AMERICOLD REALTY TRUST, INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q. In addition, the following discussion contains forward-looking statements, such as statements regarding our expectation for future performance, liquidity and capital resources, that involve risks, uncertainties and assumptions that could cause actual results to differ materially from our expectations. Our actual results may differ materially from those contained in or implied by any forward-looking statements. Factors that could cause such differences include those identified below and those described under Part II, Item 1A of the Quarterly Report on Form 10-Q for the quarter endedMarch 31, 2020 and Part I, Item 1A of our Annual Report on Form 10-K for the year endedDecember 31, 2019 . MANAGEMENT'S OVERVIEW We are the world's largest publicly traded REIT focused on the ownership, operation, acquisition and development of temperature-controlled warehouses. We are organized as a self-administered and self-managed REIT with proven operating, development and acquisition expertise. As ofJune 30, 2020 , we operated a global network of 183 temperature-controlled warehouses encompassing over one billion cubic feet, with 161 warehouses inthe United States , six warehouses inAustralia , seven warehouses inNew Zealand , two warehouses inArgentina and seven warehouses inCanada . We view and manage our business through three primary business segments, warehouse, third-party managed and transportation. In addition, we hold a minority interest in the Brazil JV, which owns or operates 20 temperature-controlled warehouses inBrazil . We also owned and operated a limestone quarry through a separate business segment, which was sold onJuly 1, 2020 . Components of Our Results ofOperations Warehouse . Our primary source of revenues consists of rent, storage, and warehouse services fees. Our rent, storage, and warehouse services revenues are the key drivers of our financial performance. Rent and storage revenues consist of recurring, periodic charges related to the storage of frozen, perishable or other products in our warehouses by our customers. We also provide these customers with a wide array of handling and other warehouse services, such as (1) receipt, handling and placement of products into our warehouses for storage and preservation, (2) retrieval of products from storage upon customer request, (3) blast freezing, which involves the rapid freezing of non-frozen products, including individual quick freezing for agricultural produce and seafood, (4) case-picking, which involves selecting product cases to build customized pallets, (5) kitting and repackaging, which involves assembling custom product packages for delivery to retailers and consumers, and labeling services, (6) order assembly and load consolidation, (7) exporting and importing support services, (8) container handling, (9) cross-docking, which involves transferring inbound products to outbound trucks utilizing our warehouse docks without storing them in our warehouses, and (10) government-approved temperature-controlled storage and inspection services. We refer to these handling and other warehouse services as our value-added services. Cost of operations for our warehouse segment consist of power, other facilities costs, labor, and other service costs. Labor, the largest component of the cost of operations from our warehouse segment, consists primarily of employee wages, benefits, and workers' compensation. Trends in our labor expense are influenced by changes in headcount and compensation levels, changes in customer requirements, workforce productivity, variability in costs associated with medical insurance and the impact of workplace safety programs, inclusive of the number and severity of workers' compensation claims. Labor expense is also impacted as a result of discretionary bonuses. In response to the COVID-19 pandemic, we have incorporated certain inefficiencies such as staggered break schedules, social distancing, and other changes to process, all of which we expect to continue to incur going 60 -------------------------------------------------------------------------------- Table of Contents forward. Our second largest cost of operations from our warehouse segment is power utilized in the operation of our temperature-controlled warehouses. As a result, trends in the price for power in the regions where we operate may have a significant effect on our financial results. We may from time to time hedge our exposure to changes in power prices through fixed rate agreements or, to the extent possible and appropriate, through rate escalations or power surcharge provisions within our customer contracts. Additionally, business mix impacts power expense depending on the type of freezing capabilities required. Other facilities costs include utilities other than power, property insurance, property taxes, sanitation (which include incremental supplies as a result of COVID-19), repairs and maintenance on real estate, rent under real property operating leases, where applicable, security, and other related facilities costs. Other services costs include equipment costs, warehouse consumables (e.g., shrink-wrap and uniforms), warehouse administration and other related services costs. Third-Party Managed. We receive a reimbursement of substantially all expenses for warehouses that we manage on behalf of third-party owners, with all reimbursements recognized as revenues under the relevant accounting guidance. We also earn management fees, incentive fees upon achieving negotiated performance and cost-savings results, or an applicable mark-up on costs. Cost of operations for our third-party managed segment is reimbursed on a pass-through basis (typically within two weeks). Transportation. We charge transportation fees, including fuel surcharges, to our customers for whom we arrange the transportation of their products. Cost of operations for our transportation segment consists primarily of third-party carrier charges, which are impacted by factors affecting those carriers. Additionally, in connection with the Cloverleaf Acquisition we acquired trucks and employees that support certain customers within the Cloverleaf network. Other. In addition to our primary business segments, we owned and operated a limestone quarry inCarthage, Missouri . Revenues were generated from the sale of limestone mined at our quarry. Cost of operations for our quarry consisted primarily of labor, equipment, fuel and explosives. We have referred to this segment as Quarry within our Management's Discussion and Analysis. The sale of our quarry business segment was subsequently completed onJuly 1, 2020 . Other Consolidated Operating Expenses. We also incur depreciation, depletion and amortization expenses, corporate-level selling, general and administrative expenses and corporate-level acquisition, litigation and other expenses. Our depreciation, depletion and amortization charges result primarily from the capital-intensive nature of our business. The principal components of depreciation relate to our warehouses, including buildings and improvements, refrigeration equipment, racking, leasehold improvements, material handling equipment, furniture and fixtures, and our computer hardware and software. Depletion relates to the reduction of mineral resources resulting from the operation of our limestone quarry. The quarry was sold as ofJuly 1, 2020 , and we no longer own the mineral resources that generate depletion expense. Amortization relates primarily to intangible assets for customer relationships. Our corporate-level selling, general and administrative expenses consist primarily of wages and benefits for management, administrative, business development, account management, project management, marketing, engineering, supply-chain solutions, human resources and information technology personnel, as well as expenses related to equity incentive plans, communications and data processing, travel, professional fees, bad debt, training, office equipment and supplies. Trends in corporate-level selling, general and administrative expenses are influenced by changes in headcount and compensation levels and achievement of incentive compensation targets. To position ourselves to meet the challenges of the current business environment, we have implemented a shared services support structure to better manage costs and enhance the efficiency of our operations. 61 -------------------------------------------------------------------------------- Table of Contents Our corporate-level acquisition, litigation and other expenses consist of costs that we view outside of selling, general and administrative expenses with a high level of variability from period-to-period, and include the following: •Acquisition related costs include costs associated with transactions, whether consummated or not, such as advisory, legal, accounting, valuation and other professional or consulting fees. We also include integration costs pre- and post-acquisition that reflect work being performed to facilitate merger and acquisition integration, such as employee retention expense and work associated with information systems and other projects including spending to support future acquisitions, which primarily consist of professional services. •Litigation costs incurred in order to defend the Company from litigation charges outside of the normal course of business and related settlement costs. •Severance costs representing certain contractual and negotiated severance and separation costs from exited former executives, reduction in headcount due to synergies achieved through acquisitions or operational efficiencies, and reduction in workforce costs associated with exiting or selling non-strategic warehouses. •Equity acceleration costs representing the unrecognized expense for share-based awards that vest and convert to common shares in advance of the original negotiated vesting date and any other equity award changes resulting in accounting for the award as a modification. •Non-offering related equity issuance expenses whether incurred through our initial public offering, follow-on offerings or secondary offerings. •Terminated site operations costs represent expenses incurred to repair expenses incurred to return leased sites to their original physical state at lease inception in connection with the termination of the applicable underlying lease. These terminations were part of our strategic efforts to exit or sell non-strategic warehouses as opposed to ordinary course lease expirations. Repair and maintenance expenses associated with our ordinary course operations are reflected as operating expenses on our condensed consolidated statement of operations. Key Factors Affecting Our Business andFinancial Results Acquisitions and Joint Ventures OnFebruary 1, 2019 , we completed the acquisition of PortFresh for a purchase price of approximately$35.2 million , net of cash received, utilizing available cash on hand. PortFresh consisted of one facility operating near the port ofSavannah, Georgia and adjacent land upon which we have constructed a newly developed facility. Since the date of acquisition, we have reported the results of the acquired facility within our warehouse segment. OnMay 1, 2019 , we completed the acquisition of Cloverleaf for a purchase price of approximately$1.24 billion (the "Cloverleaf Acquisition"), net of cash received, utilizing the$1.21 billion net proceeds from ourApril 2019 follow-on offering and cash drawn from our senior unsecured revolving credit facility. Cloverleaf was the fifth largest temperature-controlled warehousing provider inthe United States , based inSioux City, Iowa and consisted of 22 facilities in nine states. Cloverleaf also generates income through a small component of transportation operations. Since the date of acquisition, we have reported the results of 21 facilities within our warehouse segment, the results of one facility within our third-party managed segment and the results of Cloverleaf's transportation operations within our transportation segment. Also, onMay 1, 2019 , we completed the acquisition ofLanier for approximately$81.9 million , net of cash received, utilizing cash drawn from our senior unsecured revolving credit facility.Lanier consisted of two 62 -------------------------------------------------------------------------------- Table of Contents temperature-controlled storage facilities inGeorgia serving the poultry industry. Since the date of acquisition, we have reported the results of these facilities within our warehouse segment. OnNovember 19, 2019 , we completed the acquisition of MHW for a purchase price of approximately$50.8 million , net of cash received, utilizing available cash on hand. MHW consisted of two temperature-controlled storage facilities, one located inChambersburg, Pennsylvania and another inPerryville, Maryland . Since the date of acquisition, we have reported the results of these facilities within our warehouse segment. OnJanuary 2, 2020 , we completed the purchase of all outstanding shares ofNova Cold for cash consideration of CAD$337.4 million (USD$259.6 million ), net of cash received.Nova Cold consisted of four temperature-controlled facilities inToronto ,Calgary andHalifax . The acquisition was funded utilizing proceeds from the settlement of ourApril 2019 forward sale agreement combined with cash drawn on our 2018 Senior Unsecured Revolving Credit Facility. Since the date of acquisition, we have reported the results of these facilities within our warehouse segment. Also, onJanuary 2, 2020 , we completed the purchase of all outstanding membership interests of Newport Cold for cash consideration of$56.1 million , net of cash received, utilizing available cash on hand. Newport Cold consists of a single temperature-controlled warehouse located inSt. Paul, Minnesota . Since the date of acquisition, we have reported the results of these facilities within our warehouse segment. OnMarch 6, 2020 , we acquired a 14.99% ownership interest in Superfrio ArmazénsGerais S.A. (SuperFrio) for Brazil Real Dollars of$117.8 million , or approximately USD$25.7 million , inclusive of certain legal fees. We funded the purchase price using cash on hand. Our pro-rata share of the Brazil JV's results are included within "(Loss) income from investments in partially owned entities". Refer to Note 2 and 3 of the Notes to the Condensed Consolidated Financial Statements for further information. COVID-19 We are continuing to closely monitor the impact of the COVID-19 pandemic on all aspects of our business and geographies, including how it will impact our customers and business partners. While we have not experienced significant disruptions on our operations from the COVID-19 pandemic thus far, we are unable to predict the future impact that the COVID-19 pandemic may have on our financial condition, results of operations and cash flows due to numerous uncertainties arising from the pandemic. The extent to which COVID-19 impacts our operations will depend on future developments, which are highly uncertain and cannot be predicted with any degree of confidence, including the scope, severity, duration and geographies of the outbreak, the actions taken to contain the COVID-19 pandemic or mitigate its impact as requested or mandated by governmental authorities or otherwise voluntarily taken by individuals or businesses, and the direct and indirect economic effects of the outbreak and containment measures, among others. Our business is deemed an "essential business" as defined by theDepartment of Homeland Security , which means that our employees are able to continue working in our facilities during "shelter-in-place" or "stay-at-home" orders. The outbreak of COVID-19 inthe United States and other countries in which we operate, has significantly adversely impacted global economic activity and has contributed to significant volatility and negative pressure in financial markets. The global impact of the outbreak has led many nations, states and local authorities to institute "shelter-in-place" or "stay-at-home" orders, mandate business and school closures and restrict travel. Certain states and cities, including where we own properties, have development sites and where our principal place of business is located, have also reacted by instituting restrictions on travel, "shelter in place" rules, restrictions on types of business that may continue to operate, and/or restrictions on the types of construction projects that may continue. Many states and cities have begun implementing "reopening" plans, however, these restrictions vary widely by jurisdiction and may continue to 63 -------------------------------------------------------------------------------- Table of Contents change as the COVID-19 pandemic progresses. The negative impacts of the COVID-19 pandemic are pervasive across a broad spectrum of industries, including industries in which we, our customers and business partners operate. Negative impacts from COVID-19 may negatively impact the business and operations of our customers and business partners (including our suppliers). Further, the impacts of a potentially worsening of global economic conditions and the continued disruptions to, and volatility in, the credit and financial markets, consumer and business spending as well as other unanticipated consequences continue to remain unknown. The impacts of locations of outbreaks and actions mandated by governmental authorities or taken voluntarily by businesses and individuals to contain or mitigate the spread of COVID-19 and the timing of the repeal or loosening of such restrictions are also unknown. As a result, we cannot at this time predict the impact of the COVID-19 pandemic, but it could have a material adverse effect on our business, financial condition, liquidity, results of operations and prospects. Refer to Item 1A. Risk Factors on our Quarterly Report on Form 10-Q for the quarter endedMarch 31, 2020 for further considerations. Foreign Currency Translation Impact on Our Operations Our consolidated revenues and expenses are subject to variations caused by the net effect of foreign currency translation on revenues and expenses incurred by our operations outsidethe United States . Future fluctuations of foreign currency exchange rates and their impact on our Condensed Consolidated Statements of Operations are inherently uncertain. As a result of the relative size of our international operations, these fluctuations may be material on our results of operations. Our revenues and expenses from our international operations are denominated in the local currency of the country in which they are derived or incurred. Therefore, the impact of foreign currency fluctuations on our results of operations and margins is partially mitigated. The following table shows a comparison of underlying average exchange rates of the foreign currencies that impacted ourU.S. dollar-reported revenues and expenses during the periods discussed herein together with a comparison against the exchange rates of such currencies at the end of the applicable periods presented herein. The rates below represent theU.S. dollar equivalent of one unit of the respective foreign currency. Amounts presented in constant currency within our Results of Operations are calculated by applying the average foreign exchange rate from the comparable prior year period to actual local currency results in the current period, rather than the actual exchange rates in effect during the respective period. While constant currency metrics are a non-GAAP calculation and do not represent actual results, the comparison allows the reader to understand the impact of the underlying operations in addition to the impact of changing foreign exchange rates. Average foreign exchange rates used Average foreign Prior period average Prior period average to translate actual exchange rates used foreign exchange foreign exchange operating results to translate actual rate used to adjust rate used to adjust Foreign exchange for the three operating results for Foreign exchange actual operating results actual operating results rates as of months ended the six months ended rates as of for the three months for the six months ended June 30, 2020 June 30, 2020 June 30, 2020 June 30, 2019 ended June 30, 2020(1) June 30, 2020(1) Australian dollar 0.689 0.668 0.656 0.701 0.699 0.707 New Zealand dollar 0.644 0.626 0.623 0.671 0.6620.671 Argentinian peso 0.014 0.015 0.015 0.024 0.0230.023 Canadian dollar 0.734 0.726 0.731 0.765 0.7500.752 Brazilian real 0.182 0.186 N/A N/A N/A N/A
(1)Represents the relevant average foreign exchange rates in effect in the comparable prior period applied to the activity for the current period. The average foreign currency exchange rates we apply to our operating results are derived from third party reporting sources for the periods indicated.
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Focus on Our Operational Effectiveness and Cost Structure
We continuously seek to execute on various initiatives aimed at streamlining our
business processes and reducing our cost structure, including: realigning and
centralizing key business processes and fully integrating acquired assets and
businesses; implementing standardized operational processes; integrating and
launching new information technology tools and platforms; instituting key
health, safety, leadership and training programs; and capitalizing on the
purchasing power of our network. Through the realignment of our business
processes, we have acquired new talent and strengthened our service offerings.
