Postal Realty Trust, Inc. — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; comparisons are with 2020 unless noted. Postal Realty Trust is an internally managed REIT focused on owning and managing properties leased primarily to the U.S. Postal Service (USPS). It reports one operating segment.
Business context and portfolio
- At year-end, the company owned 966 properties across 49 states, with approximately 4.5 million net leasable square feet and $343.7 million of real estate investments, including two properties accounted for as financing leases.
- The owned portfolio was 99.6% occupied; the company reported collecting 100% of rent in 2021. Weighted-average remaining lease term was approximately four years.
- It acquired 239 properties during 2021 for approximately $118 million, excluding closing costs. Most leases are modified double-net leases: USPS generally pays utilities, routine maintenance and reimbursable property taxes; the landlord generally bears insurance, roof and structural costs.
- Through its taxable REIT subsidiary, the company also managed 397 properties owned by its CEO and affiliates. It held a right of first offer on 250 of those properties.
Financial results and liquidity
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Total revenue | $39.9 million | $24.4 million | +63% |
| Operating income | $5.9 million | $2.0 million | +191% |
| Net income (loss) | $2.6 million | ($0.6 million) | Improved by $3.2 million |
| Net income (loss) attributable to common stockholders | $2.1 million | ($0.4 million) | |
| Basic and diluted earnings per share | $0.10 | ($0.10) | |
| Net cash provided by operating activities | $17.1 million | $9.4 million | +$7.7 million |
- Rental income grew to $38.3 million from $23.3 million, primarily reflecting acquisitions. Fee and other income was $1.7 million versus $1.1 million.
- Operating margin, calculated as operating income divided by revenue, was approximately 14.8% versus 8.3%. Net margin was approximately 6.4% versus a loss of 2.6%. These ratios are calculated from reported figures.
- Interest expense, net, rose to $3.7 million from $2.8 million. The 2021 amount included a $0.2 million loss on early extinguishment of debt.
- Cash and restricted escrows/reserves totaled $7.0 million at year-end, including $5.9 million of unrestricted cash. Cash flow from investing activities was a $106.7 million outflow, largely for acquisitions, capital improvements and financing-lease investments; financing activities provided $93.4 million.
- Principal debt was $96.2 million at year-end, down from $125.0 million. This included $63.0 million under new credit facilities and $33.2 million of secured borrowings. The company reported compliance with facility covenants.
- The $150 million revolving facility had $13 million drawn at year-end; the separate $50 million term loan was fully drawn. A swap fixed the LIBOR component on $50 million through January 2027; management reported an effective term-loan rate of 2.291% at year-end. Subsequent to year-end, total credit-facility borrowings were $78 million as of March 11, 2022.
- Dividends were $0.885 per share or unit in 2021, compared with $0.79 in 2020. The quarterly dividend increased from $0.2175 for fourth-quarter 2020 to $0.2275 for fourth-quarter 2021.
Material changes and unusual items
- Portfolio growth drove the increases in rental income and operating costs, including real estate taxes, property expenses, general and administrative expense, and depreciation and amortization.
- The company replaced its prior $100 million revolving credit facility in August 2021 with a $150 million unsecured revolving facility and a $50 million unsecured term loan. It repaid two mortgages totaling $13.7 million and amended other mortgages to reduce rates.
- Two follow-on stock offerings raised $57.0 million and $83.1 million gross, respectively; the ATM program raised approximately $6.9 million gross. These equity raises funded growth but increased the share count.
- A $1.0 million unrealized gain on the interest-rate swap was recorded in other comprehensive income. No real estate impairments were recorded in 2021 or 2020.
- At December 31, 16 property leases were expired with USPS in holdover status; the filing says the company subsequently executed leases for all 16. Separately, as of March 11, 2022, 10 leases—covering approximately 47,000 square feet and $0.4 million of annual contractual rent—were expired and occupied by USPS as holdover leases, including expirations occurring in 2022.
Outlook, commentary and principal risks
- Management described postal-property consolidation as an attractive opportunity and expected to pursue further acquisitions. The filing does not provide quantified earnings, revenue or acquisition guidance.
- Substantially all rental revenue depends on USPS, exposing the company to USPS financial health, service demand, lease renewal decisions, facility consolidation and changes under the USPS’s ten-year plan. The filing identifies Pennsylvania as 18.3% of 2021 rental income.
- Management reported no material company impact from COVID-19 in 2021, but noted continuing uncertainty about its effects on USPS operations and finances.
- Interest-rate exposure, LIBOR’s scheduled cessation after June 2023, debt covenant compliance, access to capital, inflation, property-specific vacancies and the limited alternative uses and liquidity of postal properties are material risks. The company also cites environmental, weather, cybersecurity, REIT-qualification and related-party risks.
- As subsequent events, the company reported 39 property acquisitions for approximately $11.8 million after year-end, agreements to acquire 12 more for approximately $13.5 million, and acquisition of a postal real estate consulting business on March 4, 2022. The filing notes these pending transactions were subject to customary closing conditions.
- Congress passed the Postal Service Reform Act on March 8, 2022, after the reporting date. The filing says it could alleviate certain USPS retiree-health funding obligations; it does not eliminate the USPS’s other substantial obligations.
- The independent auditor issued an unqualified opinion on the financial statements. Management concluded disclosure controls and internal control over financial reporting were effective as of December 31, 2021; the auditor was not engaged to audit internal controls.
Important facts for investors to verify
- USPS lease renewals, holdover arrangements and the effects of the USPS ten-year plan on the portfolio and rental income.
- Post-year-end acquisition closings, purchase prices, funding sources and resulting dilution or debt levels.
- Current credit-facility borrowings, remaining availability, covenant headroom and interest expense after the increase in 2022 borrowings.
- Dividend coverage by operating cash flow and REIT taxable income; the filing does not provide FFO or AFFO metrics.
- The extent of geographic and tenant concentration, particularly Pennsylvania and the company’s dependence on USPS.
- Related-party management fees, CEO-affiliated property ownership and any conflicts relevant to transactions or capital allocation.