Q1 2026 Postal Realty Trust Inc Earnings Call

May 6, 2026

Operator 3: Greetings, welcome to the Postal Realty Trust Q1 2026 Earnings Conference 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, Senior Vice President of Finance and Capital Markets. Welcome, Jordan.

Operator 1: Greetings, welcome to the Postal Realty Trust Q1 2026 Earnings Conference 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, Senior Vice President of Finance and Capital Markets. Welcome, Jordan.

Speaker #2: As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Jordan Cooperstein. Senior Vice President of Finance and Capital Markets.

Speaker #2: Welcome, Jordan. Thank you, and good morning, everyone. Welcome to Postal Realty Trust's first quarter 2026 earnings conference call. On the call today, we have Andrew Spodek, Chief Executive Officer; Jeremy Garber, President; Steve Bakke, Chief Financial Officer; and Matt Bramwine, Chief Accounting Officer.

Jordan Cooperstein: Thank you, and good morning, everyone. Welcome to Postal Realty Trust Q1 2026 Earnings Conference Call. On the call today, we have Andrew Spodek, Chief Executive Officer; Jeremy Garber, President; Steve Bakke, Chief Financial Officer; and Matt Brandwein, Chief Accounting Officer. Please note, the company may use forward-looking statements on this conference call, which are 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. 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 10-K and its other regulatory filings.

Speaker #2: Please note the company may use forward-looking statements on this conference call, which are 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.

Speaker #2: 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 10-K and its other regulatory filings.

Speaker #2: 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.

Jordan Cooperstein: 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, adjusted funds from operations, adjusted EBITDA, pro forma adjusted EBITDA, pro forma annualized adjusted EBITDA, same-store cash NOI, same-store cash revenue, net debt, adjusted net debt, and pro forma adjusted 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 Spodek, Chief Executive Officer of Postal Realty Trust.

Speaker #2: Additionally, on this conference call, the company may refer to certain non-GAAP financial measures, such as funds from operations, adjusted funds from operations, adjusted EBITDA, pro forma adjusted EBITDA, pro forma annualized adjusted EBITDA, same-store cash NOI, same-store cash revenue, net debt, adjusted net debt, and pro forma adjusted net debt.

Speaker #2: 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.

Speaker #2: With that, I will now turn the call over to Andrew Spodek, Chief Executive Officer of Postal Realty Trust.

Speaker #3: Good morning, and thank you for joining us today. In a couple of weeks, we will be celebrating our seventh anniversary as a public company.

Andrew Spodek: Good morning, thank you for joining us today. In a couple of weeks, we will be celebrating our seventh anniversary as a public company. Over the past seven years, we've created a purpose-built platform to unlock the value inherent in US Postal real estate. As we have developed and continue to refine this platform, we have delivered on multiple fronts. It starts with the 6.1% average annual AFFO per share growth we are on track to achieve from 2021 to 2026 based on AFFO guidance we increased yesterday. This performance ranks us second among net lease REITs. Our progression continued last year with the introduction of AFFO per share guidance, made possible by refining our leasing approach with the Postal Service.

Speaker #3: Over the past seven years, we've created a purpose-built platform to unlock the value inherent in U.S. postal real estate. As we have developed and continue to refine this platform, we have delivered on multiple fronts.

Speaker #3: It starts with the $6.1% average annual AFFO per share growth we are on track to achieve from 2021 to 2026 based on AFFO guidance we increased yesterday.

Speaker #3: This performance ranks us second among net lease suites. Our progression continued last year with the introduction of AFFO per share guidance. Made possible by refining our leasing approach with the postal service.

Speaker #3: Today, we are taking another step by sharing our forward-looking top-line revenue outlook for 2027. Despite being only five months into 2026, it is a testament to the unique leasing approach we have developed with the postal service that gives us this much visibility into 2027, and it speaks to the benefit of having primarily a single high-credit tenant who consistently pays us 100% of contractual rent across our 99.8% occupied portfolio.

Andrew Spodek: Today, we are taking another step by sharing our forward-looking top-line revenue outlook for 2027, despite being only 5 months into 2026. It is a testament to the unique leasing approach we have developed with the Postal Service that gives us this much visibility into 2027, and it speaks to the benefit of having primarily a single high credit tenant who consistently pays us 100% of contractual rent across our 99.8% occupied portfolio. We are expecting same-store cash revenue growth of approximately 6.5% in 2027, which is approximately 30 basis points higher than what we're expecting for 2026. Higher expected growth in 2027 reflects the increased presence of annual rent escalators across the portfolio, as well as the rental mark-to-market tailwind.

Speaker #3: We are expecting same-store cash revenue growth of approximately $6.5% in 2027, which is approximately 30 basis points higher than what we're expecting for 2026.

Speaker #3: Higher expected growth in 2027 reflects the increased presence of annual rent escalators across the portfolio as well as the rental mark-to-market tailwind. On our first quarter 2025 earnings call, I shared that we have the systems and people in place to ramp up acquisitions, should our cost of capital and opportunity set align.

Andrew Spodek: On our Q1 2025 earnings call, I shared that we have the systems and people in place to ramp up acquisitions should our cost of capital and opportunity set align. With a stock price improvement of over 70% since then, this symmetry has materialized, allowing us to accelerate the pace of acquisition activity relative to the last few years. Based on the strength of our pipeline, we are increasing our acquisition guidance by $15 million to $130 to 140 million for the year. We will revisit this guidance as the year progresses. In the Q1, we acquired $35 million at a 7.4% weighted average cap rate.

