Business Combinations

9 Months Ended

Sep. 30, 2019

Acquisition of Cloverleaf

The Company completed the acquisition of privately-held Cloverleaf on May 1, 2019. A summary of the preliminary fair value of the assets acquired and liabilities assumed for total cash consideration of $1.24 billion is as follows (in thousands):



	Preliminary Purchase Price Allocation
Assets
Land	$	60,834
Building and improvements	673,371
Machinery and equipment	135,941
Assets under construction	19,977
Operating lease right-of-use assets	1,254
Cash and cash equivalents	4,332
Restricted cash	526
Accounts receivable	21,492
Goodwill	117,650
Acquired identifiable intangibles:
Customer relationships	256,927
Trade names and trademarks	1,626
Other assets	6,942
Total assets	1,300,872
Liabilities
Accounts payable and accrued expenses	39,978
Notes payable	3,878
Operating lease obligations	1,254
Unearned revenue	3,536
Pension and postretirement benefits	859
Deferred tax liability	8,488
Total liabilities	57,993
Total consideration for Cloverleaf acquisition	$	1,242,879

As the valuation of certain assets and liabilities for purposes of purchase price allocations are preliminary in nature, they are subject to adjustment as additional information is obtained about the facts and circumstances regarding these assets and liabilities that existed at the acquisition date. Any adjustments to our estimates of purchase price allocation will be made in the periods in which the adjustments are determined and the cumulative effect of such adjustments will be calculated as if the adjustments had been completed as of the acquisition dates. Adjustments recorded during the three months ended September 30, 2019 were not material to the Condensed Consolidated Balance Sheets, the Condensed Consolidated Statements of Operations or the Condensed Consolidated Statements of Cash Flows. The preliminary purchase price allocation will be finalized within one year from the date of acquisition.

As shown above, the Company recorded approximately $117.7 million of goodwill related to the Cloverleaf Acquisition. The strategic benefits of the acquisition include the Company's ability to add complementary customers into its network, provide an opportunity for growth in the Central and Southeast markets, deepen existing customer relationships, provide three expansion opportunities that are already under construction, provide one development opportunity and leverage integration experience to drive synergies and further enhance the warehouse network for new and existing customers. These factors contributed to the goodwill that was recorded upon consummation of the transaction. The Cloverleaf acquisition was completed through the acquisition of both stock and partnership units; the acquisition of partnership units allowed a portion of the goodwill recorded as a result of the Cloverleaf Acquisition to be deductible for federal income tax purposes. The goodwill related to the Cloverleaf Acquisition has been substantially assigned to the Warehouse segment, with a de minimis amount assigned to the Transportation segment. Deferred taxes may not be recorded for deductible goodwill unless the tax basis in goodwill exceeds the book basis, and the Company has not recorded any deferred taxes as a result. Deductible goodwill will be available to reduce taxable income for both the REIT and its domestic TRS.

As shown above, in connection with the Cloverleaf Acquisition the Company recorded an intangible asset of approximately $256.9 million for customer relationships which has been assigned a useful life of 25 years, and approximately $1.6 million for trade names and trademarks which has been assigned a useful life of 1.5 years. These intangible assets will be amortized on a straight-line basis over their respective useful lives. Based on the discussion under goodwill above, the Cloverleaf Acquisition resulted in federal income tax deductibility for a portion of the intangible assets. The deductible intangible assets will be available to reduce taxable income for both the REIT and its domestic TRS. The Company has recorded a deferred tax liability of $1.0 million for intangible assets.

Acquisition of Lanier

The Company completed the acquisition of privately-held Lanier on May 1, 2019. A summary of the preliminary fair value of the assets acquired and liabilities assumed for total cash consideration of $82.6 million is as follows (in thousands):



	Preliminary Purchase Price Allocation
Assets
Land	$	4,580
Building and improvements	41,396
Machinery and equipment	18,331
Cash and cash equivalents	646
Accounts receivable	1,381
Operating and finance lease right-of-use assets	82
Goodwill	7,900
Customer relationships	10,392
Other assets	75
Total assets	84,783
Liabilities
Accounts payable and accrued expenses	1,497
Deferred tax liability	650
Operating and finance lease obligations	82
Total liabilities	2,229
Total consideration for Lanier acquisition	$	82,554

As the valuation of certain assets and liabilities for purposes of purchase price allocations are preliminary in nature, they are subject to adjustment as additional information is obtained about the facts and circumstances regarding these assets and liabilities that existed at the acquisition date. Any adjustments to our estimates of purchase price allocation will be made in the periods in which the adjustments are determined and the cumulative effect of such adjustments will be calculated as if the adjustments had been completed as of the acquisition date. Adjustments recorded during the three months ended September 30, 2019 were not material to the Condensed Consolidated Balance Sheets, the Condensed Consolidated Statements of Operations or the Condensed Consolidated Statements of Cash Flows. The preliminary purchase price allocation will be finalized within one year from the date of acquisition.

