Q3 2020 Americold Realty Trust Earnings Call
Active on what we're seeing as we move toward year end.
Mark will then review our quarterly results in more detail as well as the financial benefit of our recent external growth initiatives.
He will also comment on our guidance for 2020 after.
After our prepared remarks, we will open the call for your questions.
Please recall in the third quarter last year, we incurred elevated healthcare expenses.
And Justin for these are same store NOI growth this quarter would've been four 4%.
For the year to date same store revenue in NOI increased three 6% in six 5% on a constant currency basis.
Please note that these year to date same store results include the impact of our frontline appreciation bonus in the second quarter and the incremental costs related the COVID-19, which demonstrates the consistency and strength of our platform.
In addition to the strong growth we have seen in our core business, Let me now turn to our development and acquisition activity.
We continue to execute on our external growth strategy during the third quarter as we remain focused on helping our customers strengthen their supply chains.
Tears strategic customer.
Our total cost is expected to be approximately $84 million and conagra will be on a fixed commitment pricing structure with a 20 year initial term.
We continue to work with our customers to find ways to support their production and supply chains, and we are providing mission critical long term infrastructure of one of north America's leading branded food companies.
In addition to our third quarter activity after quarter and in October we signed an agreement to acquire Aggro merchants group the fourth largest temperature control warehouse company globally, and the third largest in Europe for $174 billion.
Multinational customers with an AD growth and miracles portfolio.
The acquisition also included call options to acquire the remaining interest in a one facility operator in Chile, as well as a joint venture with comp Frio, which operate 13 facilities in Brazil.
Finally, we want to point out that the sellers oak tree and Aggro management are taking a meaningful component of their consideration and cold common shares which are subject to a mid may 2021 lockup.
Miles of each other and 30 miles of new work Port.
Parts of the food supply chain, it preserves food and support the distribution of products to both foodservice and retail.
And total company and NOI of $135 million, which reflects a 6.7% increase in a 12.1% increase year over year respectively.
Core EBITDA was $104 million for the third quarter of 2020, an increase of 11.5% year over year.
This was driven by our 2019 and 2020 acquisitions and solid growth within our core portfolio Park.
Partially offset by higher COVID-19 related costs and higher corporate SGN AG.
Our core EBITDA margin increased by 89 basis points to 20.9%.
Invitation in Peepee cost for the third quarter, where approximately 1.2 million, which was down from last quarter's cost of approximately 1.7 million.
As we stated previously we know underwrite this call and expect to reduce their impact to our margin overtime.
At quarter, and we derive 280 million of our annualized Brenton storage revenue from customers were fixed commitment storage contracts as compared to $270 million for the second quarter of 2020 and $244 million for the third quarter of 2019.
Since our recent acquisitions have a limited percentage of fixed commitment contracts as a percent of Britons storage revenue. We view this as a significant opportunity as we bring these acquisitions to a miracle to commercialization standards.
For the third quarter of 2020, we generated $42, 1% of rent and storage revenue from Vic commitment storage contracts on a combined pro forma basis, which is a 70 basis point increase over the sequential quarter.
During the quarter. We are pleased to report that we've successfully brought a long term protein customer onto the fixed commitment pricing structure.
Due to having committed space available COVID-19 that had significantly less of an impact on our customers on fixed commitment contracts.
We continued to pursue opportunities to increase our percentage of these contract which meaningfully benefit both parties.
As of September.
September 30th 2020, or global portfolio consisted of 185 facilities.
Our total facility count includes 175 facilities and our global warehouse segment portfolio and 10 facilities and our third party managed segment.
This total facility count reflects the two facilities from AMC warehouses, and the single facility in Florida, which were required during the third quarter.
Now I will turn to our same store results in our global warehouse segment.
As a reminder of facility account to the same store if it meets our definition at the beginning of the year and same store currently includes 135 facilities.
For the third quarter of 2020, or Same-store Global warehouse segment revenue was $297 million, which reflects growth of 1.6% year over year and 1.2% on a constant currency basis.
Same store global warehouse NOI was $100 million, which reflects an increase of eight 1% year over year, and then increase of seven 9% on a constant currency basis.
