AMERICOLD REALTY TRUST, INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements included in this Annual Report on Form 10-K. 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 Item 1A of this Annual Report on Form 10-K. Refer to our Annual Report on Form 10-K as filed onMarch 1, 2021 , for a discussion of the comparative results of operations for the years endedDecember 31, 2020 and 2019. Management's Overview We are the world's largest publicly traded REIT focused on the ownership, operation, acquisition and development of temperature-controlled warehouses. We are organized as a self-administered and self-managed REIT with proven operating, development and acquisition expertise. As ofDecember 31, 2021 , we operated a global network of 250 temperature-controlled warehouses encompassing approximately 1.5 billion cubic feet, with 201 warehouses inNorth America , 27 inEurope , 19 warehouses inAsia-Pacific , and 3 warehouses inSouth America . We view and manage our business through three primary business segments: warehouse, third-party managed and transportation. 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 of Operations
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 and perishable
food and 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, (13) produce grading and bagging, (14)
protein boxing, (15) e-commerce fulfillment, and (16) ripening. We refer to
these handling and other warehouse services as our value-added services.
Cost of operations for our warehouse segment consists of power, other
facilities costs, labor, and other services 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, changes in compensation levels and
associated performance incentives, the use of third-party labor to support our
operations, changes in terms of collective bargaining agreements, changes in
customer requirements and associated work content, workforce productivity, labor
availability, governmental policies and regulations, variability in costs
associated with medical insurance and the impact of workplace safety programs,
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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 process 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 warehouses. As a
result, fluctuations 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
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), personal protective equipment 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, which may also include fuel and
capacity 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, including driver and equipment availability in certain
markets. Additionally, in certain markets we employ drivers and assets to serve
our customers. Costs to operate these assets include, wages, fuel, tolls,
insurance and maintenance.
Other. In addition to our primary business segments, we owned and operated a
limestone quarry in Carthage, Missouri for the first half of 2020. Revenues were
generated from the sale of limestone mined at our quarry. Cost of operations for
our quarry consisted primarily of labor, equipment, fuel and explosives. The
sale of our quarry business segment was completed on July 1, 2020 .
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 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
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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.
We have begun to integrate our recent acquisitions into this shared services
structure.
Our corporate-level acquisition, litigation and other expenses consist of costs that we view outside of selling, general and administrative expenses with a high level of variability from period-to-period, and include the following:
•Acquisition related costs include costs associated with transactions, whether consummated or not, such as advisory, legal, accounting, valuation and other professional or consulting fees. We also include integration costs pre- and post-acquisition that reflect work being performed to facilitate merger and acquisition integration, such as employee retention expense and work associated with information systems and other projects including spending to support future acquisitions, which primarily consist of professional services.
•Litigation costs incurred in order to defend 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 consolidated statement of operations. •Cyber incident related costs include third-party fees incurred in connection with the cyber incident that occurred inNovember 2020 , as well as any incremental costs, internal and external, incurred to restore operations at our facilities and damage claims. Any subsequent reimbursements from insurance coverage for expenses incurred in connection with the event are also reflected within this category. •Other costs relate to insurance claim deductibles and related recoveries (2021) and additional superannuation pension costs related to prior years upon review by the Australian Tax Office (2020).
Key Factors Affecting Our Business and Financial Results
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--------------------------------------------------------------------------------Market Conditions and COVID-19
During the year endedDecember 31, 2021 , our business and financial results were negatively impacted by COVID-19 related disruptions in (1) the food supply chain; (ii) our customers' production and transportation 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 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. 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 expect that end-consumer demand for food will remain consistent with historic levels over the long-term. However, current end-consumer demand coupled with food production and transportation challenges since the outset of the pandemic has driven down holdings in our facilities. As a result, occupancy and throughput volume continue at lower than historical levels experienced prior to COVID-19. We expect this to continue until our customers are able to ramp production back up to pre-pandemic levels for an extended period of time and rebuild inventory in the supply chain. In addition, the unprecedented labor environment continues to be challenging for many companies, including our food manufacturing customers. Labor availability continues to be the primary constraint on food production, along with the continuing spread of COVID-19 and related variants, which also impacts the labor market. Our business has also been impacted due to inflation during the back half of 2021. We believe we are positioned to address continued inflationary pressure as it arises; however, many of our contracts require that we experience sustained cost increases for an extended period of time ranging up to 60 days before we are able to initiate rate increases or seek remedies under our contracts. As a result of the significant impact of inflation on the cost of providing our storage, services and transportation to customers, during the second half of 2021 we initiated out-of-cycle rate increases in our customer contracts (many of which contain provisions for inflationary price escalators), and expect to continue this progress into 2022. We can give no assurance that we will be able to offset the entire impact of inflation or future inflationary cost increases through increased storage or service charges or by operational efficiencies.
Refer to "Item 1A - Risk Factors" in this Annual Report on Form 10-K for additional information.
OnJanuary 2, 2020 , we completed the purchase of all outstanding shares ofNova Cold for cash consideration ofC$338.7 million (USD$260.6 million ).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 funds 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, on
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temperature-controlled warehouse located in
OnMarch 6, 2020 , we acquired a 14.99% ownership interest in Superfrio ArmazénsGerais S.A. (SuperFrio) for Brazil Real Dollars ofR$117.8 million , or approximately USD$25.7 million , inclusive of certain legal fees. We funded the purchase price using cash on hand. Our pro-rata share of the Brazil JV's results are included within "(Loss) income from investments in partially owned entities". 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, on
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. OnDecember 30, 2020 , we completed the acquisition of Agro Merchants for total consideration of$1.59 billion , including cash received of$46.8 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, with a fair value of$512.1 million based upon the closing share price onDecember 29, 2020 of$36.15 . The one business day of results was immaterial to the Consolidated Statement of Operations for the year endedDecember 31, 2020 . Agro Merchants operates more than 236 million cubic feet of temperature-controlled warehouse and distribution space across 46 facilities and provides 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. OnMarch 1, 2021 , we acquired Liberty Freezers for Canadian Dollars ofC$56.8 million , or$44.9 million USD , based on the spot rate on the date of the transaction. This resulted in an additional four facilities, with sites inToronto ,Montreal andLondon, Canada . 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 acquisition within our warehouse segment. OnMay 5, 2021 , we acquired KMT Brrr! inSouthern New Jersey for$70.8 million . KMT Brrr! consisted of two owned facilities, as well as Transportation services. 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 acquisition within our warehouse and transportation segments. 65 -------------------------------------------------------------------------------- OnMay 28, 2021 , we acquired Bowman Stores which operates a single campus located in Spalding,England for £75.0 million, or$106.4 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. Since the date of acquisition, we have reported the results of this facility within our warehouse segment. OnJune 1, 2021 , we purchased the remaining minority shareholders portion of Frigorifico, a joint venture acquired in tandem with the Agro acquisition, for$11.6 million . Since the date of acquisition, we have reported the results of this facility within our warehouse segment. OnAugust 2, 2021 , we acquired the assets of the ColdCo Companies inSt. Louis, Missouri for$20.7 million . ColdCo consists of one owned facility inSt Louis, Missouri and one leased facility inReno, Nevada . 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 acquisition within our warehouse segment. OnSeptember 1, 2021 , we acquired Newark Facility Management inNewark, New Jersey for$391.4 million .Newark consists of a single owned facility. 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. OnNovember 12, 2021 , we acquired a recently constructed cold-storage facility inDenver for$53.6 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. OnNovember 15, 2021 , we acquired Lago inBrisbane, Australia for Australian Dollars$102.2 million , or$75.1 million USD , based on the spot rate on the date of the transaction. Lago consisted of a single owned facility and two leased facilities. The acquisitions 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 acquisition within our warehouse segment. Our results of operations for the year endedDecember 31, 2021 includes the ten months for the activity of the Liberty Freezers acquisition, the eight months for the activity of the KMT Brrr! acquisition, the seven months for the activity of the Bowman Stores acquisition, the five months of activity for the ColdCo acquisition, the four months of activity for the Newark Facility Management acquisition and the one and a half months for the activity of the Lago acquisition. Our results of operations for the year endedDecember 31, 2020 includes the full year for the activity of the Nova Cold andNewport acquisitions, four months for the activity of the AM-C and Caspers acquisitions and the two months for the activity of Hall's acquisition. Refer to Notes 2 and 3 to the Consolidated Financial Statements in this Annual Report on Form 10-K for further information.
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 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 our
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comparison against the exchange rates of such currencies at the end of the
applicable periods presented herein. The rates below represent the U.S. dollar
equivalent of one unit of the respective foreign currency. Amounts presented in
constant currency within our results of operations are calculated by applying
the average foreign exchange rate from the comparable prior year period to
actual local currency results in the current period, rather than the actual
exchange rates in effect during the respective period. While constant currency
metrics are a non-GAAP calculation and do not represent actual results, the
comparison allows the reader to understand the impact of the underlying
operations in addition to the impact of changing foreign exchange rates.
Average foreign Prior period average
Foreign exchange rates used Foreign foreign exchange rate
exchange to translate actual exchange used to adjust actual
rates as of operating results rates as of operating results for
December 31, for the year ended December 31, the year ended
Foreign Currency 2021 December 31, 2021 2020 December 31, 2020(1)
Argentinian peso 0.010 0.011 0.012 0.014
Australian dollar 0.726 0.752 0.769 0.688
Brazilian real 0.180 0.186 0.193 0.185
British Pound 1.353 1.376 1.367 NA
Canadian dollar 0.791 0.798 0.785 0.746
Chilean Peso 0.001 0.001 0.001 NA
Euro 1.137 1.183 1.222 NA
New Zealand dollar 0.683 0.707 0.718 0.649
Poland Zloty 0.248 0.259 0.268 NA
(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 managed warehouse
agreements, the sale of our quarry business during 2020 and the exit of the
China JV during 2019. Through our process of active portfolio management, we
continue to evaluate our markets and offerings.
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--------------------------------------------------------------------------------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, such as adding 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 years endedDecember 31, 2021 , 2020, and 2019 one customer accounted for more than 10% of our total revenues, with revenues received of$285.6 million ,$257.3 million and$211.1 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 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,$273.1 million ,$241.8 million , and$195.4 million represented reimbursements for certain expenses we incurred during the years endedDecember 31, 2021 , 2020 and 2019, respectively, that 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.