In order to reduce costs in our facilities, we have invested in energy
efficiency projects, including LED lighting, thermal energy storage,
motion-sensor technology, variable frequency drives for our fans and
compressors, third party efficiency reviews and real-time monitoring of energy
consumption, rapid open and close doors, and alternative-power generation
technologies to improve the energy efficiency of our warehouses. We have also
performed fine-tuning of our refrigeration systems, deployed efficient energy
management practices, such as time-of-use and awareness, and have increased our
participation in Power Demand Response programs with some of our power
suppliers. These initiatives have allowed us to reduce our consumption of
kilowatt hours and energy spend.
As part of our initiatives to streamline our business processes and to reduce
our cost structure, we have evaluated and exited less strategic and profitable
markets or business lines, including the sale of certain warehouse assets, the
exit of certain leased facilities, the exit of certain managed warehouse
agreements, the exit of the China JV, and the sale of our quarry business.
Through our process of active portfolio management, we continue to evaluate our
markets and offerings.
Strategic Shift within Our Transportation Segment
Several years ago, we initiated a strategic shift in our transportation segment
services and solutions. The intention of this strategic shift was to better
focus our business on the operation of our temperature-controlled warehouses.
Specifically, we have gradually exited certain commoditized, non-scalable, or
low margin services we historically offered to our customers, in favor of more
profitable and value-added programs, such as regional, national, truckload and
retailer-specific multi-vendor consolidation services. We designed each
value-added program to improve efficiency and reduce transportation and
logistics costs to our warehouse customers, whose transportation spend typically
represents the majority of their supply-chain costs. We believe this efficiency
and cost reduction helps to drive increased client retention, as well as
maintain high occupancy levels in our temperature-controlled warehouses. Over
the last several years, we have made significant progress in implementing our
strategic initiative of growing our transportation service offering in a way
that complements our temperature-controlled warehouse business. We intend to
continue executing this strategy in the future. We've also added a dedicated
fleet service offering through acquisitions.
Historically Significant Customer
For the three and six months ended June 30, 2020 and 2019, one customer
accounted for more than 10% of our total revenues. For the three months ended
June 30, 2020 and 2019, sales to this customer were $64.4 million and $49.8
million , respectively. For the six months ended June 30, 2020 and 2019, sales to
this customer were $120.0 million and $103.6 million , respectively. The
substantial majority of this customer's business relates to our third-party
managed segment. We are reimbursed for substantially all expenses we incur in
managing warehouses on behalf of third-party owners. We recognize these
reimbursements as revenues under applicable accounting guidance, but these
reimbursements generally do not affect our financial results because they are
offset by the corresponding expenses that we recognize in our third-party
managed segment cost of operations. Of the revenues received from this customer,
$59.8 million and $45.9 million represented reimbursements for certain expenses
we incurred during the three months ended June 30, 2020 and 2019, respectively,
and $110.8 million and
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$95.9 million for the six months ended June 30, 2020 and 2019, respectively,
were offset by matching expenses included in our third-party managed cost of
operations.
Economic Occupancy of our Warehouses
We define average economic occupancy as the aggregate number of physically
occupied pallets and any additional pallets otherwise contractually committed
for a given period, without duplication. We estimate the number of contractually
committed pallet positions by taking into account the actual pallet commitment
specified in each customers' contract, and subtracting the physical pallet
positions. We regard economic occupancy as an important driver of our financial
results. Historically, providers of temperature-controlled warehouse space have
offered storage services to customers on an as-utilized, on-demand basis. We
actively seek to enter into contracts that implement our commercial business
rules which contemplate, among other things, fixed storage commitments in
connection with establishing new customer relationships. Additionally, we
actively seek opportunities to transition our current customers to contracts
that feature a fixed storage commitment when renewing existing agreements or
upon the change in the anticipated profile of our customer. This strategy
mitigates the impact of changes in physical occupancy throughout the course of
the year due to seasonality, as well as other factors that can impact physical
occupancy.
Throughput at our Warehouses
The level and nature of throughput at our warehouses is an important factor
impacting our warehouse services revenues in our warehouse segment. Throughput
refers to the volume of pallets that enter and exit our warehouses. Higher
levels of throughput drive warehouse services revenues in our warehouse segment
as customers are typically billed on a basis that takes into account the level
of throughput of the goods they store in our warehouses. The nature of
throughput may be driven by the expected turn of the underlying product or
commodity. Throughput pallets can be influenced both by the food manufacturers
as well as shifts in demand preferences. Food manufacturers' production levels,
which respond to market conditions and consumer preferences, may impact inbound
pallets. Similarly, a change in inventory turnover due to shift in customer
demand may impact outbound pallets.
How We Assess the Performance of Our Business
Segment Contribution (Net Operating Income or "NOI")
We evaluate the performance of our primary business segments based on their
contribution (NOI) to our overall results of operations. We use the term
"segment contribution (NOI)" to mean a segment's revenues less its cost of
operations (excluding any depreciation, depletion and amortization, impairment
charges, corporate-level selling, general and administrative and corporate-level
acquisition, litigation and other expenses). We use segment contribution (NOI)
to evaluate our segments for purposes of making operating decisions and
assessing performance in accordance with FASB ASC, Topic 280, Segment Reporting.
We also analyze the "segment contribution (NOI) margin" for each of our business
segments, which we calculate as segment contribution (NOI) divided by segment
revenues.
In addition to our segment contribution (NOI) and segment contribution (NOI)
margin, we analyze the contribution (NOI) of our warehouse rent and storage
operations and our warehouse services operations within our warehouse segment.
We calculate the contribution (NOI) of our warehouse rent and storage operations
as rent and storage revenues less power and other facilities cost. We calculate
the contribution (NOI) of our warehouse services operations as warehouse
services revenues less labor and other service costs. We calculate the
contribution (NOI) margin for each of these operations as the applicable
contribution (NOI) measure divided by
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the applicable revenue measure. We believe the presentation of these
contribution (NOI) and contribution (NOI) margin measures helps investors
understand the relative revenues, costs and earnings resulting from each of
these separate types of services we provide to our customers in the same manner
reviewed by our management in connection with the operation of our business.
These contribution (NOI) measures within our warehouse segment are not
measurements of financial performance under U.S. GAAP, and these measures should
be considered as supplements, but not as alternatives, to our results calculated
in accordance with U.S. GAAP. We provide reconciliations of these measures in
the discussions of our comparative results of operations below.
Same Store Analysis
Effective January 1, 2020 , we define our "same store" population once a year at
the beginning of the current calendar year. Our same store population includes
properties that were owned or leased for the entirety of two comparable periods
and that have reported at least twelve months of consecutive normalized
operations prior to January 1 of the prior calendar year. We define "normalized
operations" as properties that have been open for operation or lease after
development or significant modification, including the expansion of a warehouse
footprint or a warehouse rehabilitation subsequent to an event, such as a
natural disaster or similar event causing disruption to operations. In addition,
our definition of "normalized operations" takes into account changes in the
ownership structure (e.g., purchase of a previously leased warehouse would
result in different charges in the compared periods), which would impact
comparability in our warehouse segment contribution (NOI).
Acquired properties will be included in the "same store" population if owned by
us as of January 1 of the prior calendar year and still owned by us as of the
end of the current reporting period, unless the property is under development.
The "same store" pool is also adjusted to remove properties that were sold or
entering development subsequent to the beginning of the current calendar year.
As such, the "same store" population for the period ended June 30, 2020 includes
all properties that we owned at January 1, 2019 , which had both been owned and
had reached "normalized operations" by January 1, 2019 .
We calculate "same store contribution (NOI)" as revenues for the same store
population less its cost of operations (excluding any depreciation, depletion
and amortization, impairment charges, corporate-level selling, general and
administrative expenses, corporate-level acquisition, litigation and other
expenses and gain or loss on sale of real estate). In order to derive an
appropriate measure of period-to-period operating performance, we also calculate
our same store contribution (NOI) on a constant currency basis to remove the
effects of foreign currency exchange rate movements by using the comparable
prior period exchange rate to translate from local currency into U.S. dollars
for both periods. We evaluate the performance of the warehouses we own or lease
using a "same store" analysis, and we believe that same store contribution (NOI)
is helpful to investors as a supplemental performance measure because it
includes the operating performance from the population of properties that is
consistent from period to period and also on a constant currency basis, thereby
eliminating the effects of changes in the composition of our warehouse portfolio
and currency fluctuations on performance measures.
The following table shows the number of same-store warehouses in our portfolio
as of June 30, 2020 . The number of warehouses owned or operated in as of
June 30, 2020 and excluded as same-store warehouses for the period ended
June 30, 2020 is listed below. While not included in the non-same store
warehouse count in the table below, the results of operations for the non-same
store warehouses includes the partial period impact of sites that were exited
during the periods presented.
Total Warehouses 183
Same Store Warehouses (1) 135
Non-Same Store Warehouses (1) 37
Third-Party Managed Warehouses 11
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(1) During the second quarter of 2020, we completed the sale of one facility in
our same store segment. In addition, one development completed upon land that
was acquired in connection with the PortFresh acquisition was added to the
non-same store population as a result of obtaining the certificate of occupancy.
As of June 30, 2020 , our portfolio consisted of 183 total warehouses, including
172 within the warehouse segment and 11 in the third-party managed segment. In
addition, we hold a minority interest in the Brazil JV, which owns or operates
20 temperature-controlled warehouses in Brazil .
Same store contribution (NOI) is not a measurement of financial performance
under U.S. GAAP. In addition, other companies providing temperature-controlled
warehouse storage and handling and other warehouse services may not define same
store or calculate same store contribution (NOI) in a manner consistent with our
definition or calculation. Same store contribution (NOI) should be considered as
a supplement, but not as an alternative, to our results calculated in accordance
with U.S. GAAP. We provide reconciliations of these measures in the discussions
of our comparative results of operations below.
Constant Currency Metrics
As discussed above under "Key Factors Affecting Our Business and Financial
Results-Foreign Currency Translation Impact on Our Operations," our consolidated
revenues and expenses are subject to variations outside our control that are
caused by the net effect of foreign currency translation on revenues generated
and expenses incurred by our operations outside the United States . As a result,
in order to provide a framework for assessing how our underlying businesses
performed excluding the effect of foreign currency fluctuations, we analyze our
business performance based on certain constant currency reporting that
represents current period results translated into U.S. dollars at the relevant
average foreign exchange rates applicable in the comparable prior period. We
believe that the presentation of constant currency results provides a
measurement of our ongoing operations that is meaningful to investors because it
excludes the impact of these foreign currency movements that we cannot control.
Constant currency results are not measurements of financial performance under
U.S. GAAP, and our constant currency results should be considered as a
supplement, but not as an alternative, to our results calculated in accordance
with U.S. GAAP. The constant currency performance measures should not be
considered a substitute for, or superior to, the measures of financial
performance prepared in accordance with U.S. GAAP. We provide reconciliations of
these measures in the discussions of our comparative results of operations
below. Our discussion of the drivers of our performance below are based upon
U.S. GAAP.
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RESULTS OF OPERATIONS
Comparison of Results for the Three Months Ended June 30, 2020 and 2019
Warehouse Segment
The following table presents the operating results of our warehouse segment for
the three months ended June 30, 2020 and 2019.
Three Months Ended June 30, Change
2020 constant Constant
2020 actual currency(1) 2019 actual Actual currency
(Dollars in thousands)
Rent and storage $ 163,664 $ 166,593 $ 142,026 15.2 % 17.3 %
Warehouse services 208,747 212,379 196,205 6.4 % 8.2 %
Total warehouse segment revenues 372,411 378,972 338,231 10.1 % 12.0 %
Power 22,069 22,452 20,311 8.7 % 10.5 %
Other facilities costs (2) 34,645 35,354 27,627 25.4 % 28.0 %
Labor 165,458 168,365 148,413 11.5 % 13.4 %
Other services costs (3) 30,107 30,480 28,063 7.3 % 8.6 %
Total warehouse segment cost of
operations $ 252,279 $ 256,651 $ 224,414 12.4 % 14.4 %
Warehouse segment contribution (NOI)
$ 113,817 5.5 % 7.5 % Warehouse rent and storage contribution (NOI) (4)$ 106,950 $ 108,787 $ 94,088 13.7 % 15.6 % Warehouse services contribution (NOI) (5)$ 13,182 $ 13,534 $ 19,729 (33.2) % (31.4) % Total warehouse segment margin 32.3 % 32.3 % 33.7 % -139 bps -137 bps Rent and storage margin(6) 65.3 % 65.3 % 66.2 % -90 bps -95 bps Warehouse services margin(7) 6.3 % 6.4 % 10.1 % -374 bps -368 bps (1)The adjustments from ourU.S. GAAP operating results to calculate our operating results on a constant currency basis are the effect of changes in foreign currency exchange rates relative to the comparable prior period. (2)Includes real estate rent expense of$3.0 million and$3.1 million , on an actual basis, for the second quarter of 2020 and 2019, respectively. (3)Includes non-real estate rent expense (equipment lease and rentals) of$2.4 million and$2.5 million , on an actual basis, for the second quarter of 2020 and 2019, respectively. (4)Calculated as rent and storage revenues less power and other facilities costs. (5)Calculated as warehouse services revenues less labor and other services costs. (6)Calculated as warehouse rent and storage contribution (NOI) divided by warehouse rent and storage revenues. (7)Calculated as warehouse services contribution (NOI) divided by warehouse services revenues. Warehouse segment revenues were$372.4 million for the three months endedJune 30, 2020 , an increase of$34.2 million , or 10.1%, compared to$338.2 million for the three months endedJune 30, 2019 . On a constant currency basis, our warehouse segment revenues were$379.0 million for the three months endedJune 30, 2020 , an increase of$40.7 million , or 12.0%, from the three months endedJune 30, 2019 . Approximately$32.6 million of the increase, on an actual currency basis, was driven by acquisitions completed during 2019 and 2020. OnFebruary 1, 2019 , we closed on the PortFresh acquisition and acquired one warehouse facility. We acquired 23 warehouse facilities as a result of the Cloverleaf andLanier acquisitions onMay 1, 2019 , and therefore did not have ownership of these facilities during the entirety of the comparable prior period. In addition, we acquired seven warehouse facilities as a result of the MHW,Newport , andNova Cold acquisitions subsequent to the second quarter of 2019. As a result, these seven facilities are reflected in the entirety of the current period but none of the comparable period. During the second quarter of 2020, revenue growth was also due to contractual 69 -------------------------------------------------------------------------------- Table of Contents rate escalations and growth in fixed commitment storage contracts. These factors were partially offset by the the second quarter slow down in activity following the unprecedented first quarter surge related to COVID-19. Higher than seasonal grocery demand within the retail sector due to the COVID-19 pandemic continued into the second quarter of 2020, though at a lower pace as compared to the surge experienced during the first quarter of 2020. This was offset by the decline in the holdings and throughput of protein commodities. The protein industry has been significantly impacted by COVID-19 outbreaks which has impacted our holdings and throughput. Additionally, during the second quarter of 2020, the consumption in food services began to increase as re-opening plans were implemented, but at a much lower level when compared to the prior year. Finally, growth in revenue was attributable to new business, contractual rate escalations, increased volume in ourAustralia andArgentina facilities driven by the impact of COVID-19 within those markets. The foreign currency translation of revenues earned by our foreign operations had a$6.6 million unfavorable impact during the three months endedJune 30, 2020 , which was mainly driven by the strengthening of theU.S. dollar over the Australian dollar,New Zealand dollar and Argentinian peso. Warehouse segment cost of operations was$252.3 million for the three months endedJune 30, 2020 , an increase of$27.9 million , or 12.4%, compared to the three months endedJune 30, 2019 . On a constant currency basis, our warehouse segment cost of operations was$256.7 million for the three months endedJune 30, 2020 , an increase of$32.2 million , or 14.4%, from the three months endedJune 30, 2019 . Approximately$21.4 million of the increase, on an actual basis, was driven by the additional 31 facilities in the warehouse segment we acquired in connection with the aforementioned acquisitions. During the second quarter of 2020, we paid an appreciation bonus to front-line associates to recognize the dedication and efforts of our associates during the COVID-19 pandemic, which totaled$4.3 million . In addition, we continued to incur increases in our cost of operations in response to COVID-19. These incremental COVID-19 expenses include higher sanitation costs of$1.3 million and higher personal protective equipment ("PPE") costs of$0.4 million . We have experienced certain inefficiencies due to social distancing, staggered schedules, and other changes to processes. These costs were partially offset by active portfolio management having exited two leased facilities during the later half of 2019. Additionally, the foreign currency translation of expenses incurred by our foreign operations had a$4.4 million favorable impact during the three months endedJune 30, 2020 . For the three months endedJune 30, 2020 , warehouse segment contribution (NOI), increased$6.3 million , or 5.5%, to$120.1 million for the second quarter of 2020 compared to$113.8 million for the second quarter of 2019. The foreign currency translation of our results of operations had a$2.2 million unfavorable impact to the warehouse segment contribution period-over-period due to the strengthening of theU.S. dollar. On a constant currency basis, warehouse segment NOI increased 7.5%. Approximately$11.3 million of the increase, on an actual basis, was driven by the addition of 31 facilities in the warehouse segment as a result of the aforementioned acquisitions. This increase was offset by the COVID-19 cost of response efforts to maintain the health and safety of our employees and higher costs related to the front-line appreciation bonus. Same Store and Non-Same Store Analysis We had 135 same stores for the three months endedJune 30, 2020 . Please see "How We Assess the Performance of Our Business-Same Store Analysis" above for a reconciliation of the change in the same store portfolio from period to period. Amounts related to Cloverleaf,Lanier , MHW,Newport ,Nova Cold and PortFresh are reflected within non-same store results. The following table presents revenues, cost of operations, contribution (NOI) and margins for our same stores and non-same stores with a reconciliation to the total financial metrics of our warehouse segment for the three months endedJune 30, 2020 and 2019. 70