Speaker #3: With a stock price improvement of over 70% since then, this symmetry has materialized. Allowing us to accelerate the pace of acquisition activity relative to the last few years.

Speaker #3: Based on the strength of our pipeline, we are increasing our acquisition guidance by $15 million to $130 to $140 million for the year, and we will revisit this guidance as the year progresses.

Speaker #3: In the first quarter, we acquired $35 million at a 7.5% weighted average cap rate. In the second quarter to date, we have acquired and have under-definitive contracts $17 million putting us at $52 million year to date, with a strong pipeline of anticipated transactions behind it.

Andrew Spodek: In Q2 to date, we have acquired and have under definitive contract $17 million, putting us at $52 million year to date with a strong pipeline of anticipated transactions behind it. We are capitalizing on opportunity in front of us from a position of strength. Our revised acquisition guidance is fully funded with liquidity of approximately $250 million at the end of the quarter, consisting of unused revolver capacity and $48 million of unsettled forward equity proceeds. We are laser-focused on maintaining a strong liquidity profile, supported by our access to equity and our recent BBB investment grade rating from Kroll KBRA. In summary, our internal growth, supported by our robust acquisition pipeline and access to capital, places us in a strong position to generate continued earnings growth.

Speaker #3: We are capitalizing on opportunity in front of us from a position of strength. Our revised acquisition guidance is fully funded with liquidity of approximately $250 million at the end of the quarter.

Speaker #3: Consisting of unused revolver capacity and $48 million of unsettled forward equity proceeds. We are laser-focused on maintaining a strong liquidity profile supported by our access to equity and our recent BBB investment-grade rating from Kroll KBRA.

Speaker #3: In summary, our internal growth supported by our robust acquisition pipeline and access to capital places us in a strong position to generate continued earnings growth.

Speaker #3: Earlier this week, we attended the Postal Service's National Postal Forum in Phoenix. A conference that brings together the broader logistics ecosystem surrounding the postal service.

Andrew Spodek: Earlier this week, we attended the Postal Service's National Postal Forum in Phoenix, a conference that brings together the broader logistics ecosystem surrounding the Postal Service. For us, the conference confirms that as the logistics marketplace continues to evolve, the US Postal Service's facilities will remain a critical tool for accessing the American people. These facilities form the backbone of the Postal Service's delivery infrastructure and are the very assets we invest in. This network enables the Postal Service to provide universal service across 170 million delivery points nationwide and is utilized 6 days a week by logistics providers and online retailers. As we like to remind investors, the cost to lease the real estate backbone of this network is only 1.5% of the Postal Service's annual operating expenses.

Speaker #3: For us, the conference confirmed that as the logistics marketplace continues to evolve, the U.S. postal services facilities will remain a critical tool for accessing the American people.

Speaker #3: These facilities form the backbone of the postal services delivery infrastructure and are the very assets we invest in. This network enables the postal service to provide universal service across 170 million delivery points nationwide and is utilized six days a week by logistics providers and online retailers.

Speaker #3: As we like to remind investors, the cost to lease the real estate backbone of this network is only $1.5% of the postal services' annual operating expenses.

Speaker #3: This annual expense equates to $1.4 billion of annual rent, resulting in a 12 to 15 billion market for postal real estate. Creating a long runway for future acquisitions.

Andrew Spodek: This annual expense equates to $1.4 billion of annual rent, resulting in a $12 to 15 billion market for postal real estate, creating a long runway for future acquisitions. With that, I will turn the call over to Steve.

Speaker #3: With that, I will turn the call over to Steve.

Speaker #4: Thank you, Andrew. I'll make a few comments on the multi-year earnings growth opportunity at Postal Realty before unpacking first quarter results and our updated guidance in more detail.

Steve Bakke: Thank you, Andrew. I'll make a few comments on the multi-year earnings growth opportunity at Postal Realty before unpacking Q1 results and our updated guidance in more detail. In considering Postal Realty's medium-term earnings growth algorithm, we see four primary drivers. First is the mark-to-market opportunity. From 2027 to 2030, approximately 33% of our rental income is expected to reset to market. This represents a meaningful source of embedded growth beyond 2026. Second, annual rent escalators are becoming an increasingly significant driver of organic growth. In 2022, approximately 3% of our rental income experienced an annual escalation. By 2027, that figure will have increased significantly to approximately 53% experiencing an escalation.

Speaker #4: In considering Postal Realty's medium-term earnings growth algorithm, we see four primary drivers. First is the mark-to-market opportunity. From 2027 to 2030, approximately 33% of our rental income is expected to reset to market.

Speaker #4: This represents a meaningful source of embedded growth beyond 2026. Second, annual rent escalators are becoming an increasingly significant driver of organic growth. In 2022, approximately 3% of our rental income experienced an annual escalation.

Speaker #4: By 2027, that figure will have increased significantly to approximately 53% experiencing an escalation. Moving from a portfolio with predominantly flat leases to one with the majority 3% plus annual escalators, signifies a major shift into the visibility of our annual growth for years to come.

Steve Bakke: Moving from a portfolio with predominantly flat leases to one with the majority 3% plus annual escalators signifies a major shift into the visibility of our annual growth for years to come. To that point, our visibility into annual escalations and our mark-to-market allows us to provide a 2027 same-store cash revenue growth outlook of approximately 6.5%. Third is retained cash flow. As we have scaled, we have reduced our payout ratio while continuing to grow the dividend. In 2026, we expect to pay out only 70% of our AFFO, which is one of the lowest payout ratios among net lease REITs. Our board has balanced retained cash flow with a dividend yield above the REIT median at approximately 4.5%.

