All right, I got perfect. Good morning, everyone. I'd like to thank everyone for joining us this morning for the Postal Realty Trust's presentation at ReedReit 2025. Thank you to Andrew, Robert, Jeremy, you have Jordan in the crowd here for participating in this presentation. My name is Simon Yarmack. I work at Stifel. It's been an incredible journey for you guys over the last six years, and Stifel and myself have been happy to be part of your ride here. To provide some context, Postal Realty Trust is a REIT that went public in June of 2019. Since its IPO, it's grown to over 1,750 properties, and it's grown their earnings by 3%. The dividend today is currently around 7%. They're trading at implied about 8.5-8.6% cap rate, and their liquidity position is quite strong. With that, I'll turn it over to Andrew for some opening comments.
Appreciate it. Thank you all for joining us here today. I see some familiar faces in the audience, and I see some new ones as well. For the familiar ones, I'm sorry to repeat my story, and for the new ones, I think it's important for context. This business didn't really start with me. It started with my father, who started buying postal assets in the early 1980s. At the time, like most people, he didn't even realize the Postal Service leased their assets. He bought them and learned very early on that they're very easy assets to own. The Postal Service always pays their rent, 100% of your rent, 100% of the time, that you can own and operate these properties all over the country without the need for any on-site personnel. We own in 49 states.
The largest misconception is that the Postal Service leaves their buildings. We've been able to maintain a 99% retention rate over the past 10 plus years. He continued to buy these assets. I came to work for him out of college. He semi-retired in the early 2000s, and I took over, continued to grow the portfolio more aggressively, became one of the largest owners, and then the largest owner of assets leased to the Postal Service. My father passed in 2016. I was approached by a banker to create a public company around our portfolio. I had no dreams or desires to be sitting here with you guys, no interest in being a public company CEO, didn't wear a suit to work, never had a business card, just kind of owned and operated our postal assets. I spent about a year or so just researching what the opportunity set was.
Let me frame what postal real estate really looks like. You got about 32,000 postal facilities throughout the country. Postal Service leases about 25,000 of them. They pay approximately $1.6 billion in rent for those 25,000 facilities. Interestingly enough, that $1.6 billion is only 1.5% of their operating expenses. It is a very small line item to operate the backbone of their entire business. Those 25,000 facilities are owned by about 17,000 owners. That is how fragmented the market is. Interesting to note, most of these owners own their properties 40-50 years. Most of these owners are in their 60s to 80s. You know, even being the largest owner, I had not realized the context of the size of the market. Right?
That $1.6 billion, any cap rate you put on it, any margin you put on it, it's got to be a $12 billion-$15 billion plus market. We decided to go public. Seeded the company with my personal assets. This was not a monetization for me. Took back all of my equity and shares and operating partnership units, and we were off to the races. We've grown the property portfolio by north of seven times square footage, rental revenue, property count. Honestly, we've just gotten started. The company is still smaller than I'd like it to be. We got slowed down with COVID, slowed down the past two plus years with the rise in interest rates. We're currently articulating doing, you know, $80 million-$90 million north of 7.5% cap for this year, and we're well on our way to achieving that.
That should give us the backdrop to who we are and how we got here. I guess, Simon, we can go from there.
Sure. I'll start with a couple of questions, then I'll open it up to the audience, and feel free, don't be bashful, to get your questions in. You guys provided guidance for the first time this year since going public. You know, what's changed over the last 12-18 months that gave you comfort to finally provide guidance to the street?
The guidance was really built around our leasing. We have the best lens into our re-leasing that we've had in years. We worked with the Postal Service to create a very efficient, programmatic approach at negotiating our leases and processing our documents. Once we got that security, we were able to feel comfortable to provide our guidance.
Maybe you just want to expand that a little bit more, what's changed a couple of years ago when you were re-leasing versus the new systems that you put into place?
