Q4 2021 Postal Realty Trust Inc Earnings Call
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Greetings and welcome to Postal Realty Trust fourth quarter 2021 earnings call.
greetings and welcome to Postal Realty Trust's fourth quarter 2021 earnings call.
At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded.
At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded.
I would now like to turn the conference over to your host, Mr. Jordan Cooperstein, Vice President of FP&A Capital Markets. Please go ahead.
I would now like to turn the conference over to your host Mr. Jordan Cooperstein Vice President of S. P. N a capital markets. Please go ahead. Thank.
Jordan Cooperstein: Thank you. Good afternoon, everyone, and welcome to the Postal Realty Trust fourth quarter and year-end 2021 earnings conference call. On the call today, we have Andrew Spodek, Chief Executive Officer, Jeremy Garber, President, Robert Klein, Chief Financial Officer, and Matt Bramwein, Chief Accounting Officer.
Thank you good afternoon, everyone and welcome to the postpone Realty Trust fourth quarter and year end 2021 earnings conference call on the call today, we have Andrew <unk>, Chief Executive Officer, Jeremy Garber, President, Robert Klein, Chief Financial Officer, and Matt <unk>, Chief Accounting Officer. Please.
Jordan Cooperstein: 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.
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 1995.
Jordan Cooperstein: These forward-looking statements are covered by the Safe Harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.
Jordan Cooperstein: 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 latest 10-K and its other Securities and Exchange Commission filings. The company does not assume and specifically disclaims any obligations to update any forward-looking statements, whether as a result of new information, future events, or otherwise.
Actual results may differ materially from those described in the forward looking statements and won't 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 latest 10-K and its other securities and Exchange Commission filings. The company does not assume an specifically disclaims any obligations to update any.
Forward looking statements, whether as a result of new information future events or otherwise.
Jordan Cooperstein: Additionally on this conference call, the company may refer to certain non-GAAP financial measures such as funds from operations, adjusted funds from operations, and adjusted EBITDA.
Additionally, on this conference call the company may refer to certain non-GAAP financial measures such as funds from operations adjusted funds from operations and adjusted EBITDA 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 and supplemental materials.
Jordan Cooperstein: 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 and supplemental materials.
Jordan Cooperstein: With that, I will now turn the call over to Andrew Spodek, Chief Executive Officer of Postal Realty Trust.
I will now turn the call over to Andrew <unk>, Chief Executive Officer of Postal Realty Trust.
Andrew Spodek: Good afternoon and thank you for joining us today. Postal Realty Trust produced a strong 2021, exceeding our acquisition target for the year.
Good afternoon, and thank you for joining us today Postal Realty Trust produced a strong 2021 exceeding our acquisition target for the year.
Andrew Spodek: We acquired 239 properties for approximately $118 million at a weighted average cap rate of between 7% and 7.5%.
We acquired 239 properties for approximately $118 million at a weighted average cap rate of between seven and seven 5%.
Andrew Spodek: Notably, more than three quarters of our acquisitions were sourced off-market, demonstrating our access in the industry.
Notably more than three quarters of our acquisitions were sourced off market demonstrating our access in the industry.
We continue to execute on our postal property consolidation strategy and to grow our stable cash flows from our in place rents.
Andrew Spodek: We continue to execute on our Postal Property Consolidation Strategy and to grow our stable cash flows from our in-place rent.
Andrew Spodek: We see an enormous opportunity within this large, highly fragmented market.
We see an enormous opportunity within this large highly fragmented market.
Andrew Spodek: We are the leading owner of properties leased to the Postal Service, and with only a 5% market share, we have a significant opportunity in front of us to make additional accretive investments.
We are the leading owner of properties leased to the postal service and with only a 5% market share we have a significant opportunity in front of us to make additional accretive investments.
Andrew Spodek: Furthermore, with increased financial capacity on our balance sheet and deep-rooted knowledge of our market, we are well positioned to support the company's ongoing growth.
Furthermore, with increased financial capacity on our balance sheet and deep rooted knowledge of our market, we are well positioned to support the company's ongoing growth.
Andrew Spodek: Heading into 2022, similar to the broader real estate industry, we are continuing to see cap rate compression.
Heading into 2022 similar to the broader real estate industry, we are continuing to see cap rate compression.
Andrew Spodek: But with our extensive network and robust pipeline, we are confident our acquisitions will exceed $100 million, with current deal flow trending in the 6% to 8% cap rate.
But with our extensive network and robust pipeline, we are confident our acquisitions will exceed $100 million with current deal flow trending in the 6% to 8% cap rate range.
Andrew Spodek: Notwithstanding our experience and successful execution to date, it is important to invest in our platform to further expand our moat, extend our leading position, and continue
Notwithstanding our experienced and successful execution to date it is important to invest in our platform to further expand our moat.
And our leading position and continue to scale.
Andrew Spodek: This year, we are making investments in our technology and enterprise systems to allow us to even better utilize our proprietary and industry-leading data, enhance operational efficiency, and support our ongoing growth.
This year, we are making investments in our technology.
And enterprise systems to allow us to even better utilize our proprietary and industry, leading data enhanced operational efficiency and support our ongoing growth as.
Andrew Spodek: As part of our investment, we are excited to have closed on the acquisition of Real Estate Asset Counseling, commonly known as REAC.
As part of our investment we are excited to have closed on the acquisition of real estate asset counseling, commonly known as react are.
