Q4 2020 Postal Realty Trust Inc Earnings Call
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Thank you for standing by this is the conference operator welcome to the Postal Realty Trust fourth quarter 2020 earnings Conference call.
As a reminder, all participants are in a listen only mode and the conference is being recorded.
After the presentation, there will be an opportunity to ask questions.
I would now like to turn the conference over to Jordan <unk>.
Please go ahead Sir.
Thank you good afternoon, everyone and welcome to the Postal Realty Trust fourth quarter earnings Conference call on the call today, we have Andrew <unk>, Chief Executive Officer, Jeremy Garber, President Robert Klein, Chief Financial Officer of Matt brand wide, Chief Accounting Officer.
Please note the use of forward looking statements by the company on this conference call statements made on this call may include statements that are not historical facts and are considered forward looking including among others statements related to the COVID-19 pandemic and its effect on our business the terms and timing of our pending acquisitions and the status of our ongoing.
Negotiations with the postal service. These forward looking statements are covered by the safe Harbor provision for forward looking statements contained in the private Securities Litigation Reform Act of 1995.
Actual results may differ materially from those described in the forward looking statements and will be affected by.
A variety of risks and factors that are beyond the company's control, including without limitation those contained in the company's 10-K, which will be filed later this week and its other securities and Exchange Commission filings. The company does not assume it specifically disclaims any obligation to update any forward looking statements whether as the result of.
The new information future events or otherwise.
Additionally, on this conference call the company of May refer to certain non-GAAP financial measures such as funds from operations and adjusted funds from operations you can find the tabular reconciliation of these non-GAAP financial measures to the most currently comparable GAAP measures in the company's earnings for.
Additional information may be found on the Investor Relations page of our website.
With that I will now turn the call over to Andrew spoke Chief Executive Officer of Postal Realty Trust.
Good afternoon, and thank you for joining postal Realty Trust's fourth quarter 2020 earnings call. We hope you are all safe and well and that we can all returned.
To a new normal zone.
'twenty 'twenty was a success for postal Realty, we more than doubled our revenue and quadrupled our portfolio of square footage since our IPO.
Over the course of the year, we acquired 261 properties within the U S. P. S logistics network for over $130 million exceeding our acquisition goals for the year we increased.
<unk> of our borrowing capacity under our credit facility and successfully raised $52 million in gross proceeds to support our growth.
Just after year end given the many accretive opportunities for continued to pursue and to ensure that we are appropriately positioned to further increase the scale of our platform. We successfully raised an additional $57 million in gross proceeds.
In an oversubscribed offering that broaden our investor base and reloaded the capacity on our credit facility.
These accomplishments highlight our access to various sources of capital as well as the stability of our strategy our platform and the commitment of our team.
Across the country. There is a focus on critical infrastructure in the U.
U S. P. S logistics network is an important component of it we believe that we are proving out the consolidation opportunity of investing in the USPS logistics network.
As postal Realty platform continues to grow we are adapting our terminology to appropriately classify our properties within this network.
The categories are last.
Mile which are properties less than 2500 square feet flex.
Which of properties 2500 to 50000 square feet, and industrial which are properties with square footage greater than 50000 square feet.
Over the past two quarters, we purchased industrial postal properties located in Warrendale, Pennsylvania, Topeka, Kansas and Birmingham.
Alabama, our flex properties include office warehouse and retail with our fourth quarter 2020 acquisition of the Greensboro, North Carolina office building being the largest.
Finally, we believe last mile is the backbone to the USPS logistics network and we are focused on these postal properties.
<unk> comprised approximately 20% of the postal lease properties and are approximately 20% of our portfolio.
The market for postal properties remain highly fragmented and we are well positioned given our relationship size and relative cost of capital to continue adding accretive investment opportunities.
As the largest owner of postal.
The properties, we have only aggregated approximately 4% of the total lease postal property universe, and we've only gotten started.
This growth opportunity is further enhanced by the credit quality of our tenant the United States Postal service Theyre demonstrated commitment to renewing in our properties and the universally recognized importance of the logistics network.
As critical infrastructure for this country.
The 2021 acquisition program is off to a strong start and we continue to evaluate a wide spectrum of opportunities throughout the U S. P. S logistics network, we expect to meet or exceed $100 million of acquisitions within a weighted average cap rate range of 7% to 9%.
