Q4 2020 Americold Realty Trust Earnings Call
Greetings and welcome to the Americold Realty Trust fourth quarter and full year 2020 earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should 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 Henderson.
VP capital markets Treasury and IR you may begin.
Good afternoon, we would like to thank you for joining us today for Americold Realty Trust fourth quarter 2020 earnings Conference call.
In addition to the press release distributed this afternoon, we have filed a supplemental package with additional detail on our results, which is available in the investors section on our website at www Dot a miracle dot com.
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 the day they are made and.
And management undertakes no obligation to update publicly any of them in light of new information or future events.
During this call, we will discuss certain non-GAAP financial measures, including core EBITDA core <unk> and <unk>.
Full definitions of these non-GAAP financial measures and 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 in today's prepared remarks have been rounded to the nearest million with the exception of per share amounts.
This afternoon's conference call is hosted by Miracles, Chief Executive Officer, Fred Boehler, and Executive Vice President and Chief Financial Officer, Mark Smirnoff.
Management will make some prepared comments.
After which we will open up the call to your questions.
Now I will turn the call over to Fred.
Thank you.
Welcome to our fourth quarter 2020 earnings Conference call. We hope everyone on this call and their families are well.
This afternoon, I will discuss our fourth quarter and full year 2020 results and activity.
I will then update you on our external growth initiatives discuss our view of market conditions for the year ahead, and then comment on our ongoing ESG efforts.
Mark will then review our quarterly and full year results in more detail as well as our capital markets activity and provide guidance for 2021.
After our prepared remarks, we will open the call for your questions.
Let me start by stating that while the events of 2020 were challenging for all we are very proud of the consistency and stability of our core business and americold stability to deliver results in line with our pre Covid guidance.
The Covid pandemic continues to be a black Swan event and has had significant impact on many people families and businesses around the world.
Against this year's challenging backdrop of the Covid pandemic, we continue to deliver strong results.
This is attributed to our portfolio's diversity and scale the effectiveness of the Americold operating system and our commercial processes.
For the full year 2020, our global warehouse same store pool generated total revenue and NOI growth of two 3% and five 6% on a constant currency basis.
Due to the strength of our platform, we were able to overcome the supply chain disruption and financial impact of Covid, while still achieving our guidance targets.
We grew <unk> per share by 10, 3% overcoming these events, while maintaining a low levered and flexible balance sheet.
In the fourth quarter consistent with what we have seen since Covid began inventory flows and activity did not revert back to normal levels in our global warehouse same store revenue decreased by one 4% on a constant currency basis.
However, as a result of the diversity and scale of our portfolio and the strength of the Americold operating system, we were able to overcome the fluctuation in customer supply chains and achieved global warehouse same store NOI growth of three 3% on a constant currency basis.
In addition to the strong results we saw in our core business, we continue to execute on our external growth strategy throughout 2020.
We continue to actively work with our customers as they seek to expand their temperature controlled supply chain on a global scale as evidenced by our $461 million of development starts in 2020.
As we look ahead, we will continue to be strategic with our expansion and development projects and focus on opportunities to serve our customers while growing the overall value of our network.
As part of our Agro acquisition, we acquired two development projects in Lurgan Northern Ireland. We are working on a $9 million expansion project expected to be completed in mid 2021.
In addition, agro acquired land adjacent to its existing facility in Dublin, Ireland, which will allow for further development in that market.
We are currently underwriting this project.
Please see our supplemental for more detail on the larger projects, which has targeted ROIC six consistent with our previous development projects.
Now, let me summarize our acquisition activity.
On December 32020, we closed on the $1 7 billion dollar acquisition of Agro merchants group.
Agro was previously the fourth largest temperature controlled warehouse company globally, and the third largest in Europe.
The aggregate portfolio included 46 facilities located in 10 countries totaling 236 million refrigerated cubic feet and which serve over 2900 customers.
This acquisition established our strategic footprint in Europe, further diversified our customer base and commodity mix and provided significant internal and external value creation opportunities.
Hans gross who previously worked at agro and as President of Europe and was also CEO of close to grow the second largest European platform has joined Americold to lead operations in this region.
He is a seasoned industry executive with significant experience in the temperature controlled storage industry in Europe.
At this time, we are focusing on the integration of the Americold operating system and commercial processes throughout the agro portfolio, which as previously stated we will take up to five years to fully complete.
Also in the fourth quarter, we completed the acquisition of hauls warehouse Corp for $480 million.
The Halsey acquisition allowed us to add an integrated portfolio up eight facilities located near the port of Newark, New Jersey.
With the acquisition of hauls and the acquisition of agro, we have strengthened our presence in the northeast and we now operate 11 facilities totaling almost 90 million cubic feet in New Jersey alone.
In addition to agro and halls in 2020, we completed the acquisition of Nova Cold Logistics in Canada, Newport Cold in Minnesota, AMC warehouses and taxes Caspers cold storage in Florida.
The whole transaction enabled us to establish a platform in Canada, a key strategic market for us and the Newport Cold AMC in cash gross transactions allowed us to bolster our presence in important U S legacy markets.
In total we closed on approximately $2 $6 billion of acquisitions in 2020, and added 62 facilities totaling 342 million cubic feet to our global network.
Finally, we also completed our initial investment into our Brazilian JV with Super Frio.
And through agro, we inherited a joint venture with Brazil based comp free up.
Over the past year, we have grown our global platform and scale significantly by entering key strategic markets across nine countries in Europe, North America, and South America.
At this point our platform supports customers in 13 countries across four continents.
As we look ahead, we will continue to focus our M&A activity on strategic transactions that enhance our network.
We also continue to maintain a large development pipeline made up of customer dedicated build to suits and multi tenant major market builds.
Now, let me take a few moments to discuss our outlook for 2021.
We all welcome the news of the vaccine in November 2020.
At the same time, we experienced the second wave of Covid that spark new lockdown measures across the globe.
As such we expect that the factors that impacted our business in 2020 will remain in 2021.
