VERSACOLD INCOME FUND $8.85 (Toronto symbol ICE.UN; SI Rating: Extra risk) paid $396.7 million in December 2005 for the public refrigerated warehouse business of Peninsular and Oriental Steam Navigation Co. That made Versacold the world’s second-largest operator of refrigerated warehouses, with 74 locations in Canada, the United States, Australia, New Zealand and Argentina.

Thanks to the P&O acquisition, Versacold’s income in the three months ended December 31, 2005 rose 50.0%, to $0.18 a unit (total $4.5 million) from $0.12 a unit ($2.9 million) a year earlier. These figures exclude restructuring costs and other nonrecurring items.

Revenue grew 52.6%, to $70.2 million from $46.0 million. The latest revenue figure included $20.8 million from the new assets.

Versacold had to borrow the cash it needed to buy these new operations. That pushed up its long-term debt, to $480.7 million (3.5 times equity) at the end of 2005 from $103.9 million (0.8 times equity) a year earlier.

The fund also financed the purchase by selling $25.5 million worth of new units. That increased the number outstanding by about 15%. However, the strong cash flow from these new assets should help Versacold pay down the extra debt. The fund now aims to expand its 7% share of the U.S. refrigerated warehouse market.

No single company controls more than 20% of this market, so Versacold has plenty of opportunities to expand by acquiring smaller competitors. It’s also building new warehouses in Pennsylvania and Texas.

Versacold is also building new warehouses close to major agricultural areas of Western Canada. That will help it store more fresh products, such as fruit and berries, and expand its 26% share of the Canadian refrigerated storage market.

Versacold’s units fell to $7.50 after it announced the P&O acquisition, but quickly rebounded. They now trade at 8.9 times Versacold’s likely 2006 earnings of around $1.00 a unit, and 9.5 times its 2005 cash flow of $0.93 a unit.

The purchase also let Versacold raise its annual distribution rate, from $0.93 a unit to $1.00, payable monthly. The units now yield 11.3%.

Versacold is a buy for aggressive investors.