Let.
Turn it over to Jeremy to give you an update on leasing acquisition activity and some other operational initiatives.
Thank you Andrew for 2020 of our portfolio maintained a 100% occupancy and we collected 100% of our rents we are in receipt of fully executed leases for all of our 2019 and 2000.
The 'twenty holdover properties.
We are pleased to share that in January we received an executed lease renewal for the 135 properties subject to a master lease that was previously set to expire in 2022. The next renewal under this master leases now February 2027 together.
With our other renewals this leasing activity brings our weighted average lease term to for years. We are now working on our 2021 lease expirations, which as of March 15 represent just for percent of our annual rent.
As of March 15, our portfolio of 100% occupied and contains $3 3 million of net leasable.
Simple interior square feet.
We had an active fourth quarter was approximately $64 million of acquisitions, bringing our 2020 total volume to over $130 million at a weighted average cap rate between seven and a half and 8% after the close of the fourth quarter and through March 15, we acquired.
An additional 49 properties for approximately $24 million.
From the human capital perspective, we've strengthened the team, adding a number of new team members to our acquisition finance and accounting teams, while welcoming Robert Klein as our Chief Financial Officer, Rob joins us with extensive corporate finance.
<unk> capital markets and real estate operations knowledge from his senior leadership positions as the managing director in investment banking at Evercore partners and managing partner at Monday properties, a private real estate owner.
With this fortified team we remain very confident about our prospects to continue our accretive growth and look forward to.
Our progress with you throughout the year with that I would like to turn the call over to Rob to discuss our financial results.
Thank you Jeremy and thank you all for participating this evening.
I joined postal Realty's management team because we all share the same vision and goal of accelerating the growth of the company with a strong.
<unk> Foundation and unique business plan.
The opportunity for us to deliver value to existing and new shareholders through the consolidation of of fragmented industry is extraordinary and imminent.
I'm honored to be part of the team excited to contribute to ongoing execution of our strategy and I look forward to engaging with all of you.
U as we move ahead and grow together.
We are pleased to share the results from a strong quarter in which both <unk> and <unk> grew substantially on a per diluted share basis as compared to the fourth quarter of 2019.
The growth accounts for our common equity raise last July.
<unk> per share.
Improved to 26 cents per share from six cents last year, while <unk> per share grew 56% to 28 cents.
For the year <unk> was 85 cents per diluted share and <unk> <unk> per diluted share was $1.
Moving on to the balance sheet at December 31.
Share of 'twenty, we had $2 $2 million of cash and approximately $125 million of gross debt with a weighted average interest rate of 2.4% comprised of $78 million of floating rate debt on our facility and $47 million of fixed rate mortgages.
The fixed rate mortgages.
Does include a $32 million mortgage on the Warrendale distribution facility at a fixed rate of two 8% for 10 years.
Subsequent to year end, we raised $57 million of gross proceeds in our upsized offering which was used for acquisitions repayment of a portion.
<unk> of the outstanding debt on our credit facility and repayment of $13 $7 million in mortgages that carried an interest rate of four point to 5% as well as other general corporate purposes.
As of March 15, we have $67.5 million outstanding on our $150 million.
Credit facility and approximately $33 million of fixed rate mortgages at a combined weighted average interest rate of approximately two 2%.
Our property cash flows and acquisition activity support our growing <unk> and cash available for distribution.
On January 29.
<unk> thousand 21, the company declared a quarterly dividend of 21.75 cents per share of class a common stock.
The dividend equates to 87 per share on an annualized basis and represents the sixth consecutive dividend increase since we went public in May 2019.
Two we are prepared for another year of growth and are well positioned to execute on our strategic plan.
This concludes our prepared remarks, operator, we'd like to open the call for questions.
And at this time, we will be conducting a question and answer session. If you'd like to ask the question. Please press star.
One on your telephone keypad the.
The confirmation tone will indicate your line is in the question queue you.
You May press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up of your handset before pressing the star of keys, one moment, please while we pull for questions.
Our first question is from Rob Stevenson.
Starwood.
Good day. Please proceed with your questions.
Hi.
Can you talk a little bit about the color a little bit more color on the first quarter acquisitions. It seems like that the rent per square foot and the the.