Andrew Spodek: A highly regarded consulting firm in the postal real estate industry, founded by former senior postal service real estate executives.
A highly regarded consulting firm in the postal real estate industry founded by former senior Postal service real estate executives.
Andrew Spodek: For almost 30 years, REAC has advised the postal ownership community by providing assistance with lease negotiations, due diligence, and property development, along with many other services.
For almost 30 years react has advised the postal ownership community by providing assistance with lease negotiations due diligence and property development along with many other services.
Andrew Spodek: REACT brings decades of experience, relationship, and proprietary data under our umbrella, strengthens our competitive advantage within the industry, and adds additional insight and understanding to our sourcing and underwriting of acquisitions.
<unk> brings decades of experience relationship and proprietary data under our umbrella strengthens our competitive advantage within the industry and adds additional insight and understanding who are sourcing and underwriting of acquisitions.
Andrew Spodek: We look forward to RIA contributing value to our consolidation strategy.
We look forward to react contributing value to our consolidation strategy.
Andrew Spodek: We continue to receive interest from potential sellers who understand the value proposition in working with Postal Realty.
We continue to receive interest from potential sellers, who understand the value proposition and working with postal Realty.
As we have stated over the years, our financial capacity proven track record and ability to offer multiple sources of consideration such as operating partnership units makes us the natural buyer of assets leased to the postal service.
Andrew Spodek: As we have stated over the years, our financial capacity, proven track record, and ability to offer multiple sources of consideration, such as operating partnership units, makes us the natural buyer of assets leased to the Postal Service.
The postal service has proven to be an incredibly stable tenant across every economic cycle. It.
Andrew Spodek: The Postal Service has proven to be an incredibly stable tenant across every economic cycle.
Andrew Spodek: It has created an irreplaceable logistics network that includes critical infrastructure to support the ever-growing e-commerce industry.
It has created an irreplaceable logistics network that includes critical infrastructure to support the ever growing e-commerce industry.
Andrew Spodek: In fact, this week Congress passed legislation to overhaul the U.S. Postal Service's finances and delivery services, further ensuring its continued endurance.
In fact, this week Congress passed legislation to overhaul the U S postal service's finances and delivery services further ensuring its continued endurance.
Andrew Spodek: The key elements of this legislation include reforming health benefits, shifting much of the retiree benefits to Medicare, and repealing the requirement that the Postal Service prepay future retirement health benefits, thereby helping to improve their finances.
The key elements of this legislation include reforming health benefits shifting much of the retiree benefits to Medicare and repealing the requirement that the postal service prepay future retirement health benefits.
Thereby helping to improve their finances in a meaningful way.
Andrew Spodek: We believe this legislation provides further validation of the importance of the Postal Service to this country's infrastructure and our business strategy of accretively aggregating the properties that support these important services for years to come.
We believe this legislation provides further validation of the importance of the postal service to this country's infrastructure and our business strategy of Accretively aggregating the properties that support these important services for years to come.
Andrew Spodek: As we continue to acquire postal properties and retain our leading position within the postal real estate space, we continue to be a resource to the Postal Service in their current and future needs.
As we continue to acquire postal properties and maintain our leading position within the postal real estate space, we continue to be a resource to the postal service in their current and future needs.
Andrew Spodek: As we move ahead, we have an experienced team, stable and secure cash flows, a proven ability to effectively own and operate properties, and a robust pipeline, all of which supports our confidence to create value for our stakeholders. I'll now turn
As we move ahead, we have an experienced team stable and secure cash flows a proven ability to effectively own and operate properties and a robust pipeline all of which supports our confidence to create value for our stakeholders.
Now I'll turn the call over to Jeremy.
Speaker Change: Thank you, Andrew. We are pleased that in 2021, we produced a 63% increase in revenues year over year.
Thank you Andrew we were pleased that in 2021, we produced a 63% increase in revenues year over year.
Speaker Change: This reflects strong collections from our existing portfolio along with contributions from our creative acquisitions during the past year.
This reflects strong collections from our existing portfolio along with contributions from accretive acquisitions during the past year.
We once again collected 100% of our rents and have effectively managed our lease explorations for each of the next three years leases, representing 7% to 12% of our total rent on an annual basis remain up for renewal.
Speaker Change: We once again collected 100% of our rents and have effectively managed our lease expiration.
Speaker Change: For each of the next three years, leases representing 7-12% of our total rent on an annual basis remain up for renewal.
Speaker Change: During the fourth quarter and through March 7th, 2022, we have not received any notices of termination by the Postal Service.
During the fourth quarter and through March seven 2022, we have not received any notices of termination by the postal service.
During 2021, we had a 99% weighted average lease retention rate consistent with our historical weighted average which displays how important these bookings are to both the postal service in the communities that they serve.
Speaker Change: During 2021, we had a 99% weighted average lease retention rate, consistent with our historical weighted average.
Speaker Change: which displays how important these buildings are to both the Postal Service and the communities they serve.
Speaker Change: This high rate continues to validate our due diligence process in identifying locations that we believe are important to the Postal Service.
This high rate continues to validate our due diligence process and identifying locations that we believe are important to the postal service.
Speaker Change: 2021 acquisitions added 1.8 million net leaseable interior square feet to our portfolio.
2021 acquisitions added one 8 million net leasable interior square feet to our portfolio.
Speaker Change: Inclusive of 204,000 square feet from 148 last mile properties.
Inclusive of 204000 square feet from 148 last mile properties for.