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
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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, labor availability, supply chain dynamics 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 and amortization, impairment charges, corporate-level selling, general and administrative expenses and corporate-level acquisition, litigation and other expenses). We use segment contribution (NOI) to evaluate our segments for purposes of making operating decisions and assessing performance in accordance with FASB ASC, Topic 280, Segment Reporting.
We also analyze the "segment contribution (NOI) margin" for each of our business segments, which we calculate as segment contribution (NOI) divided by segment revenues.
In addition to our segment contribution (NOI) and segment contribution (NOI) margin, we analyze the contribution (NOI) of our warehouse rent and storage operations and our warehouse services operations within our warehouse segment. We calculate the contribution (NOI) of our warehouse rent and storage operations as rent and storage revenues less power and other facilities cost. We calculate the contribution (NOI) of our warehouse services operations as warehouse services revenues less labor and other service costs. We calculate the contribution (NOI) margin for each of these operations as the applicable contribution (NOI) measure divided by 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 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 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 69
-------------------------------------------------------------------------------- sold or entering development subsequent to the beginning of the current calendar year. As such, the "same store" population for the period endedDecember 31, 2021 includes all properties that we owned atJanuary 2 , which had both been owned and had reached "normalized operations" byJanuary 2, 2021 . 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 and corporate-level selling, general and administrative expenses, corporate-level acquisition, litigation and other expenses and gain or loss on sale of real estate). In order to derive an appropriate measure of period-to-period operating performance, we also calculate our same store contribution (NOI) on a constant currency basis to remove the effects of foreign currency exchange rate movements by using the comparable prior period exchange rate to translate from local currency 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 and the number of warehouses excluded as same-store warehouses for the year endedDecember 31, 2021 . 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 the sites that were exited during the year endedDecember 31, 2021 , as described in footnote 1 following the table. 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; these joint ventures are not included in the table below. Total Warehouses 250 Same Store Warehouses (1) 160 Non-Same Store Warehouses (1) 81 Third-Party Managed Warehouses 9 (1) At the beginning of 2021 we reclassified 27 facilities to the same store population from the non-same store population as a result of the Cloverleaf,Lanier , MHW,Newport andNova Cold acquisitions meeting our same store definition, two facilities were reclassified to the same store population from the non-same store population as a result of achieving normalized operations, and one facility was reclassified to the non-same store population from the same store population as a result of an expansion project. During 2021, we acquired four facilities in connection with the Liberty Freezers acquisition, three facilities in connection with theLago Cold Stores acquisition, two facilities in connection with the KMT Brrr! acquisition, two facilities in connection with the ColdCo acquisition, one facility in connection with the Newark Facility Management acquisition, one facility in connection with the Bowman Stores acquisition and one facility in connection with the purchase of a newly constructed facility inDenver , all of which were added to the non-same store population. Finally, during 2021, we exited three leased warehouses, which were not renewed upon expiration, one of which was included in the same store population during 2020, one of which was included in the non-same store population during 2020 and one of which was acquired in connection with the Liberty Freezers Acquisition completed during 2021. 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. 70 --------------------------------------------------------------------------------
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. Presentation A detailed discussion of the 2021 year-over-year changes can be found below and a detailed discussion of the 2020 year-over-year changes can be found in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" on Form 10-K filed with the SEC on March 1, 2021. 71 --------------------------------------------------------------------------------
Results of Operations
Comparison of Results for the Years Ended
Warehouse Segment
The following table presents the operating results of our warehouse segment for
the years ended
Year ended December 31, Change
2021 constant Constant
2021 actual currency(1) 2020 actual Actual currency
(Dollars in thousands)
Rent and storage $ 876,153 $ 867,924 $ 666,150 31.5 % 30.3 %
Warehouse services 1,209,234 1,191,387 883,164 36.9 % 34.9 %
Total warehouse segment revenue 2,085,387 2,059,311 1,549,314 34.6 % 32.9 %
Power 129,535 128,456 90,533 43.1 % 41.9 %
Other facilities costs (2) 208,172 205,970 137,215 51.7 % 50.1 %
Labor 934,782 920,894 677,039 38.1 % 36.0 %
Other services costs (3) 226,462 224,802 124,194 82.3 % 81.0 %
Total warehouse segment cost of
operations $ 1,498,951 $ 1,480,122 $ 1,028,981 45.7 % 43.8 %
Warehouse segment contribution (NOI)
$ 520,333 12.7 % 11.3 % Warehouse rent and storage contribution (NOI) (4)$ 538,446 $ 533,498 $ 438,402 22.8 % 21.7 % Warehouse services contribution (NOI) (5)$ 47,990 $ 45,691 $ 81,931 (41.4) % (44.2) % Total warehouse segment margin 28.1 % 28.1 % 33.6 % -546 bps -546 bps Rent and storage margin(6) 61.5 % 61.5 % 65.8 % -436 bps -434 bps Warehouse services margin(7) 4.0 % 3.8 % 9.3 % -531 bps -544 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$41.8 million and$12.9 million for the year endedDecember 31, 2021 and 2020, respectively. (3)Includes non-real estate rent expense (equipment lease and rentals) of$11.7 million and$9.4 million for the year endedDecember 31, 2021 and 2020, respectively. (4)Calculated as rent and storage revenue less power and other facilities costs. (5)Calculated as warehouse services revenue less labor and other services costs. (6)Calculated as warehouse rent and storage contribution (NOI) divided by warehouse rent and storage revenue. (7)Calculated as warehouse services contribution (NOI) divided by warehouse services revenue. Warehouse segment revenue was$2.09 billion for the year endedDecember 31, 2021 , an increase of$536.1 million , or 34.6%, compared to$1.55 billion for the year endedDecember 31, 2020 . On a constant currency basis, our warehouse segment revenue was$2.06 billion for the year endedDecember 31, 2021 , an increase of$510.0 million , or 32.9%, compared to the prior year. Approximately$503.7 million of the increase, on an actual basis, was primarily driven by acquisitions completed during 2020 and 2021, including the growth experienced period-over-period during overlapping periods of ownership. In 2020, we acquired 62 facilities in the warehouse segment in the Agro, AM-C, Caspers, Halls,Newport andNova Cold acquisitions and therefore did not have ownership of these facilities during the entirety of the comparable prior period. Agro's revenue is not reflected in the operating results of our warehouse segment in 2020 as the acquisition closed onDecember 30, 2020 with only one day of results for the year endedDecember 31, 2020 . We consider the results to be immaterial and have excluded it for the year endedDecember 31, 2020 . In 2021, 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 72 -------------------------------------------------------------------------------- facility onMay 28, 2021 as a result of the Bowman Stores acquisition, two facilities onAugust 2, 2021 as a result of the ColdCo acquisition, one facility onSeptember 1, 2021 as a result of the Newark Facility Management acquisition and three facilities as a result of theLago Cold Stores acquisitions, and the results of these facilities are included in the current period since the date of acquisition. Throughout 2021, revenue growth has been driven principally by the impact of acquisitions. Revenue growth was also due to contractual and market-driven rate escalations and our recently completed developments. This was partially offset by the impact of COVID-19 and related labor challenges which negatively impacted food production and holdings. The foreign currency translation of revenue received by our foreign operations had a$26.1 million favorable impact during the year endedDecember 31, 2021 , which was mainly driven by the the weakening of theU.S. dollar over the Australian dollar, Euro, and Canadian dollar. Warehouse segment cost of operations was$1.50 billion for the year endedDecember 31, 2021 , an increase of$470.0 million , or 45.7%, compared to$1.03 billion for the year endedDecember 31, 2020 . On a constant currency basis, our warehouse segment cost of operations was$1.48 billion for the year endedDecember 31, 2021 , an increase of$451.1 million , or 43.8%, compared to the prior year. Approximately$397.2 million of the increase, on an actual basis,was primarily driven by the additional facilities we acquired in connection with the aforementioned acquisitions. In addition, we incurred increases in our cost of operations related to labor and related health benefits, power, property tax and insurance costs, all of which are reflective of elevated inflation. The increase in labor costs during the back half of 2021 was driven by unprecedented disruption in the labor markets that has led us to raising hourly wages in many of our locations, and the higher cost associated with using temporary workers due to limited labor availability. We also incurred higher costs related to our recently completed expansion and development projects. 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 with no similar bonus paid during 2021, which totaled$4.3 million . The foreign currency translation of expenses incurred by our foreign operations had a$18.8 million unfavorable impact during the year endedDecember 31, 2021 . Warehouse segment contribution (NOI) was$586.4 million for the year endedDecember 31, 2021 , an increase of$66.1 million , or 12.7%, compared to$520.3 million for the year endedDecember 31, 2020 . On a constant currency basis, warehouse segment contribution was$579.2 million for the year endedDecember 31, 2021 , an increase of$58.9 million , or 11.3%, compared to the prior year. The increase was primarily 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 and market-driven 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. The foreign currency translation of our results of operations had a$7.2 million favorable impact to the warehouse segment contribution period-over-period. These increases were partially offset by lower holdings driven by the impact of COVID-19 on the food manufacturing supply chain, the increase in costs including labor, power, property insurance and taxes and facility leasing costs. 73 --------------------------------------------------------------------------------
Same Store Analysis
We had 160 same stores for the years endedDecember 31, 2021 and 2020. 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 years endedDecember 31, 2021 andDecember 31, 2020 . Amounts related to the acquisitions of Agro, AM-C Warehouses, Bowman Stores, Caspers, ColdCo, Halls, KMT Brrr!,Lago Cold Stores , Liberty Freezers, Newark Facility Management, a recently constructed facility inDenver purchased inNovember 2021 , 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 years endedDecember 31, 2021 and 2020. 74 --------------------------------------------------------------------------------
Year ended December 31, Change
2021 constant Constant
2021 actual currency(1) 2020 actual Actual currency
Number of same store sites 160 160 n/a n/a
Same store revenue: (Dollars in thousands)
Rent and storage $ 615,387 $ 612,311 $ 613,933 0.2 % (0.3) %
Warehouse services 849,049 836,973 831,679 2.1 % 0.6 %
Total same store revenue 1,464,436 1,449,284 1,445,612 1.3 % 0.3 %
Same store cost of operations:
Power 84,844 84,697 84,018 1.0 % 0.8 %
Other facilities costs 126,534 125,808 122,705 3.1 % 2.5 %
Labor 658,237 648,565 624,609 5.4 % 3.8 %
Other services costs 117,300 116,966 112,024 4.7 % 4.4 %
Total same store cost of operations
$ 943,356 4.6 % 3.5 % Same store contribution (NOI)$ 477,521 $ 473,248 $ 502,256 (4.9) % (5.8) % Same store rent and storage contribution (NOI)(2)$ 404,009 $ 401,806 $ 407,210 (0.8) % (1.3) % Same store services contribution (NOI)(3)$ 73,512 $ 71,442 $ 95,046 (22.7) % (24.8) % Total same store margin 32.6 % 32.7 % 34.7 % -214 bps -209 bps Same store rent and storage margin(4) 65.7 % 65.6 % 66.3 % -68 bps -71 bps Same store services margin(5) 8.7 % 8.5 % 11.4 % -277 bps -289 bps Year ended December 31, Change 2021 constant Constant 2021 actual currency(1) 2020 actual Actual currency Number of non-same store sites(6) 81 69 n/a n/a Non-same store revenue: (Dollars in thousands) Rent and storage$ 260,766 $ 255,613 $ 52,216 399.4 % 389.5 % Warehouse services 360,185 354,414 51,486 599.6 % 588.4 % Total non-same store revenue 620,951 610,027 103,702 498.8 % 488.2 % Non-same store cost of operations: Power 44,691 43,759 6,515 586.0 % 571.7 % Other facilities costs 81,638 80,162 14,509 462.7 % 452.5 % Labor 276,546 272,329 52,431 427.4 % 419.4 % Other services costs 109,161 107,836 12,170 797.0 % 786.1 % Total non-same store cost of operations$ 512,036 $ 504,086 $ 85,625 498.0 % 488.7 %
Non-same store contribution (NOI)
$ 18,077 502.5 % 486.1 % Non-same store rent and storage contribution (NOI)(2)$ 134,437 $ 131,692 $ 31,192 331.0 % 322.2 % Non-same store services contribution (NOI)(3)$ (25,522) $ (25,751) $ (13,115) (94.6) % (96.3) % Total non-same store margin 17.5 % 17.4 % 17.4 % 11 bps -7 bps Non-same store rent and storage margin(4) 51.6 % 51.5 % 59.7 % -818 bps -822 bps Non-same store services margin(5) (7.1) % (7.3) % (25.5) % 1839 bps 1821 bps
Total warehouse segment revenue
$ 1,549,314 34.6 % 32.9 %
Total warehouse cost of operations
$ 1,028,981 45.7 % 43.8 %
Total warehouse segment contribution
$ 520,333 12.7 % 11.3 %
(1)The adjustments from our
75
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(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
revenue.
