THE ALTERNATIVE REAL ESTATE ACCESS SERIES - CENTERSQUARE INVESTMENT MANAGEMENT
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October 12 2020 The Alternative Real Estate Access Series Exploring… Cold Storage Any views and opinions expressed hereafter are those of CenterSquare, unless otherwise stated. Refer to important disclosures at the end of this document. The COVID-19 pandemic is rapidly developing globally, impacting the economy and real estate investments for which the duration, scale and severity remain unknown.
The Alternative Sector Opportunity: Cold Storage
Cold Storage lies within the Specialty subsector of Alternative Real Estate.
REIT Industry Exposure Alternative Sector Composition
Timber
Net Lease 3% Healthcare
Office 9% 16%
9%
Alt Housing
Storage 8%
Retail 8%
9%
Industrial
9% Specialty
6%
Data Centers
Apartment
15% Towers
12% Alternative
31%
Sectors
61%
Source: CSIM and FNER Index as of 12/31/2019
2 Please see disclosure statements at the end of this document.
What is Cold Storage? 3 Please see disclosure statements at the end of this document.
Cold Storage or... Temperature Controlled Logistics
In contrast to traditional warehouse space, operational expertise is needed by the landlord to best understand tenant needs and
execute across the supply chain.
Operational expertise creates a significant competitive moat plus the network effect that comes from meeting tenants across the
supply chain which results in large intangible asset
Grown / Transported Transported Retailer or
Goods Stored
Produced to Commodity to Distribution Food Service Consumer
by Operator
Goods Warehouse Warehouse Distribution
Upstream Temperature Controlled Logistics Services
Warehousing Re-Packing Cross-Docking Manufacturing
Transportation Port Logistics Supply Chain Engineering Automation
4 Please see disclosure statements at the end of this document.
Clients Across the Supply Chain
Client relationships matter in the Cold Storage sector – the warehouses are used to move their product through the system.
This element adds to the network effect of investing with larger operators who hold these relationships and act as solution
providers for the tenants by responding to their needs.
Note: The above brands are representative of Cold Storage clients.
5 Please see disclosure statements at the end of this document.
A Fragmented Market Ripe for Consolidation
The Cold Storage sector remains highly fragmented with the top 2 providers accounting for just over 40% of the U.S. market
and many smaller players making up the rest.
U.S. Market
1392 Cubic Feet (mm)
Lineage Logistics
25% Americold
993
46% US Cold Storage
AGRO Merchants Group
18%
InterState Warehousing
7% All Others
374
2% 2%
119 116
75 48 44 35 25
Lineage Americold US Cold AGRO InterState Burris NewCold Hanson Holt Logistics MTC Logistics
Logistics Storage Merchants Warehousing Logistics Advance Cold Logistics
Group Logistics
Source: Americold, June 2020
6 Please see disclosure statements at the end of this document.
Why Cold Storage?
The Cold Storage business should benefit from strong demand tailwinds, ongoing growth, and business model stability,
dynamics which are positioned to accelerate as a result of the COVID-19 pandemic.
US and Global population growth Consumer preferences shifting toward
expected to be robust fresh, frozen and refrigerated goods
344 8,150
8,100 58
342
340 8,050
338 8,000
7,950 55
336
7,900
334 53
7,850
332 7,800
330 7,750
328 7,700
326 7,650
2020E 2021E 2022E 2023E 2024E 2025E 2010A 2015E 2020E
US Population (M) - LHS Global Population (M) - RHS Chilled and Frozen Food Volume (US) - (M Tons)
Over 11% of food produced in the U.S. expected Online grocery sales expected
to be exported on average through 20205 to double through 2023
54 53 6.5
53 52 5.7
52 51 51 4.9
51 4.2
50 3.5
49 3
49 48
48
47
46
45
2020E 2021E 2022E 2023E 2024E 2025E 2018A 2019A 2020E 2021E 2022E 2023E
Projected US Exports (M LBS) E-Commerce and Online Grocery Sales ($B)
Sources: US Population Division, Euro-monitor, Expert interviews, USDA Agricultural Projections to 2025, E-commerce Worldwide Dossier Statista report and eMarketer as of December 2019.
7 Please see disclosure statements at the end of this document.
Cold Storage Recent Performance
Since its debut in the public market, Cold Storage has demonstrated strong outperformance in the REIT sector.