Speaker Change: 452,000 square feet from 87 flex properties and 1.2 million square feet from four industrial properties.
452000 square feet from 87, flex properties, and 1.2 million square feet from four industrial properties.
Speaker Change: Subsequent to year-end and through March 7th, we acquired an additional 38 properties for approximately $12 million excluding closing costs.
Subsequent to year end and through March 7th we acquired an additional 38 properties for approximately $12 million, excluding closing costs the.
Speaker Change: The company has another 13 properties totaling approximately $14 million under definitive contract.
The company has another 13 properties totaling approximately $14 million under definitive contracts I'll now turn the call over to Rob to discuss our financial results balance sheet and outlook for 2022.
Speaker Change: I'll now turn the call over to Rob to discuss our financial results, balance sheet, and outlook for 2022.
Thank you Jeremy and thank you everyone for joining us on today's call.
Rob: Thank you, Jeremy, and thank you everyone for joining us on today's call.
Rob: Postal Realty Trust is well positioned to continue executing on our growth plan and is supported by the steps we took to further strengthen our capital structure.
Postal Realty Trust is well positioned to continue executing on our growth plan and it's supported by the steps we took to further strengthen our capital structure.
Rob: In the fourth quarter we delivered Funds from Operations, or FFO, of $0.24 per diluted share and Adjusted Funds from Operations, or AFFO, of $0.25 per diluted share.
In the fourth quarter, we delivered funds from operations or <unk> of 24 cents per diluted share and adjusted funds from operations or F. O of 25 cents per diluted share.
Rob: For the full year 2021, FFO was $0.95 per diluted share and AFFO was $1.05 per diluted share.
For the full year 2021 F. O was 95 cents per diluted share and <unk> was $1.05 per diluted share.
12% and 5% increases respectively from the prior year.
Rob: 12% and 5% increases respectively from the prior year.
We have a straightforward and conservative balance sheet.
Rob: As of December 31, 2021, we had nearly $6 million of cash and approximately $96 million of gross debt with a weighted average interest rate of 2.41%.
As of December 31, 2021 we had nearly $6 million of cash and approximately $96 million of gross debt with a weighted average interest rate of 2.41%.
This is comprised of approximately $83 million of fixed rate debt.
Rob: This is comprised of approximately $83 million of fixed rate debt.
Rob: and $13 million of floating rate debt outstanding on a revolving credit facility.
And $13 million of floating rate debt outstanding on our revolving credit facility.
Since our IPO, we have consistently remained at or below our targeted 40% net debt to enterprise value and seven times net debt to annualized adjusted EBITDA and we expect we will continue to do so in 2022.
Rob: Since our IPO, we have consistently remained at or below our targeted 40% net debt-to-enterprise value and seven times net debt-to-annualized adjusted EBITDA, and we expect we will continue to do so in 2022.
Rob: At year end, those metrics were 16.7% and 3.3 times respectively.
At year end, those metrics were 16, 7% and 3.3 times respectively.
During the fourth quarter, we successfully completed a follow on equity offering where we issued approximately $4 9 million shares and raised $83 million of gross proceeds.
Rob: During the fourth quarter, we successfully completed a follow-on equity offering where we issued approximately 4.9 million shares and raised $83 million of gross proceeds.
Rob: With only $28 million drawn as of March 7, under our revolver, our upsized credit facilities completed during 2021 provide us with the necessary flexibility and financial capacity to support our growth strategy.
With only $28 million drawn as of March seven under our revolver. Our Upsized credit facility is completed during 2021 provide us with the necessary flexibility and financial capacity to support our growth strategy.
Rob: In the fourth quarter, we completed the acquisition of a property in downtown Milwaukee.
In the fourth quarter, we completed the acquisition of a property in downtown Milwaukee the.
Rob: The revenue from this property, like our San Mateo property, is reflected in our fee and other line item, as they are financing leases containing purchase options that we have assumed have a high likelihood to be exercised during the course of the lease.
The revenue from this property like our San Mateo property is reflected in our fee and other line item is there a financing leases containing purchase options that we have assumed that have a high likelihood to be exercised during the course of the lease.
Rob: We have provided additional disclosure on these financing leases in our upcoming 10-K filing.
We have provided additional disclosure on these financing leases in our upcoming 10-K filing.
The acquisition of react was executed for a total consideration of $1 $6 million.
Rob: The acquisition of REAC was executed for a total consideration of $1.6 million, consisting of $225,000 in cash and $1.4 million in operating costs.
Shifting of $225000 in cash and.
And $1.4 million in operating partnership units.
We expect immediate bottom line impact to be minimal when factoring in potential revenue.
Rob: We expect the immediate bottom-line impact to be minimal when factoring in potential revenue, cost savings, and additional expenses associated with the acquisition. As Andrew discussed, it is important to continue to invest in our platform to further expand our moat and continue to scale our business.
Cost savings and additional expenses associated with the acquisition as Andrew discussed it is important to continue to invest in our platform to further expand our moat and continue to scale our business.
Rob: This includes investments in our technology, enterprise systems, and incremental hire.
This includes investments in our technology enterprise systems and incremental hires.
Rob: To achieve accelerated future growth, we anticipate our cash GNA in 2022 to increase by approximately $2 to $2.5 million.
To achieve accelerated future growth, we anticipate our cash G&A in 2022 to increase by approximately two to two and a half million dollars.