Speaker #4: To that point, our visibility into annual escalations and our mark-to-market allows us to provide a 2027 same-store cash revenue growth outlook of approximately 6.5%.

Speaker #4: Third is retained cash flow. As we have scaled, we have reduced our payout ratio while continuing to grow the dividend. In 2026, we expect to pay out only 70% of our AFFO, which is one of the lowest payout ratios among net lease REITs.

Speaker #4: Our board has balanced retained cash flow with a dividend yield above the REIT median at approximately 4.5%. Moreover, retained cash flow, which we can deploy into acquisitions or to repay debt, is a meaningful source of recurring growth for us, increasing our per-share growth rate by about 15% in 2026.

Steve Bakke: Moreover, retained cash flow, which we can deploy into acquisitions or to repay debt, is a meaningful source of recurring growth for us, increasing our per share growth rate by about 15% in 2026. Fourth is day one accretion. Our improved cost of capital, in conjunction with our increased access to capital, has led us to begin accelerating the velocity of acquisitions relative to the last few years. With our weighted average cost of capital currently standing at approximately 6.1%, day one accretion from acquisitions is becoming an even more meaningful source of AFFO per share growth. In summary, we remain focused on utilizing these four growth levers to drive attractive AFFO per share growth in the coming years.

Speaker #4: Fourth is day-one accretion. Our improved cost of capital in conjunction with our increased access to capital has led us to begin accelerating the velocity of acquisitions relative to the last few years.

Speaker #4: With our weighted average cost of capital currently standing at approximately 6.1%, day-one accretion from acquisitions is becoming an even more meaningful source of AFFO per-share growth.

Speaker #4: In summary, we remain focused on utilizing these four growth levers to drive attractive AFFO per-share growth in the coming years. Turning to first quarter results, yesterday we reported AFFO per share of 33 cents, which is 1 cent ahead of the first quarter of 2025.

Steve Bakke: Turning to Q1 results, yesterday, we reported AFFO per share of $0.33, which is $0.01 ahead of Q1 2025. Note that last year's quarter benefited from holdover payments and prior year property tax reimbursements totaling $0.02 per share. In comparison, in this year's Q1, we realized $11,000 of holdover payments from recent acquisitions. We ended the Q with net debt to pro forma annualized adjusted EBITDA of 5.2x within the leverage target we updated last Q of under 6x. Giving effect to approximately $53 million of unsettled forward equity raised year to date at an initial forward price of $18.44 per share, our pro forma adjusted net debt to pro forma annualized adjusted EBITDA is 4.5x. A brief note on our leverage metrics.

Speaker #4: Note that last year's quarter benefited from holdover payments and prior-year property tax reimbursements totaling 2 cents per share. In comparison, in this year's first quarter, we realized $11,000 of holdover payments from recent acquisitions.

Speaker #4: We ended the quarter with net debt to pro forma annualized adjusted EBITDA of 5.2 times, within the leverage target we updated last quarter of under 6 times.

Speaker #4: Giving effect to approximately $53 million of unsettled forward equity raised year to date at an initial forward price of $18.44 per share, our pro forma adjusted net debt to pro forma annualized adjusted EBITDA is 4.5 times.

Speaker #4: A brief note on our leverage metrics. This quarter's supplemental includes metrics based on pro forma annualized adjusted EBITDA. The only difference with the prior metric is that it gives effect to acquisitions and dispositions as if they took place at the start of the quarter, consistent with many peers reporting methodology.

Steve Bakke: This quarter's supplemental includes metrics based on pro forma annualized adjusted EBITDA. The only difference with the prior metric is that it gives effect to acquisitions and dispositions as if they took place at the start of the quarter, consistent with many peers' reporting methodology. As it relates to sources and uses, the midpoint of our guidance implies $100 million of acquisitions for the remaining 3 quarters of 2026, which we plan to fund on a leverage neutral basis using unsettled equity and retained cash flow. In terms of debt funding specifically, we are focused on limiting floating rate exposure and adding duration to our maturity schedule. We anticipate refinancing our floating rate revolver and term loan balances with longer term fixed rate private placements or term loans in the coming months. Turning to our expectations for the remainder of 2026.

Speaker #4: As it relates to sources and uses, the midpoint of our guidance implies $100 million of acquisitions for the remaining three quarters of 2026. We plan to fund on a leverage-neutral basis using unsettled equity and retained cash flow.

Speaker #4: In terms of debt funding specifically, we are focused on limiting floating rate exposure and adding duration to our maturity schedule. We anticipate refinancing our floating rate revolver and term loan balances with longer-term fixed-rate private placements or term loans in the coming months.

Speaker #4: Turning to our expectations for the remainder of 2026, with yesterday's earnings release, we raised the AFFO per-share guidance range we provided last quarter by 1 cent to $1.40 to $1.42 per share, representing 6.8% growth at the midpoint for the year.

Steve Bakke: With yesterday's earnings release, we raised the AFFO per share guidance range we provided last quarter by $0.01 to $1.40 to $1.42 per share, representing 6.8% growth at the midpoint for the year. The increase is supported by higher acquisition volume. Related to additional guidance items, cash G&A and same-store cash NOI are tracking in line with our forecast. Recurring capital expenditures of approximately $143,000 for Q1 was within our guidance range, and we are expecting $150,000 to $200,000 in Q2.

Speaker #4: The increase is supported by higher acquisition volume. Related to additional guidance items, cash GNA and the same-store cash NOI are tracking in line with our forecasts.

