CEO Termination: This is one of the more interesting REIT blowups in recent memory, and its also frustrating from where we sit as the changes announced this evening will likely be viewed as a near-term positive catalyst for the stock. Best Idea Short COLD pre-announced 3Q21 results a day early, possibly following a regular/special Board meeting, and simultaneously announced the termination without cause of former CEO, Fred Boehler, who also resigned from the Board. George Chapelle, former CEO of AGRO Merchants Group (acquired by COLD last December), will become interim CEO while the company conducts a search for a new permanent CEO. Additionally, there were three new appointments to the Board all with merchandising/operational backgrounds, which we take as a signal that COLD is likely to undertake a heavy lift to turn around operations vs. put the company up for sale. In our view the latter would be more likely if we saw additions to the Board with financial and/or investment banking backgrounds. Things have moved very quickly since COLD reported its first guidance reduction on 8/5, followed by the absolute train wreck cut on 9/21.
Summing it all up, it is very clear, at least to us, that leadership had lost the confidence of both investors and the Board following the very poor job of diagnosing operational challenges and managing expectations this year. The operational picture inside the company appears far worse than we feared when we first added COLD to the short side. So bad, ironically, that it forced a rare removal of a REIT CEO (a notoriously entrenched sector) and will probably move shares higher in the near-term. We suppose you could label it "too bad." So what do we do with the stock from here? From a Signal perspective it stays on the Best Idea Short list unless it can recapture Trend = $32.68. Fundamentally we think the following happens over the next ~6 months: (1) COLD conducts a thorough CEO search during which guidance + USDA data (updated in Figure 2) move the stock, (2) new leadership elects to take a very conservative approach and "sandbags" FY22 guidance in mid-February, and (3) that is the point to think about switching it Long.
3Q21 Results: No surprises in the quarter with reported AFFO of $0.27/share -$0.01/share vs. Hedgeye and in-line with Consensus, and no alterations to the FY21 outlook for the same store warehouse portfolio vs. what was provided on 9/21. The penny delta to our number came on higher-than-expected interest expense in the quarter. Additionally, we had modeled SSRev declines in the quarter on a constant-FX basis along with +0.7% SSExp growth, while the company put up +2% and +5.8%, respectively. Ironically SSNOI came in right on target. This means two things: (1) we obviously have to update our estimates for the mix and (2) 4Q21 revenue declines are trending worse than we expected to arrive at -2% to flat on the year. The next catalyst will be updated USDA data published on or about 11/22.
Figure 1: COLD 3Q21 Earnings Variances
PDF Link
Figure 2: USDA Cold Storage Commodity Data
Please e-mail with any questions.
Rob Simone, CFA
Managing Director
Twitter: @HedgeyeREITs
