Steve Swett – Integrated Corporate Relations, Inc. Fred Boehler – Chief Executive Officer Marc Smernoff – Executive Vice President and Chief Financial Officer.

Ki Bin Kim – SunTrust Robinson Humphrey Michael Carroll – RBC Mike Mueller – JPMorgan.

Greetings, and welcome to the Americold Realty Trust First Quarter 2018 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Steve Swett with ICR. Please go ahead, sir..

Good afternoon. We would like to thank you for joining us today for Americold Realty Trust first quarter 2018 earnings conference call.

In addition to the press release distributed this afternoon, we have filed a supplemental package with additional detail on our results, which is available in the Investor Relations section on our website at www.americold.com. On today’s call, management’s prepared remarks and answers to your questions may contain forward-looking statements.

Forward-looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ from those discussed today. A number of factors could cause actual results to differ materially from those anticipated.

Forward-looking statements are based on current expectations, assumptions and beliefs as well as information available to us at this time and speak only as of the date they are made, and management undertakes no obligation to update publicly any of them in light of new information or future events.

During this call, we will discuss certain non-GAAP financial measures. More information about these non-GAAP financial measures and reconciliations to comparable GAAP financial measures is contained in the supplemental information package available on the company’s website.

This afternoon’s conference call is hosted by Americold’s Chief Executive Officer, Fred Boehler; and Executive Vice President and Chief Financial Officer, Marc Smernoff. Management will make some prepared comments, after which we will open up the call to your questions. Now I’ll turn the call over to Fred..

temperature-controlled warehouses, third-party managed warehouses and transportation. The first quarter of 2018 was strong for the company, as we continued to execute on our strategy while completing our IPO. I would like to thank the entire Americold team for their hard work and outstanding results during this busy and exciting time.

Supply and demand characteristics remain steady and favorable for the temperature-controlled real estate and logistics industry, which contributes to the stability and predictability of our business.

Barriers to enter and succeed in our industry are high, requiring significant build cost, strategic locations, sound customer relationships and operational expertise.

We continue to see strong demand from retailers, producers and distributors who rely on our infrastructure and expertise to drive down cost and efficiently operate their temperature-controlled distribution networks.

I’d now like to discuss certain operational metrics that we reported this afternoon in order to give you more context and perspective on the overall performance of our business. For the first quarter, our Global Warehouse segment revenues grew by 3.9% and NOI by 7.2%. In our same-store portfolio, revenues increased by 4% and NOI by 6.5%.

These results were primarily driven by a favorable customer mix, improvements in our commercial terms, contractual rate escalation and continued operating efficiency gains, driven by labor productivity and leveraging of our fixed expenses.

Regarding margin, we continue to benefit from the continuous improvement initiatives embedded within our AmeriCold Operating System. As a result, same-store NOI margins within our Global Warehouse segment expanded by 80 basis points year-over-year to 31.8%.

As of March 31, 2018, we derived 38.9% of our revenue – storage revenue from fixed commitment contracts. While this was down slightly on a percentage basis from year-end, on an absolute dollar basis, our revenue from fixed commitment contracts increased by $2 million to $198 million.

We continue to operate with a high level of occupancy and utilization across our global network. Although quarter-end average occupancy was down slightly from 77.6% to 76.2%, this decline was due to the timing of Easter and the size and timing of harvest activity at our Western U.S. site.

Despite the slight decline in average occupancy, we still saw increased storage revenue across the network. Our diversification by commodity and focus on moving toward fixed commitment contracts will continue to mitigate these factors going forward.

Regarding growth, we continue to secure new business and occupancy for our recently opened Clearfield, Utah facility. We expect to stabilize this asset by year-end at our targeted 12% to 15%.

Further, we continue to make progress on both of our development projects in Middleborough, Massachusetts and Chicago, Illinois, with both tracking on-time and on-budget. Further, we continue to evaluate in the software development pipeline, which represents more than $1 billion of opportunity.

Finally, we continue to pursue acquisition opportunities and strategic partnering initiatives. Since our IPO, we are very pleased with the level of activity we are seeing. We believe our position as the largest and only publicly-traded operator within the fragmented sector we serve provides us with significant advantages.

I’ll now turn the call over to Marc..

Thank you, Fred. For the first quarter of 2018, reported revenue was $391.1 million, a 4.9% increase from the same quarter of the prior year. Total contribution, or NOI, was $97.3 million for the first quarter of 2018, a 7% increase from the same quarter of prior year.

On the expense side, SG&A in the first quarter totaled $31.9 million or about 8.2% of total revenue. Our SG&A included $3.6 million of onetime compensation expenses related to our IPO that will be detailed in our 10-Q. Excluding these costs, SG&A would have been approximately 7.2% of total revenue.

