then yeah litigation, which is disclosed in our 10-K, but we did settle they'll want outstanding litigation case that we had in the quarter, which is roughly that the $3 million charge you see.
<unk>.
Okay. Thanks.
Sure So [noise].
Our next questions come from the line of Emmanuel Korchman of Citi. Please proceed with your question.
Hey, Mark just like a couple of a guidance follow ups you spoke about the the forward drawdowns you've taken so far how do we think about the rest of the the timing of the forward draw downs.
Yeah. So our capital plan does not have us draw down to the forward to meet the guidance now as Fred mentioned, we have a significant amount of both development and M&A opportunities. We are looking at so we may draw that down to support those growth opportunities as we move forward.
So in the past I think you've given us the share assumption in your guidance number what does that sure assumption for the year, Yeah and now for 2020.
Yes, roughly as I've mentioned pro forma for having completed the acquisitions. We completed this January we mentioned that we had roughly 205 million shares outstanding.
And there's there's nothing beyond that assumed in the guidance number.
As regular dilutive impact of your annual equity grants with visa.
Okay, and then and then follow up on Bill's question or joke. The should we think that any other sort of outside costs on on health care or other.
That would be we'd be happy and just taking this years and replicating for next year.
Yeah, No look as I said, you know one of the things that I think we mentioned this on Q3 and it gave us guidance for her comfort yeah. We're really proud like we delivered 3.5% same store revenue growth on a constant currency basis, not 5.1% and those overcame as we said we would yes. They had when we saw in health care through.
The year as well as you know the unfavorable comp we had in the first quarter as it relates to workers comp and so those actual those results. I gave you are the actual result that off they're not pro forma for those items. So as we mentioned you know one of the reasons you hear a say over and over and over again look at our business on a full year basis.
Does reflect out the seasonality of enough and usually those expansion. When you look on a full year basis will be normalize to the overall business.
Okay. Thanks.
Our next questions come from the line of Ki bin Kim of Suntrust Robinson Humphrey. Please proceed with your question.
Thanks, I promise not no question about Australia. So can you talk about the business [laughter] the business trends that you're saying I'm. Just if you can expand on those and you know it was interesting to see your economic occupancy pick up a little bit for the first time in a while what kind of drove that do you think that's a stay nimble and to 2020 and.
Conversely, your same store revenue growth for your rent revenue growth.
Decelerated, a little bit I don't want to split hairs here, but if you can talk about what drove that.
Yeah, I, usually don't see that expand too much in the fourth quarter because you're already.
We're already established if you will so.
Yeah and speaking specifically this is some of what the impact of mix will be right within our business. So you can see yeah, we'll have different mix and as we said we focus on mix and profiles that maximize cash flow. So sometimes you'll sell manifest are often see sometimes it will manifest through the throughput of the business that we're doing.
And I think if you look the real headwind on the rate on occupancy in the fourth quarter was actually effect. So if you look on a constant currency basis. The the rate continue to grow. So we have some headwind from the strength the goes down but the business. There was a whole continues to be to be strong. So the same fundamentals yeah doesn't.
Talked about over the last two years remain there you know our churn rate is extremely low so we're providing outstanding customer customer service customer satisfaction, we continue to expand our penetration with customers through these acquisitions and you know commercialize them onto our Americold standards.
As well as continuing to roll out the Americold operating system. So you know business fundamentals are continued to be strong consumption population growth continues to remain steady.
And and Yeah, we continue to feed off of the trends that you see in the in the industry towards a you know fresh unhealthy products. So yeah, you know the pipeline hasn't flinched. We continue they have over 1.2 billion dollars' worth of of development opportunities. So yeah.
I'd say that the business in the industry as a whole is strong.
And I'm on G and H guidance for 2020, how much of that is.
Real cash dollars, increasing first says capitalization of DNA rolling off.
Oh, there's very limited gionee that we capitalized in the year, it's probably less than $2 million are so a year that is capitalized into our development project. So.
So I, it's not a lot it's not a lot of gene a rolling from you know what was being capitalized. It remember we've completed as Fred mentioned, a significant number of acquisitions since the beginning of 2019 that reflects the impact of those businesses Onboarding they've got some of those acquisitions to were platform acquisitions and new markets, where we did.
Operate so obviously part of what we're investing it is those strong teams in those markets, where we hope to partner with them and grow those businesses.
Okay. Thank you.
Thanks, Good luck.
We have reached the end of the question and answer session I will now turn the call back over to management for any closing remarks.
Great. Thank you and thanks, everyone for joining US Yeah. We are we are very excited about what we were able to accomplish in 29 team and ill just reiterate some of those things. The strong same store sales result result of three and a half and 5.1%.
You know showed that we continue to show great leverage in our business and we're excited about you know being able to continue that as we as we head into 2020, yeah. The six acquisitions southern development projects the new JV.
We just entered into and a strong development pipeline I'm, just really sets us up well for 2020, so very excited heading into 2020 and just like the thank all of you for your continued support.
[music].
Today's conference you may disconnect your lines at this time, thank you for your participation.