Again, please recall that in the third quarter of last year, we realized elevated healthcare expenses that impacted this year over year comparison.
Addressing for these are third quarter of 2020, NOI growth would have been four 4%.
Same store global warehouse NOI margin increased 204 basis points to 33, 6%.
This shows that continued benefit associated with the miracle the operating system and our commercialization efforts.
For the third quarter, Same-store global rent and storage revenue grew by one 4% year over year.
This was driven by contractual right escalations offset by customer mix.
On a constant currency basis, our growth would have been one 6%.
Our same-store economic occupancy was 78, 6%, which reflect the decrease of 13 basis points from the prior year impacted by COVID-19 related supply chain fluctuations.
Our same-store global Renton storage NOI decreased by 0.3% year over year and was flat on a constant currency basis. This was due to customer mix as well as increased costs year over year, including Covid related expenses higher property taxes and increased property insurance.
Spence.
Same-store rent and storage NOI margin decreased 104 basis points to 63, 5% the.
The margin compression was driven by the same factors that impacted same-store global rent and storage NOI.
Same-store Global warehouse services revenue for the third quarter increased by one 7% year over year or increased by 1% on a constant currency basis.
This was driven by the benefit of contractual rate increases in our services.
Which was partially offset by business mix, including lower protein and foodservice volumes.
Our Same-store global warehouse services, NOI increased by 70% year over year or 66, 4% on a constant currency basis.
This growth was primarily driven by the favourable comparison to the prior year, which included higher health insurance costs in the third quarter of 2019.
Partially offset by the incremental labor costs caused by the inefficiencies due to COVID-19, and PPE costs.
We also continue to see lower overall throughput volumes associated with reduced protein processing and foodservice as compared to the prior year.
Same store warehouse services NOI margin was 11.1% for the quarter, which resulted in a margin increase of 445 basis points driven by the same factors.
A recent acquisition activity has both provided further overall diversification, while enhancing our wallets share of our key customers.
Within our global warehouse segment, we had no material changes to the composition of our top 25 customers, who on a pro forma basis account for approximately 57% of our global warehouse revenue.
Down approximately 300 basis points.
2019 year and.
Additionally, our churn rate was approximately three 3% of total warehouse revenue.
Corporate SG&A totaled $36 million for the third quarter of 2020 as compared to $32 million for the comparable prior year quarter.
The increase was driven by higher headcounts to support our development pipeline SG&A absorbed through our recent acquisitions and higher share based compensation, partially offset by lower travel expense during the pandemic and realized synergies.
Now, let me update you on our development and acquisition activity.
We invested $60 million in the third quarter, an expansion and development capital about half of which was related to spending at our our whole built to suit project in Connecticut in Pennsylvania.
As Fred discussed, we're making progress in all previously announced development.
As a reminder, or supplemental has additional disclosure unexpected yields and target stabilization dates for these projects which remain unchanged.
As Fred highlighted today, we also announced to new development projects, one in Russellville, Arkansas and one in Calgary, Canada for total expected costs of approximately 84 million U S dollars and 15 million Canadian dollars respectively.
We expect to achieve returns consistent with our past development that stabilization.
We expect to fund these developments with a combination of proceeds from our recent debt and equity offerings, which I will discuss momentarily.
Also during the third quarter, we completed several M&A transactions all of which had been previously announced.
21.
We expect to stabilize this and why yield at 7.3% to 8.3% by the end of five years after closing, which.
Which represent significant value creation through the implementation of our commercialization practices and the Americold operating system.
In place adjusted EPS June 8th is approximately $32 million today.
We expect to achieve between $7 million to $10 million in SG Nay synergies, which we expect to have fully realized by the beginning of year three of ownership.
We also want to note that we expect that we will incur an incremental current tax expense of two and a half to three and a half million per year.
We expect this transaction that closed in late fourth quarter 2020, or early first quarter 2021, and this transaction is subject to regulatory approval in Austria and Australia.
Now turning to our balance sheet in our funding for our recently announced developments and acquisitions.
