Postal Realty Trust(PSTL) - 2020 Q4 - Annual Report

PART I ITEM 1. BUSINESS A leading internally managed REIT, the company owns 726 fully-leased USPS properties across 47 states (Dec 2020) - The company is an internally managed real estate corporation, positioning itself as one of the largest owners and managers of properties leased to the USPS by net leasable square footage[21] Real Estate Portfolio as of December 31, 2020 | Metric | Value | | :--- | :--- | | Number of Properties | 726 | | States | 47 | | Net Leasable Square Feet | ~2.7 million sq ft | | Occupancy | 100% | | Weighted Avg. Remaining Lease Term | ~3.7 years | | Total Investment | ~$259.8 million | 2020 Company Highlights | Highlight | Detail | | :--- | :--- | | Rent Collection & Occupancy | Collected 100% of rents and maintained 100% occupancy | | Acquisitions | Acquired 261 properties for approximately $130 million | | Financing | Increased credit facility capacity to $150.0 million and obtained $44.0 million in fixed-rate mortgage financing | | Equity Offering | Completed a follow-on offering of 3.5 million shares, raising $52.2 million in gross proceeds | | Dividends | Increased the quarterly dividend to $0.2175 for Q4 2020, marking the sixth consecutive quarterly increase | - Most leases are modified double-net, with USPS covering utilities, routine maintenance, and property taxes, reducing the company's exposure to operating expense increases[24] - As of December 31, 2020, the company employed 25 full-time employees and adopted remote work policies due to COVID-19[31][35] ITEM 1A. RISK FACTORS The company faces substantial risks from its dependence on the USPS, acquisition challenges, and REIT compliance Risks Related to the USPS The company's viability is linked to the USPS's financial health, operational changes, and market competition - The business is substantially dependent on the demand for leased postal properties. The USPS's ten-year plan, "Delivering for America," includes evaluating facility consolidations, which could materially adversely affect operations[50] - The USPS's financial health is a major risk, given its substantial indebtedness and significant underfunded retiree health benefit obligations, which could impact its ability to meet lease payments[52][53][54] - The USPS faces significant competition from private delivery services (FedEx, Amazon, UPS) and substitute products like digital communication, which has led to declining mail volumes[57] - The COVID-19 pandemic has caused a decline in mail volume and could reduce demand for postal properties. While the CARES Act provided a $10 billion loan to the USPS, its sufficiency is uncertain, and the USPS had not received any portion of it as of the report date[63][64] Risks Related to Our Business and Operations Key operational risks include property acquisition difficulty, lease renewal uncertainty, and interest rate changes - A significant part of the business plan is to acquire more USPS-leased properties, but the market is highly fragmented with a limited number of such properties, increasing acquisition costs and competition[73] - As of March 30, 2021, the leases at 11 properties had expired, with the USPS occupying them as a holdover tenant. This affects approximately $0.2 million in annualized rental income and excludes these properties from the credit facility's borrowing base[78] - The announced cessation of LIBOR after June 30, 2023, will require LIBOR-based borrowings to be converted to a replacement rate like SOFR, which could result in higher interest costs[87] - The company's success is highly dependent on key personnel, particularly Andrew Spodek (CEO), Jeremy Garber (President), and Robert Klein, whose loss could adversely affect business operations and relationships[92] Risks Related to Our Organizational Structure Organizational risks include CEO influence, potential conflicts of interest, and anti-takeover provisions - CEO Andrew Spodek and his affiliates held approximately 14.3% of the company's combined voting power as of March 30, 2021, giving them significant influence over stockholder matters[113] - Conflicts of interest may arise between the company's stockholders and the limited partners of the operating partnership, particularly regarding decisions that have different tax implications for each group[115] - The company's charter restricts stock ownership to 8.5% for any single shareholder (with an exception for Mr. Spodek), which may deter tender offers or a change of control[118] - Tax protection agreements entered into with property contributors may limit the company's ability to sell certain properties and require it to maintain specific debt levels to help contributors defer taxes[127] Risks Related to Our Status as a REIT Maintaining REIT status requires complex tax rule adherence, risking corporate taxation and distribution obligations - Failure to maintain REIT qualification would result in taxation as a regular corporation, substantially reducing funds available for stockholder distributions[134][135] - The company must distribute at least 90% of its REIT taxable income