AMERICOLD REALTY TRUST Q3 FY2024 earnings call

Management Statement and Operational Highlights:

• Financial Achievements: AFFO up 11% year-over-year, same-store NOI up 11% year-over-year.
• Project Orion: Continues to enable efficiencies in North America and Asia Pac, with AI opportunities identified, expected to support profitable growth.
• Customer Service: Strong, with the Russellville, Arkansas site awarded site of the year by a large customer.
• ESG: GRESB score increased to 81 out of 100, first in the predefined peer group for standing investments.
• Development: Exceeded development start guidance with $305 million in projects, including a $148 million automated expansion in Dallas-Fort Worth, completion of a Dubai expansion, and a development pipeline exceeding $1 billion.
• Workforce: Perm to temp hours ratio at 75:25, associate turnover at 32%, down from pre-Covid levels.

Segment Performance: Americold generated AFFO of approximately $100 million or $0.35 per share in the third quarter of 2024, an increase of over 11% from Q3 of the previous year. Same-store NOI was approximately $201 million, up 11% from prior year. Warehouse services margins were 14% in Q3, up almost 11 percentage points from prior year. Rent and storage revenue per economic occupied pallet on a constant currency basis increased by almost 4%, while same-store constant currency services revenue per throughput pallet increased by 11%. Revenue contribution from fixed commitment storage contracts came in at approximately 58% in the third quarter.

Guidance:

• Maintains AFFO per share guidance range of $1.44 to $1.50, representing an approximately 16% increase from 2023.
• Same-store constant currency revenue growth expected in the range of 1.5% to 3.5%.
• Economic occupancy decline expected in the range of 425 to 525 basis points compared to 2023, with throughput volume expected to decrease in the range of 2.5% to 4.5%.
• Constant currency rent and storage revenue growth expected in the range of 4.5% to 5%, and constant currency services revenue per throughput pallet growth expected in the range of 9% to 10%.
• Same-store constant currency NOI growth forecasted in the range of 10% to 12%, with services margins expected to be over 12% for the full year 2024.
• Non-same-store pool expected to generate NOI in the range of negative $2 million to negative $5 million.
• Development starts guidance increased to $300 million to $350 million.

Risks:

• Weak consumer demand leading to pressured volumes, with a longer recovery expected.
• Potential challenges in achieving occupancy targets due to consumer demand dynamics.
• Valuation concerns for acquisitions, with focus on accretive day-one deals.

Q: Nick Thillman from Baird asked about occupancy erosion and fixed commitment contracts.

A: George Chappelle stated that occupancy decline is broad-based due to consumer demand, and fixed commitment contracts grew for the 14th consecutive quarter.

Q: Mike Mueller from JPMorgan asked about service margins sustainability.

A: George Chappelle said 12% is the new base for going forward.

Q: Samir Khanal from Evercore ISI asked about occupancy trough and green shoots.

A: George Chappelle mentioned partnerships and organic sales pipeline as green shoots, expecting recovery in the second half of next year.

Q: Vince Tibone from Green Street asked about inventory turns.

A: George Chappelle said the Agro acquisition caused lower turns, and the core business would return to ~11% turns.

Q: Josh Dennerlein from Bank of America asked about tech implementation.

A: George Chappelle said partnering with tech companies is the right strategy, with the ERP rollout delivering results.

Q: Ki Bin Kim from Truist Securities asked about pricing outlook.

A: Robert Chambers said next year pricing would be in the low to mid-single digits, with productivity offsetting cost increases.

Q: Michael Carroll from RBC asked about the Dallas development.

A: George Chappelle and Robert Chambers said it's a consolidation play, market-driven with customer demand.

Q: Todd Thomas from KeyBanc Capital Markets asked about service margin trend with volume recovery.

A: George Chappelle said volume recovery would boost margins, with a 15% target within reach.

Q: Blaine Heck from Wells Fargo asked about inflection drivers and transactions.

A: George Chappelle said inflation and interest rates needed to moderate, and the company is disciplined on M&A valuation, bullish on development.