Q1 2021 Postal Realty Trust Inc Earnings Call
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Welcome to postal Realty Trust first quarter 2021 earnings call at.
At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded I would now like to turn the conference over to your host Mr. Jordan Cooperstein.
Rice President of F. P N a capital markets. Please go ahead.
Thank you good evening, everyone and welcome to the Postal Realty Trust first quarter earnings conference call on the call today, we have Andrew <unk>, Chief Executive Officer, Jeremy Gardner, President, Robert Klein, Chief Financial Officer, and Matt <unk>, Chief Accounting Officer. Please.
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 these forward looking statements are covered by the safe Harbor provisions for forward looking statements contained in the private Securities Litigation Reform Act of 995.
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 filed on March 30th 2021, and its other securities and Exchange Commission filings the company does not assume.
And specifically disclaims any obligation to update any forward looking statements, whether as a result of 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 operations and adjusted funds from operations you can find a tabular reconciliation of these non-GAAP financial measures to the most currently comparable GAAP measures in the company's earnings release.
With that I will now turn the call over to Andrew <unk>, Chief Executive Officer of Postal Realty Trust.
Good evening and thank you for joining postal Realty Trust's first quarter 2021 earnings call, we hope, you're all safe and well.
Building on our strong 2020, we achieved a number of milestones on the first quarter, including the completion of an upsized overnight marketed offering raising $57 million of gross proceeds and receipt of a renewal for our master lease encompassing a 135 property extending the maturity day to February 2027.
On the acquisition front, we continue to execute with the completion of approximately $26 million in accretive acquisitions supported by a meaningfully enhanced capital structure.
We remain quite confident about our positioning as we have plenty of financial capacity to continue to expand our platform.
U S postal service last mile Flex and industrial facilities.
So it's been our experience to date on portfolio is 100% occupied and we have collected 100% of our runs on.
Lease renewals, most notably the ones that relate to our master lease for 135 properties serve to enhance our already stable revenue stream.
The composite of accretive acquisitions, a historical 98% renewal rate stable cash flows on a credit tenant allow us to enhance our total return profile.
We have consecutively raised our dividend since our IPO in 2019 to an annualized <unk> 88 per share and unit.
Our investment activity provides the fuel for our growing dividend as I mentioned earlier, we completed the acquisition of 54 USPS properties for $25 8 million, excluding closing costs totaling 686000 leasable interior square feet. These properties include 36 last mile 15, flex and three industrial.
Real facilities.
Quarter to date, we closed on an additional 13 properties for $5 4 million, excluding closing costs, including an LP unit deal priced at $18 54 per unit.
We have another 52 properties totaling approximately $18 $5 million under definitive contract that also include <unk> units as part of the consideration.
Looking ahead, our pipeline remains full and we are finding that the market for postal properties is ripe with opportunities.
Given the fortitude of our balance sheet, and the financial capacity and our ability to offer multiple sources of consideration, including op units, we expect to continue to execute and maintain our position as a market leader in the natural buyer of assets with the postal service as the tenant.
With an experienced team and our resolve to build on the progress we have made over the past few years. We are optimistic about the year ahead and excited about the consolidation opportunity before us.
I'll now turn the call over to Rob to walk through our results and our capital position.
Thank you Andrew and thank you everyone for joining us this evening.
Echo Andrew's comments that we are now better positioned than ever to actively pursue our growth plans and to continue the consolidation of a fragmented industry.
Our key competitive advantages continue to be our platform scalability as evidenced by our earnings as well as our conservative balance sheet continuing to afford us ready access to capital this quarter's numbers reflect both.
<unk> and <unk> grew substantially on a per diluted share basis as compared to the first quarter of 2020.
<unk> per share improved by 75% at <unk> one per share from 12 cents last year, while <unk> per share grew approximately 29% to 27.
When taking into consideration our January equity raise this year over year improvement truly reflects the accretive nature of our acquisition activity.
Moving onto the balance sheet at March 31, 2021, we had $3 $3 million of cash and approximately $97 $8 million of gross debt with a weighted average interest rate of two 2% comprised of $64 $5 million of floating rate debt on our facility and $33 $3 million of fixed.
Right mortgages.
At quarter end, our net debt to enterprise value was just under 25% net.
Net debt to annualized adjusted EBITDA was four two times and our fixed charge coverage ratio was seven three times.
As Andrew mentioned in January we raised $57 million of gross proceeds in an upsized offering.
Proceeds were used to fund acquisitions and repay a portion of the outstanding debt on our credit facility and repaid $13 7 million in mortgages that carried an interest rate of four 5%.
Retiring these mortgages, we were able to drive our overall cost of debt lower which will benefit earnings going forward.
Our property cash flows and acquisition activity continue to fuel our growing <unk> and cash available for distribution.
On April 32021, the company declared a quarterly dividend of <unk> 22 per share of class a common stock the.
