Postal Realty Trust (NYSE:PSTL) held its first-quarter earnings conference call on Wednesday. Below is the complete transcript from the call.

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Summary

Postal Realty Trust reported a 6.1% average annual AFFO per share growth from 2021 to 2026, with increased guidance for 2026, ranking second among net lease REITs.

The company announced a forward-looking revenue growth outlook for 2027, projecting a 6.5% same-store cash revenue growth, driven by annual rent escalators and rental mark-to-market opportunities.

Postal Realty Trust has increased its acquisition guidance for 2026 by $15 million to a range of $130 to $140 million, with $35 million acquired in the first quarter at a 7.5% cap rate and $52 million year-to-date.

The company's liquidity position is strong, with approximately $250 million available, including unused revolver capacity and unsettled forward equity proceeds, supporting continued acquisition activity.

Management highlighted the importance of postal facilities in the logistics ecosystem, with Postal Realty Trust owning a significant portion of the U.S. Postal Service's real estate backbone.

The AFFO per share guidance for 2026 was raised to $1.40 to $1.42, reflecting a 6.8% growth, supported by higher acquisition volume and improved cost of capital.

The company plans to maintain a leverage-neutral funding strategy, with a focus on limiting floating rate exposure and extending debt maturity through potential private placements.

The board approved a quarterly dividend increase to 24.5 cents per share, with a dividend yield of approximately 4.5%.

Full Transcript

OPERATOR

Welcome to the Postal Realty Trust's first quarter 2026 earnings conference call. At this time all participants are in listen only mode. A question and answer session will follow the prepared remarks. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Jordan Kuperstein, Senior Vice President of Finance and Capital Markets. Welcome Jordan.

Jordan Kuperstein (Senior Vice President of Finance and Capital Markets)

Thank you and good morning everyone. Welcome to Postal Realty Trust's first quarter 2026 earnings conference call. On the call today we have Andrew Spodek, Chief Executive Officer, Jeremy Garber, President, Steve Bakke, Chief Financial Officer and Matt Brandwine, Chief Accounting Officer. Please note the Company may use forward-looking statements on this conference call which are statements that are not historical facts and are considered forward-looking. These forward-looking statements are covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform act of 1995. Actual results may differ materially from those described in the forward-looking statements and will be affected by a variety of risks and factors that are beyond the Company's control, including but not limited to those contained in the company's latest 10K and its other regulatory filings. The Company does not assume and specifically disclaims any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. Additionally, on this conference call, the Company may refer to certain non GAAP financial measures such as Funds from Operations, Adjusted Funds from operations, adjusted EBITDA, pro forma adjusted EBITDA, pro formA, annualized adjusted EBITDA, same store cash, net operating income (NOI) same store cash Revenue, Net Debt, Adjusted Net Debt and Pro Forma Adjusted Net Debt. You can find a tabular reconciliation of these non GAAP financial measures to the most currently comparable GAAP measures in the Company's Earnings release and Supplemental Materials. With that, I will now turn the call over to Andrew Spodek, Chief Executive Officer of Postal Realty Trust.

Andrew Spodek (Chief Executive Officer)

