Postal Realty Trust, Inc. — Q2 2019 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2019. The company began operations on May 17, 2019, following its IPO and formation transactions. Accordingly, 2019 results combine the Predecessor’s results before May 17 with the Company’s results thereafter; prior-year comparisons reflect the Predecessor and are not fully comparable.
Business context
Postal Realty owns and manages postal properties leased primarily to the U.S. Postal Service (USPS), and provides third-party management services. At June 30, it owned and managed 271 properties in 41 states, all leased to the USPS, and managed an additional 404 properties for related parties. The filing reports an average remaining lease term of 3.0 years. The company held a 78.6% interest in its Operating Partnership.
Key financial metrics
| Metric | Q2 / June 30, 2019 | Comparable period / prior year |
|---|---|---|
| Revenue, Q2 | $2.406 million | $1.923 million, Q2 2018 (+25.1%) |
| Revenue, six months | $4.422 million | $3.836 million, first half 2018 (+15.3%) |
| Operating income, Q2 | $133,000 | $726,000, Q2 2018 |
| Net income (loss), Q2 | $(288,000) | $321,000, Q2 2018 |
| Net income (loss), six months | $(31,000) | $416,000, first half 2018 |
| Net loss attributable to common stockholders / EPS | $(392,000) / $(0.08) | 2019 post-IPO period; prior-year common-stockholder comparison not presented |
| Operating cash flow, six months | $862,000 | $1.450 million, first half 2018 |
| Cash / cash and restricted cash | $11.745 million / $12.346 million | At June 30, 2019 |
| Mortgage debt | $2.854 million principal; $2.818 million net of financing costs | $35.019 million principal at Dec. 31, 2018 |
| Total assets / liabilities | $76.195 million / $18.208 million | At June 30, 2019 |
Operating expenses rose to $2.273 million in Q2 from $1.197 million, including higher public-company G&A, equity compensation, and depreciation. Contractual interest expense fell after debt repayment, but Q2 included a $186,000 loss on early debt extinguishment. The filing does not provide a clear explicit operating-margin metric. Q2 FFO was $480,000 and AFFO was $690,000; both are non-GAAP measures.
Material changes and cash resources
- The May IPO sold 4.5 million shares at $17 each, generating approximately $71.1 million net proceeds before $6.4 million of other IPO expenses. The company used proceeds to repay approximately $31.7 million of Predecessor debt and fund acquisitions, including 81 properties acquired for approximately $27.3 million.
- Six-month investing cash outflow was $27.214 million, mainly for property acquisitions. Financing cash inflow was $37.837 million, principally reflecting IPO proceeds, offset by debt repayment and distributions.
- At June 30, debt was fixed-rate, with a reported weighted average rate of 4.4%. Some loans have future rate resets to variable rates. The company reported approximately $7.7 million cash as of August 14.
- Amounts due to affiliates were $6.688 million, non-interest-bearing and payable on demand; approximately $3.5 million related to IPO funding and other amounts included formation-related reimbursements.
Outlook, risks and unusual items
- No numerical earnings or operating guidance is provided. Management described acquisition opportunities and expected to establish a revolving credit facility, but had only a non-binding term sheet for a proposed $100 million facility; financing was not assured.
- After quarter-end, the company acquired three USPS-leased properties for approximately $4.4 million. By August 14, it had definitive agreements for 14 more properties for approximately $5.4 million, subject to customary closing conditions, and non-binding agreements for 154 properties for approximately $43.7 million, subject to due diligence and other conditions.
- The company intended to elect REIT status beginning with the short tax year ending December 31, 2019. Maintaining REIT qualification requires compliance with complex rules and generally distributing at least 90% of REIT taxable income.
- Revenue is highly concentrated in the USPS. Management highlighted USPS financial and operational stability, lease renewal and termination, property costs, access to financing, acquisition execution, insurance, real-estate conditions, and REIT compliance as risks. Most leases have fixed annual rents, while some landlord expenses may rise with inflation.
- The company reported no material litigation and no off-balance-sheet arrangements. It continued remediation of a previously identified material weakness in internal controls; management said new controls were operating as designed but would consider the weakness remediated only after a further period of effective operation. Disclosure controls were assessed as effective.
- Related-party matters include management fees from properties affiliated with the CEO’s family and an office lease with a CEO-affiliated entity at $15,000 monthly, subject to escalations. The filing reported $707,920 of unrecognized tax benefits and a corresponding indemnification asset.
Most important facts for investors to verify
- Whether USPS lease renewals, rent levels, and the tenant’s financial position support the portfolio’s cash flows; confirm lease expirations and tenant concentration.
- Actual post-IPO recurring operating performance, separated from Predecessor results and one-time IPO, acquisition, and debt-extinguishment effects; assess FFO/AFFO reconciliations and public-company costs.
- Closing, financing, purchase terms, and expected returns for announced and proposed acquisitions, and whether the proposed credit facility is finalized on acceptable terms.
- Affiliate balances and transactions, including amounts payable on demand, management arrangements, and the CEO-affiliated office lease.
- Progress in remediating the material weakness and the company’s ability to meet REIT qualification and distribution requirements.
- The filing checked “No” for having filed all required reports during the preceding 12 months (or applicable shorter period) and being subject to filing requirements for the prior 90 days; verify the significance in light of the company’s recent formation and IPO.