Postal Realty Trust, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Figures below are in U.S. dollars; financial statement amounts are in millions unless stated otherwise.
Business context
Postal Realty Trust is a REIT focused on owning and managing properties leased primarily to the U.S. Postal Service (USPS). At quarter-end, it owned 852 postal properties in 49 states, with approximately 3.6 million net leasable square feet, and provided management services for 399 additional properties. The Company held approximately 79.7% of its Operating Partnership.
Financial performance and position
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue | $9.5 | $5.6 | $18.4 | $10.8 |
| Income from operations | $1.6 | $0.4 | $2.7 | $0.2 |
| Net income (loss) | $0.8 | $(0.2) | $0.9 | $(1.3) |
| Net income (loss) attributable to common stockholders | $0.7 | $(0.2) | $0.8 | $(0.8) |
| Diluted EPS | $0.04 | $(0.05) | $0.04 | $(0.19) |
Revenue increased 70% in both the quarter and six-month comparison, chiefly reflecting the contribution of properties acquired in 2020 and the first half of 2021. Operating margin, calculated as operating income divided by revenue, was approximately 17.0% in Q2 versus 7.8% a year earlier, and 14.9% for the first half versus 2.3%.
- Cash flow: First-half operating cash flow was $8.4 million, compared with $3.2 million in 2020. Investing cash outflow was $48.0 million, primarily for property acquisitions; financing cash inflow was $42.5 million.
- Liquidity: June 30 cash was $4.9 million, with $1.2 million in restricted escrows and reserves. Cash plus restricted funds totaled $6.2 million.
- Debt: Principal debt was $115.7 million, including $82.5 million drawn on the variable-rate revolving facility and approximately $33.2 million of secured debt. The Company reported compliance with its 2019 credit facility covenants at quarter-end.
- Capital and distributions: A January follow-on offering generated approximately $53.9 million in net proceeds before other offering expenses; Q2 ATM sales added $6.1 million net. First-half dividends and distributions totaled $7.2 million. The declared Q2 common dividend was $0.2225 per share, payable in August.
Material changes, outlook and risks
- The Company acquired 125 properties for approximately $57.5 million, including closing costs, in the first half of 2021. It attributed higher operating expenses and depreciation largely to the enlarged portfolio; G&A also increased, primarily from equity compensation.
- First-half results included a $0.2 million loss on early extinguishment of debt after repayment of two mortgage loans. No impairment losses were recorded.
- After quarter-end, the Company replaced its 2019 facility with a $150 million unsecured revolving facility and a $50 million unsecured term loan, with maturities in 2026 and 2027, respectively. It also entered into an interest-rate swap fixing the LIBOR component on $50 million through January 2027. As of August 11, $92.5 million was drawn under the new facilities; management believed the Company was covenant-compliant.
- After quarter-end, the Company closed on 37 additional properties for approximately $12.1 million and had definitive agreements for 25 more properties for approximately $7.4 million. These planned acquisitions were subject to customary closing conditions.
- Management said it received 100% of rents during the first half and saw no material COVID-19 impact on the Company. It provided no quantified earnings or acquisition guidance; it described continued acquisition and portfolio-consolidation plans.
- Key exposures include reliance on the USPS as primary tenant and payer, lease renewals and holdovers, interest rates and financing access, and geographic concentration: Pennsylvania represented 18.9% of first-half rental income. As of the filing, 28 properties were in holdover status, representing about $0.6 million of annual contractual rent; the Company cautioned that renewals and expected terms were not assured.
- The Company noted USPS financial and operating pressures, including constrained revenue and borrowing capacity, and stated that reduced USPS demand for leased space could materially harm its business. Other stated risks include LIBOR transition, inflation in property costs, REIT qualification requirements and the ability to secure new leases.
Important facts for investors to verify
- USPS financial condition, rent collection, and the status and terms of expiring or holdover leases.
- Acquisition closings, purchase funding, and the resulting effect on rental income, operating costs and per-share results.
- Drawn debt, variable-rate exposure, covenant headroom and the cost and effectiveness of the new facilities and rate swap.
- Dividend coverage relative to operating cash flow and REIT distribution requirements, alongside future equity issuance and dilution.
- The filing states that no material litigation was pending and no material risk-factor changes from the 2020 Form 10-K were reported.