(5)Calculated as warehouse services contribution (NOI) divided by warehouse
services revenue.
(6)Non-same store warehouse count of 81 includes one recently leased warehouse
in Australia , one recently constructed facility in Denver that we purchased in
November 2021 , three warehouses acquired through the Lago Cold Stores
acquisition on November 15, 2021 , one warehouse acquired through the Newark
Facility Management acquisition on September 1, 2021 , two facilities acquired
through the ColdCo acquisition on August 2, 2021 , one warehouse acquired through
the Bowman stores acquisition on May 28, 2021 , two warehouses acquired through
the KMT Brrr! acquisition on May 5, 2021 , four warehouses acquired through the
Liberty Freezers acquisition on March 1, 2021 , 46 warehouses acquired through
the Agro acquisition on December 30, 2020 , eight warehouses acquired through the
Hall's acquisition on November 2, 2020 , three warehouses acquired through the
Casper's and AM-C warehouse acquisitions on August 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.
76
--------------------------------------------------------------------------------The following table provides certain operating metrics to explain the drivers of our same store performance.
Year
ended
2021 2020 Change
Number of same store sites 160 160 n/a
Same store rent and storage:
Economic occupancy(1)
Average occupied economic pallets 2,886 3,003 (3.9) %
Economic occupancy percentage 77.0 % 80.3 % -327 bps
Same store rent and storage revenue per economic occupied pallet
$ 213.22 $ 204.43 4.3 %
Constant currency same store rent and storage revenue per economic occupied pallet
$ 212.16 $ 204.43 3.8 % Physical occupancy(2) Average physical occupied pallets 2,564 2,747 (6.6) % Average physical pallet positions 3,748 3,741 0.2 % Physical occupancy percentage 68.4 % 73.4 % -500 bps
Same store rent and storage revenue per physical occupied pallet
$ 240.00 $ 223.52 7.4 %
Constant currency same store rent and storage revenue per physical occupied pallet
$ 238.80 $ 223.52 6.8 % Same store warehouse services: Throughput pallets (in thousands) 29,096 29,949 (2.8) %
Same store warehouse services revenue per throughput pallet
$ 29.18 $ 27.77 5.1 %
Constant currency same store warehouse services revenue per throughput pallet
$ 28.77 $ 27.77 3.6 % Number of non-same store sites(3) 81 69 n/a Non-same store rent and storage: Economic occupancy(1) Average occupied economic pallets 1,161 230 405.0 % Economic occupancy percentage 75.3 % 65.0 % 1036 bps Physical occupancy(2) Average physical occupied pallets 1,137 219 418.6 % Average physical pallet positions 1,542 354 335.6 % Physical occupancy percentage 73.7 % 61.9 % 1180 bps Non-same store warehouse services: Throughput pallets (in thousands) 10,841 2,175 398.4 % (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 commitment specified in each customers' contract, and subtracting the physical pallet positions. (2)We define average physical occupancy as the average number of occupied pallets divided by the estimated number of average physical pallet positions in our warehouses for the applicable period. We estimate the number of physical pallet positions by taking into account actual racked space and by estimating unracked space on an as-if racked basis. We base this estimate on a formula utilizing the total cubic feet of each room within the warehouse that is unracked divided by the volume of an assumed rack space that is consistent with the characteristics of the relevant warehouse. On a warehouse by warehouse basis, rack space generally ranges from three to four feet depending upon the type of facility and the nature of the customer goods stored therein. The number of our pallet positions is reviewed and updated quarterly, taking into account changes in racking configurations and room utilization. (3)Non-same store warehouse count of 81 includes one recently leased warehouse inAustralia , one recently constructed facility inDenver that we purchased inNovember 2021 , three warehouses acquired through theLago Cold Stores acquisition onNovember 15, 2021 , one warehouse acquired through theNewark 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 77 --------------------------------------------------------------------------------
acquisitions on
Economic occupancy at our same stores was 77.0% for the year endedDecember 31, 2021 , a decrease of 327 basis points compared to 80.3% for the year endedDecember 31, 2020 . Storage levels were lower than prior year levels due to ongoing supply chain disruption as a result of the COVID-19 pandemic, causing food manufacturers to produce at less than full capacity and straining the availability of transportation for their product. 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 in 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 year endedDecember 31, 2021 was 859 basis points higher than our corresponding average physical occupancy of 68.4%. The decrease of 500 basis points in average physical occupancy compared to 73.4% for the year endedDecember 31, 2020 was driven by supply chain disruption caused by the COVID-19 pandemic. Same store rent and storage revenues per economic occupied pallet increased 4.3% period-over-period, primarily driven by improvements in our commercial terms and contractual and market-driven rate escalations. On a constant currency basis, our same store rent and storage revenues per occupied pallet increased 3.8% period-over-period. Throughput pallets at our same stores were 29.1 million pallets for the year endedDecember 31, 2021 , a decrease of 2.8% from 29.9 million pallets for the year endedDecember 31, 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 negatively impacted. Food manufacturers have been unable to rebuild holdings in the supply chain due to challenges in the labor market and higher absences throughout the various COVID-outbreaks during 2021. Throughput of our customer's product has been further strained by shortages of transportation during 2021. Same store warehouse services revenue per throughput pallet increased 5.1% compared to the prior year primarily as a result of a more favorable customer mix, contractual and market-driven rate escalations and an increase in higher priced value-added services within the retail sector such as case-picking, blast freezing and repackaging, paired with favorable foreign currency translation as previously discussed. On a constant currency basis, our same store services revenue per throughput pallet increased 3.6% compared to the prior year. Third-Party Managed Segment
The following table presents the operating results of our third-party managed
segment for the years ended
Year ended December 31, Change
2021 constant Constant
2021 actual currency(1) 2020 actual Actual currency
Number of managed sites 9 9
(Dollars in thousands)
Third-party managed revenue $ 317,311 $ 315,490 $ 291,751 8.8 % 8.1 %
Third-party managed cost of operations 303,347 301,847 279,523 8.5 % 8.0 %
Third-party managed segment
contribution $ 13,964 $ 13,643 $ 12,228 14.2 % 11.6 %
Third-party managed margin 4.4 % 4.3 % 4.2 % 21 bps 13 bps
78
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(1)The adjustments from our
Third-party managed revenue was$317.3 million for the year endedDecember 31, 2021 , an increase of$25.6 million , or 8.8%, compared to$291.8 million for the year endedDecember 31, 2020 . On a constant currency basis, third-party managed revenue was$315.5 million for the year endedDecember 31, 2021 , an increase of$23.7 million , or 8.1%, compared to the prior year. 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 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$303.3 million for the year endedDecember 31, 2021 , an increase of$23.8 million , or 8.5%, compared to$279.5 million for the year endedDecember 31, 2020 . On a constant currency basis, third-party managed cost of operations was$301.8 million for the year endedDecember 31, 2021 , an increase of$22.3 million , or 8.0%, compared to the prior year. Third-party managed cost of operations increased as a result of the revenue trends described above. Third-party managed segment contribution (NOI) was$14.0 million for the year endedDecember 31, 2021 , an increase of$1.7 million , or 14.2%, compared to$12.2 million for the year endedDecember 31, 2020 . On a constant currency basis, third-party managed segment contribution (NOI) was$13.6 million for the year endedDecember 31, 2021 , an increase of$1.4 million , or 11.6%, compared to the prior year. The increase in segment contribution was a result of the factors mentioned above. Transportation Segment
The following table presents the operating results of our transportation segment
for the years ended
Year ended December 31, Change
2021 constant Constant
2021 actual currency(1) 2020 actual Actual currency
(Dollars in thousands)
Transportation revenue $ 312,092 $ 304,292 $ 142,203 119.5 % 114.0 %
Transportation cost of operations 282,716 275,572 123,396 129.1 % 123.3 %
Transportation segment contribution (NOI)
$ 18,807 56.2 % 52.7 % Transportation margin 9.4 % 9.4 % 13.2 % -381 bps -379 bps
(1)The adjustments from our
Our transportation segment continued its strategic shift to focus on more profitable solutions, which create value for our customers while driving and supporting our warehouse business including consolidation offerings; however certain of our recent acquisitions contained lower margin operations which are in the process of being integrated into our core transportation offering. Transportation revenue was$312.1 million for the year endedDecember 31, 2021 , an increase of$169.9 million , or 119.5%, compared to$142.2 million for the year endedDecember 31, 2020 . On a constant currency basis, transportation revenue was$304.3 million for the year endedDecember 31, 2021 , an increase of$162.1 million , or 114.0%, compared to the prior year. 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 lesser extent the KMT Brrr! acquisition which closed in earlyMay 2021 , as well as the higher revenue associated with fuel and 79 --------------------------------------------------------------------------------
capacity surcharges, paired with the favorable impact of foreign currency translation. This is partially offset by a decrease in revenue from the rationalization of certain domestic market operations.