This includes continued supply chain variability foodservice levels, well below historic norms elevated retail activity.
Protein production at less than full capacity and continued sanitation and PPE costs.
We will also continue to be impacted by inefficiencies due to our social distancing staggered schedules and other changes in staffing and processes.
With that said, we still expect that food consumption will stay relatively consistent with previous years. As a reminder, our portfolio is diversified by geography customer commodity type facility tight and node in the supply chain.
This helps us to reduce volatility from shifts in consumption behavior and EBIT specific commodity disruptions.
As we experienced throughout 2020, we expect that there will be changes in consumer behavior as individual states regions and countries shift between being open or locked down.
While we do not know when things will return to normal.
We remind you that americold infrastructure serves all parts of the food supply chain, both foodservice and retail.
We are well positioned to support these fluctuating dynamics.
From a new supply perspective barriers to entry in our business remain high and our platform is difficult to replicate.
<unk> has an integrated global network of temperature controlled infrastructure, which we continue to enhance through acquisitions and development.
Over many years, we have invested significant capital into our business and we benefit from our deep customer relationships proprietary technology, the americold operating system and the commercialization of our business.
Before I turn the call over to Mark Let me comment on our ESG efforts.
We believe that our core mission, serving the public good as we maintain the integrity of the food supply by reducing food waste.
In the markets, we serve are facilities help effectively eliminate spoilage.
For perspective, the United Nations estimates that globally, approximately 14% of food produced is lost between harvest and retail with this number being closer to 25% in developing markets without advanced temperature controlled supply chain.
As a part of our Americold operating system, which seeks to drive efficiency, we remain committed to improving our energy efficiency and enhancing the sustainability of our infrastructure.
In 2020, the global Cold chain Alliance awarded 29, embark facilities gold or silver certifications as a part of its energy excellence recognition program, bringing our total at year end to 161.
Excluding our 2020 acquired facilities over 95% of our legacy warehouse segment portfolio is now certified gold or silver in this program.
As we look ahead, we will continue to pursue certifications for our facilities in our legacy portfolio as well as for facilities from our recent acquisitions.
Further we continue to harness new technology to drive energy efficiency in our facilities, including utilizing variable frequency drives for our fans and compressors thermal energy storage and improve blast breathing technology.
We also continue to focus on the led lighting solar power and rainwater harvesting to name a few.
From a personnel standpoint, we continue to work each day to support our associates, who are our greatest asset.
This was especially true in 2020 as our industry was deemed an essential service and our team members perform tirelessly day after day to ensure the integrity of the food supply chain.
As you've heard me mentioned before safety is a top priority and Americold. We continue to be industry leaders in 2020 was our sixth consecutive year with an improvement in our total recordable incident rate.
We also continue to invest in sanitation PPE and other health safety measures.
Finally, we continue to invest in training and advanced programs to help our associates develop.
In summary, we are very proud of our work in 2020, which was a landmark year in many ways. We are very grateful to our entire team for their hard work to support our customers and communities drive same store growth against significant challenges and meaningfully expand our business through numerous development.
<unk> and strategic global acquisitions.
I'll now turn the call over to Mark who will provide more details on our results balance sheet and outlook for 2021.
Thank you Fred and good afternoon, everyone.
Today, we will provide updates on our 2020 performance.
<unk> the impact of our 2020 transactions and capital markets activity.
And introduce our outlook for 2021.
For the fourth quarter, we reported total company revenue of 524 million and total company NOI.
$152 million, which reflect a seven 8% increase and an 11% increase year over year, respectively.
Core EBITDA was $117 million for the fourth quarter of 2020, an increase of seven 5% year over year.
This was driven by our 2019, and 2020 acquisitions and development, excluding agro as well as solid growth within our core portfolio.
This was partially offset by higher COVID-19 related costs and higher corporate SG&A.
Our core EBITDA margin remained relatively flat at 22, 4%.
For the fourth quarter 2020, we reported a net loss of $44 million compared to net income of 21 million from the same quarter of the prior year.
The net loss was driven by three items first the $45 million noncash charge related to a currency hedge for our recent debt private placement.
Second an increase in our acquisition litigation and other expense to $27 million, primarily due to acquisition activity and the cyber security incident.
Finally, we incurred an 8 million dollar expense, resulting from breaking certain interest rate swap agreements on our unsecured term loan.
It is important to note that all three of these expenses are excluded from core EBITDA <unk> and <unk>.
Our fourth quarter core <unk> was 82 million or <unk> 39 per diluted share.
Our fourth quarter, <unk> was 77 million or <unk> 37 per diluted share.
For the fourth quarter 2020, Global warehouse segment revenue was $408 million, which reflects growth of 6% year over year.
Global warehouse segment NOI was $146 million.
Which reflects growth of 12%.
Global Warehouse segment NOI margin was 35, 7% for the fourth quarter, a 196 basis point increase compared to the same quarter of the prior year.
The NOI growth was primarily due to improvements in our core business.
Retail activity.
Accretive acquisitions and the benefit of the Americold operating system.
Offset by reduced throughput in protein and.
And foodservice sectors.
Our NOI growth and margin expansion was partially offset by COVID-19 related expenses, coupled with the revenue impact of the cyber security incident.
With respect to these incremental Covid expenses total sanitation and PPE costs were approximately $1 million for the fourth quarter, which was consistent with last quarter.
As a reminder, we also incurred higher COVID-19 related soft costs, including labor and efficiencies.
We now underwrite these costs and expect to reduce their impact to our margins over time.
At quarter end, we derived 47% of rent and storage revenue from fixed commitment storage contracts on a combined pro forma basis, which is a 140 basis point decrease from the sequential quarter, primarily driven by our acquisition activity.
Fixed commitment revenue increase on an absolute dollar basis.
$284 million.
As we integrate our recent acquisitions, many of which have a limited percentage of fixed commitment contracts. We believe we have an opportunity to better commercialize the business, which benefits both our customer and Americold. Please.
