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Greetings, welcome to the Postal Realty Trust first quarter 2026 earnings conference call. At this time, all participants are in 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, Senior Vice President of Finance and Capital Markets. Welcome, Jordan.

Thank you, and good morning, everyone. Welcome to Postal Realty Trust first 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 will 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 its other regulatory 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, pro forma Adjusted EBITDA, pro forma annualized Adjusted EBITDA, same-store cash NOI, same-store cash revenue, net debt, adjusted net debt, and pro forma adjusted 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.

Good morning, and thank you for joining us today. In a couple of weeks, we will be celebrating our 7th anniversary as a public company. Over the past seven years, we've created a purpose-built platform to unlock the value inherent in U.S. Postal real estate. As we have developed and continue to refine this platform, we have delivered on multiple fronts. It starts with the 6.1% average annual AFFO per share growth we are on track to achieve from 2021 to 2026 based on AFFO guidance we increased yesterday. This performance ranks us second among net lease REITs. Our progression continued last year with the introduction of AFFO per share guidance, made possible by refining our leasing approach with the Postal Service.

Today, we are taking another step by sharing our forward-looking top-line revenue outlook for 2027, despite being only five months into 2026. It is a testament to the unique leasing approach we have developed with the Postal Service that gives us this much visibility into 2027, and it speaks to the benefit of having primarily a single high credit tenant who consistently pays us 100% of contractual rent across our 99.8% occupied portfolio. We are expecting same-store cash revenue growth of approximately 6.5% in 2027, which is approximately 30 basis points higher than what we're expecting for 2026. Higher expected growth in 2027 reflects the increased presence of annual rent escalators across the portfolio, as well as the rental mark-to-market tailwind.

On our first quarter 2025 earnings call, I shared that we have the systems and people in place to ramp up acquisitions should our cost of capital and opportunity set align. With a stock price improvement of over 70% since then, this symmetry has materialized, allowing us to accelerate the pace of acquisition activity relative to the last few years. Based on the strength of our pipeline, we are increasing our acquisition guidance by $15 million to $130 million-$140 million for the year, and we will revisit this guidance as the year progresses. In the first quarter, we acquired $35 million at a 7.4% weighted average cap rate.

In the second quarter to date, we have acquired and have under definitive contract $17 million, putting us at $52 million year to date with a strong pipeline of anticipated transactions behind it. We are capitalizing on the opportunity in front of us from a position of strength. Our revised acquisition guidance is fully funded with liquidity of approximately $250 million at the end of the quarter, consisting of unused revolver capacity and $48 million of unsettled forward equity proceeds. We are laser-focused on maintaining a strong liquidity profile, supported by our access to equity and our recent BBB investment grade rating from Kroll KBRA. In summary, our internal growth, supported by our robust acquisition pipeline and access to capital, places us in a strong position to generate continued earnings growth.

Earlier this week, we attended the Postal Service's National Postal Forum in Phoenix, a conference that brings together the broader logistics ecosystem surrounding the Postal Service. For us, the conference confirms that as the logistics marketplace continues to evolve, the U.S. Postal Service's facilities will remain a critical tool for accessing the American people. These facilities form the backbone of the Postal Service's delivery infrastructure and are the very assets we invest in. This network enables the Postal Service to provide universal service across 170 million delivery points nationwide and is utilized 6 days a week by logistics providers and online retailers. As we'd like to remind investors, the cost to lease the real estate backbone of this network is only one and a half % of the Postal Service's annual operating expenses.

This annual expense equates to $1.4 billion of annual rent, resulting in a $12 billion-$15 billion market for postal real estate, creating a long runway for future acquisitions. With that, I will turn the call over to Steve.