Cost per square foot was demonstrably lower than what you guys had been requiring recently and just.
He was in the.
Get a read on what was driving that whether or not it was certain assets, whether or not the leases were.
We're well below market et cetera, and whether or not there is some sort of a redevelopment play there.
Hey, Rob This is Andrew I appreciate the question.
The numbers are being skewed.
Wanted to Dubai.
Two assets that we purchased in Topeka, Kansas that have very low rents, they're large industrial buildings.
That would categorized the best as warehouses.
Even though a portion of it is being used for office space.
And so the rents are low the purchase price per square foot was low just because of the size.
Size of the assets.
Okay, and then can you remind us what the.
What the impediments from the timetable is for.
Potentially bring in any of the the managed assets in the and the family assets.
Sure Hey, Rob it's Jeremy so the the seasoning period.
That created the original restriction for the read from acquiring related assets has ended.
The managing these assets for many years of our value from the very familiar with these assets.
As of today, we have not been contacted by representatives of the family, but we will let you know as soon as we have any.
Any additional information to share.
Okay. Thanks, guys I appreciate it.
Okay.
Our next question is from Jon Petersen with Jefferies. Please proceed with your question.
Great. Thanks, maybe just to stick with.
Some of the acquisitions that you've done in <unk>, so far any color.
On how pricing is changing.
Cap rates and maybe motivations behind the salaries anything.
Evolving as we kind of turned the page into 2021 inch.
Interest rates rising.
Certainly economy of reopening all of that kind of stuff of any of that stuff impacting your ability to acquire properties in the <unk>.
The cap rates you're paying.
Hey, John This is Andrew I appreciate the question.
We've seen cap rates kind of they're constraining in general.
It hasnt directly affected our ability to purchase.
Are still seeing very strong interest.
From sellers to sell their properties.
And we are continuing to purchase within our weighted average cap rate range of 7% to 9%.
We're seeing different motivations from people this past year was where strange for for.
We're pretty pretty much everybody and that's changed a lot of People's point of view on their assets on their liquidity.
The future and so we're.
And a lot of.
Inbound calls from from sellers that are interested in selling to us.
Got it that's helpful and then.
You guys.
The renewed a lot of the stuff that within holdover I Wonder if you can give any color on what the leasing spreads look like and what does it was there enough volume.
Six of renewals that we're going to see any meaningful movements in <unk>.
Revenue that we should be aware of.
So I'll talk to the.
The renewals yeah, we successfully closed out all of 2019 and 2020.
We're not sharing releasing.
Am I getting ads, but we have share debt, we expect to see a 2% to 3% annual improvement in NOI on these properties and.
In terms of any significant impact in Q1.
I don't believe we're going to see anything as it relates to the.
The holdover renewals okay.
And.
The <unk> one.
Modeling question I noticed the straight line rent adjustments turned positive this quarter positive almost 300000, it's usually negative just curious is there anything one off the call out there.
Yes, so part of our straight line includes the reimbursement of rent associated with.
And then just holdovers, so certainly based on the fact that all of the holdovers that we mention of where we're squared away that led to a increase in that going forward I would imagine of the number would be.
So certainly less than that.
Alright, that's helpful. All right. Thank you.
The next question is from Frank Lee with BMO. Please proceed with your question.
Good evening, everyone of them in your presentation, you disclosed three per cent of rents are coming from non U S. P. S tenants.
Just curious is this all from tenants from recent industrial acquisitions and could we expect the percentage the increase overtime that you acquired.
More office flags or industrial assets.
Thanks, Frank This is Andrew yes, the 3% is specifically related to the two additional tenants that are in the Warrendale facility that we purchased at the end of last year.
We continued.
You too.
The source and purchase properties that are solely tenanted by the postal service. So we do look at individual transactions that that makes sense that two of the secondary tenant by nature. If we do do deals that have the secondary tenanted and at that that number will rise, but we don't.
Anticipated rising very significantly because again, our focus is the postal service and properties that they're occupied.
Okay. Thanks, and then with the recent rise in interest rates how is this impacting.
Either of the pipeline of your view on acquiring industrial or office assets, which so far has been.
And complete at Laurie cap rates versus your more traditional post office properties.
