Postal Realty Trust, Inc. 10-Q

Item 1. Financial Statements POSTAL REALTY TRUST, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except par value and share data) June 30, 2021 December 31, 2020 (Unaudited) Assets Investments: Real estate properties, at cost: Land $ 55,108 $ 46,303 Building and improvements 240,528 196,340 Tenant improvements 5,098 4,428 Total real estate properties, at cost 300,734 247,071 Less: Accumulated depreciation ( 16,715 ) ( 13,215 ) Total real estate properties, net 284,019 233,856 Investment in financing lease, net 512 515 Total investments 284,531 234,371 Cash 4,936 2,212 Rent and other receivables 3,689 3,521 Prepaid expenses and other assets, net 4,790 4,434 Escrows and reserves 1,215 1,059 Deferred rent receivable 373 216 In-place lease intangibles, net 14,578 13,022 Above market leases, net 116 50 Total Assets $ 314,228 $ 258,885 Liabilities and Equity Liabilities: Secured borrowings, net $ 33,031 $ 46,629 Revolving credit facility 82,500 78,000 Accounts payable, accrued expenses and other 6,673 5,891 Below market leases, net 8,579 8,726 Total Liabilities 130,783 139,246 Commitments and Contingencies Equity: Class A common stock, par value $ 0.01 per share; 500,000,000 shares authorized, 13,652,412 and 9,437,197 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively 136 95 Class B common stock, par value $ 0.01 per share; 27,206 shares authorized: 27,206 shares issued and outstanding as of June 30, 2021 and December 31, 2020 — — Additional paid-in capital 160,061 100,812 Accumulated deficit ( 14,010 ) ( 8,917 ) Total Stockholders’ Equity 146,187 91,990 Operating Partnership unitholders’ non-controlling interests 37,258 27,649 Total Equity 183,445 119,639 Total Liabilities and Equity $ 314,228 $ 258,885 The accompanying notes are an integral part of these consolidated financial statements. 1 Table of Contents POSTAL REALTY TRUST, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (in thousands, except share data ) For the Three Months Ended June 30, For the Six Months Ended June 30, 2021 2020 2021 2020 Revenues: Rental income $ 8,977 $ 5,293 $ 17,464 $ 10,195 Fee and other income 551 312 929 607 Total revenues 9,528 5,605 18,393 10,802 Operating expenses: Real estate taxes 1,163 697 2,252 1,339 Property operating expenses 815 394 1,725 801 General and administrative 2,716 1,917 5,285 4,218 Depreciation and amortization 3,219 2,162 6,388 4,197 Total operating expenses 7,913 5,170 15,650 10,555 Income from operations 1,615 435 2,743 247 Interest expense, net: Contractual interest expense ( 621 ) ( 546 ) ( 1,266 ) ( 1,273 ) Write-off and amortization of deferred financing fees ( 145 ) ( 115 ) ( 290 ) ( 220 ) Loss on early extinguishment of debt — — ( 202 ) — Interest income 1 1 1 1 Total interest expense, net ( 765 ) ( 660 ) ( 1,757 ) ( 1,492 ) Income (loss) before income tax expense 850 ( 225 ) 986 ( 1,245 ) Income tax expense ( 27 ) ( 5 ) ( 38 ) ( 15 ) Net income (loss) 823 ( 230 ) 948 ( 1,260 ) Net (income) loss attributable to Operating Partnership unitholders’ non-controlling interests ( 152 ) 79 ( 176 ) 431 Net income (loss) attributable to common stockholders $ 671 $ ( 151 ) $ 772 $ ( 829 ) Net income (loss) per share: Basic and Diluted $ 0.04 $ ( 0.05 ) $ 0.04 $ ( 0.19 ) Weighted average common shares outstanding: Basic and Diluted 13,081,018 5,205,153 12,766,791 5,189,900 The accompanying notes are an integral part of these consolidated financial statements. 