Postal Realty Trust, Inc. 10-K

ITEM 1. BUSINESS General We are an internally managed real estate corporation that owns properties leased primarily to the USPS. We believe that we are one of the largest owners and managers, measured by net leasable square footage, of properties that are leased to the USPS. We were organized in the state of Maryland on November 19, 2018 and commenced operations upon completion of our initial public offering, or IPO, on May 17, 2019 and the related formation transactions, or the Formation Transactions. Our Class A common stock trades on the New York Stock Exchange, or the NYSE, under the symbol “PSTL”. We elected to be taxed as a REIT for U.S. federal income tax purposes, commencing with our short tax year ended December 31, 2019. We conduct our business through a traditional UPREIT structure in which our properties are owned by our Operating Partnership directly or through limited partnerships, limited liability companies or other subsidiaries. We are the sole general partner of our Operating Partnership through which our postal properties are directly or indirectly owned. As of December 31, 2020, we owned approximately 76.9% of the outstanding common units of limited partnership interest in our Operating Partnership (each, an “OP Unit,” and collectively, the “OP Units”) including long term incentive units of our Operating Partnership (each, an “LTIP Unit” and collectively, the “LTIP Units). Our Board of Directors oversees our business and affairs. We make reference to the public reports of the USPS with the Postal Regulatory Commission, including the audited financial statements of the USPS, available at www.usps.com or www.prc.gov. Real Estate Investments As of December 31, 2020, we had investments of approximately $259.8 million in 726 real estate properties (including one property accounted for as a financing lease). The properties are located in 47 states, totaling approximately 2.7 million net leasable interior square feet in the aggregate and were 100% leased as of December 31, 2020 with a weighted average remaining lease term of approximately 3.7 years. As of December 31, 2020, we manage, through our taxable REIT subsidiary, or TRS, an additional 400 properties owned by affiliates of our chief executive officer, Andrew Spodek. We have a right of first offer to purchase 251 of our 400 managed properties. The majority of our leases are modified double-net leases, whereby the USPS is responsible for utilities and routine maintenance and reimburses the landlord for property taxes, while the landlord is responsible for insurance, roof and structure. We believe this structure helps insulate us from increases in certain operating expenses and provides a more predictable cash flow. We believe the overall opportunity for consolidation that exists within the postal logistics network is attractive, and we continue to execute our strategy to acquire and consolidate postal properties that we believe will generate strong earnings for our stockholders. 2020 Highlights ● We collected 100% of our rents and maintained 100% occupancy. ● We acquired 261 properties primarily leased to the USPS totaling approximately 1.2 million net leasable interior square feet, for approximately $130 million. ● In January 2020, we exercised a portion of the accordion feature on our senior revolving credit facility or the Credit Facility, increasing our permitted borrowing capacity up to $150.0 million. We further amended the credit agreement, as amended, the Credit Agreement, with People’s United Bank, National Association, as described under Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Factors that may Influence Future Results of Operations— Indebtedness and Interest Expense. In addition, we obtained approximately $44.0 million of fixed rate mortgage financing at a weighted average rate of 3.25% and a weighted average term of 12.9 years as of December 31, 2020. ● We completed a follow-on offering of 3.5 million shares of our Class A common stock on July 20, 2020, raising $52.2 million in gross proceeds. In addition, we filed a $500 million shelf registration statement and entered into a $50 million at the market common stock offering program, or ATM program. 1 Dividends ● We have increased our quarterly dividend from $0.17 for the fourth quarter 2019 dividend to $0.2175 for the fourth quarter 2020 dividend. Our dividend per share has increased for the past six consecutive quarters and, although we expect to continue our policy of paying regular dividends, we cannot guarantee that we will maintain our current level of dividends, that we will continue our recent pattern of increasing dividends per share or what our actual dividend yield will be in any future period. Tenant Concentration We acquire and manage postal properties and report our business as a single reportable segment. As of December 31, 2020, all of our properties are leased to a single tenant, the USPS, other than the multi-tenant industrial facility located in Warrendale, PA. The USPS occupies 73% of this property as a distribution facility. See the discussions under Item 1A–Risk Factors under the caption –Risks Related to the USPS. Government Regulations Compliance with various governmental regulations has an impact on our business, including our capital expenditures, earnings, and competitive position. The impact of these governmental regulations can be material to our business. We incur costs to monitor and take action to comply with governmental regulations that are applicable to our business, which include, among others: federal securities laws and regulations; REIT and other tax laws and regulations; environmental and health and safety laws and regulations; local zoning, usage and other regulations relating to real property; and the Americans with Disabilities Act of 1990, as amended, or the ADA. Our properties must comply with Title III of the ADA to the extent that such properties are “public accommodations” as defined by the ADA. The ADA may require removal of structural barriers to access by persons with disabilities in certain public areas of our properties where such removal is readily achievable. We believe