(Mark One)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017_______________________________________________________
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period
from____________________to______________________________________________
or
Commission File Number: 001-34723
Maryland
(State or other jurisdiction of
incorporation or organization)
10 Glenlake Parkway, Suite 600, South Tower
Atlanta, Georgia
(Address or principal executive offices)
(Exact name of registrant as specified in its charter)
(678) 441-1400
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
93-0295215
(I.R.S. Employer
Identification No.)
30328
(Zip Code)
Common Shares of Beneficial Interest, $0.01 par value per share
Title of Each Class
Name of Each Exchange on Which Registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨
No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.Yes ¨
No þ
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ
No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website; if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter periods that the registrant was required to submit and post such files). Yes þ
No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated
by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting
company” in Rule 12b-2 of the Exchange Act (check one):
¨
Large accelerated filer
þ
Non-accelerated filer (do not check if a smaller reporting company)
¨
Accelerated filer
¨
Smaller reporting company
¨
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the
Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).
Yes ¨
No þ
The registrant completed the initial public offering of its common shares on January 23, 2018. Accordingly, there was no public market for the registrant's common shares as of June 30, 2017, the last business day of the registrant's most
recently completed second fiscal quarter. The aggregate market value of the voting common shares owned by non-affiliates on March 23, 2018 was $974,958,932, computed by reference to the closing sale price of the common shares on the
New York Stock Exchange on such date.
The number of Americold Realty Trust's common shares outstanding at March 23, 2018, was approximately 142,513,448 .
None.
DOCUMENTS INCORPORATED BY REFERENCE
EXPLANATORY NOTE
As used in this report, unless the context otherwise requires, references to “we,” “us,” “our” and “the Company” refer to Americold Realty Trust, a Maryland real estate investment trust, and its consolidated subsidiaries, including Americold
Realty Operating Partnership, L.P., a Delaware limited partnership and the subsidiary through which we conduct our business, which we refer to as “our operating partnership,” and references to “common shares” refer to our common shares
of beneficial interest, $0.01 par value per share.
In addition, unless otherwise stated herein, when we refer to “cubic feet” in one of our temperature-controlled facilities, we refer to refrigerated cubic feet (as opposed to total cubic feet, refrigerated and otherwise) therein.
Item
1.
1A.
1B.
2.
3.
4.
5.
6.
7.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
TABLE OF CONTENTS
PART I
PART II
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information and Holders
Preferred Stock Dividends
Sales of Unregistered Securities
Securities Authorized for Issuance Under Equity Compensation Plans
Use of Proceeds
Other Shareholder Matters
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s Overview
Results of Operations
Liquidity and Capital Resources
Contractual Obligations
Critical Accounting Policies
New Accounting Pronouncements
7A.
Quantitative and Qualitative Disclosures About Market Risk
8.
9.
9A.
9B.
10.
11.
12.
13.
14.
15.
16.
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
PART IV
PART III
Exhibits, Financial Statements and Schedules
Form 10-K Summary
Page
3
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106
107
114
137
139
142
143
145
CAUTIONARY STATEMENT REGADING FORWARD-LOOKING STATEMENTS
This
Annual
Report
on
Form
10-K
contains
statements
about
future
events
and
expectations
that
constitute
forward-looking
statements.
Forward-looking
statements
are
based
on
our
beliefs,
assumptions
and
expectations
of
our
future
financial
and
operating
performance
and
growth
plans,
taking
into
account
the
information
currently
available
to
us.
These
statements
are
not
statements
of
historical
fact.
Forward-looking
statements
involve
risks
and
uncertainties
that
may
cause
our
actual
results
to
differ
materially
from
the
expectations
of
future
results
we
express
or
imply
in
any
forward-looking
statements,
and
you
should
not
place
undue
reliance
on
such
statements.
Factors
that
could
contribute
to
these
differences
include
the
following:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
adverse
economic
or
real
estate
developments
in
our
geographic
markets
or
the
temperature-controlled
warehouse
industry;
general
economic
conditions;
risks
associated
with
the
ownership
of
real
estate
and
temperature-controlled
warehouses
in
particular;
defaults
or
non-renewals
of
contracts
with
customers;
potential
bankruptcy
or
insolvency
of
our
customers;
uncertainty
of
revenues,
given
the
nature
of
our
customer
contracts;
increased
interest
rates
and
operating
costs;
our
failure
to
obtain
necessary
outside
financing;
risks
related
to,
or
restrictions
contained
in,
our
debt
financing;
decreased
storage
rates
or
increased
vacancy
rates;
difficulties
in
identifying
properties
to
be
acquired
and
completing
acquisitions;
risks
related
to
expansions
of
existing
properties
and
developments
of
new
properties,
including
failure
to
meet
budgeted
or
stabilized
returns
in
respect
thereof;
acquisition
risks,
including
the
failure
of
such
acquisitions
to
perform
in
accordance
with
projections;
difficulties
in
expanding
our
operations
into
new
markets,
including
international
markets;
our
failure
to
maintain
our
status
as
a
REIT;
uncertainties
and
risks
related
to
natural
disasters
and
global
climate
change;
possible
environmental
liabilities,
including
costs,
fines
or
penalties
that
may
be
incurred
due
to
necessary
remediation
of
contamination
of
properties
presently
or
previously
owned
by
us;
financial
market
fluctuations;
actions
by
our
competitors
and
their
increasing
ability
to
compete
with
us;
labor
and
power
costs;
changes
in
real
estate
and
zoning
laws
and
increases
in
real
property
tax
rates;
the
competitive
environment
in
which
we
operate;
our
relationship
with
our
employees,
including
the
occurrence
of
any
work
stoppages
or
any
disputes
under
our
collective
bargaining
agreements;
liabilities
as
a
result
of
our
participation
in
multi-employer
pension
plans;
the
cost
and
time
requirements
as
a
result
of
our
operation
as
a
publicly
traded
REIT;
the
concentration
of
ownership
by
Yucaipa,
the
GS
Entities
and
the
Fortress
Entity;
changes
in
foreign
currency
exchange
rates;
and
the
impact
of
anti-takeover
provisions
in
our
constituent
documents
and
under
Maryland
law,
which
could
make
an
acquisition
of
us
more
difficult,
limit
attempts
by
our
shareholders
to
replace
our
trustees
and
affect
the
price
of
our
common
shares.
Words
such
as
“anticipates,”
“believes,”
“continues,”
“estimates,”
“expects,”
“goal,”
“objectives,”
“intends,”
“may,”
“opportunity,”
“plans,”
“potential,”
“near-term,”
“long-
term,”
“projections,”
“assumptions,”
“projects,”
“guidance,”
“forecasts,”
“outlook,”
“target,”
“trends,”
“should,”
“could,”
1
“would,”
“will”
and
similar
expressions
are
intended
to
identify
such
forward-looking
statements.
Examples
of
forward-looking
statements
included
in
this
prospectus
include,
among
others,
statements
about
our
expected
expansion
and
development
pipeline
and
our
targeted
return
on
invested
capital
on
expansion
and
development
opportunities.
We
qualify
any
forward-looking
statements
entirely
by
these
cautionary
factors.
Other
risks,
uncertainties
and
factors,
including
those
discussed
under
“Risk
Factors,”
could
cause
our
actual
results
to
differ
materially
from
those
projected
in
any
forward-looking
statements
we
make.
We
assume
no
obligation
to
update
or
revise
these
forward-looking
statements
for
any
reason,
or
to
update
the
reasons
actual
results
could
differ
materially
from
those
anticipated
in
these
forward-looking
statements,
even
if
new
information
becomes
available
in
the
future.
2
PART I
ITEM 1. Business
THE COMPANY
We are the world’s largest owner and operator of temperature-controlled warehouses. We are organized as a self-administered and self-managed REIT with proven operating,
development and acquisition expertise. As of December 31, 2017 , we operated a global network of 158 temperature-controlled warehouses encompassing 933.9 million cubic feet, with 140
warehouses in the United States, six warehouses in Australia, seven warehouses in New Zealand, two warehouses in Argentina and three warehouses in Canada. In addition, we hold a minority
interest in the China JV, as described in Note 3 of our consolidated financial statements included in this Annual Report on Form 10-K, which owns or operates 13 temperature-controlled
warehouses located in China. For financial information concerning our geographic regions, refer to Note 21 of our Consolidated Financial Statements.
We consider our temperature-controlled warehouses to be “mission-critical” real estate in the markets we serve from “farm to fork” and an integral component of the temperature-
controlled food infrastructure supply chain, which we refer to as the “cold chain.” The cold chain is vital for maintaining the quality of food producers’, distributors’, retailers’ and e-tailers’
temperature-sensitive products, protecting brand reputation and ensuring consumer safety and satisfaction. Our customers depend upon the location, high quality, integration and scale of our
portfolio to ensure the integrity and efficient distribution of their products. Many of our warehouses are located in key logistics corridors in the countries in which we operate, including
strategically critical U.S. and international metropolitan statistical areas, or MSAs, while others are connected or immediately adjacent to customers’ production facilities. We believe our strategic
locations and the extensive geographic presence of our integrated warehouse network are fundamental to our customers’ ability to optimize their distribution networks while reducing their capital
expenditures, operating costs and supply-chain risks. Many of the warehouses in our real estate portfolio have been modernized to reduce our power costs and increase their competitive position
through reliable temperature-control systems and processes.
We consider ownership of our temperature-controlled warehouses to be fundamental to our business, our ability to attract and retain customers and our ability to achieve our targeted
return on invested capital. We believe that the ownership of our real estate provides us with cost of capital and balance sheet advantages, stemming from the attractive financing options available
to real estate owners and the tax advantages of being a REIT. We also believe that consolidation of the ownership and operation of our portfolio significantly enhances the value of our business
by allowing us to provide customers with our complementary suite of value-added services across one integrated and reliable cold chain network. Ownership of our integrated cold chain network
enhances our ability to efficiently reposition customers and undertake capital improvements or other modifications on their behalf without the need to obtain third-party approvals. Our decision to
own, rather than lease, a significant majority of our warehouses provides us with better control over the specialized nature of our assets and greater influence over our warehouse locations on a
long-term basis, which is crucial to meeting our customers’ “mission-critical” cold chain needs.
Initial Public Offering
On January 23, 2018, we completed an initial public offering of our common shares, or IPO, in which we issued and sold 33,350,000 of our common shares, including 4,350,000
common shares pursuant to the exercise in full of the underwriters’ option to purchase additional common shares. The common shares sold in the offering were registered under the Securities Act
pursuant to our Registration Statement on Form S-11 (File No.
3
333-221560), as amended, which was declared effective by the SEC on January 18, 2018. The common shares were sold at an initial offering price of $16.00 per share, which generated net
proceeds of approximately $493.6 million to us, after deducting underwriting fees and other offering costs of approximately $40.0 million . For more information on the IPO, please refer to
Note 1 of our consolidated financial statements included in of this Annual Report on Form 10-K.
Our Information
Our principal executive office is located at 10 Glenlake Parkway, South Tower, Suite 600, Atlanta, Georgia 30328, and our telephone number is (678) 441-1400. Our website address is
www.americold.com. The information found on, or otherwise accessible through, our website is not incorporated into, and does not form a part of, this Annual Report on Form 10-K or any other
report or document we file with or furnish to the Securities and Exchange Commission, or the SEC.
BUSINESS STRATEGY AND OPERATING SEGMENTS
Our primary business objective is to enhance shareholder value by serving our customers, growing our market share, enhancing our operating and financial results and increasing cash
flows from operations. We also believe that our ability to execute on our business and growth strategies will enhance the overall value of our real estate. The strategies we intend to execute to
achieve these objectives include the following.
Enhancing Our Operating and Financial Results Through Proactive Asset Management
We seek to enhance our operating and financial results by supporting our customers’ growth initiatives in the cold chain, optimizing occupancy, underwriting and deploying yield
management initiatives and executing operational optimization and cost containment strategies. We believe that the combination of our ability to execute these and other initiatives and the
significant investments we have made in our business over the last five fiscal years will continue to drive our financial results and position us to expand our warehouse portfolio, grow our
customer base, enhance our market share and create value for our shareholders.
Continue to Increase Committed Revenue in Our Warehouse Segment
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 or renewing
agreements with existing customers, particularly with our largest customers, and variable rates for the value-added services we provide. Over the last several years, we have transitioned a
significant portion of our rent and storage revenues generated on an as-utilized, on-demand basis to a fixed storage commitment basis. We believe the scope and breadth of our network position us
favorably to continue to increase our fixed storage commitments as we believe this structure offers commercial advantages to both our customers and us.
Focused and Disciplined Strategy to Expand Our Portfolio of Temperature-Controlled Warehouses
We believe our operating systems, scalable information technology platform and economies of scale provide us with a significant advantage over our competitors with respect to
expansion, development and acquisition opportunities. We anticipate that as the first publicly traded REIT focused on the temperature-controlled warehouse industry we will have greater access
to the capital markets than our competitors, which we believe will allow us to strategically enter new locations, fill gaps in existing distribution networks and effectively compete for expansion,
development and acquisition opportunities.
4
Capitalize on Increased Outsourcing by Leading Global Food Producers, Distributors, Retailers and E-Tailers
Over the last 35 years, frozen food producers, distributors, retailers and e-tailers have increasingly outsourced their temperature-controlled warehousing needs to increase efficiency,
reduce costs and redeploy capital into core businesses. We anticipate that cold chain participants will continue to make certain of their “in-house” temperature-controlled warehouses available for
sale in the future and, accordingly, will continue to look to third-party providers to meet their temperature-controlled warehouse storage and service needs in related geographic markets. We
believe that our ability to offer the most extensive and integrated network of high-quality temperature-controlled warehouses globally with value-added services and our long-standing
relationships with leading cold chain participants will enable us to capitalize on this trend.
Well Positioned to Benefit from E-Commerce Growth
Our warehouse portfolio serves as a fundamental bridge between food producers and fulfillment centers - whether for online e-tailers or traditional brick and mortar retailers. We believe
our ability to design, build and operate warehouses across the cold chain makes us an attractive storage solution for the growing e-tailer segment and positions us well to generate new
relationships, drive growth and capture market share by increasing our presence in the e-commerce channel.
Expand Our Presence by Increasing Market Share for Other Temperature-Sensitive Product Types
Although we focus on providing temperature-controlled warehouse space to the food industry, we also store other forms of temperature-sensitive products, including pharmaceutical,
floral and chemical products. As the rapid growth in e-commerce continues to increase the flow of products through the global distribution network, we believe our ability to provide
comprehensive and consistent quality warehousing and value-added services at all points in the cold chain put us in a strong position to develop new relationships, drive growth and enhance
market share with producers, distributors, retailers and e-tailers in other temperature-sensitive products. Additionally, we have the flexibility to store non-temperature-sensitive “dry” goods in our
warehouses to the extent desirable.
Investments in Our Warehouses
We employ a strategic investment approach to maintain a high-quality portfolio of temperature-controlled warehouses to ensure that our warehouses meet the “mission-critical” role they
serve in the cold chain. We have successfully modernized many of our warehouses to reduce our power costs and increase their competitive position through reliable temperature-control systems
that can implement distinct temperature zones within the same warehouse. In addition, we use LED lighting, motion-sensor technology, variable frequency drives for our fans and compressors,
third-party efficiency reviews and real-time monitoring of energy consumption, rapid close doors and alternative-power generation technologies to improve the energy efficiency of our
warehouses. We believe that our warehouses are well-maintained and in good operating condition.
Our Business Segments
We view and manage our business through three primary business segments—warehouse, third-party managed and transportation.
Our core business is our warehouse segment, where we provide temperature-controlled warehouse storage and related handling and other warehouse services. In our warehouse segment,
we collect rent and storage fees from customers to store their frozen and perishable food and other products within our real estate portfolio. We also provide our customers with handling and other
warehouse services related to the products stored in our
5
buildings that are designed to optimize their movement through the cold chain, such as the placement of food products for storage and preservation, the retrieval of products from storage upon
customer request, case-picking, blast freezing, kitting and repackaging and other recurring handling services.
Under our third-party managed segment, we manage warehouses on behalf of third parties and provide warehouse management services to several leading food retailers and manufacturers
in customer-owned facilities, including some of our largest and longest-standing customers. We believe using our third-party management services allows our customers to increase efficiency,
reduce costs, reduce supply-chain risks and focus on their core businesses. We also believe that providing third-party management services to many of our key customers underscores our ability
to offer a complete and integrated suite of services across the cold chain.
In our transportation segment, we broker and manage transportation of frozen and perishable food and other products for our customers. Our transportation services include consolidation
services ( i.e.
, consolidating a customer’s products with those of other customers for more efficient shipment), freight under management services ( i.e.
, arranging for and overseeing
transportation of customer inventory) and dedicated transportation services, each designed to improve efficiency and reduce transportation and logistics costs to our customers. We provide these
transportation services at cost plus a service fee or, in the case of our consolidation services, we charge a fixed fee.
For financial information concerning our geographic regions, refer to Note 21 of our consolidated financial statements included in this Annual Report of Form 10-K.
We also operate a limestone quarry on the land we own around our Carthage, Missouri warehouse, which contains substantial limestone deposits. We do not view the operation of the
quarry as an integral part of our business.
Customers
Our global footprint enables us to efficiently serve over 2,600 customers consisting primarily of producers, distributors, retailers and e-tailers of frozen and perishable food products, such
as fruits, vegetables, meats, seafood, novelties, dairy and packaged foods. We believe the creditworthiness and geographic diversity of our customer base provide us with stable cash flows and a
strong platform for growth. The weighted average length of our relationship with our 25 largest customers in our warehouse segment exceeds 32 years. The total warehouse segment revenues
generated by our 25 largest customers in our warehouse segment have been steady over the last three years, representing 61% , 61% and 61% of our total warehouse segment revenues for the
years ended December 31, 2017 , 2016 and 2015 , respectively. Each of these 25 largest customers has been in our network for the entirety of these periods.
6
The following table presents summary information concerning our 25 largest customers in our warehouse segment, based on warehouse segment revenues for the year ended
December 31, 2017 :
% of Warehouse
Revenue (1)
# of Sites
Credit Rating (Moody's/S&P) (2) Multi Location
Dedicated Sites
Value Added
Services
Transportation
Consolidation
Technology
Integration
Committed Contract
or Lease (3)
Network Utilization
Retailer
Producer
Producer
Producer
Producer
Producer
Retailer
Producer
Producer
Retailer
Producer
Producer
Producer
Producer
Retailer
Producer
Producer
Producer
Retailer
Producer
Producer
Retailer
Producer
Retailer
Retailer
Total
8.8%
6.4%
4.7%
4.4%
3.5%
3.3%
3.0%
2.3%
2.3%
2.3%
2.0%
1.8%
1.8%
1.7%
1.6%
1.6%
1.3%
1.3%
1.3%
1.1%
1.0%
0.9%
0.8%
0.7%
0.7%
60.6%
9
24
17
23
27
16
3
5
17
2
25
7
28
12
3
20
19
9
8
3
3
4
10
5
9
Baa2/BBB
NR
Baa3/BBB-
Baa2/BBB
Baa2/BBB
Ba2/BB
NR
NR
Ba1/BBB-
NR
Aa2/AA-
A1/A+
B3/B
NR/BB-
B3/B-
NR
NR
Baa2/BBB
Aa2/AA
NR
Baa1/BBB+
NR/B
NR
Baa1/BBB
B1/B+
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
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ü
ü
ü
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ü
ü
(1) Based on warehouse revenues for the last twelve months ended December 31, 2017 .
(2) Represents long-term issuer ratings as published in March 2018.
(3) A check mark indicates that the customer had at least one fixed commitment contract or lease with us as of December 31, 2017 .
7
Seasonality
We are involved in providing services to food producers, distributors, retailers and e-tailers whose businesses, in some cases, are seasonal or cyclical. On a portfolio-wide basis, physical
occupancy rates and warehouse revenues are generally the lowest during May and June. Physical occupancy rates and warehouse revenues typically exhibit a gradual increase thereafter as a result
of annual harvests and our customers building inventories in connection with end-of-year holidays and generally peak between mid-September and early December as a result thereof. In each year
since 2015, we have generated the most revenues and our warehouses have experienced the highest occupancy levels in October or November. The involvement of our customers in a cross-
section of the food industry mitigates, in part, the impact of seasonality as peak demand for various products occurs at different times of the year (for example, demand for ice cream is typically
highest in the summer while demand for frozen turkeys usually peaks in the late fall). Our southern hemisphere operations in Australia, New Zealand and Argentina also help balance the impact
of seasonality in our global operations, as their growing and harvesting cycles are complementary to North America. Each of our warehouses sets its own operating hours based on demand, which
is heavily driven by growing seasons and seasonal consumer demand for certain products.
Competition
In our industry, the principal competitive factors are warehouse location, warehouse size, breadth and interconnectivity of warehouse networks, quality, type of service and price. For
refrigerated food customers, transportation costs are typically significantly greater than warehousing costs and, accordingly, location and transportation capabilities are major competitive factors.
The size of a warehouse is important in part because large customers generally prefer to have all of their products needed to serve a given market in a single location and to have the flexibility to
increase storage at that single location during seasonal peaks. In areas with direct local competition, customers generally will select a temperature-controlled warehouse based upon service level,
price and the quality of the warehouse. In addition, some food producers and distributors attend to their own warehousing and distribution needs by either building or leasing warehouses, creating
a private warehousing market which may compete with the public warehouse industry. Many customers, including those for whom private warehousing is a viable option, will select distribution
services based upon service level and price, provided that an appropriate network of related storage facilities is available. The breadth and quality of information and integrated logistics
management services provided are additional and increasingly important bases upon which we compete in the marketplace. In addition, we compete for the business of customers and potential
customers who may choose to provide temperature-controlled warehousing in-house.
United States
Outside the five largest owners of temperature-controlled warehouses, the United States temperature-controlled warehouse industry is highly fragmented among numerous owners and
operators. We believe our main competitors include Lineage Logistics, LLC, Preferred Freezer Services, LLC, United States Cold Storage, Inc. (an affiliate of John Swire & Sons), AGRO
Merchants Group, Interstate Warehousing, Cloverleaf Cold Storage and NewCold, in addition to numerous other local, regional and national temperature-controlled warehouse owners and
operators.
Australia
Our main competitors in Australia are Emergent, A.B. Oxford and NewCold, which operate warehouses and service many of the Australian markets. Generally, our other competitors
operate in only one region and do not compete in the retail market that comprises the majority of our revenues.
8
New Zealand
Our main competitor in New Zealand is PolarCold Stores, which operates an estimated nine warehouses and is the largest public warehouse operator in New Zealand. Polarcold Stores
specializes in bulk storage and focuses on the commodity market with warehouses located near New Zealand’s ports. Generally, our other competitors also service the commodity market and
operate in only one region.
Argentina
We have several competitors in the Buenos Aires market, which in the past tended to be smaller single-site operations or fragmented networks. While we are aware some operators are
considering consolidating public warehouse facilities in Argentina, the greatest sources of competition in Argentina is the disproportionate number of producers (compared to the United States)
that continue to in-source their temperature-controlled storage needs.
Employees
As of December 31, 2017 , worldwide we employed approximately 11,000 people, approximately 53% of which were represented by various local labor unions and associations, and 85 of
our 158 warehouses have unionized associates that are governed by 72 different collective bargaining agreements. Since January 1, 2016, we have successfully negotiated 43 collective
bargaining agreements (which expired in 2016 and 2017 or were first contracts) without any work stoppages. We are currently negotiating two collective bargaining agreements, both of which
have expired and under which we continue to operate by mutual consent while negotiations are finalized. We do not anticipate any disruption of services due to existing or anticipated contract
negotiations.
During 2018, we anticipate renegotiating 12 collective bargaining agreements, covering associates at 21 warehouses, that have or will expire before the end of the year. We do not
anticipate any workplace disruptions during this renewal process.
REGULATORY MATTERS
Many laws and governmental regulations are applicable to our properties and changes in these laws and regulations, or interpretation of such laws and regulations by agencies and the
courts, occur frequently.
Environmental Matters
Our operations are subject to a wide range of environmental laws and regulations in each of the locations in which we operate, and compliance with these requirements involves
significant capital and operating costs. Failure to comply with these environmental requirements can result in civil or criminal fines or sanctions, claims for environmental damages, remediation
obligations, revocation of environmental permits or restrictions on our operations. Future changes in environmental laws or in the interpretation of those laws, including stricter requirements
affecting our operations, could result in increased capital and operating costs, which could materially and adversely affect our business, financial condition, liquidity, results of operations and
prospects and, consequently, amounts available for distribution to our shareholders.
Food Safety Regulations
Most of our warehouses are subject to compliance with federal regulations regarding food safety. Under the Public Health Security and Bioterrorism Preparedness and Response Act of
2002, the United States Food and
9
Drug Administration, or the FDA, requires us to register all warehouses in which food is stored and further requires us to maintain records of sources and recipients of food for purposes of food
recalls.
The Food Safety Modernization Act, or FSMA significantly expanded the FDA’s authority over food safety, providing the FDA with new tools to proactively ensure the safety of the
entire food system, including for example, new hazard analysis and preventive controls requirements, food safety planning, requirements for sanitary transportation of food, increased inspections
and mandatory food recalls under certain circumstances. The most significant rule under the FSMA which impacts our business is the Current Good Manufacturing Practice and Hazard Analysis
and Risk-Based Preventive Controls for Human Food rule. This rule requires a food facility to establish a food safety system that includes an analysis of hazards and the implementation of risk-
based preventive controls, among other steps. This is in addition to requirements that we satisfy existing Good Manufacturing Practices with respect to the holding of foods, as set forth in FDA
regulations. The USDA also grants to some of our warehouses “ID status,” which entitles us to handle products of the USDA. As a result of the regulatory framework from the FDA, the USDA
and other local regulatory requirements, we subject our warehouses to periodic food safety audits which are for the most part carried out by ASI Food Safety Consultants, a third-party provider of
such audits. In addition to meeting any applicable food safety, food facility registration and recordkeeping requirements, our customers often require us to perform food safety audits.
To the extent we fail to comply with existing food safety regulations or contractual obligations, or are required to comply with new regulations or obligations in the future, it could
adversely affect our business, financial condition, liquidity, results of operations and prospects, as well as the amount of funds available for distribution to our shareholders.
Occupational Safety and Health Act, or OSHA
Our properties are subject to regulation under OSHA, which requires employers to provide employees with an environment free from hazards, such as exposure to toxic chemicals,
excessive noise levels, mechanical dangers, heat or cold stress and unsanitary conditions. In addition, due to the amount of ammonia stored at some of our facilities, we are also subject to
compliance with OSHA’s Process Safety Management of Highly Hazardous Chemicals standard and OSHA’s ongoing National Emphasis Program related to potential releases of highly
hazardous chemicals. The cost of complying with OSHA and similar laws enacted by states and other jurisdictions in which we operate can be substantial, and any failure to comply with these
regulations could expose us to substantial penalties and potentially to liabilities to employees who may be injured at our warehouses.
International Regulations
Our international facilities are subject to a number of local laws and regulations which govern a wide range of matters, including building, environmental, health and safety, hazardous
substances and new organisms, waste minimization, as well as specific requirements for the storage of meat, dairy products, fish, poultry, agricultural and other products. Any products destined
for export must also satisfy the applicable export requirements. A failure to comply with, or the cost of complying with, these laws and regulations could materially adversely affect our business,
financial condition, liquidity, results of operations and prospects and, consequently the amounts available for distribution to our shareholders.
10
INSURANCE COVERAGE
We carry comprehensive general liability, fire, extended coverage, business interruption and umbrella liability coverage on all of our properties with limits of liability which we deem
adequate. Similarly, we are insured against the risk of direct physical damage in amounts we believe to be adequate to reimburse us on a replacement basis for costs incurred to repair or rebuild
each property, including loss of business profits during the reconstruction period. We also carry coverage for customers’ products in our warehouses that are damaged due to our negligence. The
cost of all such insurance is passed through to customers as part of their regular rates for storage and handling.
We are self-insured for workers’ compensation and health insurance under a large-deductible program, meaning that we have accrued liabilities in amounts that we consider appropriate to
cover losses in these areas. In addition, we maintain excess loss coverage to insure against losses in excess of the reserves that we have established for these claims in amounts that we consider
appropriate. However, in the unlikely event that our loss experience exceeds our reserves and the limits of our excess loss policies, there could be material adverse effects on our business,
financial condition, liquidity, results of operations and prospects.
We will not carry insurance for generally uninsured losses such as loss from riots or war; however, we do include coverage for risks across all programs for acts of terrorism. We carry
earthquake insurance on our properties in areas known to be seismically active and flood insurance on our properties in areas known to be flood zones, in an amount and with deductibles which
we believe are commercially reasonable. We also carry insurance coverage relating to cybersecurity incidents.
11
ITEM 1A. Risk Factors
Set
forth
below
are
certain
risk
factors
that
could
harm
our
business,
results
of
operations
and
financial
condition.
You
should
carefully
read
the
following
risk
factors,
together
with
the
financial
statements,
related
notes
and
other
information
contained
in
this
Annual
Report
on
Form
10-K.
Our
business,
financial
condition
and
operating
results
may
suffer
if
any
of
the
following
risks
are
realized.
If
any
of
these
risks
or
uncertainties
occur,
the
trading
price
of
our
common
shares
could
decline
and
you
might
lose
all
or
part
of
your
investment.
This
Annual
Report
on
Form
10-K
contains
forward-looking
statements
that
contain
risks
and
uncertainties.
Please
refer
to
the
discussion
of
"Cautionary
Note
Concerning
Forward-Looking
Statements."
Risks Related to our Business and Operations
Our investments are concentrated in the temperature-controlled warehouse industry, and our business would be materially and adversely affected by an economic downturn in that industry.
Our investments in real estate assets are concentrated in the industrial real estate industry, specifically in temperature-controlled warehouses. This concentration exposes us to the risk of
economic downturns in this industry to a greater extent than if our business activities included a more significant portion of other sectors of the real estate market. We are also exposed to
fluctuations in the markets for the commodities and finished products that we store in our warehouses. For example, the demand for poultry and poultry products directly impacts the need for
temperature-controlled warehouse space to store poultry and poultry products for our customers. Although our customers store a diverse product mix in our temperature-controlled warehouses,
declines in demand for their products could cause our customers to reduce their inventory levels at our warehouses, which could reduce the storage and other fees payable to us and materially and
adversely affect us.
Our temperature-controlled warehouses are concentrated in certain geographic areas, some of which are particularly susceptible to adverse local conditions.
Although we own or hold leasehold interests in warehouses across the United States and globally, many of these warehouses are concentrated in a few geographic areas. For example,
approximately 44.4% of our owned or leased warehouses are located in the states of Georgia, Pennsylvania, California, Wisconsin, Texas and Missouri, with approximately 8.7% in Georgia,
8.4% in California, 8.3% in Pennsylvania, 7.0% in Texas , 6.6% in Wisconsin, and 5.4% in Missouri (in each case, on a cubic-foot basis based on information as of December 31, 2017 ). We
could be materially and adversely affected if conditions in any of the markets in which we have a concentration of properties become less favorable. Local conditions may include natural
disasters, periods of economic slowdown or recession, localized oversupply in warehousing space or reductions in demand for warehousing space, adverse agricultural events, disruptions in
logistics systems, such as transportation and tracking systems for our customers’ inventory, and power outages. In addition, adverse weather patterns may affect local harvests, which could have
an adverse effect on our customers and cause them to reduce their inventory levels at our warehouses, which could in turn materially and adversely affect us.
Unfavorable market, economic and demographic conditions could have a material adverse effect on us.
Unfavorable market conditions in the areas in which we operate and unfavorable economic conditions in the United States and globally could have a material adverse effect on us.
Specifically, our business operations are sensitive to the systemic impact of inflation, the availability and cost of credit, declines in the real estate market, increases in power costs and geopolitical
issues. A severe or prolonged economic downturn, such as the most recent global financial crisis, may adversely impact the general availability of credit to businesses and could lead to a
weakening of the U.S. and global economies. While it is difficult to determine the breadth and duration of any
12
unfavorable market or economic conditions and the many ways in which they may affect our customers and our business in general, unfavorable market or economic conditions may result in:
•
•
•
•
•
•
•
•
changes in consumer trends and preferences for products we store in our warehouses;
customer defaults on their contracts with us;
reduced demand for our warehouse space;
increased vacancies at our warehouses and inability to retain our customers;
lower rates from, and economic concessions to, our customers;
our inability to raise capital on favorable terms, or at all, when desired;
decreased value of our properties and related impact on our ability to obtain attractive prices on sales or to obtain secured debt financing; and
illiquidity and decreased value of our short-term investments and cash deposits.
Although current global market and economic conditions have improved from the unprecedented decline of global economies experienced during the period from 2008 to 2012, concerns
still exist regarding the systemic impact of global and domestic economic events, including geopolitical issues that may contribute to increased market volatility, uncertain expectations for the
global economy and interest rate increases, which may reduce the availability of financing. Our business continues to be exposed to certain considerations that could hinder our future growth. The
success of our business will be affected by general economic and market conditions, as well as by changes in laws, currency exchange controls, and national and international political,
environmental and socio-economic circumstances. A downturn in the U.S. or global economy (or any particular segment thereof) could adversely affect our profitability, impede our ability to
repay or refinance our existing obligations, and impair our ability to effectively sell properties on favorable terms in a timely manner or at all. Any of the foregoing events could result in
substantial or total losses to our business in respect of certain properties, which will likely be exacerbated by the terms of our indebtedness.
We are exposed to risks associated with expansion and development, which could result in disappointing returns and unforeseen costs and liabilities.
We have engaged, and expect to continue to engage, in expansion and development activities with respect to certain of our properties. This will subject us to certain risks not present for
acquisitions of existing properties (the risks of which are described below), including, without limitation, the following:
•
•
•
•
our pipeline of expansion and development opportunities are at various stages of discussion and consideration and, based on historical experiences, many of them may not be pursued
or completed as contemplated or at all;
the availability and timing of financing on favorable terms or at all;
the availability and timely receipt of zoning and regulatory approvals, which could result in increased costs and could require us to abandon our activities entirely with respect to the
warehouse for which we are unable to obtain permits or authorizations;
the cost and timely completion within budget of construction due to increased land, materials, labor or other costs (including risks beyond our control, such as weather or labor
conditions, or material shortages), which could make completion of the warehouse or the expansion thereof uneconomical, and we may not be able to increase revenues to compensate
for the increase in construction costs;
• we may be unable to complete construction of a warehouse or the expansion thereof on schedule, resulting in increased debt service expense and construction costs;
•
the potential that we may expend funds on and devote management time and attention to projects which we do not complete;
13
•
a completed expansion project or a newly-developed warehouse may fail to achieve, or take longer than anticipated to achieve, expected occupancy rates, and may fail to perform as
expected;
• we may not be able to successfully integrate expanded or newly-developed properties; and
• we may not be able to achieve targeted returns and budgeted stabilized returns on invested capital on our expansion and development opportunities due to the risks described above,
and an expansion or development may not be profitable and could lose money.
These risks could create substantial unanticipated delays and expenses and, in certain circumstances, prevent the initiation or completion of expansion or development as contemplated or
at all, any of which could materially and adversely affect us.
We may be unable to identify and complete acquisitions of suitable properties, which may impede our growth, and our future acquisitions may not yield the returns we expect.
Our ability to expand through acquisitions requires us to identify and complete acquisitions that are compatible with our growth strategy and to successfully integrate and operate these
newly-acquired properties. We continually evaluate acquisition opportunities, but cannot guarantee that suitable opportunities currently exist or will exist in the future. Our ability to identify and
acquire suitable properties on favorable terms and to successfully integrate and operate them may be constrained by the following risks:
• we face competition from other real estate investors with significant capital, including REITs and institutional investment funds, which may be able to accept more risk than we can
prudently manage, including risks associated with paying higher acquisition prices;
• we face competition from other potential acquirers that may significantly increase the purchase price for a property we acquire, which could reduce our growth prospects;
• we may incur significant costs and divert management’s attention in connection with evaluating and negotiating potential acquisitions, including ones that we are subsequently unable
to complete;
• we may acquire properties that are not accretive to our operating and financial results upon acquisition, and we may be unsuccessful in integrating and operating such properties in
•
accordance with our expectations;
our cash flow from an acquired property may be insufficient to meet our required principal and interest payments with respect to any debt used to finance the acquisition of such
property;
• we may discover unexpected items, such as unknown liabilities, during our due diligence investigation of a potential acquisition or other customary closing conditions may not be
satisfied, causing us to abandon an acquisition opportunity after incurring expenses related thereto;
• we may face opposition from governmental authorities or third parties alleging that potential acquisition transactions are anti-competitive, and as a result, we may have to spend a
significant amount of time and expense to respond to related inquiries;
• we may fail to obtain financing for an acquisition on favorable terms or at all;
• we may be unable to make, or may spend more than budgeted amounts to make, necessary improvements or renovations to acquired properties;
• we may spend more than budgeted amounts to meet customer specifications on a newly-acquired warehouse;
• market conditions may result in higher than expected vacancy rates and lower than expected storage charges, rent or fees; or
• we may, without any recourse, or with only limited recourse, acquire properties subject to liabilities, such as liabilities for clean-up of undisclosed environmental contamination, claims
by customers, vendors or other persons dealing with the former owners of the properties, liabilities incurred in the
14
ordinary course of business and claims for indemnification by general partners, directors, officers and others indemnified by the former owners of the properties.
Our inability to identify and complete suitable property acquisitions on favorable terms or at all, or to integrate and operate newly-acquired properties to meet our financial, operational
and strategic expectations, could have a material adverse effect on us.
We may be unable to successfully expand our operations into new markets.
If the opportunity arises, we may acquire or develop properties in new markets. In particular, we have determined to strategically grow our warehouse portfolio in attractive international
markets. In addition to the risks described above under “—We may be unable to identify and complete acquisitions of suitable properties, which may impede our growth, and our future
acquisitions may not yield the returns we expect” and “—We are exposed to risks associated with expansion and development, which could result in disappointing returns and unforeseen costs
and liabilities,” the acquisition or development of properties in new markets will subject us to the risks associated with a lack of understanding of the related economy and unfamiliarity with
government and permitting procedures. We will also not possess the same level of familiarity with the dynamics and market conditions of any new market that we may enter, which could
adversely affect our ability to successfully expand and operate in such market. We may be unable to build a significant market share or achieve a desired return on our investments in new
markets. If we are unsuccessful in expanding and operating in new, high-growth markets, it could have a material adverse effect on us.
We depend on certain customers for a substantial amount of our warehouse segment revenues.
During the year ended December 31, 2017 and 2016 , our 25 largest customers in our warehouse segment contributed approximately 61% and 61% , respectively, of our warehouse
segment revenues. As of December 31, 2017 , we had one customer that accounted for at least 8.8% of our warehouse segment revenues and 11 customers that each accounted for at least 2% of
our warehouse segment revenues. In addition, as of December 31, 2017 , 39 of our warehouses were predominantly single-customer warehouses. If any of our most significant customers were to
discontinue or otherwise reduce their use of our warehouses or other services, which they are generally free to do at any time unless they are party to a contract that includes a fixed storage
commitment, we would be materially and adversely affected. While we have contracts with stated terms with certain of our customers, most of our contracts do not obligate our customers to use
our warehouses or provide for fixed storage commitments. Moreover, a decrease in demand for certain commodities or products produced by our significant customers and stored in our
temperature-controlled warehouses would lower our occupancy rates and use of our services, without lowering our fixed costs, which could have a material adverse effect on us. In addition, while
some of our warehouses are located in primary markets, others are located in secondary and tertiary markets that are specifically suited to the particular needs of the customer utilizing these
warehouses. For example, our production advantaged warehouses typically serve one or a small number of customers. These warehouses are also generally located adjacent to or otherwise in
close proximity to customer processing or production facilities and were often build-to-suit at the time of their construction. If customers who utilize this type of warehouse, which may be located
in remote areas, relocate their processing or production plants, default or otherwise cease to use our warehouses, then we may be unable to find replacement customers for these warehouses on
favorable terms or at all or, if we find replacement customers, we may have to incur significant costs to reposition these warehouses for the replacement customers’ needs, any of which could
have a material adverse effect on us.
15
Our customers could experience bankruptcy, insolvency or financial deterioration.
Our customers could experience a downturn in their businesses, which may weaken their financial condition and liquidity and result in their failure to make timely payments to us or
otherwise default under their contracts or a decrease in their inventory levels with us and use of our services, without lowering our fixed costs, which could materially and adversely affect us.
If our customers are unable to comply with the terms of their contracts with us, we may be forced to modify these contracts on terms that are not favorable to us. Alternatively, customers
may seek to cancel their contracts. Termination provisions in our contracts vary, but generally permit either party to terminate the contract upon a material breach by the counterparty and
otherwise are specifically determined for each customer based on several factors. These include the volume of business involved, the readiness and quality of available capacity elsewhere and the
customer’s internal constraints affecting its ability to move product. Cancellation of, or the failure of a customer to perform under, a contract could require us to seek replacement customers.
There can be no assurance that we would be able to find suitable replacements on favorable terms in a timely manner or at all or reposition the warehouses without incurring significant costs.
A bankruptcy filing by or relating to any of our customers could prevent or delay us from collecting pre-bankruptcy obligations. In addition, to the extent that our customers have
continuing obligations under any warehouse contract, the bankruptcy court might authorize the customer to reject and terminate its warehouse contract with us, or the bankruptcy trustee might
pursue preferential payments made to us prior to a bankruptcy. In such instances, our claim for unpaid charges would likely not be paid in full, even if we have secured warehouseman’s liens on
our customer’s assets. Additionally, any such lien may attach to products that are perishable or otherwise not readily saleable by us. Although we have in the past been deemed to have “critical
vendor” status in certain bankruptcy filings, which resulted in our customer being able to pay us pre-bankruptcy obligations, there is no guarantee that we will be granted any such status in the
future.
The bankruptcy, insolvency or financial deterioration of our customers, particularly our significant customers, could materially and adversely affect us.
The short-term nature and lack of fixed storage commitments of many of our customer contracts exposes us to certain risks that could have a material adverse effect on us.
For the year ended December 31, 2017 , 41.4% of our warehouse segment revenues were generated from contracts with a fixed storage commitment or leases with customers. Annualized
committed rent and storage revenues attributable to our fixed storage commitment contracts and leases as of December 31, 2017 equaled 38.7% of our total warehouse segment rent and storage
revenues for the year ended December 31, 2017 .
Our customer contracts that do not contain fixed storage commitments typically do not require our customers to utilize a minimum number of pallet positions or provide for guaranteed
fixed payment obligations
from any customers to us. As a result, most of our customers may discontinue or otherwise reduce their use of our warehouses or other services in their discretion at any time, without lowering
our fixed costs, which could have a material adverse effect on us.
The storage and other fees we generate from customers with month-to-month warehouse rate agreements may be adversely affected by declines in market storage and other fee rates
more quickly than with respect to our contracts that contain stated terms. There also can be no assurance that we will be able to retain any customers upon the expiration of their contracts
(whether month-to-month warehouse rate agreements or contracts) or leases. If we cannot retain our customers, or if our customers that are not party to contracts with fixed storage commitments
elect not to store goods in our warehouses, we may be unable to find replacement
16
customers on favorable terms or at all or on a timely basis and we may incur significant expenses in obtaining replacement customers and repositioning warehouses to meet their needs. Any of the
foregoing could materially and adversely affect us.
We have limited experience operating as a publicly traded REIT.
We have limited experience operating as a publicly traded REIT. As a publicly traded REIT, we will be required to develop and implement substantial control systems, policies and
procedures in order to maintain our REIT qualification and satisfy our periodic SEC reporting, SEC compliance and NYSE listing requirements. We cannot assure you that our management’s past
experience will be sufficient to successfully develop and implement these systems, policies and procedures and to operate our company as a publicly traded REIT. Any difficulty we have in
operating as a publicly traded REIT in compliance with these requirements could subject us to significant fines, sanctions and other liabilities and jeopardize our status as a REIT or as a public
company listed on the NYSE, which could materially and adversely affect us.
Our systems may not be adequate to support our growth.
We can provide no assurance that we will be able to adapt our portfolio management, administrative, accounting, information technology and operational systems to support any growth
we may experience. Our failure to oversee our current portfolio of properties or any future acquisitions, expansions, developments or capital improvements could materially and adversely affect
us.
Competition in our markets may increase over time if our competitors open new warehouses.
We compete with other owners and operators of temperature-controlled warehouses (including our customers or potential customers who may choose to provide temperature-controlled
warehousing in-house), some of which own properties similar to ours in similar geographic locations. In recent years, our competitors, including Lineage Logistics, LLC, Preferred Freezer
Services, LLC, United States Cold Storage, Inc. (an affiliate of John Swire & Sons), AGRO Merchants Group, Interstate Warehousing, Cloverleaf Cold Storage, NewCold, Emergent, A.B.
Oxford and PolarCord Stores have added, through construction and development, temperature-controlled warehouses in certain of our markets. In addition, our customers or potential customers
may choose to develop new temperature-controlled warehouses, expand their existing temperature-controlled warehouses or upgrade their equipment. Many of our warehouses are older and as
our warehouses and equipment age and newer warehouses and equipment come onto the market, we may lose existing or potential customers, and we may be pressured to reduce our rent and
storage and other fees below those we currently charge in order to retain customers. If we lose one or more customers, we cannot assure you that we would be able to replace those customers on
attractive terms or at all. We also may be forced to invest in new construction or reposition existing warehouses at significant costs in order to remain competitive. Increased capital expenditures
or the loss of warehouse segment revenues resulting from lower occupancy or storage rates could have a material adverse effect on us.
We are subject to additional risks with respect to our current and potential international operations and properties.
As of December 31, 2017 , we owned or had a leasehold interest in 14 temperature-controlled warehouses outside the United States, and we managed four warehouses outside the United
States on behalf of third parties. We also intend to strategically grow our portfolio globally through acquisitions of temperature-controlled warehouses in attractive international markets to service
demonstrable customer demand where we believe the anticipated risk-adjusted returns are consistent with our investment objectives. Specifically, we are targeting attractive growth opportunities
for temperature-controlled warehouses in international markets in Asia and
17
Europe. However, there is no assurance that our existing customer relationships will support our international operations in any meaningful way or at all. Our international operations and
properties could be affected by factors peculiar to the laws and business practices of the jurisdictions in which our warehouses are located. These laws and business practices expose us to risks
that are different than or in addition to those commonly found in the United States. Risks relating to our international operations and properties include:
•
•
•
•
•
•
•
•
•
•
•
changing governmental rules and policies, including changes in land use and zoning laws;
enactment of laws relating to the international ownership of real property or mortgages and laws restricting the ability to remove profits earned from activities within a particular
country to a person’s or company’s country of origin;
variations in currency exchange rates;
adverse market conditions caused by terrorism, civil unrest and changes in international, national or local governmental or economic conditions;
the willingness of U.S. or international lenders to make mortgage loans in certain countries and changes in the availability, cost and terms of secured and unsecured debt resulting from
varying governmental economic policies;
the imposition of unique tax structures and changes in real estate and other tax rates and other operating expenses in particular countries;
general political and economic instability;
potential liability under the Foreign Corrupt Practices Act of 1977, as amended, which generally prohibits U.S. companies and their intermediaries from bribing or making other
prohibited payments to non-U.S. officials for the purpose of obtaining or retaining business or other benefits;
our limited experience and expertise in foreign countries relative to our experience and expertise in the United States;
restrictions on our ability to repatriate earnings generated from our international operations and adverse tax consequences in the applicable jurisdictions, such as double taxation; and
potential liability under, and costs of complying with, more stringent environmental laws or changes in the requirements or interpretation of existing laws, or environmental
consequences of less stringent environmental management practices in foreign countries relative to the United States.
If any of the foregoing risks were to materialize, they could materially and adversely affect us.
Our warehouse business outside the United States exposes us to losses resulting from currency fluctuations.
Our warehouse business outside the United States exposes us to losses resulting from currency fluctuations, as the revenues associated with our international operations and properties are
generated in the local currency of each of the countries in which the properties are located. Fluctuations in exchange rates between these currencies and the U.S. dollar will therefore give rise to
non-U.S. currency exposure, which could materially and adversely affect us. We may attempt to mitigate any such effects by entering into currency exchange rate hedging arrangements where it
is practical to do so and where such hedging arrangements are available. These hedging arrangements may bear substantial costs, however, and may not eliminate all related risks. We cannot
assure you that our efforts will successfully mitigate our currency risks. Moreover, if we do engage in currency exchange rate hedging activities, any income recognized with respect to these
hedges (as well as any foreign currency gain recognized with respect to changes in exchange rates) may not qualify under the 75% gross income test or the 95% gross income test that we must
satisfy annually in order to qualify as a REIT under the Internal Revenue Code of 1986, as amended, or the Code.
18
The Argentine foreign exchange market is subject to controls, which may adversely affect our ability to repatriate the revenues we derive from our Argentine operations.
Since December 2001, different Argentine government administrations have established and implemented various restrictions on foreign currency transfers, including certain restrictions
on the ability to repatriate earnings from Argentina. Although in December 2015, the Macri administration eliminated or otherwise reduced many of such restrictions, we cannot assure you that
such measures will not be implemented in the future again.
The impact that these current measures will have on the Argentine economy and on us is still uncertain. We cannot assure you that the current regulations will not be amended, or that no
new regulations will be enacted in the future imposing other limitations on funds flowing into and out of the Argentine foreign exchange market. Any such new measures, as well as any
additional regulations and/or restrictions, could materially and adversely affect our ability to repatriate the revenues we derive from our Argentine operations or transfer funds abroad.
In the future, we cannot rule out a less favorable international economic environment, lack of stability and competitiveness of the Argentine currency against other foreign currencies, a
lower level of confidence among consumers and foreign and domestic investors, a higher inflation rate or future political uncertainties, among other factors. In case any such circumstances occur,
it could materially and adversely affect the results of our operations in Argentina.
We depend on key personnel and specialty personnel, and a deterioration of employee relations could harm our business and operating and financial results.
Our success following the IPO depends to a significant degree upon the continued contributions of certain key personnel, including Fred Boehler and Marc Smernoff, each of whom would
be difficult to replace. If any of our key personnel were to cease employment with us, our operating and financial results could suffer. Further, such a loss could be negatively perceived in the
capital markets. We have not obtained and do not expect to obtain key man life insurance on any of our key personnel. Our ability to retain our management group or to attract suitable
replacements should any members of our management team leave is dependent on the competitive nature of the employment market. The loss of services from key members of our management
team or a limitation of their availability could materially and adversely affect us.
We also believe that our future success, particularly in international markets, will depend in large part upon our ability to hire and retain highly skilled managerial, investment, financing,
operational and marketing
personnel. The customer service, marketing skills and knowledge of local market demand and competitive dynamics of our employees are contributing factors to our ability to maximize our
income and to achieve the highest sustainable storage levels at each of our warehouses. We may be unsuccessful in attracting and retaining such skilled personnel. In addition, our temperature-
controlled warehouse business depends on the continued availability of skilled personnel with engineering expertise and experience. Competition for such personnel is intense, and we may be
unable to hire and retain such personnel.
Wage increases driven by U.S. federal, state and local legislation and competitive pressures on employee wages and benefits could negatively affect our operating margins and our ability to
attract qualified personnel.
Our hourly U.S. employees are typically paid wage rates above the applicable U.S. federal, state or local minimum wage. However, increases in the minimum wage will increase our labor
costs if we are to continue paying our hourly employees above the applicable U.S. federal, state or local minimum wage. If we are unable to continue paying our hourly employees above the
applicable U.S. federal, state or local minimum wage, we may be unable to hire and retain qualified personnel. The U.S. federal minimum wage has been $7.25 per hour since July 24, 2009. From
time to time, various U.S. federal, state and local legislators have proposed or enacted
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significant changes to the minimum wage requirements. For example, certain local or regional governments in places such as Chicago, Los Angeles, Seattle, San Francisco, Portland and New
York have approved phased-in increases that eventually will take their minimum wage to as high as $15.00 per hour. If similar increases were to occur in additional markets in which we operate,
our operating margins would be negatively affected unless we are able to increase our rent, storage fees and handling fees in order to pass increased labor costs on to our customers.
Competitive pressures may also require that we enhance our pay and benefits package to compete effectively for such personnel (including costs associated with health insurance coverage
or workers’ compensation insurance). If we fail to attract and retain qualified and skilled personnel, we could be materially and adversely affected.
We may be subject to work stoppages, which could increase our operating costs and disrupt our operations.
Certain portions of our operations are subject to collective bargaining agreements. As of December 31, 2017 , worldwide, we employed approximately 11,000 people, approximately 53%
of which were represented by various local labor unions, and 85 of our 158 warehouses have unionized associates that are governed by 72 different collective bargaining agreements. Unlike
owners of industrial warehouses, we hire our own workforce to handle and store items for our customers. Strikes, slowdowns, lockouts or other industrial disputes could cause us to experience a
significant disruption in our operations, as well as increase our operating costs, which could materially and adversely affect us. If a greater percentage of our work force becomes unionized, we
could be materially and adversely affected. Since January 1, 2016, we have successfully negotiated 41 collective bargaining agreements (which expired in 2016 and 2017 or were first contracts)
without any work stoppages. We are currently negotiating two collective bargaining agreements, both of which have expired and which we continue to operate by mutual consent while
negotiations are finalized. If we fail to re-negotiate our expired or expiring collective bargaining agreements on favorable terms in a timely manner or at all, we could be materially and adversely
affected.
Power costs may increase or be subject to volatility, which could result in increased costs that we may be unable to recover.
Power is a major operating cost for temperature-controlled warehouses, and the price of power varies substantially between the markets in which we operate, depending on the power
source and supply and demand factors. For the years ended December 31, 2017 and 2016 , power costs in our warehouse segment accounted for 9.1% and 9.4% , respectively, of the segment’s
operating expenses. We have implemented programs across our warehouses to reduce overall consumption and to reduce consumption at peak demand periods, when power prices are typically
highest. However, there can be no assurance that these programs will be effective in reducing our power consumption.
We have entered into, or may in the future enter into, fixed price power purchase agreements in certain deregulated markets whereby we contract for the right to purchase an amount of
electric capacity at a fixed rate per kilowatt. These contracts do not obligate us to purchase any minimum amounts but would require negotiation if our capacity requirements were to materially
differ from historical usage or exceed the thresholds agreed upon. For example, exceeding these thresholds could have an adverse impact on our incremental power purchase costs if we were to be
unable to obtain favorable rates on the incremental purchases.
If the cost of electric power to operate our warehouses increases dramatically or fluctuates widely and we are unable to pass such costs through to customers, we could be materially and
adversely affected.
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We could experience power outages or breakdowns of our refrigeration equipment.
Our warehouses are subject to electrical power outages and breakdowns of our refrigeration equipment. We attempt to limit exposure to such occasions by using backup generators and
power supplies, generally at a significantly higher operating cost than we would pay for an equivalent amount of power from a local utility, and by conducting regular maintenance and upgrades
to our refrigeration equipment. However, we may not be able to limit our exposure entirely even with these protections in place. Power outages that last beyond our backup and alternative power
arrangements and refrigeration equipment breakdowns would harm our customers and our business. During power outages and refrigeration equipment breakdowns, changes in humidity and
temperature could spoil or otherwise contaminate the frozen and perishable food and other products stored by our customers. We could incur financial obligations to, or be subject to lawsuits by,
our customers in connection with these occurrences, which may not be covered by insurance. Any loss of services or product damage could reduce the confidence of our customers in our services
and could consequently impair our ability to attract and retain customers. Additionally, in the event of the complete failure of our refrigeration equipment, we would incur significant costs in
repairing or replacing our refrigeration equipment, which may not be covered by insurance. Any of the foregoing could have a material adverse effect on us.
We may incur liabilities or harm our reputation as a result of quality-control issues associated with our warehouse storage and other services.
We store frozen and perishable food and other products. Product contamination, spoilage, other adulteration, product tampering or other quality control issues could occur at any of our
temperature-controlled warehouses or during the transportation of these products, which could cause our customers to lose all or a portion of their inventory. We could be liable for the costs
incurred by our customers as a result of the lost inventory, and we also may be subject to liability, which could be material, if any of the frozen and perishable food products we stored or
transported caused injury, illness or death. The occurrence of any of the foregoing may negatively impact our brand and reputation and otherwise have a material adverse effect on us.
Our temperature-controlled warehouse infrastructure may become obsolete or unmarketable and we may not be able to upgrade our equipment cost-effectively or at all.
The infrastructure at our temperature-controlled warehouses may become obsolete or unmarketable due to the development of, or demand for, more advanced equipment or enhanced
technologies. In addition, our information technology platform pursuant to which we provide inventory management and other services to our customers may become outdated. When customers
demand new equipment or technologies, the cost could be significant and we may not be able to upgrade our warehouses on a cost-effective basis in a timely manner, or at all, due to, among other
things, increased expenses to us that cannot be passed on to customers or insufficient resources to fund the necessary capital expenditures. The obsolescence of our infrastructure or our inability to
upgrade our warehouses would likely reduce warehouse segment revenues, which could have a material adverse effect on us.
We hold leasehold interests in 26 of our warehouses, and we may be forced to vacate our warehouses if we default on our obligations thereunder and we will be forced to vacate our
warehouses if we are unable to renew such leases upon their expiration.
As of December 31, 2017 , we held leasehold interests in 26 of our warehouses. These leases expire (taking into account our extension options) from June 2018 to August 2050, and had a
weighted-average remaining term of 21 years. If we default on any of these leases, we may be liable for damages and could lose our leasehold interest in the applicable property, including all
improvements. We would incur significant costs if we
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were forced to vacate any of these leased warehouses due to, among other matters, the high costs of relocating the equipment in our warehouses. If we were forced to vacate any of these leased
warehouses, we could lose customers that chose our storage or other services based on our location, which could have a material adverse effect on us. Our landlords could attempt to evict us for
reasons beyond our control. Further, we may be unable to maintain good working relationships with our landlords, which could adversely affect our relationship with our customers and could
result in the loss of customers. In addition, we cannot assure you that we will be able to renew these leases prior to their expiration dates on favorable terms or at all. If we are unable to renew our
lease agreements, we will lose our right to operate these warehouses and be unable to derive revenues from these warehouses and, in the case of ground leases, we forfeit all improvements on the
land. We could also lose the customers using these warehouses who are unwilling to relocate to another one of our warehouses, which could have a material adverse effect on us. Furthermore,
unless we purchase the underlying fee interests in these properties, as to which no assurance can be given, we will not share in any increase in value of the land or improvements beyond the term
of such lease, notwithstanding any capital we have invested in the applicable warehouse, especially warehouses subject to ground leases. Even if we are able to renew these leases, the terms and
other costs of renewal may be less favorable than our existing lease arrangements. Failure to sufficiently increase revenues from customers at these warehouses to offset these projected higher
costs could have a material adverse effect on us.
We and our customers face risks relating to cybersecurity attacks that could cause loss of confidential information and other business disruptions.
We rely extensively on computer systems to manage our business and the services we provide to our customers. As a result, our business is at risk from, and may be impacted by,
cybersecurity attacks. These could include attempts to gain unauthorized access to our data and computer systems. Attacks can be both individual and highly organized attempts planned by very
sophisticated hacking organizations. We employ a number of measures to prevent, detect and mitigate these threats, which include password protection, frequent password change events, firewall
detection systems, frequent backups, a redundant data system for core applications and annual penetration testing; however, there is no guarantee such efforts will be successful in preventing a
cybersecurity attack. A cybersecurity attack could compromise the confidential information of our employees, customers and vendors. A successful attack could disrupt and affect our business
operations, damage our reputation and result in significant remediation and litigation costs. Similarly, our customers rely extensively on computer systems to process transactions and manage
their business and thus their businesses are also at risk from, and may be impacted by, cybersecurity attacks. An interruption in the business operations of our customers or in their reputation
resulting from a cybersecurity attack could indirectly impact our business operations.
Our properties are designed specifically for use as temperature-controlled warehouses, which could make it difficult for us to reposition or sell these properties.
Our properties are highly specialized temperature-controlled warehouses, many of which are located in secondary or tertiary markets. Such warehouses are often custom-designed to meet
specific customer needs. As a result, our warehouses are not well-suited for uses other than temperature-controlled storage. Major renovations and expenditures would be required to convert our
temperature-controlled warehouses for most other uses. In the event we experience a significant decline in demand for temperature-controlled storage at any of our warehouses, it could be
difficult to reposition or sell these properties on favorable terms, or at all, and the value of our temperature-controlled warehouses may be impaired due to the costs of reconfiguring our
temperature-controlled warehouses for alternative purposes and the removal or modification of the specialized systems and equipment, any of which could have a material adverse effect on us.
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We depend on third-party trucking service providers to provide transportation services to our customers, and any delays or disruptions in providing these transportation services, or damages
caused to products during transportation, could have a material adverse effect on us.
We offer transportation services to our customers primarily on a brokerage basis and do not own meaningful transportation assets, such as trucks or containers. We depend on third-party
trucking service providers to provide refrigerated transportation services to our customers. We do not have exclusive or long-term contractual relationships with any of these third-party trucking
service providers, and we can provide no assurance that our customers will have uninterrupted or unlimited access to their transportation assets or services. Any delays or disruptions in providing
these transportation services to our customers could reduce the confidence our customers have in our ability to provide transportation services and could impair our ability to retain existing
customers or attract new customers. Moreover, in connection with any such delays or disruptions, or if customers’ products are damaged or destroyed during transport, we could incur financial
obligations or be subject to lawsuits by our customers. Any of these risks could have a material adverse effect on us.
We will continue to incur significantly increased costs as a result of operating as a public company, and our management will be required to devote substantial time and attention to
compliance efforts.
We will continue to incur significant legal, accounting, insurance and other expenses as a result of becoming a public company. As a public company with listed equity securities, we need
to comply with new laws, regulations and requirements, including the requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, certain corporate governance
provisions of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, related regulations of the SEC and requirements of the NYSE, with which we were not required to comply as a private
company. The Exchange Act requires that we file annual, quarterly and current reports with respect to our business, operations and financial statements. The Sarbanes-Oxley Act requires, among
other things, that we establish and maintain effective internal controls and procedures for financial reporting.
Section 404 of the Sarbanes-Oxley Act requires our management and independent registered public accounting firm to report annually on the effectiveness of our internal control over
financial reporting. Substantial work on our part is required to implement appropriate processes, document the system of internal control over key processes, assess their design, remediate any
deficiencies identified and test their operation. This process is expected to be both costly and challenging.
These reporting and other obligations place significant demands on our management and our administrative, operational and accounting resources and will cause us to continue to incur
significant expenses. We may need to upgrade our systems or create new systems, implement additional financial and other controls, reporting systems and procedures. If we are unable to
accomplish these objectives in a timely and effective fashion, our ability to comply with the financial reporting requirements and other rules that apply to public companies could be impaired.
If we fail to implement and maintain an effective system of internal control over financial reporting, we may not be able to accurately determine or disclose our financial results. As a result,
our shareholders could lose confidence in our financial results.
Effective internal control over financial reporting is necessary for us to provide reliable financial reports. We may in the future discover areas of our internal control over financial
reporting that need improvement. We cannot be certain that we will be successful in implementing or maintaining an effective system of internal control over financial reporting, or that material
weaknesses or significant deficiencies will not be identified in the future. Furthermore, the existence of a material weakness or significant deficiency in our internal control over financial reporting
would require our management to devote significant time and attention and incur significant expense to
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remediate any such material weakness or significant deficiency, and management may not be able to remediate any such material weakness or significant deficiency in a timely manner. The
existence of any material weakness or significant deficiency in our internal control over financial reporting could also result in errors in our financial statements that could require us to restate our
financial statements, cause us to fail to meet our reporting obligations and cause shareholders to lose confidence in our reported financial information, which could materially and adversely affect
us and lead to a significant decline in the market price of our common shares.
We participate in multiemployer pension plans administered by labor unions. To the extent we withdraw from participation in any of these plans, we could face withdrawal liability from our
participation therein.
As of December 31, 2017 , we participated in seven multiemployer pension plans administered by labor unions representing some of our U.S. employees. Approximately half of our
employees were participants in such multiemployer pension plans as of December 31, 2017 . 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 income 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. 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 $319.3 million as of December 31, 2017 , of which we estimate that certain
of our customers are contractually obligated to make indemnification payments to us for approximately $289.0 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 therefor.
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 employees participating in the plan is reduced to a
certain degree over certain periods of time.
Some multiemployer pension plans, including ones in which we participate, are reported to have significant underfunded liabilities. Such underfunding could increase the size of our
potential withdrawal liability. Additionally, changes to multiemployer pension plan laws and regulations could increase our potential cost of withdrawing from one or more multiemployer pension
plans.
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General Risks Related to the Real Estate Industry
Our performance and value are subject to economic conditions affecting the real estate market, temperature-controlled warehouses in particular, as well as the broader economy.
Our performance and value depend on the amount of revenues earned, as well as the expenses incurred, in connection with operating our warehouses. If our temperature-controlled
warehouses do not generate revenues and operating cash flows sufficient to meet our operating expenses, including debt service and capital expenditures, we could be materially and adversely
affected. In addition, there are significant expenditures associated with our real estate (such as mortgage payments, real estate taxes and maintenance costs) that generally do not decline when
circumstances reduce the revenues from our warehouses. Accordingly, our expenditures may stay constant, or increase, even if our revenues decline. The real estate market is affected by many
factors that are beyond our control, and revenues from, and the value of, our properties may be materially and adversely affected by:
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changes in the national, international or local economic climate;
availability, cost and terms of financing;
the attractiveness of our properties to potential customers;
inability to collect storage charges, rent and other fees from customers;
the ongoing need for, and significant expense of, capital improvements and addressing obsolescence in a timely manner, particularly in older structures;
changes in supply of, or demand for, similar or competing properties in an area;
customer retention and turnover;
excess supply in the market area;
financial difficulties, defaults or bankruptcies by our customers;
changes in operating costs and expenses and our ability to control rates;
changes in or increased costs of compliance with governmental rules, regulations and fiscal policies, including changes in tax, real estate, environmental and zoning laws, and our
potential liability thereunder;
our ability to provide adequate maintenance and insurance;
changes in the cost or availability of insurance, including coverage for mold or asbestos;
unanticipated changes in costs associated with known adverse environmental conditions, newly discovered environmental conditions and retained liabilities for such conditions;
changes in interest rates or other changes in monetary policy;
disruptions in the global supply-chain caused by political, regulatory or other factors such as terrorism and political instability; and
civil unrest, acts of war, terrorist attacks and natural disasters, including earthquakes and floods, which may result in uninsured and underinsured losses.
In addition, periods of economic slowdown or recession, rising interest rates or declining demand for real estate, or the public perception that any of these events may occur, would result
in a general decrease in rates or an increased occurrence of defaults under existing contracts, which could materially and adversely affect us. For these and other reasons, we cannot assure you that
we will be able to achieve our business objectives.
Illiquidity of real estate investments, particularly our specialized temperature-controlled warehouses, could significantly impede our ability to respond to adverse changes in the performance
of our business and properties.
Real estate investments are relatively illiquid, and given the specialized nature of our business, our temperature-controlled warehouses may be more illiquid than other real estate
investments. This illiquidity is
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driven by a number of factors, including the specialized and often customer specific design of our warehouses, the relatively small number of potential purchasers of temperature-controlled
warehouses and the location of many of our warehouses in secondary or tertiary markets. As a result, we may be unable to complete an exit strategy or quickly sell properties in our portfolio in
response to adverse changes in the performance of our properties or in our business generally. We cannot predict whether we will be able to sell any property for the price or on the terms set by us
or whether any price or other terms offered by a prospective buyer would be acceptable to us. We also cannot predict the length of time it would take to complete the sale of any such property.
Such sales might also require us to expend funds to mitigate or correct defects to the property or make changes or improvements to the property prior to its sale. The ability to sell assets in our
portfolio is also restricted by certain covenants in our mortgage loan agreements and other credit agreements. Code requirements relating to our status as a REIT may also limit our ability to vary
our portfolio promptly in response to changes in economic or other conditions.
We could experience uninsured or underinsured losses relating to our warehouses and other assets, including our real property.
We carry insurance coverage on all of our properties in an amount that we believe adequately covers any potential casualty losses. However, there are certain losses, including losses from
floods, earthquakes, acts of war or riots, that we are not generally insured against or that we are not generally fully insured against because it is not deemed economically feasible or prudent to do
so. In addition, changes in the cost or availability of insurance could expose us to uninsured casualty losses. In the event that any of our properties incurs a casualty loss that is not covered by
insurance (in part or at all), the value of our assets will be reduced by the amount of any such uninsured loss, and we could experience a significant loss of capital invested and potential revenues
in these properties. Any such losses could materially and adversely affect us. In addition, we may have no source of funding to repair or reconstruct the damaged property, and we cannot assure
you that any such sources of funding will be available to us for such purposes in the future on favorable terms or at all.
In the event of a fire, flood or other occurrence involving the loss of or damage to stored products held by us but belonging to others, we may be liable for such loss or damage. Although
we have an insurance program in effect, there can be no assurance that such potential liability will not exceed the applicable coverage limits under our insurance policies. A number of our
properties are located in areas that are known to be subject to earthquake activity, such as California, Washington, Oregon and New Zealand, or in flood zones, such as Appleton, Wisconsin and
Roanoke, Virginia, in each case exposing them to increased risk of casualty.
If we or one or more of our customers experiences a loss for which we are liable and that loss is uninsured or exceeds policy limits, we could lose the capital invested in the damaged
properties as well as the anticipated future cash flows from those properties. In addition, if the damaged properties are subject to recourse indebtedness, we would continue to be liable for the
indebtedness, even if these properties were irreparably damaged.
We are self-insured for workers’ compensation and health insurance under a large deductible program, meaning that we have accrued liabilities in amounts that we consider appropriate to
cover losses in these areas. In addition, we maintain excess loss coverage to insure against losses in excess of the reserves that we have established for these claims in amounts that we consider
appropriate. However, in the event that our loss experience exceeds our reserves and the limits of our excess loss policies, we could be materially and adversely affected.
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We may not be reimbursed for increases in operating expenses and other real estate costs.
We may be limited in our ability to obtain reimbursement from customers under existing warehouse contracts for any increases in operating expenses such as electricity charges,
maintenance costs, taxes, including real estate and income taxes, or other real estate-related costs. Unless we are able to offset any unexpected costs with sufficient revenues through new
warehouse contracts or customers, increases in these costs would lower our operating margins and could materially and adversely affect us.
We could incur significant costs related to environmental conditions and liabilities.
Our operations are subject to a wide range of environmental laws and regulations in each of the locations in which we operate, and compliance with these requirements involves
significant capital and operating costs. Failure to comply with these environmental requirements can result in civil or criminal fines or sanctions, claims for environmental damages, remediation
obligations, the revocation of environmental permits or restrictions on our operations. Future changes in environmental laws, or in the interpretation of those laws, including potential future
climate change regulations, such as those affecting electric power providers or regulations related to the control of greenhouse gas emissions, or stricter requirements affecting our operations
could result in increased capital and operating costs, which could materially and adversely affect us.
Under various U.S. federal, state and local environmental laws, including the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, commonly
known as CERCLA, or the Superfund law, a current or previous owner or operator of real property may be liable for the entire cost of investigating, removing or remediating hazardous or toxic
substances on such property. Such laws often impose liability whether or not the owner or operator knew of, or was responsible for, the contamination. Even if more than one person may have
been responsible for the contamination, each person covered by the environmental laws may be held responsible for the entire cleanup cost. We may also be subject to environmental liabilities
under the regulatory regimes in place in the other countries in which we operate.
The presence of hazardous or toxic substances on our properties, or the failure to properly remediate contaminated properties, could give rise to liens in favor of the government for failure
to address the contamination, or otherwise adversely affect our ability to sell or lease properties or borrow using our properties as collateral. Environmental laws also may impose restrictions on
the manner in which property may be used or our businesses may be operated.
Under environmental laws, a property owner or operator is subject to compliance obligations, potential government sanctions for violations or natural resource damages, claims from
private parties for cleanup contribution or other environmental damages and investigation and remediation costs. In connection with the acquisition, ownership or operation of our properties, we
may be exposed to such costs. The cost of resolving environmental, property damage or personal injury claims, of compliance with environmental regulatory requirements, of paying fines, or
meeting new or stricter environmental requirements or of remediating contaminated properties could materially and adversely affect us.
Nearly all of our properties have been the subject of environmental assessments conducted by environmental consultants at some point in the past. Most of these assessments have not
included soil sampling or subsurface investigations. Many of our older properties have not had asbestos surveys. In many instances, we have not conducted further investigations of environmental
conditions disclosed in these environmental assessments nor can we be assured that these environmental assessments have identified all potential environmental liabilities associated with our
properties. Material environmental conditions, liabilities or compliance concerns may have arisen or may arise after the date of the environmental assessments on our properties. Moreover, there
can be no assurance that (i) future laws, ordinances or regulations will not impose new
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material environmental obligations or costs, including the potential effects of climate change or new climate change regulations, (ii) we will not incur material liabilities in connection with both
known and undiscovered environmental conditions arising out of past activities on our properties or (iii) our properties will not be materially and adversely affected by the operations of
customers, by environmental impacts or operations on neighboring properties (such as releases from underground storage tanks), or by the actions of parties unrelated to us.
In the future, our customers may demand lower indirect emissions associated with the storage and transportation of frozen and perishable foods, which could lead customers to seek
temperature-controlled storage from our competitors. Further, such demand could require us to implement various processes to reduce emissions from our operations in order to remain
competitive, which could materially and adversely affect us.
We could incur significant costs under environmental laws relating to the presence and management of asbestos, ammonia and underground storage tanks.
Environmental laws in the United States require that owners or operators of buildings containing asbestos properly manage asbestos, adequately inform or train those who may come into
contact with asbestos and undertake special precautions, including removal or other abatement, in the event that asbestos is damaged, is decayed, poses a health risk or is disturbed during building
renovation or demolition. These laws impose fines and penalties on building owners or operators who fail to comply with these requirements and may allow third parties to seek recovery from
owners or operators for personal injury associated with exposure to asbestos and other toxic or hazardous substances. Some of our properties may contain asbestos or asbestos-containing building
materials.
Most of our warehouses utilize ammonia as a refrigerant. Ammonia is classified as a hazardous chemical regulated by the U.S. Environmental Protection Agency, or the EPA. Releases of
ammonia occur at our warehouses from time to time, and any number of unplanned events, including severe storms, fires, earthquakes, vandalism, equipment failure, operational errors, accidents,
deliberate acts of employees or third parties, and terrorist acts could result in a significant release of ammonia that could result in injuries, loss of life, property damage and a significant
interruption at affected facilities. For example, in 2015, we identified, and reported when required, ammonia releases across refrigeration systems in six of our facilities. These releases resulted in
no significant property damage. In 2016, we identified, and reported when required, ammonia releases across refrigeration systems in eight of our facilities. These releases resulted in no
significant property damage. Ammonia exposure can also cause damage to our customers’ goods stored with us. In June 2015, a release of ammonia occurred at our Dallas, Texas warehouse,
resulting in exposure to over 13,000 pallets of customer goods. Although we cannot predict the extent of our liabilities as a result of these incidents, we expect any related product damage claims
to be covered by insurance subject to applicable deductibles. Although our warehouses have risk management programs required by the Occupational Safety and Health Act of 1970, as amended,
or OSHA, the EPA and other regulatory agencies in place, we could incur significant liability in the event of an unanticipated release of ammonia from one of our refrigeration systems. Releases
could occur at locations or at times when trained personnel may not be available to respond quickly, increasing the risk of injury, loss of life or property damage. Some of our warehouses are not
staffed 24 hours a day and, as a result, we may not respond to intentional or accidental events during closed hours as quickly as we could during open hours, which could exacerbate any injuries,
loss of life or property damage. We also could incur liability in the event we fail to report such ammonia releases in a timely fashion.
Environmental laws and regulations subject us and our customers to liability in connection with the storage, handling and use of ammonia and other hazardous substances utilized in our
operations. Our warehouses also may have under-floor heating systems, some of which utilize ethylene glycol, petroleum compounds, or other hazardous substances; releases from these systems
could potentially contaminate soil and groundwater.
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In addition, some of our properties have been operated for decades and have known or potential environmental impacts. Other than in connection with financings, we have not historically
performed regular environmental assessments on our properties, and we may not do so in the future. Many of our properties contain, or may in the past have contained, features that pose
environmental risks including underground tanks for the storage of petroleum products and other hazardous substances as well as floor drains and wastewater collection and discharge systems,
hazardous materials storage areas and septic systems. All of these features create a potential for the release of petroleum products or other hazardous substances. Some of our properties are
adjacent to or near properties that have known environmental impacts or have in the past stored or handled petroleum products or other hazardous substances that could have resulted in
environmental impacts to soils or groundwater that could affect our properties. In addition, former owners, our customers, or third parties outside our control (such as independent transporters)
have engaged, or may in the future engage, in activities that have released or may release petroleum products or other hazardous substances on our properties. Any of these activities or
circumstances could materially and adversely affect us.
Our insurance coverage may be insufficient to cover potential environmental liabilities.
We maintain a portfolio environmental insurance policy that provides coverage for sudden and accidental environmental liabilities, subject to the policy’s coverage conditions, deductibles
and limits, for most of our properties. There is no assurance that future environmental claims will be covered under these policies or that, if covered, the loss will not exceed policy limits. From
time to time, we may acquire properties, or interests in properties, with known adverse environmental conditions where we believe that the environmental liabilities associated with these
conditions are quantifiable and that the acquisition will yield an attractive risk-adjusted return. In such an instance, we factor the estimated costs of environmental investigation, cleanup and
monitoring into the net cost. Further, in connection with property dispositions, we may agree to remain responsible for, and to bear the cost of, remediating or monitoring certain environmental
conditions on the properties. A failure to accurately estimate these costs, or uninsured environmental liabilities, could materially and adversely affect us.
Our properties may contain or develop harmful molds or have other air quality issues, which could lead to financial liability for adverse health effects to our employees or third parties, and
costs of remediating the problem.
Our properties may contain or develop harmful molds or suffer from other air quality issues, which could lead to liability for adverse health effects and costs of remediating the problem.
When excessive moisture accumulates in buildings or on building materials, mold growth may occur, particularly if the moisture problem remains undiscovered or is not addressed over a period
of time. Some molds produce airborne toxins or irritants. Indoor air quality issues can also stem from inadequate ventilation, poor equipment maintenance, chemical contamination from indoor or
outdoor sources and other biological contaminants, such as pollen, viruses and bacteria. Indoor exposure to airborne toxins or irritants present above certain levels can cause a variety of adverse
health effects and symptoms, including allergic or other reactions. As a result, the presence of significant mold or other airborne contaminants at any of our properties could require us to
undertake a costly remediation program to contain or remove the mold or other airborne contaminants from the affected property, to reduce indoor moisture levels, or to upgrade ventilation
systems to improve indoor air quality. In addition, the presence of significant mold or other airborne contaminants could expose us to liability from our employees, our customers, employees of
our customers and others if property damage or health concerns arise.
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Costs of complying with governmental laws and regulations could adversely affect us and our customers.
The food industry in all jurisdictions in which we operate is subject to numerous government standards and regulations. While we believe that we are currently in compliance with all
applicable government standards and regulations, there can be no assurance that all of our warehouses or our customers’ operations are currently in compliance with, or will be able to comply in
the future with, all applicable standards and regulations or that the costs of compliance will not increase in the future.
All real property and the operations conducted on real property are subject to governmental laws and regulations relating to environmental protection and human health and safety. Our
customers’ ability to operate and to satisfy their contractual obligations, including those made to us, may be affected by permitting and compliance obligations arising under such laws and
regulations. Some of these laws and regulations could increase their operating costs, result in fines or impose joint and several liability on customers, owners or operators for the costs to
investigate or remediate contamination, regardless of fault or whether the acts causing the contamination were legal.
Some of these laws and regulations have been amended so as to require compliance with new or more stringent standards in the future. Compliance with new or more stringent laws or
regulations or stricter interpretation of existing laws may require that we or our customers incur material expenditures. In addition, there are various governmental fire, health, safety and similar
regulations with which we and our customers may be required to comply and which may subject us and our customers to liability in the form of fines or damages for noncompliance. Any material
expenditures, fines or damages imposed on our customers or us could directly or indirectly have a material adverse effect on us. In addition, changes in these governmental laws and regulations,
or their interpretation by agencies and courts, could occur.
The Americans with Disabilities Act of 1990, as amended, or the ADA, generally requires that public buildings, including portions of our warehouses, be made accessible to disabled
persons. Noncompliance could result in the imposition of fines by the federal government or the award of damages to private litigants. If, under the ADA, we are required to make substantial
alterations and capital expenditures in one or more of our warehouses, including the removal of access barriers, it could materially and adversely affect us.
Our properties are subject to regulation under OSHA, which requires employers to protect employees against many workplace hazards, such as exposure to harmful levels of toxic
chemicals, excessive noise levels, mechanical dangers, heat or cold stress and unsanitary conditions. The cost of complying with OSHA and similar laws enacted by other jurisdictions in which
we operate is substantial and any failure to comply with these regulations could expose us to penalties and potentially to liabilities to employees who may be injured at our warehouses, any of
which could be material. Furthermore, any fines or violations that we face under OSHA could expose us to reputational risk.
We face ongoing litigation risks which could result in material liabilities and harm to our business regardless of whether we prevail in any particular matter.
We are a large company operating in multiple U.S. and international jurisdictions, with thousands of employees and business counterparts. As such, there is an ongoing risk that we may
become involved in legal disputes or litigation with these parties or others. The costs and liabilities with respect to such legal disputes may be material and may exceed our amounts, if any,
accrued for such liabilities and costs. In addition, our defense of legal disputes or resulting litigation could result in the diversion of our management’s time and attention from the operation of our
business, each of which could impede our ability to achieve our business objectives. Some or all
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of the amounts we may be required to pay to defend or to satisfy a judgment or settlement of any or all of our disputes and litigation may not be covered by insurance.
We face risks stemming from our partial ownership interests in certain properties which could materially and adversely affect the value of our joint venture investments.
We own an interest in one of our properties indirectly through an investment in a joint venture with a third party. We also made an investment in the China JV. In the future, we may make
additional investments through joint venture investment vehicles. These investments involve risks not present in investments where a third party is not involved, including the possibility that:
• we and a co-venturer or partner may reach an impasse on a major decision that requires the approval of both parties;
• we may not have exclusive control over the development, financing, management and other aspects of the property or joint venture, which may prevent us from taking actions that are
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in our best interest but opposed by a co-venturer or partner;
a co-venturer or partner may at any time have economic or business interests or goals that are or may become inconsistent with ours;
a co-venturer or partner may encounter liquidity or insolvency issues or may become bankrupt, which may mean that we and any other remaining co-venturers or partners generally
would remain liable for the joint venture’s liabilities;
a co-venturer or partner may be in a position to take action contrary to our instructions, requests, policies or investment objectives, including our current policy with respect to
maintaining our qualification as a REIT under the Code;
a co-venturer or partner may take actions that subject us to liabilities in excess of, or other than, those contemplated;
in certain circumstances, we may be liable for actions of our co-venturer or partner, and the activities of a co-venturer or partner could adversely affect our ability to qualify as a REIT,
even if we do not control the joint venture;
our joint venture agreements may restrict the transfer of a co-venturer’s or partner’s interest or otherwise restrict our ability to sell the interest when we desire or on advantageous
terms;
our joint venture agreements may contain buy-sell provisions pursuant to which one co-venturer or partner may initiate procedures requiring the other co-venturer or partner to choose
between buying the other co-venturer’s or partner’s interest or selling its interest to that co-venturer or partner;
if a joint venture agreement is terminated or dissolved, we may not continue to own or operate the interests or investments underlying the joint venture relationship or may need to
purchase such interests or investments at a premium to the market price to continue ownership; or
disputes between us and a co-venturer or partner may result in litigation or arbitration that could increase our expenses and prevent our management from focusing their time and
attention on our business.
Any of the above could materially and adversely affect the value of our current joint venture investment or any future joint venture investments and potentially have a material adverse
effect on us.
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Risks Related to Our Debt Financings
We have a substantial amount of indebtedness that may limit our financial and operating activities.
As of December 31, 2017 , on a pro forma basis after giving effect to the IPO and related transactions and the use of the net proceeds from those transactions, we had approximately
$1.6 billion of total consolidated indebtedness outstanding and borrowing capacity under our 2018 Senior Secured Revolving Credit Facility of $450.0 million less approximately $33.8 million to
backstop certain outstanding letters of credit. Our organizational documents contain no limitations regarding the maximum level of indebtedness that we may incur or keep outstanding.
Payments of principal and interest on indebtedness may leave us with insufficient cash resources to operate our properties or to pay distributions to our shareholders at expected levels.
Our substantial outstanding indebtedness could have other material and adverse consequences, including, without limitation, the following:
our cash flows may be insufficient to meet our required principal and interest payments;
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• we may use a substantial portion of our cash flows to make principal and interest payments and we may be unable to obtain additional financing as needed or on favorable terms, which
could, among other things, have a material adverse effect on our ability to capitalize upon acquisition opportunities, fund capital improvements or meet operational needs;
• we may be unable to refinance our indebtedness at maturity or the refinancing terms may be less favorable than the terms of our original indebtedness;
• we may be forced to dispose of one or more of our properties, possibly on disadvantageous terms or in violation of certain covenants to which we may be subject;
• we may default on our indebtedness by failing to make required payments or violating covenants, which would entitle holders of such indebtedness and other indebtedness with a
cross-default provision to accelerate the maturity of their indebtedness and, if such indebtedness is secured, to foreclose on our properties that secure their loans;
• we may be unable to effectively hedge floating rate debt with respect to our Senior Secured Credit Facilities or any successor facilities thereto;
• we are required to maintain certain debt and coverage and other financial ratios at specified levels, thereby reducing our operating and financial flexibility;
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• we may be subject to greater exposure to increases in interest rates for our variable-rate debt and to higher interest expense on future fixed rate debt.
our vulnerability to general adverse economic and industry conditions may be increased; and
If any one of these events were to occur, we could be materially and adversely affected. In addition, any foreclosure on our properties could create taxable income without accompanying
cash proceeds, which could materially and adversely affect our ability to meet the REIT distribution requirements imposed by the Code.
We are dependent on external sources of capital, the continuing availability of which is uncertain.