Well thankfully our cost of capital is pretty low and we are of very very good credit facility. We continue to look at all different asset types.
The postal service is interested.
Right, that's everything from the last mile facilities, all the way up to the larger industrial properties.
Try to underwrite these properties on a property by property basis, and the deal by deal basis.
If the if the property makes sense from a postal service perspective, if they need and want to be in that facility and we can underwrite it.
With.
It and be adding debt, it's at or below replacement cost or at a good value for the real estate in that particular area of then that's the deal that we would like to do.
And we will continue to do them.
Okay, great. Thank you.
Thank you.
And as a reminder, if anyone have any questions you May press star.
We understand the telephone keypad doing so in the journey that you do join the question queue. Our next question is from Barry Oxford with D. A Davidson. Please proceed with your question.
Great. Thanks, guys.
Jeremy I was looking at the Capex lines saw the jumped a fairly high from <unk> to for Q.
So one kind of one or two buildings behind driving that or is that more going to be typical of the capex youre going to pay out on a quarterly basis.
Yeah.
Hey, this is Rob thanks for the credit line, yes, yes.
So those expenses in Q.
One of our where we're high based on one time expenses.
And these are these were related to the holdover leases that were executed that Matt mentioned earlier.
Obviously, it's going to vary quarter by quarter, given the nature and timing of of Capex from recurring capex projects, but.
There was also of revenue associated with the catch up catch.
Catch up rent from those leases as well so I don't think that that is a.
That's something it's going to occur each quarter.
Okay, great now that makes sense.
And then.
I guess of Andrew when you look at your pipeline.
Going forward and where your acquisitions are going to occur.
Or the bulk of those.
Kind of still occur in the.
The last mile or will it be more in the.
The flex area.
Thanks, Thanks, Barry look I, yes.
I believe the.
As we continue to grow and acquire this is not.
A quarterly.
The business.
And as the quarters.
<unk> continued to go by Youre going to see certain quarters that are more heavily weighted in last mile or flex or industrial.
From our perspective, we are looking at all different asset types within the postal Service's logistics network and we're looking for properties that they want to be in that we need to be in that.
From a real estate standpoint.
We believe that the the lion's share of the properties of the postal service uses for within the flex space and so by nature.
We look within that flex space as well.
But we arent focused in one particular area, we believe that one of the benefits of.
Of owning pulse of owning postal real.
Makes sense is that we have these different asset classes and we're diversified not just by asset class, but also by region and geography.
Is it fair to say you will just be opportunistic from quarter to quarter.
Yes, that's very fair to say.
Okay. Thanks, guys.
I appreciate it for you.
Yes.
Yeah.
Our next question is from Michael Gorman with <unk>. Please proceed with your question.
Yes. Thanks, Good evening, Andrew I Wonder just given the relationship that you all have with the USPS is there any opportunity in the acquisition pipeline to purchase.
Facilities from the USPS itself.
LT shown any interest in selling any of the owned facilities that they have in their portfolio.
I appreciate the question.
They have shown an interest in selling their own buildings, but they are only buildings that theyre looking to vacate.
Or vacate the the.
The majority of the building.
Those of properties that we.
By nature not interested in.
Buildings that they want to move out of or things that were it's just not our business.
And so they have not expressed an interest in selling the buildings that they are currently occupying.
When they do I will let you know.
Got it that makes sense and then.
We are about the flex buildings or some of the larger industrial buildings is there is there a lower bound for how much. The USPS represents in the building, but you're willing to go in an acquisition right. So does it have to make up a certain amount of the buildings revenues for for it to meet your acquisition criteria.
When you took from from my perspective.
I'm really focused on buying properties that are occupied by the postal service the secondary and tertiary tenants of really not my motivation. If the deal makes sense and the property is occupied for the full services and important to them and we can underwrite it and make.
And from a real estate standpoint than we will.
Pursue that opportunity, but it's really it's really not what we're focused on it's really not what we're driving towards so we want to stick with the.
The single tenant sole occupancy of the postal service.
Got it and then one last one for me I noticed in the debt.
It makes sorry.
The small number but the seller financing in there I hadn't caught that before I assume that was something similar to an open the unit structure, where it was to where it was.
On the sellers and that they wanted to keep the financing has taken the building and if thats the case.
Are you seeing increased requests.