Please note that acro, which currently has very little revenue from fixed commitment contracts is not included in this pro forma number.
At the end of the year, our global portfolio consisted of 238 facilities, including the 46, we acquired from Accra.
Our total facility count includes 229 facilities in our global warehouse segment portfolio and nine facilities in our third party managed segment.
Now I'll turn to our same store results in our global warehouse segment.
As a reminder of facility accounts at the same store if it meets our definition at the beginning of the year and the same store for 2020 included 135 facilities.
Additionally, in a typical year the fourth quarter is the strongest in terms of activity due to the impact of the fall harvest.
And the holiday shifts.
Shifting consumption pattern from Covid meaningfully impacted our quarterly year over year comparable this.
This is why we focus on our business on an annual basis.
For the fourth quarter of 2020, our same store global warehouse segment revenue.
$302 million, which reflect a decrease of <unk>, 5% year over year net decrease of one 4% on a constant currency basis.
Same store global warehouse NOI was $111 million, which reflects an increase of 4% year over year and an increase of three 3% on a constant currency basis.
Our revenue was impacted by lower services revenue, primarily due to the ongoing impact of reduced protein volumes in foodservice activity.
Same store global warehouse NOI margin increased 157 basis points to 36, 7% as we continued to benefit from the Americold operating system and our commercialization efforts.
For the fourth quarter same store global rent and storage revenue grew by 0.6% year over year and by 0.1% on a constant currency basis.
This was driven by contractual rate escalations, partially offset by a decline in economic occupancy.
Our same store economic occupancy was 82, 7%, which reflects a decrease of 166 basis points from the prior year as we were impacted by reduced protein volume and food services activity.
Our same store global rent and storage NOI decreased by <unk>, 3% year over year and decreased by <unk>, 7% on a constant currency basis.
This was due to business mix as well as increased cost year over year, including Covid related sanitation expenses higher property taxes and increased property insurance expense.
Partially offset by lower power expenses.
Same store global rent and storage NOI margin decreased 58 basis points to 68, 9% due to the same factors.
Same store global warehouse services revenue for the fourth quarter decreased by one 2% year over year and decreased by two 6% on a constant currency basis. However, our same store global warehouse services NOI increased by 25, 9% year over year or 24, 2%.
Constant currency basis.
Same store warehouse services NOI margin was 12, 6% for the quarter, which resulted in a margin increase of 272 basis points.
This growth was primarily due to the disciplined cost control embedded in the Americold operating system, which resulted in a decrease in labor expenses and other services expenses, partially offset by incremental COVID-19 PPE costs and inefficiencies.
Our 2020 acquisition activity has enhanced the diversity of our customer base, while growing our wallet share with 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, excluding acro accounts for approximately 55% of our global warehouse revenue.
Down approximately 500 basis points from 2019 year end.
Additionally, our churn rate was approximately three 4% of total warehouse revenues.
Corporate SG&A totaled $40 million for the fourth quarter of 2020 as compared to $33 million for the comparable prior year quarter.
The increase was driven by higher head count to support our development pipeline.
SG&A absorbed net of synergies through our recent acquisitions and higher share based compensation.
With respect to the cyber security incident that occurred in mid November let me state that Americold prioritizes, all forms of safety and security, including our it infrastructure.
While all of our facilities remained operational.
Incident resulted in us being less efficient at many of our facilities for a few days. Additionally.
Additionally, due to our commitment to our customers, we had to turn away product in certain instances, which resulted in approximately $2 million of lost revenue.
In the fourth quarter, we recorded an expense of $8 million associated with this incident, which falls into our acquisition litigation and other expense line items.
Included in this $8 million is the cost of cyber security experts and legal counsel as well as incremental labor expense.
This expense is excluded from core EBITDA <unk> and <unk> this quarter.
Any future insurance proceeds will be recorded as income and also excluded from these metrics.
So let me update you on our Rochelle expansion.
You'll note that we moved our stabilization back for shell to Q3 2021 in our supplemental.
As we said on last quarters call. We have sold all available physicians the majority of which are under fixed commitments.
Our customers product is moving through the facility.
However, the automation is not performing at optimal levels at the moment.
The engineers, who are castle of implementing our automation are based in Europe and that had challenges traveling to the U S.
Due to continued COVID-19 related travel restrictions.
As a result, we are utilizing more labor in the facility, which is pressuring margin and not enabling us to stabilize the facility at targeted yields in the first quarter.
We expect the automation issues to be addressed over the next six months and for the project to be stabilized in the third quarter. This impact is reflected in our fourth quarter results and embedded in our 2021 guidance.
Onto our full year results.
As previously communicated we believe our business is most appropriately evaluated on an annual basis. We are very proud of these results against the backdrop of Covid, Let me summarize our full year results.
Total revenues were $1 99 billion and total warehouse segment revenue were $1 55 billion from 11, 4% and 12, 5% increase respectively.
Total contribution or NOI was $551 million, an increase of 15, 3%.
Global warehouse segment, NOI was $520 million, an increase of 16, 3%.
For the same store pool Global warehouse segment revenue grew one 9% or two 3% on a constant currency basis and same store segment NOI grew five 3% or five 6% on a constant currency basis.
Core EBITDA was $426 million, an increase of 16% or 16, 3% on a constant currency basis.
Net income was $25 million.
Core funds from operation was $256 million or $1 24 per diluted share.
And <unk> was $268 million or $1 29 per diluted share using a weighted average share count of $207 million.
We grew <unk> per share by 10, 3%.
Finally, we announced $461 million of development starts and completed $2 6 billion of global acquisitions.
Now turning to our balance sheet and capital markets activity.
Our platform to drive strong internal and external growth is supported by a low levered flexible balance sheet.
During the fourth quarter, we completed an equity offering to fund growth initiatives.
With the exercise of the Green shoe, which was comprised of forward shares. We raised total gross proceeds of approximately $1 4 billion.
At the end of December we settled $31 9 million forward shares to partially fund the closing of the agro transaction.