In order to qualify as a REIT, we are required each year to distribute to our shareholders at least 90% of our REIT taxable income (determined without regard to the dividends paid
deduction and by excluding capital gains), and we are subject to tax to the extent our REIT taxable income is not fully distributed. In addition, we will be subject to income tax at regular corporate
rates to the extent that we distribute less than 100% of our REIT taxable income, including any net capital gains. Because of these distribution requirements, we may not be able to fund all of our
future capital needs, including capital for acquisitions, development activities and recurring and non-recurring capital improvements, from operating cash flow. Consequently, we intend to rely on
third-party
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sources of capital to fund a substantial amount of our future capital needs. We may not be able to obtain additional financing on favorable terms or at all when needed. Any additional debt we
incur will increase our leverage, expose us to the risk of default and impose operating and financial restrictions on us. In addition, any equity financing could be materially dilutive to the equity
interests held by our shareholders. Our access to third-party sources of capital depends, in part, on general market conditions, the market’s perception of our growth potential, our leverage, our
current and anticipated results of operations, liquidity, financial condition and cash distributions to shareholders and the market price of our common shares. If we cannot obtain sufficient capital
on favorable terms when needed, we may not be able to execute our business and growth strategies, satisfy our debt service obligations, make the cash distributions to our shareholders necessary
for us to qualify as a REIT (which would expose us to significant penalties and corporate-level taxation), or fund our other business needs, which could have a material adverse effect on us.
Increases in interest rates could increase the amount of our debt payments.
As of December 31, 2017 , on a pro forma basis after giving effect to the IPO and the use of the net proceeds from the IPO, we had $922.8 million of our outstanding consolidated
indebtedness that is variable-rate debt, and we may continue to incur variable-rate debt in the future. Increases in interest rates on such debt would raise our interest costs, reduce our cash flows
and reduce our ability to make distributions to our shareholders. Increases in interest rates would also increase our interest expense on future fixed rate borrowings and have the same collateral
effects. In addition, if we need to repay existing debt during periods of rising interest rates, we could be required to liquidate one or more of our investments in properties at times which may not
permit realization of the maximum return on such investments.
Our existing indebtedness contains, and any future indebtedness is likely to contain, covenants that restrict our ability to engage in certain activities.
Following the IPO, our indebtedness outstanding requires, and our future indebtedness is likely to require, us to comply with a number of financial covenants, as well as operational
covenants, such as covenants with respect to leverage, interest coverage ratios, borrowing base requirements, incurrence of secured and unsecured indebtedness, creating liens upon our assets,
making of certain distributions and investments, engaging in certain strategic transactions, engaging in transactors with our affiliates, disposing of certain assets, amending our organizational
documents and other matters. The financial covenants under our 2018 Senior Secured Credit Facilities include a maximum leverage ratio, a minimum borrowing base coverage ratio, a minimum
fixed charge coverage ratio, a minimum borrowing base debt service coverage ratio, a minimum tangible net worth requirement and a maximum recourse secured debt ratio. These covenants may
limit our ability to engage in certain transactions that may be in our best interests. In order to be able to make distributions to our shareholders, we must be in compliance with certain financial
covenants and there may not be an event of default under such indebtedness. Our failure to meet the covenants could result in an event of default under the applicable indebtedness, which could
result in the acceleration of the applicable indebtedness and other indebtedness with a cross-default provision as well as foreclosure upon any of our assets that secure such indebtedness, including
equity interests in certain of our subsidiaries and in certain of our real property securing such indebtedness. If any of our assets, including equity interests in certain of our subsidiaries and real
property, are foreclosed upon by lenders, or if we are unable to refinance our indebtedness at maturity or meet our payment obligations, we would be materially and adversely affected.
As of December 31, 2017 , a total of 61 of our warehouses were financed under mortgage loans grouped into two pools. Certain covenants in the mortgage loan agreements place limits on
our use of the cash flows associated with each pool, and place other restrictions on our use of the assets included within each pool. In particular, if our subsidiaries that are borrowers under these
mortgage loans fail to maintain certain cash flow
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minimums or a debt service coverage ratio, the cash generated by those subsidiaries will be restricted and unavailable for us to use, which we refer to as a “cash trap event.” The required cash
flow minimums vary from pool to pool of the mortgage loans. If the pools under our mortgage loans were to fail to maintain the applicable
cash flow minimums or debt service coverage ratio, our ability to make capital expenditures and distributions to our shareholders would be materially limited. In addition, as a holder of equity
interests in the borrowers under each of these pools, our claim to the assets contained in each pool is subordinate to the claims of the holders of the indebtedness under each mortgage loan.
In addition, two of our properties are financed under construction mortgage loans. Certain covenants in the construction loan agreements impose significant restrictions with respect to the
construction of the facilities being developed with the proceeds thereof. If we failed to satisfy the covenants or development deadlines under these construction loan agreements, we could be
responsible for, among other things, significant guarantee and reimbursement obligations to the lenders thereof. In addition, as a holder of equity interests in the borrowers under each of these
loan agreements, our claim to the assets secured thereby is subordinate to the claims of the construction lenders.
Secured indebtedness exposes us to the possibility of foreclosure, which could result in the loss of our investment in certain of our subsidiaries or in a property or group of properties or other
assets subject to indebtedness, and limits our ability to raise future capital.
We have granted certain of our lenders security interests in substantially all of our assets, including equity interests in certain of our subsidiaries and in certain of our real property.
Incurring secured indebtedness, including mortgage indebtedness, increases our risk of asset and property losses because defaults on indebtedness secured by our assets, including equity interests
in certain of our subsidiaries and in certain of our real property, may result in foreclosure actions initiated by lenders and ultimately our loss of the property or other assets securing any loans for
which we are in default. Any foreclosure on a mortgaged property or group of properties could have a material adverse effect on the overall value of our portfolio of properties and more generally
on us. For tax purposes, a foreclosure of any of our properties would be treated as a sale of the property for a purchase price equal to the outstanding balance of the indebtedness secured by the
mortgage. If the outstanding balance of the indebtedness secured by the mortgage exceeds our tax basis in the property, we would recognize taxable income on foreclosure, but would not receive
any cash proceeds, which could materially and adversely affect us. In addition, the fact that substantially all of our assets serve as collateral for existing indebtedness limits our ability to raise
future capital on favorable terms, or at all. As a result, our substantial secured indebtedness could have a material adverse effect on us.
Interest rate and other hedging activity exposes us to risks, including the risks that a counterparty will not perform and that the hedge will not yield the economic benefits we anticipate.
As of December 31, 2017 , we were a party to three interest rate hedges. In addition, we have entered into certain forward contracts and other hedging arrangements in order to fix power
costs for anticipated electricity requirements. These hedging transactions expose us to certain risks, such as the risk that counterparties may fail to honor their obligations under these
arrangements, and that these arrangements may not be effective in reducing our exposure to interest rate and power cost changes. Moreover, there can be no assurance that our hedging
arrangements will qualify for hedge accounting or that our hedging activities will have the desired beneficial impact on our results of operations or cash flows. Should we desire to terminate a
hedging agreement, there could be significant costs and cash requirements involved to fulfill our obligation under the hedging agreement. Failure to hedge effectively against interest rate and
power cost changes could have a material adverse effect on us. When a hedging agreement is required under the terms of a mortgage loan, it is often a condition that the hedge counterparty
maintains a specified credit rating. With the current volatility in the financial markets, there is an
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increased risk that hedge counterparties could have their credit ratings downgraded to a level that would not be acceptable under the loan provisions. If we were unable to renegotiate the credit
rating condition with the lender or find an alternative counterparty with an acceptable credit rating, we could be in default under the loan and the lender could seize that property through
foreclosure, which could have a material adverse effect on us.
Risks Related to our Organization and Structure
Provisions of Maryland law may limit the ability of a third party to acquire control of our company.
Under the Maryland General Corporation Law, or the MGCL, as applicable to Maryland real estate investment trusts, certain “business combinations” (including a merger, consolidation,
share exchange or, in certain circumstances specified under the statute, an asset transfer or issuance or reclassification of equity securities) between a Maryland real estate investment trust and any
person who beneficially owns, directly or indirectly, 10% or more of the voting power of the trust’s then outstanding voting shares or an affiliate or associate of the trust who, at any time within
the two-year period before the date in question, was the beneficial owner, directly or indirectly, of 10% or more of the voting power of the trust’s then outstanding shares, which we refer to as an
“interested shareholder,” or an affiliate thereof, are prohibited for five years after the most recent date on which the interested shareholder becomes an interested shareholder. Thereafter, any such
business combination must be approved by two supermajority shareholder votes unless, among other conditions, the trust’s common shareholders receive a minimum price (as defined in the
MGCL) for their shares and the consideration is received in cash or in the same form as previously paid by the interested shareholder for its voting shares. Following the IPO, Yucaipa and the GS
Entities each beneficially own more than 10% of our voting shares and would, therefore, be subject to the business combination provisions of the MGCL. However, pursuant to the statute, our
board of trustees, by resolution, elected to opt out of the business combination provisions of the MGCL. This resolution may not be modified or repealed by our board of trustees without the
approval of our shareholders by the affirmative vote of a majority of the votes cast on the matter. Accordingly, the five-year prohibition and the supermajority vote requirements described above
do not apply to a business combination between us and any other person, including Yucaipa or the GS Entities. As a result, any person may be able to enter into business combinations with us,
which may not be in your best interest as a shareholder, within five years of becoming an interested shareholder and without compliance by us with the supermajority vote requirements and other
provisions of the MGCL.
The “control share” provisions of the MGCL provide that “control shares” of a Maryland real estate investment trust (defined as shares which, when aggregated with other shares
controlled by the shareholder (except solely by virtue of a revocable proxy), entitle the shareholder to exercise one of three increasing ranges of voting power in electing trustees) acquired in a
“control share acquisition” (defined as the direct or indirect acquisition of ownership or control of “control shares”) have no voting rights except to the extent approved by the trust’s shareholders
by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding votes entitled to be cast by the acquiror of control shares, the trust’s officers and the trust’s
employees who are also the trust’s trustees. Our amended and restated bylaws, or our bylaws, contain a provision exempting from the control share acquisition provisions of the MGCL any and
all acquisitions by any person of our shares. This provision may not be amended by our board of trustees without the affirmative vote at a duly called meeting of shareholders of at least a majority
of the votes cast on the matter by shareholders entitled to vote generally in the election of trustees.
Subtitle 8 of Title 3 of the MGCL, or Subtitle 8, permits our board of trustees, without shareholder approval, to implement certain takeover defenses (some of which, such as a classified
board, we do not have), if we have a class of equity securities registered under the Exchange Act and at least three independent trustees. We
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have elected not to be subject to Subtitle 8 unless approved by the affirmative vote of at least a majority of the votes cast on the matter by shareholders entitled to vote generally in the election of
trustees.
On any vote to opt in to the “business combination,” the “control share” or the Subtitle 8 provisions of the MGCL, YF ART Holdings (including its affiliates) will vote its common shares
for and against the matter in the same proportion as the number of votes cast for and against the proposal to opt in by other shareholders until YF ART Holdings (including its affiliates) ceases to
own at least 20% of the outstanding voting power.
Any of the MGCL provisions, if then applicable to us, may have the effect of inhibiting a third party from making an acquisition proposal for us or of delaying, deferring or preventing a
transaction or change in control which might involve a premium price for our common shares or otherwise be in the best interests of our shareholders.
Our board of trustees can take many actions even if you and other shareholders disagree with such actions or if they are otherwise not in your best interest as a shareholder.
Our board of trustees has overall authority to oversee our operations and determine our major policies. This authority includes significant flexibility to take certain actions without
shareholder approval. For example, our board of trustees can do the following without shareholder approval:
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issue additional shares, which could dilute your ownership;
amend our declaration of trust to increase or decrease the aggregate number of shares or the number of shares of any class or series that we have authority to issue;
classify or reclassify any unissued shares and set the preferences, rights and other terms of such classified or reclassified shares, which preferences, rights and terms could delay, defer
or prevent a transaction or change in control which might involve a premium price for our common shares or otherwise be in your best interest as a shareholder;
employ and compensate affiliates;
change major policies, including policies relating to investments, financing, growth and capitalization;
enter into new lines of business or new markets; and
determine that it is no longer in our best interests to attempt to continue to qualify as a REIT.
Any of these actions without shareholder approval could increase our operating expenses, impact our ability to make distributions to our shareholders, reduce the market value of our real
estate assets or otherwise not be in your best interest as a shareholder.
Our declaration of trust contains provisions that make removal of our trustees difficult, which could make it difficult for our shareholders to effect changes to our management.
Our declaration of trust provides that, subject to the rights of holders of one or more classes or series of preferred shares to elect or remove one or more trustees, a trustee may be removed
only for “cause” (as defined in our declaration of trust), and then only by the affirmative vote of shareholders entitled to cast two-thirds of the votes entitled to be cast generally in the election of
trustees; provided, however, we anticipate that, pursuant to our new shareholders agreement and the amended YF ART Holdings limited partnership agreement, each of affiliates of Yucaipa, the
GS Entities and the Fortress Entity have the right to remove a trustee designated by such party, in each case from our board of trustees for any reason. The foregoing provision of our declaration
of trust, when coupled with the power of our board of trustees to fill vacant trusteeships and the rights of each of affiliates of Yucaipa, the GS Entities and the Fortress Entity to designate an
individual to fill a vacancy of a trustee designated by such party, will preclude shareholders from removing incumbent trustees except for cause and by a substantial
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affirmative vote and filling the vacancies created by such removal with their own nominees. These requirements make it more difficult to change our management by removing and replacing
trustees and may prevent a change in control that is in the best interests of our shareholders.
The REIT ownership limit rules and the related restrictions on ownership and transfer contained in our declaration of trust have an anti-takeover effect.
In order for us to maintain our qualification as a REIT under the Code, not more than 50% in value of our outstanding shares of beneficial interest may be owned, directly or indirectly, by
five or fewer individuals (as defined in the Code to include certain entities) at any time during the last half of each taxable year (other than the first taxable year for which the election to be treated
as a REIT was made). To ensure that we will not fail to qualify as a REIT under this and other tests under the Code, our declaration of trust, subject to certain exceptions, authorizes our board of
trustees to take such actions as are necessary and desirable to preserve our qualification as a REIT and does not permit individuals (including certain entities treated as individuals), other than
excepted holders approved in accordance with our declaration of trust, to own, directly or indirectly, more than 9.8% (in value) of our outstanding shares. In addition, our declaration of trust
prohibits: (a) any person from beneficially or constructively owning our shares of beneficial interest that would result in our company being “closely held” under Section 856(h) of the Code or
otherwise cause us to fail to qualify as a REIT; (b) any person from transferring our shares of beneficial interest of our company if such transfer would result in our shares of beneficial interest
being beneficially owned by fewer than 100 persons; and (c) any person from beneficially owning our shares of beneficial interest to the extent such ownership would result in our failing to
qualify as a “domestically controlled qualified investment entity” within the meaning of Section 897(h) of the Code (after taking into account for such purpose the statutory presumptions set forth
in Section 897(h)(4)(E) of the Code). Our board of trustees is required to exempt a person (prospectively or retrospectively) from the percentage ownership limit described above (but not the other
restrictions) if the person seeking a waiver demonstrates that the waiver would not jeopardize our status as a REIT or violate the other conditions described above.
These ownership limitations are intended to provide added assurance of compliance with the tax law requirements and to minimize administrative burdens. Although our declaration of
trust requires our board of trustees to grant a waiver of the percentage ownership limit described above if the person seeking a waiver demonstrates that such ownership would not jeopardize our
status as a REIT or violate the other conditions described above, these limitations might still delay, defer or prevent a transaction or change in control which might involve a premium price for our
common shares or otherwise not be in your best interest as a shareholder or result in the transfer of shares acquired in excess of the ownership limits to a trust for the benefit of a charitable
beneficiary and, as a result, the forfeiture by the acquirer of the benefits of owning the additional shares.
Our rights and the rights of our shareholders to take action against our trustees and officers are limited.
Our declaration of trust eliminates our trustees’ and officers’ liability to us and our shareholders for money damages except for liability resulting from actual receipt of an improper benefit
or profit in money, property or services or active and deliberate dishonesty established by a final judgment and which is material to the cause of action. Our declaration of trust and our bylaws
require us to indemnify our trustees and officers and any observer to our board of trustees to the maximum extent permitted by Maryland law for liability actually incurred in connection with any
proceeding to which they may be made, or threatened to be made, a party, except to the extent that the act or omission of the trustee, officer or observer was material to the matter giving rise to
the proceeding and was either committed in bad faith or the result of active and deliberate dishonesty, the trustee, officer or observer actually received an improper personal benefit in money,
property or services, or, in the case of any criminal proceeding, the trustee, officer or observer had reasonable cause to believe that the act or omission was unlawful. As a result, we and our
shareholders may have more limited rights against our trustees and officers
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and any observer to our board of trustees than might otherwise exist under common law. In addition, we may be obligated to fund the defense costs incurred by our trustees and officers and any
observer to our board of trustees.
Our significant shareholders, including Yucaipa, the GS Entities and the Fortress Entity, and their respective affiliates, will continue to have significant influence over us after the IPO, and
their actions might not be in your best interest as a shareholder.
Subsequent to the IPO, investment funds affiliated with Yucaipa and the GS Entities control on a fully diluted basis approximately 38.6% and 16.7% , respectively, of the voting power in
us.
Under our shareholders agreement, YF ART Holdings has the right to designate two of the nine members of our board of trustees, so long as YF ART Holdings beneficially owns 10% or
more of our fully diluted outstanding shares (as such term is defined in our new shareholders agreement). So long as YF ART Holdings beneficially owns 5% or more (but less than 10%) of our
fully diluted outstanding shares it has the right to designate one of the nine members of our board of trustees. The GS Entities have the right to designate one of the nine members of our board of
trustees, so long as the GS Entities beneficially own 5% or more of our fully diluted outstanding shares. Also, YF ART Holdings is entitled to appoint an observer to our board of trustees, so long
as it beneficially owns 5% or more of our fully diluted outstanding shares.
Affiliates of Yucaipa and the Fortress Entity, through YF ART Holdings, will each remain entitled to designate one of the two members of our board of trustees that YF ART Holdings is
entitled to designate pursuant to our shareholders agreement, so long as YF ART Holdings beneficially owns 10% or more of our fully diluted outstanding shares. To the extent that YF ART
Holdings has the right to designate only one member of our board of trustees, YF ART Holdings will designate an individual selected by affiliates of Yucaipa unless the number of common
shares held by YF ART Holdings and attributable to the Fortress Entity exceeds the number of common shares held by YF ART Holdings and attributable to affiliates of Yucaipa. If affiliates of
Yucaipa and the Fortress Entity obtain direct ownership of the common shares currently held by YF ART Holdings, affiliates of Yucaipa and the Fortress Entity will, subject to the limitations
described above, remain entitled to these board designation rights as if they continued to hold common shares through YF ART Holdings provided that neither affiliates of Yucaipa nor the
Fortress Entity will remain entitled to these board representation rights if its beneficial ownership is less than 5% of our fully diluted outstanding shares.
We and affiliates of Yucaipa, the GS Entities and the Fortress Entity entered into a new registration rights agreement in connection with the IPO, pursuant to which they remain entitled to
registration rights in respect of our common shares. For further information regarding these agreements, please see “Certain Relationships and Related Party Transactions—Shareholders
Agreement and Related Agreements” in Item 13 of this Annual Report on Form 10-K
We expect that Yucaipa, the GS Entities and the Fortress Entity will continue to exert a significant influence on our business and affairs as a result of their substantial ownership interest in
us and the terms of our shareholders agreement. As a result, we expect these parties to continue to influence the outcome of matters required to be submitted to shareholders for approval,
including the election of our trustees, amendments to our declaration of trust, the removal of our trustees for cause, and the approval of significant transactions, such as mergers or other sales of
our company or our assets.
The influence exerted by these shareholders over our business and affairs might not be consistent with your best interests as a shareholder. In addition, this concentration of voting control
and influence may have the effect of delaying, deferring or preventing a transaction or change in control which might involve a premium price for our common shares or otherwise be in your best
interest as a shareholder.
38
Additionally, if investment funds affiliated with Yucaipa, which own, on a fully diluted basis, 38.6% of our outstanding common shares, were to hold or be deemed to hold more than 50%
of the voting power for the election of our trustees following the completion of this offering, we could be considered a “controlled company” within the meaning of the NYSE listing standards.
As a result, we could qualify for exemption from certain NYSE corporate governance requirements (including that a majority of the board be independent and the nominating and corporate
governance and compensation committees be composed entirely of independent trustees). We do not intend to rely on any of these exemptions and intend to fully comply with all corporate
governance requirements under the NYSE rules. Nevertheless, there can be no assurance that, in the future, we would not seek to rely on some or all of the exemptions afforded to a “controlled
company” (assuming that we remain eligible to do so). If so, you would not have the same protections afforded to shareholders of companies that are subject to all of the NYSE rules regarding
corporate governance.
Our declaration of trust contains provisions permitting certain of our shareholders to engage in the same businesses as ours and renouncing our interest and expectancy in certain business
opportunities.
Yucaipa, the GS Entities, Fortress and their respective affiliates have other investments and business activities in addition to their ownership of us. Under our declaration of trust, Yucaipa,
the GS Entities and the Fortress Entity, and their respective affiliates (and any of their respective officers, trustees, directors, partners, members, managers, employees or other agents, or related
persons), will have the right, and will have no obligation to abstain from exercising such right, to: (1) engage or invest, directly or indirectly, in the same or similar business activities or lines of
business as us or our affiliates; (2) do business with any of our customers, suppliers or lessors; or (3) employ or otherwise engage any of our officers, trustees or employees. While we believe that
none of Yucaipa, the GS Entities or the Fortress Entity owned and operated any temperature-controlled warehouses in competition with us as of December 2017, there is no guarantee they will
not do so in the future. If Yucaipa, the GS Entities or the Fortress Entity, or any of their respective affiliates or any of their related persons, acquire knowledge of a potential transaction that could
be a business opportunity, we, our affiliates and our shareholders will have no interest or expectancy in such opportunity, and they will have no obligation to present, communicate or offer such
business opportunity to us, our affiliates or our shareholders. Rather, they will have the right to hold and exploit such opportunity for their own account or to direct, recommend, sell, assign or
otherwise transfer such opportunity to any person or entity.
The only exception to our renunciation of business opportunities described above is in the event that a business opportunity is expressly offered to a related person solely in, and as a direct
result of, his or her capacity as our trustee, officer or employee. In such cases, our declaration of trust provides that we do not renounce any interest or expectancy that we may have under
applicable law in those business opportunities. If our Chief Executive Officer, Chief Operating Officer or Chief Financial Officer shall be a related person by virtue of his or her respective
relationship with Yucaipa, the GS Entities or the Fortress Entity or their respective affiliates, then any business opportunity offered to such officer shall be deemed to have been offered solely in,
and as a direct result of, such officer’s capacity as an officer of our company unless such offer clearly and expressly is presented to such officer solely in, and as a direct result of, his or her
capacity as an officer, trustee, director, partner, member, manager, employee or other agent of Yucaipa, the GS Entities or the Fortress Entity or their respective affiliates.
Therefore, a trustee, officer or other employee of our company who also serves as a trustee, director, member, partner, manager, officer or other employee of Yucaipa, the GS Entities or
the Fortress Entity or their respective affiliates may pursue certain business opportunities that may be complementary to, or consistent or competing with, our business and, as a result, such
opportunities may not be available to us. These potential conflicts of interest could materially and adversely affect us if attractive business opportunities are allocated by Yucaipa, the GS Entities
or the Fortress Entity, or any trustee, director, member, partner, manager, officer or other
39
employee of Yucaipa, the GS Entities or the Fortress Entity or their respective affiliates, to themselves or their other affiliates instead of to us.
We may invest in, or co-invest with, our affiliates, which could result in conflicts of interest.
We may in the future make investments in, enter into co-investment or joint venture arrangements with, or otherwise collaborate with and invest in, other firms or entities, which may
include our affiliates, including Yucaipa, the GS Entities and Fortress. Such activities could create conflicts of interest that result in actions or consequences that are not in your best interest as a
shareholder.
We have fiduciary duties as general partner to our operating partnership, which may result in conflicts of interests in representing your interests as shareholders of our company.
Conflicts of interest could arise in the future as a result of the relationships between us and our affiliates, and between us and our operating partnership or any partner thereof. Our trustees
and officers have duties to our company under applicable Maryland law in connection with their management of our company. Additionally, we
have fiduciary duties as the general partner to our operating partnership and to its limited partners under Delaware law in connection with the management of our operating partnership, although
our operating partnership does not currently have any limited partners that are not our wholly owned subsidiaries. Our duties as a general partner to our operating partnership and any future
unaffiliated limited partners may come into conflict with the duties of our trustees and officers to our company and may be resolved in a manner that is not in your best interest as a shareholder.
40
Risks Related to our Common Shares
Our cash available for distribution to shareholders may not be sufficient to pay distributions at expected levels, or at all, and we may need to increase our borrowings or otherwise raise
capital in order to make such distributions; consequently, we may not be able to make such distributions in full.
Our initial annual distributions to our shareholders are expected to be $0.75 per share, prorated in 2018 from the closing date of the IPO. If cash available for distribution generated by our
assets for such twelve-month period is less than our estimate or if such cash available for distribution decreases in future periods, we may be unable to make distributions to our shareholders at
expected levels, or at all, or we may need to increase our borrowings or otherwise raise capital in order to do so, and there can be no assurance that such capital will be available on attractive
terms in sufficient amounts, or at all. Any of the foregoing could result in a decrease in the market price of our common shares. Any distributions made to our shareholders by us will be
authorized and determined by our board of trustees in its sole discretion out of funds legally available therefor and will be dependent upon a number of factors, including our actual or anticipated
financial condition, results of operations, cash flows and capital requirements, debt service requirements, financing covenants, restrictions under applicable law and other factors.
Any future debt, which would rank senior to our common shares upon liquidation, or equity securities, which could dilute our existing shareholders and may be senior to our common shares
for the purposes of distributions, may adversely affect the market price of our common shares.
In the future, we may attempt to increase our capital resources by incurring additional debt, including term loans, borrowings under credit facilities, mortgage loans, commercial paper,
senior or subordinated notes and secured notes, and making additional offerings of equity and equity-related securities, including preferred and common shares and convertible or exchangeable
securities.
Upon our liquidation, holders of our debt securities and preferred shares and lenders with respect to other borrowings would receive a distribution of our available assets prior to the
holders of our common shares. Additional offerings of common shares would dilute the holdings of our existing shareholders or may reduce the market price of our common shares or both.
Additionally, any preferred shares or convertible or exchangeable securities that we issue in the future may have rights, preferences and privileges more favorable than those of our common
shares and may result in dilution to holders of our common shares. Because our decision to incur debt or issue equity or equity-related securities in the future will depend on market conditions and
other factors beyond our control, we cannot predict or estimate the amount, timing, nature or success of our future capital raising. Thus, our shareholders bear the risk that our future capital raising
will materially and adversely affect the market price of our common shares and dilute the value of their holdings in us.
Common shares eligible for future sale may have adverse effects on the market price of our common shares.
The market price of our common shares could decline as a result of sales or resales of a large number of our common shares in the market, or the perception that such sales or resales
could occur. These sales or resales, or the possibility that these sales or resales may occur, also might make it more difficult for us to sell our common shares in the future at a desired time and at
an attractive price. Subsequent to the IPO, 142,475,349 common shares are issued and outstanding, and no Series A preferred shares, Series B preferred shares or Series C preferred shares are
issued and outstanding. The 52,095,000 common shares sold in the IPO are freely transferable without restriction or further registration under the Securities Act of 1933, as amended, or the
Securities Act, by persons other than our trustees and executive officers and other affiliates, including Yucaipa, the GS Entities and the Fortress Entity.
41
We, our executive officers, trustees, trustee nominees, YF ART Holdings, the GS Entities, the Fortress Entity and Charm Progress have agreed not to dispose of or hedge any common
shares or securities convertible into, exchangeable for, exercisable for, or repayable with common shares for 180 days after the IPO date without first obtaining the written consent of the
representatives of the underwriters, subject to certain exceptions and except for common shares sold by the selling shareholders in connection with the IPO. When the restrictions under the lock-
up arrangements expire or are waived, the related common shares (or securities convertible into, exchangeable for, exercisable for, or repayable with common shares) will be available for resale,
in some cases subject to the requirements of Rule 144 under the Securities Act, as described below.
Following the IPO, the 88,275,808 common shares beneficially owned by our trustees, executive officers and other affiliates, including Yucaipa and the GS Entities, were “restricted
securities” within the meaning of Rule 144 under the Securities Act and may not be sold in the absence of registration under the Securities Act unless an exemption from registration is available,
including the exemptions contained in Rule 144. All of these common shares subject to lock-up agreements will be eligible for resale following the expiration of the 180-day lock-up period
referred to above.
The terms of our registration rights agreement include provisions for demand registration rights in favor of YF ART Holdings, the GS Entities and, if and when it holds common shares
directly, the Fortress Entity and their respective affiliates that hold common shares directly (including any affiliate of Yucaipa that holds common shares directly). Pursuant to these registration
rights, these shareholders will be entitled to cause us, subject to their consultation with a coordination committee (as such committee is described under “Certain Relationships and Related Party
Transactions—Shareholders Agreement and Related Agreements”) and, at our own expense, to file registration statements under the Securities Act covering sales of our common shares held by
them. If any of these shareholders require that we register our common shares held by them, affiliates of Yucaipa, the GS Entities and the Fortress Entity, as the case may be, may request that
their common shares be included in such registration in proportion to the common shares held by the shareholder requiring the registration that are included in the registration.
Pursuant to the terms of its investment in YF ART Holdings, the Fortress Entity is entitled to receive, by February 2022 (or earlier if YF ART Holdings is dissolved prior to that date), the
return of its investment plus an annual preferred return thereon, as well as a to-be-determined percentage of our common shares owned by YF ART Holdings. As of December 31, 2017, the
Fortress Entity’s investment in YF ART Holdings, including the preferred return, was approximately $524.9 million , and YF ART Holdings owned 69,342,769 of our common shares (excluding
common shares issuable upon exercise of YF ART Holdings’ warrants), of which 10,901,069 common shares were attributable to the Fortress Entity. See “Certain Relationships and Related Party
Transactions—The Fortress Entity Contribution Agreement” for additional information. In order to meet YF ART Holdings’ return on investment and annual preferred return obligations to the
Fortress Entity under the YF ART Holdings limited partnership agreement, the general partner of YF ART Holdings would likely sell a number of our common shares held by YF ART Holdings
that are not attributable to the Fortress Entity, the number of which could be significant depending on the then prevailing market price for our common shares at the times of any such sales, and
such sales of common shares could materially and adversely affect the then prevailing market price of our common shares. Any such sales would also reduce the percentage of our common shares
beneficially owned by investment funds affiliated with Yucaipa.
In addition, in connection with the IPO, we filed with the SEC a registration statement on Form S-8 covering common shares issuable pursuant to options and restricted stock units
outstanding under our equity incentive plans in existence prior to the IPO, and our 2017 Equity Incentive Plan that was enacted in connection with the IPO.
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We cannot predict the effect, if any, of future issuances, sales or resales of our common shares, or the availability of common shares for future issuances, sales or resales, on the market
price of our common shares. The market price of our common shares may decline significantly when the restrictions on resale by certain of our shareholders lapse. Issuances, sales or resales of
substantial amounts of common shares, or the perception that such issuances, sales or resales could occur, may materially and adversely affect the then prevailing market price for our common
shares.
If securities analysts do not publish research or reports about our company, or if they issue unfavorable commentary about us, our industry or the real estate industry generally or downgrade
the outlook of our common shares, the market price of our common shares could decline.
The trading market for our common shares will depend in part on the research and reports that third-party securities analysts publish about our company, our industry and the real estate
industry generally. One or more analysts could downgrade the outlook for our common shares or issue other negative commentary about our company, our industry or the real estate industry
generally. Furthermore, if one or more of these analysts cease coverage of our company, we could lose visibility in the market. As a result of one or more of these factors, the market price of our
common shares could decline and cause you to lose all or a portion of your investment.
REIT and Tax Related Risks
Failure to qualify as a REIT for U.S. federal income tax purposes would have a material adverse effect on us.
We have elected to be taxed as a REIT under the Code. Our qualification as a REIT requires us to satisfy numerous requirements, some on an annual and quarterly basis, established under
highly technical and complex Code provisions for which there are only limited judicial or administrative interpretations, and which involve the determination of various factual matters and
circumstances not entirely within our control. We expect that our current organization and methods of operation will enable us to continue to qualify as a REIT, but we may not so qualify or we
may not be able to remain so qualified in the future. In addition, U.S. federal income tax laws governing REITs and other corporations and the administrative interpretations of those laws may be
amended at any time, potentially with retroactive effect. The Protecting Americans from Tax Hikes Act, or PATH Act, was enacted in December 2015, and included numerous changes in the
U.S. federal income tax laws applicable to REITs, and comprehensive tax legislation passed on December 22, 2017, which is commonly known as the Tax Cuts and Jobs Act, or TCJA, which is
fully described in Note 16 to the consolidated financial statements included in this Annual Report on Form 10-K, makes fundamental changes to the individual and corporate tax laws that will
materially impact us and our shareholders. In addition, future legislation, new regulations, administrative interpretations or court decisions could materially and adversely affect our ability to
qualify as a REIT or materially and adversely affect our company and shareholders.
If we fail to qualify as a REIT in any taxable year, we would be subject to U.S. federal income tax on our REIT taxable income at regular corporate rates, and would not be allowed to
deduct dividends paid to our shareholders in computing our REIT taxable income. Also, unless the Internal Revenue Service, or the IRS, granted us relief under certain statutory provisions, we
could not re-elect REIT status until the fifth calendar year after the year in which we first failed to qualify as a REIT. The additional tax liability from the failure to qualify as a REIT would reduce
or eliminate the amount of cash available for investment or distribution to our shareholders. This would materially and adversely affect us. In addition, we would no longer be required to make
distributions to our shareholders. Even if we continue to qualify as a REIT, we will continue to be subject to certain U.S. federal, state and local taxes on our income and property.
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To qualify as a REIT, we must meet annual distribution requirements, which could result in material harm to our company if they are not met.
To obtain the favorable tax treatment accorded to REITs, among other requirements, we normally will be required each year to distribute to our shareholders at least 90% of our REIT
taxable income, determined without regard to the deduction for dividends paid and by excluding net capital gains. We will be subject to U.S. federal income tax on our undistributed REIT taxable
income and net capital gains. In addition, if we fail to distribute to our shareholders during each calendar year at least the sum of (a) 85% of our ordinary income for such year; (b) 95% of our
capital gain net income for such year; and (c) any undistributed REIT taxable income from prior periods, we will be subject to a 4% excise tax on the excess of the required distribution over the
sum of (i) the amounts actually distributed by us and (ii) retained amounts on which we pay U.S. federal income tax at the corporate level. We intend to make distributions to our shareholders to
comply with the requirements of the Code for REITs and to minimize or eliminate our U.S. federal income tax obligation. However, differences between the recognition of REIT taxable income
and the actual receipt of cash could require us to sell assets or raise capital on a short-term or long-term basis to meet the distribution requirements of the Code. Certain types of assets generate
substantial mismatches between REIT taxable income and available cash. Such assets include rental real estate that has been financed through financing structures which require some or all of
available cash flows to be used to service borrowings. Further, under amendments to the Code made by TCJA, income must be accrued for U.S. federal income tax purposes no later than when
such income is taken into account as revenue in our financial statements, subject to certain exceptions, which could also create mismatches between REIT taxable income and the receipt of cash
attributable to such income. As a result, the requirement to distribute a substantial portion of our REIT taxable income could cause us to: (1) sell assets in adverse market conditions; (2) raise
capital on unfavorable terms; or (3) distribute amounts that would otherwise be invested in future acquisitions, expansions or developments, capital expenditures or repayment of debt, in order to
comply with REIT requirements. Further, amounts distributed will not be available to fund our operations. Under certain circumstances, covenants and provisions in our existing and future debt
instruments may prevent us from making distributions that we deem necessary to comply with REIT requirements. Our inability to make required distributions as a result of such covenants could
threaten our status as a REIT and could result in material adverse tax consequences for our company and shareholders.
We conduct a portion of our business through TRSs, which are subject to certain tax risks.
We have established Taxable Real-estate Subsidiaries, or TRSs, and may establish others in the future. Despite our qualification as a REIT, our TRSs must pay income tax on their taxable
income. As a result of the enactment of the TCJA, effective for taxable years beginning on or after January 1, 2018 our domestic TRSs are subject to U.S. federal income tax on their taxable
income at a maximum rate of 21% (as well as applicable state and local income tax), but net operating loss, or NOL, carryforwards of TRS losses arising in taxable years beginning after
December 31, 2017 may be deducted only to the extent of 80% of TRS taxable income in the carryforward year (computed without regard to the NOL deduction). In contrast to prior law, which
permitted unused NOL carryforwards to be carried back two years and forward 20 years, TCJA provides that losses arising in taxable years ending after December 31, 2017 can no longer be
carried back but can be carried forward indefinitely. In addition, we must comply with various tests to continue to qualify as a REIT for U.S. federal income tax purposes, and our income from,
and investments in, our TRSs generally do not constitute permissible income and investments for certain of these tests. No more than 20% of the value of a REIT’s assets may consist of securities
of one or more TRSs. Because TRS securities do not qualify for purposes of the 75% asset test described herein, and because we own other assets that do not, or may not, qualify for the 75% asset
test, the 75% asset test may effectively limit the value of our TRS securities to less than 20% of our total assets. Our dealings with our TRSs may materially and adversely affect our REIT
qualification. Furthermore, we may be subject to a
44
100% penalty tax, or our TRSs may be denied deductions, to the extent our dealings with our TRSs are not deemed to be arm’s length in nature or are otherwise not permitted under the Code.
Complying with REIT requirements may cause us to forgo otherwise attractive opportunities or liquidate certain of our investments.
To qualify as a REIT for U.S. federal income tax purposes, we must continually satisfy tests concerning, among other things, the sources of our income, the nature and diversification of
our assets, the amounts we distribute to our shareholders and the ownership of our shares. We may be required to make distributions to our shareholders at disadvantageous times or when we do
not have funds readily available for distribution. Thus, compliance with the REIT requirements may, for instance, hinder our ability to make certain otherwise attractive investments or undertake
other activities that might otherwise be beneficial to us and our shareholders, or may require us to raise capital or liquidate investments in unfavorable market conditions and, therefore, may
hinder our performance.
As a REIT, at the end of each quarter, at least 75% of the value of our assets must consist of cash, cash items, government securities and qualified real estate assets. The remainder of our
investments in securities (other than cash, cash items, government securities, securities issued by a TRS and qualified real estate assets) generally cannot include more than 10% of the outstanding
voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer. In addition, in general, no more than 5% of the value of our total assets (other
than cash, cash items, government securities, securities issued by a TRS and qualified real estate assets) can consist of the securities of any one issuer, and no more than 20% of the value of our
total securities can be represented by securities of one or more TRSs. If we fail to comply with these requirements at the end of any quarter, we must correct the failure within 30 days after the
end of the quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and suffering material adverse tax consequences. The need to comply with the 75% asset
test and 20% TRS securities test on an ongoing basis potentially could require us in the future to limit the future acquisition of, or to dispose of, nonqualifying assets, limit the future expansion of
our TRSs’ assets and operations or dispose of or curtail TRS assets and operations, which could adversely affect our business and could have the effect of reducing our income and amounts
available for distribution to our shareholders.
Future changes to the U.S. federal income tax laws could have an adverse impact on our business and financial results.
Changes to the U.S. federal income tax laws are proposed regularly. Additionally, the REIT rules are constantly under review by persons involved in the legislative process and by the IRS
and the U.S. Department of the Treasury, which may result in revisions to regulations and interpretations in addition to statutory changes. If enacted, certain such changes could have an adverse
impact on our business and financial results. In particular, TCJA, which generally takes effect for taxable years beginning on or after January 1, 2018 (subject to certain exceptions), makes many
significant changes to the U.S. federal income tax laws that will profoundly impact the taxation of individuals, corporations (both regular C corporations as well as corporations that have elected
to be taxed as REITs), and the taxation of taxpayers with overseas assets and operations. A number of changes that affect noncorporate taxpayers will expire at the end of 2025 unless Congress
acts to extend them. These changes will impact us and our shareholders in various ways, some of which are adverse or potentially adverse compared to prior law. To date, the IRS has issued only
limited guidance with respect to certain of the new provisions, and there are numerous interpretive issues that will require guidance. It is highly likely that technical corrections legislation will be
needed to clarify certain aspects of the new law and give proper effect to Congressional intent. There can be no assurance, however, that technical clarifications or changes needed to prevent
unintended or unforeseen tax consequences will be enacted by Congress in the near future.
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Other legislative proposals could be enacted in the future that could affect REITs and their shareholders. Prospective investors are urged to consult their tax advisors regarding the effect of
TCJA and any other potential tax law changes on an investment in our common shares.
Distributions payable by REITs generally do not qualify for the reduced tax rates that apply to certain other corporate distributions, potentially making an investment in our company less
advantageous for certain persons than an investment in an entity with different tax attributes.
The maximum federal income tax rate applicable to “qualified dividend income” payable by non-REIT corporations to certain non-corporate U.S. stockholders is generally 20%, and a
3.8% Medicare tax may also apply. Dividends paid by REITs, however, generally are not eligible for the reduced rates applicable to qualified dividend income. Commencing with taxable years
beginning on or after January 1, 2018 and continuing through 2025, TCJA temporarily reduces the effective tax rate on ordinary REIT dividends (i.e., dividends other than capital gain dividends
and dividends attributable to certain qualified dividend income received by us) for U.S. holders of our common shares that are individuals, estates or trusts by permitting such holders to claim a
deduction in determining their taxable income equal to 20% of any such dividends they receive. Taking into account TCJA’s reduction in the maximum individual federal income tax rate from
39.6% to 37%, this results in a maximum effective rate of regular income tax on ordinary REIT dividends of 29.6% through 2025 (as compared to the 20% maximum federal income tax rate
applicable to qualified dividend income received from a non-REIT corporation). The more favorable rates applicable to regular corporate distributions could cause investors who are individuals to
perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay distributions. This could materially and adversely affect the value of
the stock of REITs, including our common shares.
In certain circumstances, we may be subject to U.S. federal, state, local or foreign taxes, which would reduce our funds available for distribution to our shareholders.
Even if we qualify and maintain our status as a REIT, we may be subject to certain U.S. federal, state, local or foreign taxes. For example, net income from a “prohibited transaction”
will be subject to a 100% tax. In
addition, we may not be able to make sufficient distributions to avoid income and excise taxes. We may also decide to retain certain gains from the sale or other disposition of our property and
pay income tax directly on such gains. In that event, our shareholders would be required to include such gains in income and would receive a corresponding credit for their share of taxes paid by
us. Any net taxable income earned directly by a TRS will be subject to U.S. federal and state corporate income tax. We may also be subject to state, local, or foreign taxes on our income or
property, either directly or at the level of our operating partnership or the other companies through which we indirectly own our assets. Any taxes we pay will reduce our funds available for
distribution to our shareholders.
Complying with REIT requirements may limit our ability to hedge effectively and may cause us to incur tax liabilities.
The REIT provisions of the Code limit our ability to hedge our liabilities. Generally, income from a hedging transaction we enter into either to manage risk of interest rate changes with
respect to borrowings incurred or to be incurred to acquire or carry real estate assets, or to manage the risk of currency fluctuations with respect to any item of income or gain (or any property
which generates such income or gain) that constitutes “qualifying income” for purposes of the 75% or 95% gross income tests applicable to REITs, does not constitute “gross income” for
purposes of the 75% or 95% gross income tests, provided that we properly identify the hedging transaction pursuant to the applicable sections of the Code and Treasury Regulations. To the extent
that we enter into other types of hedging transactions, the income from those transactions is likely to be treated as non-
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qualifying income for purposes of both gross income tests. As a result of these rules, we may need to limit our use of otherwise advantageous hedging techniques or implement those hedges
through a TRS. The use of a TRS could increase the cost of our hedging activities (because our TRS would be subject to tax on income or gain resulting from hedges entered into by it) or expose
us to greater risks than we would otherwise want to bear. In addition, net losses in any of our TRSs will generally not provide any tax benefit except for being carried forward for use against
future taxable income in the TRSs.
If our operating partnership fails to qualify as a disregarded entity or a partnership for U.S. federal income tax purposes, we would fail to qualify as a REIT.
Our operating partnership is currently treated as a disregarded entity for U.S. federal income tax purposes. Following the admission of any additional limited partners, we intend that the
operating partnership will be treated as a partnership for U.S. federal income tax purposes. As a disregarded entity or a partnership, our operating partnership will not be subject to U.S. federal
income tax on its income. Instead, for all tax periods during which the operating partnership is treated as a disregarded entity, we will be required to take all of the operating partnership’s income
into account in computing our taxable income. For all tax periods during which the operating partnership is treated as a partnership, each of its partners, including us, will be allocated that
partner’s share of the operating partnership’s income. Following the admission of additional limited partners, no assurance can be provided, however, that the IRS will not challenge the status of
our operating partnership as a partnership for U.S. federal income tax purposes, or that a court would not sustain such a challenge. If the IRS were successful in treating our operating partnership
as an association taxable as a corporation for U.S. federal income tax purposes, we would fail to meet the gross income tests and certain of the asset tests applicable to REITs and, accordingly,
would cease to qualify as a REIT, which would have a material adverse effect on us and our shareholders. Also, our operating partnership would then be subject to U.S. federal corporate income
tax, which would reduce significantly the amount of its funds available for debt service and for distribution to its partners, including us.
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ITEM 1B. Unresolved Staff Comments
None.
ITEM 2. Properties
Our Warehouse Portfolio
As of December 31, 2017 , we operated a global network of 158 warehouses that contained approximately 933.9 million cubic feet and approximately 3.2 million pallet positions. We
believe that the volume of cubic feet in our warehouses and the number of pallets contained therein provide a more meaningful measure of our storage space than warehouse surface area
expressed in square feet as customers generally contract for storage on a pallet-by-pallet basis, not on a square footage basis. Our warehouses feature customized racking systems that allow for the
storage of products on pallets in horizontal rows across vertically stacked levels. Our racking systems can accommodate a wide array of different customer storage needs.
The following table provides summary information regarding the warehouses in our portfolio that we owned, leased or managed as of December 31, 2017 .
# of
warehouses
Cubic feet
(in millions)
% of
total
cubic
feet
Pallet
positions
(in thousands)
Average
physical
occupancy (1)
Revenues (2)
(in millions)
Applicable
segment
contribution
(NOI) (2)(3)
(in millions)
Total
customers (4)
Country / Region
Owned / Leased (5)
United States
Central
East
Southeast
West
United States Total / Average
International
Australia
New Zealand
Argentina
International Total / Average
Owned / Leased Total /
Average
Third-Party Managed
United States
Australia (6)
Canada
Third-Party Managed Total /
Average
Portfolio Total / Average
34
23
37
38
132
5
7
2
14
146
8
1
3
12
158
220.6
165.9
176.5
235.0
798.0
47.6
22.8
9.7
80.2
878.2
41.5
—
14.3
55.8
933.9
25%
19%
20%
27%
91%
5%
3%
1%
9%
100%
74%
—%
26%
100%
100%
874
534
576
993
2,977
143
73
22
238
3,215
—
—
—
—
75% $
233.7
$
77%
77%
79%
247.3
205.8
256.8
77% $
943.7
$
94% $
85%
83%
90% $
156.4
$
32.5
13.2
202.0
$
78.3
65.7
57.2
97.6
298.8
37.2
9.3
3.0
49.5
78% $
1,145.7
$
348.3
—
—
—
—
$
$
214.6
$
9.2
18.4
242.2
1,387.9
$
$
8.7
2.5
1.6
12.8
361.2
3,215
78% $
837
658
690
746
2,315
86
96
29
202
2,517
8
1
3
12
2,529
(1) 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 year ended December 31, 2017 . 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 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 two to three 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.
(2) Year ended December 31, 2017 .
(3) We use the term “segment contribution (NOI)” to mean a segment’s revenues less its cost of operations (excluding any depreciation, depletion and amortization, impairment charges and corporate-level selling, general and administrative
expenses). The applicable segment contribution (NOI) from our owned and leased warehouses and our third-party managed warehouses is included in our warehouse segment contribution (NOI) and third-party managed segment
contribution (NOI), respectively. See Item 6. Selected Financial Data for more information.
(4) We serve some of our customers in multiple geographic regions and in multiple facilities within geographic regions. As a result, the total number of customers that we serve is less than the total number of customers reflected in the table
above that we serve in each geographic region.
(5) As of December 31, 2017 , we owned 110 of our U.S. warehouses and ten of our international warehouses, and we leased 22 of our U.S. warehouses and four of our international warehouses. As of December 31, 2017 , seven of our
owned facilities were located on land that we lease pursuant to long-term ground leases.
(6) Constitutes non-refrigerated, or “ambient,” warehouse space. This facility contains 330,527 square feet of ambient space.
We own, develop and manage multiple types of temperature-controlled warehouses, which allows us to service our customers’ needs across our network. Our warehouse portfolio consists
of five distinct property types:
•
•
• Distribution
. As of December 31, 2017 , we owned or leased 59 distribution centers with approximately 472.8 million cubic feet of temperature-controlled capacity and 1.5 million pallet
positions. Distribution centers typically house a wide variety of customers’ finished products until future shipment to end users. Each distribution center is located in a key distribution hub
that services a distinct surrounding population center in a major market.
Public
. As of December 31, 2017 , we owned or leased 46 public warehouses with approximately 189.9 million cubic feet of temperature-controlled capacity and 823.5 thousand pallet
positions. Public warehouses generally store multiple types of inventory and cater to small and medium-sized businesses by primarily serving the needs of local and regional customers.
Production
Advantaged
. As of December 31, 2017 , we owned or leased 37 production advantaged warehouses with approximately 197.5 million cubic feet of temperature-controlled
capacity and 858.8 thousand pallet positions. Production advantaged warehouses are temperature-controlled warehouses that are typically dedicated to one or a small number of
customers. Production advantaged warehouses are generally located adjacent to or otherwise in close proximity to customer processing or production facilities and were often build-to-suit
at the time of their construction.
Facility
Leased
. As of December 31, 2017 , we had four facility leased warehouses with approximately 17.8 million cubic feet of temperature-controlled capacity. We charge our
customers that are party to these leases rent based on the square footage leased in our warehouses. Our facility leased warehouses are facilities that are leased to third parties, such as
retailers, e-tailers, distributors, transportation companies and food producers, that desire to manage their own temperature-controlled warehousing or carry on processing operations
generally in warehouses adjacent, or in close proximity, to their retail stores or production facilities. The majority of our facility leased warehouses are leased to third parties under “triple
net lease” arrangements.
Third-Party
Managed
. As of December 31, 2017 , we managed 12 warehouses on behalf of third parties. We manage warehouses on behalf of third parties and provide warehouse
management services to several leading food retailers and manufacturers in customer-owned facilities, including some of our largest and longest-standing customers. Our third-party
managed segment provides a complete outsourcing solution by managing all aspects of the distribution of our customers’ products, including order management, reverse logistics,
inventory control and, in some instances, dedicated transportation services for temperature-controlled and ambient ( i.e.
, non-refrigerated) customers.
•
•
49
ITEM 3. Legal Proceedings
From time to time, we may be party to a variety of legal proceedings arising in the ordinary course of our business. We are not a party to, nor is any of our property a subject of, any
material litigation or legal proceedings or, to the best of our knowledge, any threatened litigation or legal proceedings which, in the opinion of management, individually or in the aggregate,
would have a material impact on our business, financial condition, liquidity, results of operations and prospects.
ITEM 4. Mine Safety Disclosures
Information concerning mine safety violations and other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104
of Regulation S-K (17 CFR 229.104) is included in Exhibit 95.1 to this Annual Report on Form 10-K.
PART II
ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
MARKET INFORMATION AND HOLDERS
Our common shares are listed on the NYSE under the symbol “COLD." Our common shares have been publicly traded only since January 19, 2018; as a result, we have not set forth
quarterly information with respect to the high and low prices of our common shares and the dividends declared thereon for the two most recently completed fiscal years.
Our future common shares dividends, if and as declared, may vary and will be determined by our Board of Trustees upon the circumstances prevailing at the time, including our financial
condition, operating results, estimated taxable income and REIT distribution requirements. These dividends, if and as declared, may be adjusted at the discretion of our Board of Trustees during
the year.
On March 23, 2018, we had approximately 142,513,448 common shares outstanding, and the number of holders of record of our common shares was 10. This figure does not represent the
actual number of beneficial owners of our common shares because our common shares are frequently held in “street name” by securities dealers and others for the benefit of beneficial owners
who may vote the shares.
PREFERRED SHARE DIVIDENDS
At December 31, 2017 and 2016, we had 125 Series A Cumulative Non-Voting Preferred Shares of beneficial interest, par value $0.01 per share (Series A Preferred Shares) and 375,000
Series B Cumulative Convertible Voting and Participating Preferred Shares of beneficial interest, par value $0.01 per share (Series B Preferred Shares) outstanding.
In each of the year ended December 31, 2017 and 2016, preferred dividend distributions declared and paid were $28.4 million for the Series B Preferred Shares and $16,000 for the
Series A Preferred Shares.
For more information regarding our preferred shares and preferred share dividends refer to Note 7 and Note 13 to the consolidated financial statements included in this Annual Report on
Form 10-K.
SALES OF UNREGISTERED SECURITIES
None.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
For information regarding securities authorized for issuance under our equity compensation plans prior to the IPO see "Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters - Securities Authorized for Issuance Under Equity Compensation Plans" in Item 12 of this Annual Report on Form 10-K and Note 15 to the consolidated
financial statements included in this Annual Report on Form 10-K.
In connection with the IPO, the Company filed a registration statement on Form S-8 on January 19, 2018 to register an aggregate of 15,322,213 common shares, $0.01 par value per share,
authorized to be issued to participants in the Americold Realty Trust 2008 Equity Incentive Plan, the Americold Realty Trust 2010 Equity Incentive Plan and the Americold Realty Trust 2017
Equity Incentive Plan.
51
USE OF PROCEEDS
On January 23, 2018, we completed the IPO in which we issued and sold 33,350,000 of our common shares (including 4,350,000 common shares pursuant to the exercise in full of the
underwriters’ option to purchase additional common shares) The shares sold in the IPO were registered under the Securities Act pursuant to our Registration Statement on Form S-11 (File No.
333-221560), as amended, which was declared effective by the SEC on January 18, 2018. The common shares were sold at an initial offering price of $16.00 per share, which generated net
proceeds of approximately $493.6 million to us, after deducting underwriting fees and other offering costs of approximately $40.0 million . The underwriters in the offering were led by Merrill
Lynch, Pierce, Fenner & Smith Incorporated, J.P. Morgan Securities LLC and RBC Capital Markets, LLC.
We used a portion of the net proceeds from the IPO, together with $517.0 million of net proceeds from our Senior Secured Term Loan A Facility, to repay the entire $809.0 million
aggregate principal amount of indebtedness outstanding under our Senior Secured Term Loan B Facility, plus accrued and unpaid interest, to repay $20.9 million of indebtedness outstanding
under our Clearfield, Utah and Middleboro, Massachussets construction loans, and for working capital.
In February 2018, we used the remaining IPO proceeds to repay $50.0 million on our Senior Secured Term Loan A facility.
OTHER SHAREHOLDER MATTERS
None.
ITEM 6. Selected Financial Data
The following tables summarize selected financial data related to our historical financial condition and results of operations:
2017
2016
Year ended December 31,
2015
(In thousands)
2014
2013
Consolidated Statements of Operations Data:
Warehouse segment revenues
Total revenues
Operating income
Net (loss) income
Total warehouse segment contribution (NOI) (1)
Total segment contribution (NOI) (1)
Consolidated Statement of Cash Flows Data:
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
Net increase (decrease) in cash and cash equivalents
Per Share Data:
Net loss attributable to common shareholders per common share
Basic
Diluted
Common share dividends paid
Dividends paid per common share
Weighted average common shares outstanding:
Basic
Diluted
Selected Other Data:
Same store contribution (NOI) (2)
EBITDA (3)
Core EBITDA (3)
Funds from operations (4)
Core funds from operations (4)
Adjusted funds from operations (4)
Consolidated Balance Sheet Data:
Cash and cash equivalents
Total assets
Total debt
Total shareholders’ equity (deficit)
1,027,403
1,552,156
106,935
(30,767)
296,335
330,311
118,216
(96,254)
(36,480)
(14,518)
$
1,145,662
$
1,080,867
$
1,057,124
$
1,039,005
$
1,543,587
134,084
(608)
348,328
374,105
1,489,999
117,016
4,932
314,045
345,645
1,481,385
110,663
(21,176)
307,749
337,020
1,509,598
106,018
(42,434)
294,257
322,519
$
$
$
$
$
$
$
163,327
$
118,781
$
106,521
$
117,243
$
(119,552)
(18,604)
(33,732)
(95,322)
(66,830)
(28,120)
(58,617)
(58,981)
25,171
$
(10,273)
$
11,571
$
(355)
$
2017
2016
2015
2014
2013
(In thousands, except per share data)
Year ended December 31,
(0.43)
(0.43)
$
$
20,214
0.29
$
70,022
70,022
(0.35)
(0.35)
$
$
20,214
0.29
$
69,890
69,890
(0.73)
(0.73)
$
$
20,214
0.29
$
69,758
69,758
(1.03)
(1.03)
$
$
20,214
0.29
$
69,621
69,621
346,879
$
309,349
$
302,040
$
289,428
$
240,424
287,145
96,483
106,093
94,616
53
248,934
261,362
90,561
69,207
71,125
230,891
253,638
75,065
55,697
59,754
214,285
244,057
47,111
42,133
81,152
2017
Pro forma (5)
As of December 31,
2017
Historical
(In thousands)
$
183,656
$
48,873
$
2,515,124
1,564,390
643,520
2,395,245
1,901,090
(186,924)
(0.87)
(0.87)
20,214
0.29
69,483
69,483
289,513
226,924
251,214
62,727
53,520
81,634
2016
22,834
2,327,631
1,831,973
(149,455)
Ratio Data:
Net debt to Core EBITDA (6)
2017
Pro forma (5)
As of December 31,
2017
Historical
2016
4.87
6.56
7.06
(1) We evaluate the performance of our 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, depletion and amortization, impairment charges and corporate-level selling, general and administrative expenses). We use segment contribution (NOI) to evaluate our segments for purposes of making
operating decisions and assessing performance in accordance with Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic 280, Segment Reporting.
We also calculate our total segment contribution (NOI) as the sum of the segment contribution (NOI) for each of our business segments. We believe our total segment contribution (NOI) is helpful to investors because it gives a
picture of our business’s profitability before differences in capital structures, capital investment cycles, useful life of related assets among otherwise comparable companies and corporate-level overhead which is not immediately and
fully correlated with the provision of services by our business. For a reconciliation of total segment contribution (NOI) to our operating income, which is the most directly comparable financial measure calculated in accordance with
U.S. GAAP, see footnote (2) below.
(2)
We refer to a “same store” as a warehouse we owned or leased for the entirety of two comparable periods and which has reported at least twelve months of consecutive normalized operations prior to the commencement of the earlier
period being considered. We define “normalized operations” as a site open for operation or lease after a warehouse acquisition, development or significant modification, including the expansion of a warehouse footprint or a
warehouse rehabilitation subsequent to an extraordinary event, such as natural disasters or similar events. In addition, our definition of “normalized operations” takes into account changes in the ownership structure, which would
impact comparability in our warehouse segment contribution (NOI). As an example, the acquisition of a warehouse previously subject to an operating lease would result in the removal of the warehouse from the same store set because
the operating expenses associated with the lease would not be included in both periods. Warehouses are excluded from the same store population as of the beginning of the fiscal quarter following the occurrence of such events. We
evaluate our same store portfolio on a quarterly basis.
We calculate “same store contribution (NOI)” as revenues for the same store population less its cost of operations (excluding any depreciation, depletion and amortization, impairment charges and corporate-level selling, general and
administrative expenses). 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 into U.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 portfolio of warehouses and
currency fluctuations on performance measures.
Same store contribution (NOI) is not a measurement of financial performance under U.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 with U.S. GAAP.
54
The following table reconciles same store contribution (NOI) to operating income, which is the most directly comparable financial measure calculated in accordance with U.S. GAAP.
Same store contribution (NOI)
Non-same store contribution (loss) (NOI)
Warehouse segment contribution (NOI)
Third-party managed segment contribution (NOI)
Transportation segment contribution (NOI)
Quarry segment contribution (NOI)
Total segment contribution (NOI)
Depreciation, depletion and amortization
Corporate-level selling, general and administrative expenses
Impairment of long-lived assets
Multi-Employer pension plan withdrawal expense
U.S. GAAP operating income
2017
2016
Year ended December 31,
2015
(In thousands)
2014
2013
346,879
$
1,449
348,328
$
12,825
12,950
2
309,349
$
4,696
314,045
$
14,814
14,418
2,368
302,040
$
5,709
307,749
$
12,581
14,305
2,385
289,428
$
4,829
294,257
$
10,353
15,855
2,054
374,105
$
345,645
$
337,020
$
322,519
$
(116,741)
(104,640)
(9,473)
(9,167)
134,084
$
(118,571)
(100,238)
(9,820)
—
117,016
$
(125,720)
(91,222)
(9,415)
—
110,663
$
(132,679)
(83,822)
—
—
106,018
$
289,513
6,822
296,335
11,199
20,461
2,316
330,311
(137,562)
(85,814)
—
—
106,935
$
$
$
$
(3) We calculate EBITDA as earnings before interest expense, taxes, depreciation, depletion and amortization. EBITDA is a measure commonly used in our industry, and we present EBITDA to enhance investor understanding of our
operating performance. We believe that EBITDA 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 EBITDA adjusted for impairment charges on intangible and long-lived assets, gain or loss on depreciable real property asset disposals, severance and reduction in workforce costs, terminated site
operations costs, expenses related to our review of the strategic alternatives for our company prior to the IPO, litigation settlements, loss on debt extinguishment and modification, stock-based compensation expense, foreign currency
exchange gain or loss, loss on partially owned entities, impairment of partially owned entities, and multi-employer pension plan withdrawal expense. 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 EBITDA but which we do not believe are indicative of our core business operations. EBITDA and Core EBITDA
are not measurements of financial performance under U.S. GAAP, and our EBITDA and Core EBITDA may not be comparable to similarly titled measures of other companies. You should not consider our EBITDA and Core EBITDA
as alternatives to net income or cash flows from operating activities determined in accordance with U.S. GAAP. Our calculations of EBITDA and Core EBITDA have limitations as analytical tools, including:
•
•
•
•
•
these measures do not reflect our historical or future cash requirements for recurring 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, depletion and amortization are non-cash charges, the assets being depreciated, depleted 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 EBITDA and Core EBITDA as measures of our operating performance and not as measures of liquidity. The following table reconciles EBITDA and Core EBITDA to net income, which is the most directly comparable
financial measure calculated in accordance with U.S. GAAP.
55
Net (loss) income
Adjustments:
Depreciation, depletion and amortization
Interest expense
Income tax expense
EBITDA
Adjustments:
Severance and reduction in workforce costs (a)
Terminated site operations cost (b)
Strategic alternative costs (c)
Litigation settlements
Loss from partially owned entities
Non-recurring impairment of partially owned entities (d)
Impairment of inventory and long-lived assets
Loss (gain) on foreign currency exchange
Stock-based compensation expense (e)
Loss on debt extinguishment and modification
(Gain) loss on real estate and other asset disposals
Multi-Employer pension plan withdrawal expense
Core EBITDA
$
$
2017
2016
Year ended December 31,
2015
(In thousands)
2014
2013
(608)
$
4,932
$
(21,176)
$
(42,434)
$
(30,767)
116,741
114,898
9,393
118,571
119,552
5,879
125,720
116,710
9,637
132,679
114,223
9,817
240,424
$
248,934
$
230,891
$
214,285
$
516
2,677
8,136
—
1,363
6,496
11,581
3,591
2,358
986
(150)
9,167
900
6
4,666
89
128
886
1,168
(1,372)
900
3,538
—
—
9,820
(464)
6,436
1,437
(10,590)
—
9,415
3,470
3,108
503
1,131
—
570
—
712
—
19,990
—
—
5,273
2,827
—
400
—
137,562
113,509
6,620
226,924
552
—
2,626
56
2,861
—
—
7,482
1,580
6,504
2,629
—
$
287,145
$
261,362
$
253,638
$
244,057
$
251,214
(a) Represents one-time severance from prior management team and reduction in workforce costs associated with exiting or selling non-strategic warehouses.
(b) Represents repair 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 statement of
operations.
(c) Represents one-time operating costs associated with our review of strategic alternatives prior to the IPO.
(d) Represents an impairment charge related to our investment in the China JV based on a determination that the recorded investment was no longer recoverable from the projected future cash distributions we expect to receive from the
China JV. We did not receive any cash distributions from the China JV since the formation of the joint venture.
(e) Represents stock-based compensation expense related to equity awards under our pre-IPO equity incentive plans.
56
(4) 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, and after adjustments for unconsolidated partnerships and joint ventures. 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, severance and reduction in workforce costs, terminated site operations costs, expenses related to
our review of the strategic alternatives for our company prior to the IPO, litigation settlements, non-recurring impairment charges arising from our joint venture in China, or the China JV, and impairment of partially owned entities, loss
on debt extinguishment and modification, inventory asset impairment charges, foreign currency exchange gain or loss, excise tax settlement and multi-employer pension plan withdrawal expense. 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 recurring 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 loan costs, debt discounts and above or below market leases, straight-line rent, provision or benefit from deferred
income taxes, stock-based compensation expense from grants of stock options and restricted stock units under our equity incentive plans, non-real estate depreciation, depletion or amortization (including in respect of the China JV), and
recurring maintenance capital expenditures. 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
following table reconciles FFO, Core FFO and Adjusted FFO to net income, which is the most directly comparable financial measure calculated in accordance with U.S. GAAP.
(5)
Gives effect to the pro forma adjustments described in Note 1 to the consolidated financial statements included in this Annual Report on Form 10-K. In computing the net debt to Core EBITDA ratio we have used the historical Core
EBITDA for the year ended December 31, 2017 reported above.
57
Net (loss) income
Adjustments:
Real estate related depreciation
Net (gain) loss on sale of depreciable real estate
Impairment charges on certain real estate assets
Real estate depreciation on China JV
Funds from operations
Less distributions on preferred shares of beneficial interest
Funds from operations attributable to common shareholders
Adjustments:
Net (gain) loss on sale of non-real estate assets
Severance and reduction in workforce costs (a)
Terminated site operations costs (b)
Strategic alternative costs (c)
Litigation settlements
Impairment of partially owned entities (d)
Loss on debt extinguishment and modification
Inventory asset impairment
Foreign currency exchange loss (gain)
Excise tax settlement
Multi-Employer pension plan withdrawal expense
Core FFO applicable to common shareholders
Adjustments:
Amortization of loan costs and debt discounts
Amortization of below/above market leases
Straight-line net rent
Deferred income taxes (benefit) expense
Stock-based compensation expense (e)
Non-real estate depreciation and amortization
Non-real estate depreciation and amortization on China JV
Recurring maintenance capital expenditures (f)
Adjusted FFO applicable to common shareholders
2017
2016
Year ended December 31,
2015
(In thousands)
2014
2013
$
(608)
$
4,932
$
(21,176)
$
(42,434)
$
(30,767)
86,478
(43)
9,473
1,183
96,483
(28,452)
85,645
(11,104)
9,820
1,268
90,561
(28,452)
88,717
597
5,711
1,216
75,065
(28,452)
88,394
(55)
—
1,206
47,111
(28,452)
$
68,031
$
62,109
$
46,613
$
18,659
$
(599)
516
2,677
8,136
—
6,496
986
2,108
3,591
4,984
9,167
464
900
6
4,666
89
—
1,437
—
(464)
—
—
(175)
886
1,168
(1,372)
900
195
570
—
712
—
—
16,724
503
3,704
3,470
—
—
—
—
5,273
—
—
$
106,093
$
69,207
$
55,697
$
42,133
$
8,604
151
101
(3,658)
2,358
30,264
609
(49,906)
7,193
196
(564)
(586)
6,436
32,926
762
(44,445)
6,672
520
(516)
(2,292)
3,108
37,003
1,247
(41,685)
6,144
630
749
15,604
2,827
44,285
1,588
(32,808)
$
94,616
$
71,125
$
59,754
$
81,152
$
92,414
—
—
1,080
62,727
(28,451)
34,276
2,024
552
—
2,626
56
—
6,504
—
7,482
—
—
53,520
5,851
403
532
1,243
1,580
45,148
1,648
(28,291)
81,634
(a) Represents one-time severance from prior management team and reduction in workforce costs associated with exiting or selling non-strategic warehouses.
(b) Represents repair 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 statement of
operations.
(c) Represents one-time operating costs associated with our review of strategic alternatives prior to the IPO.
(d) For 2017, represents an impairment charge related to our investment in the China JV based on a determination that the recorded investment was no longer recoverable from the projected future cash distributions we expect to receive
from the China JV. For 2014, represents an impairment charge of certain tangible and intangible assets of the China JV. We did not receive any cash distributions from the China JV since the formation of the joint venture.
(e) Represents stock-based compensation expense related to equity awards under our pre-IPO equity incentive plans.
(f) Recurring 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. For additional information regarding these expenditures, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Recurring Maintenance
Capital Expenditures and Repair and Maintenance Expenses” in Item 7 of this Annual Report on Form 10-K.
58
(6)
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. 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:
Total debt
Discount and deferred financing costs
Gross debt
Adjustments:
Less: cash and cash equivalents
Net debt
(a) Reflects the pro forma adjustments referenced in footnote (5) above
59
2017
Pro forma (a)
As of December 31,
2017
2016
Historical
(In thousands)
1,564,390
$
1,901,090
$
18,166
1,582,556
183,656
32,175
1,933,265
48,873
$
1,398,900
$
1,884,392
$
1,831,973
35,916
1,867,889
22,834
1,845,055
ITEM 7. Management Discussion and Analysis of Financial Condition and Results of Operations
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.
MANAGEMENT'S OVERVIEW
We are the world’s largest owner and operator of temperature-controlled warehouses. We are organized as a self-administered and self-managed REIT with proven operating,
development and acquisition expertise. As of December 31, 2017 , we operated a global network of 158 temperature-controlled warehouses encompassing 933.9 million cubic feet, with 140
warehouses in the United States, six warehouses in Australia, seven warehouses in New Zealand, two warehouses in Argentina and three warehouses in Canada. We also own and operate a
limestone quarry through a separate business segment. In addition, we hold a minority interest in the China JV, which owns or operates 13 temperature-controlled warehouses located in China.
We view and manage our business through three primary business segments, excluding the China JV and the quarry: warehouse, third-party managed and transportation.
Components of Our Results of Operations
Warehouse
. Our primary source of revenues consists of rent and storage and warehouse services fees. Our rent and 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, and (10) government-approved temperature-
controlled storage and inspection services. 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 costs. Labor, our largest 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 and compensation levels, changes in customer
requirements, workforce productivity and variability in costs associated with medical insurance. Our second largest cost of operations from our warehouse segment is power utilized in the
operation of our temperature-controlled warehouses. As a result, trends 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 forward rate agreements or, to the extent possible and appropriate, increase the rates we charge our customers for storage in
our warehouses. Other facilities costs include utilities
other than power, insurance, property taxes, sanitation, repairs and maintenance on real estate, rent under operating leases, where applicable, and other related facilities costs. Other services costs
include equipment costs, warehouse consumables (e.g., shrink-wrap and uniforms), 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, including fuel 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.
Quarry
. In addition to our primary business segments, we own a limestone quarry in Carthage, Missouri. Revenues are generated from the sale of limestone mined at our quarry. Cost of
operations for our quarry consists primarily of labor, equipment, fuel and explosives.
Other
Consolidated
Operating
Expenses
. We also incur depreciation, depletion and amortization expenses and corporate-level selling, general and administrative expenses.
Our depreciation, depletion 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.
Depletion relates to the reduction of mineral resources resulting from the operation of our limestone quarry. Amortization relates primarily to intangible assets for customer relationships and
below-market leases.
Our corporate-level selling, general and administrative expenses consist primarily of wages and benefits for management, administrative, business development, account management,
marketing, engineering, supply-chain solutions, human resources and information technology personnel, as well as expenses related to communications and data processing, travel, professional
fees, bad debts, training, office equipment and supplies. Trends in corporate-level selling, general and administrative expenses are influenced by changes in headcount and compensation levels,
achievement of incentive compensation targets, and variability in costs associated with pension obligations. 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.
61
Key Factors Affecting Our Business and Financial Results
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 outside the
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 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 U.S. dollar-reported revenues and expenses during the periods
discussed herein together with a comparison against the exchange rates of such currencies at the end of the applicable periods presented herein.
December 31, 2017 compared to
December 31, 2016
December 31, 2016 compared to
December 31, 2015
Average
foreign
exchange
rate used to
adjust
operating
results for
the year ended
December 31,
2017 (1)
Foreign
exchange
rates as of
December 31,
2017
Foreign
exchange
rates as of
December 31,
2016
Average
foreign
exchange
rate used to
adjust
operating
results for
the year ended
December 31,
2016 (1)
Foreign
exchange
rates as of
December 31,
2016
Foreign
exchange
rates as of
December 31,
2015
Australian dollar
New Zealand dollar
Argentinian peso
0.744
0.697
0.068
0.781
0.710
0.054
0.723
0.696
0.063
0.751
0.698
0.107
0.723
0.696
0.063
0.729
0.684
0.077
Canadian dollar
(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.
0.799
0.789
0.745
0.745
0.755
0.722
Focus on Our Operational Effectiveness and Cost Structure
We continuously seek to implement various initiatives aimed at streamlining our business processes and reducing our cost structure. Commencing in 2013, we realigned and centralized
key business processes; implemented standardized operational processes; integrated and launched new information technology tools and platforms; instituted key health, safety, leadership and
training programs; and added a strategic sourcing function to capitalize on the purchasing power of our network. Through the realignment of our business processes, we have improved retention
of our key talent and reduced employee turnover, 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, motion-sensor technology, variable frequency drives for our fans and compressors, third party efficiency reviews and real-time monitoring of energy
consumption, rapid-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. In 2016, we implemented a strategic effort to exit certain leased facilities and transition
customers within our warehouse portfolio to consolidate occupancy, reduce costs and increase contribution from the warehouses where
62
these customers were transitioned. In executing these initiatives, we believe that we have enhanced our ability to serve our customers at the highest quality level and efficiently manage our
warehouses.
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. We continue to evaluate our markets and offerings.
Strategic Shift within Our Transportation Segment
In order to better focus our business on the operation of our temperature-controlled warehouses, we have undertaken a strategic shift in the solutions we provide in our transportation
segment. As a result of this strategic shift, we have gradually exited certain commoditized, non-scalable, or low margin services we historically offered to our customers, including traditional
brokered transportation services. We continue to offer more profitable programs, such as national and regional cross-dock, regional and multi-vendor consolidation service, and dedicated
transportation services. We designed each of these programs 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 occupancy in our temperature-controlled warehouses.
Historically Significant Customer
For the years ended December 31, 2017 , 2016 and 2015 , one customer accounted for more than 10% of our total revenues, with $198.6 million , $210.5 million and $196.0 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. These reimbursements are recognized as revenues under applicable accounting guidance, but generally do not affect our financial results because they are offset
by the corresponding expenses that are recognized in our third-party managed segment cost of operations. Of the revenues received from this customer, $183.1 million , $196.1 million and
$180.4 million represented reimbursements for certain expenses we incurred during the years ended December 31, 2017 , 2016 and 2015 , respectively, that were offset by matching expenses
included in our third-party managed cost of operations.
Occupancy of our Warehouses
Occupancy in our warehouses is an important driver of our financial results. Physical occupancy of an individual warehouse is impacted by a number of factors, including the type of
warehouse ( i.e.
, distribution, public, production advantaged or facility leased), specific customer needs in the markets served by the warehouse, timing of harvests or protein production for
customers of the warehouse, the existence of leased but unoccupied pallets and the adverse effect of weather or market conditions on the customers of the warehouse. On a portfolio-wide basis,
physical occupancy rates and warehouse revenues generally peak between mid-September and early December in connection with the holiday season and the peak harvest season in the United
States. Physical occupancy rates and warehouse revenues on a portfolio-wide basis are generally the lowest during May and June. Our target occupancy across our warehouse portfolio varies by
warehouse and warehouse type because our warehouses are configured to accommodate the individual needs of our customers. We generally regard approximately 85% average physical
occupancy across our temperature-controlled warehouse portfolio as optimal, subject to relevant local market conditions and individual customer needs. We do not believe that a 100% occupancy
rate is an ideal target for utilization of our warehouses because optimizing pallet throughput and efficient delivery of relevant value-added services require a certain amount of free pallet position
capacity at all times in order to be able to efficiently place, store and retrieve products from pallet positions, particularly during
63
periods of greatest occupancy or highest volume. Our occupancy metrics account for the physical occupancy of our warehouses. As customers continue to transition to contracts that feature a
fixed storage commitment, our financial occupancy may be greater than our physical occupancy, as we may have the opportunity to sell space which is not being utilized by our fixed storage
commitment customers.
Throughput at our Warehouses
The level 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 customers are typically billed on a basis that takes into account the
level of throughput of the goods they store in our warehouses.
How We Assess the Performance of Our Business
Segment Contribution (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, depletion and amortization, impairment charges and corporate-level selling, general and administrative
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
under U.S. GAAP, and these measures should be considered as supplements, but not as alternatives, to our results calculated in accordance with U.S. GAAP. We provide reconciliations of these
measures in the discussions of our comparative results of operations below.
64
Same Store Analysis
We refer to a “same store” as a warehouse we owned or leased for the entirety of two comparable periods and which has reported at least twelve months of consecutive normalized
operations prior to the commencement of the earlier period being considered. We define “normalized operations” as a site open for operation or lease after a warehouse acquisition, development
or significant modification, including the expansion of a warehouse footprint or a warehouse rehabilitation subsequent to an extraordinary event, such as natural disasters or similar events. In
addition, our definition of “normalized operations” takes into account changes in the ownership structure ( e.g.
, acquisition of a previously leased warehouse would result in different charges in
the compared periods), which would impact comparability in our warehouse segment contribution (NOI). Warehouses are excluded from the same store population as of the beginning of the
fiscal quarter following the occurrence of such events. We evaluate our same store portfolio on a quarterly basis.
We calculate “same store contribution (NOI)” as revenues for the same store population less its cost of operations (excluding any depreciation, depletion and amortization, impairment
charges and corporate-level selling, general and administrative expenses). 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 into U.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 a summary of the number of same-store warehouses in our portfolio and the number of warehouses excluded as same-store warehouses during the periods
discussed herein.
December 31, 2017
compared to
December 31, 2016
December 31, 2016
compared to
December 31, 2015
Total Warehouses
Same Store Warehouses 1
Non-Same Store and Managed Warehouses
(1) During 2017, four of our owned warehouse facilities reported at least twelve months of consecutive normalized operations after the acquisition, construction, expansion or rehabilitation of the asset prior
to the beginning of fiscal 2016. These additions to the same store category were offset by the disposal of three owned warehouse facilities and the exit from one leased warehouse facility in 2017.
158
139
19
159
139
20
Same store contribution (NOI) is not a measurement of financial performance under U.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 with U.S. GAAP. We provide reconciliations of these measures in the discussions of
our comparative results of operations below.
65
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 caused by the net effect of foreign currency translation on revenues generated and expenses incurred by our operations outside the United States, variations
which we cannot control. 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 into U.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 under U.S. GAAP, and our constant currency results
should be considered as a supplement, but not as an alternative, to our results calculated in accordance with U.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 upon U.S. GAAP.
66
RESULTS OF OPERATIONS
Comparison of Results for the Years Ended December 31, 2017 and 2016
Warehouse Segment
The following table presents the operating results of our warehouse segment for the years ended December 31, 2017 and 2016 .
Rent and storage
Warehouse services
Total warehouse segment revenues
Power
Other facilities costs (2)
Labor
Other services costs (3)
Total warehouse segment cost of operations
Warehouse segment contribution (NOI)
Warehouse rent and storage contribution (NOI) (4)
Warehouse services contribution (NOI) (5)
Total warehouse segment margin
Rent and storage margin (6)
Year ended December 31,
Change
2017 actual
2017 constant currency (1)
2016 actual
Actual
Constant currency
$
501,604
$
501,168
$
(Dollars in thousands)
644,058
1,145,662
72,408
104,713
509,951
110,262
797,334
640,805
1,141,973
72,376
104,596
507,715
109,898
794,585
$
$
$
348,328
$
347,388
$
324,483
23,845
$
$
324,196
23,192
$
$
476,800
604,067
1,080,867
71,999
102,032
484,822
107,969
766,822
314,045
302,769
11,276
5.2%
6.6%
6.0%
0.6%
2.6%
5.2%
2.1%
4.0%
10.9%
7.2%
111.5%
30.4%
64.7%
3.7%
30.4%
64.7%
3.6%
29.1%
63.5%
1.9%
130 bps
120 bps
180 bps
5.1%
6.1%
5.7%
0.5%
2.5%
4.7%
1.8%
3.6%
10.6%
7.1%
105.7%
130 bps
120 bps
170 bps
Warehouse services margin (7)
(1)
(2)
(3)
(4)
(5)
(6)
(7)
The adjustments from our U.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.
Includes real estate rent expense of $15.1 million and $16.7 million for the year ended December 31, 2017 and 2016, respectively.
Includes non-real estate rent expense of $14.0 million and $12.0 million for the year ended December 31, 2017 and 2016, respectively.
Calculated as rent and storage revenues less power and other facilities costs.
Calculated as warehouse services revenues less labor and other services costs.
Calculated as warehouse rent and storage contribution (NOI) divided by warehouse rent and storage revenues.
Calculated as warehouse services contribution (NOI) divided by warehouse services revenues.
Warehouse segment revenues were $1.15 billion for the year ended December 31, 2017 , an increase of $64.8 million , or 6.0% , compared to $1.08 billion for the year ended
December 31, 2016 . On a constant currency basis, our warehouse segment revenues were $1.14 billion for the year ended December 31, 2017 , an increase of $61.1 million , or 5.7% , year-over-
year. These increases were primarily driven by a greater proportion of occupancy by customers that paid higher average rates per pallet as well as an increase in warehouse services volumes. The
majority of the change in customer composition and related increase in revenues was generated through our domestic operations. The foreign currency translation of revenues incurred by our
foreign operations had a $3.7 million favorable impact during the year ended December 31, 2017.
Warehouse segment cost of operations was $797.3 million for the year ended December 31, 2017 , an increase of $30.5 million , or 4.0% , compared to $766.8 million for the year ended
December 31, 2016 . On a constant currency basis, our warehouse segment cost of operations was $794.6 million for the year ended
67
December 31, 2017 , an increase of $27.8 million , or 3.6% , compared to $766.8 million for the year ended December 31, 2016 . This increase was driven primarily by rising labor costs, partially
driven by higher throughput and an increased amount of more labor-intensive warehouse services relative to the year ended December 31, 2016.
Warehouse segment contribution (NOI) was $348.3 million for the year ended December 31, 2017 , an increase of $34.3 million , or 10.9% , compared to $314.0 million for the year
ended December 31, 2016 . On a constant currency basis, warehouse segment contribution was $347.4 million for the year ended December 31, 2017 , an increase of $33.3 million , or 10.6% ,
year-over-year.
68
Same
Store
Analysis
We had 139 same stores for the year ended December 31, 2017 and 2016. Please see “—How We Assess the Performance of Our Business—Same Store Analysis” above for a
reconciliation of the change in the same store portfolio from year to year.
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 ended December 31, 2017 and 2016 .
Same store revenues:
Rent and storage
Warehouse services
Total same store revenues
Same store cost of operations:
Power
Other facilities costs
Labor
Other services costs
Total same store cost of operations
Same store contribution (NOI)
Same store rent and storage contribution (NOI) (2)
Same store services contribution (NOI) (3)
Total same store margin
Same store rent and storage margin (4)
Same store services margin (5)
Non-same store revenues:
Rent and storage
Warehouse services
Total non-same store revenues
Non-same store cost of operations:
Power
Other facilities costs
Labor
Other services costs
Total non-same store cost of operations
Non-same store contribution (NOI)
Non-same store rent and storage contribution (NOI) (2)
Non-same store services contribution (NOI) (3)
Total warehouse segment revenues
Total warehouse cost of operations
Total warehouse segment contribution
2017 actual
Year ended December 31,
2017 constant currency (1)
(Dollars in thousands)
491,174
$
490,725
$
631,287
1,122,461
70,101
99,448
498,978
107,055
627,995
1,118,720
70,076
99,339
496,689
106,679
775,582
$
772,783
$
346,879
321,625
25,254
$
$
$
30.9%
65.5%
4.0%
345,937
321,310
24,627
$
$
$
30.9%
65.5%
3.9%
10,430
$
10,443
$
12,771
23,201
2,307
5,265
10,973
3,207
12,810
23,253
2,300
5,257
11,026
3,219
21,752
$
21,802
$
1,449
2,858
(1,409)
1,145,662
797,334
348,328
$
$
$
$
$
$
1,451
2,886
(1,435)
1,141,973
794,585
347,388
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2016 actual
Actual
Constant currency
Change
465,528
591,994
1,057,522
68,974
94,153
473,325
105,261
741,713
315,809
302,401
13,408
5.5 %
6.6 %
6.1 %
1.6 %
5.6 %
5.4 %
1.7 %
4.6 %
9.8 %
6.4 %
88.4 %
29.9%
65.0%
2.3%
100 bps
50 bps
170 bps
11,272
12,073
23,345
3,025
7,879
11,497
2,708
25,109
(1,764)
368
(2,132)
1,080,867
766,822
314,045
(7.5)%
5.8 %
(0.6)%
(23.7)%
(33.2)%
(4.6)%
18.4 %
(13.4)%
(182.1)%
676.6 %
(33.9)%
6.0 %
4.0 %
10.9 %
5.4 %
6.1 %
5.8 %
1.6 %
5.5 %
4.9 %
1.3 %
4.2 %
9.5 %
6.3 %
83.7 %
100 bps
50 bps
160 bps
(7.4)%
6.1 %
(0.4)%
(24.0)%
(33.3)%
(4.1)%
18.9 %
(13.2)%
(182.3)%
684.2 %
(32.7)%
5.7 %
3.6 %
10.6 %
(1)
(2)
(3)
(4)
(5)
The adjustments from our U.S. GAAP operating results to calculate our operating results on a constant currency basis is the effect of changes in foreign currency exchange rates relative to the comparable prior period.
