Morningstar DBRS Changes Trends on Americold Realty Operating Partnership, L.P. to Positive from Stable, Confirms Credit Ratings

DBRS, Inc. (Morningstar DBRS) confirmed Americold Realty Operating Partnership, L.P.'s (Americold or the Company) Issuer Rating and Senior Unsecured Notes rating at BBB. Morningstar DBRS 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, Inc. (collectively, the REIT).

KEY CREDIT RATING CONSIDERATIONS
The trends were changed to Positive from Stable following the improved financial risk assessment (FRA) factors throughout 2023 and first half of 2024 with visibility to continue in the near and medium term.

The Positive trends consider (1) the Company's improved leverage profile following the $413 million equity raise in Q3 2023 to reduce outstanding debt; (2) Americold's ability to improve same-store net operating income (NOI), which has lately been driven by greater warehouse services margins; (3) the increased percentage of fixed commitment rent and storage revenue (up to 56.6% of rent and storage revenue as of Q2 2024); and (4) anticipated cost savings from the implementation of Project Orion, a $107.3 million investment in technology systems and business processes across the global platform. The aforementioned factors provide greater visibility in the Company sustainably maintaining a total Debt-to-EBITDA of 6.0 times (x) or better over the medium term.

CREDIT RATING DRIVERS
All else equal, Morningstar DBRS would consider credit rating upgrades should the total Debt-to-EBITDA continue to sustainably and comfortably remain below 6.0x while the EBITDA Interest Coverage exceeds 3.50x. All else equal, Morningstar DBRS would change the trends to Stable from Positive should the total Debt-to-EBITDA weaken to 6.0x or worse, or if the EBITDA Interest Coverage deteriorates below 3.50x.

FINANCIAL OUTLOOK
Morningstar DBRS expects the Company to maintain a total Debt-to-EBITDA in the mid-5.0x range throughout 2024 and 2025, relative to the last 12 months ended June 30, 2024, total Debt-to-EBITDA of 5.6x. EBITDA is projected to moderately increase through 2025 as a result of improved same-store NOI, the stabilization of recent developments and acquisitions, and the delivery of ongoing development projects. Morningstar DBRS notes the weakened economic occupancy rate has been driven by a weaker end-consumer; however, this is mitigated by continued pricing initiatives, expanded services margins, and greater labor productivity. Debt levels are projected to increase over the medium term to primarily fund development projects and potential acquisitions.

The EBITDA Interest Coverage ratio (including capitalized interest) is expected to remain strong and stable, reaching the low-4.00x range by year-end (YE) 2024 and slightly softening to the high-3.00x range for YE2025. Interest costs are projected to increase given the greater debt amounts; however, it should be noted 18% of the debt stack is considered unhedged variable interest rate that would benefit from monetary easing.

CREDIT RATING RATIONALE
The rating confirmations reflect (1) Americold's strong FRA factors relative to its rating category; (2) the Company's strong market leadership position in the North American market and globally; (3) its geographical diversification across North America, Europe, and the Asia Pacific region; and (4) its overall portfolio size in terms of EBITDA. The Company also benefits from its low amount of secured debt-to-total debt (11.2% as of June 30, 2024); however, Morningstar DBRS does not apply any consideration for low prior ranking debt given the limited liquidity of the unencumbered asset pool. Conversely, the rating continues to be constrained by (1) Americold's lease maturity profile relative to traditional real estate entities; (2) its asset type concentration within the temperature-controlled warehouse (TCW) sector; (3) the specialized nature and limited liquidity of TCWs relative to traditional real estate, affecting overall asset quality; and (4) development risk.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS

There were no Environmental/Social/Governance factor(s) that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (August 13, 2024) https://dbrs.morningstar.com/research/437781

BUSINESS RISK ASSESSMENT (BRA) AND FINANCIAL RISK ASSESSMENT (FRA)

(A) Weighting of BRA Factors
In the analysis of Americold Realty Operating Partnership, L.P., the BRA factors are considered in the order of importance contemplated in the methodology.

(B) Weighting of FRA Factors
In the analysis of Americold Realty Operating Partnership, L.P., the FRA factors are considered in the order of importance contemplated in the methodology.

(C) Weighting of the BRA and the FRA
In the analysis of Americold Realty Operating Partnership, L.P., the BRA carries greater weight than the FRA.

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

Morningstar DBRS applied the following principal methodology:

Global Methodology for Rating Entities in the Real Estate Industry (April 15, 2024)
https://dbrs.morningstar.com/research/431170

Morningstar DBRS credit ratings may use one or more sections of the Morningstar DBRS Global Corporate Criteria (April 15, 2024) https://dbrs.morningstar.com/research/431186, which covers, for example, topics such as holding companies and parent/subsidiary relationships, guarantees, recovery, and common adjustments to financial ratios.

The following criteria has also been applied:

-- Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (August 13, 2024) https://dbrs.morningstar.com/research/437781

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

A description of how Morningstar DBRS analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/431153.

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

Morningstar DBRS had access to the accounts, management and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

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

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.

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