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Operator: Greetings and welcome to Postal Realty Trust Fourth Quarter and Full Year 2022 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the prepared remarks. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Jordan Cooperstein, Vice President of FP&A Capital Markets. Please go ahead.

Jordan Cooperstein: Thank you. Good morning, everyone and welcome to the Postal Realty Trust fourth quarter and full year 2022 earnings conference call. On the call today we have Andrew Spodek, Chief Executive Officer; Jeremy Garber, President; Robert Klein, Chief Financial Officer; 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. 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 will be affected by a variety of risks and factors that are beyond the company’s control, including without limitation, those contained in the company’s latest 10-K 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 operations, adjusted funds from operations, adjusted EBITDA and net debt. 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 supplemental materials. With that, I will now turn the call over to Andrew Spodek, Chief Executive Officer of Postal Realty Trust.

Andrew Spodek: Good morning and thank you for joining us. The fourth quarter marked the solid finish to the year as we surpassed our 2022 acquisitions target, acquiring 320 properties for $123 million. This caps another year of strong growth in our portfolio as we have now completed over $400 million of acquisitions since Postal’s IPO in 2019. Even amidst challenging capital markets and the uncertain macroeconomic environment, we remain encouraged by our strategic positioning and the strength of our balance sheet. As we discussed last quarter, and as expected, we are navigating a dramatically different environment as compared to a year ago in terms of deal flow and valuation assumptions. Given the significant upward shift in interest rates over the past year, it is taking time for prospective sellers to adjust their price expectations.

We continue to be patient in our approach, setting ourselves up with ample dry powder to take advantage of accretive opportunities that present themselves going forward. As we have highlighted repeatedly over the past year, the conservative and proactive management of our balance sheet puts us in a great position to grow our portfolio with low leverage, minimal exposure to variable rates, and no notable debt maturities until 2026. We are also demonstrating strong organic growth across our portfolio, which Rob will provide more detail on later in the call. In the second half of the year, and most recently the fourth quarter, we transacted at higher cap rates. This impacted volume in line with our expectations and the near-term outlook that we have previously shared.

Looking to 2023, we are continuing with the same measured approach as in recent quarters. As sellers remained slow to adjust their pricing and we continue to pursue higher yielding properties, there will be reduced near-term volume. While we have limited visibility on when this bid/ask spread will resolve, we anticipate 2023 acquisitions could be in the neighborhood of $80 million and are optimistic that our acquisitions will pick up in the second half of the year. Looking out further, the opportunity in front of us remains robust and the main drivers of our business are unchanged, irrespective of the higher interest rate environment. With significant capacity for future growth, we are in a very strong position operationally and financially to be acquisitive when attractive opportunities present themselves.

I will now turn the call over to Jeremy to discuss our operating metrics.

Jeremy Garber: Thank you, Andrew. For the full year 2022, the company acquired 320 properties for approximately $123 million, excluding closing costs at a weighted average cap rate of approximately 6.8%. These properties comprise 869,000 net leasable interior square feet and have a weighted average rental rate of $11.10 per leasable square foot based on rents in place as of December 31, 2022. In the fourth quarter of 2022, we acquired 54 properties for approximately $20 million, excluding closing costs. These acquisitions added 142,000 net leasable interior square feet to our portfolio, inclusive of 55,000 square feet from 39 last mile properties and 87,000 square feet from 15 flex properties. As we often remind our investors, our tenant has consistently made all of its rent payments on time throughout all economic periods.

In keeping with this track record, we collected 100% of our contractual rents in the fourth quarter. This predictability of cash flow remains a significant differentiator for our company. For the full year 2022, we produced a 33% increase in rental income compared to the full year 2021, reflecting continued growth in our existing portfolio, as well as contributions from the accretive acquisitions made over the last 12 months. We have maintained a 99% historical weighted average lease retention rate over the past 10 plus years, which reflects the strategic importance of these properties to the both the Postal Service and the communities they serve. This high rate continues to validate our due diligence process in identifying locations that are vital to this crucial logistics network.

