What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-03-30 compared with 2020-03-27 · 809 added, 749 removed, 438 unchanged (78% of the section changed)

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Independent Registered Public Accounting Firm

and Combined Consolidated Balance Sheets as of December 31, 2019 and 2018

and Combined Consolidated Statements of Operations for the Years Ended December 31, 2019 and 2018

and Combined Consolidated Statements of Equity (Deficit) for the Years Ended December 31, 2019 and 2018

and Combined Consolidated Statements of Cash Flows for the Years Ended December 31, 2019 and 2018

Consolidated and Combined Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

Balance Sheets as of December 31, 2020 and 2019

Consolidated and Combined Consolidated Statements of Operations for the Years Ended December 31, 2020 and 2019

Consolidated and Combined Consolidated Statements of Equity (Deficit) for the Years Ended December 31, 2020 and 2019

Consolidated and Combined Consolidated Statements of Cash Flows for the Years Ended December 31, 2020 and 2019

Notes to Consolidated and Combined Consolidated Financial Statements

Schedule III –

Real Estate Properties and Accumulated Depreciation

POSTAL REALTY TRUST, INC.

AND PREDECESSOR

REPORT OF INDEPENDENT REGISTERED PUBLIC

ACCOUNTING FIRM

Shareholders and Board of Directors

OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Stockholders and Board of Directors

Postal Realty Trust, Inc.

Cedarhurst, NY

Opinion on the Consolidated

and Combined Consolidated Financial Statements

We have audited the accompanying

consolidated and combined consolidated balance sheets of Postal Realty Trust, Inc.

and its Predecessor (the “Company”)

as of December 31, 2019 and 2018, the related consolidated and combined consolidated statements of operations, equity (deficit),

and cash flows for each of the two years in the period ended December 31, 2019, and the related notes and schedule (collectively

referred to as the “consolidated and combined consolidated financial statements”).

In our opinion, the consolidated

and combined consolidated financial statements present fairly, in all material respects, the financial position of the Company

at December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the two years in the period ended

December 31, 2019 , in conformity with accounting principles generally accepted in the United States of America.

Opinion on the Consolidated and

Combined Consolidated Financial Statements

We have audited the accompanying consolidated balance

sheets of Postal Realty Trust, Inc.

as of December 31, 2020 and 2019, the related consolidated and

combined consolidated statements of operations, changes in equity (deficit), and cash flows of Postal

Realty Trust, Inc.

and its Predecessor (the “Company”) for the years then ended, and the related

notes and schedule (collectively referred to as the “consolidated and combined consolidated financial

statements”).

In our opinion, the consolidated and combined consolidated financial statements present fairly,

in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the

results of its operations and its cash flows for the years then ended , in

conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated and

combined consolidated financial statements are the responsibility of the Company’s management.

These consolidated and combined

consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express

an opinion on the Company’s consolidated and combined consolidated financial statements based on our audits.

We are a public

accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required

to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and

regulations of the Securities and Exchange Commission and the PCAOB.

an opinion on the Company’s consolidated and combined consolidated financial statements based on our

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”)

and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable

rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with

the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether

the consolidated and combined consolidated financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose

of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we

express no such opinion.

Those standards require that we plan and perform the audit to obtain reasonable assurance about

whether the consolidated and combined consolidated financial statements are free of material misstatement, whether

due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control

over financial reporting.

As part of our audits we are required to obtain an understanding of internal control

over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal

control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures

to assess the risks of material misstatement of the consolidated and combined consolidated financial statements, whether due to

error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence

regarding the amounts and disclosures in the consolidated and combined consolidated financial statements.

Our audits also included

evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation

of the consolidated and combined consolidated financial statements.

We believe that our audits provide a reasonable basis for our

to assess the risks of material misstatement of the consolidated and combined consolidated financial statements,

whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a

test basis, evidence regarding the amounts and disclosures in the consolidated and combined consolidated financial

Our audits also included evaluating the accounting principles used and significant estimates made by management, as

well as evaluating the overall presentation of the consolidated and combined consolidated financial statements.

believe that our audits provide a reasonable basis for our opinion.

/s/ BDO USA, LLP

We have served as the Company’s auditor

We have served as the Company's auditor

New York, New York

March 30, 2021

Postal Realty Trust, Inc.

and Predecessor

Consolidated and Combined Consolidated

FINANCIAL INFORMATION

Financial Statements

REALTY TRUST, INC.

BALANCE SHEETS

Real estate properties

Real estate properties, at cost:

Building and improvements

Tenant improvements

Total real estate properties

Total real estate properties, at cost

Accumulated depreciation

(13,215,180 )

Total real estate properties, net

Rents and other receivables

Investment in financing lease, net

Total investments

Rent and other receivables

Prepaid expenses and other assets, net

3 unchanged sentences

Above market leases, net

$ 258,884,811

$ 136,788,197

Liabilities and Equity

3 unchanged sentences

Below market leases, net

Deferred tax liability, net

Total Liabilities

Commitments and Contingencies

Equity (Deficit):

Class A common shares $0.01 par value;

500,000,000 shares authorized:

5,285,904 shares issued and outstanding as of December 31, 2019

Class B common shares $0.01 par value;

Class A common stock, par value $0.01 per share;

500,000,000 shares authorized, 9,437,197 and 5,285,904 shares issued and outstanding as of December 31, 2020 and December 31, 2019, respectively

Class B common stock, par value $0.01 per share;

27,206 shares authorized:

27,206 shares issued and outstanding as of December 31, 2019

No Par, 1,000 shares authorized;

1,000 shares issued and outstanding

No Par, 200 shares authorized;

200 shares issued and outstanding

27,206 shares issued and outstanding as of December 31, 2020 and December 31, 2019

Additional paid-in capital

Accumulated deficit

Members deficit

Total Stockholders’

and Predecessor Equity (Deficit)

Operating Partnership unitholders’

non-controlling interests

Non-controlling interests in properties

Total Equity (Deficit)

Total Liabilities and Equity (Deficit)

Total Liabilities and Equity

$ 258,884,811

$ 136,788,197

accompanying notes are an integral part of these consolidated and combined consolidated financial statements.

Postal Realty Trust, Inc.

and Predecessor

Consolidated and Combined Consolidated Statements of Operations

REALTY TRUST, INC.

AND COMBINED CONSOLIDATED STATEMENTS OF OPERATIONS

For the Year Ended

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Total interest expense, net

(Loss) income before income tax (expense) benefit

Income tax (expense) benefit

Net (loss) income

Income (loss) before income tax expense

Income tax expense

Net income attributable to non-controlling interest in properties

2 unchanged sentences

non-controlling interests

Net income (loss) attributable to common stockholders

Net loss attributable to common stockholders

$ (1,497,213 )

4 unchanged sentences

accompanying notes are an integral part of these consolidated and combined consolidated financial statements.

Postal Realty Trust, Inc.

and Predecessor

Consolidated and Combined Consolidated Statements of Equity (Deficit)

REALTY TRUST, INC.

AND COMBINED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

shares of Common

Additional Paid-in Capital

Accumulated Equity

Member’s Equity

Total stockholders' &

Predecessor equity

Partnership unitholders’

Member’s

Stockholders’

unitholders’

non-controlling

Non-controlling

interests in properties

Balance - December 31,

5 unchanged sentences

Distributions and dividends

Net income (loss)

Balance - December 31, 2018

$ (11,003,876 )

$ (2,095,823 )

$ (5,658,006 )

$ (5,613,413 )

Capital contributions

Distributions and dividends

Net income (loss)

Balance - May 16, 2019

income (loss)

- May 16, 2019

$ (11,174,220 )

2 unchanged sentences

$ (5,160,479 )

Net proceeds from sale of common stock

Net proceeds from sale of

Formation transactions

1 unchanged sentence

(23,237,628 )

Issuance of OP Units in connection with transaction

Issuance and amortization of equity-based compensation

Amortization under the Employee Stock Purchase Plan (“ESPP”)

Issuance of OP Units in connection

with a transaction

Issuance and amortization

of equity-based compensation

Amortization under the Employee

Stock Purchase Plan (“ESPP”)

Dividends declared ($0.203 per share)

Net income (loss)

Reallocation of non-controlling interest

of non-controlling interest

(14,511,937 )

December 31, 2019

$ (2,575,754 )

Balance - December 31,

$ (2,575,754 )

The accompanying notes are an integral part of these consolidated

and combined consolidated financial statements.

Postal Realty Trust,

and Predecessor

Consolidated and Combined Consolidated Statements of Cash Flows

the Years Ended

Net proceeds from sale of

Issuance of OP Units in connection

with a transaction

Issuance and amortization

of equity-based compensation

Issuance and amortization

Restricted stock withholdings

Dividends declared ($0.79 per share)

of non-controlling interest

December 31, 2020

$ 100,812,012

$ (8,916,683 )

$ 119,638,526

accompanying notes are an integral part of these consolidated and combined consolidated financial statements.

REALTY TRUST, INC.

AND COMBINED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Year Ended

Cash flows from operating activities:

Net income (loss)

Adjustments to reconcile net income (loss) to

net cash provided by operating activities:

Amortization of

in-place intangibles

Write-off and amortization

of deferred financing costs

Amortization of

above/below market leases

$ (1,492,431 )

Adjustments to reconcile net loss to net cash provided by operating activities:

Amortization of in-place intangibles

Write-off and amortization of deferred financing costs

Amortization of above/below market leases

Amortization of intangible liability

Equity based compensation

Reclassification of cumulative dividends paid on forfeited awards

Loss on extinguishment of debt

Deferred rent receivable

Loss on extinguishment

Deferred rent expense

Deferred rent expense payable

Deferred tax liability

Equity-based compensation

Changes in assets

and liabilities:

Changes in assets and liabilities:

Rent and other receivables

Prepaid expenses

and other assets

Prepaid expenses and other assets

Due to affiliates

Accounts payable,

accrued expenses and other

Accounts payable, accrued expenses and other

Net cash provided by operating activities

Cash flows from investing activities:

Acquisition of

Acquisition and other deposits

Acquisition of real estate

(124,159,835 )

(72,166,456 )

Investment in financing lease

Repayment of financing lease

Escrows for acquisition and construction deposits

Capital improvements

Other investing activities

Net cash used in investing activities

(126,152,208 )

(72,654,037 )

Cash flows from financing activities:

Gross proceeds

from the issuance of common stock

Costs of issuance

of common stock

Formation transactions

Proceeds from mortgage

Repayments of mortgage

Proceeds from revolving

credit facility

Proceeds from secured borrowings

Repayments of secured borrowings

(32,218,087 )

Proceeds from revolving credit facility

Repayments of revolving credit facility

(88,000,000 )

Proceeds from other financing activity

Repayments from other financing activity

Net proceeds from issuance of shares

Other formation transactions

Debt issuance costs

Capital contributions

Distributions and

Net cash provided by (used in) financing

Net increase in Cash and Escrows and Reserves

Cash and Escrows and Reserves at the beginning

Cash and Escrow and Reserves at the end of

Proceeds from issuance of ESPP shares

Shares withheld for payment of taxes on restricted share vesting

Contributions from partners and members

Distributions and dividends

Net cash provided by financing activities

Net (decrease) increase in Cash and Escrows and Reserves

Cash and Escrows and Reserves at the beginning of period

Cash and Escrow and Reserves at the end of period

accompanying notes are an integral part of these consolidated and combined consolidated financial statements.