Calculated as rent and storage revenues less power and other facilities costs.
Calculated as warehouse services revenues less labor and other services costs.
Calculated as same store rent and storage contribution (NOI) divided by same store rent and storage revenues.
Calculated as same store warehouse services contribution (NOI) divided by same store warehouse services revenues.
69
The following table provides certain operating metrics to explain the drivers of our same store performance.
Same store rent and storage:
Occupancy (1)
Average occupied pallets (in thousands)
Average physical pallet positions (in thousands)
Occupancy percentage
Same store rent and storage revenues per occupied pallet
Constant currency same store rent and storage revenues per occupied pallet
Same store warehouse services:
Throughput pallets (in thousands)
Same store warehouse services revenues per throughput pallet
Constant currency same store warehouse services revenues per throughput pallet
Non-same store rent and storage:
Occupancy
Average occupied pallets (in thousands)
Average physical pallet positions (in thousands)
Occupancy percentage
Non-same store warehouse services:
Throughput pallets (in thousands)
Year ended December 31,
2017
2016
Change
$
$
$
$
2,447
3,124
78.3%
200.75
200.56
$
$
27,038
23.34
23.22
$
$
62
91
67.8%
2,414
3,125
77.2%
192.87
192.87
26,562
22.29
22.29
56
106
53.0%
1.4 %
0.0 %
110 bps
4.1 %
4.0 %
1.8 %
4.7 %
4.2 %
9.6 %
(14.3)%
584
567
2.9 %
(1) 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 two to three 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.
Average occupancy at our same stores was 78.3% for the year ended December 31, 2017 , an increase of 110 bps compared to 77.2% for the year ended December 31, 2016 . This growth
was primarily the result of an increase of 1.4% in average occupied pallets. The increase in our average occupied pallets primarily resulted from new business and incremental business with
existing customers at our domestic and Australian operations, partially offset by a slight decline in the average occupied pallets in our New Zealand and Argentina operations. Same store rent and
storage revenues per occupied pallet increased 4.1% year-over-year, primarily driven by rate increases and a greater proportion of occupancy by customers that paid higher average rates per
pallet. On a constant currency basis, the increase in our same store rent and storage revenues per occupied pallet was approximately the same as the change in same store rent and storage revenues
per occupied pallet including the effect of foreign currency fluctuations. This was attributable to the fact that the increase in same store rent and storage revenues from our domestic operations
was substantially higher than the increase in same store rent and storage revenues from our foreign operations.
Throughput pallets at our same stores were 27.0 million pallets for the year ended December 31, 2017 , an increase of 1.8% from 26.6 million pallets for the year ended December 31,
2016 . This increase was largely the result of new and incremental occupancy and throughput from our domestic and Australian customers. Same store warehouse services revenues per
throughput pallet increased 4.7% year-over-year primarily as a result of an
70
increase in higher priced repackaging, blast freezing, and case-picking warehouse services and, in part, a favorable net effect of foreign currency translation as the increase in warehouse services
revenues from our foreign operations was greater than the increase from the same revenues stream at our domestic operations. On a constant currency basis, our same store services revenues per
throughput pallet increased 4.2% period-over-period.
Third-Party Managed Segment
The following table presents the operating results of our third-party managed segment for the years ended December 31, 2017 and 2016 .
Number of managed sites
Third-party managed revenues
Third-party managed cost of operations
Third-party managed segment contribution
Year ended December 31,
2017 constant currency (1)
2017 actual
12
$
$
(Dollars in thousands)
242,189
$
241,674
$
229,364
228,851
12,825
$
12,823
$
12
252,411
237,597
14,814
(4.0)%
(3.5)%
(13.4)%
2016 actual
Actual
Constant currency
Change
Third-party managed margin
(1) The adjustments from our U.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.
-60 bps
5.9%
5.3%
5.3%
Third-party managed revenues were $242.2 million for the year ended December 31, 2017 , a decrease of $10.2 million , or 4.0% , compared to $252.4 million for the year ended
December 31, 2016 . On a constant currency basis, third-party managed revenues were $241.7 million for the year ended December 31, 2017 , a decrease of $10.7 million , or 4.3% , year-over-
year. These declines were attributable to lower business volume from our largest third-party managed customer, which led to a decline in incentive fees period-over-period.
Third-party managed cost of operations was $229.4 million for the year ended December 31, 2017 , a decrease of $8.2 million , or 3.5% , compared to $237.6 million for the year ended
December 31, 2016 . On a constant currency basis, third-party managed cost of operations was $228.9 million for the year ended December 31, 2017 , a decrease of $8.7 million , or 3.7% , year-
over-year.
Third-party managed segment contribution (NOI) was $12.8 million for the year ended December 31, 2017 , a decrease of $2.0 million , or 13.4% , compared to $14.8 million for the year
ended December 31, 2016 . On a constant currency basis, third-party managed segment contribution (NOI) was $12.8 million for the year ended December 31, 2017 , a decrease of $2.0 million ,
or 13.4% , year-over-year.
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(4.3)%
(3.7)%
(13.4)%
-60 bps
Transportation Segment
The following table presents the operating results of our transportation segment for the years ended December 31, 2017 and 2016 .
Transportation revenues
Brokered transportation
Other cost of operations
Total transportation cost of operations
Transportation segment contribution (NOI)
Transportation margin
(1)
2017 actual
Year ended December 31,
2017 constant currency (1)
(Dollars in thousands)
2016 actual
Actual
Constant currency
Change
$
$
146,070
$
145,043
$
147,004
104,981
28,139
133,120
104,532
27,568
132,100
12,950
$
12,943
$
102,897
29,689
132,586
14,418
(0.6)%
2.0 %
(5.2)%
0.4 %
(10.2)%
(1.3)%
1.6 %
(7.1)%
(0.4)%
(10.2)%
8.9%
8.9%
9.8%
-90 bps
-90 bps
The adjustments from our U.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.
Our transportation segment continued its strategic shift to focus on more profitable warehouse services and consolidation solutions by exiting certain commoditized, non-scalable, or low
margin services we have historically offered to our customers. Transportation revenues were $146.1 million for the year ended December 31, 2017 , a decrease of $0.9 million , or 0.6% ,
compared to $147.0 million for the year ended December 31, 2016 . On a constant currency basis, transportation revenues were $145.0 million for the year ended December 31, 2017 , a decrease
of $2.0 million , or 1.3% , year-over-year. The strategic shift in our transportation segment resulted in higher revenue of $3.3 million on higher rates and more profitable transportation services in
our domestic operations. Transportation services from our international operations led to a revenue decline of $4.4 million primarily as a result of lower volume from an Australian customer.
Transportation cost of operations was $133.1 million for the year ended December 31, 2017 , an increase of $0.5 million , or 0.4% , compared to $132.6 million for the year ended
December 31, 2016 . On a constant currency basis, transportation cost of operations was $132.1 million for the year ended December 31, 2017 , a decrease of $0.5 million , or 0.4% , year-over-
year. Brokered transportation costs were slightly higher than a year ago primarily as a result of an increase in domestic consolidation programs. However, the strategic shift referenced above
together with lower volume from our international operations led to a decline in other cost of operations for the segment.
Transportation segment contribution (NOI) was $13.0 million for the year ended December 31, 2017 , a decrease of $1.5 million , or 10.2% , compared to $14.4 million for the year ended
December 31, 2016 . Transportation segment margin decreased 90 basis points year-over-year, to 8.9% from 9.8% . Despite increased margins and greater efficiencies in our domestic
transportation operations, the overall decrease in margins resulted from slightly lower margins in our international transportation business . On a constant currency basis, transportation segment
contribution was $12.9 million for the year ended December 31, 2017 , a decrease of $1.5 million , or 10.2% , period-over-period.
72
Quarry Revenues and Cost of Operations
The following table presents the operating results of our quarry segment for the years ended December 31, 2017 and 2016 .
Quarry revenues
Quarry cost of operations
Quarry segment contribution (NOI)
Quarry margin
n/m: not meaningful
Year ended December 31,
2017
2016
Change
$
$
(Dollars in thousands)
$
9,666
9,664
2
$
9,717
7,349
2,368
(0.5)%
31.5 %
(99.9)%
—%
24.4%
n/m
Quarry revenues were $9.7 million for the year ended December 31, 2017 , which were consistent with revenues for the year ended December 31, 2016.
Quarry cost of operations was $9.7 million for the year ended December 31, 2017 , an increase of $2.3 million , or 31.5% , compared to $7.3 million for the year ended December 31,
2016 . This increase was primarily due to an impairment charge of $2.1 million we recognized in the second quarter of 2017 to write-down certain limestone inventory held at our quarry
operations, which we determined to be not of saleable quality.
Quarry segment contribution (NOI) was break even for the year ended December 31, 2017 , as compared to a contribution (NOI) of $2.4 million for the year ended December 31, 2016,
largely driven by the write-down of inventory described above.
Other Consolidated Operating Expenses
Depreciation,
depletion
and
amortization
. Depreciation, depletion and amortization expense was $116.7 million for the year ended December 31, 2017 , a decrease of $1.8 million , or
1.5% , compared to $118.6 million for the year ended December 31, 2016 . This change was primarily associated with the exit of certain warehouses toward the end of 2016, and the disposal of
machinery and equipment no longer in use.
Selling,
general
and
administrative
. Corporate-level selling, general and administrative expenses were $104.6 million for the year ended December 31, 2017 , an increase of $4.4 million ,
or 4.4% , compared to $100.2 million for the year ended December 31, 2016 . Included in these amounts are business development expenses attributable to our customer onboarding, engineering
and consulting services to support our customers in the cold chain. Business development expenses represented approximately 15% of corporate-level selling, general and administrative expenses
for 2017 and 2016. W e believe these costs are comparable to leasing costs for other publicly traded REITs. The increase in corporate-level selling, general and administrative expenses was
primarily due to higher professional fees incurred in preparation for the IPO, and higher bonus and incentive expense resulting from improved operational results. In addition, in the third quarter
of 2017, we recorded a $2.1 million expense to repair a leased warehouse facility to restore the site to its original condition prior to the lease. For the years ended December 31, 2017 and 2016 ,
corporate-level selling, general and administrative expenses were 6.8% and 6.7% , respectively, of total revenues.
Impairment
of
long-lived
assets
. For the years ended December 31, 2017 and 2016 , we recorded impairment charges of $9.5 million and $9.8 million , respectively, as a result of the
planned disposal or exit of certain warehouse facilities, including certain idle facilities, with a net book value in excess of their estimated fair
73
value based on third-party appraisals or letters of intent executed with prospective buyers. All of these impaired assets related to the Warehouse segment.
Multi-Employer
pension
plan
withdrawal
expense.
During the third quarter of 2017, we recorded a one-time charge of $9.2 million representing the present value of a liability associated
with our withdrawal obligation under the New England Fund for hourly, unionized associates at four of our domestic warehouse facilities. The New England Fund is grossly underfunded in
accordance with Employee Retirement Income Security Act of 1974, or ERISA, funding standards and, therefore, the terms of ERISA required the development of a rehabilitation plan, creating a
new fund that minimizes the pension withdrawal liability. As a result, current employers participating in the New England Fund were given the opportunity to exit the New England Fund and
convert to a new fund. We are obligated to repay our portion of the unfunded liability in respect thereof, estimated at $13.7 million, in equal monthly installments of approximately $38,000 over
30 years, interest free. Under the relevant U.S. GAAP standard, a participating employer withdrawing from a multiemployer pension plan should account for a loss contingency equal to the
present value of the withdrawal liability, and amortize the difference between such present value and the estimated unfunded liability through interest expense over the repayment period.
Other Income and Expense
Loss
from
Partially
Owned
Entities.
For the year ended December 31, 2017 , our partially owned entities reported a loss of $1.4 million , a $1.2 million increase compared to a loss of $0.1
million for the year ended December 31, 2016 . This change was primarily attributable to a $1.4 million charge our China JV recorded to write-off a loan receivable from one of its bankrupt
customers.
Impairment
of
Partially
Owned
Entities.
In 2017, we recognized an impairment charge totalling $6.5 million related to our investment in the China JV accounted for under the equity
method as we determined that the recorded investment was no longer recoverable from the projected future cash flows expected to be received from the China JV. The estimated fair value of this
investment was determined based on an assessment of the proceeds expected to be received from the potential sale of our investment interests to the joint venture partner based on current
negotiations.
The following table presents other items of income and expense for the years ended December 31, 2017 and 2016 .
Other (expense) income:
Interest expense
Interest income
Loss on debt extinguishment and modification
Foreign currency exchange (loss) gain
Other income - net
n/m: not meaningful
Year ended December 31,
2017
2016
Change
%
$
(In thousands)
$
(114,898)
1,074
(986)
(3,591)
918
(119,552)
708
(1,437)
464
2,142
(3.9)%
51.7 %
n/m
n/m
(57.1)%
Interest
expense
. Interest expense was $114.9 million for the year ended December 31, 2017 , a decrease of $4.7 million , or 3.9% , compared to $119.6 million for the year ended
December 31, 2016 . In July 2016, we amended the terms of our Senior Secured Term Loan B Facility to lower the coupon rate on the initial tranche of the Senior Secured Term Loan B Facility
from one-month LIBOR plus 5.50% to one-month LIBOR plus 4.75%, and to secure incremental borrowings of $385.0 million principal amount to pay off $375.0 million on our 2006 Mortgage
Loans (as defined elsewhere in this Annual Report on Form 10-K), which had coupon rates ranging from 5.43% to 5.55%. In January 2017, we re-amended the terms of our Senior Secured Term
Loan B Facility to
74
lower the credit spread from 4.75% to 3.75% on weighted average balance of $772.7 million for the year ended December 31, 2017.
Interest
income
. Interest income of $1.1 million for the year ended December 31, 2017 was 51.7% higher when compared to the year ended December 31, 2016 . This period-over-period
change was primarily driven by the collection of interest earned on delinquent billings. Historically, we have earned interest income primarily from term deposits held by our foreign subsidiaries.
Starting in the second half of 2016, we began charging interest on delinquent billings net of a bad debt provision equal to the amount of interest earned for such delinquent customers until
collected.
Loss
on
debt
extinguishment
and
modification
. As part of the January 2017 amendment of our Senior Secured Term Loan B Facility, and in connection with the pay-off of certain
mortgage notes using incremental borrowings under the same facility in May of 2017, we recognized a $1.0 million charge to write-off unamortized debt issuance costs on the mortgage notes
extinguished and debt modification costs on the Senior Secured Term Loan B Facility that could not be capitalized. In 2016, we recognized similar charges totalling $1.4 million related to the
extinguishment of other mortgage notes and the refinancing of our Senior Secured Term Loan B Facility.
Foreign
currency
exchange
gain
(loss).
We reported a foreign currency exchange loss of $3.6 million for the year ended December 31, 2017 compared to a $0.5 million gain for the year
ended December 31, 2016 . The monthly re-measurement of an intercompany loan denominated in Australian dollars, issued from our Australian subsidiary to one of our U.S. corporate
subsidiaries, resulted in a larger foreign currency exchange loss in the year ended December 31, 2017 , as the U.S. dollar weakened against the Australian dollar compared to the year ended
December 31, 2016 .
Other
income-net
. Other income-net, which represented income outside our operating segments, was $0.9 million for the year ended December 31, 2017 , a decrease of $1.2 million , or
57.1% compared to $2.1 million for the year ended December 31, 2016 . Other income-net in 2016 included proceeds of $3.1 million from the business interruption claim related to the disruption
at our Dallas facility, whereas proceeds from the same claim were $0.6 million in 2017.
Income Tax Expense
Income tax expense for the year ended December 31, 2017 was $9.4 million , an increase of $3.5 million , or 59.8% compared to $5.9 million for the year ended December 31, 2016 .
During 2017, we reached a settlement with the Internal Revenue Service for payment of an excise tax in the amount of $4.3 million, including interest to resolve the matter for years prior to 2017
with an expected payment of $0.7 million to be made to resolve 2017 year. The settlement was reached with respect to a ruling request for confirmation of certain tax positions we believed
qualified for the treatment we historically applied on the Company's tax returns.
75
Comparison of Results for the Years Ended December 31, 2016 and 2015
Warehouse Segment
The following table presents the operating results of our warehouse segment for the years ended December 31, 2016 and 2015.
Rent and storage
Warehouse services
Total warehouse segment revenues
Power
Other facilities costs (2)
Labor
Other services costs (3)
Total warehouse segment cost of operations
Warehouse segment contribution (NOI)
Warehouse rent and storage contribution (NOI) (4)
Warehouse services contribution (NOI) (5)
Total warehouse segment margin
Rent and storage margin (6)
Warehouse services margin (7)
$
$
$
$
$
2016 actual
Year ended December 31,
2016 constant
currency (1)
(Dollars in thousands)
476,800
$
482,878
$
604,067
1,080,867
71,999
102,032
484,822
107,969
766,822
314,045
302,769
11,276
$
$
$
$
29.1%
63.5%
1.9%
607,458
1,090,336
72,747
103,101
490,074
108,099
774,021
316,315
307,030
9,285
$
$
$
$
29.0%
63.6%
1.5%
2015 actual
Actual
Change
Constant
currency
469,190
587,934
1,057,124
73,587
101,828
468,389
105,571
749,375
307,749
293,775
13,974
29.1%
62.6%
2.4%
1.6 %
2.7 %
2.2 %
(2.2)%
0.2 %
3.5 %
2.3 %
2.3 %
2.0 %
3.1 %
(19.3)%
—
90 bps
-50 bps
2.9 %
3.3 %
3.1 %
(1.1)%
1.3 %
4.6 %
2.4 %
3.3 %
2.8 %
4.5 %
(33.6)%
-10 bps
100 bps
-90 bps
Includes real estate rent expense of $16.7 million and $19.3 million for the years ended December 31, 2016 and 2015, respectively.
Includes non-real estate rent expense of $12.0 million and $12.1 million for the years ended December 31, 2016 and 2015, respectively.
(1) The adjustments from our U.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)
(3)
(4) Calculated as rent and storage revenues less power and other facilities costs.
(5) Calculated as warehouse services revenues less labor and other services costs.
(6) Calculated as warehouse rent and storage contribution (NOI) divided by rent and storage revenues.
(7) Calculated as warehouse services contribution (NOI) divided by warehouse services revenues.
Warehouse segment revenues were $1.08 billion for the year ended December 31, 2016, an increase of $23.7 million, or 2.2%, compared to $1.06 billion for the year ended December 31,
2015. On a constant currency basis, our warehouse segment revenues were $1.09 billion for the year ended December 31, 2016, an increase of $33.2 million, or 3.1%, year-over-year. This
favorable change was mainly driven by incremental occupancy and throughput from our customers in Australia and New Zealand, coupled with favorable storage and handling rate adjustments
and a 1.9% growth in total throughput in our domestic warehouse business. The unfavorable impact of foreign currency translation on revenues generated by our operations outside the United
States totaled $9.5 million, which was driven by the continued strengthening of the U.S. dollar.
Warehouse segment cost of operations was $766.8 million for the year ended December 31, 2016, an increase of $17.4 million, or 2.3%, compared to $749.4 million for the year ended
December 31, 2015. On a constant currency basis, our warehouse segment cost of operations was $774.0 million for the year ended December 31, 2016, an increase of $24.6 million, or 3.3%,
compared to $749.4 million for the year ended December 31, 2015. This increase was driven primarily by rising labor costs, which increased 3.5% on an actual
76
basis partially driven by higher throughput and an increased amount of more labor-intensive warehouse services relative to the comparable prior period. Cost of operations was also impacted by
strategic efforts to exit certain leased facilities and transition customers within our warehouse portfolio. These increased costs were partially offset by lower power costs, which decreased 2.2%,
on an actual basis.
Warehouse segment contribution (NOI) was $314.0 million for the year ended December 31, 2016, an increase of $6.3 million, or 2.0%, compared to $307.7 million for the year ended
December 31, 2015. On a constant currency basis, warehouse segment contribution (NOI) was $316.3 million for the year ended December 31, 2016, an increase of $8.6 million, or 2.8%, year-
over-year.
77
Same
Store
Analysis
We had 139 same stores for the years ended December 31, 2016 and 2015. 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 ended December 31, 2016 and 2015.
Same store revenues:
Rent and storage
Warehouse services
Total same store revenues
Same store cost of operations:
Power
Other facilities costs
Labor
Other services costs
Total same store cost of operations
Same store contribution (NOI)
Same store rent and storage contribution (NOI) (2)
Same store warehouse services contribution (NOI) (3)
Total same store margin
Same store rent and storage margin (4)
Same store warehouse services margin (5)
Non-same store revenues:
Rent and storage
Warehouse services
Total non-same store revenues
Non-same store cost of operations:
Power
Other facilities costs
Labor
Other services costs
Total non-same store cost of operations
Non-same store contribution (NOI)
Non-same store rent and storage contribution (NOI) (2)
Non-same store warehouse services contribution (NOI) (3)
Total warehouse segment revenues
Total warehouse cost of operations
Total warehouse segment contribution (NOI)
2016 actual
Year ended December 31,
2016 constant
currency (1)
(Dollars in thousands)
$
461,873
$
467,952
$
577,948
1,039,821
581,338
1,049,290
69,480
94,357
463,463
103,172
70,227
95,427
468,715
103,302
730,472
$
737,671
$
309,349
298,036
11,313
$
$
$
29.8%
64.5%
2.0%
311,619
302,298
9,321
$
$
$
29.7%
64.6%
1.6%
14,928
$
14,928
$
26,118
41,046
2,519
7,675
21,359
4,797
26,118
41,046
2,519
7,675
21,359
4,797
36,350
$
36,350
$
4,696
4,734
(38)
1,090,336
774,021
316,315
$
$
$
$
$
$
$
$
$
$
$
$
4,696
4,734
(38)
1,080,867
766,822
314,045
78
$
$
$
$
$
$
$
$
$
$
$
$
2015 actual
Actual
Change
Constant
currency
449,388
558,502
1,007,890
70,518
90,063
444,071
100,322
704,974
302,916
288,807
14,109
2.8 %
3.5 %
3.2 %
(1.5)%
4.8 %
4.4 %
2.8 %
3.6 %
2.1 %
3.2 %
(19.8)%
30.1%
64.3%
2.5%
-30 bps
20 bps
-50 bps
19,802
29,432
49,234
3,070
11,766
24,317
5,248
44,401
4,833
4,966
(133)
1,057,124
749,375
307,749
(24.6)%
(11.3)%
(16.6)%
(17.9)%
(34.8)%
(12.2)%
(8.6)%
(18.1)%
(2.8)%
(4.7)%
(71.4)%
2.2 %
2.3 %
2.0 %
4.1 %
4.1 %
4.1 %
(0.4)%
6.0 %
5.5 %
3.0 %
4.6 %
2.9 %
4.7 %
(33.9)%
-40 bps
30 bps
-90 bps
(24.6)%
(11.3)%
(16.6)%
(17.9)%
(34.8)%
(12.2)%
(8.6)%
(18.1)%
(2.8)%
(4.7)%
(71.4)%
3.1 %
3.3 %
2.8 %
(1) The adjustments from our U.S. GAAP operating results to calculate our operating results on a constant currency basis is the effect of changes in foreign currency exchange rates relative to the comparable prior period.
(2) Calculated as rent and storage revenues less power and other facilities costs.
(3) Calculated as warehouse services revenues less labor and other services costs.
(4) Calculated as same store rent and storage contribution (NOI) divided by same store rent and storage revenues.
(5) Calculated as same store warehouse services contribution (NOI) divided by same store warehouse services revenues.
The following table provides certain operating metrics to explain the drivers of our same store performance.
Same store rent and storage:
Occupancy (1)
Average occupied pallets (in thousands)
Average physical pallet positions (in thousands)
Occupancy percentage
Same store rent and storage revenues per occupied pallet
Constant currency same store rent and storage revenues per occupied pallet
Same store warehouse services:
Throughput pallets (in thousands)
Same store warehouse services revenues per throughput pallet
Constant currency same store warehouse services revenues per throughput pallet
Non-same store rent and storage:
Occupancy
Average occupied pallets (in thousands)
Average physical pallet positions (in thousands)
Occupancy percentage
Non-same store warehouse services:
Throughput pallets (in thousands)
Year ended December 31,
2016
2015
Change
$
$
$
$
2,409
3,112
77.4%
191.74
194.27
$
$
26,031
22.20
22.33
$
$
46
77
60.5%
969
2,401
3,149
76.3%
187.14
187.14
25,105
22.25
22.25
47
79
58.7%
691
0.3 %
(1.2)%
110 bps
2.5 %
3.8 %
3.7 %
(0.2)%
0.4 %
(0.5)%
(3.5)%
180 bps
40.2 %
(1) 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 two to three 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.
Average physical occupancy at our same stores was 77.4% for the year ended December 31, 2016, an increase of 110 basis points compared to 76.3% for the year ended December 31,
2015. This growth was primarily the result of an increase of 0.3% in average occupied pallets and a 1.2% decrease in average physical pallet positions. The increase in our average occupied
pallets primarily resulted from new business at our Australian and New Zealand operations, partially offset by a slight decline in the average occupied pallets in our domestic operations. Same
store rent and storage revenues per occupied pallet increased 2.5% year-over-year, primarily driven by rate increases and a greater proportion of occupancy by customers that paid higher average
rates per pallet, partially offset by the unfavorable foreign currency impact of a stronger U.S. dollar on the translation of revenues and expenses incurred by our operations outside the United
States. On a constant currency basis, our same store rent and storage revenues per occupied pallet increased 3.8% year-over-year.
79
Throughput pallets at our same stores were 26.0 million pallets for the year ended December 31, 2016, an increase of 3.7% from 25.1 million pallets for the year ended December 31,
2015. This increase was the result of new and incremental occupancy and throughput in Australia, additional throughput pallets from new domestic customers, and net higher throughput from
existing domestic customers. Same store warehouse services revenues per throughput pallet decreased 0.2% year-over-year primarily as a result of a decline in higher priced repackaging, blast
freezing, and case-picking warehouse services, and the unfavorable net effect of foreign currency translation mentioned above. On a constant currency basis, our same store warehouse services
revenues per throughput pallet increased 0.4% year-over-year.
Third-Party Managed Segment
The following table presents the operating results of our third-party managed segment for the years ended December 31, 2016 and 2015.
Number of managed sites
Third-party managed revenues
Third-party managed cost of operations
Third-party managed segment contribution (NOI)
Third-party managed margin
Year ended December 31,
2016 constant
currency (1)
(Dollars in thousands)
2016 actual
12
$
$
252,411
$
253,043
$
237,597
14,814
$
5.9%
238,179
14,864
$
5.9%
2015 actual
Actual
Change
Constant
currency
12
233,564
220,983
12,581
5.4%
8.1%
7.5%
17.7%
50 bps
8.3%
7.8%
18.1%
50 bps
(1)
The adjustments from our U.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.
Third-party managed revenues were $252.4 million for the year ended December 31, 2016, an increase of $18.8 million, or 8.1%, compared to $233.6 million for the year ended
December 31, 2015. On a constant currency basis, third-party managed revenues were $253.0 million for the year ended December 31, 2016, an increase of $19.5 million, or 8.3%, year-over-
year. These increases were due to higher reimbursable operating expenses related to higher throughput at sites managed for our existing customers.
Third-party managed cost of operations was $237.6 million for the year ended December 31, 2016, an increase of $16.6 million, or 7.5%, compared to $221.0 million for the year ended
December 31, 2015. On a constant currency basis, third-party managed cost of operations was $238.2 million for the year ended December 31, 2016, an increase of $17.2 million, or 7.8%, year-
over-year. These increases were primarily due to higher reimbursable operating expenses related to higher throughput at sites managed for our existing customers.
Third-party managed segment contribution (NOI) was $14.8 million for the year ended December 31, 2016, an increase of $2.2 million, or 17.7%, compared to $12.6 million for the year
ended December 31, 2015. On a constant currency basis, third-party managed segment contribution (NOI) was $14.9 million for the year ended December 31, 2016, an increase of $2.3 million, or
18.1%, year-over-year.
80
Transportation Segment
The following table presents the operating results of our transportation segment for the years ended December 31, 2016 and 2015.
2016 actual
Year ended December 31,
2016 constant
currency (1)
(Dollars in thousands)
2015 actual
Actual
Change
Constant
currency
Transportation revenues
Brokered transportation
Other cost of operations
Total transportation cost of operations
Transportation segment contribution (NOI)
Transportation margin
$
$
147,004
$
151,863
$
180,892
102,897
29,689
132,586
14,418
$
9.8%
106,244
30,090
136,334
15,529
$
10.2%
134,255
32,332
166,587
14,305
(18.7)%
(23.4)%
(8.2)%
(20.4)%
0.8 %
(16)%
(20.9)%
(6.9)%
(18.2)%
8.6 %
7.9%
190 bps
230 bps
(1)
The adjustments from our U.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.
Our transportation segment continued its strategic shift to focus on more profitable warehouse services and consolidation solutions by exiting certain commoditized, non-scalable, or low
margin services we have historically offered to our customers. Transportation revenues were $147.0 million for the year ended December 31, 2016, a decrease of $33.9 million, or 18.7%,
compared to $180.9 million for the year ended December 31, 2015. On a constant currency basis, transportation revenues were $151.9 million for the year ended December 31, 2016, a decrease
of $29.0 million, or 16.0%, year-over-year. The strategic shift in our transportation segment and lower business throughput from our domestic customers contributed $37.0 million of the decrease,
offset by $3.1 million higher revenues from our international operations.
Transportation cost of operations was $132.6 million for the year ended December 31, 2016, a decrease of $34.0 million, or 20.4%, compared to $166.6 million for the year ended
December 31, 2015. On a constant currency basis, transportation cost of operations was $136.3 million for the year ended December 31, 2016, a decrease of $30.3 million, or 18.2%, year-over-
year. These decreases were primarily due to lower brokered transportation costs as a result of lower revenues related to the strategic shift referenced above.
Transportation segment contribution (NOI) was $14.4 million for the year ended December 31, 2016, an increase of $0.1 million, or 0.8%, compared to $14.3 million for the year ended
December 31, 2015. Transportation segment margin increased 190 basis points year-over-year, to 9.8% from 7.9%, as the business shifted towards more profitable services. On a constant
currency basis, transportation segment contribution (NOI) was $15.5 million for the year ended December 31, 2016, an increase of $1.2 million, or 8.6%, year-over-year.
81
Quarry Revenues and Cost of Operations
The following table presents the operating results of our quarry segment for the years ended December 31, 2016 and 2015.
Quarry revenues
Quarry cost of operations
Quarry segment contribution (NOI)
Quarry margin
Year ended
December 31,
$
$
2016
2015
Change
(Dollars in thousands)
$
9,717
7,349
2,368
$
24.4%
9,805
7,420
2,385
(0.9)%
(1.0)%
(0.7)%
24.3%
10 bps
Quarry revenues were $9.7 million for the year ended December 31, 2016, a decrease of $0.1 million, or 0.9%, compared to $9.8 million for the year ended December 31, 2015. This
decrease was primarily due to a slowdown in construction projects from traditional customers and minor price decreases as a result of lower market prices driven by competition.
Quarry cost of operations was $7.3 million for the year ended December 31, 2016, a decrease of $0.1 million, or 1.0%, compared to $7.4 million for the year ended December 31, 2015.
This decrease was primarily due to lower fuel costs resulting from lower oil prices.
Quarry segment contribution (NOI) was $2.4 million for the year ended December 31, 2016, virtually flat compared to the year ended December 31, 2015.
Other Consolidated Operating Expenses
Depreciation,
depletion
and
amortization
. Depreciation, depletion and amortization expense was $118.6 million for the year ended December 31, 2016, a decrease of $7.1 million, or
5.7%, compared to $125.7 million for the year ended December 31, 2015. This decrease was primarily due to the disposal and write-off of certain machinery and equipment that were no longer
utilized.
Impairment
of
intangible
assets
and
long-lived
assets
. For the years ended December 31, 2016 and 2015, we recorded impairment charges of $9.8 million and $5.7 million, respectively,
as a result of the planned disposal of certain facilities, and other idle facilities, with a net book value in excess of their estimated fair value based on third-party appraisals or purchase offers. These
impaired assets related to the warehouse segment. During 2015, we also recorded an impairment charge of $3.7 million on one of our below-market leasehold interests associated with a lease that
we did not intend to renew as we removed excess capacity from our warehouse portfolio.
Selling,
general
and
administrative
. Corporate-level selling, general and administrative expenses were $100.2 million for the year ended December 31, 2016, an increase of $9.0 million,
or 9.9%, compared to $91.2 million for the year ended December 31, 2015. Included in these amounts are business development expenses attributable to our customer onboarding, engineering
and consulting services to support our customers in the cold chain. Business development expenses represented approximately 15% of corporate-level selling, general and administrative expenses
for 2016 and 2015. We believe these costs are comparable to leasing costs for other publicly traded REITs. This increase was primarily due to investments in our engineering services function to
expand headcount, and higher professional fees incurred for alternative strategic opportunities. For the year ended December 31, 2016, corporate-level selling, general and administrative expenses
were 6.7% of our total revenues, an increase of 0.5% from 6.2% of total revenues for the year ended December 31, 2015.
82
Other Income and Expense
The following table presents other items of income and expense for the years ended December 31, 2016 and 2015.
Other (expense) income:
Interest expense
Interest income
Loss on debt extinguishment and modification
Foreign currency exchange gain (loss)
Other income—net
n/m: not meaningful
Year ended
December 31,
2016
2015
Change
$
(Dollars in thousands)
$
(119,552)
708
(1,437)
464
2,142
(116,710)
724
(503)
(3,470)
1,892
2.4 %
(2.2)%
n/m
(113.4)%
13.2 %
Interest
expense
. Interest expense was $119.6 million for the year ended December 31, 2016, an increase of $2.8 million, or 2.4%, compared to $116.7 million for the year ended
December 31, 2015. This increase was primarily attributable to an increase in our weighted average debt outstanding for the year ended December 31, 2016 compared to the year ended
December 31, 2015, and an increase in our weighted average effective interest rate. Effective interest rates included the amortization of the deferred financing costs and original issuance debt
discounts.
In June 2015, our Australian and New Zealand subsidiaries entered into new mortgage notes in an aggregate principal amount of $187.4 million with a weighted average effective interest
rate of 4.96% as of December 31, 2016 and 2015. In addition, on December 1, 2015, we refinanced $350.0 million of the 2006 Mortgage Loans and a construction loan of $14.2 million with a
weighted average effective interest rate of 6.00% and 3.81%, respectively, as of the date of the refinancing thereof, through the issuance of a new $325.0 million term loan under our Senior
Secured Term Loan B Facility with an average annual effective interest rate of 7.19% as of December 31, 2015.
In July 2016, we amended the terms of the term loan under our Senior Secured Term Loan B Facility incurred on December 1, 2015 to secure incremental borrowings of $385.0 million
principal amount, and used the net proceeds to repay the balance of our 2006 Mortgage Loans and to lower the credit spread on the initial tranche of the term loan. The $704.8 million aggregate
principal amount of the amended term loan had an effective interest rate of 6.38% as of December 31, 2016.
Interest
income
. Interest income of $0.7 million for the year ended December 31, 2016 was 2.2% lower when compared to the same period in 2015. Historically, we have earned interest
income primarily from term deposits held by our foreign subsidiaries. Starting in 2016, we began charging interest on delinquent billings net of a bad debt provision equal to the amount of interest
earned for such delinquent customers until collected. The year-over-year change was primarily driven by movements in foreign currency exchange rates.
Loss
on
debt
extinguishment
and
modification
. Loss on debt extinguishment and modification was $1.4 million for the year ended December 31, 2016, an increase of $0.9 million,
compared to $0.5 million for the year ended December 31, 2015. In 2016, we used the net proceeds from the incremental borrowings of the term loan under our Senior Secured Term Loan B
Facility to repay the balance of our 2006 Mortgage Loans, and recognized a related $1.4 million loss on debt extinguishment and modification. In 2015, we recognized a $0.5 million loss on debt
extinguishment and modification in connection with the termination of a revolving credit facility that was established in 2010, and the payoff of other tranches of mortgage notes and a
construction loan. The loss in both
83
periods consisted of a write-off of unamortized debt issuance costs, as well as loan fees and third-party costs related to the aforementioned debt not capitalizable.
Foreign
currency
exchange
gain
(loss).
We reported a foreign currency exchange gain of $0.5 million for the year ended December 31, 2016 compared to a $3.5 million loss for the year
ended December 31, 2015. The monthly re-measurement of an intercompany loan denominated in Australian dollars from our Australian subsidiary to one of our U.S. corporate subsidiaries
resulted in a foreign currency exchange gain in 2016, as the U.S. dollar strengthened against the Australian dollar toward the end of 2016.
During the first half of 2015, one of our U.S. subsidiaries was the lender of another intercompany loan to our Australian subsidiary, which loan was denominated in Canadian dollars.
With the U.S. dollar strengthening against the Canadian dollar for most of 2015, the re-measurement of this other intercompany loan led to a net loss on foreign currency exchange.
Other
income—net
. Other income—net, which represents income outside our operating segments, was $2.1 million for the year ended December 31, 2016, an increase of $0.3 million, or
13.2%, compared to $1.9 million for the year ended December 31, 2015. Other income—net in 2016 included proceeds of $3.1 million from the insurance claim related to a business disruption at
our Dallas facility. These proceeds were partially offset by asset disposal losses totaling $1.0 million. Prior year other income—net consisted primarily of proceeds from company-owned life
insurance policies.
Loss from Partially-Owned Entities
Loss from partially-owned entities was $0.1 million for the year ended December 31, 2016, a decrease of $3.4 million, or 96.4%, compared to a loss of $3.5 million for the year ended
December 31, 2015. This decrease was primarily driven by the recognition during 2016 by the China JV of a gain of approximately $1.6 million from the sale of a parcel of land to one of its
Chinese affiliates. In addition, the China JV performed better in 2016, as the average occupancy rate across its temperature-controlled warehouse network increased approximately 6% year-over-
year.
Income Tax Expense
Income tax expense for the year ended December 31, 2016 was $5.9 million, a decrease of $3.8 million, or 39.0%, compared to $9.6 million for the year ended December 31, 2015. This
change was primarily driven by lower taxable income from our domestic Taxable Real-estate Subsidiary (TRS) entities and foreign subsidiaries, as compared to the year ended December 31,
2015.
Gain from Sale of Real Estate, Net of Tax
For the year ended December 31, 2016, we recognized a gain of $11.6 million primarily from the sale of three idle facilities, two parcels of land that we no longer intend to develop, and
one temperature-controlled non-strategic storage facility.
84
Net Effect of Foreign Currency Translation for Comparative Periods
In order to provide a framework for assessing how our underlying businesses performed on an overall basis during the comparison periods presented above, excluding the effect of foreign
currency fluctuations, the table below provides an overview of the aggregate effect of foreign currency fluctuations by showing the actual and constant currency results of each of the comparison
periods translated into U.S. dollars at the average foreign exchange rates applicable during the year ended December 31, 2015. Constant currency results are not measurements of financial
performance under U.S. GAAP, and our constant currency results should be considered as a supplement, but not as an alternative, to our results calculated in accordance with U.S. GAAP.
Actual currency exchange rates
Year ended December 31,
Year ended December 31,
2017
actual
currency
2016
actual
currency
2015
actual
currency
2017
constant
currency (1)
2016
constant
currency (1)
2015
actual
currency
Compound annual
growth rate 2015-2017
Actual
currency
Constant
currency
(In thousands)
501,604
$
476,800
$
469,190
$
501,168
$
496,015
$
644,058
1,145,662
324,483
23,845
$
$
604,067
1,080,867
302,769
11,276
$
$
587,934
1,057,124
293,775
13,974
$
$
640,805
1,141,973
324,196
23,192
$
$
632,105
1,128,120
315,744
10,079
$
$
348,328
$
314,045
$
307,749
$
347,388
$
325,823
$
242,189
$
252,411
$
233,564
$
241,674
$
256,745
$
12,825
14,814
12,581
12,823
15,340
146,070
$
147,004
$
180,892
$
145,043
$
164,752
$
12,950
14,418
14,305
12,943
16,947
9,666
$
2
1,543,587
374,105
$
$
9,717
$
2,368
1,489,999
345,645
$
$
9,805
$
2,385
1,481,385
337,020
$
$
9,666
$
2
1,538,356
373,156
$
$
9,717
$
2,368
1,559,334
360,478
$
$
469,190
587,934
1,057,124
293,775
13,974
307,749
233,564
12,581
180,892
14,305
9,805
2,385
1,481,385
337,020
3.4 %
4.7 %
4.1 %
5.1 %
30.6 %
6.4 %
1.8 %
1.0 %
(10.1)%
(4.9)%
(0.7)%
(97.1)%
2.1 %
5.4 %
3.4 %
4.4 %
3.9 %
5.1 %
28.8 %
6.2 %
1.7 %
1.0 %
(10.5)%
(4.9)%
(0.7)%
(97.1)%
1.9 %
5.2 %
Warehouse Segment
Rent and storage revenue
Warehouse services revenue
Total warehouse revenue
Rent and storage contribution (NOI)
Warehouse services contribution (NOI)
Total warehouse contribution (NOI)
Third-Party Managed Segment
Revenue
Contribution (NOI)
Transportation Segment
Revenue
Contribution (NOI)
Quarry
Revenue
Contribution (NOI)
Total Revenue
Total Segment Contribution (NOI)
$
$
$
$
$
$
$
$
$
(1) The adjustments from our U.S. GAAP operating results to calculate our operating results on a constant currency basis is the effect of changes in foreign currency exchange rates relative to December 31, 2015.
85
LIQUIDITY AND CAPITAL RESOURCES
Overview
We currently expect that our principal sources of funding for working capital, facility acquisitions, 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;
borrowings under our 2018 Senior Secured Credit Facilities; and
other forms of secured or unsecured 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.
REIT Qualification
To maintain our qualification as a REIT, we must make distributions to our common shareholders aggregating annually at least 90% of our REIT taxable income excluding capital gains.
While historically we have satisfied this requirement by making cash distributions to our shareholders, we may choose to satisfy this requirement by making distributions of other property,
including, in limited circumstances, our own common shares. Cash flows from our operations, which are included in net cash provided by operating activities in our consolidated statements of
cash flows, were sufficient to cover distributions on our common shares and our then outstanding preferred shares for the years ended December 31, 2017, 2016 and 2015.
As a result of this requirement, we cannot rely on retained earnings to fund our business needs to the same extent as other entities that are not REITs. If we do not have sufficient funds
available to us from our operations to fund our business needs, we will need to find alternative ways to fund those needs. Such alternatives may include, among other things, divesting ourselves of
temperature-controlled warehouses (whether or not the sales price is optimal or otherwise meets our strategic long-term objectives), incurring additional indebtedness or issuing equity securities
in public or private transactions, the availability and attractiveness of the terms of which cannot be assured.
Security Interests in Customers’ Products
By operation of law and in accordance with our customer contracts (other than leases), we 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 readily saleable by us. Historically, in
86
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 $1.2 million, $1.1 million and $0.8 million for the years ended December 31, 2017, 2016 and 2015, respectively. As of December 31, 2017, we maintained bad
debt reserves of approximately $5.0 million, which we believed to be adequate.
87
Outstanding Indebtedness
The following table presents our outstanding indebtedness as of December 31, 2017 and 2016 .
2010 Mortgage Loans
cross-collateralized and cross-defaulted by 46 warehouses:
Component A-1
Component A-2-FX
Component A-2-FL 1
Component B
Component C
Component D
2013 Mortgage Loans
cross-collateralized and cross-defaulted by 15 warehouses:
Senior note
Mezzanine A
Mezzanine B
ANZ Term Loans secured by mortgages in properties owned by relevant subsidiaries:
Australian Term Loan 2
New Zealand Term Loan 3
Stated
maturity
date
1/2021
1/2021
1/2021
1/2021
1/2021
1/2021
5/2023
5/2023
5/2023
6/2020
6/2020
Senior Secured Term Loan B Facility secured by stock pledge in qualified
subsidiaries
12/2022
Total principal amount of mortgage notes and term loans
Less deferred financing costs
Less debt discount
3.86%
4.96%
LIBOR + 1.51%
6.04%
6.82%
7.45%
3.81%
7.38%
11.50%
BBSY + 1.40%
BKBM + 1.40%
LIBOR + 3.75%
with 1% floor or
ABR + 2.75%
with 2% floor
Contractual
interest rate 5
Effective interest rate 7
as of December 31, 2017
December 31, 2017
December 31, 2016
Outstanding principal amount at
$
(In thousands)
$
56,941
150,334
48,654
60,000
62,400
82,600
194,223
70,000
32,000
158,645
31,240
806,918
1,753,955
(25,712)
(6,285)
1,721,958
$
73,619
150,334
74,899
60,000
62,400
82,600
200,252
70,000
32,000
146,789
30,615
704,833
1,688,341
(28,473)
(7,443)
1,652,425
4.40%
5.38%
3.45%
6.48%
7.28%
7.92%
4.14%
7.55%
11.75%
4.51%
5.12%
5.79%
3.92%
5.18%
—
Total mortgage notes and term loans, net of deferred financing costs and debt discount
2015 Senior Secured Revolving Credit Facility secured by stock pledge in
qualified subsidiaries
12/2018 4
LIBOR + 3.00%
or ABR + 2.00%
Construction Loans:
Warehouse Clearfield, UT secured by mortgage
Less deferred financing costs
Warehouse Middleboro, MA secured by mortgage
2/2019
8/2020
LIBOR + 3.25%
or prime rate + 2.25%
LIBOR +2.75%
or ABR +1.75%
$
$
$
$
$
— $
28,000
19,671
$
(179)
19,492
$
— $
—
—
—
—
(1) Component A-2-FL of the 2010 Mortgage Loans has a variable interest rate equal to one-month LIBOR plus 1.51%, with one-month-LIBOR subject to a floor of 1.00% per annum. In addition, we maintain an interest rate cap on the
variable rate tranche that caps one-month LIBOR at 6.0%. The variable interest rate at December 31, 2017 was 2.98% per annum.
(2) As of December 31, 2017 , the outstanding balance was AUD$203.0 million and the variable interest rate was 3.10% per annum (1.70% BBSY plus 1.40% margin) of which 75% is fixed via an interest rate swap at 4.06% per annum
(2.66% BBSY plus 1.40% margin).
88
(3) As of December 31, 2017 , the outstanding balance was NZD$44.0 million and the variable interest rate was 3.22% per annum (1.82% BKBM plus 1.40% margin), of which 75% is fixed via an interest rate swap at 4.93% per annum
(3.53% BKBM plus 1.40% margin).
(4) Prior to the IPO we have the option to extend the stated maturity date of our Senior Secured Revolving Credit Facility to December 1, 2019, subject to certain conditions.
(5) References in this table to LIBOR are references to one-month LIBOR and references to BBSY and BKBM are to Australian Bank Bill Swap Bid Rate and New Zealand Bank Bill Reference Rate, respectively.
(6) Unused line, letter of credit and financing fees increase the stated interest rate.
(7) The effective interest rate includes effects of amortization of the deferred financing costs and debt discount. The weighted average effective interest rate for total debt was 5.68% and 5.67% as of December 31, 2017 and 2016 ,
respectively.
Pre-IPO Senior Secured Credit Facilities
In December 2015, we entered into a credit agreement with various lenders providing senior secured credit facilities that consisted of a $325.0 million senior secured term loan, which we
refer to as our Senior Secured Term Loan B Facility, and a $135.0 million senior secured revolving credit facility, which we refer to as our 2015 Senior Secured Revolving Credit Facility, and,
collectively with our Senior Secured Term Loan B Facility, our pre-IPO Senior Secured Credit Facilities.
In April 2016, we upsized the commitments under our 2015 Senior Secured Revolving Credit Facility by $15.0 million to increase the aggregate borrowing capacity under that credit
facility to $150.0 million.
In July 2016, we issued a $385.0 million incremental term loan under our Senior Secured Term Loan B Facility and used the net proceeds to repay, among other things, the balance of our
2006 Mortgage Loans. In connection with this refinancing, we lowered the credit spread on the initial tranche of our Senior Secured Term Loan B Facility.
In January 2017, we lowered the credit spread on the outstanding tranches of the Senior Secured Term Loan B Facility, and in February 2017, we upsized the commitments under our
2017 Senior Secured Revolving Credit Facility by $20.0 million to increase the aggregate borrowing capacity under that credit facility to $170.0 million.
In May 2017, we issued a $110.0 million incremental term loan under our Senior Secured Term Loan B Facility and used the net proceeds to release, among other things, three properties
from the 2010 Mortgage Loans collateral pool (as described below), and prepay the portion of our 2010 Mortgage Loans related thereto. Two of these properties were added to the borrowing base
supporting our pre-IPO Senior Secured Revolving Credit Facility.
Borrowings under our 2015 Senior Secured Revolving Credit Facility bore interest, at our election, at the then-applicable margin plus an applicable one-month LIBOR or base rate interest
rate. Base rate was defined as the greatest of the bank prime rate, the one-month LIBOR rate plus one percent or the federal funds rate plus one-half of one percent. As of December 31, 2017,
borrowings under our 2015 Senior Secured Revolving Credit Facility bore interest at 3.00% per year plus one-month LIBOR, or 4.57% per annum. The applicable margin varied between (i) in the
case of LIBOR-based loans, 3.00% and 3.50% and (ii) in the case of base rate loans, 2.00% and 2.50%, in each case, based on changes in our credit ratings. In addition, any undrawn portion of
our 2015 Senior Secured Revolving Credit Facility was subject to an annual 0.40% commitment fee. As of December 31, 2017, no amounts under the 2015 Senior Secured Revolving Credit
Facility were outstanding, but we applied approximately $33.8 million of that credit facility to backstop certain outstanding letters of credit.
After giving effect to the May 2017 amendments described above, the outstanding tranches of term loans under our Senior Secured Term Loan B Facility bore interest, at our election, at
(i) 3.75% per year plus one-month
89
LIBOR with a 1.0% floor or (ii) 2.75% per year plus a base rate with a 2.0% floor. The principal amount of the term loans outstanding under our Senior Secured Term Loan B Facility was subject
to principal amortization in quarterly installments of approximately $2.0 million until the maturity date thereof, with a final payment of the balance that was due on December 1, 2022. As of
December 31, 2017, $806.9 million were outstanding under our Senior Secured Term Loan B Facility, which was prepayable without premium or penalty. The borrowings under our Senior
Secured Term Loan B Facility bore interest at 3.75% per year plus one-month LIBOR, or 5.32% per annum.
Our pre-IPO Senior Secured Credit Facilities were guaranteed by certain subsidiaries of our operating partnership and are secured by a pledge in the stock of certain subsidiaries of our
operating partnership, and contained certain financial covenants relating to the maintenance of a specified borrowing base coverage ratio, a total leverage ratio and a fixed charge coverage ratio
and other customary covenants.
2018 Senior Secured Credit Facilities
On December 26, 2017, we closed into escrow on our 2018 Senior Secured Credit Facilities, consisting of a five-year, $525.0 million Senior Secured Term Loan A Facility and a three-
year, $400.0 million 2018 Senior Secured Revolving Credit Facility. Our 2018 Senior Secured Credit Facilities also have an additional $400.0 million accordion option. Our 2018 Senior Secured
Revolving Credit Facility has a one-year extension option subject to certain conditions. We used the net proceeds from the IPO transactions, together with $517.0 million of net proceeds from our
Senior Secured Term Loan A Facility, to repay the entire $809.0 million aggregate principal amount of indebtedness outstanding under our Senior Secured Term Loan B Facility and for general
business purposes, which also included the repayment of our then outstanding construction loans, which are discussed in the Construction
Loans
section below.
On February 6, 2018, we amended the credit agreement with the lenders of our 2018 Senior Revolving Credit Facility (the 2018 Credit Agreement) to increase the aggregate revolving
credit commitments on this facility by $50.0 million to $450.0 million. Concurrently, we utilized cash on hand to repay $50.0 million on our Senior Secured Term Loan A facility. As a result of
these modifications, our total aggregate commitments under its 2018 Senior Credit Facilities remain unchanged at $925.0 million.
Borrowings under our 2018 Senior Secured Credit Facilities bear interest, at our election, at the then-applicable margin plus an applicable LIBOR or base rate interest rate. The base rate is
the greatest of the bank prime rate, the one-month LIBOR rate plus one percent or the federal funds rate plus one-half of one percent. The applicable margin varies between (i) in the case of
LIBOR-based loans, 2.35% and 3.00% and (ii) in the case of base rate loans, 1.35% and 2.00%, in each case, based on changes in our total leverage. In addition, any undrawn portion of our 2018
Senior Secured Revolving Credit Facility will be subject to an annual 0.30% commitment fee at times that we are utilizing at least 50% of our outstanding revolving credit commitments or an
annual 0.40% commitment fee at times that we are utilizing less than 50% of our revolving credit commitments, in each case, based upon the actual daily unused portion of our 2018 Senior
Secured Revolving Credit Facility.
At the completion of the IPO, borrowings under our 2018 Senior Secured Credit Facilities bore interest at a floating rate of one-month LIBOR plus 2.50%. In addition, we applied
approximately $33.8 million of our 2018 Senior Secured Revolving Credit Facility to backstop certain outstanding letters of credit.
Our operating partnership is the borrower under our 2018 Senior Secured Credit Facilities, which are guaranteed by our company and certain eligible subsidiaries of our operating
partnership and secured by a pledge in the stock of certain subsidiaries of our operating partnership. Our 2018 Senior Secured Revolving Credit Facility is structured to include a borrowing base,
which will allow us to borrow against the lesser of our Senior Secured Term Loan A Facility balance outstanding and $450.0 million in revolving credit commitments, and the
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value of certain owned real estate assets, ground, capital and operating leased assets, with credit given for income from third-party managed warehouses. At December 31, 2017, the gross value of
our assets included in the calculations under our 2018 Credit Agreement, was in excess of $1.9 billion, and had an effective borrowing base collateral value (after concentration limits and advance
rates as calculated under the anticipated terms of our 2018 Credit Agreement) in excess of $1.1 billion.
Our 2018 Senior Secured Credit Facilities contain representations, covenants and other terms customary for a publicly traded REIT. In addition, our 2018 Senior Secured Credit Facilities
contain 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;
a minimum borrowing base coverage ratio of greater than or equal to 1.00 to 1.00;
a minimum pro forma fixed charge coverage ratio of greater than or equal to 1.40 to 1.00 increasing to 1.50 to 1.00 in the first quarter of 2018;
a minimum borrowing base debt service coverage ratio of greater than or equal to 2.00 to 1.00;
a minimum tangible net worth requirement of greater than or equal to $900 million plus 70% of any future net equity proceeds following the completion of the IPO transactions; and
a maximum recourse secured debt ratio of less than or equal to 20% of our total asset value.
Our 2018 Senior Secured Credit Facilities are fully recourse to our operating partnership.
ANZ Loans
In June 2015, we entered into syndicated facility agreements in each of Australia and New Zealand, which we refer to collectively as the ANZ Loans, and separately as the Australian term
loan and the New Zealand term loan. The ANZ Loans are non-recourse to us and our U.S. subsidiaries.
The Australian term loan is an AUD$203.0 million five-year syndicated facility. The $151.1 million net proceeds that we borrowed under this facility were used to repay the
AUD$19.0 million mortgage loan on one of our facilities, return AUD$30.0 million of capital to our domestic subsidiary owning the equity of our Australian subsidiary, repay an intercompany
loan totaling CAD$47.6 million, and return AUD$70.0 million to the United States in the form of a long-term intercompany loan and working capital. This facility is secured by our owned real
property and equity of certain of our Australian subsidiaries and bears interest at a floating rate of Australian Bank Bill Swap Bid Rate plus 1.4%. The Australian term loan is fully prepayable
without penalty.
The New Zealand term loan is a NZD$44.0 million five-year syndicated facility. The $29.3 million net proceeds that we borrowed under this facility were used to repay an intercompany
loan plus interest totaling NZD$28.3 million, make a NZD$14.3 million dividend, and fund working capital. The facility is secured by our owned real property, leased assets and equity of certain
of our New Zealand subsidiaries, and bears interest at a floating rate of New Zealand Bank Bill Swap Bid Rate plus 1.4%. The New Zealand term loan is fully prepayable without penalty.
As part of the ANZ Loans, we entered into interest rate swaps to effectively fix the interest rates on 75% of the notional balances.
91
Construction Loans
In February 2017, certain of our subsidiaries entered into a $24.1 million construction loan with the National Bank of Arizona to finance the development of an expansion to our
Clearfield, Utah distribution facility. The facility was secured by a mortgage on the property and the repayment of the construction loan is guaranteed by us. This construction loan, which had an
outstanding balance of $19.7 million at December 31, 2017, bore interest, at our election, at a floating rate of one-month LIBOR plus 3.25% or the bank defined prime rate (which may not be
lower than LIBOR) and was scheduled to mature in February 2019.
In August 2017, certain of our subsidiaries entered into a $16.0 million construction loan with JPMorgan Chase Bank, N.A. to finance the development of a production advantaged facility
in Middleboro, Massachusetts. The facility was secured by a mortgage on the property and the construction loan was supported by a limited repayment guaranty by us. This construction loan,
which had no outstanding balance as of December 31, 2017, but on which we had drawn approximately $1.1 million in early January 2018, bore interest at a floating rate of one-month LIBOR
plus 2.75% and was scheduled to mature in August 2020.
In connection with the IPO, both construction loans were repaid in full in January 2018.
2013 Mortgage Loans
On May 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 in May 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 of the 2006 Mortgage Loans, as described below, 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 of December 31, 2017, the amount of restricted cash associated with the 2013 Mortgage Loans was $3.4 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 debt service coverage ratio as of December 31, 2017 was 1.70x. The 2013 Mortgage Loans are non-recourse to us subject to customary non-recourse carve-outs.
2010 Mortgage Loans
On December 15, 2010, we entered into a mortgage financing in an aggregate principal amount of $600.0 million, which we refer to as the 2010 Mortgage Loans. The debt includes six
separate components, which are comprised of independent classes of certificates and seniority. The components are cross-collateralized and cross-defaulted. No principal payments are required on
five of the six components until the stated maturity date in January 2021, and one component requires monthly principal payments of $1.4 million. Interest is payable monthly in an amount equal
to the aggregate interest accrued on each component. The interest rates on five of the six components are fixed, and range from 3.86% to 7.45% per annum. One component has a variable interest
rate equal to one-month LIBOR plus 1.51%, with one-month-LIBOR subject to a floor of 1.00% per annum. In addition, we maintain an interest rate cap on the variable rate tranche that caps one-
month LIBOR at 6.0%. The fair value of the interest rate cap was nominal at December 31, 2017. The floating rate interest component is pre-payable anytime without penalty; however, the fixed
rate components remain subject to yield maintenance
92
provisions. We used the net proceeds of these loans to refinance existing term loans, fund the acquisition of the acquired Versacold entities, and for general corporate purposes.
The 2010 Mortgage Loans were initially collateralized by 53 warehouses. In November 2014, we sold one of the warehouses collateralizing the 2010 Mortgage Loans for $9.5 million,
and $6.0 million of the proceeds were used to pay down the 2010 Mortgage Loans. In 2015, we sold three warehouses for $9.4 million, and $6.1 million of the proceeds were used to pay down
the 2010 Mortgage Loans. In 2017, we used a portion of the net proceeds from incremental borrowings under our Existing Senior Secured Term Loan B Facility to pay down $26.2 million of the
2010 Mortgage Loans. As a result, two warehouses were transferred from the collateral base of the 2010 Mortgage Loans to the Existing Senior Secured Revolving Credit Facility borrowing base,
and one was released and positioned for sale. The terms governing the 2010 Mortgage Loans require us to maintain certain cash amounts in accounts that are restricted as to their use for the
respective warehouses. As of December 31, 2017, the amount of restricted cash associated with the 2010 Mortgage Loans was $15.1 million. Additionally, if we do not maintain certain financial
thresholds, including a debt service coverage ratio of 1.50x, the cash generated will further be temporarily restricted and limited to the use for scheduled debt service and operating costs. The debt
service coverage ratio as of December 31, 2017 was 2.9x. The 2010 Mortgage Loans are non-recourse to us subject to customary non-recourse carve-outs.
93
Recurring 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.
Recurring Maintenance Capital Expenditures
Recurring 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 recurring maintenance capital expenditures related to our existing temperature-
controlled warehouse network include replacing roofs, replacing refrigeration equipment, re-racking our warehouses, and implementing energy efficiency projects, such as LED lighting, motion-
sensor technology, variable frequency drives for our fans and compressors, third-party tune-ups and real-time monitoring of energy consumption, rapid-close doors and alternative-power
generation technologies. Examples of recurring 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 recurring maintenance capital expenditures related to information technology include expenditures on existing servers, networking equipment and current
software. The following table sets forth our recurring maintenance capital expenditures for the years ended December 31, 2017, 2016 and 2015.
Real estate
Personal property
Information technology
Total recurring maintenance capital expenditures
Total recurring maintenance capital expenditures per cubic foot
Year ended December 31,
2017
2016
2015
(In thousands, except per cubic foot amounts)
44,102
$
36,153
$
1,890
3,914
3,213
5,079
49,906
$
44,445
$
0.053
$
0.047
$
34,011
3,678
3,996
41,685
0.043
$
$
$
94
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 ended December 31, 2017,
2016 and 2015.
Real estate
Personal property
Total repair and maintenance expenses
Repair and maintenance expenses per cubic foot
Growth and Expansion Capital Expenditures
Year ended December 31,
2017
2016
2015
(In thousands, except per cubic foot amounts)
21,467
$
31,254
52,721
$
20,956
$
30,888
51,844
$
0.056
$
0.055
$
18,843
31,257
50,100
0.052
$
$
$
Growth and expansion capital expenditures are capitalized investments made to support our customers and warehouse expansion and development initiatives and enhance our information
technology platform. Examples of growth and expansion capital expenditures associated with expansion and development initiatives include funding of construction costs, increases to warehouse
capacity and pallet positions and acquisitions of reusable incremental material handling equipment. Examples of growth and expansion capital expenditures to enhance our information technology
platform include expenditures related to the delivery of new systems and software and customer interface functionality. The following table sets forth our growth and expansion capital
expenditures for the years ended December 31, 2017, 2016 and 2015.
Expansion and development initiatives
Information technology
Total growth and expansion capital expenditures
2017
Year ended December 31,
2016
(In thousands)
$
$
102,653
$
5,973
108,626
$
27,529
$
4,649
32,178
$
2015
8,532
4,031
12,563
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CONTRACTUAL OBLIGATIONS
The following table summarizes our contractual obligations as of December 31, 2017:
Principal on mortgage and term loans
Interest on mortgage and term loans (1)
Sale leaseback financing obligations (2)
Capital lease obligations, including interest
Operating leases
Construction Loan
Total (3)
Total
Less than 1
Year
1-3 Years
3-5 Years
More than 5
Years
Payments due by period
$
$
1,753,955
$
31,983
$
257,291
$
1,202,331
$
377,468
236,612
46,235
110,716
19,671
90,084
16,575
11,640
30,198
—
172,847
33,916
17,705
46,618
19,671
108,285
34,970
9,398
14,746
—
2,544,657
$
180,480
$
548,048
$
1,369,730
$
262,350
6,252
151,151
7,492
19,154
—
446,399
Interest payable is based on interest rates in effect at December 31, 2017. Amounts include variable-rate interest payments, which are calculated utilizing the applicable interest rates as of December 31, 2017.
(1)
(2) Sale leaseback financing obligations are subject to multiple expiration dates and bear interest rates that vary from 7.0% to 19.6%. For more information, see Note 10 to our consolidated financial statements included in
this Annual Report on Form 10-K.
(3) The table above excludes $0.8 million of estimated tax exposures, including interest and penalties, related to positions taken on U.S. federal and state income tax returns for our TRSs as of December 31, 2017. For more
information on income taxes, see Note 16 to our consolidated financial statements included in this Annual Report on Form 10-K.
(4) The table also excludes $2.5 million aggregate fair value as of December 31, 2017 of two interest rate swap agreements expiring in June 2020. For more information on the interest rate swap agreements, see Note 8 to our
consolidated financial statements included in this Annual Report on Form 10-K. This table assumes the conversion of all 375,000 outstanding Series B preferred shares into an aggregate of 33,240,258 common shares
(based upon the Series B preferred share conversion ratio as of as of December 31, 2017, and the payment of cash in lieu of fractional shares), which has been calculated as if the conversion had occurred on as of
December 31, 2017, and assuming no accrued and unpaid distributions in respect of the Series B preferred shares at such time.
Historical Cash Flows
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
Operating Activities
2017
Year ended December 31,
2016
(In thousands)
$
163,327 $
118,781 $
(119,552)
(18,604)
(33,732)
(95,322)
2015
106,521
(66,830)
(28,120)
For the year ended December 31, 2017 , our net cash provided by operating activities was $163.3 million , an increase of $44.5 million , or 37.5% , compared to $118.8 million for the
year ended December 31, 2016 . The increase was primarily attributable to operating income of $134.1 million for the year ended December 31, 2017 , an increase of $17.1 million , or 14.6% ,
from $117.0 million for the the year ended December 31, 2016 . Contributing to the increase in our net cash provided by operating activities are a $8.5 million decrease in interest payments and
favorable changes in working capital primarily driven by better collections on accounts receivable from major customers in our domestic operations.
96
Our net cash provided by operating activities was $118.8 million for the year ended December 31, 2016, an increase of $12.3 million, or 11.5%, compared to $106.5 million for the year
ended December 31, 2015. This change was mainly driven by the operating income generated in 2016, as well as the receipt of $3.1 million in net insurance proceeds from a business disruption at
our Dallas facility.
Investing Activities
Our net cash used by investing activities was $119.6 million for the year ended December 31, 2017 , an increase of $85.8 million , or 254.4% , compared to $33.7 million for the year
ended December 31, 2016 . Additions to property, plant, and equipment of $149.0 million during 2017 included, among others, the acquisition of a new warehouse facility in the United States of
approximately $32.0 million, and construction in progress on three other warehouse facilities totalling $48.7 million. Total additions to property, plant, and equipment for the year ended
December 31, 2017 were partially offset by the return of $19.3 million in restricted cash related to a like-kind exchange under Section 1031 of the Code, $15.3 million of which was used to fund
the purchase of the new warehouse facility mentioned above, and $1.3 million of which was returned after the conditions for Section 1031 treatment of the related real estate sales were satisfied.
As part of the total return of previously restricted cash, we also received $0.6 million that was used to fund maintenance and property taxes related to assets included as collateral for certain
CMBS loan pools, and $2.1 million related to a deposit we had made for one of our foreign workers’ compensation programs due to favorable claims experience. Cash provided by investing
activities in 2017 included net proceeds of $10.2 million associated primarily with the disposal of three domestic warehouse facilities.
Our net cash used in investing activities was $33.7 million for the year ended December 31, 2016, a decrease of $33.1 million, or 49.5%, compared to $66.8 million for the year ended
December 31, 2015. Net cash used in investing activities for the year ended December 31, 2016 consisted of $74.9 million of additions to property, plant and equipment, comprised of recurring
maintenance capital expenditures of $37.5 million, growth and expansion capital expenditures of $28.2 million and an asset acquisition of $9.2 million. These cash outflows were partially offset
by $7.9 million of cash released from restricted cash accounts, most of which was associated with the pay off of certain mortgage notes using the net proceeds from the expansion of our term loan
under our Senior Secured Term Loan B Facility in July 2016, and $33.2 million of the net proceeds from the sale of certain property, plant and equipment. Cash used in investing activities for the
year ended December 31, 2015 consisted of $15.3 million of cash restricted for the payment of certain property repairs or obligations related to warehouse properties collateralized by mortgage
notes, $59.9 million of additions to property, plant and equipment, and a $1.3 million contribution to the China JV. These cash outflows were partially offset by $9.5 million of proceeds received
from the sale of certain property, plant and equipment.
Financing Activities
Our net cash used in financing activities was $18.6 million for the year ended December 31, 2017 , a decrease of $76.7 million , or 80.5% , compared to $95.3 million for the year ended
December 31, 2016 . Net cash used in financing activities for the year ended December 31, 2017 primarily consisted of $28.0 million of net repayments on the 2015 Senior Secured Revolving
Credit Facility, a $26.2 million prepayment of the 2010 Mortgage Loans, $41.2 million of recurring repayments on our term and mortgage loans and lease obligations, $48.7 million of dividend
distributions , and $4.2 million in financing costs mostly incurred for the expansion and second repricing of our Senior Secured Term Loan B Facility. These cash uses were partially offset by
$110.0 million of proceeds received in connection with the expansion of our Senior Secured Term Loan B Facility and $19.7 million in proceeds received as part of a new loan for the
construction of a warehouse facility.
97
Our net cash used in financing activities was $95.3 million for the year ended December 31, 2016, an increase of $67.2 million, or 239.0%, compared to $28.1 million for the year ended
December 31, 2015. Net cash used in financing activities for the year ended December 31, 2016 primarily consisted of $375.0 million paid in early retirement of the 2006 Mortgage Loans, $48.7
million of dividend distributions, $37.2 million of recurring repayments on our term and mortgage loans and lease obligations, $34.7 million paid to extinguish a financing obligation in
connection with the acquisition of two warehouse facilities we previously leased, and $10.8 million of debt issuance costs, partially offset by $383.1 million of proceeds received from the July
2016 refinancing of our Senior Secured Term Loan B Facility and $28.0 million of net borrowings on our 2015 Senior Secured Revolving Credit Facility. Cash used in financing activities for the
year ended December 31, 2015 primarily consisted of $412.8 million of repayments on our term and mortgage loans and lease obligations, $48.7 million of dividend distributions, $45.0 million of
repayments on our prior revolving credit facility, $14.8 million of debt issuance costs paid for the term loan under our Senior Secured Term Loan B Facility and ANZ Loans, and $12.7 million of
repayment of seller financed notes issued for the acquisition of a warehouse facility. These cash outlays were partially offset by $505.9 million of proceeds from our Senior Secured Term Loan B
Facility and ANZ Loans.
Withdrawal Liability from Multi-employer Plans
As of December 31, 2017, we participated in seven multiemployer pension plans administered by labor unions representing approximately half of our employees. 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 income 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 of December 31, 2017 (based on the labor union’s assumptions used to fund such plan) did not, as of the last annual valuation date applicable thereto, exceed 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 $319.3 million as of December 31, 2017, of which we estimate that certain of our customers are contractually obligated to make
indemnification payments to us for approximately $289.0 million n. However, there is no guarantee that, to the extent we incurred any such withdrawal liability, we would be successful in
obtaining any indemnification payments therefor.
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 employees participating in the plan is reduced to a
certain degree over certain periods of time.
During the third quarter of 2017, we recorded a one-time charge of $9.2 million representing the present value of a liability associated with our withdrawal obligation under the New
England Fund for hourly, unionized associates at four of our domestic warehouse facilities. The New England Fund is grossly underfunded in
98
accordance with ERISA funding standards and, therefore, the terms of ERISA required the development of a rehabilitation plan, creating a new fund that minimizes the pension withdrawal
liability. As a result, current employers participating in the New England Fund were given the opportunity to exit the New England Fund and convert to a new fund. We are obligated to pay our
portion of the unfunded liability in respect thereof, estimated at $13.7 million, in equal monthly installments of approximately $38,000 over 30 years, interest free. Under the relevant U.S. GAAP
standard, a participating employer withdrawing from a multiemployer pension plan should account for a loss contingency equal to the present value of the withdrawal liability, and amortize the
difference between such present value and the estimated unfunded liability through interest expense over the repayment period.
Off-Balance Sheet Arrangements
As of December 31, 2017, we had no material off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition,
changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Inflation
Where possible, our contracts contain provisions designed to mitigate the adverse impact of inflation, and generally include rate escalation provisions. Additionally, our contracts typically
provide us with the ability to be reimbursed for increases in power, property taxes, property insurance, and regulatory imposed costs to the extent such increases are outside the escalation
provisions. For our customers on month-to-month warehouse rate agreements, we have the ability to adjust our rates every thirty days in order to compensate for changes in our costs of providing
storage and handling services.
99
CRITICAL ACCOUNTING POLICIES
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 consolidated financial statements, each of which has been prepared in accordance with U.S. GAAP. The preparation of these historical financial statements in conformity with
U.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.
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.
Depreciation and Useful Lives of Real Estate Assets
We estimate the depreciable portion of our real estate assets and their related useful lives in order to record depreciation expense. Our ability to accurately estimate the depreciable
portions of our real estate assets and their useful lives is critical to the determination of the appropriate amount of depreciation expense recorded and the carrying values of the underlying assets.
Any change to the estimated depreciable lives of these assets would have an impact on the depreciation expense we recognize.
Amortization and Useful Lives of Identifiable Intangible Assets
We amortize identifiable intangible assets, other than trade name, which has an indefinite life and is reviewed periodically for impairment, over useful lives based on management’s
historical experience and estimated cash flows. Any change in the actual results that differ from the initial assumptions could lead to adjustments in useful lives or impairments, either of which
could have an adverse impact on our results of operations.
100
Impairment of Long-Lived Assets
Long-lived assets held and used are carried at cost and evaluated for impairment annually or when events or changes in circumstances indicate such an evaluation is warranted. A
substantial amount of our assets consist of long-lived assets, including real estate and other intangible assets. The evaluation of our long-lived assets for impairment is a subjective process that
includes determining whether indicators of impairment exist, such as significant declines in a warehouse’s revenues or cash flows, significant increases in estimated future maintenance costs,
occupancy forecasts or other marketplace events that would lead us to believe that there is a decline in market value, which might indicate that the carrying value of our long-lived assets might not
be recoverable. When any indicators of impairment exist, the evaluation of such long-lived assets then entails projections of future operating cash flows, which also involves significant judgment.
Future events, or facts and circumstances that currently exist, that we have not yet identified, could cause us to conclude in the future that our long-lived assets are impaired. Any resulting
impairment loss could have a material adverse effect on our business, financial condition, liquidity, results of operations and prospects, and on our ability to service our debt and make
distributions to our shareholders.
During the year ended December 31, 2017, we recorded an impairment charge of $9.5 million associated with the planned disposal of certain facilities, and other idle facilities with a net
book value in excess of their estimated fair value based on third-party appraisals or purchase offers. This amount is presented in the "Impairment of long-lived assets" line of the consolidated
statements of operations for the year ended December 31, 2017 included in this Annual Report on Form 10-K.
Other Impairments
In the second quarter of 2017, we evaluated the limestone inventory held at our Quarry operations, and determined that approximately $2.1 million of that inventory is not of saleable
quality. As a result, we recognized an impairment charge for that amount, which is included in the “Cost of operations related to other revenues” line item of the consolidated statement of
operations for the year ended December 31, 2017 included in this Annual Report on Form 10-K.
Also during the quarter ended June 30, 2017, we recognized an impairment charge totaling $6.5 million related to its investments in two joint ventures in China accounted for under the
equity method as it was determined that the recorded investments were no longer recoverable from the projected future cash flows expected to be received from the ventures. The estimated fair
value of each investment was determined based on an assessment of the proceeds expected to be received from the potential sale, anticipated in the first half of 2018, of our investment interests to
the joint venture partner based on current negotiations. The impairment charge is included within the “Impairment of partially owned entities” line item of the consolidated statement of operations
for the year ended December 31, 2017 included in this Annual Report on Form 10-K.
Goodwill Impairment Testing
We perform impairment testing of goodwill as of October 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. Our reporting units are comprised of the following operations: U.S. warehouse, U.S. transportation, North America third-party
managed, international warehouse, international third-party managed, and international transportation. The goodwill impairment test involves a two-step process. First, a comparison is performed
of the fair value of each reporting unit with its aggregate carrying amount, including goodwill. If the carrying amount of a reporting unit exceeds the reporting unit’s fair value, we perform the
second step of the goodwill impairment test to determine the amount of impairment loss. The second step includes comparing the implied fair value of the affected reporting unit’s goodwill with
the carrying amount of the
101
goodwill. The results of our 2017 impairment test indicated that the estimated fair value of each of our reporting units was substantially in excess of the corresponding carrying amount as of
October 1, and no impairment of goodwill existed. Our most valuable reporting unit, U.S. warehouse, had an estimated fair value approximately 82% greater than its carrying amount as of
October 1, 2017.
We estimate the fair values of reporting units based upon the net present value of future cash flows based upon varying economic assumptions, including significant assumptions such as
revenue growth rates, operating costs, maintenance costs and terminal value. These assumptions are based on risk-adjusted growth rates and discount factors accommodating conservative
viewpoints that consider the full range of variability contemplated in the current and potential future economic situations. 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. If future changes
to the fair value of our reporting units were to occur, we would be required to perform the second step of the goodwill impairment test to determine the ultimate amount of the impairment loss to
record.
Income Taxes and REIT Election
As a REIT, we generally will not be subject to corporate-level U.S. federal income taxes if we meet minimum distribution requirements, and certain income, asset and share ownership
tests. However, some of our subsidiaries are subject to U.S. federal, state and local taxes. In addition, foreign entities may also be subject to the taxes of the host country. An allocation is required
to be estimated on our taxable income arising from our TRSs and international entities. A deferred tax component could arise based upon the differences in U.S. GAAP versus tax income for
items such as depreciation and gain recognition.
We believe that we have been organized and operated, and intend to continue to operate, in a manner intended to qualify as a REIT under the Code and applicable state laws. A REIT
generally does not pay corporate-level U.S. federal income taxes on its REIT taxable income that it distributes to its shareholders, and accordingly we do not pay U.S. federal income tax on the
share of REIT taxable income that is distributed to our shareholders. We therefore do not estimate or accrue any U.S. federal income tax expense for income earned and distributed from REIT
operations. This estimate could be incorrect, because, due to the complex nature of REIT qualification requirements, the ongoing importance of factual determinations and the possibility of future
changes in our circumstances, we cannot be assured that we actually have satisfied or will satisfy the requirements for taxation as a REIT for any particular taxable year. For any taxable year that
we fail or have failed to qualify as a REIT and for which applicable relief provisions do not or did not apply, we would be taxed at regular corporate rates on all of our taxable income, whether or
not we made or make any distributions to our shareholders. Any resulting requirement to pay corporate income tax, including any applicable penalties or interest, could have a material adverse
effect on our business, financial condition, liquidity, results of operations and prospects, and on our ability to service our debt and make distributions to our shareholders. Unless entitled to relief
under specific statutory provisions, we also would be disqualified from taxation as a REIT for the four taxable years following the year for which qualification was lost. There can be no assurance
that we would be entitled to any statutory relief.
Our operating partnership conducts various business activities in the United States, Australia, New Zealand, Argentina and Canada through several wholly-owned TRSs. A TRS is subject
to income tax at regular corporate tax rates. Thus, income taxes for our TRSs are accounted for using the asset and liability method, under which deferred income taxes are recognized for
(i) temporary differences between the financial reporting and tax bases of assets and liabilities and (ii) operating loss and tax credit carry-forwards based on enacted tax rates expected to be in
effect when such amounts are realized or settled. Deferred tax assets are recognized only to the extent that it is more likely than not they will be realized based on consideration of available
evidence, including tax planning strategies.
102
Stock-Based Compensation
In accordance with FASB ASC Topic 718, Stock
Compensation
, as modified or supplemented, or FASB ASC Topic 718, we measure compensation cost for stock-based awards granted
to employees and non-employee trustees under our equity incentive plans, which authorize the issuance of stock options, stock appreciation rights, restricted stock, restricted stock units, stock
bonus awards, dividend equivalents with respect to our common shares, cash bonus awards, and performance compensation awards. All stock-based compensation expense is measured at the
grant date, based on the estimated fair value of the award, and is recognized on a straight-line basis as expense over the employee’s requisite service period, as adjusted for forfeitures. For the year
ended December 31, 2017 , 2016 and 2015 , we recognized $2.4 million , $2.5 million and $3.1 million , respectively, of compensation expense relating to stock options and restricted stock units
awarded to certain employees and non-employee trustees. Charges for stock-based compensation are included as a component of selling, general and administrative expenses in our consolidated
statements of operations and comprehensive income. As of December 31, 2017 , there was $5.2 million of unrecognized stock‑based compensation expense related to stock options and restricted
stock units, which will be recognized over a weighted-average period of 3.4 years .
We calculate the fair value of restricted stock units using a combination of a discounted cash flow method and a market comparable method.We calculate the fair value of stock options
awarded as stock-based compensation using the Black-Scholes-Merton option-pricing model, which requires the use of subjective assumptions, including share price volatility, the expected life of
the award, risk free interest rate and expected dividend yield. In developing our assumptions, we take into account the following:
• As a result of our status as a private company for the last several years we have not had sufficient history to estimate the volatility of our common share price. We calculate the
expected volatility based on reported data for selected reasonably similar publicly traded companies for which historical information is available. We plan to continue to use the
guideline peer group volatility information until the historical volatility of our common shares is relevant to measure expected volatility for future award grants;
• We determine the risk-free interest rate by reference to implied yields available from U.S. Treasury securities with a remaining term equal to the expected life assumed at the date of
the grant;
• We assume dividend yield is based on our historical distributions paid, excluding distributions that resulted from activities to be one-time in nature;
• Because we do not have sufficient history of exercise behavior, the expected term of the options is calculated using the assumption that the options will be exercised ratably from the
date of vesting to the end of the contractual term for each vesting tranche of awards.
We did not grant any stock options during 2017. Our calculations of the fair value of stock options granted during the years ended December 31, 2016 and 2015 were made based on the
Black-Scholes option-pricing model utilizing the following assumptions:
Weighted-average expected life
Risk-free interest rate
Expected volatility
Expected dividend yield
2017
n/a
n/a
n/a
n/a
103
2016
2015
6.6 years
6.5 years
1.6%
33%
2.0%
1.9%
40%
4.0%
The following table summarizes stock option grants under our Equity Incentive Plan adopted in 2010, or the 2010 Plan, during the years ended December 31, 2017 , 2016 and 2015:
Year Ended
December 31
2017
2016
2015
Grantee Type
Employee group
Employee group
Employee group
# of
Options
Granted
—
1,355,000
1,280,000
Vesting
Period
—
5 years
5 years
Weighted-
Average
Exercise Price
—
$9.81
$9.81
Grant Date
Fair Value
—
$
$
4,674,750
1,625,000
The following table summarizes restricted stock unit grants under the 2010 Plan during the years ended December 31, 2017 , 2016 and 2015:
Year Ended
December 31
2017
2017
2016
2015
Grantee Type
Director group
Employee group
Director group
Director group
# of
Restricted Stock
Units Granted
18,348
141,288
18,348
18,348
Vesting
Period
2-3 years
5 years
2-3 years
2-3 years
Grant Date
Fair Value
198,892
1,897,498
198,892
113,758
$
$
$
$
In 2016, we amended the agreement granting YF ART Holdings warrants to purchase 18,574,619 common shares to extend the expiration date from December 10, 2016 to March 10,
2017. As a result of this modification, we calculated the change in the estimated fair value of the warrants before and after the extension date, and concluded that the change in the expiration date
increased the estimated fair value of the warrants by $3.9 million, which we recognized as a charge to stock-based compensation expense for the year ended December 31, 2016.
We amended the warrant agreements several times during 2017, and ultimately extended the expiration date to January 31, 2018. In connection with each of these extensions, the fair
value of these warrants decreased or did not materially change. As a result, no charges to stock-based compensation were required for the year ended December 31, 2017.
NEW ACCOUNTING PRONOUNCEMENTS
See Note 2 to our consolidated financial statements included in this Annual Report on Form 10-K.
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ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
Our future income and cash flows relevant to financial instruments are dependent upon prevalent market interest rates. Market risk refers to the risk of loss from adverse changes in market
prices and interest rates.
As of December 31, 2017 , we had $922.8 million of outstanding variable-rate debt. Approximately $875.3 million of this debt consisted of certain mortgage notes, construction loans and
our Senior Secured Term Loan B Facility bearing interest at one-month LIBOR plus a margin ranging from 1.51% to 3.75% and, in the case of the Senior Secured Term Loan B Facility and
construction loans subject to a 1.0% LIBOR floor. The majority of the remaining variable rate debt is related to our Australian and New Zealand entities and bears interest at variable rates
determined by reference to the Australian Bank Bill Swap Bid Rate (BBSY) and the New Zealand Bank Bill Reference Rate (BKBM), respectively, plus, in each case, 1.4%. At December 31,
2017 , one-month LIBOR was at approximately 1.57%, therefore a 100 basis point increase in market interest rates would result in an increase in interest expense to service our variable-rate debt
of approximately $9.3 million. A 100 basis point decrease in market interest rates would result in only a $5.6 million decrease in interest expense to service our variable-rate debt.
Foreign Currency Risk
Our international revenues and expenses are generated in the currencies of the countries in which we operate, such as Australia, New Zealand, Argentina and Canada. When the local
currencies in these countries decline relative to our reporting currency, the U.S. dollar, our consolidated revenues, contribution (NOI) margins and net investment in properties and operations
outside the United States decrease.
We attempt to mitigate a portion of the risk of currency fluctuation by financing our foreign investments in local currency denominations, effectively providing a natural hedge. However,
given the volatility of currency exchange rates, there can be no assurance that this strategy will be effective. As a result, changes in the relation of the currency of our international operations to
U.S. dollars may also affect the book value of our assets and the amount of shareholders’ equity. A 10% reduction in the functional currencies of our international operations, relative to the
U.S. dollar, would have resulted in a reduction in our shareholders’ equity of approximately $7.9 million as of December 31, 2017 .
For the years ended December 31, 2017 , 2016 and 2015 , revenues from our international operations were $289.7 million, $277.2 million and $260.0 million, respectively, which
represented 18.7%, 18.6% and 17.6% of our consolidated revenues, respectively.
Net assets in international operations were approximately $79.4 million, $78.4 million and $78.4 million as of December 31, 2017 , 2016 and 2015 , respectively.
The effect of a change in foreign exchange rates on our net investment in foreign subsidiaries is reflected in the “Accumulated Other Comprehensive Income (Loss)” component of equity
of our consolidated financial statements included in this Annual Report on Form 10-K.
