Postal Realty Trust, Inc. — Q1 2021 Form 10-Q
Business and period: Unaudited results for the three months ended March 31, 2021, compared with Q1 2020. The company is a REIT focused on postal properties, primarily leased to the USPS. At quarter-end it owned 780 properties in 47 states and managed 399 additional properties for third parties. It held an approximately 81.8% interest in its Operating Partnership.
Financial results
| Metric | Q1 2021 | Q1 2020 / prior date |
|---|---|---|
| Total revenue | $8.9 million | $5.2 million |
| Operating income (loss) | $1.1 million | $(0.2) million |
| Operating margin | 12.7% | (3.6)% |
| Net income (loss) | $0.1 million | $(1.0) million |
| Net income (loss) attributable to common stockholders | $0.1 million | $(0.7) million |
| Basic and diluted EPS, as reported | $0.00 | $(0.14) |
| Net cash from operating activities | $4.5 million | $1.4 million |
| Cash and restricted escrows/reserves | $3.3 million cash; $1.1 million restricted | $2.2 million cash; $1.1 million restricted at Dec. 31, 2020 |
| Consolidated principal debt | $97.8 million | $125.0 million at Dec. 31, 2020 |
Quarter-end total assets were $283.6 million and total liabilities were $113.0 million. Cash used in investing was $25.9 million, primarily for property acquisitions; cash provided by financing was $22.6 million. Acquisitions included 54 properties for approximately $26.2 million, including closing costs. The company reported no impairment charges.
Changes and capital
- Revenue rose 71%, mainly reflecting the full-quarter contribution from 261 properties acquired in 2020 and 54 acquired in Q1 2021. Rental income increased 73%; fee and other income increased 28%.
- Operating expenses rose 44% to $7.7 million, including higher property taxes, property operating costs, depreciation and amortization, and equity-based compensation. Net interest expense increased to $1.0 million and included a $0.2 million loss on early debt extinguishment.
- The company repaid two mortgage loans totaling approximately $13.7 million. At quarter-end, $64.5 million was drawn on its revolving facility, which matures in September 2023; facility borrowing is subject to covenants and borrowing-base conditions. The company stated it was covenant-compliant.
- A January follow-on offering generated approximately $53.9 million in net proceeds before other offering expenses. Class A shares outstanding increased substantially during the quarter. The company had $50 million of stated ATM-program capacity remaining at March 31; it later terminated its agreement with D.A. Davidson, stating it did not intend to use that agreement to raise capital.
- The company declared and paid a Q1 dividend of $0.2175 per share. A subsequent dividend of $0.22 per share was declared for payment May 28, 2021.
Outlook, risks and notable items
- No quantified earnings or acquisition guidance was provided. Management described continued acquisition and consolidation of postal properties as its strategy and expects to use operating cash flow, debt and equity capital to fund liquidity and growth needs.
- Management reported receipt of 100% of rent in Q1 and no material COVID-19 impact to date, while warning that pandemic-related effects on USPS finances, mail volume and demand for postal facilities remain uncertain.
- The business is highly exposed to the USPS’s financial and operating stability, lease renewals and property demand. Pennsylvania represented 19.6% of Q1 rental income. Eleven leases were expired with USPS occupying as a holdover tenant at quarter-end; as of May 11, 17 leases were in holdover status, representing $0.3 million of annual contractual rent. The company disclosed notice that USPS intended to vacate one property in August 2021.
- Approximately $64.5 million of debt was variable-rate at quarter-end. Management estimated a 0.50 percentage-point LIBOR move would change annual cash flows by approximately $0.3 million, assuming no change in variable-rate debt. The filing also identifies LIBOR’s planned phaseout after 2023 as a risk.
- Subsequent to quarter-end through May 14, the company acquired 16 properties for approximately $6.1 million and had definitive agreements for 49 more properties for approximately $17.8 million, subject to customary closing conditions. It reported $67.5 million drawn on the credit facility as of that date.
- ASC 842 adoption resulted in recognition of approximately $1.2 million of operating lease right-of-use assets and liabilities. The company also disclosed related-party management arrangements and CEO-guaranteed loans.
Investor verification priorities
- Reconcile reported EPS of $0.00 with the EPS note: participating-security allocations produce a $(44,000) EPS numerator despite $103,000 of income attributable to common stockholders; the per-share amount rounds to $0.00.
- Assess lease renewal and holdover exposure, the planned USPS vacancy, and the company’s reliance on USPS rent and finances.
- Confirm borrowing-base availability, facility capacity and covenant headroom; assess refinancing needs around the September 2023 revolving-facility maturity and exposure to variable rates.
- Review acquisition funding, subsequent transaction closings, equity dilution and the company’s ability to sustain dividends while meeting REIT distribution requirements.
- Evaluate geographic and tenant concentration, including Pennsylvania’s share of rental income, and related-party governance and compensation arrangements.