2 Table of Contents POSTAL REALTY TRUST, INC. CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (DEFICIT) (UNAUDITED) (in thousands, except share data) Number of shares of Common Stock Common Stock Additional Paid-in Capital Accumulated Equity (Deficit) Total Stockholders’ equity Operating Partnership unitholders’ non-controlling interests Total Equity Balance - December 31, 2019 5,313,110 $ 53 $ 51,396 $ ( 2,576 ) $ 48,873 $ 20,950 $ 69,823 Issuance of OP Units in connection with a transaction — — — — — 7,922 7,922 Issuance and amortization of equity-based compensation 103,463 1 519 — 520 185 705 Issuance and amortization under ESPP 3,538 — 53 — 53 — 53 Dividends declared ($ 0.17 per share) — — — ( 923 ) ( 923 ) ( 478 ) ( 1,401 ) Net loss — — — ( 677 ) ( 677 ) ( 352 ) ( 1,029 ) Reallocation of non-controlling interest — — 2,219 — 2,219 ( 2,219 ) — Balance - March 31, 2020 5,420,111 $ 54 $ 54,187 $ ( 4,176 ) $ 50,065 $ 26,008 $ 76,073 Issuance and amortization of equity-based compensation 42,297 — 351 — 351 181 532 Amortization under ESPP — — 2 — 2 — 2 Restricted stock withholdings ( 11,342 ) — ( 182 ) — ( 182 ) — ( 182 ) Dividends declared ($ 0.20 per share) — — — ( 1,089 ) ( 1,089 ) ( 566 ) ( 1,655 ) Net loss — — — ( 151 ) ( 151 ) ( 79 ) ( 230 ) Reallocation of non-controlling interest — — ( 6 ) — ( 6 ) 6 — Balance – June 30, 2020 5,451,066 $ 54 $ 54,352 $ ( 5,416 ) $ 48,990 $ 25,550 $ 74,540 Balance - December 31, 2020 9,464,403 $ 95 $ 100,812 $ ( 8,917 ) $ 91,990 $ 27,649 $ 119,639 Net proceeds from sale of common stock 3,737,500 37 53,203 — 53,240 — 53,240 Issuance and amortization of equity-based compensation 149,121 1 885 — 886 230 1,116 Issuance and amortization under ESPP 3,987 — 66 — 66 — 66 Restricted stock withholdings ( 1,291 ) — ( 21 ) — ( 21 ) — ( 21 ) Dividends declared ($ 0.2175 per share) — — — ( 2,916 ) ( 2,916 ) ( 650 ) ( 3,566 ) Net income — — — 103 103 23 126 Reallocation of non-controlling interest — — ( 3,831 ) — ( 3,831 ) 3,831 — Balance – March 31, 2021 13,353,720 $ 133 $ 151,114 $ ( 11,730 ) $ 139,517 $ 31,083 $ 170,600 3 Table of Contents Net proceeds from sale of common stock 319,702 3 6,050 — 6,053 — 6,053 Issuance of OP Units in connection with transactions — — — — — 9,021 9,021 Issuance and amortization of equity-based compensation 17,102 — 499 — 499 281 780 Amortization under ESPP — — 8 — 8 — 8 Restricted stock withholdings ( 10,906 ) — ( 221 ) — ( 221 ) — ( 221 ) Dividends declared ($ 0.22 per share) — — — ( 2,951 ) ( 2,951 ) ( 668 ) ( 3,619 ) Net income — — — 671 671 152 823 Reallocation of non-controlling interest — — 2,611 — 2,611 ( 2,611 ) — Balance – June 30, 2021 13,679,618 $ 136 $ 160,061 $ ( 14,010 ) $ 146,187 $ 37,258 $ 183,445 The accompanying notes are an integral part of these consolidated financial statements. 4 Table of Contents POSTAL REALTY TRUST, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (in thousands) For the Six Months Ended June 30, 2021 2020 Cash flows from operating activities: Net income (loss) $ 948 $ ( 1,260 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation 3,508 1,969 Amortization of in-place intangibles 2,880 2,227 Write-off and amortization of deferred financing costs 290 220 Amortization of above/below market leases ( 760 ) ( 610 ) Amortization of intangible liability ( 9 ) ( 3 ) Equity based compensation 1,916 1,248 Loss on extinguishment of debt 202 — Deferred rent receivable ( 157 ) ( 54 ) Deferred rent expense payable — 10 Other 35 — Non-cash lease expense 7 — Changes in assets and liabilities: Rent and other receivables ( 292 ) ( 281 ) Prepaid expenses and other assets ( 233 ) ( 362 ) Accounts payable, accrued expenses and other 58 103 Net cash provided by operating activities 8,393 3,207 Cash flows from investing activities: Acquisition of real estate ( 47,596 ) ( 33,212 ) Repayment of financing lease 3 — Escrows for acquisition and construction deposits ( 372 ) ( 640 ) Capital improvements ( 783 ) ( 341 ) Insurance proceeds related to property damage claims 848 — Other investing activities ( 141 ) ( 73 ) Net cash used in investing activities ( 48,041 ) ( 34,266 ) Cash flows from financing activities: Proceeds from secured borrowings — 13,674 Repayments of secured borrowings ( 13,810 ) ( 54 ) Proceeds from revolving credit facility 47,500 20,000 Repayments of revolving credit facility ( 43,000 ) ( 6,531 ) Proceeds from other financing activity — 557 Repayments from other