Thank you, Andrew. I'll make a few comments on the multi-year earnings growth opportunity at Postal Realty before unpacking 1st quarter results and our updated guidance in more detail. In considering Postal Realty's medium-term earnings growth algorithm, we see four primary drivers. 1st is the mark-to-market opportunity. From 2027 to 2030, approximately 33% of our rental income is expected to reset to market. This represents a meaningful source of embedded growth beyond 2026. 2nd, annual rent escalators are becoming an increasingly significant driver of organic growth. In 2022, approximately 3% of our rental income experienced an annual escalation. By 2027, that figure will have increased significantly to approximately 53% experiencing an escalation.

Moving from a portfolio with predominantly flat leases to one with the majority 3%+ annual escalators signifies a major shift into the visibility of our annual growth for years to come. To that point, our visibility into annual escalations and our mark-to-market allows us to provide a 2027 same-store cash revenue growth outlook of approximately 6.5%. Third is retained cash flow. As we have scaled, we have reduced our payout ratio while continuing to grow the dividend. In 2026, we expect to pay out only 70% of our AFFO, which is one of the lowest payout ratios among net lease REITs. Our board has balanced retained cash flow with a dividend yield above the REIT median at approximately 4.5%.

Moreover, retained cash flow, which we can deploy into acquisitions or to repay debt, is a meaningful source of recurring growth for us, increasing our per share growth rate by about 15% in 2026. Fourth is Day one accretion. Our improved cost of capital, in conjunction with our increased access to capital, has led us to begin accelerating the velocity of acquisitions relative to the last few years. With our weighted average cost of capital currently standing at approximately 6.1%, Day one accretion from acquisitions is becoming an even more meaningful source of AFFO per share growth. In summary, we remain focused on utilizing these four growth levers to drive attractive AFFO per share growth in the coming years.

Turning to first quarter results, yesterday we reported AFFO per share of $0.33, which is $0.01 ahead of the first quarter of 2025. Note that last year's quarter benefited from holdover payments and prior year property tax reimbursements totaling $0.02 per share. In comparison, in this year's first quarter, we realized $11,000 of holdover payments from recent acquisitions. We ended the quarter with net debt to pro forma annualized Adjusted EBITDA of 5.2x within the leverage target we updated last quarter of under 6x. Giving effect to approximately $53 million of unsettled forward equity raised year to date at an initial forward price of $18.44 per share, our pro forma adjusted net debt to pro forma annualized Adjusted EBITDA is 4.5x. A brief note on our leverage metrics.

This quarter's supplemental includes metrics based on pro forma annualized Adjusted EBITDA. The only difference with the prior metric is that it gives effect to acquisitions and dispositions as if they took place at the start of the quarter, consistent with many peers' reporting methodology. As it relates to sources and uses, the midpoint of our guidance implies $100 million of acquisitions for the remaining three quarters of 2026, which we plan to fund on a leverage neutral basis using unsettled equity and retained cash flow. In terms of debt funding specifically, we are focused on limiting floating rate exposure and adding duration to our maturity schedule. We anticipate refinancing our floating rate revolver and term loan balances with longer term fixed rate private placements or term loans in the coming months.

Turning to our expectations for the remainder of 2026, with yesterday's earnings release, we raised the AFFO per share guidance range we provided last quarter by $0.01 to $1.40-$1.42 per share, representing 6.8% growth at the midpoint for the year. The increase is supported by higher acquisition volume. Related to additional guidance items, cash G&A and same-store cash NOI are tracking in line with our forecasts. Recurring capital expenditures of approximately $143,000 for the first quarter was within our guidance range, and we are expecting $150,000-$200,000 in the second quarter.

Lastly, guidance includes approximately $0.01 per share of dilutive impact from unsettled forward equity compared to the $0.005 assumption we shared on the fourth quarter call, calculated in accordance with the treasury stock method, largely due to a higher stock price. Our board of directors has approved a quarterly dividend of $0.245 per share, representing a 1% increase from last year. Our dividend payout ratio for the first quarter is approximately 74%, and our dividend yield as of yesterday was approximately 4.5%. With that, I will turn the call over to Jeremy.