And issued $14 2 million common shares to Oaktree capital and agro management, which are subject to a lockup period through may of this year.
We simultaneously closed and funded our $750 million Euro dollar unsecured debt private placement.
We did not utilize our ATM program during the fourth quarter as of December 31, We had 251 7 million shares outstanding.
At year end total debt outstanding was $3 billion, our real estate debt had a weighted average remaining term of seven six years and carries a weighted average contractual interest rate of 3%.
We had total liquidity of approximately $1 7 billion, consisting of cash on hand revolver availability and $392 million of outstanding equity forwards.
Our net debt to pro forma core EBITDA was approximately four four times.
In January of this year using cash on our balance sheet, we repaid $200 million outstanding on our U S dollar unsecured term loan concur.
Concurrently we closed on an amendment to our unsecured credit facility and increased our line of credit from $800 million per $1 billion.
Pro forma for this pay down an amendment our liquidity remained at $1 7 billion.
Now, let me discuss our outlook for 2021.
As a reminder, our core business remains fairly steady on an annual basis due to the consistency of overall food consumption the scale and diversity of our portfolio and our strong market share.
Let me first comment on certain factors that underpin our 2021 guidance.
First we expect to continue to incur costs related to COVID-19 with respect to sanitation and PPE as well as soft costs, including labor and efficiency from social distancing.
Second as Fred mentioned consumer behavior with respect to Covid and the timing of a potential full global reopening remains unknown.
As of now we do not expect the flow of product during 2021 to return to normal pre COVID-19 quarterly cadence.
Third.
While we will continue to stress the importance of looking at our business on an annual basis, we recognized quarter over quarter comparisons are inevitable. Please keep in mind that quarterly results in 2020 had a unique cadence due to COVID-19.
Finally.
With respect to our 2021 same store pool. Our portfolio now includes a total of 162 sites driven by our acquisition and development sites that now meet our same store criteria.
All of this factored into our guidance for <unk> per share in the range of $1 36 to $1 46.
Our assumptions are as follows.
Global warehouse segment same store revenue growth to range between 2% and 4% on a constant currency basis.
Global warehouse same store NOI growth to be 100 to 200 basis points higher than the associated revenue growth on a constant currency basis.
Managed and transportation segment NOI in a range of $46 million to $54 million.
Total SG&A expense of 190 to 196 million, including noncash share based compensation expense of 21% to $23 million.
Current income tax expense of $9 million to $13 million.
Deferred income tax benefit of 1% to $2 million.
Non real estate, depreciation and amortization expense of $85 million to $92 million.
Total recurring maintenance capital expenditures in the range of $90 million to $100 million.
Development starts of 175 million to $300 million.
And finally, please refer to our supplemental for currency translation rates embedded in this guidance.
Please keep in mind that our guidance does not include the impact of acquisitions dispositions or capital markets activity beyond which has been previously announced additionally.
Additionally, please note that both deferred income tax benefit and non real estate depreciation and amortization expense line items, both non cash items that do not affect <unk> are subject to change over the course of the year as the accounting for the agro acquisition is finalized.
This is part of the reason that we ask you to continue focusing on <unk> per share as the earnings metric in evaluating our annual results now.
Now, let me turn the call back to Fred for some closing remarks.
Thanks Mark.
We're very proud of our team's hard work throughout 2020 to support our customers and our communities as a part of the mission critical part of the global temperature controlled food supply chain.
So 2020 presented significant challenges our team rose to the occasion and our core business remains steady and consistent on an annual basis.
Also during the year, we continued to drive internal growth on our platform and took advantage of several attractive opportunities to drive external growth through targeted development and strategic global acquisitions.
Through it all we have maintained a conservative low levered balance sheet as we executed our growth strategy.
We are pleased to welcome the agro team to the Americold family and we look forward to growing our global business.
Finally, we again want to thank all of our frontline associates and the entire americold team across the globe for their hard work and dedication.
Thanks, again for joining us today, and we will now open the call for your questions operator.
Thank you and at this time, we'll be conducting a question and answer session. So I'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.
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Please while we poll for questions.
And our first question is from Nate Crossett with Sandburg proceed with your question.
Hey, good evening guys.
Okay.
And I'm just curious.
I appreciate all the color you gave in prepared remarks, but how.
How are volumes trending so far year to day like how far are we at normalized levels right now.
And are you expecting volumes to go back to normal once we're fully opened up.
Or are there any structural changes that occurred last year.
Fact volume permanently.
Yes, nothing nothing structural.
That's what's affecting the supply chain day remember.
Now we have 5000 customers.
Every single one of those customers are.
State with their supply chains and their inventory position.
Yes, there are efficiencies within their manufacturing plant. So it's.
It's a little difficult to say when.
When when the full supply chain the food full food supply chain will be <unk>.
Back to normal because again every customer's in a different position so.
But from a volume standpoint.
The business continues to flow through.
We wouldn't judge your guide based on what we're seeing overall over a couple of week period, we just know that over the long run over the full year basis.
Consumer consumption will remain pretty consistent with what it has in past years, but.
The way that that flows through our buildings, that's going to be different just like last year was different on a quarterly cadence basis.
Okay. That's helpful.
Just wanted to ask also about your ability to push rent and service price is if we really start to see inflation pick up and.
Yes, Gary.
Month to month contract.
Give you any benefit here it sounds like Youre going the other way to try and get more fixed contracts.
Maybe you can just help us think.
<unk> per your guidance.
I think a couple of ways to think about that.
Whether whether it's a customer that's under a firm commitment contract of which fix might be a component or a month to month.
Remember that if.
If anything happens that government regulations or government mandated like we're seeing some some states might might do some things they've been pushing rate per hour for example at grocery chain from California and that type of thing.
If we get anything Thats government mandated we're able to pass that through to our customers even in the middle of a contract. So ex commitment 2000 doesn't restrict us from being able to pass that on.
As for just kind of general rates and other costs.
I think we've said the last couple of quarters that we do expect a lot of these COVID-19 costs related with PPE and sanitation and some of the inefficiency in our operation due to staggered breaks in that type of thing.