Sure. We've been able to accomplish a lot with the Postal Service. You'll find in most of our answers that our relationship with the Postal Service and the size and scale that we perform with our platform has given us the benefit of things that most other owners don't have. Two of the largest things we're able to accomplish recently is the introduction of an annual escalation. Most postal leases don't have that. Most portfolio postal owners do not have that. We are able to achieve 3% or better on our leases from 2022 till the current. We are able to agree to leases for 2025s and 2026s and are executing them before their expiration.
What we're also able to introduce is 10-year leases on the majority of the leases that we have rolling, also giving us a better lens into our lease roll, into our cash flows, and into security of our tenancies.
As part of your guidance, you provided same-store NOI guidance of 4%-6%. You know, for a net lease company, that's incredible. Across almost all of REIT land, and maybe the exception of the senior housing operators, that's probably tops in the industry. Maybe you can touch on just the different building blocks and the different components that get you to that 4%-6% number.
Sure. The largest component of our same-store NOI is really the mark-to-market rent opportunity that we see on our leases, and then the inclusion of the 3% annual rent escalations are significant as well. You know, in addition to that, we can see increased tenant reimbursements when we renew leases, and we also achieve operating efficiencies as we take on properties from other owners and we put them onto our platform. Each year, you'll see the impact of annual rent escalations become more and more relevant as more of the leases within the portfolio start to turn. Just to give you a stat, you know, we reported 56% of our portfolio had leases that were agreed to or executed with escalators in them.
Yeah, some investors will push back and say 4%-6% is a fluke. Maybe you would just want to touch on what you have in the bag, what the mechanism that's set up, what you think a normalized same-store NOI number can be going forward.
Sure. Not a fluke. It is too early to provide guidance beyond 2025, but if you look at our historical growth percentages, you will see the internal growth was quite strong, so it was not a one-year thing. Over the past three years, we have reported 2.2%, 5.5%, and then 4.4% last year, and our guidance this year, obviously, of 4%-6%. You can see the trend, and you can see that this is something that is recurring, and it is something that is a fundamental part of our business. You know, while the escalators will become more meaningful, as I mentioned before, as same-store growth, there will be rent mark-to-market, and you can see a significant portion of our portfolio is expiring over the next few years, and that in combination with our new acquisitions should lead to some healthy same-store NOI going forward.
Sure. Any questions from the audience?
In the coming, kind of say, three or five years, what percentage of the portfolio is coming up for renewal?
In the next three years, we have about 45% of our leases that are coming up for renewal, which gives us this opportunity to mark them to market, add these escalations, and extend the lease term to 10 years.
I realize Postal Service is a separate entity, but how do you view the politics and the potential of what might happen from the Trump administration in terms of postal leases?
Just to repeat the question for those of you that didn't hear, this was a question about the Postal Service being a separate agency, but how I perceive them as it relates to the Trump administration. I get this question often. From my perspective, even in the prior Trump administration, when they looked into the Postal Service and we met with them, what they discovered and what we know to be true is how critical these properties are to the Postal Service's delivery business. They actually found that it was critical American infrastructure. They're not just viewing these as post offices. They're trying to find other government services to use out of these facilities. As I stated earlier, the lease payment for all the 25,000 buildings that they lease is only 1.5% of their operating expenses, and it controls the virtual monopoly that they have on the delivery business.
Postal Service touches 169 million delivery points five to six days a week. They're basically, that's the target market of every online retailer, and while mail volume has gone down, package volume has increased significantly. These buildings are needed to touch the American people, and I think Trump knows that, and I think every administration recognizes it.
What's legally binding or what's constitutional that the Post Office has the obligation to deliver mail how many days a week? Is there a difference between the zip codes? Maybe you could just touch on some of the legal ramifications that gives you comfort.
There is this concept of universal service. Whether you live in a rural town somewhere in America or New York, you're entitled to receive the same type of service no matter where you live. That universal service is what obligates the Postal Service to touch 169 million delivery points every day. Constitutionally, the Postal Service was set up through the Constitution. When you hear all this noise about privatization and major change within the Postal organization, it's really something that is a very, very big hurdle in terms of change.
