Q3 2020 Postal Realty Trust Inc Earnings Call

For 100% of our cash compensation for 2020, demonstrating our alignment with our shareholders and seeking to further increase shareholder value.

I will now turn the call over to Jeremy to discuss our financial results.

Thank you Andrew and thank you all for joining us this evening.

We are pleased to share that both FFO and AFFO grew substantially on a per share basis, reflecting growth since our IPO and the growth in our share base for substantially all of the third quarter.

FFO was $2.4 million for the quarter or 21 cents per share, which includes acquisition related expenses of approximately $120000 AFFO for the quarter was $2.8 million or 24 cents per share.

We are on pace to meet and potentially exceed our 100 million dollar acquisition target at an average cap rate of 7% to 9%.

During the third quarter, we acquired 123 properties for $27.6 million.

After the close of the third quarter, we acquired an additional 14 properties for $8 million, bringing our total year to date acquisitions to $76.7 million.

The 123 properties closed in the third quarter will contribute over $175000 in cash NOI for the full fourth quarter.

We estimate that the properties acquired since the end of the third quarter will contribute an incremental $75000 of cash NOI for the fourth quarter.

As Andrew discussed earlier, we are in receipt of fully executed leases for 30% of our hold over properties under our leases set to expire in 2020, we.

We also have executed letters of intent on the remaining leases that are in holdover or set to expire in 2020 and have started discussions with you Sps on our 2021 expirations.

Total expenses in the quarter were $5.7 million versus $5.2 million for the prior quarter the sequential quarter change reflects the growth in our portfolio.

The expense increases are related to depreciation and amortization real estate taxes, the majority of which are reimbursed by our tenants and $67000 and acquisition related expenses.

Interest expense in the quarter was approximately $607000 down $52000 from the second quarter of 2020.

The change reflects a lower interest rate on our line from Q2 due to the change in LIBOR and the impact of repayment of a portion of our line of credit with proceeds from our July offering.

Moving onto the balance sheet at September 32020, we had $7.8 million of cash on hand, and $57.4 million of net debt with a net debt to enterprise value of 23.5%.

For the third quarter, our fixed charge coverage ratio was 7.2 times and our net debt to adjusted EBITDA ratio was 3.9 times, our weighted average interest rate on all of our debt was 2.48% at the end of the quarter.

Our property cash flows and acquisition activity provide the fuel for our quarterly dividend on October Thirtyth. The board declared a quarterly dividend of 21.5 cents for the third quarter, which equates to 86 cents per share annually. The increase was 5% on a sequential quarter basis and a 54.

4% increase over the last 12 months. This concludes our prepared remarks, operator, we would like to open the call for questions.

Thank you we will now begin the question and answer session.

Anyone with a question May Press Star then one on the telephone keypad.

You'll hear a tone and knowledge in your request.

If you are using a speakerphone please pick up your handset before pressing any quick Keith.

Two retail your question. Please press Star then too.

We will pause for a moment as Collins joined the Q.

Our first question is from Jon Petersen with Jefferies. Please go ahead.

Great. Thanks, Good evening guys.

Good morning, John.

On the on the industrial facility the $47 million.

I guess the big question is that that's a pretty large property size for the base of your companies maybe can give us a little more details on I guess, how long the in place leases kind of how we should think about you guys doing.

You know I guess more post office staff, but beyond is just there was the retail facilities and kind of what the opportunity is out there and then also with its also fall within the 7% to 9% cap rate.

Target that you have for the traditional acquisition deal.

Sure I appreciate the question so.

This is a large facility for us and it's a large facility in the least postal worlds as well. This. This this is not an asset type or size that comes up very often we are we're very excited to see it hit the market.

This is as I was saying.

This is one of only 12 buildings over 300000 square feet.

That the postal service leases.

The the current lease runs about six and a half years.

This is a very well utilized building this is a very.

Mission critical building for the postal service.

Full service is just invested in the building in their common areas and bathrooms and new age back.

Even though the building is large.

For all intents and purposes, what we're trying to do is we're trying to acquire properties that are important to the postal service and this falls well within that.

