Postal Realty Trust, Inc. (PSTL) is an internally managed real estate investment trust (REIT) that focuses on acquiring and managing properties leased primarily to the United States Postal Service (USPS). The company’s portfolio consists of over 2,000 properties across 49 states and one territory, ranging from last-mile post offices to industrial facilities.
Company Overview
Postal Realty Trust was founded as a Maryland corporation on November 19, 2018, and completed its initial public offering in May 2019. The company conducts its business through a traditional UPREIT structure in which its properties are owned by its Operating Partnership directly or through limited partnerships, limited liability companies or other subsidiaries. As the sole general partner of the Operating Partnership, Postal Realty Trust has the exclusive power under the partnership agreement to manage and conduct the Operating Partnership’s business, subject to limited approval and voting rights of the limited partners.
The company’s interest in the Operating Partnership entitles it to share in distributions from, and allocations of profits and losses of, the Operating Partnership in proportion to its percentage ownership of OP Units. As of September 30, 2024, the company owned a portfolio of 1,640 properties located in 49 states and one territory, leased primarily to the United States Postal Service. The company also owns several land parcels that may be added to existing or future leases with the USPS or used for other purposes.
Postal Realty Trust elected to be taxed as a real estate investment trust (REIT) commencing with its short taxable year ended December 31, 2019, and intends to continue to qualify as a REIT. As a REIT, the company generally will not be subject to federal income tax to the extent that it distributes its REIT taxable income for each tax year to its stockholders. The company qualifies as an emerging growth company under the Jumpstart Our Business Startups Act and has taken advantage of certain exemptions and extended transition periods provided in the law.
Financial Performance and Resilience
Postal Realty Trust has demonstrated strong financial performance and resilience, even during challenging economic environments. In the latest reported fiscal year (2023), the company generated annual revenue of $63.71 million and net income of $3.71 million. Its operating cash flow for the year was $28.43 million, while free cash flow reached $25.56 million.
The company’s performance has continued to improve, with the most recent quarter (Q3 2024) showing revenue of $19.67 million, net income of $1.07 million, operating cash flow of $8.01 million, and free cash flow of $7.39 million. Notably, Postal Realty Trust achieved a significant year-over-year revenue growth of 22.10% from Q3 2023 to Q3 2024, demonstrating its ability to effectively execute its growth strategy.
Liquidity and Balance Sheet
The company’s balance sheet remains healthy, with a net debt to annualized adjusted EBITDA ratio of 5.6x as of the most recent quarter (Q3 2024). Postal Realty Trust has a well-laddered debt maturity profile, with no significant near-term maturities, and has consistently maintained conservative leverage levels.
As of December 31, 2023, the company’s debt-to-equity ratio stood at 1.13. The company had $0.97 million in cash as of September 30, 2023, and access to a $150 million revolving credit facility, of which $44 million was drawn. The current ratio and quick ratio both stood at 0.90 as of September 30, 2023, indicating the company’s ability to meet its short-term obligations.
Steady Growth through Acquisitions and Renewals
Postal Realty Trust has been actively growing its portfolio through strategic acquisitions. During the first nine months of 2024, the company acquired 134 properties for approximately $61.4 million, including closing costs, with a weighted average capitalization rate of 7.5%. This growth has been funded through a combination of debt and equity, including the company’s at-the-market (ATM) equity offering program.
In addition to expanding its portfolio, Postal Realty Trust has also focused on renewing and extending its leases with the USPS. As of the latest quarter, the company had received fully executed new leases for nearly 55% of the aggregate 2023 expired rent and 78% of the aggregate 2024 expired and scheduled to expire rent. Notably, all of the executed leases included 3% annual rent escalations, further enhancing the company’s internal growth potential and increasing the percentage of leases subject to escalations in their portfolio to 21%.
Diversification and Operational Efficiency
While the USPS remains Postal Realty Trust’s primary tenant, the company has also diversified its revenue sources. Through its taxable REIT subsidiary, the company provides fee-based third-party property management services for an additional 360 properties owned by its CEO and his affiliates, as well as advisory services to third-party owners of postal properties.
Postal Realty Trust has also focused on improving its operational efficiency. The company’s cash general and administrative (G&A) expense as a percentage of revenue has been decreasing on an annual basis, demonstrating its ability to leverage its growing scale and streamline its operations. For the full year 2024, the company has provided cash G&A expense guidance between $9.5 million and $9.8 million.
Risks and Challenges
As with any investment, Postal Realty Trust is not without its risks and challenges. The company’s performance is heavily dependent on the financial and operational stability of the USPS, which has faced various operational and financial challenges in recent years. Any material changes to the USPS’s business model or its ability to meet its financial obligations could have a significant impact on Postal Realty Trust’s operations and financial results.
Additionally, the company’s growth strategy relies on its ability to identify and successfully acquire suitable properties, as well as its ability to renew and extend leases with the USPS on favorable terms. Any disruptions in the acquisition pipeline or challenges in the lease renewal process could affect the company’s future growth and performance.
Outlook and Conclusion
Despite the potential risks, Postal Realty Trust has demonstrated its ability to navigate the challenges facing the USPS and capitalize on the long-term stability of the postal network. The company’s strong financial performance, conservative balance sheet, and ongoing portfolio growth suggest that it is well-positioned to continue delivering value to its shareholders.
Postal Realty Trust’s same-store cash net operating income (NOI) growth is expected to be greater than 4% in 2023, at least 3.25% in 2024, and at least 3% in 2025, highlighting the company’s ability to drive internal growth through lease renewals and operational efficiencies. The company is also targeting $90 million in acquisitions for 2024 at or above a 7.5% weighted average cap rate, further supporting its growth trajectory.
As Postal Realty Trust continues to capitalize on the resilience of the USPS and prudently expand its portfolio, it remains an intriguing option for investors seeking a stable, income-generating real estate investment. The company’s disciplined approach to growth and focus on operational excellence make it a compelling proposition in the REIT sector.
Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.