Cold Storage Performance
240
220
Indexed Total Returns (1/18 = 100)
200
180
160
140
120
100
80
01/18 04/18 07/18 10/18 01/19 04/19 07/19 10/19 01/20 04/20 07/20
Data Centers Industrial Cold Storage Towers REITs
Source: Bloomberg as of 10/6/2020, Data Centers (FNDCTR Index), Industrial (FNINDTR Index), REITs (FNRETR Index), Cold Storage (COLD US), Towers (weighted average performance of
SBAC US, CCI US, AMT US)
8 Please see disclosure statements at the end of this document.
Public / Private Consensus for Cold Storage
Mispricing Traditional vs. Non-Traditional Real Estate
10.0%
9.0%
Public Market Cap Rate
Private Market Cap Rate
8.0%
7.0%
6.0%
5.0%
Skilled Nursing Facilities
High Quality Malls
Strips
Senior Housing
Prime Office
4.0%
Service Retail
Hospitals
Student Housing
Apartment
Medical Office Bldgs
Cold Storage
Life Science
3.0%
Self Storage
Single Family Rentals
Data Centers
Industrial
Manufactured Housing
Towers
2.0%
1.0%
0.0%
Source: CSIM as of 10/6/2020. Please refer to CSIM Cap Rate methodology at the end of this presentation.
9 Please see disclosure statements at the end of this document.
Cold Storage vs. Industrial Comps
The Cold Storage business model has proven to be resilient throughout the COVID-19 crisis and provides investors access to a
strong external growth story at lower price point than other sectors with similar secular tailwinds.
Price Change Since Pre-COVID Market Peak* Price / EBITDA
10% 31.0x
29.0x 28.1x
7% 26.1x 26.7x 24.6x
20.3x 22.9x
20.6x
4% 18.5x
3%
-2%
Americold Industrial Data Center Tower All Americold Industrial Data Center Tower All
Comparable Comparable
Sectors 2020 2021 Sectors
Debt / EBITDA Dividend Yield
6.2x 2.8%
6.1x
5.6x
5.1x 2.3% 2.2% 2.3%
1.8%
3.5x
Americold Industrial Data Center Tower All Americold Industrial Data Center Tower All
Comparable Comparable
Sectors Sectors
* Pre-COVID-19 Peak as of Feb 21, 2020.
Source: Bloomberg and CSIM as of September 10/5/2020.
10 Please see disclosure statements at the end of this document.Looking Forward
The Cold Storage space remains a highly specialized business with:
A need for significant operational expertise
Sticky, long-lasting client relationships
Strong demand tailwinds
A fragmented competitive landscape that provides both consolidation and strong external growth opportunities
These factors create significant opportunities for both public and private investors
to identify best-in-class operators to access this growing niche sector.
11 Please see disclosure statements at the end of this document.Q and A
Disclosures
Disclosure Statements
Material in this publication is for general information only and is not intended to provide specific For the purposes of Article 49 of the Financial Promotion Order, this document is directed at
investment advice or recommendations for any purchase or sale of any specific security or persons meeting the respective minimum criteria specified in Article 49(2) of the Financial
commodity. Due to, among other things, the volatile nature of the markets and the investment Promotion Order (for example, partnerships with net assets of not less than £5 million). Any
areas discussed herein, investments may only be suitable for certain investors. investment or investment activity to which this document relates is available only to such
persons. Persons who do not meet such minimum criteria (and in respect of whom another
Parties should independently investigate any investment area or manager, and should consult exemption is not available) should not rely on this document.
with qualified investment, legal, and tax professionals before making any investment. Some
information contained herein has been obtained from third party sources and has not been This presentation may contain forward-looking statements within the meaning of the federal
independently verified by CenterSquare Investment Management LLC (“CenterSquare”). This securities laws. Forward-looking statements relate to expectations, beliefs, projections, future
material is not to be reproduced in whole or in part or used for any other purpose. plans and strategies, anticipated events or trends and similar expressions concerning matters
that are not historical facts. In some cases, you can identify forward-looking statements by the
This communication is not an offer of securities for sale in the United States, Australia, Canada, use of forward-looking terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,”
Japan or any other jurisdiction where to do so would be unlawful. CenterSquare has not “anticipates,” “believes,” “estimates,” “predicts,” or “potential” or the negative of these words
registered, and does not intend to register, any portion of the securities referred to herein in and phrases or similar words or phrases which are predictions of or indicate future events or
any of these jurisdictions and does not intend to conduct a public offering of securities in any of trends and which do not relate solely to historical matters. You can also identify forward-looking
these jurisdictions. This communication is being distributed to, and is directed only at, persons statements by discussions of strategy, plans or intentions. Forward-looking statements involve
in the United Kingdom in circumstances where section 21(1) of the Financial Services and known and unknown risks, uncertainties, assumptions and contingencies, many of which are
Markets Act 2000 does not apply (such persons being referred to as “relevant persons”). Any beyond the CenterSquare’s control, and may cause the CenterSquare’s actual results to differ
person who is not a relevant person should not act or rely on this communication or any of its significantly from those expressed in any forward-looking statement.