the existing properties are in substantial compliance with the ADA and that we will not be required to make substantial capital expenditures to address the requirements of the ADA. However, noncompliance with the ADA could result in imposition of fines or an award of damages to private litigants. The obligation to make readily achievable accommodations is an ongoing one, and we will continue to assess our properties and to make alterations as appropriate in this respect. Human Capital Resource Management As of December 31, 2020, we employed 25 full-time employees. All of our employees are employed by our corporate office in Cedarhurst, New York. Our employees are not members of any labor union, and we consider our relations with our employees to be satisfactory. As of December 31, 2020, 24% of our employees, 20% of our named executive officers and key employees (defined as all employees with a title of vice president and higher) and 20% of the members of our Board of Directors were female. We endeavor to maintain workplaces that are free from discrimination or harassment on the basis of color, race, sex, national origin, ethnicity, religion, age, disability, sexual orientation, gender identification or expression or any other status protected by applicable law. The basis for recruitment, hiring, development, training, compensation and advancement at the Company is qualifications, performance, skills and experience. We believe our employees are fairly compensated, and compensation and promotion decisions are made without regard to gender, race and ethnicity. Employees are routinely recognized for outstanding performance. 2 Covid-19 Health and Safety In response to the COVID-19 pandemic, we promptly transitioned all of our employees to remote working, without significant impact to productivity. We organized training programs to ensure that all employees were prepared to complete tasks remotely. At our corporate office, we provide cleaning supplies and facial coverings to all employees and visitors who chose to work in the office, among other safety measures to help reduce the potential transmission of the disease. Environmental Matters Under various federal, state and local laws, ordinances and regulations, as a current or former owner of real property, we may be liable for costs of the removal or remediation of certain hazardous substances, waste, or petroleum products at, on, in, under the properties that we own, including costs for investigation or remediation, natural resource damages, or third-party liability for personal injury or property damage. These laws often impose liability without regard to fault including whether the owner or operator knew of, or were responsible for, the presence or release of such materials. Some of our properties may be impacted by contamination arising from current or prior uses of the property or adjacent properties for commercial, industrial or other purposes. Changes in laws increasing the potential liability for environmental conditions existing on properties or increasing the restrictions on discharges or other conditions may result in significant unanticipated expenditures or may otherwise adversely affect the operations of the tenants of our properties, which could materially and adversely affect us. We maintain an insurance policy for environmental liabilities at all of our properties. However, any potential or existing environmental contamination liabilities may be in excess of the coverage limits of, or not covered by, such insurance policy. As a result, we may not be aware of all potential or existing environmental contamination liabilities at the properties in our portfolio. As a result, we could potentially incur material liability for these issues. In addition, some of our buildings may contain lead-based paint or asbestos containing materials or may contain or develop harmful mold or suffer from other indoor air quality issues, which could lead to liability for adverse health effects or property damage or costs for remediation. Indoor air quality issues can also stem from inadequate ventilation, chemical contamination from indoor or outdoor sources and other biological contaminants such as pollen, viruses and bacteria. Indoor exposure to lead, asbestos, or airborne toxins or irritants above certain levels can be alleged to cause a variety of adverse health effects and symptoms, including allergic or other reactions. As a result, the presence of lead, asbestos, mold or other airborne contaminants at any of our properties could require us to undertake a costly remediation program to contain or remove the mold or other airborne contaminants from the affected property or increase indoor ventilation. In addition, the presence of lead, asbestos, mold or other airborne contaminants could expose us to liability from our sole tenant, employees of our sole tenant or others if property damage or personal injury occurs. We are not presently aware of any material adverse indoor air quality issues at our properties. Availability of Reports Filed with the Securities and Exchange Commission A copy of this Annual Report on Form 10-K, as well as our quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to such reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are available, free of charge, on our Internet website (www.postalrealty.com). All of these reports are made available on our website as soon as reasonably practicable after they are electronically filed with or furnished to the Securities and Exchange Commission (the “SEC”). Our Governance Guidelines and Code of Business Conduct and Ethics and the charters of the Audit, Compensation, and Corporate Governance Committees of our Board of Directors are also available on our website at https://investor.postalrealtytrust.com/govdocs, and are available in print to any stockholder upon written request to Postal Realty Trust, Inc. c/o Investor Relations, 75 Columbia Avenue, Cedarhurst, New York 11516. Our telephone number is (516) 295-7820. The information on or accessible through our website is not, and shall not be deemed to be, a part of this report or incorporated into any other filing we make with the SEC. 3