For that kind of financing hold over or op unit structure in your deal discussions.
Sure. So that was driven by the seller. It is not a very common structure I have done it in the past.
It's not something that we advertised that we do but if a seller is motivated by.
Moving something like that because they want to replicate the cash flow they don't Wanna pay capital gains or for whatever other tax purposes that theyre looking for is something that we will accommodate and we did.
And it made sense for the transaction.
From the Op unit standpoint, we are seeing into.
Interest from sellers and doing trends transaction using the op unit.
Bye.
We see interest in conversation, sometimes those deals end up being done with open units and sometimes they end up being cash, but they're a good driver of deal flow and.
And we believe that we will continue to see.
That kind of interest.
Great. Thanks very much.
I appreciate it.
And again, if anyone has any questions you May press star one on your telephone keypad.
And our next question is from Andrew <unk> with <unk> capital markets. Please proceed with your question.
Good evening, everyone and thanks for taking the question.
I have a couple of questions, but the first of all I just want to start off with the holdover it.
Current the hold of releases had an impact on the Capex.
Impact on the straight line.
Can you talk about hold of releases like is that something.
We should expect going forward and then when the resolve to these type of impacts on the.
Financial statements.
Hey, Ed.
This is Andrew.
We are very happy that the 2019 and 20 are behind US. We believe a lot of that backlog has to do with the new lease document that was put in place. We're hoping that now of the documentation is behind us that the.
The movement of the 2020 ones and 'twenty to 'twenty two leases.
It seems like move much more efficiently.
And so we're hoping that the backlog won't continue and won't be of recurring issue.
Great and then.
It sounds like the USPS.
The lease documents.
Once in a while event is something that happens consistently then so.
<unk> will be efficiency statement, yes.
Yes, okay.
The rollout of this new lease document throughout their portfolio.
It's not something that happens very often and I don't believe.
We'll see a major lease document change for some for some time.
And then.
Just wanted to briefly touch on general administrative expenses, they were down a little bit quarter over quarter.
I guess the expectation was that would be in line.
Can you just set our expectations of what to look for in 2021.
Sure. This is Rob Thanks, Ed for the question. So when we started.
IPO, we had a heavy load of G&A. However, as we've grown G&A as a percentage of revenue has decreased and we believe you'll continue to see revenue growth outpace incremental G&A increases and the ratio each year of those will continue to come down.
As you know a substantial amount of executive compensation that is paid in equity.
Started hump.
And so the metric we generally look at is our cash G&A as a percentage of revenue.
Okay. Thank you for for that Rob Alright, and then Hum.
Just to touch on dividends right certainly.
Certainly, it's growing and sixth consecutive raises is good.
The basic themes that out.
The postal has access to the market and is the opportunity in attracting capital.
That's put a little bit of pressure on the growth. So can you just talk about expectations for the dividend and is there a point, where maybe the raises start to repeat and dividend growth.
Sure. So look our goal is to increase the dividend each quarter as we grow <unk> and to keep the dividend covered we have a history of increasing our dividend consecutively for the past six quarters and just to throw some stats out there we've achieved about a 28% increase year over year and 55% since the Q3 of <unk> 19 dividend.
So as of the market closed today, our current dividend yield is approximately five 5%.
But I did want to address one thing that I know it came up some time ago, which I know we've discussed the $1 two per share and 6% dividend yields in the past.
However, these are no longer our targets nor should they be viewed as a maximum or even of cap.
<unk> of dividends.
Fantastic I appreciate that as well all right and then.
And you did bring it up is my last point of question just on paying dividends from cash flow I didn't know when you did the last offering you talked about that the use could be for dividends and then today's quarterly reported talks about it could.
On for your dividends, but but the focus really is to cover dividends from <unk> is that still correct.
That's correct yes.
Okay.
That's all I have a non thank you very much for your time.
Thank you.
Once again, if anyone have any questions.
You May press Star one on your telephone keypad again doing sort of will ensure that you're in.
Join the Q&A.
List.
And we have reached the end of the question and answer session I will now turn the call.
<unk> CEO, Andrew <unk> for closing remarks.
On behalf of Jeremy Rob myself and the entire team. Thank you all for joining US today, we really appreciate it.
And this concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
All over.
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Yes.
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