Postal Realty Trust, Inc. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Financial Statements Page Report of Independent Registered Public Accounting Firm F-2 Consolidated Balance Sheets as of December 31, 2020 and 2019 F-3 Consolidated and Combined Consolidated Statements of Operations for the Years Ended December 31, 2020 and 2019 F-4 Consolidated and Combined Consolidated Statements of Equity (Deficit) for the Years Ended December 31, 2020 and 2019 F-5 Consolidated and Combined Consolidated Statements of Cash Flows for the Years Ended December 31, 2020 and 2019 F-6 Notes to Consolidated and Combined Consolidated Financial Statements F-7 Schedule III – Real Estate Properties and Accumulated Depreciation 48 F- 1 REPORT 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 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. 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. 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. 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 opinion. /s/ BDO USA, LLP We have served as the Company's auditor since 2017. New York, New York March 30, 2021 F- 2 PART I. FINANCIAL INFORMATION Item 1. Financial Statements POSTAL REALTY TRUST, INC. CONSOLIDATED BALANCE SHEETS December 31, 2020 December 31, 2019 Assets Investments: Real estate properties, at cost: Land $ 46,302,672 $ 25,147,732 Building and improvements 196,340,043 92,873,637 Tenant improvements 4,427,972 2,562,293 Total real estate properties, at cost 247,070,687 120,583,662 Less: Accumulated depreciation (13,215,180 ) (8,813,579 ) Total real estate properties, net 233,855,507 111,770,083 Investment in financing lease, net 515,046 – Total investments 234,370,553 111,770,083 Cash 2,211,677 12,475,537 Rent and other receivables 3,520,917 1,710,314 Prepaid expenses and other assets, net 4,434,544 2,752,862 Escrow and reserves 1,058,657 708,066 Deferred rent receivable 215,889 33,344 In-place lease intangibles, net 13,022,475 7,315,867 Above market leases, net 50,099 22,124 Total Assets $ 258,884,811 $ 136,788,197 Liabilities and Equity Liabilities: Secured borrowings, net $ 46,628,626 $ 3,211,004 Revolving credit facility 78,000,000 54,000,000 Accounts payable, accrued expenses and other 5,891,622 3,152,799 Below market leases, net 8,726,037 6,601,119 Total Liabilities 139,246,285 66,964,922 Commitments and Contingencies Equity: 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 94,372 52,859 Class B common stock, par value $0.01 per share; 27,206 shares authorized: 27,206 shares issued and outstanding as of December 31, 2020 and December 31, 2019 272 272 Additional paid-in capital 100,812,012 51,396,226 Accumulated deficit (8,916,683 ) (2,575,754 ) Total Stockholders’ Equity 91,989,973 48,873,603 Operating Partnership unitholders’ non-controlling interests 27,648,553 20,949,672 Total Equity 119,638,526 69,823,275 Total Liabilities and Equity $ 258,884,811 $ 136,788,197 The accompanying notes are an integral part of these consolidated and combined consolidated financial statements. F- 3 POSTAL REALTY TRUST, INC. CONSOLIDATED AND COMBINED CONSOLIDATED STATEMENTS OF OPERATIONS For the Year Ended December 30, 2020 2019 Revenues: Rental income $ 20,268,761 $ 8,865,868 Tenant reimbursements 3,046,234 1,311,121 Fee and other income 1,360,877 1,112,367 Total revenues 24,675,872 11,289,356 Operating expenses: Real estate taxes 3,095,435 1,366,892 Property operating expenses 1,924,405 1,207,486 General and administrative 8,229,753 4,846,392 Depreciation and amortization 9,162,934 3,800,059 Total operating expenses 22,412,527 11,220,829 Income from operations 2,263,345 68,527 Interest expense, net: Contractual interest expense (2,345,532 ) (1,098,788 ) Write-off and amortization of deferred financing fees (472,094 ) (242,763 ) Loss on early extinguishment of predecessor debt — (185,586 ) Interest income 2,745 5,928 Total interest expense, net (2,814,881 ) (1,521,209 ) Income (loss) before income tax expense (551,536 ) (1,452,682 ) Income tax expense (89,342 ) (39,749 ) Net loss (640,878 ) (1,492,431 ) Net income attributable to non-controlling interest in properties — (4,336 ) Net income attributable to Predecessor — (463,414 ) Net loss attributable to Operating Partnership unitholders’ non-controlling interests 288,531 462,968 Net loss attributable to common stockholders $ (352,347 ) $ (1,497,213 ) Net loss per share: Basic and Diluted $ (0.10 ) $ (0.30 ) Weighted average common shares outstanding: Basic and Diluted 7,013,621 5,164,264 The accompanying notes are an integral part of these consolidated and combined consolidated financial statements. F- 4 POSTAL REALTY TRUST, INC. CONSOLIDATED AND COMBINED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (DEFICIT) Number of shares of Common Stock Common Stock Additional Paid-in Capital Accumulated Equity (Deficit) Member’s Equity (Deficit) Total Stockholders’ & Predecessor equity Operating Partnership unitholders’ non-controlling interests Non-controlling interests in properties Total Equity Balance - December 31, 2018 - $ 4,000,200 $ 3,441,493 $ (11,003,876 ) $ (2,095,823 ) $ (5,658,006 ) $ - $ 44,593 $ (5,613,413 ) Capital contributions - - 397,121 - 1,671,131 2,068,252 - - 2,068,252 Distributions and dividends - - (699,191 ) - (1,377,689 ) (2,076,880 ) - (6,188 ) (2,083,068 ) Net income (loss) - - - (170,344 ) 633,758 463,414 - 4,336 467,750 Balance - May 16, 2019 $ 4,000,200 $ 3,139,423 $ (11,174,220 ) $ (1,168,623 ) $ (5,203,220 ) $ - $ 42,741 $ (5,160,479 ) Net proceeds from sale of Common Stock 4,500,000 45,000 64,665,261 - - 64,710,261 - - 64,710,261 Formation transactions 664,264 (3,993,557 ) (31,586,914 ) 11,174,220 1,168,623 (23,237,628 ) 22,662,907 (42,741 ) (617,462 ) Issuance of OP Units in connection with a