These investments will be governed by the growth in our portfolio as we continue to focus on progression and the ratio of cash G&A as a percentage of revenues.
Rob: These investments will be governed by the growth in our portfolio as we continue to focus on progression in the ratio of cash GNA as a percentage of revenue.
Rob: Also, given some of the dynamics affecting supply chains and delivery of goods, our recurring capital expenditures in Q4 were larger than prior quarters in 2021.
Also given some of the dynamics affecting supply chains and delivery of goods a recurring capital expenditures in Q4 were larger than prior quarters in 2021.
Rob: Primarily due to roofing supplies ordered earlier in the year and subsequent work being performed once those materials were available.
Primarily due to roofing supplies ordered earlier in the year and subsequent work being performed once those materials were available.
We recently announced that our board of directors raised our quarterly dividend to <unk>, 22, 75 cents, which annualized to 91 cents per diluted share.
Rob: We recently announced that our Board of Directors raised our quarterly dividend to $22.75, which annualizes to $0.91 per diluted share.
Rob: This represents the 10th consecutive quarter of dividend growth and a 4.6% increase from the fourth quarter 2020 dividend.
This represents the 10th consecutive quarter of dividend growth and a four 6% increase from the fourth quarter 2020 dividend.
As we look ahead, our company remains very well positioned even within an inflationary environment.
Rob: As we look ahead, our company remains very well positioned, even within an inflationary environment.
Rob: We have a credit tenant, a high historical lease retention rate, the ability to mark rents to market, and a strong balance sheet with limited floating rate debt, all contributing to stable cash flow.
We have a credit tenant high historical lease retention rate the ability to mark rents to market and a strong balance sheet with limited floating rate debt all contributing to stable cash flows.
Rob: This concludes our prepared remarks. Operator, we'd like to open the call for questions. Thank you.
This concludes our prepared remarks, operator, we'd like to open the call for questions.
Thank you.
And at this time, we will conduct a question and answer session.
Rob: If you'd like to ask a question, please press star 1 on your telephone keypad.
If you'd like to ask a question. Please press star one on your telephone keypad.
Rob: What confirmation tone will indicate that your line is in the question queue?
A confirmation tone will indicate that your line is in the question queue.
Rob: You may press the star key followed by the number two if you would like to remove your question from the
You May press the Star key followed by the number two if you would 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.
Rob: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Rob: Once again, to ask a question, press star 1 on your telephone keypad. We'll pause for a moment while we pull for questions. Thank you.
Once again to ask a question press star one on your telephone keypad will pause for a moment, while we poll for questions. Thank you.
Okay.
We have spoken of Peterson.
Thank you.
Yeah.
And our next first question comes from Jon Petersen with Jefferies. Please state your question.
Speaker Change: And our next first question comes from John Peterson with Jeffries. Please state your question.
Great. Thanks.
John Peterson: First question was just on the acquisition guidance. I think you noted 6 to 8 percent cap rates. That went back a year ago. I think going into 2021, you were guiding to 7 to 9 percent. Not really surprised to see the compression. We're seeing that across real estate in general. But just, I don't know, any thoughts about competitiveness for this space and trends and cap rates that we should be thinking about?
Our first question was just on the acquisition guidance I think you noted 6% to 8% cap rates I went back a year ago, I think going into 2021 you're guiding to 7% to 9% not really surprised to see the compression we're seeing that across real estate in general, but just I don't know any thoughts about competitiveness for this space and trends in.
Cap rates that we should be thinking about.
Speaker Change: Hey, John . Thanks. Thanks for the question. You know, I think, as you're pointing out, I don't think this is a post office specific.
Hey, John Thanks, Thanks for the question.
You know I I think as you're pointing out I don't think this is a post office specific.
Speaker Change: Issues that people are seeing this is really across all different types of real estate And the compression that we're seeing today is in the six to eight percent range I can't really give you guidance on the rest of the year, but that's how we're seeing things I I think I've been seeing what most people in the real estate Business have been seeing which is this compression has been going on for months And it's just kind of gotten a little more compressed more recently
The issue that people are seeing this is really across all different types of real estate.
And the compression that we're seeing today is in the 6% to 8% range I can't really give you guidance on the rest of the year, but that's how we're seeing things.
I think I've been seeing what most people in the real estate business had been seeing which is this compression has been going on for months and it's just kind of gotten a little more compressed more recently.
Okay.
Speaker Change: Okay. I mean, any new entrants in the market? Anybody you guys are seeing, I guess bid against you guys on these properties that you don't normally see?
I mean any new entrance in the marketing anybody you guys are seeing I guess bid against you guys on a on these properties that you don't normally see.
No big competition is pretty much the same I think that that sellers are just asking for higher prices than they're getting it and theyre seeing that assets are trading at lower cap rates, whether it's a bank or a pharmacy or a post office or anything else.
Speaker Change: No, the competition is pretty much the same. I think that sellers are just asking for higher prices and they're getting it and they're seeing that assets are trading at lower cap rates, whether it's a bank or a pharmacy or a post office or anything else. I think, again, we're just seeing what everybody else is seeing.
We.
I think again, we're just seeing what everybody else is is seeing.
<unk>.
It's a fragmented market and we are here out there buying you know as as I stated you know.
Speaker Change: It's a fragmented market and we're here out there buying, you know, as as I stated, you know, vast majority of our deal flow comes off market and so we have a very deep network and we're confident we'll be continuing to purchase these properties in the six to eight cap rate ranges just where we're seeing things today.