contents. Any investment activity (including, but not limited to, any invitation, offer or agreement
to subscribe, purchase or otherwise acquire securities) to which this communication relates will General Real Estate Risks
only be available to, and will only be engaged with, persons who fall within the target market. Because the investment strategies concentrate their assets in the real estate industry, an
This communication is an advertisement and is not a prospectus for the purposes of Directive investment is closely linked to the performance of the real estate markets. Investing in the
2003/71/EC, as amended (such directive, the “Prospectus Directive”) and/or Part IV of the equity securities of real estate companies entails certain risks and uncertainties. These
Financial Services and Markets Act 2000. companies experience the risks of investing in real estate directly. Real estate is a cyclical
business, highly sensitive to general and local economic developments and characterized by
Any communication of this document by a person who is not an authorised person (as defined intense competition and periodic overbuilding. Real estate income and values may also be
in the Financial Services and Markets Act 2000 (“FSMA”)) is directed only at the following greatly affected by demographic trends, such as population shifts or changing tastes and
persons in the United Kingdom, namely (i) persons falling within any of the categories of values. Companies in the real estate industry may be adversely affected by environmental
“investment professionals” as defined in Article 19(5) of the Financial Services and Markets Act conditions. Government actions, such as tax increases, zoning law changes or environmental
2000 (Financial Promotion) Order 2005 (the “Financial Promotion Order”), (ii) persons falling regulations, may also have a major impact on real estate. Changing interest rates and credit
within any of the categories of persons described in Article 49(2) of the Financial Promotion quality requirements will also affect the cash flow of real estate companies and their ability to
Order, (iii) persons falling within the categories of “certified high net worth individual” described meet capital needs.
in Article 48(2) of the Financial Promotion Order and “self-certified sophisticated investor”
described in Article 50a(1) of the financial promotion order and (iv) any person to whom it may Canada Specific Disclosure
otherwise lawfully be made. Persons of any other description should not review, nor act upon, This document has been prepared solely for information purposes and is not an offering
this document. memorandum nor any other kind of an offer to buy or sell or a solicitation of an offer to buy or
sell any security, instrument or investment product or to participate in any particular trading
For the purposes of Article 19 of the Financial Promotion Order, this document is directed at strategy. It is not intended and should not be taken as any form of advertising,
persons having professional experience in matters relating to investments. Any investment or recommendation, investment advice or invitation to trade. This information is confidential and
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who do not have professional experience in matters relating to investments (and in respect of restricted to recipients who are qualified “permitted clients” for purposes of NI31-103. This
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without prior written consent.
14Disclosure Statements
CenterSquare REIT Cap Rate Perspective Methodology
CenterSquare REIT Implied Cap Rates are based on a proprietary calculation that divides a FTSE Nareit Equity Sub-Sector Industrial Total Return (FNINDTR )Index
company’s reporting net operating income (“NOI”) adjusted for non-recurring items by the value The FTSE Nareit Equity Sub-Sector Industrial Total Return Index is the industrial sub-sector of
of its equity and debt less the value of non-income producing assets. The figures above are the FTSE Nareit US Real Estate Index. The FTSE Nareit US Real Estate Index Series is
based on 3Q20 earnings reported in September 2020. The universe of stocks used to designed to present investors with a comprehensive family of REIT performance indexes that
aggregate the data presented is based on CenterSquare’s coverage universe of approximately spans the commercial real estate space across the U.S. economy. The index series provides
200 U.S. listed real estate companies. Sector cap rates are market cap weighted. Sectors and investors with exposure to all investment and property sectors. In addition, the more narrowly
market classifications are defined by the following: focused property sector and sub-sector indexes provide the facility to concentrate commercial
real estate exposure in more selected markets. The FTSE Nareit Equity REITs index contains
Apartment: REITs that own and manage multifamily residential rental properties; Industrial: all Equity REITs not designated as Timber REITs or Infrastructure REITs.