Speaker #4: Recurring capital expenditures of approximately $143,000 for the first quarter was within our guidance range and we are expecting $150,000 to $200,000 in the second quarter.

Steve Bakke: Lastly, guidance includes approximately $0.01 per share of dilutive impact from unsettled forward equity compared to the $0.005 assumption we shared on the Q4 call, calculated in accordance with the treasury stock method, largely due to a higher stock price. Our board of directors has approved a quarterly dividend of $0.245 per share, representing a 1% increase from last year. Our dividend payout ratio for the Q1 is approximately 74%, and our dividend yield as of yesterday was approximately 4.5%. With that, I will turn the call over to Jeremy.

Speaker #4: Lastly, guidance includes approximately 1 cent per share of diluted impact from unsettled forward equity compared to the half-cent assumption we shared on the fourth quarter call, calculated in accordance with the Treasury stock method, largely due to a higher stock price.

Speaker #4: Our board of directors has approved the quarterly dividend of $0.245 per share, representing a 1% increase from last year. Our dividend payout ratio for the first quarter is approximately 74%, and our dividend yield as of yesterday was approximately 4.5%.

Speaker #4: With that, I will turn the call over to Jeremy.

Speaker #3: Thank you, Steve. I will provide an update on our releasing efforts followed by more detail on first quarter acquisition activity. All 2020 trends have been agreed upon, and are currently in lease production.

Jeremy Garber: Thank you, Steve. I will provide an update on our releasing efforts, followed by more detail on Q1 acquisition activity. All 2020 rents have been agreed upon and are currently in lease production. In addition, we have substantially agreed on 2027 expirations that do not include renewal options. These leases have also commenced lease production. All 2026 and 2027 leases will have 3% escalators, and the vast majority will have 10-year terms. As of quarter end, 53% of leases in our portfolio contain annual rent escalators. The first escalation takes place in year 2. Therefore, 41% of leases will get the benefit of an escalator in 2026. Shifting to 10-year leases, 45% of our portfolio consists of leases with 10-year terms based on executed and agreed upon leases as of 31 March 2026.

Speaker #3: In addition, we have substantially agreed on 2027 expirations that do not include renewal options. These leases have also commenced lease production. All 2026 and 2027 leases will have 3% escalators and the vast majority will have 10-year terms.

Speaker #3: As of quarter end, 53% of leases in our portfolio contain annual rent escalators. The first escalation takes place in year two. Therefore, 41% of leases will get the benefit of an escalator in 2026.

Speaker #3: Shifting to 10-year leases, 45% of our portfolio consists of leases with 10-year terms. Based on executed and agreed-upon leases as of March 31, 2026.

Speaker #3: The increase in rent subject to 10-year terms compared to last quarter was predominantly a result of successfully amending the majority of our 2023 expirations to 10 years from 5 years.

Jeremy Garber: The increase in rent subject to 10-year terms compared to last quarter was predominantly a result of successfully amending the majority of our 2022 expirations to 10 years from 5 years. By the end of 2026, we expect the weighted average lease term of our current portfolio to extend to over 6 years compared to the 3 years when we went public. Moving on to acquisitions. In Q1, we acquired 61 properties for $34.6 million at a weighted average cap rate of 7.4%, adding 195,000 sq ft to our portfolio. Q1 acquisitions consisted of 48,900 sq ft from 34 last-mile post offices and 146,200 sq ft from 27 flex properties.

Speaker #3: By the end of 2026, we expect the weighted average to extend to over 6 years, compared to the 3 years when we went public.

Speaker #3: Moving on to acquisitions, in the first quarter we acquired 61 properties for $34.6 million at a weighted average cap rate of 7.4%, adding $195,000 square feet to our portfolio.

Speaker #3: First quarter acquisitions consisted of 48,900 square feet from 34 last-mile post offices, and 146,200 square feet from 27 flex properties. As Andrew mentioned, based on acquisition volume closed in the first quarter, plus our robust forward pipeline, we are increasing our acquisition guidance to 130 million to 140 million for the year.

Jeremy Garber: As Andrew mentioned, based on acquisition volume closed in Q1, plus our robust forward pipeline, we are increasing our acquisition guidance to $130 to 140 million for the year. This concludes our prepared remarks. Operator, we would like to open the call for questions.

Speaker #3: This concludes our prepared remarks. Operator, we would like to open the call for questions.

Operator 3: Our first question comes from John Kim with BMO Capital Markets. Please state your question.

Speaker #1: Ladies and gentlemen, we will now begin the question-and-answer session. If you would like to ask a question, please press star and 1 on your telephone keypad.

Speaker #1: A confirmation tone will indicate your line is in the question queue. You may press star and 2 if you would like to remove your question from the queue.

Speaker #1: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Ladies and gentlemen, we will wait for a moment while we poll for questions.

Operator: Our first question comes from John Kim with BMO Capital Markets. Please state your question.

Speaker #1: Our first question comes from John Kim with BMO Capital Markets. Please state your question.

Speaker #4: Thank you. I wanted to ask what drove the decision to provide 2027 same-store revenue guidance at this time, and how should we think about cash same-store NOI?

John Kim: Thank you. Wanted to ask what drove the decision to provide 2027 same-store revenue guidance at this time, and how should we think about cash things to NOI? Will it be a similar improvement of 30 basis points that you're seeing on the revenue side from 2027 to 2026?

Speaker #4: Will it be a similar improvement of 30 basis points that you're seeing on the revenue side from 2027 to 2026?

Speaker #5: Hi, John. How are you? This is Steve.