transaction - - - - - - 13,227,801 - 13,227,801 Issuance and amortization of equity-based compensation 148,846 1,488 651,200 - - 652,688 328,518 - 981,206 Amortization under the Employee Stock Purchase Plan (“ESPP”) - - 15,319 - - 15,319 - - 15,319 Dividends declared ($0.203 per share) - - - (1,078,541 ) - (1,078,541 ) (294,649 ) - (1,373,190 ) Net income (loss) - - - (1,497,213 ) - (1,497,213 ) (462,968 ) - (1,960,181 ) Reallocation of non-controlling interest - - 14,511,937 - - 14,511,937 (14,511,937 ) - - Balance – December 31, 2019 5,313,110 $ 53,131 $ 51,396,226 $ (2,575,754 ) $ - $ 48,873,603 $ 20,949,672 - $ 69,823,275 Balance - December 31, 2019 5,313,110 $ 53,131 $ 51,396,226 $ (2,575,754 ) $ - $ 48,873,603 $ 20,949,672 $ - $ 69,823,275 Net proceeds from sale of common stock 4,021,840 40,218 48,481,137 - - 48,521,355 - - 48,521,355 Issuance of OP Units in connection with a transaction - - - - - - 7,921,828 - 7,921,828 Issuance and amortization of equity-based compensation 134,973 1,350 1,602,751 13,448 - 1,617,549 728,783 - 2,346,332 Issuance and amortization under ESPP 7,189 72 117,257 - - 117,329 - - 117,329 Restricted stock withholdings (12,709 ) (127 ) (205,482 ) - - (205,609 ) - - (205,609 ) Dividends declared ($0.79 per share) - - - (6,002,030 ) - (6,002,030 ) (2,243,076 ) - (8,245,106 ) Net loss - - - (352,347 ) - (352,347 ) (288,531 ) - (640,878 ) Reallocation of non-controlling interest - - (579,877 ) - - (579,877 ) 579,877 - - Balance – December 31, 2020 9,464,403 $ 94,644 $ 100,812,012 $ (8,916,683 ) $ - $ 91,989,973 $ 27,648,553 $ - $ 119,638,526 The accompanying notes are an integral part of these consolidated and combined consolidated financial statements. F- 5 POSTAL REALTY TRUST, INC. CONSOLIDATED AND COMBINED CONSOLIDATED STATEMENTS OF CASH FLOWS For the Year Ended December 31, 2020 2019 Cash flows from operating activities: Net loss $ (640,878 ) $ (1,492,431 ) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation 4,492,090 1,716,601 Amortization of in-place intangibles 4,670,844 2,083,458 Write-off and amortization of deferred financing costs 472,094 242,763 Amortization of above/below market leases (1,261,962 ) (535,834 ) Amortization of intangible liability (10,886 ) - Equity based compensation 2,356,234 996,525 Reclassification of cumulative dividends paid on forfeited awards 13,448 - Loss on extinguishment of debt - 185,586 Deferred rent receivable (182,545 ) (19,284 ) Deferred rent expense payable 17,140 (38,592 ) Deferred tax liability - (65,895 ) Changes in assets and liabilities: Rent and other receivables (1,810,603 ) (1,374,311 ) Prepaid expenses and other assets (565,901 ) (419,675 ) Due to affiliates - (503,961 ) Accounts payable, accrued expenses and other 1,846,659 2,083,673 Net cash provided by operating activities 9,395,734 2,858,623 Cash flows from investing activities: Acquisition of real estate (124,159,835 ) (72,166,456 ) Investment in financing lease (516,817 ) - Repayment of financing lease 1,771 - Escrows for acquisition and construction deposits (469,899 ) (335,999 ) Capital improvements (969,911 ) (151,582 ) Other investing activities (37,517 ) - Net cash used in investing activities (126,152,208 ) (72,654,037 ) Cash flows from financing activities: Proceeds from secured borrowings 43,899,311 445,000 Repayments of secured borrowings (109,716 ) (32,218,087 ) Proceeds from revolving credit facility 112,000,000 54,000,000 Repayments of revolving credit facility (88,000,000 ) - Proceeds from other financing activity 557,000 - Repayments from other financing activity (504,345 ) - Net proceeds from issuance of shares 48,521,355 64,710,261 Other formation transactions - (2,007,417 ) Debt issuance costs (1,163,664 ) (1,424,609 ) Proceeds from issuance of ESPP shares 93,979 - Shares withheld for payment of taxes on restricted share vesting (205,609 ) - Contributions from partners and members - 2,068,252 Distributions and dividends (8,245,106 ) (3,456,258 ) Net cash provided by financing activities 106,843,205 82,117,142 Net (decrease) increase in Cash and Escrows and Reserves (9,913,269 ) 12,321,728 Cash and Escrows and Reserves at the beginning of period 13,183,603 861,875 Cash and Escrow and Reserves at the end of period $ 3,270,334 $ 13,183,603 The accompanying notes are an integral part of these consolidated and combined consolidated financial statements. F- 6 POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS Note 1. Organization and Description of Business Postal Realty Trust, Inc. (the “Company” “we”, “us”, or “our”) was organized in the state of Maryland on November 19, 2018. On May 17, 2019, the Company completed its initial public offering (“IPO”) of the Company’s Class A common stock, par value $0.01 per share (our “Class A common stock”). The Company contributed the net proceeds from the IPO to Postal Realty LP, a Delaware limited partnership (the “Operating Partnership”), in exchange for common units of limited partnership interest in the Operating Partnership (each, an “OP Unit,” and collectively, 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, 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. Our 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 comprised the Predecessor were majority owned and controlled by Mr. Spodek and his affiliates and were acquired by contribution to, or merger with, the Company and the Operating Partnership. The 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. For the periods prior to May 17, 2019, the Predecessor, through the LLCs, UPH and the limited partnership, owned 190 postal properties in 33 states. NPM was formed on November 17, 2004, for the purpose of managing commercial real estate properties. As 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”). In 