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 I, Item 1A of our Annual Report on Form 10-K for the year endedDecember 31, 2020 . 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 ofSeptember 30, 2021 , we operated a global network of 248 temperature-controlled warehouses encompassing over 1.5 billion cubic feet, with 202 warehouses inNorth America , 27 inEurope , 16 warehouses inAsia-Pacific , and three warehouses inSouth America . In addition, we hold two minority interests in Brazilian-based joint ventures, one with SuperFrio, which owns or operates 33 temperature-controlled warehouses and one with Comfrio, which owns or operates 25 temperature-controlled warehouses. 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, (10) government-approved temperature-controlled storage and inspection services, (11) fumigation, (12) pre-cooling and cold treatment services, and (13) ripening. 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, labor availability, governmental policies and regulations, 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 can also be impacted as a result of discretionary bonuses. In response to the COVID-19 pandemic, we have incorporated certain activities such as staggered break schedules, social distancing, and other changes to processes that can create inefficiencies, all of which we expect to continue to incur going forward. Our second largest cost of operations from our warehouse segment is power utilized in the operation of our temperature-controlled 54 -------------------------------------------------------------------------------- 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 temperature zone or 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), PPE to maintain the health and safety of our associates, 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. We supplemented our regional, national and truckload consolidation business with the Hall's acquisition, which services the Northeast corridor of theU.S. with an owned and maintained fleet. Our acquisition of Agro Merchants further expands our Transportation service offering. Agro Merchants operates its own fleet of temperature-controlled vehicles in theU.S. ,Ireland andUK and also offers a variety of non-asset based transportation management services. These include multi-modal global freight forwarding services to support our customers' needs. Other Consolidated Operating Expenses. We also incur depreciation and amortization expenses, corporate-level selling, general and administrative expenses and corporate-level acquisition, litigation and other, net expenses. Our depreciation 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. 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. Our corporate-level acquisition, litigation and other, net consists 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 55 -------------------------------------------------------------------------------- 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 ourselves 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 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. •Other costs relate to insurance claim deductibles and related recoveries (second quarter 2021) and additional superannuation pension costs related to prior years upon review by the Australian Tax Office (third quarter 2020). Key Factors Affecting Our Business andFinancial Results Acquisitions and Joint Ventures OnSeptember 1, 2021 , the Company acquired Newark Facility Management for$391.4 million . The acquisition was funded using cash drawn on our 2020 Senior Unsecured Revolving Credit Facility. Since the date of acquisition, we have reported the results of this facility within our warehouse segment. OnAugust 2, 2021 , the Company acquired the assets of the ColdCo Companies for$20.7 million . The acquisition was funded using cash drawn on our 2020 Senior Unsecured Revolving Credit Facility. ColdCo consisted of an owned facility inSt. Louis, Missouri , and a leased facility inReno, Nevada as well as transportation services. Since the date of acquisition, we have reported the results of these facilities within our warehouse segment and the transportation services within our transportation segment. OnMay 28, 2021 , we acquired Bowman Stores for £75.5 million, or$107.1 million USD , based on the spot rate on the date of the transaction. The acquisition was funded using cash drawn on our 2020 Senior Unsecured Revolving Credit Facility. Bowman Stores consisted of a single campus located in Spalding,England . Since the date of acquisition, we have reported the results of this campus within our warehouse segment. OnMay 5, 2021 , we acquired KMT Brrr! for$70.8 million . The acquisition was funded using cash drawn on our 2020 Senior Unsecured Revolving Credit Facility. KMT Brrr! consisted of two owned facilities located inNew Jersey . It also provides transportation services to its customers. Since the date of acquisition, we have reported the results of these facilities within our warehouse and transportation segments. 56 -------------------------------------------------------------------------------- OnMarch 1, 2021 , we acquired Liberty Freezers forC$55.0 million . The acquisition was funded using cash drawn on our 2020 Senior Unsecured Revolving Credit Facility. Liberty consisted of four facilities inToronto ,Montreal andLondon, Canada . Since the date of acquisition, we have reported the results of these facilities within our warehouse segment. OnDecember 30, 2020 , we completed the acquisition of Agro Merchants for total consideration of$1.59 billion , including cash received of$47.5 million . This was comprised of cash consideration totaling$1.08 billion , of which$49.7 million was deferred, and the issuance of 14,166,667 common shares of beneficial interest to Oaktree and Agro management, with a fair value of$512.1 million based upon the closing share price onDecember 29, 2020 of$36.15 . Financing lease and sale-leaseback obligations associated with the acquisition totaled$105.4 million and when added to the total consideration transferred brings the total transaction cost to approximately$1.7 billion . Agro Merchants operated more than 236 million cubic feet of temperature-controlled warehouse and distribution space across 46 facilities and provided transportation services inthe United States ,Europe ,Australia andChile . TheChile facility and operations were subject to a joint venture agreement whereby there was a non-controlling interest holder with a 35% ownership interest. The results of this facility were consolidated in our results of operations. During the second quarter of 2021, we purchased the 35% ownership interest from the third party, and now own 100% of this facility and the operations. Since the date of acquisition, we have reported the results of the facilities within our warehouse segment, and the results of Agro's transportation services within our transportation segment. OnNovember 2, 2020 , we completed the acquisition ofNew Jersey basedHall's Warehouse Corporation for$489.2 million . Hall's consisted of eight facilities near thePort of Newark . Hall's also provides transportation services to its customers. Since the date of acquisition, we have reported the results of the facilities within our warehouse segment, and the results of Hall's transportation services within our transportation segment. OnAugust 31, 2020 , we completed the acquisition of Caspers Cold Storage for cash consideration of approximately$25.6 million utilizing available cash on hand. Caspers consisted of a single temperature-controlled warehouse located inTampa, Florida . Since the date of acquisition, we have reported the results of this facility within our warehouse segment. Additionally, onAugust 31, 2020 , we completed the acquisition of AM-C Warehouses for cash consideration of approximately$82.7 million utilizing available cash on hand. AM-C Warehouses consisted of an owned facility inMansfield, Texas and a leased facility inGrand Prairie, Texas . 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. 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 SuperFrio's results are included within "(Loss) income from investments in partially owned entities". As ofSeptember 30, 2021 , SuperFrio owns or operates 33 temperature-controlled warehouses inBrazil . OnJanuary 2, 2020 , we completed the purchase of all outstanding shares ofNova Cold for cash consideration ofC$338.7 million (USD$260.6 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$57.7 million , net of cash received, utilizing available cash on hand. Newport Cold consists 57 -------------------------------------------------------------------------------- of a single temperature-controlled warehouse located inSt. Paul, Minnesota . Since the date of acquisition, we have reported the results of this facility within our warehouse segment. Refer to Note 2, 3 and 4 of the Notes to the Condensed Consolidated Financial Statements for further information. COVID-19 58 -------------------------------------------------------------------------------- We are continuing to closely monitor the impact of the COVID-19 pandemic and any variants on all aspects of our business and geographies, including how it will impact our customers and business partners. While we did not incur significant disruptions during 2020 from the COVID-19 pandemic, the nine-months endedSeptember 30, 2021 were negatively impacted by COVID-19 related disruptions in (1) the food supply chain; (ii) our customers' production of goods; (iii) the labor market impacting availability and cost; and (iv) the macroeconomic environment including the impact of inflation on the cost to provide our services. We expect that end-consumer demand for food will remain consistent over the long-term with historic levels overall but varying between retail and food service sectors. The consistent end consumer demand has driven down holdings in our facilities as it remains steady and production has remained challenged since the onset of the pandemic. We expect it will continue to do so until our customers are able to ramp production back up to pre-pandemic levels for an extended period of time in order to rebuild inventory in the supply chain. However, uncertainty still surrounds the impact of the pandemic and recovery ultimately depends on many factors. COVID-19 disruptions in certain markets where we or our customers operate continue to impact the food supply chain and our business. As a result, occupancy and throughput volume continue at lower than historical levels experienced prior to COVID-19. As the Company continues to protect its employees from the spread of COVID-19, it is incurring elevated labor related costs and incremental health and safety supplies costs relative to its pre-pandemic experience. 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 occurrence of additional waves or spikes in infection rates (including the spread of variant strains), 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. We continue to expect to see inflationary impacts in the cost of providing our services, but anticipate that these will be partially mitigated through price increases that have either taken effect or are expected to take effect during the remainder of the year. Our business is deemed an "essential business" as defined by theDepartment of Homeland Security , which means that our associates 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 periodically 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 during peak outbreaks. These restrictions vary widely by jurisdiction and may continue to 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), which, in turn, may impact our business negatively. 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 our Annual Report on Form 10-K/A for the year endedDecember 31, 2020 for further considerations, "Risk Factors - Risks Related to Public Health Crises - We face various risks and uncertainties related to public health crises, including the recent and ongoing global outbreak of the novel coronavirus and variants (COVID-19). The COVID-19 pandemic is growing and its impacts are uncertain and hard to measure and may have a material adverse effect on us." 59 --------------------------------------------------------------------------------