Thank you, Steve. I'll provide an update on our re-leasing efforts, followed by more detail on first quarter acquisition activity. All 2020 rents have been agreed upon and are currently in lease production. In addition, we have substantially agreed on 2027 expirations that do not include renewal options. These leases have also commenced lease production. All 2026 and 2027 leases will have 3% escalators, and the vast majority will have 10-year terms. As of quarter end, 53% of leases in our portfolio contain annual rent escalators. The first escalation takes place in year two. Therefore, 41% of leases will get the benefit of an escalator in 2026. Shifting to 10-year leases, 45% of our portfolio consists of leases with 10-year terms based on executed and agreed upon leases as of March 31st, 2026.

The increase in rent subject to 10-year terms compared to last quarter was predominantly a result of successfully amending the majority of our 2022 expirations to 10 years from five years. By the end of 2026, we expect the weighted average lease term of our current portfolio to extend to over six years compared to the three years when we went public. Moving on to acquisitions. In the first quarter, we acquired 61 properties for $34.6 million at a weighted average cap rate of 7.4%, adding 195,000 sq ft to our portfolio. First quarter acquisitions consisted of 48,900 sq ft from 34 last mile post offices and 146,200 sq ft from 27 flex properties.

As Andrew mentioned, based on acquisition volume closed in the first quarter, plus our robust forward pipeline, we are increasing our acquisition guidance to $130 million-$140 million for the year. This concludes our prepared remarks. Operator, we would like to open the call for questions.

Ladies and gentlemen, we will now begin the question and answer session. If you would like to ask a question, please press star and one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and two if you would like to remove your question from the queue. All participants using speaker equipment it may be necessary to pick up your handset before pressing the star keys. Ladies and gentlemen, we will wait for a moment while we poll for questions. Our first question comes from John Kim with BMO Capital Markets. Please state your question.

Thank you. Wanted to ask what drove the decision to provide 2027 same-store revenue guidance at this time? How should we think about cash same-store NOI? Will it be a similar improvement of 30 basis points that you're seeing on the revenue side from 2027 to 2026?

Hi, John. How are you? This is Steve.

Hey, Steve.

To answer your question, the reason we're providing 2027 same-store cash revenue relates back to Jeremy's point that we have substantially completed all of our 2027 lease expiration negotiations with USPS. You know, given this high level of visibility we have into 2027, we felt it appropriate to share it with the market. To your second question on how that filters down to same-store NOI, you know, it's early in the year. You know, early in 2026, I should say, so hard for us to have visibility into 2027, but you can use a range of, you know, inflationary or maybe slightly above inflationary expense assumptions to get to a same-store NOI estimate for modeling purposes.

What are your expenses this year? Same-store expenses.

Yeah, we expect them to be in the 5% range. That's what's underpinning our guidance assumption.

Okay. You mentioned, roughly a third of your portfolio going to market over the next few years and the mark-to-market opportunity. What is the mark-to-market, first of all? Second of all, how much of that can you capture given you have one tenant who's essentially a partner?

Yeah, it's a great question. You know, we don't provide too much specific quantitative detail on the mark-to-market, given the nature of having, you know, one primary tenant. You know, fair to say, the mark-to-market's been healthy. At least as it relates to 26, 27, it's been, you know, a pretty consistent mark-to-market opportunity. You know, we have a really efficient leasing approach that we've developed with USPS. Works well for them, and it works well for us. At least for the next couple of years, it will continue.

Great. Thank you.

Our next question comes from Jon Petersen with Jefferies. Please state your question.

Great. Thanks. Good morning. Congrats, guys, on another strong quarter. Can you, on the same-store revenue guidance for 2027, can you break down the components there? Like, how much of that is coming from escalators? How much of that is, upside on lease renewals?

Yeah, great question. To answer your question, of the 6.5%, 25% of that growth is due to the escalators. As Jeremy mentioned in his remarks.