We continued to maintain a conservative balance sheet with ample liquidity and flexibility in order to take advantage of attractive growth opportunities when appropriate.
During the third quarter, we issued approximately 3.9 million common shares all on a forward basis and had a weighted average gross price of $37.43 under our 500 million dollar ATM program.
As of September Thirtyth, 2020, total debt outstanding was $2 billion.
Our real estate debt had a weighted average remaining term of six years and carries a weighted average contractual interest rate of 3.59%.
At quarter end, we had total liquidity of approximately 1.2 billion consisting of cash on hand revolver availability and $291 million of outstanding equity forwards.
Please see page 12 of our supplemental for additional disclosure on our outstanding equity forwards for each tranche outstanding we have disclosed the net share price.
The net proceeds the settlement date and the targeted use of net proceeds we hope you find this new disclosure helpful.
Our net debt to pro forma core EBITDA was approximately 4.3 times.
Consistent with past practice, we endeavor to de risk and match fund our growth initiatives as such during the fourth quarter. We have completed the following capital markets transactions.
We completed an equity offering of 31.9 million shares at $38 per share raising total gross proceeds of approximately 1.21 billion or approximately 1.17 billion net of the underwriting fee.
It towards the remaining development cost of awful.
And $325 million towards the repayment of the fixed component of our U S dollars unsecured term loan a.
We'll use the remaining net proceeds for russellville in Calgary expansions in general corporate purposes.
Pro forma for the new private placement and the Agron halls transactions are total debt outstanding is 2.7 billion in our net debt to pro forma quarter EBITDA is four five times.
Our real estate that will have a weighted average remaining term of approximately eight years and we will carry a weighted average contractual interest rate of 321%.
Now, let me discuss our outlook for the remainder of 2020 <unk>.
Consumer behavior with respect to the holidays in the fourth quarter and future impacts from COVID-19 remain uncertain how're.
However, our business remains fairly constant on an annual basis due to the consistency of overall food consumption combined with the scale and diversity of our portfolio as well as our strong market share.
For that reason as we approach the end of the year, we are tightening our <unk> per share guidance from our previous range of $1.24 to $1 30.
Two $1 20 $621 29.
Please refer to our supplemental for updates embedded in this guidance.
Please note that this guidance includes the recently closed halls acquisition and assumes a year and closing per outgrow.
While the aggro closing results in an increase in the number of Miracle chairs outstanding. It does so for only one two days. Therefore, we do not anticipate a material impact to our per share metrics for the full year 2020.
Please keep in mind that our guidance does not include the impact of acquisitions dispositions, our capital markets activity beyond which has been previously mentioned now.
Now, let me turn the call back to Fred for some closing remarks.
Thanks Bar.
We are very proud of our ongoing work to support our customers as a mission critical part of the global temperature control food supply chain.
Even with the impact of Covid. This year, our business remains steady and consistent on an annual basis.
We continue to drive internal growth through our commercialization efforts and the miracle the operating system and drive external growth through development and acquisitions.
This growth strategy is supported by our conservative low levered balance sheet.
Finally, we again want to thank all of our frontline associates in the entire and medical team for their hard work and dedication. We are pleased to welcome the AMC caspers in halls teams to the medical family and we look forward to welcoming the aggro team upon closing.
We believe we all have a very exciting opportunity to grow together through these transformative transactions that position us to better compete on a global scale.
Thanks, again for joining us today, and we will now open the call for your questions operator.
Thank you.
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One moment, while we pull puffers question.
Our first question comes from Dave Rogers with me. Please proceed with your question.
Yeah. Good evening, everyone. Fred Mark you guys. There's been a really good job of getting everyone focused on the economic occupancy number that was flat year over year and largely flat sequentially as well the bigger delta came in the physical occupancy, which I know, we're not paying as much attention to.
But I am wondering if there is an ability to maybe talk about the third quarter into the fourth quarter and really the ability to see that economic occupancy percentage start to move higher.
Into fourth quarter into 21, and then maybe the reasons why it's lagging in terms of growth I think there's upside there and I don't know if that's just covid, if that's the protein shortages and capacity issues, but any help there would be helpful.
