Americold Realty Trust, Inc.
Q1 2021 Earnings Call Transcript

Published: 9 May 2021

[Operator:]

Greetings, ladies and gentlemen and welcome to Americold Realty Trust First Quarter Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. It is now my pleasure to introduce your host, Mr. Scott Henderson. Thank you. You may begin.

[Scott Henderson:]

Good afternoon. We would like to thank you for joining us today for Americold Realty Trust first quarter 2021 earnings conference call. In addition to the press release distributed this afternoon, we have filed a supplemental package with additional detail on our results, which is available in the Investors section on our website at www.americold.com. On today's call, management's prepared remarks and answers to your questions may contain forward-looking statements. Forward-looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ from those discussed today.

[Fred Boehler:]

Thank you and welcome to our first quarter 2021 earnings conference call. We hope everyone on this call is well. This afternoon I will summarize our first quarter 2021 results, our current view of market conditions and our external growth activity. Marc will then review our quarterly results in more detail, as well as our recent capital markets activity and guidance for 2021. After our prepared remarks, we'll open the call for your questions. For the first quarter of 2021, Global Warehouse segment revenue was $485 million, which reflects growth of 27% year-over-year. Global Warehouse segment NOI was $146 million, which reflects growth of 15%. For the first quarter 2021, our Global Warehouse same store revenue decreased by 3.8% on a constant currency basis. Our Global Warehouse same store NOI decreased by 6.9% on a constant currency basis. I'll note that if we normalize for the acquisitions that were added into our same store pool this quarter and the COVID surge from the first quarter of last year, our same store results would have been essentially flat on revenue and slightly positive on NOI. As discussed on the last earnings call, we fully anticipated continued supply chain disruption. As such, quarterly comps will be less relevant over the course of the year. We've factored in supply chain variability, food service levels well below historic norms, elevated retail activity, food production at less than full capacity, and continued sanitation PPE costs. We are reaffirming our annual guidance for the year.

[Marc Smernoff:]

Thank you, Fred, and good afternoon, everyone. For the first quarter, we reported total company revenue of $635 million and total company NOI of $157 million, which reflects a 31.1% increase and a 16% increase year-over-year, respectively. Core EBITDA was $118 million for the first quarter of 2021, an increase of 13.1% year-over-year. This was driven by our 2020 acquisitions and recent developments over the past year. This was partially offset by lower revenue due to volumes impacted by COVID, higher COVID-related costs and incremental corporate SG&A related to our recent acquisitions.

[Fred Boehler:]

Thanks, Marc. Americold remains a mission critical part of the global temperature-controlled food supply chain. Our global network has produced stable and consistent growth over many years, and we expect it will continue to do so. We also recently took opportunities to complete several acquisitions and would like to welcome the Liberty, KMT and Bowman associates to the Americold family. Finally, we again want to thank all of our associates, especially our frontline associates for their hard work and dedication. Thanks again for joining us today, and we will now open the call for your questions. Operator?

[Scott Henderson:]

Thank you, Fred. Before we take questions, you may have noticed we posted our earnings release today at approximately PM Eastern Time due to a technical issue with a third-party website provider. All of our materials are now posted and have been filed as appropriate.

[Operator:]

Our first question comes from the line of Dave Rodgers with Robert W. Baird. Please proceed with your question.

[Dave Rodgers:]

Fred, wanted to start with you on the protein impact to the same store pool and your overall kind of guidance. But starting with the protein, I think when we talked last year, you made it, I thought, fairly clear that there was kind of a rolling impact, but it wasn't that severe and it just kind of happens from time to time I think your comments today suggests that it has not normalized and won't be normal for most of 2021. So I guess I'm wondering what changed in that kind of view that you guys had shared last year if anything. And then I guess the second question is maybe for Marc, can you give us a sense of what the core legacy COLD same store portfolio delivered versus the contribution because you only grew the portfolio by about 20% on the same store side and it seems like it might have had an outsized impact?