Postal Realty Trust, Inc.

and Predecessor

Notes to Consolidated

and Combined Consolidated Financial Statements

REALTY TRUST, INC.

TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS

Organization and Description of Business

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the “OP Units”).

Both the Company and the Operating Partnership commenced operations upon completion of the IPO

and certain related formation transactions (the “Formation Transactions”).

Prior to the completion of the IPO and

the Formation Transactions, the Company had no operations.

The Company’s

interest in the Operating Partnership entitles the Company to share in distributions from, and allocations of profits and losses

of, the Operating Partnership in proportion to the Company’s percentage ownership of OP Units As the sole general partner

of the Operating Partnership, the Company has the exclusive power under the partnership agreement to manage and conduct the Operating

Partnership’s business, subject to limited approval and voting rights of the limited partners.

As of December 31, 2019, the

Company held an approximately 70.0% interest in the Operating Partnership.

As the sole general partner and the majority interest

holder, the Company consolidates the financial position and results of operations of the Operating Partnership.

The Operating Partnership

is considered a variable interest entity, or VIE, in which we are the primary beneficiary.

Predecessor (the “Predecessor”) is a combination of limited liability companies (the “LLCs”), one C-Corporation

Both the Company and the Operating Partnership commenced operations upon completion of the IPO and

certain related formation transactions (the “Formation Transactions”).

Prior to the completion of the IPO and the

Formation Transactions, the Company had no operations.

Company’s interest in the Operating Partnership entitles the Company to share in distributions from, and allocations of

profits and losses of, the Operating Partnership in proportion to the Company’s percentage ownership of OP Units.

sole general partner of the Operating Partnership, the Company has the exclusive power under the partnership agreement to manage

and conduct the Operating Partnership’s business, subject to limited approval and voting rights of the limited partners.

As of December 31, 2020, the Company held an approximately 76.9% interest in the Operating Partnership.

As the sole general partner

and the majority interest holder, the Company consolidates the financial position and results of operations of the Operating Partnership.

The Operating Partnership is considered a variable interest entity (“VIE”) in which we are the primary beneficiary.

Predecessor (the “Predecessor”) was a combination of limited liability companies (the “LLCs”), one C-Corporation

(“UPH”), one S-Corporation (“NPM”) and one limited partnership.

The entities that comprise the Predecessor

The entities that comprised the Predecessor

were majority owned and controlled by Mr.

Andrew Spodek and his affiliates and were acquired by contribution to, or merger with,

Spodek and his affiliates and were acquired by contribution to, or merger with,

the Company and the Operating Partnership.

Predecessor does not represent a legal entity.

Predecessor did not represent a legal entity.

The Predecessor and its related assets and liabilities were under common control

and were contributed to the Operating Partnership in connection with the Company’s IPO.

the periods prior to May 17, 2019, the Predecessor, through the LLCs, UPH and the limited partnership, owned 190 post office properties

the periods prior to May 17, 2019, the Predecessor, through the LLCs, UPH and the limited partnership, owned 190 postal properties

in 33 states.

was formed on November 17, 2004, for the purposes of managing commercial real estate properties.

As of December 31, 2019, the Company owned a portfolio of 466

postal properties located in 44 states.

Our properties were leased to a single tenant, the United States Postal Service (the “USPS”)

other than a de-minimis non-postal tenant that shares space in a building leased to the USPS.

was formed on November 17, 2004, for the purpose of managing commercial real estate properties.

of December 31, 2020, the Company owned a portfolio of 726 postal properties located in 47 states.

Our properties are primarily

leased to a single tenant, the United States Postal Service (the “USPS”).

addition, through its taxable REIT subsidiary (“TRS”), Postal Realty Management TRS, LLC (“PRM”), the

Company provides fee-based third party property management services for an additional 400 postal properties, which are owned by

Spodek, his family members and their partners.

Spodek and his affiliates, his family members and their partners.

Company, until May 15, 2019, was authorized to issue up to 600,000,000 shares of common stock, par value $0.01 per share.

3 unchanged sentences

or “Voting Equivalency stock”), and up to 100,000,000 shares of preferred stock.

The Company elected to be taxed as an S-Corporation under the

Internal Revenue Code of 1986, as amended (the “Code”), effective November 19, 2018, and as such, all federal tax liabilities

were the responsibility of the Company’s sole stockholder until the completion of our IPO.

In anticipation of the IPO, the

Company revoked its S-Corporation election on May 14, 2019.

The Company will elect to be treated as and operate in a matter

that will allow it to qualify as a real estate investment trust (“REIT”) under the Code beginning with its short taxable

year ending December 31, 2019.

As a REIT, the Company generally will not be subject to federal income tax to the extent that it

distributes at least 90% of its REIT taxable income, determined without regard to the deduction for the dividends paid and excluding

net capital gains, for each tax year to its stockholders.

Company believes it has been organized in conformity with, and has operated in a manner that has enabled it to meet, the requirements

or qualification as a real estate investment trust (“REIT”) under the Code, and the Company elected to be taxed as

a REIT under the Code commencing with our short taxable year ended December 31, 2019.

As a REIT, the Company generally will not

be subject to federal income tax to the extent that it distributes its REIT taxable income for each tax year to its stockholders.

REITs are subject to a number of organizational and operational requirements.

REALTY TRUST, INC.

NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS

to the Jumpstart Our Business Startups Act (the “JOBS Act”), the Company qualifies as an emerging growth company (“EGC”).

An EGC may choose to take advantage of the extended private company transition period provided for complying with new or revised

accounting standards that may be issued by the Financial Accounting Standards Board (“FASB”) or the Securities and

Exchange Commission (the “SEC”).

Postal Realty Trust, Inc.

and Predecessor

Notes to Consolidated and Combined Consolidated Financial

Statements (Continued)

The Company’s IPO and Formation Transactions

An EGC may choose, as we have done, to take advantage of the extended private company transition period provided for complying

with new or revised accounting standards that may be issued by the Financial Accounting Standards Board (“FASB”) or

the Securities and Exchange Commission (the “SEC”).

Public Offering and Formation Transactions

the Company and the Operating Partnership commenced operations upon completion of the IPO and the Formation Transactions on May

16 unchanged sentences

In addition, the Operating Partnership

purchased 81 post office properties (the “Acquisition Properties”) in exchange for $26.9 million in cash, including

approximately $1.0 million paid to Mr.

Spodek, the Company’s chief executive officer and a director for his non-controlling

ownership in nine of the Acquisition Properties.

balance sheet as of December 31, 2018 and the statement of operations for the year ended December 31, 2018 reflect the financial

condition and results of operations of the Predecessor.

The statement of operations for the year ended December 31, 2019 reflects

the results of operations of the Predecessor for the period of January 1, 2019 to May 16, 2019 and the Company for the period

from May 17, 2019 to December 31, 2019, while the balance sheet as of December 31, 2019 reflects the financial condition of the

References in these notes to consolidated financial statements to “Postal Realty Trust, Inc.”

Company for the period after the completion of the IPO and the Formation Transactions and the Predecessor for all prior periods.

following is a summary of the Predecessor Statements of Operations for the period from January 1, 2019 through May 16, 2019,

and the Company’s Statement of Operations for the period from May 17, 2019 through December 31, 2019.

These amounts

are included in the Consolidated and Combined Consolidated Statement of Operations herein for the year ended December 31,

Postal Realty Trust, Inc.

and Predecessor

Notes to Consolidated and Combined Consolidated

Financial Statements (Continued)

purchased 81 postal properties (the “Acquisition Properties”) in exchange for $26.9 million in cash, including approximately

$1.0 million paid to Mr.

Spodek, the Company’s chief executive officer and a director for his non-controlling ownership

in nine of the Acquisition Properties.

Company’s results of operations for the year ended December 31, 2019 reflect the results of operations of the Predecessor

together with the Company, while the financial condition as of December 31, 2019 reflects solely the Company.

References in these

notes to consolidated financial statements to “Postal Realty Trust, Inc.”

signify the Company for the period after

the completion of the IPO and the Formation Transactions and the Predecessor for all prior periods.

following is a summary of the Predecessor Statement of Operations for the period from January 1, 2019 through May 16, 2019, and

the Company’s Statement of Operations for the period from May 17, 2019 through December 31, 2019.

These amounts are included

in the Consolidated and Combined Consolidated Statement of Operations herein for the year ended December 31, 2019.

REALTY TRUST, INC.

1, 2019 through May 16,

17, 2019 through December 31,

NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS

Postal Realty

Rental income

11 unchanged sentences

Contractual interest expense

Write-off and amortization of deferred financing

Loss on early extinguishment of Predecessor

Write-off and amortization of deferred financing costs

Loss on early extinguishment of Predecessor debt

Interest income

3 unchanged sentences

Net income (loss)

Net income attributable to noncontrolling interest

in properties

Net income attributable to noncontrolling interest in properties

Net income attributable to Predecessor

Net loss attributable to Operating Partnership

unitholders' noncontrolling interest

Net loss attributable to Operating Partnership unitholders’

noncontrolling interests

Net loss attributable to common stockholders

Postal Realty Trust, Inc.

and Predecessor

Notes to Consolidated

and Combined Consolidated Financial Statements (Continued)

$ (1,497,213 )

REALTY TRUST, INC.

NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS

Summary of Significant Accounting Policies

2 unchanged sentences

of the Company and its Predecessor, the Operating Partnership and its wholly owned subsidiaries.

The Predecessor represents a

combination of certain entities holding interests in real estate that were commonly controlled prior to the Formation Transactions.

Due to their common control, the financial statements of the separate Predecessor entities which owned the properties and the

management company are presented on a combined consolidated basis.

The effects of all significant intercompany balances and transactions

have been eliminated.

The Company did not have any

operations from the date of formation to May 17, 2019.

The Predecessor represents a combination of certain entities holding interests

in real estate that were commonly controlled prior to the Formation Transactions.

Due to their common control, the financial statements

of the separate Predecessor entities which owned the properties and the management company are presented on a combined consolidated

The effects of all significant intercompany balances and transactions have been eliminated.

Company consolidates the Operating Partnership, a VIE in which the Company is considered the primary beneficiary.

31 unchanged sentences

are expensed as incurred.

Postal Realty Trust, Inc.

and Predecessor

Notes to Consolidated

and Combined Consolidated Financial Statements (Continued)

REALTY TRUST, INC.

NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS

or amortization expense is computed using the straight-line method based upon the following estimated useful lives:

8 unchanged sentences

inclusive of any option periods for below-market leases.

costs related to the issuance of the Company’s secured long-term debt are deferred and amortized as an increase to interest

expense over the term of the related debt instrument using the effective-interest method and are reported as a reduction of the

related debt balance on the Consolidated Balance Sheets.

Deferred financing costs related to the establishment of the Company's

credit facility (the “Credit Facility”) are deferred and amortized to interest expense over the term of the Credit

Facility and are included in “Prepaid expenses and other assets, net”

Financing costs related to the issuance of the Company’s

secured long-term debt are deferred and amortized as an increase to interest expense over the term of the related debt instrument

using the effective-interest method and are reported as a reduction of the related debt balance on the Consolidated Balance Sheets.