No. Thanks, Dave.
Those those are definitely metrics that are that are difficult to to manage given given covid.
The bottom line is.
We have over 2600 customers and every one of those customers is doing something inherently different with their supply chains and it's highly unpredictable.
Funny I was just with the <unk> CCA.
Global chain Alliance Board meeting.
A couple of weeks ago, and we all kind of looked at each other and talked about what we saw going on in the marketplace.
A lot of.
Lot of unpredictable.
Sporadic behaviors by customers. So some customers are trying to push inventory forward. Some are upping manufacturer and kind of keeping keeping product back at quite a production.
And some are kind of in between right. We do have the protein plants, especially the larger carcass protein.
Plants that are not up to 100% efficiency, just because of what they had to do it in their plants in terms of social distancing in such so.
There's just a lot of Covid noise and that's why we really kind of focus our attention on the.
The year to date results in kind of the full year aspect, because I think this year more than ever.
We look back in and do our statistics on quarter to quarter fluctuations in what happens in the marketplace on a normal year and how that matches this year.
Just.
Kind of kind of crazy this year right. So obviously a lot was was pulled forward and.
And so the third quarter and kind of more evenly spread.
We are seeing.
Left as we go into October, which we would expect.
In terms of volume for the holidays, but I don't think it's as steep as what it normally is.
I think the whole supply chain kind of flattened out over the course of the year, but again the important thing note here.
Is that consumption. During this 12 month period will be very very similar it's just what's going on a month to month and quarter to quarter. That's a little kind of out of out of a cycle. Given all of that is that has happened and look no further than our same-store results. If you look on a year to date basis.
Three 6% on the top line six 5% from an NOI perspective, as we head into this fourth quarter.
Okay, great confidence that we're going to be able to deliver on what we've said that we're going to do so.
The economic occupancy and physical occupancy thing again, there's a correlation, albeit not necessarily a direct correlation as you can see in our financial results.
Thanks, Thanks for all that detail upfront appreciate that and then maybe just one follow up where do you you had mentioned in your comments a small foodservice pick up can you put that in the context of maybe where you would've been pre covid to where you are today and.
The trajectory that you think would come back to Ya, yeah, they're very small pick up and then that's that's kind of reversing itself a little bit is.
States like New York, and California lock things back down.
So I expect that not that continue that trend line, but it was a very very slight pick up I mean retail is still ruling the day.
Right now remember pre covid.
I'd say, 50% was going foodservice and 50% was going retail.
When the light switch went off that immediately switch the 90 10 retail and I'd say that we're still in that.
70, 525 range, so slight pickup just meaning.
If it was 80 20 last quarter, maybe now at 70, 525, but not not material in nature.
Okay. Thank you.
Sure.
Our next question comes from Michael Powell with RBC Capital. Please proceed with your question.
Okay. Thanks for I want to talk a little bit about the developments, you announced and obviously with the whole deal and that kananga deal. It seems like the development yields around 10% to 12%.
Some of the other expansion and like the Rochelle transaction, we're closer to that told the 15% is there anything unique going on their driving those yield blowers adjust and it can individual investment basis. So you still expect to kind of be around that 10% to 15% range going forward.
I think we're just trying to be a little bit more.
Tara in terms of kind of giving you a more realistic ranchers what I would say.
A call about risk right and so if I'm building a dedicated facility.
For a high quality customer, whether it's awful delhaize or conagra.
You're you've Derisked that project right I mean, it's a 20 year commitment fixed commitment right out of the gate very little risk going into it so you're probably willing to accept both slightly lower yield right.
Versus a market development project like Chicago, like Italy, and unlike Calgary like clear field.
Those those types of projects.
We've got great confidence.
Albeit we have several different clients that we're bringing into it right. So we're bringing a solution to the market because of overall market demand not because of an individual dedicated built. So therefore, you have more of a J curve you got the the slope to be able to bring all the individual customers in et cetera. So that's why you're.
You're going to vary a little bit between the different types of build based on that.
That risk assessment.
Okay, and then can you explain I guess the difference between the Kamagra build to suit and why is there a 12 plus months J curve, but that asset.