The dividend equates to <unk> 88 per share on an annualized basis and continues our trend of increasing the dividend in every quarter. Since we went public in May 2019.
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 would like to open the call for questions.
Thank you at this time, we'll be conducting a question and answer session.
If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Yes.
Your first question comes from the line of Rob Stevenson with Janney.
Kenny. Please proceed with your question.
Good afternoon guys.
Andrew can you characterize it.
There been any change in how the postal service is addressing lease role with you guys.
Under the current administration versus the previous.
For the 2021 and 2022 lease roles that you have remaining.
Is that anticipated to be done in an orderly time or is that likely to go on essentially extension how does that how should we be thinking about that as we go over the next call. It 18 to 20 months.
Hey, Rob.
I don't really believe that.
Our leases or pretty much the majority of the leases are.
Being addressed or thought about by the administration.
As you know the total lease amounts accounts are under 2% of the postal services total expenses and so I don't believe it rises to the occasion of what they're focused on right now.
There's really been no change from our perspective, we are in the process of <unk>.
<unk>. The 2021, we believe that the 'twenty, one 'twenty twos will move.
A lot more efficiently than the 19 to 20.
And we're hopeful to get them done as soon as soon as accounts.
And is that likely to be similar to the five years that you did on the master lease back in January is that with the term is that they're basically looking for are they doing shorter term stuff.
They are typical lease term is five year fixed and duration. Okay. And then you guys talked to the release about having some of the $18 5 million under contract.
Okay units, how much of that should we be expecting in terms of <unk> units.
The majority of of that 18, and a half as MLP okay.
Are you seeing more interest here is it just one or two sellers that are.
Motivated by the tax deferral nature, and I assume the stock price being.
20, plus here makes issuing op units more attractive to you, but how would you be thinking about doing it on small deals if somebody came to you with.
500, 500, $700000 transaction, they're too small to do units not worth the time.
So there are a few questions in there. So first so first of all historically, we really haven't offered the ability to do no per unit transaction too.
To properties.
On the smaller amount, let's call it a $1 million and under.
We just did.
On the Op unit transaction that was under $1 million as a test case to see how it went it actually went smoother than we thought.
So it is something that we would consider based on obviously the deal and the terms were.
On a tremendous amount of interest around the ability to contribute their property to to the REIT.
The people that are calling us are really interested in partnering with us because they understand our relationship with the postal service they understand.
What the opportunity set in front of us is and how secure and confident they are on the cash flows and how we operate the properties and so these families.
Are entrusting us with their properties and we're very we're very proud of that a lot of people that are calling us about these transactions are interested in these units and not all of them actually end up executing with the use of.
On the entire transaction and units or even a portion of it but it creates a lot of deal flow and a lot of conversations.
And are you putting any lockups on the op units.
So the stand.
Limited partnership agreement calls for a one year lockup on op units, it's more of a tax protection strategy than anything else.
Okay. Thanks, Jeremy Thanks, guys I appreciate the time.
Thank you very much Rob I appreciate the questions.
Your next question.
Question comes from the line of Jon Petersen with Jefferies. Please proceed with your question.
Great. Thanks can you give us a little bit of color on what the leasing spreads were on the master lease agreement renewal and then also just curious.
With some more color on these master lease agreements in and kind of maybe the history of this one and kind of where they make sense and if over time, you will rollout more leases into some of these some of these master lease structures.
Sure John I appreciate the question.
This master leases is really an anomaly within the postal service's network of leases.
It was created before.
Before we purchased the portfolio of properties.
And it's unique in the way that it's structured it's one lease that's governing of 135 properties.
On the renewal of this lease was a pre determined dollar amount.
They exercised it.
On there.
On their part to exercise it it wasn't rent to be negotiated there were no terms to be negotiated.
And so thats, how that lease restructure.
I believe that as this company grows.
There is a logic to the efficiency of having a master lease.
Governing our portion of the property.
It's something that will probably be discussed with the postal service at some point.
Whether or not it will have traction.
I can't speak to.
Okay got it and then.
I guess just in volume of acquisition opportunities out there maybe just generally what you.
You guys are seeing but then curious more specifically if you have thoughts on.
The elimination of 10, 31 exchange and I'm sure. We're all kind of thinking through this but how do you think that might play out.
For your opportunities I guess before and after a law like that were to be put in place.
So I think we've spoken about this before I think the elimination of the 10 of the 10 31 exchange.
It would be a tremendous opportunity for us.
There are a lot of people out there that.
Wanted to further their capital gains and as we know there is a generational shift in the ownership of these assets and so the ability for them to further capital gains is eliminated through the 10 31 law then.
Contributing to the REIT would be their best alternatives. So I believe that our opening unit currency would increase in value if that law.
Or that that regulation is changed or removed.
Okay, and then just just generally in terms of appetite.
I guess can you quantify I guess, what your pipeline is in terms of the number of deals that you are looking at right now.