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 Mr. Spodek and his affiliates, his family members and their partners. The Company, until May 15, 2019, was authorized to issue up to 600,000,000 shares of common stock, par value $0.01 per share. On May 15, 2019, in connection with the IPO, the Company amended its articles of incorporation such that the Company is currently authorized to issue up to 500,000,000 shares of Class A common stock, 27,206 shares of Class B common stock, $0.01 par value per share (our “Class B common stock” or “Voting Equivalency stock”), and up to 100,000,000 shares of preferred stock. The 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. F- 7 POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Pursuant to the Jumpstart Our Business Startups Act (the “JOBS Act”), the Company qualifies as an emerging growth company (“EGC”). 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”). Initial Public Offering and Formation Transactions Both the Company and the Operating Partnership commenced operations upon completion of the IPO and the Formation Transactions on May 17, 2019. The Company’s operations are carried out primarily through the Operating Partnership and the wholly owned subsidiaries of the Operating Partnership. On May 17, 2019, the Company completed its IPO, pursuant to which it sold 4,500,000 shares of its Class A common stock at a public offering price of $17.00 per share. The Company raised $76.5 million in gross proceeds, 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 other expenses relating to the IPO. The Company’s Class A common stock began trading on the New York Stock Exchange under the symbol “PSTL” on May 15, 2019. In connection with the IPO and Formation Transactions, the Company, through its Operating Partnership, used a portion of the net proceeds to repay approximately $31.7 million of outstanding indebtedness related to the Predecessor. Pursuant to the Formation Transactions, the Company, directly or through the Operating Partnership, acquired the entities that comprise the Predecessor. The initial properties and other interests were contributed in exchange for 1,333,112 OP Units, 637,058 shares of Class A common stock, 27,206 shares of Voting Equivalency stock and $1.9 million of cash. In addition, the Operating Partnership 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. The 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. The 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. F- 8 POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Predecessor Postal Realty Trust, Inc. January 1, 2019 through May 16, 2019 May 17, 2019 through December 31, 2019 Revenues: Rental income $ 2,249,355 $ 6,616,513 Tenant reimbursements 348,075 963,046 Fee and other income 427,959 684,408 Total revenues 3,025,389 8,263,967 Operating Expenses: Real estate taxes 358,693 1,008,199 Property operating expenses 357,779 849,707 General and administrative 501,204 4,345,188 Depreciation and amortization 725,756 3,074,303 Total operating expenses 1,943,432 9,277,397 Income (loss) from operations 1,081,957 (1,013,430 ) Interest expense, net: Contractual interest expense (570,819 ) (527,969 ) Write-off and amortization of deferred financing costs (4,773 ) (237,990 ) Loss on early extinguishment of Predecessor debt - (185,586 ) Interest income 1,134 4,794 Total interest expense, net (574,458 ) (946,751 ) Income (loss) before income tax expense 507,499 (1,960,181 ) Income tax expense (39,749 ) - Net income (loss) 467,750 (1,960,181 ) Less: Net income attributable to noncontrolling interest in properties (4,336 ) - Net income attributable to Predecessor $ 463,414 - Net loss attributable to Operating Partnership unitholders’ noncontrolling interests 462,968 Net loss attributable to common stockholders $ (1,497,213 ) F- 9 POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 2. Summary of Significant Accounting Policies Basis of Presentation The accompanying Consolidated and Combined Consolidated Financial Statements include the financial position and results of operations of the Company and its Predecessor, the Operating Partnership and its wholly owned subsidiaries. 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 basis. The effects of all significant intercompany balances and transactions have been eliminated. The Company consolidates the Operating Partnership, a VIE in which the Company is considered the primary beneficiary. The primary beneficiary is the entity that has (i) the power to direct the activities that most significantly impact the entity’s economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could be significant to the VIE. A non-controlling interest is defined as the portion of the equity in an entity not attributable, directly or indirectly, to the Company. Non-controlling interests are required to be presented as a separate component of equity in the Consolidated Balance Sheets. Accordingly, the presentation of net income (loss) reflects the income attributed to controlling and non-controlling interests. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during the reporting period. Although management believes its estimates are reasonable, actual results could differ from those estimates. Offering and Other Costs Certain of the costs related to the IPO and the Formation Transactions paid by an affiliate of the Company’s initial sole shareholder were reimbursed by the Company from the proceeds of the IPO. Offering costs were recorded in “Stockholders’ equity” in the Company’s Consolidated Balance Sheets as a reduction of additional paid-in capital. Segment Reporting The Company acquires and manages postal properties and reports our business as a single reportable segment. Investments in Real Estate Upon the acquisition of real estate, the purchase price is allocated based upon the relative fair value of the assets acquired and liabilities assumed. The allocation of the purchase price to the relative fair value of the tangible assets of an acquired property is derived by valuing the property as if it were vacant. All real estate acquisitions in the periods presented qualified as asset acquisitions and, as such, acquisition-related fees and acquisition-related expenses related to these asset acquisitions are capitalized as part of the acquisition. Investments in real estate generally include land, buildings, tenant improvements and identified intangible assets, such as in-place lease intangibles and above or below-market lease intangibles. Direct and certain indirect costs clearly associated with the development, construction, leasing or expansion of real estate assets are capitalized as a cost of the property. Repairs and maintenance costs are expensed as incurred. F- 10 POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Depreciation or amortization expense is computed using the straight-line method based upon the following estimated useful lives: Years Buildings and improvements 40 Equipment and fixtures 5-10 Tenant improvements Shorter of useful life or applicable lease term In-place lease value Remaining non-cancellable term of the in-place lease The acquired above or below-market lease intangibles are amortized to “Rental income” over the applicable lease term, inclusive of any option periods for below-market leases. Deferred Costs 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. Reclassifications Certain prior period amounts have been reclassified to conform to the current period’s presentation. Cash and Escrows and Reserves Cash 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 escrows and reserves reported within the Company’s Consolidated Balance Sheets and Consolidated and Combined Consolidated Statements of Cash Flows: As of December 31, 2020 December 31, 2019 Cash $ 2,211,677 $ 12,475,537 Escrows and reserves: Maintenance reserve 696,083 663,339 Real estate tax reserve 303,824 - ESPP reserve 58,750 44,727 Cash and escrows and reserves $ 3,270,334 $ 13,183,603 Revenue Recognition The Company has operating lease agreements with tenants, some of which contain provisions for future rental increases. Rental income is recognized on a straight-line basis over the term of the lease. In addition, certain lease agreements provide for reimbursements from tenants for real estate taxes and other recoverable costs, which are recorded on an accrual basis as “Tenant reimbursement revenue” on the Company’s Consolidated and Combined Consolidated Statement of Operations. F- 11 POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Fee and other income primarily consist of property management fees. These fees arise from contractual agreements with entities that are affiliated with the Company’s CEO. Management fee income is recognized as earned under the respective agreements. The Company carries liability insurance to mitigate its exposure to certain losses, including those relating to property damage and business interruption. The Company records the estimated amount of expected insurance proceeds for property damage and other losses incurred as an asset (typically a receivable from the insurer) and income up to the amount of the losses incurred when receipt of insurance proceeds is deemed probable. Any amount of insurance recovery in excess of the amount of the losses incurred is considered a gain contingency and is not recorded in fee and other income until the proceeds are received. Insurance recoveries for business interruption for lost revenue or profit are accounted for as gain contingencies in their entirety, and therefore are not recorded in income until the proceeds are received. 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. This initial 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 lease, net. Income Taxes 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. 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 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 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 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. F- 12 POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Fair Value of Financial Instruments The 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. Accordingly, 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. As 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). The 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. Disclosure about fair value of assets and liabilities is based on pertinent information available to management as of December 31, 2020 and 2019. 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. Impairment The 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. If 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 results. No impairments were recorded during the years ended December 31, 2020 and 2019. Concentration of Credit Risks 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 and could have an effect on our overall business results. F- 13 POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The Company has deposited cash and maintains its bank deposits with large financial institutions in amounts that exceed federally insured limits. The Company has not experienced any losses in such accounts. Non-controlling Interests Non-controlling interests in the Company represent common units of limited partnership interest of the Operating Partnership (each, an “OP Unit,” and collectively, the OP Units”) held by the Predecessor’s prior investors and certain sellers of properties to the Company and long-term incentive units of the Operating Partnership (each, an “LTIP Unit,” and collectively, the “LTIP Units”) primarily held by the Company’s CEO. Upon completion of the IPO and the Formation Transactions, the Operating Partnership issued 1,333,112 OP Units to the Predecessor’s prior investors as partial consideration for the 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 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. Equity Based Compensation The Company accounts for equity-based compensation in accordance with ASC Topic 718 Compensation – Stock Compensation, which requires the Company to recognize an expense for the grant date fair value of equity-based awards. 