We did not receive any notices of termination in 2022. While the 2022 lease renewal negotiations are still ongoing, the USPS determined that market rent for the leases and holdover was greater than the rent amount payable under the expired leases and agreed to pass a lump-sum catch-up payment in recognition of the increased rents due from the date of lease expiration. We will continue to receive these increased rents going forward until new leases on the holdover properties are executed. I will now turn the call over to Rob to discuss our fourth quarter and full year €˜22 financial results.

Robert Klein: Thank you, Jeremy and thank you everyone for joining us on today’s call. For the fourth quarter, we delivered funds from operations, or FFO of $0.27 per diluted share and adjusted funds from operations or AFFO of $0.28. For the full year 2022, we delivered FFO of $0.96 per diluted share and AFFO of $1.01. The strong fourth quarter earnings numbers are partially related to lower recurring CapEx combined with the increased rents and lump-sum catch-up payments Jeremy just discussed. Recurring CapEx for the fourth quarter was $0.02 per square foot and we anticipate it to remain around this level for future quarters. As we find more of our CapEx falling into the non-recurring versus recurring CapEx bucket, we have added additional detail to our supplemental on the breakdown of our total capital expenditures this quarter and historically.

As per our guidance last quarter, cash G&A for Q4 was relatively in line with Q3. Going forward, we expect cash G&A for the full year of 2023 to be approximately $9.4 million to $9.9 million, representing an increase of $1 million to $1.5 million over 2022. This is assuming the environment is conducive to make some of the internal investments deferred from last year. We continue to expect cash G&A as a percentage of revenue to decline on an annual basis. In order to provide additional transparency, we are quantifying our internal growth through same-store cash net operating income. Reflecting properties under our ownership as of December 31, 2020, same-store NOI increased 2% when comparing the full year of 2022 to the full year of 2021. While negotiations remain ongoing, this is based on the USPS’s most recently determined market rents for the 2022 lease renewals.

Once we have executed these leases with the Postal Service, we will provide an update with the finalized figure. At the end of fourth quarter of 2022, the entirety of our debt outstanding was set to fixed rates at a weighted average interest rate of 3.74% and a weighted average maturity of 5.5 years. At year end, the $150 million senior unsecured revolving credit facility was completely undrawn and as of February 21, 2023, had only $12 million outstanding. For the fourth quarter 2022, net debt to annualized adjusted EBITDA was 5.1x and net debt to enterprise value was 35.7% within our leverage targets of below 7x and 40% respectively. Given the significant shift in interest rates over the past year, we have prudently managed our balance sheet by maintaining low leverage and minimizing our exposure to variable rate debt.

Through our at-the-market program, we issued 523,909 shares of common stock at 63,629 common units in our operating partnership as part of the consideration for property acquired during the quarter at an average gross price of $15.47 for approximately $9.1 million of gross proceeds. Our Board of Directors has approved the quarterly dividend in the amount of $23.75 per share. This represents a 4.4% increase from the fourth quarter 2021 dividend continuing our history of increasing the dividend every quarter since IPO. With our industry leadership as the largest owner of Postal Properties, a well-maintained balance sheet, stable cash flows and a strong internal growth, we are well-positioned to enhance shareholder value in 2023 and beyond. This concludes our prepared remarks.

Operator, we would like to open the call for questions.

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Operator: Thank you. Our first question comes from the line of Rob Stevenson from Janney Montgomery Scott. Please go ahead.

Rob Stevenson: Good morning, guys. Jeremy, you were talking about the €“ or I guess it was Rob it was the same-store NOI of 2% in 2022. Is there any reason given the size of the portfolio and how changes acquisition pools being added to that in subsequent years aren’t really going to change it as much given that you are much bigger now? Is there any reason to believe that, that 2% just isn’t a good run-rate for the foreseeable future?

Jeremy Garber: Thanks, Rob. So at this moment, we are not giving guidance going forward, we are not completed on the same-store NOI that this is based on the USPS’s latest rental. And so we look forward to getting a finalized number. At that point, we can talk about what run-rates and guidance may look like.

Rob Stevenson: Okay. And then is the 30 basis points of vacancy, are those totally vacant assets or do you have some partially occupied assets at this point?

Jeremy Garber: So, we only have one asset that’s vacant and that’s a very minimal portion of the rent. It’s about 0.3% of our square footage and roughly 0.3% of our annualized rent percent that is.