Deferred financing costs related to the Company’s credit facility, or (the “Credit Facility”) are deferred and

amortized as an increase to interest expense over the term of the Credit Facility and are included in “Prepaid expenses and

other assets, net”

on the Consolidated Balance Sheets.

carrying value of real estate investments and related intangible assets are reviewed for impairment whenever events or changes

in circumstances indicate that the carrying amount may not be recoverable.

An impairment exists when the carrying amount of an

asset exceeds the aggregate projected future cash flows over the anticipated holding period on an undiscounted basis.

An impairment

loss is measured based on the excess of the asset’s carrying amount over its estimated fair value.

Impairment analyses will

be based on current plans, intended holding periods and available market information at the time the analyses are prepared.

estimates of the projected future cash flows, anticipated holding periods or market conditions change, the evaluation of impairment

losses may be different and such differences may be material.

The evaluation of anticipated cash flows is subjective and is based,

in part, on assumptions regarding future occupancy, rental rates and capital requirements that could differ materially from actual

No impairments were recorded during the years ended December 31, 2019 and 2018.

and Escrow and Reserves

included unrestricted cash with a maturity of three months or less.

Reclassifications

prior period amounts have been reclassified to conform to the current period’s presentation.

and Escrows and Reserves

includes unrestricted cash with a maturity of three months or less.

Escrows and reserves consist of restricted cash.

The following

table provides a reconciliation of cash and escrow and reserves reported within the Company’s Consolidated Balance Sheets

table provides a reconciliation of cash and escrows and reserves reported within the Company’s Consolidated Balance Sheets

and Consolidated and Combined Consolidated Statements of Cash Flows:

As of December 31,

Escrow and reserves:

Escrows and reserves:

Maintenance reserve

Cash and escrow and reserves

Postal Realty Trust, Inc.

and Predecessor

Notes to Consolidated and Combined Consolidated

Financial Statements (Continued)

Value of Financial Instruments

following disclosure of estimated fair value was determined by management using available market information and appropriate valuation

methodologies.

However, considerable judgment is necessary to interpret market data and develop estimated fair value.

the estimates presented herein are not necessarily indicative of the amounts the Company could realize on disposition of the assets

and liabilities as of December 31, 2019 and 2018.

The use of different market assumptions and/or estimation methodologies may

have a material effect on the estimated fair value amounts.

Cash, escrows and deposits, receivables, prepaid expenses, accounts

payable and accrued expenses and due to affiliates are carried at amounts which reasonably approximate their fair values as of

December 31, 2019 and 2018 due to their short maturities.

fair value of the Company’s borrowings under its Credit Facility approximates carrying value.

The fair value of the Company’s

secured borrowings aggregated approximately $3.2 million and $33.6 million as compared to the principal balance of $3.2 million

and $35.0 million as of December 31, 2019 and 2018, respectively.

The fair value of the Company’s debt was categorized as

a Level 3 basis (as provided by ASC 820, Fair Value Measurements and Disclosures ).

The fair value of these financial

instruments was determined by using a discounted cash flow analysis based on the borrowing rates currently available to the Company

for loans with similar terms and maturities.

The fair value of the mortgage debt was determined by discounting the future contractual

interest and principal payments by a market rate.

about fair value of assets and liabilities is based on pertinent information available to management as of December 31, 2019 and

Although management is not aware of any factors that would significantly affect the fair value amounts, such amounts have

not been comprehensively revalued for purposes of these financial statements since December 31, 2019 and current estimates of

fair value may differ significantly from the amounts presented herein.

Real estate tax reserve

Cash and escrows and reserves

Company has operating lease agreements with tenants, some of which contain provisions for future rental increases.

5 unchanged sentences

on the Company’s Consolidated and Combined Consolidated Statement of Operations.

REALTY TRUST, INC.

NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS

and other income primarily consist of property management fees.

12 unchanged sentences

in income until the proceeds are received.

As a REIT, the

Company is generally not subject to federal corporate income tax on our net income (loss) that we distribute to our shareholders.

Operating Partnership which holds our properties is a partnership for U.S.

federal income tax purposes and is not subject to

federal income taxes as the revenues and expenses pass through to the respective owners where they are taxed.

and cities in which the Operating Partnership operates generally follows the U.S.

Revenue from direct financing leases is recognized over the

lease term using the effective interest rate method.

At lease inception, we record an asset within investments on the Company’s

Consolidated Balance Sheets, which represents the Company’s net investment in the direct financing lease.

net investment is determined by aggregating the total future minimum lease payments attributable to the direct financing lease and

the estimated residual value of the property, if any, less unearned income.

Over the lease term, the investment in the direct financing

lease is reduced and income is recognized as revenue in “Fee and other income”

on the Company’s Consolidated

and Combined Consolidated Statement of Operations and produces a constant periodic rate of return on the investment in direct financing

As a REIT, the Company is generally not subject to federal corporate

income tax on our net income (loss) that the Company distributes to our shareholders.

The Operating Partnership which holds our

properties is a partnership for U.S.

federal income tax purposes and is not subject to U.S.

federal income taxes as the revenues

and expenses pass through to the respective owners where they are taxed.

The states and cities in which the Operating Partnership

operates generally follows the U.S.

federal income tax treatment.

Income taxes or credits resulting from earnings

or losses for the LLCs, the limited partnership and NPM were payable by or accrue to the benefit of the members/partners/shareholders

of such entities.

No provision has been made for income taxes for these passthrough entities in the combined consolidated financial

UPH was subject to federal and state and

local income taxes for tax years before the date of the IPO on May 17, 2019.

For periods subsequent to the completion of the IPO

and the Formation Transactions, PRM is subject to federal, state and local corporate income taxes to the extent there is taxable

was subject to federal and state and local income taxes for tax years before the date of the IPO on May 17, 2019.

subsequent to the completion of the IPO and the Formation Transactions, PRM is subject to federal, state and local corporate income

taxes to the extent there is taxable income.

UPH and PRM account for income taxes in accordance with the asset and liability method.

Under the asset and liability method,

deferred tax assets and liabilities are recognized based on the differences between the financial statement carrying value of existing

assets and liabilities and their respective tax bases based on enacted tax laws and statutory tax rates applicable to the periods

in which the temporary differences are expected to reverse.

A valuation allowance is established for

deferred tax assets when management anticipates that it is more likely than not that all, or a portion, of these assets would not

In determining whether a valuation allowance is warranted, all positive and negative evidence and all sources of taxable

income such as prior earnings history, expected future earnings, carryback and carryforward periods and tax strategies are considered

to estimate if sufficient future taxable income will be generated to realize the deferred tax asset.

The assessment of the adequacy

of a valuation allowance is based on estimates of taxable income by jurisdiction and the period over which deferred tax assets

will be recoverable.

The tax effects of

uncertain tax positions taken or expected to be taken in income tax returns are recognized only if they are “more likely-than-not”

to be sustained on examination by the taxing authorities based on the technical merits as of the reporting date.

The tax benefits

recognized in the financial statements from such positions are measured based on the largest benefit that has a greater than fifty

percent likelihood of being realized upon ultimate settlement.

The Company recognizes estimated accrued interest and penalties

related to uncertain tax positions in income tax expense.

Postal Realty Trust, Inc.

and Predecessor

Notes to Consolidated and Combined Consolidated

Financial Statements (Continued)

Under the asset and liability method, deferred tax assets and liabilities are recognized based on the differences between the

financial statement carrying value of existing assets and liabilities and their respective tax bases based on enacted tax laws

and statutory tax rates applicable to the periods in which the temporary differences are expected to reverse.

valuation allowance is established for deferred tax assets when management anticipates that it is more likely than not that all,

or a portion, of these assets would not be realized.

In determining whether a valuation allowance is warranted, all positive and

negative evidence and all sources of taxable income such as prior earnings history, expected future earnings, carryback and carryforward

periods and tax strategies are considered to estimate if sufficient future taxable income will be generated to realize the deferred

The assessment of the adequacy of a valuation allowance is based on estimates of taxable income by jurisdiction and

the period over which deferred tax assets will be recoverable.

tax effects of uncertain tax positions taken or expected to be taken in income tax returns are recognized only if they are “more

likely-than-not”

to be sustained on examination by the taxing authorities based on the technical merits as of the reporting

The tax benefits recognized in the financial statements from such positions are measured based on the largest benefit that

has a greater than fifty percent likelihood of being realized upon ultimate settlement.

The Company recognizes estimated accrued

interest and penalties related to uncertain tax positions in income tax expense.

REALTY TRUST, INC.

NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS

Value of Financial Instruments

following disclosure of estimated fair value was determined by management using available market information and appropriate valuation

methodologies.

However, considerable judgment is necessary to interpret market data and develop estimated fair value.

the estimates presented herein are not necessarily indicative of the amounts the Company could realize on disposition of the assets

and liabilities as of December 31, 2020 and December 31, 2019.

The use of different market assumptions and/or estimation methodologies

may have a material effect on the estimated fair value amounts.

Cash, escrows and reserves, receivables, prepaid expenses, accounts

payable and accrued expenses are carried at amounts which reasonably approximate their fair values as of December 31, 2020 and

December 31, 2019 due to their short maturities.

of December 31, 2020, the Company had an investment in a direct financing lease with a carrying value of $0.5

million and an effective interest rate of 7.89%.

The carrying value of the investment in a direct financing lease approximated

the fair market value as of December 31, 2020.

The fair value of the Company’s debt was categorized as a Level 3 basis (as

provided by ASC 820, Fair Value Measurements and Disclosures).

fair value of the Company’s borrowings under its Credit Facility approximates carrying value.

The fair value of the Company’s

secured borrowings aggregated approximately $47.1 million and $3.2 million as compared to the principal balance of $47.0 million

and $3.2 million as of December 31, 2020 and 2019, respectively.

The fair value of the Company’s debt was categorized as

a Level 3 basis (as provided by ASC 820, Fair Value Measurements and Disclosures).

The fair value of these financial instruments

was determined by using a discounted cash flow analysis based on the borrowing rates currently available to the Company for loans

with similar terms and maturities.

The fair value of the mortgage debt was determined by discounting the future contractual interest

and principal payments by a market rate.

about fair value of assets and liabilities is based on pertinent information available to management as of December 31, 2020 and

Although management is not aware of any factors that would significantly affect the fair value amounts, such amounts have

not been comprehensively revalued for purposes of these financial statements since December 31, 2020 and current estimates of

fair value may differ significantly from the amounts presented herein.

carrying value of real estate investments and related intangible assets are reviewed for impairment whenever events or changes

in circumstances indicate that the carrying amount may not be recoverable.

An impairment exists when the carrying amount of an

asset exceeds the aggregate projected future cash flows over the anticipated holding period on an undiscounted basis.

An impairment

loss is measured based on the excess of the asset’s carrying amount over its estimated fair value.

Impairment analyses will

be based on current plans, intended holding periods and available market information at the time the analyses are prepared.

estimates of the projected future cash flows, anticipated holding periods or market conditions change, the evaluation of impairment

losses may be different and such differences may be material.

The evaluation of anticipated cash flows is subjective and is based,

in part, on assumptions regarding future occupancy, rental rates and capital requirements that could differ materially from actual

No impairments were recorded during the years ended December 31, 2020 and 2019.

Concentration

of Credit Risks

The Company’s properties

are leased to a single tenant, the USPS other than a de-minimis non-postal tenant that shares space in a building leased to the

For the year ended December 31, 2019, our total rental revenues of $8.9 million were concentrated in the following states:

Texas (10.5%), Pennsylvania (10.3%) and Massachusetts (9.7%).

