March 17, 2006

On March 7th, Atlas Cold Storage announced results for fiscal year 2005. Since commencing Atlas’s turnaround over a year ago, it is clear that the measures implemented by Mr. Williamson and his team are starting to bear fruit. Relentless cost cutting across the network translated to distributable cash and EBITDA gains of 42% and 35%, respectively. The top line showed improvement with revenue from Atlas’s three units – public refrigerated warehousing, transportation management, and third party logistics – increasing 5% over last year.

As a result of both top and bottom line improvements, the Trust’s Board of Trustees elected to reinstate annual distributions at $0.33 per unit. For those who were expecting distributions to be reinstated between $0.50 and $0.60 per unit, this news came as a disappointment. However, the Trustees decided to establish a distribution rate at a conservative level, especially when taking into account a planned upgrade of the warehouse management system and expected annual capital expenditures of around $14 million. We believe reinstating distributions at $0.33 is a sound decision that affords the Trust with flexibility as it begins to generate top line growth now that its cost cutting efforts and refinancing/asset disposition program are mainly complete.

While cost cutting and asset dispositions will continue in 2006, top line growth will be management’s primary focus for this year. One growth area that management has identified is transportation management. Currently, only six facilities offer transportation management services. As new facilities are added, the incremental cash flow is quite material as it requires virtually zero capital investment. Refrigerated warehousing revenues should increase as previously announced expansions are completed. Additionally, we expect that Atlas will participate in the consolidation of the fragmented U.S. public refrigerated warehousing industry. With its new financial flexibility, management can make accretive acquisitions if the large, family controlled regional operators wish to exit the industry.

August 4, 2006

On August 3rd, Iceland-based investment firm Avion Group announced a hostile bid for Atlas Cold Storage for $7 per unit. Avion believes that its $7 per unit offer represents full value for Atlas. As we have outlined before, we believe Atlas’ net asset value is north of $8 per unit. Not surprisingly, we view Avion’s $7 cash offer as inadequate. Given that Atlas’ units are trading above $7.50, we are clearly not alone in our view.

Numerous mergers and acquisitions over the past 12 months have demonstrated that buying on Bay and Wall Street is often cheaper than starting a business from scratch. Avion’s bid for Atlas is a perfect example of “buying rather than building.” For Avion, which operates one of the largest cold storage networks in Europe, Atlas represents a very inexpensive North American beachhead. Based on recent construction figures in the cold storage industry, building a cold storage network of similar scale would cost upwards of 30% more than the $574 million offered for the Trust’s units. As an example of rising values, on June 28th, 2006, Atlas recorded a US$3.7 million gain on an underperforming warehouse located in Chicago. This gain represents a 30% increase over Atlas’ cost.

As to its operations, Atlas is now in turnaround mode. While it is true that, as Avion claims, “EBITDA has only grown by 1% CAGR over the past three years,” considering that Atlas was on the brink of bankruptcy three years ago, any increase in EBITDA is considered an achievement. Debt has been reduced by over $100 million and interest costs have been slashed by 200 basis points. The simple fact that Atlas exists today is a testament to the hard work of David Williamson and his team. Avion claims that their 10.6x EBITDA multiple fully values the Trust. However, this multiple is based on Atlas’ trailing 12 months of performance and does not reflect the cash generating potential of Atlas’ network. Presently, Atlas’ EBITDA margins hover around 10-11%. Industry competitors, such as Versacold, operate with EBITDA margins closer to 15%. For Atlas, a 5% increase from current EBITDA margins would translate into $15 million dollars in extra EBITDA.

David Williamson and his team are just getting started. They have spent the last year reigning in Atlas’ debt and repositioning the Trust for the future. Management has outlined numerous initiatives that will lead Atlas towards higher margins. This achievement would add significantly to Atlas’ valuation. In summary, we believe investor patience will reap significant rewards over and above Avion’s offer of $7 per unit.

October 6, 2006

In a recent letter sent to the Ontario Securities Commission, Atlas Cold Storage responded to Avion’s request to eliminate the Trust's shareholder rights plan. It is no surprise that Atlas is arguing to keep its current rights plan in place. The rights plan gives Atlas the time and flexibility needed to secure an alternative offer with another party. Addressing Avion’s bid, Atlas maintains that the offer is opportunistic, fails to give adequate disclosure to unitholders, and does not represent the fair value of the Trust’s assets. We agree with all of these points.

Looking deeper into the document, we were pleasantly surprised to see that Atlas is having no problems attracting competing bids. In fact, the OSC document reveals that the Trust’s financial advisors, BMO and Brascan, contacted 57 potential bidders after Avion’s hostile offer was announced. Of these 57 parties, 22 have entered into confidentiality agreements and have been given access to Atlas’ data room. These 22 parties have been further narrowed down and the remaining candidates invited to a second round of negotiations. According to the letter, Atlas “is in discussions which may lead to an alternative transaction that offers higher value to the Atlas Unitholders than the Avion offer.” As stated in our initial Value Investigator write-up, we believe that Atlas’ NAV is north of $8.00 per unit. We have confidence that a competing bid will materialize that reflects the value of Atlas’ business.

October 20, 2006

On October 16th, Atlas and Avion reached an agreement after Avion proposed to increase its offer to $7.50 from $7.00 per unit. Two of Atlas’ largest unitholders, representing 20.6% of units outstanding, agreed to tender to Avion after the $0.50 increase. Atlas’ Board of Trustees and financial advisors support the deal.

Unfortunately, Atlas’ attempt to find another buyer did not yield a bid greater than $7.50. While many parties expressed interest, we suspect the time pressure imposed by Avion’s hostile bid did not allow for the necessary due diligence that many of the parties required. In addition, the outstanding class action lawsuit, while disregarded by Avion, was certainly an issue for many parties that viewed it as a potentially large liability. The $15 million break-fee included in the current support agreement will certainly discourage any potential suitors from emerging at this stage.

Despite Avion’s successful bid of $7.50, we remain confident that Atlas’ net asset value is north of $8.00 per unit. In fact, after viewing Atlas’ data room, Avion Executive Chariman Magnus Thorsteinsson commented to the press, “after getting access to the data room, it was obvious there were some opportunities that were bigger than anticipated.” Ultimately, with the unexpected Avion bid, David Williamson never received the opportunity to see his strategic initiatives to the end. We believe that Atlas was only in the fourth inning of a multiyear plan. We are opposed to Avion’s $7.50 bid and we will wait on the sidelines for any developments. However, we recognize that the new support agreement and share lock-up virtually guarantees a successful transaction for Avion.

With its global customer base and experience with logistics and transportation management, we believe Avion will immediately ramp up Atlas’ efficiency and capacity utilization. Furthermore, with nearly $25 million no longer being distributed to unitholders annually, Avion can redeploy this cash flow to improve Atlas’ performance even further. Indeed, when combined with Avion’s current operations, Atlas will prove to be a relatively inexpensive expansion that secures the Iceland-based firm’s position as one of the largest global cold storage operators.