[Fred Boehler:]

Yes. So, first of all, on the protein piece, there's many products. I think we talk about protein as kind of being the lead indicator from what we've seen given the disproportionate amount of protein that came with the acquisition. Really all manufacturers have been impacted by a slowdown in manufacturing. So we talked about that the last couple quarters, everybody's affected. Anybody that runs a manufacturing operation is impacted by having to mitigate their line speeds and such. And so as a result that's eaten into kind of the physical inventory, which is their safety stock. So think about it, demand for the consumers remain steady as I say, we're always going to eat, right, so that demand has remained steady. The problem is the manufacturers have been unable to keep up with that demand, hence the reduction in our physical inventory. So we use protein as an example because it's been the most public, out there in the marketplace in terms of what's been going on through some of their manufacturing operations and supported by the USDA report. So, it's one industry that does a pretty good job of putting public information out there and talks about the declines and kind of the pressure on that particular part of the food supply chain. So, that's why we are using it as just kind of a barometer to give a sense. As it pertains to the same store pool, again, we did over index, if you will, the acquisitions that we made, particularly Cloverleaf and that's now part of our same store pool. So, the impact on that particular segment has been a little bit more than others. Yes, I will remind folks that if you kind of go back, we talked about protein, we talked about substitutability and such. This is unique. COVID is impacting all manufacturers regardless of what they're processing. Usually when one protein is down, the other ones up and it kind of stabilizes through our network, but this is a bit different and unprecedented because it has more to do with just manufacturing overall, so. Marc?

[Marc Smernoff:]

Yes. I think Fred said it best. If you look at our same store results and you pull out the acquisition, the protein heavy piece which Fred just discussed, and you pull out what we called out last year is the historic surge, overall - our overall portfolio revenue on the same store would have been slightly down, and then - or, flat sorry, and then NOI would have been slightly positive in the 1%-ish range, so.

[Dave Rodgers:]

Okay, that's helpful. With reiterating the guidance overall I guess two questions. One is, can you give us a peek into April and May in terms of are you seeing kind of continued improvement off of what was maybe a low point in the first quarter? And then, Marc, I guess to get to that midpoint of your guidance for the year, you're looking at about 14% year-over-year growth for the remaining three quarters of the year against a pretty tough comp. Big picture, big pieces that contribute to that that you have a lot of confidence in, color there would be helpful. Thank you.

[Fred Boehler:]

Yes, I think I'll give a little prelude and then let Marc to pick-up on it, but as we talked about in our prepared remarks, we are seeing a little bit of an uptick. We're seeing manufacturers start to come back as the vaccinations are rolling out and restrictions are starting to free up a little bit. So manufacturers are geared back up. At some point, and this is just the way the food industry works, that inventory is going to get built back up. So nobody's happy with their inventory levels, they're struggling to keep up with retailer and distributor demands fulfilled. So, they're going to rebuild those inventories. So as those manufacturing lines start to get more and more productive, we expect to see that builds in inventory and as we've talked about, the builds in inventory and storage is the more profitable part of our business. And we expect that to gradually increase as we go throughout the year, so, whereas it was down quite a bit last year, gradually declined over the course of last year.

[Marc Smernoff:]

Yes, and as it relates to the full year and the outlook, I think Fred really said it best in his prepared remarks and his just recent remarks that we're seeing kind of renewed activity from our manufacturing clients, which gives us encouragement that we're going to see improved activity as you move throughout the balance of this year. I would remind people, we look at our business on a full year basis. We knew going into this year that given all the activity in Q1 last year and the strength that that was a tough comp. But when we look for the balance of the year with this renewed activity, we're very confident that we'll be able to deliver within our guidance range.

[Operator:]

Our next question comes from the line of Manny Korchman with Citi. Please proceed with your question.