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ITEM 8. Financial Statements and Supplementary Data
The Consolidated Balance Sheets of Americold Realty Trust and subsidiaries as of December 31, 2017 and 2016, and the related Consolidated Statements of Operations, Comprehensive
Income (Loss), Shareholders’ Equity (Deficit) and Cash Flows Statement for each of the three years in the period ended December 31, 2017, the Notes to the Consolidated Financial Statements
and Schedule III — Real Estate and Accumulated Depreciation, together with the reports of Ernst & Young LLP, independent registered public accounting firm, are included as a separate section
of this Annual Report on Form 10-K. See Item 15, which is incorporated herein by reference. Selected unaudited quarterly financial data are presented in Note 24 of the Consolidated Financial
Statements.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
ITEM 9A. Controls and Procedures
In accordance with Rule 13a-15(b) of the Exchange Act, the Company’s management, with the participation of the Chief Executive Officer and the Chief Financial Officer, carried out an
evaluation of the effectiveness of the Company’s “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act, as of the end of the period covered by
this Annual Report on Form 10-K. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures
were effective as of December 31, 2017.
Our management is responsible for establishing and maintaining adequate “internal control over financial reporting,” as defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Our
management, including the Chief Executive Officer and Chief Financial Officer does not expect that our internal controls will prevent all error and all fraud. A control system, no matter how well
conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that
there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide
absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.
This Annual Report on Form 10-K does not include a report of management’s assessment regarding internal control over financial reporting or an attestation report of the Company’s
independent registered public accounting firm due to a transition period established by rules of the Securities and Exchange Commission for newly public companies. We will be required to
obtain an audit report from our independent registered public accounting firm beginning in 2018 regarding the effectiveness of our internal control over financial reporting.
ITEM 9B. Other Information
None.
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PART III
ITEM 10. Directors, Executive Officers and Corporate Governance
The following table sets forth certain information regarding our current executive officers and trustees as of March 23, 2018. There are no family relationships among any of our trustees
or executive officers.
Name
Executive
Officers
Fred Boehler
Marc Smernoff
Andrea Darweesh
Thomas Musgrave
Thomas Novosel
Non-Employee
Trustees
George J. Alburger, Jr.*
Jeffrey M. Gault
Bradley J. Gross *
James R. Heistand*
Joel A. Holsinger
Michelle M. MacKay*
Mark R. Patterson*
Andrew P. Power*
Age
Position(s)
50
44
46
47
59
70
71
45
66
42
51
57
38
Chief Executive Officer, President and Trustee
Chief Financial Officer and Executive Vice President
Chief Human Resources Officer and Executive Vice President
Chief Information Officer and Executive Vice President
Chief Accounting Officer and Senior Vice President
Trustee
Chairman of the Board of Trustees
Trustee
Trustee
Trustee
Trustee
Trustee
Trustee
__________________
* Our board of trustees has determined that this individual is independent for purposes of NYSE listing standards.
Executive Officers
Fred
Boehler
has served as our President and Chief Executive Officer and as a member of our board of trustees since December 2015. Prior to that, he served as our Chief Operating
Officer from February 2013 until December 2015. Before joining our team, Mr. Boehler was a Senior Vice President at SUPERVALU INC. (NYSE: SVU) from March 2009 to February 2013
and held various positions at Borders Group, Inc. from November 1999 to March 2009, most recently serving as Senior Vice President, Logistics & Planning. Mr. Boehler received his bachelor’s
degree from Wright State University and his M.B.A. from Northern Illinois University. We believe Mr. Boehler’s years of experience with us and other logistics companies, his comprehensive
knowledge of our business and inside perspective of our day-to-day operations qualify him to serve on our board of trustees.
Marc
Smernoff
has served as our Chief Financial Officer and Executive Vice President since August 2015. Prior to that, he served as our Chief Administrative Officer and Executive Vice
President from August 2014 until August 2015. From August 2004 through April 2015, he served as a Director at The Yucaipa Companies, LLC. Prior to joining Yucaipa, from 2003 to 2004 he
was a Manager in the Transaction Services group at KPMG, and from 2000 through 2002, he was an associate at Wells Fargo Securities. Mr. Smernoff was a member of our board of trustees
from March 2008 until December 2009 and has served on the board of directors of Eimskipafélag Islands hf (NASDAQ OMX: EIM) since September 2009. Mr. Smernoff is a certified public
accountant. He received his bachelor’s degree from the University of California, Santa Barbara and his M.B.A. from UCLA.
Andrea
Darweesh
has served as our Chief Human Resources Officer and Executive Vice President since September 2016. From November 2012 to February 2016, Ms. Darweesh served
as Executive Vice President and
107
Chief Human Resources Officer with The Weather Channel. Prior to that, Ms. Darweesh served as Vice President, Talent Management at Nordstrom Inc. (NYSE: JWN) from August 2008 to
November 2012 and Vice President, Global Team Management at Equifax (NYSE: EFX) from 2006 to 2008. Ms. Darweesh received her bachelor’s degree from Texas Tech University and her
M.B.A. from Emory University.
Thomas
Musgrave
has served as our Chief Information Officer and Executive Vice President since December 2013. Mr. Musgrave served as our Senior Vice President of Information
Technology from February 2013 to December 2013 and our Vice President of Information Technology from October 2011 to February 2013. From October 2006 to October 2011, Mr. Musgrave
served as the Vice President of Information Technology at Syncreon. Mr. Musgrave received his bachelor’s degree from North Central College.
Thomas
Novosel
has served as our Chief Accounting Officer and Senior Vice President since October 2013. Prior to joining our team, Mr. Novosel served as Chief Accounting Officer at
Equity Lifestyle Properties (NYSE: ELS) from April 2012 to April 2013. From April 2010 to March 2012, he was an Audit Partner at Mueller & Company. From August 2005 to August 2009,
Mr. Novosel was the National Managing Partner for the Construction, Real Estate and Hospitality practice at Grant Thornton. From April 2001 to October 2004, he served as Chief Accounting
Officer at Apartment Investment and Management Company (NYSE: AIV). Prior to that he was an Audit Partner at Ernst & Young LLP. Mr. Novosel received his bachelor’s degree in public
accounting from Loyola University of Chicago and is a Certified Public Accountant.
Non-Employee Trustees
George
J.
Alburger,
Jr.
has served as a member of our board of trustees since May 2010. Mr. Alburger has served as a member of the board of directors of Pennsylvania REIT (NYSE:
PEI) since June 2017. Mr. Alburger was formerly Executive Vice President and Chief Financial Officer of Liberty Property Trust (NYSE: LPT) from May 1995 until June 2016. Prior to that,
Mr. Alburger served for nine years as Chief Financial Officer of EBL&S Property Management, Inc. Prior to joining EBL&S in 1982, Mr. Alburger was a senior manager at PriceWaterhouse
LLP. Mr. Alburger is a certified public accountant and a member of the American Institute of Certified Public Accountants. He received his bachelor’s degree from St. Joseph’s University. We
believe Mr. Alburger’s financial and accounting background, deep industry knowledge and years of experience qualify him to serve on our board of trustees.
Jeffrey
M.
Gault
has served as a member of our board of trustees since November 2011. From February 2012 through March 2014, Mr. Gault served as our President and Chief Executive
Officer. Since March 31, 2014, he has served as Chairman of our board of trustees. Mr. Gault is the founder and owner of Solus Property Company and its affiliates which was incorporated in
1979. He has 40 years of experience in the real estate industry having managed businesses and/or provided advisory services to affiliates of H. F. Ahmanson & Company, Home Savings of
America, FA., SunAmerica, Inc., Hyatt Corporation, KB Home, Whitehall Funds, an affiliate of The Goldman Sachs Group, Inc., NorthStar Realty Finance and Westbrook Partners. Mr. Gault
presently serves as the chairman of the board of Apollo Real Estate Finance, Inc. (NYSE: ARI) and is a member
of the board of directors of Great Wolf Resorts, a Centerbridge Partners portfolio company. He has previously served as a member of the board of directors of Classic Party Rentals, an Apollo
Global Management portfolio company and as a member of the board of Morgan’s Hotel Group (NYSE: MHGC). Mr. Gault is a member of the board of directors of our subsidiary, AmeriCold
Logistics, LLC. Mr. Gault received his bachelor’s degree in architecture from the University of California at Berkeley and a master’s degree in Environmental Design from Yale University. He is
a member and former trustee of the Urban Land Institute, former chairman of the Advisory Board of the Fisher Center for Real Estate & Urban Economics at the University of California and a
member emeritus of the American Institute of Architects. We believe Mr. Gault’s experience in strategic planning,
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corporate finance and the real estate industry qualify him to serve on our board of trustees. Mr. Gault is one of the designees of YF ART Holdings, as designated by affiliates of Yucaipa, to our
board of trustees.
Bradley
J.
Gross
has served as a member of our board of trustees since December 2010. Mr. Gross joined Goldman Sachs & Co. LLC in 1995. He rejoined the firm after attending
business school in 2000 and later was named Vice President in 2003, managing director in 2007 and, since 2012, has served as a partner. Mr. Gross has served as a member of the board of
directors of Open Road Parent, LLC since June 2017, Griffon Corporation (NYSE: GFF) since September 2008, ProQuest Holdings LLC since November 2013, PSAV Holdings LLC since
January 2014, Neovia Logistics Holdings, Ltd since February 2015 and MDC Partners since March 2017. From May 2011 to October 2015, Mr. Gross served on the board of directors of Flynn
Restaurant Group, LLC and from September 2012 until August 2015, Mr. Gross served on the board of directors of Interline Brands, Inc. Additionally, from August 2007 until September 2014,
Mr. Gross served on the board of directors of Aeroflex, Inc. Mr. Gross received his bachelor’s degree from Duke University and an M.B.A. from the Stanford University Graduate School of
Business. We believe Mr. Gross’s experience in corporate finance, mergers and acquisitions and prior board experience qualify him to serve on our board of trustees. Mr. Gross is the designee of
the GS Entities to our board of trustees.
Joel
A.
Holsinger
has served as a member of our board of trustees since February 2015. Mr. Holsinger is a Partner at Fortress Investment Group LLC, a position he has held since
December 2008. An investment fund affiliated with Fortress is one of our significant shareholders. Prior to that, Mr. Holsinger co-founded and was a Partner at Atalaya Capital Management from
April 2006 until December 2008. Mr. Holsinger has served on the board of directors of Smarte Carte since February 2014. Mr. Holsinger received his bachelor’s degree in finance from California
State University, Fullerton. We believe Mr. Holsinger’s experience in private equity, corporate finance and strategic planning qualify him to serve on our board of trustees. Mr. Holsinger is one of
the designees of YF ART Holdings, as designated by the Fortress Entity, to our board of trustees.
James
R.
Heistand
has served as a member of our board of trustees and as lead independent trustee since January 2018. Mr. Heistand has served as the President and Chief Executive
Officer of Parkway Property Investments, LLC since October 2017. Before that, he served as President and Chief Executive Officer of Parkway Properties, Inc. from April 2012 until October
2016 and President and Chief Executive Officer of Parkway, Inc. from October 2016 until October 2017. He has been a member of the board of directors of Parkway Property Investments, LLC
since 2016 and was a member of the board of directors of Legacy Parkway from December 2011 until 2016. Prior to joining Legacy Parkway, Mr. Heistand founded and served as chairman of
Eola Capital LLC, a privately owned property management company, since its inception in 2000. Mr. Heistand is a member of the chairman’s circle of the real estate advisory board for the
Warrington College of Business Administration at the University of Florida. Mr. Heistand graduated from the University of Florida with a B.S. in Real Estate Finance. We believe Mr. Heistand’s
deep experience in real estate strategic planning, investment, development and asset management qualifies him to serve on our board of trustees.
Michelle
M.
MacKay
has served as a member of our board of trustees since January 2018. Ms. MacKay is currently a Senior Consultant to iStar Financial, a publicly traded REIT (NYSE:
STAR). From 2003 through February 2017, Ms. Mackay was an Executive Vice President of Investments and, since 2009, Head of Capital Markets of iStar Financial. She also has served on its
Senior Management Committee since 2010 and previously served on its Investment Committee from 2003 to 2010. Ms. MacKay previously served as a member of the Board of Directors of WCI
Communities, Inc., a publicly traded company listed on the NYSE from 2010 until its acquisition by Lennar Corporation in February 2017. During her tenure on the Board of Directors of WCI,
Ms. MacKay was Head of the Nominating and Governance Committee and also served as a member of the Compensation and Audit Committees. Ms. MacKay has more than 20 years of
experience in the real estate industry. Her background includes investing in real estate through financings, direct ownership and structured
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products. Ms. MacKay also previously served as a Senior Vice President at UBS Paine Webber from 1998 to 2001 and as a Vice President at Chase Bank from 1996 to 1998. Ms. MacKay holds a
B.A. in political science from the University of Connecticut and an M.B.A. from the University of Hartford. We believe Ms. MacKay’s extensive knowledge of the real estate industry,
background in the capital markets, as well as leadership experience with a publicly traded REIT qualifies her to serve on our board of trustees.
Mark
R.
Patterson
has served as a member of our board of trustees since January 2018. Mr. Patterson serves as President of MP Realty Advisors, LLC and has served in that role since
January 2009. He also serves as a real estate consultant and financial advisor. From September 2010 until December 2014, Mr. Patterson served as Chief Executive Officer of Boomerang
Systems, Inc. In August 2015, Boomerang Systems, Inc. filed for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code. Prior to that, he served as the Managing Director and the Head of
Real Estate Global Principal Investments at Merrill Lynch, Pierce, Fenner & Smith Incorporated, where he oversaw real estate investing activities from 2005 to 2009. Mr. Patterson also served as
Global Head of Real Estate Investment Banking and Co-Head of Global Commercial Real Estate at the firm until 2009. He served as a member of the board of directors for GGP Inc. (NYSE:
GGP) from 2011 to 2017, a member of the board of directors for UDR, Inc. (NYSE: UDR) since 2014, a member of the board of directors of Digital Realty Trust, Inc. (NYSE: DLR) since 2016
and a member of the board of directors for Investcorp (BSE: INVCORP). He has a B.B.A. from the College of William and Mary and an M.B.A. from the Darden School of Business at the
University of Virginia. He is also a certified public accountant. We believe Mr. Patterson’s financial and real estate industry expertise, extensive experience working with public companies in the
real estate industry and experience on the boards of directors of public companies qualify him to serve on our board of trustees.
Andrew
P.
Power
has served as a member of our board of trustees since January 2018. Mr. Power is the Chief Financial Officer of Digital Realty Trust, Inc. (NYSE: DLR) and has served
in that role since May 2015. Prior to joining Digital Realty, Mr. Power was employed by Merrill Lynch, Pierce, Fenner & Smith Incorporated from 2011 to April 2015, where he most recently
served as Managing Director of Real Estate, Gaming and Lodging Investment Banking, and was responsible for relationships with over 40 public and private companies. Mr. Power was
employed by Citigroup Global Markets Inc. from 2004 to 2011 where he most recently served as Vice President. During his career, Mr. Power has managed the execution of public and private
capital raises in excess of $30 billion, including the then-largest REIT IPO, and more than $19 billion of merger and acquisitions transactions. Mr. Power received a B.S. in Analytical Finance
from Wake Forest University. We believe Mr. Power’s significant experience in the financial and real estate industries qualifies him to serve on our board of trustees.
Our Corporate Governance
We have structured our corporate governance in a manner we believe closely aligns our interests with those of our shareholders. Notable features of our corporate governance includes the
following:
•
•
•
•
at least a majority of our trustees is “independent” in accordance with NYSE listing standards and our board of trustees is comprised of at least a majority of trustees not appointed by
any of Yucaipa or its affiliates, the GS Entities or the Fortress Entity;
each of our audit, compensation and nominating and corporate governance committees is comprised of trustees that are “independent” in accordance with NYSE listing standards;
our independent trustees meet regularly in executive sessions without the presence of our officers or our non-independent trustees;
our board of trustees is not classified and each of our trustees is subject to re-election annually, and we will not classify our board of trustees in the future without the affirmative vote
of at least a majority of the votes cast on the matter by shareholders entitled to vote generally in the election of trustees;
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at least one of our trustees serving on our audit committee qualifies as an “audit committee financial expert” as defined by the SEC; and
•
• we opted out of the Maryland business combination and control share acquisition statutes, and in the future will not opt in without the affirmative vote of at least a majority of the votes
cast on the matter by shareholders entitled to vote generally in the election of trustees.
On any vote to opt in to Subtitle 8, the Maryland business combination statute, or the control share acquisition statute, YF ART Holdings (including its affiliates) will vote its common
shares for and against the matter in the same proportion as the number of votes cast for and against the proposal to opt in by other shareholders until YF ART Holdings (including its affiliates)
ceases to own at least 20% of the outstanding voting power.
Board Committees
Our board of trustees has three committees: the audit committee, the compensation committee and the nominating and corporate governance committee. Each committee reports to our
board of trustees as they deem appropriate and as our board of trustees may request. Each committee has the composition, duties and responsibilities described below and is comprised only of
members who are “independent” in accordance with NYSE listing standards. Members serve on these committees until their resignations or until otherwise determined by our board of trustees.
The charter of each committee is available on our website at www.americold.com. In the future, our board of trustees may establish other committees, as it deems appropriate, to assist it with its
responsibilities.
Audit Committee
Our board of trustees adopted a written charter for our audit committee that complies with NYSE listing standards. The primary purpose of our audit committee is to assist our board of
trustees’ oversight of:
•
•
•
•
•
•
•
the integrity of our financial statements;
our internal financial reporting and compliance with our financial, accounting and disclosure controls and procedures;
the qualifications, engagement, compensation, independence and performance of our independent registered public accounting firm;
our independent registered public accounting firm’s annual audit of our financial statements and the approval of all audit and permissible non-audit services;
the performance of our internal audit function;
our legal and regulatory compliance; and
the approval of related party transactions.
Our audit committee is composed of Messrs. Alburger, Heistand and Power. Mr. Alburger serves as chair of our audit committee. Our board of trustees has determined affirmatively that
(i) Mr. Alburger qualifies as an “audit committee financial expert” as such term has been defined by the SEC in Item 407(d)(5) of Regulation S-K and (ii) each member of our audit committee is
“financially literate” as that term is defined by NYSE listing standards and meets the definition for “independence” for the purposes of serving on our audit committee under NYSE listing
standards and Rule 10A-3 under the Exchange Act.
Compensation Committee
Our board of trustees adopted a written charter for our compensation committee that complies with NYSE listing standards. The primary purposes of our compensation committee is to:
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•
•
set the overall compensation philosophy, strategy and policies for our executive officers and trustees;
annually review and approve corporate goals and objectives relevant to the compensation of our Chief Executive Officer and other key employees and evaluate performance in light of
those goals and objectives;
review and determine the compensation of our trustees, Chief Executive Officer and other executive officers;
•
• make recommendations to our board of trustees with respect to our incentive and equity-based compensation plans; and
review and approve employment agreements and other similar arrangements between us and our executive officers.
•
Our compensation committee is composed of Ms. MacKay and Messrs. Heistand and Power. Mr. Heistand serves as chair of our compensation committee. Our board of trustees has
determined affirmatively that each member of our compensation committee meets the definition for “independence” for the purpose of serving on our compensation committee under applicable
rules of the NYSE and each member of our compensation committee meets the definition of a “non-employee trustee” for the purpose of serving on our compensation committee under Rule 16b-
3 of the Exchange Act.
Nominating and Corporate Governance Committee
Our board of trustees adopted a written charter for our nominating and corporate governance committee that complies with NYSE listing standards. The primary purposes of our
nominating and corporate governance committee is to:
•
•
•
•
•
recommend to our board of trustees for approval the qualifications, qualities, skills and expertise required for board of trustees membership;
identify potential members of our board of trustees consistent with the criteria approved by our board of trustees and select and recommend to our board of trustees the trustee
nominees for election at annual meetings of shareholders or to otherwise fill vacancies;
evaluate and make recommendations regarding the structure, membership and governance of the committees of our board of trustees;
develop and make recommendations to our board of trustees with regard to our corporate governance policies and principles, including development of a set of corporate governance
guidelines and principles applicable to us; and
oversee the annual review of our board of trustees’ performance, including committees of our board of trustees.
Our nominating and corporate governance committee is comprised of Messrs. Heistand and Patterson and Ms. MacKay. Mr. Patterson serves as chair of our nominating and corporate
governance committee. Our board of trustees has determined affirmatively that each member of our nominating and corporate governance committee meets the definition of independence under
NYSE listing standards.
Board Leadership Structure
Mr. Gault serves as the non-executive chairman of our board of trustees, Mr. Heistand serves as the lead independent trustee of our board of trustees and Mr. Boehler serves as our
principal executive officer. Our board of trustees believes that separating the roles of chairman and principal executive officer provides us with strong independent governance and allows our
principal executive officer to focus on the leadership and management of
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our business. Our bylaws and corporate governance guidelines, however, provides us with the flexibility to consolidate these roles in the future, permitting the roles of chairman and principal
executive officer to be filled by one individual. This provides our board of trustees with flexibility to determine whether these two roles should be combined in the future based on our needs and
our board of trustees’ assessment of our leadership structure from time to time. Our board of trustees will re-evaluate its leadership structure on an ongoing basis and may change it as
circumstances warrant.
Risk Oversight
Our board of trustees is currently responsible for overseeing our risk management process. Our board of trustees focuses on our general risk management strategy and the most significant
risks facing us, and ensures that appropriate risk mitigation strategies are implemented by management. Our board of trustees is also apprised of particular risk management matters in connection
with its general oversight and approval of corporate matters and significant transactions.
Our board delegates to our audit committee oversight of our risk management process. Our other board committees also consider and address risk as they perform their respective
committee responsibilities. All committees report to the full board of trustees as appropriate, including when a matter rises to the level of a material or enterprise level risk.
Our management is responsible for day-to-day risk management. This oversight includes identifying, evaluating and addressing potential risks that may exist at the enterprise, strategic,
financial, operational, compliance and reporting levels.
Code of Business Conduct and Ethics
We have adopted a code of business conduct and ethics applicable to our principal executive, financial and accounting officers and all persons performing similar functions. A copy of that
code is available on our corporate website at www.americold.com. Any amendments to the code of business conduct and ethics or waivers of the code for our trustees and executive officers will
be posted on our corporate website promptly following the date of such amendment or waiver.
Compensation Committee Interlocks and Insider Participation
None of our executive officers currently serves, or in the past year has served, on the compensation committee or board of directors of any other company of which any members of our
compensation committee or any of our trustees is an executive officer.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our executive officers, trustees, principal accounting officer and persons who beneficially own more than 10% of our common
shares, or the Reporting Persons, to file with the SEC and the NYSE initial reports of ownership and reports of changes in beneficial ownership. Such Reporting Persons are required
by SEC regulations to furnish us with copies of all Section 16(a) forms they file.
Due to the timing of our IPO and when the Reporting Persons became subject to the reporting requirements of Section 16(a) in January 2018, none of the Reporting Persons
was subject to Section 16(a) during the year ended December 31, 2017.
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ITEM 11. Executive Compensation
Compensation Discussion and Analysis
This Compensation Discussion and Analysis provides an overview of our executive compensation program and explains our compensation philosophy, objectives and design. It includes a
description of the compensation provided in fiscal year 2017 to our principal executive officer, our principal financial officer and our three other most highly compensated executive officers, who
are referred to collectively as our “named executive officers.” Our named executive officers for fiscal year 2017 were:
Fred Boehler, our Chief Executive Officer and President;
•
• Marc Smernoff, our Chief Financial Officer and Executive Vice President;
• Andrea Darweesh, our Chief Human Resources Officer and Executive Vice President;
•
•
Thomas Musgrave, our Chief Information Officer and Executive Vice President; and
Thomas Novosel, our Chief Accounting Officer and Senior Vice President.
This compensation discussion and analysis focuses primarily on the information contained in the compensation tables below and related footnotes. We also describe current expectations
about future compensation programs adopted in connection with the IPO.
Overview
Our pre-IPO compensation committee as in place prior to the IPO, was responsible for determining the elements that comprise our executive compensation program in general prior to the
IPO, as well as approving the annual performance objectives associated with our annual incentive compensation plan and approving equity grants made to employees, all as described below.
Most, if not all, of our pre-IPO compensation policies and determinations, including those made for fiscal year 2017, were the product of informal discussions between our Chief Executive
Officer and our pre-IPO compensation committee.
As a privately owned company, we were not required to maintain an independent compensation committee. After completion of the IPO, we established an independent compensation
committee that has responsibility for administering our executive compensation program.
Executive Compensation Philosophy and Objectives
We have designed our executive compensation program to help attract, motivate and retain talented, high-caliber executive officers necessary to lead us in achieving business success. A
key objective is to reward executive officers based upon the achievement of our results. Our executive compensation program is designed to align the performance of our executive officers with
our business plan and strategic objectives by focusing management on achieving strong short-term performance in a manner that supports our strategy for long-term success and profitability. The
components of our current executive compensation program, including base salary, annual cash incentive awards, equity-based incentive awards and retirement and health and welfare benefits,
are designed to support our executive compensation objectives.
We also intend for our executive compensation program to be reasonable and responsible yet competitive relative to compensation paid to similarly situated executive officers at
comparable companies. While we believe that it is critical that our overall compensation levels are sufficiently competitive to attract talented leaders and motivate our executive officers to achieve
superior results, our executive compensation program is also intended to be consistent with our focus on managing costs.
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A portion of the compensation of our named executive officers has historically consisted of cash incentive compensation contingent upon the achievement of pre-determined financial
performance metrics as well as equity-based awards in the form of stock options and restricted stock units. These two elements of executive compensation are designed to be aligned with the
interests of our shareholders because the amount of compensation ultimately received will vary with our financial and share price performance, encourage equity ownership and promote retention
of key talent. Equity-based compensation derives its value from the value of our equity, which is likely to fluctuate based on our financial performance. Payment of cash incentives is dependent
on our achievement of pre-determined financial objectives.
We seek to apply a consistent philosophy to compensation for all executive officers. The compensation components described below are designed to simultaneously fulfill one or more of
the above principles and objectives.
Compensation Decision-Making Process
Prior to the IPO, we were a privately-held company with a relatively small number of shareholders, including our principal shareholders, consisting of certain investment funds affiliated
with Yucaipa. As a result, we were not subject to any stock exchange listing or SEC rules requiring a majority of our board of trustees to be independent or relating to the formation and
functioning of board committees, including a compensation committee.
Historically, our pre-IPO compensation committee was responsible for determining the elements that comprise our executive compensation program in general, as well as determining
base salary amounts and increases for executive officers (based upon recommendations from our Chief Executive Officer), approving the annual performance objectives associated with our short-
term incentive compensation plan and approving the equity grants made to employees, as described below.
We have employment agreements with each of our named executive officers that provide for annual compensation and post-termination compensation. The terms of these employment
agreements were negotiated with each executive officer by our pre-IPO compensation committee, based on a variety of informal factors considered at the time of the applicable compensation
decisions, including our financial condition and available resources, the need for a particular position to be filled, the length of service of the named executive officer and comparisons to the
compensation levels of our other executive officers.
Our pre-IPO compensation committee historically considered the compensation of our executive officers through a review of publicly available market studies and other information
regarding the competitive executive compensation environment to assess whether our executive officers are generally compensated at competitive levels. In addition, our Chief Executive Officer
and other executive officers as well as members of our board of trustees have substantial industry experience regarding the compensation provided to executive officers of other companies in our
industry through informal discussions with recruiting firms and general research and survey data as well as their experience in determining compensation at other companies. In addition, our
Chief Executive Officer and, in the case of our Chief Executive Officer, our existing compensation committee, have reviewed the performance of each of our named executive officers on an
annual basis. Based on his assessment of the competitive market and individual performance, our Chief Executive Officer has presented compensation recommendations to our existing
compensation committee for its consideration and approval, but has not made any recommendations with respect to his own compensation. Our existing compensation committee has reviewed
these proposals and has made all final compensation decisions for executive officers by exercising its discretion in accepting, modifying or rejecting any such recommendations.
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In August 2016, management engaged FPL Associates, LP, or FPL, to provide competitive market data and recommendations in connection with our analysis of cash and equity
compensation practices for our executive officers in anticipation of our IPO. FPL did not provide any advice or make any recommendations regarding our 2017 executive compensation program.
As we gain experience as a public company, we expect that the specific direction, emphasis and components of our executive compensation program will continue to evolve.
Elements of Compensation
In fiscal year 2017, our compensation program for our named executive officers consisted of the following elements:
•
•
•
Base
Salary
. A fixed cash payment intended to attract and retain talented individuals, recognize career experience, reflect job responsibilities and expected future contributions and
provide market competitive compensation.
Short-Term
Incentives
. Our Short-Term Incentive Plan, or STIP, provides annual cash incentive opportunities based upon our performance that is intended to promote and reward
achievement of our annual financial and strategic objectives.
Long-Term
Incentives
. Historically, we have made grants of service-based and performance-based stock options and restricted stock units intended to align the executive officer’s
interests with those of our shareholders by tying value to our long-term performance. Grants are generally made at the time of hire with periodic grants thereafter. In fiscal 2017, only
one of our named executive officers, Mr. Boehler, received a long-term incentive grant.
• Other
Benefits
and
Perquisites
. Health and welfare benefits (including medical, dental, vision, life and disability insurance) are intended to provide comprehensive benefits. Other
benefits offered to our named executive officers include 401(k) matching contributions, deferred compensation employer contributions, payment of insurance premiums, relocation
assistance and airfare reimbursement.
Post-Termination
Benefits
. The existing employment agreements with our executive officers provide post-termination arrangements that we believe are competitive in our industry and
are intended to attract and retain qualified executive officers.
•
Mix of Compensation
Executive compensation includes both fixed components (base salary) and variable components (annual cash incentive awards and periodic grants of stock options or restricted stock
units). The fixed components of compensation are designed to be competitive in order to induce talented executive officers to join us, as well as retain such key talent. Salary increases and
revisions to the fixed components of compensation occur infrequently aside from promotions, substantial increases to the executive officer’s scope of responsibility and the competitive
environment in our industry. Salary increases are, in part, designed to reward executive officers for their management activities during the year.
The variable compensation related to our STIP is tied to the achievement of our annual financial objectives. Our STIP is designed to align each executive officer’s annual goals with our
financial goals as set by our board of trustees. The other material element to variable compensation is the periodic grant of stock options or restricted stock units. As a privately-held company,
these stock options and restricted stock units have had no public market and no opportunity for liquidity, making them inherently long-term compensation.
We also provide retirement and health and welfare benefits, executive perquisites and post-termination benefits to our executive officers that are intended to be part of a competitive
compensation program consistent with the compensation practices within our industry.
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Base Salary
Base salaries for named executive officers are determined by our compensation committee and are designed to reflect each executive officer’s level of experience, responsibilities and
expected future contributions to our success, as well as market competitiveness. The base salaries for each of our named executive officers were initially determined in connection with the arms’
length negotiation of the terms of their employment with our company. In connection with Mr. Boehler’s promotion to Chief Executive Officer in 2015, our pre-IPO compensation committee
engaged a third-party compensation consultant to assist its review of executive compensation for chief executive officers at comparable companies. Historically, base salaries are reviewed in
connection with potential promotions but have not otherwise been increased on an annual basis.
For fiscal year 2017, the annual base salaries of our named executive officers were as follows: Mr. Boehler—$850,000; Mr. Smernoff—$450,000; Ms. Darweesh—$375,000;
Mr. Musgrave—$320,000; and Mr. Novosel—$314,150. In recognition of his significant efforts during 2016, Mr. Boehler’s 2017 base salary reflects a 21% increase from his 2016 base salary
level. None of the other named executive officers received base salary increases in 2017. On March 27, 2018, the compensation committee approved base salary increases for some of our named
executive officers, effective as of April 2, 2018. The new base salaries for our impacted executive officers are as follows: Ms. Darweesh - $384,375; Mr. Musgrave - $326,400; and Mr. Novosel -
$322,000.
Following the completion of the IPO, we expect that our compensation committee, with assistance from its compensation consultant, will conduct a review of each named executive
officer’s base salary on an annual basis or at such time as responsibilities change, and our compensation committee will consider factors such as individual performance, our operating metrics and
financial performance, base salaries of executive officers at similarly situated companies and the competitive environment in our industry in determining whether salary adjustments are
warranted.
Short-Term Incentive Compensation
In addition to receiving base salaries, our named executive officers are eligible to earn annual incentive awards under our STIP based upon the attainment of specific financial
performance objectives. The annual cash incentive awards under our STIP are intended to offer incentive compensation by rewarding the achievement of corporate objectives linked to our overall
financial results. We believe that establishing annual cash incentive opportunities under our STIP helps us attract and retain qualified and highly skilled executive officers. These annual cash
incentive awards under our STIP are intended to reward executive officers who have a positive impact on our financial results.
Setting
Target
Award
Levels
On an annual basis, our executive officers are eligible to receive an annual cash incentive award equal to a percentage of each executive officer’s base salary upon the achievement of a
pre-established financial performance measure. The target levels of annual cash incentive award opportunity under our STIP are set forth in each named executive officer’s employment
agreement. For fiscal year 2017, the target level of annual cash incentive award for Mr. Boehler was 100% of base salary, the target level for each of Mr. Smernoff, Ms. Darweesh and Mr.
Musgrave, was 60% of base salary, and the target level for Mr. Novosel was 35% of base salary.
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Setting
Performance
Objectives
Each year, our pre-IPO compensation committee has established our financial performance objective and set a threshold, target and maximum amount with reference to achieving pre-set
levels of desired financial performance, with consideration given to our annual and long-term financial plan, as well as to macroeconomic conditions. For fiscal year 2017, all of our named
executive officers’ annual cash incentive award opportunities under our STIP were determined based upon the achievement of target levels of Adjusted EBITDA, as defined below. Our pre-IPO
compensation committee believes this corporate performance objective reflected our overall company goals for fiscal year 2017, which balanced the achievement of revenue growth with
improving our operating efficiency.
Our pre-IPO compensation committee has historically attempted to maintain consistency year-over-year with respect to the difficulty of achieving the financial performance objectives
under our STIP. Our annual Adjusted EBITDA financial target typically increases each year to promote continuous growth consistent with our business plan. The financial performance targets are
designed to be realistic and attainable though slightly aggressive, requiring in each fiscal year strong performance and execution that in our view provides an annual incentive firmly aligned with
shareholder interests.
2017
STIP
For 2017, the annual cash incentive payment under our STIP for all of our named executive officers was based solely on achievement of the Adjusted EBITDA performance metric. For
fiscal year 2017, the Adjusted EBITDA threshold, target and maximum amounts under our STIP were as follows (dollars in millions):
Measure
Adjusted EBITDA (1)
Threshold
Target
Maximum
$
259.0 $
272.6 $
286.2
(1) Adjusted EBITDA, as used to determine performance under the STIP, is defined as Core EBITDA calculated on a constant currency basis.
Participants receive a payout of 0% of the target payout if Adjusted EBITDA falls at or below the minimum threshold (95%). 2017 STIP payouts for financial performance above the
threshold level will be prorated on a graduated scale commensurate with performance levels in accordance with the following schedule:
% of target performance level
Bonus as a % of target
95%
96%
97%
98%
99%
100%
101%
102%
103%
104%
105% (any beyond)
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—%
20%
40%
60%
80%
100%
110%
120%
130%
140%
150%
The target and maximum amounts potentially payable under the 2017 STIP to our named executive officers are set forth below:
Name
Fred Boehler
Marc Smernoff
Andrea Darweesh
Thomas Musgrave
Thomas Novosel
Target ($)
Maximum ($)
812,500
270,000
225,000
192,000
109,090
1,218,750
405,000
337,500
288,000
163,635
For 2017, actual Adjusted EBITDA was $287.1 million, resulting in a payout of 150% of the maximum amount under th 2017 STIP. Actual amounts paid to each named executive officer
under the 2017 STIP are set forth in the Summary Compensation Table.
Long-Term Incentive Compensation
Our pre-IPO compensation committee believes that equity-based compensation is an important component of our executive compensation program. Additionally, our pre-IPO
compensation committee believes that equity-based compensation awards enable us to attract, motivate, retain and adequately compensate executive talent. To that end, our pre-IPO compensation
committee periodically awarded long-term equity-based compensation in the form of stock options to acquire common shares. Stock options are designed to reward longer-term performance,
facilitate equity ownership, deter recruitment of our key personnel by competitors and others and further align the interests of our executive officers with those of our shareholders. Generally,
each executive officer is provided with a grant of stock options when he or she joins our company based upon his or her position with us and his or her relevant prior experience. In addition, from
time to time, our existing compensation committee has granted additional awards to align the executive officer’s interests with those of our shareholders by tying value to long-term company
performance.
These stock option grants typically vest ratably over the course of five years, subject to continued employment on the vesting date, to encourage executive longevity and to compensate
our executive officers for their contribution to our success over a period of time.
The stock options generally have an exercise price equal to or greater than the fair market value of our common shares on the applicable date of grant. Prior to the IPO, fair market value
has been determined based on the good faith determination of our board of trustees in reliance upon third-party valuations. After the IPO, we will determine fair market value for purposes of
equity-based award pricing based upon the closing price of our common shares on the date of grant.
Pursuant to the terms of his existing employment agreement, Mr. Boehler was entitled to receive a grant of stock options on March 1, 2017, which options were subject to forfeiture if the
2017 Adjusted EBITDA target is not satisfied. On March 1, 2017, our existing compensation committee granted Mr. Boehler 71,428 restricted stock units in lieu of this stock option grant. The
restricted stock units were subject to forfeiture if the 2017 Adjusted EBITDA target is not satisfied. Since the performance target for 2017 was satisfied, the restricted stock units will vest 20% per
year over five years on the anniversary of the vesting date, beginning March 1, 2019. No other named executive officers received stock options or any other equity based awards in 2017.
119
Other Compensation and Benefits
In accordance with the existing employment agreements, we provide certain other compensation, benefits and perquisites to our executive officers, as described below.
Severance Payments
In accordance with the existing employment agreements, executive officers are entitled to receive severance payments upon certain termination events. See the section titled “—Potential
Payments Upon Termination or Change of Control—Existing Employment Agreements” for a description of these severance payments.
Retirement and Health and Welfare Benefits
We provide our named executive officers with retirement and health and welfare benefits that are intended to be part of a competitive compensation program. All named executive officers
are eligible for health and welfare benefits including: medical, dental, vision, short- and long-term disability and life insurance. Our named executive officers also participate in our paid time off
program, which provides paid leave during the year at various amounts based upon the executive officer’s position, length of service and any arrangements negotiated at time of hire.
We maintain a retirement savings plan, a 401(k) defined contribution plan for the benefit of all eligible employees, as well as a deferred compensation plan for eligible employees,
including executive officers. While we have pension plans for our unionized employees, we do not maintain any pension plans in which executive officers are eligible to participate.
Perquisites
We believe that attracting and retaining superior management talent requires an executive compensation program that is competitive in all respects with the programs provided at similar
companies. In addition to salaries, annual cash incentive compensation and long-term incentive awards, competitive executive compensation programs include executive officer perquisites that
we believe are reasonable and competitive. During 2017, our named executive officers were eligible to receive executive physicals, payment of health and welfare benefits premiums, payment of
life and disability insurance premiums. All such perquisites for our named executive officers are reflected in the “All Other Compensation” column of the Summary Compensation Table below
and the accompanying footnotes.
We expect to continue from time to time to provide limited perquisites and other personal benefits to our executive officers consistent with the compensation practices within our industry.
401(k) Plan
We maintain the AmeriCold Logistics Employee Savings and Investment Plan, or 401(k) Plan, a defined contribution employee benefit plan, which covers all eligible employees. The
401(k) Plan also allows contributions by plan participants in accordance with Section 401(k) of the Code. Employees who are over age 50 are permitted to contribute additional amounts on a pre-
tax basis under the catch-up provision of the 401(k) Plan subject to limitations of the Code. For non-union employees, our company currently matches 50% of employee contributions up to 6% of
the employee’s pay. An employee’s deferrals under the 401(k) Plan are 100% vested and nonforfeitable when made to the 401(k) Plan and our matching contributions vest ratably over a five-year
period.
120
In the event that a participant dies, becomes disabled, or reaches retirement age while still employed by us, the participant will be 100% vested in any company matching contributions
that have been credited to such participant’s 401(k) Plan account.
Deferred Compensation Plan
Through our subsidiary, AmeriCold Logistics, we maintain the AmeriCold Deferred Compensation Plan, or the Deferred Compensation Plan, a nonqualified deferred compensation plan,
for certain members of our senior management team. For a description of the Deferred Compensation Plan, see the section titled “—Fiscal Year 2017 Nonqualified Deferred Compensation.”
Compensation Plans Adopted in Connection with the IPO
New Employment Agreements
In connection with the IPO, in January 2018 we entered into new employment agreements with each of our executive officers, including the named executive officers. The principal terms
of each of these employment agreements are summarized below. The new employment agreements with our executive officers, including the named executive officers, provide for a term
beginning on the IPO date and continuing for an indefinite period of time, unless otherwise terminated by the executive or by us, as provided in the new employment agreements. The new
employment agreements provide for initial base salaries for each of our named executive officers as follows: Mr. Boehler – $850,000; Mr. Smernoff - $450,000; Ms. Darweesh – $375,000; Mr.
Musgrave – $320,000; and Mr. Novosel – $314,150. In addition, each named executive officer will be entitled to participate in the annual STIP bonus based on the achievement of specified
financial and individual goals. If these goals are achieved, each executive may receive an annual STIP cash bonus equal to a percentage of his or her base salary, as follows: 125% for Mr.
Boehler, 60% for Mr. Smernoff, Ms. Darweesh and Mr. Musgrave and 50% for Mr. Novosel if target performance objectives are achieved, and 175% for Mr. Boehler, 90% for Mr. Smernoff, Ms.
Darweesh and Mr. Musgrave and 75% for Mr. Novosel if maximum target performance objectives are achieved. Each executive officer will also be entitled to participate in all insurance and other
benefit plans that we offer to our U.S. employees generally, as in effect from time to time. Each new employment agreement will contain restrictive covenants regarding non-competition and non-
solicitation during the period of employment and the period thereafter (which could range from a minimum of nine months to a maximum of one year), as well as indefinite covenants regarding
confidentiality of information, our property and intellectual property and non-disparagement. In the event of a material breach of such covenants, we will retain the ability to withhold unpaid, or
recover previously paid, severance payments (as described below) or to cause unvested stock based awards held by the executive to be forfeited.
Each new employment agreement provided for a one-time grant of restricted stock units on the IPO date that will vest ratably on the second, third and fourth anniversaries of the grant of
such award, subject to continued employment from the date of grant through such vesting dates, or the Retention Grant. The number of restricted stock units issued to our named executive
officers as Retention Grants are as follows: Mr. Boehler – 78,125 units; Mr. Smernoff – 25,000 units; Ms. Darweesh – 15,625 units; Mr. Musgrave – 14,063 units; and Mr. Novosel – 14,063
units. Each executive will also be eligible to participate in the Americold Realty Trust 2017 Equity Incentive Plan, or the 2017 Plan, at such times as our compensation committee or our board of
trustees determines.
In the event of a termination of the employment of Mr. Boehler by us without “cause” or by Mr. Boehler for “good reason”, Mr. Boehler will be entitled to the following severance
benefits, provided that Mr. Boehler executes and does not revoke a general release of claims in favor of our company:
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• An amount equal to two times the sum of (i) Mr. Boehler’s annual base salary and (ii) Mr. Boehler’s target annual bonus in the year of termination for a period of 24 months after the
•
•
date of termination (subject to offset by compensation received by Mr. Boehler for subsequent employment or provision of consulting services during the separation period);
Pro rata STIP bonus based on number of days employed during bonus period (to the extent that performance metrics relating to bonus are met at the end of the bonus period as
determined after the year-end audit); and
Payment or reimbursement of welfare plan coverage (other than short-term and long-term disability plans), including COBRA premiums for group health coverage for the executive
and his or her eligible dependents, for up to 18 months.
In the event of a termination of the employment of Mr. Smernoff, Ms. Darweesh, Mr. Musgrave or Mr. Novosel by us without “cause” or by the executive for “good reason”, the
executives will be entitled to the following severance benefits, provided that the executives execute and do not revoke a general release of claims in favor of our company:
• Continued base salary for a period of 12 months (nine months for Mr. Novosel) after the date of termination;
•
Pro rata STIP bonus based on number of days employed during bonus period (to the extent that performance metrics relating to bonus are met at the end of the bonus period as
determined after the year-end audit); and
For Mr. Smernoff, Ms. Darweesh and Mr. Musgrave, payment or reimbursement of welfare plan coverage (other than short-term and long-term disability plans), including COBRA
premiums for group health coverage for the executive and his or her eligible dependents, for up to 12 months. For Mr. Novosel, payment or reimbursement of COBRA premiums for
group health coverage for the executive and his eligible dependents, for up to nine months.
•
The new employment agreements also provide that in the event of a termination of the executive’s employment by us without “cause” or by the executive for “good reason”, the next
installment of the Retention Grant that would have vested on the next scheduled vesting date following the executive’s employment termination date will become vested. Also, a pro rated portion
of any performance based restricted stock units held by the executive will remain eligible to vest based on actual performance through the last day of the applicable performance period, based on
the number of days during the applicable performance period that the executive was employed.
If the executive’s employment is terminated by us without “cause” or by the executive for “good reason” within 12 months following a “change in control”, the new employment
agreements will also provide that the Retention Grant will become vested. Also, any performance based restricted stock units held by the executive will vest based on actual performance through
the termination date.
If the executive’s employment is terminated with or without “cause,” the executive voluntarily resigns without “good reason” or, in the case of the executive officer’s death or disability,
the executive officer will be entitled to receive any accrued and unpaid base salary, as well as any accrued benefits and unreimbursed business expenses incurred through the date of termination,
death or disability.
For purposes of each of the new employment agreements:
•
“cause” is defined as the executive’s (i) commission of an act that constitutes common law fraud or a felony, commission of any other crime involving moral turpitude, or commission
of any other tortious
122
•
•
or unlawful act causing, or which may likely cause, material harm to the business, standing or reputation of our company without the good faith belief that such conduct was in our best
interests; (ii) material breach of the new employment agreement, after we have given the executive 30 days written notice and an opportunity to cure such breach to the extent curable;
(iii) willful failure or refusal to perform the executive’s material duties or obligations under the new employment agreement, including, without limitation, failure or refusal to abide by
the directions of the Chief Executive Officer and/or our board of trustees or any policy adopted by our board of trustees, in each case after we have given the executive 30 days written
notice and an opportunity to cure such failure or refusal to the extent curable; (iv) willful misconduct or gross negligence in the performance of the executive’s duties as an employee,
officer or trustee of our company or any of our subsidiaries or affiliates; or (v) material misappropriation or embezzlement of any of our property.
“good reason” is defined as the occurrence, without the executive’s consent, of any of the following events, other than in connection with a termination of the executive’s employment
for cause or due to death or disability: (i) a material reduction in the executive’s rate of base salary and/or the amount of the executive’s annual STIP bonus opportunity; (ii) an action
by us resulting in a material diminution in the executive’s titles, authority, duties, responsibilities or direct reports; (iii) our relocation of the executive’s principal place of employment
to a location outside of the 50-mile radius of Atlanta, Georgia; or (iv) a material breach by us of the new employment agreement; provided, however, that none of the events described
in this sentence shall constitute good reason unless and until (V) the executive reasonably determines in good faith that a good reason condition has occurred, (W) the executive first
notifies us in writing describing in reasonable detail the condition which constitutes good reason within 60 days of its initial occurrence, (X) we fail to cure such condition within 30
days after our receipt of such written notice, (Y) notwithstanding such efforts, the good reason condition continues to exist, and (Z) the executive terminates his or her employment
within 60 days after the end of such 30-day cure period. If we cure the good reason condition during such cure period, good reason shall be deemed not be have occurred.
“change in control” is defined as such term is defined in the 2017 Plan, which means the occurrence of any one of the following events:
•
the acquisition by any person (other than us or our subsidiaries or any of our employee benefit plans (including its trustee)), of beneficial ownership, directly or indirectly, of our
securities representing 50% or more of the combined voting power of our then outstanding securities;
individuals who, as of the effective date of the 2017 Plan, constitute our board of trustees, or the Incumbent Board, cease for any reason to constitute at least a majority of our board
of trustees; provided, however, that any individual becoming a trustee subsequent to the effective date of the 2017 Plan whose election, or nomination for election by our
shareholders, was approved by a vote of at least two-thirds of the trustees then comprising the Incumbent Board shall be considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to
the election or removal of trustees or other actual or threatened solicitation of proxies or consents by or on behalf of a person other than our board of trustees; or
consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of our assets or stock, or a Business Combination, in each case,
unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the total number of shares of
our outstanding securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of the combined voting power of the then
outstanding securities of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns us or all
or substantially all of our assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership of the combined voting
•
•
123
power of our outstanding securities immediately prior to such Business Combination, (ii) no person (excluding any corporation resulting from such Business Combination, or any
employee benefit plan (including its trustee) of our company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 50% or more
of, respectively, the combined voting power of the then outstanding securities of the corporation resulting from such Business Combination except to the extent that such ownership
existed prior to the Business Combination and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were
trustees of our company immediately prior to the signing of the agreement providing for such Business Combination.
Equity Awards
In addition to the Retention Grants, we also expect that future annual equity awards made to executive officers will consist of performance-based restricted stock units that will be earned
over a three-year cumulative performance period based on achievement of a total shareholder return (calculated as the change in our share price plus dividends paid over the measurement period,
with compound annual returns) target established by our compensation committee and will vest 100%, to the extent the performance target or maximum performance target is achieved, at the end
of the threeyear performance period.
Other Governance Policies Relating to Compensation
Hedging and Pledging of Common Shares
We have adopted a policy prohibiting our executive officers, trustees and employees from engaging in any hedging, pledging or monetization transactions involving our securities.
Share Ownership Guidelines
We have adopted an executive share ownership policy, effective as of the IPO date, which is intended to encourage our executive officers, within five years after the IPO, to hold interests
in our common shares with a value equal to a specified multiple of base salary (six times annual base salary in the case of our Chief Executive Officer and three times annual base salary in the
case of our other executive officers).
Recovery of Certain Awards
We have adopted a clawback policy, effective as of the IPO date. Under this policy, we may seek to recover or cause to be forfeited any or all incentive-based compensation paid to
current and former executive officers under certain circumstances in compliance with regulations pursuant to the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection
Act when enacted.
Risk Analysis of Compensation Plans
Our board of trustees, with the assistance of the compensation consultant will conduct a review and analysis of our compensation policies and practices to determine whether or not such
policies and practices encourage excessive risk or unnecessary risk-taking. We believe that our compensation policies and practices for our employees, including our executive officers, do not
encourage excessive risk or unnecessary risk-taking and in our opinion the risks arising from such compensation policies and practices are not reasonably likely to have a material adverse effect
on us. Our compensation programs have been balanced to focus our key employees on both short- and long-term financial and operational performance.
124
Tax Deductibility
Prior to December 22, 2017, Section 162(m) of the Code placed a limit of $1 million on the amount of compensation that a publicly held corporation may deduct in any one year with
respect to its chief executive officer and certain other highly compensated executive officers. The Tax Cuts and Jobs Act, adopted on December 22, 2017, substantially modifies the Code and,
among other matters, eliminates the performance-based compensation exception under Section 162(m) unless it qualifies for treatment under the transition rule that applies to certain agreements
in place as of November 2, 2017.
We have not previously taken the deductibility limit imposed by Section 162(m) of the Code into consideration in making compensation decisions. As a new public company, we are now
eligible for transition relief for compensation received from the exercise of stock options granted under a plan that existed prior to the completion of the IPO, including the 2008 Plan and the 2010
Plan. Accordingly, the exercise of stock options granted prior to the expiration of the 162(m) transition period are not expected to be subject to Section 162(m). As a new public company, we
expect that our compensation committee will review and consider the deductibility of executive compensation under Section 162(m) and may authorize certain payments that will be in excess of
the $1 million limitation if our compensation committee believes that it needs to balance the benefits of designing awards that are tax-deductible with the need to design awards that attract, retain
and reward executive officers responsible for the success of our company.
Compensation Committee Report
The compensation committee has reviewed and discussed the Compensation Discussion and Analysis with management and, based on such review and discussions, the compensation
committee recommended to our board of trustees that these disclosures be included in this Annual Report on Form 10-K. The compensation committee is comprised of the following individuals:
James R. Heistand
Michelle M. MacKay
Andrew P. Power
125
Summary Compensation Table
The following table sets forth information regarding compensation earned by our named executive officers during fiscal years 2017 and 2016.
Name and principal position
Year
Fred Boehler
President
and
Chief
Executive
Officer
Marc Smernoff
Chief
Financial
Officer
and
Executive
Vice
President
Andrea Darweesh (7)
Chief
Human
Resources
Officer
and
Executive
Vice
President
Thomas Musgrave
Chief
Information
Officer
and
Executive
Vice
President
Thomas Novosel
Chief
Accounting
Officer
and
Senior
Vice
President
Salary
($) (1)
812,500
705,769
450,000
450,000
375,000
—
320,000
311,538
311,687
300,860
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
Stock
awards
($) (2)
Option
awards
($) (3)
Non-equity
incentive
plan
compensation
($) (4)
Changes in
pension value
and non-
qualified
deferred
compensation
($) (5)
All other
compensation
($) (6)
959,278
—
1,218,750
—
—
—
—
—
—
—
—
—
862,500
—
—
—
—
—
—
—
86,250
700,000
405,000
270,000
337,500
—
288,000
192,000
163,635
106,750
—
—
—
—
—
—
—
—
—
—
34,115
33,642
34,115
140,494
34,115
—
34,115
36,834
7,957
9,304
Total ($)
3,024,643
2,301,911
889,115
860,494
746,615
—
642,115
540,372
483,279
503,164
(1) Represents actual base salary paid during the fiscal year.
(2) Aggregate grant date fair value of restricted stock units computed in accordance with FASB ASC Topic 718.
(3) Aggregate grant date fair value of stock options computed in accordance with FASB ASC Topic 718. Information about the assumptions used to value these awards can be found in Note 15 to the audited consolidated
financial statements included in this Annual Report on Form 10-K.
(4) Represents amounts earned by our named executive officers under our STIP. See “—Short Term Incentive Compensation—2017 STIP” for the target and maximum amounts potentially payable to the named executive
officers under the 2017 STIP.
(5) We do not provide above-market or preferential earnings on deferred compensation and none of our named executive officers participate in a defined benefit pension plan.
(6) Amounts in this column are detailed in the table below:
126
Name
Fred Boehler
Marc Smernoff
Andrea Darweesh
Thomas Musgrave
Thomas Novosel
Year
2017
2016
2017
2016
2017
2017
2016
2017
2016
401(k)
match($)
Insurance
($) (a)
Employer
deferred
compensa-
tion plan
contributions
($) (b)
Tax
gross-up
$ (c)
Relocation
and
moving
expenses
($) (d)
Other
personal
expenses
($) (e)
Total all
other
compensation($)
6,750
6,625
6,750
6,625
6,750
6,750
6,625
6,750
6,625
25,165
24,817
25,165
24,817
25,165
25,165
24,817
—
—
—
—
—
—
—
—
2,525
—
2,049
—
—
—
—
—
—
667
1,207
630
—
—
—
33,830
—
—
—
—
—
2,200
2,200
2,200
75,222
2,200
2,200
2,200
—
—
34,115
33,642
34,115
140,494
34,115
34,115
36,834
7,957
9,304
(a) Reflects actual premiums paid by us for health insurance coverage for the named executive officers and their families and reimbursement of the named executive officers (on a pre-tax basis) for the portion of
health insurance premiums paid by the named executive officers.
(b) For fiscal year 2017, employer contributions earned in 2017 will not be funded into employee accounts until the first quarter of 2018.
(c) Reflects tax gross-up paid on the vested portion of the employer contributions to a successor plan that was merged into the Deferred Compensation Plan.
(d) For fiscal year 2016, reflects reimbursement to Mr. Smernoff of actual expenses incurred for relocation to Atlanta, Georgia. These expenses were valued on the basis of the aggregate incremental cost to our
company and represent the amount accrued for payment or paid directly to the executive officer.
(e) Reflects the following amounts: maximum amount payable by our company for executive physicals ($2,200 for each eligible named executive officer) and, for Mr. Smernoff, reimbursement of actual costs
incurred for airline tickets to and from our headquarters ($64,038) and executive housing assistance ($8,984). The expenses reported for Mr. Smernoff were valued on the basis of the aggregate incremental cost to
our company and represent the amount accrued for payment or paid directly to Mr. Smernoff.
(7) Ms. Darweesh was not a named executive officer in fiscal year 2016.
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Grants of Plan-Based Awards in Fiscal Year 2017
The following table provides information regarding grants of plan-based awards to each of our named executive officers during fiscal year 2017.
Name
Fred Boehler
Marc Smernoff
Andrea Darweesh
Thomas Musgrave
Thomas Novosel
Grant
date
3/1/2017
Estimated future
payouts under
non-equity incentive
plan awards (1)
Threshold
($)
Target
($)
Maximum
($)
Threshold
(#)
—
—
—
—
—
—
812,500
1,218,750
—
—
270,000
225,000
192,000
109,090
405,000
337,500
288,000
163,635
Estimated future
payouts under
equity incentive
plan awards (2)
Target
(#)
—
71,428
—
—
—
—
—
—
—
—
—
—
Maximum
(#)
—
—
—
—
—
—
All other
option
awards:
number of
securities
underlying
options
(#)
Exercise
or base
price of
option
awards
($/Sh)
Grant date
fair value
of stock
and option
awards ($)
—
—
—
—
—
—
—
—
—
—
—
959,278
—
—
—
(1) Represents potential amounts to be earned by our named executive officers under our STIP. The actual amounts earned by each named executive officer are set forth in the Summary Compensation Table under “Non-
Equity Incentive Plan Compensation.”
(2) Represents performance-based restricted stock units granted to Mr. Boehler in March 2017. This award vests based on the achievement of an Adjusted EBITDA target for 2017 and, if the performance criteria is
achieved, will vest in 20% annual increments, beginning March 1, 2019. For a description of vesting and other provisions, see “—Long-Term Incentive Compensation.”
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Outstanding Equity Awards at 2017 Fiscal Year-End
The following table provides information with respect to holdings of stock options and restricted stock units by our named executive officers as of December 31, 2017. None of our named
executive officers other than Mr. Boehler held any restricted stock or other stock-based awards as of December 31, 2017.
Name
Fred Boehler
Marc Smernoff
Andrea Darweesh
Thomas Musgrave
Thomas Novosel
Grant
date
2/6/2013
3/27/2014
12/14/2015
3/21/2016
3/1/2017
5/13/2015
9/9/2016
5/30/2012
6/24/2013
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
12/19/2013
(10)
9/21/2015
(11)
10/30/2013
(12)
3/22/2016
(13)
Option Awards
Stock Awards
Number of
securities
underlying
unexercised
options (#)
exercisable
Number of
securities
underlying
unexercised
options (#)
unexercisable
Option
exercise
price
($)
Option
expiration
date
Number of
shares
of stock
that have
not
vested
(#)
Market
value of
shares of
stock that
have not
vested
(#)
Equity
incentive
plan awards:
number of
unearned
shares that
have not
vested
(#)
Equity
incentive
plan awards:
market or
payout value
of unearned
shares that
have not
vested
(#)
320,000
120,000
120,000
—
160,000
60,000
55,000
20,000
84,000
46,000
60,000
5,000
80,000
80,000
180,000
250,000
240,000
240,000
—
5,000
21,000
69,000
15,000
20,000
9.81
9.81
9.81
9.81
9.81
9.81
9.81
9.81
9.81
9.81
9.81
9.81
2/6/2023
3/27/2024
12/14/2026
3/1/2027
5/13/2025
9/9/2027
5/30/2022
6/24/2023
12/19/2023
9/21/2025
10/30/2023
3/22/2026
—
—
71,428
1,142,848
(1) The time-based options vested 20% on February 4, 2014, February 4, 2015, February 4, 2016 and February 4, 2017, and the remaining options vest ratably on February 4, 2018.
(2) The time-based options vested 20% on March 27, 2015, March 27, 2016 and March 27, 2017, and the remaining options vest ratably on March 27, 2018 and March 27, 2019.
(3) The time-based options vested 20% on December 14, 2016 and December 14, 2017, and the remaining options vest ratably on December 14, 2018, December 14, 2019 and December 14, 2020.
(4) Vesting of these options was contingent upon achievement of a 2016 performance target relating to Adjusted EBITDA, which was satisfied, so the time-based options will vest 20% on January 1, 2018, January 1, 2019,
January 1, 2020, January 1, 2021 and January 1, 2022.
(5) Performance-based restricted stock units that will vest on the achievement of an Adjusted EBITDA target for 2017. If the performance criteria is achieved the restricted stock units will vest in 20% increments ratably
over five years beginning March 1, 2019. There was no public market for our common shares as of December 31, 2017, so market value shown above is calculated based on the initial public offering price of $16.00 per
share.
(6) The time-based options vested 20% on May 13, 2016 and May 13, 2017, and the remaining options vest ratably on May 13, 2018, May 13, 2019 and May 13, 2020.
(7) The time-based options vested 20% on September 9, 2017, and the remaining options vest ratably on September 9, 2018, September 9, 2019, September 9, 2020, September 9, 2021 and September 9, 2022.
(8) The time-based options vested 20% on October 31, 2012, October 31, 2013, October 31, 2014, October 31, 2015 and October 31, 2016.
(9) The time-based options vested 20% on June 24, 2014, June 24, 2015, June 24, 2016 and June 24, 2017, and the remaining options vest on June 24, 2018.
(10) The time-based options vested 20% on December 19, 2014, December 19, 2015, December 19, 2016 and December 19, 2017 and the remaining options vest on December 19, 2018.
(11) The time-based options vested 20% on September 21, 2016 and September 21, 2017, and the remaining options vest ratably on September 21, 2018, September 21, 2019 and September 21, 2020.
129
(12) The time-based options vested 20% on October 30, 2014, October 30, 2015, October 30, 2016 and October 30, 2017, and the remaining options vest on October 30, 2018.
(13) The time-based options vested 20% on March 22, 2017 and March 22, 2018, and the remaining options vest ratably on March 22, 2019, March 22, 2020 and March 22, 2021.
Option Exercises for Fiscal Year 2017
None of our named executive officers exercised stock options during fiscal year 2017.
Fiscal Year 2017 Pension Benefits
Even though we maintain certain qualified and non-qualified pension plans, our named executive officers did not participate in or have account balances in any qualified or nonqualified
defined benefit plans sponsored by us.
Fiscal Year 2017 Nonqualified Deferred Compensation
The following table presents information regarding our named executive officers that participate in our Deferred Compensation Plan. Material terms of the Deferred Compensation Plan
are described below.
Name
Fred Boehler
Marc Smernoff
Andrea Darweesh
Thomas Musgrave
Thomas Novosel
Nonqualified deferred compensation
Executive
contributions
in 2017
($)
Company
contributions
in 2017
($)(a)
Aggregate
earnings in
2017
($)
Aggregate
withdrawals/
distributions
($)
—
—
45,000
8,301
8,454
—
—
—
—
—
—
—
4,167
4,480
9,796
Aggregate
balance at
December 31,
2017
($)
—
—
49,167
30,880
61,424
—
—
—
—
—
(a) For fiscal year 2017, employer contributions earned in 2017 will not be funded into employee accounts until the first quarter of 2018.
Through our subsidiary, AmeriCold Logistics, we maintain the Deferred Compensation Plan, a nonqualified deferred compensation plan, for certain members of our senior management
team. Participants in the Deferred Compensation Plan may elect to defer from 1% to 75% of their annual cash compensation and between 1% and 100% of their cash bonus compensation, subject
to certain limitations prescribed by the Deferred Compensation Plan. For deferrals under the Deferred Compensation Plan made between August 1, 2005 and December 31, 2013, we generally
provided a dollar-for-dollar employer credit with respect to salary or bonus deferrals that did not exceed 3% of such participant’s aggregate compensation. For periods on and after January 1,
2014, we may elect to provide a discretionary employer credit to Deferred Compensation Plan participants in an amount and at such time as determined by our board of trustees in its discretion.
Deferred Compensation Plan participants are immediately vested in their deferral credits; any discretionary employer credits vest 20% per year over a five-year period or upon retirement at age 65
(or at age 55 with five years of service), death or disability of the Deferred Compensation Plan participant, or upon a change of control. For purposes of the Deferred Compensation Plan, a
“change of control” means any one or more of the following: (i) acquisition by any individual, entity or group (other than Yucaipa and certain of its affiliates) of 50% or more of the total value of
the then-outstanding ownership interests in AmeriCold Logistics or 50% or more of the voting interests of AmeriCold
130
Logistics, 80% of the assets of AmeriCold Logistics or our company, or 20% in total value or voting power of our then-outstanding voting securities; (ii) consummation of a reorganization,
merger or similar transaction that results in ownership by Yucaipa and its affiliates of less than 50% of the ownership interests in our company; (iii) replacement of a majority of the members of
our board of trustees in place as of the date the Deferred Compensation Plan was adopted; (iv) consummation of the first public offering of our common shares; or (v) approval of the complete
liquidation of our company.
Participants are entitled to receive the amount credited to their Deferred Compensation Plan account in the event of termination of employment. If termination occurs before the executive
officer reaches the earlier of age 65 or age 55 with five years of service, the vested account balance will be paid out in a lump sum. If the termination occurs on or after the date the executive
officer reaches the earlier of age 65 or age 55 with five years of service, the entire account balance is paid out in a lump sum or annual installments, as elected by the executive officers. The
completion of the IPO constituted a change of control under the Deferred Compensation Plan. As a result, all account balances under the Deferred Compensation Plan vested and we were
required to fully fund the Deferred Compensation Plan. However, the completion of the IPO did not trigger a distribution of amounts held in the Deferred Compensation Plan.
Potential Payments Upon Termination or Change of Control
The information below describes certain compensation and benefits to which our named executive officers are entitled under their existing employment agreements in the event their
employment is terminated under certain circumstances.
Pre-IPO Employment Agreements
Prior to the IPO, we had existing employment agreements with each of the named executive officers that provided for certain payments upon a termination or change of ownership.
Under the existing employment agreements, if any of the named executive officers, with the exception of Mr. Novosel, is terminated without “cause” or if, within 12 months following a
“change of ownership,” the executive officer terminates his employment for “good reason,” he will be entitled to receive (i) continued base salary for a period of twelve months after the date of
termination, (ii) continued full participation in our benefit programs (including full reimbursement for all health, dental, and vision expenses) for a period of twelve months after the date of
termination, and (iii) if the executive officer is terminated other than on December 31st in any year, a payment equal to the STIP bonus payment the executive officer would otherwise have
received for such year but for the termination (based on our actual achievement of applicable targets) multiplied by a fraction, the numerator of which is the number of months in the fiscal year
for which the executive officer was employed (including any month in which 11 or more days are worked) and the denominator of which is 12, which shall be paid if such payment is actually
earned, or, if the executive officer is terminated in the first fiscal quarter of any fiscal year, then, in lieu of the foregoing payment pursuant to clause (iii), the executive officer shall be paid a
prorated portion of the executive officer’s target STIP bonus. If an executive voluntarily resigns or, in the case of the executive officer’s death or disability, the executive officer is entitled to
receive any accrued and unpaid base salary and paid time off as well as any accrued benefits through the date of termination, death or disability.
Mr. Novosel’s existing employment agreement provides that if he is terminated without “cause” or if, within 12 months following a “change of ownership,” the executive officer
terminates his employment for “good reason,” he will be entitled to receive (i) continued base salary for a period of nine months after the date of termination, and (ii) continued full participation
in our benefit programs for a period of nine months after the date
131
of termination. All other terms outlined for the other named executive officers above remain applicable under his agreement.
For purposes of each of the named executive officers’ existing employment agreements:
•
•
•
“cause” is defined to include termination as a result of (i) the commission of any act of gross negligence, fraud or serious misconduct in the performance of such executive officer’s
duties, (ii) the conviction of such executive officer of an offense that adversely affects or reflects negatively on us, (iii) intentionally obtaining any material for personal gain, profit or
enrichment at the expense of our company or from a transaction in which the executive officer has an interest which is adverse to our interests, subject to certain limitations, (iv) abuse
of non-prescription medication, narcotics, or other controlled or intoxicating substances, and such abuse materially impairs such executive officer’s ability to perform his normal duties,
(v) failure to perform his duties and responsibilities, including reasonable directives from us, in good faith to the best of his ability and failure to cure such non-performance within
30 days after notice of such failure from us to him, (vi) refusal to follow the instructions or directives of our board of trustees or its designee or failure to follow such directives or
instructions without compelling reasons, (vii) a serious violation of our rules or policies about which such executive officer had notice, or (viii) acting in a manner which is intended to
be materially detrimental or damaging to our reputation, business operations or relations with our other employees, customers or suppliers.
“good reason” means: (i) a material diminution of the executive officer’s title, authority, status, duties or responsibilities; (ii) the executive officer’s base salary, target or bonus
opportunity which can be earned or amount of overall compensation package (including long-term incentive plans and equity awards), is reduced below the higher of (A) the amount in
effect as of the date of a change of ownership or (B) the highest amount thereafter; (iii) the failure by our company to provide for the assumption of the employment agreement by any
successor entity; (iv) a material breach by us of the employment agreement; or (v) a change in the location of our principal office or a requirement that the executive officer move to a
location more than fifty (50) miles outside the metropolitan area of Atlanta, Georgia.
“change of ownership” means the occurrence of any one of the following events: (i) a merger, consolidation, or reorganization of us into or with another legal entity, an equity sale,
transfer or other transaction or a sale or transfer by our company of all or substantially all of our assets to any other legal entity, such that following such transaction, Yucaipa and its
affiliates will have no equity or ownership interest of the acquirer; (ii) any transaction or series of transactions by Yucaipa and its affiliates that results in Yucaipa and its affiliates
beneficially owning no interest in our common shares outstanding and reserved for issuance immediately prior to such transaction or series of transactions; (iii) a dissolution or
liquidation of our company; or (iv) such other event or transaction which our board of trustees deems to be a change of ownership. The completion of the IPO did not constitute a
change in ownership.
We entered into new employment agreements with each of our executive officers, including the named executive officers, in connection with the IPO, which provide for separation
payments and acceleration of vesting of equity awards under certain circumstances. See the section titled “—Compensation Plans Following the Completion of the IPO—New Employment
Agreements.”
Stock Options and Restricted Stock Units
The award agreements for stock options granted to our executive officers do not specifically provide for accelerated vesting upon a change of control, as defined in the 2010 Plan. Under
the 2010 Plan, in the event of a
132
change of control, our compensation committee may, in its discretion, (1) cancel an outstanding award as of the date of consummation of such transaction and either accelerate the vesting or
exercisability of the award, (2) purchase all or a portion of the award, including any unvested portion if our board of trustees so determines in its discretion, for an amount to be determined based
on fair market value at the time of the purchase, for cash, (3) in the case of a performance compensation award, cause the participant to receive full or partial payment of the award based on actual
or target performance, or (4) require the entity acquiring control to assume outstanding awards or substitute other awards.
In March 2017, our existing compensation committee adopted a resolution providing that in the event of a “change of ownership” as defined in the executive officer employment
agreements, we will accelerate the vesting of each outstanding award under the 2010 Plan immediately prior to the change in ownership. The award agreement for Mr. Boehler’s restricted stock
units granted in March 2017 similarly provides for accelerated vesting upon a change of control (as defined in the 2010 Plan). The IPO did not constitute a change of control under the 2010 Plan.
The award agreements for stock options granted to our executive officers provide for the expiration of vested but unexercised stock options following termination, as follows:
• Upon termination for cause, unexercised options expire upon termination;
• Upon termination due to death or disability, any vested stock options must be exercised within six months of such death or disability;
• Upon termination as a result of voluntary termination of employment (other than for “good reason”), any vested stock options must be exercised within three months of the date of
termination; and
• Upon termination for any reason other than those set forth above (including without cause or for good reason), unvested stock options are forfeited, and any vested stock options must
be exercised within one year following the date of termination.
The award agreement for Mr. Boehler’s restricted stock units granted in March 2017 provides for the forfeiture of any unvested restricted stock units following termination of his
employment for any reason.
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Potential Payments Table
Regardless of the termination scenario, each named executive officer will receive earned but unpaid base salary and accrued and unpaid paid time off through the employment termination
date, along with any other payment or benefits owed under any of our plans or agreements covering the named executive officer as governed by the terms of those plans or agreements.
The information below describes and quantifies the estimated amount of certain compensation that would become payable to each named executive officer as of December 31, 2017 under
the following circumstances: (i) upon a voluntary termination, death or disability; (ii) upon termination by us for cause; (iii) if his or her employment with us had been terminated without cause;
(iv) if his or her employment terminated for good reason within 12 months following a change in control; and (v) upon a change in control and acceleration of vesting of equity awards.
Fred Boehler
Marc Smernoff
Andrea Darweesh
Thomas Musgrave
Thomas Novosel
Benefit
Cash severance
Equity awards
Benefits continuation
Total
Cash severance
Equity awards
Benefits continuation
Total
Cash severance
Equity awards
Benefits continuation
Total
Cash severance
Equity awards
Benefits continuation
Total
Cash severance
Equity awards
Benefits continuation
Total
Voluntary
resignation/
death or
disability ($)
Termination
for cause ($)
Termination
without
cause ($)
Change in
control for
good
reason ($)
Change in
control and
acceleration (1)($)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,700,000
—
35,805
1,735,805
720,000
—
35,805
755,805
600,000
—
35,805
635,805
512,000
—
35,805
547,805
345,564
—
10,879
356,443
1,700,000
—
35,805
1,735,805
720,000
—
35,805
755,805
600,000
—
35,805
635,805
512,000
—
35,805
547,805
345,564
—
10,879
356,443
—
4,794,948
—
4,794,948
—
1,485,600
—
1,485,600
—
1,485,600
—
1,485,600
—
588,050
—
588,050
—
216,650
—
216,650
(1) Amounts shown assumes our compensation committee exercises its discretion under the 2010 Plan to accelerate the vesting of unvested equity awards solely upon a change in control. There was no public market for our
common shares as of December 31, 2017; amounts shown above are based on the initial public offering price of $16.00 per share.
134
Indemnification Agreements with Executive Officers and Trustees
In connection with the IPO, we entered into indemnification agreements with each of our executive officers and trustees and any observer to our board of trustees. We refer to each
individual that is a party to an indemnification agreement as an indemnitee. In general, each indemnification agreement will provide that we will indemnify and advance expenses to the
indemnitee to the maximum extent permitted by applicable law and our declaration of trust in effect as of the date of the agreement or to such extent as applicable law and our declaration of trust
thereafter from time to time may permit. However, no change in Maryland law or our declaration of trust will have the effect of reducing the benefits available to the indemnitee under the
agreement.
If, by reason of being a present or former trustee, board observer, officer, employee or agent of our company or a director, trustee, board observer, officer, partner, manager, managing
member, fiduciary, employee or agent of any other foreign or domestic corporation, real estate investment trust, partnership, limited liability company, joint venture, trust, employee benefit plan
or other enterprise that the indemnitee is or was serving in
such capacity at our request, the indemnitee is, or is threatened to be, made a party to any threatened, pending or completed proceeding, the indemnitee is entitled to be indemnified against
judgments, penalties, fines and amounts paid in settlement and all expenses actually and reasonably incurred by the indemnitee or on the indemnitee’s behalf in connection with such proceeding
or any other issue or matter related to the proceeding. However, we are not required to provide this indemnification if it is established that:
•
•
•
the act or omission of the indemnitee was material to the matters giving rise to the proceeding and (A) was committed in bad faith or (B) was the result of active and deliberate
dishonesty;
the indemnitee actually received an improper personal benefit in money, property or services; or
in the case of any criminal proceeding, the indemnitee had reasonable cause to believe that the indemnitee’s conduct was unlawful.
In addition, we may not indemnify for an adverse judgment in a suit by or in the right of our company or, in a suit charging receipt of an improper personal benefit, a judgment of liability
on the basis that a personal benefit was improperly received, unless, in either case, a court orders indemnification.
Under the indemnification agreements, we are obligated to advance all expenses reasonably incurred by or on behalf of each indemnitee in connection with any threatened, pending or
completed proceeding. In order to be advanced expenses, the indemnitee must affirm in writing his good faith belief that he has met the standard of conduct necessary for indemnification, and
provide an undertaking to repay any expenses advanced if it is ultimately determined that the indemnitee has not met the standard of conduct necessary for indemnification.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to trustees, officers or persons controlling us pursuant to the foregoing provisions, we have been
informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
135
Trustee Compensation
The following table sets forth information concerning the 2017 compensation paid to our non-employee trustees:
Name
George J. Alburger, Jr.
Ronald Burkle
Christopher Crampton
Richard d’Abo
Jeffrey M. Gault
Bradley J. Gross
Joel A. Holsinger
Gregory Mays
Terrence J. Wallock
Fees earned
or paid in
cash
Stock
awards ($)(1)
Total
59,500
$
82,138
$
141,638
—
—
—
240,000
—
—
264,000
55,000
$
$
—
—
—
— $
—
—
82,138
82,138
$
$
—
—
—
240,000
—
—
346,138
137,138
$
$
$
$
(1) Reflects the aggregate grant date fair value of the restricted stock units granted on February 1, 2017 computed in accordance with FASB ASC Topic 718. As of December 31, 2017, our non-employee trustees held the
following aggregate number of restricted stock units: Mr. Alburger – 40,774 restricted stock units; Mr. Gault – 568,753 restricted stock units; Mr. Mays – 46,890 restricted stock units; and Mr. Wallock – 40,774
restricted stock units.
Our board of trustees has adopted a compensation program for our non-employee trustees which provides an annual cash retainer of $65,000 for all non-employee trustees other than the
chairperson of our board of trustees and an annual equity award of $100,000 (or $175,000 for the chairperson of our board of trustees) in the form of restricted stock units having a one year
vesting period for each non-employee trustee serving on our board of trustees (other than the designees of any affiliate of Yucaipa, the GS Entities and the Fortress Entity that are employees of
such entities, or their respective affiliates, as applicable). No designee of any affiliate of Yucaipa, the GS Entities or the Fortress Entity that is an employee of Yucaipa, the GS Entities or the
Fortress Entity, or their respective affiliates, as applicable, will receive any compensation or awards under the non-employee trustee compensation program; Mr. Gault is not an employee of
Yucaipa or its affiliates. The program also provides for additional annual cash retainers of $175,000 for the chairperson of our board of trustees and additional cash retainers for service on board
committees, as follows: $20,000 for the chairperson of our audit committee and $10,000 for the other members of our audit committee; $15,000 for the chairperson of our compensation
committee and $7,500 for the other members of our compensation committee; and $12,500 for the chairperson of our nominating and corporate governance committee and $6,250 for the other
members of our nominating and corporate governance committee. In addition, we reimburse all trustees for reasonable out-of-pocket expenses incurred in connection with the performance of
their duties as trustees, including without limitation travel expenses in connection with their attendance in-person at board of trustee and committee meetings.
In connection with the IPO, each of our non-employee trustees serving on our board of trustees (other than the designees of the GS Entities and the Fortress Entity) received $100,000 of
restricted stock units (or 300,000 restricted stock units for the chairperson of our board of trustees having an estimated value of $4.8 million based on the initial public offering price of $16.00 per
share), which restricted stock units will vest ratably over a three-year period following the grant date.
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ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table sets forth information as of March 23, 2018 regarding the beneficial ownership of our common shares by each person known by us to beneficially own 5% or more of
our outstanding common shares, certain significant shareholders, each of our trustees and named executive officers, and all of our trustees and executive officers as a group.
5% shareholders:
YF ART Holdings GP, LLC (1)
The Goldman Sachs Group, Inc. (2)
CF Cold LP (3)
Named executive officers and trustees:
Fred Boehler (4)
Marc Smernoff (5)
Thomas Musgrave (6)
Thomas Novosel (7)
Andrea Darweesh (8)
Jeffrey M. Gault (9)
George J. Alburger, Jr.
James R. Heistand
Michelle M. MacKay
Mark R. Patterson
Andrew P. Power
Number of common shares
beneficially owned
Percentage of common shares
beneficially owned
54,952,774
23,769,508
7,235,529
690,000
160,000
210,000
65,000
60,000
1,101,747
—
31,250
—
—
—
38.6%
16.7%
5.1%
*
*
*
*
*
*
*
*
*
*
*
All executive officers, trustees and trustee nominees as a group (11 persons)
2,317,997
1.6%
*
Indicates beneficial ownership of less than 1% of our outstanding common shares.
(1) YF ART GP is the general partner of YF ART Holdings. The limited partners of YF ART Holdings is YF ART Holdings Aggregator, LLC, which is wholly owned by private equity funds affiliated with Yucaipa. YF
ART GP is wholly owned by private equity funds affiliated with Yucaipa. Ronald W. Burkle indirectly controls YF ART GP and may be deemed to have voting and dispositive power with respect to the common
shares directly owned by YF ART Holdings and therefore be deemed to be the beneficial owner of the common shares held by such entities, but disclaims beneficial ownership of such common shares, except to the
extent of his pecuniary interest therein. YF ART GP’s address is 9130 West Sunset Boulevard, Los Angeles, California 90069.
(2) Consists of 8,489,979 shares held directly by GS Capital Partners VI Fund, L.P., or GS VI, 2,334,622 shares held directly by GS Capital Partners VI Parallel, L.P., or GS Parallel VI, 7,061,705 shares held indirectly
by GS Capital Partners VI Offshore Fund, L.P., or GS Offshore, 301,776 shares held indirectly by GS Capital Partners VI GmbH & Co. KG, or GS GmbH, 5,456,426 shares held indirectly by Opportunity Partners
Offshore-B Co-Invest AIV, L.P., or Opportunity, and together with GS VI, GS Parallel VI, GS Offshore and GS GmbH, the “GS Control Entities,” and 125,000 shares held directly by Goldman Sachs & Co. LLC and
indirectly by The GS Group. The GS Control Entities, of which affiliates of The GS Group, Inc., or The GS Group, are the general partner, managing general partner or investment manager, share voting and
dispositive power with certain of their respective affiliates. The GS Group disclaims beneficial ownership of the common shares held directly or indirectly by the GS Control Entities except to the extent of their
pecuniary interests therein, if any. The address of the GS Control Entities and The GS Group is 200 West Street New York, New York 10282. We have been advised that the GS Entities are affiliates of a broker-dealer.
We have also been advised that the GS Entities acquired their investment in us in the ordinary course
137
of business, not for resale, and that they did not have, at the time of purchase, any agreements or understandings, directly or indirectly, with any person to distribute the common shares.
(3) CF Cold LP is an investment vehicle affiliated with Fortress Investment Group LLC, an investment manager of private equity funds and credit funds specializing in asset-based investing. The address of Fortress
Investment Group LLC is 1345 Avenue of the Americas, New York, New York 10105.
(4) Consists of 690,000 common shares issuable upon the exercise of options currently exercisable.
(5) Consists of 160,000 common shares issuable upon the exercise of options currently exercisable.
(6) Consists of 210,000 common shares issuable upon the exercise of options currently exercisable.
(7) Consists of 65,000 common shares issuable upon the exercise of options currently exercisable.
(8) Consists 60,000 of common shares issuable upon the exercise of options which are currently exercisable.
(9) Consists of 1,101,747 common shares issuable upon the exercise of options currently exercisable.
Securities Authorized for Issuance Under Equity Compensation Plans
Plan Category
Equity compensation plans approved by security holders
Equity compensation plans not approved by security holders
Total
Number of securities to be issued upon
exercise of outstanding options, warrants
and rights
Weighted-average exercise price of
outstanding options, warrants and rights
(1)(2)
Number of securities remaining available
for future issuance under equity
compensation plans
As of December 31, 2017
5,584,000 (3)
N/A
5,584,000
9.72
N/A
9.72
3,166,001
N/A
3,166,001
(1) The weighted-average exercise price is calculated based solely on the exercise prices of the outstanding options and does not reflect the shares that will be issued upon the vesting of outstanding awards of RSUs, which
(2)
(3)
have no exercise price.
The weighted-average remaining contractual term of the Company’s outstanding options as of December 31, 2017 was 6.0 years.
This number includes 5,584,000 shares for issuance under the Americold Realty Trust 2010 Equity Incentive Plan and the Americold Realty Trust 2008 Equity Incentive Plan, of which 5,478,000 shares were subject
to outstanding options and 106,000 shares were subject to outstanding RSU awards.
For more information regarding securities authorized for issuance under our equity compensation plans prior to the IPO see Note 15 to the consolidated financial statements included in
this Annual Report on Form 10-K.
In connection with the IPO, the Company filed a registration statement on Form S-8 on January 19, 2018 to register an aggregate of 15,322,213 common shares authorized to be issued to
participants in the Americold Realty Trust 2008 Equity Incentive Plan, the Americold Realty Trust 2010 Equity Incentive Plan and the Americold Realty Trust 2017 Equity Incentive Plan.
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ITEM 13. Certain Relationships and Related Transactions, and Director Independence
The following is a description of transactions since January 1, 2017 to which we have been a party, in which the amount involved exceeds $120,000, and in which any of our trustees,
executive officers or holders of more than 5% of our capital shares, or an affiliate or immediate family member thereof, had or will have a direct or indirect material interest.
Agreements with Certain of Our Trustees and Officers
In connection with the IPO, we have entered into indemnification agreements with each of our executive officers and trustees and any observer to our board of trustees. These
indemnification agreements are described in “Indemnification Agreements with Executive Officers and Trustees” in Item 11 of this Annual Report on Form 10-K.
Transactions
with
Goldman
and
CMHI
As of December 31, 2017, affiliates of Goldman were part of the lending group that had $25.0 million, or 14.7%, of the commitments under the amended 2015 Revolving Credit Facility.
Another affiliate of Goldman is one of the participating lenders in the ANZ Loans (with a 2.5% participation in the Australia Term Loan and 31.8% in the New Zealand Term Loan), for which the
Company paid a performance fee to Goldman. As a member of the lending group, we are required to pay certain fees to Goldman, which may include interest on borrowings, unused facility fees,
letter of credit participation fees, and letter of credit facility fees. We paid to Goldman interest expense and fees totaling approximately $0.9 million, $2.0 million and $6.0 million in 2017 , 2016
and 2015 , respectively. Goldman is also the counterparty to the interest rate swap agreements described in Note 9 to our consolidated financial statements included in this Annual Report on Form
10-K. Payments under the interest rate swap agreements are not included in the figures above and totaled approximately $1.5 million in 2017 and $1.1 million in 2016.
