DBRS Morningstar Places Americold Realty Operating Partnership, L.P.’s BBB Ratings Under Review with Positive Implications

DBRS, Inc. (DBRS Morningstar) placed Americold Realty Operating Partnership, L.P.’s (AROP) Issuer Rating and Senior Unsecured Notes rating of BBB Under Review with Positive Implications. The rating action reflects DBRS Morningstar’s expectation that the announcement that Americold has agreed to acquire privately-held Agro Merchants Group (Agro) will have a positive impact on the credit risk profile of the combined entity, including AROP and its subsidiaries, as well as Americold Realty Trust (collectively, Americold or the REIT).

Americold announced an agreement to acquire privately-held Agro (the Acquisition)for $1.7 billion. The Acquisition will be funded with $1.7 billion of new equity ($1.9 billion if greenshoe exercised) and debt of $435 million (assumption of existing debt and issuance of new debt). DBRS Morningstar notes that capital raised in excess of the Acquisition price would be used to fund related expansions and developments. The Acquisition, subject to certain conditions, is expected to close in the late fourth quarter of 2020 or early first quarter of 2021. Agro is the fourth largest temperature-controlled warehouse company in the world and the third largest in Europe.

DBRS Morningstar notes that the combined entity would strengthen Americold’s position as the second-largest dedicated temperature-controlled warehouse owner-operator globally. Moreover, DBRS Morningstar also expects that the Acquisition would include gains in geographic, property, and tenant diversity. As well, the Acquisition would provide Americold meaningful entry into the European cold storage market, across 111 million cubic feet in eight countries. Furthermore, Americold would gain 46 additional properties, or an increase of over 27%, with greater exposure to its approximately 2,600 customers as well as new customers from Agro. Post-Acquisition, DBRS Morningstar estimates that the combined entity will generate between $450 million and $500 million in EBITDA annually, which compares with $395 million for Americold through LTM June 30, 2020.

Based on these considerations, DBRS Morningstar observes that the combined entity’s business risk assessments (BRA) would be stronger than Americold’s current BRA, including improvements in market position, diversity, and size. DBRS Morningstar’s projected financial risk assessments (FRA) for the combined entity, given the aforementioned funding plan, are not expected to deteriorate from our current FRA for Americold of 5.2 times (x) debt-to-EBITDA and 4.28x EBITDA interest coverage for 2021.

DBRS Morningstar will likely resolve the Under Review with Positive Implications status when the Transaction closes, assuming there is no meaningful deviation from the announced Acquisition parameters, assessment of risks related to integration, or Americold’s operational and financial performance during the interim.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

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

The principal methodologies are Rating Entities in the Real Estate Industry (June 4, 2020) and DBRS Morningstar Criteria: Rating Corporate Holding Companies and Parent/Subsidiary Rating Relationships (November 25, 2019), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

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.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are 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 info@dbrsmorningstar.com.

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