Grocery stores and food companies are creating a growing demand for a place to store frozen goods awaiting shipment to supermarkets, according to a Sept. 27 report in The Wall Street Journal.
Advance buying of holiday staples -- like frozen turkeys -- and the possibility of a COVID-19 buy-and-hold surge by grocery shoppers ahead of the winter flu months are all factors.
Investors who want to take advantage of this trend can consider buying into Americold Realty Trust (NYSE: COLD).
Americold is the only publicly traded cold-storage real estate investment trust (REIT) and, according to an Oct. 6 report in The Wall Street Journal, together with privately held Lineage Logistics controls 59% of the cold-storage market share in the United States.
The Journal says that firm is expected to go public, too, helped along by a $100 million investment by Cohen & Steers, which the Journal says is also among the largest investors in Americold. That global investment outfit obviously feels that, despite the higher operating costs and supply chain risk that cold storage carries compared to other warehousing operations, the time is right.
And that was before the Oct. 13 announcement from Americold that it has agreed to buy AgroMerchants Group, a privately held cold storage warehouse owner that operates 46 properties in 10 countries. The $1.74 billion purchase will give Americold its first cold storage properties in Europe.
Does that make Americold a buy? While those big external factors say yes, let’s look under the hood.
A strong position in an essential enterprise
Atlanta-based Americold owns and operates 183 temperature-controlled warehouses with more than 1.1 billion cubic feet of refrigerated storage in the U.S., Australia, New Zealand, Canada, and Argentina. The company was originally founded in 1903 and has only been public since 2018.
"Americold’s facilities are an integral component of the supply chain connecting food producers, processors, distributors, and retailers to consumers. Americold serves thousands of customers and employs nearly 13,000 associates worldwide," the company says.
It already controls 27% of the cold-storage market, and its 2,400 customers large and small make it integral in a supply chain that begins with producers and extends through physical stores and e-commerce sellers of frozen goods alike to the end consumer.
The company also is expanding, having most recently paid $107.5 million in cash for cold-storage facilities in the Dallas-Fort Worth and Tampa markets, building on its ability to be close to customers in major markets.
So, let’s look at the numbers that matter most to REIT investors.
Steady yield and promising prospects
Americold stock is yielding 2.21% based on its Oct. 9 close of $37.98 a share and the third-quarter dividend of $0.21 a share it declared in September for Oct. 15 payout.
That’s the same dividend it paid during the previous two quarters, through the pandemic’s first months, and its dividend has grown steadily since going public in 2018. Americold is one of 14 REITs placed in the industrial sector by Nareit, where the average yield as of Sept. 30 was 2.54%, so it’s pretty on par there.
The company reported adjusted funds from operations (AFFO) of $61.1 million, or $0.30 per diluted common share for the second quarter of 2020. The 11,000-employee operation paid $4.3 million in appreciation bonuses to its front-line staff during the quarter; otherwise, the AFFO would have been $0.32, but that seems the right, and smart, thing to do for an essential services business like this, and well worth two cents a share.
"We delivered total company revenue growth and (net operating income) NOI growth of 10.0% and 6.0%, respectively, driven by our strategic acquisitions, growth in our same-store portfolio, our recently delivered developments, and the ongoing elevated retail activity," President/CEO Fred Boehler said in the company’s second-quarter supplemental report.
"This growth was further supported by our leadership position in the temperature-controlled warehouse supply chain and the diversity of our portfolio by geography, customer, commodity, sector, facility type, and node in the supply chain, despite seeing the expected slowdown in volume following the first quarter surge in retail activity," the CEO said.
A good candidate for a buy
Americold stock closed at $38.89 on Oct. 9, near its 52-week high of $41.29 after plunging as low as $23.30 this spring. That gives it a market cap of about $8 billion and price/earnings ratio of 73.73.
Americold is not a beaten-down stock, so the stock price upside is not necessarily striking for that reason, but its experience in a specialized service, investment in itself, and position in a growth market make it a good candidate for a buy, especially for a long-term investment.