Americold Realty Trust (NYSE: COLD) has gotten off to a hot start as a public company. The industrial REIT has generated a more than 140% total return since its initial public offering in early 2018. That has absolutely crushed the S&P 500's total return of 60% during that time frame. That's turned a $10,000 investment at its IPO into more than $24,000, or $8,000 more than the S&P 500.
That puts the cold-storage-focused warehouse operator on track to mint millionaires at a much faster pace than the S&P 500. Here's a look at whether it can continue enriching investors in the future.
The math to $1 million
One of the upsides of investing is that any stock has the potential of becoming a millionaire-maker if it can deliver outsized returns over a long enough period. As a baseline example, a $10,000 investment in an S&P 500 index fund has historically grown into a $1 million nest egg in about 46 years, assuming the market returns 10% annually.
Investments that earn higher returns compound their way to $1 million even faster. For example, if Americold Realty can maintain its current pace of producing 31% annualized total returns, it would only need 17 years to turn a $10,000 investment in its IPO into $1 million. Meanwhile, even if it only delivered a 15% total return from here, it will mint millionaires in roughly 31 years.
A look at Americold Realty's millionaire-making potential
Few companies can deliver sustained total annual returns above 30% for more than a decade, making it challenging for Americold to keep up its current pace. However, it still might be able to mint millionaires faster than the S&P 500.
Americold has been such a strong performer in recent years because demand for cold-storage space has exploded, driving strong rent growth. According to Costar (NASDAQ: CSGP), cold- storage rent has grown 29% since 2017, faster than the 21% increase in overall industrial rents during that time frame. That's because of the lack of refrigerated warehouse space in the U.S., as it only accounts for 214 million square feet of the 11-billion-square-foot U.S. industrial warehouse market. Further, only 81% of that is usable refrigerated space because the rest is docks, equipment, and offices that aren't refrigerated.
With strong demand for this space from the foodservice industry, CoStar sees more upside in cold-storage rent. It estimates that rent could eventually fetch $30 per square foot. That's up from its current average of about $10 per square foot as demand continues growing while supply remains somewhat constrained.
That outlook suggests Americold should be able to continue growing its rental revenue from existing facilities and invest in development projects to expand the industry's capacity. The company currently has seven expansion projects totaling $607 million in investment underway. On top of that, it has more than 760 acres of deployable land in its current portfolio, giving it room to invest more than $1 billion on additional capacity expansions. The company estimates it can start $175 million to $300 million of new development projects per year to drive future earnings growth.
On top of its organic expansion potential, Americold should be able to continue acquiring properties as the cold-storage sector consolidates. The company recently purchased Argo Merchants Group, the fourth-largest temperature-controlled warehouse operator globally, solidifying its position as the second-largest player. However, even after that needle-moving deal, it only controls 21.4% of the U.S. market and 5.6% of worldwide capacity, leaving it with plenty of room to continue gobbling up its competitors.
With multiple avenues of future growth, Americold Realty should be able to continue expanding its funds from operations, or FFO, and dividend at a healthy rate in the coming years. That outlook suggests the company has the potential to continue to produce market-beating total returns in the future.
Still in the early stages of its growth
Americold Realty has enriched investors in its short time as a public company. While that historical performance is no guarantee of future success, it's benefitting from several growth catalysts that don't appear likely to cool off anytime soon. Because of that, Americold has market-beating potential and millionaire-making upside for investors willing to hold for the very long term.