Steve Bakke: Hi, John, how are you? This is Steve.

John Kim: Hey, Steve.

Speaker #4: Hey, Steve.

Steve Bakke: To answer your question, the reason we're providing 2027 same-store cash revenue relates back to Jeremy's point that we have substantially completed all of our 2027 lease expiration negotiations with USPS. You know, given this high level of visibility we have into 2027, we felt it appropriate to share it with the market. To your second question on how that filters down to same-store NOI, you know, it's early in the year. You know, early in 2026, I should say, so hard for us to have visibility into 2027, but you can use a range of, you know, inflationary or maybe slightly above inflationary expense assumptions to get to a same-store NOI estimate for modeling purposes.

Speaker #5: To answer your question, the reason we're providing 2027 same-store cash revenue relates back to Jeremy's point that we have substantially completed all of our 2027 lease expiration negotiations with USPS.

Speaker #5: So given this high level of visibility we have into 2027, we felt it appropriate to share it with the market. To your second question on how that filters down to same-store NOI, it's early in the year.

Speaker #5: You can make a early in 2026, I should say, so hard for us to have visibility into 2027. But you can use a range of inflationary or maybe slightly above inflationary expense assumptions to get to a same-store NOI estimate for modeling purposes.

Speaker #4: And what are your expenses this year? Same-store expenses?

John Kim: What are your expenses this year? Same-store expenses.

Speaker #5: Yeah. We expect them to be in the 5% range. That's what's underpinning our guidance assumption.

Steve Bakke: Yeah. We expect them to be in the 5% range. That's what's underpinning our guidance assumption.

Speaker #4: Okay. And then you mentioned roughly a third of your portfolio going to market over the next few years, and the mark-to-market opportunity. How much of what is the mark-to-market, first of all?

John Kim: Okay. You mentioned roughly a third of your portfolio going to market over the next few years and the mark-to-market opportunity. What is the mark-to-market, first of all? Second of all, how much of that can you capture given you have one tenant who's essentially a partner?

Speaker #4: And second of all, how much of that can you capture given you have one tenant who's essentially a partner?

Speaker #5: Yeah. It's a great question. We don't provide too much specific quantitative detail on the mark-to-market given the nature of having one primary tenant. But fair to say, the mark-to-market's been healthy, and at least as it relates to 2026-2027, it's been a pretty consistent mark-to-market opportunity.

Steve Bakke: Yeah, it's a great question. You know, we don't provide too much specific quantitative detail on the mark-to-market, given the nature of having, you know, one primary tenant. Fair to say, the mark-to-market's been healthy and, at least as it relates to 2026, 2027, it's been a pretty consistent mark-to-market opportunity. We have a really efficient leasing approach that we've developed with USPS, works well for them, and it works well for us. At least for the next couple of years, it will continue.

Speaker #5: We have a really efficient leasing approach that we've developed with USPS, works well for them, and it works well for us. And at least for the next couple of years, it will continue.

Speaker #4: Great. Thank you.

John Kim: Great. Thank you.

Operator 3: Our next question comes from Jon Petersen with Jefferies. Please state your question.

Operator: Our next question comes from Jon Petersen with Jefferies. Please state your question.

Speaker #1: Our next question comes from John Peterson with Jefferies. Please state your question.

Jon Petersen: Great. Thanks. Good morning. Congrats guys on another strong quarter. On the same-store revenue guidance for 2027, can you break down the components there? Like, how much of that is coming from escalators? How much of that is upside on lease renewals?

Speaker #5: Great. Thanks. Good morning. Congrats, guys, on another strong quarter. Can you on the same-store revenue guidance for 2027, can you break down the components there?

Speaker #5: How much of that is coming from escalators? How much of that is upside on lease renewals?

Speaker #4: Yeah. Great question. So to answer your question, of the 6.5%, 25% of that growth is due to the escalators. So as Jeremy mentioned in his remarks, a little more than 50% of our portfolio will experience an escalator in 2027.

Steve Bakke: Yeah, great question. To answer your question, of the 6.5%, 25% of that growth is due to the escalators. As Jeremy mentioned in his remarks, a little more than 50% of our portfolio will experience an escalator in 2027. The remainder of the growth is derived from the mark-to-market.

Speaker #4: The remainder of the growth is derived from the mark-to-market.

Speaker #5: Okay. All right. That's helpful. And then maybe on acquisitions, good to see the acquisition volume rise and your cost of capital improving. For a number of years, the question was, when does your cost of capital get to a point when you can be more aggressive on acquisitions?

Jon Petersen: Okay. All right. That's helpful. Then, you know, maybe on acquisitions, good to see the acquisition volume rise and your cost of capital improving. You know, for a number of years, the question was, you know, when does your cost of capital get to a point when you can, you know, be more aggressive on acquisitions? Now we're there, and I guess it raises the question of, you know, what's the total addressable market for you guys now? Like, how you know, at what point do you start to run out of post offices to buy, I guess, is the short way to ask that question. Just talk about the opportunity and how many years of opportunity there is out there for you.

Speaker #5: Now we're there. And I guess it raises the question of, what's the total addressable market for you guys now? At what point do you start to run out of post offices to buy, I guess?

Speaker #5: It's the short way to ask that question. So just talk about the opportunity and how many years of opportunity there is out there for you.

Speaker #6: Sure. I appreciate the question. Yeah. We're very happy that we have the access to the capital and the cost of capital that we have today, and we're looking forward to continuing to grow the business and acquire postal assets.

