“Neither snow nor rain nor heat nor gloom of night stays these couriers from the swift completion of their appointed rounds.”
That’s the unofficial motto of the United States Postal Service (USPS).
Officially, the agency has no motto. And in reality, it has delayed mail delivery on numerous occasions.
The USPS is the oldest federal agency. It was formed in 1775 during the Second Continental Congress, with Benjamin Franklin as the first postmaster general.
In the nearly two and a half centuries of its existence, the USPS has been a vital network connecting Americans across the country. Despite being a government agency, the USPS doesn’t cost taxpayers anything – it’s entirely self-funded through sales of stamps and postage.
And though the importance of mail has faded in recent years – all I get these days are bills and junk mail – the USPS still plays an important role in our economy by delivering nearly 40% of packages from online sales.
CEO Shares the Key to His Success
Last week, I attended the annual REITworld conference in San Francisco. While I was there, I had an interesting conversation with Andrew Spodek. Andrew is the CEO of Postal Realty (PSTL), a unique real estate investment trust that focuses exclusively on leasing post offices. Here’s what I learned.
Though Postal Realty is lumped into the category of office REITs, in reality its buildings function more like industrial properties as part of one of the nation’s largest logistics networks. Industrial REITs have been one of the fastest growing sectors in recent years thanks to increasing demand from the rise of e-commerce.
Andrew has been investing in post offices for more than 20 years. According to him, one of the main attractions of these properties is that they are “critical infrastructure” and part of a “logistics network that’s irreplaceable.”
And, post offices are more than just places to drop off or pick up mail. They are also important community centers and often provide government services such as renewing driver’s licenses and passports. That means that they are likely to keep the lights on – and keep paying rent – even in the tough times.
This Company is Just Getting Started
Postal Realty’s contracts with the USPS are structured as modified double net leases that last for five years. The company pays for insurance while the USPS pays for taxes and utilities. Postal Realty has an impressive 99.7% occupancy rate and over the past 10 years the company has retained 98.8% of its leases that have come up for renewal.
Postal Realty is a relatively young REIT as it went public just three years ago in 2019. It already has a solid track record of increasing its dividend every quarter. But, one concern is that its dividend payout ratio is at 96% of adjusted funds from operations. That’s really high, even for a REIT with such an impressive and stable portfolio.
The upshot is Postal Realty has a long runway for growth, even in its specialized niche of post offices. The company currently owns just 1,232 postal properties, which is less than 5% of the over 25,000 facilities that the USPS leases across the nation.
Who knew that helping to deliver the mail could be an attractive investment?
It all boils down to Postal Realty’s unique investment into critical infrastructure. The U.S. Postal Service is an irreplaceable 250+ year old government agency that is here to stay.
Happy SWAN (sleep well at night) investing,
Brad Thomas
Editor, Intelligent Income Daily
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Source: Wide Moat Research