We remain in our business and so it has become a part of our cost base and remember we use an activity based costing system when determining in pricing new business. So we will we will certainly incorporate that into into the pricing of our business for new business as well as in our thought processes for <unk>.
General rate increases to the mass public.
Okay. So I guess just one follow on on that would be what's kind of the long term margin guidance.
Your business, how much higher could lead flow.
Over the next few years.
Yeah, I think the best way to think about that as you think about our same store guidance. Both the results from last year as well as the full guidance for this year.
See our NOI, we are expecting to outpace revenue growth and you've seen that convert to expanded margins in that segment.
I would just remind everyone to our goal here is to maximize the cash flow our four walls generate and so as you see year over year very strong cash flow growth against the difficult backdrop of Covid.
So Nate implied in that is what I would take away from that is our core business, if our customer mix and everything remained the same.
Right, we would expect to see margin growth in that 100 to 200 basis points.
Based upon the same on same store basis. However, remember that the other variable that comes into play is the mix customer mix. So for example.
Paul I might bring on large retailer as a part of our business and they typically run with lower margin so our margin percent.
It may not it may not rise, but again to Mark's point, the cash flow will increase and our core business under the same store guidance will continue to improve so hopefully that helps you with a couple of different variables.
Passive.
That's helpful. Thanks, guys.
And our next question is from <unk>.
Emmanuel Korchman with Citi. Please proceed with your question.
Hey, guys.
Just thinking to the cyber security incident, and especially the revenue impact you pointed out there could there be broader customer repercussions that.
Just hasnt surfaced yet.
Or then.
Breaking contracts or anything like that since you sort of had to send their products elsewhere.
Yes, many thanks for the question no actually.
Really.
But given accolades.
From our customers on our ability to be able to respond.
And get back get back to business. If you will as a matter of fact, a couple of our customers actually.
Cyber and cyber incidents within a matter of weeks right. After we did and we actually provided them with some some assistance in consultation and how we got through it so.
Our customers were very very pleased with the way that we responded.
Yes to the business so.
It's no different than a weather storm like like we're incurring right now if a facility goes down and cost per customer products and route.
Sometimes that has to get diverted.
Two maybe one of our facilities may be competitors consolidated to keep that supply chain flow going.
But if it reverts write back the moment Youre able to garner business. So it's a it's a momentary blip.
And that business comes it comes right back.
We haven't had any.
Any threats of business, leaving because of the cyber attack, it's been quite opposite.
Good day here and then in terms of the reduced protein volumes.
Is that a reduction in consumer demand based on sort of the way people are aware or the way people are eating or is that more on the supply constraints with the processing plants or is it a combination of both.
Yes, it's really a supply issue if you if you think about it.
We usually carry a lot of a lot of inventory about 30 days' worth of inventory for each one of those different different proteins.
Ross the states.
When when Covid hit and the manufacturers were hit with their plant shutdowns and inefficiencies in that type of thing.
Theyre outflow slow so what happened is.
Consumers because they're they're they're demand remained steady.
Basically took down all of that inventory carrying.
Carrying 30 days of inventory that might only be down to SaaS.
Southern.
Fundamental issue that we're having is the.
The manufacturers are almost in a hand to mouth.
In some cases.
Producing and that is growing right through our warehouses onto our in customers hence.
Why you don't see the big inventory build that's happening so as the manufacturers.
<unk> to improve their efficiency through higher safety or.
Covid going away ultimately.
Yes, those volumes will come back and they'll rebuild those those inventories.
Last one from me.
B Charlie from this but is there anything coming out of the agro acquisition in Europe, specifically, that's making you.
Shift to rethink the way Youre doing business here or vice versa, and that you are really anxious to push into into process. There.
I mean look we're obviously learning learning about all of their unique business.
Buy side, it's kind of hard when youre not standing from a visual person. So we're not standing on their floor and looking at their operations that makes it a little bit more difficult, but yes, no. They do they do some different things they do some some packaging.
And heavier import export volume, we believe that that is that is.
Great business and Thats something that we can leverage and do more up here state side. For example, and then vice versa. We have all of the big Who's who in food.
Food manufacturing in grocery retail, we think that now that we have the platform in Europe.
That's going to open up other opportunities business opportunities either to fill space and existing notes or built new greenfield opportunities. So.
Very early.
But I will say that we are having conversations with customers our customers are definitely.
About potential opportunities down the road.
Tack onto that to US is also back to our blocking and tackling.
As we get to know each other and learned about their business. We continue to believe that there will be benefit from the americold operating system and our commercialization practices as we roll that out across their enterprises.
Okay. Thanks, everyone.
Thanks, Mike.
And our next question is from Michael Carroll with RBC capital markets. Please proceed with your question.
Yes. Thanks, Frank can you provide some color on the investment investment opportunities that Youre seeing right now I guess, specifically on the development side. It looks like the top end of your development start guidance is higher than the traditional run rate are you seeing sizable near term start opportunities that's pushing that number higher.
Yes. Thanks, Thanks, Mike well as you know last year was a record setting year for us in terms of development.
I think our guidance last year was $75 to 200, and we ended up at about $461 million.
So obviously, we've got some nice momentum.
With some great projects in the <unk>.
Pipeline continues to be very very healthy.
So conversations are happening we have nothing to announce at this at this time, but.
We're very excited about the pipeline that we have in front of us.
Okay, and then can you kind of talk about your views on the uptick in speculative development, we're seeing in the temperature controlled space I mean, I think in your prepared remarks, you kind of highlighted the barriers to entry. So I'm, assuming you don't think it's going to impact your operating environment, but it seems like the activity is kind of really picking up there I mean does that make you think about your developments differently.
Or is that going to impact your operating results sometime in the future.
No not at all look Theres a couple of developers that are out there very very small percentage of the overall development that's going on.
None of them none of them have leased up facilities. So they are true true spec.
It's going to take an operator like ourselves or one of our competitors to go lease that building.