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Three Months Ended June 30, Change
2020 constant Constant
2020 actual currency(1) 2019 actual Actual currency
Number of same store sites 135 135 n/a n/a
Same store revenues: (Dollars in thousands)
Rent and storage $ 125,515 $ 127,046 $ 119,826 4.7 % 6.0 %
Warehouse services 160,521 163,126 161,848 (0.8) % 0.8 %
Total same store revenues 286,036 290,172 281,674 1.5 % 3.0 %
Same store cost of operations:
Power 15,884 16,080 16,694 (4.9) % (3.7) %
Other facilities costs 26,974 27,317 23,117 16.7 % 18.2 %
Labor 128,383 130,535 125,686 2.1 % 3.9 %
Other services costs 21,339 21,593 22,217 (4.0) % (2.8) %
Total same store cost of operations
$ 187,714 2.6 % 4.2 % Same store contribution (NOI)$ 93,456 $ 94,647 $ 93,960 (0.5) % 0.7 % Same store rent and storage contribution (NOI)(2)$ 82,657 $ 83,649 $ 80,015 3.3 % 4.5 % Same store services contribution (NOI)(3)$ 10,799 $ 10,998 $ 13,945 (22.6) % (21.1) % Total same store margin 32.7 % 32.6 % 33.4 % -68 bps -74 bps Same store rent and storage margin(4) 65.9 % 65.8 % 66.8 % -92 bps -93 bps Same store services margin(5) 6.7 % 6.7 % 8.6 % -189 bps -187 bps Three Months Ended June 30, Change 2020 constant Constant 2020 actual currency(1) 2019 actual Actual currency Number of non-same store sites 37 31 n/a n/a Non-same store revenues: (Dollars in thousands) Rent and storage$ 38,149 $ 39,547 $ 22,200 71.8 % 78.1 % Warehouse services 48,226 49,253 34,357 40.4 % 43.4 % Total non-same store revenues 86,375 88,800 56,557 52.7 % 57.0 % Non-same store cost of operations: Power 6,185 6,372 3,617 71.0 % 76.2 % Other facilities costs 7,671 8,037 4,510 70.1 % 78.2 % Labor 37,075 37,830 22,727 63.1 % 66.5 % Other services costs 8,768 8,887 5,846 50.0 % 52.0 % Total non-same store cost of operations$ 59,699 $ 61,126 $ 36,700 62.7 % 66.6 %
Non-same store contribution (NOI)
$ 19,857 34.3 % 39.4 % Non-same store rent and storage contribution (NOI)(2)$ 24,293 $ 25,138 $ 14,073 72.6 % 78.6 % Non-same store services contribution (NOI)(3)$ 2,383 $ 2,536 $ 5,784 (58.8) % (56.2) % Total non-same store margin 30.9 % 31.2 % 35.1 % -423 bps -395 bps Non-same store rent and storage margin(4) 63.7 % 63.6 % 63.4 % 29 bps 17 bps Non-same store services margin(5) 4.9 % 5.1 % 16.8 % -1189 bps -1169 bps 71
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Three Months Ended June 30, Change
2020 constant Constant
2020 actual currency(1) 2019 actual Actual currency
Total warehouse segment revenues
$ 338,231 10.1 % 12.0 %
Total warehouse cost of operations
$ 224,414 12.4 % 14.4 %
Total warehouse segment contribution
$ 113,817 5.5 % 7.5 % (1)The adjustments from ourU.S. GAAP operating results to calculate our operating results on a constant currency basis is the effect of changes in foreign currency exchange rates relative to the comparable prior period. (2)Calculated as rent and storage revenues less power and other facilities costs. (3)Calculated as warehouse services revenues less labor and other services costs. (4)Calculated as rent and storage contribution (NOI) divided by rent and storage revenues. (5)Calculated as warehouse services contribution (NOI) divided by warehouse services revenues. n/a - not applicable, the change in actual and constant currency metrics does not apply to site count 72 -------------------------------------------------------------------------------- Table of Contents The following table provides certain operating metrics to explain the drivers of our same store performance. Three Months Ended June 30, Units in thousands except per pallet and site number data - unaudited 2020 2019 Change Number of same store sites 135 135 n/a
Same store rent and storage:
Economic occupancy(1) Average occupied economic pallets 2,387 2,301 3.7 % Economic occupancy percentage 78.9 % 76.2 % 270 bps Same store rent and storage revenues per economic occupied pallet$ 52.58 $ 52.07 1.0 % Constant currency same store rent and storage revenues per economic occupied pallet$ 53.22 $ 52.07 2.2 % Physical occupancy(2) Average physical occupied pallets 2,142 2,178 (1.6) % Average physical pallet positions 3,027 3,021 0.2 % Physical occupancy percentage 70.8 % 72.1 % -132 bps Same store rent and storage revenues per physical occupied pallet$ 58.59 $ 55.02 6.5 % Constant currency same store rent and storage revenues per physical occupied pallet$ 59.31 $ 55.02 7.8 % Same store warehouse services: Throughput pallets (in thousands) 6,149 6,346 (3.1) % Same store warehouse services revenues per throughput pallet$ 26.10 $ 25.50 2.4 % Constant currency same store warehouse services revenues per throughput pallet$ 26.53 $ 25.50 4.0 % Number of non-same store sites 37 31 n/a
Non-same store rent and storage:
Economic occupancy(1)
Average economic occupied pallets 778 469 65.9 %
Economic occupancy percentage 76.1 % 79.7 % -364 bps
Physical occupancy(2)
Average physical occupied pallets 749 458 63.5 %
Average physical pallet positions 1,022 588 73.8 %
Physical occupancy percentage 73.3 % 77.9 % -460 bps
Non-same store warehouse services:
Throughput pallets (in thousands) 1,567 1,019 53.7 %
(1)We define average economic occupancy as the aggregate number of physically
occupied pallets and any additional pallets otherwise contractually committed
for a given period, without duplication. We estimate the number of contractually
committed pallet positions by taking into account actual pallet commitments
specified in each customer's contract, and subtracting the physical pallet
positions.
(2)We define average physical occupancy as the average number of occupied
pallets divided by the estimated number of average physical pallet positions in
our warehouses for the applicable period. We estimate the number of physical
pallet positions by taking into account actual racked space and by estimating
unracked space on an as-if racked basis. We base this estimate on a formula
utilizing the total cubic feet of each room within the warehouse that is
unracked divided by the volume of an assumed rack space that is consistent with
the characteristics of the relevant warehouse. On a warehouse by warehouse
basis, rack space generally ranges from three to four feet depending upon the
type of facility and the nature of the customer goods stored therein. The number
of our pallet positions is reviewed and updated quarterly, taking into account
changes in racking configurations and room utilization.
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Economic occupancy at our same stores was 78.9% for the three months ended
June 30, 2020 , an increase of 270 basis points compared to 76.2% for the three
months ended June 30, 2019 . This change was primarily the result of an increase
in fixed storage contracts. Our second quarter 2020 economic occupancy at our
same stores was 810 basis points higher than our corresponding average physical
occupancy of 70.8%. The decrease of 132 basis points in average physical
occupancy compared to 72.1% for the three months ended June 30, 2019 was
partially driven by lower protein occupancy due to COVID-19 impacting
manufacturers throughput to the supply chain due to social distancing efforts
and intermittent facility closures.
Same store rent and storage revenues per economic occupied pallet increased 1.0%
period-over-period, primarily driven by a more favorable customer mix,
improvements in our commercial terms and contractual rate escalations, partially
offset by unfavorable foreign currency translation, which was largely driven by
the strengthening of the U.S. dollar. On a constant currency basis, our same
store rent and storage revenues per occupied pallet increased 2.2%
period-over-period.
Throughput pallets at our same stores were 6.1 million pallets for the three
months ended June 30, 2020 , a decrease of 3.1% from the three months ended
June 30, 2019 . This decrease was primarily attributable to decreased throughput
from protein commodity customers and food service providers, partially offset by
increased demand from our grocery retail sector due to COVID-19. Same store
warehouse services revenues per throughput pallet increased 2.4%
period-over-period, as a result of a more favorable customer mix and an increase
in higher priced value-added services within the retail sector such as
case-picking, blast freezing and repackaging and contractual rate escalations,
partially offset by unfavorable foreign currency translation as previously
discussed. On a constant currency basis, our same store services revenues per
throughput pallet increased 4.0% from the three months ended June 30, 2019 .
Third-Party Managed Segment
The following table presents the operating results of our third-party managed
segment for the three months ended June 30, 2020 and 2019.
Three Months Ended June 30, Change
2020 constant Constant
2020 actual currency(1) 2019 actual Actual currency
Number of managed sites 11 12 n/a n/a
(Dollars in thousands)
Third-party managed revenues $ 72,954 $ 73,416 $ 61,515 18.6 % 19.3 %
Third-party managed cost of
operations 69,655 69,992 58,711 18.6 % 19.2 %
Third-party managed segment
contribution $ 3,299 $ 3,424 $ 2,804 17.7 % 22.1 %
Third-party managed margin 4.5 % 4.7 % 4.6 % -4 bps 11 bps
(1)The adjustments from our
Third-party managed revenues were$73.0 million for the three months endedJune 30, 2020 , an increase of$11.4 million , or 18.6%, compared to$61.5 million for the three months endedJune 30, 2019 . On a constant currency basis, third-party managed revenues were$73.4 million for the three months endedJune 30, 2020 , an increase of$11.9 million , or 19.3%, from the three months endedJune 30, 2019 . This increase was a result of the addition of one managed site in connection with the Cloverleaf Acquisition and higher business volume in our domestic and foreign managed operations due to the consumer demand shift to retail. This increase was partially offset by the 74 -------------------------------------------------------------------------------- Table of Contents unfavorable impact of foreign currency translation related to our Canadian and Australian managed revenues, and the impact from the exit of a domestic managed site during the third quarter of 2019. Third-party managed cost of operations was$69.7 million for the three months endedJune 30, 2020 , an increase of$10.9 million , or 18.6%, compared to$58.7 million for the three months endedJune 30, 2019 . On a constant currency basis, third-party managed cost of operations was$70.0 million for the three months endedJune 30, 2020 , an increase of$11.3 million , or 19.2%, from the three months endedJune 30, 2019 . Third-party managed cost of operations increased as a result of the revenue trends described above. Third-party managed segment contribution (NOI) was$3.3 million for the three months endedJune 30, 2020 , an increase of$0.5 million , or 17.7%, compared to$2.8 million for the three months endedJune 30, 2019 . On a constant currency basis, third-party managed segment contribution (NOI) was$3.4 million for the three months endedJune 30, 2020 , an increase of$0.6 million , or 22.1%. Transportation Segment The following table presents the operating results of our transportation segment for the three months endedJune 30, 2020 and 2019. Three Months Ended June 30, Change 2020 constant Constant 2020 actual currency(1) 2019 actual Actual currency (Dollars in thousands) Transportation revenues$ 34,861 $ 35,568 $ 36,492 (4.5) % (2.5) % Brokered transportation 25,362 25,986 25,842 (1.9) % 0.6 % Other cost of operations 4,727 4,769 6,444 (26.6) % (26.0) % Total transportation cost of operations 30,089 30,755 32,286 (6.8) % (4.7) % Transportation segment contribution (NOI)$ 4,772 $ 4,813 $ 4,206 13.5 % 14.4 % Transportation margin 13.7 % 13.5 % 11.5 % 216 bps 201 bps (1)The adjustments from ourU.S. GAAP operating results to calculate our operating results on a constant currency basis are the effect of changes in foreign currency exchange rates relative to the comparable prior period. Our transportation segment continued its strategic shift to focus on more profitable solutions, which create value for our customers while driving and supporting our warehouse business, including multi-vendor consolidation offerings. Transportation revenues were$34.9 million for the three months endedJune 30, 2020 , a decrease of$1.6 million , or 4.5%, compared to$36.5 million for the three months endedJune 30, 2019 . The decrease was primarily driven by the exit of certain low-margin international and domestic transportation business, paired with lower volumes domestically within the food service sector due to COVID-19 impacts and the unfavorable impact from the foreign currency translation of revenues earned by our foreign operations. These unfavorable impacts were partially offset by an increase in volume from new, higher-margin business domestically. On a constant currency basis, transportation revenues were$35.6 million for the three months endedJune 30, 2020 , a decrease of$0.9 million , or 2.5%, from the three months endedJune 30, 2019 . Transportation cost of operations was$30.1 million for the three months endedJune 30, 2020 , a decrease of$2.2 million , or 6.8%, compared to$32.3 million for the three months endedJune 30, 2019 . On a constant currency basis, transportation cost of operations was$30.8 million for the three months endedJune 30, 2020 , a decrease of$1.5 million , or 4.7%, from the three months endedJune 30, 2019 . The strategic shift referenced above paired with the impact of the foreign currency translation of our international costs led to a decline in transportation cost of operations for the segment. 75 -------------------------------------------------------------------------------- Table of Contents Transportation segment contribution (NOI) was$4.8 million for the three months endedJune 30, 2020 , an increase of 13.5% compared to the three months endedJune 30, 2019 . Transportation segment margin increased 216 basis points from the three months endedJune 30, 2019 , to 13.7% from 11.5%. The increase in margin was primarily due to the strategic shift referenced above, which resulted in more profitable business. On a constant currency basis, transportation segment contribution was$4.8 million for the three months endedJune 30, 2020 , an increase of 14.4% compared to the three months endedJune 30, 2019 . Quarry Segment The following table presents the operating results of our quarry segment for the three months endedJune 30, 2020 and 2019. Three Months Ended June 30, Change 2020 2019 % (Dollars in thousands) Quarry revenues$ 2,296 $ 2,222 3.3 % Quarry cost of operations 2,161 1,930 12.0 % Quarry segment contribution (NOI) $ 135$ 292 (53.8) % Quarry margin 5.9 % 13.1 % (55.3) % Quarry revenues were$2.3 million for the three months endedJune 30, 2020 , consistent with the comparable prior period. Quarry cost of operations was$2.2 million for the three months endedJune 30, 2020 , an increase of$0.2 million , or 12.0%, compared to$1.9 million for the three months endedJune 30, 2019 . The slight increase was due to increased routine maintenance and equipment rental. Quarry segment contribution (NOI) was$0.1 million for the three months endedJune 30, 2020 , a decrease of$0.2 million from the three months endedJune 30, 2019 , due to the reasons listed above. The Quarry segment was sold onJuly 1, 2020 , resulting in an impairment charge of$3.7 million during the three months endedJune 30, 2020 as the fair market value was lower than the carrying value of the segment assets. Other Consolidated Operating Expenses Depreciation, depletion and amortization. Depreciation, depletion and amortization expense was$52.4 million for the three months endedJune 30, 2020 , an increase of$12.0 million , or 29.6%, compared to$40.4 million for the three months endedJune 30, 2019 . This increase was primarily due to the acquisitions in 2019 and 2020, as well as theSavannah development that was placed into service during the second quarter of 2020. Selling, general and administrative. Corporate-level selling, general and administrative expenses were$32.3 million for the three months endedJune 30, 2020 , a decrease of$0.4 million , or 1.0%, compared to$32.7 million for the three months endedJune 30, 2019 . Included in these amounts are business development expenses attributable to new business pursuits, supply chain solutions and underwriting, facility development, customer on-boarding, and engineering and consulting services to support our customers in the cold chain. We believe these costs are comparable to leasing costs for other publicly-traded REITs. The decrease was driven by lower travel costs due to the ongoing COVID-19 pandemic and related travel restrictions paired with net synergies realized from recently completed acquisitions, partially offset by higher share-based compensation expense and higher payroll and benefits related to additional investments to support our expanded development pipeline and higher executive management headcount. 76 -------------------------------------------------------------------------------- Table of Contents Acquisition, litigation and other. Corporate-level acquisition, litigation and other expenses were$2.8 million for the three months endedJune 30, 2020 , a decrease of$15.2 million compared to the three months endedJune 30, 2019 . Included in these amounts are business acquisition related costs, litigation costs associated with litigation charges outside of the normal course of business or resulting from a settlement, severance and equity acceleration costs incurred in connection with former executives, severance as a result of synergies realized from acquisitions or operational transformation, non-offering related equity issuance expenses and terminated site operations costs. We view all of these costs as corporate in nature regardless of the segment or segments involved in certain transactions. Additionally, we view these costs as having a high level of variability from period-to-period, and therefore, in order to enhance our disclosure and provide greater transparency, we have isolated them from selling, general and administrative expenses. During the three months endedJune 30, 2020 , we incurred$2.7 million of acquisition related expenses primarily composed of professional fees and integration related costs in connection with potential acquisitions. During the three months endedJune 30, 2019 , we incurred$15.0 million of acquisition related expenses primarily composed of a$10.0 million investment advisory fee, and also includes employee retention, professional fees and integration related costs in connection with the Cloverleaf andLanier acquisitions. Additionally, we incurred$2.6 million of severance related to reduction in headcount as a result of the synergies created from the Cloverleaf andLanier acquisitions and realignment of our international operations. Litigation related professional fees totaled$0.5 million for the second quarter of 2019. Impairment of long-lived assets. For the three months endedJune 30, 2020 , we recorded an impairment charge of$3.7 million related to the anticipated sale of our quarry business, which was subsequently completed onJuly 1, 2020 . For the three months endedJune 30, 2019 , we recorded an impairment charge of$0.9 million related to certain international transportation software assets in our transportation segment which were idled. Gain from sale of real estate. For the three months endedJune 30, 2020 , we recorded a$19.4 million gain from the sale of owned property. OnJune 19, 2020 , we completed the sale of a facility in our Warehouse segment, and began to transition the business to other nearby facilities, resulting in the aforementioned gain from sale of real estate. Other Expense and Income The following table presents other items of income and expense for the three months endedJune 30, 2020 and 2019. Three Months Ended June 30, Change 2020 2019 % Other (expense) income: (Dollars in thousands) Interest expense$ (23,178) $ (24,098) (3.8) % Interest income $ 261$ 2,405 (89.1) % Bridge loan commitment fees $ -$ (2,665) 100.0 % Foreign currency exchange gain (loss) $ 315$ (83) n/r Other income (expense) - net $ 44$ (591) n/r
Loss from investments in partially owned entities
89.7 %
n/r: not relevant
Interest expense. Interest expense was $23.2 million for the three months ended
June 30, 2020 , a decrease of $0.9 million , or 3.8%, compared to $24.1 million
for the three months ended June 30, 2019 . The decrease was primarily due to the
decrease in interest expense on the unhedged portion of our Senior Unsecured
Term Loan A Facility due to the decrease in the LIBOR rate. The effective
interest rate of our outstanding debt has decreased
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from 4.89% in the second quarter of 2019 to 4.15% in the second quarter of 2020.
