Q2 2025 Postal Realty Trust Inc Earnings Call

Greetings and welcome to postal reality. Trust second quarter 2025 earnings call.

At this time, all participants are in listen-only mode.

A question and answer session will follow the prepared remarks. 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 fpna capital markets, welcome Jordan.

Thank you and good morning, everyone. Welcome to postal Realty. Trust second quarter 2025 earnings conference call.

On the call. Today we have Andrew spot chief executive officer. Jeremy Garber president and interim Chief Financial Officer. Robert Klein and Matt Brown. Wine chief accounting officer.

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 but not limited to those contained in the company's latest 10K. And his other regulatory filings the company does not assume and specifically these claims 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 fittings measures such as funds and operations, adjusted funds from operations, adjusted ibida, and net debt.

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.

With that I will now turn the call over to Andrew sodc Chief Executive Officer of postal Realty. Trust

Good morning, and thank you for joining us today. The second quarter was 1 of our strongest quarters in large part due to the more efficient, programmatic releasing effort with the Postal Service, which has now been in place for over a year.

This refined approach provides enhanced visibility across our business and has enabled us to issue, annual afo per share guidance. For the first time, which we are updating today.

I think it's important for our shareholders to take stock of all that we have achieved since the start of 2024, and releasing maintaining a strong balance sheet and enhancing investor visibility.

We started executing 10-year leases in 2024, and inclusive of executed leases and those agreed to through 2026, 31% of leases in the portfolio are subject to 10-year terms. Additionally, 55% of these leases have annual rent escalations.

As stated in our last call 2025 expiration have all been agreed upon and are being executed prior to this expiration. We have agreed to rent with the postal service, on the new leases, for the 2026 expirations, and we are in discussions on the 2027 expirations, as well.

We have continued to grow, while always being mindful of our balance sheet. We have displayed, we can prudently and opportunistically Source Equity having issued over $50 million through our ATM and operating partnership units since the beginning of 2024.

Additionally, we sold 2 Assets in 2024 at a sub 5% cap rate for over $6 million in order to redeploy the proceeds into higher yielding assets.

All of these efforts have allowed us to provide further Clarity to the investor Community about our earnings power through afo and same store. Noi guidance.

We have certainly accomplished quite a lot over the last year and a half and continue to make improvements to the business and provide our investors with a clear picture of where postal Realty is going over the next few years.

Now, shifting back to the second quarter of 2025. We delivered afo per share of 33 cents coming in ahead of our expectations, for the first half of the year.

This has enabled us to increase our full year. 2025 afo guidance range by 4 cents to $1.24 to $126 per share.

The midpoint of our updated guidance range. Now, implies nearly 8% year-over-year growth in line with the 6 to 8 and 1/2 Cent afo per share growth. Postal Realty has delivered over the past few years,

this updated guidance takes into account any costs related to the CFO transition.

Turning to Acquisitions, we have closed on 127 properties year to date for over 60 million dollars. Inclusive of 6 million dollars of transactions completed with operating partnership units.

We are pleased with the opportunities we are seeing and our progress to date.

Which has us trending towards meeting or exceeding, 90 million for the year.

In Q2, we completed $36 million of acquisitions at a 7.8% weighted average cap rate, all while being able to decrease leverage, with net debt to annualized adjusted EBITDA now at 5.1 times, down from 5.2 times at the end of 2024.

We will remain focused on these key metrics as we acquire additional properties throughout the rest of the year.

Our Acquisitions have and will continue to be a critical part of long-term value creation. Our purchases are accretive at the going-in, cap rate and they stabilize at significantly higher yields as we operate them more efficiently and run through our programmatic releasing approach.

We continue to have success marking rents to Market, incorporating annual rent, escalations and new leases and achieving operating efficiencies.

As a result, we are updating our 2025 same-store cash NOI guidance to be between 7% and 9%, up from our prior guidance of between 4% and 6%.

Growth and visibility at the company.

Since our last earnings, call David Steiner was appointed and has now begun his tenure. As the new Postmaster, General of the Postal Service Mr. Steiner joins with a background in logistics serving as president and CEO of waste management for numerous years and on the board of directors at FedEx Corporation.