Transportation cost of operations was$282.7 million for the year endedDecember 31, 2021 , an increase of$159.3 million , or 129.1%, compared to$123.4 million for the year endedDecember 31, 2020 . On a constant currency basis, transportation cost of operations was$275.6 million for the year endedDecember 31, 2021 , an increase of$152.2 million , or 123.3%, compared to the prior year. The increase was driven by the acquisitions mentioned above, a reduction in market capacity due to the COVID-19 pandemic, which has caused an increase in carrier fees, higher fuel and other costs impacted by inflation and the unfavorable impact of foreign currency translation. This is partially offset by the decrease of costs from the exit of certain domestic market operations. Transportation segment contribution (NOI) was$29.4 million for the year endedDecember 31, 2021 , an increase of$10.6 million , or 56.2%, compared to$18.8 million for the year endedDecember 31, 2020 . Transportation segment margin decreased 381 basis points from the prior year, to 9.4% from 13.2%. On a constant currency basis, transportation segment contribution was$28.7 million for the year endedDecember 31, 2021 , an increase of$9.9 million , or 52.7%, compared to the prior year. 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$319.8 million for the year endedDecember 31, 2021 , an increase of$103.9 million , or 48.1%, compared to$215.9 million for the year endedDecember 31, 2020 . This increase was primarily due to the 2020 and 2021 acquisitions, expansions and developments. Selling, general and administrative. Corporate-level selling, general and administrative expenses were$182.1 million for the year endedDecember 31, 2021 , an increase of$37.3 million , or 25.8%, compared to$144.7 million for the year endedDecember 31, 2020 . Included in these amounts are business development expenses attributable to new business pursuits, supply chain solutions and underwriting, facility development, customer onboarding, and engineering and consulting services to support our customers in the cold chain. Business development expenses represented approximately 17% and 14% of corporate-level selling, general and administrative expenses for the year endedDecember 31, 2021 and 2020, respectively. 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, higher third-party professional fees and higher share-based compensation expense. These increases were partially offset by lower annual performance-based, cash incentive compensation expense. For the years endedDecember 31, 2021 and 2020, corporate-level selling, general and administrative expenses were 6.7% and 7.3%, respectively, of total revenues. Acquisition, litigation and other. Corporate-level acquisition, litigation and other expenses were$51.6 million for the year endedDecember 31, 2021 , a increase of$15.3 million compared to$36.3 million for the year endedDecember 31, 2020 . During the year endedDecember 31, 2021 , we incurred$39.3 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 aggregate severance of$8.9 million , of which$4.6 million related to severance of our former CEO and$4.3 million related to the realignment of our international operations. During 80 -------------------------------------------------------------------------------- the year endedDecember 31, 2020 , we incurred$26.5 million of acquisition related expenses primarily composed of professional fees and integration related costs in connection with completed and potential acquisitions, primarily related to the recently completed Agro Merchants Acquisition, and employee retention. Additionally, we incurred$1.1 million of severance primarily related to reduction in headcount as a result of the synergies from acquisitions, and partially related to the realignment of our international operations. During the fourth quarter of 2020 we were subject to a cybersecurity incident and incurred$7.9 million of costs related to it. The cyber incident costs include third-party fees incurred in connection with the cyber incident that occurred inNovember 2020 , as well as any incremental costs, internal and external, incurred to restore operations at our facilities. Impairment of long-lived assets. For the years endedDecember 31, 2021 and 2020, we recorded impairment charges of$3.3 million and$8.2 million , respectively. The charges incurred during the year endedDecember 31, 2021 include$1.7 million related to costs associated with development projects which management determined it would no longer pursue, and$1.6 million for certain software costs that were determined no longer usable. During the year endedDecember 31, 2020 , we recorded impairment charges of$3.7 million for Quarry segment assets related to the sale of our quarry business,$2.1 million for Third-party managed segment assets within the leased facilities that we exited which could not be repurposed,$1.7 million for Warehouse segment assets related to a potential development project which we are no longer moving forward with and$0.5 million for Warehouse segment assets which were deemed unusable subsequent to the sale of ourBoston facility. Gain from sale of real estate. For the year endedDecember 31, 2020 , we recorded a$22.1 million gain from the sale of real estate. 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$20.1 million gain from 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.
Other Expense
The following table presents other items of income and expense for the years
ended
Year ended December 31, Change
2021 2020 %
Other (expense) income: (Dollars in thousands)
Interest expense $ (99,177) $ (91,481) 8.4 %
Interest income $ 841 $ 1,162 (27.6) %
Bridge loan commitment fees $ - $ (2,438) (100.0) %Loss on debt extinguishment, modifications and termination of derivative instruments
$ (5,689) $ (9,975) (43.0) % Foreign currency exchange loss$ (610) $ (45,278) (98.7) % Other income (expense) - net$ 1,900 $ (2,563) (174.1) % Loss from partially owned entities$ (2,004) $ (250) n/r n/r= not relevant Interest expense. Interest expense was$99.2 million for the year endedDecember 31, 2021 , an increase of$7.7 million , or 8.4%, compared to$91.5 million for the year endedDecember 31, 2020 . The increase was primarily due to the issuance of the Series D and Series E Senior Unsecured Notes inDecember 2020 paired with borrowings outstanding for the year endedDecember 31, 2021 under the 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 81 -------------------------------------------------------------------------------- principal repayment of$100.0 million and$200.0 million inDecember 2020 andJanuary 2021 , respectively, paired with a higher amount of capitalized interest based on the increase in our ongoing expansion and development projects. The effective interest rate of our outstanding debt has decreased from 3.94% for the year endedDecember 31, 2020 to 3.14% for the year endedDecember 31, 2021 , however, outstanding principal has increased from$2.6 billion as ofDecember 31, 2020 to$2.8 billion as ofDecember 31, 2021 . Interest income. Interest income of$0.8 million for the year endedDecember 31, 2021 decreased$0.3 million when compared to$1.2 million for the year endedDecember 31, 2020 . This change was driven by a lower average cash balance and lower interest rates as compared to the prior year. Bridge loan commitment fees. Corporate-level bridge loan commitment fees were$2.4 million for the year endedDecember 31, 2020 . In 2020, we obtained a bridge loan to support the Agro acquisition. The bridge loan facility for Agro ultimately did not need to be funded, and accordingly, we expensed the lender commitment and loan fee. Loss on debt extinguishment, modifications and termination of derivative instruments. Loss on debt extinguishment, modifications, and termination of derivative instruments of$5.7 million for the year endedDecember 31, 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$2.7 million during 2021 for the amortization of fees paid for the interest rate swaps terminated during 2020 and discussed below, which will continue to be amortized through 2024. 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 of$0.8 million . During the fourth quarter of 2020, we closed on a debt private placement of €750 million senior unsecured notes. In connection with this issuance, we repaid$100.0 million of our outstanding Senior Unsecured Term Loan A-1 facility, resulting in a write-off of$1.5 million of unamortized deferred financing costs. In connection with the partial repayment of this debt we also terminated the related interest rate swaps, resulting in the recognition of a portion of the remaining unamortized balance in accumulated other comprehensive loss on the previously designated hedges for$7.7 million . Foreign currency exchange (loss) gain, net. We reported a foreign currency exchange loss of$0.6 million for the year endedDecember 31, 2021 compared to a$45.3 million loss for the year endedDecember 31, 2020 . During the fourth quarter of 2020, the Company entered into an undesignated foreign currency forward contract to lock in the conversion of the expected proceeds of the €750 million denominated debt issuance to USD, which settled onDecember 30, 2020 , and resulted in$45.0 million in foreign currency exchange loss when compared to the USD equivalent of the Euro denominated debt at market rates, on the date of issuance. Other income (expense) - net. Other income, net was$1.9 million for the year endedDecember 31, 2021 compared to Other expense, net of$2.6 million for the year endedDecember 31, 2020 . The decrease in expense is primarily due to lower non-service pension costs and a decrease in loss on asset disposals as compared to 2020. Additionally, during 2021, we recognized individually immaterial amounts of other income related to items including our corporate credit card rebate which was higher due to acquisition growth, energy rebates which were higher due to investments in solar projects and HUB tax incentives from a recently acquired facility. Loss from partially owned entities. We reported a loss of$2.0 million for the year endedDecember 31, 2021 compared to a loss of$0.3 million for the year endedDecember 31, 2020 . During the year endedDecember 31, 2021 , we recorded our portion of the loss generated by the SuperFrio JV, as well as our portion of the loss generated by the Comfrio JV which we acquired in connection with the Agro Acquisition. During the 82 --------------------------------------------------------------------------------
year ended
Income Tax Benefit (Expense)
Income tax benefit for the year endedDecember 31, 2021 was$1.6 million , which represented a decrease of$5.4 million , from an income tax benefit of$6.9 million for the year endedDecember 31, 2020 . The change in income tax expense was primarily attributable to the remeasurement of deferred tax liabilities in theUnited Kingdom from 19% to 25% enacted in the second quarter of 2021, resulting in an increase of$11.8 million of tax expense. The impact was partially offset by$9.5 million of tax benefit attributable to losses generated by foreign operations that we did not own in 2020. We continue to recognize a tax benefit from a reduction to our valuation allowance in 2021 for deferred tax liabilities originating from recent acquisitions of$7.1 million in 2021 as compared to$10.2 million in 2020 that can be used as a positive source of income for valuation allowance assessment purposes.
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.