Versus the Massachusetts build to suit that you've completed a few years ago and it was stabilized almost immediately I guess looking at two differences with both those assets sure. That's a great question left the Massachusetts asked that if you recall.
Was.
Was for Ocean spray and we open that building. So same same fixed structure. Okay. So both of them are under a fixed variable structure, where they are paying for the full facility dating one on completion the differences.
<unk> agriculture once consumer products, so the agricultural fulfilling we happen to open that facility.
In September right at the time of the harvest so literally.
Building filled up overnight.
So we got all the variable component in order to stabilize like immediately with Conagra.
They'll take care of effects component Dang, one, but it's going to take some time to ramp that plant ramp that facility up.
And it will take about 12 months before we get all of that volume actively running through there from a variable standpoint, now as a J curve.
On that facility and Scott I'm sure, we'll have follow ups and give more and more details on it but the J curve associated with that facility won't be like a J curve on a major market facility, we're not going to go negative right because you're getting you are getting the fixed commitment out of the gate.
It's just you'll be wrapping up kind of that variable component and hit that full run right coming out of the first year book that makes sense.
Yes, it does thank.
Our next question comes from Kim and Kim with two weeks. Please proceed with your question.
Thanks, I guess first I want to say you guys that you guys have had a pretty busy year. So congratulations on that.
Thanks. Thank.
So.
When I look at their DNA guidance for fourth quarter, I think I implied that Kunai goes increases from 35 to 45 am curious.
Is that the new run right 45 million or is that really a function of.
Some acquisition.
That are coming online, where you are where you are carrying some DNA.
Yes, it's function of timing and just the <unk> the acquisitions in the GAA absorbed through those recent acquisitions.
Thank you so so 45 million.
<unk>.
Good one right going forward.
The 45 million, yes, that'd be a decent run right as we look forward to will give guidance next year because that's the gross run right Keven and then we have synergy targets against all these acquisitions. So it will be given full year guidance with our with our next.
Reporting, but just remember I think we've built up the growth what you see here is really.
Our same store or organic business with two months of.
The all the acquisition now layered in and then obviously next year will be building on a full year of Paul's as well as the full impact of the aggro acquisition, which ramps up we quoted that is being roughly 32 million free synergy.
Okay.
And so we are ready like one month into the fourth quarter I know the holiday sales season.
It does come around a lot more.
More volatile.
Any kind of early read.
Until October November in terms of how the business might shape up in the fourth quarter.
Yeah, No I'll, just repeat what I, what I, what I said earlier to day.
It's slightly different curves in terms of ramp up the volume definitely picking up like we would expect.
Going from September two in October if you will so.
I'm here to tell you Thanksgiving and Christmas R&D is going to happen.
Again, it's just going to look a little bit different keeping and I think the way the volume showing through it's really hard to predict I mean put yourself in that.
And Conagra foods position they have no idea how much food you have stocked up in new refrigerator freezer at home right.
It's really hard because the buying habits of the consumers have really kind of been all over the place.
So we've got to kind of get get a little bit further into the fourth quarter to really understand the overall volumes, but again.
We're reconfirming here and actually up in the mid point of our of our guidance, which tells you that we believe that the fourth quarter will.
Come incommensurate with the rest of the year.
Okay. Thank you keeping keeping I apologize.
You said 45 or 35 on SGA.
I just want to make sure we heard the crapper number.
Well your guidance for the full year for G&A increase to about 142.
Yes, and yes.
Whatevers left that imply for the fourth quarter, that's about $40 million right 40 plus million.
Yes, yes.
Sorry, I just wanted to make sure we were talking with correct numbers are thank you.
Yes.
Our next question comes from Nate Crossly with member can you assist me with the question.
Hey, good evening.
For the holidays acquisition I'm, just curious how did that come about.
Competitive process and then is there any.
Until in there.
Yeah no. Thanks for the question Nate.
We're extremely excited about this halls acquisition.
It actually came to the market for years ago, four and a half years ago in a competitive bid.
A family owned business.
One of the family members wanted out so they took it to auction.
And.
