Postal Realty Trust, Inc. — Q1 2020 Form 10-Q
Business context and period: Unaudited results for the three months ended March 31, 2020; balance sheet compared with December 31, 2019. Postal Realty owns and manages postal properties, principally leased to the USPS, and also provides third-party property management. At quarter-end it owned 549 properties in 45 states and managed 401 additional properties. The filing was delayed because of COVID-19-related disruption. The 2019 comparison reflects the Predecessor before the May 2019 IPO and formation transactions, while 2020 reflects the public company; growth rates therefore are not strictly like-for-like.
Financial results and position
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Total revenue | $5.20 million | $2.02 million |
| Operating income (loss) | $(0.19) million | $0.66 million |
| Net income (loss) | $(1.03) million | $0.26 million |
| Net loss attributable to common stockholders; diluted loss per share | $(0.68) million; $(0.14) | Not applicable to Predecessor |
| Cash provided by operating activities | $1.39 million | $0.52 million |
| Cash used in investing activities | $(23.21) million | $(0.66) million |
| Cash provided by financing activities | $12.18 million | $0.27 million |
- Revenue rose 157.8%, primarily from properties acquired in the IPO formation and subsequent acquisitions. Rental income was $4.30 million; tenant reimbursements were $0.60 million.
- Operating expenses were $5.39 million, including $2.30 million of general and administrative expense and $2.03 million of depreciation and amortization. Management attributed higher G&A to public-company costs, personnel and investor relations, acquisition costs, and $0.7 million of equity compensation. Interest expense, net, increased to $0.83 million.
- Operating margin was approximately negative 3.6% versus positive 32.6% in the prior-year quarter; net margin was approximately negative 19.8% versus positive 12.8%. These comparisons are affected by the differing reporting entities and portfolio sizes.
- FFO was $1.01 million and AFFO was $1.70 million for Q1 2020, both non-GAAP measures. The filing does not provide comparable 2019 values in the presented reconciliation.
- At March 31, total assets were $158.38 million, total liabilities $82.30 million, and total equity $76.07 million. Cash was $2.84 million, with $0.69 million of restricted escrows and reserves.
- Total debt principal was $71.22 million, including $68.00 million drawn on the revolving facility and approximately $3.22 million of secured borrowings and seller financing. The revolver was variable-rate; secured borrowings were fixed-rate. The company reported compliance with credit-facility covenants at quarter-end.
Material changes and transactions
- Q1 acquisitions added 83 properties for approximately $30.5 million, including a 21-property portfolio partly paid for with 483,333 OP Units. The company funded acquisitions principally with revolver borrowings; investing cash outflow was $23.21 million.
- Revolver borrowings increased by $14.0 million during the quarter, to $68.0 million. The borrowing commitment was raised to $150 million in January, subject to borrowing-base and other conditions; the agreement provided an accordion feature potentially allowing up to $200 million.
- The company declared and paid a $0.17-per-share dividend in Q1. A $0.20-per-share dividend was declared and paid in May.
- By June 25, 43 leases had expired and the USPS remained in occupancy as a month-to-month holdover tenant. Those properties generated approximately $1.9 million in annualized rent and were excluded from the revolver borrowing base. Management reported preliminary renewal discussions but no definitive lease documentation.
Outlook, risks, and unusual items
- No numerical earnings or acquisition guidance was provided. Management intended to continue pursuing postal-property acquisitions, while noting that COVID-19 restrictions could delay transactions.
- The company reported receiving all April, May, and June rent payments due, with no rent-concession requests as of the filing date. It nevertheless cited uncertainty about COVID-19’s effects on USPS operations, postal-property demand, mail volumes, and acquisitions. The filing relayed estimates that mail volume could fall sharply and that USPS could lose up to $23 billion in revenue over 18 months; these were stated risks, not company forecasts.
- The USPS’s revised lease form shifts additional maintenance obligations and costs to landlords, including some plumbing and electrical work, and requires payment of third-party broker commissions. Management expected costs could rise and believed rent increases might offset them, but gave no assurance.
- Subsequent to quarter-end, the company borrowed another $6.0 million in April, acquired additional properties, and obtained mortgage financing. In May it identified an approximately $5.1 million revolver overdraw and said it satisfied the amount using mortgage-financing proceeds. In June it amended the credit agreement, including borrowing-base calculations and a tangible-net-worth covenant. These events occurred after March 31.
- Other risks include dependence on the USPS as essentially the sole tenant, lease expirations and possible non-renewal, variable-rate debt and LIBOR exposure, access to external capital, REIT distribution requirements, and related-party arrangements. No material litigation was reported. No impairment was recorded in Q1.
Important facts for investors to verify
- Renewal status and final economics of the 43 holdover leases, including the revised lease form, landlord maintenance duties, commissions, and borrowing-base impact.
- USPS financial condition and operating outlook, including actual mail-volume trends, federal support, and any resulting changes in occupancy or rent payments.
- Revolver availability after the June amendment, covenant headroom, compliance status, and the effect of the May overdraw and subsequent mortgage financing.
- Acquisition funding, future leverage and interest costs, and the company’s ability to sustain dividends while meeting REIT distribution requirements.
- Comparability of reported growth and non-GAAP FFO/AFFO, given the Predecessor-versus-public-company reporting basis and the lack of a comparable 2019 FFO/AFFO reconciliation here.