Postal Realty Trust, Inc.   PSTL $19.00-$21.00 5 million shares Underwriters:  Stifel, Janney Montgomery Scott, BMO Capital, Height Capital Markets Co-Managers: B.Riley FBR, D.A. Davidson & Co. Proposed trade date of 5/10 They are an internally managed real estate corporation that owns and manages properties leased to the United States Postal Service, or the USPS.

 

Not a full write-up because of REIT Quality

 

 

Postal Realty Trust, Inc.   PSTL

 

Click here to view the prospectus.

https://www.sec.gov/Archives/edgar/data/1759774/000161577419006617/s117542_s11a.htm#a_028

They are an internally managed real estate corporation that owns and manages properties leased to the United States Postal Service, or the USPS. Upon completion of this offering and the related formation transactions, they will own and manage an initial portfolio of 271 postal properties located in 41 states comprising 871,843 net leasable interior square feet, all of which are leased to the USPS, and through their taxable REIT subsidiary, or TRS, they will provide fee-based third party property management services for an additional 404 postal properties leased to the USPS and owned by members of Mr. Spodek’s family and their partners. They believe that they will be one of the largest owners and the largest manager measured by net leasable square footage of properties that are leased to the USPS. They will have a right of first offer to purchase 255 of their 404 managed properties. Their chief executive officer, Andrew Spodek, currently owns interests in 199 of the 271 initial properties they will own, which he will contribute to them as part of their formation transactions. Of these 199 properties, Mr. Spodek controls their 190 Predecessor Properties (as defined below) and has a non-controlling ownership interest in nine of their Acquisition Properties (as defined below). Mr. Spodek has been actively engaged in the ownership and management of postal properties for over 20 years. Upon completion of this offering and the related formation transactions, Mr. Spodek will own approximately 29.0% of the fully diluted equity interests in their company.

They intend to elect and qualify to be treated as a REIT commencing with their short taxable year ending December 31, 2019. Although they have not previously paid dividends, they intend to pay a pro rata initial dividend with respect to the period commencing on the completion of this offering and ending June 30, 2019. U.S. federal income tax law requires that a REIT distribute annually at least 90% of its net taxable income, excluding net capital gains, and that it pay tax at regular corporate rates to the extent that it annually distributes less than 100% of its net taxable income, including net capital gains.  To satisfy the requirements to qualify as a REIT and generally not be subject to U.S. federal income and excise tax, they generally intend to make regular quarterly distributions to holders of their common stock, beginning at such time as their board of directors determines that they have sufficient cash flow to do so, over time in an amount equal to their taxable income. Although they anticipate making quarterly distributions to their stockholders over time, their board of directors has the sole discretion to determine the timing, form (including cash and shares of their common stock at the election of each of their stockholders) and amount of any distributions to their stockholders. 

Their objective is to create stockholder value by generating attractive risk-adjusted returns through expanding their portfolio of owned and managed postal properties leased to the USPS. When assessing acquisitions, they look at properties that they believe are integral to USPS operations with a range of remaining lease terms. They also seek to acquire properties where they believe their property management expertise can enhance returns through reducing costs. In addition, they intend to expand their third-party property management, consulting and advisory services to enhance revenue and create potential future acquisition opportunities. They believe the fragmented ownership and specialized nature of properties leased to the USPS have limited the number and growth of professional property managers for these properties.

E-commerce, the buying and selling of goods and services over the Internet, is growing rapidly and has shifted Americans’ retail purchasing from traditional brick and mortar stores to online purchases and home deliveries. According to Statista, in 2018, U.S. consumers spent $504.6 billion on online retail purchases, up 12.9% from 2017. Consumers’ increasing preferences for online purchases has increased the demand for logistics companies to fulfill shipments. Amazon, the largest online retail commerce company, whose revenues increased from $74.5 billion in 2013 to approximately $232.9 billion in 2018, utilizes USPS to ship approximately 40% of all of its packages, according to Politifact. Additionally, for competitive end-to-end package delivery in 2016, UPS, FedEx and the USPS had 40%, 30% and 17% market share, respectively, by revenue.  According to the Walker Sands Future of Retail study, 90% of consumers are motivated to shop online more often by the option for free shipping. Consequently, shipping rates are of high importance to e-commerce merchants and consumers. Since USPS mail carriers deliver first class mail nationally six days per week, the USPS generally has a low relative last mile cost to deliver to individual households.

They believe the USPS’s national infrastructure, together with its parcel select service, uniquely positions the USPS to capitalize on the changing trends in the business to consumer e-commerce market and substantially grow its package delivery business. The USPS’s parcel select service was developed in 2000 to create an affordable competitive service that could use the USPS’s in-place delivery network and infrastructure to increase revenue from the substantial growth in parcel shipments. The USPS’s total package revenue has increased significantly in recent years. Total package revenue grew at a compounded annual rate of 10.5%, and parcel select revenue grew at a compounded annual rate of 25.8% from fiscal 2011 through fiscal 2018.

Ownership of USPS leased properties is fragmented and they believe postal property owners are an aging demographic. As of March 31, 2017, the USPS reported leasing approximately 22,443 properties from approximately 16,383 different owners. According to REAC, the top ten postal property owners account for 11.2% of the total number of USPS leased buildings. Over 68% of the total number of USPS leased properties are owned by persons or entities that own three or fewer properties and approximately 64% of the owners, the majority of which are individuals, own only one USPS leased property. Many existing postal properties were developed to USPS specifications in the 1960s and 1970s by local owners/developers, many of whom still retain the properties within their families and face a significant tax liability upon a sale of the property for cash. They believe that a significant number of these owners also may face significant generational challenges that can be successfully addressed through a sale of their property to them. As the only public REIT focused on postal properties, they can offer these owners OP units as acquisition currency which will provide them an attractive tax deferred disposition opportunity with estate planning benefits as well as investment diversification through ownership in their larger portfolio of postal properties. 

They believe the fragmented ownership and specialized nature of properties leased to the USPS have limited the number and growth of professional property managers for these properties. They intend to grow their third-party property management business, which includes property management, asset management and consulting and advisory services. These services provide them high margin revenue while expanding their relationships with owners who may not currently wish to sell their properties but may desire to do so in the future, thus providing a potential source of acquisition opportunities. 

Their total predecessor historical combined revenues were $6.73 million and $7.69 million and their net income was $1.11 million and $1.15 million in 2017 and 2018, respectively. Rating = 2