annually. This requirement may force the company to borrow funds or sell assets on unfavorable terms to meet distribution obligations[138][153] - The company's ability to dispose of properties is limited by a 100% tax on net income from "prohibited transactions," which are sales of property held primarily for sale to customers[141] - Dividends from REITs generally do not qualify for the reduced tax rates applicable to qualified dividend income from regular corporations, which could make REIT stocks less attractive to certain investors[151] ITEM 1B. UNRESOLVED STAFF COMMENTS The company reports no unresolved comments from the Securities and Exchange Commission staff - None[165] ITEM 2. PROPERTIES As of Dec 31, 2020, the portfolio comprised 726 USPS-leased properties across 47 states, totaling 2.7 million sq ft - As of December 31, 2020, the company owned a portfolio of 726 postal properties in 47 states, totaling approximately 2.7 million net leasable interior square feet. All properties were leased to the USPS, except for one multi-tenant industrial facility where the USPS is the primary tenant[167] Scheduled Lease Expirations by Year (as of Dec 31, 2020) | Year | Number of Leases Expiring | % of Total Square Footage | % of Annualized Lease Revenue | | :--- | :--- | :--- | :--- | | 2021 | 72 | 5.9% | 6.3% | | 2022 | 212 | 19.4% | 16.6% | | 2023 | 87 | 11.4% | 13.0% | | 2024 | 90 | 18.3% | 16.8% | | 2025 | 120 | 13.2% | 18.2% | | Thereafter | 147 | 31.7% | 28.9% | - A master lease covering 135 of the 212 leases expiring in 2022 was extended in January 2021 to February 2027[174] ITEM 3. LEGAL PROCEEDINGS The company is not involved in any material litigation or aware of any threatened material litigation - The company is not presently subject to any material litigation nor is any material litigation threatened against it, other than routine actions arising in the ordinary course of business[172] ITEM 4. MINE SAFETY DISCLOSURES This item is not applicable to the company's business operations - Not Applicable[173] PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES The company's Class A common stock trades on NYSE under 'PSTL', with 13.3M shares outstanding as of March 2021 - The company's Class A common stock trades on the NYSE under the symbol "PSTL"[176] - As of March 30, 2021, there were 13,326,514 shares of Class A common stock issued and outstanding[176] - The company intends to continue declaring quarterly dividends on its Class A common stock, subject to the discretion of the Board of Directors[178] ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS In 2020, the company expanded to 726 properties, driving 119% revenue growth to $24.7M, with a net loss of $0.6M Overview The company significantly grew its USPS-leased property portfolio to 726 in 2020, funded by equity offerings - For the year ended December 31, 2020, the company acquired 261 postal properties for approximately $130 million, growing its portfolio to 726 owned properties[184] - On July 15, 2020, the company priced a public offering of 3.5 million shares of Class A common stock, which raised approximately $49.4 million in net proceeds[188] - In December 2020, the company entered into an "at the market" (ATM) offering program to sell up to $50 million of its Class A common stock[189] Factors That May Influence Future Results of Operations Future results depend on USPS stability, lease renewals, market rates, and control over operating costs - The company is dependent on the USPS's financial and operational stability, which is currently threatened by various circumstances without federal government intervention[196] - Revenues are primarily from rent and tenant reimbursements. The majority of leases are modified double-net, where the USPS is responsible for utilities, routine maintenance, and reimbursement of property taxes[200][201] - As of March 30, 2021, 11 leases were in holdover status, representing $0.2 million of annual rental revenue, posing a risk if they are not successfully renewed[210] Results of Operations Total revenues increased 119% to $24.7M in 2020, improving net loss to $0.6M despite higher expenses Comparison of Operating Results (2020 vs. 2019) | Metric | 2020 ($) | 2019 ($) | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $24,675,872 | $11,289,356 | $13,386,516 | 119% | | Income from Operations | $2,263,345 | $68,527 | $2,194,818 | 3203% | | Net Loss | ($640,878) | ($1,492,431) | $851,553 | (57)% | - The $13.4 million increase in total revenues was primarily attributable to having the properties from the Formation Transactions for the full year and the impact of properties acquired since the IPO[214] - General and administrative expenses increased by $3.4 million to $8.2 million, driven by higher professional fees, personnel costs, and a $1.2 million increase in equity-based compensation expense[220] - Depreciation and amortization expense increased by $5.4 million to $9.2 million, primarily related to the expanded property portfolio[221] Liquidity and Capital Resources As of Dec 31, 2020, the company had $2.2M cash and $125M debt, with increased