A little more than 50% of our portfolio will experience an escalator in 2027. The remainder of the growth is derived from the mark-to-market.

Okay. All right. That's helpful. You know, maybe on acquisitions, good to see the acquisition volume rise and your cost of capital improving. You know, for a number of years, the question was, you know, when does your cost of capital get to a point when you can, you know, be more aggressive on acquisitions? Now we're there, and I guess it raises the question of, you know, what's the total addressable market for you guys now? Like how You know, at what point do you start to run out of post offices to buy, I guess, is the short way to ask that question. Just talk about the opportunity and how many years of opportunity there is out there for you.

Sure. I appreciate the question. Yeah. We're very happy that we have the access to the capital and the cost of capital that we have today, and we're looking forward to continuing to grow the business and acquire Postal assets. The runway is very long. You've got, as I've stated before, you've got about $1.4 billion in rent paid by the Postal Service. You know, any cap rate or margin you wanna put on that makes it a $12 billion-$15 billion market. You know, we probably want to address probably, you know, $6 billion-$8 billion of that. I believe we have a lot of opportunities sitting in front of us.

I'm happy to say that the conversations we've had and the pipeline is looking very good. We're, you know, these are deals that I've been talking to for decades and some new ones, but we're looking forward to the year ahead.

Outside of your improved ability to transact, is there any change on the seller side of things, the way that they're positioning, the way that, you know, their conversations with you are changing and their willingness to transact?

The reality is that the properties that we're looking at today are similar to the properties that we've always looked at. Sellers' tone is somewhat similar. The only thing that has changed is the buzz around us and our stock price, which has, I guess, created sellers' motivation to facing off with us. We're constantly in front of owners. As everybody knows, I've been in the space my whole life. Interacting with them is nothing new for being able to transact given our access and cost of capital is really what's gonna change.

All right, great. Thanks, guys.

Thank you.

Our next question comes from Greg McGinniss from Scotiabank. Please go ahead.

Hey, good morning. Thanks for taking the question. You know, we understand you don't wanna provide too many details on the mark-to-market, but looking at the kind of forward opportunity, could you provide some color on how it tends to compare between assets that you've controlled for years versus those that you're acquiring?

The opportunity set on the mark-to-market is interesting, and it varies deal by deal, right? We underwrite each deal individually. Some of the properties that we acquire have a more significant mark-to-market opportunity and some of them don't. That's just the nature of any real estate transaction and any real estate lease. As we continue to grow and as we continue to acquire the mark-to-market opportunity in that particular year changes, and it's constantly fluid. What I could tell you is it seems, at least from what we've done to date and what we're seeing in our pipeline and what we're seeing as our leases are rolling, is that opportunity still exists. From our perspective, we look for it to continue to exist.

Okay. I guess from an acquisition standpoint, is the increased guidance a result of, you know, stronger cost capital opening up the funnel a bit more efficiency on the acquisition side, or are you seeing some broader macro trends supporting these increased acquisitions?

The guidance is really based on what we're seeing us being able to acquire based on the access and cost of capital. The deals that we are looking at, like I just said, are very similar to the deals that we've always looked to buy, right? Primarily properties that are important to the Postal Service's network that have good underlying real estate value. We look to buy deals that are accretive on day one, and that we can add our internal growth to it as those leases continue to expire. That's the model for what we're looking to acquire, and that's what we'll continue.

Andrew, on the acquisition cap rate, right? It's been fairly, you know, 7.5%-ish range for a few years now. With the stronger cost of capital that you have, you know, would an increased level of acquisitions necessitate a lower cap rate? Meaning should we, you know, expect a similar investment spread, although considering how much the WACC has come down, still quite strong, to get to a higher acquisition volume that results in, you know, ultimately more growth, but just a lower cap rate that we'll see on the face initially.

Yeah, I think that we can expect the cap rate to come down a little bit because what we are going to do is acquire some larger properties, some larger portfolios. These are things that we weren't able to acquire in the past few years given our cost of capital. As time goes on, we believe the cap rates will constrain slightly. Again, keeping in mind that it needs to be accretive on day one, and we need to be able to have some internal growth on the acquisitions that we're buying.

