Postal Realty Trust, Inc 2026 Q2 Earnings Call

Welcome, Jordan. Thank you, good morning, everyone.

Welcome to Postal Realty Trust second 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 Brandwein, 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 won't 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 10-K and 10-Q, and its other regulatory filings with the SEC.

The company does not assume, 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, net debt, adjusted net debt, portfolio occupancy, same store cash NOI, same store cash revenue, and pro forma adjusted net debt. You can find the definitions and, to the extent available, tabular reconciliations 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.

Good morning, thank you for joining us today. In the second quarter, we experienced strong momentum as we closed $45 million of acquisitions at a 7.3% weighted average cash cap rate. This was the highest volume quarter since June 2022. Our current improved access to capital allows us to expand the breadth of acquisition targets, including larger assets and portfolios that have strong postal specs and attractive growth profiles while maintaining a very attractive spread. A recent acquisition in San Diego is a perfect illustration. We acquired a $9.6 million facility located west of Interstate 805, locking in an attractive basis for a below-market lease with meaningful growth potential in coastal California. Our disciplined approach to acquiring properties has not changed. We target properties that are day one accretive and offer embedded upside over time.

With an improved cost of capital, we now acquire a broader universe of these high-quality assets, supporting the strong internal growth profile we have consistently delivered. Year to date through July, we have acquired $88 million at a 7.4% cap rate. As a result of our acquisition volume so far this year and our visibility into a large pipeline of opportunities, we are increasing our acquisitions guidance to $150 million-$160 million. We have increased our acquisition guidance by 30% so far this year. We will update you later in the year as our pipeline progresses. The $110 million of equity we have sold through July sets us up to fully fund our acquisition pipeline. In addition, we recently increased the size and reduced the borrowing cost of our revolving credit facility, adding to our financial strength.

Our decades of experience in the postal real estate market continues to fuel our growth and consistency. By marking rents to market, securing 3% annual escalators on new leases, and extending leases to 10-year terms, we have driven strong performance. We have delivered 5.5% average same store cash NOI growth over the last five years inclusive of this year, which is tracking to a range of 6%-7%. Most recently, we have used our unique operational approach to solidify a same store cash revenue growth outlook for 2027 of approximately 6.5%. Alongside this growth, we are achieving robust retention and occupancy rates that exceed 99%. The North Star that guides our efforts is delivering robust AFFO growth per share, which has been 6.2% annually over the last five years. With the AFFO per share guidance increase we announced yesterday, our midpoint for 2026 implies growth of 7.6%.

With our expanded access to capital, the momentum we are seeing in our acquisition pipeline, and the strength of our team, I've never felt more confident in our ability to scale the platform accretively. With that, I will turn the call over to Steve.

Thanks, Andrew. There are four pillars to our sector-leading AFFO per share growth. First, our lease mark-to-market opportunity is significant, representing a clear opportunity to capture embedded upside in our portfolio. Between 2027 and 2030, 28% of our rental income will expire with no remaining renewal options. Second, annual rent escalators provide a compounding tailwind. In 2027, approximately 52% of our rent will experience an escalation, a substantial increase from 5% in 2023 and higher than 37% in 2026. Moving forward, replacing legacy flat leases with new leases with escalators will further bolster our annual internal growth. Third, we benefit from retained cash flow. As we have scaled the business, this funding source has grown. With our AFFO available after dividend payments expected to increase to $16 million in 2026, up considerably from $3 million three years ago.

This provides us flexible capital we can selectively use to repay debt or to pursue acquisitions that further accelerate our growth. Fourth, we are crystallizing day one accretion from acquisitions. While the majority of our AFFO growth has been and continues to be internally driven, our significantly improved cost of capital is making upfront accretion a more significant contributor to earnings growth. Our second quarter results reflect the strong growth foundation that these pillars establish. Yesterday, we reported AFFO per share of $0.36. This is a $0.03 increase from the first quarter and a $0.03 increase from 2025's second quarter. Note that in last year's second quarter, we earned approximately half a penny from one-time lump sum catch-up payments compared to a de minimis amount this year.

Reviewing our balance sheet, we ended the second quarter with net debt to pro forma annualized adjusted EBITDA of 4.6x, down from 5.2x last quarter. As of yesterday, $48 million of gross forward equity proceeds remain unsettled at a weighted average share price of $22.05 per share. Including unsettled forwards and sales post quarter end, pro forma adjusted net debt to pro forma annualized adjusted EBITDA was 4x. Leverage declined in the second quarter due to the expansion of our EBITDA, as well as our decision to further equitize acquisitions. Operating with a low leverage balance sheet increases the stability of our cash flows and positions us to acquire accretively in a variety of environments.

As a result, we plan to maintain balance sheet leverage no higher than 5.5x net debt to pro forma annualized adjusted EBITDA going forward, a level consistent with our approach the last 3+ years. We further improved our balance sheet through a credit facility recast in July. In addition to increasing our facility size by $60 million, we further laddered our maturity schedule by bifurcating our prior 2028 maturity of $190 million into a $90 million maturity in 2028 and a $100 million maturity in 2029. Our largest maturity tower has been pushed out to 5 years in 2031. Our goal is to have no more than 25% of debt maturing in a given year. We also extended our weighted average maturity from 2.8 to 3.5 years, closer to our goal of 5 years or more.

It is important to note the additional term loan borrowings and tenor extensions have been fully hedged on a fixed rate basis, keeping our floating rate exposure at less than 10% of debt after the recast. Lastly, we reduced our interest rate margin by 30 basis points, a meaningful cost savings. Turning to guidance, we are raising our AFFO per share range by $0.01 to $1.41-$1.43 per share, representing 7.6% growth at the midpoint for the year. The increase is supported by higher acquisition volume, our improved borrowing costs, and G&A efficiencies. Turning to additional guidance items, cash G&A is tracking below the midpoint of our previously stated range. Same-store cash NOI remains in line with our forecasts, and for the third quarter, we expect recurring capital expenditure in the range of $250,000-$350,000.

Our guidance includes de minimis dilution from treasury stock method accounting for unsettled forward equity. To quantify the impact, a $2 per share increase in our stock price from June 30th through year end would result in a negative $0.002 impact on earnings. Similarly, a $2 per share decrease in our stock price over the period would result in a positive $0.002 benefit to earnings. Lastly, our board of directors has approved a quarterly dividend of 24 and a half cents per share, representing a 1% increase from last year. Our dividend payout ratio for the second quarter is approximately 68%, and our dividend yield as of yesterday was 4.3%. I will now turn it over to Jeremy.