Hedgeye - COLD 1Q22 RESULTS | SETTING UP ANOTHER GUIDANCE CUT? | 5.6.22

Hedgeye Cartoon of the Day: Quad 4 Freight Train

Ticker: COLD

Subsector: Industrial / Logistics

Headline: 1Q22 better, but lots of questions and numbers still too high

Best Idea Short COLD 1Q22 AFFO of $0.26/share was +$0.03/share vs. Hedgeye and +$0.02/share vs. Consensus. It looks like results came in +$0.02/share vs. our model above the Warehouse NOI line between the same store and non-same store pools (we are going to update for the new same store pool), and +$0.01/share on lower current income tax expense. Third-party services and transportation were essentially right down the middle, and warehouse NOI accounts for 90-95% of total NOI.
Interestingly the company took expected FY22 constant-FX warehouse SSRev growth higher by +200bps vs. its prior outlook, but also lowered expected SSNOI growth relative to the top-line by -200bps, so essentially a push driven by higher opex and leaving expected AFFO unchanged at $1.00-$1.10/share which we think is too high. The only other changes were on expected FX rates.
We would handicap a very high probability of a guidance cut again this year. We are still thinking through it, but on a preliminary basis our model is shaking out at AFFO of ~$0.95/share, below the company's $1.00-$1.10 range. This would imply an AFFO dividend payout ratio nearing ~95% on the year, so essentially no cushion there with already high leverage, external funding commitments and a depressed stock price.
Probably our biggest question/issue outside of the guidance, and we have been talking about this since late-2021, is the ~$200 million of remaining development spend with development costs clearly moving higher sequentially. Total liquidity is ~$657 million between undrawn revolver capacity and ~$50 million of cash on the balance sheet, but total debt increased another ~$100 million sequentially from revolver draws and reported Net Debt / EBITDA already stands too high at ~6.6x. This metric should be at least a turn lower and the earnings recovery is a FY23 story at the earliest, but will be moving higher from here (most likely touching ~7x) as the company completes its current development spend. Historically COLD has partially funded external growth via ATM and secondary equity issuance, but now there is a scenario where COLD may have to tap these sources of capital well-below "NAV" in order to bring leverage down to more manageable levels. Alternatively COLD could grow/recover its way back, however that would take a significant amount of time and would limit external growth which has been a very significant driver of COLD's total earnings growth historically. This is happening at a time when it would make the most sense to deploy capital externally on opportunistic acquisitions, so not great.
Again between development funding costs and supporting the current dividend payout, there is very little capital flexibility at a time when fundamentals may be worsening particularly on the expense side as expected.