For the year ended December 31, 2018, $5.7 million of our total rental

revenues was concentrated in the following states:

As of December 31, 2020, the Company’s properties were

leased primarily to a single tenant, the USPS.

For the year ended December 31, 2020, our total rental income of $20.3 million was

concentrated in the following state:

Pennsylvania (10.0%).

For the year ended December 31, 2019, our total rental income of $8.9

million was concentrated in the following states:

Texas (14.2%), Massachusetts (14.0%), Wisconsin (12.9%) and Pennsylvania (9.9%).

The ability of the USPS to honor the terms of their leases is dependent upon regulatory, economic, environmental or competitive

conditions in any of these areas could have an effect on our overall business results.

Company has deposited cash and maintains our bank deposits with large financial institutions in amounts that exceed federally

conditions in any of these areas and could have an effect on our overall business results.

REALTY TRUST, INC.

NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS

Company has deposited cash and maintains its bank deposits with large financial institutions in amounts that exceed federally

insured limits.

10 unchanged sentences

contribution of their interest in the Predecessor to the Operating Partnership and 114,706 LTIP Units to the Company’s CEO.

In addition, during the year ended December 31, 2019, the Company issued 824,350 OP Units to certain sellers in connection with

a portfolio acquisition and 5,298 LTIP Units to an employee.

addition, during the years ended December 31, 2020 and 2019, the Company issued 483,333 and 824,350 OP Units, respectively to

certain contributors in connection with portfolio acquisitions.

Based Compensation

2 unchanged sentences

requires the Company to recognize an expense for the grant date fair value of equity-based awards.

The estimated grant date fair

value of restricted stock units is amortized over their respective vesting periods.

The Company will record forfeitures as they

Equity-classified stock awards

granted to employees and non-employees that have a service condition and/or a market condition are measured at fair value at date

of grant and remeasured at fair value only upon a modification of the award.

The Company will record forfeitures as they occur.

Company recognizes compensation expense on a straight-line basis over the requisite service period of each award, with the amount

of compensation expense recognized at the end of a reporting period at least equal the portion of fair value of the respective

award at grant date or modification date, as applicable, that has vested through that date.

For awards with a market condition,

compensation cost is not reversed if a market condition is not met so long as the requisite service has been rendered, as a market

condition does not represent a vesting condition.

Stockholder’s Equity for further details.

Company calculates net income (loss) per share based upon the weighted average shares outstanding less issued and outstanding

non-vested shares of Class A common stock for the period beginning May 17, 2019.

Diluted earnings per share is calculated after

giving effect to all potential dilutive shares outstanding during the period.

There were 2,277,466 potentially dilutive shares

outstanding related to the issuance of OP Units and LTIP Units held by non-controlling interests as of December 31, 2019.

Reclassifications

prior period amounts have been reclassified to conform to the current period’s presentation.

Standards Adopted in 2019

May 2014, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No.

2014-09, Revenue

from Contracts with Customers (“ASU 2014-09”) and established Accounting Standards Codification (“ASC”)

ASU 2014-09, as amended by subsequent ASUs on the topic, establishes a single comprehensive model for entities to use

in accounting for revenue arising from contracts with customers and supersedes most of the existing revenue recognition guidance.

This standard was

effective for interim and annual reporting periods that begin on or after December 15, 2018 as a result of the Company’s

status as an emerging growth company.

The Company and the Predecessor adopted ASU 2014-09 on January 1, 2019 using the modified

retrospective method however, there was no cumulative effect required to be recognized in retained earnings at the date of application.

Substantially all of the Company’s revenue is derived from its tenant leases and therefore falls outside the scope of this

With respect to its fee-based revenue, the Company earns monthly base management fees subject to the terms of the contractual

agreements with entities that are affiliated with the Company for the day-to-day operations and administration of its managed

These services are provided in exchange for monthly management fees, which are based on a percentage of revenues collected

from post offices owned by entities that are affiliated with the Company.

The Company determined that there is no change to revenue

recognition for base management fees as the underlying services are considered to be individual performance obligations composed

of a series of distinct services satisfied over time, for which revenue is recognized monthly as earned over the life of the management

agreement as services are provided.

The total amount of consideration from the contracts is variable as it is based on monthly

revenues, which are influenced by multiple factors, some of which are outside the Company’s control.

Therefore, the Company

recognizes the revenue at the end of each month once the uncertainty is resolved.

Due to the standardized terms of the management

agreements, the Company accounts for all management agreements in a similar, consistent manner.

Therefore, no disaggregated information

relating to management agreements is presented.

Postal Realty Trust, Inc.

and Predecessor

Notes to Consolidated and Combined Consolidated

Financial Statements (Continued)

The Company calculates net loss per share based upon the weighted

average shares outstanding less issued and outstanding non-vested shares of Class A common stock for the period beginning May 17,

Diluted earnings per share is calculated after giving effect to all potential dilutive shares outstanding during the period.

There were 2,849,804 and 2,277,466 potentially dilutive shares outstanding related to the issuance of OP Units and LTIP Units held

by non-controlling interests as of December 31, 2020 and 2019, respectively.

Application of Accounting Standards

10 unchanged sentences

as an emerging growth company.

REALTY TRUST, INC.

NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS

Company expects to elect the practical expedients provided by Topic 842, including:

5 unchanged sentences

and the lease component would be classified as an operating lease if accounted for separately.

Topic 842 requires

lessees to record most leases on their balance sheet through a right-of-use (“ROU”) model, in which a lessee records

an ROU asset and a lease liability on their balance sheet.

Leases that are less than 12 months do not need to be accounted for

under the ROU model.

Lessees will account for leases as financing or operating leases, with the classification affecting the timing

and pattern of expense recognition in the income statement.

Lease expense will be recognized based on the effective interest method

for leases accounted for as finance leases and on a straight-line basis over the term of the lease for leases accounted for as

operating leases.

As of December 31, 2019, the Company was the lessee under one office lease that would require accounting under

the ROU model.

842 requires lessees to record most leases on their balance sheet through a right-of-use (“ROU”) model, in which a

lessee records a ROU asset and a lease liability on their balance sheet.

Leases that are less than 12 months do not need to be

accounted for under the ROU model.

Lessees will account for leases as financing or operating leases, with the classification affecting

the timing and pattern of expense recognition in the income statement.

Lease expense will be recognized based on the effective

interest method for leases accounted for as finance leases and on a straight-line basis over the term of the lease for leases

accounted for as operating leases.

As of December 31, 2020, the Company was the lessee under one office lease and two ground leases

that would require accounting under the ROU model.

Upon adoption of Topic 842, the Company expects to record a ROU asset and corresponding

lease liability of approximately $1.1 million on its Consolidated Balance Sheet.

accounting by a lessor under Topic 842 is largely unchanged from that of Topic 840.

17 unchanged sentences

Upon adoption of Topic 842, the Company expects to combine tenant reimbursements with rental

revenues on its consolidated statements of operations.

income on its consolidated statements of operations.

September 2016, the FASB issued ASU No.

17 unchanged sentences

consolidated financial statements.

Postal Realty Trust, Inc.

and Predecessor

Notes to Consolidated and Combined Consolidated

Financial Statements (Continued)

REALTY TRUST, INC.

NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS

Real Estate Acquisitions

2 unchanged sentences

including transaction costs were allocated to the separately identifiable tangible and intangible assets and liabilities based

on their relative fair values at the date of allocation.

on their relative fair values at the date of acquisition.

The total purchase price including transaction costs was allocated as

Quarter Ended

Number of Properties

Building and Improvements

Tenant Improvements

In-place lease intangibles

market leases

June 30, 2019 (3)

September 30, 2019

December 31, 2019 (4)

2020 (3)(4)(5)

Number of Properties

Building and Improvements

Tenant Improvements

In-place lease intangibles

market leases

acquisition costs of $10,120 for the three months ended March 31, 2019, $0.4 million for the three months ended June 30, 2019,

$ (1,616,080 )

$ 102,401,971

$ (3,403,343 )

$ 132,093,683

31, 2019 (10)

30, 2019 (11)

31, 2019 (12)

$ (3,304,266 )

Includes an intangible

liability related to unfavorable operating leases on three properties that is included in “Accounts Payable, accrued

expenses and other”

on the Company’s Consolidated Balance Sheets.

Includes acquisition

costs of $0.3 million for the three months ended March 31, 2020, $0.2 million for the three months ended June 30, 2020, $0.8

million for the three months ended September 30, 2020 and $1.3 million for the three months ended December 31, 2020

the year ended December 31, 2018, includes acquisition costs of $0.02 million.

acquisition of a 21-property portfolio leased to the USPS.

The contract purchase price for the portfolio was $13.8 million,

exclusive of closing costs, and giving effect to 483,333 OP Units issued to the sellers at a value of $17.00 per unit.

closing price of the Company’s common stock on January 10, 2020 was $16.39;

therefore, total consideration at closing,

including closing costs, was approximately $13.6 million of which $7.9 million represented the non-cash consideration

(the value of the OP Units) issued to the sellers.

acquisition of a 42-property portfolio leased to the USPS.

The aggregate purchase price of such portfolio was approximately

$8.8 million, including closing costs, which was funded with borrowings under our Credit Facility.

acquisition of 20 postal properties in individual or smaller portfolio transactions for approximately $8.1 million, including

closing costs.

the acquisition of a 13-property portfolio leased to the USPS in various states for approximately $7.2 million, including

closing costs.

In addition, the Company purchased six postal properties in individual or smaller portfolio transactions for

approximately $3.4 million, including closing costs.

the acquisition of 122 postal properties in various states in individual or portfolio transactions for approximately $27.1 million,

including closing costs, which was funded with borrowings under our Credit Facility.

In addition, the Company closed on one postal

property which is a direct financing lease and is included in “Investment in financing lease, net”

on the Company’s

Consolidated Balance Sheets.

REALTY TRUST, INC.

NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS

the acquisition of 35 postal properties in various states in individual or portfolio transactions

for approximately $16.3 million, including closing costs, which was funded with borrowings

under our Credit Facility.

In addition, the Company acquired an industrial property (“Industrial

Facility”) for a total of $47.6 million, including closing costs, primarily leased to

The property was initially funded with borrowings under our Credit Facility.

to Note 5 for a discussion of the subsequent property level financing related to the acquisition.

acquisition costs of $10,120 for the three months ended March 31, 2019, $0.4 million

for the three months ended June 30, 2019, $0.1 million for the three months ended September

30, 2019 and $0.8 million for the three months ended December 31, 2019.

property was acquired by the Predecessor.

Company acquired the Acquisition Properties in connection with the IPO.

(12) Includes

the acquisition of a 113-building portfolio leased to the USPS.

The contract purchase price for the portfolio was $31.4 million,

excluding closing costs, and included 824,350 OP Units to be issued to the sellers at a value of $17.00 per unit.

price of the Company’s common stock on November 22, 2019 was $16.05;

therefore, total consideration at closing, excluding

closing costs was approximately $30.6 million of which $13.2 million represented the non-cash consideration (the value of the

The contract purchase

price for the portfolio was $31.4 million, excluding closing costs, and included 824,350

OP Units to be issued to the sellers at a value of $17.00 per unit.