This decrease is partially offset by the increase in interest expense incurred
in connection with the increase in the senior unsecured term loan A which was
expanded in March 2020 to fund the Nova Cold acquisition and the private
placement of $350.0 million aggregate principal amount of Series C senior
unsecured notes on May 7, 2019 , which were used to fund a portion of the
Cloverleaf and Lanier acquisitions.
Interest income. Interest income of $0.3 million for the three months ended
June 30, 2020 decreased by $2.1 million when compared to the $2.4 million
reported for three months ended June 30, 2019 . This change was primarily driven
by a lower interest rate of 0.2% earned during the second quarter of 2020 as
compared to 2.5% during the second quarter of 2019.
Bridge loan commitment fees. Corporate-level bridge loan commitment fees were
$2.7 million for the three months ended June 30, 2019 . We obtained a bridge loan
commitment to support the acquisition of Cloverleaf. The bridge loan facility
ultimately did not need to be funded and accordingly we expensed the lender
commitment and loan fee.
Foreign currency exchange gain (loss). We reported a $0.3 million foreign
currency exchange gain for the three months ended June 30, 2020 as compared to a
$0.1 million foreign currency exchange loss for the three months ended June 30,
2019 . The periodic re-measurement of intercompany payables with quarterly
settlement denominated in U.S. dollars resulted in a foreign currency exchange
gain during the second quarter of 2020 as the U.S. dollar weakened against the
Australian dollar during the three months ended June 30, 2020 .
Loss from investments in partially owned entities. During the first quarter of
2020, we entered into the Brazil JV for which we recorded a nominal amount as
our portion of loss generated by SuperFrio for the second quarter of 2020.
During the second quarter of 2019, we recorded a nominal amount as our portion
of loss generated from the China JV of $0.1 million , which we later exited
during the third quarter of 2019.
Income Tax (Expense) Benefit
Income tax expense for the three months ended June 30, 2020 was $1.2 million , an
increase of $2.1 million from an income tax benefit of $0.9 million for the
three months ended June 30, 2019 . This is primarily due to an increase in
earnings generated by our domestic and foreign operations as compared to the
three months ended June 30, 2019 .
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Comparison of Results for the Six Months Ended June 30, 2020 and 2019
Warehouse Segment
The following table presents the operating results of our warehouse segment for
the six months ended June 30, 2020 and 2019.
Six Months Ended June 30, Change
2020 constant Constant
2020 actual currency(1) 2019 actual Actual currency
(Dollars in thousands)
Rent and storage $ 325,973 $ 331,853 $ 268,406 21.4 % 23.6 %
Warehouse services 427,506 435,733 359,440 18.9 % 21.2 %
Total warehouse segment revenues 753,479 767,586 627,846 20.0 % 22.3 %
Power 41,773 42,613 35,382 18.1 % 20.4 %
Other facilities costs (2) 66,747 68,156 54,016 23.6 % 26.2 %
Labor 335,596 342,143 281,332 19.3 % 21.6 %
Other services costs (3) 62,458 63,311 52,480 19.0 % 20.6 %
Total warehouse segment cost of
operations $ 506,574 $ 516,223 $ 423,210 19.7 % 22.0 %
Warehouse segment contribution (NOI)
$ 204,636 20.7 % 22.8 % Warehouse rent and storage contribution (NOI) (4)$ 217,453 $ 221,084 $ 179,008 21.5 % 23.5 % Warehouse services contribution (NOI) (5)$ 29,452 $ 30,279 $ 25,628 14.9 % 18.1 % Total warehouse segment margin 32.8 % 32.7 % 32.6 % 18 bps 15 bps Rent and storage margin(6) 66.7 % 66.6 % 66.7 % 2 bps -7 bps Warehouse services margin(7) 6.9 % 6.9 % 7.1 % -24 bps -18 bps (1)The adjustments from ourU.S. GAAP operating results to calculate our operating results on a constant currency basis are the effect of changes in foreign currency exchange rates relative to the comparable prior period. (2)Includes real estate rent expense of$5.8 million and$6.3 million , on an actual basis, for the six months endedJune 30, 2020 and 2019, respectively. (3)Includes non-real estate rent expense (equipment lease and rentals) of$5.3 million and$6.0 million , on an actual basis, for the six months endedJune 30, 2020 and 2019, respectively. (4)Calculated as rent and storage revenues less power and other facilities costs. (5)Calculated as warehouse services revenues less labor and other services costs. (6)Calculated as warehouse rent and storage contribution (NOI) divided by warehouse rent and storage revenues. (7)Calculated as warehouse services contribution (NOI) divided by warehouse services revenues. Warehouse segment revenues were$753.5 million for the six months endedJune 30, 2020 , an increase of$125.6 million , or 20.0%, compared to$627.8 million for the six months endedJune 30, 2019 . On a constant currency basis, our warehouse segment revenues were$767.6 million for the six months endedJune 30, 2020 , an increase of$139.7 million , or 22.3%, from the six months endedJune 30, 2019 . Approximately$110.0 million of the increase, on an actual currency basis, was driven by acquisitions completed during 2019 and 2020. We acquired 23 warehouse facilities as a result of the Cloverleaf andLanier acquisitions onMay 1, 2019 and one facility as a result of the PortFresh acquisition onFebruary 1, 2019 , and therefore did not have ownership of these facilities during the entirety of the comparable prior period. In addition, we acquired seven warehouse facilities as a result of the MHW,Newport , andNova Cold acquisitions subsequent to the second quarter of 2019. As a result, these seven facilities are reflected in the entirety of the current period but none of the comparable period. In addition, late in the first quarter of 2020 through the end of the second quarter, revenue growth was fueled by higher than seasonal grocery demand within the retail sector due to the COVID-19 pandemic. Increased purchases 79 -------------------------------------------------------------------------------- Table of Contents in the retail sector due to higher consumer grocery demand generated higher throughput pallets. Decreased consumption in the food services sector due to stay-at-home orders resulted in incremental storage revenue from product remaining in our warehouses. Later in the second quarter of 2020, the food service sector volumes began to increase as re-opening plans were implemented. The increase was also partially due to higher economic occupancy from higher commodity holdings and a slowdown in food service activity and exports. The foreign currency translation of revenues earned by our foreign operations had a$14.1 million unfavorable impact during the six months endedJune 30, 2020 , which was mainly driven by the strengthening of theU.S. dollar over the Australian dollar,New Zealand dollar and Argentinian peso. Warehouse segment cost of operations was$506.6 million for the six months endedJune 30, 2020 , an increase of$83.4 million , or 19.7%, compared to the six months endedJune 30, 2019 . On a constant currency basis, our warehouse segment cost of operations was$516.2 million for the six months endedJune 30, 2020 , an increase of$93.0 million , or 22.0%, from the six months endedJune 30, 2019 . Approximately$69.5 million of the increase, on an actual basis, was driven by the additional facilities we acquired in connection with the aforementioned acquisitions. In addition, we began to incur increases in our cost of operations later in the first quarter in response to COVID-19, and these incremental costs continued into the second quarter. We undertook initiatives to ensure the health and safety of our employees, incurring higher costs for items such as labor, due to social distancing requirements, cleaning and sanitation supplies, and other PPE. During the second quarter of 2020, we also paid a front-line appreciation bonus to our associates in recognition of their dedication and efforts during the COVID-19 pandemic, which totaled$4.3 million . This is partially offset by cost control measures through our Americold Operating System. Additionally, the foreign currency translation of expenses incurred by our foreign operations had a$9.6 million favorable impact during the six months endedJune 30, 2020 . For the six months endedJune 30, 2020 , warehouse segment contribution (NOI), increased$42.3 million , or 20.7%, to$246.9 million for the six months endedJune 30, 2020 , compared to$204.6 million for the six months endedJune 30, 2019 . The foreign currency translation of our results of operations had a$4.5 million unfavorable impact to the warehouse segment contribution period-over-period. On a constant currency basis, warehouse segment NOI increased 22.8%. Approximately$40.5 million of the increase, on an actual basis, was driven by the additional facilities in the warehouse segment as a result of the aforementioned acquisitions. The remainder of the increase was driven by improvements in our core business, same store economic occupancy growth, and disciplined cost controls through the Americold Operating System of our power and facility related costs, which allowed us to generate higher contribution margins. The increases were partially offset by the currency translation impact of the strengthening of theU.S. dollar, the appreciation bonus paid to front-line associates to recognize the efforts of our associates during the COVID-19 pandemic and the initial increase in costs related to the COVID-19 response efforts to maintain the health and safety of our employees. Same Store and Non-Same Store Analysis We had 135 same stores for the six months endedJune 30, 2020 . Please see "How We Assess the Performance of Our Business-Same Store Analysis" above for a reconciliation of the change in the same store portfolio from period to period. Amounts related to Cloverleaf,Lanier , MHW,Newport ,Nova Cold and PortFresh are reflected within non-same store results. The following table presents revenues, cost of operations, contribution (NOI) and margins for our same stores and non-same stores with a reconciliation to the total financial metrics of our warehouse segment for the six months endedJune 30, 2020 and 2019. 80
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Six Months Ended June 30, Change
2020 constant Constant
2020 actual currency(1) 2019 actual Actual currency
Number of same store sites 135 135 n/a n/a
Same store revenues: (Dollars in thousands)
Rent and storage $ 250,839 $ 253,938 $ 239,727 4.6 % 5.9 %
Warehouse services 326,270 332,267 319,098 2.2 % 4.1 %
Total same store revenues 577,109 586,205 558,825 3.3 % 4.9 %
Same store cost of operations:
Power 29,909 30,364 31,105 (3.8) % (2.4) %
Other facilities costs 51,906 52,649 47,429 9.4 % 11.0 %
Labor 261,185 266,188 252,781 3.3 % 5.3 %
Other services costs 43,599 44,172 45,320 (3.8) % (2.5) %
Total same store cost of operations
$ 376,635 2.6 % 4.4 % Same store contribution (NOI)$ 190,510 $ 192,832 $ 182,190 4.6 % 5.8 % Same store rent and storage contribution (NOI)(2)$ 169,024 $ 170,925 $ 161,193 4.9 % 6.0 % Same store services contribution (NOI)(3)$ 21,486 $ 21,907 $ 20,997 2.3 % 4.3 % Total same store margin 33.0 % 32.9 % 32.6 % 41 bps 29 bps Same store rent and storage margin(4) 67.4 % 67.3 % 67.2 % 14 bps 7 bps Same store services margin(5) 6.6 % 6.6 % 6.6 % 1 bps 1 bps Six Months Ended June 30, Change 2020 constant Constant 2020 actual currency(1) 2019 actual Actual currency Number of non-same store sites 37 31 n/a n/a Non-same store revenues: (Dollars in thousands) Rent and storage$ 75,134 $ 77,915 $ 28,679 162.0 % 171.7 % Warehouse services 101,236 103,466 40,342 150.9 % 156.5 % Total non-same store revenues 176,370 181,381 69,021 155.5 % 162.8 % Non-same store cost of operations: Power 11,864 12,249 4,277 177.4 % 186.4 % Other facilities costs 14,841 15,507 6,587 125.3 % 135.4 % Labor 74,411 75,955 28,551 160.6 % 166.0 % Other services costs 18,859 19,139 7,160 163.4 % 167.3 % Total non-same store cost of operations$ 119,975 $ 122,850 $ 46,575 157.6 % 163.8 %
Non-same store contribution (NOI)
$ 22,446 151.2 % 160.8 % Non-same store rent and storage contribution (NOI)(2)$ 48,429 $ 50,159 $ 17,815 171.8 % 181.6 % Non-same store services contribution (NOI)(3)$ 7,966 $ 8,372 $ 4,631 72.0 % 80.8 % Total non-same store margin 32.0 % 32.3 % 32.5 % -55 bps -25 bps Non-same store rent and storage margin(4) 64.5 % 64.4 % 62.1 % 234 bps 226 bps Non-same store services margin(5) 7.9 % 8.1 % 11.5 % -361 bps -339 bps 81
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Six Months Ended June 30, Change
2020 constant Constant
2020 actual currency(1) 2019 actual Actual currency
Total warehouse segment revenues
$ 627,846 20.0 % 22.3 %
Total warehouse cost of operations
$ 423,210 19.7 % 22.0 %
Total warehouse segment contribution
$ 204,636 20.7 % 22.8 % (1)The adjustments from ourU.S. GAAP operating results to calculate our operating results on a constant currency basis is the effect of changes in foreign currency exchange rates relative to the comparable prior period. (2)Calculated as rent and storage revenues less power and other facilities costs. (3)Calculated as warehouse services revenues less labor and other services costs. (4)Calculated as rent and storage contribution (NOI) divided by rent and storage revenues. (5)Calculated as warehouse services contribution (NOI) divided by warehouse services revenues. n/a - not applicable, the change in actual and constant currency metrics does not apply to site count 82 -------------------------------------------------------------------------------- Table of Contents The following table provides certain operating metrics to explain the drivers of our same store performance. Six Months
Ended
2020 2019 Change
Number of same store sites 135 135 n/a
Same store rent and storage:
Economic occupancy(1)
Average occupied economic pallets 2,435 2,341 4.0 %
Economic occupancy percentage 80.4 % 77.3 % 308 bps
Same store rent and storage revenues per economic
occupied pallet $ 103.02 $ 102.41 0.6 %
Constant currency same store rent and storage revenues per economic occupied pallet
$ 104.29 $ 102.41 1.8 % Physical occupancy(2) Average physical occupied pallets 2,220 2,217 0.1 % Average physical pallet positions 3,028 3,027 0.0 % Physical occupancy percentage 73.3 % 73.2 % 8 bps Same store rent and storage revenues per physical occupied pallet$ 113.00 $ 108.15 4.5 %
Constant currency same store rent and storage revenues per physical occupied pallet
$ 114.40 $ 108.15 5.8 % Same store warehouse services: Throughput pallets (in thousands) 12,605 12,632 (0.2) %
Same store warehouse services revenues per throughput pallet
$ 25.88 $ 25.26 2.5 % Constant currency same store warehouse services revenues per throughput pallet$ 26.36 $ 25.26 4.4 % Number of non-same store sites 37 31 n/a
Non-same store rent and storage:
Economic occupancy(1)
Average economic occupied pallets 776 298 160.5 %
Economic occupancy percentage 77.6 % 80.8 % -321 bps
Physical occupancy(2)
Average physical occupied pallets 750 288 160.2 %
Average physical pallet positions 1,000 369 171.3
Physical occupancy percentage 75.0 % 78.2 % -320 bps
Non-same store warehouse services:
Throughput pallets (in thousands) 3,311 1,255 163.8 %
(1)We define average economic occupancy as the aggregate number of physically
occupied pallets and any additional pallets otherwise contractually committed
for a given period, without duplication. We estimate the number of contractually
committed pallet positions by taking into account actual pallet commitments
specified in each customer's contract, and subtracting the physical pallet
positions.