As of December 31, 2017, the amount of principal outstanding on the borrowings owed to affiliates of the GS Entities under the ANZ Loans totaled AUD$5.0 million and NZD$14.0
million.
In December 2017, the Company prepaid in escrow a $0.2 million fee to Goldman for its share of the 2018 Senior Secured Credit Facilities commitment. in connection with the IPO,
Goldman and CMHI converted their Series B Preferred Shares into 28,808,224 and 4,432,034 common shares, respectively. After giving effect to the full exercise of the underwriters' option to
purchase additional common shares during the IPO, and after giving effect to the sale by Goldman of 5,163,716 common shares in the IPO, Goldman and CMHI own approximately 16.7% and
3.1% of the company's common shares, respectively.
Transactions
with
Fortress
Fortress held $48.5 million aggregate principal amount of the Senior Secured Term Loan B Facility as of December 31, 2017. The Company paid approximately $2.2 million and
$0.8 million in interest expense to Fortress during 2017 and 2016, respectively. The Company also paid out principal amortization to Fortress of approximately $0.5 million and $0.2 million in
2017 and 2016, respectively.
The Fortress Entity Contribution Agreement
The Fortress Entity, an investment fund affiliated with Fortress, made an investment in YF ART Holdings pursuant to that certain Contribution Agreement, dated as of February 27, 2015,
by and among YF ART GP, YF ART Holdings, us, the Fortress Entity and certain affiliates of Yucaipa. Pursuant to the terms of its investment in
139
YF ART Holdings, the Fortress Entity is entitled to receive, by February 2022 (or earlier if YF ART Holdings is dissolved prior to that date), the return of its investment plus an annual preferred
return thereon, as well as a to-be-determined percentage of our common shares owned by YF ART Holdings.
On March 8, 2018, in connection with the pledge by YF ART Holdings of approximately 55.0 million common shares pursuant to a margin loan agreement, the Company delivered a
consent and acknowledgement to YF ART Holdings and the lenders under such margin loan agreement in which the Company, among other matters, agreed, subject to applicable law and stock
exchange rules, not to take any actions that would adversely affect the enforcement of the rights of the lenders under the loan documents. In consideration of our agreement to enter into such
consent and acknowledgment, YF ART Holdings entered into a letter agreement with us that provides that, among other matters, YF ART Holdings may not, without our prior written consent,
directly or indirectly transfer or dispose of an amount greater than approximately 27.5 million common shares, subject to certain exceptions (including as relating to the margin loan agreement
and related documents), for a ninety-day period beyond the lock-up period applicable to YF ART Holdings’ common shares under the lock-up agreement it entered into with the representatives of
the underwriters for the IPO. The Company also entered into an amendment of the shareholders agreement, which addresses certain matters related to the margin loan agreement and related
documents.
The Company was informed by YF ART Holdings that YF ART Holdings used the proceeds from the margin loan to pay in full the outstanding preferred investment, including the
preferred return thereon, of the Fortress Entity. Following such payment, the Fortress Entity ceased to be a limited partner in YF ART Holdings and no longer has any economic interest therein,
and the Fortress Entity, through CF Cold LP, an investment vehicle affiliated with Fortress, directly beneficially owned 7,235,529 common shares.
Shareholders Agreement and Related Agreements
Under our shareholders agreement, YF ART Holdings has the right to designate two of the nine members of our board of trustees, so long as YF ART Holdings beneficially owns 10% or
more of our fully diluted outstanding shares (as such term is defined in our new shareholders agreement). So long as YF ART Holdings beneficially owns 5% or more (but less than 10%) of our
fully diluted outstanding shares, it is expected to have the right to designate one of the nine members of our board of trustees. The GS Entities have the right to designate one of the nine members
of our board of trustees, so long as the GS Entities beneficially own 5% or more of our fully diluted outstanding shares. Also, YF ART Holdings is entitled to appoint an observer to our board of
trustees, so long as it beneficially owns 5% or more of our fully diluted outstanding shares.
Affiliates of Yucaipa and the Fortress Entity, through YF ART Holdings, each remain entitled to designate one of the two members of our board of trustees that YF ART Holdings is
entitled to designate pursuant to our new shareholders agreement, so long as YF ART Holdings beneficially owns 10% or more of our fully diluted outstanding shares. To the extent that YF ART
Holdings has the right to designate only one member of our board of trustees, YF ART Holdings will designate an individual selected by affiliates of Yucaipa unless the number of common
shares held by YF ART Holdings and attributable to the Fortress Entity exceeds the number of common shares held by YF ART Holdings and attributable to affiliates of Yucaipa.
We and affiliates of Yucaipa, the GS Entities and the Fortress Entity also entered into a new registration rights agreement in connection with the IPO, pursuant to which they remain
entitled to registration rights in respect of our common shares. Our new shareholders agreement and related registration rights agreements set forth certain rights and restrictions with respect to the
ownership of our common shares, including demand registration rights in favor of YF ART Holdings, the GS Entities and, if and when it holds common shares directly, the Fortress Entity and
their respective affiliates that hold common shares directly (including any affiliate of
140
Yucaipa that holds common shares directly), and restrictions on the ownership and transfer of our common shares. Pursuant to our shareholders agreement, YF ART Holdings and the GS Entities
created a coordination committee, which is made up of one representative from each of Yucaipa, the GS Entities, the Fortress Entity and Charm Progress. The coordination committee facilitates
coordination of exercises of demand registration rights under the registration rights agreement and transfers, distributions and other transactions in common shares by parties to our new
shareholders agreement.
Under our shareholders agreement, we and YF ART Holdings, the GS Entities and the Fortress Entity agreed to use commercially reasonable efforts to cause us to maintain our status as a
REIT and as a “domestically controlled qualified investment entity” and will make covenants with respect to certain information, regulatory and other similar matters. In addition, under our
shareholders agreement, on any vote to opt in to the business combination statute, YF ART Holdings (including its affiliates) will vote its common shares for and against the matter in the same
proportion as the number of votes cast for and against the proposal to opt in by other shareholders until YF ART Holdings (including its affiliates) ceases to own at least 20% of the outstanding
voting power.
Under our shareholders agreement, any action by our board of trustees to increase the number of trustees requires the prior written consent of (i) YF ART Holdings, so long as YF ART
Holdings beneficially owns 10% or more of our fully diluted outstanding shares and (ii) the GS Entities, so long as the GS Entities beneficially own 10% or more of our fully diluted outstanding
shares.
In connection with the pledge by YF ART Holdings described under “-The Fortress Entity Contribution Agreement” above, the Company also entered into an amendment of the
shareholders agreement, which addresses certain matters related to the margin loan agreement and related documents.
Policies and Procedures With Respect to Related Party Transactions
In accordance with our Policy on Related Party Transactions that we have adopted in connection with the IPO, our audit committee is responsible for reviewing and approving related
party transactions. In addition, our code of business conduct and ethics requires that all of our employees and trustees inform our General Counsel of any material transaction or relationship that
comes to their attention that could reasonably be expected to create a conflict of interest. Further, at least annually, each trustee and executive officer is required to complete a detailed
questionnaire that asks questions about any business relationship that may give rise to a conflict of interest and all transactions in which we are involved and in which the executive officer, a
trustee or a related person has a direct or indirect material interest.
141
ITEM 14. Principal Accounting Fees and Services
Independent
Registered
Public
Accounting
Firm
Our Audit Committee engaged Ernst & Young LLP as our independent registered public accounting firm for the fiscal years ended December 31, 2017 and 2016. Ernst & Young LLP was
also retained to provide certain audit-related and tax services in 2017 and 2016. In the course of the provision of services on our behalf, we recognize the importance of our independent registered
public accounting firm’s ability to maintain objectivity and independence in its audit of our financial statements and the importance of minimizing any relationships that could appear to impair
that objectivity. To that end, our Audit Committee has adopted policies and procedures governing the pre-approval of audit and non-audit work performed by our independent registered public
accounting firm. The independent registered public accounting firm is authorized to perform specified pre-approved services up to certain annual amounts and up to specified amounts for specific
services. Such limits vary by the type of service provided. Individual engagements anticipated to exceed pre-established thresholds must be separately approved. All of the fees reflected below for
2017 and 2016 were either specifically pre-approved by the Audit Committee or pre-approved pursuant to the Audit Committee’s Audit and Non-Audit Services Pre-Approval Policy. These
policies and procedures also detail certain services which the independent registered public accounting firm is prohibited from providing to us.
The following table represents fees for professional audit services rendered for the audit of our consolidated financial statements for the years ended December 31, 2017 and 2016 and fees
billed for other services rendered in each year.
Types of Fees
Audit fees
Audit-related fees
Tax fees
Total
$
$
2017
2016
6,678,297
$
135,000
1,079,612
7,892,909
$
4,989,156
45,690
531,162
5,566,008
142
PART IV
ITEM 15. Exhibits, Financial Statements and Schedules
The following documents are filed as a part of this Annual Report on Form 10-K:
a. Financial Statements and Schedules:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income (Loss)
Consolidated Statements of Shareholders’ Equity (Deficit)
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Schedule III – Real Estate and Accumulated Depreciation
China Merchants Americold Logistics Company Limited
Audited Consolidated Financial Statements
Report of Independent Auditors
Consolidated Balance Sheets
Consolidated Statements of Comprehensive Loss
Consolidated Statements of Shareholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
China Merchants Americold Holdings Company Limited
Audited Consolidated Financial Statements
Report of Independent Auditors
Consolidated Balance Sheets
Consolidated Statements of Comprehensive Income (Loss)
Consolidated Statements of Shareholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
b.
Exhibits
F- 1
F- 2
F- 3
F- 4
F- 5
F- 6
F- 7
F- 85
F- 94
F- 95
F- 97
F- 99
F- 100
F- 102
F- 131
F- 132
F- 134
F- 136
F- 137
F- 139
Exhibit No.
Description
EXHIBIT INDEX
3.1
3.2
10.1
10.2
10.3#
10.4#
10.5#
10.6#
10.7#
10.8#
10.9
10.10
Amended and Restated Declaration of Trust of Americold Realty Trust, dated as of January 22, 2018 (incorporated by reference to Exhibit 3.1 to Americold Realty Trust's Current Report on Form 8-K filed on
January 23, 2018 (Registration No. 333-221560))
Amended and Restated Bylaws of Americold Realty Trust (incorporated by reference to Exhibit 3.2 to Americold Realty Trust's Current Report on Form 8-K filed on January 23, 2018 (Registration No. 333-
221560))
Credit Agreement, dated as of January 23, 2018, by and among Americold Realty Operating Partnership, L.P., the Company, the Several Lenders and Letter of Credit Issuers from Time to Time Parties Thereto and
Bank of America, National Association, as Administrative Agent (incorporated by reference to Exhibit 10.1 to Americold Realty Trust's Current Report on Form 8-K filed on January 23, 2018 (Registration No.
333-221560))
Guarantee and Collateral Agreement, dated as of January 23, 2018, by and among Americold Realty Operating Partnership, L.P., the Subsidiaries of Americold Realty Operating Partnership, L.P. identified therein
and Bank of America, National Association, as Administrative Agent (incorporated by reference to Exhibit 10.2 to Americold Realty Trust's Current Report on Form 8-K filed on January 23, 2018 (Registration
No. 333-221560))
Employment Agreement, dated as of January 23, 2018, by and between AmeriCold Logistics, LLC and Fred Boehler (incorporated by reference to Exhibit 10.3 to Americold Realty Trust's Current Report on Form
8-K filed on January 23, 2018 (Registration No. 333-221560))
Employment Agreement, dated as of January 23, 2018, by and between AmeriCold Logistics, LLC and Marc Smernoff (incorporated by reference to Exhibit 10.4 to Americold Realty Trust's Current Report on
Form 8-K filed on January 23, 2018 (Registration No. 333-221560))
Employment Agreement, dated as of January 23, 2018, by and between AmeriCold Logistics, LLC and Thomas Novosel (incorporated by reference to Exhibit 10.5 to Americold Realty Trust's Current Report on
Form 8-K filed on January 23, 2018 (Registration No. 333-221560))
Employment Agreement, dated as of January 23, 2018, by and between AmeriCold Logistics, LLC and Thomas Musgrave (incorporated by reference to Exhibit 10.6 to Americold Realty Trust's Current Report on
Form 8-K filed on January 23, 2018 (Registration No. 333-221560))
Employment Agreement, dated as of January 23, 2018, by and between AmeriCold Logistics, LLC and Andrea Darweesh (incorporated by reference to Exhibit 10.7 to Americold Realty Trust's Current Report on
Form 8-K filed on January 23, 2018 (Registration No. 333-221560))
Americold Realty Trust 2017 Equity Incentive Plan, effective as of January 23, 2018 (incorporated by reference to Exhibit 10.8 to Americold Realty Trust's Current Report on Form 8-K filed on January 23, 2018
(Registration No. 333-221560))
Amended and Restated Shareholders Agreement, dated January 18, 2018, by and among the Company and the shareholders of the Company signatories thereto (incorporated by reference to Exhibit 10.9 to
Americold Realty Trust's Current Report on Form 8-K filed on January 23, 2018 (Registration No. 333-221560))
Registration Rights Agreement, dated January 18, 2018, by and among the Company and the shareholders of the Company signatories thereto (incorporated by reference to Exhibit 10.10 to Americold Realty
Trust's Current Report on Form 8-K filed on January 23, 2018 (Registration No. 333-221560))
10.11#
Americold Realty Trust 2010 Equity Incentive Plan (incorporated by reference to Exhibit 10.14 to Americold Realty Trust’s Registration Statement on Form S-11/A, filed on December 19, 2017 (Registration No.
333-221560))
10.12#
Form of Indemnification Agreement (incorporated by reference to Exhibit 10.16 to Americold Realty Trust’s Registration Statement on Form S-11/A, filed on December 19, 2017 (Registration No. 333-221560))
10.13#
10.14
Limited Partnership Agreement of Americold Realty Operating Partnership, L.P. (incorporated by reference to Exhibit 10.19 to Americold Realty Trust’s Registration Statement on Form S-11/A, filed on
November 14, 2017 (Registration No. 333-221560))
Equity Investor Agreement, dated as of January 11, 2018, by and among YF ART Holdings, L.P., GS Capital Partners VI Fund, L.P., GS Capital Partners VI Parallel, L.P., GSCP VI Offshore IceCap Investment,
L.P., GSCP VI GmbH IceCap Investment, L.P., IceCap2 Holdings, L.P., Charm Progress Investment Limited and Americold Realty Trust (incorporated by reference to Exhibit 10.20 to Americold Realty Trust’s
Registration Statement on Form S-11/A, filed on January 12, 2018 (Registration No. 333-221560))
10.15
Americold Realty Trust 2008 Equity Incentive Plan (incorporated by reference to Exhibit 10.21 to Americold Realty Trust’s Registration Statement on Form S-11/A, filed on January 12, 2018 (Registration No.
333-221560))
21.1
23.1
23.2
31.1
31.2
32.1
32.2
List of Subsidiaries
Consent of Ernst & Young LLP
Consent of Ernst & Young Hua Ming LLP
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
144
95.1
Information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
# This document has been identified as a management contract or compensatory plan or arrangement.
Certain agreements and other documents filed as exhibits to this Annual Report on Form 10-K contain representations and warranties that the parties thereto made to each other. These representations and warranties
have been made solely for the benefit of the other parties to such agreements and may have been qualified by certain information that has been disclosed to the other parties to such agreements and other documents and that
may not be reflected in such agreements and other documents. In addition, these representations and warranties may be intended as a way of allocating risks among parties if the statements contained therein prove to be
incorrect, rather than as actual statements of fact. Accordingly, there can be no reliance on any such representations and warranties as characterizations of the actual state of facts. Moreover, information concerning the subject
matter of any such representations and warranties may have changed since the date of such agreements and other documents.
ITEM 16. Form 10-K Summary
Not Applicable.
145
To the Shareholders and the Board of Trustees
Americold Realty Trust and Subsidiaries
Opinion on the Financial Statements
Report of Independent Registered Public Accounting Firm
We have audited the accompanying consolidated balance sheets of Americold Realty Trust and subsidiaries (the Company) as of December 31, 2017 and 2016, the related consolidated statements
of operations, comprehensive income (loss), shareholders' equity (deficit) and cash flows for each of the three years in the period ended December 31, 2017, and the related notes and financial
statement schedule listed in the index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all
material respects, the financial position of the Company at December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended
December 31, 2017, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a
public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the
Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for
our opinion.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2010.
Atlanta, GA
March 29, 2018
F- 1
Americold Realty Trust and Subsidiaries
Consolidated Balance Sheets
(In
thousands,
except
shares
and
per
share
amounts)
Assets
Property, plant, and equipment:
Land
Buildings and improvements
Machinery and equipment
Accumulated depreciation and depletion
Property, plant, and equipment – net
Capitalized leases:
Buildings and improvements
Machinery and equipment
Accumulated depreciation
Capitalized leases – net
Cash and cash equivalents
Restricted cash
Accounts receivable – net of allowance of $4,961 and $4,072 at December 31, 2017 (historical and pro forma) and 2016, respectively
Identifiable intangible assets – net
Goodwill
Investments in partially owned entities
Other assets
Total assets
Liabilities, Series B Preferred Shares and shareholders’ equity (deficit)
Liabilities:
Borrowings under revolving line of credit
Accounts payable and accrued expenses
Construction loan - net of deferred financing costs of $179 at December 31, 2017 historical, and zero at December 31, 2017 pro forma
Mortgage notes and term loans - net of discount and deferred financing costs of $31,996 and $35,916, in the aggregate, at December 31, 2017 (historical)
and 2016, respectively, and $18,166 at December 31, 2017 pro forma
Sale-leaseback financing obligations
Capitalized lease obligations
Unearned revenue
Pension and postretirement benefits
Deferred tax liability - net
Multi-Employer pension plan withdrawal liability
Total liabilities
Commitments and Contingencies (Note 18)
Preferred shares of beneficial interest, $0.01 par value – authorized 375,000 Series B Cumulative Convertible Voting and Participating Preferred Shares;
aggregate liquidation preference of $375,000; 375,000 shares issued and outstanding at December 31, 2017 (historical) and 2016, and no shares
outstanding at December 31, 2017 pro forma
Shareholders’ equity (deficit):
Preferred shares of beneficial interest, $0.01 par value – authorized 1,000 Series A Cumulative Non-Voting Preferred Shares; aggregate liquidation
preference of $125; 125 shares issued and outstanding at December 31, 2017 (historical) and 2016, and no shares outstanding at December 31, 2017 pro
forma
Common shares of beneficial interest, $0.01 par value – authorized 250,000,000 shares; 69,370,609 shares issued and outstanding at December 31, 2017
(historical) and 2016, and 142,475,349 shares issued and outstanding at December 31, 2017 pro forma
Paid-in capital
Accumulated deficit and distributions in excess of net earnings
Accumulated other comprehensive loss
Total shareholders’ equity (deficit)
2017
Pro forma (Note 1)
Unaudited
December 31,
2017
2016
Historical
$
389,443
$
389,443
$
1,865,727
555,453
2,810,623
(1,010,903)
1,799,720
16,827
59,389
76,216
(41,051)
35,165
183,656
21,090
200,354
26,645
188,169
15,942
44,383
1,865,727
555,453
2,810,623
(1,010,903)
1,799,720
16,827
59,389
76,216
(41,051)
35,165
48,873
21,090
200,354
26,645
188,169
15,942
59,287
384,855
1,765,991
532,855
2,683,701
(923,686)
1,760,015
16,827
41,831
58,658
(34,607)
24,051
22,834
40,096
199,751
24,254
186,805
22,396
47,429
$
$
2,515,124
$
2,395,245
$
2,327,631
— $
— $
240,188
—
1,404,750
121,516
38,124
19,196
16,756
21,940
9,134
241,259
19,492
1,721,958
121,516
38,124
19,196
16,756
21,940
9,134
28,000
210,469
—
1,652,425
123,616
27,932
17,863
21,799
23,055
—
1,871,604
2,209,375
2,105,159
—
372,794
371,927
—
—
1,424
1,250,951
(608,625)
(230)
643,520
694
394,082
(581,470)
(230)
(186,924)
—
694
392,591
(532,196)
(10,544)
(149,455)
2,327,631
Total liabilities, Series B Preferred Shares and shareholders’ equity (deficit)
$
2,515,124
$
2,395,245
$
See
accompanying
notes.
F- 2
Americold Realty Trust and Subsidiaries
Consolidated Statements of Operations
(In
thousands,
except
per
share
amounts)
Revenues:
Rent, storage, and warehouse services revenues
Third-party managed services
Transportation services
Other revenues
Total revenues
Operating expenses:
Rent, storage, and warehouse services cost of operations
Third-party managed services cost of operations
Transportation services cost of operations
Cost of operations related to other revenues
Depreciation, depletion, and amortization
Selling, general and administrative
Impairment of long-lived assets
Multi-Employer pension plan withdrawal expense
Total operating expenses
Operating income
Other (expense) income:
Loss from partially owned entities
Impairment of partially owned entities
Interest expense
Interest income
Loss on debt extinguishment and modification
Foreign currency exchange (loss) gain
Other income, net
Income (loss) before income tax and gain (loss) from sale of real estate, net of tax
Income tax (expense) benefit:
Current
Deferred
Total income tax expense
Loss before gain (loss) from sale of real estate, net of tax
Gain (loss) from sale of real estate, net of tax
Net (loss) income
Less distributions on preferred shares of beneficial interest - Series A
Less distributions on preferred shares of beneficial interest - Series B
Less accretion on preferred shares of beneficial interest – Series B
Net loss attributable to common shares of beneficial interest
Weighted average common shares outstanding – basic
Weighted average common shares outstanding – diluted
Net loss per common share of beneficial interest - basic
Net loss per common share of beneficial interest - diluted
Distributions declared per common share of beneficial interest
See
accompanying
notes.
F- 3
Year Ended December 31,
2017
2016
2015
$
1,145,662
$
1,080,867
$
1,057,124
242,189
146,070
9,666
1,543,587
797,334
229,364
133,120
9,664
116,741
104,640
9,473
9,167
252,411
147,004
9,717
1,489,999
766,822
237,597
132,586
7,349
118,571
100,238
9,820
—
233,564
180,892
9,805
1,481,385
749,375
220,983
166,587
7,420
125,720
91,222
9,415
—
1,409,503
1,372,983
1,370,722
134,084
117,016
110,663
(1,363)
(6,496)
(114,898)
1,074
(986)
(3,591)
918
8,742
(13,051)
3,658
(9,393)
(651)
43
(128)
—
(119,552)
708
(1,437)
464
2,142
(787)
(6,465)
586
(5,879)
(6,666)
11,598
$
$
$
$
$
(608)
$
4,932
$
(16)
(28,436)
(867)
(16)
(28,436)
(936)
(29,927)
$
(24,456)
$
70,022
70,022
69,890
69,890
(0.43)
(0.43)
$
$
(0.35)
(0.35)
$
$
0.29
$
0.29
$
(3,538)
—
(116,710)
724
(503)
(3,470)
1,892
(10,942)
(11,929)
2,292
(9,637)
(20,579)
(597)
(21,176)
(16)
(28,436)
(1,006)
(50,634)
69,758
69,758
(0.73)
(0.73)
0.29
Americold Realty Trust and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss)
(In
thousands)
Net (loss) income
Other comprehensive income (loss) - net of tax:
Adjustment to accrued pension liability
Change in unrealized net gain (loss) on foreign currency
Change in unrealized net loss on securities available for sale
Unrealized gain (loss) on cash flow hedge derivatives
Other comprehensive income (loss)
Total comprehensive income (loss)
See
accompanying
notes.
F- 4
Year Ended December 31,
2017
2016
2015
(608)
$
4,932
$
(21,176)
5,754
4,444
—
116
10,314
1,972
(3,144)
—
(70)
(1,242)
3,371
(16,292)
(51)
(1,468)
(14,440)
9,706
$
3,690
$
(35,616)
$
$
Balance - December 31, 2014
Net loss
Other comprehensive loss
Distributions paid on preferred shares of beneficial interest – Series A
Distributions paid on preferred shares of beneficial interest – Series B
Distributions paid on common shares of beneficial interest
Accretion on preferred shares of beneficial interest – Series B
Stock-based compensation expense
Balance - December 31, 2015
Net income
Other comprehensive loss
Distributions paid on preferred shares of beneficial interest – Series A
Distributions paid on preferred shares of beneficial interest – Series B
Distributions paid on common shares of beneficial interest
Accretion on preferred shares of beneficial interest – Series B
Stock-based compensation expense (Warrants)
Stock-based compensation expense (Stock Options and RSUs)
Balance - December 31, 2016
Net loss
Other comprehensive income
Distributions paid on preferred shares of beneficial interest – Series A
Distributions paid on preferred shares of beneficial interest – Series B
Distributions paid on common shares of beneficial interest
Accretion on preferred shares of beneficial interest – Series B
Stock-based compensation expense
Balance - December 31, 2017
See
accompanying
notes.
Americold Realty Trust and Subsidiaries
Consolidated Statements of Shareholders’ Equity (Deficit)
(
In
thousands,
except
shares)
Preferred Shares of
Beneficial Interest
Series A
Common Shares of
Beneficial Interest
Number of
Shares
125
$
—
—
—
—
—
—
—
125
—
—
—
—
—
—
—
—
125
—
—
—
—
—
—
—
Par Value
Number of Shares
Par Value
Paid-in Capital
Accumulated Deficit
and Distributions in
Excess of Net
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
69,370,609
$
694
$
384,989
$
(418,620) $
5,138
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(1,006)
3,108
69,370,609
694
387,091
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(936)
3,900
2,536
(21,176)
—
(16)
(28,436)
(20,214)
—
—
(488,462)
4,932
—
(16)
(28,436)
(20,214)
—
—
–
69,370,609
694
392,591
(532,196)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(867)
2,358
(608)
—
(16)
(28,436)
(20,214)
—
—
—
(14,440)
—
—
—
—
—
(9,302)
—
(1,242)
—
—
—
—
—
—
(10,544)
—
10,314
—
—
—
—
—
Total
(27,799)
(21,176)
(14,440)
(16)
(28,436)
(20,214)
(1,006)
3,108
(109,979)
4,932
(1,242)
(16)
(28,436)
(20,214)
(936)
3,900
2,536
(149,455)
(608)
10,314
(16)
(28,436)
(20,214)
(867)
2,358
69,370,609
$
694
$
394,082
$
(581,470) $
(230) $
(186,924)
125
$
F- 5
Americold Realty Trust and Subsidiaries
Consolidated Statements of Cash Flows
(In
thousands)
Operating activities:
Net (loss) income
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, depletion, and amortization
Amortization of deferred financing costs and debt discount
Amortization of below market leases
Loss on debt extinguishment and modification, non-cash
Foreign exchange (gain) loss
Loss from and impairment of partially owned entities
Stock-based compensation expense (Warrants)
Stock-based compensation expense (Stock Options and Restricted Stock Units)
Deferred tax benefit
(Gain) loss from sale of real estate
(Gain) loss on sale of other assets
Impairment of inventory and long-lived assets
Multi-Employer pension plan withdrawal expense
Provision for doubtful accounts receivable
Changes in operating assets and liabilities:
Accounts receivable
Accounts payable and accrued expenses
Other
Net cash provided by operating activities
Investing activities:
Restricted cash outflows
Restricted cash inflows
Investment in joint ventures
Proceeds from the sale of property, plant, and equipment
Additions to property, plant, and equipment and intangible assets
Other investing activities, net
Net cash used in investing activities
Financing activities:
Distributions paid on beneficial interest shares – preferred – Series A
Distributions paid on beneficial interest shares – preferred – Series B
Distributions paid on beneficial interest shares – common
Proceeds from revolving line of credit
Repayment of revolving line of credit
Repayment of sale-leaseback financing obligations
Repayment of seller financed note
Repayment of capitalized lease obligations
Payment of debt issuance costs
Repayment of term loans, mortgage notes and construction loan
Proceeds from term loans and mortgage notes
Proceeds from construction loan
Net cash used in financing activities
Net increase (decrease) in cash and cash equivalents
Effect of foreign currency translation
Cash and cash equivalents:
Beginning of period
End of period
Supplemental disclosures of cash flows information:
Acquisition of fixed assets under capitalized lease obligations
Interest paid – net of amounts capitalized and defeasement costs
Income taxes paid – net of refunds
Acquisition of property, plant, and equipment on accrual
Seller financed acquisition of property, plant and equipment
See
accompanying
notes.
F- 6
Year Ended December 31,
2017
2016
2015
$
(608)
$
4,932
$
(21,176)
116,741
8,604
151
400
3,591
7,859
—
2,358
(3,658)
(43)
(107)
11,581
9,134
1,229
1,597
18,202
(13,704)
163,327
503,191
(483,912)
—
10,163
(148,994)
—
(119,552)
(16)
(28,436)
(20,214)
34,000
(62,000)
(2,100)
118,571
7,193
196
871
(464)
128
3,900
2,536
(586)
(11,598)
1,008
9,820
—
1,135
(19,123)
(4,570)
4,832
118,781
639,798
(631,877)
—
33,215
(74,868)
—
(33,732)
(16)
(28,436)
(20,214)
147,000
(119,000)
(5,337)
—
—
(8,429)
(4,212)
(56,868)
110,000
19,671
(18,604)
25,171
868
22,834
48,873
$
18,614
106,557
11,854
20,942
$
$
$
$
— $
(36,203)
(10,834)
(405,360)
383,078
—
(95,322)
(10,273)
(324)
33,431
22,834
$
10,899
$
115,056
$
10,898
$
5,595
$
— $
$
$
$
$
$
$
125,720
6,672
520
503
3,470
3,538
—
3,108
(2,292)
597
534
9,415
—
761
(17,042)
2,738
(10,545)
106,521
658,369
(673,667)
(1,341)
9,474
(59,924)
259
(66,830)
(16)
(28,436)
(20,214)
4,000
(49,000)
(1,709)
(12,700)
(8,384)
(14,790)
(402,795)
505,924
—
(28,120)
11,571
(3,233)
25,093
33,431
9,005
108,070
8,915
3,266
12,800
Americold Realty Trust and Subsidiaries
Notes to Consolidated Financial Statements
1. Description of the Business
The Company
Americold Realty Trust (the Company or we) is a real estate investment trust (REIT) organized under Maryland law.
During 2010, the Company formed a Delaware limited partnership, Americold Realty Operating Partnership, L.P. (the Operating Partnership), and transferred substantially all of its interests in
entities and associated assets and liabilities to the Operating Partnership. This structure is commonly referred to as an umbrella partnership REIT or an UPREIT structure. The REIT is the sole
general partner of the Operating Partnership, owning 100% of the common general partnership interest as of December 31, 2017 . As the sole general partner of the Operating Partnership, the
REIT has full, exclusive and complete responsibility and discretion in the day-to-day management and control of the Operating Partnership.
The Operating Partnership includes numerous qualified REIT subsidiaries (QRSs). Additionally, the Operating Partnership conducts various business activities in the United States (U.S.),
Australia, New Zealand, Argentina, and Canada through several wholly owned taxable REIT subsidiaries (TRSs).
Ownership
As of December 31, 2017 , YF ART Holdings L.P., a partnership among investment funds affiliated with The Yucaipa Companies (Yucaipa) and Fortress Investment Group, LLC (Fortress),
owned approximately 100% of the Company’s common shares of beneficial interest. Subsequent to the IPO described below, YF ART Holdings L.P. owns approximately 43.6% of the
Company's common shares, after giving effect to the full exercise of the underwriters' option to purchase additional common shares during the IPO, and after giving effect to the sale by YF ART
Holdings L.P. of 13,581,284 common shares in the IPO.
In addition, in connection with the IPO, Goldman and CMHI, as defined in Note 7, converted their Series B Preferred Shares into 28,808,224 and 4,432,034 common shares of the Company,
respectively. After giving effect to the full exercise of the underwriters' option to purchase additional common shares during the IPO, and after giving effect to the sale by Goldman of 5,163,716
common in the IPO, Goldman and CMHI own approximately 16.7% and 3.1% of the Company's common shares, respectively.
Initial Public Offering
On January 23, 2018, we completed an initial public offering of our common shares, or IPO, in which we issued and sold 33,350,000 of our common shares, including 4,350,000 common
shares pursuant to the exercise in full of the underwriters’ option to purchase additional common shares. The common shares sold in the offering were registered under the Securities Act pursuant
to our Registration Statement on Form S-11 (File No. 333-221560), as amended, which was declared effective by the SEC on January 18, 2018. The common shares were sold at an initial offering
price of $16.00 per share, which generated net proceeds of approximately $493.6 million to us, after deducting underwriting fees and other offering costs of approximately $40.0 million . We
primarily used the net proceeds from the IPO to repay (i) $285.1 million of indebtedness outstanding under our Senior Secured Term Loan B Facility, including $3.0 million of accrued and
unpaid interest and closing expense of $0.2 million ; (ii) $20.9 million of indebtedness outstanding under our Clearfield, Utah and Middleboro, Massachussets construction loans, including a
nominal amount of
F- 7
Americold Realty Trust and Subsidiaries
Notes to Consolidated Financial Statements
1. Description of the Business (continued)
accrued and unpaid interest; and (iii) to pay a stub period dividend totaling $3.1 million to the holders of record of our common shares, Series A Preferred Shares and Series B Preferred Shares as
of January 22, 2018. Holders of the Series A Preferred Shares also received a redemption payment from the offering proceeds of $0.1 million . The remaining $184.4 million net proceeds from
the IPO will be used for general corporate purposes.
The following is a list of other significant events that occurred in connection with the IPO:
• All outstanding Series A Preferred Shares were redeemed resulting in a cash payment of approximately $0.1 million, including accrued and unpaid dividends;
• All outstanding Series B Preferred Shares were converted into an aggregate of 33,240,258 common shares resulting in a cash payment of approximately $1.2 million of accrued and
unpaid dividends. The redeemed and converted preferred shares are described in Note 7;
•
•
The cashless exercise by YF ART Holdings, an affiliate of Yucaipa, of all outstanding warrants to purchase 18,574,619 common shares, exercisable at a price of $9.81 per share, into an
aggregate of 6,426,818 common shares based on a deemed valuation of $15.00 per share pursuant to the terms of the warrants;
The issuance of new senior secured credit facilities (2018 Senior Secured Credit Facilities), consisting of a five-year, $525.0 million senior secured term loan A facility (Senior Secured
Term Loan A Facility), with net proceeds of $517.0 million, and a three-year, $400.0 million senior secured revolving credit facility (2018 Senior Secured Revolving Credit Facility). The
2018 Senior Secured Credit Facilities also have an additional $400.0 million accordion option. Upon the completion of the IPO, $525.0 million is outstanding under the Company’s Senior
Secured Term Loan A Facility and no borrowings are outstanding under the Company’s 2018 Senior Secured Revolving Credit Facility. Borrowings under the Company’s 2018 Senior
Secured Credit Facilities will bear interest, at the Company’s election, at the then-applicable margin plus an applicable LIBOR or base rate interest rate. The base rate is the greatest of the
bank prime rate, the one-month LIBOR rate plus one percent or the federal funds rate plus one-half of one percent. The applicable margin varies between (i) in the case of LIBOR-based
loans, 2.35% and 3.00% and (ii) in the case of base rate loans, 1.35% and 2.00%, in each case, based on changes in the Company’s total leverage. As of January 23, 2018, borrowings
under our 2018 Senior Secured Credit Facilities bear interest at a floating rate of one-month LIBOR plus 2.50%. The Company paid a total of $8.7 million of issuance costs related to the
2018 Senior Secured Credit Facilities, of which $8.2 million were prepaid in escrow as of December 2017.
F- 8
Americold Realty Trust and Subsidiaries
Notes to Consolidated Financial Statements
1. Description of the Business (continued)
On February 6, 2018, we amended the Credit Agreement with the lenders of our 2018 Senior Revolving Credit Facility to increase the aggregate revolving credit commitments on this facility by
$50.0 million to $450.0 million. Concurrently, we utilized cash on hand to repay $50.0 million on our Senior Secured Term Loan A facility. As a result of these modifications, our total aggregate
commitments under our 2018 Senior Credit Facilities remain unchanged at $925.0 million.
Pro
forma
balance
sheet
(Unaudited)
The unaudited pro forma balance sheet presented in the accompanying consolidated financial statements gives effect to the IPO transactions described above as if they had occurred as of
December 31, 2017. The following table summarizes the pro forma adjustments made to each line item of the historical balance sheet to arrive to the pro forma presentation:
Historical balance at December 31, 2017
IPO transactions (Unaudited)
Redemption of Series A Preferred Shares, including stub period dividend
Conversion of Series B Preferred Shares, including stub period dividend
Stub period dividend distributions to common stockholders and participating holders of Series B Preferred Shares
IPO proceeds net of offering costs
Net proceeds from Senior Secured Term Loan A Facility
Repayment of Senior Secured Term Loan B Facility, including accrued interest through pay-off and closing expenses
Repayment of construction loans, including accrued interest
Reclassification of prepaid offering costs
Reclassification of prepaid issuance costs related to 2018 Senior Secured Credit Facilities
Deferred financing costs on 2018 Senior Secured Revolving Credit Facility
Write-off of deferred financing costs on construction loans
Repayment of Senior Secured Term Loan A Facility on February 6, 2018
Net change
Pro forma balance at December 31, 2017
F- 9
Assets
Cash and cash equivalents
Other assets
$
(In thousands)
48,873
$
59,287
(134)
(1,198)
(1,910)
493,556
524,285
(810,078)
(19,738)
—
—
—
—
(50,000)
134,783
$
183,656
$
—
—
—
—
—
—
—
(9,092)
(8,245)
2,645
(212)
—
(14,904)
44,383
Americold Realty Trust and Subsidiaries
Notes to Consolidated Financial Statements
1. Description of the Business (continued)
Pro
forma
balance
sheet
(Unaudited)
Historical balance at December 31, 2017
IPO transactions (Unaudited)
Payment of accrued interest and accrued debt issuance costs
Repayment of Clearfield, UT construction loan
Refinancing of Senior Secured Term Loan B Facility with Senior Secured Term Loan A Facility, including reclassification of prepaid
issuance costs
Repayment of Senior Secured Term Loan A Facility on February 6, 2018
Write-off of deferred financing costs in connection with the repayment of Senior Secured Term Loan A Facility on February 6, 2018
Net change
Pro forma balance at December 31, 2017
Liabilities
Accounts payable and
accrued expenses
Construction loan, net of
deferred financing costs
Mortgage loans and term
loans, net of discount and
deferred financing costs
(In thousands)
241,259
$
19,492
$
1,721,958
(1,071)
—
—
—
—
(1,071)
240,188
$
—
(19,492)
—
—
—
(19,492)
— $
—
—
(267,706)
(50,000)
498
(317,208)
1,404,750
$
$
Historical balance at December 31, 2017
IPO transactions (Unaudited)
Issuance of common stock pursuant to the IPO, net of offering costs
Stub period dividend distribution to common stockholders and participating holders of Series B Preferred
Shares
Redemption of Series A Preferred Shares and distribution of stub period dividend
Conversion of Series B Preferred Shares and distribution of stub period dividend
Cashless exercise of YF ART Holdings warrants
Loss on debt extinguishment and modification
Interest expense through pay-off of debt
Net change
Pro forma balance at December 31, 2017
Mezzanine Equity
Series B Cumulative
Convertible Voting and
Participating Preferred
Shares
Shareholders' equity
Common shares
Paid-in capital
Accumulated deficit and
distributions in excess of
net earnings
$
372,794
$
(In thousands)
694
$
394,082
$
(581,470)
—
—
—
(372,794)
—
—
—
(372,794)
334
—
—
332
64
—
—
730
484,604
—
(133)
372,462
(64)
—
—
856,869
$
— $
1,424
$
1,250,951
$
—
(1,910)
(1)
(1,198)
—
(21,359)
(2,687)
(27,155)
(608,625)
F- 10
Americold Realty Trust and Subsidiaries
Notes to Consolidated Financial Statements
1. Description of the Business (continued)
Business and Industry Information
The Company has a large global presence of temperature-controlled warehouses, with the largest network in the U.S. We are organized as a self-administered and self-managed REIT with
significant operating, acquisition and development experience. As of December 31, 2017 , we operated a global network of 158 temperature-controlled warehouses encompassing 933.9 million
cubic feet, with 140 warehouses in the United States, six warehouses in Australia, seven warehouses in New Zealand, two warehouses in Argentina and three warehouses in Canada. In addition,
the Company holds a minority interest in the China JV, as described in Note 3, which owns or operates 13 temperature-controlled warehouses located in China. The Company also owns and
operates a limestone quarry through a subsidiary of ART Quarry.
The Company provides its customers with technological tools to review real-time detailed inventory information via the Internet. In addition, the Company manages customer-owned warehouses
for which it earns fixed and incentive fees.
2. Summary of Significant Accounting Policies
Customer Information
The Company’s customers consist primarily of national, regional, and local food manufacturers, distributors, retailers, and food service organizations. For the years ended December 31, 2017 ,
2016 and 2015 , one customer accounted for more than 10% of our total revenues, with $198.6 million , $210.5 million and $196.0 million, respectively. The substantial majority of this
customer's business relates to our third-party managed segment. Of the revenues received from this customer, $183.1 million , $196.1 million and $180.4 million represented reimbursements for
certain expenses we incurred during the years ended December 31, 2017 , 2016 and 2015 , respectively, that were offset by matching expenses included in our third-party managed cost of
operations.
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. (GAAP).
The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries where the Company exerts control. Investments in which the
Company does not have control, and is not considered to be the primary beneficiary of a Variable Interest Entity (VIE), but where the Company exercises significant influence over the operating
and financial policies of the investee, are accounted for using the equity method of accounting. All significant intercompany balances and transactions have been eliminated in consolidation.
Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities,
revenues, and expenses and the disclosure of contingent assets and liabilities. Actual results could differ from those estimates.
F- 11
Americold Realty Trust and Subsidiaries
Notes to Consolidated Financial Statements
2. Summary of Significant Accounting Policies (continued)
Property, Plant, Equipment, and Leasehold Improvements
Property, plant, equipment, and leasehold improvements are stated at cost, less accumulated depreciation. Depreciation is computed on a straight-line basis over the estimated useful lives of the
respective assets or, if less, the term of the underlying lease. Depreciation begins in the month an asset is placed into service. Useful lives range from 5 to 40 years for buildings and building
improvements and 3 to 20 years for machinery and equipment. Depletion on the limestone quarry is computed by the units-of-production method based on estimated recoverable units. The
Company periodically reviews the appropriateness of the estimated useful lives of its long-lived assets.
Costs of normal maintenance and repairs and minor replacements are charged to expense as incurred. When non-real estate assets are sold or otherwise disposed of, the cost and related
accumulated depreciation are removed, and any resulting gain or loss is included in the other income (expense) line on the accompanying consolidated statements of operations. Gains or losses
from the sale of real estate assets are reported in a separate caption after income tax expense or benefit.
Costs incurred to develop software for internal use and purchased software are capitalized and included in the machinery and equipment line on the consolidated balance sheet. Capitalized
software is amortized over the estimated life of the software which ranges from 3 to 10 years. Amortization of previously capitalized amounts was $5.0 million , $4.6 million and $4.4 million for
2017 , 2016 and 2015 , respectively, and is included in the depreciation, depletion, and amortization expense line on the accompanying consolidated statements of operations.
F- 12
Americold Realty Trust and Subsidiaries
Notes to Consolidated Financial Statements
2. Summary of Significant Accounting Policies (continued)
Activity in real estate facilities during the years ended December 31, 2017 and 2016 is as follow:
Operating facilities, at cost:
Beginning balance
Capital expenditures
Acquisitions
Newly developed warehouse facilities
Disposition
Impairment
Conversion of leased assets to owned
Impact of foreign exchange rate changes
Ending balance
Accumulated depreciation:
Beginning balance
Depreciation expense
Dispositions
Impact of foreign exchange rate changes
Ending balance
Total real estate facilities
Non-real estate assets
Total property, plant and equipment and capital leases, net
2017
2016
(In thousands)
2,382,343 $
52,555
27,958
60,598
(20,780)
(9,473)
—
13,455
2,506,656
(692,390)
(86,169)
11,143
(2,590)
(770,006)
1,736,650 $
98,235
1,834,885 $
2,379,980
46,761
8,922
—
(36,628)
(9,820)
(5,331)
(1,541)
2,382,343
(629,404)
(85,296)
21,885
425
(692,390)
1,689,953
94,113
1,784,066
$
$
$
The total real estate facilities amounts in the table above include $90.5 million and $91.6 million of assets under sale-leaseback agreements accounted for as a financing as of December 31, 2017
and 2016 , respectively. The Company does not hold title in these assets under sale-leaseback agreements. During 2017, the Company acquired a new facility for a total cost of $31.9 million,
which included $3.9 million of intangible assets associated with an in-place lease. In addition, the Company disposed of two idle warehouse facilities and one operating warehouse facility with a
net book value of $9.2 million for an aggregate amount of $9.2 million. As of December 31, 2017 , the Company held for sale an idle facility of the Warehouse segment with a carrying amount of
$2.6 million, which is included in "Property, plant, and equipment – net" in the accompanying consolidated balance sheet.
Impairment of Long-Lived Assets
The Company reviews its long-lived assets for impairment when events or changes in circumstances (such as decreases in operating income and declines in occupancy) indicate that the carrying
amounts may not be recoverable. A comparison is made of the expected future operating cash flows of the long-lived assets on an undiscounted basis to their carrying amounts.
F- 13
Americold Realty Trust and Subsidiaries
Notes to Consolidated Financial Statements
2. Summary of Significant Accounting Policies (continued)
If the carrying amounts of the long-lived assets exceed the sum of the expected future undiscounted cash flows, an impairment charge is recognized in an amount equal to the excess of the
carrying amount over the estimated fair value of the long-lived assets, which the Company calculates based on projections of future cash flows and appraisals with significant unobservable inputs
classified as Level 3 of the fair value hierarchy. The Company determined that individual warehouse properties constitute the lowest level of independent cash flows for purposes of considering
possible impairment.
For the years ended December 31, 2017 , 2016 and 2015 , the Company recorded impairment charges of $9.5 million , $9.8 million and $5.7 million, respectively, in the "Impairment of long-lived
assets" line item of the accompanying consolidated statements of operations. These charges were associated with the planned disposal of certain facilities, and other idle facilities of the Company,
with a net book value in excess of their estimated fair value based on third-party appraisals or purchase offers. These impaired assets related to the Warehouse segment.
In 2015, the “Impairment of long-lived assets” line included another charge related to below-market leasehold interests—see the section "Leasehold Interests - Below Market Leases" below for
more information.
Impairment of Other Assets
During the second quarter of 2017, the Company evaluated the limestone inventory held at its Quarry operations, and determined that approximately $2.1 million of that inventory is not of
saleable quality. As a result, the Company recognized an impairment charge for that amount, which is included in the “Cost of operations related to other revenues” line item of the accompanying
consolidated statement of operations for the year ended December 31, 2017 .
Also during the quarter ended June 30, 2017, the Company recognized an impairment charge totaling $6.5 million related to its investments in two joint ventures in China accounted for under the
equity method as it was determined that the recorded investments were no longer recoverable from the projected future cash flows expected to be received from the ventures. The estimated fair
value of each investment was determined based on an assessment of the proceeds expected to be received from the potential sale, anticipated in the first half of 2018, of the Company’s investment
interests to the joint venture partner based on current negotiations. The impairment charge is included in the “Impairment of partially owned entities” line item in the accompanying consolidated
statement of operations for the year ended December 31, 2017 .
Capitalized Leases
Capitalized leases are recorded at the lower of the present value of future minimum lease payments or the fair market value of the property. Capital lease assets are depreciated on a straight-line
basis over the estimated asset life if ownership of the leased assets is transferred by the end of the lease term or there is a bargain purchase option. If the lease does not transfer ownership at the
end of the lease term or there is no bargain purchase option, then the capital lease assets are depreciated on a straight-line basis using the lesser of the asset's useful life or the lease term.
Depreciation expense on assets acquired under capitalized leases is included in the "Depreciation, depletion, and amortization" expense line on the accompanying consolidated statements
of operations.
F- 14
Americold Realty Trust and Subsidiaries
Notes to Consolidated Financial Statements
2. Summary of Significant Accounting Policies (continued)
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand, demand deposits, and short-term liquid investments purchased with original maturities of three months or less that are readily convertible to
known amounts of cash and which are subject to an insignificant risk of change in value. As of December 31, 2017 and 2016 , the Company held $26.8 million and $12.7 million , respectively, of
cash and cash equivalents in bank accounts of its foreign subsidiaries.
Restricted Cash
Restricted cash relates to cash on deposit and cash restricted for the payment of certain property repairs or obligations related to warehouse properties collateralized by mortgage notes, cash on
deposit for certain workers’ compensation programs, cash collateralization of certain outstanding letters of credit, and proceeds from the sale of assets intended to be used to complete like-kind
exchanges under Section 1031 of the Internal Revenue Code of 1986, as amended, or the Code.
Restricted cash balances as of December 31, 2017 and 2016 are as follows:
2010 mortgage notes’ escrow accounts
2013 mortgage notes’ escrow accounts
2013 mortgage notes’ cash managed accounts
Other escrow accounts
Cash restricted for insurance claims
Cash on deposit for workers’ compensation program in Australia
Term deposit for New Zealand subsidiary office lease bond
Total restricted cash
Trade Accounts Receivable
2017
2016
(In thousands)
15,149 $
795
2,612
—
—
2,130
404
21,090 $
14,670
989
3,506
16,574
64
3,897
396
40,096
$
$
Trade accounts receivable are recorded at the invoiced amount. The Company periodically evaluates the collectability of amounts due from customers and maintains an allowance for doubtful
accounts for estimated amounts uncollectible from customers. Management exercises judgment in establishing these allowances and considers the balance outstanding, payment history, and
current credit status in developing these estimates. Specific accounts are written off against the allowance when management determines the account is uncollectible.
F- 15
Americold Realty Trust and Subsidiaries
Notes to Consolidated Financial Statements
2. Summary of Significant Accounting Policies (continued)
The following table provides a summary of activity of the allowance for doubtful accounts:
Allowance for doubtful accounts:
Year ended December 31, 2015
Year ended December 31, 2016
Year ended December 31, 2017
Balance at beginning of year
Provision for doubtful accounts
Amounts written off, net of
recoveries
Balance at end of year
$
$
$
2,161
2,363
4,072
(In thousands)
761
1,135
1,229
(559) $
574 $
(340) $
2,363
4,072
4,961
Starting in 2016, the Company began charging interest on delinquent billings, and recorded it as "Interest income" in the consolidated statement of operation, offset by a bad debt provision equal
to the amount of interest charged until collected.
Identifiable Intangibles Assets
Identifiable intangibles consist of a trade name and customer relationships.
Indefinite-Lived
Assets
The trade name asset, with a carrying amount of $15.1 million as of December 31, 2017 and 2016 , relates to "Americold" and has an indefinite life; thus, it is not amortized. The Company
evaluates the carrying value of its trade name each year as of October 1, and between annual evaluations if events occur or circumstances change that would more likely than not reduce the fair
value of the trade name below its carrying amount. There were no impairments to the Company's trade name for the years ended December 31, 2017 , 2016 and 2015 .
Finite-Lived
Assets
Customer relationship assets are the Company's largest finite-lived assets amortized over 6 to 20 years using a straight-line or accelerated amortization method dependent on the estimated
benefits, which reflects the pattern in which economic benefits of intangible assets are expected to be realized by the Company. Customer relationship amortization expense for the years ended
December 31, 2017 , 2016 and 2015 was $0.9 million , $1.8 million and $2.7 million, respectively. The weighted-average remaining life of the customer relationship assets is 10.0 years as of
December 31, 2017 . The Company reviews amortizable intangible assets for impairment when circumstances indicate the carrying amount may not be recoverable. There were no impairments to
customer relationship assets for the years ended December 31, 2017 , 2016 and 2015 .
Leasehold Interests - Below Market Leases
In reference to certain temperature-controlled warehouses where the Company is the lessee, below-market and above-market leases are amortized on a straight-line basis over the remaining lease
terms in a manner that adjusts lease expense to the market rate in effect as of the acquisition date. In 2015, the Company recognized a charge of $3.7 million on one of its below-market leasehold
interests in the "Impairment of long-lived assets" line of the accompanying consolidated statement of operations for the year ended December 31, 2015. There were no such impairments in 2017
or 2016.
F- 16
Americold Realty Trust and Subsidiaries
Notes to Consolidated Financial Statements
2. Summary of Significant Accounting Policies (continued)
Deferred Financing Costs
Direct financing costs are deferred and amortized over the terms of the related agreements as a component of interest expense. The Company amortizes such costs based on the effective interest
rate or on a straight-line basis. The Company uses the latter approach when the periodic amortization approximates the amounts calculated under the effective-interest rate method. Deferred
financing costs related to revolving line of credits are classified as other assets, whereas deferred financing costs related to long-term debt are netted against "Mortgages notes and term loan" in
the consolidated balance sheets.
Goodwill
The Company evaluates the carrying value of goodwill each year as of October 1 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. When evaluating whether goodwill is impaired, the Company compares the fair value of its reporting units to its carrying amounts,
including goodwill. The Company estimates the fair value of its reporting units based upon a combination of the net present value of future cash flows and a market-based approach. Future cash
flows are estimated based upon varying economic assumptions. Significant assumptions are revenue growth rates, operating costs, maintenance costs, and a terminal value calculation. The
assumptions are based on risk-adjusted growth rates and discount factors accommodating conservative viewpoints that consider the full range of variability contemplated in the current and
potential future economic situations. The market-based multiples approach assesses the financial performance and market values of other market-participant companies. If the estimated fair value
of each of the reporting units exceeds the corresponding carrying value, no impairment of goodwill exists. If a reporting unit’s carrying amount exceeds its fair value, an impairment loss would be
calculated by comparing the implied fair value of goodwill to the reporting unit’s carrying amount. The excess of the fair value of the reporting unit over the amount assigned for fair value to its
other assets and liabilities is the implied fair value of goodwill. An impairment loss would be recognized when the carrying amount of goodwill exceeds its implied fair value. There were no
goodwill impairment charges for the years ended December 31, 2017 , 2016 and 2015 .
Revenue Recognition
Revenues for the Company include rent, storage and warehouse services (collectively, Warehouse Revenue), third-party managed services for locations or logistics services managed on behalf of
customers (Third-Party Managed Revenue), transportation services (Transportation Revenue), and revenue from the sale of quarry products (Other Revenue).
Warehouse
Revenue
The Company's customer arrangements generally include rent, storage and service elements that are priced separately. In a few instances where the Company provides rental, storage and
warehouse services under the terms of a bundled warehousing agreement, the Company uses a cost model to allocate the considerations related to the rental of temperature-controlled storage
space and warehousing service deliverables.
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.
F- 17
Americold Realty Trust and Subsidiaries
Notes to Consolidated Financial Statements
2. Summary of Significant Accounting Policies (continued)
Third-Party
Managed
Revenue
The Company provides management services for which the contract compensation arrangement includes: reimbursement of operating costs, fixed management fee, and contingent performance-
based fees (Managed Services). Managed Services fixed fees are recognized as revenue as the management services are performed ratably over the service period. Managed Services
performance-based fees are recognized as revenue when the achievement target has been met.
Cost reimbursements related to Managed Services arrangements are recognized as revenue as the services are performed and costs are incurred. Managed Services fees and related cost
reimbursements are presented on a gross basis as the Company is the principal in the arrangement. Multiple contracts with a single counterparty are accounted for as separate arrangements.
Transportation
Revenue
The Company records transportation revenue and expenses upon delivery of the product. Because the Company is the principal in the arrangement of transportation services for its customers,
revenues and expenses are presented on a gross basis.
Other
Revenue
Other Revenue primarily includes the sale of limestone produced by the Company’s quarry business. Revenues from the sale of limestone are recognized upon delivery to customers.
Income Taxes
The Company operates in a manner intended to enable it to continue to qualify as a REIT under Sections 856-860 of the Code . Under those sections, a REIT that distributes at least 100% of its
REIT taxable income, as defined in the Code, as a dividend to its shareholders each year and that meets certain other conditions will not be taxed on that portion of its taxable income that is
distributed to its shareholders for U.S. federal income tax purposes. Through cash dividends, the Company, for tax purposes, has distributed an amount equal to or greater than its REIT taxable
income for the years ended December 31, 2017, 2016 and 2015. As of December 31, 2017 and 2016, the Company has met all the requirements to qualify as a REIT. Thus, no provision for
federal income taxes was made for the years ended December 31, 2017, 2016 and 2015, except as needed for the Company’s U.S. TRSs, for the Company’s foreign entities, and a REIT excise tax
payment in 2017 disclosed in Note 16 of these financial statements. To qualify as a REIT, an entity cannot have at the end of any taxable year any undistributed earnings and profits that are
attributable to a non-REIT taxable year (undistributed E&P). The Company believes that it currently has no undistributed E&P. However, to the extent there is a determination (within the
meaning of Section 852(e)(1)) of the Code that the Company has undistributed earnings and profits (as determined for U.S. federal income tax purposes) accumulated (or acquired from another
entity) from any taxable year in which the Company (or any other entity that converts to a QRS that was acquired during the year) was not a REIT or a QRS, the Company will take all necessary
steps to permit the Company to avoid the loss of its REIT status, including, but not limited to: 1) within the 90-day period beginning on the date of the determination, making one or more
qualified designated distributions (within the meaning of the Section 852(e)(2)) of the Code in an amount not less than such undistributed earnings and profits over the interest payable under
section 852(e)(3) of the Code;
F- 18
Americold Realty Trust and Subsidiaries
Notes to Consolidated Financial Statements
2. Summary of Significant Accounting Policies (continued)
and 2) timely paying to the IRS the interest payable under Section 852(e)(3) of the Code resulting from such a determination.
If the Company fails to qualify as a REIT in any taxable year, it will be subject to U.S. federal income taxes at regular corporate rates and may not be able to qualify as a REIT for the four
subsequent taxable years. Even as a REIT, it may be subject to certain state and local income and franchise taxes, and to U.S. federal income and excise taxes on undistributed taxable income and
on certain built-in gains.
The Company has elected TRS status for some of the consolidated subsidiaries. This allows the Company to provide services that would otherwise be considered impermissible for REITs. Many
of the foreign countries in which we have operations do not recognize REITs or do not accord REIT status under their respective tax laws to our entities that operate in their jurisdiction.
Accordingly, the Company recognizes income tax expense for the U.S. federal and state income taxes incurred by the TRSs, taxes incurred in certain U.S. states and foreign jurisdictions, and
interest and penalties associated with unrecognized tax benefit liabilities, as applicable.
Taxable
REIT
Subsidiary
The Company has elected to treat certain of its wholly owned subsidiaries as TRSs. A TRS is subject to U.S. federal and state income taxes at regular corporate tax rates. Thus, income taxes for
the Company’s TRSs are accounted for using the asset and liability method, under which deferred income taxes are recognized for (i) temporary differences between the financial reporting and
tax bases of assets and liabilities and (ii) operating loss and tax credit carryforwards based on enacted tax rates expected to be in effect when such amounts are realized or settled.
The Company records a valuation allowance for deferred tax assets when it estimates that it is more likely than not that future taxable income will be insufficient to fully use a deduction or credit
in a specific jurisdiction. In assessing the need for the recognition of a valuation allowance for deferred tax assets, we consider whether it is more likely than not that some portion, or all, of the
deferred tax assets will not be realized and adjust the valuation allowance accordingly. We evaluate all significant available positive and negative evidence as part of our analysis. Negative
evidence includes the existence of losses in recent years. Positive evidence includes the forecast of future taxable income by jurisdiction, tax-planning strategies that would result in the realization
of deferred tax assets, reversal of existing deferred tax liabilities, and the presence of taxable income in prior carryback years. The underlying assumptions we use in forecasting future taxable
income require significant judgment and take into account our recent performance. The ultimate realization of deferred tax assets depends on the generation of future taxable income during the
periods in which temporary differences are deductible or creditable.
The Company accrues liabilities when it believes that it is more likely than not that it will not realize the benefits of tax positions that it has taken in its tax returns or for the amount of any tax
benefit that exceeds the cumulative probability threshold in accordance with ASC 740-10, Uncertain Tax Positions. The Company recognizes interest and penalties related to unrecognized tax
benefits within income tax (expense) benefit in the accompanying consolidated statements of operations.
The earnings of certain foreign subsidiaries, including any other components of the outside basis difference, are considered to be indefinitely reinvested. If our plans change in the future or if we
elect to repatriate the unremitted earnings of our foreign subsidiaries in the form of dividends or otherwise, we would be subject
F- 19
Americold Realty Trust and Subsidiaries
Notes to Consolidated Financial Statements
2. Summary of Significant Accounting Policies (continued)
to additional income taxes which would result in a higher effective tax rate. As disclosed in Note 16 of these financial statements, the U.S. government enacted comprehensive tax legislation on
December 22, 2017 which imposed a one-time inclusion for our REIT or tax for our TRS on the deemed repatriation of unremitted foreign earnings and profits.
With respect to the foreign subsidiaries owned directly by the REIT, any unremitted earnings would not be subject to additional U.S. level taxes because the REIT would distribute 100% of such
earnings or would be subject to a participation exemption beginning in 2018.
Pension and Post-Retirement Benefits
The Company has defined benefit pension plans that cover certain union and nonunion employees. The Company also participates in multi-employer union defined benefit pension plans under
collective bargaining agreements for certain union employees. The Company also has a post-retirement benefit plan to provide life insurance coverage to eligible retired employees. The Company
also offers defined contribution plans to all of its eligible employees. Contributions to multi-employer union defined benefit pension plans are expensed as incurred, as are the Company’s
contributions to the defined contribution plans. For the defined benefit pension plans and the post-retirement benefit plan, an asset or a liability is recorded in the consolidated balance sheet equal
to the funded status of the plan, which represents the difference between the fair value of the plan assets and the projected benefit obligation at the consolidated balance sheet date. The Company
utilizes the services of a third-party actuary to assist in the assessment of the fair value of the plan assets and the projected benefit obligation at each measurement date. Certain changes in the
value of plan assets and the projected benefit obligation are not recognized immediately in earnings but instead are deferred as a component of accumulated other comprehensive income (loss)
and amortized to earnings in future periods. The components of annual net periodic pension cost (service cost, interest on the pension obligation, expected return on plan assets, amortization of
any amounts previously deferred in accumulated other comprehensive income, and the effects of settlements) are netted and presented as a single amount in the accompanying consolidated
statements of operations.
Foreign Currency Gains and Losses
The local currency is the functional currency for the Company’s operations in Australia, New Zealand, Argentina, and Canada. For these operations, assets and liabilities are translated at the rates
of exchange on the consolidated balance sheet date, while income and expense items are translated at average rates of exchange during the period. The resulting gains or losses arising from the
translation of accounts from the functional currency into U.S. dollars are included as a separate component of shareholders’ equity in accumulated other comprehensive income (loss) until a
partial or complete liquidation of the Company’s net investment in the foreign operation.
From time to time, the Company’s foreign operations may enter into transactions that are denominated in a currency other than their functional currency. These transactions are initially recorded
in the functional currency of the subsidiary based on the applicable exchange rate in effect on the date of the transaction. On a monthly basis, these transactions are remeasured to an equivalent
amount of the functional currency based on the applicable exchange rate in effect on the remeasurement date. Any adjustment required to remeasure a transaction to the equivalent amount of
functional currency is recorded in the consolidated statements of operations of the foreign subsidiary as a component of foreign exchange gain or loss.
F- 20
Americold Realty Trust and Subsidiaries
Notes to Consolidated Financial Statements
2. Summary of Significant Accounting Policies (continued)
Foreign currency transaction gains and losses resulting from the remeasurement of long-term intercompany loans denominated in currencies other than a subsidiary’s functional currency are
recognized as a component of accumulated other comprehensive income (loss) if a repayment of these loans is not anticipated. Foreign currency transaction gains and losses on the remeasurement
of short-term intercompany loans denominated in currencies other than a subsidiary’s functional currency are recognized as a component of other income (expense).
Recently Adopted Accounting Standards
Clarifying
the
Definition
of
a
Business
In January 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a
Business. This guidance requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable
assets; if so, the set of transferred assets and activities is not a business. The guidance also requires a business to include at least one substantive process and narrows the definition of outputs by
more closely aligning it with how outputs are described in ASC 606, Revenue from Contracts with Customers. ASU 2017-01 is effective for public business entities for fiscal years beginning
after December 15, 2017, and interim periods within those years. ASU 2017-01 will be applied prospectively to any transactions occurring within the period of adoption. Early adoption is
permitted, including for interim or annual periods in which the financial statements have not been issued or made available for issuance. The Company early adopted ASU 2017-01 as of the
beginning of its fiscal year 2017.
Stock
Compensation,
Improvements
to
Employee
Share-Based
Payment
Accounting
In March 2016, the FASB issued Compensation - Stock Compensation (Topic 718), Improvements to Employee Share-Based Payment Accounting (ASU 2016-09). Under this ASU, entities are
required to recognize the income tax effects of awards in the income statement when the awards vest or are settled (i.e., additional paid-in capital or APIC pools will be eliminated). The guidance
on employers’ accounting for an employee’s use of shares to satisfy the employer’s statutory income tax withholding obligation and for forfeitures is changing. The guidance was effective for
public business entities for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. The Company adopted ASU 2016-09 as of the beginning of its fiscal year
2017. The adoption of this new ASU did not have a material effect on the Company's consolidated financial statements.
Effect
of
Derivative
Contract
Novations
on
Existing
Hedge
Accounting
Relationships
In March 2016, the FASB issued ASU 2016-05, Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships (a consensus of the FASB Emerging Issues Task Force).
ASU 2016-05 clarifies that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument under Topic 815 does not, in and of itself, require de-
designation of that hedging relationship provided that all other hedge accounting criteria (including those in paragraphs 815‑20-35-14 through 35-18) continue to be met. For public companies,
the amendments in ASU 2016-05 are effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption is
permitted, including adoption in an interim period. An entity has an option to apply the amendments in ASU 2016-05 on either a prospective basis or a modified retrospective basis. The Company
F- 21
Americold Realty Trust and Subsidiaries
Notes to Consolidated Financial Statements
2. Summary of Significant Accounting Policies (continued)
adopted ASU 2016-05 as of the beginning of its fiscal year 2017. The adoption of this new ASU did not have a material effect on the Company's consolidated financial statements.
Future Adoption of Accounting Standards
Income
Statement—Reporting
Comprehensive
Income
(Topic
220):
Reclassification
of
Certain
Tax
Effects
from
Accumulated
Other
Comprehensive
Income
In February 2018, the FASB issued ASU 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other
Comprehensive Income. This ASU provides financial statement preparers with an option to reclassify stranded tax effects within AOCI to retained earnings in each period in which the effect of
the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act (or portion thereof) is recorded. The amendments are effective for all organizations for fiscal years beginning
after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. Organizations should apply the proposed amendments either in the period of adoption or
retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. The Company is evaluating
the impact of adopting ASU 2018-02.
Derivatives
and
Hedging
(Topic
815):
Targeted
Improvements
to
Accounting
for
Hedging
Activities
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. This ASU refines and expands hedge
accounting for both financial (e.g., interest rate) and commodity risks. Its provisions create more transparency around how economic results are presented, both on the face of the financial
statements and in the footnotes. It also makes certain targeted improvements to simplify the application of hedge accounting guidance. ASU 2017-12 is effective for public business entities for
fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption, including adoption in an interim period, is permitted. The Company believes the
adoption of ASU 2017-12 will not have a material effect on its consolidated financial statements.
Compensation—Stock
Compensation
(Topic
718)
In May 2017, the FASB issued ASU 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting. This update provides guidance on determining which
changes to the terms and conditions of share-based payment awards require an entity to apply modification accounting under Topic 718. ASU 2017-09 is effective for all entities for annual
periods, including interim periods within those annual periods, beginning after December 15, 2017. Early adoption for public business entities is permitted, including adoption in any interim
period, for reporting periods for which financial statements have not yet been issued. The Company believes the adoption of ASU 2017-09 will not have a material effect on its consolidated
financial statements.
Compensation
-
Retirement
Benefits
In March 2017, the FASB issued ASU 2017-07, Compensation - Retirement Benefits (Topic 715), Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement
Benefit Cost. The new standard requires that the service cost component of net periodic pension and other postretirement benefits (OPEB)
F- 22
Americold Realty Trust and Subsidiaries
Notes to Consolidated Financial Statements
2. Summary of Significant Accounting Policies (continued)
(income) expense be presented in the same income statement line item as other employee compensation costs, while the remaining components of net periodic pension and OPEB (income)
expense are to be presented outside operating income. Retrospective application of the change in income statement presentation is required, while the change in capitalized benefit cost is to be
applied prospectively. ASU 2017-07 is effective for public business entities for fiscal years beginning after December 15, 2017. Early adoption is permitted in the first financial statements
(interim or annual) issued for a fiscal year, provided all provisions of the ASU (income statement presentation and capitalization of service cost) are adopted. The Company's adoption of ASU
2017-07 will result in the reclassification of non-service cost components, as disclosed in Note 17, from "Selling, general and administrative" expense to "Other income, net" for all periods
presented in the consolidated statements of operations.
Simplifying
the
Test
for
Goodwill
Impairment
In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This update eliminates step two of the goodwill
impairment test, and specifies that goodwill impairment should be measured by comparing the fair value of a reporting unit with its carrying amount. Additionally, the amount of goodwill
allocated to each reporting unit with a zero or negative carrying amount of net assets should be disclosed. For public business entities that are SEC filers, this ASU is effective for annual and any
interim impairment tests for periods beginning after December 15, 2019. Early adoption is allowed for all entities as of January 1, 2017, for annual and any interim impairment tests occurring
after January 1, 2017. The Company believes the adoption of ASU 2017-04 will not have a material effect on its consolidated financial statements.
Statement
of
Cash
Flows,
Restricted
Cash
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230), Restricted Cash. Under this new guidance, entities will be required to show the changes in the total of
cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. As a result, entities will no longer present transfers between cash and cash equivalents and
restricted cash and restricted cash equivalents in the statement of cash flows. When cash, cash equivalents, restricted cash and restricted cash equivalents are presented in more than one line item
on the balance sheet, a reconciliation of the totals in the statement of cash flows to the related captions in the balance sheet is required. For public business entities, the guidance is effective for
fiscal years beginning after December 15, 2017, and interim periods within those years. Early adoption is permitted. The Company believes the adoption of ASU 2016-18 will not have a material
effect on its consolidated cash flows statement.
Statement
of
Cash
Flows,
Classification
of
Certain
Cash
Receipts
and
Cash
Payments
In August 2016, the FASB issued Cash Payments (a consensus of the Emerging Issues Task Force) (ASU 2016-15), which clarifies how entities should classify certain cash receipts and cash
payments on the statement of cash flows. The guidance also clarifies how the predominance principle should be applied when cash receipts and cash payments have aspects of more than one class
of cash flows. This new guidance is effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those years. Early adoption is permitted.
Entities will have to apply the guidance retrospectively, but if it is impracticable to do so for an issue, the amendments related to that issue would be applied prospectively. The Company believes
the adoption of ASU 2016-15 will not have a material effect on its consolidated cash flows statement.
F- 23
Americold Realty Trust and Subsidiaries
Notes to Consolidated Financial Statements
2. Summary of Significant Accounting Policies (continued)
Recognition
and
Measurement
of
Financial
Assets
and
Financial
Liabilities
In January 2016, the FASB issued ASU 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The update
primarily affects the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, the
FASB clarified guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. For public
companies, the amendments in this update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company believes the
adoption of ASU 2016-01 will not have a material effect on its consolidated financial statements.
Lease
accounting
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The following are some of the key provisions of this update:
Lessees will need to recognize a right-of-use asset and a lease liability for virtually all of their leases (other than leases that meet the definition of a short-term lease). The liability will be equal to
the present value of lease payments. The asset will be based on the liability, subject to adjustment, such as for initial direct costs. For income statement purposes, the FASB retained a dual model,
requiring leases to be classified as either operating or finance. Operating leases will result in straight-line expense (similar to current operating leases) while finance leases will result in a front-
loaded expense pattern (similar to current capital leases). Classification will be based on criteria that are largely similar to those applied in current lease accounting, but without explicit bright
lines. Lessor accounting is similar to the current model, but updated to align with certain changes to the lessee model (e.g., certain definitions, such as initial direct costs, have been updated) and
the new revenue recognition standard. Similar to today, lessors will classify leases as operating, direct financing, or sales-type.
Existing sale-leaseback guidance, including guidance applicable to real estate, is replaced with a new model applicable to both lessees and lessors. A sale-leaseback transaction will qualify as a
sale only if (1) it meets the sale guidance in the new revenue recognition standard, (2) the leaseback is not a finance lease or a sales-type lease, and (3) a repurchase option, if any, is priced at the
asset’s fair value at the time of exercise and the asset is not specialized. If the transaction fails sale treatment, the buyer and seller will reflect it as a financing.
For public business entities, the standard is effective for fiscal years and interim periods beginning after December 15, 2018. Early adoption is permitted. The new standard must be adopted using
a modified retrospective transition, and provides for certain practical expedients. Transition will require application of the new guidance at the beginning of the earliest comparative period
presented. The Company is currently evaluating the potential impact of adopting ASU 2016-02 on its consolidated financial statements.
Revenue
Recognition
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, to clarify the principles used to recognize revenue for all entities. ASU 2014-09 provides new guidance
related to the core
F- 24
Americold Realty Trust and Subsidiaries
Notes to Consolidated Financial Statements
2. Summary of Significant Accounting Policies (continued)
principle that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in
exchange for those goods or services. The new guidance also will result in enhanced disclosures about revenue, provide guidance for transactions that were not previously addressed
comprehensively, and improve guidance for multiple-element arrangements. During 2016, the FASB issued additional ASUs to clarify certain aspects of ASU 2014-09, including ASU 2016-08,
Principal versus Agent Considerations (Reporting Revenue Gross versus Net) in March 2016, and ASU 2016-10, Identifying Performance Obligations and Licensing in April 2016. For public
companies, this new guidance is effective for annual periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is permitted for annual
periods beginning after December 15, 2016, including interim periods within that reporting period. The Company will adopt this guidance in the first quarter of 2018 applying the modified
retrospective method.
Currently, the Company is in the final phases of its implementation plan and has substantially completed its assessment of expected impacts on its consolidated financial statements, business
processes, accounting systems and controls. The Company is currently implementing changes to its processes and controls for impacted areas and drafting the initial adoption and ongoing
disclosure requirements.
The Company does not expect the standard to have a material impact to the amount or timing of revenues recognized for its revenue arrangements. Additionally, the Company does not expect to
record a cumulative effect adjustment as of the date of adoption. However, the Company expects to be impacted on presentation and disclosures in its financial statements, including but not
limited to the separate classification of revenues that do not fall within the scope of ASU 2014-09, adding additional disclosures relating to contracts that contain performance obligations
extending beyond the end of our reporting period, and quantifying and disclosing methods of transferring services as it pertains to satisfying performance obligations.
F- 25
Americold Realty Trust and Subsidiaries
Notes to Consolidated Financial Statements
3. Equity-Method Investments
During 2010, the Company, through its wholly owned subsidiaries, made total cash investments of $46.2 million in two newly-formed Hong Kong entities, China Merchants Americold Holdings
Logistics Company Limited (CMAL) and China Merchants Americold Holdings Company Limited (CMAH, together with CMAL, the Joint Venture). Through these subsidiaries, the Company
acquired a 49% interest in the Joint Venture, while China Merchants Holdings International Company (CMHI) acquired the remaining 51% interest in the Joint Venture. CMHI is a Hong Kong
based entity that is part of the China Merchants Group. Other affiliates of CMHI subsequently purchased 50,000 shares of the Company’s Series B Preferred Shares. As such, CMHI is considered
a related party of the Company. The Joint Venture was formed with the purpose of acquiring, owning, and operating temperature-controlled warehouses, primarily in the People’s Republic of
China. During 2015, the Company made an additional capital contribution of $1.3 million for general corporate purposes to the Joint Venture. As of December 31, 2017 , the Joint Venture
operated 13 warehouses in the People’s Republic of China.
The Company translates amounts in Chinese yuan to U.S. dollars when accounting for its interest in the Joint Venture. As a result, the Company must also adjust the carrying value of its
investment in the Joint Venture for its proportionate share of the cumulative unrealized foreign currency translation gains and losses each period. The Company accounts for its investment in the
Joint Venture as an equity-method investment, as the Company has a 49% equity interest, but cannot control it. In accounting for its interest in the Joint Venture as an equity-method investment,
the Company includes its proportionate share of the Joint Venture’s net income or loss as an increase or decrease in the carrying value of the equity-method investment. In addition, the Company
continuously monitors its investment in the Joint Venture to determine whether an other-than-temporary decline in the investment value has occurred.
In 2017, the Company recognized an impairment charge totaling $6.5 million related to our investment in the Joint Venture as we determined that the recorded investment was no longer
recoverable from the projected future cash flows expected to be received from the Joint Venture. The estimated fair value of this investment was determined based on an assessment of the
proceeds expected to be received from the potential sale of our investment interests to the joint venture partner based on current negotiations.
F- 26
Americold Realty Trust and Subsidiaries
Notes to Consolidated Financial Statements
3. Equity-Method Investments (continued)
The condensed summary financial information for the Company’s Joint Venture is as follows:
Condensed results of operations
Revenues
Operating (loss) income
Net loss
Company’s loss from partially owned entities
Condensed results of operations
Revenues
Operating (loss) income
Net (loss) income
Company’s (loss) income from partially owned entities
Condensed results of operations
Revenues
Operating (loss) income
Net (loss) income
Company’s (loss) income from partially owned entities
$
$
$
CMAL
CMAL
CMAL
38,662 $
(2,052)
(2,479)
(1,143)
34,945 $
(2,184)
(2,645)
(1,396)
39,310 $
(3,696)
(4,376)
(3,712)
2017
CMAH
(In thousands)
12,294 $
314
(296)
(220)
2016
CMAH
(In thousands)
2015
CMAH
(In thousands)
9,389 $
4,281
2,791
1,268
8,299 $
805
205
174
Total
Total
Total
50,956
(1,738)
(2,775)
(1,363)
44,334
2,097
146
(128)
47,609
(2,891)
(4,171)
(3,538)
F- 27
3. Equity-Method Investments (continued)
Condensed balance sheet information
Property, plant and equipment, net
Cash and cash equivalent
Accounts receivable
Goodwill and other intangible assets
Due from related parties
Other assets
Total assets
Debt
Accounts payable
Due to related parties
Other liabilities
Total liabilities
Equity including non-controlling interest
Company’s equity investment before impairment
Less: Company's impairment in equity investment
Company’s equity investment
Americold Realty Trust and Subsidiaries
Notes to Consolidated Financial Statements
CMAL
2017
CMAH
(In thousands)
Total
13,108 $
7,935
6,416
15,905
5,900
6,206
55,470 $
9,611 $
4,651
17,824
4,483
36,569 $
24,559 $
915
1,805
344
14,414
3,745
45,782 $
6,350 $
611
11,384
2,183
20,528 $
18,901 $
25,254 $
9,379 $
(4,060)
5,319 $
11,059 $
(2,436)
8,623
37,667
8,850
8,221
16,249
20,314
9,951
101,252
15,961
5,262
29,208
6,666
57,097
44,155
20,438
(6,496)
13,942
$
$
$
$
$
$
$
F- 28
Americold Realty Trust and Subsidiaries
Notes to Consolidated Financial Statements
3. Equity-Method Investments (continued)
Condensed balance sheet information
Property, plant and equipment, net
Cash and cash equivalent
Accounts receivable
Goodwill and other intangible assets
Due from related parties
Other assets
Total assets
Debt
Accounts payable
Due to related parties
Other liabilities
Total liabilities
Equity including non-controlling interest
Company’s equity investment
CMAL
2016
CMAH
(In thousands)
Total
14,397 $
11,827
5,881
14,902
2,059
8,339
57,405 $
12,942 $
2,179
12,913
9,243
37,277 $
24,754 $
1,031
1,500
356
10,773
2,366
40,780 $
10,760 $
290
2,580
3,322
16,952 $
20,128 $
23,828 $
9,861 $
10,535 $
39,151
12,858
7,381
15,258
12,832
10,705
98,185
23,702
2,469
15,493
12,565
54,229
43,956
20,396
$
$
$
$
$
$
The Company has an investment in another joint venture that is also accounted for as an equity-method investment since the Company can exert significant influence over the operations, but
cannot control the joint venture. The carrying amount of this other investment was $2.0 million as of December 31, 2017 and 2016 , respectively.
F- 29
Americold Realty Trust and Subsidiaries
Notes to Consolidated Financial Statements
4. Goodwill and Intangible Assets
The changes in the carrying amount of the Company’s goodwill by reportable segment for the years ended December 31, 2017 , 2016 and 2015 are as follows:
December 31, 2014
Impact of foreign currency translation
December 31, 2015
Impact of foreign currency translation
Write-offs
December 31, 2016
Impact of foreign currency translation
December 31, 2017
Warehouse
Third-party managed
Transportation
Total
$
$
174,283 $
(2,785)
171,498
196
(112)
171,582
972
172,554 $
(In thousands)
3,309 $
(130)
3,179
(123)
—
3,056
8
3,064 $
12,507 $
(259)
12,248
(57)
(24)
12,167
384
12,551 $
The write-offs in the table above relates to the residual goodwill allocated to the Company's operations in Argentina.
Intangible assets subject to amortization as of December 31, 2017 and 2016 are as follows:
Customer relationships
Above-market leases
In-place lease
Below-market leases
Total
Gross
Accumulated Amortization
Net definite lived intangible assets
Indefinite lived intangible asset (Trade name)
$
$
Identifiable intangible assets – net, December 31, 2016
Gross
Additions
Accumulated Amortization
Net definite lived intangible assets
Indefinite lived intangible asset (Trade name)
$
$
Identifiable intangible assets – net, December 31, 2017
33,788 $
(28,395)
5,393 $
33,788 $
—
(29,328)
4,460 $
(In thousands)
— $
—
— $
— $
143
(16)
127 $
— $
—
— $
— $
3,778
(430)
3,348 $
9,126 $
(5,341)
3,785
$
9,126 $
—
(5,492)
3,634
$
190,099
(3,174)
186,925
16
(136)
186,805
1,364
188,169
42,914
(33,736)
9,178
15,076
24,254
42,914
3,921
(35,266)
11,569
15,076
26,645
During 2017, as part of an addition to the Company's domestic cold storage operations in the Warehouse segment, the Company was assigned a tenant lease. This transaction resulted in the
recognition of above-market and in-place lease intangible assets that will be amortized over the remaining term of the tenant lease.
F- 30
Americold Realty Trust and Subsidiaries
Notes to Consolidated Financial Statements
4. Goodwill and Intangible Assets (continued)
Amortization of the above market lease asset is recorded as a reduction to lease revenue, while amortization of the in-place lease is recorded as amortization expense.
The following table describes the estimated amortization of intangible assets for the next five years and thereafter. In addition, the table describes the net impact on rent expense due to the
amortization of below-market leases for the next five years and thereafter:
Estimated Amortization of
Customer Relationships and
In-Place Lease Intangible
Assets
Estimated Net Decrease to
Lease Revenue Related to
Amortization of Above-Market
Leases
Estimated Net Increase to
Lease Expense Related to
Amortization of Below-Market
Leases
(In thousands)
Years Ending December 31:
2018
2019
2020
2021
2022
Thereafter
Total
5. Other Assets
Other assets as of December 31, 2017 and 2016 are as follows:
Prepaid accounts and IPO costs
Various insurance and workers' compensation receivables
Inventory and supplies
Marketable securities - (Deferred compensation plan)
Other receivables and straight-line rent
Utility and lease deposits
Deferred financing costs
Current income taxes receivable
Deferred tax assets
$
$
1,417 $
1,329
1,238
1,151
1,063
1,610
7,808 $
22 $
22
22
22
22
17
127 $
2017
2016
(In thousands)
$
$
25,108 $
12,040
10,396
2,483
4,532
1,851
1,374
950
553
59,287 $
F- 31
151
151
151
151
151
2,879
3,634
12,370
13,536
12,735
2,017
2,891
1,846
2,034
—
—
47,429
Americold Realty Trust and Subsidiaries
Notes to Consolidated Financial Statements
6. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses as of December 31, 2017 and 2016 are as follows:
Trade payables
Accrued workers' compensation expenses
Accrued payroll
Accrued vacation and long service leave
Accrued health benefits
Accrued property taxes
Accrued utilities
Income taxes payable (receivable)
Other accrued expenses
F- 32
2017
2016
(In thousands)
88,422 $
32,041
22,657
15,718
9,332
15,067
6,004
784
51,234
241,259 $
64,428
36,901
19,138
14,203
8,367
13,908
6,332
(328)
47,520
210,469
$
$
Americold Realty Trust and Subsidiaries
Notes to Consolidated Financial Statements
7. Redeemable Preferred Shares
Series A Cumulative Non-Voting Preferred Shares
In January 2009, the Company issued 125 Series A Cumulative Non-Voting Preferred Shares of beneficial interest, par value $0.01 per share (Series A Preferred Shares) for proceeds of $0.1
million. The Series A Preferred Shares may be redeemed by the Company at any time by notice for a price, payable in cash, equal to 100% of each share’s liquidation value of $1,000, plus all
accrued and unpaid dividends, plus, if applicable, a redemption premium. As of December 31, 2017 , the Company may redeem the Series A Preferred Shares without payment of a redemption
premium. Holders of the Series A Preferred Shares are entitled to receive dividends semiannually at a per annum rate equal to 12.5% of the liquidation value. Refer to Note 1 for a description of
the pro forma redemption of the Series A Preferred Shares in connection with the IPO.
Series B Cumulative Convertible Voting Preferred Shares
During 2010, the Company’s Board of Trustees approved a series of agreements and documents that effected the conversion of 375,000 authorized and unissued preferred shares of the Company
into 375,000 Series B Cumulative Convertible Voting Preferred Shares of beneficial interest, par value $0.01 per share (Series B Preferred Shares), and simultaneously authorized the sale and
issuance of the 375,000 Series B Preferred Shares. On December 15, 2010, the Company issued 375,000 of the Series B Preferred Shares for proceeds of $368.5 million. Of this amount, 325,000
Series B Preferred Shares were issued to affiliates of the Goldman Sachs Group (Goldman) and 50,000 Series B Preferred Shares were issued to an affiliate of CMHI. As discussed in Note 3,
affiliates of CHMI are also the majority partner in the Company’s Joint Venture.