Further, our first quarter SG&A is reflective of the higher costs associated with being public. We would also note our SG&A includes the cost associated with our business development team, which we believe are equivalent to leasing commissions typically reported on the cash flow statement of other publicly-traded REIT.

Core EBITDA was $71.1 million for the first quarter of 2018, an increase of 6.5% from the same quarter of the prior year. Our first quarter 2018 core EBITDA increase was driven by a more favorable customer mix and productivity improvements across our Global Warehouse segment.

Our core EBITDA margin expanded by 30 basis points to 18.3%, while overcoming incremental SG&A costs. We reported a net loss of $8.6 million compared to net income of $4.4 million for the same quarter of the prior year.

I would note that our first quarter 2018 results include the impact of a $21.1 million write-off of non-cash deferred financing costs associated with our refinancing of our debt in connection with our January IPO. Excluding this charge, net income for the quarter would have been $12.5 million.

For our per share metric, including core FFO and AFFO, our weighted average share count of 127.1 million reflects the timing of our IPO in the first quarter. At quarter-end, our fully diluted share count was 137.1 million.

Our first quarter core FFO was $34.8 million or $0.27 per diluted share compared to $22.7 million for the same quarter of the prior year. Turning to AFFO. Our first quarter AFFO was $39.9 million or $0.31 per diluted share compared to $26.8 million for the same quarter of the prior year.

As a reminder, the full definition and reconciliation of core FFO and AFFO to reported net income can be found in our supplemental. For the first quarter of 2018, Global Warehouse segment revenue grew by 3.9% year-over-year to $286.5 million.

Segment NOI totaled $89.6 million in the first quarter compared to $83.5 million in the prior year quarter, which represents 7.2% growth. Global Warehouse margin was 31.3% for the first quarter compared to 30.3% for the same quarter of the prior year, which represents a 100 basis point improvement year-over-year.

As Fred discussed, the core drivers of this growth include a favorable customer mix, improvements in our commercial terms, contractual rate escalation and continued operating efficiency gains, driven by labor productivity and leveraging of our fixed expenses.

Also, workers’ compensation expense was $1 million lower due to favorable safety trends and improved process in administering outstanding claims. While we have significant initiatives, including behavior-based safety programs, we want to remind you that there may be some variability in this line item quarter-to-quarter.

Now turning to our same-store results in our Global Warehouse segment. Our global network at March 31, 2018, consisted of 158 facilities, including 146 from our Global Warehouse segment and 12 managed warehouses. We define same-store as facilities that have at least 24 months of normalized operation.

Of the 146 facilities in our Global Warehouse segment, 138 met our definition during the first quarter and are reported as same store. For the first quarter of 2018, our same-store revenues grew by 4% year-over-year to $280.5 million.

This revenue growth was driven by the same factors that benefited our total portfolio, which more than offset 170 basis point decrease in the average physical occupancy and a 2.4% decrease in throughput pallets.

Despite this decrease in throughput pallets, we saw an increased scope of the value-added services used, which contributed to an overall increase in service revenue in the quarter. Our first quarter 2018 same-store NOI was $89.1 million, an increase of 6.5% over the prior year result.

Same-store rent and storage margin increased by 30 basis point to 66.7%, and same-store service margin increased by 50 basis points to 4.5%. In the first quarter, same-store average physical occupancy was 76.3% versus 78% in the prior year quarter. This is relative to the 85% occupancy that we consider to be our optimal physical occupancy.

The primary reason for the change was due to the timing of Easter and a decline in the number of occupied pallets in our U.S. West region due to lower than average inventory in our harvest site that service some of our largest agricultural customers.

However, our continued shift towards contracts with fixed rent and storage commitment, combined with the broad diversity of the commodities we serve and our ongoing sales efforts, should mitigate these factors over time. Please remember that certain pallet positions in our warehouses are revenue-generating despite not being physically occupied.

Within our Global Warehouse segment, we had no material changes to the composition of our top 25 customers. Additionally, our churn rate for the first quarter was approximately 4%, a 100 basis point improvement from the prior year-end. Turning to our balance sheet and capital markets activity.

As part of our strategy, we continue to maintain a strong balance sheet with ample liquidity, capacity and access to multiple capital sources to continue our growth plan. We have not had any meaningful capital market activity since our fourth quarter call.

But to recap the first quarter, we completed our IPO in January, which resulted in aggregate net proceeds of approximately $494 million to the company. At the same time, we closed on a $925 million senior secured credit facility, which has total potential capacity of more than $1.3 billion.