As shown above, the Company recorded approximately $7.9 million of goodwill related to the Lanier acquisition. The strategic benefits of the acquisition include increased presence in the north Georgia poultry market and leveraging integration experience to drive synergies and further enhance the warehouse network for new and existing customers. These factors contributed to the goodwill that was recorded upon consummation of the transaction. The Lanier acquisition was completed through the acquisition of both stock and partnership units; the acquisition of partnership units allowed a portion of the goodwill recorded as a result of the Lanier acquisition to be deductible for federal income tax purposes. The goodwill related to the Lanier acquisition has been assigned to the Warehouse segment. Deferred taxes may not be recorded for deductible goodwill unless the tax basis exceeds the book basis, and the Company has not recorded any deferred taxes as a result. Deductible goodwill will be available to reduce taxable income at both the REIT and its domestic TRS.

As shown above, the Company recorded approximately $10.4 million of customer relationships related to the Lanier acquisition which has been assigned a useful life of 25 years and will be amortized on a straight-line basis. Based on the discussion under goodwill above, the Lanier acquisition resulted in federal income tax deductibility for a portion of the intangible assets. The deductible intangible assets will be available to reduce taxable income at both the REIT and its domestic TRS. The Company has recorded a deferred tax liability of $0.1 million for intangible assets.

Pro Forma Financial Information

The unaudited pro forma financial information set forth below is based on the historical condensed consolidated statements of operations for the three and nine months ended September 30, 2019 and 2018, adjusted to give effect to the Cloverleaf Acquisition as if it had occurred on January 1, 2018. The pro forma adjustments primarily relate to acquisition expenses, depreciation expense on acquired assets, amortization of acquired intangibles, and estimated interest expense related to financing transactions, the proceeds of which were used to fund the acquisition of Cloverleaf.

On March 1, 2019, Cloverleaf acquired Zero Mountain, Inc. and Subsidiaries (Zero Mountain). As a result, we have included the results of operations of Zero Mountain in the below pro forma financial information. The pro forma adjustments made include the acquisition expenses incurred in connection with Cloverleaf's acquisition of Zero Mountain.

The accompanying unaudited pro forma condensed consolidated financial statements exclude the results of the Lanier acquisition, which was deemed immaterial, and are provided for illustrative purposes only and do not purport to represent what the actual Condensed Consolidated Statements of Operations of the Company or the Operating Partnership would have been had the Cloverleaf Acquisition occurred on the dates assumed, nor are they necessarily indicative of what the results of operations would be for any future periods.

Americold Realty Trust and Subsidiaries



	Pro forma (unaudited)
	(in thousands, except per share data)
	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Total revenue	$	466,182	$	456,209	$	1,373,281	$	1,351,356
Net income available to common shareholders⁽¹⁾	$	27,874	$	20,805	$	29,178	$	882
Net income per share, diluted⁽²⁾	$	0.14	$	0.11	$	0.15	$	—

Americold Realty Operating Partnership, L.P. and Subsidiaries



	Pro forma (unaudited)
	(in thousands, except per share data)
	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Total revenue	$	466,182	$	456,209	$	1,373,281	$	1,351,356
Net income available to common unitholders⁽¹⁾	$	27,874	$	20,838	$	29,178	$	882
Net income per unit, diluted⁽²⁾	$	0.15	$	0.11	$	0.15	$	—

⁽¹⁾ Pro forma net income available to common shareholders was adjusted to exclude $0.8 million and $26.5 million of acquisition related costs incurred by the Company during the three and nine months ended September 30, 2019, respectively, and to include these charges in pro forma net income for the nine months ended September 30, 2018.

⁽²⁾Adjusted to give effect to the issuance of approximately 42.1 million common shares in connection with the Cloverleaf Acquisition.

Since the date of acquisition, total revenues of approximately $53.9 million and $93.4 million and net income of approximately $2.8 million and $4.7 million associated with properties acquired in the Cloverleaf Acquisition are included in the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2019, respectively.