Good morning and thank you for joining us today. In a couple of weeks we will be celebrating our seventh anniversary as a public company. Over the past seven years we've created a purpose built platform to unlock the value inherent in US Postal real estate. As we have developed and continue to refine this platform, we have delivered on multiple fronts. It starts with the 6.1% average annual Adjusted Funds from Operations (AFFO) per share growth we are on track to achieve from 2021 to 2026 based on Adjusted Funds from Operations (AFFO) guidance we increased yesterday. This performance ranks us second among net lease REITs. Our progression continued last year with the introduction of Adjusted Funds from Operations (AFFO) Per Share guidance made possible by refining our leasing approach with the Postal Service. Today we are taking another step by sharing our forward looking top line revenue outlook for 2027 despite being only five months into 2026. It is a testament to the unique leasing approach we have developed with the U.S. Postal Service that gives us this much visibility into 2027 and it speaks to the benefit of having primarily a single high credit tenant who consistently pays us 100% of contractual rent across our 99.8% occupied portfolio. We are expecting same store cash revenue growth of approximately 6.5% in 2027, which is approximately 30 basis points higher than what we're expecting for 2026. Higher expected growth in 2027 reflects the increased presence of annual rent escalators across the portfolio as well as the rental mark to market tailwind. On our first quarter 2025 earnings call, I shared that we have the systems and people in place to ramp up acquisitions should our cost of capital and opportunity set align with a stock price improvement of over 70%. Since then, this symmetry has materialized, allowing us to accelerate the pace of acquisition activity relative to the last few years. Based on the strength of our pipeline, we are increasing our acquisition guidance by $15 million to 130 to $140 million for the year, and we will revisit this guidance as the year progresses. In the first quarter we acquired $35 million at a 7.5% weighted average cap rate. In the second quarter to date we have acquired and have under definitive contract $17 million, putting us at $52 million year to date, with a strong pipeline of anticipated transactions behind it. We are capitalizing on opportunity in front of us from a position of strength. Our revised Acquisition Guidance is fully funded with liquidity of approximately $250 million at the end of the quarter, consisting of unused revolver capacity and $48 million of unsettled forward equity proceeds. We are laser focused on maintaining a strong liquidity profile supported by our access to equity and our recent Triple B investment grade rating from Kroll kbra. In summary, our internal growth, supported by our robust acquisition pipeline and access to capital, places us in a strong position to generate continued earnings growth. Earlier this week, we attended the U.S. Postal Service's National Postal Forum in Phoenix, a conference that brings together the broader logistics ecosystem surrounding the Postal Service for us. The conference confirmed that as the logistics marketplace continues to evolve, the U.S. postal Service's facilities will remain a critical tool for accessing the American people. These facilities form the backbone of the U.S. Postal Service's delivery infrastructure and are the very assets we invest in. This network enables the Postal Service to provide universal service across 170 million delivery points nationwide and is utilized six days a week by logistics providers and online retailers. As we like to remind investors, the cost to lease the real estate backbone of this network is only 1.5% of the postal Service's annual operating expenses. This annual expense equates to $1.4 billion of annual rent, resulting in a $12 to $15 billion market for postal real estate, creating a long Runway for future acquisitions. With that, I will turn the call over to Steve.

Steve Bakke (Chief Financial Officer)