Seasonality
We are involved in providing services to food producers, distributors, retailers and e-tailers whose businesses, in some cases, are seasonal or cyclical. In order to mitigate the volatility in our revenue and earnings caused by seasonal business, we have implemented fixed commitment contracts with certain of our customers. Our customers with fixed commitment contracts pay for guaranteed warehouse space in order to maintain their required inventory levels, which is especially helpful to them during periods of peak physical occupancy. The timing of Easter fluctuates between the first and second quarter of the year, however, on average the first and second quarter revenue and NOI are relatively consistent. On a portfolio-wide basis, physical occupancy rates are generally the lowest during May and June. Physical occupancy rates typically exhibit a gradual increase after May and June as a result of annual harvests and our customers building inventories in connection with end-of-year holidays and generally peak between mid-September and early December as a result thereof. The hottest weather for our portfolio occurs during the third quarter of the year resulting in increase power expense that negatively impacts NOI, and moderates during the fourth quarter. Typically, we have higher than average physical occupancy levels in October or November, which also tends to result in higher revenues. In light of the ongoing COVID-19 pandemic, we have seen variability in physical occupancy levels as compared to the typical seasonality trends. Additionally, the involvement of our customers in a cross-section of the food industry mitigates, in part, the impact of seasonality as peak demand for various products occurs at different times of the year (for example, demand for ice cream is typically highest in the summer while demand for frozen turkeys usually peaks in the late fall). Our southern hemisphere operations inAustralia ,New Zealand andSouth America also help balance the impact of seasonality in our global operations, as their growing and harvesting cycles are complementary toNorth America andEurope . Each of our warehouses sets its own operating hours based on demand, which is heavily driven by growing seasons and seasonal consumer demand for certain products. 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 typically 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. 60 --------------------------------------------------------------------------------
Prior period average Prior period average Average foreign foreign exchange foreign exchange exchange rates used to Average foreign exchange rate used
to adjust rate used to adjust
translate actual rates used to translate
actual operating results actual operating results
Foreign exchange operating results for actual operating results Foreign exchange for the three months for the nine months rates as of the three months ended for the nine months rates as of ended September 30, ended September 30, September 30, 2021 September 30, 2021 ended September 30, 2021 September 30, 2020 2021(1) 2021(1) Canadian Dollar 0.789 0.794 0.799 0.751 0.7510.739 Euro 1.158 1.179 1.196 N/A 1.1971.144 British Pound 1.347 1.378 1.385 N/A 1.334 1.286 Poland Zloty 0.251 0.258 0.263 N/A 0.2630.262 Australian Dollar 0.723 0.735 0.759 0.716 0.715 0.675 New Zealand Dollar 0.690 0.701 0.712 0.662 0.6620.637 Argentinian Peso 0.010 0.010 0.011 0.013 0.014 0.015 Chilean Peso 0.001 0.001 0.001 N/A 0.0010.001 Brazilian Real 0.184 0.191 0.188 0.178 0.186 0.186 (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. 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 transportation operations, 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. 61 -------------------------------------------------------------------------------- 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, for example, we have also added a dedicated fleet service offering through acquisitions such as Agro and Hall's. We intend to continue executing this strategy in the future. Historically Significant Customer For the three and nine months endedSeptember 30, 2021 and 2020, one customer accounted for more than 10% of our total revenues. For the three months endedSeptember 30, 2021 and 2020, sales to this customer were$79.8 million and$66.7 million , respectively. For the nine months endedSeptember 30, 2021 and 2020, sales to this customer were$209.8 million and$186.7 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,$74.9 million and$62.2 million represented reimbursements for certain expenses we incurred during the three months endedSeptember 30, 2021 and 2020, respectively, and$199.6 million and$173.0 million for the nine months ended wereSeptember 30, 2021 and 2020, 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 while ensuring our customers have the necessary space they need to support their business. 62 -------------------------------------------------------------------------------- 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, net). 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 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 underU.S. GAAP, and these measures should be considered as supplements, but not as alternatives, to our results calculated in accordance withU.S. GAAP. We provide reconciliations of these measures in the discussions of our comparative results of operations below. Same Store Analysis EffectiveJanuary 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 toJanuary 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 63 -------------------------------------------------------------------------------- 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 the first business day of each year, 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 endedSeptember 30, 2021 includes all properties that we owned atJanuary 2 , which had both been owned and had reached "normalized operations" byJanuary 2, 2020 . We calculate "same store contribution (NOI)" as revenues for the same store population less its cost of operations (excluding any depreciation and amortization, impairment charges, corporate-level selling, general and administrative expenses, corporate-level acquisition, litigation and other, net 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 intoU.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 ofSeptember 30, 2021 . The number of warehouses owned or operated in as ofSeptember 30, 2021 and excluded as same-store warehouses for the period endedSeptember 30, 2021 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 248 Same Store Warehouses 162 Non-Same Store Warehouses (1) 77 Third-Party Managed Warehouses 9 (1) During the third quarter of 2021, we completed the acquisition of ColdCo resulting in the addition of two facilities and the acquisition ofNewark Facility Management resulting in the addition of one facility. Additionally, we exited a facility inCanada for which the lease expired onSeptember 30, 2021 . As ofSeptember 30, 2021 , our portfolio consisted of 248 total warehouses, including 239 within the warehouse segment and nine in the third-party managed segment. In addition, we hold minority interests in two Brazilian joint ventures, Superfrio, which owns or operates 33 temperature-controlled warehouses, and Comfrio, which owns or operates 25 temperature-controlled warehouses. Same store contribution (NOI) is not a measurement of financial performance underU.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 withU.S. GAAP. We provide reconciliations of these measures in the discussions of our comparative results of operations below. 64 -------------------------------------------------------------------------------- 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 outsidethe 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 intoU.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 underU.S. GAAP, and our constant currency results should be considered as a supplement, but not as an alternative, to our results calculated in accordance withU.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 withU.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 uponU.S. GAAP. 65 -------------------------------------------------------------------------------- RESULTS OF OPERATIONS Comparison of Results for the Three Months EndedSeptember 30, 2021 and 2020 Warehouse Segment The following table presents the operating results of our warehouse segment for the three months endedSeptember 30, 2021 and 2020. Three Months Ended September 30, Change 2021 constant Constant 2021 actual currency(1) 2020 actual Actual currency (Dollars in thousands) Rent and storage$ 225,234 $ 224,210 $ 166,355 35.4 % 34.8 % Warehouse services 316,813 315,105 221,669 42.9 % 42.2 % Total warehouse segment revenues 542,047 539,315 388,024 39.7 % 39.0 % Power 38,931 38,774 27,145 43.4 % 42.8 % Other facilities costs (2) 53,050 52,533 35,752 48.4 % 46.9 % Labor 245,515 244,106 166,491 47.5 % 46.6 % Other services costs (3) 59,559 59,447 30,880 92.9 % 92.5 % Total warehouse segment cost of operations$ 397,055 $ 394,860 $ 260,268 52.6 % 51.7 % Warehouse segment contribution (NOI) 144,992 144,455 127,756 13.5 % 13.1 % Warehouse rent and storage contribution (NOI) (4) 133,253 132,903 103,458 28.8 % 28.5 % Warehouse services contribution (NOI) (5) 11,739 11,552 24,298 (51.7) % (52.5) % Total warehouse segment margin 26.7 % 26.8 % 32.9 % -618 bps -614 bps Rent and storage margin(6) 59.2 % 59.3 % 62.2 % -303 bps -291 bps Warehouse services margin(7) 3.7 % 3.7 % 11.0 % -726 bps -730 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$11.2 million and$3.4 million , on an actual basis, for the third quarter of 2021 and 2020, respectively. (3)Includes non-real estate rent expense (equipment lease and rentals) of$2.9 million and$2.2 million , on an actual basis, for the third quarter of 2021 and 2020, 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$542.0 million for the three months endedSeptember 30, 2021 , an increase of$154.0 million , or 39.7%, compared to$388.0 million for the three months endedSeptember 30, 2020 . On a constant currency basis, our warehouse segment revenues were$539.3 million for the three months endedSeptember 30, 2021 , an increase of$151.3 million , or 39.0%, from the three months endedSeptember 30, 2020 . Approximately$141.4 million of the increase, on an actual currency basis, was driven by acquisitions completed betweenOctober 2020 andSeptember 2021 . We acquired 61 warehouse facilities as a result of the Agro, Hall's, Liberty, Bowman, KMT Brrr! acquisitions betweenOctober 1, 2020 andJune 30, 2021 . As a result, these facilities are reflected in the entirety of the current period but none of the comparable prior period. Additionally, we acquired two facilities onAugust 2, 2021 as a result of the ColdCo acquisition and one facility onSeptember 1, 2021 as a result of the Newark Facility Management acquisition, and the results of these facilities are included in the current period since the date of acquisition. Revenue growth was also due to contractual and market-driven 66 -------------------------------------------------------------------------------- rate escalations and our recently completed developments. The foreign currency translation of revenues earned by our foreign operations had a net$2.7 million favorable impact during the three months endedSeptember 30, 2021 , which was mainly driven by the weakening of theU.S. dollar against the Australian dollar and the Euro. Warehouse segment cost of operations was$397.1 million for the three months endedSeptember 30, 2021 , an increase of$136.8 million , or 52.6%, compared to the three months endedSeptember 30, 2020 . On a constant currency basis, our warehouse segment cost of operations was$394.9 million for the three months endedSeptember 30, 2021 , an increase of$134.6 million , or 51.7%, from the three months endedSeptember 30, 2020 . Approximately$113.2 million of the increase, on an actual basis, was driven by the additional facilities in the warehouse segment we acquired in connection with the aforementioned acquisitions. In addition, we incurred increases in our cost of operations of our same store facilities related to labor, power and property insurance costs, all of which are reflective of current market trends. Additionally, the foreign currency translation of expenses incurred by our foreign operations had a net$2.2 million unfavorable impact during the three months endedSeptember 30, 2021 . For the three months endedSeptember 30, 2021 , warehouse segment contribution (NOI), increased$17.2 million , or 13.5%, to$145.0 million for the third quarter of 2021 compared to$127.8 million for the third quarter of 2020. The foreign currency translation of our results of operations had a$0.5 million favorable impact to the warehouse segment contribution period-over-period due to the weakening of theU.S. dollar. On a constant currency basis, warehouse segment NOI increased 13.1% from the three months endedSeptember 30, 2020 . Approximately$28.2 million of the increase, on an actual basis, was primarily driven by the additional facilities in the warehouse segment as a result of the aforementioned acquisitions, and the growth and modest synergies experienced period-over-period during overlapping periods of ownership for sites acquired during 2020. The growth is also attributable to revenue increases, partially offset by the following factors that impacted our same-store facilities: lower economic occupancy driven by the impact of COVID-19 on the food manufacturing supply chain and increased costs including labor, power and related travel costs, as well as property insurance. Same Store and Non-Same Store Analysis We had 162 same stores for the three months endedSeptember 30, 2021 . Please see "How We Assess the Performance of Our Business-Same Store Analysis" above for a reconciliation of the change in the same store portfolio from period to period. Amounts related to the acquisitions of Agro, AM-C Warehouses, Bowman Stores, Caspers, ColdCo, Halls, KMT Brrr!, Liberty Freezers, Newark Facility Management, one recently leased warehouse inAustralia , as well as certain expansion and development projects not yet stabilized are reflected within non-same store results. The following table presents revenues, cost of operations, contribution (NOI) and margins for our same stores and non-same stores with a reconciliation to the total financial metrics of our warehouse segment for the three months endedSeptember 30, 2021 and 2020. 67
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Three Months Ended September 30, Change 2021 constant Constant 2021 actual currency(1) 2020 actual Actual currency Number of same store sites 162 162 n/a n/a Same store revenues: (Dollars in thousands) Rent and storage$ 157,233 $ 157,108 $ 154,926 1.5 % 1.4 % Warehouse services 216,351 215,316 210,309 2.9 % 2.4 % Total same store revenues 373,584 372,424 365,235 2.3 % 2.0 % Same store cost of operations: Power 25,676 25,721 25,497 0.7 % 0.9 % Other facilities costs 31,743 31,700 32,859 (3.4) % (3.5) % Labor 168,426 167,673 155,114 8.6 % 8.1 % Other services costs 30,530 30,531 28,237 8.1 % 8.1 %
Total same store cost of operations
$ 241,707 6.1 % 5.8 % Same store contribution (NOI)$ 117,209 $ 116,799 $ 123,528 (5.1) % (5.4) % Same store rent and storage contribution (NOI)(2)$ 99,814 $ 99,687 $ 96,570 3.4 % 3.2 % Same store services contribution (NOI)(3)$ 17,395 $ 17,112 $ 26,958 (35.5) % (36.5) % Total same store margin 31.4 % 31.4 % 33.8 % -245 bps -246 bps Same store rent and storage margin(4) 63.5 % 63.5 % 62.3 % 115 bps 112 bps Same store services margin(5) 8.0 % 7.9 % 12.8 % -478 bps -487 bps Three Months Ended September 30, Change 2021 constant Constant 2021 actual currency(1) 2020 actual Actual currency Number of non-same store sites(6) 77 13 n/a n/a Non-same store revenues: (Dollars in thousands) Rent and storage$ 68,001 $ 67,102 $ 11,429 495.0 % 487.1 % Warehouse services 100,462 99,789 11,360 784.3 % 778.4 % Total non-same store revenues 168,463 166,891 22,789 639.2 % 632.3 % Non-same store cost of operations: Power 13,255 13,053 1,648 704.3 % 692.1 % Other facilities costs 21,307 20,833 2,893 636.5 % 620.1 % Labor 77,089 76,433 11,377 577.6 % 571.8 % Other services costs 29,029 28,916 2,643 998.3 % 994.1 % Total non-same store cost of operations$ 140,680 $ 139,235 $ 18,561 657.9 % 650.1 % Non-same store contribution (NOI)$ 27,783 $ 27,656 $ 4,228 557.1 % 554.1 % Non-same store rent and storage contribution (NOI)(2)$ 33,439 $ 33,216 $ 6,888 385.5 % 382.2 % Non-same store services contribution (NOI)(3)$ (5,656) $ (5,560) $ (2,660) (112.6) % (109.0) % Total non-same store margin 16.5 % 16.6 % 18.6 % -206 bps -198 bps Non-same store rent and storage margin(4) 49.2 % 49.5 % 60.3 % -1109 bps -1077 bps Non-same store services margin(5) (5.6) % (5.6) % (23.4) % 1779 bps 1784 bps 68
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Three Months Ended September 30, Change 2021 constant Constant 2021 actual currency(1) 2020 actual Actual currency Total warehouse segment revenues$ 542,047 $ 539,315 $ 388,024 39.7 % 39.0 % Total warehouse cost of operations$ 397,055 $ 394,860 $ 260,268 52.6 % 51.7 % Total warehouse segment contribution$ 144,992 $ 144,455 $ 127,756 13.5 % 13.1 % (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. (6)Non-same store warehouse count of 77 includes one recently leased warehouse inAustralia , one warehouse acquired through the Newark Facility Management acquisition onSeptember 1, 2021 , two facilities acquired through the ColdCo acquisition onAugust 2, 2021 , one warehouse acquired through the Bowman stores acquisition onMay 28, 2021 , two warehouses acquired through the KMT Brrr! acquisition onMay 5, 2021 , four warehouses acquired through the Liberty Freezers acquisition onMarch 1, 2021 , 46 warehouses acquired through the Agro acquisition onDecember 30, 2020 , eight warehouses acquired through the Hall's acquisition onNovember 2, 2020 , three warehouses acquired through the Casper's and AM-C warehouse acquisitions onAugust 31, 2020 and ten legacy facilities. During the third quarter of 2021, a leased facility from the Liberty Freezers acquisition was exited upon expiration of the lease. The results of these acquisitions are reflected in the results above since date of ownership. n/a - not applicable, the change in actual and constant currency metrics does not apply to site count.
The following table provides certain operating metrics to explain the drivers of our same store performance.
69 -------------------------------------------------------------------------------- Three Months Ended
2021 2020 Change Number of same store sites 162 162 n/a Same store rent and storage: Economic occupancy(1) Average occupied economic pallets 2,878 2,942 (2.2) % Economic occupancy percentage 76.5 % 78.3 % -179 bps Same store rent and storage revenues per economic occupied pallet$ 54.62 $ 52.66 3.7 % Constant currency same store rent and storage revenues per economic occupied pallet$ 54.58 $ 52.66 3.7 % Physical occupancy(2) Average physical occupied pallets 2,553 2,661 (4.1) % Average physical pallet positions 3,760 3,756 0.1 % Physical occupancy percentage 67.9 % 70.8 % -295 bps Same store rent and storage revenues per physical occupied pallet$ 61.59 $ 58.23 5.8 % Constant currency same store rent and storage revenues per physical occupied pallet$ 61.54 $ 58.23 5.7 % Same store warehouse services: Throughput pallets (in thousands) 7,328 7,467 (1.9) %
Same store warehouse services revenues per throughput pallet
$ 29.52 $ 28.16 4.8 % Constant currency same store warehouse services revenues per throughput pallet$ 29.38 $ 28.16 4.3 % Number of non-same store sites(3) 77 13 n/a
Non-same store rent and storage:
Economic occupancy(1) Average economic occupied pallets 1,182 202 485.5 % Economic occupancy percentage 74.3 % 63.5 % 1086 bps
Non-same store rent and storage revenues per economic occupied pallet
$ 57.51 $ 56.59 1.6 % Constant currency non-same store rent and storage revenues per economic occupied pallet$ 56.75 $ 56.59 0.3 % Physical occupancy(2) Average physical occupied pallets 1,156 188 515.0 % Average physical pallet positions 1,591 318 399.9 % Physical occupancy percentage 72.7 % 59.1 % 1360 bps
Non-same store rent and storage revenues per physical occupied pallet
$ 58.81 $ 60.79 (3.3) % Constant currency non-same store rent and storage revenues per physical occupied pallet$ 58.04 $ 60.79 (4.5) % Non-same store warehouse services: Throughput pallets (in thousands) 2,814 451 523.9 % Non-same store warehouse services revenues per throughput pallet$ 35.71 $ 25.19 41.7 %
Constant currency non-same store warehouse services revenues per throughput pallet
$ 35.47 $ 25.19 40.8 % (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. 70 -------------------------------------------------------------------------------- (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. (3)Non-same store warehouse count of 77 includes one recently leased warehouse inAustralia , one warehouse acquired through the Newark Facility Management acquisition onSeptember 1, 2021 , two facilities acquired through the ColdCo acquisition onAugust 2, 2021 , one warehouse acquired through the Bowman stores acquisition onMay 28, 2021 , two warehouses acquired through the KMT Brrr! acquisition onMay 5, 2021 , four warehouses acquired through the Liberty Freezers acquisition onMarch 1, 2021 , 46 warehouses acquired through the Agro acquisition onDecember 30, 2020 , eight warehouses acquired through the Hall's acquisition onNovember 2, 2020 , three warehouses acquired through the Casper's and AM-C warehouse acquisitions onAugust 31, 2020 and ten legacy facilities. During the third quarter of 2021, a leased facility from the Liberty Freezers acquisition was exited upon expiration of the lease. The results of these acquisitions are reflected in the results above since date of ownership. Economic occupancy at our same stores was 76.5% for the three months endedSeptember 30, 2021 , a decrease of 179 basis points compared to 78.3% for the quarter endedSeptember 30, 2020 . Storage levels were lower than prior year levels due to ongoing supply chain disruption as a result of the COVID-19 pandemic, as well as food manufacturers producing at less than full capacity. As such, our customers' existing inventories have continued to be drawn down to support steady consumer demand. Additionally, recent acquisitions came into the same store pool onJanuary 1, 2021 which have a lower percentage of fixed commitment revenue compared to our legacy same stores. Our economic occupancy at our same stores for the three months endedSeptember 30, 2021 was 866 basis points higher than our corresponding average physical occupancy of 67.9%. The decrease of 295 basis points in average physical occupancy compared to 70.8% for the quarter endedSeptember 30, 2020 was partially driven by the factors mentioned above. Same store rent and storage revenues per economic occupied pallet increased 3.7% period-over-period, primarily driven by improvements in our commercial terms and contractual rate escalations and business mix. On a constant currency basis, our same store rent and storage revenues per occupied pallet increased 3.7% period-over-period. Throughput pallets at our same stores were 7.3 million pallets for the three months endedSeptember 30, 2021 , a decrease of 1.9% from 7.5 million pallets for the three months endedSeptember 30, 2020 . This decrease was the result of the food manufacturers production decreasing as compared to the prior comparable period, also evidenced by the decrease in average physical occupancy. Food manufacturers have been unable to rebuild holdings in the supply chain primarily due to challenges in the labor market. Same store warehouse services revenue per throughput pallet increased 4.8% compared to the prior year primarily as a result of contractual rate escalations and favorable foreign currency translation as previously discussed. On a constant currency basis, our same store services revenue per throughput pallet increased 4.3% compared to the prior year. 71
-------------------------------------------------------------------------------- Third-Party Managed Segment The following table presents the operating results of our third-party managed segment for the three months endedSeptember 30, 2021 and 2020. Three Months Ended September 30, Change 2021 constant Constant 2021 actual currency(1) 2020 actual Actual currency
Number of managed sites 9 11 n/a n/a (Dollars in thousands) Third-party managed revenues$ 87,782 $ 87,610 $ 75,338 16.5 % 16.3 % Third-party managed cost of operations 83,231 83,095 71,945 15.7 % 15.5 % Third-party managed segment contribution$ 4,551 $ 4,515 $ 3,393 34.1 % 33.1 % Third-party managed margin 5.2 % 5.2 % 4.5 % 68 bps 65 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. Third-party managed revenues were$87.8 million for the three months endedSeptember 30, 2021 , an increase of$12.4 million , or 16.5%, compared to$75.3 million for the three months endedSeptember 30, 2020 . On a constant currency basis, third-party managed revenues were$87.6 million for the three months endedSeptember 30, 2021 , an increase of$12.3 million , or 16.3%, from the three months endedSeptember 30, 2020 . This increase was a result of higher pass-through labor expenses in our domestic and foreign managed operations due to the consumer demand shift to retail, higher business volume fromAustralia managed and paired with its favorable impact of foreign currency translation, partially offset by the exit of one Canadian managed site inAugust 2020 . Third-party managed cost of operations was$83.2 million for the three months endedSeptember 30, 2021 , an increase of$11.3 million , or 15.7%, compared to$71.9 million for the three months endedSeptember 30, 2020 . Third-party managed cost of operations increased as a result of the higher labor costs and management fee as discussed in the revenue trends above. Third-party managed segment contribution (NOI) was$4.6 million for the three months endedSeptember 30, 2021 , an increase of$1.2 million , or 34.1%, compared to$3.4 million for the three months endedSeptember 30, 2020 . 72 -------------------------------------------------------------------------------- Transportation Segment The following table presents the operating results of our transportation segment for the three months endedSeptember 30, 2021 and 2020. Three Months Ended September 30, Change 2021 constant Constant 2021 actual currency(1) 2020 actual Actual currency (Dollars in thousands) Transportation revenues$ 78,979 $ 78,068 $ 34,096 131.6 % 129.0
%
Transportation cost of operations 72,728 71,942 29,909 143.2 % 140.5
%
Transportation segment contribution (NOI)$ 6,251 $ 6,126 $ 4,187 49.3 % 46.3 % Transportation margin 7.9 % 7.8 % 12.3 % -437 bps -443
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. Transportation revenues were$79.0 million for the three months endedSeptember 30, 2021 , an increase of$44.9 million , or 131.6%, compared to$34.1 million for the three months endedSeptember 30, 2020 . The increase was primarily due to the revenue associated with transportation operations from the Hall's acquisition, which closed onNovember 2, 2020 , the Agro acquisition, which closed onDecember 30, 2020 and to a much lesser extent the KMT Brrr! acquisition which closed in earlyMay 2021 and the ColdCo acquisition which closed onAugust 2, 2021 . The increase was partially offset by the net decrease in revenue from the rationalization of certain domestic legacy market operations. Transportation cost of operations was$72.7 million for the three months endedSeptember 30, 2021 , an increase of$42.8 million , or 143.2%, compared to$29.9 million for the three months endedSeptember 30, 2020 . The increase was driven by the acquisitions and revenue trends mentioned above and a reduction in market capacity due to the COVID-19 pandemic, which has caused an increase in carrier fees. Additionally, this is partially offset by the net decrease of costs from the exit of certain domestic market operations. Transportation segment contribution (NOI) was$6.3 million for the three months endedSeptember 30, 2021 , an increase of 49.3% compared to the three months endedSeptember 30, 2020 . Transportation segment margin decreased 437 basis points from the three months endedSeptember 30, 2020 , to 7.9% from 12.3%. The decrease in margin was primarily due to the acquisition of lower-margin transportation business compared to our legacy operations, coupled with higher carrier fees as a result of the COVID-19 pandemic. Other Consolidated Operating Expenses Depreciation and amortization. Depreciation and amortization expense was$70.6 million for the three months endedSeptember 30, 2021 , an increase of$17.0 million , or 31.7%, compared to$53.6 million for the three months endedSeptember 30, 2020 . This increase was primarily due to the acquisitions in late 2020 and 2021. Selling, general and administrative. Corporate-level selling, general and administrative expenses were$45.5 million for the three months endedSeptember 30, 2021 , an increase of$9.6 million , or 26.6%, compared to$36.0 million for the three months endedSeptember 30, 2020 . 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 driven by costs assumed from the Agro and Hall's acquisitions, net of synergies realized and higher third-party professional 73 -------------------------------------------------------------------------------- and legal fees, partially offset by lower short-term incentive plan expense based on underperformance compared to budget. Acquisition, litigation and other, net. Corporate-level acquisition, litigation and other, net expenses were$6.3 million for the three months endedSeptember 30, 2021 , an increase of$1.1 million compared to the three months endedSeptember 30, 2020 . During the three months endedSeptember 30, 2021 , we incurred$6.3 million of acquisition related expenses primarily comprised of professional fees and integration related costs in connection with completed and potential acquisitions. During the three months endedSeptember 30, 2020 , we incurred an aggregate$5.3 million of acquisition, litigation and other, net expenses, of which$4.9 million related to acquisition expenses primarily composed of professional fees and integration related costs in connection with the Agro acquisition as well as other potential acquisitions. Impairment of long-lived assets. For the three months endedSeptember 30, 2021 , we recorded impairment charges totaling$1.8 million , related to the write-off of certain software costs for programs which would no longer be used and costs incurred for development projects which management determined it would not continue to pursue. For the three months endedSeptember 30, 2020 , we recorded an impairment charge of$2.6 million due to the strategic decision to accelerate our exit of a managed facility and another managed facility that we planned to exit by the end of 2020. We recorded an impairment charge for the remaining net book value related to the long-lived assets, including building improvements and racking, which would not be removed prior to our exit of these facilities. Other Expense and Income The following table presents other items of expense and income for the three months endedSeptember 30, 2021 and 2020. Three Months Ended September 30, Change 2021 2020 % Other (expense) income: (Dollars in thousands) Interest expense$ (25,303) $ (23,066) 9.7 % Loss on debt extinguishment, modifications and termination of derivative instruments$ (627) $ - 100.0 % Other, net$ (523) $ (1,198) (56.3) % Interest expense. Interest expense was$25.3 million for the three months endedSeptember 30, 2021 , an increase of$2.2 million , or 9.7%, compared to$23.1 million for the three months endedSeptember 30, 2020 . The increase was primarily due to the issuance of the Series D and Series E Senior Unsecured Notes inDecember 2020 , combined with short-term withdrawals on our Senior Unsecured Revolving Credit Facility. This was partially offset by the decrease in interest expense on our Senior Unsecured Term Loan A Facility due to the early principal repayment of$100.0 million and$200.0 million inDecember 2020 andJanuary 2021 , respectively. The effective interest rate of our outstanding debt decreased from 4.13% in the third quarter of 2020 to 3.09% in the third quarter of 2021. Loss on debt extinguishment, modifications and termination of derivative instruments. Loss on debt extinguishment, modifications, and termination of derivative instruments of$0.6 million for the three months endedSeptember 30, 2021 was primarily driven by the amortization of fees paid for the termination of interest rate swaps during 2020. Other expense, net. Other expense, net was$0.5 million for the three months endedSeptember 30, 2021 , a decrease of$0.7 million , compared to$1.2 million for the three months endedSeptember 30, 2020 . This decrease is due to loss on various asset disposals in 2020 that did not recur in 2021. 74 -------------------------------------------------------------------------------- Income Tax Expense Income tax benefit for the three months endedSeptember 30, 2021 was$0.2 million , an increase of$1.0 million from an income tax expense of$0.8 million for the three months endedSeptember 30, 2020 . The change in income tax expense was primarily attributable to the decrease in valuation allowance related to recent acquisitions. The remainder was primarily attributable to losses generated from our foreign operations during 2021. Comparison of Results for the Nine Months EndedSeptember 30, 2021 and 2020 Warehouse Segment The following table presents the operating results of our warehouse segment for the nine months endedSeptember 30, 2021 and 2020. Nine Months Ended September 30, Change 2021 constant Constant 2021 actual currency(1) 2020 actual Actual currency (Dollars in thousands) Rent and storage$ 642,787 $ 633,774 $ 492,328 30.6 % 28.7 % Warehouse services 888,445 869,710 649,175 36.9 % 34.0 % Total warehouse segment revenues 1,531,232 1,503,484 1,141,503 34.1 % 31.7 % Power 97,315 96,098 68,918 41.2 % 39.4 % Other facilities costs (2) 155,143 152,699 102,499 51.4 % 49.0 % Labor 684,475 669,918 502,087 36.3 % 33.4 % Other services costs (3) 158,747 156,781 93,338 70.1 % 68.0 % Total warehouse segment cost of operations$ 1,095,680 $ 1,075,496 $ 766,842 42.9 % 40.3 %