A vast majority of our deal flow comes off market and so we have a very deep network and we're confident we'll be continue we'll be continuing to purchase these properties in the six to eight cap rate range is just where we're seeing things today okay.
Speaker Change: Okay. Um, and then, you know, I guess my last question, you know, on this new legislation that passed through Congress, I mean, it seems, you know, unanimously good for the post office in terms of.
Okay.
And then I guess my last question on this new legislation that passed through Congress I mean, it seems you know unanimously good for the post office in terms of.
Speaker Change: You know, I think just having a little bit more financial flexibility, I would imagine that leads to kind of more investment, you know, in their supply chain.
You know I think just having a little bit more financial flexibility I would imagine that leads to kind of more investment you know in their supply chain.
Speaker Change: I guess I'm trying to take it to the next level and think about how that impacts you guys. I mean, do you anticipate more maybe expansion or kind of like redevelopment projects that might kind of lift some upside for you guys, or is there a risk that maybe part of additional growth means more relocations to kind of larger spaces? Maybe if we could just think through some of the potential impacts directly for postal reality.
And I guess I'm trying to take it to the next level and think about how that impacts you guys. Like I mean, do you anticipate more maybe expansion or kind of like redevelopment projects that might kind of lift some upside for you guys or you know is there a risk that you know.
Maybe part of additional growth means like more relocations.
To kind of larger spaces, maybe if we could just think through some of the potential impacts directly for postal reality.
Hi, John This is Jeremy I think the first part of your question.
Speaker Change: Hi John , this is Jeremy. I think the first part of your question, you know, we were really excited to see this was 15 years in the making.
We're really excited to see this was 15 years in the making and if you went through the joys 10 year plan. This is really the cornerstone and this allows them to move forward with plans to invest in infrastructure are in a strong footing, we think that we're.
Jeremy Garber: And if you went through DeJoy's 10-year plan, this was really the cornerstone. This allows them to move forward with plans to invest in infrastructure, in a strong footing. We think that we're going to see the benefits of the USPS investment in their network, whether it impacts.
Going to see the benefits of the U S. P S investment in their network.
Whether it impacts choices of locations or existing locations I think as Andrew has talked to many times. When we do see you know exits from from buildings, it's really driven by the.
Jeremy Garber: Choices of locations or existing locations. I think as Andrew has talked to many times When we do see, you know exits from from buildings. It's really driven by Uh the existing space either being too small or too large I don't think that any of this investment infrastructure is really going to change the need for existing buildings
The existing space, either being too small or too large I don't think that any of this investment in infrastructure is really going to change the need.
For existing buildings I think that our network of buildings is it going to continue to be valuable in an increase in value as as you read some of the opportunities whether it's offering different government services in the buildings different licensing fishing drew.
Jeremy Garber: I think that our network of buildings is going to continue to be valuable and increase in value as you read some of the opportunities, whether it's offering different government services in the buildings, different licensing, phishing, drivers, social security, there's just a lot more that they'll be able to explore now that they've moved this sort of overhang of finances out of the way for now. Got it. Alright.
Driver of social security Theres, just a lot more that there'll be able to explore now that they've moved this sort of overhang of finances.
The way for now.
Got it alright, alright, that's great. Thank you guys.
Yeah.
Thank you.
Yeah.
Speaker Change: Just a reminder, to queue up for a question, simply press star 1 on your telephone keypad. You can remove yourself from the queue by pressing star 2.
Just a reminder to queue up for a question simply press star one on your telephone keypad, you could remove yourself from the queue by pressing star two.
Our next question comes from key bin Kim with Truest. Please state your question.
Speaker Change: Our next question comes from Keebin Kim with Truist. Please state your question.
Oh, Thanks, good evening.
Keebin Kim: Thank you. Good evening. Can you talk a little bit more about the acquisition you made, the REAC acquisition, and if, I mean, looking at the website, it looks like it's basically a consulting company of three people.
Can you talk a little bit more about the acquisition you made them to react acquisition.
And if I mean looking at their website it looks like there's basically a consulting company of three people.
Does this acquisition also contributed to the higher G&A that you alluded to this earlier in the call.
Keebin Kim: Does this acquisition also contribute to the higher GNA that you alluded to earlier in the call?
Sure I appreciate the question. So this company that.
Speaker Change: Sure, I appreciate the question. So this company that we acquired has been really a resource.
That we acquired has been really.
Really a resource to to the postal ownership community for decades.
Speaker Change: to the postal ownership community for decades. I've leaned on them at particular times. Their network.
I believe on them at particular times there their network.
Speaker Change: within the ownership community is tremendous, the network within the Postal Service is tremendous as well. They've provided all types of...
Within the ownership community is tremendous the network within the postal service is tremendous as well they've provided all types of consulting and advisory work.
Speaker Change: consulting and advisory work to very different, all different types of levels of people for different types and sizes of projects.
Two very different all different types of levels of people for different types and sizes of projects.
Speaker Change: And we're very excited to have them on on board. I really think that they just help bolster
And we're very excited to have them on board I really think that they just help bolster and secure all the institution knowledge that we have and adding all the institutional knowledge that they have and all the data that they have acquired over all these years being in this space is just going to be more valuable from an underwriting from a sourcing and from a.
Speaker Change: and secure all the institutional knowledge that we have and adding all the institutional knowledge that they have and all the data that they have acquired over all these years being in this space is just going to be more valuable from an underwriting, from a sourcing, and from a management and leasing purpose.