Andrew Spodek: Sure. I appreciate the question. We're very happy that we have the access to the capital and the cost of capital that we have today. We're looking forward to continuing to grow the business and acquire postal assets. The runway is very long. You've got, as I stated before, you've got about $1.4 billion in rent paid by the Postal Service. You know, any cap rate or margin you wanna put on that makes it a $12 to $15 billion market. You know, we probably want to address, you know, $6 to $8 billion of that. I believe we have a lot of opportunities sitting in front of us.

Speaker #6: The runway is very long. You've got as I've stated before, you've got about 1.4 billion in rent paid by the postal service. Any cap rate or margin you want to put on that makes it a 12 to 15 billion market.

Speaker #6: We probably want to address probably 6 to 8 billion of that. So I believe we have a lot of opportunities sitting in front of us.

Speaker #6: And I'm happy to say that the conversations we've had and the pipeline is looking very good. We're these are deals that I've been talking to for decades and some new ones, but we're looking forward to the year ahead.

Andrew Spodek: I'm happy to say that the conversations we've had and the pipeline is looking very good. We're, you know, these are deals that I've been talking to for decades and some new ones. We're looking forward to the year ahead.

Speaker #5: Okay. So outside of your improved ability to transact, is there any change on the seller side of things the way that they're positioning, the way that their conversations with you are changing and their willingness to transact?

Jon Petersen: Okay. outside of your improved ability to transact, is there any change on the seller side of things, the way that they're positioning, the way that, you know, their conversations with you are changing and their willingness to transact?

Speaker #6: The reality is that the properties that we're looking at today are similar to the properties that we've always looked at. Sellers tone is somewhat similar.

Andrew Spodek: The reality is that the properties that we're looking at today are similar to the properties that we've always looked at. Sellers' tone is somewhat similar. The only thing that has changed is the buzz around us and our stock price, which has, I guess, created sellers' motivation to facing off with us. We're constantly in front of owners. As everybody knows, I've been in the space my whole life. Interacting with them is nothing new for Being able to transact given our access and cost of capital is really what's gonna change.

Speaker #6: The only thing that has changed is the buzz around us and our stock price, which has I guess created sellers' motivation to facing off with us.

Speaker #6: We're constantly in front of owners. As everybody knows, I've been in the space my whole life, and so interacting with them is nothing new for.

Speaker #6: Being able to transact given our access and cost of capital is really what's going to change.

Speaker #5: All right. Great. Thanks, guys.

Jon Petersen: All right. Great. Thanks, guys.

Speaker #6: Thank you.

Andrew Spodek: Thank you.

Operator 3: Our next question comes from Greg McGinniss from Scotiabank. Please go ahead.

Speaker #1: Our next question comes our next question comes from Greg McInnis from Scotiabank. Please go ahead.

Operator: Our next question comes from Greg McGinniss from Scotiabank. Please go ahead.

Speaker #7: Hey. Good morning. Thanks for taking the question. We understand you don't want to provide too many details on the mark-to-market. But looking at the kind of forward opportunity could you provide some color on how it tends to compare between assets that you've controlled for years versus those that you're acquiring?

Greg McGinniss: Hey, good morning. Thanks for taking the question. You know, we understand you don't wanna provide too many details on the mark-to-market. Looking at the kind of forward opportunity, could you provide some color on how it tends to compare between assets that you've controlled for years versus those that you're acquiring?

Speaker #6: So the opportunity set on the mark-to-market is interesting, and it varies deal by deal, right? So we underwrite each deal individually. Some of the properties that we acquire have a more significant mark-to-market opportunity, and some of them don't.

Andrew Spodek: The opportunity set on the mark-to-market is interesting, and it varies deal by deal, right? We underwrite each deal individually. Some of the properties that we acquire have a more significant mark-to-market opportunity and some of them don't. That's just the nature of any real estate transaction and any real estate lease. As we continue to grow and as we continue to acquire the mark-to-market opportunity in that particular year changes, and it's constantly fluid. What I could tell you is it seems, at least from what we've done to date and what we're seeing in our pipeline and what we're seeing as our leases are rolling, is that opportunity still exists. From our perspective, we look for it to continue to exist.

Speaker #6: And that's just the nature of any real estate transaction and any real estate lease. As we continue to grow and as we continue to acquire, the mark-to-market opportunity in that particular year changes, and it's constantly fluid.

Speaker #6: What I could tell you is it seems at least from what we've done to date and what we're seeing in our pipeline and what we're seeing as our leases are rolling is that that opportunity still exists.

Speaker #6: And from our perspective, we look for it to continue to exist.

Speaker #7: Okay. And I guess from an acquisition standpoint, is the increased guidance a result of stronger cost of capital opening up the funnel a bit more or efficiency on the acquisition side?

Greg McGinniss: Okay. I guess from an acquisition standpoint, is the increased guidance a result of, you know, stronger cost of capital opening up the funnel a bit more efficiency on the acquisition side, or are you seeing some broader macro trends supporting these increased acquisitions?

Speaker #7: Or are you seeing some broader macro trends supporting the increased acquisition?

Andrew Spodek: The guidance is really based on what we're seeing us being able to acquire based on the access and cost of capital. The deals that we are looking at, like I just said, are very similar to the deals that we've always looked to buy, right? Primarily properties that are important to the Postal Service's network that have good underlying real estate value. We look to buy deals that are accretive on day one, and that we can add our internal growth to it as those leases continue to expire. And that's the model for what we're looking to acquire, and that's what we'll continue.