Warehouse segment contribution (NOI)
$ 374,661 16.3 % 14.2 % Warehouse rent and storage contribution (NOI) (4)$ 390,329 $ 384,977 $ 320,911 21.6 % 20.0 % Warehouse services contribution (NOI) (5)$ 45,223 $ 43,011 $ 53,750 (15.9) % (20.0) % Total warehouse segment margin 28.4 % 28.5 % 32.8 % -438 bps -436 bps Rent and storage margin(6) 60.7 % 60.7 % 65.2 % -446 bps -444 bps Warehouse services margin(7) 5.1 % 4.9 % 8.3 % -319 bps -333 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$30.7 million and$9.2 million , on an actual basis, for the nine months endedSeptember 30, 2021 and 2020, respectively. (3)Includes non-real estate rent expense (equipment lease and rentals) of$8.7 million and$7.5 million , on an actual basis, for the nine months endedSeptember 30, 2021 and 2020, 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$1,531.2 million for the nine months endedSeptember 30, 2021 an increase of$389.7 million , or 34.1%, compared to$1,141.5 million for the nine months endedSeptember 30, 2020 . On a constant currency basis, our warehouse segment revenues were$1,503.5 million for the nine months ended 75 --------------------------------------------------------------------------------September 30, 2021 , an increase of$362.0 million or 31.7%, from the nine months endedSeptember 30, 2020 . Approximately$371.1 million of the increase, on an actual currency basis, was driven by acquisitions completed during 2020 and 2021, including the growth experienced period-over-period during overlapping periods of ownership. We acquired 54 warehouse facilities as a result of the Agro and Hall's acquisitions betweenOctober 1, 2020 andDecember 31, 2020 . As a result, these facilities are reflected in the entirety of the current period but none of the comparable prior period. OnAugust 31, 2020 , we completed the acquisition of two facilities as a result of the AM-C acquisition and one facility as a result of the Caspers acquisition, and the results of these acquisitions are included in the results of prior period since the date of acquisition and for the entirety of the current period. Additionally, we acquired four facilities onMarch 1, 2021 as a result of the Liberty acquisition, two facilities onMay 5, 2021 as a result of the KMT Brrr! acquisition, one facility onMay 28, 2021 as a result of the Bowman Stores acquisition, two facilities onAugust 2, 2021 as a result of the ColdCo acquisition and one facility onSeptember 1, 2021 as a result of theNewark Facility Management acquisition, and the results of these facilities are included in the current period since the date of acquisition. Revenue growth was also due to contractual rate escalations and our recently completed developments. This was partially offset by COVID-19 and the related labor challenges which continued to impact food production. The foreign currency translation of revenues earned by our foreign operations had a$27.7 million favorable impact during the nine months endedSeptember 30, 2021 , which was mainly driven by the weakening of theU.S. dollar over the Australian dollar, Euro, and Canadian dollar. Warehouse segment cost of operations was$1,095.7 million for the nine months endedSeptember 30, 2021 , an increase of$328.8 million , or 42.9%, compared to the nine months endedSeptember 30, 2020 . On a constant currency basis, our warehouse segment cost of operations was$1,075.5 million for the three months endedSeptember 30, 2021 , an increase of$308.7 million , or 40.3%, from the nine months endedSeptember 30, 2020 . Approximately$288.2 million of the increase, on an actual basis, was driven by the additional facilities in the warehouse segment we acquired in connection with the aforementioned acquisitions. In addition, we incurred increases in our cost of operations in response to COVID-19, power, labor, property tax and insurance costs, all of which are reflective of current market trends. This is partially offset by the appreciation bonus we paid to front-line associates to recognize the dedication and efforts of our associates during the COVID-19 pandemic during the second quarter of 2020, which totaled$4.3 million . Additionally, the foreign currency translation of expenses incurred by our foreign operations had a net$20.2 million unfavorable impact during the nine months endedSeptember 30, 2021 . For the nine months endedSeptember 30, 2021 , warehouse segment contribution (NOI), increased$60.9 million , or 16.3%, to$435.6 million for the nine months endedSeptember 30, 2021 , compared to$374.7 million for the nine months endedSeptember 30, 2020 . The foreign currency translation of our results of operations had a$7.6 million favorable impact to the warehouse segment contribution period-over-period. On a constant currency basis, warehouse segment NOI increased$53.3 million . Approximately$82.9 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, including the growth and synergies experienced period-over-period during overlapping periods of ownership. The remainder of the increase was driven by contractual rate escalations, the impact of the appreciation bonus paid during the second quarter of 2020 and disciplined cost controls through the Americold Operating System of our other services 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, lower holdings driven by the impact of COVID-19 on the food manufacturing supply chain and the increase in costs including power, property insurance and taxes and facility leasing costs. Same Store and Non-Same Store Analysis We had 162 same stores for the nine months endedSeptember 30, 2021 . Please see "How We Assess the Performance of Our Business-Same Store Analysis" above for a reconciliation of the change in the same store 76 -------------------------------------------------------------------------------- portfolio from period to period. Amounts related to the acquisitions of Agro, AM-C Warehouses, Bowman Stores, Caspers, ColdCo, Halls, KMT Brrr!, Liberty,Newark , ColdCo, one recently leased warehouse inAustralia , as well as certain expansion and development projects not yet stabilized 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 nine months endedSeptember 30, 2021 and 2020. Nine Months Ended September 30, Change 2021 constant Constant 2021 actual currency(1) 2020 actual Actual currency Number of same store sites 162 162 n/a n/a Same store revenues: (Dollars in thousands) Rent and storage$ 457,384 $ 453,945 $ 460,623 (0.7) % (1.4) % Warehouse services 631,694 619,336 619,002 2.1 % 0.1 % Total same store revenues 1,089,078 1,073,281 1,079,625 0.9 % (0.6) % Same store cost of operations: Power 65,287 65,068 64,742 0.8 % 0.5 % Other facilities costs 97,735 96,917 94,818 3.1 % 2.2 % Labor 488,382 478,435 468,955 4.1 % 2.0 % Other services costs 85,747 85,374 85,435 0.4 % (0.1) %
Total same store cost of operations
$ 713,950 3.2 % 1.7 % Same store contribution (NOI)$ 351,927 $ 347,487 $ 365,675 (3.8) % (5.0) % Same store rent and storage contribution (NOI)(2)$ 294,362 $ 291,960 $ 301,063 (2.2) % (3.0) % Same store services contribution (NOI)(3)$ 57,565 $ 55,527 $ 64,612 (10.9) % (14.1) % Total same store margin 32.3 % 32.4 % 33.9 % -156 bps -149 bps Same store rent and storage margin(4) 64.4 % 64.3 % 65.4 % -100 bps -104 bps Same store services margin(5) 9.1 % 9.0 % 10.4 % -133 bps -147 bps 77
--------------------------------------------------------------------------------
Nine Months Ended September 30, Change 2021 constant Constant 2021 actual currency(1) 2020 actual Actual currency Number of non-same store sites 77 13 n/a n/a Non-same store revenues: (Dollars in thousands) Rent and storage$ 185,403 $ 179,829 $ 31,705 484.8 % 467.2 % Warehouse services 256,751 250,373 30,173 750.9 % 729.8 % Total non-same store revenues 442,154 430,202 61,878 614.6 % 595.2 % Non-same store cost of operations: Power 32,028 31,030 4,176 667.0 % 643.1 % Other facilities costs 57,408 55,782 7,681 647.4 % 626.2 % Labor 196,092 191,483 33,132 491.9 % 477.9 % Other services costs 73,000 71,407 7,904 823.6 % 803.4 % Total non-same store cost of operations$ 358,528 $ 349,702 $ 52,893 577.8 % 561.1 %
Non-same store contribution (NOI)
$ 8,985 830.7 % 795.9 % Non-same store rent and storage contribution (NOI)(2)$ 95,967 $ 93,017 $ 19,848 383.5 % 368.6 % Non-same store services contribution (NOI)(3)$ (12,341) $ (12,517) $ (10,863) (13.6) % (15.2) % Total non-same store margin 18.9 % 18.7 % 14.5 % 439 bps 419 bps Non-same store rent and storage margin(4) 51.8 % 51.7 % 62.6 % -1084 bps -1088 bps Non-same store services margin(5) (4.8) % (5.0) % (36.0) % 3120 bps 3100 bps Nine Months Ended September 30, Change 2021 constant Constant 2021 actual currency(1) 2020 actual Actual currency
Total warehouse segment revenues
$ 1,141,503 34.1 % 31.7 %
Total warehouse cost of operations
$ 766,842 42.9 % 40.3 %
Total warehouse segment contribution
$ 374,661 16.3 % 14.2 % (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. (6)Non-same store warehouse count of 77 includes one recently leased warehouse inAustralia , one warehouse acquired through the Newark Facility Management acquisition onSeptember 1, 2021 , two facilities acquired through the ColdCo acquisition onAugust 2, 2021 , one warehouse acquired through the Bowman stores acquisition onMay 28, 2021 , two warehouses acquired through the KMT Brrr! acquisition onMay 5, 2021 , four warehouses acquired through the Liberty Freezers acquisition onMarch 1, 2021 , 46 warehouses acquired through the Agro acquisition onDecember 30, 2020 , eight warehouses acquired through the Hall's acquisition onNovember 2, 2020 , three warehouses acquired through the Casper's and AM-C warehouse acquisitions onAugust 31, 2020 and ten legacy facilities. During the third quarter of 2021, a leased facility from the Liberty Freezers acquisition was exited upon expiration of the lease. The results of these acquisitions are reflected in the results above since date of ownership. n/a - not applicable, the change in actual and constant currency metrics does not apply to site count
The following table provides certain operating metrics to explain the drivers of our same store performance.