Yes, so as we've articulated we.
<unk> $100 million target for 2021, we are on pace to do that $100 million.
The pipeline is.
Thankfully very very strong we're seeing a lot of good deal flow a lot of.
Just different types of deals and different types of properties and so we're very we're very confident that we will be able to meet or exceed that $100 million number for this year.
Okay, great. Thanks, Andrew.
Thank you.
As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad as a reminder, if you'd like to ask a question. Please press star one on your telephone keypad one moment. Please while we poll for more questions.
Okay.
Next question comes from the line of Frank Lee with BMO. Please proceed with your question.
Good afternoon, everyone.
Andrew.
How should we think about acquisition funding for the remainder of the year any thoughts on Opportunistically tapping. The ATM then to pre fund some on acquisition activity.
Given your stock's performance.
Hey, Frank I appreciate the question I'm actually going to pass this over to Rob to field if that's okay.
Okay, that's fine.
Yes, so as you know.
We have a quite a big tool set of things we can do here on the equity side. So we've been looking at everything from the ATM to regular way offerings to LP unit deals and then our multiple sources of debt. So we are absolutely going to be opportunistic with a healthy mix of any and all of those things.
We're in a very strong position Fortunately with our balance sheet being in the low leverage and lots of room to fund our acquisitions as we as we see fit. So the answer is yes, we are going to look at all of those different types of equity to fund as well as the debt that we have available to us.
Okay, Great and then a question on the Postmasters strategic plan that was laid out couple months ago, just wanted to get your thoughts.
Impact do you think this could have on the USPS network.
So.
We were very happy to hear that the postal Master general feels that the network of post offices, which is obviously the buildings that we are acquiring.
Our critical infrastructure, not just to the postal service, but to the American people.
His plan lays out not just the importance of it and not just the importance of the retail network, but also the fact that he would like to invest in these buildings invest in our retail network invest in the customer experience.
And all of this just.
Echo is everything that we've said since we've gone public and so to to hear that from the PMG was very reassuring.
Okay, great. Thank you.
Yeah.
Your next question comes from the line of Ed <unk> with Hite capital markets. Please proceed with your question.
Sure.
Good afternoon, and thank you for taking my question I Hope you're all well.
On.
Just to follow on to Franks question there.
Any any consideration of.
Going to the bank to expand the accordion option on the deadline on it.
Or are we still have cushion before we get to consider it and I guess what would you.
What factors would come into play that would make you go to the bank to expand it.
Yes. Thanks, Ed. Good question currently we have ample capacity on our facility. We are exploring alternatives to even increase our capacity that could include things like other sources of debt pulled from a capital off on the facility. We do have a $50 million additional accordion that we can exercise I don't think we need to do that just.
Yet, but we do that have that in our back pocket.
And so at the moment, we don't have a need to expand our debt capacity because we do have enough left to fuel our acquisition pipeline for the year.
Okay.
And can you just give us a sense of the properties.
We're going to go.
Do some more mortgages.
How much capacity do you have.
That's free from those properties is there any is there a <unk>.
What.
We do have capacity.
And we do we can always choose whether or not we want properties to be.
<unk> towards an unencumbered test or if they are and convert it to different tests with different covenants that.
That are required to be net for our facility. So that's something that we think about all the time and as you know in the fourth quarter. When we bought Warrendale that was a consideration and we actually did put a mortgage on that because it made sense with the term with the size and with the right. So we're always thinking about that but in general it's a better use of our capital to use our facility on you.
Can see it in the last quarter as the first quarter, we actually paid down a few mortgages because we thought it was a better use of our capital to have it on the line and to use equity proceeds from the operating et cetera, rather than have four in a quarter percent debt outstanding.
Yeah on the fed is going to help you out for a few years to keep the revolver line costs down.
Exactly that.
Right.
That's right that's right on let me do the right things, we will keep our debt cost down alright. So I know Andrew. Thank you for answering the question there $100 million. Your target you are clearly on pace to do $100 million.
Do you get the sense like is.
Is 100 million sort of like <unk>.
To get to at this point.
Or do you think you have your work cut out for you I E.
Can we expect that you'll do more than $100 million and you can answer that the way you want.
I appreciate the question.
The guidance that we've given is a $100 million.
Yes.
As the year progresses, we may adjust that guidance, but as of today.
That's where we've laid things out.
Okay I appreciate that.
That's all I have thank you so much thank you.
You.
Ladies and gentlemen, we have reached the end of the question and answer session and I would like to turn the call back to Mr. <unk>.
Andrew <unk> CEO for closing remarks.
Thank you on behalf of myself and the entire team. Thank you all for taking.
Tom out of your busy days to join US for this call today, we hope that everyone is staying safe and healthy and we look forward to connecting with you over the next coming months.
Ladies and gentlemen, this does conclude today's conference you may disconnect. Your lines at this time. Thank you all for your participation.
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