Speaker #6: The guidance has really based on what we're seeing us being able to acquire based on the access and cost of capital. The deals that we are looking at, like I just said, are very similar to the deals that we've always looked to buy.

Speaker #6: Right. Primarily, properties that are important to the postal services network, that have good underlying real estate value. We look to buy deals that are accretive on day one and that we can add our internal growth to as the leases continue to expire.

Speaker #6: And that's the model for what we're looking to acquire, and that's what we'll continue.

Greg McGinniss: Andrew, on the acquisition cap rate, right, it's been fairly, you know, 7.5%-ish range for a few years now. With the stronger cost of capital that you have, you know, would an increased level of acquisitions necessitate a lower cap rate? Meaning should we, you know, expect a similar investment spread although still quite strong, to get to a higher acquisition volume that results in, you know, ultimately more growth, but just a lower cap rate that we'll see on the phase initially.

Speaker #7: So Andrew, on the acquisition cap rate, right, it's been fairly 7 and a half-ish percent range for a few years now. But with the stronger cost of capital that you have, would an increased level of acquisitions necessitate a lower cap rate, meaning should we expect a similar investment spread, although considering how much the whack has come down, still quite strong, to get to a higher acquisition volume that results in ultimately more growth but just a lower cap rate that we'll see on the face?

Speaker #7: Initially.

Speaker #6: Yeah. I think that we can expect the cap rate to calm down a little bit because what we're going to do is acquire some larger properties, some larger portfolios.

Andrew Spodek: Yeah. I think that we can expect the cap rate to come down a little bit because what we are going to do is acquire some larger properties, some larger portfolios. These are things that we weren't able to acquire in the past few years given our cost of capital. As time goes on, we believe the cap rates will constrain slightly. Again, keeping in mind that it needs to be accretive on day one, and we need to be able to have some internal growth on the acquisitions that we're buying.

Speaker #6: These are things that we weren't able to acquire in the past few years, given our cost of capital. And so as time goes on, we believe the cap rates will constrain slightly.

Speaker #6: But again, keeping in mind that it needs to be accretive on day one, and we need to be able to have some internal growth on the acquisitions that we're buying.

Steve Bakke: Greg McGinniss, just to supplement Andrew Spodek's answer to your point you made, you know, what we're solving for is higher per share growth in future years. The total dollar value of accretion is gonna be higher by making more acquisitions at, you know, potentially somewhat lower cap rate than it would have if we passed up on those opportunities.

Steve Bakke: Greg, just to supplement Andrew's answer to your point you made, you know, what we're solving for is higher per share growth in future years. The total dollar value of accretion is gonna be higher by making more acquisitions at, you know, potentially somewhat lower cap rate than it would have if we passed up on those opportunities.

Speaker #5: Greg, just to supplement Andrew's answer—to your point you made—what we're solving for is higher per-share growth in future years. So, the total dollar value of accretion is going to be higher by making more acquisitions at potentially somewhat lower cap rates than it would have been if we passed up on those opportunities.

Speaker #7: Right. Makes sense. And then just a final one from me. With the stock price performance over the recent time frame, have you seen an increased preference for OP units from sellers?

Greg McGinniss: Right. Makes sense. Just a final one from me. With the, you know, stock price performance over, you know, the recent timeframe, have you seen a increased preference for OP unit from sellers?

Speaker #6: Yeah. We have. And we're constantly in conversations with owners interested in using the operating partnership unit currency. And we're always balancing that between our sources of debt and equity.

Andrew Spodek: Yeah, we have. We're constantly in conversations with owners interested in using the operating partnership unit currency. We're constantly balancing that between, you know, our sources of debt and equity. We have definitely seen an increased appetite for the operating partnership units given our stock price growth.

Speaker #6: But we have definitely seen an increased appetite for the operating partnership units given our stock price growth.

Speaker #5: Great. Thank you.

Greg McGinniss: Great. Thank you.

Speaker #6: Thank you.

Andrew Spodek: Thank you.

Operator 3: Our next question comes from Anthony Paolone with J.P. Morgan. Please state your question.

Operator: Our next question comes from Anthony Paolone with J.P. Morgan. Please state your question.

Speaker #1: Our next question comes with comes from Anthony Paulone with JPMorgan. Please state your question.

Anthony Paolone: Great. Thanks. Good morning. I guess my first question, it just goes back to the Postal Service and the back and forth they had with Amazon earlier in the year. I was just wondering if you can maybe just summarize kind of how that played out, just to someone that's not in the weeds on those machinations and just any implications back to, you know, your portfolio.

Speaker #8: Great. Thanks. Good morning. I guess my first question just goes back to the postal service and the back and forth they had with Amazon earlier in the year.

Speaker #8: And I was just wondering if you can maybe just summarize kind of how that played out just to someone that's not in the weeds on those machinations and just any implications back to your portfolio.

Speaker #9: Yeah. Hi, this is Jeremy. This was a five-year contract that was coming due in October of 2026. As we've seen in the past, a lot of these discussions are played out in the public domain.

Jeremy Garber: Hi, this is Jeremy. This was a 5-year contract that was coming due in October 2026. As we've seen in the past, a lot of these discussions are played out in the public domain. We were happy to see that they reached a final agreement. They are gonna keep the lion's share of their capacity with the Postal Service. You know, as we stated before, this really doesn't have an impact on our business, right? The scale and size of this industry in terms of other users, doesn't change how critical these assets are for the American people. Just to give you some context, we were just, as Andrew mentioned, at the National Postal Forum with over 4,000 industry professionals who touch the Postal Service.