[Manny Korchman:]

Fred, you sort of just touched on this in response to Dave's question, but maybe I'll ask in a different way. Is there the risk that the manufacturers are actually going to take advantage of the situation, say, maybe we were paying too much for the storage of our product before, we've learned to become leaner, meaner, we've got better systems in place, we found spots that maybe we don't need as much, product or space or however you want to look at it? And there's a new normal, if you will, between sort of old inventory levels and the new ones.

[Fred Boehler:]

Yes. Thanks, Manny. Great question. But the answer is no. Look, like I said, we talk to all of the food manufacturers. I was just with a couple big ones earlier this week. They are scrambling like crazy to rebuild inventory. So they are failing to meet the needs of the retailers today. Their line fills - so a customer orders 10, they're only able to fill 8. So their line fills are horrible. They're getting penalized by retailers as a result of not being able to service. The retailers are upset because they never want a customer to walk into their store and have a stock out. And so that's why the safety stock exists and has existed for decades. So I fully expect it to get back. Nobody is happy with where those levels are. This is not the type of industry that can be run just in time.

[Manny Korchman:]

Right. And then just in terms of competition in the space, whether that be for acquisitions or for customer agreements, have you seen any changes over the last few months or quarters?

[Fred Boehler:]

No. It's really been pretty steady. Obviously, on the acquisition front, we run into the usual suspects. I haven't really seen any new entrants into that. In terms of customer contracts, we reported our churn rate again at being at a low 3.5%, and it's pretty steady there. That just goes to show you that we're not losing any of our big deals to competition, so. As a matter of fact, it's quite opposite most of the time, so.

[Manny Korchman:]

And maybe one last quick one for me. It looks like one of these deals came with more transportation services. Is that a business that you'd maintain, grow, shrink, otherwise?

[Fred Boehler:]

I'd say that we're evaluating it. It's kind of a gift-with-purchase, if you will. So lots of companies are pure-play warehouse companies. They do have some ancillary aspects of their business. This particular business is focused on consolidation, which is what we believe is the real strength of transportation. And so that's where we're able to pool up the smaller customers together and create full truckloads going to the retailers and the food service guys. That's the most efficient. It's the most ESG-friendly. That's the good transportation engine that we continue to drive. As for other ancillary, we'll get in there. We'll assess the profitability, and we'll determine how we move forward with it. But by no means do we have a desire to become a transportation company, that is not our core. We are more brokers of consolidation.

[Operator:]

Our next question comes from the line of Nate Crossett with Berenberg. Please proceed with your question.

[Nate Crossett:]

Maybe just a follow-up on the previous questions in form of clarification. So when are you guys kind of underwriting that you expect to see pre-COVID inventory levels? Is it at any point later this year or is it still a 2022 event? I mean, I know it's incredibly difficult, but what does your guidance and underwriting kind of assume right now?

[Marc Smernoff:]

Yes. As we look at it and based on the conversation we're having for our customers, we really see getting close to pre-COVID levels coming into the back half of the year, really going into the seasonal build. And so, we're encouraged - as we said, we're encouraged by the conversations we're having with our clients. We're encouraged by what we see and hear them doing in terms of adding additional production lines and really doing their best to try to ramp up production. And as Fred mentioned earlier, they're struggling to meet their customers' needs. So we think that does bode well for us. And as we said, this isn't an industry that runs just-in-time. It needs sufficient safety stock through the different nodes to run efficiently.

[Fred Boehler:]

Yes. And Nate, I think if you think about our guidance, right, that we're reaffirming here, it's fairly wide, if you will. And when we built that guidance, we did so without being able to pinpoint exactly when we would reach pre-COVID levels. We knew the supply chains were going to be disrupted over the course of the year. So the way I would look at things is, if manufacturers ramp up faster - remember, we have 5,000 customers. So all of them are in a different location, different restrictions, different type of situation. But if they all ramp up and it happens faster than we think, that would obviously push us towards the top end. If it lags a little bit and takes a little bit longer to get up to those levels, we believe we'll be at the low end. So we think we have that kind of flexibility. And really, there's just no lens that we can see other than what we've seen happen in the recent weeks in terms of an uptick that makes us feel comfortable that we're going to be able to hit the range. Hope that helps.