Management and leasing per.
Speaker Change: her perspective, and so we're really very, very excited about it. The three people that you see on the site are the principals. They have other people that work for them. Their stable is a little more involved than those three principals, but the brand itself and the integrity and the recognition that they have within the space is terrific, and we're happy to have them.
Her perspective, and so we're really very very excited about it.
The three people that you see on the site or the principals there.
They have other people that work for them.
They're they're stable is a little more involved than those than those three principles, but.
The brand itself and the integrity and the recognition that they have within the spaces is terrific and we're happy to have them.
Speaker Change: And the GNA increase, how much of the 2 to 2.5% or 2 to 2.5 million of GNA increase is tied to the personnel that's coming on board versus...
And the G&A increase how much of the 2% to 2.5% or two to two and a half million of G&A increase is tied to the personnel that's coming on board versus.
Your direct hires.
Hey, Kevin it's Rob Thanks for that question as well.
Speaker Change: Hey Gabe, it's Rob. Thanks for that question as well. They are part of that increase as well as our investments in technology, enterprise systems, and some other incremental hires. I think the important thing to note about the REAC acquisition is that while they will be a contributor to some of the expense line item, they also will be a contributor to the other side of ledger on the revenue side. We expect the bottom line impact to be quite minimal in the near term with those two items.
They are part of that increase as well as our investments in technology enterprise systems and some other.
Incremental hires and I think the important thing to note about the react acquisition is that while they will be a contributor to some of the expense line item. They also will be a contributor to the other side of ledger on the revenue side and we expect the bottom line impact to be quite minimal in the near term with those two items.
Gabe: I guess one last question on this topic, does this acquisition come with any kind of revenue streams or is it more?
So I guess one last question on this topic does this acquisition come with any kind of revenue streams or is it more.
Gabe: you know, lead generation type of.
Lead generation type of upside.
We actually are.
Gabe: We actually are acquiring an enterprise that has active engagement, recurring client revenue. From day one, they will continue to be engaged with clients.
Wiring and enterprise that is active that has active engagement recurring client revenue so.
From day, one they will continue to be engaged with clients.
Okay. Thank you.
Speaker Change: Our next question comes from Michael
Our next question comes from Michael Gorman with BTG. Please go ahead.
Yeah. Thanks, I just wanted to follow up on that one so.
Michael: Yeah, thanks. I just wanted to follow up on that one.
So you can engage with clients can you just give us a sense for how youre thinking about it.
Michael: engage with clients, can you just give us a sense for how you're thinking about it?
Is this.
Michael: It sounds like it's an external resource, but will this go towards the kind of external management business that's within Postal or, and I guess.
It sounds like it's an external resource, but will this go towards the kind of external management business.
Within postal or and I guess.
What what's your sense for the future of that consulting business now that it sits within theoretically another landlord within within the space and just I'm, just trying to triangulate kind of what the strategic angles here.
Michael: What's your sense for the future of that consulting business now that it sits within?
Michael: theoretically another landlord within the space. And just, I'm just trying to triangulate kind of what the strategic angle is.
So the consulting and advisory business will be part and parcel of the management business that we provide as well right and so we're going to be offering services or continuing to offer the services that they do today, whether that's released negotiations or for development of postal properties or.
Michael: So the consulting and advisory business will be part and parcel of the management business that we provide as well, right? And so we're going to be offering services or continuing to offer the services that they do today, whether that's for lease negotiations or for development of postal properties or anything else that they currently offer. All of that will create revenue in the TRS.
Anything else that they currently offer.
All of that will create revenue in the Trs.
Michael: But it will also help us as an incubator to future deal flow. It will also help us with their relationships with the postal service. It would also help us with their relationship with the ownership community, right? And so all of this is just helping to solidify us and our position as the leading owner within the space and as a resource and partner to the postal service.
But it will also help us as an incubator to future deal flow. It will also help us with our relationships with the postal service. It would also help us with their relationship with the owner with the ownership community right and so all of this is just helping to solidify.
US and our position as the leading owner with in this space and has a resource and partner to the postal service.
Okay, Great and then last one I think maybe in conjunction with that.
Speaker Change: Okay, great. And then last one, I think maybe in conjunction with that.
Hum.
Speaker Change: Andrew, I know you've talked a lot about this in the past in terms of the lease structure that you have and have negotiated with the post office. Is that something that extends or that you could extend through the management business as well as a potential source of inducement or lead generation?
Andrew I know you've talked a lot about this in the past in terms of the lease structure that you have and have negotiated with the post office is that something that extends or that you could extend through the management business as well as a potential source of inducement or lead generation.
Andrew Spodek: It probably could. We haven't actually offered management services to owners. It's something that when we created this public company we gave ourselves the ability to do so. It is something that I believe at some point we will do but we haven't we haven't offered that services yet.
It probably could we havent actually offered management services.
Two owners, it's something that.
When we created.
Public company, we gave ourselves the ability to do so it is something that I believe at some point, we will do.
But we haven't we have an offer that services yet.
Okay, great. Thanks for the time.
Thank you.
Thank you. Our next question comes from Ed <unk> with Hite capital markets. Please state your question.
Speaker Change: Thank you. Our next question comes from Ed Groshams with Height Capital Markets. Please state your question.
Good afternoon, gentlemen, and thank you for taking my question.