The closing price

of the Company’s common stock on November 22, 2019 was $16.05;

therefore, total

consideration at closing, excluding closing costs was approximately $30.6 million

of which $13.2 million represented the non-cash consideration (the value of the

OP Units) issued to the sellers.

properties were acquired by the Predecessor during the year ended December 31, 2018.

Postal Realty Trust, Inc.

and Predecessor

Notes to Consolidated and Combined Consolidated Financial

Statements (Continued)

Intangible Assets and Liabilities

following table summarizes our intangible assets and liabilities as a result of the application of acquisition accounting:

Gross Asset (Liability)

(Amortization)/

Net Carrying Amount

December 31, 2020:

In-place lease intangibles

$ (11,143,001 )

Above-market leases

Below-market leases

(12,075,644 )

December 31, 2019:

In-place lease intangibles

$ (6,472,157 )

Above-market leases

5 unchanged sentences

Amortization of acquired

above market leases was $9,807 and $8,688 for the years ended December 31, 2019 and 2018, respectively, and is included in “Rental

income”

on the Company’s Consolidated and Combined Consolidated Statements of Operations.

Amortization of acquired

below market leases was $0.5 million and $0.3 million for the years ended December 31, 2019 and 2018, respectively, and is included

above market leases was $0.02 million and $0.01 million for the years ended December 31, 2020 and 2019, respectively, and is included

in “Rental income”

on the Company’s Consolidated and Combined Consolidated Statements of Operations.

of acquired below market leases was $1.3 million and $0.5 million for the years ended December 31, 2020 and 2019, respectively,

and is included in “Rental income”

on the Company’s Consolidated and Combined Consolidated Statements of Operations.

REALTY TRUST, INC.

NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS

As of December 31,

3 unchanged sentences

Year Ending December 31,

In-place lease intangibles

Above-market leases

Below-market leases

In-place lease

$ (1,446,534 )

Postal Realty Trust, Inc.

and Predecessor

Notes to Consolidated and Combined Consolidated

Financial Statements (Continued)

following table summarizes the Company’s indebtedness as of December 31, 2019 and 2018:

Outstanding Balance as of December 31, 2019

Outstanding Balance as of December 31, 2018

Interest Rate at December 31, 2019

$ (8,726,037 )

following table summarizes the Company’s indebtedness as of December 31, 2020 and December 31, 2019:

Balance as of

Maturity Date

Credit Facility (1)

Revolving Credit Facility (1)

LIBOR+170bps (2)

September 2023

5 unchanged sentences

Seller Financing (6)

Atlanta Postal Credit

First Oklahoma Bank –

April 2020 (7)

First Oklahoma Bank –

June 2020 (8)

December 2020 (9)

Total Principal

Unamortized deferred financing costs

September 27, 2019, the Company entered into a credit agreement (the “Credit Agreement”) with People’s United

Bank, National Association, individually and as administrative agent, BMO Capital Markets Corp., as syndication agent, and certain

other lenders.

The Credit Agreement provides for our senior revolving Credit Facility with revolving commitments in an aggregate

principal amount of $100.0 million, an accordion feature that permits the Company to borrow up to $200.0 million, subject

to customary terms and conditions, and a maturity date of September 27, 2023.

The interest rates applicable to loans under the

Credit Facility are, at our option, equal to either a base rate plus a margin ranging from 0.7% to 1.4% per annum or LIBOR plus

a margin ranging from 1.7% to 2.4% per annum, each based on a consolidated leverage ratio.

In addition, the Company will pay,

for the period through and including the calendar quarter ending March 31, 2020, an unused facility fee on the revolving commitments

under the Credit Facility of 0.75% per annum for the first $100 million and 0.25% per annum for the portion of revolving commitments

exceeding $100.0 million, and for the period thereafter, an unused facility fee of 0.25% per annum for the aggregate unused revolving

commitments, with both periods utilizing calculations of daily unused commitments under the Credit Facility.

During the year ended

December 31, 2019, the Company incurred $0.1 million of unused fees related to the Credit Facility.

The Company also incurred

$ 1.5 million of lender and third-party fees, all of which were capitalized in “Prepaid expenses and other assets, net”

on the Company’s Consolidated Balance Sheets.

During the year ended December 31, 2019, the Company wrote off $0.1 million

of deferred financing costs.

The Company’s ability to borrow under the Credit Facility is subject to ongoing compliance

with a number of customary affirmative and negative covenants.

As of December 31, 2019, the Company was in compliance with all

of the Credit Facility’s debt covenants.

of December 31, 2019, the one-month LIBOR rate was 1.76%.

of December 31, 2018, the loan was collateralized by first mortgage liens on 26 properties and a personal guarantee of payment

In connection with the IPO, the company repaid approximately $13.8 million of outstanding indebtedness and five

properties remain collateralized under this loan as of December 31, 2019 with Mr.

$ 124,628,626

REALTY TRUST, INC.

NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS

27, 2019, the Company entered into a credit agreement (as amended, the “Credit Agreement”) with People’s

United Bank, National Association, individually and as administrative agent, BMO Capital Markets Corp., as syndication agent,

and certain other lenders.

The Credit Agreement provides for revolving commitments in an aggregate principal amount of $100.0 million

with an accordion feature (“the Accordion Feature”) that permits the Company to borrow up to an additional $100.0

million for an aggregate total of $200.0 million, subject to customary terms and conditions, and a maturity date of September

On January 30, 2020, the Company amended the Credit Agreement in order to exercise a portion of the Accordion Feature

to increase the maximum amount available under the Credit Facility to $150.0 million, subject to the borrowing base properties

identified therein remaining unencumbered and subject to an enforceable lease.

On June 25, 2020, the Company further

amended the Credit Agreement to revise, among other items, certain definitions and borrowing base calculations to increase

available capacity, as well as the restrictive covenant pertaining to Consolidated Tangible Net Worth (as defined in such

On November 24, 2020, the Company further amended the Credit Agreement to revise, among other items, certain definitions

and borrowing base calculations to allow leases other than the USPS as a Real Property subject to certain to certain limitations

(as defined in such amendment).

interest rates applicable to loans under the Credit Facility are, at our option, equal to either a base rate plus a margin ranging

from 0.7% to 1.4% per annum or LIBOR plus a margin ranging from 1.7% to 2.4% per annum, each based on a consolidated leverage

In addition, the Company paid, for the period through and including the calendar quarter ended March 31, 2020, an unused

facility fee on the revolving commitments under the Credit Facility of 0.75% per annum for the first $100 million and 0.25% per

annum for the portion of revolving commitments exceeding $100.0 million, and for the period thereafter, an unused facility fee

of 0.25% per annum for the aggregate unused revolving commitments, with both periods utilizing calculations of daily unused commitments

under the Credit Facility.

the years ended December 31, 2020 and 2019, the Company incurred $0.3 million and $0.1 million, respectively, of unused fees related

to the Credit Facility.

The Company’s ability to borrow under the Credit Facility is subject to ongoing compliance with

a number of customary affirmative and negative covenants.

As of December 31, 2020, the Company was in compliance with all of the

Credit Facility’s debt covenants.

As of December

31, 2020, the one-month LIBOR rate was 0.15%.

Five properties

are collateralized under this loan as of December 31, 2020 with Mr.

Spodek as the guarantor.

On September 8,

2021 and every five years thereafter, the interest rate will reset at a variable annual rate of Wall Street Journal Prime Rate

(“Prime”) + 0.5%.

loan is collateralized by first mortgage liens on four properties and a personal guarantee of payment by Mr.

rate resets on December 31, 2022 to Prime + 0.25%.

loan is collateralized by first mortgage liens on one property and a personal guarantee of payment by Mr.

Interest rate

resets on January 31, 2023 to Prime + 0.5%.

Postal Realty Trust, Inc.

and Predecessor

Notes to Consolidated and Combined Consolidated Financial

Statements (Continued)

connection with the acquisition of a property, the Company obtained seller financing secured by the property in the amount $0.4

million requiring five annual payments of principal and interest of $0.1 million with the first installment payable on January

2, 2021 based on a 6.0% interest rate per annum through January 2, 2025.

connection with the IPO, the company repaid approximately $17.1 million of outstanding indebtedness.

connection with the IPO, the company repaid approximately $0.7 million of outstanding indebtedness.

In connection with the

IPO, the Company repaid approximately $31.7 million of outstanding indebtedness and wrote off approximately $0.2 million of deferred

financing costs which are recorded in “Loss on extinguishment of debt”

on the Consolidated and Combined Consolidated

Statements of Operations.

Cash paid for interest during the years

ended December 31, 2019 and 2018 was $1.1 million and $1.5 million, respectively.

On September 8, 2021 and

every five years thereafter, the interest rate will reset at a variable annual rate of Wall Street Journal Prime Rate (“Prime”)

The loan is collateralized

by first mortgage liens on four properties and a personal guarantee of payment by Mr.

Interest rate resets on December

31, 2022 to Prime + 0.25%.

The loan is collateralized

by first mortgage liens on one property and a personal guarantee of payment by Mr.

Interest rate resets on January

31, 2023 to Prime + 0.5%.

In connection

with the acquisition of a property, we obtained seller financing secured by the property in the amount of $0.4 million requiring

five annual payments of principal and interest of $105,661 with the first installment due on January 2, 2021 based on a 6.0%

interest rate per annum through January 2, 2025.

In connection

with the purchase of a 13-property portfolio, the Company obtained $4.5 million of mortgage financing, at a fixed interest

rate of 4.25% with interest only for the first 18 months, which resets in November 2026 to the greater of Prime or 4.25%.

loan is collateralized by first mortgage liens on 22 properties.

Interest rates resets in January 2027 to the greater of Prime

The loan is secured by a cross-collateralized and cross-defaulted first mortgage lien on the Industrial Property.

The loan has a fixed interest rate of 2.80% with interest-only payments for the first five years and fixed payments of principal and interest thereafter based on a 30-year amortization schedule.

REALTY TRUST, INC.

NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS

weighted average maturity date for our secured borrowing as of December 31, 2020 and 2019 was 6.6 years and 15.7 years, respectively.

paid for interest during the years ended December 31, 2020 and 2019 was $2.3 million and $1.1 million, respectively.

scheduled principal repayments of indebtedness as of December 31, 2020 are as follows:

Year Ending December 31,

Loans Payable –

Related Party

June 2018, pursuant to a loan modification agreement, interest-only promissory notes aggregating $3.5 million bearing interest

at 1.9% per annum, requiring interest only payments, and maturing between August 1, 2036 through July 1, 2041 were assumed by

an affiliate of the Predecessor and recorded as an equity contribution to the Predecessor.

Interest expense incurred for these

notes was $33,671 for the year ended December 31, 2018.

Rentals Under Operating Leases

$ 125,035,656

of December 31, 2020, all of our properties are 100% leased to the USPS with the exception of the multi tenanted Industrial Facility.

Certain leases have expired and the balance expire at various dates through November 30, 2029.

minimum lease payments to be received as of December 31, 2020 under non-cancellable operating leases for the next five years and

thereafter are as follows:

Year Ending December 31,

The above minimum

lease payments to be received do not include reimbursements from tenants for real estate taxes and other reimbursed expenses.

As of December

2019, all of the properties owned by the Company were leased to a single tenant, the USPS, other than a de-minimis non-postal tenant

that shares space in a building leased to the USPS.