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We calculate funds from operations, or FFO, in accordance with the standards established by
the Board of Governors of the National Association of Real Estate Investment Trusts , or
NAREIT. NAREIT defines FFO as net income or loss determined in accordance with U.S. GAAP,
excluding extraordinary items as defined under U.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, acquisition, litigation and other, net,
non-core asset impairment, share-based compensation expense for the IPO retention grants,
loss on debt extinguishment, modifications and termination of derivative instruments, bridge
loan commitment fees, foreign currency exchange loss or gain, and gain or loss from sale of
partially owned entities. We also adjust for the impact of Core FFO attributable to
partially owned entities. We have elected to reflect our share of Core FFO attributable to
partially owned entities since the Brazil 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 and pension withdrawal liability,
non-real estate asset impairment, amortization of above or below market leases,
straight-line net rent, provision or benefit from deferred income taxes, share-based
compensation expense from grants under our equity incentive plans, excluding IPO grants,
non-real estate depreciation and amortization, non-real estate depreciation and amortization
from foreign joint ventures 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 with U.S. GAAP net income and net income per diluted share
(the most directly comparable U.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 with U.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 Annual Report on Form 10-K. 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 with U.S. GAAP.
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Reconciliation of Net Income to NAREIT FFO, Core FFO, and Adjusted FFO
(in thousands)
Year Ended December 31,
2021 2020 2019
Net (loss) income $ (30,309) $ 24,555 $ 48,162
Adjustments:
Real estate related depreciation 200,184 146,417 114,976
Net (gain) loss on sale of real estate, net of withholding tax (a)
- (21,759) 34
Net loss on asset disposals 12 2,045 382
Real estate depreciation from partially owned entities - - 790
Impairment charges on certain real estate assets 1,752 5,630 12,555
Our share of reconciling items related to partially owned entities
2,412 449 -
NAREIT FFO Applicable to All Equity Holders $ 174,051 $ 157,337 $ 176,899
Adjustments:
Net loss on sale of non-real asset assets 267 595 488
Acquisition, litigation, and other 51,578 36,306 40,614
Non-core asset impairment - 2,606 930
Share-based compensation expense, IPO grants 163 972 2,432
Loss on debt extinguishment, modifications, and terminations of derivatives instruments
5,689 9,975 -
Bridge loan commitment fee - 2,438 2,665
Foreign currency exchange loss (gain) 610 45,278 (10)
Our share of reconciling items related to partially owned entities
439 194 -
Gain from sale of partially owned entities - - (4,297)
Core FFO applicable to common shareholders 232,797 255,701 219,721
Adjustments:
Amortization of deferred financing costs and pension withdrawal liability
4,425 5,147 6,028
Non-real estate asset impairment 1,560 -
Amortization of below/above market leases 2,261 152 151
Straight-line net rent (216) (628) (521)
Deferred income taxes benefit (9,147) (13,732) (10,701)
Share-based compensation, excluding IPO grants 23,737 16,939 10,463
Non-real estate depreciation and amortization 119,656 69,474 48,372
Non-real estate depreciation and amortization from partially owned entities
- - 317
Maintenance capital expenditures (b) (75,965) (65,547) (59,300)
Our share of reconciling items related to partially owned entities
387 371 -
Adjusted FFO applicable to common shareholders $ 299,495 (a)Loss (gain) on sale of real estate, net of withholding tax include withholding tax on the sale ofSydney land which is included in income tax expense on the Consolidated Statement of Operations during 2020. (b)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. 85 -------------------------------------------------------------------------------- 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 partially owned entities, asset impairment, foreign currency exchange gain or loss, share-based compensation expense, loss on debt extinguishment, modifications and termination of derivative instruments, bridge loan commitment fees, net loss on other asset disposals, 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 and amortization are non-cash charges, the assets being depreciated 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. 86
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Reconciliation of Net Income to NAREIT EBITDAre and Core EBITDA
(In thousands)
Year Ended December 31,
2021 2020 2019
Net (loss) income $ (30,309) $ 24,555 $ 48,162
Adjustments:
Depreciation and amortization 319,840 215,891 163,348
Interest expense 99,177 91,481 94,408
Income taxes benefit (1,569) (7,292) (5,157)
EBITDA 387,139 324,635 300,761
Adjustments:Net (gain) loss on sale of real estate, net of withholding tax
- (21,759) 34
Adjustment to reflect share of EBITDAre of partially owned
entities 8,966 1,022 1,726
NAREIT EBITDAre $ 396,105 $ 303,898 $ 302,521
Adjustments:
Acquisition, litigation, and other 51,578 36,306 40,614
Loss on partially owned entities 2,004 250 111
Asset impairment 3,312 8,236 13,485
Foreign currency exchange loss (gain) 610 45,278 (10)
Share-based compensation expense 23,900 17,911 12,895
Loss on debt extinguishment, modifications, and
terminations of derivatives instruments 5,689 9,975 -
Bridge loan commitment fees - 2,438 2,665
Net loss on other asset disposals 279 2,640 870
Reduction in EBITDAre from partially owned entities (8,966) (1,022) (1,726)
Gain from sale of partially owned entities - - (4,297)
Core EBITDA $ 474,511 $ 425,910 $ 367,128
As of December 31,
2021 2020 2019
Ratio Data:
Net debt to pro-forma Core EBITDA (1) 6.1 x 4.4 x 4.2 x
(1) Net debt to Core EBITDA represents (i) our gross debt (defined as total debt plus
discount and deferred financing costs) less cash and cash equivalents divided by
(ii) Core EBITDA. Core EBITDA for 2021, 2020, and 2019 for purposes of this
calculation assumes ownership of our acquisitions for the full twelve months of the
year. Our management believes that this ratio is useful because it provides investors
with information regarding gross debt less cash and cash equivalents, which could be
used to repay debt, compared to our performance as measured using Core EBITDA.
The following table reconciles net debt to total debt, which is the most directly
comparable financial measure calculated in accordance with U.S. GAAP:
87
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As of December 31,
2021 2020
(In thousands)
Borrowings under revolving line of credit
2,443,806 2,648,266
Sale-leaseback financing obligations 178,817 185,060
Financing lease obligations 97,633 125,926
Total debt 3,119,570 2,959,252
Deferred financing costs 11,050 15,952
Gross debt 3,130,620 2,975,204
Adjustments:
Less: cash, cash equivalents and restricted cash 82,958 609,537 Net debt$ 3,047,662 $ 2,365,667 88
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Liquidity and Capital Resources
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 ATM Equity Program; 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. 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. 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. The net proceeds from sales of our common shares pursuant to the 2021 ATM Equity Program were used for funding acquisitions and development projects. During the year endedDecember 31, 2021 , there were 2,332,846 common shares sold under the 2021 ATM Equity Program under forward sale agreements for gross proceeds of$90.6 million . All of these shares were settled during the year endedDecember 31, 2021 . 89 -------------------------------------------------------------------------------- OnApril 16, 2020 , we entered into an equity distribution program, the "2020 ATM Equity Program". Under the 2020 ATM Equity Program, we could sell, from time to time, up to an aggregate sales price of$500.0 million of common shares. The net proceeds from sales of our common shares pursuant to the 2020 ATM Equity Program were used for general corporate purposes, including funding acquisitions and development projects. During the year endedDecember 31, 2020 , there were 7,440,532 common shares sold under the 2020 ATM Equity Program, resulting in gross proceeds of$272.6 million . The proceeds were offset by equity issuance costs of$3.0 million . Included in the shares sold under the 2020 ATM Equity Program were forward sale agreements in connection with the 2020 ATM Equity Program to sell 4,346,101 common shares for gross proceeds of$162.2 million . During the year endedDecember 31, 2020 , the Company settled 5,011,428 common shares for gross proceeds of$183.0 million under its ATM equity program. During the year endedDecember 31, 2021 , the Company settled the remaining 2,429,104 of shares sold under the 2020 ATM Equity Program subject to forward sales agreements for gross proceeds of$86.6 million . As ofDecember 31, 2021 , there were no forward shares outstanding under the 2020 ATM Equity Program. The 2020 ATM Equity Program was terminated at the time the 2021 ATM Equity Program was entered into.
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 available to us for re-sale. 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$3.1 million and$1.6 million for the years endedDecember 31, 2021 and 2020, respectively. As ofDecember 31, 2021 , we maintained bad debt allowances of approximately$18.8 million , which we believed to be adequate. The increase in bad debt expense is driven primarily by the increase in revenue as a result of acquisitions.
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 90 --------------------------------------------------------------------------------
be required to use borrowings under our revolving credit facility, if necessary, to meet REIT distribution requirements and maintain our REIT status.