Ed Groshams: So, just following up on the tail end of that with the management services, I guess that that just leads me to the two to two hundred and fifty plus properties. You have a.
So just following up on the tail end of that with the management services I guess that just leads me to the two to 250 plus properties you have a guidance of 100 million. So I guess the base assumption is that they're still not in the guidance.
Hum.
Yeah.
Can you just give us an update on those please.
Yeah. This is Jeremy.
Ed Groshams: Yeah, this is Jeremy. The guidance for acquisitions this year does not reference or include any part of a ROFO as we've shared in the past. As soon as we hear from the representatives of the ROFO, we will share that with our investors and analysts. But as of the moment, we don't have anything to report.
The guidance for acquisitions this year.
Does not reference or include any part of a ROFO as we've shared in the past as soon as we hear from the representatives of the ROFO, we will share that with our or our investors and analysts but as of the moment, we don't have anything to report.
Okay.
I guess.
When the S. One came out and and posting went public there was you know that this was in there I guess.
Ed Groshams: When the S-1 came out and post and went public, there was, you know, this was.
Ed Groshams: at least in my expectation, is it was something that was acquisitions that could have.
But at least in and my expectation is it was something that was.
Acquisitions that could happen.
Fairly frequently are are fairly soon.
Hum.
Is it is it just something that now is pending and.
Ed Groshams: I mean, is it just something that now is pending and...
At some point will happen.
Okay.
Ed Groshams: I think at the time of the IPO, we did share that the ROFO existed because of an intention for the REIT to have an opportunity at some point to acquire these assets.
I think at the time of the IPO, we did share that.
The ROFO existed because of an intention for for.
For the REIT to have an opportunity at some point to acquire these assets.
Ed Groshams: We don't control the offer, so we're in a position of waiting to hear from the representatives.
We don't control the offer so we're in a position of waiting to hear from the representatives.
Ed Groshams: In terms of timing, we also shared at the time of the offering that there was a clear seasoning period that needed to exist.
In terms of timing, we also shared at the time of the offering that there was a clear seasoning period that needed to exist before their representatives could even prepared to present us with the ROFO.
Ed Groshams: before the representatives could even prepare to present this with the ROFO. And while that seasoning period has come to an end, I don't really have any further color on when I can anticipate being presented with opportunities on the ROFO.
And while that seasoning period has has come to an end.
We don't really have any further color on.
When I can anticipate being presented with opportunities on the ROFO.
Speaker Change: Fantastic. Much appreciated. And then, Rob, you talked about the Milwaukee acquisition and being in the C income line with a potential for, I guess, an option.
Okay fantastic much appreciated and then Rob you talked about the Milwaukee acquisition and being in the fee income line. It with a potential for I guess an option for acquisition in the future you just well I guess what are some of the triggers for those two properties that are in that line item that would result in them being acquired.
Speaker Change: chair if you just well I guess what are some of the triggers for those two properties that are in that line item that would result in them
Yeah. So both of those properties have an option that is at the USPS option to buy the properties at a fixed price.
Speaker Change: Yeah, so both of those properties have an option that is at the USPS option to buy the properties at a fixed price. And so in the case of Milwaukee, you know, we have, we've looked to...
So in.
In the case of Milwaukee, you know, we have a we've looked to.
Speaker Change: We've looked to them buying at the lowest price, which would be at the end of the term, which is, you know, 2040, but they do have some interim options as well on that. Regarding the fee and other income line item, you won't see it heavily impact that for Q4 because of when the Milwaukee asset was purchased, but going forward, it will become more and more relevant in that line item. So this is an option for the postal service?
We've looked to them buying at the lowest price, which would be at the end of the term, which as you know 2014, but they do have some interim options as well on that.
Regarding the fee and other income line item you won't see it heavily impact that for Q4 because of when the Milwaukee asset was purchased but going forward it will become more and more relevant in that in that line item.
So this is an option for you, but for the post postal service to buyback karate.
Speaker Change: Okay. Correct. Can you give me a sense, in the postal system, is that like a...
Correct.
Could you give me a sense of in the postal system. It is that like a is it.
Speaker Change: Is it a small part of the post offices or postal properties out there, or is that something that is...
A small part of the post offices that are or postal properties out there or is that something that.
It is more prevalent then.
What we've seen.
So it actually was fairly common.
Speaker Change: So it actually was fairly common back when they rolled out the network of postal properties in the 60s and 70s, they gave themselves purchase options in many leases. As time has gone on and as these leases have rolled, a lot of them have renewed and the Postal Service has not executed on those purchase options.
Back when they rolled out the network of postal properties.
In the 16th and 17th day, they gave themselves purchase options in many leases as time has gone on and as you know.
These leases have rolled a lot of them.
Have renewed and the postal service has not executed on those purchase options.
But in this particular case, we believe that there there there there is a likelihood of them purchasing it and therefore, we wanted to err.
Speaker Change: In this particular case, we believe that there is a likelihood of them purchasing it and therefore we wanted to err on the side of caution and book it as a financing.
We are on the side of caution and book it as a financing lease.
Okay. Okay can you buy them out of the option is that is that possible.
Speaker Change: Okay, can you buy them out of the option? Is that possible?
If they want to sell it.
Okay.
Speaker Change: I'm just I'm just wondering I just said to it because now there's two properties like that
I'm just I'm just wondering I would just say do it it cause now theres two properties like that I was just wondering.
When you I don't know.