[Nate Crossett:]

Okay. Yes. I mean is there any large disparity between what you're seeing in the U.S. versus Europe customers just due to vaccines rolling out quicker in the U.S.? I don't know if you're - if that's kind of translating to customer behavior for you guys?

[Fred Boehler:]

Yes. It's very, very similar. It's shocking how similar it is, really around the entire world. So we're seeing the same type of phenomenon.

[Nate Crossett:]

Okay. And then, just one quick one on inflation. What are you guys seeing in terms of input costs just for development and like - is this going to have any impact on maybe the yields that you can execute on? And then also, if you do have higher build costs, does that kind of impact how customers think about maybe outsourcing more development to you guys?

[Fred Boehler:]

Yes. No, good question, Nate. In terms of - I'll take the inflation in two pieces just so we cover them both. The inflation to our base business is pretty nonexistent, really. I mean if you think about it, we're all labor and utilities. So we don't really have raw materials and those types of goods that you'll undoubtedly see inflation. As we've talked about in the past, labor rates haven't increased yet. I would expect that we'll see some pressure on that, but we do have protections and the ability to be able to pass that on through. So we feel pretty comfortable, both on the labor and on the utilities front. As for development, the biggest impact - it's not impacting any of our existing current development projects. However, we do see it impacting some of the new projects that we're working on, and it is definitely having an impact on the cost of that construction. In terms of the returns that we get on that, look, we build all that into our models and we pass them through to try to protect the margin that we want. So in other words, we will price that into our pricing with our customers to be able to protect that return on that investment. So we feel very comfortable that we're capable of doing that. As for in-source versus outsource, look, all of our customers are going to experience the exact same cost. So it really doesn't change the equation because it's neutral. It's affecting everybody.

[Operator:]

Our next question comes from the line of Michael Carroll with RBC Capital Markets. Please proceed with your question.

[Michael Carroll:]

Yes. Thanks. So talking a little bit about the manufacturing side, can you kind of quantify how much has activity improved? I think in the press release, it said that activity improved in the back half of 1Q and into 2Q? I mean, how big of an improvement was that?

[Fred Boehler:]

Well, we really try to stay away from monthly information. I would just say that we're seeing an uptick. Again, we guide on a full annual basis, not on a quarterly basis. And we believe that that uptick has given us the confidence to be able to deliver within that full year. So volume is picking up, we are seeing it. All signs are pointing to recovery both from our customers and externally if you look at the macroeconomic climate right now, especially here in the U.S.

[Michael Carroll:]

Okay. And then, I guess will this cause your same-store trend to kind of trend towards the lower end of that long-term range? I mean, I guess while manufacturing will pick up that will help your throughput, I mean you'll probably regain that throughout the year, but you're probably going to lose the storage revenue, right, from the lower inventories in the first quarter. I mean, how big of a deal will that have on the full year results?

[Fred Boehler:]

No. I think what we're saying is while the manufacturers pick up, yes, that will help with throughput. But throughput is kind of - I mean it's not lacking as much as storage, if you will, because again, the throughput is coming out of storage instead of literally going through the building and not hitting inventory. So we expect inventory to start building back up as the manufacturers come up. We think that they're going to produce pretty aggressively to refill those stocks.

[Michael Carroll:]

So the lost inventory revenue though that you had in 1Q from lower - the lost storage revenues from the lower inventory in 1Q, I mean that's the bigger margin, right? So that's something you're not going to be able to regain, but the throughput, you'll be able to regain on the full year result at least?

[Fred Boehler:]

We'll be able to regain on the storage as well if all things go as what we're seeing because if you recall, last year, it was a steady decline of physical inventory over the course of the year. So we'll see an opposite trend this year as that recovers.