Thank you Andrew. I'll make a few comments on the multi year earnings growth opportunity at Postal Realty before unpacking first quarter results and our updated guidance in more detail. When considering Postal Realty's medium term earnings growth algorithm, we see four primary drivers. First is the mark-to-market opportunity. From 2027 to 2030, approximately 33% of our rental income is expected to reset to market. This represents a meaningful source of embedded growth beyond 2026. Second, annual rent escalators are becoming an increasingly significant driver of organic growth. In 2022, approximately 3% of our rental income experienced an annual escalation. By 2027, that figure will have increased significantly to approximately 53%. Experiencing an escalation Moving from a portfolio with predominantly flat leases to one with the majority 3% plus annual escalators signifies a major shift into the visibility of our annual growth for years to come. To that point, our visibility into annual escalations in our mark-to-market allows us to provide a 2027 same store cash revenue growth outlook of approximately 6.5%. Third is retained cash flow. As we have scaled, we have reduced our payout ratio while continuing to grow the dividend. In 2026, we expect to pay out only 70% of our Adjusted Funds from Operations (AFFO), which is one of the lowest payout ratios among net lease Real Estate Investment Trusts (REITs). Our board has balanced retained cash flow with a dividend yield above the REIT median at approximately 4.5%. Moreover, retained cash flow, which we can deploy into acquisitions or to repay debt, is a meaningful source of recurring growth for us, increasing our per share growth rate by about 15% in 2026. Fourth is day one accretion. Our improved cost of capital in conjunction with our increased access to capital has led us to begin accelerating the velocity of acquisitions relative to the last few years. With our weighted average cost of capital currently standing at approximately 6.1%, day one accretion from acquisitions is becoming an even more meaningful source of Adjusted Funds from Operations (AFFO) per share growth. In summary, we remain focused on utilizing these four growth levers to drive attractive Adjusted Funds from Operations (AFFO) per share growth in the coming years. Turning to first quarter results, yesterday we reported Adjusted Funds from Operations (AFFO) per share of $0.33, which is $0.01 ahead of the first quarter of 2025. Note that last year's quarter benefited from holdover payments and prior year property tax reimbursements totaling $0.02 per share. In comparison, in this year's first quarter we realized $11,000 of holdover payments from recent acquisitions. We ended the quarter with net debt to pro forma annualized adjusted EBITDA of 5.2 times within the leverage target. We updated last quarter of under six times, giving effect to approximately $53 million of unsettled forward equity raised year to date at an initial forward price of $18.44 per share. Our pro forma adjusted net debt to pro forma annualized Adjusted EBITDA is 4.5 times a brief Note on our Leverage Metrics this quarter's supplemental includes metrics based on pro forma annualized adjusted ebitda. The only difference with the prior metric is that it gives effect to acquisitions and dispositions as if they took place at the start of the quarter, consistent with many peers. Reporting Methodology as it Relates to Sources and Uses the midpoint of our guidance implies $100 million of acquisitions for the remaining three quarters of 2026. We plan to fund on a leverage neutral basis using unsettled equity and retained cash flow. In terms of debt funding specifically, we are focused on limiting floating rate exposure and adding duration to our maturity schedule. We anticipate refinancing our floating rate revolver and term loan balances with longer term fixed rate private placements or term loans in the coming months. Turning to our expectations for the remainder of 2026 with yesterday's earnings release, we raised the Adjusted Funds from Operations (AFFO) per share guidance range we provided last quarter by $0.01 to $1.40 to $1.42 per share, representing 6.8% growth at the midpoint for the year. The increase is supported by higher acquisition volume related to additional guidance items. Cash G and A and the same store Cash NOI are tracking in line with our forecast. Recurring capital expenditures of approximately $143,000 for the first quarter was within our guidance range and we are expecting $150,000 to $200,000 in the second quarter. Lastly, guidance includes approximately $0.01 per share of dilutive impact from unsettled forward equity compared to the 0.5 cents assumption we shared on the fourth quarter call calculated in accordance with the treasury stock method. Largely due to a higher stock price, our Board of Directors has improved a quarterly dividend of 24.5 cents per share, representing a 1% increase from last year. Our dividend payout ratio for the first quarter is approximately 74% and our dividend yield as of yesterday was approximately 4.5%. With that, I will turn the call over to Jeremy.

Jeremy Garber (President)

Thank you, Steve. I will provide an update on our re leasing efforts followed by More detail on first quarter acquisition activity. All 2026 friends have been agreed upon and are currently in lease production. In addition, we have substantially agreed on 2027 expirations that do not include renewal options. These leases have also commenced lease production. All 2026 and 2027 leases will have 3% escalators and the vast majority will have 10-year terms. As of quarter end, 53% of leases in our portfolio contain annual rent escalators. The first escalation takes place in year two. Therefore, 41% of leases will get the benefit of an escalator in 2026. Shifting to 10-year leases. 45% of our portfolio consists of leases with 10-year terms based on executed and agreed upon leases as of March 31, 2026. The increase in rent subject to 10-year terms compared to last quarter was predominantly a result of successfully amending the majority of our 2023 expirations to 10-years. From 5 years by the end of 2026, we expect the weighted average lease term of our current portfolio will extend to over six years compared to the three years when we went public. Moving on to acquisitions, in the first quarter, we acquired 61 properties for $34.6 million at a weighted average cap rate of 7.4%. Adding 195,000 square feet to our portfolio. First quarter acquisitions consisted of 48,900 square feet from 34 last mile post offices and 146,200 square feet from 27 flex properties. As Andrew mentioned, based on acquisition volume closed in the first quarter, plus our robust forward pipeline, we are increasing our acquisition guidance to to $130 million to $140 million for the year. This concludes our prepared remarks. Operator, we would like to open the call for questions.