(2)We define average physical occupancy as the average number of occupied
pallets divided by the estimated number of average physical pallet positions in
our warehouses for the applicable period. We estimate the number of physical
pallet positions by taking into account actual racked space and by estimating
unracked space on an as-if racked basis. We base this estimate on a formula
utilizing the total cubic feet of each room within the warehouse that is
unracked divided by the volume of an assumed rack space that is consistent with
the characteristics of the relevant warehouse. On a warehouse by warehouse
basis, rack space generally ranges from three to four feet depending upon the
type of facility and the nature of the customer goods stored therein. The number
of our pallet positions is reviewed and updated quarterly, taking into account
changes in racking configurations and room utilization.
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Economic occupancy at our same stores was 80.4% for the six months ended
June 30, 2020 , an increase of 308 basis points compared to 77.3% for the six
months ended June 30, 2019 . This change was primarily the result of an increase
in fixed storage contracts and higher average physical occupancy. Our economic
occupancy at our same stores was 710 basis points higher than our corresponding
average physical occupancy of 73.3%. The increase of 8 basis points in average
physical occupancy compared to 73.2% for the six months ended June 30, 2019 was
partially driven by higher protein occupancy and higher food service business
occupancy due to "stay-at-home" orders as well as port congestion as a result of
COVID-19, which generated lower throughput of inventory within our warehouses.
This was partially offset by the decline in physical occupancy related to the
retail products as a result of higher grocery demand related to COVID-19.
Same store rent and storage revenues per economic occupied pallet increased 0.6%
period-over-period, primarily driven by a more favorable customer mix,
improvements in our commercial terms and contractual rate escalations, partially
offset by unfavorable foreign currency translation, which was largely driven by
the strengthening of the U.S. dollar. On a constant currency basis, our same
store rent and storage revenues per occupied pallet increased 1.8%
period-over-period.
Throughput pallets at our same stores were 12.6 million pallets for the six
months ended June 30, 2020 , a slight decrease of 0.2% from the six months ended
June 30, 2019 . This decrease was the result of the COVID related impacts in
various sectors and commodities, including the initial surge and ongoing
elevated demand from our grocery retail sector, offset by the decrease in
throughput in the food service sector and protein commodity. Same store
warehouse services revenues per throughput pallet increased 2.5%
period-over-period, primarily as a result of a more favorable customer mix,
increase in higher priced value-added services such as case-picking, blast
freezing and repackaging and contractual rate escalations, partially offset by
unfavorable foreign currency translation as previously discussed. On a constant
currency basis, our same store services revenues per throughput pallet increased
4.4% from the six months ended June 30, 2019 .
Third-Party Managed Segment
The following table presents the operating results of our third-party managed
segment for the six months ended June 30, 2020 and 2019.
Six Months Ended June 30, Change
2020 constant Constant
2020 actual currency(1) 2019 actual Actual currency
Number of managed sites 11 12 n/a n/a
(Dollars in thousands)
Third-party managed revenues $ 137,875 $ 138,633 $ 125,651 9.7 % 10.3 %
Third-party managed cost of
operations 130,807 131,516 119,588 9.4 % 10.0 %
Third-party managed segment
contribution $ 7,068 $ 7,117 $ 6,063 16.6 % 17.4 %
Third-party managed margin 5.1 % 5.1 % 4.8 % 30 bps 31 bps
(1)The adjustments from our
Third-party managed revenues were$137.9 million for the six months endedJune 30, 2020 , an increase of$12.2 million , or 9.7%, compared to$125.7 million for the six months endedJune 30, 2019 . On a constant currency basis, third-party managed revenues were$138.6 million for the six months endedJune 30, 2020 , an increase of$13.0 million , or 10.3%, from the six months endedJune 30, 2019 . This increase was a result of the addition of one managed site in connection with the Cloverleaf Acquisition and higher business volume in our domestic and foreign managed operations. This increase was partially offset by the unfavorable impact of foreign 84 -------------------------------------------------------------------------------- Table of Contents currency translation related to our Canadian and Australian managed revenues, and the impacts from the exit of two domestic managed sites during 2019. Third-party managed cost of operations was$130.8 million for the six months endedJune 30, 2020 , an increase of$11.2 million , or 9.4%, compared to$119.6 million for the six months endedJune 30, 2019 . On a constant currency basis, third-party managed cost of operations was$131.5 million for the six months endedJune 30, 2020 , an increase of$11.9 million , or 10.0%, from the six months endedJune 30, 2019 . Third-party managed cost of operations increased as a result of the revenue trends described above. Third-party managed segment contribution (NOI) was$7.1 million for the six months endedJune 30, 2020 , an increase of$1.0 million , or 16.6%, compared to$6.1 million for the six months endedJune 30, 2019 . On a constant currency basis, third-party managed segment contribution (NOI) was$7.1 million for the six months endedJune 30, 2020 , an increase of$1.1 million , or 17.4%. Transportation Segment The following table presents the operating results of our transportation segment for the six months endedJune 30, 2020 and 2019. Six Months Ended June 30, Change 2020 constant Constant 2020 actual currency(1) 2019 actual Actual currency (Dollars in thousands) Transportation revenues$ 70,778 $ 72,432 $ 73,588 (3.8) % (1.6) % Brokered transportation 51,450 52,828 53,189 (3.3) % (0.7) % Other cost of operations 9,751 9,848 11,837 (17.6) % (16.8) % Total transportation cost of operations 61,201 62,676 65,026 (5.9) % (3.6) % Transportation segment contribution (NOI)$ 9,577 $ 9,756 $ 8,562 11.9 % 13.9 % Transportation margin 13.5 % 13.5 % 11.6 % 190 bps 183 bps (1)The adjustments from ourU.S. GAAP operating results to calculate our operating results on a constant currency basis are the effect of changes in foreign currency exchange rates relative to the comparable prior period. Our transportation segment continued its strategic shift to focus on more profitable solutions, which create value for our customers while driving and supporting our warehouse business, including multi-vendor consolidation offerings. Transportation revenues were$70.8 million for the six months endedJune 30, 2020 , a decrease of$2.8 million , or 3.8%, compared to$73.6 million for the six months endedJune 30, 2019 . The decrease was primarily driven by the exit of certain low-margin international and domestic transportation business, paired with the unfavorable impact from the foreign currency translation of revenues earned by our foreign operations. Domestically, our transportation operations experienced an increase due to the revenue associated with transportation operations from the Cloverleaf Acquisition, which contributed approximately$3.1 million during the six months endedJune 30, 2020 . On a constant currency basis, transportation revenues were$72.4 million for the six months endedJune 30, 2020 , a decrease of$1.2 million , or 1.6%, from the six months endedJune 30, 2019 . Transportation cost of operations was$61.2 million for the six months endedJune 30, 2020 , a decrease of$3.8 million , or 5.9%, compared to$65.0 million for the six months endedJune 30, 2019 . On a constant currency basis, transportation cost of operations was$62.7 million for the six months endedJune 30, 2020 , a decrease of$2.4 million , or 3.6%, from the six months endedJune 30, 2019 . The strategic shift referenced above paired with the impact of the foreign currency translation of our international costs led to a decline in transportation cost of 85 -------------------------------------------------------------------------------- Table of Contents operations for the segment. The decrease was partially offset by the cost associated with transportation operations from the Cloverleaf Acquisition. Transportation segment contribution (NOI) was$9.6 million for the six months endedJune 30, 2020 , an increase of 11.9% compared to the six months endedJune 30, 2019 . Transportation segment margin increased 190 basis points from the six months endedJune 30, 2019 , to 13.5% from 11.6%. The increase in margin was primarily due to the strategic shift referenced above, which resulted in more profitable business. Additionally, the impact of operations from the Cloverleaf Acquisition was nominal for the six months ended 2020 and 2019. On a constant currency basis, transportation segment contribution was$9.8 million for the six months endedJune 30, 2020 , an increase of 13.9% compared to the six months endedJune 30, 2019 . Quarry Segment The following table presents the operating results of our quarry segment for the six months endedJune 30, 2020 and 2019. Six Months Ended June 30, Change 2020 2019 % (Dollars in thousands) Quarry revenues$ 4,459 $ 4,454 0.1 % Quarry cost of operations 4,269 3,918 9.0 % Quarry segment contribution (NOI)$ 190 $ 536 (64.6) % Quarry margin 4.3 % 12.0 % (64.6) % Quarry revenues were$4.5 million for the six months endedJune 30, 2020 and 2019, while the quarry experienced lower revenue during the first quarter of 2020 due to COVID-19 construction delays, this was offset during the second quarter of 2020 as certain construction was resumed. Quarry cost of operations was$4.3 million for the six months endedJune 30, 2020 , an increase of$0.4 million , or 9.0%, compared to$3.9 million for the six months endedJune 30, 2019 . The slight increase was due to increased routine maintenance and equipment rental. Quarry segment contribution (NOI) was$0.2 million for the six months endedJune 30, 2020 , a decrease of$0.3 million from the six months endedJune 30, 2019 , due to the reasons listed above. The Quarry segment was sold onJuly 1, 2020 , resulting in an impairment charge of$3.7 million during the three months endedJune 30, 2020 . Other Consolidated Operating Expenses Depreciation, depletion and amortization. Depreciation, depletion and amortization expense was$104.0 million for the six months endedJune 30, 2020 , an increase of$33.5 million , or 47.5%, compared to$70.5 million for the six months endedJune 30, 2019 . This increase was primarily due to the acquisitions in 2019 and 2020, as well as the Rochelle expansion facility which was placed into service during the second quarter of 2019. Selling, general and administrative. Corporate-level selling, general and administrative expenses were$69.2 million for the six months endedJune 30, 2020 , an increase of$5.4 million , or 8.5%, compared to$63.8 million for the six months endedJune 30, 2019 . Included in these amounts are business development expenses attributable to new business pursuits, supply chain solutions and underwriting, facility development, customer on-boarding, and engineering and consulting services to support our customers in the cold chain. We believe these costs are comparable to leasing costs for other publicly-traded REITs. The increase was primarily 86 -------------------------------------------------------------------------------- Table of Contents driven by higher share-based compensation expense and higher payroll and benefits related to additional investments to support our expanded development pipeline, partially offset by lower travel costs due to the ongoing COVID-19 pandemic and related travel restrictions. Acquisition, litigation and other. Corporate-level acquisition, litigation and other expenses were$4.5 million for the six months endedJune 30, 2020 , a decrease of$22.0 million compared to the six months endedJune 30, 2019 . Included in these amounts are business acquisition related costs, litigation costs associated with litigation charges outside of the normal course of business or resulting from a settlement, severance and equity acceleration costs incurred in connection with former executives, severance as a result of synergies realized from acquisitions or operational transformation, non-offering related equity issuance expenses and terminated site operations costs. We view all of these costs as corporate in nature regardless of the segment or segments involved in certain transactions. Additionally, we view these costs as having a high level of variability from period-to-period, and therefore, in order to enhance our disclosure and provide greater transparency, we have isolated them from selling, general and administrative expenses. During the six months endedJune 30, 2020 , we incurred$3.4 million of acquisition related expenses primarily composed of employee retention, professional fees and integration related costs in connection with completed and potential acquisitions. Additionally, we incurred$1.1 million of severance related to reduction in headcount as a result of the synergies from acquisitions and realignment of our international operations during the first half of 2020. During the six months endedJune 30, 2019 , we incurred$10 million in investment advisory fees related to the Cloverleaf andLanier acquisitions. In addition, we incurred$4.3 million of severance and equity acceleration expenses related to exited former executives and the resignation of a member of theBoard of Trustees , and$2.6 million of severance related to reduction in headcount as a result of the synergies created from the Cloverleaf andLanier acquisitions and realignment of our international operations. We also incurred$1.3 million of costs in connection with the secondary offering of common shares on behalf of our significant shareholders inMarch 2019 , for which we received no proceeds. Other professional fees incurred in connection with potential mergers, acquisitions and integration related costs totaled$6.5 million for the first half of 2019, and litigation related professional fees incurred were$1.4 million for the first half of 2019. Impairment of long-lived assets. For the six months endedJune 30, 2020 , we recorded impairment charges of$3.7 million . During the second quarter of 2020, we recorded an impairment charge related to the anticipated sale of our quarry business, which was subsequently completed onJuly 1, 2020 . For the six months endedJune 30, 2019 , we recorded impairment charges of$13.5 million . During the first quarter of 2019, management and ourBoard of Trustees formally approved the "Atlanta Major Market Strategy" plan which included the partial redevelopment of an existing warehouse facility. The partial redevelopment required the demolition of 75% of the current warehouse, which was unused. The remainder of this site has continued operating as normal during the construction period. As a result of this initiative, we recorded an impairment charge of$9.6 million . Additionally, during the first quarter of 2019, we recorded an impairment charge of$2.9 million related to a domestic idle warehouse facility in anticipation of sale of the asset, which was completed during the second quarter of 2019. Each of these impaired assets previously mentioned related to the Warehouse segment. Gain from sale of real estate. For the six months endedJune 30, 2020 , we recorded a$21.9 million gain from the sale of real estate. OnJanuary 31, 2020 , we received official notice from a customer to exercise its contractual call option to purchase land from us inSydney, Australia , which we previously purchased for future development. We received proceeds upon exercise of the call option during the first quarter of 2020, resulting in a$2.5 million gain on sale. Additionally, onJune 19, 2020 , we completed the sale of a facility in our Warehouse segment, and began to transition the business to other nearby facilities, resulting in a$19.4 million gain from sale of real estate. 87 -------------------------------------------------------------------------------- Table of Contents Other Expense and Income The following table presents other items of income and expense for the six months endedJune 30, 2020 and 2019. Six Months Ended June 30, Change 2020 2019 % Other (expense) income: (Dollars in thousands) Interest expense$ (47,048) $ (45,674) 3.0 % Interest income$ 848 $ 3,408 (75.1) % Bridge loan commitment fees $ -$ (2,665) 100.0 %