REITs that own and manage industrial facilities (i.e. warehouses, distribution centers); Office –
REITs that own and manage commercial office properties; Retail – REITs that own and NFI ODCE: NCREIF Open End Diversified Core Equity (ODCE) Index
manage retail properties (i.e. malls, shopping centers); Hotel – REITs that own and manage The ODCE, short for NCREIF Fund Index - Open End Diversified Core Equity, is the first of the
lodging properties; Healthcare – REITs that own properties used by healthcare service tenants NCREIF Fund Database products and is an index of investment returns reporting on both a
(i.e. hospitals, medical office buildings); Gateway – REITs with portfolios primarily in the historical and current basis the results of 36 open-end commingled funds pursuing a core
Boston, Chicago, LA, NYC, SF, and DC markets; Non-Gateway – REITs without a presence in investment strategy, some of which have performance histories dating back to the 1970s.
the gateway markets. The REIT ODCE Proxy is a universe of REIT stocks built to resemble the
NCREIF Fund Index – Open End Diversified Core Equity (ODCE). The ODCE, short for These benchmarks are broad-based indices which are used for illustrative purposes only and
NCREIF Fund Index - Open End Diversified Core Equity, is the first of the NCREIF Fund have been selected as they are well known and are easily recognizable by investors. However,
Database products and is an index of investment returns reporting on both a historical and the investment activities and performance of an actual portfolio may be considerably more
current basis the results of 36 open-end commingled funds pursuing a core investment volatile than and have material differences from the performance of any of the referenced
strategy, some of which have performance histories dating back to the 1970s. The REIT ODCE indices. Unlike these benchmarks, the portfolios portrayed herein are actively managed.
Proxy is proprietary to CenterSquare and uses gateway/infill names in apartments, retail, Furthermore, the portfolios invest in substantially fewer securities than the number of securities
industrial and office, and then weights them according to the ODCE index to create a proxy. comprising each of these benchmarks. There is no guarantee that any of the securities
invested in by the portfolios comprise these benchmarks. Also, performance results for
Private Market Cap Rates represent the cap rate achievable in the private market for the benchmarks may not reflect payment of investment management/incentive fees and other
property portfolio owned by each company, and are based on estimates produced by expenses. Because of these differences, benchmarks should not be relied upon as an accurate
CenterSquare’s investment team informed by various market sources including broker measure of comparison.
estimates.
A direct investment in an index is not possible.
DEFINITION OF INDICES
FTSE Data disclosure: Source: FTSE International Limited (“FTSE”) © FTSE 2020. FTSE® is a
FTSE Nareit Equity REITs Index trade mark of the London Stock Exchange Group companies and is used by FTSE under
The FTSE Nareit US Real Estate Index Series is designed to present investors with a licence. All rights in the FTSE indices and / or FTSE ratings vest in FTSE and/or its licensors.
comprehensive family of REIT performance indexes that spans the commercial real estate Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE
space across the U.S. economy. The index series provides investors with exposure to all indices and / or FTSE ratings or underlying data. No further distribution of FTSE Data is
investment and property sectors. In addition, the more narrowly focused property sector and permitted without FTSE’s express written consent.
sub-sector indexes provide the facility to concentrate commercial real estate exposure in more
selected markets. The FTSE Nareit Equity REITs index contains all Equity REITs not "FTSE®" is a trade mark of the London Stock Exchange Group companies, "Nareit®" is a trade
designated as Timber REITs or Infrastructure REITs. mark of the National Association of Real Estate Investment Trusts ("Nareit”) and "EPRA®" is a
trade mark of the European Public Real Estate Association ("EPRA”) and all are used by FTSE
FTSE Nareit Equity Sub-Sector Data Centers Total Return (FNDCTR )Index International Limited ("FTSE”) under licence).
The FTSE Nareit Equity Sub-Sector Data Centers Total Return Index is the data center sub-
sector of the FTSE Nareit US Real Estate Index. The FTSE Nareit US Real Estate Index Series The FTSE Nareit Equity REITs Index is calculated by FTSE. Neither FTSE nor Nareit sponsor,
is designed to present investors with a comprehensive family of REIT performance indexes that endorse or promote this product and are not in any way connected to it and do not accept any
spans the commercial real estate space across the U.S. economy. The index series provides liability.
investors with exposure to all investment and property sectors. In addition, the more narrowly
focused property sector and sub-sector indexes provide the facility to concentrate commercial
real estate exposure in more selected markets. The FTSE Nareit Equity REITs index contains
all Equity REITs not designated as Timber REITs or Infrastructure REITs.
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