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. The 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. See Note 10. Stockholder’s Equity for further details. Earnings per Share 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, 2019. 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. Future Application of Accounting Standards In February 2016, the FASB issued ASU 2016-02, Leases; in July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases, and ASU 2018-11, Leases — Targeted Improvements; and in December 2018, the FASB issued ASU 2018-20, Narrow-Scope Improvements for Lessors. This group of ASUs is collectively referred to as Topic 842. Topic 842 supersedes the existing standards for lease accounting (Topic 840, Leases). Topic 842 will be effective for the Company on January 1, 2021 as a result of its classification as an emerging growth company. F- 14 POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The Company expects to elect the practical expedients provided by Topic 842, including: the package of practical expedients that allows an entity not to reassess upon adoption (i) whether an expired or existing contract contains a lease, (ii) whether a lease classification related to expired or existing lease arrangements, and (iii) whether costs incurred on expired or existing leases qualify as initial direct costs, and as a lessor, the practical expedient not to separate certain non-lease components, such as common area maintenance, from the lease component if the timing and pattern of transfer are the same for the non-lease component and associated lease component, 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 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. The accounting by a lessor under Topic 842 is largely unchanged from that of Topic 840. Under Topic 842, lessors will continue to account for leases as a sales-type, direct-financing, or operating. A lease will be treated as a sale if it is considered to transfer control of the underlying asset to the lessee. A lease will be classified as direct-financing if risks and rewards are conveyed without the transfer of control. Otherwise, the lease is treated as an operating lease. Topic 842 requires accounting for a transaction as a financing in a sale leaseback in certain circumstances, including when the seller-lessee is provided an option to purchase the property from the landlord at the tenant’s option. The Company expects that this provision could change the accounting for these types of leases in the future. Topic 842 also includes the concept of separating lease and non-lease components. Under Topic 842, non-lease components, such as common area maintenance, would be accounted for under Topic 606 and separated from the lease payments. However, the Company will elect the lessor practical expedient allowing the Company to not separate these components when certain conditions are met. Upon adoption of Topic 842, the Company expects to combine tenant reimbursements with rental income on its consolidated statements of operations. In September 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and in November 2018 issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses . The guidance changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The guidance replaces the current ‘incurred loss’ model with an ‘expected loss’ approach. The Company will also be required to disclose information about how it developed the allowances, including changes in the factors that influenced the Company’s estimate of expected credit losses and the reasons for those changes. ASU No. 2018-19 excludes operating lease receivables from the scope of this guidance. This guidance will be effective for the Company on January 1, 2023 as a result of its classification as an emerging growth company. The Company is currently in the process of evaluating the impact the adoption of the guidance will have on its consolidated financial statements. F- 15 POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 3. Real Estate Acquisitions The following tables summarizes the Company’s acquisitions for the years ended December 31, 2020 and 2019. The purchase prices 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 acquisition. The total purchase price including transaction costs was allocated as follows: Three Months Ended Number of Properties Land Building and Improvements Tenant Improvements In-place lease intangibles Above- market leases Below- market leases Other (1) Total (2) 2020 March 31, 2020 (3)(4)(5) 83 $ 4,825,507 $ 24,572,597 $ 293,726 $ 2,477,174 $ 7,148 $ (1,616,080 ) $ (34,098 ) $ 30,525,974 June 30, 2020 (6) 19 2,555,428 7,344,021 54,894 692,705 - (38,934 ) - 10,608,114 September 30, 2020 (7) 122 6,074,837 19,426,255 316,541 2,300,575 37,290 (1,067,886 ) (33,386 ) 27,054,226 December 31, 2020 (8) 36 7,699,168 51,059,098 1,200,518 4,627,028 - (680,443 ) - 63,905,369 260 $ 21,154,940 $ 102,401,971 $ 1,865,679 $ 10,097,482 $ 44,438 $ (3,403,343 ) $ (67,484 ) $ 132,093,683 Three Months Ended Number of Properties Land Building and Improvements