We spend a lot of time in Washington, D.C., meeting with congressmen, meeting with senators. The most calls that come into any congressional or Senate office are constituents who are asking about mail delivery, why their mail is late. People are very, very passionate about their post offices, the Postal Service. The Postal Service has the highest rating of any government agency, and it's bipartisan. You know, we went through some postal reform a few years ago, and it was passed through a bipartisan partnership around making this a stronger organization. You saw the former Postmaster who just stepped down set out on a 10-year plan to make this organization stronger and support the American people. We have a new Postmaster who is expected to start in July. His only public comment so far is his belief in maintaining the Postal Service as an independent executive agency. All right.
Could you profile in a picture of the types of postal assets that are embedded within your portfolio and make a picture of kind of what they are, what the usage is, what they're needed in the community, and a range of different types of assets and locations?
Sure. That's a very good question. There are three different types of postal assets as we've described them in our investor decks. There are last-mile facilities, which are 2,500 sq ft and under. Let's call them smaller facilities that serve the smaller communities throughout this country. You have flex facilities, which are, let's call it 2,500-50,000, and you have industrial facilities, which are larger. Think about them as processing centers or carry-on exits that kind of. We don't focus very much of our time and attention on the industrial assets. We don't find them; we don't find ourselves to be very competitive in the purchase of those assets. They trade at much lower cap rates, and we don't see the value add that we can add to the flex and last-mile facility.
The majority of the assets that we look at and that we acquire fall into both of those buckets. Typically, the size and nature of those buildings are based on the demographics that they serve. A larger facility is serving a larger area. The buildings are very simple pieces of real estate. They have a retail component to them. They have a very small office component and a warehouse component. They are typically very good land-to-building ratios because they have customer parking, employee parking, and postal vehicle parking. It should be noted that most of these facilities were built to postal specifications, and they chose the parcel. They chose them because of their access to local roads and highways, good egress, and either on main and main or right off main and main. That is typical real estate.
We're buying these on average at or below replacement cost, which is a good value. I think our average is around $160 per sq ft. If you just provide the Postal Service with a vanilla box and have them build it out, that's going to cost them over $200 per sq ft just to build it out. There is good value in the real estate in addition to the fact that we're buying these at, from my perspective, very good competitive cap rates above a 7.5% cap.
You talked about rural versus suburban and kind of the urban exposure in your portfolio.
We really go where the deal takes us from a demographic standpoint as well as a geographical standpoint. We pass on deals all the time, and really what our main criteria that falls into two buckets. Really, the first one is from an underwriting standpoint that the Postal Service needs or wants to be in the facility, that it's critical for them. We've been creating and evolving our database for decades with data points, some are public, some aren't, on facilities that we're buying, facilities around the facilities that we're looking to acquire, so we can really determine what buildings the Postal Service wants to be in. Once we're able to determine what those facilities are, then we underwrite the real estate. Unless it checks both of those boxes, those are not buildings that we're looking to acquire.
Do you ever run a number?
It's changing on a daily basis. We're buying 200-300 buildings a year, but they fall very, very closely within the bucket of the size of the Postal Service's allocation within those buckets also. We move very similar to it.
In the few cases where the Postal Office doesn't renew their lease, could you give us an example of what happened to that real estate?
Sure. Also a very, very common question. Because of how simple these buildings are, they're able to be repositioned into many other uses. We've seen them turned into bank branches, into pharmacies, into government buildings, into law offices, medical offices. We sold a building that ended up, they ended up putting lofts on top of it because there was a housing need. Every market speaks for itself and speaks for what the highest-based use for that particular property is.
You sell the buildings outright? You don't retain them and reposition them?
We typically sell them. We do not mind releasing them if the tenant was, let's call it, creditworthy or a national or regional tenant in the area. In general, it is usually easier for us just to resell the property.
Thank you.
In those cases, what was the reason for, I know it's rare, but in those cases, what was the reason for USPS leaving?