Or a food processor, but these these developers are going to be able to do the businesses themselves, that's where that barrier of entry is so they can build the building but.
Who is going to operate it right and so that's that's the missing connection there I haven't seen one successful yet.
But again Theres a couple of guys out there in a couple of different markets.
We really think that it is it's a very immaterial.
Component yes.
Mike just add onto that I would just remind you too when you look across our development is very targeted.
Large customer build to suits, so a high credit quality customers, who were building dedicated assets for them also.
Free defined purpose or we're leveraging our cross major markets, where we already have a footprint and may or may not have a large anchor tenant take them a whole building, but we have a number of large tenants that as they grow they need more space. So were just expanding our existing footprint in that market are our gross very targeted and disciplined.
Okay, Great and then I guess last one Mark can you talk a little bit of bounce. The Rochelle run rate I guess, what NOI did they generate net asset during the fourth quarter and what's the ramp up into the stabilization I mean, how big of an impact is this that you can't get the automation up and running at least fully.
Automation is up and running I just wanted to wanted to state that all of the automation is up and running this is just a matter of anytime you introduce automation with software that's in between layers talking to different types of equipment that needs to be fine tuned it's literally like in workers' strike all has to work together and.
Yes, because of Covid and because all of this automation is European based it's.
It's been difficult during the Covid time to get resources over here.
They are working virtually and we have had them on the ground in some occasions, we haven't been able to keep from here long enough to really optimize it. So what we're what we have is we have extra labor.
That is in that building to ensure that our customers volume is flowing through the facility. So again the good news areas.
We sold.
It's all operating it's just not operating as efficient as we would like and all of that is taken into consideration in our results in the fourth quarter as well as our forward look at 2021.
Yes.
So what's the NOI impact in like to say first quarter of 'twenty, one I mean versus tables as well the $1 million lower than expected or how big of a maintenance you did that.
Look Mike the way I would say is we feel very confident in Q3 that we're going beyond the full run rate we are ramping towards that as Fred said were.
<unk> additional labor right now to support the business and as we fine tune that automation, we'll see those yields approach what we've what we've disclosed so full full.
Full approach, we're obviously getting the return there because the.
The building is the customers are in the building is performance that we were just running excess labor at this time.
Okay, great. Thank you.
And our next question is from Dave Rodgers with Baird. Please proceed with your question.
Hey, Brad Hey, Mark good evening.
Wanted to go back to your comments about inevitability Mark in the quarterly comparison, you have a tough comp.
Tom.
Again for 2019, and I think you've kind of explained it is foodservice protein cyber impact in economic occupancy.
I guess when you can.
Given some good details, but I guess protein doesn't sound like it will correct foodservice volume correct in cyber will that kind of leaves us economic occupancy as we think about the first quarter performance against a really really tough comp can you give a little more color on getting to those numbers for the year, how you start the year and whether the cloverleaf impact is substantial.
To kind of offset any negative potential comp as you start the year.
Dave just one point and then I'll, let I'll, let mark dig into it but look the backdrop is really this.
Unstable customer supply chain, that's what's driving driving all of it so it's very difficult to predict exactly when those those stock holdings will increase.
Yes.
Really at the Mercy of Covid and the impact of the tapping on all of our 5000 customers, but mark I don't know.
Yeah, No look I would just.
Point out David you can look at this but the USDA reported.
<unk> a certain protein expressed pork in particular was down 30% from prior year poultry was down pending anywhere from 10% to 12% depending on the category. So clearly the production side as Fred mentioned and we mentioned in our prepared remarks has been disrupted as a result of COVID-19.
I would remind people I think.
You will recall during the first quarter call, we remind people that we thought we had approximately 6 million NOI lift as it related to the COVID-19 activity in the first quarter, that's going to be a tough comp, but I remind you our guidance full year guidance.
We had a very difficult year and this year Covid and we delivered very strong.
Same store results growing NOI at five 6% constant currency basis, and we think the business is strong. It's further diversified through our recent acquisitions and we're well positioned to execute as we move into this year.
Okay. Thank you for the color.
Maybe shift Fred to you on the acquisition pipeline I mean, you Havent completed anything big in about six weeks or so so curious.
Ruling about the upcoming year and the ability to source new deals. When you. When you first came public you talked about a lot of small tuck ins you've done some bigger deals where are we at now in the lifecycle.
Yes, Dave Thanks for the six week hiatus.
Yeah. No look there is there is it's a it's an extremely.
The fragmented industry, obviously, the the middle has been hollowed out.
A lot by the two big players.
But there are tremendous tuck in opportunities, but again I would just just to remind everybody that our acquisition.
<unk> strategy is.
Right.
We're very very focused on doing tuck ins.
Our a true strategic fit that can be fully integrated.
Into Americold and so we're looking for certain qualities in and around the.
The customer and the quality of the asset.
New customer current customer.
And the culture within within those operations so.
We're looking for specific things.
If it makes sense, we will we will strike on it we are active so there.
Theres nothing slowing down on the acquisition front.
But it is opportunistic and lumpy, which is why we don't give direct guidance.
Yes.
I guess, how would you characterize that pipeline.
Comparing against that or it would be difficult, but I mean, how would you care.
Or is that versus a year ago.
I'd say that we're looking at a a.
A good number of companies across multiple continents.
So I can't really give an.
The exact number or an exact dollar value but.
It's a healthy pipeline.
We are continuing to be excited about.
Sure that's fair and last one for me.
Maybe a follow up an early question on the employee side of the equation you talked about the cost side of it are you having difficulty sourcing employees. I mean do you have a number of open positions or anything that would kind of give you. Some pause in terms of mobility that continue to drive the business going into 'twenty one.
Yes.
We feel real good right now.
I will say that we had some lumpiness.
Throughout 2020.
And I think we've spoken about this a couple of times.
Obviously, when retail spiked through the roof at the end of the first quarter, we had to scramble to give a lot of associates to help with that work content and the good news is we were able to attract a lot of people because unfortunately, a lot of people are getting laid off of other jobs.