Tenant Improvements In-place lease intangibles Above- market leases Below- market leases Total (9) 2019 March 31, 2019 (10) 1 $ 179,202 $ 456,550 $ 18,166 $ 69,504 $ - $ (78,302 ) $ 645,120 June 30, 2019 (11) 81 6,789,589 18,774,918 259,640 2,227,870 6,338 (754,300 ) 27,304,055 September 30, 2019 18 2,619,719 8,306,781 190,343 982,974 - (1,024,644 ) 11,075,173 December 31, 2019 (12) 177 8,320,008 35,658,446 447,929 3,383,050 14,680 (1,447,020 ) 46,377,093 Total 277 $ 17,908,518 $ 63,196,695 $ 916,078 $ 6,663,398 $ 21,018 $ (3,304,266 ) $ 85,401,441 Explanatory Notes : (1) 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. (2) 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 (3) Includes the 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. The 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. (4) Includes the 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. (5) Includes the acquisition of 20 postal properties in individual or smaller portfolio transactions for approximately $8.1 million, including closing costs. (6) Includes 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. (7) Includes 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. F- 16 POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (8) Includes 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 USPS. The property was initially funded with borrowings under our Credit Facility. Refer to Note 5 for a discussion of the subsequent property level financing related to the acquisition. (9) Include 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. (10) The property was acquired by the Predecessor. (11) The 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. 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. Note 4. Intangible Assets and Liabilities The following table summarizes our intangible assets and liabilities as a result of the application of acquisition accounting: As of Gross Asset (Liability) Accumulated (Amortization)/ Accretion Net Carrying Amount December 31, 2020: In-place lease intangibles $ 24,165,476 $ (11,143,001 ) $ 13,022,475 Above-market leases 85,058 (34,959 ) 50,099 Below-market leases (12,075,644 ) 3,349,607 (8,726,037 ) December 31, 2019: In-place lease intangibles $ 13,788,024 $ (6,472,157 ) $ 7,315,867 Above-market leases 40,620 (18,496 ) 22,124 Below-market leases (8,672,301 ) 2,071,182 (6,601,119 ) Amortization of in-place lease intangibles was $4.7 million and $2.1 million for the years ended December 31, 2020 and 2019, respectively. This amortization is included in “Depreciation and amortization” on the Company’s Consolidated and Combined Consolidated Statements of Operations. Amortization of acquired 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. Amortization 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. F- 17 POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) As of December 31, 2020, the weighted average amortization period for the Company’s intangible assets was approximately 3.8 years, 3.7 years and 7.7 years for in-place lease intangibles, above-market leases and below-market leases, respectively. Future amortization/accretion of these intangibles is below: Year Ending December 31, In-place lease intangibles Above-market leases Below-market leases 2021 $ 4,730,448 $ 15,541 $ (1,446,534 ) 2022 3,106,464 13,260 (1,300,356 ) 2023 2,218,914 10,626 (1,142,993 ) 2024 1,519,962 7,884 (979,047 ) 2025 870,699 2,788 (859,068 ) Thereafter 575,988 - (2,998,039 ) Total $ 13,022,475 $ 50,099 $ (8,726,037 ) Note 5. Debt The following table summarizes the Company’s indebtedness as of December 31, 2020 and December 31, 2019: Outstanding Balance as of December 31, 2020 Outstanding Balance as of December 31, 2019 Interest Rate at December 31, 2020 Maturity Date Revolving Credit Facility (1) $ 78,000,000 $ 54,000,000 LIBOR+170bps (2) September 2023 Vision Bank (3) 1,458,450 1,522,672 4.00 % September 2036 First Oklahoma Bank (4) 364,077 378,005 4.50 % December 2037 Vision Bank – 2018 (5) 868,818 900,385 5.00 % January 2038 Seller Financing (6) 445,000 445,000 6.00 % January 2025 First Oklahoma Bank – April 2020 (7) 4,522,311 - 4.25 % April 2040 First Oklahoma Bank – June 2020 (8) 9,152,000 - 4.25 % June 2040 AIG – December 2020 (9) 30,225,000 - 2.80 % January 2031 Total Principal 125,035,656 57,246,062 Unamortized deferred financing costs (407,030 ) (35,058 ) Total Debt $ 124,628,626 $ 57,211,004 F- 18 POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Explanatory Notes : (1) On September 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 27, 2023. 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 amendment). 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). 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 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. During 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. (2) As of December 31, 2020, the one-month LIBOR rate was 0.15%. (3) 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%. (4) The loan is collateralized by first mortgage liens on four properties and a personal guarantee of payment by Mr. Spodek. Interest rate resets on December 31, 2022 to Prime + 0.25%. (5) The loan is collateralized by first mortgage liens on one property and a personal guarantee of payment by Mr. Spodek. Interest rate resets on January 31, 2023 to Prime + 0.5%. (6) 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. (7) 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%. (8) The loan is collateralized by first mortgage liens on 22 properties. Interest rates resets in January 2027 to the greater of Prime or 4.25%. (9) 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. F- 19 POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The weighted average maturity