DBRS Morningstar Changes Trends to Stable from Positive for Americold Realty Operating Partnership, L.P., Confirms Ratings at BBB

DBRS Limited (DBRS Morningstar) confirmed Americold Realty Operating Partnership, L.P.’s (Americold or the Company) Issuer Rating and Senior Unsecured Notes rating at BBB and changed the trends to Stable from Positive. DBRS Morningstar notes that the ratings are based on the credit risk profile of the combined entity, including the Company and its subsidiaries, as well as Americold Realty Trust (collectively, the REIT).

The trend change to Stable reflects the higher leverage than originally expected when the Positive trends were placed in October 2021. Previously, DBRS Morningstar expected Americold to return its total debt-to-EBITDA ratio to below 6.0 times (x) while maintaining EBITDA interest coverage above 4.5x. Now the expectation is for the total debt-to-EBITDA ratio to remain stable in the low 7.0x range with the EBITDA interest coverage remaining above 4.0x through YE2023 as Americold stabilizes its operating expenses. The expected higher leverage is due to (1) high inflationary pressures on operating costs, particularly labour expenses, that led to lower warehouse segment net rental margins; (2) the lag-time for customer price adjustments to reflect increased operating costs; and (3) greater general and administrative costs related to an expanding development team. Americold's current total debt-to-EBITDA and EBITDA interest coverage metrics are 7.1x and 4.8x (including capitalized interest), respectively, as of the last 12 months dated June 30, 2022.

DBRS Morningstar assigned Positive trends to the Issuer Rating and Senior Unsecured Notes rating in October 2021 after the ratings were removed from Under Review with Positive Implications. The Positive trends were warranted based on the combined credit risk profile following the Agro Merchants Group acquisition. While the Business Risk Assessment factors improved, Americold has not achieved the expected total debt-to-EBITDA level on a sustained basis. The Stable trends also consider (1) Americold's ability to negotiate greater revenue per occupied pallet with customers as inflationary costs are passed along to the end consumer, (2) the increased inventory levels to meet current consumer demand levels, and (3) Americold's plan to prudently develop properties in high-demand segments and markets.

The rating confirmations reflect Americold's strong financial metrics relative to its current rating category. As of June 30, 2022, the Company had $596.9 million in liquid assets from cash on hand and availability on its revolving credit line. The Company recently extended and increased its primary credit facility, eliminating any debt maturity risk through 2025. In addition, Americold has made substantial progress converting to an unsecured balance sheet, with secured debt likely to further decline once it pays off its commercial mortgage-backed securities debt maturing in Q4 2022. Americold also benefits from its strong market leadership position in the North American market and globally. These considerations are somewhat offset by its short lease maturity profile, asset type concentration, and overall asset quality.

DBRS Morningstar would consider a positive rating action if the debt-to-EBITDA ratio is sustainably below 6.0x while the EBITDA interest coverage ratio stays above 4.0x, all other factors held equal. Conversely, DBRS Morningstar would consider a negative rating action if the debt-to-EBITDA ratio increased to 8.6x with all other factors equal.

There were no environmental, social, and governance (ESG) factors that had a significant or relevant effect on the credit analysis.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings (May 17, 2022).

Notes:
All figures are in U.S. dollars unless otherwise noted.

The methodologies are Rating Entities in the Real Estate Industry (April 20, 2022; https://www.dbrsmorningstar.com/research/395563) and DBRS Morningstar Criteria: Guarantees and Other Forms of Support (April 4, 2022; https://www.dbrsmorningstar.com/research/394683), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

A description of how DBRS Morningstar analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrsmorningstar.com/research/397223/interplay-of-global-corporate-finance-rating-methodologies-when-analyzing-corporate-finance-transactions

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at [email protected].

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar trends and ratings are under regular surveillance.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

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