Release Date: May 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Postal Realty Trust Inc (PSTL, Financial) continued its acquisition momentum, adding 29 properties for $19 million at a 7.8% cap rate, aligning with its full-year guidance of $80 million acquisitions at or above a 7.5% cap rate.
- The company successfully raised approximately $14 million of equity capital through common stock and operating partnership unit issuances, maintaining leverage within target ranges and ensuring ample credit facility availability.
- Postal Realty Trust Inc (PSTL) has a strong relationship-based business model, with about 75% of acquisitions sourced internally, demonstrating its position as a natural buyer in the market.
- The company reported a 99% historical weighted average lease retention rate over the past decade, underscoring the strategic importance of its properties to the Postal Service and the communities they serve.
- Postal Realty Trust Inc (PSTL) collected 100% of its contractual rents, highlighting the predictability and stability of its cash flows, which is a significant differentiator in the real estate sector.
Negative Points
- Negotiations on approximately 90 holdover leases are ongoing and taking longer than anticipated, which could impact future revenue stability and growth.
- The macroeconomic environment, including higher interest rates, could potentially slow down the acquisition pace as sellers are not widely adjusting their cap rates despite the market volatility.
- The company faces challenges in ensuring all future leases include annual escalators, which are crucial for steady revenue growth, especially in a fluctuating inflationary environment.
- While Postal Realty Trust Inc (PSTL) has a robust acquisition strategy, the current high interest rate environment and the pullback in bank financing could impact the ability of small owners to refinance postal assets, potentially affecting the transaction market.
- The company anticipates CapEx for Q2 to be between $150,000 and $200,000, which could impact short-term financial flexibility, especially if unexpected expenses arise.
Q & A Highlights
Q: Can you update us on the negotiations with the 90 some odd holdover leases and whether you anticipate new leases with contractual bumps similar to last year?
A: Andrew Spodek, CEO: The negotiations are ongoing and taking longer than anticipated. We're working towards achieving rent bumps, but nothing is finalized yet. We hope to provide a better update next quarter.
Q: Is the process of negotiations expected to become faster or smoother in future years, or will it remain challenging given the counterparty involved?
A: Andrew Spodek, CEO: We've experienced similar situations in the past and are working on making the process more efficient. However, I can't guarantee improvements until they are fully implemented. Despite the delays, we continue to collect rents and will receive back payments once negotiations conclude.
Q: With the current macroenvironment, how motivated are potential sellers, and do you expect an increase or decrease in the velocity of the acquisition pipeline?
A: Andrew Spodek, CEO: Sellers are motivated but not to the extent of adjusting cap rates market-wide. We handle negotiations on a case-by-case basis to achieve desirable cap rates. We maintain our acquisition guidance at $80 million for the year, hoping for increased deal velocity.
Q: Is the higher interest rate environment and pullback in bank financing affecting small owners' ability to refinance postal assets, or is having a USPS lease still advantageous?
A: Andrew Spodek, CEO: The postal real estate market isn't heavily financed, so while higher rates may motivate some to sell, it's not a major driver of deal flow. Owners can still refinance, albeit at higher rates.
Q: What percent of your portfolio has annual escalators built in, and where do you expect that number to trend in the next few years as leases renew?
A: Jeremy Garber, President: All leases expiring in 2022 had escalators, and we're negotiating for future leases. The inclusion of escalators depends on inflation and operational costs, so we can't guarantee all future leases will have them.
Q: If the holdover leases are resolved, do you anticipate any incremental spending in the latter half of the year that would exceed the outlined CapEx range?
A: Robert Klein, CFO: We don't expect changes to our CapEx guidance based on lease negotiations or acquisitions in the near term. Future guidance will be provided as appropriate.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
