Americold Realty Trust (COLD) is an industrial REIT working in the niche area of cold storage real estate. The REIT has shown strong growth in its stock price after making its public debut in 2018. Despite its recent stock market listing, the company has strong presence in its segment, and we expect it to retain a leadership position. Apart from its strong financial performance, the REIT can also be used for diversifying one’s portfolio as it is mainly invested in a highly specialized segment.

The Portfolio

Americold Realty Trust has over 100 years of experience, providing solutions for the temperature-controlled supply chain industry. With its long history, the company is amongst the top players in its specialized segment. It also has the distinction of being the only publicly-traded REIT invested in temperature controlled warehouse segment. The REIT mainly offers its services to producers, retailers and food service providers. Americold Realty Trust has a geographically diversified portfolio of cold storage facilities spread across the country, making it possible for it to capture major businesses in different areas. The network also allows Americold Realty Trust to gain efficiencies and expediency. The REIT also has interests in cold storage facilities overseas such as in New Zealand, Argentina and Australia.

Americold, while operating in a highly specialized segment, also goes beyond providing just storage solutions. The company is also invested in other activities such as transportation and technology solutions. However, these segments are highly interconnected, letting the company gain synergies and achieve economies of scale. It currently has 178 locations spread around the globe and is able to provide localized services to its clients. Its robust client base includes big names such as Kraft Heinz (NASDAQ:KHC), Conagra (NYSE:CAG), Safeway and Trader Joe’s.

Source: Company Website

Apart from having high-quality tenants and collaborators, Americold also has impressive occupancy rates. The REIT has optimal physical occupancy rate for its temperature controlled warehouse portfolio at 85 percent. Its rent and storage revenue has shown impressive 3.7 percent growth rate while its CAGR for the period between 2015 and June 2019 stood at 4.4 percent. The REIT’s warehouse NOI showed a CAGR of 7.7 percent during the same time period. The strength and versatility of Americold Realty Trust’s portfolio is expected to help provide a positive push to the REIT’s stock price in the market.

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Source: Company Website

While its current portfolio is robust, the REIT has an equally impressive development pipeline as well. It currently has several projects in the development phase, which are expected to add over 42 million cubic feet space to its current stash of properties. The REIT will likely start reaping returns from these investments as development work nears completion in the fourth quarter of the year. The REIT also has a couple of other projects in work overseas including the ones in Australia.

Financial Performance

Americold recently reported its second-quarter results which reinforced the efficacy of its corporate strategy. The REIT announced strong NOI and revenue growth during the quarter, indicating robust operational strengths. The revenue for the quarter grew 11.1 percent on a quarter-over-quarter basis to $438.5 million while its net income stood at $4.9 million.

However, as funds from operations are generally considered to be better metrics for measuring the performance of a REIT, it is important to note that Americold saw its Core Funds from Operations jumping from $43.1 million in the previous year quarter to $56.1 million for the current year quarter. Its Adjusted FFO also showed equally impressive growth as it increased from $39.8 million to $58.1 million. The growth in FFO was mainly driven by the company’s acquisition activities.

The second-quarter results also highlighted the REIT’s strong balance sheet and liquidity position. Americold Realty Trust does not have any material debt maturities until 2022, ensuring that the company will have sufficient liquidity to undertake developmental activities. The REIT also features attractive net debt to pro forma Core EBITDA ratio of 4.1x. Further, it has weighted average term of 6.9 years for its real estate debt. Overall, the REIT has solid balance sheet, which can help it in raising funds at more reasonable terms and conditions.

Investment Thesis

Americold has a number of things going on for it. In addition to having prime position in a highly specialized market segment, the REIT also has a robust portfolio, strong project pipeline and impressive financial condition. It also passes the highly relevant test for a REIT, which is the dividend payment. Its latest dividend payment stood at $0.20 per share, adding to its track record of consistent payments. While its high payout ratio of 127 percent may be a cause for some concern, the growth prospects of the firm make this look reasonable.

The stock has gained over 45 percent in the past 12 months. The steep rise in the price is impressive, but also had some repercussions. First off, it has lowered the dividend yield for the firm drastically. The current dividend yield for the REIT stands at 2.16 percent, which is a little on the lower side. Further, the stock also seems a little overvalued at the moment as it is trading close to its 52-week highs.

Another major point is regarding the institutional holding in this REIT. Over 60 percent of its stocks are held by institutional investors, which is generally considered a positive endorsement for any firm. High institutional investment shows the robustness of the REIT and its future potential. It should be noted that there may be some negative impact on the stock price if these institutional investors choose to liquidate their positions in order to book profits. That could also be taken as an opportunity to stock up a position at a more reasonable price point.

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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2019-10-05