[Michael Carroll:]

Okay. And then can you remind us about the J-curve for acquisitions? I mean I know that you're talking about the acquisitions were heavily protein-related. So I guess those trends are going to be lower probably in the second year after acquiring them. But how should we typically think about that? So PortFresh, for example, had a net entry NOI of 6.7% but a stabilized NOI between 9% to 12%. I mean, how long - or I guess what does that yield look like in year two and three before you get to that stabilized yield in year three?

[Fred Boehler:]

Yes. I think if you look at our supplement in the guidance, our acquisitions really don't have a J-curve, right? So, the J implies that you're going to go negative or below that yield. The way that we guide on acquisitions is that typically, there's kind of a three-year run, right? So the first year is relatively neutral-ish. So we are investing in the business as well as taking cost out of the business. And then in years two, three, we start ramping up 100 to 200 basis points on top of that yield. So, that's our typical guidance and typical trajectory that we see with all of our acquisitions. That said, I will call out that we did give a little bit different guidance on the Agro deal where we made it a five-year. So, we said two years kind of even on the inbound yield, and then ramp up that 100 to 200 basis points over the course of those following three years. And the reason why that was different is just, number one, the size and the number of entities contained within Agro as well as, at the time that we did that acquisition, we were starting to hear things. And sure enough, it happened with COVID. And then - well, not starting to hear things, we were in the middle of COVID. So, we weren't sure exactly when we were going to be able to get over there and how aggressive we would be able to get after it. So that's why we gave ourselves five years on that integration effort.

[Operator:]

Our next question comes from the line of Ki Bin Kim with Truist.

[Ki Bin Kim:]

Thanks. Good afternoon, everyone. I was wondering if you can go back to the comments about manufacturing output being lower for your top tenants. Just help us understand what that really means.

[Fred Boehler:]

Yes. I mean...

[Ki Bin Kim:]

So what are we talking about here in terms of like how much core and how much has that actually improved, sort of, to your tenants in April?

[Fred Boehler:]

Yes. So, if you think about it, I'm not going to - I don't have exact numbers here, but I would point you and tell you to take a look at some of the USDA information that's out there, which talks about pork stocks and beef stocks and poultry stocks, et cetera. And I think if you look at something like pork, I don't have it right in front of me, but I want to say their stock, their inventory levels are like 30% down. So, that is a function of the manufacturers not being able to produce to meet the demand. So, what is happening is they're, again, I will keep using the phrase, eating into the safety stock. So their inventory levels that are in our stores are meant to do two things. Number one, to be able to make sure that they're able to deliver to customers as they need it and have that inventory ready to go within a moment's notice. And number two, to be able to weather storms literally like hurricanes and disruptions in the marketplace, plant shutdowns and that type of thing. So that's why they have inventory in the first place. And so what they're being impacted by is an elongated plant disruption, if you think about it. Let's talk about that hurricane effect, right? So it's elongated. Instead of just being a month, it's a year. So, if consumer demand is the same, let's say the demand pull is 100 units and they have 30 units in inventory and the manufacturers are only able to produce at 90 units, they're 10 units shy of the 100 in demand. And so that 10 units comes out of the physical inventory, which is our safety stock - their safety stock, our physical inventory. So that's what's happening. So due to the lower production, not only do I see lower throughput coming through from the manufacturers, but the bigger impact is I'm losing inventory space. Now that gets mitigated a little bit with those customers that we have fixed commitments with. So we're protecting their space and locking in their space. But as we've discussed, that's not holistic around all 5,000 of our customers and all 100% of our physical inventory, so - or economic inventory. So that's kind of the dynamics at play here, Ki Bin.

[Ki Bin Kim:]

So using that particular example, if a pork manufacturer's output is down 30%, I guess it makes sense that to your business the impact is probably greater than 30% because of inventory drawdown? Am I thinking about that correctly?