In a recent letter to employees, he assured all stakeholders that the strength of the Postal Service resides in their structure as a self-financing independent entity. And he stated that he believes the postal service is a crucial component of American democracy and infrastructure, providing essential services to every business and home with its primary mission to bind the nation together.

We encourage buy and aligned with his statements and look forward to continuing to work closely. And with the Postal Service under the new Postmaster, General,

We remain confident in the value of our portfolio to the Postal Service's mission, the security and visibility of our cash flows, and our ability to generate strong internal growth and to source and acquire new assets accredited. As we consolidate this highly fragmented market.

Before passing off to Jeremy, I'd like to take some time to thank Rob Klein for all his efforts. During his tenure, including positioning us with a strong balance sheet for growth and assembling a high-performing accounting and finance team. We wish him the best of luck in his new role.

Thank you, Andrew.

As we shared in Prior calls rents, for all leases set to expire in 2025 and 2026 have been agreed upon and are releasing Tempo. From last quarter has not slowed down as we are executing 2025 leases prior to expiration.

We are actively negotiating 2027 rents with the Postal Service.

and have agreed to similar terms for expirations from 2023 through 2026 with the inclusion of 3%, annual rent, escalations and a mix of 10 year leases

For illustration, if the 2027 leases were all executed, today we project that north of 60% of the portfolio would contain annual rent escalations.

As of last week.

We are caught up on all of our leases in the portfolio and have no leases in holdover.

Due to the execution of new leases during the second quarter, the company received a total lump sum ketchup, payment of $192,000.

We are expecting to receive a total lump sum ketchup payment for around the third quarter.

This anticipated payment was factored into our afo per share guidance.

Aside from prospective Acquisitions, that are required and hold over status. Lump sum ketchup. Payments should continue to diminish in frequency.

And value as we sign leases ahead of their expiration dates.

As Andrew mentioned in the second quarter of 2025, we acquired 68 properties for approximately 36 million at a 7.8% weighted average cap rate, which added approximately 240,000. Net leasable interior square, feet to our portfolio, inclusive of 43,000 square feet from 32. Last mile, post offices and 197,000 square feet from 36 Flex properties.

Subsequent to quarter end and through July 18th, we acquired 23 properties for approximately 8 million dollars and placed an additional 24. Properties totaling 7 million dollars under definitive contracts. I'll now turn the call over to Rob to discuss our second quarter Financial results.

Thank you. Jeremy. And thank you everyone for joining us for today's call.

During the second quarter, we delivered Funds from Operations (FFO) of $0.35 and Adjusted Funds from Operations (AFFO) of $0.33 per diluted share.

Thanks to our re-leasing successes over the past years. The bottom line impact from contractual rent, escalations is projected to result in 2 cents of afo per share in 2025

As Andrew stated, we are updating our 2025 afo guidance range to a124, to 126 per share. Due to outperforming our initial expectations, for the first half of the year.

The increase guidance range is due to lower than anticipated operating expenses in the first half of 2025, due to quarterly, variability related to the scope and timing of projects and lower. Recurring capex from completing jobs more cost effectively.

We have maintained low leverage and minimized our exposure to variable rate debt.

A weighted average interest rate of 4.5%.

The company's 150 million, senior unsecured revolving credit facility at 46 million outstanding and fixed rate debt comprised 86% of all Borrowers.

Net debt to annualize adjusted, EBA decreased quarter over quarter to 5.1 times well within our Target of below 7 times.

During the second quarter and subsequent to quarter end. We raised nearly 18 million of equity issuing over 8670 shares of common stock through our ATM offering program at an average price of $14.79 per share.

And approximately 392,000 common units in our operating partnership as part of consideration for property acquisitions.

Recurring capex in Q2 was 127,000.

Slightly lower than our guidance range for the quarter, due to the timing of projects.

Looking forward to Q3. We anticipate some projects that carried over from Q2 to complete and the figure to be between 175,000 and 325,000.

Based on 1-time costs associated with the CFO transition. We now, expect total cash GNA expense to be between 10 and a half, and 11 and a half million dollars for the full year 2025

We continue to prioritize decreasing cash GNA, as a percent of Revenue on an annual basis.