78 -------------------------------------------------------------------------------- Nine Months Ended
2021 2020 Change Number of same store sites 162 162 n/a Same store rent and storage: Economic occupancy(1) Average occupied economic pallets 2,865 3,003 (4.6) % Economic occupancy percentage 76.2 % 80.1 % -393 bps Same store rent and storage revenues per economic occupied pallet$ 159.64 $ 153.38 4.1 % Constant currency same store rent and storage revenues per economic occupied pallet$ 158.44 $ 153.38 3.3 % Physical occupancy(2) Average physical occupied pallets 2,543 2,753 (7.6) % Average physical pallet positions 3,762 3,750 0.3 % Physical occupancy percentage 67.6 % 73.4 % -582 bps Same store rent and storage revenues per physical occupied pallet$ 179.85 $ 167.31 7.5 % Constant currency same store rent and storage revenues per physical occupied pallet$ 178.50 $ 167.31 6.7 % Same store warehouse services: Throughput pallets (in thousands) 21,805 22,547 (3.3) %
Same store warehouse services revenues per throughput pallet
$ 28.97$ 27.45 5.5 % Constant currency same store warehouse services revenues per throughput pallet $ 28.40$ 27.45 3.5 % Number of non-same store sites(3) 77 13 n/a
Non-same store rent and storage:
Economic occupancy(1) Average economic occupied pallets 1,129 185 509.0 % Economic occupancy percentage 75.9 % 63.3 % 1260 bps
Non-same store rent and storage revenues per economic occupied pallet
$ 164.21 $ 171.00 (4.0) % Constant currency non-same store rent and storage revenues per economic occupied pallet$ 159.27 $ 171.00 (6.9) % Physical occupancy(2) Average physical occupied pallets 1,105 176 525.9 % Average physical pallet positions 1,488 293 407.9 Physical occupancy percentage 74.2 % 60.2 % 1400 bps
Non-same store rent and storage revenues per physical occupied pallet
$ 167.84 $ 179.65 (6.6) % Constant currency non-same store rent and storage revenues per physical occupied pallet$ 162.79 $ 179.65 (9.4) % Non-same store warehouse services: Throughput pallets (in thousands) 7,786 1,286 505.3 % Non-same store warehouse services revenues per throughput pallet $ 32.97$ 23.46 40.6 %
Constant currency non-same store warehouse services revenues per throughput pallet
$ 32.16$ 23.46 37.1 % (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. 79 -------------------------------------------------------------------------------- (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. (3)Non-same store warehouse count of 77 includes one recently leased warehouse inAustralia , one warehouse acquired through the Newark Facility Management acquisition onSeptember 1, 2021 , two facilities acquired through the ColdCo acquisition onAugust 2, 2021 , one warehouse acquired through the Bowman stores acquisition onMay 28, 2021 , two warehouses acquired through the KMT Brrr! acquisition onMay 5, 2021 , four warehouses acquired through the Liberty Freezers acquisition onMarch 1, 2021 , 46 warehouses acquired through the Agro acquisition onDecember 30, 2020 , eight warehouses acquired through the Hall's acquisition onNovember 2, 2020 , three warehouses acquired through the Casper's and AM-C warehouse acquisitions onAugust 31, 2020 and ten legacy facilities. During the third quarter of 2021, a leased facility from the Liberty Freezers acquisition was exited upon expiration of the lease. The results of these acquisitions are reflected in the results above since date of ownership. Economic occupancy at our same stores was 76.2% for the nine months endedSeptember 30, 2021 , a decrease of 393 basis points compared to 80.1% for the nine months endedSeptember 30, 2020 . Storage levels were lower than prior year levels due to ongoing supply chain disruption as a result of the COVID-19 pandemic, as well as food manufacturers producing at less than full capacity. As such, our customers' existing inventories have continued to be drawn down to support steady consumer demand. Additionally, recent acquisitions came into the same store pool during the first quarter of 2021 which have a lower percentage of fixed commitment revenue compared to our legacy same stores. Our third quarter 2020 economic occupancy at our same stores was 856 basis points lower than our corresponding average physical occupancy of 67.6%. The decrease of 582 basis points in average physical occupancy compared to 73.4% for the nine months endedSeptember 30, 2020 was driven by supply chain fluctuations caused by the COVID-19 pandemic. Same store rent and storage revenues per economic occupied pallet increased 4.1% period-over-period, primarily driven by improvements in our commercial terms and contractual rate escalations. On a constant currency basis, our same store rent and storage revenues per occupied pallet increased 3.3% period-over-period. Throughput pallets at our same stores were 21.8 million pallets for the nine months endedSeptember 30, 2021 , a decrease of 3.3% from the nine months endedSeptember 30, 2020 . This decrease was the result of the COVID-19 related impacts in various sectors and commodities, and was primarily driven by the unprecedented surge in demand in retail during the first half of 2020. As food manufacturers production has not reached full pre-pandemic capacity, throughput has been impacted, with modest improvement during the second quarter of 2021. Food manufacturers have been unable to rebuild holdings in the supply chain due to challenges in the labor market. Same store warehouse services revenues per throughput pallet increased 5.5% period-over-period, as a result of a more favorable customer mix, contractual rate escalations 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, paired with favorable foreign currency translation as previously discussed. On a constant currency basis, our same store services revenues per throughput pallet increased 3.5% from the nine months endedSeptember 30, 2020 . Third-Party Managed Segment The following table presents the operating results of our third-party managed segment for the nine months endedSeptember 30, 2021 and 2020. 80 --------------------------------------------------------------------------------
Nine Months Ended September 30, Change 2021 constant Constant 2021 actual currency(1) 2020 actual Actual currency Number of managed sites 9 11 n/a n/a (Dollars in thousands) Third-party managed revenues$ 233,027 $ 231,211 $ 213,213 9.3 % 8.4 % Third-party managed cost of operations 222,401 220,895 202,752 9.7 % 8.9 % Third-party managed segment contribution$ 10,626 $ 10,316 $ 10,461 1.6 % (1.4) % Third-party managed margin 4.6 % 4.5 % 4.9 % -35 bps -44 bps
(1)The adjustments from our
Third-party managed revenues were$233.0 million for the nine months endedSeptember 30, 2021 , an increase of$19.8 million , or 9.3%, compared to$213.2 million for the nine months endedSeptember 30, 2020 . On a constant currency basis, third-party managed revenues were$231.2 million for the nine months endedSeptember 30, 2021 , an increase of$18.0 million , or 8.4%, from the nine months endedSeptember 30, 2020 . This increase was a result of higher pass-through labor expenses in our domestic and foreign managed operations due to the consumer demand shift to retail, higher business volume fromAustralia managed and paired with its favorable impact of foreign currency translation, partially offset by the exit of two Canadian managed sites during the second half of 2020. Third-party managed cost of operations was$222.4 million for the nine months endedSeptember 30, 2021 , an increase of$19.6 million , or 9.7%, compared to$202.8 million for the nine months endedSeptember 30, 2020 . On a constant currency basis, third-party managed cost of operations was$220.9 million for the nine months endedSeptember 30, 2021 , an increase of$18.1 million , or 8.9%, from the nine months endedSeptember 30, 2020 . Third-party managed cost of operations increased as a result of the revenue trends described above. Third-party managed segment contribution (NOI) was$10.6 million for the nine months endedSeptember 30, 2021 , an increase of$0.2 million , or 1.6%, compared to$10.5 million for the nine months endedSeptember 30, 2020 . On a constant currency basis, third-party managed segment contribution (NOI) was$10.3 million for the nine months endedSeptember 30, 2021 , a decrease of$0.1 million , or 1.4%. 81 --------------------------------------------------------------------------------
Transportation Segment
The following table presents the operating results of our transportation segment
for the nine months ended
Nine Months Ended September 30, Change 2021 constant Constant 2021 actual currency(1) 2020 actual Actual currency (Dollars in thousands) Transportation revenues$ 234,051 $ 232,332 $ 104,874 123.2 % 121.5 % Total transportation cost of operations 211,847 210,770 91,110 132.5 % 131.3 %
Transportation segment contribution (NOI)
$ 13,764 61.3 % 56.7 % Transportation margin 9.5 % 9.3 % 13.1 % -364 bps -384 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. Transportation revenues were$234.1 million for the nine months endedSeptember 30, 2021 , an increase of$129.2 million , or 123.2%, compared to$104.9 million for the nine months endedSeptember 30, 2020 . The increase was primarily due to the revenue associated with transportation operations from the Hall's acquisition, which closed onNovember 2, 2020 , the Agro acquisition, which closed onDecember 30, 2020 and to a much lesser extent the KMT Brrr! acquisition which closed in earlyMay 2021 and the ColdCo acquisition which closed onAugust 2, 2021 . Furthermore, this is offset by the net decrease in revenue from the rationalization of certain domestic market operations. On a constant currency basis, transportation revenues were$232.3 million for the nine months endedSeptember 30, 2021 , an increase of$127.5 million , or 121.5%, from the nine months endedSeptember 30, 2020 . Transportation cost of operations was$211.8 million for the nine months endedSeptember 30, 2021 , an increase of$120.7 million , or 132.5%, compared to$91.1 million for the nine months endedSeptember 30, 2020 . On a constant currency basis, transportation cost of operations was$210.8 million for the nine months endedSeptember 30, 2021 , an increase of$119.7 million , or 131.3%, from the nine months endedSeptember 30, 2020 . The increase was driven by the acquisitions mentioned above and due to a reduction in market capacity due to the COVID-19 pandemic, which has caused an increase in carrier fees. Additionally, this is partially offset by the net decrease of costs from the exit of certain domestic market operations. Transportation segment contribution (NOI) was$22.2 million for the nine months endedSeptember 30, 2021 , an increase of$8.4 million compared to the nine months endedSeptember 30, 2020 . Transportation segment margin decreased 364 basis points from the nine months endedSeptember 30, 2020 , to 9.5% from 13.1%. On a constant currency basis, transportation segment contribution was$21.6 million for the nine months endedSeptember 30, 2021 , an increase of$7.8 million compared to the nine months endedSeptember 30, 2020 . The decrease in margin was primarily due to the acquisition of lower-margin transportation business compared to our legacy operations, coupled with higher carrier fees as a result of the COVID-19 pandemic. Other Consolidated Operating Expenses Depreciation and amortization. Depreciation and amortization expense was$232.2 million for the nine months endedSeptember 30, 2021 , an increase of$74.7 million , or 47.4%, compared to$157.6 million for the nine months endedSeptember 30, 2020 . This increase was primarily due to the acquisitions in late 2020 and 2021. 