And then when the stimulus checks came out.
The lift in unemployment kicked in.
We kind of struggled a bit.
Quite honestly before being paid more to stay at home.
Do a warehouse job so that made it a little bit more difficult.
<unk> ended.
It started to pick back up again, and we are we are well positioned and well staffed.
Good to hear thanks Bill.
And our next question is from Joshua deadline with Bank of America.
With your question.
Yes.
Guys I hope, you're all doing well.
Hey, Josh.
I know with you.
You have the two Brazil JV is one came from Argo and I believe on that one there was an option.
Net down the rest of the JV at year end.
January one of this year.
Yes.
What's the latest on that.
Just kind of run the JV separately or making like many combining them or is there anything to do there at this point.
Yes.
I would say is that we're continuing to evaluate our options. There we have options on both of them.
Great Great strategic partners down there. So we're excited about the addition of our.
Of our venture with free up.
We'll continue to SaaS.
Obviously, we want to optimize everything that we can but we're working with our various partners to determine what that looks like into the future.
Okay.
Exciting to say.
And then any kind of a follow up on an earlier question.
Yeah.
Entered Europe, Canada, Brazil last year.
We will see you guys focus on expanding in those regions first or potentially maybe throw in another country or region into the mix.
Yes.
Yeah look there's a lot of countries within Europe that were.
So obviously that avails itself to two opportunities now that we have a foothold in.
In the continent itself.
So there is a lot of countries there that.
There will be opportunities and there's a lot of expansion.
In development opportunities that will come out of this like I mentioned earlier, we're having great conversations with our customers. There's a lot of common customers.
That we have that do business, both here with us in a major way and also in Europe and.
<unk> had discussions with us in the past about building in Europe, but we haven't been able to do that because we didn't have that presence. So that will certainly open up opportunities.
As for entering another taught them or something.
Okay.
Majorly outside of the scope of where we are look we continue to SaaS.
It's really important.
As you look at some of these other areas that we're not in to understand the supply chain infrastructure as it pertains to the temperature control aspects.
Unfortunately, a lot of those countries are not quite there yet.
Which is why we haven't entered into them in a material way. So but look we're very very active have lots of conversations with lots of folks around the world and when the timing is right.
Well, we'll enter more new markets, but there is certainly plentiful opportunities within the markets. We're in I'll remind you that in Europe.
AG grow.
Well actually the top 10.
Temperature control providers in Europe, only represent 20% of the marketplace. So that's 80% of the market is available through.
Once he choosing types of operators and great great tuck in types of opportunities. So we think there's tremendous opportunities in every country that we operate today plus some additional.
Tangential countries.
Great I appreciate that.
Thanks, Josh.
And our next question is from Keybanc Kim with Truest. Please proceed with your question.
Hi, everyone.
Can you talk about some of the.
Different factors that impacted your fourth quarter results such as.
Protein volumes in cyber attack.
But.
You guys before you guys used to talk about.
Maybe the changing nature of consumption patterns, just from a consumer endpoint.
How does that all play out in the fourth quarter and the holiday season and did that make the.
Any kind of impact on your same store revenue overall.
No look.
At the end of the day everything that had to do with each quarter last year was COVID-19 impacted.
We can we can point to.
Yes.
Kind of kind of discrete transactional types of situations that are clear, we mentioned protein all the time because proteins in the news and people understand why why protein.
<unk> hit from a manufacturing standpoint, so we use that as an example, but all business has been impacted in terms of the.
The fluctuations in their individual customer supply chains.
So.
Consumer behavior.
Hasn't really changed a whole lot between third quarter and fourth quarter, meaning the mix between.
Kind of foodservice.
In retail.
And we really haven't seen a noticeable change change this year, yet either and Thats why.
Look it's hard to predict I wish I had a crystal ball to tell.
When consumer behavior is going to get back to normal if it ever gets back to normal.
It's just really hard to predict and as such it's very difficult to compare quarter over quarter.
Certainly on a year on year basis on even in sequential quarters.
But again.
Over a course of four quarters of course of the full year.
We do expect consumption overall, because remember we're kind of agnostic to other it's foodservice or retail.
Will remain consistent.
Got it.
Okay.
What is actually in the other service cost bucket, because that was down 13% year over year into fourth quarter and I'm just curious if that's and also stable.
Yes, so other service costs. It would include like our material handling equipment.
Maintenance don't include consumables used in the operations, so it could be pallets or a shrink wrap.
Those are the principal cost that drive the bucket.
Obviously, youre PPE and those types of things would also be excluded in there from us.
Perfect.
Yes.
And then going back to your guidance just because you do have a very tough comp coming up in the first quarter and we're basically halfway through it just so net net.
The street isn't too far off from reality any kind of additional details you can share just to help us until you think about what can happen.
Yeah, I'll just reiterate what we said on Q1 of last year, which is we felt like just the timing of the surge and the impact of Covid really was much more pronounced in terms of flipping the switch and activity and we called out last year approximately $6 million of NOI has been the contribution of that all hit in the quarter.
No.
As we mentioned here we.
Continuing to say our business is best looked at the full year basis, but as you look at Q1, we don't believe that type of surge of activity is going to recur.
Yes, it absolutely won't recur and the key to remember, though is that's not 6 million that gets pulled all pulled out of the full year net $6 million as we described it last year was a pull and so we felt the negative impact of that in Q2 of last year. So.
Again on the full annual basis, the volume flow to just follow it flow different because everybody hoarded at the end of that first quarter. So that's why again every quarter I think as we go through this year, it's going to be difficult to compare to a light quarter from the year before but on a full year basis.
We're very very comfortable with our guidance.
And just last question from me in your guidance between 'twenty, One your managed and transport NOI guidance is $50 million.
And in 2020, I think if this is apples to apples I think it was $31 million.
I guess first of all is my math correct in a second.
What's causing the uplift.
Yes, so that principally came through additional activity that came through both.