For additional information regarding dividends declared and paid on our common shares for the years endedDecember 31, 2021 , 2020 and 2019, refer to Note 14 of our Consolidated Financial Statements. 91 --------------------------------------------------------------------------------
Outstanding Indebtedness
The following table presents our outstanding and available indebtedness as ofDecember 31, 2021 and 2020. Effective interest rate Outstanding principal amount at as of December 31, 2021 December 31, Indebtedness Stated Maturity Date Contractual interest rate (10)
December 31, 2021 2020 2013 Mortgage Loans Senior note 5/2023 3.81% 4.14%$ 167,545 $ 174,693 Mezzanine A 5/2023 7.38% 7.55% 70,000 70,000 Mezzanine B 5/2023 11.50% 11.75% 32,000 32,000 Total 2013 Mortgage Loans 269,545 276,693 Chile Mortgages(13) 2022 - 2029 4.01% 4.01% 9,761 - Senior Unsecured Notes Series A notes 1/2026 4.68% 4.77% 200,000 200,000 Series B notes 1/2029 4.86% 4.92% 400,000 400,000 Series C notes 1/2030 4.10% 4.15% 350,000 350,000 Series D notes(5) 1/2031 1.62% 1.67% 454,800 488,640 Series E notes(6) 1/2033 1.65% 1.70% 397,950 427,560 Total Senior Unsecured Notes 1,802,750 1,866,200 2020 Senior Unsecured Term Loan Tranche A-1(1) 3/2025 L+0.95% 1.33% 175,000 325,000
2020 Senior Unsecured Term Loan Tranche A-2 (2)(4) 3/2025
C+0.95% 1.55% 197,800 196,325
Total 2020 Senior Unsecured Term Loan A
Facility(4) 372,800 521,325
2020 Senior Unsecured Revolving Credit
Facility-1(2)(3)(7) 3/2024 C+0.85% 1.83% 43,516 -
2020 Senior Unsecured Revolving Credit SONIA
Facility-2(3)(8)(9) 3/2024 +0.85% 1.61% 92,694 -
2020 Senior Unsecured Revolving Credit
Facility-3(1)(3) 3/2024 L+0.85% 1.48% 205,000 -
2020 Senior Unsecured Revolving Credit BBSW
Facility-4(3)(11)(12) 3/2024 +0.85% 1.45% 58,104
Total 2020 Senior Unsecured Revolving Credit Facility 399,314 - Total principal amount of indebtedness$ 2,854,170 $ -$ 2,664,218 Less: unamortized deferred financing costs (11,050) (15,952)
Total indebtedness, net of unamortized deferred financing costs (3)
$ 2,843,120 $ 2,648,266 (1)L = one-month LIBOR (2)C=one month CDOR (3)The Company has the option to extend the 2020 Senior Unsecured Revolving Credit Facility up to two times for a six-month period each. (4)The 2020 Senior Unsecured Term Loan Tranche A-2 is denominated in Canadian dollars and aggregates toCAD 250.0 million . The carrying value in the table above is the US dollar equivalent as ofDecember 31, 2021 . (5)The Senior Unsecured Notes Series D is denominated in Euros and aggregates to Euro €400.0 million. The carrying value in the table above is the US dollar equivalent as ofDecember 31, 2021 . 92 -------------------------------------------------------------------------------- (6)The Senior Unsecured Notes Series E is denominated in Euros and aggregates to Euro €350.0 million. The carrying value in the table above is the US dollar equivalent as ofDecember 31, 2021 . (7)The Senior Unsecured Revolving Credit Facility Draw 1 as ofDecember 31, 2021 , is denominated in CAD and aggregates to CAD$55.0 million . The carrying value in the table above is the US dollar equivalent as ofDecember 31, 2021 . (8) The Senior Unsecured Revolving Credit Facility Draw 2 as ofDecember 31, 2021 , is denominated in GBP and aggregates to GBP £68.5 million. The carrying value in the table above is the US dollar equivalent as ofDecember 31, 2021 . (9) SONIA = Sterling Overnight Interbank Average Rate. (10) The effective interest rate includes effects of amortization of the deferred financing costs. The weighted average effective interest rate for total debt was 3.01% and 3.19% as ofDecember 31, 2021 and 2020, respectively. (11) BBSW =Bank Bill Swap Rate (12) The Senior Unsecured Revolving Credit Facility Draw 4 as ofDecember 31, 2021 , is denominated in AUD and aggregates to AUD 80.0 million. The carrying value in the table above is the US dollar equivalent as ofDecember 31, 2021 . (13) The Chile Mortgages were assumed in connection with the Agro Acquisition, and have varying maturities and interest rates. The above aggregates these given the immaterial balance of each individually.
2020 Senior Unsecured Credit Facility
OnMarch 26, 2020 , we entered into a five-year Senior Unsecured Term Loan A Facility and a four-year$800 million Senior Unsecured Revolving Credit Facility, which we refer to as the 2020 Senior Unsecured Credit Facility. The proceeds were used to refinance the existing$800 million 2018 Senior Unsecured Revolving Credit Facility that maturedJanuary 23, 2021 and USD denominated$475 million 2018 Senior Unsecured Term Loan maturingJanuary 23, 2023 . The 2020 Senior Unsecured Term Loan A Facility is broken into two tranches. Tranche A-1 is comprised of a$425.0 million USD term loan and Tranche A-2 is comprised of aCAD 250.0 million term loan, both are five-year loans maturing in 2025. Tranche A-2 provides a natural hedge our investment inCanada . We refer to Tranches A-1 and A-2 in aggregate as the 2020 Senior Unsecured Term Loan Facility. OnDecember 30, 2020 , we repaid$100.0 million of the$425.0 million USD Tranche A-1 2020 Senior Unsecured Term Loan A. This was funded using the Series D and E debt private placement issuance, more details on this debt issuance can be found under the "Series A, B, C, D, and E Senior Unsecured Notes" section below. In addition, the interest rate swaps associated with the 2020 Senior Unsecured Term Loan A were terminated, resulting in an extinguishment fee of$16.4 million .
On
OnDecember 10, 2021 , we entered into a Confirmation of Incremental Facilities Participation and Joinder Agreement on the 2020 Senior Unsecured Term Loan A Facility and 2020 Senior Unsecured Revolving Credit Facility, increasing the principal on the Term Loan Tranche A-1 by$50.0 million and increasing the borrowing capacity of the revolving credit facility by$150.0 million . The proceeds from the Term Loan Tranche A-1 borrowing were used to repay borrowings on the 2020 Senior Unsecured Revolving Credit Facility. The Incremental Confirmation does not otherwise modify the terms of the Credit Agreement. As ofDecember 31, 2021 ,$2.3 million of unamortized debt issuance costs related to the 2020 Senior Unsecured Term Loan A Facility are included in "Mortgage notes, senior unsecured notes and term loans" in the accompanying Consolidated Balance Sheets, which we amortize as interest expense under the effective interest method. The maturity of the 2020 Senior Unsecured Revolving Credit Facility isMarch 26, 2024 ; however,we have the option to extend the maturity up to two times, each for a six-month period. We must meet certain criteria in order to extend the maturity. All representations and warranties must be in effect, we must obtain updated resolutions from loan parties, and an additional 6.25 basis points extension fee must be paid. As ofDecember 31 , 93 -------------------------------------------------------------------------------- 2021,$4.8 million of unamortized debt issuance costs related to the revolving credit facility are included in "Other assets" in the accompanying Consolidated Balance Sheets, which we amortize as interest expense under the straight-line method. Our 2020 Senior Unsecured Credit Facility contains representations, covenants and other terms customary for a publicly traded REIT. In addition, it contains certain financial covenants, as defined in the credit agreement, including: •a maximum leverage ratio of less than or equal to 60% of our total asset value. Following a material acquisition, leverage ratio shall not exceed 65%; •a maximum unencumbered leverage ratio of less than or equal to 60% to unencumbered asset value. Following a material acquisition, unencumbered leverage ratio shall not exceed 65%; •a maximum secured leverage ratio of less than or equal to 40% to total asset value. Following a material acquisition, secured leverage ratio shall not exceed 45%; •a minimum fixed charge coverage ratio of greater than or equal to 1.50x; and •a minimum unsecured interest coverage ratio of greater than or equal to 1.75x. Material Acquisition in our 2020 Senior Unsecured Credit Facility is defined as one in which assets acquired exceeds an amount equal to 5% of total asset value as of the last day of the most recently ended fiscal quarter publicly available. Obligations under our 2020 Senior Unsecured Credit Facility are general unsecured obligations of ourOperating Partnership and are guaranteed by the Company and certain subsidiaries of the Company. As ofDecember 31, 2021 , the Company was in compliance with all debt covenants.
There were
The 2020 Senior Unsecured Credit Facility has language allowing for the transition from LIBOR to other market-approved rates. The LIBOR transition is only relevant for USD-denominated debt, as the SONIA has already transitioned. The BBSW and CDOR rates are not related to LIBOR.
Series A, B, C, D, and E Senior Unsecured Notes
OnApril 26, 2019 , we completed a debt private placement transaction consisting of$350.0 million senior unsecured notes with a coupon of 4.10% dueJanuary 8, 2030 ("Series C"). Interest is payable onJanuary 8 andJuly 8 of each year until maturity. We used the proceeds of the private placement transaction to repay the indebtedness outstanding under our senior unsecured revolving credit facility incurred in connection with the funding of the Cloverleaf andLanier acquisitions. OnNovember 6, 2018 , we completed a debt private placement transaction consisting of (i)$200.0 million senior unsecured notes with a coupon of 4.68% dueJanuary 8, 2026 ("Series A") and (ii)$400.0 million senior unsecured notes with a coupon of 4.86% dueJanuary 8, 2029 ("Series B"), collectively referred to as the debt private placement. Interest is payable onJanuary 8 andJuly 8 of each year until maturity. We used a portion of the proceeds of the private placement transaction to repay the outstanding balances of the$600.0 million Americold 2010LLC Trust , Commercial Mortgage Pass-Through Certificates, Series 2010, ART. We also used the remaining proceeds to extinguish the Australian term loan and theNew Zealand term loan. OnDecember 30, 2020 we completed a debt private placement transaction consisting of (i) €400.00 million senior unsecured notes with a coupon of 1.62% dueJanuary 7, 2031 ("Series D") and (ii) €350.00 million senior unsecured notes with a coupon of 1.65% dueJanuary 7, 2033 ("Series E"). Interest is payable onJanuary 7 andJuly 7 of each year until maturity. In connection with entering into the agreement, we incurred approximately$4.5 million of debt issuance costs related to the issuance, which we amortize as interest expense under the effective interest method. The proceeds of the Series D and Series E issuance were used to fund the Halls 94 --------------------------------------------------------------------------------
acquisition, general corporate purposes and to repay a portion of the 2020 Senior Unsecured Term Loan Tranche A-1.
The Series A, B, C, D, and E senior notes (collectively referred to as the "Senior Unsecured Notes") and guarantee agreement includes a prepayment option executable at any time during the term of the loans. The prepayment can be either a partial payment or payment in full, as long as the partial payment is at least 5% of the outstanding principal. Any prepayment in full must include a make-whole amount, which is the discounted remaining scheduled payments due to the lender. The discount rate to be used is equal to 0.50% plus the yield to maturity reported for the most recently actively tradedU.S. Treasury Securities with a maturity equal to the remaining average life of the prepaid principal. We must give each lender at least 10 days written notice whenever it intends to prepay any portion of the debt. The notes are general unsecured senior obligations of theOperating Partnership and are guaranteed by the Company and certain subsidiaries of the Company.
If a change in control occurs for us, we must issue an offer to prepay the remaining portion of the debt to the lenders. The prepayment amount will be 100% of the principal amount, as well as accrued and unpaid interest.
We are required to maintain at all times an investment grade debt rating for each series of notes from a nationally recognized statistical rating organization. In addition, the Senior Unsecured Notes contain certain financial covenants required on a quarterly or occurrence basis, as defined in the credit agreement, including: •a maximum leverage ratio of less than or equal to 60% of our total asset value; •a maximum unsecured indebtedness to qualified assets ratio of less than 0.60 to 1.00; •a maximum total secured indebtedness ratio of less than 0.40 to 1.00; •a minimum fixed charge coverage ratio of greater than or equal to 1.50 to 1.00; and •a minimum unsecured debt service ratio of greater than or equal to 2.00 to 1.00.
