Postal Realty Trust(PSTL) - 2023 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements This section presents the unaudited consolidated financial statements for Q1 2023, covering balance sheets, operations, equity, and cash flows, with detailed notes Consolidated Balance Sheet Highlights (Unaudited) | Account | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :--- | :--- | :--- | | Total real estate investments, net | $474,386 | $459,864 | | Total Assets | $510,866 | $501,303 | | Total Liabilities | $233,100 | $217,592 | | Total Equity | $277,766 | $283,711 | | Total Liabilities and Equity | $510,866 | $501,303 | Consolidated Statements of Operations Highlights (Unaudited) | Account | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | | :--- | :--- | :--- | | Total revenues | $15,148 | $11,931 | | Total operating expenses | $12,603 | $10,872 | | Income from operations | $2,545 | $1,059 | | Net income | $433 | $721 | | Net income attributable to common stockholders | $348 | $595 | | Basic and Diluted EPS | $0.00 | $0.02 | Consolidated Statements of Cash Flows Highlights (Unaudited) | Cash Flow Activity | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $7,715 | $6,620 | | Net cash used in investing activities | ($18,016) | ($27,689) | | Net cash provided by financing activities | $11,043 | $21,298 | - During the first quarter of 2023, the company acquired 39 properties for a total cost of approximately $17.6 million, which was primarily funded with borrowings under its Credit Facilities[66][67] - As of March 31, 2023, the company owned a portfolio of 1,325 properties, with its primary tenant being the United States Postal Service (USPS)[28] - Subsequent to the quarter's end, on April 24, 2023, the company declared a first-quarter dividend of $0.2375 per share, and as of May 3, 2023, acquired seven more properties for approximately $4.5 million[134][136] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's Q1 2023 financial condition and results, covering business strategy, portfolio growth, revenue and expense trends, liquidity, and capital resources, highlighting debt-funded growth and lease negotiations Overview The company, an internally managed REIT, focuses on USPS-leased properties, with a portfolio of 1,325 properties as of March 31, 2023, acquiring 39 properties for $17.6 million in Q1 2023 - As of March 31, 2023, the company's portfolio comprised 1,325 owned properties, spanning approximately 5.5 million net leasable interior square feet across 49 states and one territory[144] - In Q1 2023, the company acquired 39 properties leased to the USPS for approximately $17.6 million, including closing costs[144] - The company is dependent on the USPS's financial and operational stability, which faces various challenges that could impact the company's business[153] Results of Operations Q1 2023 total revenues increased 27.0% to $15.1 million due to acquisitions, but net income decreased 39.9% to $0.4 million, primarily due to a 171.5% rise in net interest expense to $2.2 million Comparison of Operations for the Three Months Ended March 31 (in thousands) | Metric | 2023 | 2022 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Rental income | $14,499 | $11,349 | $3,150 | 27.8% | | Total revenues | $15,148 | $11,931 | $3,217 | 27.0% | | Income from operations | $2,545 | $1,059 | $1,486 | 140.3% | | Total interest expense, net | ($2,210) | ($814) | ($1,396) | 171.5% | | Net income | $433 | $721 | ($288) | (39.9)% | - The increase in rental income was primarily due to the volume of property acquisitions[168] - The increase in interest expense was primarily related to higher borrowings under the Credit Facilities to finance acquisitions and increased interest rates[175] Liquidity and Capital Resources The company's liquidity stems from operations, credit facilities, and equity, with $2.1 million cash and $182.0 million outstanding credit facilities, and $215.0 million total debt, partially hedged by interest rate swaps - As of March 31, 2023, the company had approximately $2.1 million of cash and $0.7 million of escrows and reserves[180] Consolidated Indebtedness as of March 31, 2023 (in thousands) | Debt Instrument | Outstanding Balance | Interest Rate | Maturity Date | | :--- | :--- | :--- | :--- | | Revolving Credit Facility | $17,000 | SOFR+148 bps | January 2026 | | 2021 Term Loan | $50,000 | SOFR+143 bps | January 2027 | | 2022 Term Loan | $115,000 | SOFR+143 bps | February 2028 | | Secured Borrowings | $33,000 | Various (2.80% - 6.00%) | Various | | Total Principal | $215,000 | | | - The company uses five interest rate swaps with a total notional amount of $165.0 million to manage interest rate risk and fix the SOFR component on its term loans[184] Lease Renewal As of May 3, 2023, 110 properties were on USPS holdover, with the company negotiating renewals and filing PSBCA claims for market rent, and a letter of intent agreed for 86 properties - As of May 3, 2023, leases at 110 properties were expired, with the USPS occupying them as a holdover tenant[163] - The company has filed claims with the USPS and appealed to the PSBCA regarding market rent for the expired leases, with a letter of intent on preliminary terms agreed upon for 86 properties as of the report date[164][165] Quantitative and Qualitative Disclosures about Market Risk The company's primary market risk is interest rate risk on its $215.0 million variable-rate debt, with $165.0 million hedged by swaps, leaving $17.0 million exposed, where a 1.0% SOFR change impacts cash flows by $0.2 million - As of March 31, 2023, total indebtedness was approximately $215.0 million[199] - The company has used Interest Rate Swaps to effectively fix the interest rate on its $165.0 million in Term Loans, significantly reducing its exposure to variable interest rate changes[199] - After accounting for hedges, approximately $17.0 million of indebtedness was variable-rate, where a 1.0% change in the one-month Adjusted Term SOFR would result in an approximate $0.2 million change in annualized cash flows[199] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2023, with no material changes to internal control over financial reporting during the quarter - Management concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[202] - 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, internal controls[203] PART II. OTHER INFORMATION Legal Proceedings The company is not currently involved in any legal proceedings expected to materially affect its financial position or operations - Management does not believe any current litigation will materially affect the company's financial position or operations[205] Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for FY2022 - There have been no material changes from the risk factors disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2022[206] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - None[207] Other Information The company reported no other information for the period - None[210] Exhibits This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications and XBRL financial statements - The exhibits filed with the report include CEO and CFO certifications pursuant to Sarbanes-Oxley Act Sections 302 and 906, as well as XBRL interactive data files[212]