Loss on debt extinguishment and modification
$ - n/r Foreign currency exchange loss$ (177) $ (23) n/r Other income (expense) - net$ 915 $ (758) n/r (Loss) income from investments in partially owned entities$ (156) $ 54 (388.9) % n/r: not relevant Interest expense. Interest expense was$47.0 million for the six months endedJune 30, 2020 , an increase of$1.4 million , or 3.0%, compared to$45.7 million for the six months endedJune 30, 2019 . The increase was primarily due to the interest expense incurred in connection with the increase in the senior unsecured term loan A which was expanded inMarch 2020 to fund the Nova Cold acquisition and the private placement of$350.0 million aggregate principal amount of Series C senior unsecured notes onMay 7, 2019 , which were used to fund a portion of the Cloverleaf andLanier acquisitions. The effective interest rate of our outstanding debt has decreased from 5.00% for the six months endedJune 30, 2019 to 4.22% for the six months endedJune 30, 2020 , however, outstanding principal has increased from$1.7 billion as ofJune 30, 2019 to$1.8 billion as ofJune 30, 2020 . Interest income. Interest income was$0.8 million for the six months endedJune 30, 2020 , a decrease of$2.6 million when compared to the$3.4 million reported for the six months endedJune 30, 2019 . This change was primarily driven by a lower interest rate of 0.82% earned during the six months endedJune 30, 2020 as compared to 2.5% during the six months endedJune 30, 2019 . Bridge loan commitment fees. Corporate-level bridge loan commitment fees were$2.7 million for the six months endedJune 30, 2019 . We obtained a bridge loan commitment to support the acquisition of Cloverleaf. The bridge loan facility ultimately did not need to be funded and accordingly we expensed the lender commitment and loan fee. Loss on debt extinguishment and modification. During the first quarter of 2020 we refinanced our Senior Unsecured Credit Facility, which resulted in the write-off of certain unamortized deferred financing costs. Foreign currency exchange loss. We reported a$0.2 million foreign currency exchange loss for the six months endedJune 30, 2020 as compared to a nominal foreign currency exchange loss for the six months endedJune 30, 2019 . The periodic re-measurement of intercompany payables with quarterly settlement denominated inU.S. dollars resulted in a foreign currency exchange loss during the six months endedJune 30, 2020 as theU.S. dollar strengthened against the Australian dollar. Other income (expense) - net. During the six months endedJune 30, 2020 , we reported other income of$0.9 million , compared to other expense of$0.8 million for the six months endedJun 30, 2019 . During the first half of 2020, other income was mainly due to a lease restoration payment received from a tenant in one of our facilities, and net gain from asset disposals. During the first half of 2019, other expense was mainly due to pension non-service costs. These costs have decreased during the first half of 2020 as compared to the prior year. 88 -------------------------------------------------------------------------------- Table of Contents (Loss) income from investments in partially owned entities. During the first half of 2020, we entered into the Brazil JV for which we recorded$0.2 million as our portion of loss generated by SuperFrio. During the six months endedJune 30, 2019 , we recorded income of$0.1 million related to the China JV, which we later exited during the third quarter of 2019. Income Tax Expense Income tax expense for the six months endedJune 30, 2020 was$1.7 million , an increase of$2.1 million when compared to the$0.4 million benefit reported for the six months endedJune 30, 2019 . Although income tax expense for the six months endedJune 30, 2020 increased by$2.9 million due to an increase in earnings generated by our domestic and foreign operations, it was partially offset by a deferred tax benefit of approximately$1.0 million due to additional deferred tax liability for the Cloverleaf andLanier acquisitions recorded during the quarter that became available to be used as a positive source of income for valuation allowance assessment purposes. In addition, a deferred tax expense of$0.2 million was also recorded for the tax effect related to the CARES Act due to an increase in the existing valuation allowance associated with an increase in the net operating losses for additional interest deductibility permitted under the Act. 89
-------------------------------------------------------------------------------- Table of Contents Non-GAAP Financial Measures We use the following non-GAAP financial measures as supplemental performance measures of our business: FFO, Core FFO, Adjusted FFO, EBITDAre and Core EBITDA. We calculate funds from operations, or FFO, in accordance with the standards established by theBoard of Governors of theNational Association of Real Estate Investment Trusts , or NAREIT. NAREIT defines FFO as net income or loss determined in accordance withU.S. GAAP, excluding extraordinary items as defined underU.S. GAAP and gains or losses from sales of previously depreciated operating real estate assets, plus specified non-cash items, such as real estate asset depreciation and amortization, real estate asset impairment and our share of reconciling items for partially owned entities. We believe that FFO is helpful to investors as a supplemental performance measure because it excludes the effect of depreciation, amortization and gains or losses from sales of real estate, all of which are based on historical costs, which implicitly assumes that the value of real estate diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, FFO can facilitate comparisons of operating performance between periods and among other equity REITs. We calculate core funds from operations, or Core FFO, as FFO adjusted for the effects of gain or loss on the sale of non-real estate assets, non-real estate impairment, acquisition, litigation and other expenses, share-based compensation expense for the IPO retention grants, bridge loan commitment fees, loss on debt extinguishment and modification, and foreign currency exchange gain or loss. We also adjust for the impact of Core FFO attributable to partially owned entities. We have elected to reflect our share of Core FFO attributable to partially owned entities since the Brazil JV is a strategic partnership which we continue to actively participate in on an ongoing basis. The previous joint venture, the China JV, was considered for disposition during the periods presented. We believe that Core FFO is helpful to investors as a supplemental performance measure because it excludes the effects of certain items which can create significant earnings volatility, but which do not directly relate to our core business operations. We believe Core FFO can facilitate comparisons of operating performance between periods, while also providing a more meaningful predictor of future earnings potential. However, because FFO and Core FFO add back real estate depreciation and amortization and do not capture the level of maintenance capital expenditures necessary to maintain the operating performance of our properties, both of which have material economic impacts on our results from operations, we believe the utility of FFO and Core FFO as a measure of our performance may be limited. We calculate adjusted funds from operations, or Adjusted FFO, as Core FFO adjusted for the effects of amortization of deferred financing costs, pension withdrawal liability and above or below market leases, straight-line net rent, provision or benefit from deferred income taxes, share-based compensation expense from grants of stock options and restricted stock units under our equity incentive plans, excluding IPO grants, non-real estate depreciation and amortization, and maintenance capital expenditures. We also adjust for AFFO attributable to our share of reconciling items of partially owned entities. We believe that Adjusted FFO is helpful to investors as a meaningful supplemental comparative performance measure of our ability to make incremental capital investments in our business and to assess our ability to fund distribution requirements from our operating activities. FFO, Core FFO and Adjusted FFO are used by management, investors and industry analysts as supplemental measures of operating performance of equity REITs. FFO, Core FFO and Adjusted FFO should be evaluated along withU.S. GAAP net income and net income per diluted share (the most directly comparableU.S. GAAP measures) in evaluating our operating performance. FFO, Core FFO and Adjusted FFO do not represent net income or cash flows from operating activities in accordance withU.S. GAAP and are not indicative of our results of operations or cash flows from operating activities as disclosed in our consolidated statements of operations included elsewhere in this Quarterly Report on Form 10-Q. FFO, Core FFO and Adjusted FFO should be considered as supplements, but not alternatives, to our net income or cash flows from operating activities as indicators of our operating performance. Moreover, other REITs may not calculate FFO in accordance with the NAREIT definition or may interpret the NAREIT definition differently than we do. Accordingly, our FFO may not be comparable to FFO as calculated by other REITs. In addition, there is no industry definition of Core FFO or Adjusted FFO and, as a result, other REITs may also calculate Core FFO or Adjusted FFO, or other similarly-captioned metrics, in a manner different than we do. The table below reconciles FFO, Core FFO and Adjusted FFO to net income, which is the most directly comparable financial measure calculated in accordance withU.S. GAAP. 90
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Reconciliation of Net Income to NAREIT FFO, Core FFO, and Adjusted FFO
(in thousands)
Six Months Ended June
Three Months Ended June 30, 30,
2020 2019 2020 2019
Net income $ 32,662 $ 4,891 $ 56,173 $ 262
Adjustments:
Real estate related depreciation and depletion 35,558 28,518 71,000 51,183
Net (gain) loss on sale of real estate, net of
withholding taxes (19,414) 34 (21,510) 34
Net (gain) loss on asset disposals (3) - (3) 138
Impairment charges on certain real estate assets 3,181 - 3,181 12,555
Real estate depreciation on partially owned entities (34) 269 - 558
Our share of reconciling items related to partially
owned entities 156 - 156 -
NAREIT Funds from operations 52,106 33,712 108,997 64,730
Adjustments:
Net (gain) loss on sale of non-real estate assets (252) 167 (417) 49
Non-real estate asset impairment 486 930 486 930
Acquisition, litigation and other expense 2,801 17,964 4,489 26,457
Share-based compensation expense, IPO grants 203 556 576 1,163
Bridge loan commitment fees - 2,665 - 2,665
Loss on debt extinguishment and modifications - - 781 -
Foreign currency exchange (gain) loss (315) 83 177 23
Our share of reconciling items related to partially owned entities
79 - 79 -
Core FFO applicable to common shareholders 55,108 56,077 115,168 96,017
Adjustments:
Amortization of deferred financing costs and pension withdrawal liability
1,196 1,522 2,742 2,978
Amortization of below/above market leases - 38 76 76
Straight-line net rent (108) (151) (217) (288)
Deferred income taxes benefit (967) (3,352) (3,069) (4,412)
Share-based compensation expense, excluding IPO
grants 4,261 2,628 8,195 4,660
Non-real estate depreciation and amortization 16,841 11,919 33,003 19,350
Non-real estate depreciation and amortization on
partially owned entities (22) 107 - 209
Maintenance capital expenditures (a) (15,284) (10,734) (27,722) (16,221)
Our share of reconciling items related to partially owned entities
78 - 78 -
Adjusted FFO applicable to common shareholders
(a)Maintenance capital expenditures include capital expenditures made to extend
the life of, and provide future economic benefit from, our existing
temperature-controlled warehouse network and its existing supporting personal
property and information technology.
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We calculate EBITDA for Real Estate, or EBITDAre, in accordance with the standards
established by the Board of Governors of NAREIT, defined as, earnings before interest
expense, taxes, depreciation, depletion and amortization, gains or losses on disposition
of depreciated property, including gains or losses on change of control, impairment
write-downs of depreciated property and of investments in unconsolidated affiliates caused
by a decrease in value of depreciated property in the affiliate, and adjustment to reflect
share of EBITDAre of unconsolidated affiliates. EBITDAre is a measure commonly used in our
industry, and we present EBITDAre to enhance investor understanding of our operating
performance. We believe that EBITDAre provides investors and analysts with a measure of
operating results unaffected by differences in capital structures, capital investment
cycles and useful life of related assets among otherwise comparable companies.
We also calculate our Core EBITDA as EBITDAre further adjusted for acquisition, litigation
and other expenses, bridge loan commitment fees, impairment of long-lived assets, loss on
debt extinguishment and modification, share-based compensation expense, foreign currency
exchange gain or loss, loss or gain on other asset disposals, loss or income on partially
owned entities and reduction in EBITDAre from partially owned entities. We believe that
the presentation of Core EBITDA provides a measurement of our operations that is
meaningful to investors because it excludes the effects of certain items that are
otherwise included in EBITDAre but which we do not believe are indicative of our core
business operations. EBITDAre and Core EBITDA are not measurements of financial
performance under U.S. GAAP, and our EBITDAre and Core EBITDA may not be comparable to
similarly titled measures of other companies. You should not consider our EBITDAre and
Core EBITDA as alternatives to net income or cash flows from operating activities
determined in accordance with U.S. GAAP. Our calculations of EBITDAre and Core EBITDA have
limitations as analytical tools, including:
•these measures do not reflect our historical or future cash requirements for
maintenance capital expenditures or growth and expansion capital expenditures;
•these measures do not reflect changes in, or cash requirements for, our working
capital needs;
•these measures do not reflect the interest expense, or the cash requirements
necessary to service interest or principal payments, on our indebtedness;
•these measures do not reflect our tax expense or the cash requirements to pay
our taxes; and
•although depreciation, depletion and amortization are non-cash charges, the
assets being depreciated, depleted and amortized will often have to be replaced
in the future and these measures do not reflect any cash requirements for such
replacements.
We use EBITDAre and Core EBITDA as measures of our operating performance and not as
measures of liquidity. The table below reconciles EBITDAre and Core EBITDA to net
income, which is the most directly comparable financial measure calculated in accordance
with U.S. GAAP.