Greg, just to supplement Andrew's answer to your point you made. You know, what we're solving for is higher per share growth in future years. The total dollar value of accretion is gonna be higher by making more acquisitions at, you know, potentially somewhat lower cap rate than it would have if we pass up on those opportunities.

Right. Makes sense. Just a final one from me. With the, you know, stock price performance over, you know, the recent timeframe, have you seen a increased preference for OP unit from sellers?

Yeah, we have, and we're constantly in conversations with owners, interested in using the operating partnership unit currency. And we're always balancing that between, you know, our sources of debt and equity. But we have definitely seen an increased appetite for the operating partnership units given our stock price growth.

Great. Thank you.

Thank you.

Our next question comes from Anthony Paolone with JPMorgan. Please state your question.

Great. Thanks. Good morning. I guess my first question, it just goes back to the Postal Service and the back and forth they had with Amazon earlier in the year. I was just wondering if you can maybe just summarize kind of how that played out, just to someone that's not in the weeds on those machinations and just any implications back to, you know, your portfolio.

Hi, this is Jeremy. This was a five-year contract that was coming due in October of 2026. As we've seen in the past, a lot of these discussions are played out in the public domain. We were happy to see that they reached a final agreement. They are gonna keep the lion's share of their capacity with the Postal Service. You know, as we've stated before, this really doesn't have an impact on our business, right? The scale and size of this industry in terms of other users doesn't change how critical these assets are for the American people. Just to give you some context, we were just, as Andrew mentioned, at the Postal Forum with over 4,000 industry professionals who touch the Postal Service.

I mean, this is a massive industry, a $1.9 trillion mailing industry and 7.9 million jobs associated with this industry. The Postal Service plays a much broader role in the U.S. economy than any of us really appreciate. You know, the Amazon contract was important. It has been renewed, and we're looking forward to seeing other logistics providers take advantage of this critical network.

Okay. Got it. Thank you for that. Then, on the leases, you've been so successful with the rent increases, the bumps, the duration. What's the impediment to full net lease pass-through of expenses?

You know, it's a somewhat complicated question. I don't know that there's an impediment to it. The Postal Service lease structure has been in place the way it is for a very long time. As a government agency, I think they have some difficulty in general with, well, with a full pass-through on the insurance side. But like we've said before, you know, the vast majority of our leases are this modified double net structure where we're predominantly responsible for roof structure and insurance. I think this works well for us, and it works well for them. I think the current structure of the lease is gonna stay in place.

Okay. If I can sneak one last one in. You mentioned maybe tapping private placement debt to extend out some duration. Just can you give us any color around maybe cost and what you're being quoted or what that might look like?

Hey, Anthony. This is Steve. You know, it depends on the duration. I think, you know, if we're looking to issue anywhere from 5-10 years, the cost could be anywhere from the low 5% range to high 5%, low 6% range, depending on where the markets are. You know, treasury yields have expanded, you know, coming out of late February, early March. We also had a rise in spreads that have since contracted. I think, you know, somewhere, you know, if you estimate 5.5-5.7 for a coupon, that, you know, that's our best guess at the current time.

Okay. Thank you.

Thank you.

Thank you.

A reminder to all the participants, please press star one on your telephone keypad to ask a question. Ladies and gentlemen, as there are no further questions, I would now like to hand the conference over to Andrew for the closing remarks.

Thank you. We believe the unique platform we've built to maximize the value of postal real estate, in addition to the inherent stability and growth of the real estate we own, offers unique investment profile in the public REIT space. We look forward to speaking with many of you in the coming months and updating you on our progress next quarter. Thank you again for joining us.

Ladies and gentlemen, the conference of Postal Realty Trust has now concluded. Thank you for your participation. You may now disconnect your lines.