Speaker Change: Yeah, this is not a target of our business. We're not out there looking to buy financing leases. This was a very good opportunity for us. This is a great property with very good income that is accretive to us, even if they do exercise their purchase option. If they don't exercise their purchase option, then it's even more accretive. But for us, it was.
Yeah. This is not a target. This is this is not a target of our business. We're not out there looking to buy financing leases. This was a very good opportunity for us. This is a great property with with very good income.
That is accretive to us even if they do exercise their purchase option if they don't exercise their purchase option then it's even more accretive but for US. It was it was a.
Speaker Change: It was a very good opportunity that we have to take advantage of, and that's why we bought it. This is not something that we plan on adding to the portfolio very often, nor do I think a property like this is very common.
Very good opportunity that we have to take advantage of and that's why we bought it.
This is not something that we plan on adding to the portfolio very often nor do I think it's a property like this is very.
Tom Yeah, and Ed just just for your reference you know of the 1004 properties that we own there's only two financing leases in our portfolio right now and that's what I've. Just said that's not really my question in Andrew you answered it right back in the sixties seventies. It was a common practice that.
Speaker Change: Yeah, and Ed, just for your reference, of the 1,004 properties that we own, there's only two financing leases in our portfolio.
Speaker Change: Well, right, right. That's why I'm just really my question. And Andrew, you answered it right back in the 60s and 70s. It was.
Just trying to get a sense of that.
How prevalent it is so so so Andrew you talked about you have the option to do the asset management company. There as these properties out there where the post office has the option to buy them back I would.
Speaker Change: So, so, so, Andrew, you talked about you have the option to do the asset management company, there's these properties out there where the post office has the option to buy them back. I would.
Speaker Change: Estimate given their financial difficulties over many decades that maybe they could use an
Estimate given their financial difficulties over many decades that maybe they could use an asset manager that is.
Can can run them more efficiently is that an opportunity there.
Speaker Change: can run them more efficiently. Is that an opportunity there?
Speaker Change: It may be an opportunity. If they'd like me to ask them to manage some of their properties, I'm sure they'll give me a call. Okay, excellent.
It may be an opportunity if they'd like me to asset manage some of their properties I'm sure they'll give me a call.
Okay excellent. Thank you for taking my questions I have a good evening. Thank you.
Speaker Change: Thank you. Our next question comes from Michael Gorman with BTIG. Please go ahead.
Thank you. Our next question comes from Michael Gorman with BTG. Please go ahead.
Michael Gorman: Yes, sorry, just one quick follow up, Andrew. I know we talked about the funding and kind of the future on that front.
Yeah, sorry, just one quick follow up Andrew I know, we talked about that.
Funding and kind of the future on that front.
Michael Gorman: The recent decision to go ahead with kind of a more traditional gas only fleet for the post office.
The recent decision to go ahead with kind of a more traditional gas only fleet for the post office does that have any read through into the portfolio in terms of lower obsolescence risk or less kind of need for upgrades and capex at the property level, even if they wouldnt be borne by you maybe just less of a chance that these.
Michael Gorman: through into the portfolio in terms of lower obsolescence risk or less kind of need for upgrades and capex at the property level, even if they wouldn't be borne by you, maybe just less of a chance that these properties need to be reworked or reexamined? Is there less obsolescence now that they're with a more traditional?
Property is needs to be reworked or reexamined as they're less obsolescence now that they're with a more traditional fleet.
Speaker Change: It's an interesting question. I don't believe that it changes the obsolescence tremendously. I think it just changes the amount of potential investment you'd have to make in this property or any other property that didn't have charging beforehand. I don't know.
It's an interesting question.
I don't believe that it changes the obsolescence tremendously I think it just changes.
The amount of potential investment you would have to make in this property or any other property that didnt have charging beforehand.
I don't know.
Speaker Change: I don't know that the Postal Service knows what they're going to be doing about adding charging stations to their network of buildings. I know that that's a conversation. And I don't know what the knockdown effects of rolling out charging stations at post offices if they stick with a gas-only fleet. These properties, as I've stated before, are very well located and positioned within the towns and counties that they are based. And they're relatively simple vanilla boxes with
I don't know that the postal service knows what theyre going to be doing about adding charging stations to there.
And their network of buildings I know that that's a conversation and.
And I don't know what the knockdown effects of rolling out charging stations at post offices, if they stick with a gas on the fleet.
These these properties as I've stated before are very well located and position within the towns and counties out there based and they are relatively simple vanilla boxes with.
Speaker Change: usually very good land to building ratios, so I don't believe that the ability for them to not go electric in the coming years makes it less obsolete, but I think it's an interesting way to look at it.
Usually very good land to building ratio. So I don't believe that there that the ability for them to not go electric in the in the coming years makes it less obsolete but.
I think it's an interesting way to look at it.
Okay, great. Thanks again.
Thank you.
Okay.
Speaker Change: Thank you, and there are no further questions at this time. I'll turn the floor back to management for closing remarks.
Thank you and there are no further questions at this time I'll turn the floor back to management for closing remarks.
Okay.
On behalf of myself and the entire team I wanted to thank you all for taking the time for joining us for this call. We look forward to connecting with all of you over the coming months.
Speaker Change: On behalf of myself and the entire team, I wanted to thank you all for taking the time for joining us for this call. We look forward to connecting with all of you over the coming months. And thank you.
And thank you that concludes today's conference all parties may disconnect have a great day.