We used the proceeds to repay our term loan B facility and outstanding construction loan debt aggregating $827.5 million. We also repaid $50 million of our outstanding term loan A facility with cash, while increasing our revolver by $50 million.

At March 31, 2018, we had total liquidity of $610 million, including cash and available capacity on our revolving credit facility. Our total debt outstanding was $1.57 billion, with a weighted average effective interest rate of 5.39% and a weighted average term of 4.4 years. At this time, 64% of our debt, including capital leases, is at a fixed rate.

As a reminder, we have no material maturities through 2019. At quarter-end, on a trailing 12-month basis, our net debt to core EBITDA was approximately 4.7 times. I will now turn the call back to Fred..

Thanks, Marc. Overall, we are very pleased with our first quarter results as we continue to execute on our strategy. Fundamentals for our business remain supportive, and we believe our high-quality portfolio, commitment to operational excellence and our best-in-class team, position us to create lasting shareholder value.

Operator, this completes our prepared remarks. Please open the call for questions..

Thank you. [Operator Instructions] Our first question is coming from the line of Ki Bin Kim with SunTrust Robinson Humphrey. Please proceed with your question..

Thanks. Good afternoon everyone..

Hey, Ki Bin..

Hi. So you’re able to increase the rental revenue per pallet and typically what I would consider a seasonally weak period.

Could you talk about some of the – how you are able to push that rate higher? And you’re going to run into maybe tougher comp later in the year, and so how does that foretell for your kind of earnings power going forward?.

Yes, exactly. I think what you see overall is, as we mentioned, the transition through customer mix to more distribution customers as opposed to just long-term storage customers. And that also is market-related. So obviously, a proper network, as we’ve mentioned. We don’t underwrite with graph rates.

We underwrite with very specific rates to support the exact customer and the profile of the business they need in the markets they need. So those – that type of underwriting is impacting that overall customer mix. The other thing contributing to the growth is we continue to have more and more of our business tied up for long-term fixed commitment.

So even though the physical occupancy may very slightly quarter-to-quarter, overall, more of our committed – our space is committed and producing revenue. So that helped drive the overall growth in storage revenue..

And I think I’d add one more point to that as well, and that is just our contractual rate escalation happens on an annual basis.

And so, while, yes, first quarter, you may say that’s a weaker volume period or whatever you get to background the fact associated with the rate increases put in place last year and the same thing will happen the following year..

So would you say the pricing power came from the convert – a lot of it came from the conversion of kind of month-to-month or short-term leasing to fixed? Or did it also come from just higher price points, even on the kind of shorter-duration leases?.

Yes. It’s really a blend of the customer mix, the timing of contracts coming in, the price escalation that’s coming into play. It’s really a mix of everything. I would not pinpoint it to one specific item..

Okay. And just last question. You guys gave some good color in your press release about of why the occupancy was down a little bit. Do you expect that to come back in the second quarter? I know the Easter shift obviously will, given the calendar year.

But the seasonal declines and kind of the harvesting period, does that come back? Or is that just a little bit of loss occupancy for the year?.

Yes. No, we expect it to come back. I think the early signs of the harvest are pretty decent. So – but remember that it will fluctuate over the course of the year. And again, that’s why we tend to guide towards an annual perspective..

Okay. Thank you..

Our next question is from the line of Michael Carroll with RBC. Please proceed with your question..

Thanks. Fred, you gave us some good color on the acquisition activity that you guys are looking at in your prepared remarks.

Would this activity be above and beyond the $75 million to $200 million annual target? And what exactly are you currently looking for right now?.

Yes. I’d say when we look at our targets, we definitely did not include acquisitions. I see those as more opportunistic. Timing can fluctuate depending on the particular opportunity. So that is not included in our development guidance. In terms of what we’re looking forward, look, we’re looking for the right fit.

We’re looking for high-quality assets that complement our portfolio. And there’s a lot of opportunities out there. We’re having some good dialogue and conversations and due diligence. And again, I think we’re going to be a little bit more selective than just acquiring for acquisition sake..

These are domestic assets or they are range between production advantaged and your distribution type assets? How does that kind of break out?.

They would vary. Most people do have a portfolio, albeit smaller, obviously, but a portfolio of multiple types of facilities. So again, we don’t shy away and discriminate between the production advantaged versus distribution sites as long as the contractual agreement and the strength of the customer relationship is where we need it to be..

Okay.

And then given the performance of the stock price so far and the cost of capital, does that allow you to get more aggressive on some of these deals? And does that impact your decisions at all?.

