Lineage to Launch North America’s Largest Cold Storage Portfolio as a REIT

Lineage, the leading global cold storage provider by capacity, is set to fortify its financial health by initiating an initial public offering (IPO) for a new real estate investment trust (REIT). The goal is to harness the increasing demand from food sellers and address its substantial debt.

Market Landscape and Demand Dynamics

The need for refrigerated warehouses has seen significant growth, largely driven by the surge in online grocery sales since the COVID-19 pandemic in 2020. This trend has led grocery stores, restaurants, and mass market retailers to expand their storage capacities for perishable goods. According to Alan Pontius, National Director of Marcus & Millichap’s Office and Industrial Division, “Heightened demand for online delivery and pickup options for food has grocers, restaurant food service providers, and mass market retailers expanding their operational footprints and increasing their capacities for perishable item storage.”

Strategic Financial Moves

Lineage, based in Novi, Michigan, has filed with the U.S. Securities and Exchange Commission to sell shares of its common stock. While the specifics regarding the number of shares and the price range are yet to be determined, the proceeds from this sale are intended to repay $2.4 billion in debt. If successful, this would mark only the second REIT IPO in the U.S. in over two years, underscoring Lineage’s unique market position.

Investment Stability and Growth Prospects

Despite rising interest rates since mid-2022, cold storage capitalization rates have remained resilient due to sustained rent growth. Marcus & Millichap reports that cold storage acquisitions still offer yields that are 50 basis points lower than those in 2018, indicating the sector’s stability. Cold storage investments serve as a strategic hedge against inflation, with asking rents and owner revenues projected to rise in the long term.

Lineage’s Market Position and Expansion

With over 480 facilities totaling 3 billion cubic feet of capacity across North America, Europe, and Asia-Pacific, Lineage holds the largest global network of temperature-controlled warehouses. This extensive network is recognized by the Global Cold Chain Alliance, an international association representing industries engaged in temperature-controlled warehousing.

In its latest expansion in October, Lineage acquired eight facilities totaling 1.1 million square feet from Burris Logistics. For the fiscal year ending March 31, Lineage reported $5.3 billion in revenue and $1.8 billion in net operating income, despite a net loss of $162.8 million.

Global Cold Storage Market

The global cold storage landscape is fragmented, with key players like Lineage and Americold Realty Trust leading the industry. The Global Cold Chain Alliance reports that the top 10 companies control approximately 6 billion cubic feet of cold storage space, representing just under a quarter of global capacity. Lineage and Americold hold a combined 17.5% market share globally, with Lineage leading North America at 32.9% and Americold at approximately 19.3%.

Conclusion

By launching a REIT IPO, Lineage aims to capitalize on the robust demand for temperature-controlled storage facilities driven by the shift towards online grocery shopping and food delivery services. This strategic move is expected to not only address its substantial debt but also solidify its position as a dominant player in a dynamically evolving market.