Greetings and welcome to the Postal Realty Trust Second Quarter 2024 Earnings Conference 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.

Thank you. And good morning, everyone. Welcome to Postal Realty Trust second quarter 2024 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 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 Securities and Exchange Commission filings. The company does not assume and specifically disclaims any obligations 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.

Good afternoon. And thank you for joining us. In the second quarter, we added 70 properties for $28 million at a weighted average cap rate of 7.6% and nine properties for $3 million subsequent to quarter-end, funding the majority of our acquisitions on our revolving credit facility and raising over $6 million of equity. Our execution of the $12.5 million ROFO transaction, combined with our year-to-date regular way activity, has positioned us to acquire $90 million at or above a 7.5% weighted average cap rate for 2024. Thanks to our team's efforts, we have been successful in continuing to source and acquire attractive postal properties accretively. As interest rate cuts become more likely and the cost of capital improves, we look forward to increasing transaction volume. On the leasing front, we are encouraged by the progress we have made working in partnership with the Postal Service to improve the annual lease renewal process. We are excited to report that we have started to receive fully executed 2023 leases that include 3% annual escalations. Productions for the 2024 leases have also kicked off in earnest. As we have shared, this is a fluid process, and we look forward to providing further details once we conclude negotiations and receive the remaining fully executed leases. I'm also pleased to share that we completed a five-year lease renewal with the only significant non-postal tenant in our portfolio, located at our Warrendale, Pennsylvania, industrial facility. The tenant is a publicly traded multinational healthcare technology company that has made substantial investments in their space. We achieved a mark-to-market base rent increase of 19% and incorporated a 2.5% annual escalation. At Postal Realty, we are committed to investing in our workforce and our local community. For the third year in a row, Postal Realty volunteered at Island Harvest, a leading hunger relief organization with a mission to end hunger and reduce food waste on Long Island. The company looks forward to continuing this tradition of giving back to the community. Postal Realty has a tremendous runway ahead, supported by both external growth with the acquisition of new postal properties and internal growth through improvement of cash flows of existing properties, through effective leasing and management. We are well positioned for a successful 2024 and beyond, and we'll keep you updated with our progress. I'll now turn the call over to Jeremy.

Thank you, Andrew. The second quarter was another successful quarter for Postal Realty, as we acquired well-utilized, attractive, last-mile and flex postal properties. Our acquisitions during the quarter added 176,000 net leasable interior square feet to our portfolio, inclusive of 66,000 square feet from 47 last mile properties and 111,000 square feet from 23 flex properties. Subsequent to quarter end, the company acquired nine properties for $3.4 million and placed an additional 16 properties totaling $4.7 million under definitive contracts. As stated on prior calls, the company's business model generates consistent cash flow each quarter as our business remains stable and reliable throughout economic cycles. We have a long runway of opportunity ahead of us and are encouraged by our growth prospects as the largest owner in this space. 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 both the postal service and the communities they serve. This validates our resilience process in identifying locations that are vital to this crucial logistics network. As Andrew mentioned, we have started to receive fully executed 2023 leases which represent 32% of the expired rent. In addition to receiving the executed leases with new rents and 3% annual rent escalations, the company has paid a catch-up payment for the difference between the prior lease rent and the agreed-upon new lease rent. As a result, the company received a net payment of $326,000 from the Postal Service for the leases executed during Q2. We look forward to providing a further update. I'll now turn the call over to Rob to discuss our second quarter 2024 financial results.

Thank you, Jeremy. And thank you everyone for joining us on today's call. For the second quarter, we delivered funds from operations, or FFO, of $0.23 and adjusted funds from operations, or AFFO, of $0.26 per diluted share. At the end of the quarter, our debt outstanding had a weighted average interest rate of 4.48%, a weighted average maturity of three years, and no significant near-term debt maturities. The company's $150 million senior unsecured revolving credit facility had $42 million outstanding, and fixed rate debt comprised 85% of all borrowings. Net debt to annualized adjusted EBITDA was 6.1 times, still well within our target of below 7 times. During the second quarter and subsequent to quarter end, we issued approximately 365,000 shares of common stock through our ATM offering program and 62,000 common units in our operating partnership for total gross proceeds of approximately $6.1 million at an average gross price of $14.35. Recurring CapEx was $135,000, slightly below our anticipated range due to the timing of some projects. Looking forward to Q3, we anticipate the figure to be between $250,000 and $350,000. Our cash G&A expense guidance for the full year 2024 remains between $9.5 million and $9.8 million. Just as in prior years, we continue to prioritize decreasing cash G&A as a percentage of revenue on an annual basis. Our Board of Directors approved a quarterly dividend of $0.24 per share, representing a 1.1% increase from the Q2 2023 dividend. We continue to collect 100% of our contractual rents during the second quarter. This predictability of cash flows remains a significant differentiator for our company in addition to our strong operations and proven track record of scaling the business. Thanks to our solid foundation and hard work, we continue to be the market leader in the postal real estate space. That concludes our prepared remarks, and we'd like to open the line to take any questions you may have.