date for our secured borrowing as of December 31, 2020 and 2019 was 6.6 years and 15.7 years, respectively. Cash paid for interest during the years ended December 31, 2020 and 2019 was $2.3 million and $1.1 million, respectively. The scheduled principal repayments of indebtedness as of December 31, 2020 are as follows: Year Ending December 31, Amount 2021 $ 220,497 2022 701,228 2023 78,735,838 2024 767,608 2025 804,469 Thereafter 43,806,016 Total $ 125,035,656 Note 6. Leases As 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. Future 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: (1) Year Ending December 31, Amount 2021 (2)(3) $ 24,735,911 2022 21,435,331 2023 18,766,322 2024 15,338,186 2025 10,199,204 Thereafter 7,444,767 Total $ 97,919,721 Explanatory Notes : (1) The above minimum lease payments to be received do not include reimbursements from tenants for real estate taxes and other reimbursed expenses. (2) As of December 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. (3) The Company has received notice on one property which the USPS intends to vacate in August 2021. F- 20 POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Direct Financing Lease As 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: As of December 31, 2020 Total minimum lease payment receivable $ 1,010,091 Less: unearned income (495,045 ) Investment in financing lease, net $ 515,046 Future 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, Amount 2021 $ 45,500 2022 45,500 2023 45,500 2024 45,500 2025 45,500 Thereafter 782,591 Total $ 1,010,091 Ground Lease During 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. The table below presents the future minimum ground lease payments as of December 31, 2020. Year Ending December 31, Amount 2021 $ 23,600 2022 23,600 2023 23,600 2024 24,160 2025 25,840 Thereafter 1,156,200 Total $ 1,277,000 Impact of COVID-19 On 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 results. For the year ended December 31, 2020, the Company received 100% of its rents and there was no material impact on the Company. F- 21 POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 7. Income Taxes UPH Federal 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, 2019 (1) Current: Federal $ (83,128 ) State (22,517 ) Total current expense (105,645 ) Deferred: Federal 51,371 State 14,525 Total deferred benefit 65,896 Total income tax expense $ (39,749 ) Explanatory Note : (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 Year Ended December 31, 2019 Tax expense at Federal statutory rates 21.0 % Flow-through entities 6.2 % REIT non-taxable income (28.3 )% State taxes (0.2 )% Valuation allowance (0.3 )% Uncertain tax position (“FIN 48”) (1.1 )% Total US Federal income tax rate (2.7 )% During the year ended December 31, 2020, the Company recorded a benefit of $0.01 million due to finalizing certain state taxes filings of UPH. TRS In 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 PRM. For the years ended December 31, 2020 and 2019, income tax expense related to PRM was $0.07 million and zero, respectively. F- 22 POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Other As 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. For the 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 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, 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. A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows: For the Years Ended December 31, 2020 2019 Gross unrecognized tax benefits, beginning of year $ 488,277 $ 578,860 Additions based on tax positions taken in the current year - 51,418 Decreases based on positions taken in prior year (95,818 ) (148,685 ) Increases based on tax positions taken in prior periods - 6,684 Decreases based on tax positions taken in prior periods (28,275 ) - Total $ 364,184 $ 488,277 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. On March 27, 2020, the President signed into law the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The CARES Act was enacted to provide economic relief to companies and individuals in response to the COVID-19 pandemic. Included 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. F- 23 POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 8. Related Party Transactions Management Fee 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. Spodek. 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. Related Party Lease 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”). 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. The following table represents the Company’s future rental payments related to the New Lease: Year Ending December 31, Amount 2021 $ 188,869 2022 194,535 2023 200,371 2024 76,244 Total $ 660,019 Transfer of Real Property On 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. Guarantees Mr. 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. As a 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. F- 24 POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 9. Earnings Per Share Earnings per share (“EPS”) is calculated by dividing net income (loss) attributable to common stockholders by the weighted average number of shares outstanding for the period. The following table presents a reconciliation of income (loss) from operations used in the basic and diluted EPS calculations. (1) For the Years Ended December 31, 2020 2019 Numerator for earnings per share – basic and diluted: Net loss attributable to common stockholders $ (352,347 ) $ (1,497,213 ) Less: Income attributable to participating securities (345,899 ) (54,223 ) Numerator for earnings per share — basic and diluted $ (698,246 ) (1,551,436 ) Denominator for earnings per share – basic and diluted 7,013,621 5,164,264 Basic and diluted