As of
2013 Mortgage Loans
OnMay 1, 2013 , we entered into a mortgage financing in an aggregate principal amount of$322.0 million , which we refer to as the 2013 Mortgage Loans. The debt consists of a senior debt note and two mezzanine notes. The components are cross-collateralized and cross-defaulted. The senior debt note requires monthly principal payments. The mezzanine notes require no principal payments until the stated maturity date inMay 2023 . The interest rates on the notes are fixed and range from 3.81% to 11.50% per annum. The senior debt note and the two mezzanine notes remain subject to yield maintenance provisions. We used the net proceeds of these loans to refinance certain mortgage loans, acquire two warehouses, and fund general corporate purposes. The 2013 Mortgage Loans are collateralized by 15 warehouses. The terms governing the 2013 Mortgage Loans require us to maintain certain cash amounts in accounts that are restricted as to their use for the respective warehouses. As ofDecember 31, 2021 , the amount of restricted cash associated with the 2013 Mortgage Loans was$3.2 million . Additionally, if we do not maintain certain financial thresholds, including a debt service coverage ratio of 1.10x, the cash generated will further be temporarily restricted and limited to the use for scheduled debt service and operating costs. The 2013 Mortgage Loans are non-recourse to us subject to customary non-recourse provisions as stipulated in the agreements. The mortgage loan also requires compliance with other financial covenants, including a debt coverage ratio and cash flow calculation, as defined. As ofDecember 31, 2021 , we were in compliance with all debt covenants. 95 --------------------------------------------------------------------------------
Debt Covenants
Our Senior Unsecured Credit Facilities, the Senior Unsecured Notes and 2013 Mortgage Loans all require financial statement reporting, periodic reporting of compliance with financial covenants, other established thresholds and performance measurements, and compliance with affirmative and negative covenants that govern our allowable business practices. The affirmative and negative covenants include, among others, continuation of insurance, maintenance of collateral (in the case of the 2013 Mortgage Loans), the maintenance of REIT status, and restrictions on our ability to enter into certain types of transactions or take on certain exposures. As ofDecember 31, 2021 , we were in compliance with all debt covenants.
Loss on debt extinguishment, modifications and termination of derivative instruments
In connection with refinancing during 2021, we recorded$2.9 million to "Loss on debt extinguishment, modifications and termination of derivative instruments" in the accompanying Consolidated Statements of Operations. Additionally, we recorded a reclassification of$2.7 million from other comprehensive income to "Loss on debt extinguishment, modifications and termination of derivative instruments" in the accompanying Consolidated Statements of Operations related to the amortization of the portion deferred following the termination of interest rate swaps related to the Senior Unsecured Term Loan A Facility. In connection with the various refinancing of the Senior Unsecured Credit Facility during 2020, the Company recorded and aggregate$2.3 million to "Loss on debt extinguishment, modifications and termination of derivative instruments" in the accompanying Consolidated Statements of Operations. In addition, the Company terminated the two interest rate swaps related to the 2020 Senior Unsecured Credit Facility for a fee of$16.4 million . Approximately$8.7 million of this fee was recorded in "Accumulated Other Comprehensive Income" and will be amortized to expense through 2024, while$7.7 million was expensed as interest and included within "Loss on debt extinguishment, modifications, and termination of derivative instruments" in the accompanying Consolidated Statements of Operations during the year endedDecember 31, 2020 .
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 a Positive Trends 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" for further details regarding the potential impacts from changes to our credit ratings.
Maintenance Capital Expenditures and Repair and Maintenance Expenses
We utilize a strategic approach to recurring maintenance capital expenditures and repair and maintenance expenses to maintain the high quality and operational efficiency of our warehouses and ensure that our warehouses meet the "mission-critical" role they serve in the cold chain.
Maintenance Capital Expenditures
Maintenance capital expenditures are capitalized investments made to extend
the life of, and provide future economic benefit from, our existing
temperature-controlled warehouse network and its existing supporting personal
property and information technology systems. Examples of maintenance capital
expenditures related to our existing temperature-controlled warehouse network
include replacing roofs and refrigeration equipment, and
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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 recurring maintenance capital expenditures for the years ended
December 31, 2021 and 2020.
Year ended December 31,
2021 2020
(Inthousands, except per cubic foot
amounts)
Real estate $ 62,677 $ 55,967
Personal property 5,828 4,768
Information technology 7,460 4,812
Maintenance capital expenditures(1) $
75,965
Maintenance capital expenditures per cubic foot $
0.052
(1) Excludes
Repair and Maintenance Expenses
We incur repair and maintenance expenses that include costs of normal maintenance and repairs and minor replacements that do not materially extend the life of the property or provide future economic benefits. Repair and maintenance expenses consist of expenses related to our existing temperature-controlled warehouse network and its existing supporting personal property and are reflected as operating expenses on our income statement. Examples of repair and maintenance expenses related to our warehouse portfolio include ordinary repair and maintenance on roofs, racking, walls, doors, parking lots and refrigeration equipment. Examples of repair and maintenance expenses related to personal property include ordinary repair and maintenance expenses on material handling equipment (e.g., fork lifts and pallet jacks) and related batteries. The following table sets forth our repair and maintenance expenses for the years endedDecember 31, 2021 and 2020. Year ended December 31, 2021 2020 (In thousands, except per cubic foot amounts) Real estate$ 31,612 $ 27,797 Personal property 53,006 30,105 Repair and maintenance expenses$ 84,618
Repair and maintenance expenses per cubic foot $ 0.058
External Growth, Expansion and Development Capital Expenditures
External growth expenditures represent asset acquisitions or business
combinations. Expansion and development capital expenditures are 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
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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 year endedDecember 31, 2021 relate to Bowman Stores, ColdCo, KMT Brrr!,Lago Cold Stores , Liberty Freezers,Newark Facility Management and recently constructed facility inDenver . The acquisitions completed during the year endedDecember 31, 2020 relate to Agro, AM-C, Caspers, Hall's,Newport andNova Cold . Refer to Notes 2 and 3 of the Consolidated Financial Statements for details of the purchase price allocation for each acquisition. Expansion and development The expansion and development expenditures for the year endedDecember 31, 2021 are primarily driven by$111.2 million for our in progress two fully-automated, build-to-suit, development sites inConnecticut andPennsylvania ,$23.9 million for theAtlanta major markets strategy project (Phase 1) and$21.0 million for Phase 2,$37.5 million for theRussellville expansion,$9.5 million for theCalgary, Canada expansion,$20.4 million for theAuckland, New Zealand expansion project,$24.0 million for theDunkirk, NY development,$13.5 million for theDublin expansion,$4.4 million for the Spearwood,Australia expansion, and$4 million for theLurgan expansion. The Atlanta Phase 1,Auckland , andLurgan projects were substantially completed during the second quarter of 2021. The expansion and development expenditures for the year endedDecember 31, 2020 are primarily driven by$148.1 million related to two fully-automated, build-to-suit, development sites inConnecticut andPennsylvania ,$62.2 million related to theAtlanta major markets strategy project,$22.0 million related to theAuckland, New Zealand expansion project which was started during the second quarter of 2020 and$12.5 million in construction costs related to our Savannah expansion site, which was completed during the second quarter of 2020. Additionally, during the fourth quarter of 2020, we invested$11.7 million in ourRussellville expansion. Subsequent to the acquisition of MHW, during the first quarter of 2020, we exercised our call option to purchase land from the holder of the ground lease for$4.1 million . We also invested an additional$4.7 million for the Rochelle facility, which opened during the second quarter of 2019. Expansion and development initiatives also include$14.7 million and$20.0 million of corporate initiatives incurred during 2021 and 2020, respectively, which are projects designed to reduce future spending over the course of time. This category reflects return on investment projects, conversion of leases to owned assets, and other cost-saving initiatives.
Finally, we incurred approximately
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The following table sets forth our acquisitions, expansion and development
capital expenditures for the years ended December 31, 2021 and 2020 (in
thousands).
Year ended December 31,
2021 2020
Acquisitions, net of cash acquired and adjustments(1)
53,641 25,538
Expansion and development initiatives 324,499
298,794
Information technology 7,630
7,804
Growth and expansion capital expenditures$ 1,127,123
(1) Acquisitions, net of cash acquired and adjustments does not include$512 million of equity issued directly to Oaktree Capital, the former owners of Agro, as consideration for the Agro acquisition.
Historical Cash Flows
The following summary discussion of our cash flows is based on the Consolidated Statements of Cash Flows and is not meant to be an all-inclusive discussion of the changes in our cash flows for the periods presented below.
Year ended December 31,
2021 2020
(In thousands)
Net cash provided by operating activities
Operating Activities
For the year endedDecember 31, 2021 , our net cash provided by operating activities was$273.1 million , a decrease of$20.6 million , or 7.0%, compared to$293.7 million for the year endedDecember 31, 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
For the year endedDecember 31, 2021 cash used for the acquisitions of Bowman, ColdCo, KMT Brrr!,Lago Cold Stores , Liberty and Newark Facility Management and accounted for as business combinations totaled$0.7 billion . Additions to property, buildings and equipment were$438.2 million reflecting maintenance capital expenditures and investments in our various expansion and development projects. Additionally, we invested$7.6 million in the SuperFrio joint venture and paid$11.6 million to purchase the noncontrolling interest holders share in the Chilean business, which we now wholly own. 99 -------------------------------------------------------------------------------- For the year endedDecember 31, 2020 cash used for the acquisitions of Agro, AM-C, Hall's,Newport andNova Cold and accounted for as business combinations totaled$1.9 billion . Cash used in the acquisition of real estate was$25.5 million , which related to the asset acquisition of Caspers during the third quarter of 2020. Additionally, the net payment in settlement of a foreign currency forward contract in connection with the issuance of the Series D and Series E senior unsecured notes was$45.0 million . Additions to property, buildings and equipment were$376.8 million for the year endedDecember 31, 2020 , reflecting maintenance capital expenditures and investments in our various expansion and development projects. Additionally, we invested$26.2 million in the SuperFrio joint venture during the first quarter of 2020. These outflows were offset by$80.2 million in proceeds from the sale of land inSydney , the Quarry segment and the sale of theBoston facility.