Rob Stevenson: And what’s the plans for that? Is that something that you are going to sell vacant and move on? You are going to try to lease it up as something else? And then if you did that, would you hold it or would you sell it if it’s not leased to the Postal Service?

Andrew Spodek: So right now €“ we are €“ we have that property out for lease. We are attempting to lease the property, but haven’t had a tremendous amount of success, which is why it’s still vacant. The market is not terrific in that particular area. But thankfully, it’s a small property it’s not terribly big concern of ours. With that being said, depending on who the tenant is that ends up leasing, it will determine whether we decide to keep it or sell it.

Rob Stevenson: Okay. Alright. Thanks, guys. Appreciate the time.

Andrew Spodek: Thank you.

Jeremy Garber: Thanks, Rob.

Operator: Thank you. Our next question comes from the line of Eric Borden from BMO Capital Markets. Please go ahead.

Eric Borden: Hey, guys. Good morning. I was just hoping if we could go to the rent resets, any catch-up payments. I was hoping if you could help quantify the one-time catch-up payment and kind of what’s the impact or the boost going forward?

Robert Klein: Yes. So we have accounted for roughly $430,000 of lump-sum payment in Q4 of €˜22. We can’t really quantify yet until we complete our negotiations of what the further impact it will be, but so far that’s been the impact in Q4.

Eric Borden: Okay. That’s helpful. And then on the €˜22 lease expirations and the €˜23 lease expirations, what’s the asset class mix there? And then just kind of thinking about the rent reset, can we assume a similar rent per square foot to the acquisitions completed in 4Q and the current quarter to-date?

Andrew Spodek: So, in terms of the asset class mix, €˜22, I believe is all last mile and flex facilities, while €˜23 has I believe an industrial property in there. And typically, our role is mostly flex properties, because that’s the largest asset class that we have in our portfolio. As it relates to comparing the price per square foot to acquisitions, I wouldn’t correlate them. Every asset really has to speak to the market that it’s in and depending on where we are buying assets, will translate into what the price per square foot is for that particular building. And translating that to an entire portfolio that is dispersed throughout the country is not very good correlation.

Eric Borden: Okay. That’s helpful. And then maybe just last one, on the capital allocation side, I mean you have multiple levers, you have the full line of credit, leverages reduced, you can issue OP and hit the ATM where you think it’s reasonable? Well, how should we think about funding acquisitions and the mix for 2023?

Andrew Spodek: It’s a good question. I feel like we are in a very fortunate position where all the things you mentioned and some other sources are available to us. So, we are constantly scanning the capital markets to figure out the best source of capital while keeping leverage in consideration and cost of capital as well. So yes, we are constantly looking at the ATM and offering market, OP units are a great source for or us to attract sellers, and at times transact with those sellers as well. And as you correctly mentioned, our facility is mostly undrawn, only $12 million drawn as of February 21. So, we have all those access to capital and will continue to use what is the most efficient for us, and again, keeping ourselves in a low-leveraged position. So, we always have dry powder, and we can always be going after the acquisitions we think are attractive.

Eric Borden: Okay. Thanks guys.

Andrew Spodek: Thank you.

Operator: Thank you. Our next question comes from the line of Anthony Paolone from JPMorgan. Please go ahead.

Anthony Paolone: Great. Thank you and good morning. I guess related to the holdover leases, will there be 97, I guess new individual leases, or will some of these be combined, and maybe one or more leases that are all on the same length? Like what will happen here?

Andrew Spodek: Yes. I mean our process is renewal of individual leases. We try to go through renewal process for an entire year’s vintage, but there are each standalone individual leases that get renewed.

Anthony Paolone: Okay. And if we take these out, it seems like another 8% or so percent expiring in €˜23. Should we anticipate the same sort of accumulation of holdover leases for a while, and then sort of a big batch of these getting done at some point later in the year into even €˜24, like, how should we just thinking about the process going forward?

Andrew Spodek: This is Andrew, Tony. So, my hopes are not. My hopes are that we can resolve the €˜23 as quicker than the €˜22s have taken. I have already started conversations on how to look at this differently to make it a little more efficient and productive. And so my hopes are that we can work with the Postal Service to change some things and get these results quicker and better.