Look, I think we remain very disciplined, as an investor and a buyer. Obviously, I believe one of our key advantages is the ability to continue to drive our overall cost of capital lower over time.

But I think the key thing is, as Fred mentioned, is we’re very disciplined in terms very disciplined in terms of what we’re looking for and what we think makes the right fit..

Okay. And then just last question real quick. I think you did a good job highlighting the number of development opportunities you guys are reviewing right now.

But out of that pipeline that you’re looking at, how many of these projects could actually break ground here in the next few years? And how many of them are longer term in nature?.

Yes. I’d say most of the development pipeline that we work on, I would characterize it as kind of maybe three- to five-year total pipeline. Lot of those are customer-driven types of projects. And so the dates and the timing associated with those tend to ebb and flow. So that’s why we typically don’t guide on that.

And we have a wide range in terms of our acquisition because it just depends on what gets activated before another..

Okay, great. Thank you..

Our next question is from the line of Robert Schiller with Robert W. Baird. Please proceed with your question..

Hey, guys. This is Dick here. Quick question on, you mentioned in your prepared remarks switching from variable to fixed rate contracts.

If you could give an estimate today of what percentage fall in each bucket and have you guys set out any goals of where you see yourselves at the end of the year, maybe at the end of 2019 or any sort of time line that you have to back that?.

So as of today of our rent and storage revenue, approximately 39% is now under fixed commitment. We continue to see that overall, as we noted, overall dollar values of contracts under commitment actually grew in the quarter, although our overall growth of revenue was faster, so our percent was down slightly.

But we do expect to see that continue to grow. But I’ll remind you, our target is not 100%. Obviously, we support lots of different customers, both large and small. And it’s important for us to maintain some flexibility to continue to support customers as they grow throughout the year..

Okay. Thanks. And so that I understand the – as you switch to a fixed rate contract, the same-store rent and storage occupancy level will essentially stay flat or up.

Would it affect the warehouse servicing as well? Or is that two unrelated areas?.

In particular, we like to say that there’s, obviously, a correlation between the occupancy and the activity. However, I would say that it’s more related to the physical occupancy, not to, necessarily, that economic occupancy that we would call it. So I don’t think the shift to fixed commitment will really change that portion of it.

It will just stabilize that rent piece..

Great. Thank you guys..

Thank you. [Operator Instructions] The next question is from the line of Mike Mueller with JPMorgan. Please proceed with your question..

Going back to the earlier comments on year-over-year EBITDA growth, and I think you said a better customer mix was in there.

And I know you talked a little bit about distribution versus long-term hold, but what is the better customer mix in your mind that’s generating more revenue, out of curiosity, or EBITDA?.

Thanks for the question, Mike.

There’s – obviously, we talked about our diversified portfolio and with over 2,400 customers flowing through the warehouses, they’re not exactly the same proportion every single month, right? But there’s a big difference between, say, a retail customer and the amount of volume that flows through because of their high turn nature versus perhaps an end customer who tends to load up the warehouse and then kind of draw down over the course of the year.

And then there’s their distribution customers in between there. So at any given period of time, that mix is going to be slightly different and drive different economics associated with the value per pallet, if you will.

Our focus is to make sure that every single agreement that we sign up, we’re embedding our commercial business rules, the rate escalation, the right pricing based on the right attributes of the business and make sure that each customer in itself stands on its own from the profitability level that we expect.

So again, how that mixes out on a month-to-month basis is a little tough. What I would say is, on an annual basis that all seems to kind of flesh itself out. So again, another reason for us to kind of focus on the annual aspect..

Got it.

And coming back, when you’re talking about occupancy being down a little bit due to the harvest and everything else, did those, I guess, customers tend not to be covered by their contracts at this point in time?.

Again, remember, number one, we report physical occupancy. So they may or may not be covered by fixed, which is another reason why sometimes the physical occupancy can go down as we maintain our revenue, right? So that’s the whole concept. So certainly, a portion of those are covered. I wouldn’t say that all of them are..

Okay. And then, Marc, question. You made a comment about 64% of the debt being fixed rate, I believe, was the comment.

With the environment where rates are starting to move up a little bit, have you been rethinking that mix in terms of what’s the right floating rate exposure? Or is that a fine level for rate now?.

Yes. We’re comfortable with the balance sheet in that level. Obviously, we continue to evaluate market conditions and market opportunities to optimize our capital structure over time. But obviously, we are very comfortable with where we are today. We have significant liquidity and ability to execute our strategic plan..

Got it, okay. That’s it for me. Thanks..

Thanks Mike..

That completes our question-and-answer session. You may now disconnect. Thank you for your participation..