That was unsuccessful sale at the time, they did not agree and did not want to sell at that time. So they bought one of the brothers out.
Fast forward to today, they they decided that it was time I mean, they have been in the business. The three brothers were in the business for 50 years.
Their desk started 60 years ago and.
I decided that it was time and ran a competitive process. So it was it was a combatant come.
Competitive process.
Okay can you tell me what the competition is like outside and lineage in terms of the depth.
Potential buyers.
Cold storage because.
See you then.
By car and most likely it is and so it would be enough.
I need to get on.
With the depth looks like you too.
Yeah. So so there's actually been just a number of especially of infrastructure focus private equity firms that have been very active in all these deals as well yeah actually I think.
There's bloomberg articles about first called up in Canada actually going to.
So one of those types of funds that we know.
They've been competitive so we do continue to see interest from from significant pockets of capital.
Going after this market.
Clearly I think both ourselves and others when they are broadly auction, they're drawing there's a lot of attention on our space and they're drawing broad interest.
Okay. That's helpful. And then I just had one on the Argo transaction I'm just wondering how <unk>.
Seeping into your discussion with multinational customers.
And actually I'm getting inquiry kind of business flow.
Because of that.
Yeah, I mean that that would be premature for that to happen overnight, but it will definitely it will definitely happen right. Because there is there is overlap and those customers.
Remember, we're not closed on the deal yet so we're not able to really dig in and go.
Re commercialize the business with customers until the until we close that so not not going into that depth, yet, but we have fully expect.
As Rob Chambers, and his team go out and work with our customers and look at the overlaps and look at the networks.
New opportunities are going to occur not just within the existing infrastructure, but I think what we're excited about is we've been asked a number of times Hey can you build us a facility in Europe, and we're like well we're not there. So we're not going to build an individual facilities standalone facilities sitting.
In Europe.
That answer will look very very different going forward because now we have people on the ground in Europe that.
Can manage oversee.
And operate that infrastructure when we determine it makes sense to go ahead and build so.
I really see those those opportunities and advantages.
Taking hold.
But if not if it's not something that will happen date, one that is something that we will come to transition to as we're having those conversations.
Okay. Thank you.
Our next question comes from Joshua in the Lean with Bank of America. Please proceed with your question.
Hey, Fred Mark Scott, you're all doing well.
I've noticed the Argo in the halls warehousing acquisition came with the transportation component.
Just just kind of curious if this is something we should expect to see more outgoing cohort something sure I was going to grow into any color that would be great.
Yeah. Thanks. Thanks.
We do not set out to go buy transportation companies right.
But once you find with some of the larger and certainly the more mature operators as they offer that transportation component as a another value added service to their offerings and they do it for the same reason that we have transportation within our portfolio it helps to create stickiness.
Within those those customer, especially small customers, where youre doing consolidation like programs and all is actually start off as a transportation company. That's with the dad started the the operation off as and then they got into the warehousing and then really gone out of dedicated transportation is solely focused on.
On consolidation programs, which is exactly what we want to do with transportation, because again and create stickiness for our customers.
For our warehouse business so.
That one was easy.
Aggro, obviously with it being as large as it is it.
It has miscellaneous transportation programs that were attached to some of the enterprise's that they had previously bought and brought into the family.
We will assess those as we as we go through and and find ways to make sure that we're.
We're keeping it to our core if you will and that's all part of our integration programs as we go forward, but again lots of these guys even a single warehouse operator.
Might have a couple of tractor trailers that they are running shuttle programs for for their customers or something like that so.
None of them are pure well I shouldn't say none of them, but a lot of these enterprises are not pure clean just warehouse and types of operators.
Okay. Thanks for that color I appreciate it.
And then just maybe one.
You did the private placement in euros. Just curious how are we should think about your strategy going forward is something we'll see more of like you guys tapping the European market is going to get a lower cost of capital from that.
Yeah, I think it was the right place to raise that capital, especially when you think about the billing and seven aggro acquisition and the strong presence in Europe, and the strong cash flow that the European or European business will generate so obviously sizing.