[Fred Boehler:]

Probably a little bit less. It kind of goes the opposite way because they're actually able to produce some product, but they're taking down the inventory, right.

[Marc Smernoff:]

Net-net, it's going down.

[Fred Boehler:]

Yes, net-net, it's down.

[Ki Bin Kim:]

Okay. And...

[Marc Smernoff:]

Ki Bin, you see that on a macro basis and what the USDA is reporting. So as Fred said, overall big categories, frozen poultry down 17% March to March, frozen fruit stocks down 17% March to March. Pork supply is down 27% March to March. So that just shows you demand has been stable. So our - consumers would continue to eat. You hear Fred talk about - as Fred was saying, the consumer demand is stable, but what we have seen is the fact that the manufacturers haven't been able to keep up to support that steady demand, which is why we're seeing our safety stock, the physical inventory within our network be drawn down in order to satisfy that stable demand.

[Fred Boehler:]

And that's the beauty here. If you think about our model, most companies when they have down periods of time, it's because the demand is not there. The demand is here. So the demand is steady, and it always will be because we're talking about food and food consumption. So that's the beauty here. We're just artificially hampered right now because of the manufacturers' ability to be able to produce given the COVID environment that we're in. Again, as we come out of COVID, as things start to loosen up, they'll start to get back up to production and the business snaps back. So that's the positive outlook that you're hearing from us.

[Ki Bin Kim:]

Okay.

[Marc Smernoff:]

Ki Bin, just also keep in mind, most of our acquisitions aren't going to have fixed commitments in place.

[Fred Boehler:]

Right.

[Marc Smernoff:]

And so as we commercialize the business, like our legacy business, you'll see those fixed commitments come into place.

[Ki Bin Kim:]

Okay. And the second part to that question, when you talk about these type of tenants showing improvement, what kind of magnitude are we talking about? I don't mean your guidance for throughput pallets, I'm talking about from your tenant perspective?

[Marc Smernoff:]

Yes. No, look, as Fred mentioned, they're struggling to meet their end customer demand. So they're trying to get their inventory production back where they can safely satisfy their customer demand and the fill rates required to meet their - the terms of their contracts with their end customers.

[Fred Boehler:]

Yes. And I don't know - look, again, 5,000 customers. Some customers are going to be a little bit more skittish and they're going to over-index. I think you'll see them go with larger inventory pools as we head into the future. I would say as for the rest of the customers that don't over-index, at a minimum, they're going to get back to their norm. So, I don't see anybody. And I can't think of a single customer that is happy with where their inventory positions are and feel that they could run a lower inventory at this point.

[Operator:]

Our next question comes from the line of Joshua Dennerlein with Bank of America. Please proceed with your question.

[Joshua Dennerlein:]

Hope you're all well. In the past, you've mentioned some inefficiencies from social distancing within your warehouses. Does your guidance assume that those inefficiencies hold throughout the year?

[Fred Boehler:]

Yes. We did embed those into our plans, both the inefficiencies with labor as well as the extra PPE costs associated with sanitation and some of that aspect. As we've discussed in the past, we believe some of those practices that were actually put in place are best practices for us to carry forward. We think that it will help us in the future with absenteeism around things like the flu. So the more sanitized areas that we can have and safer work environments, we believe, will stem turnover and help ensure that we have our regular employees at work. And when our regular employees are at work, we're more productive. So a lot of those are going to stay with us. And we will embed that whole cost structure and impact into our activity-based costing models, which we already have. And so we price all new business accordingly.

[Marc Smernoff:]

The other thing I would add is, this was - Q1 of 2021 was the last quarter where we were comping a period this year where we had COVID-related PPE and sanitation costs more materially than last Q1 we did not. So going - as we moved into Q2 and beyond, those costs really were in our cost structure.

[Joshua Dennerlein:]

Okay. That's good to know. Are there any other kind of moving pieces that we should be aware of for same-store for next quarter, case effects, the holiday shift?