OPERATOR

Ladies and gentlemen, we will now begin the question and answer session. If you would like to ask a question, please press star and one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and two if you would like to remove your question from the queue for participants Using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Ladies and gentlemen, we will wait for a moment while we poll for questions. Our first question comes from John Kim with BMO Capital Markets. Please state your question.

John Kim (Equity Analyst at BMO Capital Markets)

Thank you. Wanted to ask what drove the decision to provide 2027 same store revenue guidance at this time and how should we think about cash same store noi? Will it be a similar improvement of 30 basis points that you're seeing on the revenue side from 2027 to 2026?

Steve Bakke (Chief Financial Officer)

Hi, John, how are you? This is Steve. To answer your question, the reason we're providing 2027 same store cash revenue relates back to Jeremy's point that we have substantially completed all of our 2027 lease expiration negotiations with USPS. So given this high level of visibility we have into 2027, we felt it appropriate to share it with the market. Your second question on how that filters down to same store noi, it's early in the year, you can make early in 2026, I should say. So hard for us to have visibility into 2027, but you can use a range of inflationary or maybe slightly above inflationary expense assumptions to get to a same store NOI estimate for modeling purposes.

John Kim (Equity Analyst at BMO Capital Markets)

And what are your expenses this year? Same store expenses?

Steve Bakke (Chief Financial Officer)

Yeah, we expect them to be in the 5% range. That's what's underpinning our guidance assumption.

John Kim (Equity Analyst at BMO Capital Markets)

Okay. And then you mentioned roughly a third of your portfolio going to market over the next few years. And the mark-to-market opportunity. How much of what is the mark-to-market, first of all? And second of all, how much of that can you capture given you have one tenant who's essentially a partner?

Steve Bakke (Chief Financial Officer)

Yeah, it's a great question. We don't provide too much specific quantitative detail on the mark to market, given the nature of having one primary tenant. But fair to say, the mark to market has been healthy. And at least as it relates to 2627, it's been a pretty consistent mark to market opportunity. You know, we have a really efficient leasing approach that we've developed with usps. Works well for them and it works well for us. And at least for the next couple years, it will continue.

John Kim (Equity Analyst at BMO Capital Markets)

Great, thank you.

OPERATOR

Our next question comes from John Peterson with Jefferies. Please state your question.

John Peterson (Equity Analyst at Jefferies)

Great, thanks. Good morning. Congrats, guys, on another strong quarter. Can you on the same store revenue guidance for 2027, can you break down the components there? Like, how much of that is coming from escalators? How much of that is upside on lease renewals?

Steve Bakke (Chief Financial Officer)

Yeah, great question. So to answer your question, of the 6.5%, 25% of that growth is due to the escalators. So as Jeremy mentioned in his remarks, a little more than 50% of our portfolio will experience an escalator in 2027. The remainder of the growth is derived from the mark to market.

John Peterson (Equity Analyst at Jefferies)

Okay, all right, that's helpful. And then, you know, maybe on acquisitions, good to see the acquisition volume rise and your cost of capital improving. You know, for a number of years, the question was, when did your cost of capital get to a point when you can be more aggressive on acquisitions? Now we're there, and I guess it raises the question of what's the total addressable market for you guys now? At what point do you start to run out of post offices to buy? I guess is the short way to ask that question. So just talk about the opportunity and how many years of opportunity there is out there for you.