The most common reason for the Postal Service to vacate a building is because of the size of the building or the size of the parking. Either it's too big or too small for them. We've had two vacancies over the six years being public. One of them we sold at a marginal profit, even though it was vacant. One of them we still have vacant, and I think it's like 20 basis points of income or something like that.
How do you find Postal Offices to buy?
That's a great question. I've literally been doing this my whole life. My father took me to look at Postal Offices. My father took me to visit Postal owners when I was a child. Those relationships have built from there. I mean, I remember meeting Postal owners when I was nine, ten years old, and we just bought their facilities. 75% of our deals are done off-market, and I mean properly off-market, not touching a broker. The 25% that are going through a broker, we're typically getting a first or last look just because of who we are in the market. That 75% speaks to our relationships. It speaks to our time in the space. It speaks to who we are.
When you went public, there was some family portfolio that you still had, and the eventual goal is to roll it into the portfolio. How many of those facilities have you guys already purchased, and what's still outstanding?
Sure. So as Andrew referenced, the formation transaction for the IPO was Andrew contributing his assets to form the public company. Andrew's family still retains assets. The public company manages those assets. The public company has a ROFO on a subset of those assets, and last year was the first execution of a purchase of a group of some of those assets.
How is the price set on that relationship?
Sure. For one, Andrew is not a party to the conversations or the transaction. We form an independent committee with the board, and our underwriting characteristics and process is similar to any other asset we'd be purchasing.
Why don't you speak to the makeup of the board and the skills on the board?
Sure. Our independent Chairman of the Board is the former Postmaster General, Patrick Donahoe. We have the former CFO of Mack-Cali as head of our Audit Committee. General Counsel of Ares is the head of our Corporate Governance Committee, and the fifth board member is a woman who is very involved with her family in big New York real estate. So we have a nice cross-section of all disciplines and experiences.
Have you seen the transaction market change over the last few months, you know, with the new administration?
I don't think it's really changed tremendously. What we have seen is an uptick in sellers having conversations with us about selling since the election. You know, sellers in general are proud Postal owners. Their motivation for selling is usually either a life event or some liquidity or estate planning or a generational shift in the assets. For some reason, the election, you know, increased the conversations that we were having in a relatively significant way.
Can you talk about acquisition volume over time? What's a typical year and kind of what's the range?
Yeah. For the past few years, we've done around $100 million of volume. What we found when interest rates went up was that the larger owners, both of portfolios and single assets, were less interested in adjusting their cap rate expectation. We moved towards doing more volume of deals, but smaller portfolios or single assets in order to be able to move our cap rates by about 100 basis points.
The range of acquisition cap rates?
Right now, we've articulated a 7.5% or better. In 2021, we were at above a 6.5% cap.
The dividend is a pretty strong piece of your total return. It's about, so we're hovering around 7% as of last night's close. Maybe you want to touch on your dividend philosophy and your policy.
Sure. So first and foremost, I think we have a very healthy dividend, you know, which is circa 7%. Some days a little low, some days a little below, depending on where the stock price is. We've increased that dividend every year since being public, and the intent is to continue that. It is, you know, the board meets on an annual basis to decide how we're going to handle that. It should be noted as well that while they consider that, our payout ratio has been coming down significantly. You know, years ago, it was a quite high payout ratio, and now we kind of live somewhere around 80% and even below a percent of AFFO. So it's a very healthy dividend, and it's incredibly well covered.
Following up on that, you have a 7% dividend yield. You have earnings growth. Also is pretty healthy. So you have a total double-digit return without multiple expansion. What do you think that number should be?
I mean, look, your math is spot on for some of the basics. I think that, you know, there absolutely should be multiple expansion. You know, when you look at, you know, independent reports such as yours, I mean, our NAV from Stifel's calculation is north of $18. We trade around $14. So there's a lot of room to go here to get to even just the real estate valuation. You know, we've been trading somewhere in the 9% cap range on the real estate. This real estate's easily worth sub cap rates to where we're buying, which is north of 7.5%. And even the applied cap rate we see from, you know, your reports and others are in the low 7%.
