When most of us hear “The check’s in the mail,” we perceive it as a brush-off. But for Andrew Spodek, CEO of Postal Realty Trust Inc., that phrase is a stamp of approval.
The Cedarhurst, N.Y.-based REIT believes it’s the country’s largest owner and manager of leased U.S. Postal Service properties. The company’s portfolio of owned and managed postal facilities exceeds 1,000.
Last year, Postal Realty Trust raised $77 million through its IPO, becoming the only publicly-traded REIT that concentrates solely on postal facilities. For the first three months of this year, the company reported a 37 percent quarter-over-quarter jump in rental revenue, largely thanks to 83 newly acquired facilities.
Spodek founded the REIT’s predecessor, Nationwide Postal Management Inc., in 2004. But his family’s ownership of postal properties dates back to the 1980s.
Spodek says his father “realized early on—and what we’ve proven to be true—is the Postal Service pays their rent on time, they rarely move and the properties require no on-site property management. We don’t even have to invoice the tenant; we’ve always received 100 percent of our rent.”
The Postal Service pays more than $1 billion in rent each year on the roughly 23,000 facilities that it leases. Those facilities encompass 79 million sq. ft. It owns another 8,400 facilities totaling nearly 193.4 million sq. ft. Postal Realty Trust’s “sweet spot,” according to Spodek, are post offices ranging in size from 2,500 to 10,000 sq. ft., with those properties composing about half of the company’s portfolio. The Postal Service typically owns the large industrial properties that it occupies, he says.
Since the IPO, about 20 percent of the REIT’s acquisitions have been carried out by offering operating partnership units through an UPREIT structure at $17 per share, Spodek says.
Looking ahead, Spodek has no desire to undertake high-profile development projects or make headline-grabbing deals. He’s perfectly content running an unsexy business whose tenant boasts a nearly perfect occupancy rate and whose sunny forecast is fixed on amassing a $1 billion portfolio of postal properties.
“The runway ahead of us is so large and compelling,” Spodek says.
In an Q&A with NREI, Spodek delivers an update on the REIT’s post-IPO activity, reviews its acquisition strategy and dispels any notion that the Postal Service’s financial struggles might harm Postal Realty Trust.
This Q&A has been edited for length, style and clarity.
NREI: How has Postal Realty Trust evolved since the IPO in May 2019?
Andrew Spodek: Since we’ve gone public, we’ve doubled the size of our portfolio by property counts, square footage and rental revenue, and we’ve been able to do that within our stated cap rate range of 7 percent to 9 percent. Taking the company public has created a lot of buzz around the space among sellers and has resulted in a lot of deal flow for us, which we’ve been really happy about. I think it’s important to understand that one of the main reasons that we pivoted from a private company to a public company is we saw the sizable opportunity to grow our portfolio accretively, and we wanted to access numerous sources of capital.
The first year as a public company has really been rewarding. We’ve not only lived up to, but have exceeded targets. We’re excited about the opportunity set in front of us. We look forward to continuing to consolidate this asset class and, while doing so, growing our shareholder value.
NREI: Now that you’ve gone public, what is your growth strategy?
Andrew Spodek: Our growth strategy is based on the consolidation of the postal real estate market. It’s an extremely fragmented space. That’s a byproduct of the history of the Postal Service’s development of these facilities. When the Postal Service rolled out the current network of buildings, they targeted a number of local developers, as opposed to a large developer, to roll out their network. As a result, the 23,000 buildings that they lease are owned by over 16,000 individual owners. That’s how fragmented the market is.
We’re currently the largest owner in the space, and our portfolio of properties makes up less than 5 percent of the total market. We’re targeting $100 million of acquisitions in 2020, and we’ve already completed in excess of $50 million. Our overall goal is to increase our market share in the space by consolidating postal assets and continuing to purchase them in the 7 percent to 9 percent cap rate range.
NREI: Do you have a goal in mind in terms of total market share?
Andrew Spodek: That’s a moving target. As you grow, you hopefully want to move that target and grow to be larger. The only target that we’ve set for ourselves is $1 billion in assets, which translates to 10 percent of the market.
NREI: What are your criteria for acquisitions?
Andrew Spodek: First and foremost, we look for properties that are of value to the Postal Service and where we believe the lease is at or below market value. As a result of the lease structure, there’s no real need for any on-site personnel, so we have the luxury of being geographically agnostic. Our portfolio is diversified throughout the entire country. We currently have owned and managed facilities in 49 states, and no single state exceeds more than 10 percent of our portfolio.
NREI: How does the U.S. Postal Service’s current financial situation affect your business?
Andrew Spodek: This doesn’t have any effect on us. The interesting part of it is that this noise—that’s what I call it—around the Postal Service balance sheet is actually part of our ability to purchase assets at the preferential rates and prices that we get.
All carriers—I don’t care if it’s UPS or FedEx or Amazon—tap into this network of facilities in some way, shape or form. In many cases, it’s so they can use the last mile of delivery. For all intents and purposes, the Postal Service has a virtual monopoly on the last mile. As demand for e-commerce grows, so does the value of our portfolio. This all ties into the fact that as everybody needs to pass off their packages and utilize the Postal Service, this network of buildings just becomes more and more valuable.