Q4 2019 Earnings Call
Good day and welcome to the Postal Realty Trust incorporated fourth quarter 2019 earnings Conference call. All participants will be in listen only mode. If you need operator assistance. Please press star zero on your telephone keypad.
After todays prepared remarks, there'll be an opportunity to ask questions.
Please note that that's at this event is being recorded.
I would now like to turn the conference over to Blaine Willenborg, Vice President of business development and capital markets.
Please go ahead.
Thank you good afternoon, everyone and welcome to the Ultra Realty Trust's fourth quarter earnings conference call on the call today, We had Andrew Spartech, Chief Executive Officer, Jeremy Garber, President and that Brett One Chief Accounting officer.
Please note that used to forward looking things by the company on this conference call.
That's made on this call may include statements that are not historical facts and are considered forward looking.
The company attendant. These forward looking statements should be covered by the safe Harbor provisions for forward looking statements contained in the private Securities Litigation Reform Act 1995, and is making to stay in that book publishing complying with those safe Harbor.
Furthermore, actual results may differ materially snows described in the forward looking statements and they'd be affected by a variety of risk factors that are beyond the company's control, including without limitation does contain the company's 10-K for the period December 31, 2019, and that's the other securities and Exchange Commission filings.
The company assumes no obligation to update publicly I mean any forward looking statements, whether as a result, new information future events or otherwise.
Additionally, on this conference call the company may refer to certain non-GAAP financial measures such as funds from operation and adjusted funds from operations.
You can find a time doing a reconciliation of these non-GAAP financial measures to the most currently comparable GAAP numbers from the company's earnings release and filings with Securities and Exchange Commission.
Additional information be found on the Investor Relations page on the company's website Www Dot Ultra Realty Trust Dot com.
I'll now turn the call over the Anderson ODAC, Chief Executive Officer Upholstery Realty Trust.
Good afternoon, and thank you for joining poster Realty Trust's fourth quarter and full year 2019 exactly.
Before discussing our results we would be remiss, if we did not acknowledge the corona virus pandemic and its impact we hope that you and your families are safe and healthy.
Like much of corporate America, we have imposed to work from home policy to help keep our employee safe and healthy and to support the government's request to practice social.
We are fully functioning and have the infrastructure and technology in place to work remotely brought the seems situations such as these.
During this time, we've kept our operations running much like our sole tenant the postal service.
However, while many about couple luxury and flexibility to work from home the postal service does not.
This vital government agency is open for business daily, providing uninterrupted mail delivery and critical last mile services. Ironically during times like these when people are staying at home we are relying on the postal service, even more and we anticipate that as a result, they may be even busier than usual.
Gives us comfort and touch on certain times like these we have seen no interruption and anticipate no interruption rental revenue given the so occupancy up our properties and up the ultimate payroll Brent is the U.S. government.
It is also important to be mindful that the postal service is no plan of slowing down.
Press release from a few days ago. The postal service stated the fall.
The postal service is going to central service for purposes of its compliance with state or municipality shelter in place order or other social distancing restrictions.
The postal service delivers medications, social security checks and as the leading delivery service for online purchases.
The statute that created the postal service begins with the following sense.
The United States, both service shall be operated as a basic fundamental service provided for the people by the government of United States authorized by the Constitution created by an active Congress and supported by the people.
It is this certainty of a recurring revenue stream that served as the impetus for the formation of Copel real but.
As I have shared in the past our experience with the both properties goes back several decades.
We know that they're consistent and stable nature of the business and that the postal service pays a threat and good and bad times.
Our conviction on the strength of our business model cannot be higher, particularly after the dislocation in the value of our shares in fact pursuant to my Tenbfive. One purchase plan have acquired shares in the open market further aligning myself what shareholders.
Now turning to 29 team results.
2019 was transformative proposed to Realty Trust.
May 15th we completed our initial public offering.
At the time for IPO, we own 271 possible properties with approximately 872000 square feet.
Since then we have doubled the number of properties or square footage and our rental revenue and completed $88 million in acquisitions.
To support this growth we secured.
100 million dollar revolving credit facility with 100 million dollar accordion option I've already exercise $50 million about accordion feature.
In addition, reflecting on a revenue growth we raised our dividend twice as our platform has grown.
We continue to work toward achieving our target, but dollar to dividend per common share in unit consistent what we have communicated in our IPO roadshow.
However, it is important to keep in mind that achieving that target well lies in our ability to continue to close acquisitions.
So while we were working hard to move our acquisition program forward. The delays due to the current environment may impact our timing with respect to meeting that target.
With that said our business is constant unstable.
Rental stream of our portfolio coastal properties is backed by the credit of the U.S. government.