Our board of directors has approved a quarterly dividend of 24.25 cents per share. Representing a 1% increase from Q2 2024 dividend and remains well covered by afo.

Postal Realty continues to strengthen its position as the market leader, in the postal real estate space.

Executing its business plan of acquiring new assets and improving the cash flow.

On a personal note on grateful for the past 4 and a half years of postal Realty.

We have achieved tremendous growth built in amazingly capable team and continuously enhanced our transparency to the market.

It has been a pleasure working with the folks at postal Realty. The research analysts investors and everyone else who supports us as well.

I look forward to staying in touch.

Thank you.

This concludes our prepared. Remarks operator, we'd like to open the call for questions.

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

to ask a question, you may press star then 1 on your touchtone phone,

If you are using a speakerphone, please pick up your handset before pressing the keys.

if at any time your question has been addressed and you would like to withdraw your question, please press star then 2

At this time, we will pause momentarily to assemble our roster.

First question comes from Kyle, bony from Tourist. Please go ahead.

Thanks, good morning.

Uh, can you just walk us through the pickup in the uh, same store? Know I guidance. And uh, what's ahead of pace relative to Prior expectations?

Yes, so same store noi, um, has a few components to it. You know, there's the the revenue component which we've talked about pretty extensively, which has been some of our releasing efforts and our successes along those lines. Um, and then the other component obviously, is the expense write, the 2 together combining to create noi as we showed in our earnings and we talked about a bit, you know, expenses were down the first couple.

Quarters, um, of the Year versus our projections. Uh, and that's led to to an increase in same store noi in addition to some Revenue exceeding expectations. So I think it's really the combination of the 2. And, and that's why we revised the guidance to give you a better flavor of how the remainder of the Year may look.

Gotcha. And, um,

in terms of, uh,

the guidance seems like there's a fairly steep step down from, uh, the 33 cents in the second quarter.

and it looks like there's going to be some higher cap backs and, um,

also offset by some catch-up payments in the third quarter. Uh, so just curious, what's driving the step down in the Run rate.

Sure. Uh you know as we shared on the call our Opex is going to be variable depending on the scope and timing of projects.

We're Vigilant in managing these properties, as, uh, cost effective and, uh, possible. We have a network of National Vendors and manufacturers that we've been engaged with over the past 20 plus years.

I think it's important to note that this is not a quarterly business.

So our, our annual budgeting and forecasting is informed by historical expenses and historical noi margins.

Which have trended in the 77 to 82% range.

And we expect or I know our margins to remain within that range for the remainder of the year.

Understood. Thank you, guys.

Thank you.

The next question comes from Testy from JP Morgan. Please go ahead.

Morning guys. Uh, you just have, uh, just 1 question for me today. Um, I guess on the acquisition front, uh, you guys mentioned, you've been capturing yields in the high 7s but it sounds like from Andrew's comments that the sort of stabilized yield, I guess once you guys get in the property is is a little higher than that. Could you guys talk about? I guess the efficiency. Do you guys are putting into these properties and I guess where that sort of stable yield um, is

Sure, I appreciate the question. So, yeah. As we've stated, uh, we've been, uh, actively acquiring at or below at or above a 7 and a half percent cap cap rate which we've shown, uh, and we will continue to do that. And, and all these properties are accretive, uh, out of the gate. Uh, we're gaining a lot of efficiencies, um, just in our management platform. Um, and then, as we bring it into our platform, through the economies of scale that we're getting, uh, through the management of, you know, 2,000 buildings. Um, then we have the opportunity. When the lease is rolled to mark them to Market and put them, uh, through our programmatic leasing, uh process which which we've shown has has yielded great success. Uh, both from an efficiency standpoint, as well as, uh, uh, from the same store. That's why we've adjusted our our guidance. And, um, we are, you know,

we're now in the 7 to 9%, uh,

for the same store cash and

got it. Okay, thank you.

Thank you.

Thank you.

To ask a question, you may press star, then 1 on your touchtone phone.

again, if you have a question, please press star and 1

this concludes a question and answer session. I would like to turn the conference back to Andrews PC for closing remarks.

On behalf of the entire team. We thank you all for your continued support and for taking the time to join us today, have a great day.

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect