Americold Realty Trust (COLD): 2019 Top Picks' Mid-Year Update

07/24/2019 5:00 am EST

Focus: REITS

Tony Daltorio

Editor, Investors Alley Premium Digest

Tony Daltorio, contributing editor to Growth Stock Investor, chose Americold Realty Trust (COLD) as his top investment idea for 2019. The stock rose 27% in the first half. Here's his update on the food storage REIT.

There is no doubt that millennials are changing traditional consumption patterns, including in the once staid food and restaurant industries. This change is giving a huge boost to one REIT in particular, Americold Realty Trust.

Research suggests that 70% of U.S. consumers will shop for at least part of their groceries through the internet in the next seven years.  FMI/Nielsen reports that 3% of grocery sales took place online in 2017. But that number is forecast to soar to 13% ($100 billion) by 2024.

Data from Walmart (WMT) backs up that forecast. In its latest quarter, it reported U.S. online sales soared by 37%, as online grocery sales provided a major boost.  With consumers embracing online grocery shopping, demand for cold storage facilities for storing frozen goods is rising.

The growth of online grocery sales has the U.S. market for cold-storage warehouses poised for strong growth, potentially creating demand for up to 100 million square feet of cold-storage space over the next five years, according to research from the industrial real estate firm CBRE (CBRE).

This outlook portends significant changes for the industrial cold-storage industry, which at 3.6 billion cubic feet (an estimated 214 million sq. ft.) currently accounts for just a tiny portion of U.S. industrial-and-logistics real estate overall.

The 100 million square feet number may turn out to be a lot higher when you consider the steady rise in the number of consumers dining out goes hand in hand with additional demand for fresh produce, meat, poultry and fish. That in turn also increases the need for refrigerated warehouses in cities across the U.S.

Couple that with the demographic shift to more urban locations and the ever-increasing U.S. population, and the need for more cold storage buildings becomes obvious.

The only REIT focused on the refrigerated warehouse sector is Americold, which successfully completed its $834 million IPO in January 2018. The company has a 26% market share in the United States and a nearly 5% market share worldwide. About 83% of its revenues come from the U.S.

The company owns and operates 179 temperature-controlled warehouses, with 1.1 billion refrigerated cubic feet of storage, in the United States, Australia, New Zealand, Canada and Argentina, serving more than 2,400 customers worldwide.

Here's an important stat to consider: 96% of all the frozen food that you find in your local grocery store comes through some company like Americold. Not surprising then that its list of customers reads like a who's who of the food industry, with well-known names such as Unilever, Danone, Conagra, Heinz, Sysco, Kroger, Safeway and Trader Joe's.

I expect Americold to even build on its lead as number one in the sector. That will be good news for investors because of the growth the refrigerated warehouse sector is experiencing. Once you add in its major expansion in Australia (its second biggest market), thanks to a deal with the country's largest grocer, Woolworth's,  Americold's stock offers both growth and income.

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