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Reconciliation of Net Income to NAREIT EBITDAre and Core EBITDA
(In thousands)
Six Months Ended June
Three Months Ended June 30, 30,
2020 2019 2020 2019
Net income $ 32,662 $ 4,891 $ 56,173 $ 262
Adjustments:
Depreciation, depletion and amortization 52,399 40,437 104,003 70,533
Interest expense 23,178 24,098 47,048 45,674
Income tax expense (benefit) 1,196 (906) 1,287 (418)
Net (gain) loss on sale of real estate, net of
withholding taxes (19,414) 34 (21,510) 34
Adjustment to reflect share of EBITDAre of
partially owned entities 237 592 297 1,207
NAREIT EBITDAre $ 90,258 $ 69,146 $ 187,298 $ 117,292
Adjustments:
Acquisition, litigation, and other expense 2,801 17,964 4,489 26,457
Bridge loan commitment fees - 2,665 - 2,665
Loss (income) from investments in partially owned
entities 129 68 156 (54)
Impairment of long-lived assets 3,667 930 3,667 13,485
(Gain) loss on foreign currency exchange (315) 83 177 23
Share-based compensation expense 4,464 3,185 8,771 5,824
Loss on debt extinguishment and modifications - - 781 -
Net (gain) loss on sale of non-real estate assets (255) 168 (420) 188
Reduction in EBITDAre from partially owned
entities (237) (592) (297) (1,207)
Core EBITDA $ 100,512 $ 93,617 $ 204,622 $ 164,673
93
-------------------------------------------------------------------------------- Table of Contents LIQUIDITY AND CAPITAL RESOURCES InMarch 2020 , theSecurities and Exchange Commission (SEC) adopted amendments to Rule 3-10 of Regulation S-X and created Rule 13-01 to simplify disclosure requirements related to certain registered securities. The rule is effectiveJanuary 4, 2021 but earlier compliance is permitted. The Company and theOperating Partnership have filed a registration statement on Form S-3 with theSEC registering, among other securities, debt securities of theOperating Partnership , which will be fully and unconditionally guaranteed by the Company. As a result of the amendments to Rule 3-10 of Regulation S-X, subsidiary issuers of obligations guaranteed by the parent are not required to provide separate financial statements, provided that the subsidiary obligor is consolidated into the parent company's consolidated financial statements, the parent guarantee is "full and unconditional" and, subject to certain exceptions as set forth below, the alternative disclosure required by Rule 13-01 is provided, which includes narrative disclosure and summarized financial information. Accordingly, separate consolidated financial statements of theOperating Partnership have not been presented. Furthermore, as permitted under Rule 13-01(a)(4)(vi), the Company has excluded the summarized financial information for theOperating Partnership as the assets, liabilities and results of operations of the Company and theOperating Partnership are not materially different than the corresponding amounts presented in the consolidated financial statements of the Company, and management believes such summarized financial information would be repetitive and not provide incremental value to investors. We currently expect that our principal sources of funding for working capital, facility acquisitions, expansions, maintenance and renovation of our properties, developments projects, debt service and distributions to our shareholders will include: •current cash balances; •cash flows from operations; •our 2018 forward sale agreement; •our ATM Equity Program and related forward sale agreements; and •other forms of debt financings and equity offerings. We expect that our funding sources as noted above are adequate and will continue to be adequate to meet our short-term liquidity requirements and capital commitments. These liquidity requirements and capital commitments include: •operating activities and overall working capital; •capital expenditures; •debt service obligations; and •quarterly shareholder distributions. We expect to utilize the same sources of capital we will rely on to meet our short-term liquidity requirements to also meet our long-term liquidity requirements, which include funding our operating activities, our debt service obligations and shareholder distributions, and our future development and acquisition activities. As previously discussed, the COVID-19 pandemic has created disruption among several industries. The outbreak of COVID-19 has significantly adversely impacted global economic activity and has contributed to significant volatility and negative pressure in financial markets. While we did not incur significant disruption during the three or six months endedJune 30, 2020 from the COVID-19 pandemic, we are unable to predict the impact that the pandemic may have on the sources of capital upon which we rely. We are a well-known seasoned issuer with an effective shelf registration statement filed onApril 16, 2020 , which registered an indeterminate amount of common shares, preferred shares, depositary shares and warrants, as well as 94 -------------------------------------------------------------------------------- Table of Contents debt securities of theOperating Partnership , which will be fully and unconditionally guaranteed by us. As circumstances warrant, we may issue equity securities from time to time on an opportunistic basis, dependent upon market conditions and available pricing. We may use the proceeds for general corporate purposes, which may include the repayment of outstanding indebtedness, the funding of development, expansion and acquisition opportunities and to increase working capital. OnAugust 23, 2019 , we entered into an equity distribution agreement pursuant to which we may sell, from time to time, up to an aggregate sales price of$500.0 million of our common shares through an ATM equity program (an "ATM Equity Program"). There were no common shares sold under the ATM Equity Program during the first quarter of 2020. OnApril 16, 2020 , this ATM Equity Program was terminated and replaced with a new ATM Equity Program, pursuant to which we may sell up to an aggregate sales price of$500.0 million of our common shares. Sales of our common shares made pursuant to the ATM Equity Program may be made in negotiated transactions or transactions that are deemed to be "at the market" offerings as defined in Rule 415 under the Securities Act, including sales made directly on the NYSE, or sales made to or through a market maker other than on an exchange, or as otherwise agreed between the applicable agent and us. Sales may also be made on a forward basis pursuant to separate forward sale agreements. We intend to use any net proceeds from sales of our common shares pursuant to the new ATM Equity Program for working capital, capital expenditures and other general corporate purposes, which may include funding development, expansion and acquisitions opportunities and the repayment of outstanding indebtedness. During the quarter endedJune 30, 2020 , there were 3,094,431 common shares sold under the ATM Equity Program, resulting in gross proceeds of$110.4 million . In addition, during the second quarter of 2020, the Company entered into a forward sale agreement in connection with the ATM Equity Program to sell 472,551 common shares for gross proceeds of$17.2 million , which must be settled byJuly 1, 2021 . After considering the common shares issued during the second quarter of 2020 and the shares subject to the forward sale agreement, the Company had approximately$372.4 million availability remaining for distribution under the ATM Equity Program as ofJune 30, 2020 . Security Interests in Customers' Products By operation of law and in accordance with our customer contracts (other than leases), we typically receive warehouseman's liens on products held in our warehouses to secure customer payments. Such liens permit us to take control of the products and sell them to third parties in order to recover any monies receivable on a delinquent account, but such products may be perishable or otherwise not readily saleable by us. Historically, in instances where we have warehouseman's liens and our customer sought bankruptcy protection, we have been successful in receiving "critical vendor" status, which has allowed us to fully collect on our accounts receivable during the pendency of the bankruptcy proceeding. Our bad debt expense was$0.9 million and$0.2 million for the three months endedJune 30, 2020 and 2019, respectively, and$1.5 million and$0.6 million for the six months endedJune 30, 2020 and 2019, respectively. As ofJune 30, 2020 , we maintained bad debt allowances of approximately$10.5 million , which we believed to be adequate. 95 -------------------------------------------------------------------------------- Table of Contents Dividends and Distributions We are required to distribute 90% of our taxable income (excluding capital gains) on an annual basis in order to continue to qualify as a REIT for federal income tax purposes. Accordingly, we intend to make, but are not contractually bound to make, regular quarterly distributions to shareholders from cash flows from our operating activities. While historically we have satisfied this distribution requirement by making cash distributions to our shareholders, we may choose to satisfy this requirement by making distributions of cash or other property. All such distributions are at the discretion of ourBoard of Trustees . We consider market factors and our performance in addition to REIT requirements in determining distribution levels. We have distributed at least 100% of our taxable income annually since inception to minimize corporate-level federal income taxes. Amounts accumulated for distribution to shareholders are invested primarily in interest-bearing accounts and short-term interest-bearing securities, which are consistent with our intention to maintain our status as a REIT. As a result of this distribution requirement, we cannot rely on retained earnings to fund our ongoing operations to the same extent that other companies which are not REITs can. We may need to continue to raise capital in the debt and equity markets to fund our working capital needs, as well as potential developments in new or existing properties, acquisitions or investments in existing or newly created joint ventures. In addition, we may be required to use borrowings under our revolving credit facility, if necessary, to meet REIT distribution requirements and maintain our REIT status. We declared the following dividends on its common shares during the six months endedJune 30, 2020 and 2019 (in thousands, except per share amounts): Six Months Ended June 30, 2020 Dividend Per Distributions Month Declared/Paid Share Declared Distributions Paid December (2019)/January $ 0.2000 $ - $ 38,796 Dividend equivalents accrued on unvested restricted stock units to December(a) - (169) be paid when the awards vest. Dividend equivalents paid on unvested restricted stock units that are not expected to vest (recognized as additional December (2019)/January - 4 compensation). March/April 0.2100 42,568 42,568 Dividend equivalents accrued on unvested restricted stock units to March(b) - (233) be paid when the awards vest. Dividend equivalents paid on unvested restricted stock units that are not expected to vest (recognized as additional March/April - 10 compensation). May/July 0.2100 43,271 -$ 85,839 $ 80,976 (a)Declared inDecember 2019 and included in the$38.8 million declared, see description to the right regarding timing of payment. (b)Declared in March and included in the$42.6 million declared, see description to the right regarding timing of payment. 96
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Six Months Ended June 30, 2019
Dividend Per Distributions
Month Declared/Paid Share Declared Distributions Paid
December (2018)/January $ 0.1875 $ - $ 28,218
Dividend equivalents accrued on
unvested restricted stock units to
December(a) (127) be paid when the awards vest.
Dividend equivalents paid on
unvested restricted stock units
that are not expected to vest
(recognized as additional
December (2018)/January 7 compensation).
March/April 0.2000 30,235 30,235
Dividend equivalents accrued on
unvested restricted stock units to
March (b) (142) be paid when the awards vest.
Dividend equivalents paid on
unvested restricted stock units
that are not expected to vest
(recognized as additional
March/April 15 compensation).
May/July 0.2000 38,764 -
$ 68,999 $ 58,206
(a)Declared in December 2018 and included in the $28.2 million declared, see
description to the right regarding timing of payment.
(b)Declared in March and included in the $30.2 million declared, see description
to the right regarding timing of payment.
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Outstanding Indebtedness
The following table presents our outstanding indebtedness as of June 30, 2020
and December 31, 2019 .
Effective
Interest Rate Outstanding principal amount at
as of June 30, Contractual December
Indebtedness Stated Maturity Date 2020(7) Interest Rate June 30, 2020 31, 2019
2013 Mortgage Loans
Senior note 5/2023 3.81% 4.14% $ 178,101 $ 181,443
Mezzanine A 5/2023 7.38% 7.55% 70,000 70,000
Mezzanine B 5/2023 11.50% 11.75% 32,000 32,000
Total 2013 Mortgage Loans 280,101 283,443
Senior Unsecured Notes
Series A 4.68% notes due 2026 1/2026 4.68% 4.77% 200,000 200,000
Series B 4.86% notes due 2029 1/2029 4.86% 4.92% 400,000 400,000
Series C 4.10% notes due 2030 1/2030 4.10% 4.15% 350,000 350,000
Total Senior Unsecured Notes 950,000 950,000
2020 Senior Unsecured Term Loan
Tranche A-1(1) 3/2025 L+0.95% 2.65% 425,000 -
2020 Senior Unsecured Term Loan
Tranche A-2(2)(6) 3/2025 C+0.95% 1.61% 183,600 -
Total 2020 Senior Unsecured Term Loan A Facility(4) 608,600 -
2018 Senior Unsecured Term Loan A
Facility(1)(4) 1/2023 L+1.00% 3.14% - 475,000
Total principal amount of indebtedness $ 1,838,701 $ 1,708,443
Less: unamortized deferred financing
costs (14,295) (12,996)
Total indebtedness, net of unamortized deferred financing costs $ 1,824,406 2020 Senior Unsecured Revolving Credit Facility(3)(5) 3/2024 L+0.85% 0.23% $ - N/A 2018 Senior Unsecured Revolving Credit Facility(1)(3) 01/2021 L+0.90% 0.36% N/A $ - (1) L = one-month LIBOR. (2) C = one-month CDOR. (3) During the first quarter of 2020, the Company refinanced its Senior Unsecured Credit Facility. As such, the 2020 Senior Unsecured Revolving Credit Facility was in effect as ofJune 30, 2020 and the 2018 Senior Unsecured Revolving Credit Facility was in effect as ofDecember 31, 2019 . The above disclosure reflects N/A for the reporting date that the respective instrument was not in effect. (4) During the first quarter of 2020, the Company refinanced its Senior Unsecured Term Loan A. As such, the 2020 Senior Unsecured Term Loan A Facility was in effect as ofJune 30, 2020 and the 2018 Senior Unsecured Term Loan A Facility was in effect as ofDecember 31, 2019 . (5) The Company has the option to extend the 2020 Senior Unsecured Revolving Credit Facility up to two times for a six-month period each. (6) The 2020 Senior Unsecured Term Loan Tranche A-2 is denominated in Canadian dollars and aggregates to CAD$250.0 million . The carrying value in the table above is the US dollar equivalent as ofJune 30, 2020 . (7) The effective interest rate includes effects of amortization of the deferred financing costs. The weighted average effective interest rate for total debt was 4.15% and 4.57% as ofJune 30, 2020 andDecember 31, 2019 , respectively. 98 -------------------------------------------------------------------------------- Table of Contents 2020 Senior Unsecured Credit Facility OnMarch 26, 2020 , we entered into a five-year Senior Unsecured Term Loan A Facility and a four-year$800 million Senior Unsecured Revolving Credit Facility, which we refer to as the 2020 Senior Unsecured Credit Facility. The proceeds were used to refinance the existing$800 million 2018 Senior Unsecured Revolving Credit Facility maturingJanuary 23, 2021 and USD denominated$475 million 2018 Senior Unsecured Term Loan maturingJanuary 23, 2023 . The total borrowing capacity of the 2020 Senior Unsecured Credit Facility is approximately$1.4 billion USD . The Company reduced the margin on 2020 Senior Unsecured Term Loan A Facility and 2020 Senior Unsecured Credit Facility by five basis points. The 2020 Senior Unsecured Term Loan A Facility is broken into two tranches. Tranche A-1 is comprised of a$425.0 million USD term loan and Tranche A-2 is comprised of a CAD$250.0 million term loan, both are five-year loans maturing in 2025. Tranche A-2 provides a natural hedge for the Company's investment in the recently completedNova Cold acquisition. We refer to Tranches A-1 and A-2 in aggregate as the 2020 Senior Unsecured Term Loan Facility. In connection with entering into the agreement, we capitalized approximately$3.2 million of debt issuance costs related to the term loan, which we amortize as interest expense under the effective interest method. As ofJune 30, 2020 ,$7.8 million of unamortized debt issuance costs related to the 2020 Senior Unsecured Term Loan A Facility are included in "Mortgage notes, senior unsecured notes and term loan" in the accompanying Condensed Consolidated Balance Sheets. The maturity of the 2020 Senior Unsecured Revolving Credit Facility isMarch 26, 2024 , with the option to extend the maturity up to two times, each for a six-month period. In order to extend, the Company must not be in default, all representations and warranties must be in effect, obtain updated resolutions from loan parties, and an additional 6.25 bps extension fee must be paid. In connection with entering into the agreement, we capitalized approximately$5.2 million of debt issuance costs for the 2020 Senior Unsecured Revolving Credit Facility, which we amortize as interest expense under the straight-line method. Unamortized deferred financing costs as ofDecember 31, 2019 of$2.8 million will continue to be amortized over the life of the 2020 Senior Unsecured Revolving Credit Facility. As ofJune 30, 2020 ,$6.8 million of unamortized debt issuance costs related to the revolving credit facility are included in "Other assets" in the accompanying Condensed Consolidated Balance Sheet. Our 2020 Senior Unsecured Credit Facility contains representations, covenants and other terms customary for a publicly traded REIT. In addition, it contains certain financial covenants, as defined in the credit agreement, including: •a maximum leverage ratio of less than or equal to 60% of our total asset value. Following a material acquisition, leverage ratio shall not exceed 65%; •a maximum unencumbered leverage ratio of less than or equal to 60% to unencumbered asset value. Following a material acquisition, unencumbered leverage ratio shall not exceed 65%; •a maximum secured leverage ratio of less than or equal to 40% to total asset value. Following a material acquisition, secured leverage ratio shall not exceed 45%; •a minimum fixed charge coverage ratio of greater than or equal to 1.50x; and •a minimum unsecured interest coverage ratio of greater than or equal to 1.75x. Material Acquisition in our 2020 Senior Unsecured Credit Facility is defined as one in which assets acquired exceeds an amount equal to 5% of total asset value as of the last day of the most recently ended fiscal quarter publicly available. Obligations under our 2020 Senior Unsecured Credit Facility are general unsecured obligations of ourOperating Partnership and are guaranteed by the Company and certain subsidiaries of the Company. As ofJune 30, 2020 , the Company was in compliance with all debt covenants. 99 -------------------------------------------------------------------------------- Table of Contents There were$22.8 million letters of credit issued on the Company's 2020 Senior Unsecured Revolving Credit Facility as ofJune 30, 2020 . 2018 Senior Unsecured Credit Facility OnDecember 4, 2018 , we entered into the 2018 Senior Unsecured Revolving Credit Facility to, among other things, (i) increase the revolver borrowing capacity from$450 million to$800 million , (ii) convert the credit facility (term loan and revolver) from a secured credit facility to an unsecured credit facility, and (iii) decrease the applicable interest rate margins from 2.35% to 1.45% and decrease the fee on unused borrowing capacity by 5 basis points. The terms of the revolver allow for the ability to draw proceeds in multiple currencies, up to$400 million . In connection with entering into the original agreement and subsequent amendments for the Term Loan A Credit Facility, we capitalized approximately$8.9 million of debt issuance costs, which we amortize as interest expense under the effective interest method. As ofDecember 31, 2019 , the unamortized balance of Term Loan A debt issuance costs was$6.1 million and was included in "Mortgage notes, senior unsecured notes and term loans" on the accompanying Condensed Consolidated Balance Sheets. OnSeptember 24, 2019 , we reduced our interest rate margins from 1.45% to 1.00% and decreased the fee on unused borrowing capacity by 5 basis points for usage greater than 50% of the total commitment and 15 basis points for usage less than 50% of commitment. The fee for unused borrowing capacity was 20 basis points regardless of the percentage of total commitment used. During the third quarter of 2019, the Company received a favorable credit rating. This rating, when combined with existing ratings, allowed the Company to transition to a favorable ratings-based pricing grid during the third quarter of 2019. There were$23.0 million letters of credit issued on the Company's 2018 Senior Unsecured Revolving Credit Facility as ofDecember 31, 2019 . During the first quarter of 2020, the 2018 Senior Unsecured Revolving Credit Facility was refinanced and no longer in effect as ofJune 30, 2020 . Series A, B and C Senior Unsecured Notes OnApril 26, 2019 , we priced a debt private placement transaction consisting of$350.0 million senior unsecured notes with a coupon of 4.10% dueJanuary 8, 2030 ("Series C"). The transaction closed onMay 7, 2019 . Interest is paid onJanuary 8 andJuly 8 of each year until maturity, with the first payment occurringJanuary 8, 2020 . The notes are general unsecured obligations of the Company and are guaranteed by the Company and the subsidiaries of the Company. The Company applied the proceeds of the private placement transaction to repay the indebtedness outstanding under our senior unsecured revolving credit facility incurred in connection with the funding of the Cloverleaf andLanier acquisitions. OnNovember 6, 2018 , we priced a debt private placement transaction consisting of (i)$200.0 million senior unsecured notes with a coupon of 4.68% dueJanuary 8, 2026 ("Series A") and (ii)$400.0 million senior unsecured notes with a coupon of 4.86% dueJanuary 8, 2029 ("Series B"), collectively referred to as the debt private placement. The transaction closed onDecember 4, 2018 . Interest is paid onJanuary 8 andJuly 8 of each year until maturity, with the first payment occurringJuly 8, 2019 . The notes are our general unsecured senior obligations and are guaranteed by us and our subsidiaries. We applied a portion of the proceeds of the debt private placement to complete the defeasance of the$600.0 million Americold 2010LLC Trust , Commercial Mortgage Pass-Through Certificates, Series 2010, ART, or the 2010 Mortgage Loans. We applied the remaining proceeds to the Australian term loan and theNew Zealand term loan, or the ANZ Loans.