Speaker #9: But we were happy to see that they reached a final agreement. They are going to keep the lion's share of their capacity with the postal service.

Speaker #9: As we stated before, this really doesn't have an impact on our business, right? The scale and size of this industry in terms of other users doesn't change how critical these assets are for the American people.

Speaker #9: And just to give you some context, we were just, as Andrew mentioned, at the Postal Forum with over 4,000 industry professionals who touched the postal service.

Speaker #9: I mean, this is a massive $1.9 trillion mailing industry, and 7.9 million jobs are associated with this industry. And the Postal Service plays a much broader role in the U.S. economy than any of us really appreciate.

Andrew Spodek: I mean, this is a massive industry, 1.9 trillion dollar mailing industry and 7.9 million jobs associated with this industry. The Postal Service plays a much broader role in the US economy than any of us really appreciate. You know, the Amazon contract was important. It has been renewed, and we're looking forward to seeing other logistics providers take advantage of this critical network.

Jeremy Garber: I mean, this is a massive industry, 1.9 trillion dollar mailing industry and 7.9 million jobs associated with this industry. The Postal Service plays a much broader role in the US economy than any of us really appreciate. You know, the Amazon contract was important. It has been renewed, and we're looking forward to seeing other logistics providers take advantage of this critical network.

Speaker #9: So the Amazon contract was important. It has been renewed. And we're looking forward to seeing other logistics providers take advantage of this critical network.

Speaker #8: Okay. Got it. Thank you for that. And then on the leases, you've been so successful with the rent increases, the bumps, the duration. What's the impediment to full net lease pass-through of expenses?

Anthony Paolone: Okay. Got it. Thank you for that. Then, on the leases, you've been so successful with the rent increases, the bumps, the duration. What's the impediment to full net lease pass-through of expenses?

Jeremy Garber: You know, it's a somewhat complicated question. I don't know that there's an impediment to it. The Postal Service lease structure has been in place the way it is for a very long time. As a government agency, I think they have some difficulty in general, well, with a full pass-through on the insurance side. Like we've said before, you know, the vast majority of our leases are this modified double-net structure, where we're predominantly responsible for roof structure and insurance. I think this works well for us and it works well for them. I think the current structure of the lease is gonna stay in place.

Speaker #9: It's a somewhat complicated question. I don't know that there's an impediment to it. The postal service lease structure has been in place the way it is for a very long time.

Speaker #9: As a government agency, I think they have some difficulty in general with a full pass-through on the insurance side. But like we've said before, the vast majority of our leases are this modified double-net structure where we're predominantly responsible for roof structure and insurance.

Speaker #9: I think this works well for us, and it works well for them. And so I think the current structure of the lease is going to stay in place.

Speaker #8: Okay. And then if I could sneak one last one in, you mentioned maybe tapping private placement debt to extend out some duration. Just can you give us any color around maybe cost and what you're being quoted or what that might look like?

Anthony Paolone: Okay. If I can sneak one last one in. You mentioned maybe tapping private placement debt to extend out some duration. Can you give us any color around maybe cost and what you're being quoted or what that might look like?

Speaker #10: Hey, Tony. This is Steve. It depends on the duration. I think if we're looking to issue anywhere from 5 to 10 years, the cost could be anywhere from the low 5% range to high 5, low 6% range, depending on where the markets are.

Steve Bakke: Hey, Tony, this is Steve. You know, it depends on the duration. I think, you know, if we're looking to issue anywhere from 5 to 10 years, the cost could be anywhere from the low 5% range to high 5%, low 6% range, depending on where the markets are. You know, treasury yields have expanded, you know, coming out of late February, early March. We also had a rise in spreads that have since contracted. I think, you know, somewhere, you know, if you estimate 5.5% to 5.7% for a coupon, that, you know, that's our best guess at the current time.

Speaker #10: Treasury yields have expanded coming out of late February or early March. We also had a rise in spreads that have since contracted. So I think somewhere if you estimate 5.5 to 5.7 for a coupon, that's our best guess at the current time.

Speaker #8: Okay. Thank you.

Anthony Paolone: Okay. Thank you.

Speaker #9: Thank you.

Andrew Spodek: Thank you.

Steve Bakke: Thank you.

Speaker #10: Thank you.

Operator 3: Ladies and gentlemen, as there are no further questions, I would now like to hand the conference over to Andrew Spodek for the closing remarks.

Speaker #1: A reminder to all the participants, please press star and one on your telephone keypad to ask a question. Ladies and gentlemen, as there are no further questions, I would now like to hand the conference over to Andrew Spodek for the closing remarks.

Operator: Ladies and gentlemen, as there are no further questions, I would now like to hand the conference over to Andrew Spodek for the closing remarks.

Speaker #6: Thank you. We believe the unique platform we built to maximize the value of postal real estate in addition to the inherent stability and growth of the real estate we own offers unique investment profile in the public REIT space.

Andrew Spodek: Thank you. We believe the unique platform we've built to maximize the value of Postal real estate, in addition to the inherent stability and growth of the real estate we own, offers unique investment profile in the public REIT space. We look forward to speaking with many of you in the coming months and updating you on our progress next quarter. Thank you again for joining us.

Speaker #6: We look forward to speaking with many of you in the coming months and updating you on our progress next quarter. Thank you again for joining us.

Operator 3: Ladies and gentlemen, the conference of Postal Realty Trust has now concluded. Thank you for your participation. You may now disconnect your lines.

Operator: Ladies and gentlemen, the conference of Postal Realty Trust has now concluded. Thank you for your participation. You may now disconnect your lines.