Postal Realty Trust, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021, compared with the same periods in 2020. Amounts below are in millions unless stated otherwise. The company is a REIT focused on properties leased primarily to the USPS.
Business context and financial performance
At quarter-end, the company owned 911 properties in 49 states, totaling approximately 3.7 million net leasable square feet, and managed 397 additional postal properties for third parties. It acquired 184 properties during the first nine months of 2021 for approximately $77.1 million, including closing costs.
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total revenue | $10.5 | $6.3 | $28.8 | $17.0 |
| Operating income | $1.6 | $0.6 | $4.2 | $0.8 |
| Net income (loss) | $0.7 | $(0.02) | $1.6 | $(1.3) |
| Net income (loss) attributable to common stockholders | $0.5 | $(0.02) | $1.3 | $(0.8) |
| Diluted EPS | $0.03 | $(0.01) | $0.06 | $(0.18) |
| Operating margin | 15.0% | 9.7% | 14.6% | 4.6% |
| Net cash from operating activities | — | $13.4 | $6.0 |
Rental income was $10.2 million in Q3 and $27.7 million for the first nine months; management attributed most of the increase to acquisitions. Fee and other income was $0.3 million and $1.1 million, respectively. Nine-month operating expenses were $24.6 million, including $10.1 million of depreciation and amortization. Net interest expense was $2.8 million for the nine-month period.
Balance sheet, debt and liquidity
- September 30 total assets were $331.6 million, total liabilities $143.1 million, and total equity $188.4 million.
- Cash was $4.0 million and restricted escrows and reserves were $0.9 million. Cash and restricted balances together were $4.9 million.
- Debt principal totaled $127.7 million: $94.5 million under the credit facilities and approximately $33.2 million of secured borrowings. Balance-sheet debt, net of financing costs, was $126.8 million.
- The company replaced its prior credit facility in August with a $150 million revolving facility, maturing January 2026, and a $50 million term loan, maturing January 2027. It entered an interest-rate swap fixing the LIBOR component on $50 million through January 2027; the term loan’s reported rate was 2.291% at quarter-end. The company reported compliance with credit covenants.
- Operating cash flow was $13.4 million; investing cash outflow was $61.6 million, principally acquisitions; financing cash inflow was $49.8 million, including $59.9 million of net share issuance proceeds. Dividends and distributions were $11.1 million.
Material changes, outlook and risks
- Revenue rose 67% in Q3 and 69% for the first nine months year over year, primarily reflecting portfolio expansion. Operating expenses also increased, including taxes, property costs, and depreciation. General and administrative expense growth was partly attributed to higher equity compensation.
- Nine-month net income improved from a loss in 2020; the period included a $0.2 million loss on early debt extinguishment. Q3 other income included insurance recoveries. A $0.4 million unrealized swap gain was recorded in comprehensive income; the company expected approximately $0.4 million to be reclassified from accumulated other comprehensive income as additional interest expense over the following 12 months.
- No formal financial guidance was provided. Management described acquisition opportunities as attractive and expected liquidity needs to be met through operating cash flow, cash, credit facilities, and potential equity or debt issuance. Future acquisitions and access to capital remain dependent on market conditions and financing availability.
- The principal business risk is reliance on the USPS as tenant and its financial and operational stability. The filing discusses USPS funding constraints, possible reduced demand for leased properties, and the effects of pandemic-related disruption. The company reported collecting 100% of rents for the first nine months and no material company impact from COVID-19 during that period.
- Pennsylvania accounted for 18.3% of nine-month rental income. At September 30, leases at 26 properties had expired, with the USPS occupying them as a holdover tenant; by November 11, 34 properties were in holdover status. The company noted renewal terms and timing were uncertain and that nonrenewals could reduce rental income and occupancy.
- Other exposures include variable-rate debt and the transition away from LIBOR after June 2023, inflation affecting landlord-paid costs, REIT qualification and distribution requirements, and related-party arrangements. Management reported no material litigation and no material change to previously disclosed risk factors.
- Subsequent to quarter-end, the company declared a $0.225 per-share dividend payable November 30, 2021. By November 11 it had acquired 17 properties for approximately $17.9 million and had definitive agreements for 30 more at approximately $15.3 million; closings were subject to customary conditions.
Important facts for investors to verify
- Lease renewal outcomes, holdover rents, and any USPS decisions to vacate or reduce leased space.
- USPS financial condition and how its service, funding, or operating changes could affect property demand and rent collection.
- Acquisition economics, funding, and the impact of further equity issuance and credit-facility borrowings on per-share performance and leverage.
- Interest-rate exposure, swap terms, covenant headroom, and the LIBOR-to-successor-rate transition.
- Whether dividends remain supported by REIT taxable income and cash generation, considering the company’s acquisition and capital requirements.