Thank you for standing by. This is the conference operator. Welcome to the Postal Realty Trust Third Quarter 2020 Earnings Conference Call. As a reminder, all participants are in a listen-only mode and the conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Blaine Willenborg, Vice President of Business Development and Capital Markets for Postal Realty. Please go ahead, sir.

Thank you. Good afternoon everyone and welcome to the Postal Realty Trust third quarter earnings conference call. On the call today, we have Andrew Spodek, Chief Executive Officer; Jeremy Garber, President; 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, including, among others, statements related to the COVID-19 pandemic and its effects on our business, the terms and timing of our pending acquisitions and the status of our ongoing negotiations with the Postal Service. 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 risk factors that are beyond the company's control, including without limitation, those contained in the company's 10-K filed on March 27, 2020, 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 and adjusted funds from operations. 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 in filings with the Securities and Exchange Commission. Additional information may be found on the Investor Relations page on our website. 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 Postal Realty Trust’s third quarter 2020 earnings call. As the country continues to navigate the health crisis, we hope everyone remains safe and healthy. We accomplished a great deal in the third quarter with the acquisition of 123 properties, a successful capital raise and another increased to our quarterly dividend. As a result of our acquisition activity since our IPO in 2019, we have more than doubled our rental revenues and our FFO per share. We also increased AFFO per share by 60% on a year-over-year basis. This per share growth, it should be noted is on share base that is 70% larger than a year ago. What continues to be an important differentiator for us is that our growth is generated from properties occupied by one of the strongest and most vital government agencies, the US Postal Service. We continue to make meaningful progress on our holdover leases. All of 2019 and 2020 lease expirations have executed LOIs in place and we have already received over 30% of these fully executed. As we have shared previously, all of the holdover properties remain current with their rent. But this progress in place we will now be working on our 2021 expirations. In this quarter, as an old prior quarters having collected 100% of our rents, the reliability of our business remains unchanged. This consistency coupled with our successful execution of our consolidation strategy has been a driving force for our growth. Our successful follow on equity offering allowed us to continue our accretive investment activity. In the third quarter, we were able to acquire 123 properties for $27.6 million. This activity brings our year-to-date acquisitions to over $76 million and we are optimistic, that we can reach and potentially exceed our $100 acquisition…

Thank you, Andrew. And thank you all for joining us this evening. We are pleased to share that both FFO and AFFO grew substantially on a per share basis, reflecting growth since our IPO and the growth in our share base for substantially all of the third quarter. FFO was $2.4 million for the quarter or $0.21 per share, which includes acquisition-related expenses of approximately, $120,000. AFFO for the quarter was $2.8 billion or $0.24 per share. We are on pace to meet, and potentially exceed our $100 million acquisition target at an average cap rate of 7% to 9%. During the third quarter, we acquired 123 properties for $27.6 million. After the close of the third quarter, we acquired an additional 14 properties for $8 million, bringing our total year-to-date acquisitions to $76.7 million. The 123 properties closed in the third quarter will contribute over $175,000 in cash NOI for the full fourth quarter. We estimate that the properties acquired since the end of the third quarter will contribute, an incremental $75,000 of cash NOI for the fourth quarter. As Andrew discussed earlier, we are in receipt of fully executed leases for 30% of our holdover properties and/or leases set to expire, in 2020. We also have executed letters of intent on the remaining leases that aren't holdover, are set to expire in 2020, and have started discussions with USPS on our 2021 expirations. Total expenses in the quarter were $5.7 million versus $5.2 million for the prior quarter, the sequential quarter change reflects the growth in our portfolio. The expense increases are related to depreciation and amortization, real estate taxes, the majority of which are reimbursed by our tenant and $67,000 in acquisition related expenses. Interest expense in the quarter was approximately $607,000, down $52,000 from the second quarter of 2020. The change reflects a lower interest rate on our line from Q2, due to the change in live board, and the impact of repayment of a portion of our line of credit, with the proceeds from our July offering. Moving on to the balance sheet at September 30, 2020, we had $7.8 million of cash on hand, and $57.4 million of net debt, with a net debt to enterprise value of 23.5%. For the third quarter, our fixed charge coverage ratio was 7.2 times, and our net debt to adjusted EBITDA ratio was 3.9 times. Our weighted average interest rate on all of our debt was 2.48% at the end of the quarter. Our property cash flows and acquisition activity provide the fuel for our quarterly dividend. On October, 30, the Board declared a quarterly dividend of $21.5 for the third quarter, which equates to $0.86 per share annually. The increase was 5% on a sequential quarter basis, and a 54% increase over the last 12 months. This concludes our prepared remarks. Operator, we would like to open the call for questions?

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question is from Jon Petersen with Jefferies. Please go ahead.

Great. Thanks. Good evening, guys.

Good evening, Jon.