The Series B Preferred Shares contain certain conversion features, the terms of which are dependent upon the nature of the conversion event. At each holder's option, the Series B Preferred Shares
may be converted into a number of the Company’s common shares of beneficial interest (common shares), the conversion rate being based upon a variable price index, as defined. As of
December 31, 2017 , each Series B Preferred Share was convertible at the holder’s option into approximately 88 of the Company’s common shares. If all holders of the Series B Preferred Shares
had elected to convert all of their shares in this manner on December 31, 2017 , approximately 33,240,000 common shares of the Company would have been issued for the 375,000 Series B
Preferred Shares. The Series B Preferred Shares contain certain preemptive rights, anti-dilution provisions, and protections in the event of a recapitalization. The Series B Preferred Shares have
the equivalent voting rights as the common shares. The Series B Preferred Shares are senior to any junior securities, and upon a qualifying liquidation event, as defined, each holder of the Series
B Preferred Shares would receive the greater of $1,000 cash per share, plus all accrued and unpaid dividends, or the payment that would be paid in connection with such liquidation event in
respect of the number of common shares into which such Series B Preferred Shares could be converted.
Holders of the Series B Preferred Shares are entitled to a 5.0% annual fixed cash dividend (Fixed Dividend) based on the liquidation preference of $1,000 per share plus all accrued and unpaid
dividends. Additionally, the holders of the Series B Preferred Shares are entitled to participate in dividends paid to holders of the Company’s common shares by receiving a dividend in an amount
and in a kind equal to and equivalent to what the holder would have received had such holder held the number of common shares for such common share dividend into which the Series B
Preferred Share could be converted on the record date (Participating Dividend). Beginning in 2011, and each year thereafter, if Participating Dividends paid annually to the holders of the Series B
Preferred Share do not equal or exceed 2.5% of the $1,000 per share
F- 33
Americold Realty Trust and Subsidiaries
Notes to Consolidated Financial Statements
7. Redeemable Preferred Shares (continued)
liquidation preference, then holders are entitled to a dividend for the shortfall. Dividends are only payable when declared by the Company’s Board of Trustees, but accrued and unpaid dividends
are cumulative and payable upon any conversion or redemption event, as defined, for the Series B Preferred Shares. There were no accrued or unpaid Fixed Dividends to the holders of the Series
B Preferred Shares as of December 31, 2017 and 2016 , respectively.
In the event that the Company completes a qualifying IPO, each outstanding Series B Preferred Share plus any accrued and unpaid dividends will be automatically converted into the Company’s
common shares based on the then-existing conversion price. In the event that the Company completes a non-qualifying IPO, each outstanding Series B Preferred Share will be automatically
converted into one Series C Preferred Share. A qualifying IPO is defined as an IPO in which a) the aggregate gross proceeds to the Company are at least $250 million (before deduction of
underwriting discounts, commissions and expenses), and b) the offering price per common shares is greater than or equal to 135% of the Series B Preferred Share's conversion price in effect upon
the consummation of such qualified IPO.
Upon the occurrence of the tenth anniversary of the issuance date of the Series B Preferred Shares, December 15, 2020, and each subsequent anniversary thereafter, the holders of the Series B
Preferred Shares outstanding on the redemption date may, at their option, require the Company to redeem the Series B Preferred Shares in, at the Company’s option, either cash or the Company’s
common shares based on the current market price. The redemption value upon such an event will be $1,000 per share, plus all accrued and unpaid dividends. Separately, upon a change in control
event, the Series B Preferred Shares will be redeemable, at the option of the holder, at 101% of the liquidation preference for cash.
Given that the Series B Preferred Shares are redeemable at the option of the holder on the tenth anniversary of the issuance date, the Company is required to classify these shares in mezzanine
equity.
The carrying amount of the Series B Preferred Shares was initially recorded net of discount and offering costs totaling approximately $10.0 million. The carrying amount is increased by periodic
accretions through accumulated deficit and distributions in excess of net earnings in the consolidated statements of shareholders' equity, so that the carrying amount will equal the mandatory
redemption value as of December 15, 2020, plus any accrued and unpaid dividends. As of December 31, 2017 and 2016 , the carrying amount of the Series B Preferred Shares was $372.8 million
and $371.9 million , respectively. Refer to Note 1 for a description of the pro forma conversion of the Series B Preferred Shares in connection with the IPO.
Series C Convertible Voting Preferred Shares
Contemporaneously with the authorization of the conversion and issuance of the Series B Preferred Shares by the Board of Trustees discussed above, the Board of Trustees also authorized the
conversion of an additional 375,000 authorized and unissued preferred shares into 375,000 Series C Convertible Voting Preferred Shares (Series C Preferred Shares). As discussed above, the
Series C Preferred Shares are potentially issuable to the holders of the Series B Preferred Shares upon conversion in connection with a non-qualifying IPO. As of December 31, 2017 and 2016 ,
no Series C Preferred Shares were issued or outstanding. The IPO discussed in Note 1 met the definition of a qualifying IPO and, therefore, the Series C Preferred Shares are no longer issuable
after December 31, 2017.
F- 34
Americold Realty Trust and Subsidiaries
Notes to Consolidated Financial Statements
8. Debt
The Company’s outstanding borrowings as of December 31, 2017 and 2016 are as follows:
Stated maturity date
Contractual Interest Rate
Effective Interest
Rate as of December
31, 2017
2017
2016
(In thousands)
Carrying Amount
Fair Value 1
Carrying Amount
Fair Value 1
$
56,941
$
58,151
$
73,619
$
2010 Mortgage Loans
Component A-1
Component A-2-FX
Component A-2-FL 2
Component B
Component C
Component D
2013 Mortgage Loans
Senior note
Mezzanine A
Mezzanine B
ANZ Term Loans
Australia Term Loan 2
New Zealand Term Loan 2
Senior Secured Term Loan B Facility 2
Total principal amount of mortgage notes and term loans
Less deferred financing costs
Less debt discount
1/2021
1/2021
1/2021
1/2021
1/2021
1/2021
5/2023
5/2023
5/2023
6/2020
6/2020
12/2022
3.86%
4.96%
L+1.51%
6.04%
6.82%
7.45%
3.81%
7.38%
11.50%
BBSY+1.40%
BKBM+1.40%
L+3.75%
Total mortgage notes and term loans, net of deferred financing costs and debt discount
2015 Senior Secured Revolving Credit Facility 1, 2
12/2018
L+3.00%
Construction Loans
Warehouse Clearfield, UT 2
Less deferred financing costs
2/2019
L+3.25%
4.40%
5.38%
3.45%
6.48%
7.28%
7.92%
4.14%
7.55%
11.75%
4.51%
5.12%
5.79%
3.92%
5.18%
Warehouse Middleboro, MA 2
8/2020
L+2.75%
—
150,334
48,654
60,000
62,400
82,600
194,223
70,000
32,000
158,645
31,240
806,918
1,753,955
(25,712)
(6,285)
159,918
49,019
64,875
68,718
91,686
195,194
68,950
31,840
160,628
31,631
806,918
1,787,528
n/a
n/a
150,334
74,899
60,000
62,400
82,600
200,252
70,000
32,000
146,789
30,615
704,833
75,828
162,361
76,083
66,450
69,420
87,969
201,455
68,436
31,351
148,803
31,031
704,833
1,688,341
1,724,020
(28,473)
(7,443)
n/a
n/a
$
$
$
$
$
1,721,958
$
1,787,528
$
1,652,425
$
1,724,020
— $
— $
28,000
$
28,000
19,671
(179)
19,492
$
$
— $
19,671
$
n/a
19,671
$
— $
— $
—
— $
— $
—
n/a
—
—
(1) The carrying amount of the 2015 Senior Secured Revolving Credit Facility approximates its fair value due to the short-term maturity of the instrument. See Note 12 for information on the determination of fair value for other outstanding
borrowings.
(2) L = one-month LIBOR; BBSY= Bank Bill Swap Bid Rate (applicable in Australia); BKBM = Bank Bill Reference Rate (applicable in New Zealand).
F- 35
Americold Realty Trust and Subsidiaries
Notes to Consolidated Financial Statements
8. Debt (continued)
Pre-IPO Senior Secured Credit Facilities
In December 2015, we entered into a credit agreement with various lenders providing senior secured credit facilities that consisted of a $325.0 million senior secured term loan, which we refer to
as our Senior Secured Term Loan B Facility, and a $135.0 million senior secured revolving credit facility, which we refer to as our 2015 Senior Secured Revolving Credit Facility, and,
collectively with our Senior Secured Term Loan B Facility, our pre-IPO Senior Secured Credit Facilities. The net proceeds from the Senior Secured Term Loan B Facility of $314.4 million were
used to repay a portion of the 2006 Mortgage Notes - Pool 2 tranche. Borrowings under our Senior Secured Term Loan B Facility and 2015 Senior Secured Revolving Credit Facility bore interest,
at inception, of 5.50% per year plus one-month LIBOR with a 1% floor, and 3.25% per year plus one-month LIBOR, respectively.
In April 2016, we upsized the commitments under our 2015 Senior Secured Revolving Credit Facility by $15.0 million to increase the aggregate borrowing capacity under that credit facility to
$150.0 million.
In July 2016, we issued a $385.0 million incremental term loan under our Senior Secured Term Loan B Facility and used the net proceeds to repay, among other things, the balance of our 2006
Mortgage Loans. In connection with this refinancing, we lowered the credit spread on the initial tranche of our Senior Secured Term Loan B Facility from 5.50% to 4.75% per year plus one-
month LIBOR with a 1% floor.
In January 2017, we lowered the credit spread on the outstanding tranches of the Senior Secured Term Loan B Facility from 4.75% to 3.75% per year plus one-month LIBOR with a 1% floor.
In February 2017, we obtained an increase in the size of our 2017 Senior Secured Revolving Credit Facility of $20.0 million, for a total commitment of $170.0 million.
In May 2017, we issued a $110.0 million incremental term loan under our Senior Secured Term Loan B Facility and used the net proceeds to release, among other things, three properties from the
2010 Mortgage Loans collateral pool (as described below), and repay $26.2 million of our 2010 Mortgage Loans. Two of these properties were added to the borrowing base supporting our 2015
Senior Secured Revolving Credit Facility.
Borrowings under our 2015 Senior Secured Revolving Credit Facility bore interest, at our election, at the then-applicable margin plus an applicable one-month LIBOR or base rate interest rate.
Base rate was defined as the greatest of the bank prime rate, the one-month LIBOR rate plus one percent or the federal funds rate plus one-half of one percent. The applicable margin varied
between (i) in the case of LIBOR-based loans, 3.00% and 3.50% and (ii) in the case of base rate loans, 2.00% and 2.50%, in each case, based on changes in our credit ratings. In addition, any
undrawn portion of our 2015 Senior Secured Revolving Credit Facility was subject to an annual 0.40% commitment fee. As of December 31, 2017, borrowings under our 2015 Senior Secured
Revolving Credit Facility bore interest at 3.00% per year plus one-month LIBOR, or 4.57% per annum. As of that date, we had no amounts outstanding under the 2015 Senior Secured Revolving
Credit Facility, but we applied approximately $33.8 million of that credit facility to backstop certain outstanding letters of credit. In connection with entering into the original agreement and
subsequent amendments for the 2015 Senior Secured Revolving Credit Facility, we capitalized approximately $3.4 million of debt issuance costs, which we amortize as interest expense under the
effective interest method.
F- 36
Americold Realty Trust and Subsidiaries
Notes to Consolidated Financial Statements
8. Debt (continued)
As of December 31, 2017 , the $1.2 million unamortized balance of these debt issuance costs is included in "Other assets" in the accompanying consolidated balance sheet.
After giving effect to the May 2017 amendments described above, the outstanding tranches of term loans under our Senior Secured Term Loan B Facility bore interest, at our election, at (i) 3.75%
per year plus one-month LIBOR with a 1.0% floor or (ii) 2.75% per year plus a base rate with a 2.0% floor. The principal amount of the term loans outstanding under our Senior Secured Term
Loan B Facility was subject to principal amortization in quarterly installments of approximately $2.0 million until the maturity date thereof, with a final payment of the balance that was due on
December 1, 2022. As of December 31, 2017, $806.9 million were outstanding under our Senior Secured Term Loan B Facility, which was prepayable without premium or penalty. In connection
with entering into the agreement and subsequent amendments for the Senior Secured Term Loan B Facility, we capitalized a total Original Issue Discount (OID) of $8.4 million and incurred debt
issuance costs of approximately $21.6 million , of which $18.8 million were capitalized. The OID and capitalized debt issuance costs are amortized as interest expense under the effective interest
method. As of December 31, 2017 , approximately $21.0 million unamortized balance of OID and debt issuance costs related to the Senior Secured Term Loan B Facility, in the aggregate, is
classified as a contra-liability to the "Mortgage notes and term loan" line item of the accompanying consolidated balance.
Our pre-IPO Senior Secured Credit Facilities were guaranteed by certain subsidiaries of our operating partnership and are secured by a pledge in the stock of certain subsidiaries of our operating
partnership, and contained certain financial covenants relating to the maintenance of a specified borrowing base coverage ratio, a total leverage ratio and a fixed charge coverage ratio and other
customary covenants.
ANZ Loans
In June 2015, we entered into syndicated facility agreements in each of Australia and New Zealand, which we refer to collectively as the ANZ Loans, and separately as the Australian term loan
and the New Zealand term loan. The ANZ Loans are non-recourse to us and our domestic subsidiaries.
The Australian term loan is an AUD$203.0 million five-year syndicated facility. The $151.1 million net proceeds that we borrowed under this facility were used to repay the AUD$19.0 million
mortgage loan on one of our facilities, return AUD$30.0 million of capital to our domestic subsidiary owning the equity of our Australian subsidiary, repay an intercompany loan totaling
CAD$47.6 million, and return AUD$70.0 million to the United States in the form of a long-term intercompany loan and working capital. This facility is secured by our owned real property and
equity of certain of our Australian subsidiaries and bears interest at a floating rate of Australian Bank Bill Swap Bid Rate plus 1.4%. The Australian term loan is fully prepayable without penalty.
The New Zealand term loan is a NZD$44.0 million five-year syndicated facility. The $29.3 million net proceeds that we borrowed under this facility were used to repay an intercompany loan plus
interest totaling NZD$28.3 million, make a NZD$14.3 million dividend, and fund working capital. The facility is secured by our owned real property, leased assets and equity of certain of our
New Zealand subsidiaries, and bears interest at a floating rate of New Zealand Bank Bill Swap Bid Rate plus 1.4%.
F- 37
Americold Realty Trust and Subsidiaries
Notes to Consolidated Financial Statements
8. Debt (continued)
The New Zealand term loan is fully prepayable without penalty. In connection with entering into the agreement for the ANZ Loans, the Company capitalized direct transaction-related costs and
expenses of approximately $6.3 million as debt issuance costs. As part of the ANZ Loans, we entered into interest rate swaps to effectively fix the interest rates on 75% of the notional balances.
Construction Loans
In February 2017, certain of our subsidiaries entered into a $24.1 million construction loan with the National Bank of Arizona to finance the development of an expansion to our Clearfield, Utah
distribution facility. The facility is secured by a mortgage on the property and the repayment of the construction loan is guaranteed by us. The construction loan bears interest, at our election, at a
floating rate of one-month LIBOR plus 3.25% or the bank defined prime rate (which may not be lower than LIBOR) and is scheduled to mature in February 2019.
In August 2017, certain of our subsidiaries entered into a $16.0 million construction loan with JPMorgan Chase Bank, N.A. to finance the development of a production advantaged facility in
Middleboro, Massachusetts. The facility is secured by a mortgage on the property and the construction loan is supported by a limited repayment guaranty by us. The construction loan bore interest
at a floating rate of one-month LIBOR plus 2.75% and was scheduled to mature in August 2020.
In connection with the IPO, both construction loans were paid off.
2013 Mortgage Loans
On May 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 in May 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 of the 2006 Mortgage Loans, as described below, 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 of December 31, 2017, the amount of restricted cash associated with the 2013 Mortgage Loans was $3.4 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 debt service coverage ratio as of December 31, 2017 was 1.70x. The 2013 Mortgage Loans are non-recourse to us subject to customary non-recourse carve-outs.
2010 Mortgage Loans
On December 15, 2010, we entered into a mortgage financing in an aggregate principal amount of $600.0 million, which we refer to as the 2010 Mortgage Loans. The debt includes six separate
components, which are comprised of independent classes of certificates and seniority. The components are cross-collateralized and cross-defaulted. No principal payments are required on five of
the six components until
F- 38
Americold Realty Trust and Subsidiaries
Notes to Consolidated Financial Statements
8. Debt (continued)
the stated maturity date in January 2021, and one component requires monthly principal payments of $1.4 million. Interest is payable monthly in an amount equal to the aggregate interest accrued
on each component. The interest rates on five of the six components are fixed, and range from 3.86% to 7.45% per annum. One component has a variable interest rate equal to one-month LIBOR
plus 1.51%, with one-month-LIBOR subject to a floor of 1.00% per annum. In addition, we maintain an interest rate cap on the variable rate tranche that caps one-month LIBOR at 6.0%. The fair
value of the interest rate cap was nominal at December 31, 2017. The floating rate interest component is pre-payable anytime without penalty; however, the fixed rate components remain subject
to yield maintenance provisions. We used the net proceeds of these loans to refinance existing term loans, fund the acquisition of the acquired Versacold entities, and for general corporate
purposes.
The 2010 Mortgage Loans were initially collateralized by 53 warehouses. In November 2014, we sold one of the warehouses collateralizing the 2010 Mortgage Loans for $9.5 million, and
$6.0 million of the proceeds were used to pay down the 2010 Mortgage Loans. In 2015, we sold three warehouses for $9.4 million, and $6.1 million of the proceeds were used to pay down the
2010 Mortgage Loans. In 2017, we used a portion of the net proceeds from incremental borrowings under our Existing Senior Secured Term Loan B Facility to pay down $26.2 million of the
2010 Mortgage Loans. As a result, two warehouses were transferred from the collateral base of the 2010 Mortgage Loans to the Existing Senior Secured Revolving Credit Facility borrowing base,
and one was released and positioned for sale. The terms governing the 2010 Mortgage Loans require us to maintain certain cash amounts in accounts that are restricted as to their use for the
respective warehouses. As of December 31, 2017, the amount of restricted cash associated with the 2010 Mortgage Loans was $15.1 million. Additionally, if we do not maintain certain financial
thresholds, including a debt service coverage ratio of 1.50x, the cash generated will further be temporarily restricted and limited to the use for scheduled debt service and operating costs. The debt
service coverage ratio as of December 31, 2017 was 2.9x. The 2010 Mortgage Loans are non-recourse to us subject to customary non-recourse carve-outs.
Debt Covenants
The Company’s pre-IPO Senior Secured Credit Facilities, the ANZ Term Loans and the various mortgage loans require financial statements reporting, periodic requirements to report compliance
with established thresholds and performance measurements, and affirmative and negative covenants that govern allowable business practices of the Company. The affirmative and negative
covenants include continuation of insurance, maintenance of collateral, the maintenance of REIT status, and the Company's ability to enter into certain types of transactions or exposures in the
normal course of business. The 2015 Senior Secured Credit Facility requires compliance with other financial covenants on a quarterly or on occurrence basis, including a leverage ratio, a fixed-
charge coverage ratio, a maximum dividend payout threshold, and earnings thresholds, as defined. The mortgage loans also require compliance with other financial covenants, including a debt
coverage ratio and cash flow calculation, as defined. As of December 31, 2017 , the Company was in compliance with all debt covenants.
F- 39
Americold Realty Trust and Subsidiaries
Notes to Consolidated Financial Statements
8. Debt (continued)
The aggregate maturities of the Company’s total indebtedness as of December 31, 2017 , including amortization of principal amounts due under the Term Loan B and mortgage notes for each of
the next five years and thereafter, are as follows:
Years Ending December 31:
(In thousands)
2018
2019
2020
2021
2022
Thereafter
Aggregate principal amount of debt
Less unamortized discount and deferred financing costs
Total debt net of discount and deferred financing costs
Special Purpose Entity (SPE) Separateness
$
$
31,983
52,790
224,172
420,870
781,461
262,350
1,773,626
(32,176)
1,741,450
Each of the Company's legal entities listed in the table below is a special purpose, bankruptcy remote entity, meaning that such entity’s assets and credit are not available to satisfy the debt and
other obligations of either the Company or any of its other affiliates.
Legal Entity/SPE
Related Obligation
ART
Mortgage
Borrower
Propco
2010
-
4
LLC
ART
Mortgage
Borrower
Propco
2010
-
5
LLC
ART
Mortgage
Borrower
Propco
2010
-
6
LLC
ART
Mortgage
Borrower
Opco
2010
-
4
LLC
ART
Mortgage
Borrower
Opco
2010
-
5
LLC
ART
Mortgage
Borrower
Opco
2010
-
6
LLC
ART
Mortgage
Borrower
Propco
2013
LLC
ART
Mortgage
Borrower
Opco
2013
LLC
2010 Mortgage Notes
2013 Mortgage Notes
For financial reporting purposes, the assets, liabilities, results of operations, and cash flows of each legal entity in the table above are included in the Company's consolidated financial statements.
Because each legal entity is separate and distinct from the Company and its affiliates, the creditors of each legal entity have a claim on the assets of such legal entity prior to those assets becoming
available to the legal entity's equity holders and, therefore, to the creditors of the Company or its other affiliates.
F- 40
Americold Realty Trust and Subsidiaries
Notes to Consolidated Financial Statements
9. Derivative Financial Instruments
At December 31, 2017 , in addition to the interest rate cap with a nominal fair value described in Note 8, the Company’s derivative instruments included the following interest rate swap
agreements designated as cash flow hedges:
Effective Date
6/29/2015
6/29/2015
Notional amount
AUD 152 million
NZD 33 million
Fixed Interest Rate Paid
Variable Interest Rate Received
Expiration Date
2.66%
3.53%
AU-BBR-BBSY (a)
NZD-BBR-BID (b)
6/26/2020
6/26/2020
(a) Variable interest rate received is based on Australian Bank Bill Swap Bid Rate.
(b) Variable interest rate received is based on New Zealand Bank Bill Swap Bid Rate.
The Company’s objectives for utilizing derivative instruments is to reduce its exposure to fluctuations in cash flows due to changes in the variable interest rates related to the ANZ Loans. The
Company’s strategy to achieve that objective involves entering into interest rate swap contracts.
As of December 31, 2017 and 2016 , the aggregate fair values of these cash flow hedges were $2.5 million and $2.4 million, respectively, which are included in the "Accounts payable and
accrued expenses" line of the accompanying balance sheets. The Company determines the fair value of these derivative instruments using a present value calculation with significant observable
inputs classified as Level 2 of the fair value hierarchy. Approximately $1.8 million of aggregate fair values as of December 31, 2017 represents the estimated unrealized loss that is expected to be
reclassified out of accumulated other comprehensive income (AOCI) into pre-tax earnings within the twelve months from the balance sheet date. The actual amounts reclassified into earnings are
dependent on future movements in interest rates. The following table summarizes the impact of the Company’s cash flow hedges on the results of operations, comprehensive loss and AOCI for
the years ended December 31, 2017 and 2016 :
Interest Rate Swaps Designated as Cash Flow Hedges
Loss Recognized as AOCI on Derivatives, Net of Tax
(Effective Portion)
Consolidated Statements of Operations Classification
Loss Reclassified from AOCI into Earnings, Net of
Tax (Effective Portion)
2017
2016
$
$
1,422
1,538
Interest expense
Interest expense
$
$
1,547
1,139
(In thousands)
(In thousands)
The Company’s derivatives have been designated as cash flow hedges; therefore, the effective portion of the changes in the fair value of derivatives will be recognized in AOCI. As the critical
terms of the interest rate swaps match the underlying debt being hedged, no ineffectiveness is recognized on these swaps and, therefore, all unrealized changes in fair value are recorded in AOCI.
The Company classifies cash inflows and outflows from derivatives within operating activities on the statement of cash flows. Amounts reclassified from AOCI into earnings related to realized
gains and losses on interest rate swaps are recognized when interest payments or receipts occur related to the swap contracts, which correspond to when interest payments are made on the
Company’s hedged debt.
F- 41
Americold Realty Trust and Subsidiaries
Notes to Consolidated Financial Statements
10. Sale-Leasebacks of Real Estate
The Company’s outstanding sale-leaseback financing obligations of real estate-related long-lived assets as of December 31, 2017 and 2016 are as follows:
1 warehouse – 2010
11 warehouses – 2007
Total sale-leaseback financing obligations
8/2030
9/2017 to 9/2027
10.34%
7.00%–19.59%
$
$
(In thousands)
19,457 $
102,059
121,516 $
19,579
104,037
123,616
Maturity
Interest Rate as of December 31,
2017
2017
2016
In September 2010, the Company entered into a transaction by which it assigned to an unrelated third party its fixed price “in the money” purchase option of $18.3 million on a warehouse it was
leasing in Ontario, California. The purchase option was exercised in September 2010, and the Company simultaneously entered into a new 20-year lease agreement with the new owner and
received $1.0 million of consideration to use towards warehouse improvements. Under the terms of the new lease agreement, the Company will exercise control over the asset for more than 90%
of the asset’s remaining useful life, and it has a purchase option within the last six months of the initial lease term at 95% of the fair market value as of the date such option is exercised. The
transaction was accounted for as a financing whereby the Company recognized a long-lived asset equal to the purchase price of $18.2 million, a receivable of $1.0 million for the additional
consideration, and a financing obligation of $19.2 million. During 2017 and 2016 , the principal balance was amortized by nominal amounts. The long-lived asset is being depreciated on a
straight-line basis over its remaining economic useful life and a proportionate amount of each periodic rental payment is being charged to interest expense on the effective-interest-rate method.
In September 2007, the Company completed a sale-leaseback of 11 warehouses for gross proceeds of $170.7 million. Concurrent with the sale, the Company agreed to lease the properties for
various initial terms of 10 to 20 years. The rent increases annually by 1.75%. The lease terms can be extended up to four times at the discretion of the Company, each for a five-year period. The
leases are guaranteed by an unsecured indemnity from a related party and the Company had the ability to extend the lease through a period which exceeds 90.0% of the assets’ remaining useful
lives. The transaction was accounted for as a financing with an amount of each periodic rental payment being charged to interest expense. The assets continue to be reflected as long-lived assets
and depreciated over their remaining useful lives. In July 2013, the lease agreements for six of the 11 warehouses were amended. The amendments extended the expiration date on four of the
warehouse leases to September 27, 2027, reduced the annual rent increases from 1.75% to 0.50% on five of the warehouse leases and released the guarantee by the unsecured indemnity from the
related party. All of the 11 warehouses subject to the sale-leaseback transaction continue to be accounted for as a financing.
In February 1996, the Company entered into a sale-leaseback agreement for one warehouse, which was accounted for as a financing. During 2011, the Company elected to extend the lease term
for an additional five-year period ending in February 2016, with the option to purchase the property for fair market value in August 2016. The Company exercised its option and purchased the
property on September 15, 2016 for $3.5 million. As a result, the Company recorded interest expense of $0.3 million to account for the difference between the purchase price of the warehouse and
the balance of the lease obligation extinguished.
F- 42
Americold Realty Trust and Subsidiaries
Notes to Consolidated Financial Statements
10. Sale Leasebacks of Real Estate (continued)
As of December 31, 2017 , future minimum lease payments, inclusive of certain obligations to be settled with the residual value of related long-lived assets upon expiration of the lease agreement,
of the sale-leaseback financing obligations are as follows:
Years Ending December 31:
(In thousands)
2018
2019
2020
2021
2022
Thereafter
Total minimum payments
Interest portion
Present value of net minimum payments
11. Lease Commitments
$
$
16,575
16,829
17,087
17,351
17,619
151,151
236,612
(115,096)
121,516
The Company has entered into capital and operating lease agreements for equipment and warehouses. The lease terms generally range from five to 20 years, with renewal or purchase options.
As of December 31, 2017 , future minimum lease payments under capital leases are as follows:
Years Ending December 31:
(In thousands)
2018
2019
2020
2021
2022
Thereafter
Total minimum lease payments
Interest portion
Present value of net minimum payments
$
$
11,640
9,281
8,424
6,987
2,411
7,492
46,235
(8,111)
38,124
F- 43
Americold Realty Trust and Subsidiaries
Notes to Consolidated Financial Statements
11. Lease Commitments (continued)
As of December 31, 2017 , future minimum lease payments under operating leases are as follows:
Years Ending December 31:
2018
2019
2020
2021
2022
Thereafter
Total minimum lease payments
(In thousands)
30,198
26,246
20,372
9,486
5,260
19,154
110,716
$
$
Rent expense, inclusive of month-to-month rental charges, for the years ended December 31, 2017 , 2016 and 2015 was $42.3 million, $40.4 million and $43.9 million, respectively.
12. Fair Value Measurements
The Company categorizes assets and liabilities that are recorded at fair values into one of three tiers based upon fair value hierarchy. These tiers include: Level 1, defined as quoted market prices
in active markets for identical assets or liabilities; Level 2, defined as inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or
liabilities, quoted prices in markets that are not active, model-based valuation techniques for which all significant assumptions are observable in the market, or other inputs that are observable or
can be corroborated by observable market data for substantially the full term of the assets or liabilities; and Level 3, defined as unobservable inputs that are not corroborated by market data. The
carrying amounts of cash and cash equivalents, restricted cash, accounts receivable, accounts payable, accrued expenses and revolving line of credit approximate their fair values due to the short-
term maturities of the instruments.
The Company's mortgage notes, term loan and construction loans are reported at their aggregate principal amount less unamortized original issue discount and deferred financing costs on the
accompanying consolidated balance sheets. The fair value of these financial instruments is estimated based on the present value of the expected coupon and principal payments using a discount
rate that reflects the projected performance of the collateral asset as of each valuation date. The inputs used to estimate the fair value of the Company's mortgage notes, term loans and
construction loans are comprised of Level 2 inputs, including senior industrial commercial real estate loan spreads, corporate industrial loan indexes, risk-free interest rates, and Level 3 inputs,
such as future coupon and principal payments, and projected future cash flows of the collateral asset.
The Company’s financial assets and liabilities recorded at fair value on a recurring basis include certain investments included in cash equivalent money market funds and restricted cash assets.
The Company’s cash equivalent money market funds and restricted cash assets are valued at quoted market prices in active markets for identical assets (Level 1), which the Company receives
from the financial institutions that hold such investments on its behalf. The fair value hierarchy discussed above is also applicable to the Company’s pension and other post-retirement plans. The
Company uses the fair value hierarchy to measure the fair value of assets held by various plans. Refer to Note 17 for the fair value of the pension plan assets. The Company recognizes transfers
between levels within the hierarchy as of the beginning of the reporting period. There
F- 44
Americold Realty Trust and Subsidiaries
Notes to Consolidated Financial Statements
12. Fair Value Measurements (continued)
were no transfers between levels within the hierarchy for the years ended December 31, 2017 , 2016 and 2015 .
The Company's assets and liabilities measured or disclosed at fair value are as follows:
Measured at fair value on a recurring basis:
Cash and cash equivalents
Restricted cash
Interest rate swap liability
Assets held by various pension plans:
Measured at fair value on a non-recurring basis:
Long-lived assets written down:
Property, plant and equipment
Disclosed at fair value:
Fair Value Hierarchy
2017
2016
Fair Value
December 31,
$
Level 1
Level 1
Level 2
Level 1
Level 2
Level 3
(In thousands)
48,873 $
21,090
2,463
32,626
33,102
22,834
40,096
2,439
28,601
29,122
2,576
8,610
Mortgage notes, term loans and construction loan
Level 3
$
1,807,199 $
1,724,020
13. Dividends and Distributions
In order to comply with the REIT requirements of the IRC, the Company is generally required to make common share distributions (other than capital gain distributions) to its shareholders at least
equal to 90% of its REIT taxable income, as defined in the IRC, computed without regard to the dividends paid deduction and net capital gains. The Company’s common share dividend policy is
to distribute a percentage of cash flow to ensure distribution requirements of the IRS are met while allowing the Company to retain cash to meet other needs, such as principal amortization, capital
improvements and other investment activities.
Common share dividends are characterized for U.S. federal income tax purposes as ordinary income, qualified dividend, capital gains, non-taxable income return of capital, or a combination of
the four. Common share dividends that exceed current and accumulated earnings and profits (calculated for tax purposes) constitute a return of capital rather than a dividend and generally reduce
the shareholder’s basis in the common share. To the extent that a dividend exceeds both current and accumulated earnings and profits and the shareholder’s basis in the common share, it will
generally be treated as a gain from the sale or exchange of that shareholder’s common share. At the beginning of each year, we notify our shareholders of the taxability of the common share
dividends paid during the preceding year. The payment of common share dividends is dependent upon our financial condition, operating results, and REIT distribution requirements and may be
adjusted at the discretion of the Company’s Board of Trustees.
F- 45
Americold Realty Trust and Subsidiaries
Notes to Consolidated Financial Statements
13. Dividends and Distributions (continued)
The following tables summarize dividends declared and distributions paid to the holders of common shares and Series B Preferred Shares in 2017, 2016 and 2015:
Month Declared
Dividend Per Share
Distributions Paid
Month Paid
2017
$
0.073
$
5,053
$
Common Shares
Series B Preferred Shares
(In thousands, except per share amounts)
Month Declared
Dividend Per Share
Distributions Paid
Month Paid
$
0.073
$
5,053
$
Common Shares
Series B Preferred Shares
(In thousands, except per share amounts)
March
June
September
December
March
June
September
December
Series B Preferred Shares - Fixed Dividend
Total distributions paid to Series B Preferred Shares holders
(a) Participating Dividend.
(b) Paid in equal quarterly amounts along with the Participating Dividend.
Series B Preferred Shares - Fixed Dividend
Total distributions paid to Series B Preferred Shares holders
(a) Participating Dividend.
(b) Paid in equal quarterly amounts along with the Participating Dividend.
0.073
0.073
0.073
$
0.073
0.073
0.073
$
5,054
5,053
5,054
20,214
$
2016
5,054
5,053
5,054
20,214
$
F- 46
April
July
October
December
2,421
2,422
2,421
2,422
9,686 (a)
18,750 (b)
28,436
April
July
October
December
2,421
2,422
2,421
2,422
9,686 (a)
18,750 (b)
28,436
Americold Realty Trust and Subsidiaries
Notes to Consolidated Financial Statements
13. Dividends and Distributions (continued)
Month Declared
Dividend Per Share
Distributions Paid
Month Paid
2015
$
0.049
$
3,380
$
Common Shares
Series B Preferred Shares
(In thousands, except per share amounts)
March
June
September
December
Series B Preferred Shares - Fixed Dividend
Total distributions paid to Series B Preferred Shares holders
(a) Participating Dividend.
(b) Paid in equal quarterly amounts along with the Participating Dividend.
0.049
0.049
0.145
$
3,380
3,380
10,074
20,214
$
April
July
October
December
1,620
1,620
1,620
4,826
9,686 (a)
18,750 (b)
28,436
For income tax purposes, distributions to preferred and common shareholders are characterized as ordinary income, capital gains, or as a return of shareholder invested capital. The composition of
the Company's distributions per common share and per preferred share is as follows:
Common Shares
Ordinary income
Capital gains
Return of capital
Preferred Shares
Ordinary income
Capital gains
Return of capital
2017
2016
2015
85%
0%
15%
100%
100%
0%
0%
100%
2017
2016
2015
100%
0%
0%
100%
100%
0%
0%
100%
100%
0%
0%
100%
100%
0%
0%
100%
F- 47
Americold Realty Trust and Subsidiaries
Notes to Consolidated Financial Statements
14. Warrants
On December 10, 2009, the Company issued to affiliates of Yucaipa warrants to purchase 18,574,619 additional common shares at an exercise price of $9.81 per share (Warrants), which were
exercisable at any time at the option of Yucaipa through December 10, 2016. In 2015, Yucaipa contributed the Warrants to YF ART Holdings L.P.
On December 7, 2016, the Company amended the agreement granting the Warrants to YF ART Holdings L.P. to extend the expiration date from December 10, 2016 to March 10, 2017. As a
result of this modification, the Company calculated the change in the estimated fair value of the Warrants before and after the extension date, and concluded that the change in the expiration date
increased the estimated fair value of the Warrants by $3.9 million , which the Company recognized as a charge to stock-based compensation expense for the year ended December 31, 2016.
On March 10, 2017, YF ART Holdings L.P. did not exercise its option to purchase additional common shares under the Warrants, and the Company amended the Warrants agreement several
times during 2017, and ultimately extended the Warrants expiration date to January 31, 2018. The Company calculated the change in the estimated fair value of the Warrants before and after each
extension date in 2017, and concluded that the change in the expiration date, in each case, did not increase the estimated fair value of the Warrants. Therefore, the Company did not recognize any
charges associated with the Warrants during the year ended December 31, 2017.
As discussed in Note 1, in connection with the IPO the Warrants were exercised in full on a cashless basis resulting in the issuance of 6,426,818 common shares.
F- 48
Americold Realty Trust and Subsidiaries
Notes to Consolidated Financial Statements
15. Share-Based Compensation
During December 2008, the Company and the common shareholders approved the Equity Incentive Plan (2008 Plan), whereby the Company may issue either stock options or stock appreciation
rights based upon a reserved pool of 4,900,025 common shares. The Company awarded no options in 2017 , 2016 or 2015 under the 2008 Plan. During December 2010, the Company and the
common shareholders approved the 2010 Equity Incentive Plan (2010 Plan), whereby the Company may issue stock options, stock appreciation rights, restricted stock, restricted stock units, stock
bonus awards, and/or dividend equivalents with respect to the Company’s common shares, cash bonus awards, and/or performance compensation awards to certain eligible participants, as
defined, based upon a reserved pool of 3,849,976 of the Company’s common shares. All awards granted were authorized under the 2008 Plan or the 2010 Plan. All share-based compensation cost
is measured at the grant date, based on the estimated fair value of the award, and is recognized on a straight-line basis as expense over the employees’ requisite service period as adjusted for
forfeitures. The following table summarizes stock option grants under the 2010 Plan during the years ended December 31, 2017 , 2016 and 2015:
Year Ended
December 31
2017
2016
2015
Grantee Type
Employee group
Employee group
Employee group
# of
Options
Granted
—
1,355,000
1,280,000
Vesting
Period
—
5 years
5 years
Weighted-
Average
Exercise Price
—
$9.81
$9.81
Grant Date
Fair Value
—
$
$
4,674,750
1,625,000
Restricted stock units are nontransferable until vested and the holders are not entitled to receive dividends with respect to the units until the issuance of a common share. Prior to the issuance of a
common share, the grantees of restricted stock units are not entitled to vote the shares. Restricted stock unit awards vest in equal annual increments over the vesting period.
The following table summarizes restricted stock unit grants under the 2010 Plan during the years ended December 31, 2017 , 2016 and 2015:
Year Ended
December 31
2017
2017
2016
2015
Grantee Type
Director group
Employee group
Director group
Director group
# of
Restricted Stock
Units Granted
18,348
141,288
18,348
18,348
F- 49
Vesting
Period
2-3 years
5 years
2-3 years
2-3 years
Grant Date
Fair Value
198,892
1,897,498
198,892
113,758
$
$
$
$
Americold Realty Trust and Subsidiaries
Notes to Consolidated Financial Statements
15. Share-Based Compensation (continued)
The Company did not grant any stock options during 2017. The Company’s calculations of the fair value of stock options granted during the years ended December 31, 2016 and 2015 were
determined based on the Black-Scholes option-pricing model utilizing the following assumptions:
Weighted-average expected life
Risk-free interest rate
Expected volatility
Expected dividend yield
2017
n/a
n/a
n/a
n/a
2016
6.6 years
1.6%
33%
2.0%
2015
6.5 years
1.9%
40%
4.0%
Since the Company does not have a sufficient history of exercise behavior, the expected term is calculated using the assumption that the options will be exercised ratably from the date of vesting
to the end of the contractual term for each vesting tranche of awards. The risk-free interest rate is based on the U.S. Treasury yield curve for the period of the expected term of the stock option.
Expected volatility is calculated using an index of publicly traded peer companies.
The estimation of stock awards that will ultimately vest requires judgment for the amount that will be forfeited, and to the extent actual results or updated estimates differ from current estimates,
such amounts will be recorded as a cumulative adjustment in the period estimates are revised. The Company considers many factors when estimating expected forfeitures, including employee
class, economic environment, and historical experience. The Company re-evaluates its estimated forfeiture rate annually. A 1% change to the estimated forfeiture rate would not have a material
impact on stock-based compensation expense for the year ended December 31, 2017 . Estimated forfeiture rates for the employee group at December 31, 2017 , 2016 and 2015 were 41.6%,
39.8% and 40.3%, respectively.
F- 50
Americold Realty Trust and Subsidiaries
Notes to Consolidated Financial Statements
15. Share-Based Compensation (continued)
The following tables provide a summary of option activity under the 2008 Plan and 2010 Plan for the three years ended December 31, 2017 :
Outstanding as of December 31, 2016
Options
Granted
Exercised
Forfeited or expired
Outstanding as of December 31, 2017
Exercisable as of December 31, 2017
Outstanding as of December 31, 2015
Options
Granted
Exercised
Forfeited or expired
Outstanding as of December 31, 2016
Exercisable as of December 31, 2016
Outstanding as of December 31, 2014
Options
Granted
Exercised
Forfeited or expired
Outstanding as of December 31, 2015
Exercisable as of December 31, 2015
Shares
(In thousands)
6,313
—
—
(835)
5,478
3,509
$
Shares
(In thousands)
5,808
1,355
—
(850)
6,313
3,087
$
Shares
(In thousands)
4,978
1,280
—
(450)
5,808
2,578
$
Weighted-Average Exercise Price
9.72
$
Weighted-Average Remaining
Contractual Terms (Years)
6.8
6.0
5.0
Weighted-Average Remaining
Contractual Terms (Years)
7.0
6.8
5.2
Weighted-Average Remaining
Contractual Terms (Years)
7.6
7.0
5.3
—
—
9.66
9.72
9.68
9.72
9.62
9.69
9.46
Weighted-Average Exercise Price
9.69
$
9.81
—
9.67
Weighted-Average Exercise Price
9.57
$
9.81
—
8.71
The total fair value at grant date of stock option awards that vested during 2017 , 2016 and 2015 was approximately $1.6 million, $1.3 million and $1.0 million, respectively. As of December 31,
2017, the Company's exercisable and outstanding stock options had an intrinsic value of approximately $22.2 million and $29.4 million, respectively, using a price per share of $16.00.
F- 51
Americold Realty Trust and Subsidiaries
Notes to Consolidated Financial Statements
15. Share-Based Compensation (continued)
A summary of restricted stock awards activity under the 2010 Plan as of December 31, 2017 and 2016 , and changes during the year then ended, are as follows:
Non-vested as of December 31, 2016
Restricted Stock
Granted
Vested (1)
Forfeited
Non-vested as of December 31, 2017
Non-vested as of December 31, 2015
Restricted Stock
Granted
Vested (1)
Forfeited
Non-vested as of December 31, 2016
Non-vested as of December 31, 2014
Restricted Stock
Granted
Vested (1)
Forfeited
Non-vested as of December 31, 2015
Year Ended December 31, 2017
Units
(In thousands)
Weighted-
Average Grant
Date Fair Value
(Per Unit)
Year Ended December 31, 2016
Year Ended December 31, 2015
132
160
(132)
(54)
106
$
$
246
18
(132)
—
132
365
18
(137)
—
246
$
$
$
$
9.26
13.13
9.26
13.43
12.98
9.01
10.84
9.00
—
9.26
9.10
6.20
8.89
—
9.01
Weighted-
Average Grant
Date Fair Value
(Per Unit)
Weighted-
Average Grant
Date Fair Value
(Per Unit)
Units
(In thousands)
Units
(In thousands)
As of December 31, 2017, the Company's vested and outstanding restricted stock units had an intrinsic value of approximately $11.0 million and $12.0 million, respectively, using a price per
share of $16.00.
F- 52
Americold Realty Trust and Subsidiaries
Notes to Consolidated Financial Statements
15. Share-Based Compensation (continued)
(1) For certain vested restricted stock units, common shares shall not be issued until the first to occur of: (1) termination of service; (2) change in control; (3) death; or (4) disability, as defined in the 2010 Plan. For
certain vested restricted stock units, common shares shall not be issued until the first to occur of: (1) change in control or (2) set cliff vesting dates, as defined in the 2010 Plan. Holders of vested restricted stock units
are not entitled to receive dividends or vote the shares until common shares are issued. For the year ended December 31, 2017 , no common shares were issued for vested restricted stock units.
Aggregate stock-based compensation charges related to stock options and restricted stock units were $2.4 million , $2.5 million and $3.1 million during the years ended December 31, 2017 , 2016
and 2015 , respectively, and were included as a component of "Selling, general and administrative" expense on the accompanying consolidated statements of operations. As of December 31, 2017
, there was $5.2 million of unrecognized stock‑based compensation expense related to stock options and restricted stock units, which will be recognized over a weighted-average period of
3.4 years .
In connection with the IPO, the Company issued 729,375 restricted stock units to certain of its non-employee trustees and certain employees under the 2017 Equity Incentive Plan (2017 Plan),
which is described in a Form S-8 the Company filed with the SEC on January 19, 2018.
F- 53
Americold Realty Trust and Subsidiaries
Notes to Consolidated Financial Statements
16. Income Taxes
As discussed in Note 2, the Company operates in compliance with REIT requirements for federal income tax purposes. As a REIT, the Company must distribute at least 90 percent of its taxable
income (including dividends paid to it by its TRSs). In addition, the Company must meet a number of other organizational and operational requirements. It is management's intention to adhere to
these requirements and maintain the Company's REIT status. Most states where we operate conform to the federal rules recognizing REITs. Certain subsidiaries have made an election with the
Company to be treated as TRSs in conjunction with the Company's REIT election; the TRS elections permit us to engage in certain business activities in which the REIT may not engage directly.
A TRS is subject to federal and state income taxes on the income from these activities. A provision for taxes of the TRSs and of foreign branches of the REIT is included in our consolidated
financial statements.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation in the form of the TCJA that significantly revises the U.S. tax code effective January 1, 2018 by, among other
things, lowering the corporate income tax rate from a top marginal rate of 35% to a flat 21%, imposing a mandatory one-time deemed repatriation of unremitted foreign earnings (commonly
referred to as the “transition tax”), limiting deductibility of interest expense and certain executive compensation, and implementing a territorial tax system. The full impact of this change in tax
law is provisional and subject to further analysis. The Company has estimated an immaterial one-time inclusion of unremitted earnings to the REIT and TRSs. These amounts will be subject to
adjustment as we finalize the relevant computations and as additional IRS rules and guidance on the TCJA provisions are adopted.
The Company's calculation of its remaining outside basis difference is not considered material because most foreign subsidiaries, except Canada and Argentina discussed further below, are owned
by the REIT which does not record deferred taxes. Determining the amount of unrecognized deferred tax liability related to any outside basis difference in the Canadian and Argentine subsidiaries
which are not owned directly by the REIT (i.e., basis differences other than those subject to the one-time transition tax) is not practicable due to the complexities of the hypothetical calculation in
determining residual taxes on undistributed earnings, including applicability of any additional local withholding tax and other indirect tax consequence that may arise due to the distribution of
these earnings. In addition, the Company does not expect to remit earnings from its Canadian and Argentine subsidiaries that are owned by a TRS. Undistributed earnings of the Canadian and
Argentine subsidiaries amounted to approximately $15.4 million at December 31, 2017. Those earnings are considered to be permanently reinvested and the Company could be subject to
withholding taxes payable to various foreign countries upon remittance.
The global intangible low-taxed income (“GILTI”) provisions of the TCJA impose a tax on the income of certain foreign subsidiaries in excess of a specified return on tangible assets used by the
foreign companies. FASB Staff Q&A, Topic 740, No. 5, Accounting for Global Intangible Low-Taxed Income, states that an entity can make an accounting policy election to either recognize
deferred taxes for temporary basis differences expected to reverse as GILTI in future years or provide for the tax expense related to GILTI in the year the tax is incurred. Given the complexity of
the GILTI provisions, the Company is still evaluating the effects of the GILTI provisions and has not yet determined the new accounting policy. At December 31, 2017, the Company is still
unable to make a reasonable estimate and has not reflected any adjustments related to GILTI in the Company's consolidated financial statements.
F- 54
Americold Realty Trust and Subsidiaries
Notes to Consolidated Financial Statements
16. Income Taxes (continued)
Following is a summary of the income/(loss) before income taxes in the U.S. and foreign operations:
U.S.
Foreign
Pre-tax income (loss)
The (expense) benefit for income taxes for the years ended December 31, 2017 , 2016 and 2015 is as follows:
Current
U.S. federal
State
Foreign
Total current portion
Deferred
U.S. federal
State
Foreign
Total deferred portion
Income tax expense
2017
2016
(In thousands)
2015
(11,212) $
19,997
8,785 $
(9,626) $
20,437
10,811 $
(35,124)
23,585
(11,539)
2017
2016
(In thousands)
2015
(4,848) $
(644)
(7,559)
(13,051)
2,277
(72)
1,453
3,658
(9,393) $
430 $
381
(7,276)
(6,465)
(797)
(64)
1,447
586
(5,879) $
(594)
(407)
(10,928)
(11,929)
(1,137)
259
3,170
2,292
(9,637)
$
$
$
$
F- 55
Americold Realty Trust and Subsidiaries
Notes to Consolidated Financial Statements
16. Income Taxes (continued)
Income tax (expense) benefit attributable to loss before income taxes differs from the amounts computed by applying the U.S. statutory federal income tax rate of 34% to loss before income taxes.
The reconciliation between the statutory rate and reported amount is as follows:
Income taxes at statutory rates
Earnings from REIT - not subject to tax
State income taxes, net of federal income tax benefit
Provision to return
Foreign rate differential
Valuation allowance
Non-deductible expenses
IRS audit adjustments
Change in uncertain tax positions
Amended returns/refunds
Foreign taxes
Effect of Tax Cuts and Jobs Act
Net operating loss carryforwards adjustments
Quarry tax basis in land
Other deferred adjustment - Foreign
Investment in foreign subsidiary
REIT excise tax
Other
Total
2017
2016
(In thousands)
2015
(2,987) $
(425)
(445)
(205)
751
2,950
(2,345)
—
94
—
—
(3,113)
—
—
(83)
—
(4,772)
1,187
(9,393) $
(3,676) $
(672)
615
(416)
688
(1,542)
(873)
—
564
360
257
—
—
(3,025)
794
616
—
431
(5,879) $
3,923
(13,362)
(725)
(382)
914
(299)
(1,065)
2,079
981
(222)
(257)
—
(1,176)
—
—
—
—
(46)
(9,637)
$
$
F- 56
Americold Realty Trust and Subsidiaries
Notes to Consolidated Financial Statements
16. Income Taxes (continued)
The tax effects of temporary differences that give rise to deferred tax assets and deferred tax liabilities as of December 31, 2017 and 2016 are as follows:
Deferred tax assets:
Net operating loss and credits carryforwards
Accrued expenses
Stock-based compensation
Other assets
Total gross deferred tax assets
Less: valuation allowance
Total net deferred tax assets
Deferred tax liabilities:
Intangible assets and goodwill
Property, plant, and equipment
Other liabilities
Total gross deferred tax liabilities
Net deferred tax liability
2017
2016
(In thousands)
6,592 $
26,263
3,511
356
36,722
(15,910)
20,812
(5,197)
(34,758)
(1,495)
(41,450)
(20,638) $
3,887
35,376
6,399
384
46,046
(21,069)
24,977
(7,094)
(40,650)
(288)
(48,032)
(23,055)
$
$
As of December 31, 2017, the Company has U.S. federal net operating loss carryforwards of approximately $19.6 million, which will expire between 2032 and 2036. The Company has state net
operating loss carryforwards of approximately $7.1 million from its TRSs, which will expire at various times between 2018 and 2036. The Company has Alternative Minimum Tax credit
carryforwards in the amount of $0.6 million that can be used to offset regular tax until 2021 or any unused credit will be refunded in 2021. Additionally, the Company has a federal Research and
Experimentation Credit of approximately $0.4 million that will expire between 2036 and 2037.
The Company established a valuation allowance against the net deferred tax assets exclusive of indefinite-lived intangibles for one of its U.S. TRSs in 2014. In assessing the need for measuring
and recording a valuation allowance existence or adjustment, the Company considers recent operating results, the expected scheduled reversal of deferred tax liabilities, projected future taxable
benefits and tax planning strategies. As a result of this assessment, the Company increased the valuation allowance from 2016 to 2017 by $0.8 million from $21.1 million to $21.9 million. Due to
enactment of the TCJA, the Company revalued the deferred tax assets and liabilities of its domestic TRSs, resulting in a decrease of the valuation allowance of $6.0 million and a total valuation
allowance of $15.9 million for the year ended December 31, 2017.
F- 57
Americold Realty Trust and Subsidiaries
Notes to Consolidated Financial Statements
16. Income Taxes (continued)
The following table summarizes the activity related to our gross unrecognized tax benefits for the years ended December 31, 2017 , 2016 and 2015 :
Balance at December 31, 2014*
Increases related to current-year tax positions
Decreases related to prior-year tax positions
Decreases due to lapse in statute of limitations
Balance at December 31, 2015*
Increases related to current-year tax positions
Decreases due to lapse in statute of limitations
Balance at December 31, 2016*
Increases related to current-year tax positions
Decreases related to prior-year tax positions
Decreases due to lapse in statute of limitations
Balance at December 31, 2017*
Tax
Interest
Penalties
Total
$
$
2,634 $
—
(241)
(879)
1,514
—
(657)
857
—
—
(73)
784 $
(In thousands)
198 $
36
(2)
(128)
104
21
(106)
19
3
(4)
(12)
6 $
188 $
22
—
(183)
27
—
(19)
8
—
(8)
—
— $
3,020
58
(243)
(1,190)
1,645
21
(782)
884
3
(12)
(85)
790
* Balance would favorably affect the Company’s effective tax rate if recognized.
The Company's unrecognized tax benefits include exposures related to positions taken on U.S. federal, state, and foreign income tax returns as of December 31, 2017. There are no material
unrecognized tax benefits related to positions taken in and after 2014. The Company believes that it is reasonably possible that approximately $0.4 million of its unrecognized tax benefits related
U.S. federal and state exposures may be reduced by the end of 2018 as a result of a lapse of the statute of limitations and settlements with tax authorities.
In the normal course of business, the Company’s tax returns are subject to examination by various taxing authorities. Such examinations may result in future tax and interest assessments by these
taxing authorities and the Company has accrued a liability when it believes it is more likely than not that the tax position claimed on tax returns will not be sustained by the taxing authorities on
the technical merits of the position. Changes in the recognition of the liability are reflected in the period in which the change in judgment occurs.
The Company accrues interest and penalties related to unrecognized tax benefits as a component of income tax expense.
Differences between the estimated and actual amounts determined upon ultimate resolution, individually or in the aggregate, are not expected to have a material adverse effect on the Company’s
consolidated financial position, but could possibly be material to the Company’s consolidated results of operations or cash flow in a given quarter or annual period.
F- 58
Americold Realty Trust and Subsidiaries
Notes to Consolidated Financial Statements
16. Income Taxes (continued)
As of December 31, 2017, the Company is generally no longer subject to U.S. federal, state, local, or foreign examinations by tax authorities for years before 2014. However, for U.S. income tax
purposes, tax years 2008, 2009, and 2010 were open as of December 31, 2017 to the extent that net operating losses were generated in those years that continue to be subject to adjustments from
taxing authorities.
In the fourth quarter of 2016, the Company filed a ruling request with the IRS for confirmation of a tax position for which it believes qualifies (more likely than not) for the treatment historically
applied by the Company. The Company settled the positions with the IRS in December 2017 and was required to make an excise tax payment in the amount of $4.3 million including interest to
resolve the matter for years prior to 2017 with an expected payment of $0.7 million to be made to resolve the 2017 year. The payments, excluding interest, are included in Current Income Tax
(Expense) Benefit in the consolidated statement of operations for the year ended December 31, 2017.
F- 59
Americold Realty Trust and Subsidiaries
Notes to Consolidated Financial Statements
17. Employee Benefit Plans
Defined Benefit Pension and Post-Retirement Plans
The Company has defined benefit pension plans that cover certain union and nonunion employees in the U.S. Benefits under these plans are based either on years of credited service and
compensation during the years preceding retirement or on years of credited service and established monthly benefit levels. The Company also has a post-retirement plan that provides life
insurance coverage to eligible retired employees (collectively, with the defined benefit plans, the U.S. Plans). The Company froze benefit accruals for the U.S. Plans for nonunion employees
effective April 1, 2005, and these employees no longer earn additional pension benefits. The Company also has a defined benefit plan that covers certain employees in Australia and is referenced
as superannuation (the Offshore Plan). The Company uses a December 31 measurement date for the U.S. Plans and the Offshore Plan.
F- 60
Americold Realty Trust and Subsidiaries
Notes to Consolidated Financial Statements
Retirement
Income Plan
National
Service-Related Pension Plan
Other
Post-Retirement Benefits
Superannuation
Total
December 31, 2017
(In thousands)
$
(45,249) $
(30,801) $
(703) $
(2,769) $
(79,522)
(65)
(1,583)
(1,070)
2,581
—
—
—
(504)
(1,256)
(1,734)
890
—
—
—
—
(22)
(14)
—
48
—
—
(153)
(120)
(142)
632
(181)
(43)
(226)
(722)
(2,981)
(2,960)
4,103
(133)
(43)
(226)
(45,386)
(33,405)
(691)
(3,002)
(82,484)
33,962
5,344
1,493
(2,581)
—
—
—
21,044
3,308
1,056
(890)
—
—
—
38,218
24,518
—
—
48
—
(48)
—
—
—
2,717
57,723
262
379
(632)
—
43
223
8,914
2,976
(4,103)
(48)
43
223
2,992
65,728
(7,168) $
(8,887) $
(691) $
(10) $
(16,756)
(7,168) $
(8,887) $
(691) $
(10) $
(16,756)
7,625
7,625
—
(2,518)
(1,889)
—
—
5,303
5,303
—
(398)
(814)
(212)
—
(58)
(58)
—
14
1
—
4
238
53
184
54
—
(9)
116
13,108
12,923
184
(2,848)
(2,702)
(221)
120
17. Employee Benefit Plans (continued)
Actuarial information regarding these plans is as follows:
Change in benefit obligation:
Benefit obligation – January 1, 2017
Service cost
Interest cost
Actuarial loss
Benefits paid
Other - plan change
Plan participants’ contributions
Foreign currency translation gain
Benefit obligation – end of year
Change in plan assets:
Fair value of plan assets – January 1, 2017
Actual return on plan assets
Employer contributions
Benefits paid
Other - plan change
Plan participants’ contributions
Foreign currency translation gain
Fair value of plan assets – end of year
Funded status
$
$
Amounts recognized on the consolidated balance sheet as of December 31, 2017:
Pension and post-retirement liability
Accumulated other comprehensive loss
(income)
Amounts in accumulated other comprehensive loss consist of:
Net loss (gain)
Prior service cost
Other changes in plan assets and benefit obligations recognized in other comprehensive
income (loss):
Net loss (gain)
Amortization of net loss (gain)
Amortization of prior service cost
Amount recognized due to special event
Foreign currency translation loss
Total recognized in other comprehensive loss (income)
Information for plans with accumulated benefit obligation in excess of plan assets:
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
$
$
$
$
—
(4,407) $
—
(1,424) $
45,386
45,361
38,218
$
$
$
33,405
33,406
24,518
$
$
$
—
19
691
691
$
$
$
— $
(51)
110
$
(51)
(5,702)
3,002
2,100
2,992
$
$
$
82,484
81,558
65,728
F- 61
Americold Realty Trust and Subsidiaries
Notes to Consolidated Financial Statements
Retirement
Income Plan
National
Service-Related Pension Plan
Other
Post-Retirement Benefits
Superannuation
Total
December 31, 2016
(In thousands)
$
(47,155) $
(29,127) $
(768) $
(2,473) $
(79,523)
(108)
(1,767)
(486)
1,496
2,771
—
—
(516)
(1,288)
(725)
855
—
—
—
—
(25)
(7)
—
97
—
—
(130)
(104)
(74)
39
—
(42)
15
(754)
(3,184)
(1,292)
2,390
2,868
(42)
15
(45,249)
(30,801)
(703)
(2,769)
(79,522)
19,909
—
2,461
57,091
34,721
1,711
1,797
(1,496)
(2,771)
—
—
973
1,017
(855)
—
—
—
33,962
21,044
97
—
(97)
—
—
—
118
146
(39)
0
42
(11)
2,802
3,057
(2,390)
(2,868)
42
(11)
2,717
57,723
17. Employee Benefit Plans (continued)
Change in benefit obligation:
Benefit obligation – January 1, 2016
Service cost
Interest cost
Actuarial loss
Benefits paid
Other - plan change
Plan participants’ contributions
Foreign currency translation gain
Benefit obligation – end of year
Change in plan assets:
Fair value of plan assets – January 1, 2016
Actual return on plan assets
Employer contributions
Benefits paid
Other - plan change
Plan participants’ contributions
Foreign currency translation loss
Fair value of plan assets – end of year
Funded status
$
$
Amounts recognized on the consolidated balance sheet as of December 31, 2016:
Pension and post-retirement liability
Accumulated other comprehensive loss
(income)
Amounts in accumulated other comprehensive loss consist of:
Net loss (gain)
Prior service cost
Other changes in plan assets and benefit obligations recognized in other comprehensive
income (loss):
Net loss
Amortization of net loss (gain)
Amortization of prior service cost
Amount recognized due to special event
Foreign currency translation loss
(11,287) $
(9,757) $
(703) $
(52) $
(21,799)
(11,287) $
(9,757) $
(703) $
(52) $
(21,799)
12,031
12,031
—
845
(2,125)
—
(834)
6,728
6,516
212
996
(745)
(212)
—
(77)
(77)
—
7
3
—
11
128
128
—
115
—
—
—
18,810
18,598
212
1,963
(2,867)
(212)
(823)
Total recognized in other comprehensive loss (income)
Information for plans with accumulated benefit obligation in excess of plan assets:
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
$
$
$
$
—
(2,114) $
45,249
45,216
33,962
$
$
$
F- 62
—
39
30,801
30,801
21,044
$
$
$
$
—
21
703
703
$
$
$
— $
(33)
82
$
(33)
(1,972)
2,769
1,939
2,717
$
$
$
79,522
78,659
57,723
Americold Realty Trust and Subsidiaries
Notes to Consolidated Financial Statements
17. Employee Benefit Plans (continued)
The components of net period benefit cost for the years ended December 31, 2017 , 2016 and 2015 are as follows:
Retirement Income Plan
National Service-
Related Pension Plan
Other
Post-Retirement Benefits
Superannuation
Total
December 31, 2017
Components of net periodic benefit cost:
Service cost
Interest cost
Expected return on
plan assets
Amortization of net loss (gain)
Amortization of prior service cost/(credit)
Effect of settlement
Net pension benefit cost
$
$
65 $
1,583
(1,757)
1,889
—
—
1,780 $
504 $
1,256
(1,175)
815
212
—
1,612 $
(In thousands)
— $
22
—
(1)
—
(4)
17
$
December 31, 2016
$
153
120
(174)
—
9
67
175
$
722
2,981
(3,106)
2,703
221
63
3,584
Retirement Income Plan
National Service-
Related Pension Plan
Other
Post-Retirement Benefits
Superannuation
Total
Components of net periodic benefit cost:
Service cost
Interest cost
Expected return on
plan assets
Amortization of net loss (gain)
Amortization of prior service cost/(credit)
Effect of settlement
Net pension benefit cost
$
$
108 $
1,767
(2,072)
2,125
—
737
2,665 $
516 $
1,288
(1,244)
745
212
—
1,517 $
(In thousands)
— $
25
—
(3)
—
(11)
11
$
$
131
104
(163)
—
—
—
72
$
755
3,184
(3,479)
2,867
212
726
4,265
F- 63
Americold Realty Trust and Subsidiaries
Notes to Consolidated Financial Statements
17. Employee Benefit Plans (continued)
Retirement Income Plan
National Service-
Related Pension Plan
Other
Post-Retirement Benefits
Superannuation
Total
December 31, 2015
Components of net periodic benefit cost:
Service cost
Interest cost
Expected return on
plan assets
Amortization of net loss (gain)
Amortization of prior service cost/(credit)
Effect of settlement
Net pension benefit cost
$
$
129 $
1,782
(2,435)
2,032
—
—
1,508 $
658 $
1,195
(1,406)
1,093
212
—
1,752 $
(In thousands)
— $
24
—
(1)
—
—
23
$
$
134
87
(147)
—
—
—
74
$
921
3,088
(3,988)
3,124
212
—
3,357
The Company recognizes all changes in the fair value of plan assets and net actuarial gains or losses at December 31 each year. Prior service costs and gains/losses are amortized based on a
straight-line method over the average future service of members that are expected to receive benefits.
All actuarial gains/losses are exposed to amortization over an average future service period of 6.13 years for the Retirement Income Plan, 7.42 years for the National Service-Related Pension
Plan, and 6.06 years for Other Post-Retirement Benefits as of December 31, 2017 .
F- 64
Americold Realty Trust and Subsidiaries
Notes to Consolidated Financial Statements
17. Employee Benefit Plans (continued)
The weighted average assumptions used to determine benefit obligations and net period benefit costs for the years ended December 31, 2017 , 2016 and 2015 are as follows:
Retirement Income
Plan
National Service-Related
Pension
Plan
Other
Post-Retirement Benefits
Superan-
nuation
December 31, 2017
Weighted-average assumptions used to determine obligations (balance sheet):
Discount rate
Rate of compensation increase
Weighted-average assumptions used to determine net periodic benefit cost (statement of
operations):
Discount rate
Expected return on plan assets
Rate of compensation increase
3.35 %
3.50 %
3.75 %
7.00 %
3.50 %
3.65 %
N/A
4.15 %
7.00 %
N/A
3.10 %
N/A
3.40 %
N/A
N/A
Retirement Income
Plan
National Service-Related
Pension
Plan
Other
Post-Retirement Benefits
Superan-
nuation
December 31, 2016
Weighted-average assumptions used to determine obligations (balance sheet):
Discount rate
Rate of compensation increase
Weighted-average assumptions used to determine net periodic benefit cost (statement of
operations):
Discount rate
Expected return on plan assets
Rate of compensation increase
3.75 %
3.50 %
4.00 %
7.50 %
3.50 %
4.15 %
N/A
4.50 %
7.50 %
N/A
3.40 %
N/A
3.50 %
N/A
N/A
F- 65
3.70 %
4.00 %
4.20 %
6.00 %
4.00 %
4.20 %
4.00 %
3.90 %
6.50 %
4.00 %
Americold Realty Trust and Subsidiaries
Notes to Consolidated Financial Statements
17. Employee Benefit Plans (continued)
Weighted-average assumptions used to determine obligations (balance sheet):
Discount rate
Rate of compensation increase
Weighted-average assumptions used to determine net periodic benefit cost (statement of
operations):
Discount rate
Expected return on plan assets
Rate of compensation increase
Retirement Income
Plan
National Service-Related
Pension
Plan
Other
Post-Retirement Benefits
Superan-
nuation
December 31, 2015
4.00 %
3.50 %
3.76 %
7.50 %
3.50 %
4.50 %
N/A
3.76 %
7.50 %
N/A
3.50 %
N/A
3.30 %
N/A
N/A
4.20 %
4.00 %
3.90 %
6.50 %
4.00 %
The estimated net loss for the defined benefit plans in the U.S. that will be amortized from accumulated other comprehensive loss into net periodic benefit cost during 2018 is $2.0 million. There
is no estimated prior service cost associated with this plan to be amortized from accumulated other comprehensive income during 2018.
The estimated net gain for the other post-retirement benefit plan in the U.S. that will be amortized from accumulated other comprehensive income into net periodic benefit cost during 2018 is
nominal. There is no estimated prior service cost associated with this plan to be amortized from accumulated other comprehensive income during 2018.
There is no estimated net gain for the Offshore Plan that will be amortized from accumulated other comprehensive income into net periodic benefit cost during 2018. The estimated prior service
cost associated with this plan to be amortized from accumulated other comprehensive income during 2018 is nominal.
The Company determines the expected return on plan assets based on their market value as of December 31 of each year, as adjusted for a) expected employer contributions, b) expected benefit
distributions, and c) estimated administrative expenses.
F- 66
Americold Realty Trust and Subsidiaries
Notes to Consolidated Financial Statements
17. Employee Benefit Plans (continued)
Plan Assets
The Company’s overall investment strategy is to achieve a mix of investments for long-term growth and near-term benefit payments. The Company invests in both U.S. and non-U.S. equity
securities, fixed-income securities, and real estate.
The allocations of the U.S. Plans’ and the Offshore Plan’s investments by fair value as of December 31, 2017 and 2016 are as follows:
U.S. equities
Non-U.S. equities
Fixed-income securities
Real estate
Cash and other
U.S. Plans
Actual
Offshore Plan
Actual
2017
35%
25%
35%
5%
–
2016
35%
25%
35%
5%
–
Target Allocation
25–55%
15–45%
15–40%
0–5%
–
2017
16%
42%
16%
7%
19%
2016
16%
41%
16%
7%
20%
Target Allocation
15%
37%
22%
7%
19%
To develop the assumption for the long-term rate of return on assets, the Company considered the historical returns and the future expectations for returns for each asset class, as well as the target
asset allocation of the U.S. Plans’ and Offshore Plan’s assets and the effect of periodic rebalancing, consistent with the Company’s investment strategies. For 2018, the Company expects to
receive a long-term rate of return of 7.0% for the U.S. Plans and 6.0% for the Offshore Plan. All plans are invested to maximize the return on assets while minimizing risk by diversifying across a
broad range of asset classes.
F- 67
Americold Realty Trust and Subsidiaries
Notes to Consolidated Financial Statements
17. Employee Benefit Plans (continued)
The fair values of the Company’s pension plan assets as of December 31, 2017 , by category, are as follow:
Assets
U.S. equities:
Large cap (1)
Medium cap (1)
Small cap (1)
Non-U.S. equities:
Large cap (2)
Emerging markets (3)
Fixed-income securities:
Money markets (4)
U.S. bonds (5)
Non-U.S. bonds (5)
Real estate (6)
Common/collective trusts
Total assets
Quoted Prices in Active
Markets for Identical Assets
(Level 1)
Significant Observable Inputs
(Level 2)
Significant Unobservable Inputs
(Level 3)
Balance as of December 31,
2017
(In thousands)
$
— $
—
1,255
11,922
3,765
—
9,411
6,273
—
$
32,626 $
16,313 $
3,137
1,255
—
—
3,133
3,137
—
3,137
2,990
33,102 $
— $
—
—
—
—
—
—
—
—
— $
16,313
3,137
2,510
11,922
3,765
3,133
12,548
6,273
3,137
2,990
65,728
1. Includes funds that primarily invest in U.S. common stock.
2. Includes funds that invest primarily in foreign equity and equity-related securities.
3. Includes funds that invest primarily in equity securities of companies in emerging market countries.
4. Includes funds that invest primarily in short-term securities, such as commercial paper.
5. Includes funds either publicly traded (Level 1) or within a separate account (Level 2) held by a regulated investment company. These funds hold primarily debt and fixed-income securities.
6.
Includes funds in a separate account held by a regulated investment company that invest primarily in commercial real estate and includes mortgage loans which are backed by the associated properties. The Company can
call the investment in these assets with no restrictions.
F- 68
Americold Realty Trust and Subsidiaries
Notes to Consolidated Financial Statements
17. Employee Benefit Plans (continued)
The fair values of the Company’s pension plan assets as of December 31, 2016, by category, are as follows:
Assets
U.S. equities:
Large cap (1)
Medium cap (1)
Small cap (1)
Non-U.S. equities:
Large cap (2)
Emerging markets (3)
Fixed-income securities:
Money markets (4)
U.S. bonds (5)
Non-U.S. bonds (5)
Real estate (6)
Common/collective trusts
Total assets
Quoted Prices in Active
Markets for Identical Assets
(Level 1)
Significant Observable Inputs
(Level 2)
Significant Unobservable Inputs
(Level 3)
Balance as of December 31,
2016
(In thousands)
$
$
— $
—
1,100
10,450
3,300
—
8,249
5,502
—
—
28,601 $
14,299 $
2,750
1,100
—
—
2,756
2,750
—
2,750
2,717
29,122 $
— $
—
—
—
—
—
—
—
—
—
— $
14,299
2,750
2,200
10,450
3,300
2,756
10,999
5,502
2,750
2,717
57,723
The U.S. Plans’ assets are in commingled funds that are valued using net asset values. The net asset values are based on the value of the underlying assets owned by the fund, minus its liabilities,
and then divided by the number of shares outstanding. The pension assets are classified as Level 1 when the net asset values are based on a quoted price in an active market.
The U.S. Plans’ assets are classified as Level 2 when the net asset value is based on a quoted price on a private market that is not active and the underlying investments are traded on an active
market.
The Offshore Plans are common/collective trusts and commingled trusts investments, which invest in other collective trust funds otherwise known as the underlying funds. The Company’s
interests in the commingled trust funds are based on the fair values of the investments of the underlying funds and therefore are classified as Level 2.
As of December 31, 2017 and 2016 , the Company does not have any investments classified as Level 3.
F- 69
Americold Realty Trust and Subsidiaries
Notes to Consolidated Financial Statements
17. Employee Benefit Plans (continued)
Cash Flow
The Company expects to contribute $3.2 million to all plans in 2018.
Estimated Future Benefit Payments
The following benefit payments, which reflect expected future services, as appropriate, are expected to be paid for all plans as of December 31, 2017 :
Years Ending December 31:
(In thousands)
2018
2019
2020
2021
2022
Thereafter
Multi-Employer Plans
$
$
7,473
5,021
4,490
4,942
4,781
23,687
50,394
The Company contributes to a number of multi-employer benefit plans under the terms of collective bargaining agreements that cover union-represented employees. These plans generally provide
for retirement, death, and/or termination benefits for eligible employees within the applicable collective bargaining units, based on specific eligibility/participation requirements, vesting periods,
and benefit formulas. The risks of participating in these multi-employer plans are different from single-employer plans in the following aspects:
• Assets contributed to the multi-employer plan by one employer may be used to provide benefits to employees of other current or former participating employers.
•
•
If a participating employer stops contributing to the multi-employer plan without paying its unfunded liability, the unfunded obligations of the plan may be borne by the remaining
participating employers.
If the Company chooses to cease participation in a multi-employer plan, such full withdrawal is subject to the payment of any unfunded liability applicable to the Company, referred to as
a withdrawal liability. Additionally, such withdrawal is subject to collective bargaining.
F- 70
Americold Realty Trust and Subsidiaries
Notes to Consolidated Financial Statements
17. Employee Benefit Plans (continued)
The table below outlines the Company’s participation in multi-employer pension plans for the periods ended December 31, 2017 , 2016 and 2015 , and sets forth the contributions into each plan.
The “EIN/Pension Plan Number” column provides the Employer Identification Number (EIN) and the three-digit plan number. The most recent Pension Protection Act zone status available in
2017 and 2016 relates to the plans’ two most recent fiscal year-ends. The zone status is based on information that we received from the plans’ administrators and is certified by each plan’s
actuary. Among other factors, plans certified in the red zone are generally less than 65% funded, plans certified in the orange zone are (i) less than 80% funded and (ii) have an accumulated
funding deficiency or are expected to have a deficiency in any of the next six plan years, plans certified in the yellow zone are less than 80% funded, and plans certified in the green zone are at
least 80% funded. The “FIP/RP Status Pending/Implemented” column indicates whether a financial improvement plan (FIP) for yellow/orange zone plans, or a rehabilitation plan (RP) for red
zone plans, is either pending or has been implemented. As of December 31, 2017 , all plans that have either a FIP or RP requirement have had the respective FIP or RP implemented (see table
below).
The Company’s collective-bargained contributions satisfy the requirements of all implemented FIPs and RPs and do not currently require the payment of any surcharges. In addition, minimum
contributions outside the agreed-upon contractual rate are not required. For the plans detailed in the following table, the expiration dates of the associated collective bargaining agreements range
from July 31, 2018 to June 30, 2026. For all the plans detailed in the following table, the Company has not contributed more than 5% of the total plan contribution for 2017, 2016 and 2015.
The Company contributes to multi-employer plans that cover approximately 60% of union employees. The amounts charged to expense on the accompanying consolidated statements of
operations for the years ended December 31, 2017 , 2016 and 2015 were $17.0 million, $16.6 million and $16.1 million, respectively. Projected minimum contributions required for the upcoming
fiscal year are approximately $16.9 million.
During the third quarter of 2017, the Company recorded a charge of $9.2 million representing the present value of a liability associated with its withdrawal obligation under the New England
Teamsters & Trucking Industry Multi-Employer Pension Fund (Fund) for hourly, unionized associates at four of its domestic warehouse facilities. The Fund is grossly underfunded in accordance
with Employee Retirement Income Security Act of 1974 (ERISA) funding standards and, therefore, ERISA required the Fund to develop a Rehabilitation Plan. The Fund Trustees chose to create
a new fund that minimizes the pension withdrawal liability. As a result, current employers participating in the Fund were given the opportunity to exit the Fund and convert to a new fund. The
Company’s portion of the unfunded liability, estimated at $13.7 million, will be repaid in equal monthly installments of approximately $38 thousand over 30 years, interest free. Under the
relevant U.S. GAAP standard, a participating employer withdrawing from a multi-employer plan should account for a loss contingency equal to the present value of the withdrawal liability, and
amortize difference between such present value and the estimated unfunded liability through interest expense over the repayment period.
F- 71
Americold Realty Trust and Subsidiaries
Notes to Consolidated Financial Statements
17. Employee Benefit Plans (continued)
Pension Fund
EIN/Pension
Plan Number
Pension Protection
Act Zone Status
2017
2016
FIP/RP Status Pending/
Implemented
Americold Contributions
2017
2016
2015
Surcharge Imposed
(In thousands)
Central Pension Fund of the International Union of Operating Engineers
and Participating Employers (2)
Central States SE & SW Areas Health and Welfare Pension
Plans (1)
New England Teamsters & Trucking Industry Pension Plan (3)
Alternative New England Teamsters & Trucking Industry Pension Plan
I.U.O.E Stationary Engineers Local 39 Pension Fund (1)
United Food & Commercial Workers International Union-Industry
Pension Fund (4)
Western Conference of Teamsters Pension Fund (1)
Minneapolis Food Distributing Industry Pension Plan (1)
36-6052390
Green
Green
No
$
3
$
2
$
32
36-6044243
04-6372430
Red
Red
04-6372430
Green
94-6118939
Green
51-6055922
Green
91-6145047
Green
41-6047047
Green
Red
Red
Green
Green
Green
Green
Green
Yes/Implemented
8,427
8,608
7,964
Yes/Implemented
No
No
No
No
Yes/Implemented
566
98
197
87
7,265
326
641
—
151
83
6,809
337
661
—
154
90
6,811
358
Total Contributions
$
16,969
$
16,631
$
16,070
No
No
No
No
No
No
No
No
The status information is for the plans’ year end at January 31, 2017 and 2016.
(1) The status information is for the plans’ year end at December 31, 2017 and 2016.
(2)
(3)
(4)
Government-Sponsored Plans
The status information is for the plans’ year end at June 30, 2017 and 2016.
The status information is for the plans’ year end at September 30, 2017 and 2016. The Company withdrew from the multi-employer plan on October, 31, 2017.
The Company contributes to certain government-sponsored plans in Australia and Argentina. The amounts charged to expense on the accompanying consolidated statements of operations and for
the years ended December 31, 2017 , 2016 and 2015 were $5.4 million, $4.8 million and $4.4 million, respectively.
Defined Contribution Plan
The Company has defined contribution employee benefit plans, which cover all eligible employees. The plans also allow contributions by plan participants in accordance with Section 401(k) of
the IRC. The Company matches a percentage of each employee’s contributions consistent with the provisions of the plans. The amounts charged to expense on the accompanying consolidated
statements of operations for the years ended December 31, 2017 , 2016 and 2015 were $3.6 million, $3.6 million and $3.3 million, respectively.
F- 72
Americold Realty Trust and Subsidiaries
Notes to Consolidated Financial Statements
17. Employee Benefit Plans (continued)
Deferred Compensation
The Company has deferred compensation and supplemental retirement plan agreements with certain of its executives. The agreements provide for certain benefits at retirement or disability and
also provide for survivor benefits in the event of death of the employee. The Company contribution amounts charged to expense relative to this plan were nominal for the years ended
December 31, 2017 , 2016 and 2015 .
F- 73
Americold Realty Trust and Subsidiaries
Notes to Consolidated Financial Statements
18. Commitments and Contingencies
Letters of Credit
As of December 31, 2017 and 2016 , there were $33.8 million and $35.3 million, respectively, of outstanding letters of credit issued on the Company’s 2015 Revolving Line of Credit.
Bonds
The Company had outstanding surety bonds of $2.7 million and $3.5 million as of December 31, 2017 and 2016 , respectively. These bonds were issued primarily in connection with insurance
requirements, special real estate assessments and construction obligations.
Construction Commitments
As of December31, 2017, the Company had the following construction commitments related to its new-build warehouse facilities:
Commitment start period
Q2 2017
Q4 2017
Total construction commitments
Collective Bargaining Agreements
Committed construction cost (in
thousands)
Construction completion period
$
10,970
58,080
69,050
Q3 2018
Q4 2018
As of December 31, 2017 , approximately 53% of the Company’s labor force is covered by collective bargaining agreements, and 85 of our 158 warehouses have unionized associates that are
governed by 72 different collective bargaining agreements. During 2018, the Company will be renegotiating 12 collective bargaining agreements, covering associates at 21 warehouses, that have
or will expire before the end of the year. The Company does not anticipate any workplace disruptions during this renewal process.
Legal Proceedings
In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company and its legal counsel
evaluate the merits of any legal proceedings or unasserted claims, as well as the perceived merits of the amount of relief sought or expected to be sought. If the assessment of a contingency
suggests that a loss is probable, and the amount can be reasonably estimated, then a loss is recorded.
In addition to the matters discussed below, the Company may be subject to litigation and claims arising from the ordinary course of business. In the opinion of management, after consultation
with legal counsel, the outcome of such matters is not expected to have a material impact on the Company’s financial condition, results of operations, or cash flows.
F- 74
Americold Realty Trust and Subsidiaries
Notes to Consolidated Financial Statements
18. Commitments and Contingencies (continued)
Kansas
Breach
of
Settlement
Agreement
Litigation
This case was served against the Company in Wyandotte County, Kansas, on January 17, 2013, alleging breach of a 1994 Settlement Agreement reached with customers of our predecessor
company, Americold Corporation. The plaintiffs originally brought claims in 1992 arising from a fire the previous year in an underground warehouse facility.
In 1994, a settlement was reached whereby Americold Corporation agreed to the entry of a $58.7 million judgment against it and assigned its rights to proceed against its insurer to satisfy the
judgment. The settlement agreement contained a standard “cooperation provision” where Americold Corporation agreed to sign any documents and to take any actions necessary to fulfill the
intent of the settlement agreement. The plaintiffs then sued Americold Corporation’s insurance company to recover the amounts of the settlement. After decades of litigation, the case was
ultimately dismissed in 2012, and the Kansas Supreme Court ruled that the 1994 consent judgment had expired.
On September 24, 2012, the plaintiffs filed a separate claim in the district court of Wyandotte County, Kansas, alleging that the Company and one of its subsidiaries, Americold Logistics, LLC, as
successors to Americold Corporation, are liable for the full amount of the judgment, based upon the vague allegation that the Company failed to execute a document or take action to keep the
judgment alive and viable.
On February 7, 2013, the Company removed the case to the U.S. federal court and filed a motion to dismiss the case on several grounds, which the plaintiffs vigorously opposed. On October 4,
2013, the court granted our motion and dismissed the case in full. Only one plaintiff appealed the dismissal to the U.S. Court of Appeals where oral argument was heard in November 2014 before
the Tenth Circuit in Denver. The Court of Appeals ordered the case remanded to the Kansas State Court, finding U.S. federal diversity jurisdiction did not exist over the Company. The Company
petitioned the U.S. Supreme Court for an Oral Argument that occurred on January 19, 2016.
On March 7, 2016, the United States Supreme Court handed down a decision in the Kansas Breach of Settlement Agreement Litigation case. The decision was contrary to the position that the
Company argued and the matter was remanded back to Kansas state court for further proceedings. Regardless of the venue, the Company remains confident that its defenses on the merits of
plaintiffs’ claims are strong under Kansas law and the chance of any liability is remote.
Following remand to Kansas state court, Plaintiffs initially petitioned the court to amend their complaint that would result in the plaintiffs dropping the claim for damages and seeking an Order of
Specific Performance-namely to require Americold sign a new document to reinstate the judgment assigned in the 1994 Settlement Agreement. No amended complaint was filed however and
Plaintiffs filed a later motion to add back the damages claim, which was granted in February 2018. The parties now find themselves at the exact same position as when the case was initially filed.
Americold maintains its position that any such renewal of the judgment is ineffective as a matter of law, its defenses are strong and the likelihood of any liability is remote.
F- 75
Americold Realty Trust and Subsidiaries
Notes to Consolidated Financial Statements
18. Commitments and Contingencies (continued)
Environmental Matters
The Company is subject to a wide range of environmental laws and regulations in each of the locations in which the Company operates. Compliance with these requirements can involve
significant capital and operating costs. Failure to comply with these requirements can result in civil or criminal fines or sanctions, claims for environmental damages, remediation obligations, the
revocation of environmental permits, or restrictions on the Company’s operations.
The Company records accruals for environmental matters when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated based on current law and
existing technologies. The Company adjusts these accruals periodically as assessment and remediation efforts progress or as additional technical or legal information become available. The
Company recorded nominal environmental liabilities in accounts payable and accrued expenses as of December 31, 2017 and 2016 . The Company believes it is in compliance with applicable
environmental regulations in all material respects. Under various U.S. federal, state, and local environmental laws, a current or previous owner or operator of real estate may be liable for the entire
cost of investigating, removing, and/or remediating hazardous or toxic substances on such property. Such laws often impose liability whether or not the owner or operator knew of, or was
responsible for, the contamination. Even if more than one person may have been responsible for the contamination, each person covered by the environmental laws may be held responsible for the
entire clean-up cost. There are no individually material remediation accruals. Most of the Company’s warehouses utilize ammonia as a refrigerant. Ammonia is classified as a hazardous chemical
regulated by the Environmental Protection Agency, and an accident or significant release of ammonia from a warehouse could result in injuries, loss of life, and property damage.