Anthony Paolone: Okay. And then just last one, you had mentioned the 6.8% cap rates on the 2022 transactions for the full year. Just any additional color in terms of where those sit more recently, I know mix is a factor, but it also changed a bit as well over the last year?

Andrew Spodek: Yes. The world has changed and I am hoping its continuing to change. We are doing everything we can to push up cap €“ push up cap rates as much as possible. Sellers are not moving as quickly as we would like them to. But we are targeting the midpoint of our range. So, our range is quoted to be 6% to 8%, but we are seeking deals in the 7% range.

Anthony Paolone: Okay. Thank you.

Andrew Spodek: Thank you.

Operator: Our next question comes from line of Barry Oxford from Colliers. Please go ahead.

Barry Oxford: Great. Thanks guys. Just to build on the lump-sum catch up, is that going to be kind of 1Q and 2Q and then we wouldn’t see the catch-ups, like in 3Q and 4Q from a modeling standpoint, or just one of these look very €“ we are still kind of working through it. We don’t know if it’s going to be just 1Q or 2Q or whether it’s going to take four quarters?

Andrew Spodek: Yes. Good question, Barry. So, as we stated, we are still in negotiations to finalize the rents. If those rents are higher than the rents that are currently being paid, then there will be another lump-sum payment. I can’t tell you the timing of it, because it depends on a variety of factors and either when the lease is executed, or when there is determination on that new rent. So, that will be this year. I just can’t tell you if it’s going to be Q1, Q2. It’s all about when we complete each individual lease that negotiation.

Barry Oxford: Right. Okay. And then as long as we are talking about leases, you guys have indicated that you would like to sort of move your lease structure to kind of for lack of a better word inflation-adjusted, and you have been having conversations, how are those conversations going right now, as of today?

Andrew Spodek: Those conversations are still ongoing. It’s relatively fluid. The Postal Service, like everybody else in the world today recognizes how prevalent inflation is. Everybody speaks about it and hears about it every day. And the Postal Service is dealing with it in a great degree on its labor contracts, and so it’s something we all recognize and we are trying to factor into the lease.

Barry Oxford: Okay, great. And then on the acquisition side, is there €“ with the $80 million, I think you guys can do more than that. But is the holding back of the guidance in the $80 million range, you are seeing a lot of product, but you just don’t like the pricing, are you also or is it also a combination of you are not seeing a lot of product?

Andrew Spodek: So, the good news is the opportunity is still there. Everything that we set out, pre-IPO, and everything we have done to-date still holds true. The problem today is the disconnect between buyers, us, and the sellers, right. They haven’t adjusted their pricing. The properties are out there. The opportunity is out there. The market is out there. We just have to be patient and wait for things to correct.

Barry Oxford: Perfect. Okay. That’s helpful guys. Thanks so much.

Andrew Spodek: Thank you.

Barry Oxford: Yes.

Operator: Thank you. Our next question comes from the line of Jon Petersen from Jefferies. Please go ahead.

Jon Petersen: Great. Thanks. Good morning. I was wondering if you had any update on the Post Office and kind of investment in there €“ in their own business there was that build they got through. Last year the games in funding, there has been talk of infrastructure investments. I am just curious if we see any of that kind of coming your way in terms of redevelopment opportunities, like should we be expecting, I guess more investment by them in their real estate over the next few years than we have seen over the last few years?

Andrew Spodek: Yes, interesting. They just put out a release, I think yesterday, that they are moving forward with the awards to modernize and electrify their fleet. They are moving at their own pace. As you know, the Postmaster has a 10-year plan in place. And we haven’t been in direct conversations about how we can participate, but it’s something that we are thinking about, and hopefully there will be opportunities as they continue to move forward rolling out their plan.

Jon Petersen: Okay. Alright. That’s great. That’s all for me. Thank you.

Andrew Spodek: Thanks.

Operator: Ladies and gentlemen, since there are no further questions I would now hand over the conference to Andrew Spodek for closing remarks.

Andrew Spodek: Thank you. On behalf of the entire team, thank you for your continued support and taking the time to join us today. We look forward to connecting with you over the next coming months.

Operator: Thank you. The conference of Postal Realty Trust Inc. has now concluded. Thank you for your participation. You may now disconnect your lines.