The leases expire at various dates through November 30, 2029.

minimum lease payments to be received as of December 31, 2019 under non-cancellable operating leases for the next five years

31, 2020, the leases at 15 of our properties were expired, and the USPS was occupying such properties as a holdover tenant.

In addition, the lease at one of our properties is a month to month lease.

Holdover rent is typically paid as the greater

of estimated market rent or the rent amount due under the expired lease.

Subsequent to December 31, 2020, we have executed

all leases for these properties.

The Company has

received notice on one property which the USPS intends to vacate in August 2021.

REALTY TRUST, INC.

TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS

Financing Lease

of December 31, 2020, the Company has one direct financing lease agreement related to one of its postal properties.

The components

of the Company’s net investment in financing lease as of December 31, 2020 are summarized in the table below:

minimum lease payment receivable

unearned income

in financing lease, net

lease payments to be received under the Company’s direct financing lease as of December 31, 2020 for the next five years

and thereafter are as follows:

Year Ending December 31,

above minimum lease payments to be received do not include reimbursements from the USPS for real estate taxes.

Postal Realty Trust, Inc.

and Predecessor

Notes to Consolidated and Combined Consolidated

Financial Statements (Continued)

Federal and state income tax (expense) benefit relate to UPH.

The federal and state income tax (expense) benefit for the years ended December 31, 2019 and 2018 is comprised of the following:

For the Years Ended

Ending December 31,

the year ended December 31, 2020, the Company assumed an operating ground lease at two acquired properties which includes rent

escalations throughout the lease term (including renewal options).

Ground lease expense is included in “Property Operating

Expenses”

on the Company’s Consolidated and Combined Consolidated Statements of Operations.

table below presents the future minimum ground lease payments as of December 31, 2020.

Ending December 31,

March 11, 2020, the World Health Organization declared the outbreak of a coronavirus (COVID-19) a pandemic which has been ongoing.

The resulting restrictions on travel and quarantines imposed have had a negative impact on the U.S.

economy and business activity

globally, the full impact of which is not yet known and may result in an adverse impact to the Company’s tenant and operating

For the year ended December 31, 2020, the Company received 100% of its rents and there was no material impact on the

REALTY TRUST, INC.

NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS

and state income tax expense for December 31, 2019 relate to UPH.

The federal and state income tax expense for the year ended

December 31, 2019 is comprised of the following:

Provision for income taxes

For the Year Ended December 31,

Total current expense

Total deferred benefit

Total income tax (expense) benefit

(1) Represents the activity of UPH from January 1, 2019 to the IPO.

The effective tax

rate before income taxes varies from the current statutory US Federal income tax rate as follows:

For the Years Ended

Total income tax expense

(1) Represents

the activity of UPH from January 1, 2019 to the IPO.

effective tax rate before income taxes varies from the current statutory US Federal income tax rate as follows:

the Year Ended December 31,

Tax expense at Federal statutory rates

4 unchanged sentences

Total US Federal income tax rate

Significant components of the Predecessor’s

deferred tax assets (liabilities) are as follows:

For the Year Ended December 31,

Provision for income taxes

Deferred tax assets:

Net operating loss carryforward

Accrued expenses

Total deferred tax assets

Valuation allowance

Deferred tax assets, net of valuation allowance

Deferred tax liabilities:

Basis differential in carrying value of real estate assets

$ (1,147,577 )

Total deferred tax liability

Deferred tax liability, net

the year ended December 31, 2020, the Company recorded a benefit of $0.01 million due to finalizing certain state taxes filings

connection with the IPO, the Company and PRM jointly elected to treat PRM as a TRS.

PRM performs management services, including

for properties the Company does not own.

PRM generates income, resulting in federal and state corporate income tax liability for

For the years ended December 31, 2020 and 2019, income tax expense related to PRM was $0.07 million and zero, respectively.

REALTY TRUST, INC.

and Predecessor

Notes to Consolidated and Combined Consolidated

Financial Statements (Continued)

In connection with

the IPO, the UPH $727,952 deferred tax liability at May 16, 2019 was reversed through equity.

Deferred taxes have not been recorded

with respect to the Company’s acquired basis differences of UPH as a result of the IPO, the Company’s election to be

taxed as a REIT and the insignificant state effective tax rate for states that do not conform to federal taxation of REITs.

In connection with the

IPO, the Company elected to treat PRM as a TRS which performs management services for properties the Company does not own.

generates income, resulting in Federal and state corporate income tax liability for these entities.

For the twelve months ended

December 31, 2019, income tax benefit related to PRM was zero.

As of December 31,

2019, the Company’s consolidated balance sheets reflect a liability for unrecognized tax benefits in the amounts of $488,277,

primarily related to the utilization of certain loss carryforwards by UPH through May 16, 2019.

For the year ended December 31,

2019, the Company has accrued interest and penalties of $62,676.

These balances are included in the consolidated balance sheets

in accounts payable, accrued expenses and other liabilities.

As of December 31, 2019, the Company estimates that unrecognized

tax benefits may decrease by approximately $95,000 within twelve months of the balance sheet date due to expiring statutes of

In connection with the IPO, the indirect sole shareholder of UPH agreed to reimburse the Company for unrecognized

tax benefits.

The Company recorded an indemnification asset in the same amount as the unrecognized tax benefits inclusive of accrued

interest and penalties that existed as of the date of the IPO.

Accordingly, the Company's unrecognized tax benefits, if recognized,

would result in a decrease to the indemnification asset and have no impact on the effective tax rate.

During the three months

ended September 30, 2019, the Company reversed $191,391 of unrecognized tax benefits inclusive of interest and penalties due to

the expiration of statute of limitations, with an offsetting adjustment to the indemnification asset.

A reconciliation of

the beginning and ending amounts of unrecognized tax benefits is as follows:

NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS

of December 31, 2020, the Company’s consolidated balance sheets reflect a liability for unrecognized tax benefits in the

amounts of $0.4 million, primarily related to the utilization of certain loss carryforwards by UPH through May 16, 2019.

years ended December 31, 2020 and 2019, the Company has accrued interest and penalties of $0.07 million and $0.06 million, respectively.

These balances are included in the combined consolidated balance sheets in accounts payable, accrued expenses and other liabilities.

As of December 31, 2020, the Company estimates that unrecognized tax benefits may decrease by approximately $0.2 million within

twelve months of the balance sheet date due to expiring statutes of limitation.

In connection with the IPO, the indirect sole

shareholder of UPH agreed to reimburse the Company for unrecognized tax benefits.

The Company recorded an indemnification asset

in the same amount as the unrecognized tax benefits inclusive of accrued interest and penalties that existed as of the date of

Accordingly, the Company’s unrecognized tax benefits, if recognized, would result in a decrease to the indemnification

asset and have no impact on the effective tax rate.

During the three months ended September 30, 2020, the Company reversed $0.1

million of unrecognized tax benefits inclusive of interest and penalties due to the expiration of statute of limitations, with

an offsetting adjustment to the indemnification asset.

reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:

For the Years Ended

2 unchanged sentences

Decreases based on positions taken in prior year

Additions based on tax positions taken in prior periods

The Company and PRM are

subject to exam by federal and state and local tax authorities for the short tax year ended December 31, 2019.

UPH is subject to

exam by federal tax authorities for tax years 2016 through the short tax year ending May 16, 2019.

Cash paid for taxes

for each of the years ended December 31, 2019 and 2018 was $0.02 million.

Increases based on tax positions taken in prior periods

Decreases based on tax positions taken in prior periods

The Company and PRM

are subject to exam by federal and state and local tax authorities for the short tax year ended December 31, 2019.

UPH is subject

to exam by federal tax authorities for tax years 2017 through 2019.

Cash paid for taxes for each of the years ended December

31, 2020 and 2019 was $0.1 and $0.02 million, respectively.

March 27, 2020, the President signed into law the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).

CARES Act was enacted to provide economic relief to companies and individuals in response to the COVID-19 pandemic.

in the CARES Act are tax provisions which increase allowable interest expense deductions for 2019 and 2020 and increase the ability

for taxpayers to use net operating losses.

While we do not expect these provisions to have a material impact on the Company’s

taxable income or tax liabilities, we will continue to analyze the provisions of the CARES Act and related guidance as it is published.

REALTY TRUST, INC.

NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS

Related Party Transactions

Predecessor recognized management fee income of $0.4 million for the period of January 1, 2019 through May 16, 2019 and PRM recognized

management fee income of $0.6 million for the period of May 17, 2019 through December 31, 2019, following the IPO, from various

properties which were affiliated with the Company’s CEO.

For the year ended December 31, 2018, the Predecessor recognized

$1.0 million from various properties which were affiliated with the Company’s CEO.

These amounts are included in “Fee

and other income”

PRM recognized management fee income of $1.1 million for the

year ended December 31, 2020 and the Predecessor recognized management fee income of $0.4 million for the period of January 1,

2019 through May 16, 2019 from various properties which were affiliated with Mr.

Following the IPO, PRM recognized management

fee income of $0.6 million for the period of May 17, 2019 through December 31, 2019 from various properties which are affiliated

with the Company’s CEO.

These amounts are included in “Fee and other income”

on the Company’s Consolidated

and Combined Consolidated Statements of Operations.

Accrued management fees receivable of $0.3 million and $0.08 million as of

December 31, 2020 and 2019, respectively, are included in “Rents and other receivables”

on the Company’s Consolidated

Balance Sheets.

October 1, 2018, the Predecessor entered into a lease for office space in Cedarhurst, New York with an entity affiliated with

the Predecessor (the “Office Lease”).

Pursuant to the Office Lease, the monthly rent was $15,000 subject to escalations.

The term of the Office Lease was five years commencing on October 1, 2018 (with rent commencing on January 1, 2019) and was set

to expire on September 30, 2023.

In connection with the IPO, the Office Lease was terminated.

On May 17, 2019, the Company entered

into a new lease for office space in Cedarhurst, New York with an entity affiliated with the Company’s CEO (the “New

Lease”).

Pursuant to the New Lease, the monthly rent is $15,000 subject to escalations.

The term of the New Lease is five

years commencing on May 17, 2019 and will expire on May 16, 2024.

Rental expenses associated with the office lease for the years

ended December 31, 2020 and 2019 was $0.2 million and $0.1 million, respectively, was recorded in “General and administrative

expenses”

on the Company’s Consolidated and Combined Consolidated Statements of Operations.

These amounts

include accrued management fees receivable of $0.08 million and $140 as of December 31, 2019 and 2018, respectively, which is

included in “Rents and other receivables”

on the Company’s Consolidated Balance Sheets.

Postal Realty Trust, Inc.

and Predecessor

Notes to Consolidated and Combined Consolidated

Financial Statements (Continued)

On October 1, 2018, the Predecessor entered into a lease for

office space in Cedarhurst, New York with an entity affiliated with the Predecessor (the “Office Lease”).

to the Office Lease, the monthly rent was $15,000 subject to escalations.

The term of the Office Lease was five years commencing

on October 1, 2018 (with rent commencing on January 1, 2019) and was set to expire on September 30, 2023.

In connection with the

IPO, the Office Lease was terminated.

On May 17, 2019, the Company entered into a new lease for office space in Cedarhurst, New

York with an entity affiliated with the Company’s CEO (the “New Lease”).

Pursuant to the New Lease, the monthly

rent is $15,000 subject to escalations.