It's it's something that we're really excited about in terms of a cap rate.

We're purchasing this at the mid to low six cap rate range, which we believe to be a very good price.

We also even buying this large asset in that price rate range.

We're still going to be in our 7% to 9% weighted average cap rate range for 2020.

Okay, that's really helpful and then.

You guys mentioned in our press release.

You received notice on one property in Ohio, that's about 70 basis points of revenue that the post office is going to vacate next year, maybe just give us some more details on maybe where that is located re tenanting prospects or or do you sell the building and I guess what are the what are the plans there.

Sure. So the property is in Ohio.

We had I guess hurt some whispers that they were looking to relocate this particular facility.

As I've stated before.

The single largest reason why the postal service moves is because the building is either to larger too small in this particular case the building was too large.

It's a 60000 square foot building in there they are moving to something thats significantly smaller.

They're not going to be vacating until August of 2021, we just received the notice on it and so.

We're going to review, what our options are and make a decision as it gets closer to lease expiration.

Okay. All right. That's helpful. Thank you guys.

Thank you.

Our next question is from Rob Stevenson with Janney. Please go ahead.

Thanks, Good evening guys.

What do you guys, averaging these days on a year to date basis in terms of increase on lease renewals.

So as as of articulated.

In the past, we're averaging 2% to 3% and Hawaii increases year over year, so that would be a 10% to 15%.

As as we rollout our leases because the leases are flat, they're straight no rent increases over the five year term.

Okay, and then on the industrial asset the other two tenants do they also have six and a half years or thereabouts on the the lease left as the U.S Postal service wants the remaining space when those tenants expire and can you talk about what the credit quality is with those other two tenants.

Sure so the.

The second tenant is a public company.

It is a it's about.

About 25% of the space to third tenant has a very small space with our tenant is the actually the original developer.

Of the property.

The weighted average lease term across all three.

Leases is a little north of five years that's helpful.

Okay, and I mean does the post office want more space. There is what they have sufficient for their needs.

It's not a conversation that we've had with the postal service.

We just got into contract on this very very recently that is something that we will explore but from my understanding both the other tenants are very happy within the space. All three tenants have been in this space since the building was originally built.

And they're all three very very happy there so.

It's a conversation that will probably be had at some point, but it's not something that we're discussing now.

Okay. Thanks, guys appreciate it.

Thank you.

Our next question is from Frank Lee with BMO. Please go ahead.

Hi, good afternoon, everyone.

Wanted to get your thoughts on funding the acquisitions in your current pipeline.

The intention now to find everything on the line versus issuing any equity or possibly using property level mortgages as an option.

Hey, Frank it's Jeremy how are you. Thanks for joining today. So we have ample room on our credit facility at at this time to fund the worn Dale acquisition and existing pipeline and.

We are exploring mortgage or fixed term opportunities or the worn dale asset with with lenders right now and we did not have any plans to need additional capital in the near term.

Okay. Thanks, and then you mentioned to us.

The landscape for nowhere warehouse property under over 300000 square feet, you have a sense of the size of the market for us yes.

Office properties, just want to get a sense of the opportunity set here and who are the typical owners of these properties and how they compare with the more kind of traditional owners for the properties that you've been acquiring.

So the larger in industrial properties are typically owned by institutional players.

Pro Pro Largess owns a few there.

Local new municipalities are cities or.

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That own a bunch of them as well.

In terms of office the target.

Addressable market for office is smaller than that of the industrial.

Sector, but I I think I could quantify it this way by saying.

The postal service leases approximately 70 buildings over 100000 square feet.

That accounts for let's say north of 20% of the properties that they lease.

And within that over 100000 square feet would be office and industrial and different types of properties.

Properties.

Okay.

Okay, great. Thank you.

Thank you.

This concludes the question and answer session I would like to turn the conference back over to Andrew poetic for any closing remarks.

Thank you very much on behalf of Jeremy and myself and everybody here on the entire team I wanted to thank you all for joining US today, we hope that everyone out there is safe and healthy during this this crazy time. Thank.

Thank you again.

Okay.

This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.

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