Steve Bakke (Chief Financial Officer)

Sure, I appreciate the question. Yeah, we're very happy that we have the access to the capital and the cost of capital that we have today, and we're looking forward to continuing to grow the business and acquire postal assets. The Runway is very long. You've got, as I've stated before, you've got about $1.4 billion in rent paid by the postal service. You know, any cap rate or margin you want to put on that makes it a $12 to $15 billion market. You know, we probably want to address probably, you know, 6 to 8 billion dollars of that. So I believe we have a lot of opportunities sitting in front of us, and I'm happy to say that the conversations we've had and the pipeline is looking very good. You know, these are deals that I've been talking to for decades and some new ones, but we're looking forward to the year ahead.

John Peterson (Equity Analyst at Jefferies)

Okay, so outside of your improved ability to transact, is there any change on the seller side of things, the way that they're positioning, the way that their conversations with you are changing and their willingness to transact?

Steve Bakke (Chief Financial Officer)

The reality is that the properties that we're looking at today are similar to the properties that we've always looked at. Sellers tone is somewhat similar. The only thing that has changed is the buzz around us and our stock price, which. Which has, I guess, created sellers motivation to facing off with us. We're constantly in front of owners, as everybody knows. I've been in the space my whole life, and so interacting with them is nothing new. Being able to transact, given our access and cost of capital is really what's going to change.

John Peterson (Equity Analyst at Jefferies)

All right, great. Thanks, guys.

OPERATOR

Thank you. Our next question comes from Our next question comes from Greg McInnis from Scotiabank. Please go ahead.

Greg McInnis (Equity Analyst at Scotiabank)

Hey, good morning. Thanks for taking the question. You know, we understand you don't want to provide too many details on the mark to market, but looking at the kind of forward opportunity, could you provide some color on how it tends to compare between assets that you've controlled for years versus those that you're acquiring?

Steve Bakke (Chief Financial Officer)

So the opportunity set on the mark to market is interesting and it varies deal by deal. Right. So we underwrite each deal individually. Some of the properties that we acquire have a more significant mark to market opportunity, and some of them don't. And that's just the nature of any real estate transaction and any real estate lease. As we continue to grow and as we continue to acquire, the mark to market opportunity in that particular year changes and it's constantly fluid. What I could tell you is it seems, at least from what we've done to date and what we're seeing in our pipeline and what we're seeing as our leases are rolling, is that that opportunity still exists. And. And from our perspective, we look for it to continue to exist.

Greg McInnis (Equity Analyst at Scotiabank)

Okay. I guess from an acquisition standpoint, is the increased guidance a result of stronger cost capital opening up the funnel a bit more efficiency on the acquisition side, or are you seeing some broader macro trends supporting these increased acquisitions?

Steve Bakke (Chief Financial Officer)

The guidance is really based on what we're seeing us being able to acquire based on the access and cost of capital. The deals that we are looking at, like I just said, are very similar to the deals that we've always looked to buy. Right. Primarily properties that are important to the postal services network, that have good underlying real estate value. We look to buy deals that are accretive on day one and that we can add our internal growth to it as the leases continue to expire. And that's the model for what we're looking to acquire, and that's what will continue.

Greg McInnis (Equity Analyst at Scotiabank)

Andrew, on the acquisition cap rate, it's been fairly 7.5-ish% range for a few years now. With the stronger cost of capital that you have, would an increased level of acquisitions necessitate a lower cap rate? Meaning should we expect a similar investment spread? Although considering how much the WACC has come down, still quite strong to get to a higher acquisition volume that results in ultimately more growth, but just a lower cap rate that we'll see on the face?

Steve Bakke (Chief Financial Officer)

Yeah, I think that we can expect the cap rate to come down a little bit because what we are going to do is acquire some larger properties, some larger portfolios. These are things that we weren't able to acquire in the past few years given our cost of capital. And so as time goes on, we don't, we believe the cap rates will constrain slightly. But again, keeping in mind that it needs to be accretive on day one and we need to be able to have some internal growth on the acquisitions that we're buying.

Greg McInnis (Equity Analyst at Scotiabank)

Greg, just to supplement Andrew's answer to

Steve Bakke (Chief Financial Officer)

your point you made, what we're solving for is higher per share growth in future years. So the total dollar value of accretion is going to be higher by making more acquisitions at, you know, potentially somewhat

Greg McInnis (Equity Analyst at Scotiabank)

lower cap rate than it would have if we passed up on those opportunities.