Occupational Safety and Health Act (OSHA)
The Company’s warehouses located in the U.S. are subject to regulation under OSHA, which requires employers to provide employees with an environment free from hazards, such as exposure to
toxic chemicals, excessive noise levels, mechanical dangers, heat or cold stress, and unsanitary conditions. The cost of complying with OSHA and similar laws enacted by states and other
jurisdictions in which we operate can be substantial, and any failure to comply with these regulations could expose us to substantial penalties and potentially to liabilities to employees who may
be injured at our warehouses. The Company records accruals for OSHA matters when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated.
The Company believes that it is in compliance with all OSHA regulations and that no material unrecorded liabilities exist as of December 31, 2017 and 2016 .
F- 76
Americold Realty Trust and Subsidiaries
Notes to Consolidated Financial Statements
19. Accumulated Other Comprehensive (Loss) Income
The Company reports activity in AOCI for unrealized holding gains and losses on available-for-sale securities, foreign currency translation adjustments, investments in foreign subsidiaries,
unrealized gains and losses on cash flow hedge derivatives, and minimum pension liability adjustments (net of tax). The activity in AOCI for the years ended December 31, 2017 , 2016 and 2015
is as follows:
Pension and other postretirement benefits:
Balance at beginning of period, net of tax
Gain (loss) arising during the period
Less: Tax benefit
Net gain (loss) arising during the period
Amortization of net loss and prior service cost (1)
Less: (Tax benefit)/Tax expense (2)
Net amount reclassified from AOCI to net loss
Other comprehensive income, net of tax
Balance at end of period, net of tax
Foreign currency translation adjustments:
Balance at beginning of period, net of tax
Gain (loss) on foreign currency translation
Less: Tax benefit
Net gain/(loss) on foreign currency translation
Balance at end of period, net of tax
Cash flow hedge derivatives:
Balance at beginning of period, net of tax
Unrealized loss on cash flow hedge derivatives
Less: Tax expense/(Tax benefit)
Net loss on cash flow hedge derivatives
Net amount reclassified from AOCI to net loss (interest expense)
Balance at end of period, net of tax
Available-for-sale securities:
Balance at beginning of period, net of tax
Unrealized gain on available-for-sale securities
Net unrealized gain (loss) on available-for-sale securities
Gain reclassified to net income
Balance at end of period, net of tax
Accumulated other comprehensive loss
2017
2016
2015
(In thousands)
$
(12,880) $
(14,852) $
(18,223)
2,663
(49)
2,712
3,042
—
3,042
5,754
(1,963)
(33)
(1,930)
3,902
—
3,902
1,972
19
(16)
35
3,336
—
3,336
3,371
(7,126)
(12,880)
(14,852)
3,874
4,444
—
4,444
8,318
(1,538)
(1,387)
44
(1,431)
1,547
(1,422)
—
—
—
—
7,018
(3,144)
—
(3,144)
3,874
(1,468)
(1,359)
(150)
(1,209)
1,139
(1,538)
—
—
—
—
—
23,310
(16,847)
(555)
(16,292)
7,018
—
(2,311)
(613)
(1,698)
230
(1,468)
51
100
100
(151)
0
(9,302)
(1) Amounts reclassified from AOCI for pension liabilities are recorded in selling, general, and administrative expenses in the consolidated statements of operations.
(2) Deferred tax impact of amounts reclassified from AOCI for pension liabilities are recorded in deferred income tax expense (benefit) in the consolidated statements of operations.
$
(230) $
(10,544) $
F- 77
Americold Realty Trust and Subsidiaries
Notes to Consolidated Financial Statements
20. Related-Party Transactions
Transactions
with
Goldman
and
CMHI
As of December 31, 2017, affiliates of Goldman were part of the lending group that had $25.0 million, or 14.7%, of the commitments under the amended 2015 Revolving Credit Facility. Another
affiliate of Goldman is one of the participating lenders in the ANZ Loans (with a 2.5% participation in the Australia Term Loan and 31.8% in the New Zealand Term Loan), for which the
Company paid a performance fee to Goldman. As a member of the lending group, the Company is required to pay certain fees to Goldman, which may include interest on borrowings, unused
facility fees, letter of credit participation fees, and letter of credit facility fees. The Company paid to Goldman interest expense and fees totaling approximately $0.9 million, $2.0 million and $6.0
million in 2017 , 2016 and 2015 , respectively. Interest payable to Goldman was nominal as of December 31, 2017 and 2016 . Goldman is also the counterparty to the interest rate swap
agreements described in Note 9. Payments under the interest rate swap agreements are not included in the figures above and totaled approximately $1.5 million in 2017 and $1.1 million in 2016.
In December 2017, the Company prepaid in escrow a $0.2 million fee to Goldman for its share of the 2018 Senior Secured Credit Facilities commitment. In connection with the IPO, Goldman
and CMHI converted their Series B Preferred Shares into 28,808,224 and 4,432,034 common shares, respectively. After giving effect to the full exercise of the underwriters' option to purchase
additional common shares during the IPO, and after giving effect to the sale by Goldman of 5,163,716 common shares in the IPO, Goldman and CMHI own approximately 16.7% and 3.1% of the
company's common shares, respectively.
In connection with the IPO, Goldman received a refund from the underwriters of approximately $1.6 million, which represents the underwriting discount on the gross proceeds received by the
selling shareholders.
Transactions
with
Fortress
and
YF
ART
Holdings
L.P.
Fortress held $48.5 million aggregate principal amount of the Senior Secured Term Loan B Facility as of December 31, 2017. The Company paid approximately $2.2 million and $0.8 million in
interest expense to Fortress during 2017 and 2016, respectively. The Company also paid out principal amortization to Fortress of approximately $0.5 million and $0.2 million in 2017 and 2016,
respectively.
In connection with the IPO, YF ART Holdings L.P. received a refund from the underwriters of approximately $4.2 million, which represents the underwriting discount on the gross proceeds
received by the selling shareholders.
On March 8, 2018, YF ART Holdings L.P. entered into a financing agreement pledging 54,952,774 common shares of beneficial interest, $0.01 par value per share, representing approximately
38.6% of the Company’s issued and outstanding common shares as of March 8, 2018. YF ART Holdings L.P. used the proceeds from the financing agreement to pay in full the outstanding
investment, including the preferred return on an investment vehicle affiliated with Fortress Investment Group LLC, which directly beneficially owns 7,235,529 common shares of the Company.
21. Geographic Concentrations
The following table provides geographic information for the Company’s total revenues for the years ended December 31, 2017 , 2016 and 2015 , and total assets as of December 31, 2017 and
2016 :
F- 78
Americold Realty Trust and Subsidiaries
Notes to Consolidated Financial Statements
U.S.
Australia
New Zealand
Argentina
Canada
2017
Total Revenues
2016
$
$
1,253,879 $
219,738
33,289
18,319
18,362
1,543,587 $
1,212,799 $
207,035
33,676
19,780
16,709
1,489,999 $
F- 79
2015
(In thousands)
1,221,344 $
189,481
33,073
22,117
15,370
1,481,385 $
Total Assets
2017
2016
2,078,535 $
244,841
54,672
11,598
5,599
2,395,245 $
2,047,142
208,115
54,800
12,695
4,879
2,327,631
Americold Realty Trust and Subsidiaries
Notes to Consolidated Financial Statements
22. Segment Information
Our principal operations are organized into four reportable segments: Warehouse, Third-Party Managed, Transportation and Quarry.
• Warehouse. Our primary source of revenues consists of rent and storage and warehouse services fees. Our rent and 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. 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, and (10) government-approved temperature-
controlled storage and inspection services. We may charge our customers in advance for storage and outbound handling fees. Cost of operations for our warehouse segment consists of power,
other facilities costs, labor and other costs.
•
•
Third-Party Managed. We receive management and incentive fees, as well as reimbursement of substantially all expenses, for warehouses and logistics services that we manage on behalf of
third-party owners/customers. Cost of operations for our third-party managed segment are reimbursed on a pass-through basis (typically within two weeks), with all reimbursements, plus an
applicable mark-up, recognized as revenues under the relevant accounting guidance.
Transportation. We charge transportation fees, including fuel surcharges, to our customers for whom we arrange the transportation of their products. Cost of operations for our transportation
segment consist primarily of third-party carrier charges, which are impacted by factors affecting those carriers.
• Quarry . In addition to our primary business segments, we own a limestone quarry in Carthage, Missouri. Revenues are generated from the sale of limestone mined at our quarry. Cost of
operations for our quarry consist primarily of labor, equipment, fuel and explosives.
Our reportable segments are strategic business units separated by product and service offerings. Each reportable segment is managed separately and requires different operational and marketing
strategies. The accounting polices used in the preparation of our reportable segments financial information are the same as those used in the preparation of its consolidated financial statements.
Our chief operating decision maker uses revenues and segment contribution to evaluate segment performance. We calculate segment contribution as earnings before interest expense, taxes,
depreciation and amortization, and excluding corporate selling, general and administrative expense, impairment charges, restructuring charges, acquisition related costs, other income and expense,
and certain one-time charges. Corporate general and administrative function supports all the business segments. Therefore, the related expense is not allocated to segments as the chief operating
decision maker does not use it to evaluate segment performance.
F- 80
Americold Realty Trust and Subsidiaries
Notes to Consolidated Financial Statements
22. Segment Information (continued)
Segment contribution is not a measurement of financial performance under GAAP, and may not be comparable to similarly titled measures of other companies. You should not consider our
segment contribution as an alternative to operating income determined in accordance with GAAP.
The following table presents segment revenues and contributions with a reconciliation to income (loss) before income tax and gain (loss) from sale of real estate, net of tax for the years ended
December 31, 2017 , 2016 and 2015 :
$
Segment revenues:
Warehouse
Third-Party Managed
Transportation
Quarry
Total revenues
Segment contribution:
Warehouse
Third-Party Managed
Transportation
Quarry
Total segment contribution
Reconciling items:
Depreciation, depletion, and amortization
Impairment of long-lived assets
Multi-employer pension plan withdrawal expense
Selling, general and administrative expense
Loss from partially owned entities
Impairment of partially owned entities
Interest expense
Interest income
Loss on debt extinguishment and modification
Foreign currency exchange (loss) gain
Other income, net
Income (loss) before income tax and gain (loss) from sale of real estate, net of tax
$
F- 81
2017
Year Ended December 31,
2016
(In thousands)
2015
1,145,662 $
242,189
146,070
9,666
1,543,587
348,328
12,825
12,950
2
374,105
(116,741)
(9,473)
(9,167)
(104,640)
(1,363)
(6,496)
(114,898)
1,074
(986)
(3,591)
918
8,742 $
1,080,867 $
252,411
147,004
9,717
1,489,999
314,045
14,814
14,418
2,368
345,645
(118,571)
(9,820)
—
(100,238)
(128)
—
(119,552)
708
(1,437)
464
2,142
(787) $
1,057,124
233,564
180,892
9,805
1,481,385
307,749
12,581
14,305
2,385
337,020
(125,720)
(9,415)
—
(91,222)
(3,538)
—
(116,710)
724
(503)
(3,470)
1,892
(10,942)
Americold Realty Trust and Subsidiaries
Notes to Consolidated Financial Statements
22. Segment Information (continued)
The following table details our long-lived assets by reportable segments, with a reconciliation to total assets reported for each of the periods presented in the accompanying consolidated balance
sheets.
Assets:
Warehouse
Managed
Transportation
Other
Total segments assets
Reconciling items:
Corporate assets
Investments in partially owned entities
Total reconciling items
Total assets
F- 82
Year Ended December 31,
2017
2016
(In thousands)
2,082,504 $
43,035
32,402
13,897
2,171,838
207,465
15,942
223,407
2,395,245 $
2,027,650
44,501
32,715
17,023
2,121,889
183,346
22,396
205,742
2,327,631
$
$
Americold Realty Trust and Subsidiaries
Notes to Consolidated Financial Statements
23. Loss per Common Share
Basic and diluted loss per common share are calculated using the two-class method by dividing the net loss attributable to common shareholders by the weighted-average number of common
shares outstanding during each period. Holders of Series B Preferred Shares are entitled to cumulative dividends, which are added to the reported net loss whether or not declared or paid to
determine the net loss attributable to common shareholders under the two-class method.
For the years ended December 31, 2017 , 2016 and 2015 , potential common shares under the treasury stock method and the if-converted method were antidilutive because the Company reported
a net loss. Consequently, the Company did not have any adjustments in these periods between basic and diluted loss per share related to stock options, restricted stock units, warrants and
convertible preferred share.
The table below presents the weighted-average number of antidilutive potential common shares that are not considered in the calculation of diluted loss per share:
Series B Convertible Preferred Stock
Common share warrants
Employee stock options
Restricted stock units
2017
2016
2015
Year Ended December 31,
33,240,261
18,574,619
5,983,183
684,960
58,483,023
33,240,261
18,574,619
6,299,444
552,861
58,667,185
33,240,261
18,574,619
5,374,528
420,763
57,610,171
24. Selected Quarterly Financial Data - Unaudited
The following table sets forth selected unaudited quarterly statements of operations data for the years ended December 31, 2017 and 2016 :
Total revenues
Total operating expenses
Operating income
Net income (loss) applicable to common shareholders
Net income (loss) per common share (a) :
Basic
Diluted
December 31
September 30
June 30
March 31
$
401,721
$
(In thousands, except per share amounts)
$
389,501
379,451
$
2017
358,453
43,268
673
0.01
0.01
362,605
26,896
(11,935)
(0.17)
(0.17)
351,387
28,064
(15,720)
(0.22)
(0.22)
372,914
337,058
35,856
(2,945)
(0.04)
(0.04)
(a) Quarterly earnings per common share or unit amounts may not total to the annual amounts due to rounding and the changes in the number of weighted common shares or units outstanding included in the calculation of basic and diluted
shares or units.
F- 83
Americold Realty Trust and Subsidiaries
Notes to Consolidated Financial Statements
24. Selected Quarterly Financial Data - Unaudited (continued)
Total revenues
Total operating expenses
Operating income
Net income (loss) applicable to common shareholders
Net income (loss) per common share (a) :
Basic
Diluted
December 31
September 30
June 30
March. 31
$
394,562
$
(In thousands, except per share amounts)
$
376,076
358,504
$
2016
361,328
33,234
5,012
0.07
0.05
347,935
28,141
(7,448)
(0.11)
(0.11)
329,299
29,205
(7,342)
(0.11)
(0.11)
360,857
334,421
26,436
(14,678)
(0.21)
(0.21)
(a) Quarterly earnings per common share or unit amounts may not total to the annual amounts due to rounding and the changes in the number of weighted common shares or units outstanding included in the calculation of basic and diluted
shares or units.
25. Subsequent Events
On January 4, 2018, the Company’s board of trustees approved, among other things, the grant of dividend equivalents to all participants in the 2010 Plan with respect to any and all vested
restricted stock units of the Company that have not been settled pursuant to the 2010 Plan. On the same day, the Company’s board of trustees deliberated that no further awards may be granted
under the 2010 Plan after the approval of the 2017 Plan, which became effective in connection with the IPO on January 19, 2018. The Company is in the process of determining the impact to its
consolidated financial statements from the modification of the terms governing the restricted stock units previously issued under the 2010 Plan.
On February 26, 2018, the Compensation Committee of the Company's board of trustees granted 513,500 performance-based restricted stock units to certain of the Company's employees, and
42,188 time-based restricted stock units to non-employee trustees of the Company under the 2017 Plan. The performance period for the performance-based restricted stock units began January 23,
2018 and will end December 31, 2020. The vesting of such performance-based awards will be determined based on the Company's "total shareholder return" as described in the Performance
Award Agreement.
On March 15, 2018, the Company's board of trustees declared a pro-rata dividend of $0.13958 per common share, representing $0.18750 per common share for a full quarter, payable on April 16,
2018 to shareholders of record on March 30, 2018.
F- 84
Americold Realty Trust and Subsidiaries
Schedule III – Real Estate and Accumulated Depreciation
December 31, 2017
(In thousands of U.S. dollars, as applicable and unless noted)
Property
US
Albertville, AL
Allentown, PA
Amarillo, TX
Anaheim, CA
Appleton, WI
Atlanta - Lakewood, GA
Atlanta - Skygate, GA
Atlanta - Southgate, GA
Atlanta - Tradewater, GA
Atlanta - Westgate, GA
Atlanta, GA - Corporate
Augusta, GA
Babcock, WI
Bartow, FL
Belvidere-Imron, IL
Belvidere-Landmark, IL
Bettendorf, IA
Birmingham, AL
Boston, MA
Brea, CA
Brooklyn Park, MN
Burley, ID
Burlington, WA
Carson, CA
Cartersville, GA
Carthage Quarry, MO
Carthage Warehouse Dist, MO
City of Industry, CA
Initial Costs
Gross amount at which carried as of
December 31, 2017
Buildings
Encumbrances
(3)
Land
Buildings and
Improvements
Costs
Capitalized
Subsequent to
Acquisition
(5)
Land
Buildings and
Improvements (2)
Total
(4) (5) (6)
Accumulated
Depreciation and
Depletion (1) (6) (7)
Date of
Construction
Date of
Acquisition
Life on Which
Depreciation is
Computed
$
1
2
1
1
1
1
1
1
1
1
—
1
1
1
1
1
2
1
1
1
1
2
3
1
1
—
1
2
$
12,145
19,311
—
13,737
10,759
2,727
—
—
—
—
—
—
—
—
13,628
—
—
1,007
—
8,667
9,152
—
14,693
8,489
10,216
—
—
—
$
1,251
5,780
871
9,509
200
4,297
1,851
1,623
—
2,270
—
2,678
852
—
2,000
1
1,281
1,002
1,855
4,645
1,600
—
694
9,100
1,500
12,621
61,445
—
$
12,385
47,807
4,473
16,810
5,022
3,369
12,731
17,652
36,966
24,659
365
1,943
8,916
2,451
11,989
2,117
12,446
957
5,796
5,891
8,951
16,136
6,108
13,731
8,505
356
33,880
1,455
$
730
4,856
1,164
724
9,160
(2,026)
252
1,554
(5,489)
(2,708)
7,699
795
68
598
3,365
1,906
(5,360)
465
648
657
1,368
2,666
2,997
984
465
186
5,380
891
$
1,281
6,244
932
9,509
909
630
1,958
2,273
6,057
2,018
—
2,820
858
10
2,410
—
676
909
1,918
4,664
1,600
34
709
9,104
1,571
12,697
62,350
19
F- 85
$
13,086
52,200
5,576
17,534
13,474
5,009
12,876
18,557
25,420
22,203
8,064
2,597
8,977
3,040
14,944
4,024
7,691
1,514
6,382
6,529
10,319
18,768
9,089
14,711
8,898
467
38,355
2,327
$
14,367
58,444
6,508
27,043
14,383
5,639
14,834
20,830
31,477
24,221
8,064
5,417
9,835
3,050
17,354
4,024
8,367
2,423
8,300
11,193
11,919
18,802
9,798
23,815
10,469
13,164
100,705
2,346
(4,955)
(20,829)
(2,733)
(6,824)
(3,408)
(1,750)
(3,623)
(5,653)
(3,420)
(8,774)
(2,902)
(1,312)
(2,482)
(2,116)
(5,117)
(3,770)
(6,236)
(639)
(2,229)
(2,377)
(3,707)
(12,206)
(4,057)
(3,887)
(2,871)
(2,669)
(18,778)
(1,808)
1993
1976
1973
1965
1989
1963
2001
1996
2004
1990
1999/2014
1971
1999
1962
1991
1991
1973
1963
1969
1975
1986
1959
1965
2002
1996
N/A
1972
1962
2008
2008
2008
2009
2009
2008
2008
2008
2008
2008
2008
2008
2008
2008
2009
2009
2008
2008
2008
2009
2009
2008
2008
2009
2009
2008
2008
2009
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
Americold Realty Trust and Subsidiaries
Schedule III – Real Estate and Accumulated Depreciation
December 31, 2017
(In thousands of U.S. dollars, as applicable and unless noted)
Property
Buildings
Clearfield, UT
Clearfield 2, UT
Columbia, SC
Connell, WA
Dallas, TX
Delhi, LA
Denver-50th Street, CO
Dominguez Hills, CA
Douglas, GA
East Dubuque, IL
East Point, GA
Fort Dodge, IA
Fort Smith, AR
Fort Worth-Blue Mound, TX
Fort Worth-Samuels, TX
Fremont, NE
Ft. Worth, TX (Meacham)
Ft. Worth, TX (Railhead)
Gadsden, AL
Gaffney, SC
Gainesville, GA
Garden City, KS
Gateway, GA
Geneva Lakes, WI
Gloucester - Rogers, MA
Gloucester - Rowe, MA
Gouldsboro, PA
Grand Island, NE
Green Bay, WI
1
1
1
1
1
1
1
1
1
1
1
1
2
1
2
1
1
1
1
1
1
1
2
1
1
1
1
1
2
Initial Costs
Costs
Capitalized
Subsequent to
Acquisition
(5)
Buildings and
Improvements
14,945
21,569
1,429
8,728
14,385
12,228
1,724
10,894
2,080
13,764
3,621
7,162
2,231
5,055
13,447
3,109
24,686
8,536
9,820
3,263
5,704
4,721
19,693
36,020
3,675
2,833
29,473
6,542
2,028
4,307
—
693
1,109
6,966
490
373
1,024
1,367
588
2,445
1,118
1,918
1,399
2,499
5,466
1,767
406
(736)
129
701
1,070
2,265
2,375
1,671
5,247
2,212
(2,400)
2,451
Encumbrances
(3)
—
19,671
951
—
12,575
16,588
—
8,136
2,724
—
—
—
—
3,861
8,254
28,200
18,994
—
24,438
4,012
6,557
—
—
37,318
4,757
4,709
37,643
—
—
Land
2,881
806
768
497
1,468
539
—
11,149
400
722
1,884
1,022
308
1,700
1,985
629
5,610
1,857
100
1,000
400
446
3,271
1,579
1,683
1,146
4,224
430
—
Gross amount at which carried as of
December 31, 2017
Buildings and
Improvements (2)
Total
(4) (5) (6)
Accumulated
Depreciation and
Depletion (1) (6) (7)
Date of
Construction
Date of
Acquisition
Life on Which
Depreciation is
Computed
20,005
21,569
2,094
9,826
20,554
12,676
2,097
11,918
3,445
14,322
5,930
8,076
4,116
6,454
15,822
8,560
26,378
8,844
8,832
3,392
6,394
5,791
22,032
37,708
5,211
7,954
31,289
4,093
4,424
22,133
22,375
2,891
10,334
22,820
13,256
2,097
23,067
3,846
15,075
7,950
9,302
4,458
8,154
17,931
9,205
32,064
10,799
9,183
4,392
6,805
6,237
25,229
39,973
7,029
9,226
35,909
4,572
4,479
(7,309)
(130)
(942)
(3,480)
(10,426)
(5,134)
(2,030)
(4,005)
(971)
(4,020)
(783)
(2,955)
(1,079)
(1,475)
(5,512)
(3,700)
(9,033)
(3,314)
(2,015)
(1,068)
(1,968)
(1,908)
(7,325)
(10,042)
(1,536)
(2,434)
(7,606)
(1,672)
(1,881)
1973
2017
1971
1969
1994
2010
1974
1989
1969
1993
1959
1979
1958
1995
1977
1968
2005
1998
1991
1995
1989
1980
1972
1991
1967
1955
2006
1995
1935
2008
2017
2008
2008
2009
2010
2008
2009
2009
2008
2016
2008
2008
2009
2009
2008
2008
2008
2013
2008
2009
2008
2008
2009
2008
2008
2009
2008
2009
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
Land
2,128
806
797
508
2,266
580
—
11,149
401
753
2,020
1,226
342
1,700
2,109
645
5,686
1,955
351
1,000
411
446
3,197
2,265
1,818
1,272
4,620
479
55
F- 86
Americold Realty Trust and Subsidiaries
Schedule III – Real Estate and Accumulated Depreciation
December 31, 2017
(In thousands of U.S. dollars, as applicable and unless noted)
Property
Buildings
Encumbrances
(3)
Greenville, SC
Hatfield, PA
Henderson, NV
Hermiston, OR
Heyburn, ID
Houston, TX
Indianapolis, IN
Jefferson, WI
Lancaster, PA
LaPorte, TX
Leesport, PA
Lynden, WA
Marshall, MO
Massillon 17th, OH
Massillon Erie, OH
Memphis Chelsea , TN
Middleboro, MA
Milwaukie, OR
Mobile, AL
Modesto, CA
Montezuma,GA
Montgomery, AL
Moses Lake, WA
Murfreesboro, TN
Nampa, ID
New Ulm, MN
Oklahoma City, OK
Ontario, CA
Ontario, OR
1
2
2
1
1
1
4
2
1
1
1
5
1
1
1
—
—
2
1
6
1
1
1
1
4
7
1
3
4
560
—
8,902
34,332
—
19,398
—
8,460
15,918
11,585
—
10,376
11,019
11,241
—
—
—
—
4,775
23,965
—
6,991
31,726
—
—
9,122
4,360
25,878
—
Land
200
5,002
9,043
1,322
—
1,454
1,897
1,553
2,203
2,945
1,206
1,420
741
175
—
80
390
2,473
10
2,428
93
850
575
1,094
1,588
725
742
14,673
—
Initial Costs
Costs
Capitalized
Subsequent to
Acquisition
(5)
Buildings and
Improvements
Gross amount at which carried as of
December 31, 2017
Land
Buildings and
Improvements (2)
Total
(4) (5) (6)
Accumulated
Depreciation and
Depletion (1) (6) (7) Date of Construction
Date of
Acquisition
Life on Which
Depreciation is
Computed
1,108
28,286
14,415
7,107
59
10,084
18,991
19,805
15,670
19,263
14,112
8,590
10,304
15,322
1,988
2
—
8,112
3,203
19,594
5,437
7,746
11,046
10,936
11,864
10,405
2,411
3,632
13,791
423
8,918
865
276
236
986
18,924
1,077
695
2,460
11,445
786
383
443
470
(82)
—
1,313
552
4,077
274
(752)
2,378
3,046
1,830
539
1,140
22,224
9,120
200
5,775
9,043
1,334
—
1,469
3,395
1,880
2,371
3,155
1,675
1,430
826
414
—
—
390
2,483
10
2,667
123
1,157
1,093
1,332
1,719
822
742
14,673
1,264
F- 87
1,531
36,432
15,280
7,371
295
11,055
36,415
20,555
16,197
21,512
25,087
9,366
10,603
15,526
2,458
1
—
9,415
3,755
23,432
5,681
6,687
12,906
13,743
13,563
10,847
3,551
25,856
21,647
1,731
42,207
24,323
8,705
295
12,524
39,810
22,435
18,568
24,667
26,762
10,796
11,429
15,940
2,458
1
390
11,898
3,765
26,099
5,804
7,844
13,999
15,075
15,282
11,669
4,293
40,529
22,911
(1,213)
(10,502)
(4,265)
(2,644)
(95)
(3,005)
(10,867)
(7,170)
(4,349)
(6,061)
(5,876)
(3,178)
(3,666)
(4,952)
(2,422)
(1)
—
(5,008)
(1,163)
(8,711)
(2,177)
(1,500)
(4,483)
(5,629)
(6,484)
(3,388)
(1,446)
1962
1983
1988
1975
2014
1990
1975
1975
1993
1990
1993
1946
1985
2000
1984
1972
2017
1958
1976
1945
1965
1989
1967
1982
1946
1984
1968
(10,326) 1987(1)/1984(2)/1983(3)
(10,995)
1962
2009
2009
2009
2008
2014
2009
2008
2009
2009
2009
2008
2009
2008
2008
2008
2008
2017
2008
2009
2009
2008
2013
2008
2008
2008
2009
2008
2008
2008
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
Americold Realty Trust and Subsidiaries
Schedule III – Real Estate and Accumulated Depreciation
December 31, 2017
(In thousands of U.S. dollars, as applicable and unless noted)
Property
Buildings
Encumbrances
(3)
Land
Buildings and
Improvements
Costs
Capitalized
Subsequent to
Acquisition
(5)
Land
Buildings and
Improvements (2)
Total
(4) (5) (6)
Accumulated
Depreciation and
Depletion (1) (6) (7)
Date of
Construction
Date of
Acquisition
Life on Which
Depreciation is
Computed
Initial Costs
Gross amount at which carried as of
December 31, 2017
Pasco, WA
Pendergrass, GA
Phoenix2, AZ
Piedmont, SC
Plover, WI
Portland, ME
Rochelle, IL (Americold Drive)
Rochelle, IL (Caron)
Russellville, AR - Elmira
Russellville, AR - Valley
Salem, OR
Salinas, CA
Salt Lake City, UT
San Antonio - HEB, TX
San Antonio, TX
Sebree, KY
Sikeston, MO
Sioux Falls, SD
Springdale, AR
St. Louis, MO
St. Paul, MN
Strasburg, VA
Syracuse, NY
Tacoma, WA
Tampa Plant City, FL
Tarboro, NC
Taunton, MA
Texarkana, AR
1
1
1
1
1
1
1
1
1
1
4
5
1
1
3
1
1
1
1
2
2
1
2
1
2
1
1
1
—
13,636
—
10,647
35,843
—
—
14,396
6,437
—
41,146
6,956
7,675
—
7,046
—
11,260
6,136
8,205
6,485
11,431
—
—
515
5,601
18,336
10,759
3,792
557
500
3,182
500
1,390
305
1,860
2,071
1,261
708
3,055
7,244
—
2,014
1,894
638
258
856
844
2,082
1,800
1,551
2,177
—
1,333
1,078
1,477
842
15,809
12,810
11,312
9,883
18,298
2,402
18,178
36,658
9,910
15,832
21,096
7,181
22,481
22,902
11,101
7,895
11,936
4,780
10,754
7,566
12,129
15,038
20,056
21,216
11,836
9,586
14,159
11,169
401
2,144
—
1,350
4,738
253
1,780
465
2,196
2,260
2,916
6,640
3,540
—
2,405
491
599
3,276
1,155
1,532
541
861
3,757
1,859
657
792
763
946
579
580
3,182
506
1,845
316
2,174
2,107
1,359
708
3,111
7,281
—
2,014
1,981
638
631
960
871
2,076
1,800
1,592
2,251
27
1,372
1,225
1,635
921
F- 88
16,189
14,874
11,312
11,228
22,580
2,644
19,645
37,087
12,007
18,093
23,955
13,784
26,020
22,902
13,419
8,386
12,162
7,952
11,883
9,104
12,670
15,858
23,739
23,048
12,454
10,230
14,764
12,035
16,768
15,454
14,494
11,734
24,425
2,960
21,819
39,194
13,366
18,801
27,066
21,065
26,020
24,916
15,400
9,024
12,793
8,912
12,754
11,180
14,470
17,450
25,990
23,075
13,826
11,455
16,399
12,956
(4,413)
(4,867)
(1,485)
(3,674)
(8,328)
(844)
(7,512)
(12,873)
(5,078)
(4,761)
(9,936)
(4,874)
(11,109)
(960)
(6,293)
(2,254)
(3,439)
(3,628)
(4,070)
(2,442)
(4,304)
(4,683)
(8,142)
(5,899)
(3,521)
(3,175)
(4,005)
(3,377)
1984
1993
2014
1981
1981
1952
1995
2004
1986
1995
1963
1958
1998
1982
1913
1998
1998
1972
1982
1956
1970
1999
1960
2010
1987
1988
1999
1992
2008
2009
2014
2009
2008
2008
2008
2008
2008
2008
2008
2009
2010
2017
2009
2008
2009
2008
2008
2009
2009
2008
2008
2010
2009
2008
2009
2008
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
Americold Realty Trust and Subsidiaries
Schedule III – Real Estate and Accumulated Depreciation
December 31, 2017
(In thousands of U.S. dollars, as applicable and unless noted)
Property
Buildings
Encumbrances
(3)
Land
Buildings and
Improvements
Costs
Capitalized
Subsequent to
Acquisition (5)
Land
Buildings and
Improvements (2)
Total
(4) (5) (6)
Accumulated
Depreciation and
Depletion (1) (6) (7)
Date of
Construction
Date of
Acquisition
Life on Which
Depreciation is
Computed
Initial Costs
Gross amount at which carried as of
December 31, 2017
Thomasville, GA
Tomah, WI
Turlock, CA (#1)
Turlock, CA (#2)
Vernon 2, CA
Vernon 3, CA
Victorville, CA
Walla Walla, WA
Wallula, WA
Watsonville, CA
West Memphis, AR
Wichita, KS
Woodburn, OR
York, PA
York-Willow Springs, PA
Zumbrota, MN
Canada
Cold Logic/Taber
Australia
Arndell Park
Bris Corporate - Acacia Ridge
Laverton
Murarrie
Prospect
Spearwood
New Zealand
Dalgety
Diversey
Halwyn
1
1
2
1
4
1
1
2
1
1
1
1
1
1
1
3
3
2
—
2
3
2
1
1
1
1
—
19,906
—
4,027
7,340
—
6,088
—
—
12,176
—
—
—
15,474
3,301
10,934
—
—
—
—
—
158,645
—
9,529
10,793
3,938
1,731
886
944
3,091
8,100
—
2,810
215
690
—
1,460
1,297
1,552
3,838
1,300
800
—
13,489
—
13,689
10,891
—
7,194
6,047
2,357
5,227
16,914
10,715
4,056
7,004
13,490
595
22,811
4,693
2,645
8,138
12,300
4,717
9,860
36,621
7,351
10,360
(6,964)
230
284
1,444
2,814
627
1,062
796
681
396
2,631
1,089
2,072
1,865
341
1,299
1,020
909
967
3,116
8,112
—
2,810
159
711
21
2,284
1,399
1,552
4,063
1,315
800
10,661
10,922
4,317
8,422
16,291
1,222
23,873
5,546
3,305
8,512
14,107
5,704
11,932
38,260
7,677
11,658
11,681
11,831
5,284
11,538
24,403
1,222
26,683
5,705
4,016
8,533
16,391
7,103
13,484
42,323
8,992
12,458
(3,216)
(3,988)
(1,686)
(2,882)
(5,785)
(1,175)
(7,108)
(2,911)
(991)
(6,403)
(4,842)
(2,363)
(3,733)
(12,443)
(2,649)
(3,105)
1997
1989
1995
1985
1965
1924
2004
1960
1982
1984
1985
1972
1952
1994
1987
1996
2008
2008
2008
2008
2009
2009
2008
2008
2008
2008
2008
2008
2008
2008
2009
2009
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
12
3,680
96
3,597
3,693
(1,453)
1999
2009
5 - 40 years
29,428
—
28,252
18,975
1,187
10,990
5,531
5,966
3,399
2,723
311
10,258
(1,186)
15,754
263
1,356
1,203
1,291
13,099
—
13,293
10,576
8,310
6,986
6,634
2,586
5,735
F- 89
32,541
311
38,905
18,103
8,632
11,461
6,299
6,940
4,182
45,640
311
52,198
28,679
16,942
18,447
12,933
9,526
9,917
(8,649)
1989/1994
(292)
(10,014)
(5,340)
(2,598)
(3,693)
(1,702)
(1,888)
(1,341)
1997/1998
1972/2003
1985
1978
1988
1988
1992
2009
2009
2009
2009
2009
2009
2009
2009
2009
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
Americold Realty Trust and Subsidiaries
Schedule III – Real Estate and Accumulated Depreciation
December 31, 2017
(In thousands of U.S. dollars, as applicable and unless noted)
Property
Buildings
Encumbrances
(3)
Makomako
Manu Tapu
Paisly
Smarts
Argentina
Mercado Central
Pilar
1
1
3
1
1
1
6,984
—
—
—
—
—
Land
1,332
—
—
—
—
708
Initial Costs
Buildings and
Improvements
Costs
Capitalized
Subsequent to
Acquisition (5)
Gross amount at which carried as of
December 31, 2017
Land
Buildings and
Improvements (2)
Total
(4) (5) (6)
Accumulated
Depreciation and
Depletion (1) (6) (7)
Date of
Construction
Date of
Acquisition
Life on Which
Depreciation is
Computed
3,810
343
185
247
4,984
2,584
515
331
1,193
808
(3,079)
(1,549)
1,462
—
—
—
—
1,099
4,195
674
1,377
1,055
1,906
647
5,657
674
1,377
1,055
1,906
1,746
(1,058)
(454)
(797)
(596)
2000
2004
1984
1984
(456)
(199)
1996/1999
2000
2009
2009
2009
2009
2009
2009
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
5 - 40 years
Total
1,097,964
363,437
1,592,651
269,817
389,443
1,836,462
2,225,905
(624,217)
F- 90
Americold Realty Trust and Subsidiaries
Schedule III – Real Estate and Accumulated Depreciation
December 31, 2017
(In thousands of U.S. dollars, as applicable and unless noted)
Schedule III – Footnotes
(1) Reconciliation of total accumulated depreciation and depletion to consolidated balance sheet caption as of December 31, 2017:
Total per Schedule III
Accumulated depreciation on investments in non-real estate assets
Total accumulated depreciation and depletion per consolidated balance sheet (property, plant and equipment and capital leases)
(2) Reconciliation of total Buildings and Improvements to consolidated balance sheet as of December 31, 2017:
Building and improvements per consolidated balance sheet
Building and improvements capital leases per consolidated balance sheet
Less: Construction In Progress (CIP) on building and improvements
Total per Schedule III
(3) Reconciliation of total mortgage notes and term loans to consolidated balance sheet caption as of December 31, 2017:
Total per Schedule III
Senior Secured Term Loan B Facility - unencumbered sites
Non-real estate related debt
Deferred financing costs and debt discount, net of amortization
Allocation of term loan to third-party managed sites excluded from Schedule III
Less: Construction loan
Less: Sale-leaseback financing obligations
Less: Capital lease obligations on real estate assets
Total mortgage notes and term loans per consolidated balance sheet
(4) The aggregate cost for Federal tax purposes at December 31, 2017 of our real estate assets was approximately $2.0 billion.
(5) Includes real estate impairments recorded at the following locations:
Bettendorf, IA - $3.6 million
Vernon 3, CA - $0.4 million
F- 91
$
$
$
$
$
$
(624,217)
(427,737)
(1,051,954)
1,865,727
16,827
(46,092)
1,836,462
1,097,964
776,658
11,630
(31,996)
18,631
(19,671)
(121,516)
(9,742)
1,721,958
(6) The following table summarizes the Company's real estate activity and accumulated depreciation for the years ended December 31:
Americold Realty Trust and Subsidiaries
Schedule III – Real Estate and Accumulated Depreciation
December 31, 2017
(In thousands of U.S. dollars, as applicable and unless noted)
Real Estate Facilities, at Cost:
Beginning Balance
Capital expenditures
Acquisitions
Newly developed warehouse facilities
Disposition
Impairment
Conversion of leased assets to owned
Impact of foreign exchange rate changes
Ending Balance
Accumulated Depreciation:
Beginning Balance
Depreciation expense
Dispositions
Impact of foreign exchange rate changes
Ending Balance
$
2017
2016
2015
2,382,343 $
52,555
27,958
60,598
(20,780)
(9,473)
—
13,455
2,506,656
(692,390)
(86,169)
11,143
(2,590)
(770,006)
2,379,980 $
46,761
8,922
—
(36,628)
(9,820)
(5,331)
(1,541)
2,382,343
(629,404)
(85,296)
21,885
425
(692,390)
2,381,146
41,431
—
—
(18,270)
(5,711)
9,058
(27,674)
2,379,980
(558,813)
(88,135)
13,376
4,168
(629,404)
Total Real Estate Facilities, Net at December 31
The total real estate facilities amounts in the table above include $90.5 million, $91.6 million and $98.4 million of assets under sale-leaseback agreements accounted for as a financing as of
December 31, 2017, 2016 and 2015, respectively. The Company does not hold title in these assets under sale-leaseback agreements. During the year ending December 31, 2017, the Company
acquired a new facility for a total cost of $31.9 million, which included $3.9 million of intangible assets associated with an in-place lease. In addition, the Company disposed of two idle and one
operational facilities with a net book value of $9.2 million for an aggregate amount of $9.2 million. As of December 31, 2017, the Company held for sale an idle facility of the Warehouse
segment with a carrying amount of $2.6 million, which is included in "Property, plant, and equipment – net" in the accompanying consolidated balance sheet.
1,736,650 $
1,689,953 $
1,750,576
$
F- 92
Americold Realty Trust and Subsidiaries
Schedule III – Real Estate and Accumulated Depreciation
December 31, 2017
(In thousands of U.S. dollars, as applicable and unless noted)
(7) Reconciliation of the Company's real estate activity and accumulated depreciation and depletion for the years ended December 31, 2016 to Schedule III:
Total real estate facilities gross amount per Schedule III
Plus: Refrigeration equipment
Less: Quarry assets
Plus: CIP on real estate
Real estate facilities, at cost - ending balance
Accumulated depreciation and depletion per Schedule III
Plus: Refrigeration equipment
Less: Quarry assets
Accumulated depreciation and depletion - ending balance
F- 93
$
$
$
$
2,225,905
247,823
(13,164)
46,092
2,506,656
(624,217)
(148,457)
2,668
(770,006)
CHINA MERCHANTS AMERICOLD LOGISTICS COMPANY LIMITED
Report of Independent Auditors
The Board of China Merchants Americold Logistics Company Limited and Subsidiaries:
We have audited the accompanying consolidated financial statements of China Merchants Americold Logistics Company Limited, which comprise the consolidated balance sheets as of December
31, 2017 and 2016, and the related consolidated statements of comprehensive loss, consolidated statements of shareholders’ equity and consolidated statements of cash flows for each of the three
years in the periods ended December 31, 2017, and the related notes to the consolidated financial statements.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in conformity with U.S. generally accepted accounting principles; this includes the design,
implementation and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free of material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United
States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment,
including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control
relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies
used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of China Merchants Americold Logistics Company Limited at
December 31, 2017 and 2016, and the consolidated results of its operations and its cash flows for each of the three years in the periods ended December 31, 2017 in conformity with U.S.
generally accepted accounting principles.
/s/ Ernst & Young Hua Ming LLP
Shenzhen, the People’s Republic of China
March 10, 2018
F- 94
China Merchants Americold Logistics Company Limited
Consolidated Balance Sheets
Assets
Cash and cash equivalents
Accounts receivable – net
(including RMB652,430 and RMB135,483 due from related parties)
Inventory – net
Prepayment and other current assets
(including RMB38,388,259 and RMB14,161,361 due from related parties)
Total current assets
Property, plant and equipment and prepaid land lease – net
Construction in process
Goodwill
Intangible assets – net
Total non-current assets
Total assets
F- 95
Note
2017
2016
As of December 31,
(In
RMB)
4
5
6
7
8
9
51,624,524
82,131,749
41,742,834
3,028,301
40,974,353
2,986,533
75,726,711
63,740,374
172,122,370
189,833,009
85,282,593
-
103,473,812
9,578
188,765,983
101,048,131
319,545
103,473,812
13,165
204,854,653
360,888,353
394,687,662
China Merchants Americold Logistics Company Limited
Consolidated Balance Sheets (Continued)
Liabilities and shareholders’ equity
Liabilities:
Accounts payable
(including RMB372,186 and RMB2,066,367 due to related parties)
Short-term loans from related parties
Accrued expenses and other liabilities
(including RMB115,964,253 and RMB87,613,588 due to related parties)
Total current liabilities
Other non-current liabilities
Total non-current liabilities
Total liabilities
Shareholders’ equity:
Share capital
- Ordinary shares
(US$1 par value, 50,000 shares authorized, 10,000 issued and outstanding as of December 31, 2017 and 2016)
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive income
Total shareholders’ equity
Total liabilities and shareholders’ equity
F- 96
Note
2017
2016
As of December 31,
(In
RMB)
10
7
12
30,256,897
47,919,060
17,199,618
89,876,300
145,128,941
134,016,967
223,304,898
241,092,885
14,608,921
14,194,006
14,608,921
14,194,006
237,913,819
255,286,891
6,773
380,443,989
(292,125,147)
34,648,919
6,773
380,443,989
(275,378,502)
34,328,511
122,974,534
139,400,771
360,888,353
394,687,662
China Merchants Americold Logistics Company Limited
Consolidated Statements of Comprehensive Loss
Note
2017
For the Years Ended December 31,
2016
(In
RMB)
2015
133,895,098
126,235,102
104,847,499
Revenues
Warehouse service revenues
Transportation service revenues
(including RMB3,387,553, nil and nil, respectively from related parties)
108,331,228
94,306,733
91,149,199
Other revenues
(including RMB13,340,873, RMB8,469,662 and RMB7,452,462, respectively from related
parties)
Total Revenues
Costs of revenues:
Warehouse service costs
(including RMB13,297,772, RMB9,299,156 and RMB7,439,193, respectively to related
parties)
Transportation service costs
(including RMB274,090, nil and nil, respectively to related parties)
Costs of other revenues
Total costs of revenues
Operating (expenses) income:
General and administrative expenses
(including RMB6,069,886, RMB6,200,309 and RMB2,744,032, respectively to related parties)
Other operating income – net
Total operating expenses
Other (expense) income:
Interest expense
18,998,716
261,225,042
11,510,251
232,052,086
50,938,830
246,935,528
(118,811,016)
(117,535,042)
(98,122,284)
(102,888,962)
(3,902,750)
(225,602,728)
(92,802,198)
(2,134,146)
(212,471,386)
(88,789,997)
(48,960,504)
(235,872,785)
13
(49,586,034)
99,959
(33,528,366)
718,712
(30,898,653)
725,314
(49,486,075 )
(32,809,654 )
(30,173,339)
(including RMB2,656,542, RMB3,367,505 and RMB3,320,273, respectively to related parties)
(5,058,845)
(4,277,797)
(6,575,627)
Interest income
(including RMB83,088, nil and nil, respectively from related parties)
Foreign exchange gain (loss)
Gain (loss) from disposal of properties
(including RMB286,771, nil and nil, respectively from related parties)
Total other expense
213,713
1,503,868
458,380
(2,882,884 )
119,922
(964,556)
457,558
(4,664,873 )
89,634
(820,764)
(1,460,503)
(8,767,260 )
F- 97
China Merchants Americold Logistics Company Limited
Consolidated Statements of Comprehensive Loss (Continued)
Note
2017
For the Years Ended December 31,
2016
(In
RMB)
2015
(16,746,645)
(17,893,827)
(27,877,856)
11
-
-
85,350
(16,746,645)
(17,893,827)
(27,792,506)
Loss before income tax
Income tax benefit
Net loss
Other comprehensive income - net of tax:
Change in unrealized net gain on foreign currency
320,408
353,387
Total other comprehensive income - net of tax
320,408
353,387
603,081
603,081
Total comprehensive loss
(16,426,237)
(17,540,440)
(27,189,425)
F- 98
(In RMB)
Balance - January 1, 2015
Capital contribution from shareholders
Loss for the year
Other comprehensive income
Balance - December 31, 2015
Loss for the year
Other comprehensive income
Balance - December 31, 2016
Loss for the year
Other comprehensive income
Balance - December 31, 2017
China Merchants Americold Logistics Company Limited
Consolidated Statements of Shareholders’ Equity
Share capital
Additional
paid-in capital
Accumulated other
comprehensive
income
Accumulated
deficit
6,773
-
-
-
6,773
-
-
6,773
-
-
6,773
371,773,989
8,670,000
-
-
380,443,989
-
-
380,443,989
-
-
380,443,989
F- 99
33,372,043
(229,692,169)
-
-
603,081
33,975,124
-
353,387
34,328,511
-
320,408
34,648,919
-
(27,792,506)
-
(257,484,675)
(17,893,827)
-
(275,378,502)
(16,746,645)
-
(292,125,147)
Total equity
175,460,636
8,670,000
(27,792,506)
603,081
156,941,211
(17,893,827)
353,387
139,400,771
(16,746,645)
320,408
122,974,534
China Merchants Americold Logistics Company Limited
Consolidated Statements of Cash Flows
Note
2017
For the Years Ended December 31,
2016
(In
RMB)
2015
Operating activities:
Net loss
Adjustments to reconcile net loss to net cash provided by operating activities:
Allowances for doubtful debts
Depreciation and amortization
(Gain) loss from disposal of properties
Foreign exchange (gain) loss
Deferred tax benefit
Changes in operating assets and liabilities:
(Increase) decrease in inventories
(Increase) decrease in accounts receivable
(Increase) decrease in prepayment and other current assets
Increase (decrease) in accounts payable
Increase in accrued expenses and other liabilities
Increase (decrease) in other non-current liabilities
(16,746,645)
(17,893,827)
(27,792,506)
18,988,276
26,960,659
(458,380)
(1,504,543)
-
433,520
27,193,789
(457,558)
964,556
-
(41,768)
(356,628)
(31,066,059)
13,057,279
11,111,974
414,915
(184,050)
14,003,067
2,352,896
(15,829,031)
66,340,456
(1,150,563)
459,493
26,901,787
1,460,503
(864,602)
(85,350)
26,442,161
(14,847,916)
23,579,360
(1,102,387)
5,745,756
(5,604,965)
Net cash provided by operating activities
20,359,080
75,773,255
34,291,334
Investing activities:
Proceeds from the sale of property, plant and equipment
Purchase of property, plant and equipment
994,848
(11,408,455)
5,091,874
(13,460,398)
2,711,875
(7,875,987)
Net cash used in investing activities
(10,413,607)
(8,368,524)
(5,164,112)
F- 100
China Merchants Americold Logistics Company Limited
Consolidated Statements of Cash Flows (Continued)
Financing activities:
Cash receipts from shareholders’ contribution
Proceeds from borrowings
Repayments for borrowings
Note
2017
For the Years Ended December 31,
2016
(In
RMB)
2015
-
40,000,000
(80,000,000)
-
29,876,300
(40,073,252)
8,670,000
60,000,000
(88,089,503)
Net cash used in financing activities
(40,000,000)
(10,196,952)
(19,419,503)
Net (decrease) increase in cash and cash equivalents
Effect of foreign currency translation on cash and cash equivalents
Cash and cash equivalents:
Beginning of period
End of period
Supplemental disclosures of cash flows information:
(30,054,527)
(452,698)
57,207,779
(394,828)
4
4
82,131,749
25,318,798
51,624,524
82,131,749
9,707,719
286,902
15,324,177
25,318,798
Interest paid
(4,400,573)
(3,411,059 )
(4,179,004)
F- 101
China Merchants Americold Logistics Company Limited
Notes to Consolidated Financial Statements
December 31, 2017, 2016, 2015
1. ORGANIZATION
The Company
China Merchants Americold Logistics Company Limited (the “Company”) was incorporated as a limited liability company incorporated under the laws of British Virgin Islands (“BVI”) on
January 20, 2010. The principal activities of the Company and its subsidiaries (collectively referred to as the “Group”) are provision of cold chain transportation and warehousing services in
the People’s Republic of China (“PRC”).
The immediate holding company is Smart Ally Holdings Limited, a limited liability company incorporated in BVI and the ultimate holding company is China Merchants Group Limited, a
state-owned enterprise registered in the PRC.
The address of the registered office of the Company is P. O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands.
Details of the Company’s subsidiaries as of December 31, 2017 and December 31, 2016 were as follows:
Company
Share
Capital/Paid in
Capital
Place of
Establishment
Percentage of
Ownership by
the Company
Principal Activities
China Merchants Americold Logistics (Hong Kong) Company Limited
HK$1
Hong Kong
100%
Investment holding
China Merchants Americold Logistics (Wuhan) Company Limited
US $1,000,000
Kangxin Logistics
(Tianjin) Company Limited
US $8,789,300
Shenzhen China Merchants Americold Supply Chain Company
Limited(Formerly, Shenzhen China Merchants Americold Trading Company
Limited)
RMB30,000,000 (2016:
RMB5,000,000)
China Merchants Americold Logistics (Zhengzhou) Company Limited
US $1,000,000
There consolidated financial statements are presented in Renminbi (“RMB”), unless otherwise stated.
Ownership
PRC
PRC
PRC
PRC
100%
100%
Development and operation of cold chain
transportation and warehouse
Development and operation of cold chain
transportation and warehouse
100%
Domestic trading and electronic commerce
100%
Development and operation of cold chain
transportation and warehouse
As of December 31, 2017, the Company’s shareholders are Smart Ally Holdings Limited and Americold Logistics Hong Kong Limited, which owns 51% and 49% of the Company’s shares,
respectively.
The ultimate holding company of Smart Ally Holdings Limited and Americold Logistics Hong Kong Limited are China Merchants Group Limited and Americold Reality Trust, respectively.
F- 102
1. ORGANIZATION (Continued)
Business and Industry Information
China Merchants Americold Logistics Company Limited
Notes to Consolidated Financial Statements (Continued)
The Group has a large national presence in temperature-controlled warehousing business in mainland China. The Company directly or through certain subsidiaries, provides supply chain
management solutions to food and wine manufacturers and retailers who require multi-temperature storage, handing, and distribution capability for their products. Service offerings include:
(i) rental, storage and warehouse services; (ii) transportation services; (iii) sale of goods.
The Company, which is headquartered in Shenzhen China, operates 8 temperature-controlled warehouses, located in Tianjin, Beijing, Shanghai, Guangzhou, Qingdao, Suzhou, Zhengzhou
and Wuhan, China.
As of December 31, 2017, the Group had approximately 235 employees.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”).
The Group experienced a net loss of RMB16,746,645 for the year ended December 31, 2017, and at December 31, 2017, the Group had net current liabilities of RMB51,182,528. China
Merchants Logistics Holding Co, .Ltd, the entity controlled by the same ultimate controlling party, has confirmed its intention to provide continuing financial support so as to enable the
Company both to meet its liabilities as they fall due and to carry on its business without a significant curtailment of operations. Therefore, the consolidated financial statements were prepared
on a going concern basis. The accompanying consolidated financial statements do not reflect any adjustments relating to the recoverability and reclassification of assets and liabilities as that
might be necessary if the Group is unable to continue as a going concern.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany balances and transactions have been eliminated in
consolidation.
Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues, and expenses and the disclosure of contingent assets and liabilities. Significant estimates and assumptions reflected in the Company’s consolidated financial statements
include, but are not limited to, allowance for doubtful accounts, impairment of goodwill and long-lived assets, useful lives of property, plant and equipment and intangible assets, realization of
deferred tax assets, asset retirement obligations and contingencies. Actual results could differ from those estimates.
F- 103
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Property, Plant and Equipment and Prepaid Land Lease
China Merchants Americold Logistics Company Limited
Notes to Consolidated Financial Statements (Continued)
Property, plant and equipment and prepaid land lease are stated at cost, less accumulated depreciation. Depreciation is computed on a straight-line basis over the estimated useful lives of the
respective assets. Useful lives ranges are as follows:
Items
Prepaid land lease
Buildings and improvements
-Warehouse building and improvements
-Other buildings and improvements
Machinery and equipment
-Goods shelves
-Other machinery and equipment
50 years
20-30 years
20-30 years
5-20 years
3-5 years
Periodically reviews are in place for the appropriateness of the estimated useful lives of its long-lived assets.
Interest and other costs on borrowings to finance the construction of property, plant and equipment are capitalized during the period of time that is required to complete and prepare the asset
for its intended use.
Cost of normal maintenance and repairs and minor replacements are charged to expense as incurred. When assets are sold or otherwise disposed of, the cost and related accumulated
depreciation are removed, and any resulting gain or loss is included in the “gain (loss) from disposal of properties” line on the accompanying consolidated statements of comprehensive loss.
Construction in progress represents buildings and related premises under construction, which is stated at actual construction cost less any impairment loss. Construction in progress is
transferred to the respective category of property and equipment when completed and ready for its intended use.
Other intangible assets
Other intangible assets represent computer software with useful lives of 5 to 10 years, and are derecognized on disposal, or when no future economic benefits are expected from use or
disposal. Gains or losses arising from derecognition of other intangible assets are measured at the difference between the net disposal proceeds and the carrying amount of the asset and are
recognized in consolidated statements of comprehensive loss in the period when the asset is derecognized.
F- 104
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Impairment of Long-Lived Assets Other Than Goodwill
China Merchants Americold Logistics Company Limited
Notes to Consolidated Financial Statements (Continued)
The Group reviews its long-lived assets for impairment when events or changes in circumstances (such as decreases in operating income and declines in occupancy) indicate that the carrying
amounts may not be recoverable. A comparison is made of the expected future operating cash flows of the long-lived assets on an undiscounted basis to their carrying amounts. If the carrying
amounts of the long-lived assets exceed the sum of the expected future undiscounted cash flows, an impairment charge is recognized in an amount equal to the excess of the carrying amount
over the estimated fair value of the long-lived assets. The Group determined that individual warehouse properties constitute the lowest level of independent cash flows for purposes of
considering possible impairment.
Goodwill
The Group evaluates the carrying value of goodwill each year as of October 1 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. When evaluating whether goodwill is impaired, the Group compares the fair value of its reporting units to its carrying amounts,
including goodwill. The Group estimates the fair value of its reporting units based upon a combination of the net present value of future cash flows. Future cash flows are estimated based
upon varying economic assumptions. Significant assumptions are revenue growth rates, costs, operating expenses and capital expenditure. The assumptions are based on risk-adjusted growth
rates and discount factors accommodating conservative viewpoints that consider the full range of variability contemplated in the current and potential future economic situations.
If the estimated fair value of each of the reporting units exceeds the corresponding carrying value, no impairment of goodwill exists. If a reporting unit’s carrying amount exceeds its fair
value, and impairment loss would be calculated by comparing the implied fair value of goodwill to the reporting unit’s carrying amount. The excess of the fair value of the reporting unit over
the amount assigned for fair value to its other assets and liabilities is the implied fair value of goodwill.
There was no impairment loss recognized in 2017, 2016 and 2015.
F- 105
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Cash and Cash Equivalents
China Merchants Americold Logistics Company Limited
Notes to Consolidated Financial Statements (Continued)
Cash and cash equivalents primarily consist of cash, demand deposit, and time deposits with original maturities of three months or less from the date of purchase.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are recorded at the invoiced amount and do not bear interest. The Group considers many factors in assessing the collectability of its receivables, such as the age of the
amounts due, the customer’s payment history and credit-worthiness. An allowance for doubtful accounts is recorded in the period in which a loss is determined to be probable. Accounts
receivable balances are written off after all collection efforts have been exhausted.
Inventories
Inventories are stated at the lower of cost or net realizable value. Cost of inventory is determined using the weighted average cost method. Adjustments are recorded to write down the cost of
inventory to the estimated net realizable value of slow-moving merchandise and damaged goods, depending upon factors such as historical and forecasted consumer demand, and promotional
environment. The Group takes ownership, risks and rewards of the products purchased. Write downs are recorded in cost of revenues in the consolidated statements of comprehensive loss.
Revenue Recognition
Revenue for the Group includes storage and warehouse services (collectively, “Warehouse Revenue”), transportation services (“Transportation Revenue”) and revenue from the sales of
products (“Other Revenue”).
The Group recognizes revenue in accordance with ASC topic 605 (“ASC 605”), Revenue Recognition. Revenue is recognized when the following four revenue recognition criteria are met: (i)
persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been provided, (iii) the selling price is fixed or determinable, and (iv) collectability is reasonably
assured.
Warehouse Revenue
Rent, storage and warehouse services revenue are recognized as services are provided. Customers may be charged in advance. Storage revenue is initially deferred and recognized ratably over
the storage period. Warehouse services revenue is recognized as services are performed.
Transportation Revenue
The Company and its subsidiaries record transportation revenue and expenses upon delivery of the product. As the principal in the arrangement of transportation services for the customers,
revenues and expenses are presented on the gross basis.
Other Revenue
Other Revenue primarily includes the sales of products which are recognized when the goods are delivered to the customers.
F- 106
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Leases
China Merchants Americold Logistics Company Limited
Notes to Consolidated Financial Statements (Continued)
Leases are classified at the inception date as either a capital lease or an operating lease. A lease is a capital lease if any of the following conditions exists:
(a) transfer of ownership. The title to the leased property is transferred to the lessee by the end of the lease term;
(b) there is a bargain purchase option;
(c) the lease term is at least 75% of the property’s estimated remaining economic life; or
(d) the present value of the minimum lease payments at the beginning of the lease term is 90% or more of the fair value of the leased property to the lessor at the inception date, less any
related investment tax credit retained by the lessor and expected to be realized. This criterion is not applicable if 75% or more of the leased asset’s estimated economic life has elapsed as
of the beginning of the lease term.
A capital lease is accounted for as if there was an acquisition of an asset and an incurrence of an obligation at the inception of the lease. All other leases are accounted for as operating leases
wherein rental payments are expensed as incurred.
The Group had no capital leases for any of the years presented.
Foreign Currency
The Group’s consolidated financial statements are presented in RMB, which is also the parent company’s functional currency. For each entity, the Group determines the functional currency
and items included in the financial statements of each entity are measured using that functional currency.
The local currency is the functional currency for the operations in mainland China and Hong Kong. For these operations, assets and liabilities are translated at the rates of exchange on the
consolidated balance sheet date, while income and expense items are translated at average rates of exchange during the period. The resulting gains and losses arising from the translation of
accounts from the functional currency into RMB are included as a separate component of shareholders’ equity in accumulated other comprehensive income until a partial or complete
liquidation of the Group’s net investment in the foreign operation.
Subsidiaries may enter into transactions that are denominated in a currency other than the Group’s functional currency. These transactions are initially recorded in the functional currency of
the subsidiary based on the applicable exchange rate in effect on the date of the transaction. On a monthly basis, these transactions are remeasured to an equivalent amount of the functional
currency based on the applicable exchange rate in effect on the measurement date. Any adjustment required to remeasure a transaction to the equivalent amount of functional currency is
recorded in the consolidated statements of operations of foreign subsidiary as a component of foreign exchange gain or loss.
Foreign currency transaction gains and losses resulting from the measurement of long-term intercompany loans or capital reserves denominated in currencies other than a subsidiary’s
functional currency are recognized as a component of accumulated other comprehensive income if a repayment of these loans is not anticipated. Foreign currency transaction gains and losses
on the measurement of short-term intercompany loans denominated in currencies other than a subsidiary’s functional currency are recognized as a component of non-operating income.
F- 107
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Current and deferred income tax
China Merchants Americold Logistics Company Limited
Notes to Consolidated Financial Statements (Continued)
The tax expense for the period comprises current and deferred tax. Tax is recognized in the consolidated statements of comprehensive loss, except to the extent that it relates to items
recognized in other comprehensive loss or directly in equity.
Deferred tax
Deferred income tax is recognized, using the liability approach, on temporary differences arising on the initial recognition of an acquired assets or liabilities. If the amount paid when
acquiring a single-asset differs from its tax basis, the consideration paid is allocated between the asset and deferred tax effect. In this case, a simultaneous equation is used to determine the
amount of the deferred tax and the value of the asset acquired.
Deferred income tax is determined using tax rate (and laws) that have been enacted by the end of the reporting period date and are expected to apply when the related deferred income tax
asset is realized or the deferred income tax liability is settled.
Deferred tax assets are recognized in full and a valuation allowance is separately recognized to the extent it is more likely than not that the deferred tax asset will not be realized.
The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to
recover or settle the carrying amount of its assets and liabilities.
Uncertain tax positions
The Group applies ASC 740, Accounting
for
Income
Taxes
, to account for uncertainty in income taxes. ASC 740 prescribes a recognition threshold a tax position is required to meet before
being recognized in the financial statements. The Group has recorded unrecognized tax benefits in the other non-current liabilities line item in the accompanying consolidated balance sheets.
The Group has elected to classify interest and penalties related to unrecognized tax benefits, if and when required, as part of “income tax expense”, in the consolidated statements of
comprehensive loss.
The Group’s estimated liability for unrecognized tax benefits and the related interest and penalties are periodically assessed for adequacy and may be affected by changing interpretations of
laws, rulings by tax authorities, changes and/or developments with respect to tax audits, and expiration of the statute of limitations. The actual benefits ultimately realized may differ from the
Group’s estimates. As each audit is concluded, adjustments, if any, are recorded in the Group’s consolidated financial statements. Additionally, in future periods, changes in facts and
circumstances, and new information may require the Group to adjust the recognition and measurement estimates with regard to individual tax positions. Changes in recognition and
measurement estimates are recognized in the period in which they occur.
F- 108
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Comprehensive Income (Loss)
China Merchants Americold Logistics Company Limited
Notes to Consolidated Financial Statements (Continued)
Comprehensive income (loss) is defined as the change in equity of the Group during a period from transactions and other events and circumstances excluding transactions resulting from
investments from owners and distributions to owners. Accumulated other comprehensive income, as presented on the consolidated balance sheets, includes the cumulative foreign currency
translation adjustments.
Contingencies
The Group records accruals for certain of its outstanding legal proceedings or claims when it is probable that a liability will be incurred and the amount of loss can be reasonably estimated.
The Group evaluates, developments in legal proceedings or claims that could affect the amount of any accrual, as well as any developments that would make a loss contingency both probable
and reasonably estimable. The Group discloses the amount of the accrual if it is material.
When a loss contingency is not both probable and estimable, the Group does not record an accrued liability but discloses the nature and the amount of the claim, if material. However, if the
loss (or an additional loss in excess of the accrual) is at least reasonably possible, then the Group discloses an estimate of the loss or range of loss, if such estimate can be made and material,
or states that such estimate is immaterial if it can be estimated but immaterial, or discloses that an estimate cannot be made. The assessments of whether a loss is probable or reasonably
possible, and whether the loss or a range of loss is estimable, often involve complex judgments about future events. Management is often unable to estimate the loss or a range of loss,
particularly where (i) the damages sought are indeterminate, (ii) the proceedings are in the early stages, or (iii) there is a lack of clear or consistent interpretation of laws specific to the
industry-specific complaints among different jurisdictions. In such cases, there is considerable uncertainty regarding the timing or ultimate resolution of such matters, including eventual loss,
fine, penalty or business impact, if any.
Assets Retirement Obligation
The Group incurs retirement obligations for certain assets. The fair values of these obligations are recorded as liabilities on a discounted basis, which is typically at the time the assets are
installed. The costs associated with these liabilities are capitalized as part of the related assets and depreciated. Over time, the liabilities are accreted for the change in their present value under
operating expenses.
F- 109
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Fair Value of Financial Instruments
China Merchants Americold Logistics Company Limited
Notes to Consolidated Financial Statements (Continued)
Financial instrument of the Group primarily includes cash and cash equivalents, accounts receivable, short-term loans, long-term loans, amounts due to a related party, amounts due from a
related party, and certain accrued liabilities and other current liabilities. As of December 31, 2017 and 2016, the carrying values of these financial instruments, other than the long-term loans,
approximated their fair values due to the short-term maturity of these instruments. The carrying values of the long-term loans approximate their fair values, as the loans bear interest at rates
determined based on the prevailing interest rates in the market.
The Group applies ASC 820 in measuring fair value. ASC 820 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements.
ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1 — Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets;
Level 2 — Include other inputs that are directly or indirectly observable in the marketplace;
Level 3 — Unobservable inputs which are supported by little or no market activity.
ASC 820 describes three main approaches to measuring the fair value of assets and liabilities: (1) Market approach; (2) Income approach and (3) Cost approach.
The market approach uses prices and other relevant information generated from market transactions involving identical or comparable assets or liabilities. The income approach uses valuation
techniques to convert future amounts to a single present value amount. The measurement is based on the value indicated by current market expectations about those future amounts. The cost
approach is based on the amount that would currently be required to replace an asset.
When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Group considers the principal or most advantageous market in
which it would transact and it considers assumptions that market participants would use when pricing the asset or liability.
Government Grants
Government grants primarily consist of financial subsidies received from provincial and local governments for operating a business in their jurisdictions and compliance with specific policies
promoted by the local governments. For certain government grants, there are no defined rules and regulations to govern the criteria necessary for companies to receive such benefits, and the
amount of financial subsidy is determined at the discretion of the relevant government authorities. The government grants of non-operating nature with no further conditions to be met are
recorded as non-operating income when received. The government grants with certain operating conditions are recorded as liabilities when received and will be recorded as operating income
when the conditions are met.
F- 110
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Employee Benefits
China Merchants Americold Logistics Company Limited
Notes to Consolidated Financial Statements (Continued)
Pension obligations
The Group participates in the employee retirement benefits plan of the respective municipal government in various places in the PRC where the Group operates. The Group is required to
make monthly contributions calculated as a percentage of the monthly payroll costs and the respective municipal government undertakes to assume the retirement benefit obligations of all
existing and future retired employees of the Group. The Group's contributions to the schemes are expensed as incurred.
Termination obligations
Termination benefits are payable when employment is terminated by the Group before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for
these benefits. The Group recognizes termination benefits when it is demonstrably committed to a termination when the entity has a detailed formal plan to terminate without possibility of
withdrawal; or providing termination benefits as a result of an offer made to encourage voluntary redundancy. Benefits falling due more than 12 months after the end of the reporting period
are discounted to present value.
F- 111
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Accounting Pronouncements Recently Adopted
China Merchants Americold Logistics Company Limited
Notes to Consolidated Financial Statements (Continued)
In July 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-11 ,
Inventory
(Topic
330)
modifying the accounting for
inventory. Under this ASU, the measurement principle for inventory changed from lower of cost or market value to lower of cost and net realizable value. The ASU defines net realizable
value as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The Group adopted this ASU on January 1,
2017 with no material impact to our consolidated financial statements.
In November 2015, the FASB issued ASU No. 2015-17, Income
Taxes
(Topic
740)
: Balance
Sheet
Classification
of
Deferred
Taxes
, which simplifies the presentation of deferred income
taxes by requiring deferred tax assets and liabilities to be classified as noncurrent on the balance sheet. The amendments in this update are effective for financial statements issued for annual
periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted. Additionally, the new guidance may be applied either prospectively
to all deferred tax liabilities and assets or retrospectively to all periods presented. The Group adopted this guidance prospectively on January 1, 2017.
In May 2014, the FASB issued ASU No. 2014-09 (“ASU 2014-09”), Revenue
from
Contracts
with
Customers
, which supersedes the revenue recognition requirements in ASC 605, Revenue
Recognition. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of the promised goods or services to customers in an amount that reflects the
consideration to which entity expects to be entitled to in exchange for goods or services. In August 2015, the FASB issued ASU No. 2015-14, Revenue
from
Contracts
with
Customers-
Deferral
of
the
effective
date
(“ASU 2015-14”). The amendments in ASU 2015-14 defer the effective date of ASU 2014-09 issued in May 2014. According to ASU 2015-14, the new revenue
guidance ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2017, and interim reporting periods within annual reporting periods beginning after December
15, 2018. Earlier application is permitted only as of an annual reporting period beginning after December 15, 2016, including interim reporting periods within that reporting period, or an
annual reporting period beginning after December 15, 2016, and interim reporting periods within annual reporting periods beginning one year after the annual reporting period in which an
entity first applies the guidance in ASU 2014-09. Even though the Group is a Public Business Entity because the Group’s financial statements are included in another entity’s SEC filing, the
Group will apply the new revenue standard beginning January 1, 2019. The Group has set up an implementation schedule and is currently in the process of analyzing each of the Group’s
revenue streams in accordance with the new revenue standard to determine the impact on the Group’s consolidated financial statements. The Group plans to continue the evaluation, analysis,
and documentation of its adoption of ASU 2014-09 (including those subsequently issued updates that clarify ASU 2014-09’s provisions) throughout 2018 as the Group works towards the
implementation and finalizes its determination of the impact that the adoption will have on its consolidated financial statements.
F- 112
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Accounting Pronouncements Not Yet Adopted
China Merchants Americold Logistics Company Limited
Notes to Consolidated Financial Statements (Continued)
In February 2016, the FASB issued ASU No. 2016-02, Leases
(Topic
842)
amending the accounting for leases. The new guidance requires the recognition of lease assets and liabilities for
operating leases with terms of more than 12 months, in addition to those currently recorded, on our consolidated balance sheets. Presentation of leases within the consolidated statements of
operations and consolidated statements of cash flows will be generally consistent with the current lease accounting guidance. The ASU is effective for reporting periods beginning after
December 15, 2018, with early adoption permitted. The Group plans to adopt this ASU beginning on January 1, 2019. The Group is currently evaluating the impact and expect the ASU will
have a material impact on our consolidated financial statements, primarily to the consolidated balance sheets and related disclosures.
In August 2016, the FASB issued ASU No. 2016-15 ,
Statement
of
Cash
Flows
(Topic
230)
-
Classification
of
Certain
Cash
Receipts
and
Cash
Payments
. This Update addresses eight
specific cash flow issues with the objective of reducing the existing diversity in practice. The amendments in this Update are effective for fiscal years beginning after December 15, 2018, and
within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. An entity that elects early adoption must adopt all of the
amendments in the same period. The amendments in this Update should be applied using a retrospective transition method to each period presented. The Group is in the process of evaluating
the impact of the Update on its consolidated financial statements.
In October 2016, the FASB issued ASU No. 2016-16, Income
Taxes
(Topic
740):
Intra-Entity
Transfers
Other
than
Inventory
, amending the accounting for income taxes. The new guidance
requires the recognition of the income tax consequences of an intercompany asset transfer, other than transfers of inventory, when the transfer occurs. For intercompany transfers of inventory,
the income tax effects will continue to be deferred until the inventory has been sold to a third party. The ASU is effective for reporting periods beginning after December 15, 2017, with early
adoption permitted. The Group does not expect adoption of the ASU on January 1, 2018 to have a material impact on our consolidated financial statements.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, amending the presentation of restricted cash within the statement of cash
flows. The new guidance requires that restricted cash be included within cash and cash equivalents on the statement of cash flows. The ASU is effective retrospectively for reporting periods
beginning after December 15, 2017, with early adoption permitted. The Group does not expect adoption of the ASU on January 1, 2018 to have a material impact on our consolidated financial
statements.
In January 2017, the FASB issued ASU No. 2017-04, Simplifying the Test for Goodwill Impairment. The guidance removes Step 2 of the goodwill impairment test, which requires a
hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of
goodwill. The guidance should be adopted on a prospective basis for the annual or any interim goodwill impairment tests beginning after December 15, 2021. Early adoption is permitted for
interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Group is currently evaluating the impact of adopting this standard on its consolidated
financial statements.
F- 113
3. RISK AND CONCENTRATION
Concentration of Credit Risk
China Merchants Americold Logistics Company Limited
Notes to Consolidated Financial Statements (Continued)
The Group’s credit risk arises from cash and cash equivalents, accounts receivables, prepayment and other current assets. The carrying amounts of these assets represent the maximum amount
of loss due to credit risk.
Under PRC law, it is generally required that a commercial bank in the PRC that holds third-party cash deposits protect the depositors’ rights over and interests in their deposited money; PRC
banks are subject to a series of risk control regulatory standards; and PRC bank regulatory authorities are empowered to take over the operation and management of any PRC bank that faces a
material credit crisis. In the event of bankruptcy of one of the financial institutions in which the Group has deposits or investments, it may be unlikely to claim its deposits or investments back
in full. The Group selected reputable financial institutions with high credit ratings to deposit its assets. The Group regularly monitors the ratings of the financial institutions in case of any
defaults. There has been no recent history of default in relation to these financial institutions.
Accounts receivable are typically unsecured and are derived from revenue earned from customers in the PRC. The risk with respect to accounts receivable is mitigated by credit evaluations
the Group performs on its customers and its ongoing monitoring of outstanding balances. The Group regularly reviews the creditworthiness of its customers, and requires collateral from its
customers in certain circumstances when accounts receivables become long overdue. The Group has no significant concentrations of credit risk with respect to its customers, as customers
usually pay in three months.
Concentration of Customers
One customer has accounted for more than 10% of net revenues in the years ended December 31, 2017, 2016 and 2015. The following table summarized the top 5 customers of the Group:
Customer
Customer A
Customer B
Customer C
Customer D
Customer E
Foreign exchange risk
2017
RMB
For the Years Ended December 31,
2016
RMB
2015
RMB
54,678,136
16,331,199
15,334,310
14,647,058
12,348,579
61,884,170
17,105,151
12,377,808
20,827,768
17,445,286
42,492,994
2,169,267
7,477,239
13,083,304
10,533,491
The Group mainly operates in the PRC with most of the transactions settled in RMB. Since the majority of the bank balances and cash in each of the Group's entities are denominated in the
functional currencies of the respective group’s entities, the directors of the Company considered that the Group has no material foreign exchange risk.
F- 114
3. RISK AND CONCENTRATION (Continued)
Fair value interest rate risk and cash flow interest rate risk
China Merchants Americold Logistics Company Limited
Notes to Consolidated Financial Statements (Continued)
The Group's interest rate risk mainly arises from interest-bearing borrowings, bank deposits, loans from a fellow subsidiary and advances to a third party. Bank borrowings issued at variable
rates as well as bank deposits expose the Group to cash flow interest rate risk whilst loans from a fellow subsidiary and advances to a third party at a fixed rate expose the Group to fair value
interest rate risk.
The Group adopts a policy of maintaining an appropriate mix of fixed and floating rate borrowings which is achieved primarily through the contractual terms of borrowings. The position is
regularly monitored and evaluated by reference of anticipated changes in market interest rate. The Group did not use any interest rate swap to hedge its interest rate risk during the year.
At December 31, 2017, the Group was not exposed to cash flow interest rate risk since there was no variable-rate bank borrowings and bank deposits.
4. CASH AND CASH EQUIVALENTS
Cash at bank and on hand
5. ACCOUNTS RECEIVABLE
Accounts receivable and the related allowance for doubtful accounts were summarized as follows:
Accounts receivable
Allowance for doubtful accounts
Accounts receivable, net
F- 115
As of December 31,
2017
RMB
2016
RMB
51,624,524
82,131,749
As of December 31,
2017
RMB
42,183,903
(441,069)
41,742,834
2016
RMB
41,827,275
(852,922)
40,974,353
China Merchants Americold Logistics Company Limited
Notes to Consolidated Financial Statements (Continued)
6.
INVENTORY, NET
Raw materials
Merchandise stocks
Inventory, net
7. PREPAYMENTS AND OTHER CURRENT ASSETS, ACCRUED EXPENSE AND OTHER LIABILITIES
Prepayments and other current assets consisted of the following:
Due from related parties
Prepayment
Others
Accrued expenses and other liabilities consisted of the following:
Due to related parties
Accrued expense
Guarantee deposit
Salary payable
Other taxes payable
Others
F- 116
As of December 31,
2017
RMB
2016
RMB
162,780
2,865,521
3,028,301
298,447
2,688,086
2,986,533
As of December 31,
2017
RMB
2016
RMB
38,388,259
8,048,543
29,289,909
75,726,711
14,161,361
27,906,090
21,672,923
63,740,374
As of December 31,
2017
RMB
2016
RMB
115,964,253
10,650,215
8,773,978
5,110,855
2,331,079
2,298,561
87,613,588
24,807,857
6,593,421
5,555,095
2,655,217
6,791,789
145,128,941
134,016,967
8. PROPERTY ,PLANT AND EQUIPMENT AND PREPAID LAND LEASE, NET
Property, plant and equipment and prepaid land lease consisted of the following:
China Merchants Americold Logistics Company Limited
Notes to Consolidated Financial Statements (Continued)
Prepaid land lease
Buildings and improvements
Machinery and equipment
Total
Less: accumulated depreciation
As of December 31,
2017
RMB
2016
RMB
6,403,105
157,232,138
67,679,437
231,314,680
(146,032,087)
6,403,105
149,620,297
67,558,298
223,581,700
(122,533,569)
85,282,593
101,048,131
Depreciation expenses were RMB26,957,072, RMB27,190,201 and RMB26,901,787 for the years ended December 31, 2017, 2016 and 2015, respectively.
9. CONSTRUCTION IN PROCESS
For the year ended December 31, 2017 and 2016, no interest expense was capitalized in the construction-in-progress balance.
January 1, 2016
Increase
Decrease
December 31, 2016
Increase
Decrease
December 31, 2017
F- 117
RMB
6,813,132
5,108,094
(11,601,681)
319,545
-
(319,545)
-
China Merchants Americold Logistics Company Limited
Notes to Consolidated Financial Statements (Continued)
10. BORROWINGS
Loans, except intergroup borrowings, consisted of the following:
Short-term loans from related parties (i)
Note
14C
As of December 31,
2017
RMB
2016
RMB
47,919,060
89,876,300
(i) As of December 31, 2017 and 2016, the short-term other borrowing bore a weighted average interest of 2.11% and 3.07% per annum, respectively.
As of December 31, 2017, the maturity profile of these borrowings are as follows:
Within one year
11. TAXATION
BVI
RMB
47,919,060
Under the current laws of the BVI, subsidiaries in BVI are not subject to tax on income or capital gains. In addition, upon payments of dividends by these companies to their shareholders, no
BVI withholding tax will be imposed.
Hong Kong
Under the Hong Kong tax laws, subsidiaries in Hong Kong are subject to the Hong Kong profits tax rate at 16.5% and they are exempted from income tax on their foreign-derived income and
there are no withholding taxes in Hong Kong on remittance of dividends.
China
The applicable rate for China entities is subject to the PRC enterprise income tax at the rate of 25% for the period since 2008, unless a preferential enterprise income tax rate is otherwise
stipulated.
Dividends paid by PRC subsidiaries of the Group out of the profits earned after December 31, 2007 to non-PRC tax resident investors would be subject to PRC withholding tax. The
withholding tax would be 10%, unless a foreign investor’s tax jurisdiction has a tax treaty with China that provides for a lower withholding tax rate and the foreign investor is qualified as a
beneficial owner under the relevant tax treaty.
In general, for circumstances not being tax evasion, the PRC tax authorities will conduct examinations of the PRC entities’ tax filings of up to five years. Accordingly, the PRC entities’ tax
years from 2012 to 2017 remain subject to examination by the tax authorities.
F- 118
11. TAXATION (Continued)
Income tax benefit comprised:
China Merchants Americold Logistics Company Limited
Notes to Consolidated Financial Statements (Continued)
Deferred tax benefit
-
-
85,350
Reconciliation between the amount of income tax expenses and the amount computed by applying the statutory tax rate to income before income taxes was as follows:
2017
RMB
For the Years Ended December 31,
2016
RMB
2015
RMB
Loss before tax
Income tax at applicable tax rate of 25%
Non-deductible expenses
Unrecognized tax benefits
Different tax rates of subsidiaries operating in other jurisdiction
Tax losses utilized from previous periods
Others
The components of deferred taxes were as follows:
Deferred tax assets
- Asset retirement obligation
- Taxable loss
- Less, valuation allowance
Total deferred tax assets – net
Deferred tax liabilities
Business combination
Total deferred tax liabilities
Deferred tax liabilities, net*
2017
RMB
For the Years Ended December 31,
2016
RMB
2015
RMB
16,746,645
4,186,661
(1,341,818)
(3,318,533)
(1,402,325)
1,876,015
-
17,893,827
4,473,457
(2,817,575)
(1,918,383)
(213,805)
378,630
97,676
27,877,856
6,969,464
(1,197,520)
(6,078,565)
(151,096)
83,204
459,863
-
-
85,350
As of December 31,
2017
RMB
2016
RMB
3,484,923
5,585,002
(7,325,148)
3,202,413
19,042,085
(20,360,042)
1,744,777
1,884,456
1,744,777
1,744,777
-
1,884,456
1,844,456
-
*As at December 31, 2017 and 2016, deferred tax assets of RMB1,744,777 and RMB1,884,456 have been offset against deferred tax liabilities.
F- 119
China Merchants Americold Logistics Company Limited
Notes to Consolidated Financial Statements (Continued)
11. TAXATION (Continued)
The operating loss carryforwards will expire as follows:
2018
2019
2020
12. ACCUMULATED OTHER COMPREHENSIVE INCOME
Balance as of December 31, 2014
Other comprehensive income
Balance as of December 31, 2015
Other comprehensive income
Balance as of December 31, 2016
Other comprehensive income
Balance as of December 31, 2017
F- 120
As of December 31
2017
RMB
5,169,809
9,060,331
8,109,871
22,340,011
Foreign currency translation
adjustments
RMB
33,372,043
603,081
33,975,124
353,387
34,328,511
320,408
34,648,919
China Merchants Americold Logistics Company Limited
Notes to Consolidated Financial Statements (Continued)
2017
RMB
For the Years Ended December 31,
2016
RMB
2015
RMB
-
-
99,959
99,959
514,000
(13,874)
218,586
718,712
1,840,075
(1,298,372)
183,611
725,314
13. OTHER OPERATING INCOME - NET
Government grants
Compensation expenses
Other gains
Total
14. RELATED PARTY TRANSACTIONS
A. Related Parties
No.