It's 100% occupied and as a historical 98% leased renewal rate.
The sector is highly fragmented with over 60000 postal properties owned by individual owners. We believe this presents an attractive opportunity for us over the long term.
Our consolidation thesis provides us with the ability to complete cash transactions quickly and efficiently as well as the ability to provide.
The use of operating partnership units as a tax deferral currency.
Owners, electing opie units benefit from diversification relief from property management duties and participation in a dividend back revenue stream secured by an agency of the U.S. government. It should be noted we have successfully used LP units priced at $70 in two of our largest transactions.
No. We continue to see accretive acquisition opportunities. We also continue to assess how best to navigate future transactions in the near term given the macro disruption we are sitting in the capital markets with approximately $30 million of acquisitions completed year to date and a pipeline at its largest level in our history. We believe we can significantly.
<unk> earnings.
However, given the current state of the economy will approach growth in a prudent manner to that point, we expect the majority of our acquisitions will be weighted towards the latter part of 2020.
Given the credit rating of our only tenant U.S. postal service, we remain confident about our prospects and look forward to sharing our progress with you as the year progresses.
I'll now turn the call over to Jeremy to discuss our fourth quarter results.
Thank you Andrew.
During the fourth quarter, we closed on 877 properties for approximately $46 million totaling approximately 448000 square feet with an average rental rate of $8, a 95 cents per square foot.
Highlighted these transactions was the acquisition of the 100 and searching property portfolio.
For $31 million to portfolio comprises approximately 256000 net leasable I'm curious square feet and generates a weighted average rent of $9.67 per square foot. This was the first transaction, we use dopey units for a portion of the purchase price.
We issued approximately 824000 units at $17 per unit.
For the year the company acquired 195 properties for $57 million, excluding closing cost comprising approximately 557000 net lease and trying to square feet with a weighted average rent of $9, an 11 cents per square foot the weighted average cap rate for these acquisitions was within.
Our target range of 7% to 9%.
Subsequent to year end, we completed the acquisition of 83 properties for a total consideration of 30 million of which eight nine of the purchase price was funded with the issuance of approximately 483000 units at $17 per unit.
Moving onto our financial results.
FFO for the quarter was six cents per share.
Which includes acquisition related expenses of approximately $444000.
Excluding these acquisition related expenses, our AFFO would've been 12 cents per share.
Hey, AFFO for the quarter was 17 cents per share.
Moving onto the balance sheet at December 31, 2019, we had approximately 12.5 million of cash on the balance sheet and approximately 57.2 million in debt.
Subsequent to quarter end, we increased our available borrowing capacity to 150 million under our line of credit by exercising 50 million of our accordion.
Manage mentioned employees alignment with shareholders stronger than ever for the year ended 2019, 100% of our employees deferred their cash bonus in exchange for stock along with Andrew myself.
In addition, Andrew has elected to defer 100% to this cash salary and 100% to this cash bonus for 2020, and I have elected to defer a 50% of my cash salary and 100% of my cash bonus for 2020.
Finally, all of our employees have elected to defer a portion of their annual salary either in employee stock purchase plan or the alignment of interest program.
We paid a dividend of 17 cents per share on February 20, Eightth or 68 cents on an annualized basis. This was a 21% increase from our prior dividend. It is our intention to hit our acquisition and our dividend targets in a timely manner, but based on the macroeconomic trends, we anticipate that the timeline maybe long.
Other than initially expected.
Given the current environment it is difficult to forecast the remainder of the current year, but we're confident we'll be able to execute on our pipeline and grow our earnings.
With respect to the metrics on our current portfolio, we own 1.7 million net leasable square feet with a weighted average rental rate of $9. In 66 cents. We're currently at full occupancy and expect to end the year at full occupancy with that I would like to open the call for questions.
Thank you.
Ladies and gentlemen, it's time for question and answer session.
If you would like to ask a question. Please press star one on your telephone keypad.
Sure move yourself from the Q, Please press star too.
Once again Thats a question press star one on your telephone keypad, we'll pause for a moment to pull for questions. Thank you.
Our first question comes from Rob Stevenson with Janney. Please state your question.
Hi, good morning, or good afternoon, guys <unk>.
What do you guys thinking in terms of rental rate growth on the 2020 lease expirations at this point.
Hey, Rob this is a Jeremy Garber how are you all right.
So in terms of a historical perspective, we guided analysts to that 2% annual growth in 2019 are releasing spreads were somewhere between 11 and 12%. So that's on a five year. So that fell in line with that 2% a rate and we don't anticipate any change.
As in terms of our positioning with the postal service and our lease negotiations in terms of changes in that forward looking 2% annual rate.