[Marc Smernoff:]

The one big thing I would just call out in Q2 of last year is the quarter that we paid an appreciation bonus to our front-line workers. So that was just something I would just call out. I think it was in aggregate of about $5 million for the total company.

[Fred Boehler:]

Yes. So really, outside of that, I mean, the business - every other aspect of the business is really normal. It's simply a function of getting manufacturing capacity backup.

[Joshua Dennerlein:]

Okay. And then, maybe on - you mentioned if you normalized for like the pandemic and the change in the same-store pool that I think NOI would just be down a little bit, your revenues would be flat. Is there any way to quantify like how much of that normalization would be driven by the pandemic versus like the change in same-store pool?

[Marc Smernoff:]

Yes. So I think we actually tried to do that, so. And just to be clear, as Fred mentioned in his prepared remarks, adjusting for those two items, stripping out the acquisitions and adjusting for kind of the COVID-related upside we saw last year, revenues would be flat and NOI would be slightly up. As we said, the COVID surge impact, we quantified that as roughly about half of our overall growth last year. If you think about the impact, this was about $6 million that we have called out related to Q1's result last year.

[Fred Boehler:]

Yes. So think about that, I mean outside of the surge, if you will, the first quarter last year was relatively normal, of course a little bit of buildup in some inventory for export anticipation to China. But it was, for all intents and purposes until the end of that quarter, a fairly normal quarter. And then we had the surge that kind of really, really boosted this up, right? So if you think about that, stripping that surge away and looking at like-for-like same-store to that first quarter, the fact that we're up on NOI with so much less physical inventory is actually pretty, pretty good performance. So - because our - again, we're looking at a full quarter of COVID impact this quarter versus really no impact last year other than a positive. So the fact that - that's why I stripped that out to say, hey, look, we're actually positive on NOI with that much less physical inventory.

[Joshua Dennerlein:]

Okay. Awesome. And then maybe one just final one. I think on the Toronto acquisition, if I read the press release correctly, it sounded like it came with warehouse operations. Was that like actual warehouse, like regular dry industrial boxes or something else?

[Fred Boehler:]

No, no. They're all temperature controlled.

[Marc Smernoff:]

It's all temperature controlled.

[Operator:]

Our next question comes from the line of Vince Tibone with Green Street Advisors. Please proceed with your questions.

[Vince Tibone:]

How do you think cold storage cap rates have changed over the past six months? If you were buying the Hall's portfolio today, for example, how different do you think that cap rate would be?

[Marc Smernoff:]

Over the last six months, pretty - yes, I would say pretty flat to maybe 25 basis points tighter. As you can see, there's a lot of interest in our category in our space. And I think you've seen that. You can see some of it as you look in our M&A results and you go through the different deals and you see the overall yields tighten from a couple years ago. But in terms of the last six-month movement, it's probably in the 25 basis points to flat range.

[Vince Tibone:]

And just to clarify, 25 basis points lower or higher? Sorry, I wasn't clear on your comment.

[Marc Smernoff:]

Sorry, lower.

[Vince Tibone:]

And then one more. Can you just provide an overview of the supply landscape today? Are you seeing an acceleration of supply nationally? And are there any markets where overbuilding is a concern?

[Fred Boehler:]

Yes. No. I mean, look, the industry as a whole still remains very, very disciplined. There's some noise out there from a couple developers here and there but very few shovels in the ground. And there's a lot of conversations going on. But like I said, the barriers to - barriers into this industry are very, very difficult. So nobody's starting up new cold storage companies unless they're legacy cold storage individuals. And the reason for that is, again, we talk about food safety being so critical, so fundamental. We've talked about brand recognition being so global. Food manufacturers aren't getting entrust, a newbie into this industry and put all of that at risk and stake. So you don't see that happening. The developers that are talking about developing, remember, the difficulty here is our business is not just about the asset. It's about the full business. It's about the services and the infrastructure. And they go hand-in-hand. So developers building infrastructure doesn't really do a whole lot and isn't worth a whole lot unless somebody is running it. And the two largest players really aren't interested in leasing space. We're more interested, obviously, in owning our infrastructure, and we're not really interested in buying from developers, quite frankly, because we have our own builders to build, and we don't have to pay a middleman. So I just don't see - I see a lot of talk about it, as Marc said. There's a lot of interest in our space, and I get it. It's just more complex than building industrial buildings.