Financing Activities
Our net cash provided by financing activities was$431.5 million for the year endedDecember 31, 2021 compared to$2.3 billion for the year endedDecember 31, 2020 . Cash provided by financing activities for the year endedDecember 31, 2021 primarily consisted of$474.5 million net proceeds from equity forward contracts settled upon the issuance of common shares,$811.0 million in proceeds from our revolving line of credit and$50.0 million received in connection with the increase of our Senior Unsecured Term Loan Tranche A-1. These cash inflows were partially offset by$405.0 million of repayments on our revolving line of credit,$227.5 million of distributions paid,$208.0 million of repayments on our term loan and mortgage notes,$39.2 million of payments related to lease obligations and$16.9 million in payment of withholding taxes related to share-based payment arrangements. Cash provided by financing activities for the year endedDecember 31, 2020 primarily consisted of$1.6 billion net proceeds from equity offerings, the$922.4 million received in connection with the issuance of the Series D and Series E senior unsecured notes which was partially offset by the related debt issuance costs of$10.1 million , the$177.1 million received in connection with the refinancing of our Senior Unsecured Term Loan and$636.8 million in proceeds from our revolving line of credit. These cash inflows were partially offset by$627.1 million of repayment on our revolving line of credit using the proceeds from the issuance of the Series D and Series E senior unsecured notes,$167.1 million of distributions paid,$156.8 million of repayments on our term loan and mortgage notes and$23.7 million of payments related to lease obligations.
Withdrawal Liability from Multi-employer Plans
As ofDecember 31, 2021 , we participated in eight multiemployer pension plans administered by labor unions representing approximately 17% of our associates. We make periodic contributions to these plans pursuant to the terms of our collective bargaining agreements to allow the plans to meet their pension benefit obligations. In the event that we withdraw from participation in any of the multiemployer pension plans in which we participate, the documents governing the applicable plan and applicable law could require us to make an additional contribution to the applicable plan in the amount of the unfunded vested benefits allocable to our participation in the plan, and we would have to reflect that as an expense on our Consolidated Statement of Operations and as a liability on our Consolidated Balance Sheet. Our withdrawal liability for any multiemployer pension plan would depend on the extent of the plan's funding of vested benefits as of the year in which the withdrawal occurs, and may vary depending on the funded status of the applicable multiemployer pension plan, whether there is a mass withdrawal of all participating employers and whether any other participating employer in the applicable plan withdraws from the plan due to insolvency and is not able to contribute an amount sufficient to fund the unfunded liabilities associated with its participants in the plan. The present value of all benefits vested under each of the multiemployer plans that we participated in as ofDecember 31, 2021 (based on the labor union's assumptions used to fund such plan) did not, as of the last annual valuation date applicable thereto, exceed 100 -------------------------------------------------------------------------------- the value of the assets of such plan allocable to such vested benefits. Based on the latest information available from plan administrators, we estimate our share of the aggregate withdrawal liability for the multiemployer pension plans in which we participate could have been as much as$819.6 million as ofDecember 31, 2021 , of which we estimate that certain of our customers are contractually obligated to make indemnification payments to us for approximately$790.8 million . However, there is no guarantee that, to the extent we incurred any such withdrawal liability, we would be successful in obtaining any indemnification payments therefore. In the ordinary course of our renegotiation of collective bargaining agreements with labor unions that maintain these plans, we could agree to discontinue participation in one or more plans, and in that event we could face a withdrawal liability. Additionally, we could be treated as withdrawing from a plan if the number of our associates participating in the plan is reduced to a certain degree over certain periods of time.
Critical Accounting Policies and Estimates
Our discussion and analysis of our historical financial condition and results of operations for the periods described is based on our audited consolidated financial statements and our unaudited interim condensed consolidated financial statements, each of which has been prepared in accordance withU.S. GAAP. The preparation of these historical financial statements in conformity withU.S. GAAP requires management to make estimates, assumptions and judgments in certain circumstances that affect the reported amounts of assets, liabilities and contingencies as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. We evaluate our assumptions and estimates on an ongoing basis. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. For more information on our significant accounting policies, see Note 2 to our Consolidated Financial Statements included in this Annual Report on Form 10-K. The following critical accounting discussion pertains to accounting policies management believes are most critical to the portrayal of our historical financial condition and results of operations and that require significant, difficult, subjective or complex judgments. Other companies in similar businesses may use different estimation policies and methodologies, which may impact the comparability of our financial condition, results of operations and cash flows to those of other companies.
Goodwill Impairment Evaluation
We perform impairment testing of goodwill as ofOctober 1 of each year, and between annual evaluations if events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Such events or changes in circumstances may include a significant deterioration in overall economic conditions including the impacts of COVID-19 both on our short-term and long-term outlook, changes in the business climate of our industry, a decline in our market capitalization, operating performance indicators and competition. As ofOctober 1, 2021 , our reporting units included the following: North American warehouse,U.S. transportation,North America third-party managed,Europe warehouse,Europe transportation,Asia-Pacific warehouse,Asia-Pacific transportation,Asia-Pacific third-party managed, andSouth America warehouse. We may use both qualitative and quantitative approaches when testing goodwill for impairment. For selected reporting units where we use the qualitative approach, we perform a qualitative evaluation of events and circumstances impacting the reporting unit to determine the likelihood of goodwill impairment. Based on that qualitative evaluation, if we determine it is more likely than not that the fair value of a reporting unit exceeds its 101 --------------------------------------------------------------------------------
carrying amount, no further evaluation is necessary. Otherwise, we perform a quantitative impairment test. We may also perform a quantitative evaluation periodically, even if there is no change of events or circumstances.
To perform the quantitative impairment test, we compare the fair value of a reporting unit to its carrying value, including goodwill. If the fair value of a reporting unit exceeds its carrying value, goodwill of the reporting unit is not impaired. If the carrying value of the reporting unit, including goodwill, exceeds its fair value, a goodwill impairment loss is recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. We generally estimate the fair value of each reporting unit using a combination of a discounted cash flow analysis and market-based valuation methodologies such as comparable public company trading values and values observed in recent business acquisitions. The estimation of the net present value of future cash flows is based upon varying economic assumptions, including assumptions such as revenue growth rates, operating costs and margins, capital expenditures, tax rates, long-term growth rates and discount rates. Of these assumptions, the operating costs and margins and the discount rates are the most subjective and/or complex. These assumptions are based on risk-adjusted growth rates and discount factors accommodating viewpoints that consider the full range of variability contemplated in the current and potential future economic situations. The discount rates utilized in the discounted cash flow analysis are based on the respective reporting units weighted average cost of capital, which takes into account the relative weights of each component of capital structure (equity and debt) and represents the expected cost of new capital, adjusted as appropriate to consider the risk inherent in future cash flows of the respective reporting unit. The carrying value of each reporting unit includes the assets and liabilities employed in its operations, goodwill and allocations of amounts held at the business segment and corporate levels. We also assess market-based multiples of other market-participant companies, further corroborating that our discounted cash flow models reflect fair value assumptions that are appropriately aligned with market-participant valuation multiples. Historically, our reporting units have generated sufficient returns to recover the value of goodwill. The results of our 2021 impairment test indicated that the estimated fair value of each of our reporting units was substantially in excess of the corresponding carrying amount as ofOctober 1 , and no impairment of goodwill existed. We have completed various acquisitions over the past year as disclosed within Note 3 to the Consolidated Financial Statements, which have increased our consolidated goodwill balance. With the exception ofLago Cold Stores , as noted below, each of these current year acquisitions were included in the annual goodwill impairment test. OnNovember 15, 2021 the Company completed the acquisition ofLago Cold Stores . Our preliminary estimate of the acquired intangible assets associated with theLago Cold Stores acquisition included goodwill of$9.4 million , which is primarily allocated to the warehouse segment. The goodwill fromLago Cold Stores acquisition was excluded from the annual goodwill impairment test, as the test was completed as ofOctober 1, 2021 . However, we have not identified any indicators of impairment subsequent to the closing of the aforementioned acquisition that would necessitate the need for us to perform a quantitative impairment test subsequent to the annual quantitative test performed as ofOctober 1, 2021 .
Business Combinations
From time to time, we may enter into business combinations. In accordance with ASC 805, "Business Combinations", we generally recognize the identifiable assets acquired and the liabilities assumed at their fair values as of the date of acquisition. We measure goodwill as the excess of consideration transferred over the net of the acquisition date fair values of the identifiable assets acquired and liabilities assumed.Goodwill is assigned to each reporting unit based upon the relative fair value of tangible assets acquired. The acquisition method of accounting requires us to make significant estimates and assumptions regarding the fair values of the elements of 102 -------------------------------------------------------------------------------- a business combination as of the date of acquisition, including the fair values of identifiable intangible assets, land and buildings. Significant estimates and assumptions impacting the fair value of the acquired intangible assets include subjective and/or complex judgments regarding items such as operating costs and margins, and discount rates, including estimating future cash flows that we expect to generate from the acquired assets. Certain other estimates and assumptions impacting the fair value of the acquired intangible assets involving less subjective and/or less complex judgments include: short-term and long-term revenue growth rates, capital expenditures, tax rates, customer attrition rates, economic lives and other factors impacting the discounted cash flows. The significant assumptions impacting the fair value of the acquired buildings include estimates of indirect costs and entrepreneurial profit on the transaction, which were added to the replacement cost of the acquired assets in order to estimate their fair value in the market. The significant assumptions impacting the fair value of the acquired land include estimates of the price per acre in comparable transactions in the market. The acquisition method of accounting also requires us to refine these estimates over a measurement period not to exceed one year to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date. If we are required to adjust provisional amounts that we have recorded for the fair values of assets and liabilities in connection with acquisitions, these adjustments could have a material impact on our financial condition and results of operations. If the subsequent actual results and updated projections of the underlying business activity change compared with the assumptions and projections used to develop these values, we could record future impairment charges. In addition, we have estimated the economic lives of certain acquired assets and these lives are used to calculate depreciation and amortization expense. We describe our accounting policy for business combinations in Note 2 to the Consolidated Financial Statements. Additionally, we have disclosed all business combinations completed during 2020 and 2021, including material measurement period adjustments for these acquisitions, in Note 3 to the Consolidated Financial Statements. For those business combinations which the acquisition accounting is preliminary as ofDecember 31, 2021 , we have disclosed the estimates, assumptions used and areas for which the acquisition accounting is not finalized. Revenue Recognition Our primary revenue source consists of rent, storage and warehouse services revenues. Additionally, we charge transportation fees to those customers who use our transportation services, where we act as the principal in the arrangement of the services. We also 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. Revenues from storage and handling are recognized over the period consistent with the transfer of the service to the customer. Multiple contracts with a single counterparty are accounted for as separate arrangements. We recognize transportation fees and expenses on a gross basis upon delivery of products on behalf of our customers. We also recognize management fees and related expense reimbursements as revenues as we perform management services and incur the expense.
New Accounting Pronouncements
See Note 2 to our consolidated financial statements included in this Annual Report on Form 10-K.
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