Business Combinations

3 Months Ended

Mar. 31, 2020

Acquisitions Completed During the Three Months Ended March 31, 2020

The Company completed the acquisition of privately-held Nova Cold on January 2, 2020 for total cash consideration of approximately CAD $337.3 million, net of cash received, or $259.5 million USD based upon the exchange rate between the CAD and USD on the closing date of the transaction. The preliminary purchase price allocation of consideration primarily included $177.7 million of land and buildings and equipment, $60.0 million of a customer relationship intangible asset, $42.0 million of deferred tax liabilities, and $61.7 million of goodwill, each of which are allocated to the Warehouse segment. The customer relationship asset has been preliminarily assigned a useful life of 25 years and will be amortized on a straight-line basis. The goodwill recorded is primarily attributable to the strategic benefits of the acquisition including the expanded presence in the Canada market and leveraging integration experience to drive synergies and further enhance the warehouse network for new and existing customers. The Nova Cold acquisition was completed through the acquisition of stock in Canada; as a result, no tax basis in goodwill exists for Canadian tax purposes. Deferred taxes may not be recorded for deductible goodwill unless the tax basis exceeds the book basis, therefore, the Company recorded no deferred tax liability for goodwill for Canadian tax purposes. Deductible goodwill will exist for U.S. federal income tax purposes and will be available to reduce taxable income at the REIT, including any Global Intangible Low-Taxed Income (“GILTI”) inclusion associated with the foreign TRS acquired. The preliminary purchase price allocation will be finalized within one year from the date of acquisition. We have included the financial results of the acquired operations in our Warehouse segment since the date of the acquistion.

The Company completed the acquisition of privately-held Newport on January 2, 2020 for total cash consideration of $56.1 million, net of cash received. The preliminary purchase price allocation of consideration primarily included $31.3 million of land and buildings and equipment, $19.5 million of a customer relationship asset and $4.6 million of goodwill, each of which are allocated to the Warehouse segment. The customer relationship intangible asset has been preliminarily assigned a useful life of 25 years and will be amortized on a straight-line basis. The goodwill recorded is primarily attributable to the strategic benefits of the acquisition including the expanded presence in the Minneapolis-St. Paul market and leveraging integration experience to drive synergies and further enhance the warehouse network for new and existing customers. The Newport acquisition was completed through the acquisition of all of the membership interests of certain limited liability companies; the acquisition of all the membership interests allowed a portion of the goodwill recorded to be deductible for federal income tax purposes. 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. The preliminary purchase price allocation will be finalized within one year from the date of acquisition. We have included the financial results of the acquired operations in our Warehouse segment since the date of the acquistion.

Acquisitions Completed During 2019

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, as well as adjustments made during the measurement period, is as follows (in thousands):



	Amounts Recognized as of the Acquisition Date		Measurement Period Adjustments ⁽¹⁾			Amounts Recognized as of the Acquisition Date (as Adjusted)⁽²⁾
Assets
Land	$	59,363	$	1,131		$	60,494
Building and improvements	687,821		(19,670		)	668,151
Machinery and equipment	144,825		822			145,647
Assets under construction	20,968		(3,994		)	16,974
Operating lease right-of-use assets	1,254		—			1,254
Cash and cash equivalents	4,332		—			4,332
Restricted cash	—		526			526
Accounts receivable	21,358		220			21,578
Goodwill	107,643		18,453			126,096
Acquired identifiable intangibles:
Customer relationships	241,738		8,608			250,346
Trade names and trademarks	1,623		—			1,623
Other assets	18,720		(11,668		)	7,052
Total assets	1,309,645		(5,572		)	1,304,073
Liabilities
Accounts payable and accrued expenses	30,905		12,598			43,503
Notes payable	17,179		(13,301		)	3,878
Operating lease obligations	1,254		—			1,254
Unearned revenue	3,536		—			3,536
Pension and postretirement benefits	2,020		(2,020		)	—
Deferred tax liability	9,063		(39		)	9,024
Total liabilities	63,957		(2,762		)	61,195
Total consideration for Cloverleaf acquisition	$	1,245,688	$	(2,810	)	$	1,242,878

⁽¹⁾ The measurement period adjustments recorded during the measurement period did not have a significant impact on our Consolidated Statements of Operations for the quarter ended March 31, 2020.

⁽²⁾ The measurement period adjustments were primarily due to refinements to third party appraisals and carrying amounts of certain assets and liabilities, as well as adjustments to certain tax accounts based on, among other things, adjustments to deferred tax liabilities. The net impact of the measurement period adjustments results in a net increase to goodwill.

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. The Company recorded

approximately $0.2 million of additional deferred tax liability related to basis differences in fixed assets and intangibles for the three months ended March 31, 2020. All other adjustments recorded during the three months ended March 31, 2020 were not material to the Condensed Consolidated Balance Sheets, the Condensed Consolidated Statements of Operations or the Condensed Consolidated Statements of Cash Flows. The final purchase price allocation will be presented within our second quarter 2020 Condensed Consolidated Financial Statements.

As shown above, in connection with the Cloverleaf Acquisition the Company recorded an intangible asset of approximately $250.3 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 recorded a deferred tax liability of $1.9 million for intangible assets in 2019, which remains materially unchanged for the three months ended March 31, 2020.

The unaudited pro forma financial information set forth below is based on the historical Condensed Consolidated Statements of Operations for the quarter ended March 31, 2019, 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 consolidated financial statements exclude the results of all other acquisitions completed during 2019 and 2020, which were deemed immaterial. These statements are provided for illustrative purposes only and do not purport to represent what the actual 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.



Pro forma (unaudited)
(in thousands, except per share data)
	Three Months Ended March 31, 2019
Total revenue	$	449,259
Net income available to common shareholders⁽¹⁾	$	(4,489	)
Net income per share, diluted⁽²⁾	$	(0.02	)

⁽¹⁾ Pro forma net income available to common shareholders was adjusted to exclude $9.8 million of acquisition related costs incurred by the Company during the quarter ended March 31, 2019.

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

Additionally, the Company completed the acquisition of privately-held Lanier on May 1, 2019 for total cash consideration of $81.9 million, net of cash received. The allocation of consideration primarily included $60.0 million of land and buildings and equipment, $6.4 million of goodwill, and $16.3 million of customer relationship intangible assets. The customer relationship asset has been assigned a useful life of 25 years and will be amortized on a straight-

line basis. The goodwill recorded is primarily attributable to the strategic benefits of the acquisition including the 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. 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 to be deductible for federal income tax purposes. The Company originally recorded an opening deferred tax liability of approximately $0.7 million in 2019 and approximately $0.8 million of additional deferred tax liability related to basis differences in fixed assets and intangibles for the three months ended March 31, 2020. All other adjustments recorded subsequent to the acquisition date were not material to the Condensed Consolidated Balance Sheets, the Condensed Consolidated Statements of Operations or the Condensed Consolidated Statements of Cash Flows. The final purchase price allocation will be presented within our second quarter 2020 Condensed Consolidated Financial Statements. We have included the financial results of the acquired operations in our Warehouse segment since the date of the acquistion.