The term of the New Lease is five years commencing on May 17, 2019 and will expire on May

Rental expenses associated with the office lease for the year ended December 31, 2019 was $0.1 million and was recorded

in “General and administrative expenses”

on the Company’s Consolidated and Combined Consolidated Statements of

As of December 31, 2019, $3,096 was outstanding and payable and is included in “Accounts payable, accrued expenses

and other.”

following table represents the Company’s future rental payments related to the New Lease:

Year Ending December 31,

of Real Property

May 28, 2020, the Company completed the separation of deed and transfer of the real property attributable to a de minimis non-postal

tenant that shares space in a building leased to the USPS.

At the time of the IPO a property located in Milwaukee, WI, a portion

of which is leased to the USPS, was contributed to the Company.

It was intended that the non-postal portion of the property would

revert back to an entity affiliated with Mr.

Spodek once a separation of the deed was completed.

The portion of the property

leased to the USPS remains owned by a wholly owned subsidiary of the Operating Partnership.

The independent members of our Board

of Directors ratified the no consideration transfer.

Spodek, our chief executive officer, has personally guaranteed our loans with First Oklahoma Bank that were obtained prior to

2020 and Vision Bank, totaling $2.7 million and $2.8 million as of December 31, 2020 and December 31, 2019, respectively.

guarantor, Mr.

Spodek’s interests with respect to the debt he is guaranteeing (and the terms of any repayment or default)

may not align with our interests and could result in a conflict of interest.

REALTY TRUST, INC.

NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS

Earnings Per Share

3 unchanged sentences

used in the basic and diluted EPS calculations.

For the period of May 17, 2019 through December 31, 2019, there is no dilutions

to earnings per share because there is a net loss.

For the Year Ended December 31, 2019

For the Years Ended

Numerator for earnings per share –

5 unchanged sentences

basic and diluted

$ (1,551,436 )

Denominator for earnings per share –

1 unchanged sentence

Basic and diluted earnings per share

(1) The combined

statements of operations prior to May 16, 2019 represents the activity of the Predecessor and EPS was not

statements of operations prior to May 17, 2019 represents the activity of the Predecessor and EPS was not applicable.

Stockholder’s Equity

Company issued 4,500,000 shares of Class A common stock in conjunction with the IPO resulting in net proceeds of approximately

Company issued 4.5 million shares of Class A common stock in conjunction with the IPO resulting in net proceeds of approximately

$71.1 million after deducting approximately $5.4 million in underwriting discounts and before giving effect to $6.4 million in

13 unchanged sentences

voting proportion of holders of Voting Equivalency stock with the holder’s economic interest in our Company.

Postal Realty Trust, Inc.

and Predecessor

Notes to Consolidated and Combined Consolidated

Financial Statements (Continued)

the year ended December 31, 2019, the Company declared and paid dividends of $1.4 million to Class A common stockholders, Voting

Equivalency stockholders, OP unitholders and LTIP unitholders, or $0.203 per share as shown in the table below.

Declaration Date

Amount Per Share

On July 15, 2020, the

Company priced a public offering of 3.5 million shares of its Class A Common Stock (the “Follow-on Offering”) at $13.00

On July 17, 2020, the underwriters purchased an additional 521,840 shares pursuant to a 30-day option to purchase up

to an additional 525,000 shares at $13.00 per share (the “Additional Shares”).

The Follow-on Offering, including the

Additional Shares, closed on July 20, 2020 resulting in $52.2 million in gross proceeds, and approximately $49.4 million in net

proceeds after deducting approximately $2.9 million in underwriting discounts and before giving effect to $0.9 million in other

estimated expenses relating to the Follow-on Offering.

the year ended December 31, 2020, the Board approved and the Company declared and paid dividends of $8.2 million to Class A common

stockholders, Voting Equivalency stockholders, OP unitholders and LTIP unitholders, or $0.79 per share as shown in the table below.

REALTY TRUST, INC.

NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS

April 30, 2020

July 30, 2020

August 14, 2020

August 31, 2020

October 30, 2020

November 16, 2020

November 30, 2020

the year ended December 31, 2019, the Board approved, and the Company declared and paid dividends of $1.4 million to Class A common

stockholders, Voting Equivalency stockholders, OP unitholders and LTIP unitholders, or $0.203 per share as shown in the table

June 26, 2019

4 unchanged sentences

Non-controlling

Non-controlling interests

in the Company represent OP Units held by the Predecessor’s prior investors and certain sellers of properties to the Company

and LTIP Units primarily issued to the Company’s CEO in connection with the IPO and in lieu of cash compensation.

during the year ended December 31, 2019, the Company issued 824,350 of OP Units in connection with a portfolio that the Company

acquired and 5,298 LTIP Units to an employee.

As of December 31, 2019, noncontrolling interests consisted of 2,157,462 OP Units

and 120,004 LTIP Units and represented approximately 30.0% of the outstanding Operating Partnership units.

Non-controlling

interests in the Company represent OP Units held by the Predecessor’s prior investors and certain sellers of properties

to the Company and LTIP Units primarily issued to the Company’s CEO in connection with the IPO and in lieu of cash compensation.

During the year ended December 31, 2020, the Company issued 483,333 OP Units in January 2020 in connection with a portfolio that

the Company acquired, 53,230 LTIP Units in February 2020 to the Company’s CEO for his 2019 incentive bonus, 13,708 LTIP

Units in March 2020 to the Company’s CEO and 27,365 LTIP Units in May 2020 to the Company’s CEO for his salary

for the period of May 18, 2020 to December 31, 2020.

of December 31, 2020 and December 31, 2019, non-controlling interests consisted of 2,640,795 OP Units and 209,009 LTIP Units

and 2,157,462 OP Units and 120,004 LTIP Units, respectively.

This represented approximately 23.1% and 30.0% of the outstanding

Operating Partnership units as of December 31, 2020 and 2019, respectively.

Operating Partnership units and shares of common stock

have essentially the same economic characteristics, as they share equally in the total net income or loss distributions of the

Operating Partnership.

units and shares of common stock have essentially the same economic characteristics, as they share equally in the total net income

or loss distributions of the Operating Partnership.

Beginning on or after the date which is 12 months after the later of (i) the

completion of the IPO or (ii) the date on which a person first became a holder of common units, each limited partner and assignees

of limited partners will have the right, subject to the terms and conditions set forth in the partnership agreement to require

the Operating Partnership to redeem all or a portion of the OP Units held by such limited partner or assignee in exchange for

cash, or at the Company's sole discretion, in shares of the Company’s Class A common stock, on a one-for-one basis

determined in accordance with and subject to adjustment under the partnership agreement.

The Operating Partnership

unitholders are entitled to share in cash distributions from the Operating Partnership in proportion to its percentage ownership

Beginning on or after the date which is 12 months after the later of (i) the completion of the IPO or (ii)

the date on which a person first became a holder of common units, each limited partner and assignees of limited partners will

have the right, subject to the terms and conditions set forth in the partnership agreement to require the Operating Partnership

to redeem all or a portion of the OP Units held by such limited partner or assignee in exchange for cash, or at the Company’s

sole discretion, in shares of the Company’s Class A common stock, on a one-for-one basis determined in accordance with

and subject to adjustment under the partnership agreement.

Operating Partnership unitholders are entitled to share in cash distributions from the Operating Partnership in proportion to

their percentage ownership of OP Units.

Stock and Other Awards

to the Company’s 2019 Equity Incentive Plan, or Equity Incentive Plan, the Company may grant equity incentive awards to

its directors, officers, employees and consultants.

Upon completion of the IPO, the Company issued 73,529 LTIP Units to the Company’s

CEO, 58,824 restricted shares of Class A common stock to the Company’s president, 33,824 restricted shares of Class A common

stock to other employees and 38,235 restricted shares of Class A common stock to the Company’s non-employee directors under

the Equity Incentive Plan.

In addition, the Company issued 41,177 LTIP Units to the Company’s CEO and an aggregate of 17,647

restricted shares of Class A common stock to its non-employee directors, in each case in lieu of cash compensation for the twelve-month

period following completion of the IPO.

The Company issued an aggregate 5,298 LTIP Units and 317 restricted shares of Class A

common stock to certain employees after the completion of the IPO.

The maximum number of shares of Class A common stock that

is available to be issued under our Equity Incentive Plan is 541,584 shares.

To the extent an award granted under the Equity

Incentive Plan expires or terminates, the shares subject to any portion of the award that expires or terminates without having

been exercised or paid, as the case may be, will become available for issuance of additional awards.

issued in connection with the IPO will vest in three equal, annual installments on each of the three anniversaries of the

date of grant.

Awards issued to the Company’s non-employee directors in lieu of cash compensation will fully vest on

the first anniversary of the grant and awards issued as equity compensation vest in three equal, annual installments on each

of the three anniversaries of the date of grant.

Awards issued to the Company’s CEO in lieu of cash compensation will

cliff vest on the eighth anniversary of the date of grant.

No forfeitures or vesting’s occurred during the year ended

December 31, 2019.

The weighted average grant date fair value for all outstanding awards as of December 31, 2019 was $16.96.

During the year ended December 31, 2019, the Company recognized compensation expense of $1.0 million related to all awards

which is recorded in “General and administrative”

on the Company’s Consolidated and Combined Consolidated

Statements of Operations.

As of December 31, 2019, there was $3.6 million of total unrecognized compensation

cost related to unvested awards, which is expected to be recognized over a weighted average period

of 3.01 years.

Postal Realty Trust, Inc.

and Predecessor

Notes to Consolidated and Combined Consolidated

Financial Statements (Continued)

In February 2020, in

connection with the Equity Incentive Plan, the Company issued 53,230 LTIP Units to the Company’s CEO for his 2019 incentive

bonus and 57,367 restricted shares of Class A common stock to the Company’s president for his 2019 incentive bonus and his

election to defer of a portion of his 2020 annual salary.

In addition, in February 2020, in connection with the Equity Incentive

Plan, the Company issued 11,184 restricted shares of Class A common stock for annual grants, 23,424 restricted stock units (each,

an “RSU,”

and collectively, “RSUs”) and 23,424 restricted shares of Class A common stock to other

employees for 2019 incentive bonus and elections by certain employees to defer 2020 annual salary.

RSUs reflect the right to receive

shares of Class A common stock.

to the Company’s 2019 Equity Incentive Plan (the “Equity Incentive Plan”

or the “Plan”), the Company

may grant equity incentive awards to its directors, officers, employees and consultants.

The maximum number of shares of Class

A Common Stock that were authorized for issuance under the Plan were 541,584.

On April 27, 2020, the Board of Directors amended

the Equity Incentive Plan to increase the total number of shares of Class A common stock that may be issued under the Plan from

541,584 shares to 1,291,584 shares.

The stockholders approved such amendment on June 26, 2020.

As of December 31, 2020, the remaining

shares available under the Plan for future issuance was 767,782.

The Plan provides for grants of stock options, stock awards,

stock appreciation rights, performance units, incentive awards, other equity-based awards (including LTIP units) and dividend

equivalents in connection with the grant of performance units and other equity-based awards.

REALTY TRUST, INC.

NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS

following table presents a summary of restricted stock, LTIP Units and RSUs.