Steve Bakke (Chief Financial Officer)

Right, Makes sense. And then just a final one for me. With the stock price performance over the recent time frame, have you seen an increased preference for OP unit from sellers?

Greg McInnis (Equity Analyst at Scotiabank)

Yeah, we have and we're constantly in conversations with owners interested in using operating partnership unit currency. And we're balancing that between, you know, our sources of debt and equity. But we have definitely seen an increased appetite for the operating partnership units given our stock price growth.

OPERATOR

Great, thank you. Thank you. Our next question comes with comes from Anthony Paulone with JP Morgan. Please state your question.

Anthony Paulone (Equity Analyst at JP Morgan)

Great, thanks. Good morning. I guess my first question just goes back to the Postal Service and the back and forth they had with Amazon earlier in the year. And I was just wondering if you can maybe just summarize kind of how that played out just to someone that's not in the weeds on those machinations and just any implications back to your portfolio.

Jeremy Garber (President)

Yeah, hi, this is Jeremy. This was a five year contract that was coming due in October of 2026. As we've seen in the past, a lot of these discussions are played out in the public domain. But we were happy to see that they reached a final agreement. They are going to keep the lion's share of their capacity with the public Postal Service. You know, as we stated before, this really doesn't have an impact on our business. The scale and size of this industry in terms of other users doesn't change how critical these assets are for the American people. And just to give you some context, we were just, as Andrew mentioned, at the Postal Forum with over 4,000 industry professionals who touched the post. I mean, this is a massive industry, $1.9 trillion mailing industry and 7.9 million jobs associated with this industry. And the Postal Service plays a much broader role in the U.S. economy. Than any of us really appreciate. So, you know, the Amazon contract was important. It has been renewed and we're looking forward to seeing other logistics providers take advantage of this critical network.

Anthony Paulone (Equity Analyst at JP Morgan)

Okay, got it. Thank you for that. And then on the leases you've been so successful with, the rent increases, the bumps, the duration, what's the impediment to full at least pass through of expenses?

Jeremy Garber (President)

You know, it's a somewhat complicated question. I don't know that there's an impediment to it. The Postal Service lease structure has been in place the way it is for a very long time. As a government agency, I think they have some difficulty in general with a full pass through on the insurance side. But like we've said before, you know, the vast majority of our leases are this modified double net structure where we're predominantly responsible for roof structure and insurance. I think this works well for us and it works well for them. And so I think the current structure at least is going to stay in place.

Anthony Paulone (Equity Analyst at JP Morgan)

Okay, and if I can sneak one last one in, you mentioned maybe tapping private placement debt to extend out some duration. Just can you give us any color around maybe cost and what you're being quoted or what that might look like?

Steve Bakke (Chief Financial Officer)

Hey, Tony, this is Steve. You know, it depends on the duration. I think, you know, if we're looking to issue anywhere from 5 to 10 years, the cost could be anywhere from the low 5% range to high 5, low 6% range, depending on where the markets are. You know, treasury yields have expanded. You know, coming out of late February, early March, we also had a rise in spreads that have since contracted. So I think, you know, somewhere, you know, if you estimate 5.5 to 5.7 for a coupon that, you know, that's our best guess at the current time.

Anthony Paulone (Equity Analyst at JP Morgan)

Okay, thank you.

OPERATOR

Thank you. A reminder to all the participants, please press star and one on your telephone keypad to ask a question. Ladies and gentlemen, as there are no further questions, I would now like to hand the conference over to Andrew Spodek for the closing remarks.

Andrew Spodek (Chief Executive Officer)

Thank you. We believe the unique platform we built to maximize the value of postal real estate, in addition to the inherent stability and growth of the real estate we own, offers unique investment profile in the public REIT space. We look forward to speaking with many of you in the coming months and updating you on our progress next quarter. Thank you again for joining us.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.