We all need to eat, and warehouse real estate investment trust (REIT) Americold Realty Trust ( COLD -0.11% ) helps food companies make that possible. It is, at its core, a necessary business. But during the pandemic, while other warehouse REITs were thriving, Americold struggled. Here’s why things are likely to remain problematic for a little longer.

This one’s not the same

Prologis ( PLD -1.62% ) is one of the largest owners of warehouse space on the planet. It has locations in key transportation hubs around the world, helping smooth the flow of merchandise from where it is made to where it is bought, sold, and used. This REIT’s stock is up nearly 80% since the start of 2020. Americold’s stock is down about 20% over that same span. 

Image source: Getty Images.

The core of Prologis’ business is helping to move consumer goods, which has seen a huge increase in demand along with the growth in online retail. The REIT’s customers are increasingly looking to be as close as possible to their own customers. There’s something of a logistics arms race underway, with Amazon and its next-day delivery leading the way. Americold doesn’t really play in this space. It offers specialized temperature-controlled warehouses that help food makers get their goods to market. 

Americold assets are, without question, indispensable parts of the food supply chain. You’d think that its business would hold up fairly well in any environment. But, based on the stock price, that just didn’t happen.

A trio of headwinds

The big number here is occupancy, which was relatively weak for Americold in 2021. Across warehouses that the REIT owned for at least a year — the same-store pool — occupancy fell 5 percentage points. That’s a pretty big drop for any REIT. The big problem was with Americold’s customers, which were struggling to make the products they move through the REIT’s warehouses. Production disruptions, in part as a result of labor shortages, meant they didn’t need as much space.

Americold was able to increase 2021 revenue by 36.6%, except that was almost entirely driven by acquisitions. The same-store revenue growth was up just 0.3%. In other words, the core portfolio struggled, suggesting that business was fairly weak under that impressive top-line number. More worrying, however, was the fact that same-store net operating income (NOI) fell 5.8% for the year.

The NOI decline was driven by inflation across everything from labor to power. So 2021 was a situation of rising costs at a time when Americold was dealing with weak demand. The REIT’s adjusted funds from operations (FFO) — a top metric for REIT profitability — fell from $1.29 per share in 2020 to $1.15 in 2021. That’s nearly an 11% decline. By comparison, Prologis’ core FFO went from $3.80 per share in 2020 to $4.15 in 2021. That’s an increase of roughly 9%. No wonder investors were down on Americold’s stock.

The problem is that the headwinds are still a problem. For example, General Mills ( GIS -0.32% ) just reported that it is continuing to work through supply chain issues that have limited its ability to deliver key products to customers. A return to normal will take time.

Kellogg ( K 0.66% ) is another example, this time because of a fire at one of its cereal plants that backed up against a strike across the entire U.S. cereal division. It doesn’t expect the cereal business to get back to normal operations until the second half of 2022.

There are plenty of other examples of food makers struggling to move product. And as long as such disruptions last, Americold will probably struggle, too.

What to do now?

With 250 warehouses under its control and an 18% share of the U.S. market for this unique type of warehouse, Americold is a vital business. Over the long term, it should manage through the current headwinds. While the REIT hasn’t increased its dividend in five quarters, the $0.22 per share dividend ($0.88 per year) is well covered by 2022’s projected adjusted FFO of $1.00 to $1.10 per share.

That FFO target would represent another decline, however, so it’s hardly a good outlook. And yet, with a yield of 3.2% compared to Prologis’ 2%, contrarian investors looking at warehouse space might want to dig in here even though a business upturn could still be a year away.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.