The views expressed below are those of Anchor Capital Advisors, LLC (‘‘Anchor’’) as of the date written and are subject to change at any time. They are based on our proprietary research of the stated company and the following is a summary of the primary factors that support our beliefs and rationale for investing in the company. Please see additional disclosures at the end of this publication.
COLD: NYSE
Americold Realty Trust is a REIT which focuses on ownership of temperature-controlled warehouses. [1] The warehouses collect rent and storage fees from customers to store frozen and perishable food products. [2] The company has over 1.4 billion cubic feet of temperature-controlled warehouses globally. Founded in 1931 and is headquartered in Atlanta, GA. [3]
Investment Thesis
In our view, Americold is a market leader, a business difficult to replicate, with large market share. We believe scale is an advantage in the business they play in and has allowed the two largest players to grow rapidly. In our opinion, the company has ROIC that is much higher compared to peers, strong returns from greenfield opportunities, and strong pricing power. We believe the business has industry benefits which include demand and population growth. Short-term issues in labor shortages has provided an opportunity to buy COLD at what we consider to be an undervalued level.
Confirmation through Research
Americold and Lineage are the two largest players, controlling half of the market, with the next largest player having 2% share. [4] Barriers to entry are high because non-cold chain developers lack capability and experience to operate facilities. [5] The cost to build a cold storage facility is 3x the cost of a warehouse and the management of the facilities/logistics is, in our view, very complicated. In our opinion, scale is an advantage as it allows a lower cost of capital, better IT systems, greater automation, and advanced logistics. [6] Americold and Lineage have been able to grow rapidly due to their ability to buy mom and pop operators. [7] Many small operators are in their 70’s and looking to exit the business with a sale. [8] The ROIC is based on comps in the space that are higher than most real estate businesses. [9] The company has greenfield opportunities which offer a 10% to 12% NOI ROIC margin. [10] The company benefits from population growth and demand for frozen foods running at 1.5% above population growth. [11] We believe same store sales growth could be 2% to 4% with AFFO growth above 6% and up to 10% in certain years. We believe the stock has become undervalued due to short-term issues as labor shortages have led to supply chain issues leading to less occupancy. [12] We believe this will abate and the shares will revert to fair value.
Variant Perception
We do not believe the market is assigning fair value to the business considering the competitive advantages, market leadership, scale, ROIC, and industry benefits. We believe that as the labor shortage issue is resolved shares will revert closer to fair value and growth will allow shares to further compound over time.