82 -------------------------------------------------------------------------------- Selling, general and administrative. Corporate-level selling, general and administrative expenses were$133.1 million for the nine months endedSeptember 30, 2021 , an increase of$27.9 million , or 26.5%, compared to$105.2 million for the nine months endedSeptember 30, 2020 . 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 driven by costs assumed from the Agro and Hall's acquisitions, net of synergies realized and higher third-party professional fees, partially offset by lower bonus compensation expense in connection with the short-term incentive plan, due to underperformance as compared to budget. Acquisition, litigation and other, net. Corporate-level acquisition, litigation and other, net expenses were$31.0 million for the nine months endedSeptember 30, 2021 , an increase of$21.2 million compared to the nine months endedSeptember 30, 2020 . During the nine months endedSeptember 30, 2021 , we incurred$22.9 million of acquisition related expenses primarily composed of professional fees and integration related costs, including severance and employee retention expenses, in connection with completed and potential acquisitions, primarily related to the Agro acquisition. We also incurred$3.5 million of ongoing costs related to the cyber event that occurred in late 2020. During the nine months endedSeptember 30, 2020 , we incurred$8.3 million of acquisition related expenses primarily primarily composed of professional fees and integration related costs in connection with completed and potential acquisitions, primarily related to the recently announced Agro Merchants Acquisition, and employee retention. Additionally, we incurred$1.0 million of severance related to reduction in headcount as a result of the synergies from acquisitions and realignment of our international operations during the nine months endedSeptember 30, 2020 . Impairment of long-lived assets. For the nine months endedSeptember 30, 2021 , we recorded impairment charges totaling$3.3 million , of which$1.7 million related to costs associated with development projects which management determined it would no longer pursue, and a charge of$1.6 million for certain software costs that were determined no longer usable. For the nine months endedSeptember 30, 2020 , we recorded impairment charges of$6.3 million , which included a$3.7 million impairment charge related to the anticipated sale of our quarry business, which was subsequently completed onJuly 1, 2020 , and an impairment charge of$2.6 million related to the remaining net book value of assets due to the exit of two leased managed facilities during 2020. Gain from sale of real estate. For the nine months endedSeptember 30, 2020 , we recorded a$21.4 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 sale 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$19.4 million gain from sale of real estate. 83 --------------------------------------------------------------------------------
Other Expense and Income
The following table presents other items of income and expense for the nine
months ended
Nine Months Ended September 30, Change 2021 2020 % Other (expense) income: (Dollars in thousands) Interest expense$ (77,838) $ (70,114) 11.0 % Loss on debt extinguishment, modifications and termination of derivative instruments$ (5,051) $ (781) n/r Other, net$ (147) $ 232 (163.4) % n/r: not relevant Interest expense. Interest expense was$77.8 million for the nine months endedSeptember 30, 2021 , an increase of$7.7 million , or 11.0%, compared to$70.1 million for the nine months endedSeptember 30, 2020 . The increase was primarily due to the issuance of the Series D and Series E Senior Unsecured Notes inDecember 2020 . This was partially offset by the decrease in interest expense on our Senior Unsecured Term Loan A Facility due to the early principal repayment of$100.0 million and$200.0 million inDecember 2020 andJanuary 2021 , respectively. The effective interest rate of our outstanding debt has decreased from 4.19% for the nine months endedSeptember 30, 2020 to 3.19% for the nine months endedSeptember 30, 2021 , however, outstanding principal has increased from$1.8 billion as ofSeptember 30, 2020 to$2.7 billion as ofSeptember 30, 2021 . Loss on debt extinguishment, modifications and termination of derivative instruments. Loss on debt extinguishment, modifications, and termination of derivative instruments of$5.1 million for the nine months endedSeptember 30, 2021 was primarily driven by the early repayment of$200 million of principal on the Senior Unsecured Term Loan A Facility, which resulted in a charge of$2.9 million for the write-off of unamortized deferred financing costs. Additionally, we recorded a charge of$2.1 million for the amortization of fees paid for the termination of interest rate swaps during 2020. 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. Income Tax Expense Income tax expense for the nine months endedSeptember 30, 2021 was$8.0 million , a decrease of$5.5 million when compared to$2.5 million for the nine months endedSeptember 30, 2020 . The change in income tax expense was primarily attributable to the tax effects of the rate change from 19% to 25% in theUnited Kingdom , enacted during the second quarter of 2021, for which we recorded deferred income tax expense of$11.7 million and a decrease in our valuation allowance for which we recorded a deferred tax benefit of$7.9 million attributable to recent acquisitions. The remainder was primarily attributable to losses generated from our foreign operations which did not occur during the nine months endedSeptember 30, 2020 . 84 --------------------------------------------------------------------------------
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-core asset impairment, acquisition, litigation and other, net, share-based compensation expense for the IPO retention grants, loss on debt extinguishment, modifications and termination of derivative instruments and foreign currency exchange 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 theBrazil joint ventures are strategic partnerships, 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, non-real estate asset impairment 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 (loss) income, which is the most directly comparable financial measure calculated in accordance withU.S. GAAP. 85 -------------------------------------------------------------------------------- Reconciliation of Net Income (Loss) to NAREIT FFO,
Core FFO, and Adjusted FFO
(in thousands) Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Net income (loss)$ 5,308 $ 12,374 $ (22,327) $ 68,547 Adjustments: Real estate related depreciation 48,217 36,289 145,368 107,289 Net loss (gain) on sale of real estate, net of withholding taxes - 427 - (21,083) Net (gain) loss on asset disposals (1) 1,160 (53) 1,157 Impairment charges on certain real estate assets 224 - 1,752 3,181
Our share of reconciling items related to partially owned entities
463 111 1,590 267 NAREIT Funds from operations 54,211 50,361 126,330 159,358
Adjustments:
Net gain on sale of non-real estate assets (171) (100) (594) (517) Non-core asset impairment - 2,615 - 3,101 Acquisition, litigation and other, net 6,338 5,282 31,011 9,771 Share-based compensation expense, IPO grants - 196 163 772 Loss on debt extinguishment, modifications and termination of derivative instruments 627 - 5,051 781 Foreign currency exchange loss 349 196 316 373
Our share of reconciling items related to partially owned entities
122 76 365 155 Core FFO applicable to common shareholders 61,476 58,626 162,642 173,794
Adjustments:
Amortization of deferred financing costs and pension withdrawal liability
1,088 1,203 3,321 3,945 Non-real estate asset impairment 1,560 - 1,560 - Amortization of below/above market leases 1,017 39 1,418 115 Straight-line net rent 411 (87) 86 (304) Deferred income taxes (benefit) expense (3,562) (1,284) 1,004 (4,353) Share-based compensation expense, excluding IPO grants 4,291 4,373 14,625 12,568 Non-real estate depreciation and amortization 22,352 17,280 86,871 50,283 Maintenance capital expenditures (a) (18,938) (17,534) (55,157) (45,256)
Our share of reconciling items related to partially owned entities
(100) 125 889 203
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. 86 -------------------------------------------------------------------------------- We calculate EBITDA for Real Estate, or EBITDAre, in accordance with the standards established by theBoard of Governors of NAREIT, defined as, earnings before interest expense, taxes, depreciation and amortization, net gain on sale of real estate, net of withholding taxes, and adjustment to reflect share of EBITDAre of partially owned entities. 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, net, loss on debt extinguishment, modifications and termination of derivative instruments, share-based compensation expense, foreign currency exchange gain or loss, impairment of long-lived assets, loss from investments in partially owned entities, net gain on sale of non-real estate assets 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 underU.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 withU.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 (loss) income, which is the most directly comparable financial measure calculated in accordance withU.S. GAAP. 87
-------------------------------------------------------------------------------- Reconciliation of Net (Loss) Income to NAREIT
EBITDAre and Core EBITDA
(In thousands) Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Net income (loss)$ 5,308 $ 12,374 $ (22,327) $ 68,547 Adjustments: Depreciation and amortization 70,569 53,569 232,239 157,572 Interest expense 25,303 23,066 77,838 70,114 Income tax (benefit) expense (226) 819 7,957 2,105 Net loss (gain) on sale of real estate, net of withholding taxes - 427 - (21,083) Adjustment to reflect share of EBITDAre of partially owned entities 1,854 293 4,288 590 NAREIT EBITDAre$ 102,808 $ 90,548 $ 299,995 $ 277,845 Adjustments: Acquisition, litigation and other, net 6,338 5,282 31,011 9,771 Loss from investments in partially owned entities 490 98 1,251 254 Impairment of long-lived assets 1,784 2,615 3,312 6,282 Loss on foreign currency exchange 349 196 316 373 Share-based compensation expense 4,291 4,569 14,788 13,340 Loss on debt extinguishment, modifications and termination of derivative instruments 627 - 5,051 781 Net (gain) loss on sale of non-real estate assets (172) 1,060 (647) 641
Reduction in EBITDAre from partially owned entities (1,854)
(293) (4,288) (590) Core EBITDA$ 114,661 $ 104,075 $ 350,789 $ 308,697 88
-------------------------------------------------------------------------------- LIQUIDITY AND CAPITAL RESOURCES 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. Separate consolidated financial statements of theOperating Partnership have not been presented in accordance with the amendments to Rule 3-10 of Regulation S-X. 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, business combinations, 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 2020 Senior Unsecured Revolving Credit Facility; •our outstanding equity forward sale agreements; •our ATM Equity Programs 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 nine months endedSeptember 30, 2021 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 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. 89