[Vince Tibone:]

That's really helpful color. Just maybe if you can just provide a ballpark estimate supply data and for the sector, tough to come by. Like where do you think construction is as a percentage of existing stock?

[Marc Smernoff:]

1-ish, 1.5% maybe with all the development going on. And remember, we're probably - we're the majority of that development right now. I mean we are, I think, developing more than anybody else right now in terms of active projects. There's a fair amount of construction going on. But if you look at the GCCA, they're probably the best reference point in terms of talking about what that existing landscape looks like and the growth year-over-year. They can probably give you the best input.

[Operator:]

Our next question comes from the line of Mike Mueller with JPMorgan. Please proceed with your question.

[Mike Mueller:]

I think you mentioned in the comments that you picked up a top five customer and moved them to fixed commitment. I'm just curious, out of the top 10 or so, how many aren't on fixed commitments?

[Fred Boehler:]

Two. If you look at our top 25, it's probably 5. So, yes.

[Mike Mueller:]

Got it. And then...

[Fred Boehler:]

And some of that - yes, go ahead. Sorry.

[Mike Mueller:]

No, sorry. Go ahead.

[Marc Smernoff:]

88%, Mike, if you look at our most recent deck, utilize fixed commitment of our top 25.

[Mike Mueller:]

And when you're thinking about, I guess, Europe and just how that's going, can you talk about the receptivity there?

[Fred Boehler:]

Yes. I mean, so far, so good. I mean I would say that most of our work has been done remotely. A lot of it is getting alignment internally. And I would say that we're very focused, kind of inwardly focused right now on stock compliance and kind of getting all of that rolled together, getting our structure in place organizationally. And that's going really well. So we are definitely making progress there. We're starting to have those conversations to get those introductions to the customers. I think I mentioned on the last call that we're very excited. We've got two individuals that know the Americold playbook by the back of their hand, one from the operations side and one from the business development side. And those two individuals will be going into leadership roles in Europe to help lead that effort. And I think by having that expertise is going to help us make progress a bit faster than if we were to try to manage that from the States and educate and train the European team on how to do that. So having somebody on the ground full-time every single day, 24/7, I think, is going to help move us a bit faster, so.

[Operator:]

Thank you. Ladies and gentlemen, there are no further questions. I would like to turn the conference back to Fred Boehler for his closing comments.

[Fred Boehler:]

Yes. Thanks, everyone, for participating this evening. Apologize for the minor snafu earlier today with the press release getting out there. Hopefully, that doesn't cause any issues. So look, the business remains - the business fundamentals remain intact. And I think that's the key message that we want to get through today. Our business, it's imperative that you look at it on a full year basis. Last year was a perfect example as to why that is so critically important. This hit us out of nowhere last year after the first quarter. We repeatedly confirmed guidance and delivered that guidance. So we obviously felt some pressure this quarter as compared to the first quarter because the first quarter last year was a non-COVID environment until the last couple weeks. And this quarter was a full COVID environment. That said, we are bullish and optimistic as to the way that the business is seeming to pick up, the way manufacturers are starting to get back to normal, the way the criteria, the stay-at-home orders and all of those things are starting to loosen up around the United States, gives us great confidence that we'll be able to deliver again in the year. So again, on the strength of steady, stable consumer demand. So thank you again this evening. Have a great night.

[Operator:]

Thank you. Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.