earnings per share $ (0.10 ) $ (0.30 ) Explanatory Note : (1) The combined statements of operations prior to May 17, 2019 represents the activity of the Predecessor and EPS was not applicable. Note 10. Stockholder’s Equity The 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 other expenses relating to the IPO. In addition, the Company issued 637,058 shares of Class A common stock and 27,206 shares of Voting Equivalency stock in connection with the Formation Transactions. Each outstanding share of Voting Equivalency stock entitles its holder to 50 votes on all matters on which Class A common stockholders are entitled to vote, including the election of directors, and holders of shares of Class A common stock and Voting Equivalency stock will vote together as a single class. Shares of Voting Equivalency stock are convertible into shares of Class A common stock, on a one-for-one basis, at the election of the holder at any time. Additionally, one share of Voting Equivalency stock will automatically convert into one share of Class A common stock for each 49 OP Units transferred (including by the exercise of redemption rights afforded with respect to OP Units) to a person other than a permitted transferee. This ratio is a function of the fact that each share of Voting Equivalency stock entitles its holder to 50 votes on all matters on which Class A common stockholders are entitled to vote and maintains the voting proportion of holders of Voting Equivalency stock with the holder’s economic interest in our Company. 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 per share. 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. Dividends During 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. F- 25 POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Declaration Date Record Date Date Paid Amount Per Share January 30, 2020 February 14, 2020 February 28, 2020 $0.17 April 30, 2020 May 11, 2020 May 29, 2020 $0.20 July 30, 2020 August 14, 2020 August 31, 2020 $0.205 October 30, 2020 November 16, 2020 November 30, 2020 $0.215 During 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 below. Declaration Date Record Date Date Paid Amount Per Share June 26, 2019 July 9, 2019 July 31, 2019 $0.0630 November 5, 2019 November 15, 2019 December 2, 2019 $0.1400 Non-controlling Interests 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. As 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. 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 their percentage ownership of OP Units. Restricted Stock and Other Awards Pursuant 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. F- 26 POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The 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: Restricted Shares (1)(2) LTIP Units (3) Restricted Stock Units (“RSUs”) (4) Total Shares Weighted Average Grant Date Fair Value Outstanding, as of January 1, 2020 148,847 120,003 — 268,850 $ 16.96 Granted 146,348 94,303 62,096 302,747 $ 14.20 Vesting of restricted shares (5) (65,207 ) — — (65,207 ) $ 16.69 Forfeited (11,375 ) (5,298 ) — (16,673 ) $ 15.83 Outstanding, as of December 31, 2020 218,613 209,008 62,096 489,717 $ 15.33 Explanatory Notes : (1) Represents restricted shares awards included in common stock. (2) 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 three years. (3) 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 CEO. 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. (4) 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. (5) Includes 52,497 of restricted shares that vested and 12,710 shares of restricted shares that were withheld to satisfy minimum statutory withholding requirements. In 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, 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 February 1, 2021. F- 27 POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) In 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 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. During 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. The 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. Employee Stock Purchase Plan In 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. 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 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. Note 11. Commitments and Contingencies As 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. In the ordinary course of the Company’s business, the Company enters into non-binding (except with regard to exclusivity and confidentiality) letters of intent indicating a willingness to negotiate for acquisitions. There can be no assurance that definitive contracts will be entered into with respect to any matter covered by letters of intent, that the Company will close the transactions contemplated by such contracts on time, or that the Company will consummate any transaction contemplated by any definitive contract. Note 12. Subsequent Events On 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. F- 28 POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) On 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. On 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. On February 3, 2021, the Company fully repaid $13.7 million of the First Oklahoma Bank-April 2020 and First Oklahoma Bank-June 2020 mortgages. As of March 30, 2021, the Company had net credit facility activity of $10.5 million during the period subsequent to December 31, 2020. As of the date of this report, the Company had $67.5 million drawn on its credit facility. As of March 30, 2021, the Company closed on the acquisitions of 54 postal properties for approximately $25.7 million during the period subsequent to December 31, 2020. F- 29 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.