-------------------------------------------------------------------------------- OnMay 10, 2021 , we entered into an equity distribution agreement pursuant to which we may sell, from time to time, up to an aggregate sales price of$900.0 million of our common shares through an ATM equity program (the "2021 ATM Equity Program"). Sales of our common shares made pursuant to the 2021 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 the net proceeds from sales of our common shares pursuant to the 2021 ATM Equity Program for general corporate purposes, which may include funding acquisitions and development projects. During the nine months endedSeptember 30, 2021 , there were 2,332,846 common shares sold under the 2021 ATM Equity Program under forward sale agreements which must be settled byJuly 1, 2022 for gross proceeds of$90.6 million . After considering the forward sale agreements entered into during the nine months endedSeptember 30, 2021 , we had approximately$809.4 million availability remaining for distribution under the 2021 ATM Equity Program as ofSeptember 30, 2021 . 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 salable 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$0.7 million and$0.1 million for the three months endedSeptember 30, 2021 and 2020, respectively, and$2.5 million and$1.6 million for the nine months endedSeptember 30, 2021 and 2020, respectively. As ofSeptember 30, 2021 , we maintained bad debt allowances of approximately$17.0 million , which we believed to be adequate. 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 90 -------------------------------------------------------------------------------- to use borrowings under our revolving credit facility, if necessary, to meet REIT distribution requirements and maintain our REIT status. For further information regarding dividends and distributions, see Note 10 to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q. Outstanding Indebtedness The following table summarizes our outstanding indebtedness as ofSeptember 30, 2021 : Debt Summary: Fixed rate$ 2,089,915 Variable rate - unhedged 627,788 Total outstanding indebtedness 2,717,703 Percent of total debt: Fixed rate 76.90 % Variable rate 23.10 %
Effective interest rate as of
As ofSeptember 30, 2021 , we had approximately$2.7 billion of outstanding debt as set forth in the table above, which excludes deferred financing costs. The variable rate debt shown above bears interest at interest rates based on various one-month LIBOR, CDOR, and SONIA rates, depending on the respective agreement governing the debt, including our global revolving credit facilities. As ofSeptember 30, 2021 , our debt had a weighted average term to initial maturity of approximately 6.7 years, assuming exercise of extension options. For further information regarding outstanding indebtedness, please see Note 6 to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q. 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 Fitch, BBB with an Under Review with Positive Implications outlook from 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. 91 -------------------------------------------------------------------------------- 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. Maintenance capital expenditures do not include acquisition costs contemplated when underwriting the purchase of a building or costs which are incurred to bring a building up to Americold's operating standards. The following table sets forth our maintenance capital expenditures for the three and nine months endedSeptember 30, 2021 and 2020. Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 (In thousands, except per cubic foot amounts) Real estate$ 14,497 $ 15,896 $ 45,398$ 39,425 Personal property 1,231 906 4,441 3,967 Information technology 3,210 732 5,318 1,864
Maintenance capital expenditures (1)
$ 55,157
Maintenance capital expenditures per cubic foot$ 0.013 $ 0.016
$ 0.038
(1) Excludes
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 nine months endedSeptember 30, 2021 and 2020. Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 (In thousands, except per cubic foot amounts) Real estate $ 6,435$ 7,333 $ 20,760$ 21,278 Personal property 15,655 7,368 40,731 22,766
Repair and maintenance expenses $ 22,090
$ 61,491
Repair and maintenance expenses per cubic foot $ 0.015$ 0.013 $ 0.042$ 0.040 92
-------------------------------------------------------------------------------- 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. Acquisitions The acquisitions completed during the nine months endedSeptember 30, 2021 relate to Bowman Stores, ColdCo, KMT Brrr!, Liberty Freezers and Newark Facility Management. The acquisitions completed during the nine months endedSeptember 30, 2020 relate to AM-C Warehouses, MHW, Caspers,Newport andNova Cold . Refer to Notes 2 and 3 of the Condensed Consolidated Financial Statements and our 2020 Form 10-K for details of the purchase price allocation for each acquisition. Expansion and development The expansion and development expenditures for the nine months endedSeptember 30, 2021 are primarily driven by$88.5 million related to our two fully-automated, build-to-suit, development sites inConnecticut andPennsylvania ,$17.3 million related to theAtlanta major markets strategy project (Phase 1) and$14.1 million related to Phase 2,$33.4 million related to ourRussellville expansion,$8.1 million related to ourCalgary, Canada expansion,$19.6 million related to theAuckland, New Zealand expansion project,$12.0 million million related to theDunkirk, NY development and$3.7 million in ourDublin expansion. The Atlanta Phase 1 andAuckland projects were substantially completed during the second quarter of 2021, with the remaining spend to be incurred within the next six months. As a result of the Agro Acquisition onDecember 30, 2020 , we acquired an expansion project inLurgan ,Northern Ireland , which was completed during the second quarter of 2021. We incurred$4.0 million during 2021 for this expansion project. Expansion and development initiatives also include$11.7 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. Finally, we incurred approximately$25.9 million for probable future expansion or development projects. 93 -------------------------------------------------------------------------------- The following table sets forth our acquisition, expansion and development capital expenditures for the three and nine months endedSeptember 30, 2021 and 2020. Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 (In thousands) Acquisitions, net of cash acquired and adjustments$ 400,987 $ 108,040 $ 616,316 $ 423,708 Expansion and development initiatives 75,960 59,806 243,072 174,585 Information technology 1,682 2,189 5,255 5,169 Growth and expansion capital expenditures$ 478,629 $ 170,035 $ 864,643 $ 603,462 Historical Cash Flows Nine Months Ended September 30, 2021 2020 (In thousands) Net cash provided by operating activities$ 164,319 $ 227,198 Net cash used in investing activities$ (945,491) $ (611,719) Net cash provided by financing activities$ 315,269
Operating Activities For the nine months endedSeptember 30, 2021 , our net cash provided by operating activities was$164.3 million , a decrease of$62.9 million , compared to$227.2 million for the nine months endedSeptember 30, 2020 . The decrease is primarily due to higher acquisition and integration related costs and selling, general and administrative expense. This was partially offset by higher segment contribution as a result of our recent acquisitions. Investing Activities Our net cash used in investing activities was$945.5 million for the nine months endedSeptember 30, 2021 compared to$611.7 million for the nine months endedSeptember 30, 2020 . Cash used in connection with business combinations during 2021 was$616.3 million and related to the Bowman, ColdCo, KMT Brrr!, Liberty and Newark Facility Management acquisitions. Additions to property, buildings and equipment were$313.2 million , reflecting maintenance capital expenditures and investments in the Ahold,Atlanta ,New Zealand ,Calgary andRussellville expansion and development projects. Additionally, we invested$6.3 million in the SuperFrio joint venture for the nine months endedSeptember 30, 2021 , and paid$11.6 million to purchase the noncontrolling interest holders share in the Chilean business, which we now wholly own. Net cash used in investing activities of$611.7 million for the nine months endedSeptember 30, 2020 primarily related to cash used for the acquisitions of AM-C,Newport andNova Cold totaling$398.7 million , cash used for acquisitions of property, buildings and equipment accounted for as an asset acquisition of$25.5 million related to the Caspers acquisition, cash used for additions to property, buildings and equipment of$241.6 million reflecting maintenance capital expenditures and investments in theAtlanta ,Connecticut ,Pennsylvania ,New Zealand and Savannah expansion and development projects, and our initial investment of$26.2 million in the SuperFrio joint venture. These investments were offset by$77.4 million in proceeds from the sale of land and property, buildings and equipment related to the sale of land inSydney , the Quarry segment and the sale of theBoston facility. 94 -------------------------------------------------------------------------------- Financing Activities Net cash provided by financing activities was$315.3 million for the nine months endedSeptember 30, 2021 compared to$323.3 million for the nine months endedSeptember 30, 2020 . Cash provided by financing activities for the current period primarily consisted of$420.2 million net proceeds from equity forward contracts settled during the period upon the issuance of common shares,$590.8 million in proceeds from our revolving line of credit, and$5.2 million of proceeds received upon exercise of stock options, offset by cash outflows of$280.0 million in repayments on the revolving line of credit,$205.2 million for repayments on term loan and mortgage notes,$168.5 million of quarterly dividend distributions paid,$27.5 million of financing lease payments, and$15.8 million in payment of withholding taxes related to share-based payment arrangements. Net cash provided by financing activities was$323.3 million for the nine months endedSeptember 30, 2020 and primarily consisted of$340.6 million net proceeds from equity offerings under our prior ATM equity program and theApril 2019 equity forward contract 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 credit facility. These cash inflows were partially offset by$177.1 million of repayment on the revolving credit facility using the proceeds from our refinancing of our Senior Unsecured Term Loan,$124.0 million of quarterly dividend distributions paid,$55.0 million of repayments on our term loan and mortgage notes and$8.3 million of payments related to debt issuance costs. 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.
95
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