The Series A, Series B, and Series C senior notes and guarantee agreement includes a prepayment option executable at any time during the term of the loans. The prepayment can be either a partial payment or payment in
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full, as long as the partial payment is at least 5% of the outstanding
principal. Any prepayment in full must include a make-whole amount, which is the
discounted remaining scheduled payments due to the lender. The discount rate to
be used is equal to 0.50% plus the yield to maturity reported for the most
recently actively traded U.S. Treasury Securities with a maturity equal to the
remaining average life of the prepaid principal. The Company must give each
lender at least 10 day's written notice whenever it intends to prepay any
portion of the debt.
If a change in control occurs for us, we must issue an offer to prepay the remaining portion of the debt to the lenders. The prepayment amount will be 100% of the principal amount, as well as accrued and unpaid interest.
The Senior Unsecured Notes require compliance with leverage ratios, secured and unsecured indebtedness ratios, and unsecured indebtedness to qualified assets ratios. In addition, we are required to maintain at all times a credit rating for each series of notes from a nationally recognized statistical rating organization. The 2018 Senior Unsecured Notes agreement includes the following financial covenants: •a maximum leverage ratio of less than or equal to 60% of our total asset value; •a maximum unsecured indebtedness to qualified assets ratio of less than 0.60 to 1.00; •a maximum total secured indebtedness ratio of less than 0.40 to 1.00; •a minimum fixed charge coverage ratio of greater than or equal to 1.50 to 1.00; and •a minimum unsecured debt service ratio of greater than or equal to 2.00 to 1.00. As ofMarch 31, 2020 , we were in compliance with all debt covenants. 2013 Mortgage Loans OnMay 1, 2013 , we entered into a mortgage financing in an aggregate principal amount of$322.0 million , which we refer to as the 2013 Mortgage Loans. The debt consists of a senior debt note and two mezzanine notes. The components are cross-collateralized and cross-defaulted. The senior debt note requires monthly principal payments. The mezzanine notes require no principal payments until the stated maturity date inMay 2023 . The interest rates on the notes are fixed and range from 3.81% to 11.50% per annum. The senior debt note and the two mezzanine notes remain subject to yield maintenance provisions. We used the net proceeds of these loans to refinance certain of the 2006 Mortgage Loans, acquire two warehouses, and fund general corporate purposes. The 2013 Mortgage Loans are collateralized by 15 warehouses. The terms governing the 2013 Mortgage Loans require us to maintain certain cash amounts in accounts that are restricted as to their use for the respective warehouses. As ofJune 30, 2020 , the amount of restricted cash associated with the 2013 Mortgage Loans was$3.7 million . Additionally, if we do not maintain certain financial thresholds, including a debt service coverage ratio of 1.10x, the cash generated will further be temporarily restricted and limited to the use for scheduled debt service and operating costs. The 2013 Mortgage Loans are non-recourse to us subject to customary non-recourse carve-outs.
The 2013 Mortgage Loans also require compliance with other financial covenants, including a debt coverage ratio and cash flow calculation, as defined. Debt Covenants
Our Senior Unsecured Credit Facilities, the Senior Unsecured Notes and 2013
Mortgage Loans all require financial statement reporting, periodic reporting of
compliance with financial covenants, other established thresholds and
performance measurements, and compliance with affirmative and negative covenants
that govern
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our allowable business practices. The affirmative and negative covenants
include, among others, continuation of insurance, maintenance of collateral (in
the case of the 2013 Mortgage Loans), the maintenance of REIT status, and
restrictions on our ability to enter into certain types of transactions or take
on certain exposures. As of June 30, 2020 , we were in compliance with all debt
covenants.
Loss on debt extinguishment and modifications
In connection with the refinancing of the Senior Unsecured Credit Facility
during the first quarter of 2020 the Company recorded $0.8 million to "Loss on
debt extinguishment and modifications" in the accompanying Condensed
Consolidated Statements of Operations, representing the write-off of unamortized
deferred financing costs from the 2018 Senior Unsecured Credit Facility. These
write-offs were a result of two lenders in the 2018 Senior Unsecured Term Loan A
Facility that did not participate in the 2020 Senior Unsecured Term Loan A
Facility, accordingly those lenders' portion of unamortized deferred financing
costs were written off. Similarly, two lenders in the 2018 Senior Unsecured
Revolving Credit Facility did not participate in the 2020 Senior Unsecured
Revolving Credit Facility, and those lender's portions of unamortized deferred
financing costs were written off.
Credit Ratings
Our capital structure and financial practices have earned us investment grade
credit ratings from three nationally recognized credit rating agencies. We have
investment grade ratings of BBB with a stable outlook from both Fitch and DBRS
Morningstar, and an investment grade rating of Baa3 with a stable outlook from
Moody's. These credit ratings are important to our ability to issue debt at
favorable rates of interest, among other terms. Refer to our risk factor
"Adverse changes in our credit ratings could negatively impact our financing
activity" in our Annual Report on Form 10-K.
Maintenance Capital Expenditures and Repair and Maintenance Expenses
We utilize a strategic and preventative approach to maintenance capital
expenditures and repair and maintenance expenses to maintain the high quality
and operational efficiency of our warehouses and ensure that our warehouses meet
the "mission-critical" role they serve in the cold chain.
Maintenance Capital Expenditures
Maintenance capital expenditures are capitalized investments made to extend the
life of, and provide future economic benefit from, our existing
temperature-controlled warehouse network and its existing supporting personal
property and information technology systems. Examples of maintenance capital
expenditures related to our existing temperature-controlled warehouse network
include replacing roofs and refrigeration equipment, and upgrading our racking
systems. Examples of maintenance capital expenditures related to personal
property include expenditures on material handling equipment (e.g., fork lifts
and pallet jacks) and related batteries. Examples of maintenance capital
expenditures related to information technology include expenditures on existing
servers, networking equipment and current software. The following table sets
forth our maintenance capital expenditures for the three and six months ended
June 30, 2020 and 2019.
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Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
(In thousands, except per cubic foot amounts)
Real estate $ 14,140 $ 7,817 $ 23,530 $ 12,302
Personal property 762 1,554 3,061 1,724
Information technology 382 1,363 1,132 2,195
Maintenance capital expenditures $ 15,284 $ 10,734 $ 27,723 $ 16,221
Maintenance capital expenditures per cubic
foot $ 0.014 $ 0.010 $ 0.025 $ 0.015 Repair and Maintenance Expenses
We incur repair and maintenance expenses that include costs of normal maintenance and repairs and minor replacements that do not materially extend the life of the property or provide future economic benefits. Repair and maintenance expenses consist of expenses related to our existing temperature-controlled warehouse network and its existing supporting personal property and are reflected as operating expenses on our income statement. Examples of repair and maintenance expenses related to our warehouse portfolio include ordinary repair and maintenance on roofs, racking, walls, doors, parking lots and refrigeration equipment. Examples of repair and maintenance expenses related to personal property include ordinary repair and maintenance expenses on material handling equipment (e.g., fork lifts and pallet jacks) and related batteries. The following table sets forth our repair and maintenance expenses for the three and six months endedJune 30, 2020 and 2019. Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 (In thousands, except per cubic foot amounts) Real estate$ 7,148 $ 6,580 $ 13,945 $ 11,889 Personal property 7,214 8,125 15,398 16,021 Repair and maintenance expenses$ 14,362 $ 14,705 $ 29,343 $ 27,910 Repair and maintenance expenses per cubic foot$ 0.013 $ 0.014 $ 0.027 $ 0.026 External Growth, Expansion and Development Capital Expenditures External growth expenditures represent asset acquisitions or business combinations. Expansion and development capital expenditures are capitalized investments made to support both our customers and our warehouse expansion and development initiatives. It also includes investments in enhancing our information technology platform. Examples of capital expenditures associated with expansion and development initiatives include funding of construction costs, increases to warehouse capacity and pallet positions, acquisitions of reusable incremental material handling equipment, and implementing energy efficiency projects, such as thermal energy storage, LED lighting, motion-sensor technology, variable frequency drives for our fans and compressors, rapid-close doors and alternative-power generation technologies. Examples of capital expenditures to enhance our information technology platform include the delivery of new systems and software and customer interface functionality. 103 -------------------------------------------------------------------------------- Table of Contents Acquisitions The acquisitions completed during the first quarter of 2020 relate toNewport andNova Cold . The acquisition completed during the first half of 2019 relates to Cloverleaf,Lanier and PortFresh, and excludes amounts related to the assets under construction for expansion and development projects, further detailed below. The PortFresh acquisition cost included approximately$15.9 million allocated to land on which we are developing a new facility, and have classified within Expansion and development expenditures in order to reflect the total cost of the project. The Cloverleaf acquisition included approximately$16.0 million allocated to assets under construction which we have classified within Expansion and development expenditures in order to reflect the total cost of the projects discussed further below. Refer to Notes 2 and 3 of the Condensed Consolidated Financial Statements for details of the purchase price allocation for each acquisition. Expansion and development The expansion and development expenditures for the first half of 2020 are primarily driven by$61.2 million related to our two fully-automated development sites for Ahold Delhaize,$18.5 million related to the ongoingAtlanta major markets strategy project,$14.8 million in construction costs related to ourSavannah expansion site, which was completed during the second quarter of 2020 and$2.2 million related to theAuckland, New Zealand expansion project started during the second quarter of 2020. Subsequent to the acquisition of MHW, we exercised our call option to purchase land from the holder of the ground lease for$4.1 million . We also invested an additional$1.7 million for the Rochelle facility during the first half of 2020, which was previously opened during the second quarter of 2019. As a result of the Cloverleaf Acquisition onMay 1, 2019 , we acquired expansion projects that have been in development. We incurred an additional$0.7 million during the first half of 2020 for the expansion project inColumbus, Ohio , which was completed during the first quarter of 2020. We invested an additional$1.6 million for theChesapeake, VA expansion during the first half of 2020, which was substantially completed during the fourth quarter of 2019. Expansion and development initiatives expenses for the first half of 2020 also reflect$2.6 million of corporate initiatives, which are projects designed to reduce future spending over the course of time. This category reflects return on investment projects, conversion of leases to owned assets, and other cost-saving initiatives. During the first half of 2020, we incurred approximately$7.4 million for contemplated future expansion or development projects. The following table sets forth our external growth, expansion and development and capital expenditures for the three and six months endedJune 30, 2020 and 2019. Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 (In thousands) Acquisitions, net of cash acquired and adjustments$ 85 $ 1,307,182 $ 315,668 $ 1,327,205 Expansion and development initiatives 85,193 82,175 114,779 108,490 Information technology 2,029 1,329 2,980 2,051 Growth and expansion capital expenditures$ 87,307 $ 1,390,686 $ 433,427 $ 1,437,746 104
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Historical Cash Flows
Six Months Ended June 30,
2020 2019
(In thousands)
Net cash provided by operating activities
Operating Activities For the six months endedJune 30, 2020 , our net cash provided by operating activities was$164.0 million , an increase of$84.1 million , compared to$79.8 million for the six months endedJune 30, 2019 . The increase is due to higher segment contribution in our same store results and as a result of our acquisitions during 2019 and 2020. In addition, a reduction in M&A costs from 2019 due to fewer material acquisitions occurring in 2020 contributed to the increase. Investing Activities Our net cash used in investing activities was$443.0 million for the six months endedJune 30, 2020 compared to$1.5 billion for the six months endedJune 30, 2019 . Cash used in connection with business combinations during 2020 was$315.7 million and relate to theNewport andNova Cold acquisitions. Additions to property, buildings and equipment were$173.2 million for the six months endedJune 30, 2020 reflecting maintenance capital expenditures and investments in the Ahold,Savannah andAtlanta expansion and development projects. Additionally, we invested$26.2 million in the Brazil JV during the first quarter of 2020. These outflows were offset by$69.1 million in proceeds from the sale of land and property, buildings, and equipment for the six months endedJune 30, 2020 related to the sale of land inSydney and the sale of theBoston facility. Net cash used in investing activities of$1.5 billion for the six months endedJune 30, 2019 primarily related to cash used for the acquisitions of Cloverleaf andLanier totaling$1.3 billion , cash used of$35.9 million for the acquisition of PortFresh, additions to property, buildings and equipment of$98.4 million , partially offset by the$2.0 million return of investment in a joint venture. Financing Activities Net cash provided by financing activities was$374.3 million for the six months endedJune 30, 2020 compared to net cash provided by financing activities of$1.5 billion for the six months endedJune 30, 2019 . Cash provided by financing activities for the current period primarily consisted of$340.6 million net proceeds from equity offerings under the ATM Equity Program and the 2019 forward sale agreement which was settled inJanuary 2020 , the$177.1 million received in connection with the refinancing of our Senior Unsecured Term Loan and$186.8 million in proceeds from our revolving line of credit. These cash inflows were partially offset by$177.1 million of repayment on our revolving line of credit using the proceeds from our refinancing of our Senior Unsecured Term Loan,$81.0 million of quarterly dividend distributions paid,$53.3 million of repayments on term loan and mortgage notes and$8.3 million of payments related to debt issuance costs. Net cash provided by financing activities was$1.5 billion for the six months endedJune 30, 2019 and primarily consisted of$1.2 billion net proceeds from theApril 2019 follow-on equity offering, the$350.0 million received in connection with the issuance of our Series C senior unsecured notes inMay 2019 ,$100.0 million in proceeds from our revolving line of credit, and$9.6 million in proceeds from stock options exercised. These cash inflows were partially offset by$100.0 million of repayment on the revolving line of credit,$58.2 million of quarterly 105 -------------------------------------------------------------------------------- Table of Contents dividend distributions paid,$7.3 million of repayments on lease obligations,$7.1 million of repayments on mortgage notes and notes payable,$3.6 million paid for tax withholdings remitted to authorities related to stock options exercised, and$2.0 million of payments related to debt issuance costs. Off-Balance Sheet Arrangements As ofJune 30, 2020 , we had no material off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. CRITICAL ACCOUNTING POLICIES UPDATE See Note 2 to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.
NEW ACCOUNTING PRONOUNCEMENTS
See Note 2 to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.
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