On the industrial facility, the $47 million. I guess, the big question is that -- that's a pretty large property size for the base of your companies, maybe you can give us a little more details on, I guess, how long the in place lease is? Kind of how we should think about you guys doing, I guess, more post office stuff, but beyond just the retail facilities and kind of what the opportunity is out there? And then also, would this also fall within the 7% to 9% cap rate target that you have for the traditional acquisitions you do?

Sure. Appreciate the question. So, this is a large facility for us and it's a large facility in the leased Postal world as well. This is not an asset type or size that comes up very often. We're very excited to see it hit the market. This is -- as I was saying, this is one of only 12 buildings over 300,000 square feet that the Postal Service leases. The current lease runs about six-and-a-half-years. This is a very well utilized building. This is a very mission-critical building for the Postal Service. The Postal Service has just invested in the building in their common areas and bathrooms and new HVAC. Even though the building is large, for all intents and purposes, what we're trying to do is we're trying to acquire properties that are important to the Postal Service and this falls well within that. It's something that we're really excited about. In terms of a cap rate, we’re purchasing this at the mid-to-low 6 cap rate range, which we believe to be a very good price. We're also even buying this large asset in that price rate range. We're still going to be in our 7% to 9% weighted average cap rate range for 2020.

Okay. That's really helpful. And then, you guys mentioned in your press release that if you receive notice on one property in Ohio. That's about 70 basis points of revenue that the post office is going to vacate next year, maybe just give us some more details on, I mean, maybe where that is located, re-tenanting prospects, or do you sell the building, I guess, what are the plans there?

Sure. So, the property is in Ohio. We had, I guess, heard some whispers that they were looking to relocate this particular facility. As I've stated before, the single largest reason why the Postal Service moves is, because the building is either too large or too small. In this particular case, the building was too large. It's a 16,000 square foot building and they're moving to something that's significantly smaller. They're not going to be vacating until August of 2021. We just received the notice on it. And so, we're going to view what our options are and make a decision as it gets closer to lease expiration.

Yes. All right. That's helpful. Thank you, guys.

Thank you.

Our next question is from Robert Stevenson with Janney. Please, go ahead.

Thanks. Good evening, guys. What do you guys averaging these days on a year-to-date basis in terms of increase on lease renewals?

So as I've articulated in the past where we're averaging 2% to 3% NOI increases year-over-year. So that would be a 10% to 15%, as we roll our leases, because our leases are flat, they're straight. No rent increases over the five-year term.

Okay. And then on the industrial asset, the other two tenants, do they also have six-and-a-half years or they’re about on the lease left, does the U.S. Postal Service want the remaining space when those tenants expire? And can you talk about what the credit quality is with those other two tenants?

Sure. So the second tenant is a public company. It is a -- it's about 25% of the space. The third tenant has a very small space. The third tenant is the actual original developer of the property. The weighted average lease term across all three leases is a little north of 5 years. That's helpful?

Okay. And I mean -- the post office want more space there or is what they have sufficient for their needs?

It's not a conversation that we've had with the postal service. We just got into contract on this very, very recently. That is something that we will explore. But from my understanding, both the other tenants are very happy within the space. All three tenants have been in this space since the building was originally built. And they're all three very, very happy there. So it's a conversation that we’ll probably we had at some point, but it's not something that we're discussing now.

Okay. Thanks, guys. Appreciate it.

Thank you.

Our next question is from Frank Lee with BMO. Please, go ahead.

Hi. Good afternoon, everyone. Just want to get your thoughts on funding the acquisitions in your current pipeline, the intention now to fund everything on the line versus issuing any equity or possibly using property level mortgages as an option?

Hey, Frank, it's Jeremy. How are you? Thanks for joining today. So we have ample room on our credit facility at this time to fund the Warrendale acquisition and existing pipeline. And we are exploring mortgage or fixed term opportunities for the Warrendale asset with -- with lenders right now. And we did not have any plans to need additional capital in the near term.

Okay, thanks. And then you mentioned this -- the landscape for the warehouse properties under -- over 300,000 square feet. Do you have a sense of the size of the market for USPS office properties? Just want to get the sense of the opportunity set here? And who are the typical owners of these properties and how they compare with the more, kind of, traditional owners for the properties you've been acquiring?

So the larger industrial properties are typically owned by institutional players. Prologis owns a few. There are -- local municipalities or cities or that own a bunch of them as well. In terms of office, the target -- addressable market for office is smaller than that of the industrial sector. But I think I could quantify it this way by saying, you know, the Postal Service leases approximately 70 buildings over 100,000 square feet. That accounts for let's say, north of 20% of the properties that they lease. And within that over 100,000 square feet would be office and industrial and different types of properties.

Okay. Great. Thank you.

Thank you.

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

Thank you very much. On behalf of Jeremy and myself and everybody here and the entire team, I wanted to thank you all for joining us today. We hope that everyone out there is safe and healthy during this crazy time. Thank you again.

This concludes today’s conference call. You may disconnect your lines. Thank you for participating. And have a pleasant day.