Name of Related Parties
Relationship with the Group
1
2
3
4
5
6
7
8
9
10
11
12
13
14
China Merchants Group Limited
Smart Ally Holdings Limited
Americold Logistics Hong Kong Limited
Americold Realty Trust
China International Marine Containers (Group) Limited
China Merchants (Shenzhen) Import Commodity Company Limited
China Merchants Americold (Hong Kong) Holdings Company Limited
China Merchants Capital Management Company Limited
China Merchants China Investment Management Company Limited
China Merchants Cold Chain Logistics (Hong Kong) Company Limited
China Merchants Container Services Company Limited
China Merchants Group Financial Company Limited
China Merchants Haitong Trade Company Limited
China Merchants International Cold Chain (Shenzhen) Company Limited
The ultimate holding company
The immediate holding company
Shareholder of the Group
Shareholder of the Group
A company controlled by the same ultimate controlling party
A company controlled by the same ultimate controlling party
A company controlled by the same ultimate controlling party
A company controlled by the same ultimate controlling party
A company controlled by the same ultimate controlling party
A company controlled by the same ultimate controlling party
A company controlled by the same ultimate controlling party
A company controlled by the same ultimate controlling party
A company controlled by the same ultimate controlling party
A company controlled by the same ultimate controlling party
F- 121
14. RELATED PARTY TRANSACTIONS (Continued)
China Merchants Americold Logistics Company Limited
Notes to Consolidated Financial Statements (Continued)
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
China Merchants Logistics Group Chengdu Company Limited
China Merchants Logistics Group Hubei Company Limited
China Merchants Logistics Holding Company Limited
China Merchants Logistics Holding Guangzhou Company Limited
China Merchants Logistics Holding Tianjin Company Limited
China Merchants Logistics Holding Zhengzhou Company Limited
China Merchants Logistics Shenzhen Company Limited
China Merchants Loscam (Hong Kong) Company Limited
China Merchants Port Service (Shenzhen) Company Limited
China Merchants Property Development Company Limited
China Merchants Shekou Holdings Company Limited
China Merchants Shipping Enterprise Company Limited
China Merchants Steam Navigation Company Limited
Chiwan Container Terminal Company Limited
Kang Xin Logistics (Harbin) Company Limited
Loscam Packaging Equipment Leasing (Shanghai) Company Limited
Qingdao Beer Merchants Logistics Company Limited
Rich Products Tianjin Company Limited
Shekou Container Terminals Company Limited
Shenzhen Hikeen Projects Management Company Limited
United Merchant (Beijing) Food Company Limited
Sinotrans Shanghai Cold Chain Logistics Company Limited
Sinotrans Shandong Company Limited Weihai Branch
Sinotrans Changjiang Company Limited Suzhou Branch
F- 122
A company controlled by the same ultimate controlling party
A company controlled by the same ultimate controlling party
A company controlled by the same ultimate controlling party
A company controlled by the same ultimate controlling party
A company controlled by the same ultimate controlling party
A company controlled by the same ultimate controlling party
A company controlled by the same ultimate controlling party
A company controlled by the same ultimate controlling party
A company controlled by the same ultimate controlling party
A company controlled by the same ultimate controlling party
A company controlled by the same ultimate controlling party
A company controlled by the same ultimate controlling party
A company controlled by the same ultimate controlling party
A company controlled by the same ultimate controlling party
A company controlled by the same ultimate controlling party
A company controlled by the same ultimate controlling party
A company controlled by the same ultimate controlling party
A company controlled by the same ultimate controlling party
A company controlled by the same ultimate controlling party
A company controlled by the same ultimate controlling party
A company controlled by the same ultimate controlling party
A company controlled by the same ultimate controlling party
A company controlled by the same ultimate controlling party
A company controlled by the same ultimate controlling party
China Merchants Americold Logistics Company Limited
Notes to Consolidated Financial Statements (Continued)
14. RELATED PARTY TRANSACTIONS (Continued)
B. Related Party Transactions
The Group had the following related party transactions for the years ended December 31, 2017, 2016 and 2015:
Transportation revenues
- China Merchants Logistics Holding Guangzhou Company Limited
- Sinotrans Shanghai Cold Chain Logistics Company Limited
- China Merchants Logistics Holding Tianjin Company Limited
- China Merchants Logistics Group Hubei Company Limited
- Sinotrans Changjiang Company Limited Suzhou Branch
- China Merchants Logistics Group Chengdu Company Limited
- Qingdao Beer Merchants Logistics Company Limited
2017
RMB
For the Years Ended December 31,
2016
RMB
2015
RMB
1,070,899
929,561
562,645
509,927
140,408
127,266
46,847
3,387,553
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
F- 123
14. RELATED PARTY TRANSACTIONS (Continued)
B. Related Party Transactions
China Merchants Americold Logistics Company Limited
Notes to Consolidated Financial Statements (Continued)
Other revenues
- China Merchants International Cold Chain (Shenzhen) Company Limited
- Kang Xin Logistics (Harbin) Company Limited
- China Merchants (Shenzhen) Import Commodity Company Limited
- China Merchants Shekou Holdings Company Limited
- China Merchants Logistics Group Hubei Company Limited
- China Merchants Logistics Holding Company Limited
- China Merchants Logistics Group Chengdu Company Limited
- China Merchants Port Service (Shenzhen) Company Limited
- United Merchant (Beijing) Food Company Limited
- China Merchants China Investment Management Company Limited
- China International Marine Containers (Group) Limited
- Shekou Container Terminals Company Limited
- China Merchants Property Development Company Limited
- Chiwan Container Terminal Company Limited
- China Merchants Group Limited
- Shenzhen Hikeen Projects Management Company Limited
- China Merchants Capital Management Company Limited
- Others
2017
RMB
For the Years Ended December 31,
2016
RMB
2015
RMB
12,037,736
800,000
503,137
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
13,340,873
2,400,000
1,200,000
198,238
3,968,132
197,683
173,063
135,484
111,590
85,472
-
-
-
-
-
-
-
-
-
8,469,662
947,729
2,400,000
1,296,306
-
-
109,997
-
76,821
1,736,083
388,099
153,231
125,492
56,872
53,979
35,884
34,990
12,779
24,200
7,452,462
F- 124
14. RELATED PARTY TRANSACTIONS (Continued)
B. Related Party Transactions
China Merchants Americold Logistics Company Limited
Notes to Consolidated Financial Statements (Continued)
Warehouse service costs
- China Merchants Logistics Holding Zhengzhou Company Limited
- Rich Products Tianjin Company Limited
- Loscam Packaging Equipment Leasing (Shanghai) Company Limited
- China Merchants International Cold Chain (Shenzhen) Company Limited
- China Merchants Loscam (Hong Kong) Company Limited
- China Merchants Logistics Holding Tianjin Company Limited
- China Merchants Container Services Company Limited
- China Merchants Logistics Group Hubei Company Limited
Transportation service costs
- Sinotrans Shandong Company Limited Weihai Branch
- Sinotrans Shanghai Cold Chain Logistics Company Limited
2017
RMB
For the Years Ended December 31,
2016
RMB
2015
RMB
4,439,858
4,387,368
2,092,760
1,757,888
365,048
176,681
78,169
-
13,297,772
216,486
57,604
274,090
4,249,900
2,704,988
35,388
1,838,990
411,882
-
35,388
22,620
9,299,156
-
-
-
3,221,106
-
-
2,078,042
387,195
-
1,752,850
-
7,439,193
-
-
-
F- 125
14. RELATED PARTY TRANSACTIONS (Continued)
B. Related Party Transactions
China Merchants Americold Logistics Company Limited
Notes to Consolidated Financial Statements (Continued)
General and administrative expenses
- China Merchants Logistics Holding Company Limited
- China Merchants Logistics Shenzhen Company Limited
- China Merchants Group Financial Company Limited
Interest expenses
- China Merchants Steam Navigation Company Limited
- China Merchants Logistics Holding Company Limited
- China Merchants Shipping Enterprise Company Limited
Interest income
- China Merchants Group Financial Company Limited
Gain on disposal of property, plant and equipment
- China Merchants International Cold Chain (Shenzhen) Company Limited
F- 126
2017
RMB
For the Years Ended December 31,
2016
RMB
2015
RMB
5,266,112
800,000
3,774
6,069,886
1,301,425
920,750
434,367
2,656,542
83,088
286,771
5,390,579
809,730
-
6,200,309
2,617,151
702,726
47,628
3,367,505
-
-
2,744,032
-
-
2,744,032
2,552,795
767,478
-
3,320,273
-
-
China Merchants Americold Logistics Company Limited
Notes to Consolidated Financial Statements (Continued)
14. RELATED PARTY TRANSACTIONS (Continued)
C. Related Party Balances
The Group had the following related party balances as of December 31, 2017 and 2016:
Loans from related parties:
- China Merchants Shipping Enterprise Company Limited
- China Merchants Logistics Holding Company Limited
- China Merchants Steam Navigation Company Limited
Accounts receivable from related parties:
- China Merchants Logistics Holding Tianjin Company Limited
- Sinotrans Shanghai Cold Chain Logistics Company Limited
- China Merchants Logistics Holding Guangzhou Company Limited
- China Merchants Logistics Group Hubei Company Limited
- China Merchants Logistics Group Chengdu Company Limited
Prepayment and other current assets from related parties:
- Rich Products Tianjin Company Limited
- Kang Xin Logistics (Harbin) Company Limited
- China Merchants Americold (Hong Kong) Holdings Company Limited
- China merchants Logistics Holding Zhengzhou Company Limited
- China Merchants Cold Chain Logistics (Hong Kong) Company Limited
As of December 31,
2017
RMB
2016
RMB
27,919,060
20,000,000
-
47,919,060
315,788
128,132
113,504
95,006
-
652,430
29,680,985
5,237,628
2,861,508
606,527
1,611
29,876,300
-
60,000,000
89,876,300
-
-
-
-
135,483
135,483
8,947,663
2,769,137
2,196,713
246,126
1,722
38,388,259
14,161,361
F- 127
14. RELATED PARTY TRANSACTIONS (Continued)
C. Related Party Balances
China Merchants Americold Logistics Company Limited
Notes to Consolidated Financial Statements (Continued)
Accounts payable to related parties:
- Sinotrans Shandong Company Limited Weihai Branch
- China Merchants Logistics Holding Zhengzhou Company Limited
- China Merchants Loscam (Hong Kong) Company Limited
- Sinotrans Shanghai Cold Chain Logistics Company Limited
- China Merchants Logistics Holding Tianjin Company Limited
- China Merchants Container Services Company Limited
- China Merchants Logistics Holding Company Limited
- Loscam Packaging Equipment Leasing (Shanghai) Company Limited
- China Merchants Haitong Trade Company Limited.
Accrued expenses and other liabilities to related parties:
- China Merchants International Cold Chain (Shenzhen) Company Limited
- China Merchants Logistics Holding Company Limited
- China Merchants Americold (Hong Kong) Holdings Company Limited
- Loscam Packaging Equipment Leasing (Shanghai) Company Limited
- Shenzhen Hikeen Projects Management Company Limited
- China Merchants Shipping Enterprise Company Limited
- Kang Xin Logistics (Harbin) Company Limited
- China Merchants (Shenzhen) Import Commodity Company Limited
F- 128
As of December 31,
2017
RMB
2016
RMB
119,300
93,454
75,439
33,060
24,729
15,096
4,774
6,334
-
372,186
85,460,219
22,575,697
7,548,627
314,811
30,000
34,899
-
-
115,964,253
-
-
105,087
-
-
-
987,400
-
973,880
2,066,367
65,010,624
17,662,550
-
312,760
-
-
4,340,000
287,654
87,613,588
15. RESTRICTED NET ASSETS
China Merchants Americold Logistics Company Limited
Notes to Consolidated Financial Statements (Continued)
The Company’s ability to pay dividends is primarily dependent on the Company receiving distributions of funds from its subsidiaries. Relevant PRC statutory laws and regulations permit
payments of dividends by the Group’s PRC subsidiaries only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. The results of
operations reflected in the financial statements prepared in accordance with U.S. GAAP differ from those reflected in the statutory financial statements of the Company’s subsidiaries.
In accordance with the PRC Regulations on Enterprises with Foreign Investment and their articles of association, a foreign invested enterprise established in the PRC is required to provide
certain statutory reserves, namely general reserve fund, the enterprise expansion fund and staff welfare and bonus fund which are appropriated from net profit as reported in the enterprise’s
PRC statutory accounts. A foreign invested enterprise is required to allocate at least 10% of its annual after-tax profit to the general reserve until such reserve has reached 50% of its respective
registered capital based on the enterprise’s PRC statutory accounts. Appropriations to the enterprise expansion fund and staff welfare and bonus fund are at the discretion of the board of
directors. The aforementioned reserves can only be used for specific purposes and are not distributable as cash dividends. Additionally, in accordance with the company law of the PRC, a
domestic enterprise is required to provide at least 10% of its annual after-tax profit to the statutory common reserve until such reserve has reached 50% of its respective registered capital
based on the enterprise’s PRC statutory accounts. A domestic enterprise is also required to provide discretionary surplus reserve, at the discretion of the board of directors, from the profits
determined in accordance with the enterprise’s PRC statutory accounts.
As a result of these PRC laws and regulations that require annual appropriations of 10% of after-tax income to be set aside prior to payment of dividends as general reserve fund, the
Company’s PRC subsidiaries are restricted in their ability to transfer a portion of their net assets to the Company.
In addition, foreign exchange and other regulation in the PRC may further restrict the Company’s PRC subsidiaries from transferring funds to the Company in the form of dividends, loans and
advances. The amount of net assets restricted was RMB8,487,086 as of December 31, 2017.
F- 129
China Merchants Americold Logistics Company Limited
Notes to Consolidated Financial Statements (Continued)
16. EMPLOYEE DEFINED CONTRIBUTION PLAN
Full time employees of the Group in the PRC participate in a government mandated defined contribution plan, pursuant to which certain pension benefits, medical care, employee housing
fund and other welfare benefits are provided to employees. Chinese labor regulations require that the PRC subsidiaries of the Group make contributions to the government for these benefits
based on certain percentages of the employees’ salaries. The Group has no legal obligation for the benefits beyond the contributions made. The total amounts for such employee benefits,
which were expensed as incurred, were RMB6,069,654, RMB6,752,994 and RMB8,219,474 for the years ended December 31, 2017, 2016 and 2015, respectively.
17. COMMITMENTS AND CONTINGENCIES
Operating lease commitments
As of December 31, 2017, the Group had future minimum lease payments under non-cancellable operating leases with initial terms in excess of one year as follows:
2018
2019
2020
2021
2022 and thereafter
RMB
45,793,871
31,049,564
22,891,458
23,850,752
24,926,795
148,512,440
Payments under operating leases are expensed on a straight-line basis over the periods of their respective leases. The terms of the leases do not contain material rent escalation clauses or
contingent rents. For the years ended December 31, 2017, 2016 and 2015, total rental expenses for all operating leases amounted to RMB64,986,569, RMB65,875,801 and RMB67,364,346,
respectively.
18. SUBSEQUENT EVENTS
The subsequent events have been evaluated through March 10, 2018, the date the financial statements were issued.
F- 130
CHINA MERCHANTS AMERICOLD HOLDINGS COMPANY LIMITED
Report of Independent Auditors
The Board of China Merchants Americold Holdings Company Limited and Subsidiaries:
We have audited the accompanying consolidated financial statements of China Merchants Americold Holdings Company Limited, which comprise the consolidated balance sheets as of December
31, 2017 and 2016, and the related consolidated statements of comprehensive income (loss), consolidated statements of shareholders’ equity and consolidated statements of cash flows for each of
the three years in the periods ended December 31, 2017, and the related notes to the consolidated financial statements.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in conformity with U.S. generally accepted accounting principles; this includes the design,
implementation and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free of material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United
States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment,
including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control
relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies
used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of China Merchants Americold Holdings Company Limited at
December 31, 2017 and 2016, and the consolidated results of their operations and their cash flows for each of the three years in the periods ended December 31, 2017 in conformity with U.S.
generally accepted accounting principles.
/s/ Ernst & Young Hua Ming LLP
Shenzhen, the People’s Republic of China
March 10, 2018
F- 131
China Merchants Americold Holdings Company Limited
Consolidated Balance Sheets
Assets
Cash and cash equivalents
Accounts receivable – net
(including RMB7,511 and nil due from related parties)
Notes receivable – net
Inventory – net
Prepayment and other current assets
(including RMB93,771,823 and RMB74,818,233 due from related parties)
Total current assets
Property, plant and equipment and prepaid land lease – net
Construction in process
Goodwill
Intangible assets – net
Deferred tax assets
Total non-current assets
Total assets
F- 132
Note
2017
2016
As of December 31,
(In
RMB)
4
5
6
7
8
9
10
11
5,950,981
7,159,482
10,497,844
1,250,000
-
10,417,431
-
26,325
98,225,962
83,934,077
115,924,787
101,537,315
159,780,522
15,349,264
2,236,012
162,596
4,398,228
104,647,887
68,115,417
2,236,012
233,890
4,613,296
181,926,622
179,846,502
297,851,409
281,383,817
China Merchants Americold Holdings Company Limited
Consolidated Balance Sheets (Continued)
Liabilities and shareholders’ equity
Liabilities:
Accounts payable
(including RMB733,281 and nil due to related parties)
Short-term loans
(including loans from related parties of RMB30,000,000 and RMB50,000,000)
Accrued expenses and other liabilities
(including RMB74,063,079 and RMB17,917,116 due to related parties)
Total current liabilities
Long-term loans
Other non-current liabilities
Total non-current liabilities
Total liabilities
Shareholders’ equity:
Share capital
- Ordinary shares
(US$1 par value, 50,000 shares authorized, 10,000 issued and outstanding as of December 31, 2017 and 2016)
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive income
Non-controlling interest
Total shareholders’ equity
Total liabilities and shareholders’ equity
F- 133
Note
2017
2016
As of December 31,
(In
RMB)
12
7
12
13
3,972,292
2,015,388
30,000,000
53,250,000
88,271,898
27,379,659
122,244,190
82,645,047
-
11,311,769
21,474,723
11,786,020
11,311,769
33,260,743
133,555,959
115,905,790
6,773
214,907,072
(84,884,824)
17,300,731
16,965,698
6,773
214,907,072
(83,255,819)
17,651,715
16,168,286
164,295,450
165,478,027
297,851,409
281,383,817
China Merchants Americold Holdings Company Limited
Consolidated Statements of Comprehensive Income (Loss)
2017
For the Years Ended December 31,
2016
(In
RMB)
2015
Note
Revenues
Warehouse service revenues
(including RMB7,097,448, RMB5,473,773 and RMB3,084,829, respectively from related parties)
Transportation service revenues
Other revenues
61,669,593
11,225,577
54,469,385
3,202,889
42,729,621
4,273,787
(including nil, nil and RMB823,739, respectively from related parties)
10,168,005
4,019,630
5,127,574
Total revenues
Costs of revenues
Warehouse service costs
(including RMB8,698,567, RMB6,579,460 and RMB11,727,851, respectively to related parties)
Transportation service costs
Costs of other revenues
Total costs of revenues
Operating (expenses) income
General and administrative expenses
83,063,175
61,691,904
52,130,982
(40,299,408)
(10,637,161)
(9,761,362)
(36,558,998)
(2,972,238)
(1,890,714)
(34,382,630)
(3,824,895)
(2,861,574)
(60,697,931)
(41,421,950)
(41,069,099)
(including RMB14,240,802, RMB3,999,528 and RMB3,690,787, respectively to related parties)
Other operating income (expense) – net
Total operating expenses
14
(20,757,155)
516,172
(10,733,810)
672,777
(10,383,926)
(151,513 )
(20,240,983)
(10,061,033)
(10,535,439)
F- 134
China Merchants Americold Holdings Company Limited
Consolidated Statements of Comprehensive Income (Loss) (Continued)
Note
2017
For the Years Ended December 31,
2016
(In
RMB)
2015
Other (expense) income
Interest expense
(including RMB2,153,266, RMB2,180,959 and RMB2,186,041, respectively to related parties)
Foreign exchange (loss) gain
(Loss) gain from disposal of properties
Interest income
(2,243,635)
(1,013,275)
(36,710)
(2,267,105)
1,027,052
(31,170)
(2,346,448)
(684,708)
5,387,834
(including RMB4,848, RMB17,291,669 and nil, respectively from related parties)
26,122
17,366,997
66,749
Total other (expense) income
(Loss) profit before income tax
Income tax expense
Net (loss) profit
(3,267,498)
16,095,774
2,423,427
(1,143,237)
26,304,695
2,949,871
11
(854,447)
(594,689)
(404,740)
(1,997,684)
25,710,006
2,545,131
Less: net (loss) profit attributable to non-controlling interest
(368,679)
7,187,994
1,242,853
Net (loss) profit attributable to shareholders of China Merchants Americold Holdings
Company Limited
Other comprehensive income (loss) - net of tax
(1,629,005)
18,522,012
1,302,278
Change in unrealized gains (losses) on foreign currency
815,107
(770,978)
(1,195,844)
Total other comprehensive income (loss) - net of tax
815,107
(770,978)
(1,195,844)
Total comprehensive (loss) income
(1,182,577)
24,939,028
1,349,287
Less: comprehensive income attributable to non-controlling interest
797,411
6,058,078
155,987
Comprehensive (loss) income attributable to shareholders of China Merchants Americold
Holdings Company Limited
(1,979,988)
18,880,950
1,193,300
F- 135
China Merchants Americold Holdings Company Limited
Consolidated Statements of Shareholders’ Equity
China Merchants Americold Holdings Company Limited’s Equity
(In RMB)
Share
Capital
Additional paid-in capital
Accumulated deficit
Accumulated
other
comprehensive income
(loss)
Total
Non-controlling
interests
Total equity
6,773
206,577,072
Balance - January 1, 2015
Profit for the year
Other comprehensive loss
Capital contribution from shareholders
Balance - December 31, 2015
Profit for the year
Other comprehensive income (loss)
Balance - December 31, 2016
Loss for the year
Other comprehensive (loss) income
Balance - December 31, 2017
-
-
-
6,773
-
-
6,773
-
-
6,773
-
-
8,330,000
214,907,072
-
-
214,907,072
-
-
(103,080,109)
1,302,278
-
-
(101,777,831)
18,522,012
-
(83,255,819)
(1,629,005)
-
214,907,072
(84,884,824)
F- 136
17,401,754
120,905,490
-
(108,977)
-
17,292,777
-
358,938
17,651,715
-
(350,984)
17,300,731
1,302,278
(108,977)
8,330,000
130,428,791
18,522,012
358,938
149,309,741
(1,629,005)
(350,984)
147,329,752
9,954,222
1,242,853
(1,086,867)
-
10,110,208
7,187,994
(1,129,916)
16,168,286
(368,679)
1,166,091
16,965,698
130,859,712
2,545,131
(1,195,844)
8,330,000
140,538,999
25,710,006
(770,978)
165,478,027
(1,997,684)
815,107
164,295,450
China Merchants Americold Holdings Company Limited
Consolidated Statements of Cash Flows
Note
2017
For the Years Ended December 31,
2016
(In
RMB)
2015
Operating activities:
Net (loss) profit
Adjustments to reconcile net (loss) profit to net cash provided (used in) by operating activities:
Allowances for doubtful debts
Depreciation and amortization
Loss (gain) on disposal of properties
Foreign exchange loss (gain)
Deferred tax expense
Changes in operating assets and liabilities:
Decrease (increase) in inventories
(Increase) decrease in accounts receivable
Increase in prepayment and other current assets
Decrease in other non-current assets
Increase (decrease) in accounts payable
Increase (decrease) in accrued expenses and other liabilities
(Decrease) increase in other non-current liabilities
(1,997,684)
25,710,006
2,545,131
10,741
12,880,579
36,710
1,013,275
215,068
26,325
(1,321,668)
(14,311,370)
-
1,956,904
60,699,622
(474,251)
70,730
13,130,918
31,170
(1,027,052)
476,741
(26,325)
(2,486,057)
(62,227,989)
31,389,100
1,009,090
(1,086,537)
7,749,474
79,765
11,320,688
(5,387,834)
684,708
404,740
-
163,718
(17,289,515)
-
(153,847)
(4,196,945)
(2,483,615)
Net cash provided (used in) by operating activities
58,734,251
12,713,269
(14,313,006)
Investing activities:
Proceeds from sales of property, plant and equipment
Purchase of property, plant and equipment
Net cash used in investing activities
Financing activities:
Cash receipts from shareholder’s contribution
Proceeds from borrowings
Repayments for borrowings
Net cash (used in) provided by financing activities
564,524
(15,777,000)
2,850,192
(15,876,590)
7,120,659
(21,389,028)
(15,212,476)
(13,026,398)
(14,268,369)
-
50,000,000
(94,724,723)
(44,724,723)
-
-
(2,650,000)
(2,650,000)
8,330,000
77,374,723
(50,000,000)
35,704,723
F- 137
China Merchants Americold Holdings Company Limited
Consolidated Statements of Cash Flows (Continued)
Note
2017
For the Years Ended December 31,
2016
(In
RMB)
2015
(1,202,948)
(5,553)
(2,963,129)
16,490
7,123,348
19,877
7,159,482
10,106,121
2,962,896
5,950,981
7,159,482
10,106,121
4
4
(835,221)
(3,703,420)
(117,948)
(3,181,363)
-
(2,258,181)
F- 138
Net (decrease) increase in cash and cash equivalents
Effect of foreign currency translation on cash and cash equivalents
Cash and cash equivalents:
Beginning of period
End of period
Supplemental disclosures of cash flows information:
Income tax paid
Interest paid
China Merchants Americold Holdings Company Limited
Notes to Consolidated Financial Statements
December 31, 2017, 2016 AND 2015
1. ORGANIZATION
The Company
China Merchants Americold Holdings Company Limited (the “Company”) was incorporated as a limited liability company incorporated under the laws of British Virgin Islands (“BVI”) on
January 20, 2010. The principal activities of the Company and its subsidiaries (collectively referred to as the “Group”) are provision of cold chain transportation and warehousing services in
the People’s Republic of China (“PRC”).
The immediate holding company is Smart Ally Holdings Limited, a limited liability company incorporated in BVI and the ultimate holding company is China Merchants Group Limited, a
state-owned enterprise registered in the PRC.
The address of the registered office of the Company is P. O. Box 957, Offshore Incorporations Centre, Road Town, Tortola and British Virgin Islands.
Details of the Company’s subsidiaries at December 31, 2017 and December 31, 2016 were as follows:
Company
Share capital/Paid in
capital
Place of
establishment
Percentage of ownership
by
the Company
Principal activities
Asia Zone Investment Limited
US$1
BVI
100%
Investment holding
China Merchants Americold (Hong Kong) Holdings Company
Limited
HK$1
Hong Kong
100%
Investment holding
China Merchants Cold Chain Logistics (China) Company Limited
US$1000
BVI
70%
Investment holding
China Merchants Cold Chain Logistics (Hong Kong) Company
Limited
HK$1
Hong Kong
China Merchants International Cold Chain (Shenzhen) Company
Limited (“CMIC”)
US$5,000,000
Kangxin Logistics (Harbin) Co.,Ltd.
(“KXL Harbin”)
Rich Products Tianjin Co.,Ltd
(“Rich”)
US$8,450,000
US$5,000,000
PRC
PRC
PRC
There consolidated financial statements are presented in Renminbi (“RMB”), unless otherwise stated.
F- 139
70%
70%
100%
100%
Provision of cold chain transportation and
warehousing services, PRC
Provision of cold chain transportation and
warehousing services, PRC
Provision of cold chain transportation and
warehousing services, PRC
Provision of cold chain transportation and
warehousing services, PRC
1. ORGANIZATION (Continued)
Ownership
China Merchants Americold Holdings Company Limited
Notes to Consolidated Financial Statements (Continued)
As of December 31, 2017, the Company’s shareholders are Smart Ally Holdings Limited and Americold Realty Hong Kong Limited, which owns 51% and 49% of the Company’s shares,
respectively.
The ultimate holding company of Smart Ally Holdings Limited and Americold Realty Hong Kong Limited are China Merchants Group Limited and Americold Realty Trust, respectively.
Business and Industry Information
The Group has a large national presence in temperature-controlled warehousing business in mainland China. The Company directly or through certain subsidiaries, provides supply chain
management solutions to food and wine manufacturers and retailers who require multi-temperature storage, handing, and distribution capability for their products. Service offerings include:
(i) rental, storage and warehouse services; (ii) transportation services; (iii) sale of goods; (iv) custom agent service.
The Company, through its subsidiaries, operates several temperature-controlled warehouses located in Shenzhen, Harbin and Tianjin, China.
The Group is headquartered in Shenzhen, China, and had approximately 122 employees as of December 31, 2017.
F- 140
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
China Merchants Americold Holdings Company Limited
Notes to Consolidated Financial Statements (Continued)
The accompanying consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”).
The Group experienced a net loss of RMB1,997,684 for the year ended December 31, 2017 and at December 31, 2017, the Group had net current liabilities as RMB6,319,403. China
Merchants Logistics Holding Co., Ltd, the entity controlled by the same ultimate controlling party, has confirmed its intention to provide continuing financial support so as to enable the
Company both to meet its liabilities as they fall due and to carry on its business without a significant curtailment of operations. Therefore, the consolidated financial statements were prepared
on a going concern basis. The accompanying consolidated financial statements do not reflect any adjustments relating to the recoverability and reclassification of assets and liabilities as that
might be necessary if the Group is unable to continue as a going concern.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany balances and transactions have been eliminated in
consolidation.
Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues, and expenses and the disclosure of contingent assets and liabilities. Significant estimates and assumptions reflected in the Company’s consolidated financial statements
include, but are not limited to, allowance for doubtful accounts, impairment of goodwill and long-lived assets, useful lives of property, plant and equipment and intangible assets, realization of
deferred tax assets, asset retirement obligations and contingencies. Actual results could differ from those estimates.
F- 141
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Property, Plant and Equipment and Prepaid Land Lease
China Merchants Americold Holdings Company Limited
Notes to Consolidated Financial Statements (Continued)
Property, plant and equipment and prepaid land lease are stated at cost, less accumulated depreciation. Depreciation is computed on a straight-line basis over the estimated useful lives of the
respective assets. Useful lives range are as follows:
Items
Prepaid land lease
Buildings and improvements
- Warehouse building and improvements
- Other buildings and improvements
Machinery and equipment
- Goods shelves
- Other machinery and equipment
50 years
20-30 years
20-30 years
5-20 years
3-5 years
Periodically reviews are in place for the appropriateness of the estimated useful lives of its long-lived assets.
Interest and other costs on borrowings to finance the construction of property, plant and equipment are capitalized during the period of time that is required to complete and prepare the asset
for its intended use.
Cost of normal maintenance and repairs and minor replacements are charged to expense as incurred. When assets are sold or otherwise disposed of, the cost and related accumulated
depreciation are removed, and any resulting gain or loss is included in the “gain (loss) from disposal of properties” line on the accompanying consolidated statements of comprehensive
income (loss).
Construction in progress represents buildings and related premises under construction, which is stated at actual construction cost less any impairment loss. Construction in progress is
transferred to the respective category of property and equipment when completed and ready for its intended use.
Other Intangible Assets
Other intangible assets represent computer software with useful lives of 5 to 10 years, and are derecognized on disposal, or when no future economic benefits are expected from use or
disposal. Gains or losses arising from derecognition of other intangible assets are measured at the difference between the net disposal proceeds and the carrying amount of the asset and are
recognized in consolidated statements of comprehensive income (loss) in the period when the asset is derecognized.
Impairment of Long-Lived Assets Other than Goodwill
The Group reviews its long-lived assets for impairment when events or changes in circumstances (such as decreases in operating income and declines in occupancy) indicate that the carrying
amounts may not be recoverable. A comparison is made of the expected future operating cash flows of the long-lived assets on an undiscounted basis to their carrying amounts. If the carrying
amounts of the long-lived assets exceed the sum of the expected future undiscounted cash flows, an impairment charge is recognized in an amount equal to the excess of the carrying amount
over the estimated fair value of the long-lived assets. The Group determined that individual warehouse properties constitute the lowest level of independent cash flows for purposes of
considering possible impairment.
F- 142
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Goodwill
China Merchants Americold Holdings Company Limited
Notes to Consolidated Financial Statements (Continued)
The Group evaluates the carrying value of goodwill each year as of October 1 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. When evaluating whether goodwill is impaired, the Group compares the fair value of its reporting units to its carrying amounts,
including goodwill. The Group estimates the fair value of its reporting units based upon a combination of the net present value of future cash flows. Future cash flows are estimated based upon
varying economic assumptions. Significant assumptions are revenue growth rates, costs, operating expenses and capital expenditure. The assumptions are based on risk-adjusted growth rates
and discount factors accommodating conservative viewpoints that consider the full range of variability contemplated in the current and potential future economic situations.
If the estimated fair value of each of the reporting units exceeds the corresponding carrying value, no impairment of goodwill exists. If a reporting unit’s carrying amount exceeds its fair value,
and impairment loss would be calculated by comparing the implied fair value of goodwill to the reporting unit’s carrying amount. The excess of the fair value of the reporting unit over the
amount assigned for fair value to its other assets and liabilities is the implied fair value of goodwill.
There were no impairment losses recognized in 2017, 2016 and 2015.
Cash and Cash Equivalents
Cash and cash equivalents primarily consist of cash, demand deposit, and time deposits with original maturities of three months or less from the date of purchase.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivables are recorded at the invoiced amount and do not bear interest. The Group considers many factors in assessing the collectability of its receivables, such as the age of the
amounts due, the customer’s payment history and credit-worthiness. An allowance for doubtful accounts is recorded in the period in which a loss is determined to be probable. Accounts
receivable balances are written off after all collection efforts have been exhausted.
Inventories
Inventories are stated at the lower of cost or net realizable value. Cost of inventory is determined using the weighted average cost method. Adjustments are recorded to write down the cost of
inventory to the estimated net realizable value of slow-moving merchandise and damaged goods, depending upon factors such as historical and forecasted consumer demand, and promotional
environment. The Group takes ownership, risks and rewards of the products purchased. Write downs are recorded in cost of revenues in the consolidated statements of comprehensive income
(loss).
F- 143
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Revenue Recognition
China Merchants Americold Holdings Company Limited
Notes to Consolidated Financial Statements (Continued)
Revenue for the Group includes storage and warehouse service (collectively, “Warehouse Revenue”), transportation services (“Transportation Revenue”), sales of products and revenue from
custom agent service (collectively, “Other revenue”).
The Group recognizes revenue in accordance with ASC topic 605 (“ASC 605”), Revenue Recognition. Revenue is recognized when the following four revenue recognition criteria are met: (i)
persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been provided, (iii) the selling price is fixed or determinable, and (iv) collectability is reasonably
assured.
Warehouse Revenue
Rent, storage and warehouse services revenue are recognized as services are provided. Customers may be charged in advance. Storage revenue is initially deferred and recognized ratably over
the storage period. Warehouse services revenue is recognized as services are performed.
Transportation Revenue
The Company and its subsidiaries record transportation revenue and expenses upon delivery of the product. As the principal in the arrangement of transportation services for the customers,
revenues and expenses are presented on the gross basis.
Other Revenue
Other Revenue primarily include the sales of products which are recognized when the goods are delivered to the customers, and custom agent service which are recognized when service are
provided to the customers.
Leases
Leases are classified at the inception date as either a capital lease or an operating lease. A lease is a capital lease if any of the following conditions exists:
(a) transfer of ownership. The title to the leased property is transferred to the lessee by the end of the lease term;
(b) there is a bargain purchase option;
(c) the lease term is at least 75% of the property’s estimated remaining economic life; or
(d) the present value of the minimum lease payments at the beginning of the lease term is 90% or more of the fair value of the leased property to the lessor at the inception date, less any
related investment tax credit retained by the lessor and expected to be realized. This criterion is not applicable if 75% or more of the leased asset’s estimated economic life has elapsed as of
the beginning of the lease term.
A capital lease is accounted for as if there was an acquisition of an asset and an incurrence of an obligation at the inception of the lease. All other leases are accounted for as operating leases
wherein rental payments are expensed as incurred.
The Group had no capital leases for any of the years presented.
F- 144
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Foreign Currency
China Merchants Americold Holdings Company Limited
Notes to Consolidated Financial Statements (Continued)
The Group’s consolidated financial statements are presented in RMB, which is also the parent company’s functional currency. For each entity, the Group determines the functional currency
and items included in the financial statements of each entity are measured using that functional currency.
The local currency is the functional currency for the operations in mainland China and Hong Kong. For these operations, assets and liabilities are translated at the rates of exchange on the
consolidated balance sheet date, while income and expense items are translated at average rates of exchange during the period. The resulting gains and losses arising from the translation of
accounts from the functional currency into RMB are included as a separate component of shareholders’ equity in accumulated other comprehensive income (loss) until a partial or complete
liquidation of the Group’s net investment in the foreign operation.
Subsidiaries may enter into transactions that are denominated in a currency other than the Group’s functional currency. These transactions are initially recorded in the functional currency of
the subsidiary based on the applicable exchange rate in effect on the date of the transaction. On a monthly basis, these transactions are remeasured to an equivalent amount of the functional
currency based on the applicable exchange rate in effect on the measurement date. Any adjustment required to remeasure a transaction to the equivalent amount of functional currency is
recorded in the consolidated statements of operations of foreign subsidiary as a component of foreign exchange gain or loss.
Foreign currency transaction gains and losses resulting from the measurement of long-term intercompany loans denominated in currencies other than a subsidiary’s functional currency are
recognized as a component of accumulated other comprehensive income (loss) if a repayment of these loans is not anticipated. Foreign currency transaction gains and losses on the
measurement of short-term intercompany loans denominated in currencies other than a subsidiary’s functional currency are recognized as a component of non-operating income (expense).
Current and Deferred Income Tax
The tax expense for the period comprises current and deferred tax. Tax is recognized in the consolidated statements of comprehensive income (loss), except to the extent that it relates to items
recognized in other comprehensive income (loss) or directly in equity.
F- 145
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Current and Deferred Income Tax (Continued)
China Merchants Americold Holdings Company Limited
Notes to Consolidated Financial Statements (Continued)
Deferred tax
Deferred income tax is recognized, using the liability approach, on temporary differences arising on the initial recognition of an acquired assets or liabilities. If the amount paid when
acquiring a single-asset differs from its tax basis, the consideration paid is allocated between the asset and deferred tax effect. In this case, a simultaneous equation is used to determine the
amount of the deferred tax and the value of the asset acquired.
Deferred income tax is determined using tax rate (and laws) that have been enacted by the end of the reporting period date and are expected to apply when the related deferred income tax
asset is realized or the deferred income tax liability is settled.
Deferred tax assets are recognized in full and a valuation allowance is separately recognized to the extent it is more likely than not that the deferred tax asset will not be realized.
The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to
recover or settle the carrying amount of its assets and liabilities.
Uncertain tax positions
The Group applies ASC 740, Accounting
for
Income
Taxes
, to account for uncertainty in income taxes. ASC 740 prescribes a recognition threshold a tax position is required to meet before
being recognized in the financial statements. The Group has recorded unrecognized tax benefits in the other non-current liabilities line item in the accompanying consolidated balance sheets.
The Group has elected to classify interest and penalties related to unrecognized tax benefits, if and when required, as part of “income tax expense”, in the consolidated statements of
comprehensive income (loss).
The Group’s estimated liability for unrecognized tax benefits and the related interest and penalties are periodically assessed for adequacy and may be affected by changing interpretations of
laws, rulings by tax authorities, changes and/or developments with respect to tax audits, and expiration of the statute of limitations. The actual benefits ultimately realized may differ from the
Group’s estimates. As each audit is concluded, adjustments, if any, are recorded in the Group’s consolidated financial statements. Additionally, in future periods, changes in facts and
circumstances, and new information may require the Group to adjust the recognition and measurement estimates with regard to individual tax positions. Changes in recognition and
measurement estimates are recognized in the period in which they occur.
Comprehensive Income (Loss)
Comprehensive income (loss) is defined as the change in equity of the Group during a period from transactions and other events and circumstances excluding transactions resulting from
investments from owners and distributions to owners. Accumulated other comprehensive income, as presented on the consolidated balance sheets, includes the cumulative foreign currency
translation adjustments.
F- 146
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Contingencies
China Merchants Americold Holdings Company Limited
Notes to Consolidated Financial Statements (Continued)
The Group records accruals for certain of its outstanding legal proceedings or claims when it is probable that a liability will be incurred and the amount of loss can be reasonably estimated.
The Group evaluates developments in legal proceedings or claims that could affect the amount of any accrual, as well as any developments that would make a loss contingency both probable
and reasonably estimable. The Group discloses the amount of the accrual if it is material.
When a loss contingency is not both probable and estimable, the Group does not record an accrued liability but discloses the nature and the amount of the claim, if material. However, if the
loss (or an additional loss in excess of the accrual) is at least reasonably possible, then the Group discloses an estimate of the loss or range of loss, if such estimate can be made and material,
or states that such estimate is immaterial if it can be estimated but immaterial, or discloses that an estimate cannot be made. The assessments of whether a loss is probable or reasonably
possible, and whether the loss or a range of loss is estimable, often involve complex judgments about future events. Management is often unable to estimate the loss or a range of loss,
particularly where (i) the damages sought are indeterminate, (ii) the proceedings are in the early stages, or (iii) there is a lack of clear or consistent interpretation of laws specific to the
industry-specific complaints among different jurisdictions. In such cases, there is considerable uncertainty regarding the timing or ultimate resolution of such matters, including eventual loss,
fine, penalty or business impact, if any.
Assets Retirement Obligation
The Group incurs retirement obligations for certain assets. The fair values of these obligations are recorded as liabilities on a discounted basis, which is typically at the time the assets are
installed. The costs associated with these liabilities are capitalized as part of the related assets and depreciated. Over time, the liabilities are accreted for the change in their present value under
operating expenses.
Fair Value of Financial Instruments
Financial instrument of the Group primarily includes cash, accounts receivables, short-term loans, long-term loans, amounts due to a related party, amounts due from a related party, and
certain accrued liabilities and other current liabilities. As of December 31, 2017 and 2016, the carrying values of these financial instruments, other than the long-term loans, approximated
their fair values due to the short-term maturity of these instruments. The carrying values of the long-term loans approximate their fair values, as the loans bear interest at rates determined
based on the prevailing interest rates in the market.
The Group applies ASC 820 in measuring fair value. ASC 820 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements.
ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1 — Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets;
Level 2 — Include other inputs that are directly or indirectly observable in the marketplace;
Level 3 — Unobservable inputs which are supported by little or no market activity.
ASC 820 describes three main approaches to measuring the fair value of assets and liabilities: (1) Market approach; (2) Income approach and (3) Cost approach.
F- 147
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Fair Value of Financial Instruments (Continued)
China Merchants Americold Holdings Company Limited
Notes to Consolidated Financial Statements (Continued)
The market approach uses prices and other relevant information generated from market transactions involving identical or comparable assets or liabilities. The income approach uses valuation
techniques to convert future amounts to a single present value amount. The measurement is based on the value indicated by current market expectations about those future amounts. The cost
approach is based on the amount that would currently be required to replace an asset.
When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Group considers the principal or most advantageous market in
which it would transact and it considers assumptions that market participants would use when pricing the asset or liability.
Government Grants
Government grants primarily consist of financial subsidies received from provincial and local governments for operating a business in their jurisdictions and compliance with specific policies
promoted by the local governments. For certain government grants, there are no defined rules and regulations to govern the criteria necessary for companies to receive such benefits, and the
amount of financial subsidy is determined at the discretion of the relevant government authorities. The government grants of non-operating nature with no further conditions to be met are
recorded as non-operating income when received. The government grants with certain operating conditions are recorded as liabilities when received and will be recorded as operating income
when the conditions are met.
Employee Benefits
Pension obligations
The Group participates in the employee retirement benefits plan of the respective municipal government in various places in the PRC where the Group operates. The Group is required to
make monthly contributions calculated as a percentage of the monthly payroll costs and the respective municipal government undertakes to assume the retirement benefit obligations of all
existing and future retired employees of the Group. The Group's contributions to the schemes are expensed as incurred.
Termination obligations
Termination benefits are payable when employment is terminated by the Group before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for
these benefits. The Group recognizes termination benefits when it is demonstrably committed to a termination when the entity has a detailed formal plan to terminate without possibility of
withdrawal; or providing termination benefits as a result of an offer made to encourage voluntary redundancy. Benefits falling due more than 12 months after the end of the reporting period
are discounted to present value.
F- 148
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Accounting Pronouncements Recently Adopted
China Merchants Americold Holdings Company Limited
Notes to Consolidated Financial Statements (Continued)
In July 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-11, Inventory
(Topic
330)
modifying the accounting for inventory.
Under this ASU, the measurement principle for inventory changed from lower of cost or market value to lower of cost and net realizable value. The ASU defines net realizable value as the
estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The Group adopted this ASU on January 1, 2017 with
no material impact to our consolidated financial statements.
In November 2015, the FASB issued ASU No. 2015-17, Income
Taxes
(Topic
740):
Balance
Sheet
Classification
of
Deferred
Taxes
, which simplifies the presentation of deferred income
taxes by requiring deferred tax assets and liabilities to be classified as noncurrent on the balance sheet. The amendments in this update are effective for financial statements issued for annual
periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted. Additionally, the new guidance may be applied either prospectively
to all deferred tax liabilities and assets or retrospectively to all periods presented. The Group adopted this guidance retrospectively on January 1, 2017.
In May 2014, the FASB issued ASU No. 2014-09 (“ASU 2014-09”), Revenue
from
Contracts
with
Customers
, which supersedes the revenue recognition requirements in ASC 605, Revenue
Recognition
. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of the promised goods or services to customers in an amount that reflects the
consideration to which entity expects to be entitled to in exchange for goods or services. In August 2015, the FASB issued ASU No. 2015-14, Revenue
from
Contracts
with
Customers-
Deferral
of
the
effective
date
(“ASU 2015-14”). The amendments in ASU 2015-14 defer the effective date of ASU 2014-09 issued in May 2014. According to ASU 2015-14, the new revenue
guidance ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2017, and interim reporting periods within annual reporting periods beginning after December
15, 2018. Earlier application is permitted only as of an annual reporting period beginning after December 15, 2016, including interim reporting periods within that reporting period, or an
annual reporting period beginning after December 15, 2016, and interim reporting periods within annual reporting periods beginning one year after the annual reporting period in which an
entity first applies the guidance in ASU 2014-09. Even though the Group is a Public Business Entity because the Group’s financial statements are included in another entity’s SEC filing, the
Group will apply the new revenue standard beginning January 1, 2019. The Group has set up an implementation schedule and is currently in the process of analyzing each of the Group’s
revenue streams in accordance with the new revenue standard to determine the impact on the Group’s consolidated financial statements. The Group plans to continue the evaluation, analysis,
and documentation of its adoption of ASU 2014-09 (including those subsequently issued updates that clarify ASU 2014-09’s provisions) throughout 2018 as the Group works towards the
implementation and finalizes its determination of the impact that the adoption will have on its consolidated financial statements.
F- 149
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Accounting Pronouncements Not Yet Adopted
China Merchants Americold Holdings Company Limited
Notes to Consolidated Financial Statements (Continued)
In February 2016, the FASB issued ASU No. 2016-02, Leases
(Topic
842)
amending the accounting for leases. The new guidance requires the recognition of lease assets and liabilities for
operating leases with terms of more than 12 months, in addition to those currently recorded, on our consolidated balance sheets. Presentation of leases within the consolidated statements of
operations and consolidated statements of cash flows will be generally consistent with the current lease accounting guidance. The ASU is effective for reporting periods beginning after
December 15, 2018, with early adoption permitted. The Group plans to adopt this ASU beginning on January 1, 2019. The Group is currently evaluating the impact and expect the ASU will
have a material impact on our consolidated financial statements, primarily to the consolidated balance sheets and related disclosures.
In August 2016, the FASB issued ASU No. 2016-15, Statement
of
Cash
Flows
(Topic
230)
-
Classification
of
Certain
Cash
Receipts
and
Cash
Payments
. This Update addresses eight
specific cash flow issues with the objective of reducing the existing diversity in practice. The amendments in this Update are effective for fiscal years beginning after December 15, 2018, and
within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. An entity that elects early adoption must adopt all of the
amendments in the same period. The amendments in this Update should be applied using a retrospective transition method to each period presented. The Group is in the process of evaluating
the impact of the Update on its consolidated financial statements.
In October 2016, the FASB issued ASU No. 2016-16, Income
Taxes
(Topic
740):
Intra-Entity
Transfers
Other
than
Inventory,
amending the accounting for income taxes. The new guidance
requires the recognition of the income tax consequences of an intercompany asset transfer, other than transfers of inventory, when the transfer occurs. For intercompany transfers of inventory,
the income tax effects will continue to be deferred until the inventory has been sold to a third party. The ASU is effective for reporting periods beginning after December 15, 2017, with early
adoption permitted. The Group does not expect adoption of the ASU on January 1, 2018 to have a material impact on our consolidated financial statements.
In November 2016, the FASB issued ASU No. 2016-18, Statement
of
Cash
Flows
(Topic
230):
Restricted
Cash
, amending the presentation of restricted cash within the statement of cash
flows. The new guidance requires that restricted cash be included within cash and cash equivalents on the statement of cash flows. The ASU is effective retrospectively for reporting periods
beginning after December 15, 2017, with early adoption permitted. The Group does not expect adoption of the ASU on January 1, 2018 to have a material impact on our consolidated financial
statements.
In January 2017, the FASB issued ASU No. 2017-04, Simplifying
the
Test
for
Goodwill
Impairment.
The guidance removes Step 2 of the goodwill impairment test, which requires a
hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of
goodwill. The guidance should be adopted on a prospective basis for the annual or any interim goodwill impairment tests beginning after December 15, 2021. Early adoption is permitted for
interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Group is currently evaluating the impact of adopting this standard on its consolidated
financial statements.
F- 150
3. RISK AND CONCENTRATION
Concentration of Credit Risk
China Merchants Americold Holdings Company Limited
Notes to Consolidated Financial Statements (Continued)
The Group’s credit risk arises from cash and cash equivalents, accounts receivables, note receivable, prepayment and other current assets. The carrying amounts of these assets represent the
maximum amount of loss due to credit risk.
Under PRC law, it is generally required that a commercial bank in the PRC that holds third-party cash deposits protect the depositors’ rights over and interests in their deposited money; PRC
banks are subject to a series of risk control regulatory standards; and PRC bank regulatory authorities are empowered to take over the operation and management of any PRC bank that faces a
material credit crisis. In the event of bankruptcy of one of the financial institutions in which the Group has deposits or investments, it may be unlikely to claim its deposits or investments back
in full. The Group selected reputable financial institutions with high credit ratings to deposit its assets. The Group regularly monitors the ratings of the financial institutions in case of any
defaults. There has been no recent history of default in relation to these financial institutions.
Accounts receivables are typically unsecured and are derived from revenue earned from customers in the PRC. The risk with respect to accounts receivables is mitigated by credit evaluations
the Group performs on its customers and its ongoing monitoring of outstanding balances. The Group regularly reviews the creditworthiness of its customers, and requires collateral from its
customers in certain circumstances when accounts receivables become long overdue. The Group has no significant concentrations of credit risk with respect to its customers, as customers
usually pay in three months.
Concentration of Customers
The number of customers who have accounted for more than 10% of net revenues in the years ended December 31, 2017, 2016 and 2015 are nil, one, and two, respectively. The following
table summarized the top 5 customers of the Group:
Customer
Customer A
Customer B
Customer C
Customer D
Customer E
2017
RMB
For the Years Ended December 31,
2016
RMB
2015
RMB
6,570,338
5,061,532
3,794,025
3,076,494
2,968,335
6,029,640
4,279,050
7,639,955
3,054,228
4,348,661
5,595,827
3,809,225
6,896,634
2,170,532
1,139,028
Concentration of Foreign Exchange Risk
The Group mainly operates in the PRC with most of the transactions settled in RMB. Since the majority of the bank balances and cash in each of the Group's entities are denominated in the
functional currencies of the respective group’s entities, the directors of the Company considered that the Group has no material foreign exchange risk.
F- 151
3. RISK AND CONCENTRATION (Continued)
Concentration of Fair Value Interest Rate Risk and Cash Flow Interest Rate Risk
China Merchants Americold Holdings Company Limited
Notes to Consolidated Financial Statements (Continued)
The Group's interest rate risk mainly arises from interest-bearing borrowings, loan from a fellow subsidiary and bank deposits. Bank borrowings issued at variable rates as well as bank
deposits expose the Group to cash flow interest rate risk whilst loan from a fellow subsidiary at a fixed rate expose the Group to fair value interest rate risk.
The Group adopts a policy of maintaining an appropriate mix of fixed and floating rate borrowings which is achieved primarily through the contractual terms of borrowings. The position is
regularly monitored and evaluated by reference of anticipated changes in market interest rate. The Group did not use any interest rate swap to hedge its interest rate risk during the years.
At December 31, 2017, the Group was not exposed to cash flow interest rate risk since there was no variable-rate bank borrowings and bank deposits.
4. CASH AND CASH EQUIVALENTS
Cash at bank and on hand
5. ACCOUNTS RECEIVABLE
Accounts receivable and the related allowance for doubtful accounts were summarized as follows:
Accounts receivable
Allowance for doubtful accounts
Accounts receivable, net
6. NOTES RECEIVABLE
Notes receivable was summarized as follows:
As of December 31,
2016
RMB
5,950,981
7,159,482
As of December 31,
2016
RMB
2017
RMB
2017
RMB
11,930,962
(1,433,118)
11,859,294
(1,441,863)
10,497,844
10,417,431
As of December 31,
2017
RMB
2016
RMB
Notes receivable
1,250,000
-
F- 152
7. PREPAYMENTS AND OTHER CURRENT ASSETS, ACCRUED EXPENSE AND OTHER LIABILITIES
Prepayments and other current assets consisted of the following:
China Merchants Americold Holdings Company Limited
Notes to Consolidated Financial Statements (Continued)
Due from related parties
Prepayment
Others
Accrued expense and other liabilities consisted of the following:
Due to related parties
Construction payable
Advance from customers
Other taxes payable
Payroll and welfare benefit
Others
8. PROPERTY, PLANT AND EQUIPMENT AND PREPAID LAND LEASE, NET
Property, plant and equipment and prepaid land lease consisted of the following:
Prepaid land lease
Buildings and improvements
Machinery and equipment
Total
Less: accumulated depreciation
As of December 31,
93,771,823
673,381
3,780,758
98,225,962
As of December 31,
2017
RMB
2017
RMB
2016
RMB
2016
RMB
74,063,079
8,525,443
1,450,560
1,247,494
1,153,886
1,831,436
88,271,898
74,818,233
2,442,348
6,673,496
83,934,077
17,917,116
3,095,230
1,434,581
1,472,242
988,950
2,471,540
27,379,659
As of December 31,
2017
RMB
2016
RMB
14,587,329
181,691,497
76,326,373
272,605,199
(112,824,677)
159,780,522
14,587,329
121,311,386
64,664,108
200,562,823
(95,914,936)
104,647,887
Depreciation expenses were RMB12,809,285, RMB13,059,639 and RMB11,249,408 for the years ended December 31, 2017, 2016 and 2015, respectively.
F- 153
9. CONSTRUCTION IN PROCESS
For the years ended December 31, 2017 and 2016, RMB168,265 and RMB 1,304,308 of interest expenses were capitalized in the construction-in-progress balance.
China Merchants Americold Holdings Company Limited
Notes to Consolidated Financial Statements (Continued)
January 1, 2016
Increase
Decrease
December 31, 2016
Increase
Decrease
December 31, 2017
10. INTANGIBLE ASSETS, NET
Intangible assets, net at January 1,2016
Amortization expense
Intangible assets, net at December 31,2016
Amortization expense
Intangible assets, net at December 31,2017
At December 31,2017
Intangible assets, cost
Less: accumulated amortization
Intangible assets, net at December 31,2017
RMB
69,899,437
5,088,960
(6,872,980)
68,115,417
6,517,967
(59,284,120)
15,349,264
Computer Software
RMB
305,169
(71,279)
233,890
(71,294)
162,596
508,897
(346,301)
162,596
Amortization expenses for intangibles were RMB71,294, RMB71,279 and RMB71,280 for the years ended December 31, 2017, 2016 and 2015, respectively. The estimated annual
amortization expenses for the above intangible assets for each of the five succeeding years are as follows:
2018
2019
2020
2021
2022
F- 154
Amortization
RMB
64,554
30,500
30,500
25,666
10,500
11. TAXATION
BVI
China Merchants Americold Holdings Company Limited
Notes to Consolidated Financial Statements (Continued)
Under the current laws of the BVI, subsidiaries in BVI are not subject to tax on income or capital gains. In addition, upon payments of dividends by these companies to their shareholders, no
BVI withholding tax will be imposed.
Hong Kong
Under the Hong Kong tax laws, subsidiaries in Hong Kong are subject to the Hong Kong profits tax rate at 16.5% and they are exempted from income tax on their foreign-derived income and
there are no withholding taxes in Hong Kong on remittance of dividends. No provision for Hong Kong profits tax has been made in the financial statements as the subsidiaries in Hong Kong
have no assessable profits for the three years ended December 31, 2017.
China
The applicable rate for China entities is subject to the PRC enterprise income tax at the rate of 25% for the period since 2008, unless a preferential enterprise income tax rate is otherwise
stipulated. In 2017, a PRC entity is entitled to the preferential income tax rate of 15% as Shenzhen Qianhai and Hong Kong modern service cooperation zone enterprise.
Dividends paid by PRC subsidiaries of the Group out of the profits earned after December 31, 2007 to non-PRC tax resident investors would be subject to PRC withholding tax. The
withholding tax would be 10%, unless a foreign investor’s tax jurisdiction has a tax treaty with China that provides for a lower withholding tax rate and the foreign investor is qualified as a
beneficial owner under the relevant tax treaty.
In general, for circumstances not being tax evasion, the PRC tax authorities will conduct examinations of the PRC entities’ tax filings of up to five years. Accordingly, the PRC entities’ tax
years from 2012 to 2017 remain subject to examination by the tax authorities.
Income tax expenses comprised:
Current tax expense
Deferred tax expense
2017
RMB
For the Years Ended December 31,
2016
RMB
2015
RMB
639,379
215,068
854,447
117,948
476,741
594,689
-
404,740
404,740
F- 155
11. TAXATION (continued)
Reconciliation between the amount of income tax expenses and the amount computed by applying the statutory tax rate to income before income taxes was as follows:
China Merchants Americold Holdings Company Limited
Notes to Consolidated Financial Statements (Continued)
(Loss) profit before income tax
Income tax at applicable tax rate of 25%
Non-deductible expenses
Unrecognized tax benefits from loss
Different tax rates of subsidiaries operating in other jurisdiction or lower tax rate enacted by
local authority
Effect on opening deferred tax of decrease in rates
Tax losses utilized from previous periods
Others
The components of deferred taxes were as follows:
2017
RMB
For the Years Ended December 31,
2016
RMB
2015
RMB
(1,143,237)
(285,809)
1,957,038
-
258,716
118,684
(1,202,358)
8,176
854,447
26,304,695
6,576,174
1,106,307
-
(53,673)
-
(6,992,873)
(41,246)
594,689
2,949,871
737,468
82,387
330,628
157,825
-
(911,744)
8,176
404,740
Deferred tax assets
- Property, plant and equipment impairment
- Assets retirement obligation
- Government grant of Harbin
- Taxable loss
- Less, valuation allowance
Total deferred tax assets - net
Deferred tax liabilities, non-current
- Business combination
Total deferred tax liabilities
Deferred tax assets, net*
Deferred tax liabilities, net*
*As at December 31, 2017 and 2016, deferred tax assets of RMB503,810 and RMB560,933 have been offset against deferred tax liabilities.
F- 156
As of December 31,
2017
RMB
2016
RMB
4,174,882
204,079
523,077
394,397
(394,397)
4,902,038
503,810
503,810
4,398,228
-
4,473,089
296,710
404,430
6,337,642
(6,337,642)
5,174,229
560,933
560,933
4,613,296
-
China Merchants Americold Holdings Company Limited
Notes to Consolidated Financial Statements (Continued)
11. TAXATION (continued)
The operating loss carryforwards will expire as follows:
2018
2019
2020
2021
12. BORROWINGS
Loans, except intergroup borrowings, consisted of the following:
Total bank and other borrowings
Comprised of:
- Short-term loans from related parties (i)
- Long-term loans, current portion (ii)
Long-term loans, non-current portion (ii)
As of December 31,
2017
RMB
93,665
1,006,809
97,047
380,067
1,577,588
Note
2017
RMB
2016
RMB
As of December 31,
16C
30,000,000
30,000,000
-
30,000,000
-
30,000,000
74,724,723
50,000,000
3,250,000
53,250,000
21,474,723
74,724,723
(i) The loan of RMB50,000,000 as of December 31 2016 was paid off in 2017. The loan of RMB30,000,000 will be repayable on June 29, 2018. As at December 31, 2017 and 2016, the short-
term other borrowing bore interest at the rate of 4.35% per annum, respectively.
(ii) The long-term loans, including RMB3,250,000 reclassified to short-term loans, outstanding as of December 31, 2016 represents RMB denominated bank borrowings of RMB24,724,723,
obtained from financial institutions in PRC, which would be due in 2024, and are secured by land use right, plant and construction in process, and guaranteed by KXL Harbin. The long term
loans were paid off in advance in 2017. As at December 31, 2016, the long-term bank borrowings bore interest at the rate of 5.42%.
As of December 31, 2017, the maturity profile of other borrowing is as follows:
Within one year
F- 157
RMB
30,000,000
13. ACCUMULATED OTHER COMPREHENSIVE INCOME
China Merchants Americold Holdings Company Limited
Notes to Consolidated Financial Statements (Continued)
Balance as of December 31, 2014
Other comprehensive loss
Balance as of December 31, 2015
Other comprehensive income
Balance as of December 31, 2016
Other comprehensive loss
Balance as of December 31, 2017
14. OTHER OPERATING INCOME (EXPENSE), NET
Government grants
Other (expense) income
Foreign currency
translation adjustments
RMB
17,401,754
(108,977)
17,292,777
358,938
17,651,715
(350,984)
17,300,731
2017
RMB
For the Years Ended December 31,
2016
RMB
2015
RMB
612,417
(96,245)
516,172
548,940
123,837
672,777
133,615
(285,128)
(151,513)
F- 158
15. RESTRICTED NET ASSETS
China Merchants Americold Holdings Company Limited
Notes to Consolidated Financial Statements (Continued)
The Company’s ability to pay dividends is primarily dependent on the Company receiving distributions of funds from its subsidiaries. Relevant PRC statutory laws and regulations permit
payments of dividends by the Group’s PRC subsidiaries only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. The results of
operations reflected in the financial statements prepared in accordance with U.S. GAAP differ from those reflected in the statutory financial statements of the Company’s subsidiaries.
In accordance with the PRC Regulations on Enterprises with Foreign Investment and their articles of association, a foreign invested enterprise established in the PRC is required to provide
certain statutory reserves, namely general reserve fund, the enterprise expansion fund and staff welfare and bonus fund which are appropriated from net profit as reported in the enterprise’s
PRC statutory accounts. A foreign invested enterprise is required to allocate at least 10% of its annual after-tax profit to the general reserve until such reserve has reached 50% of its respective
registered capital based on the enterprise’s PRC statutory accounts. Appropriations to the enterprise expansion fund and staff welfare and bonus fund are at the discretion of the board of
directors. The aforementioned reserves can only be used for specific purposes and are not distributable as cash dividends. Additionally, in accordance with the company law of the PRC, a
domestic enterprise is required to provide at least 10% of its annual after-tax profit to the statutory common reserve until such reserve has reached 50% of its respective registered capital
based on the enterprise’s PRC statutory accounts. A domestic enterprise is also required to provide discretionary surplus reserve, at the discretion of the board of directors, from the profits
determined in accordance with the enterprise’s PRC statutory accounts.
As a result of these PRC laws and regulations that require annual appropriations of 10% of after-tax income to be set aside prior to payment of dividends as general reserve fund, the
Company’s PRC subsidiaries are restricted in their ability to transfer a portion of their net assets to the Company.
In addition, foreign exchange and other regulation in the PRC may further restrict the Company’s PRC subsidiaries from transferring funds to the Company in the form of dividends, loans and
advances. The amount of net assets restricted was RMB3,171,219 as of December 31, 2017.
F- 159
16. RELATED PARTY TRANSACTIONS
A. Related Parties
No.
Name of Related Parties
China Merchants Group Limited
Smart Ally Holdings Limited
Americold Realty Hong Kong Limited
Americold Realty Trust
China Merchants Americold Holdings Company Limited
Notes to Consolidated Financial Statements (Continued)
Relationship with the Group
The ultimate holding company
The immediate holding company
Shareholder of the Group
Shareholder of the Group
China Merchants Americold (Shenzhen) Supply Chain Company Limited
A company controlled by the same ultimate controlling party
China Merchants Americold Logistics (Hong Kong) Company Limited
A company controlled by the same ultimate controlling party
China Merchants Americold Logistics (Zhengzhou) Company Limited
China Merchants Bonded Logistics Company Limited
China Merchants Group Financial Company Limited
A company controlled by the same ultimate controlling party
A company controlled by the same ultimate controlling party
A company controlled by the same ultimate controlling party
China Merchants Holdings (International) Information Technology Company Limited
A company controlled by the same ultimate controlling party
China Merchants Logistics (Shenzhen) Company Limited
China Merchants Logistics Holding Company Limited
China Merchants Port Service (Shenzhen) Company Limited
China Merchants Shekou Industrial Zone Holdings Company Limited
China Merchants (Shenzhen) Power Supply Company Limited
China Merchants Steam Navigation Company Limited
Kang Xin Logistics (Tianjin) Company Limited
Loscam Packaging Equipment Leasing (Shanghai) Company Limited
Shenzhen Chiwan Freight Company Limited
Shenzhen Hikeen Projects Management Company Limited
A company controlled by the same ultimate controlling party
A company controlled by the same ultimate controlling party
A company controlled by the same ultimate controlling party
A company controlled by the same ultimate controlling party
A company controlled by the same ultimate controlling party
A company controlled by the same ultimate controlling party
A company controlled by the same ultimate controlling party
A company controlled by the same ultimate controlling party
A company controlled by the same ultimate controlling party
A company controlled by the same ultimate controlling party
Shenzhen Shekou Industrial Zone Employee Living Apartment Company Limited
A company controlled by the same ultimate controlling party
Shenzhen Waidai Warehousing Company Limited
United Merchants Food (Beijing) Company Limited
A company controlled by the same ultimate controlling party
A company controlled by the same ultimate controlling party
F- 160
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
China Merchants Americold Holdings Company Limited
Notes to Consolidated Financial Statements (Continued)
16. RELATED PARTY TRANSACTIONS (Continued)
B. Related Party Transactions
The Group had the following related party transactions for the years ended December 31, 2017, 2016 and 2015:
Warehouse service revenues
- Kang Xin Logistics (Tianjin) Company Limited
- China Merchants Americold Logistics (Hong Kong) Company Limited
- China Merchants Port Service (Shenzhen) Company Limited
- China Merchants Americold (Shenzhen) Supply Chain Company Limited
- China Merchants Logistics (Shenzhen) Company Limited
- Shenzhen Waidai Warehousing Company Limited
Other revenues
- United Merchants Food (Beijing) Company Limited
Warehouse service costs
- China Merchants Bonded Logistics Company Limited
- Loscam Packaging Equipment Leasing (Shanghai) Company Limited
- China Merchants Shekou Industrial Zone Holdings Company Limited
- China Merchants Holdings (International) Information Technology Company Limited
- Shenzhen Chiwan Freight Company Limited
- China Merchants (Shenzhen) Power Supply Company Limited
- China Merchants Americold (Shenzhen) Supply Chain Company Limited
F- 161
For the Years Ended December 31,
2016
RMB
2015
RMB
2017
RMB
4,387,368
1,656,879
937,939
101,009
11,094
3,159
2,704,988
1,422,199
918,064
416,790
11,732
-
14,427
1,997,911
850,369
216,408
5,714
-
7,097,448
5,473,773
3,084,829
-
-
823,739
6,169,531
1,899,835
572,597
56,604
-
-
-
4,718,047
1,054,188
582,140
56,604
168,481
-
-
4,604,444
804,371
2,004,088
56,604
316,311
3,894,643
47,390
8,698,567
6,579,460
11,727,851
16. RELATED PARTY TRANSACTIONS (Continued)
B. Related Party Transactions (Continued)
China Merchants Americold Holdings Company Limited
Notes to Consolidated Financial Statements (Continued)
General and administrative expenses
- China Merchants Americold (Shenzhen) Supply Chain Company Limited
- China Merchants Logistics Holding Company Limited
- China Merchants Group Financial Company Limited
Interest expense
- China Merchants Logistics Holding Company Limited
- China Merchants Steam Navigation Company Limited
Interest income
- China Merchants Group Financial Company Limited
- China Merchants Shekou Industrial Zone Holdings Company Limited (note)
For the Years Ended December 31,
2016
RMB
2015
RMB
2017
RMB
12,837,736
1,398,349
4,717
3,600,000
399,528
-
3,300,339
390,448
-
14,240,802
3,999,528
3,690,787
1,110,458
1,042,808
-
2,180,959
17,000
2,169,041
2,153,266
2,180,959
2,186,041
4,848
-
-
17,291,669
4,848
17,291,669
-
-
-
Note: The Group prepaid China Merchants Shekou Industrial Zone Holdings Company Limited in 2009 to acquire the land use rights of the land located in Shenzhen, the PRC. As the Group
was not able to utilize such land, in 2016, China Merchants Shekou Industrial Zone Holdings Company Limited agreed to return the prepayment to the Group, and also agreed to compensate
the Group for the interest on the prepayment at a compound annual interest rate of 7.05%. The Group recognized the interest received of RMB17,291,669 in interest income.
F- 162
China Merchants Americold Holdings Company Limited
Notes to Consolidated Financial Statements (Continued)
16. RELATED PARTY TRANSACTIONS (Continued)
C. Related Party Balances
The Group had the following related party balances as of December 31, 2017 and 2016:
Loans from related parties:
- China Merchants Logistics Holding Company Limited
- China Merchants Steam Navigation Company Limited
Accounts receivable from related parties:
- China Merchants Logistics (Shenzhen) Company Limited
Prepayment and other current assets from related parties:
- China Merchants Americold (Shenzhen) Supply Chain Company Limited
- China Merchants Americold Logistics (Hong Kong) Company Limited
- China Merchants Bonded Logistics Company Limited
- China Merchants Holdings (International) Information Technology Company Limited
- China Merchants Americold Logistics (Zhengzhou) Company Limited
- Shenzhen Shekou Industrial Zone Employee Living Apartment Company Limited
- Shenzhen Waidai Warehousing Company Limited
Accounts payable to related parties:
- China Merchants Bonded Logistics Company Limited
- Loscam Packaging Equipment Leasing (Shanghai) Company Limited
- China Merchants Holdings (International) Information Technology Company Limited
F- 163
As of December 31,
2017
RMB
2016
RMB
30,000,000
-
-
50,000,000
30,000,000
50,000,000
7,511
-
80,230,296
12,778,551
757,976
5,000
-
-
-
64,690,624
9,446,227
329,854
-
320,000
30,106
1,422
93,771,823
74,818,233
560,161
163,120
10,000
733,281
-
-
-
-
16. RELATED PARTY TRANSACTIONS (Continued)
C. Related Party Balances (Continued)
China Merchants Americold Holdings Company Limited
Notes to Consolidated Financial Statements (Continued)
Accrued expenses and other liabilities to related parties:
- China Merchants Americold (Shenzhen) Supply Chain Company Limited
- China Merchants Shekou Industrial Zone Holdings Company Limited
- China Merchants Logistics Holding Company Limited
- China Merchants Americold Logistics (Hong Kong) Company Limited
- Shenzhen Hikeen Projects Management Company Limited
- Loscam Packaging Equipment Leasing (Shanghai) Company Limited
- China Merchants Port Service (Shenzhen) Company Limited
- China Merchants Group Financial Company Limited
- Kang Xin Logistics (Tianjin) Company Limited
- China Merchants Steam Navigation Company Limited
As of December 31,
2017
RMB
2016
RMB
35,482,434
30,217,143
5,588,594
2,299,299
285,900
70,501
60,000
59,208
-
-
8,082,776
-
3,699,992
-
285,900
153,801
60,000
-
4,198,551
1,436,096
74,063,079
17,917,116
17. EMPLOYEE DEFINED CONTRIBUTION PLAN
Full time employees of the Group in the PRC participate in a government mandated defined contribution plan, pursuant to which certain pension benefits, medical care, employee housing
fund and other welfare benefits are provided to employees. Chinese labor regulations require that the PRC subsidiaries of the Group make contributions to the government for these benefits
based on certain percentages of the employees’ salaries. The Group has no legal obligation for the benefits beyond the contributions made. The total amounts for such employee benefits,
which were expensed as incurred, were RMB2,312,397, RMB1,976,457 and RMB1,640,870 for the years ended December 31, 2017, 2016 and 2015, respectively.
F- 164
China Merchants Americold Holdings Company Limited
Notes to Consolidated Financial Statements (Continued)
18. COMMITMENTS AND CONTINGENCIES
A. Operating lease commitments
As of December 31, 2017, the Group had future minimum lease payments under non-cancellable operating leases with initial terms in excess of one year as follows:
2018
2019
2020
2021
2022 and thereafter
RMB
6,457,706
1,577,306
601,226
601,226
2,004,088
11,241,552
Payments under operating leases are expensed on a straight-line basis over the periods of their respective leases. The terms of the leases do not contain material rent escalation clauses or
contingent rents. For the years ended December 31, 2017, 2016 and 2015 total rental expenses for all operating leases amounted to RMB10,140,177, RMB6,164,586 and RMB7,159,875,
respectively.
B. Capital commitments
As of December 31, 2017, the Group had the following capital commitments:
Property, plant and equipment
19. SUBSEQUENT EVENTS
The subsequent events have been evaluated through March 10, 2018, the date the financial statements were issued.
F- 165
As of December 31,
2017
RMB
10,079,817
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SIGNATURES
AMERICOLD REALTY TRUST
By:
/s/ Fred Boehler
Fred Boehler
Chief Executive Officer
Date: March 29, 2018
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates
indicated.
Signature
/s/ Fred Boehler
Fred Boehler
/s/ Marc Smernoff
Marc Smernoff
/s/ Andrea Darweesh
Andrea Darweesh
/s/ Thomas Musgrave
Thomas Musgrave
/s/ Thomas Novosel
Thomas Novosel
/s/ Jeffrey M. Gault
Jeffrey M. Gault
/s/ George J. Alburger, Jr.
George J. Alburger, Jr.
/s/ Bradley J. Gross
Bradley J. Gross
/s/ Joel A. Holsinger
Joel A. Holsinger
/s/ James R. Heistand
James R. Heistand
/s/ Michelle M. MacKay
Michelle M. MacKay
/s/ Mark R. Patterson
Mark R. Patterson
/s/ Andrew P. Power
Andrew P. Power
Chief Executive Officer, President and Trustee
Title
Chief Financial Officer and Executive Vice President
Chief Human Resources Officer and Executive Vice President
Chief Information Officer and Executive Vice President
Chief Accounting Officer and Senior Vice President
Chairman of the Board of Trustees
Trustee
Trustee
Trustee
Trustee
Trustee
Trustee
Trustee
Date
March 29, 2018
March 29, 2018
March 29, 2018
March 29, 2018
March 29, 2018
March 29, 2018
March 29, 2018
March 29, 2018
March 29, 2018
March 29, 2018
March 29, 2018
March 29, 2018
March 29, 2018
List of Subsidiaries
Subsidiary
Americold 2010 LLC
Americold Acquisition Partnership GP LLC
Americold Acquisition, LLC
Americold Australia PTY Ltd.
Americold Australian Holdings PTY Ltd.
Americold Australian Logistics PTY Ltd.
Americold Clearfield Opco, LLC
Americold Clearfield Propco, LLC
Americold Food Logistics PTY Ltd.
Americold Investments PTY Ltd.
Americold Logistics Hong Kong Limited
Americold Logistics Limited
Americold Logistics Services NZ Ltd.
AmeriCold Logistics, LLC
Americold Middleboro Opco, LLC
Americold Middleboro Propco, LLC
Americold MFL 2010 LLC
Americold Nebraska Leasing LLC
Americold NZ Limited
Americold Propco Phoenix Van Buren LLC
Americold Property PTY Ltd.
AmeriCold Real Estate, L.P.
AmeriCold Real Estate, L.P.
Americold Realty Hong Kong Limited
Americold Realty Operating Partnership, L.P.
Americold Realty Operating Partnership, L.P.
Americold Realty, Inc.
Americold Realty Operations, Inc.
Americold San Antonio Propco LLC
Americold Storage NB PTY Ltd.
Americold Transportation, LLC
Americold Transportation Services, LLC
AMLOG Canada Inc.
ART AL Holding LLC
ART First Mezzanine Borrower GP LLC
ART First Mezzanine Borrower Opco 2006-2 L.P.
ART First Mezzanine Borrower Opco 2006-2 L.P.
ART First Mezzanine Borrower Opco 2006-3 L.P.
ART First Mezzanine Borrower Opco 2006-3 L.P.
EXHIBIT 21.1
Jurisdiction of Incorporation
Delaware
Delaware
Delaware
Australia
Australia
Australia
Delaware
Delaware
Australia
Australia
China
Australia
New Zealand
Delaware
Delaware
Delaware
Delaware
Nebraska
New Zealand
Delaware
Australia
Delaware
Delaware
China
Delaware
Delaware
Delaware
Delaware
Delaware
Australia
Delaware
Delaware
Canada
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Subsidiary
ART FIRST MEZZANINE BORROWER OPCO GP 2006-2 LLC
ART First Mezzanine Borrower Opco GP 2006-3 LLC
ART First Mezzanine Borrower Propco 2006-2 L.P.
ART First Mezzanine Borrower Propco 2006-2 L.P.
ART First Mezzanine Borrower Propco 2006-3 L.P.
ART First Mezzanine Borrower Propco 2006-3 L.P.
ART FIRST MEZZANINE BORROWER PROPCO GP 2006-2 LLC
ART First Mezzanine Borrower Propco GP 2006-3 LLC
ART First Mezzanine Borrower, L.P.
ART First Mezzanine Borrower, L.P.
ART Icecap Holdings LLC
ART Leasing LLC
ART Manager L.L.C.
ART Mezzanine Borrower Opco 2013 LLC
ART Mezzanine Borrower Propco 2013 LLC
ART Mortgage Borrower GP LLC
ART Mortgage Borrower Opco 2006-1A L.P.
ART Mortgage Borrower Opco 2006-1A L.P.
ART Mortgage Borrower Opco 2006-1B L.P.
ART Mortgage Borrower Opco 2006-1B L.P.
ART Mortgage Borrower Opco 2006-1C L.P.
ART Mortgage Borrower Opco 2006-1C L.P.
ART Mortgage Borrower Opco 2006-2 L.P.
ART Mortgage Borrower Opco 2006-2 L.P.
ART Mortgage Borrower Opco 2006-3 L.P.
ART Mortgage Borrower Opco 2006-3 L.P.
ART Mortgage Borrower Opco 2010 -4 LLC
ART Mortgage Borrower Opco 2010 -5 LLC
ART Mortgage Borrower Opco 2010 -6 LLC
ART Mortgage Borrower Opco 2013 LLC
ART Mortgage Borrower Opco GP 2006-1A LLC
ART Mortgage Borrower Opco GP 2006-1B LLC
ART Mortgage Borrower Opco GP 2006-1C LLC
ART MORTGAGE BORROWER OPCO GP 2006-2 LLC
ART Mortgage Borrower Opco GP 2006-3 LLC
ART Mortgage Borrower Propco 2006-1A L.P.
ART Mortgage Borrower Propco 2006-1A L.P.
ART Mortgage Borrower Propco 2006-1B L.P.
ART Mortgage Borrower Propco 2006-1B L.P.
ART Mortgage Borrower Propco 2006-1C L.P.
ART Mortgage Borrower Propco 2006-1C L.P.
Jurisdiction of Incorporation
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Subsidiary
ART Mortgage Borrower Propco 2006-2 L.P.
ART Mortgage Borrower Propco 2006-2 L.P.
ART Mortgage Borrower Propco 2006-3 L.P.
ART Mortgage Borrower Propco 2006-3 L.P.
ART Mortgage Borrower Propco 2010 -4 LLC
ART Mortgage Borrower Propco 2010 -5 LLC
ART Mortgage Borrower Propco 2010 -6 LLC
ART Mortgage Borrower Propco 2013 LLC
ART Mortgage Borrower Propco GP 2006-1A LLC
ART Mortgage Borrower Propco GP 2006-1B LLC
ART Mortgage Borrower Propco GP 2006-1C LLC
ART MORTGAGE BORROWER PROPCO GP 2006-2 LLC
ART Mortgage Borrower Propco GP 2006-3 LLC
ART Mortgage Borrower, L.P.
ART Mortgage Borrower, L.P.
ART QUARRY TRSLLC
ART Second Mezzanine Borrower GP LLC
ART Second Mezzanine Borrower Opco 2013 LLC
ART Second Mezzanine Borrower Propco 2013 LLC
ART Second Mezzanine Borrower, L.P.
ART Second Mezzanine Borrower, L.P.
ART Third Mezzanine Borrower Opco 2013 LLC
ART Third Mezzanine Borrower Propco 2013 LLC
Atlas Cold Storage Logistics LLC
Atlas Logistics Group Retail Services (Atlanta) LLC
Atlas Logistics Group Retail Services (Denver) LLC
Atlas Logistics Group Retail Services (Phoenix) LLC
Atlas Logistics Group Retail Services (Roanoke) LLC
Atlas Logistics Group Retail Services (Shelbyville) LLC
Cold Logic ULC
Distribution Development, L.L.C.
Icecap Properties AU LLC
Icecap Properties NZ Holdings LLC
Icecap Properties NZ Limited LLC
Inland Quarries, L.L.C.
KC Underground, L.L.C.
URS Real Estate, L.P.
URS Real Estate, L.P.
URS Realty, Inc.
VCD Pledge Holdings, LLC
Jurisdiction of Incorporation
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Minnesota
Delaware
Minnesota
Delaware
Delaware
Delaware
British Columbia, Canada
South Dakota
Delaware
Delaware
New Zealand
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Subsidiary
Versacold Atlas Logistics Services USA LLC
Versacold Logistics Argentina SA
Versacold Logistics Argentina SA
Versacold Logistics, LLC
Versacold Midwest LLC
Versacold Northeast Logistics, LLC
Versacold Northeast, Inc.
Versacold Texas, L.P.
Versacold Texas, L.P.
Versacold USA, Inc.
Jurisdiction of Incorporation
Delaware
Argentina
Argentina
Delaware
Delaware
Massachusetts
Massachusetts
Texas
Texas
Minnesota
We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-222637) pertaining to the 2017 Equity Incentive Plan, the 2010 Equity Incentive Plan, and the 2008 Equity Incentive Plan of
Americold Realty Trust of our report dated March 29, 2018, with respect to the consolidated financial statements and schedule of Americold Realty Trust, included in this Annual Report (Form 10-K) for the year ended
December 31, 2017.
Consent of Independent Registered Public Accounting Firm
Exhibit 23.1
/s/ Ernst & Young LLP
Atlanta, Georgia
March 29, 2018
We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-222637) pertaining to the 2017 Equity Incentive Plan, the 2010 Equity Incentive Plan, and the 2008 Equity Incentive Plan of
Americold Realty Trust of our reports dated March 10, 2018, with respect to the consolidated financial statements of China Merchants Americold Holdings Company Limited and China Merchants Americold Logistics
Company Limited, included in this Annual Report (Form 10-K) of Americold Real Trust for the year ended December 31, 2017.
Consent of Independent Auditors
Exhibit 23.2
/s/ Ernst & Young Hua Ming LLP
Shenzhen, the People’s Republic of China
March 29, 2018
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO RULE 13a-14(a) OF THE EXCHANGE ACT, AS AMENDED,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.1
I, Fred Boehler, certify that:
1. I have reviewed this Annual Report on Form 10-K of Americold Realty Trust;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) [omitted pursuant to Exchange Act Rules 13a-14(a) and 15d-15(a)];
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize
and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: March 29, 2018
/s/ Fred Boehler
Fred Boehler
Chief Executive Officer, President and Trustee
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO RULE 13a-14(a) OF THE EXCHANGE ACT, AS AMENDED,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.2
I, Marc Smernoff, certify that:
1. I have reviewed this Annual Report on Form 10-K of Americold Realty Trust;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) [omitted pursuant to Exchange Act Rules 13a-14(a) and 15d-15(a)];
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize
and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: March 29, 2018
/s/ Marc Smernoff
Marc Smernoff
Chief Financial Officer and Executive Vice President
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with this Annual Report on Form 10-K of Americold Realty Trust (the “Company”) for the fiscal year ended December 31, 2017 as filed with the Securities and Exchange Commission on the date hereof (the
“Report”), I, Fred Boehler, President, Chief Executive Officer and Trustee of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my
knowledge:
1. The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: March 29, 2018
/s/ Fred Boehler
Fred Boehler
President, Chief Executive Officer and Trustee
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
In connection with this Annual Report on Form 10-K of Americold Realty Trust (the “Company”) for the fiscal year ended December 31, 2017 as filed with the Securities and Exchange Commission on the date hereof (the
“Report”), I, Marc Smernoff, Chief Financial Officer and Executive Vice President of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to
my knowledge:
1. The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: March 29, 2018
/s/ Marc Smernoff
Marc Smernoff
Chief Financial Officer and Executive Vice President
Exhibit 95.1
The following disclosures are provided pursuant to Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”) and Item 104 of Regulation S-K, which requires certain disclosures by
companies required to file periodic reports under the Securities Exchange Act of 1934, as amended, that operate mines regulated under the Federal Mine Safety and Health Act of 1977 (the “Mine Act”).
DODD-FRANK ACT DISCLOSURE OF MINE SAFETY AND HEALTH ADMINISTRATION SAFETY DATA
Mine Safety Information
The operation of our limestone quarry in Carthage, Missouri is inspected by the Federal Mine Safety and Health Administration (“MSHA”) on an ongoing basis. Whenever MSHA believes a violation of the Mine Act, any
health or safety standard or any regulation has occurred, it may issue a citation which describes the alleged violation and fixes a time within which the U.S. mining operator must abate the alleged violation. In some situations,
such as when MSHA believes that conditions pose a hazard to miners, MSHA may issue an order removing miners from the area of the mine affected by the condition until the alleged hazards are corrected. When MSHA
issues a citation or order, it generally proposes a civil penalty, or fine, as a result of the alleged violation, that the operator is ordered to pay. Citations and orders can be contested and appealed, and as part of that process, may
be reduced in severity and amount, and are sometimes dismissed. The number of citations, orders and proposed assessments vary depending on the size and type (underground or surface) of the mine as well as by the MSHA
inspector(s) assigned.
The following table includes information required by the Act for the twelve months ended December 31, 2017.
Mine or
Operating
Name
(MSHA
Identification
Number)
Carthage
Crushed
Limestone
(23-00028)
Section 104
S&S Citations
Section 104(b)
Orders
Section 104(d)
Citations and
Orders
Section 110(b)
(2) Violations
Section 107(a)
Orders
Total Dollar Value
of MSHA
Assessments
Proposed
Total Number
of Mining
Related
Fatalities
Received Notice
of Pattern of
Violations
Under Section
104(e)
Received Notice
of Potential to
Have Pattern
Under Section
104(e)
Legal Actions
Pending as of
Last Day of
Period
Legal Actions
Initiated During
Period
Legal Actions
Resolved
During Period
4
0
0
0
0
$3,459,000
0
No
No
0
0
0