Okay. So nothing that you've acquired has been that has a 2020 renewal lot. It has a wildly under market lease or something like that it would wind up on a portfolio that would wind up pushing those numbers higher.
No okay.
What do you see you know looking today the acquisition capacity going forward and how are you guys thinking about the incremental $50 million that you can pull down on the revolver what type of conditions are on that and if I'm doing the math correctly you guys have about 71 million of debt under the 150 line of credit right now.
That's correct. So the facility originally was put in place at 100 million with the 100 million accordion, we exercise 50 million or the accordion just to put ourselves in a position to.
Get ourselves set up for the pipeline.
You're right there our covenants in place. The you know the the facility terms are filed in public their covenants in place that restrict our ability to borrow over a certain leverage ratios and certain covenants and so as we continue to add properties to.
The borrowing base, we increase the facility in expanding facility.
As of today, there was 71 million drawn down and we have a with additional facility flexibility cash on hand, the ability to put mortgages in place. We think that we have no availability in terms of liquidity to continue to fund our acquisitions.
As we look forward.
But from.
The.
Yeah, just wanted to clarify something we currently have 68 million drawn or why don't we had 3 million and mortgage is out there not nothing substantial just wanted to clarify that okay. So 70 million available extensions or 80 million available right under the line of credit that I mean, what's the <unk> from a practical standpoint, how are you guys thinking about.
In this environment, how high you are willing to take the leverage of the company even on a temporary basis I mean on one hand, you've got a very very stable tenet, that's not likely to experience any disruption and rent payments, but on the other hand, you know.
That's probably it would be environment to go 70% <unk> leverage are you guys sort of balancing that as you as you think about you know how much more capital you'd want to put to work in the current environment.
So in the current environment or it's not just us that everybody needs to be cautious and careful prudent and in what's in what they're doing into that.
We pushed all the closings we happen to pipeline.
And are being cautious the deals that were moving forward with and the pricing that will follow.
We plan to continue to do that especially through the song crisis and going Oh, Okay. And then last one for me Andrew What's the board's current thoughts on dividend policy mean it in this environment do you hold the dividend at this sort of 17th that level, you know and told you hit a point.
You are forced to raise it do you still go forward with incremental dividend raises as you continue to acquire properties in closed on you know 30 million in the first quarter here, how you know what's the debate level at the board in terms of the dividend policy.
So I can't speak for the board, but what I can say that are being the goal was to continue to acquire properties and grow the dividend, while we're growing our rather than.
That was a the goal pre IPO or that is the goal post IPO and that is the goal today.
The current environment that we're living with is unprecedented.
And we all hope that this you know and as quickly as possible for everybody.
And so you know similar to my prior answer we all have to be cautious and calculated and how we move forward.
But as you very clearly recognized.
Postal service and the credit of our can.
He is on his own Matt and we are very secure in collecting our rounds and relying on that cash flow and so if we are able to continue to do what we've been doing and acquire properties that are backed by the postal service in the U.S. government as revenue grows I am hopeful to grow our dividend this fall.
Okay.
Thanks, guys appreciate it.
They say thank you.
Our next question comes from Jeremy Metz with BMO. Please state your question.
[laughter].
Hey, guys.
Andrew I'm, just hoping you can expand a little deeper on the investor and Mark. Good obviously I'm wondering your talks about the post office being a durable pay or these are small deals that don't ball mortgage financings you tend to chew private markets move a lot slower than what we see in public markets.
And then stocks here in equity so I'm just trying to figure out how much. It is you know whatever color you can give us what was in their pipeline and watch the market look like how much it yet salaries, calling back versus prudence on your end going back has pricing moved any color would be helpful.
Thanks.
Oh my pleasure. So the pipeline is a more robust than we've ever seen a sellers are I'm very interested in having conversations and and and discussing the the prospects of selling to us Oh for cash.
There are there considering the idea taking units as well.
Corn environment and I don't know this is specific to postal I think that everybody has taken Paul I think that people have taken pause on reflected on our lives in their business and everything.
But with that being said.
The pipeline and everybody we're talking to its still interested in doing that transaction people are just not interested acting and reacting today and I think the telecom a feeling a thought a that carries over to a lots of them all.
That's fair and then you know in terms of you did put out there the 11.
Well I'd.
Putting that out there whats sort or risk do you see in getting that close their doors.
As far enough along they really don't see much riskier than I know, it's not a lot, but just how should we think about potentially that falling out.
I'm, sorry, I didn't understand what I didn't I didn't hear your your question about the rest can you just repeat that for me. Please.
Yeah. So are you I think in and of course are you serious about 11 million or Sir you have in the pipeline currently that stories to close I'm, just wondering how far along our though.