Besides the offering to where it makes sense to give us the best natural hedge to lower overall cost of capital as you can see from the source and uses I laid out that we are going to use part of the proceeds to repay.
Caller term loan.
And so ultimately we're ending up.
Better allocating better matching in terms of naturally hedging the portfolio in terms of where the dollars going forward will be generated from.
All the way through the the deck component now the capital structure and then obviously, we're able to do so where it actually lowers the overall cost capital too based on.
The rates available in the European market as opposed to the us and spoke about term yes.
So we have currently we increased our overall duration on our our real estate that by roughly two years two years. So.
Great. Thanks, guys appreciate it.
Thank you.
Our next question comes home might be a little bit J P. Morgan Please will seat.
Yes, hi.
Couple of questions I guess first one equals acquisition portfolio compared years C H y currency.
Maybe a couple of years two years younger than our average age so.
It's really driven most of their infrastructures, new I think one of the assets is is slightly older but.
Still still is absolutely doing the job so but their infrastructure is in great shape.
Got it and then I guess, we're talking about I agree with you constantly we didn't get regulatory approvals what are some situations, where you wouldn't get granted not miss.
Necessarily for this transaction, but just in general as you're going around the globe.
What would be a situation where you'd run into a problem, where you wouldn't get an approval.
Oh look in this in this situation. There's two countries that we had to get approval from one was Austria.
Which is kind of ironic because we don't have any competitive landscape. There. So we don't expect that to be an issue at all and then there to Australia, where we do have competitive landscape. We do have operation. So that's us needs to run through its normal course look.
Absolute worst case of something happens I'm sure, we'll figure out a way to split off that single assets on that hold up with you.
Yeah, we're not anticipating any.
And I Trust concerns are on this transaction. So just kind of go through the process.
Got it okay that was it thank you yep. Thanks, Mike.
Our next question comes from I think Franco with Green Street advises. Please proceed.
Thank you very much I'm just curious obviously this is such a unique year in your mix of retail and food service a sales.
Sales, it's quite lopsided, but we kind of observed that overall.
Demand for dry warehouse dances and kind of elevated so I was wondering if you could speak of that trend and maybe there might be some upside relatives kind of what's happening supply chains in the future.
Yes, I think.
When you when you look at the dry food grocery warehouse I think unfortunately that also.
Contained some of the consumables like toilet paper.
And gel and napkins and those types of things and I think.
That takes up a lot of cubic feet and I think that's probably the bigger push versus canned foods drive box serials and that type of thing. So I think that overall general it gets labeled as food but.
That would go through your grocery store general merchandise and food is probably what's what's driving that up a little bit.
Gotcha, Gotcha, and and your retail food customers sorry.
Sorry to kind of kind of get an E commerce further but.
That's another question regarding that subject, but obviously.
Grocery online grocery sales that'd be creased, a lot I understand that consumption is consumption that's growing at a steady pace, but can you speak to how you'd think youre retail customers are kind of our ingesting too to the online grocery this year.
Yeah.
I think has off and please pay your respects to your local grocery store. They have done an incredible job I mean think about it they had a tidal wave of people come in and empty out those grocery stores.
And have to contend with customers coming in there and not being able to find the right size catch up that they want.
So.
Our grocery grocery workers out there deserve a tremendous round of applause for what they have been able to.
To do in those operations you couple that blips with E commerce in the changing way that they're doing business and.
They've done an incredible job I mean, you go to your local grocery store and you see what they have done.
A lot of other retailers have done this to like best buy for example, where they have parking spaces out in the parking lot that you pull into and you dial a number and you tell them what station or in and they bring your product to your.
To your door.
Remember that all registered is ecommerce the vast majority of E. Commerce growth is being driven through your local grocery store by instant cart or customer pickup. So that that's that's where all the E. Commerce is coming from it's not like.
All these.
P part and web van Gogh.
Go back ways are all of a sudden coming up and taken huge market share I mean, I'm sure fresh direct in new York's doing a great job.
But that's where all your E commerce is coming from and I think they're doing a phenomenal job handling it all of that volume is obviously coming through R. Retail distribution centers to get to those stores for fulfillment and you asked what they are doing aside from some of the small changes that I just mentioned that they're doing accurate local store.
