Postal Realty Trust, Inc.

Good afternoon. My name is David and I will be your conference operator today. At this time, I would like to welcome everyone to the Postal Realty Trust first quarter conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you. Mr. Blaine Willenborg, Vice President of Business Development and Capital Markets, you may begin your conference.

Thank you. Good afternoon, everyone, and welcome to the Pulsar Realty Trust first quarter earnings conference call. On the call today, we have Andrew Spodek, Chief Executive Officer, Jeremy Garber, President, and Matt Brandwein, Chief Accounting Officer. Please note the use of forward-looking statements by the company on this conference call. Statements made on this call may include statements that are not historical facts and are considered forward-looking, including, among others, statements related to the COVID-19 pandemic and its effects on our business, the terms and timing of our pending acquisitions, and the status of our ongoing negotiations with the Pulse Service. These forward-looking statements are covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Allegation Reform Act of 1995. Actual results may differ from those described in the forward-looking statements and will be affected by a variety of risk factors that are beyond the company's control, including, without limitation, those contained in the company's 10-K for the year dated December 31, 2019, and its other Securities and Exchange Commission 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 operation and adjusted funds from operations. 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 filings with Security and Exchange Commission. Additional information may be found on the Investor Relations page on our website. With that, I will turn the call over to Andrew Spodek, Chief Executive Officer of Pulsar Realty Trust.

Good afternoon, and thank you for joining Postal Realty Trust's first quarter 2020 earnings call. We hope you and your loved ones are safe and healthy as we continue to forge ahead through these unprecedented times. We would also like to give our sincere thanks to all the first responders and postal employees working each day across the country. We admire your bravery and are incredibly grateful. At Postal Realty, we continue to observe social distancing guidelines to support the health and welfare of our employees, Our business continues to operate efficiently as we safely work remotely. Throughout the recent months of the pandemic, the United States Postal Service remains an essential service to the American people. Their continued last-mile delivery of items such as stimulus checks, medical supplies, and other essentials has given our communities the ability to stay home and focus on our health. While the public struggles with the uncertainty the pandemic has caused, the Postal Service's commitment has held absolute. Our business is focused around this federal agency, and we believe postal realty shareholders benefit from a revenue stream of continuous rental payments from an agency of the United States government. We believe this makes our company and its 100% occupied portfolio more stable in the face of the pandemic. I would now like to address some of the news coverage of the Postal Service in recent weeks. While we certainly appreciate the basis for the financial concerns, we must acknowledge that the Postal Service is a constitutional mandate. and that it plays a critical role in the nation's infrastructure and supply chain, which is essential to the delivery industry. It should be noted that the Postal Service is the only carrier that serves all Americans regardless of where they live. The result of its reach is a network of over 31,000 facilities reaching approximately 160 million delivery points throughout the country while handling 48% of the world's mail. It is also the leading delivery service for online purchases. This week marks our one-year anniversary since becoming a public company. We fully believe in our business model and are excited by the progress we've made in such a short time. We're also energized by the next stages and the many opportunities that lie ahead. Our results reinforce the same energy. In the span of only a year, we have doubled the number of properties, the total square footage, and the rental revenue in our portfolio. This success has allowed us to raise our dividends three times since our IPO, with the upcoming May payment growing to an ASFO-covered 80 cents per share on an annualized basis. As we continue to make further acquisitions and grow our business, we look forward to reaching and covering our initial dividend goals. Although the current environment certainly presents some headwinds relative to the start of the year due to COVID-19, we believe our business's stable revenue stream is something that our shareholders can count on. while other landlords have had to take defensive measures. During the first quarter of 2020, we completed acquisitions of 83 properties totaling approximately $30 million and have closed an additional 18 properties, subsequent to quarter end, for approximately $10 million. One of our primary motivations for going public was the confidence that we could consolidate the highly fragmented postal properties market. In the years since our IPO, we believe we have shown our capability to effectively execute on this plan, reaching our initial acquisition target of approximately $100 million by the end of our first year as a public company. Even in the midst of the current environment, our business and cash flow continues to grow. I will now provide an update on leases with the Postal Service. The Postal Service has adopted a revised lease form of our modified double net lease, which transfers the responsibility for additional maintenance expenses and obligations to the landlord. To date, we have not renewed or entered into these revised leases for any of our properties with leases that have expired. While the majority of the leases in our portfolio are comprised of a modified double net lease, not all of our leases are uniform with respect to the responsibility for specific expenses. As we have doubled in size, the variations of the leases we have inherited through acquisitions have increased. Given our 30-plus years of operating experience with the Postal Service and varying expense-related responsibilities, we believe that the consequence of entering into the new lease form requiring us to take on incremental responsibilities will not materially change our operations or our margins. Currently, 39 of our properties with expired leases are paying us on a month-to-month basis. Twenty of these properties had leases that expired in 2019, and 19 have leases that expired in 2020. These 39 properties comprise approximately 148,000 interior square feet and generate $1.6 million in annualized rental revenue. The monthly rental rate on these 39 holdover properties are approximately 5.9% higher than the rental rate in effect at the time of the lease expiration. To date, the Postal Service has not vacated or notified us of its intention to vacate any of these 39 facilities. As we adopt the new lease form going forward, We anticipate our property operating expenses and initial leasing costs may increase. However, we also expect that the impact of these additional expenses would be generally neutralized by our ability to offset the additional expenses through our rental rates, resulting in minimal change to our net income. We have agreed to preliminary terms with the Pulse Service on a lease addendum where some of the incremental responsibilities that were to be transferred to us are mitigated. We have also agreed to preliminary terms on rental rates for 19 of the 20 leases that expired in 2019, and we remain in negotiation for the 2020 expirations. We have not entered into any definitive documentation with respect to the leases, and there could be no guarantee that any new lease that we enter into with the Postal Service will affect our expectation on terms or timing. We are optimistic that the holdover leases will be resolved, and we are working diligently to that end. In summary, we have a 100% occupied portfolio of government agency-backed properties with no disruption in our rents. Year-to-date, we have closed over $40 million in acquisitions, and we have a growing pipeline of additional opportunities in place. Through our compensation structure, the management team is taking a portion of its cash compensation in stock. We believe we are fully aligned with our shareholders and are focused on creating long-term value. I will now turn over the call to Jeremy to discuss our first quarter results.