DBRS Morningstar Assigns Rating of BBB with a Stable Trend to Senior Unsecured Notes of Americold Realty Operating Partnership, L.P.

DBRS, Inc. (DBRS Morningstar) assigned a rating of BBB with a Stable trend to the outstanding Senior Unsecured Notes issued by Americold Realty Operating Partnership, L.P. (AROP). DBRS Morningstar notes that the rating is based on the credit risk profile of the combined entity, including AROP and its subsidiaries, as well as Americold Realty Trust (collectively, Americold or the Real Estate Investment Trust (REIT)).

The Senior Unsecured Notes are currently also rated by DBRS, Inc.’s affiliated rating agency, Morningstar Credit Ratings, LLC (MCR). MCR has announced that it has placed the rating of Americold Under Review–Analytical Integration Review and that MCR expects to discontinue and withdraw its rating. The discontinuation and withdrawal of the MCR rating is now expected on November 6, 2019. Upon the discontinuation and withdrawal of the MCR rating, this DBRS Morningstar rating will be the successor rating to the discontinued and withdrawn MCR rating. Information about the MCR rating, including the history of the MCR rating, can be found at www.morningstarcreditratings.com.

RATING RATIONALE/DESCRIPTION
-- Americold’s rating is supported by the REIT’s robust financial profile, its leading market position in the temperature-controlled warehouse (TCW) business, the experience and sophistication of its management team and property and geographic diversification. While DBRS Morningstar views asset quality as adequate, DBRS Morningstar believes Americold’s assets are well located, provide stable cash flow and exhibit better-than-average ability to withstand market weakness. As well, Americold increasingly demonstrates a sustainable competitive advantage from a number of sources, including customer-switching costs, intangible assets and efficient scale. These considerations are somewhat offset by its short lease maturity profile with exposure to relatively high counterparty risk, relatively small size and asset-type concentration with pure-play exposure to the TCW space.
-- Americold is a leader in the U.S. TCW business, with an enviable customer-tenant roster that has worked with the REIT for decades on average. As well, Americold’s size and scale within the TCW business, combined with a savvy and experienced management team drawing from best practices in adjacent sectors, have enabled it to outpace its competitors in developing systems that provide further efficiencies in its portfolio and drive costs lower for its customers.
-- DBRS Morningstar anticipates further EBITDA growth in the near term given $1.3 billion of acquisitions in the first half of 2019 as well as ongoing growth with solid progress within the development pipeline, which broke ground in multiple sites in Georgia and is expanding some of the recent acquisitions. DBRS Morningstar expects EBITDA to be $334 million in 2019 and $365 million in 2020. DBRS Morningstar anticipates that Americold will produce leverage around 6.0 times (x) total debt-to-EBITDA and EBITDA interest coverage close to 3.5x over the next couple of years. In addition, continued growth in consumer preference for fresh and frozen unprocessed food products will maintain heightened demand for TCW space for the foreseeable future. Furthermore, DBRS Morningstar sees further potential avenues for growth in other non-food areas, such as pharmaceuticals, specialized electric equipment and the floral business.

RATING DRIVERS
-- DBRS Morningstar assigned a Stable trend to the rating because Americold continues to prudently expand its current markets while maintaining a conservative balance sheet. To be considered for a higher rating, Americold would need to achieve significant growth, most likely through new and expanded customer relationships as well as construction of new and expanded facilities. If Americold were to approach $450 million in EBITDA while maintaining or lowering leverage ranges (debt 5.5x to 6.0x EBITDA normalized), DBRS Morningstar could potentially upgrade the rating. A negative rating is not likely in the foreseeable future.

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

The principal methodology is Rating Entities in the Real Estate Industry, which can be found on dbrs.com under Methodologies & Criteria.

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.

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