The balance as of December 31, 2020 represents

unvested shares of restricted stock and LTIP Units and RSUs that are outstanding, whether vested or not:

Shares (1)(2)

(“RSUs”) (4)

Outstanding, as of January 1, 2020

Vesting of restricted shares (5)

Outstanding, as of December 31, 2020

Represents restricted

shares awards included in common stock.

The time-based

restricted share awards granted to our officers and employees typically vest in three annual installments or cliff vest at

the end of eight years.

The time-based restricted share awards granted to our directors’

vest over one to

LTIP units to

our officers and employees typically vest over three to eight years.

During the year ended December 31, 2020, 2,843 LTIPs

issued to an employee vested as a result of a modification of the award as well as 13,708 LTIPs issued to the Company’s

In May 2020, pursuant to the Plan, the Company issued 27,365 LTIP Units to the Company’s CEO in lieu of his salary

payable for the period from the one-year anniversary of the IPO to December 31, 2020.

LTIP Units issued to the Company’s

CEO in lieu of cash compensation cliff vest on the eighth anniversary of the date of grant.

In connection with the termination

of an employee and entering into a consultancy agreement, 10,787 restricted shares of Class A common stock and 5,298 LTIPs

were forfeited.

6,931 shares of Class A common stock are issuable to such consultant under the consultancy agreement

with the Company.

Includes 38,672

RSUs granted to certain officers of the Company during the year ended December 31, 2020 subject to the achievement of a service

condition and a market condition.

Such RSUs are market-based awards and are subject to the achievement of hurdles relating

to the Company’s absolute total stockholder return and continued employment with the Company over the approximately three-year

period from the grant date through December 31, 2022.

The number of market-based RSUs is based on the number of shares issuable

upon achievement of the market-based metric at target.

Also, includes 13,253 time-based RSUs issued for 2019 incentive bonuses

to certain employees that vested fully on February 14, 2020, the date of grant and 10,171 time-based RSUs granted to certain

employees for their election to defer 2020 salary that vest on December 31, 2020.

RSUs reflect the right to receive shares

of Class A common stock, subject to the applicable vesting criteria.

Includes 52,497

of restricted shares that vested and 12,710 shares of restricted shares that were withheld to satisfy minimum statutory withholding

requirements.

February 2021, in connection with the Equity Incentive Plan, the Company issued 118,305 LTIP Units to the Company’s CEO

for his 2020 incentive bonus and his election to defer 100% of his 2021 annual salary, 71,591 restricted shares of Class A common

stock to the Company’s president for his 2020 incentive bonus and his election to defer of a portion of his 2021 annual

salary and 3,117 restricted shares of Class A common stock to our Chief Financial Officer for his election to defer a portion

of his 2021 annual salary.

In addition, in February 2021, in connection with the Equity Incentive Plan, the Company issued 17,239

restricted shares of Class A common stock for annual grants, 30,114 restricted stock units (each, an “RSU,”

and collectively,

“RSUs”) and 30,114 restricted shares of Class A common stock to other employees for 2020 incentive bonus and

elections by certain employees to defer 2021 annual salary.

RSUs reflect the right to receive shares of Class A common stock.

RSUs issued for 2020 incentive bonuses will vest fully on the date of grant.

RSUs issued in lieu

of deferrals of 2020 annual salary cliff vest on December 31, 2020.

LTIP Units issued to the Company’s CEO and restricted

shares of Class A common stock issued to the president in lieu of cash compensation cliff vest on the eighth anniversary of

the date of grant.

RSUs issued in lieu of deferrals of 2020 annual salary

cliff vest on December 31, 2021.

LTIP Units issued to the Company’s CEO and restricted shares of Class A common stock

issued to the president and Chief Financial Officer in lieu of cash compensation cliff vest on the eighth anniversary of

February 1, 2021.

Certain restricted shares of Class A common stock issued to employees will vest in three equal, annual installments

on each of the first three anniversaries of the date of grant, while other restricted shares of Class A common stock issued to

employees in lieu of cash compensation cliff will vest on the eighth anniversary of the date of grant.

In March 2020, the

Company issued an aggregate of 13,708 LTIP Units, 12,076 restricted shares of Class A common stock and 38,672 RSUs

to certain officers of the Company.

The LTIP Units and restricted shares of Class A common stock will vest in three equal, annual

installments over the approximately three year period ending December 31, 2022, subject to continued employment with

the Company and the RSUs are subject to the achievement of performance-based vesting conditions and continued employment with the

The RSUs are market-based awards and are subject to the achievement of performance-based hurdles relating to the Company’s

absolute total stockholder return and continued employment with the Company over the approximately three year period

from the grant date through December 31, 2022.

Such RSU recipients may earn up to 100% of the RSUs that were issued.

Upon vesting pursuant to the terms of the RSUs, the RSUs that vest will be settled in shares of Class A common stock and the recipients

will be entitled to receive the distributions that would have been paid with respect to a share of Class A common stock (for each

share that vests) on or after the date the RSUs were initially granted.

employees in lieu of cash compensation cliff will vest on the eighth anniversary of February 1, 2021.

REALTY TRUST, INC.

NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS

addition, in February 2021, the Company issued an aggregate of 18,954 LTIP Units, 27,760 of restricted shares of Class

A common stock and 46,714 RSUs to certain officers of the Company.

The LTIP Units and restricted shares of Class A common

stock will vest in three equal, annual installments over the approximately three year period ending December 31, 2023,

subject to continued employment with the Company and the RSUs are subject to the achievement of performance-based vesting conditions

and continued employment with the Company.

The RSUs are market-based awards and are subject to the achievement of performance-based

hurdles relating to the Company’s absolute total stockholder return and continued employment with the Company over the approximately three-year

period from the grant date through December 31, 2023.

Such RSU recipients may earn up to 100% of the RSUs that were

Upon vesting pursuant to the terms of the RSUs, the RSUs that vest will be settled in shares of Class A common stock and

the recipients will be entitled to receive the distributions that would have been paid with respect to a share of Class A common

stock (for each share that vests) on or after the date the RSUs were initially granted.

the years ended December 31, 2020 and 2019, the Company recognized compensation expense of $2.4 million and $1.0 million, respectively,

related to all awards.

fair value of restricted shares that vested during the year ended December 31, 2020 was $1.1 million.

As of December

31, 2020, there was $5.4 million of total unrecognized compensation cost related to unvested awards, which is expected

to be recognized over a weighted average period of 3.84 years.

Stock Purchase Plan

connection with the IPO, the Postal Realty Trust, Inc.

2019 Qualified Employee Stock Purchase Plan (“ESPP”), allows

the Company’s employees to purchase shares of the Company’s Class A common stock at a discount.

A total of 100,000

shares of Class A common stock will be reserved for sale and authorized for issuance under the ESPP.

The Code permits us

to provide up to a 15% discount on the lesser of the fair market value of such shares of stock at the beginning of the offering

period and the code of the offering period.

The initial offering period ended on December 31, 2019 and 3,538 shares were issued

on January 3, 2020 under the ESPP.

During the year ended December 31, 2019, the Company recognized compensation expense of $0.02

million which is recorded in “General and administrative”

on the Company’s Consolidated and Combined Consolidated

Statements of Operations.

connection with the IPO, the Company established the Postal Realty Trust, Inc.

2019 Qualified Employee Stock Purchase Plan (“ESPP”),

which allows the Company’s employees to purchase shares of the Company’s Class A common stock at a discount.

A total of 100,000 shares of Class A common stock will be reserved for sale and authorized for issuance under the ESPP.

Code permits us to provide up to a 15% discount on the lesser of the fair market value of such shares of stock at the beginning

of the offering period and the close of the offering period.

As of December 31, 2020, 7,189 shares have been issued under the

ESPP since commencement.

During each of the years ended December 31, 2020 and 2019, the Company recognized compensation expense

of $0.02 million.

Commitments and Contingencies

December 31, 2019, the Company was not involved in any litigation nor to its knowledge is any litigation threatened against the

Predecessor or the Company, as applicable, that, in management’s opinion, would result in any material adverse effect on

the Company’s financial position, or which is not covered by insurance.

of December 31, 2020, the Company was not involved in any litigation nor to its knowledge is any litigation threatened against

the Predecessor or the Company, as applicable, that, in management’s opinion, would result in any material adverse effect

on the Company’s financial position, or which is not covered by insurance.

the ordinary course of the Company’s business, the Company enters into non-binding (except with regard to exclusivity and

4 unchanged sentences

Subsequent Events

On January 10, 2020,

the Company, through its Operating Partnership, closed on the acquisition of 21 properties leased to the USPS located in various

states for approximately $13.5 million, which includes 483,333 OP Units valued at $17.00

per unit (the stock price on the date of closing was $16.39.)

January 27, 2020 the Company borrowed an additional $11.0 million under the Credit Facility.

January 29, 2020, the Company closed on the acquisition of 42 properties leased to the USPS for approximately $8.7 million.

January 30, 2020, the Company's Board of Directors declared a fourth quarter common stock dividend of $0.17 per share

which was paid on February 28, 2020 to stockholders of record on February 14, 2020.

January 30, 2020, the Company exercised a portion of the accordion feature on its Credit Facility.

The accordion increases the

available borrowing capacity under the Credit Facility to $150.0 million from $100.0 million.

The Credit Agreement allows for

an additional $50.0 million accordion subject to certain conditions.

February 27, 2020, the Company borrowed an additional $3.0 million under the Credit Facility.

On March 11, 2020, the World Health Organization

declared the outbreak of a coronavirus (COVID-19) a pandemic.

The resulting restrictions on travel and quarantines imposed have

had a negative impact on the U.S.

economy and business activity globally, the full impact of which is not yet known and may result

in an adverse impact to the Company’s tenant and operating results.

January 11, 2021, the Company priced a public offering of 3.25 million shares of its Class A Common Stock (the “Secondary

Follow-on Offering”) at $15.25 per share.

On January 11, 2021, the underwriters purchased the full allotment of 487,500

shares pursuant to a 30-day option at $15.25 per share (the “Additional Shares”).

The Secondary Follow-on Offering,

including the Additional Shares, closed on January 14, 2021 resulting in $57.0 million in gross proceeds, and approximately $53.9

million in net proceeds after deducting approximately $3.1 million in underwriting discounts and before giving effect to $0.3

million in other estimated expenses relating to the Secondary Follow-on Offering.

REALTY TRUST, INC.

NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS

January 21, 2021, the Company received an executed early renewal notice for 135 properties under a master lease that were scheduled

to expire on February 28, 2022 extending the maturity to February 28, 2027.

January 29, 2021, the Company’s Board of Directors approved, and the Company declared a fourth quarter common stock dividend

of $0.2175 per share which is payable on February 26, 2021 to stockholders of record as of February 12, 2021.

February 3, 2021, the Company fully repaid $13.7 million of the First Oklahoma Bank-April 2020 and First Oklahoma Bank-June 2020

of March 30, 2021, the Company had net credit facility activity of $10.5 million during the period subsequent to December 31,

As of the date of this report, the Company had $67.5 million drawn on its credit facility.

As of March 30, 2021,

2020, the Company had entered into definitive agreements to acquire 17 properties leased to the USPS for approximately $11.5

Formal due diligence has been completed and the transactions are expected to close in the second or third quarter

of 2020, subject to the satisfaction of customary closing conditions.

the Company closed on the acquisitions of 54 postal properties for approximately $25.7 million during the period subsequent to

December 31, 2020.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data