credit facility capacity - As of December 31, 2020, the company had approximately $2.2 million of cash and $1.1 million of escrows and reserves[227] Consolidated Indebtedness as of December 31, 2020 | Debt Instrument | Amount Outstanding ($) | | :--- | :--- | | Credit Facility | $78,000,000 | | Mortgage Loans & Seller Financing | $47,035,656 | | Total Principal | $125,035,656 | - In January 2020, the company exercised an accordion feature to increase its credit facility capacity from $100.0 million to $150.0 million[228] - Subsequent to year-end, in January 2021, the company completed a follow-on offering that resulted in approximately $53.9 million in net proceeds[246] ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA This section presents audited consolidated financial statements for 2020 and 2019, reflecting portfolio growth Consolidated Balance Sheets Total assets grew to $258.9M in 2020, driven by property acquisitions and increased liabilities Key Balance Sheet Figures | Balance Sheet Item | Dec 31, 2020 ($) | Dec 31, 2019 ($) | | :--- | :--- | :--- | | Total real estate properties, net | $233,855,507 | $111,770,083 | | Total Assets | $258,884,811 | $136,788,197 | | Total Liabilities | $139,246,285 | $66,964,922 | | Total Stockholders' Equity | $91,989,973 | $48,873,603 | Consolidated and Combined Consolidated Statements of Operations Total revenues reached $24.7M in 2020, improving net loss to $0.6M despite increased expenses Key Income Statement Figures | Income Statement Item | For the Year Ended Dec 31, 2020 ($) | For the Year Ended Dec 31, 2019 ($) | | :--- | :--- | :--- | | Total Revenues | $24,675,872 | $11,289,356 | | Income from Operations | $2,263,345 | $68,527 | | Net Loss | ($640,878) | ($1,492,431) | | Net Loss per Share (Basic and Diluted) | ($0.10) | ($0.30) | Consolidated and Combined Consolidated Statements of Cash Flows In 2020, operating activities generated $9.4M cash, while $126.2M was used for acquisitions, funded by financing Summary of Cash Flows | Cash Flow Activity | For the Year Ended Dec 31, 2020 ($) | For the Year Ended Dec 31, 2019 ($) | | :--- | :--- | :--- | | Net cash provided by operating activities | $9,395,734 | $2,858,623 | | Net cash used in investing activities | ($126,152,208) | ($72,654,037) | | Net cash provided by financing activities | $106,843,205 | $82,117,142 | ITEM 9A. CONTROLS AND PROCEDURES Management concluded disclosure controls and internal control over financial reporting were effective as of Dec 31, 2020 - Management, including the principal executive officer and principal financial officer, concluded that the company's disclosure controls and procedures were effective as of December 31, 2020[397] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2020, based on the framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)[398] - There were no changes in internal control over financial reporting during the most recent fiscal quarter that materially affected, or are reasonably likely to materially affect, these controls[399] PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Information on directors, executive officers, and corporate governance is incorporated by reference from the 2021 Proxy Statement - The information required by Item 10 is incorporated by reference to the company's definitive Proxy Statement for its 2021 annual stockholders' meeting[402] ITEM 11. EXECUTIVE COMPENSATION Executive compensation information is incorporated by reference from the company's 2021 annual stockholders' meeting Proxy Statement - The information required by Item 11 is incorporated by reference to the company's definitive Proxy Statement for its 2021 annual stockholders' meeting[403] ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Security ownership information is incorporated by reference from the company's 2021 annual stockholders' meeting Proxy Statement - The information required by Item 12 is incorporated by reference to the company's definitive Proxy Statement for its 2021 annual stockholders' meeting[404] ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Related party transactions and director independence information is incorporated by reference from the 2021 Proxy Statement - The information required by Item 13 is incorporated by reference to the company's definitive Proxy Statement for its 2021 annual stockholders' meeting[405] ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES Principal accountant fees and services information is incorporated by reference from the 2021 Proxy Statement - The information required by Item 14 is incorporated by reference to the company's definitive Proxy Statement for its 2021 annual stockholders' meeting[406] PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES This section lists financial statements, schedules, and exhibits filed with the Annual Report on Form 10-K - This section contains the list of financial statements, financial statement schedules, and exhibits filed with the Annual Report on Form 10-K[408][411] ITEM 16. FORM 10-K SUMMARY The company has indicated that no Form 10-K summary is provided in this report - None[424]