Our first question comes from Eric Borden with BMO Capital Markets.

It sounds like you're making really good progress on the 2023 lease expirations with the majority now addressed. Can you just remind us how much of your ABR will be tied to 3% annual bumps going forward?

This is Jeremy. As you know, this is a fluid process. We're really happy with how things have been progressing. Until we have final leases in hand, we can't talk to actual results. So, what we're talking to today is the 2023 leases that have been received and have the 3% escalation.

Maybe I should have worded that better, but on the 2022s and the 2023s that are now addressed, how much of the ABR is tied to 3% bumps?

So, of total rent, 13% of our total rent is tied to 2022 and 2023 leases received with escalations.

One for Rob here. Just with leverage at 6.1 times, how high are you letting leverage drift before you've potentially taken out with equity or pay it down with cash or any other solution here? And then how are you thinking about the capital allocation mix for the remainder of the year?

Look, first and foremost, we're making sure that we're raising capital in an accretive manner to the acquisitions that we're doing. And we've been successful with that historically and this year, in particular, as well. Last quarter, we were a little heavier on debt than some prior quarters, given where the capital markets were, and it was more advantageous to be borrowing versus raising equity, although we did raise a little over $6 million, $6.1 million through equity in Q2 and subsequent to the quarter. So, this is a constant monitoring of the market, and we're watching every day and seeing what makes the most sense, if we're going to raise capital through debt or through equity. But the good news is, we're well below our target of staying below 7 times. So we've got a lot of runway below that target, but we do intend to be monitoring the equity markets and accessing them and the operating partnership units as it makes sense.

Our next question comes from Anthony Paolone with J.P. Morgan.

You have Nahom on for Tony right now. Just a quick one for me. For the 2023 leases that include the 3% annual escalator, is there any difference between those and the 2022 vintage that got renewed at the 3.5% clip?

When you refer to a difference, are you talking about the contents of the lease?

Yeah. I guess just trying to figure out why these were executed at 3% escalators and the ones previously were at 3.5%.

This is Andrew. I think that, at any given time, you have to take into account what's going on. So when we executed that 3.5% versus where we are today, the inflationary environment has changed. But I think it's important to recognize that, number one, I think the 3% is a very good outcome, and we're very pleased with achieving it, especially since before 2022, lease escalations were not even part of the picture. Part of any lease rolls, there are two components. One is the mark-to-market as the lease rolls and the other is the escalation that we were able to achieve. And the combination of the two is really what we're trying to get to. And we're very happy with our results and we're looking forward to hopefully when we receive the rest of the 2023s, which we're hoping will be in short order, to give you a more wholesome update on what we're able to achieve in that vintage.

I guess Andrew spoke to this a little bit earlier, but what can we expect with regards to timing for the leases that are set to expire in 2024, maybe without giving exact dates? Do you think it'll be along the same lines as the 2022 and 2023 vintages?

No, our hopes are that they get done relatively quickly. Look, this is not within our control. This is mostly on the Postal Service. I'm happy that they've assigned a new group of people to try to accelerate the movement of these documents, but we're hoping that the 2023 gets completed shortly and the 2024 shortly thereafter.

And the next question comes from Steven Dumanski with Janney.

Can you please provide more insight on your projected CapEx spend for the year? Also, would this figure consist of TI that can be potentially passed through to the USPS?

We gave guidance for our recurring CapEx for next quarter, which will be $250,000 to $350,000. And, look, this is all dependent on the timing of projects and the like. But regarding your question about TI, so it's one of the beautiful things about our relationship with the USPS and how the lease works is that there is not TI associated with the leases. So there is nothing to pass through or for us to incur upon a renewal.

This concludes our question-and-answer session. I would like to turn the conference back over to Andrew Spodek for any closing remarks.

Thank you. On behalf of the entire team, we'd like to thank you for your support and taking the time to join us today. We look forward to connecting with you in the upcoming months. Have a great evening.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.