Americold Realty Trust: A Cool REIT IPO

| About: Ares Commercial (ACRE)

Originally founded in 1931, and currently controlled by private equity firm Yucaipa, Americold (NYSE:ACRE) is the world's largest owner and operator of temperature-controlled warehouses, which are used for the storage and distribution of perishable food products such as frozen entrees, meat, seafood, fruits and vegetables. The company expects to raise $645 million in the largest IPO of 2010 so far, and plans to use deal proceeds to acquire 74 warehouses from Canadian competitor Versacold, giving Americold a commanding 29% share of the US market and a 12% share on a global basis. Goldman Sachs (NYSE:GS) and J.P. Morgan (NYSE:JPM) are the lead underwriters on the deal, which is one of eight IPOs on the calendar for the week of May 3.

Global leader in cold storage

Americold boasts more than 1 billion cubic feet of storage space in a warehouse network spanning the US, Australia, New Zealand, Argentina and Canada. In addition to temperature-controlled storage, the company also provides its clients with turnkey handling services including truck loading, blast freezing, bundling and labeling, as well as transportation brokerage. This unparalleled scale and operational expertise has created sticky relationships with food processors (ConAgra (NYSE:CAG), Tyson (NYSE:TSN)), grocery retailers (Kroger (NYSE:KR)) and food service businesses (Sysco (NYSE:SYY)), though none of its blue chip tenants represent more than 8% of pro forma warehouse revenues. Its exposure to non-discretionary consumer demand and variable labor costs produce stable cash flows; pro forma 2009 EBITDA of $274 million represents only a 2% decline from 2008 levels. Finally, the company's prospective JV with leading infrastructure firm China Merchants provides a compelling growth angle to the story, given the demand potential from a substantially-underpenetrated Chinese market.

Key issues

Warehouse revenues (excluding the new properties) fell 10% in 2009 as a result of tenants reducing inventory and production levels in response to end market demand. While 55% of its tenants have entered into long term contracts, most do not contain minimum term or fee obligations. The company will borrow an additional $300 million to finance the acquisition of the Versacold properties, bringing its post-IPO debt to a high $1.5 billion. Finally, the company is acquiring its 74 new warehouses from an affiliate of private equity sponsor Yucaipa, meaning that the purchase price was not negotiated on an arm's length basis.


In addition to a commanding market share and a diversified, stable revenue base, Americold's announced second-quarter dividend of $0.19 per share implies a competitive 5% annualized yield. Although the five year-to-date REIT IPOs have found mixed success, the strong performance of office REIT Piedmont Realty (up 40% from IPO) suggests that REITs with an existing portfolio of assets and a demonstrated track record can garner more interest than their newly-formed peers.