They are also investing a lot of capital in the back rooms to put automation and so the vast majority of retailers out there are investing in that automation that takes the 10 fastest volume highest volume skews in the store and put them in the back room, so that they can automate the <unk>.
Selection of those goods for those customer pickup orders or store delivery.
Orders.
So they're ramping that ahead, and we're hearing nothing but great things from from that automation, that's going in at various retailers.
Gotcha.
Switching gears.
Touch upon the algorithm or deal can you discuss just a little bit more detail. Your your your your growth plant, there and what type of.
Values or or the yield do you think you'd get on bolt on acquisitions or development projects and whether that absolutely.
Absolute yields are any different in the states.
Yes, we we expect development.
Mmk yields to be commensurate with the development and M&A yields that we get out of our core business. So we don't expect that to really change a whole lot.
The added juice, obviously that we get get from macro is it gives us access like I was mentioning earlier to be able to do those development projects in Europe, because without that presence before that was not a market that we would go out and develop in.
Developing a single site.
So so it gives us access to do that at development, we expect those yields to be very very similar from an M&A perspective kind of the same thing I wouldn't go over there and just buy a one store operator or a to store operator, we wanted to get something of substance to create that base.
And then it will be a lot easier for us to bolt in and do those tuck in acquisitions and again very very fragmented industry over there. The top 10 players in Europe only represent about 20% of the market share again, comparing that to the U S where the top 10 represent about 60% so.
Very fragmented market that will open.
Two additional M&A and again, we expect to see.
Similar similar yields.
And then the other value prop obviously with the outgrow is the one that we disclosed in talking about where we would grow that yields.
Through the implementation of the Miracle operating system that are commercialization efforts. So through those integration efforts over the course of five years old.
SG&A benefits will get operating benefits and we will get commercial benefits, which will increase that yield.
So.
Gotcha.
I appreciate that one phone quick question maybe from Mark.
So the help the the good extent pump relative to last year last year's healthcare cop.
Do you proceed I don't want you know.
No you don't want to take too much into putting one guidance, but do you foresee any expenses shoes can only be next year I think I think I think everybody's health care costs are probably going up.
Covid and all the insurance company related issues.
Related to that did you see that affecting.
Expenses next year.
No.
If you think about it.
We see overall as the nation rising healthcare costs, and obviously, we're not immune to that but obviously, we have a lot of initiatives in place diversifying the overall pool.
We think just like our healthcare costs are embedded in the same store results that bread talked about earlier, we're really overcoming that in the ordinary course, so we don't anticipate any edwin.
From from healthcare going the other thing to keep in keep in mind too is remember where an activity based costing house. So is our cost structure goes off that gets embedded into our pricing models and pass through so so our exposure is not zero.
But it's certainly mitigated by the fact that we have these sophisticated pricing models I've taken all of our hearts elements into place where pricing business.
Gotcha. Thank you for taking my questions.
Sure. Thank you.
Thank you at this time I would like to turn the call back over to Mister Fred Buena for clothing company.
Great. Thanks, Thanks, everyone for joining US Tonight I know it was a.
A long call.
A lot of activity that obviously happened in the in the quarter and post clothes. So we're very excited about all the activities were were striking on we're really delivering on all three of our growth strategies.
Organic growth in terms of delivering the same store continuing to mature our operations with the miracle operating system in our commercialization efforts.
Continuing to bring very very attractive development opportunities both dedicated.
Operations for strategic customers as well as.
More market driven types of deals that take care of a lot of different customers.
And then certainly on the acquisition front, we've really stayed true to what we said that we're going to do.
We're going to buy quality companies that we can that we can merge in.
To our way of doing business.
One company and we will we will continue to focus on that integrated model and deliver it upon it so.
Just very excited that we were able to execute on all three of those platforms. In this last quarter very proud of what the teams accomplished and again. Thank you all for your continued support so goodnight hug on it.
Thank you. This does conclude today's teleconference. You may disconnect. Your lines at this time and thank you for your participation.
Yeah.