Postal REIT Delivers ROI in Inflationary Storm

Real estate investors looking for a safe harbor in today’s inflationary spiral can count on REITs specializing in office space used by the US Postal Service to deliver a steadily growing ROI for years to come.

With annual retention, rent collection and occupancy rates of nearly 100 percent, REITs that specialize in post office properties have been a safe bet to produce a profitable return regardless of the prevailing economic weather.

Now, a new wave of federal funding for a long-stalled modernization program at USPS will fuel the already rapid growth of the postal service REIT niche.

An existential cloud that has hung over the USPS for more than a decade, including a mountain of red ink and looming service cuts, finally lifted this week as Congress approved a $107-billion upgrade for the postal service.

Postal Realty Trust (PSTL), a self-managed REIT that is the largest owner of properties leased to the US Postal Service, has more than tripled the size of its portfolio since it went public in 2019 with 270 properties.

The postal REIT now owns 926 properties nationwide, with an additional 397 properties under management, including last-mile post offices as well as larger industrial facilities.

Postal Realty Trust owns properties in 49 states, with the portfolio collecting annualized gross rent of more than $34 million.

PSTL employs several variations of double net leases in which the tenant is responsible for two out of three requirements from a list including property maintenance, insurance and taxes.

The REITs focus on USPS office needs in what it calls “high-quality, mission-critical locations” has generated a growing revenue stream. PSTL says it has a retention rate of nearly 99 percent on average; the REIT staggers its lease expirations, with only 10 percent of its leases up for renewal in the next three years.

PSTL reported an occupancy rate of 99.6 percent for Q4 2021 and a 100 percent collection rate for rents. The postal REIT acquired nearly 200 properties in 2021.

President Biden said he’ll sign the new Postal Service Reform Act, which passed the US Senate by a vote of 79-14 on Tuesday. The bill waives $57 billion in past-due liabilities, eliminating $50 billion in payments the USPS would have been required to make during the next 10 years to service its debt.

The huge funding package for the nation’s mail-delivery service got a big boost from USPS performance during the pandemic, including its on-time delivery of mail-in ballots during the 2020 election, when nearly half of US voters cast their ballots by mail.

The debt relief will allow USPS to undertake a long-delayed modernization of its facilities and services. The $107-billion funding bill also will enable USPS to continue expanding its package-delivery footprint to keep up with UPS, FedEx and Amazon.

In the run-up to the holiday season in 2021, USPS opened 48 package-specific processing plants; USPS says it handled more than 13 billion items between Thanksgiving and the end of the year.