As example, the halls and Acro acquisition, they had a much larger from a transportation component.
Our legacy business, so a lot of that driven by the <unk> acquisition.
And then Kevin just to follow up.
So I just want to make sure.
First quarter of last year.
We said about 50%.
About half of that that outsized growth came from Covid related so we just put it on a per se.
Average basis of about half.
Okay. Thank you guys.
Yes, Thanks Stephen.
Yes.
And our next question is from Mike Mueller with Jpmorgan. Please proceed with your question.
Yes, Hi, just one quick one here and I know youre not going to give out specifics, but directionally. What is what does guidance factor in terms of economic occupancy levels and throughput considering both were down quite a bit in 2020, I mean does it assume more of a status quo scenario or some recovery just any color would be held.
Yes.
If you look across just just to be clear on a full year basis last year economic occupancy was up a little over 100 basis points. So you know that.
Not inconsistent with our view.
As you look on throughput clearly throughput was down mix does matter in our business.
So throughput I think in total was down two 7%, obviously very much driven as Fred mentioned by June.
Fluctuations in the supply chain due to COVID-19.
As we go forward this year and I just wanted to remind people how we manage how we drive our business is to really focus on how we maximize four wall cash flow.
Can get it through a number of ways.
Two customers are like I think we've talked about that lots of our customers a very different profile. So.
Overall as Fred said, we think this will be another unique year due to COVID-19 and just the impact of timing of when things start to reopen and hopefully return to it.
More normal levels, but we hardly think.
'twenty, one we'll look like any.
Legacy normalized year, it's going to be unique to its own unique from 2020.
Got it okay. Thank you.
Thanks.
And our next question is from Bill Crow with Raymond James. Please proceed with your question.
Hey, good evening guys.
We're going to we're going to do this call again.
What 70 days or something like that.
Are we going to be talking about the winter weather and the impact it had on your results.
When you think about the impact of the winter weather, usually what happens is two things the product that's in our warehouse things longer which sometimes can be an incremental storage expense.
And the other impact can be.
More activity I will tell you.
The way these usually happen is these arent.
No big surprises, so people see storms coming and people tend to work through their supply chain in anticipation of those events. So we will try to get more food into the stores faster or product moved and reposition. So we tend to see that I will say our facilities.
Continue to be operational will be up and running you may have a day or so.
But nothing we don't expect anything material.
I'll find it to be really material I mean, you think about last year alone I mean number one we did have winter storms.
During the course of the year, we do we do every year.
And as we went into the summer we had the highest hurricane.
Number.
Not huge impacts, but again disruptions in the supply chain.
And then just kind of moves through the supply chain to adapt and adjust like like Mark said, we don't expect so it would be more impactful if it spanned over a quarter end yes.
Right now it's not been that's right.
Okay.
And then the other question is.
Are you just kind of underwriting.
Underwriting.
Vaccine distribution.
A more fluid.
Economic environment in the second half of the year.
How are you thinking about that.
We are not we are.
We are considering it to be pretty similar to last year over the course of the year.
Again.
First of all remember, there's going to be nothing miraculous there won't be a light switch event like there was at the end of the first quarter of last year right.
So if all of a sudden all of US were vaccinated tomorrow.
Yes.
I don't think everybody is going to go rush back to those restaurants, and foodservice and second of all of a sudden snapback overnight right, that's going to be kind of a drawn out elong.
Elongated type of process and we think that's going to we think it's going to take longer.
If all of a sudden all of our manufacturers like the large harvest protein guys miraculously, we're able to get back up to a 100% efficiency tomorrow, yes that would have an impact.
All of a sudden the volume will start flowing and they start filling up those facilities. Again, then we'd have more storage, but again I think that's going to be drawn out over the course of the year Bill.
Okay.
Thanks for your time.
Sure.
And our next question is from Vince <unk> with Green Street Advisors.
With your question.
Hi, good evening.
Hi, Ben its foodservice.
Foodservice ramps back up do you see this as an opportunity to potentially gain share of wallet with customers as they potentially rethink their supply chain moving forward.
Most most of our customers I mean, the answer is yes and no.
Yes, there could be some new opportunities with new up and comers are startups in manufacturing.
Mostly on the smaller scale type of basis, but most of our large customers actually manufactured goods for both foodservice and retail.
So it's usually them just switching over their lines and starting to repackage and reformulate for foodservice again. So we don't we don't expect any dramatic swing, which is why we werent really impacted that much on a full year basis last year with that massive switch.
<unk> foodservice and retail so again, our theory is consumption happens.
And where we may change, but it.
People are going to eat so on a full year basis. It all works itself out.
Got it that's helpful. Thank you and then just on the timing as we think about a potential rebound in restaurant traffic, what's the kind of lag in lead time, and the wholesome food supply chain.
We think restaurant volumes are going to be stronger in the fourth quarter. When does that start flowing through your revenue in the whole food supply chain, what's the lag time there.
Yes. It is it is the lead up to other I mean in general the rule of thumb is most most of our customers carry about 30 days in the inventory and therefore physicians from then on.
On the other 30 days of inventory closer to their point of manufacturing.
So.
Start building up as they see that steady flow. So right now we're still holding inventory from foodservice right and still kind of a tripling that out to food distribution companies like Cisco.
U S foods.
Again, like I said with Phil we're not expecting there is not going to be a switch where all of a sudden foodservice comes roaring back.
It's going to take a while for foodservice decline itself back and that gives the supply chain the opportunity to get out in front of us.
Sure.
Got it thank you.
And we have reached the end of the question and answer session and I will now turn the call over to Frank <unk> for closing remarks.
Great. Thanks, and thanks to everyone for participating Tonight.
Yeah, again, I'm very pleased with our business performance in 2020, especially given the backdrop of the pandemic our business proved its ability to deliver even under the toughest conditions I am proud of all of our Americold associates for their hard work and dedication to deliver 2020 and set us up from what we believe will be another.
Strong year in 2021, so thanks again, everyone. Please have a good and safe evening.
This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.