There's a lot of room here for this stock to increase just to get to real estate value alone and even to get to multiple valuations that are anywhere near the comps, whatever you want to call the comps, still low.
What do you see as comps?
It's a good question. I mean, I don't think if you have five people in the room, you'd have less than six opinions as to what the comps should be. You know, we've been put together with NetLease, with Standalone, with Retail, with Industrial. We don't believe there is a comp, and that's part of the unique opportunity here. You know, we're a very unique company in a niche business that we dominate. You know, we're the large player. There is no other company that has characteristics like ours. No one has a tenant like ours. No one has retention like ours. And we're starting to prove that we're at the top of the industry for our same-store growth as well. So I don't believe there really is a good comp.
There are probably pieces of other companies that are good comps, but I don't think there's one good comp to point to.
Are there private owners?
Yeah, there are private owners of Postal assets. I don't know that they would be a good comp to us. What I've found and what I believed pre-IPO, that was a thesis. Postal owners have changed, and it's because the Postal Service has changed. They created a need for an institutional owner and operator. Postal Service historically ran as we would all think about them as an internally managed real estate corporation. Over the past 10 years, they've let go of all their real estate employees and outsourced to, used to be CBRE, now it's Jones Lang LaSalle. This has changed drastically. The Postal owners' touchpoint to the Postal Service, they don't speak to the Postal Service anymore. There's nobody like us on a size and scale from an institutional knowledge standpoint.
No one's really able to accomplish what we're able to accomplish with the Postal Service. The proof of concept of that really is the annual escalation or the 10-year leases. These are proof of concept in really the platform. I believe that as time goes on, those opportunities will continue to grow with the company and will present themselves over time.
To follow up on your question here, look, it's hard to put it into a category, but if you look at where the private market is right now, where they're transacting at a mid-7, they're trading today at about a mid-8. So just 100 basis points to close that gap without any platform value or anything like that is probably $4 or $5 a share. And that, I think, would go a long way. You know, which dovetails into my next question is you have a very high insider ownership. I think to your point, you don't take any compensation in cash. It's all stock. So it gives you the confidence in the stock itself. Maybe we just want to touch on your philosophy in terms of compensation and for the management team overall taking their full bonus in stock.
Sure. I think if you look at us against most other public companies, you'll have a very difficult time finding senior management, myself and, you know, people here as well as the entire board as aligned with shareholders as possible. The entire board takes their compensation in equity. I take all of my compensation in equity. The majority of the senior management team take a large portion of their compensation in equity. And that alignment speaks volumes to the business. You know, the overhang of the perception of the Postal Service, I think, is a big part of this. We touch the Postal Service all day, every day. We touch different aspects of the Postal Service. The Doge privatization, all of this, let's call them statements or noise, nothing's really changed. No shifts have changed in the Postal Service.
The people that we face off against, whether it's for lease negotiations or maintenance issues or documentation, are all the same people. It's business as usual for them. For us, it's better than business as usual just because the line of sight that we have on our leasing and income and retention, again, has never been better. If you believe any of the noise that the Postal Service that are surrounding the Postal Service, but then you meet someone like me that tells you that they're executing a 10-year lease on the majority of their facilities, it doesn't line up. I believe in the Postal Service as a tenant. Again, I've been doing this my whole life. I've always collected my rent. My 99% retention rate, I've told everybody since IPO is probably not sustainable, right? That's a very high occupancy rate.
Anything close to it is still remarkable. What we've been able to show is not just that we can buy these buildings and buy them accretively, but we've been able to show internal growth that arguably there's not many companies out there that can show. The fundamentals of the business are very, very strong. The balance sheet is very safe and secure. We have, you know, very little exposed to floating rate debt. We have the ability to continue to acquire. We have the ability to grow our earnings. All of this we've shown. The implied cap rate of 8.5% or 9% just feels wrong.
Thank you, Team Postal. Thank you all of you and your audience for participating.