How should we think about the risk and maybe those fall out or don't close versus those are pretty well baked.
Obviously happy capacity to close those with what you have on the line in cash show.
How should we think about the rest of that that.
Pipeline there the 11 million back yeah, so down 11 million those a definitive contracts those are pretty well are going to close. It was just about the timing of the closing probably put saw a further into the quarter. So there is no risk from my perspective of them not not close.
Great. Thanks, guys may say about.
Okay. Thank you as well.
Our next question comes from Craig Sarah with Wunderlich Securities. Please state your question.
Thank you a b. Riley.
I wanted to know with the.
With with a youre the acquisitions that you're looking to close later this year. The 11 half million do either of those a have a any open units potentially as part of the transaction.
No the cash transactions.
And I appreciated the color on you know you guys thinking.
Stock in lieu of cash, but can you tell us kind of how we should think about the split of Gionee. This next year kind of taking that that commentary into account I mean, I think you're running at about a 6 million dollar cash DNA I'm on a run rate basis. This quarter is is that fair to say and how should we think about that the non cash coupon. It next year.
[noise] [noise] Hi, Craig This is Blaine at this moment in time, we're I kind of pushing pause on providing guidance for DNA just based on everything that's going on a one suite.
To get an idea of what things shake out where we'll make sure that we provide an update.
Okay.
That that's it for me thank you.
Thank you.
Our final question comes from Ben Zucker with Aegis capital. Please state your question.
Thanks, guys. Appreciate you taking my question [noise].
I just wanted to quickly.
Touch on the financing strategy going forward isn't part of your intention to first closing these properties you throw them up on your credit facility and then eventually at some point you you lock it down with a a longer term permanent or fixed cost mortgage and I'm sure. What you can tell.
Well I'm getting out there is if that is the strategy do you think that's something you might look to accelerate throughout 2020, right now and take advantage of maybe the favorable interest rate environment, though.
Yeah. Thanks for joining the call absolutely we are in conversations and exploring sort of every avenue given the you know the markets. We have some existing mortgages on the books or we are in touch with a number of a provider is looking at fixed.
Term, we have some chunky assets and portfolio assets that it makes sense to potentially put mortgages on.
And yes, the model to date has been used the facility to fund.
And I think that we're going to take a view towards looking at both fixed term and facility as we roll forward in this environment.
Understood and not that's that's definitely helpful.
Was there any contemplation of getting approval for a potential share repurchase program and I I mean, I understand you guys are at gross smoke so a buying back your own stock and it's certainly been counter towards that goal, sometimes but just given where the stock is trading now that the pipeline might be delayed and was there any conversation at the board level.
I'll buy backs in addition to the insider purchases, which I've, obviously been a good thing to say.
Yeah. We did recently have our board meeting or we've seen a lot of or I guess news around the corporate buyback and how people are reacting to that we really didnt have any discussion around that a board level I think we're trying to be thoughtful.
Okay and prudent in terms of our liquidity and we also believe that any price activity and pressure on the stock is a short term event I think hopefully as we put out earnings and ER, our analysts star or have you.
I'd now to start telling our re telling our story that's the market will appreciate the fact that we have a a credit tenant, but the 90% retention rate no rents are continue to come in we just received all of our rents yesterday for March. So we don't see any risk in revenue line and now this is.
Just a function of a either one in capital markets open or a when Wendy sort of pipeline continues to expand in terms of our opportunity.
Yeah, I hear you I definitely it feels like the kind of market, where you know, having a little bit of excess liquidity.
Probably doesn't hurt right now.
Oh.
I heard your comments about the virus, causing a potentially some delays and not the pipeline might skew towards the back half of 2020, but but kinda notwithstanding that do you think this kind of economic shock kind of could further motivate people to who own these post offices to seek some.
Kind of liquidity event and reach out to you guys and start started a conversation that maybe wasn't wasn't there beforehand.
I think that's very possible, but that in these times as we're living through them or you know it's too early to actually see if that if that's what happens.
I think in general a win win people live through events like these days, they reassess their life and and how they want to deal with these properties.
And so when when the average age of these post offices is Ah you know what's called in the Seventys range. This is something that probably will be thought about at home and and this may be an event that would would trigger oh some opportunity for the company, but most importantly, I wanted to just be safe and and a instead.
Hello.
Absolutely I appreciate that and no. That's it for me I know will follow up offline, but I just want so congrats again I think good. So you guys are one of the Sue a real estate operators, who have full occupancy <unk> today and have full paying tenants so tip of that there.
Thank you.
I appreciate everybody calling them.
The time to listen to our install.
Thank you that concludes today's conference all parties may disconnect have a good day.