financing activity ( 53 ) ( 192 ) Net proceeds from issuance of shares 59,444 — Debt issuance costs ( 29 ) ( 767 ) Proceeds from issuance of ESPP shares 53 45 Shares withheld for payment of taxes on restricted share vesting ( 242 ) ( 182 ) Distributions and dividends ( 7,185 ) ( 3,056 ) Other financing activities ( 150 ) ( 9 ) Net cash provided by financing activities 42,528 23,485 Net increase (decrease) in Cash and Escrows and Reserves 2,880 ( 7,574 ) Cash and Escrows and Reserves at the beginning of period 3,271 13,184 Cash and Escrow and Reserves at the end of period $ 6,151 $ 5,610 The accompanying notes are an integral part of these consolidated financial statements. 5 Table of Contents POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. Organization and Description of Business Postal Realty Trust, Inc. (the “Company”) 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 (the “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 June 30, 2021, the Company held an approximately 79.7 % 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 the Company is the primary beneficiary. The Company’s 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. NPM was formed on November 17, 2004, for the purpose of managing commercial real estate properties. As of June 30, 2021, the Company owned a portfolio of 852 postal properties located in 49 states. The Company’s 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 399 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 (the “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 for qualification as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the “Code”), and the Company elected to be taxed as a REIT under the Code commencing with the Company’s 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. 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 the Company has 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”). 6 Table of Contents POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 2. Summary of Significant Accounting Policies Basis of Presentation The accompanying Consolidated Financial Statements include the financial position and results of operations of the Company, the Operating Partnership and its wholly owned subsidiaries. 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. The accompanying Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial state ments. This interim financial information should be read in conjunction with the Consolidated and Combined Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. Management believes that all adjustments of a normal, recurring nature considered necessary for a fair presentation have been included. This interim financial information does not necessarily represent or indicate what the operating results will be for the year ending December 31, 2021. All material intercompany accounts and transactions have been eliminated. 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 Offering costs are recorded in “Total Stockholders’ Equity” in the Consolidated Balance Sheets as a reduction of additional paid-in capital. 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 (the “2019 Credit Facility”), established under a credit agreement dated as of September 27, 2019, as amended (the “2019 Credit Agreement”), are deferred and amortized as an increase to interest expense over the term of the 2019 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. 7 Table of Contents POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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 Consolidated Balance Sheets and Consolidated Statements of Cash Flows: As of June 30, 2021 December 31, 2020 (in thousands) Cash $ 4,936 $ 2,212 Escrows and reserves: Maintenance reserve 742 696 Real estate tax reserve 399 304 ESPP reserve 74 59 Cash and escrows and reserves $ 6,151 $ 3,271 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 part of “Rental income” in the Consolidated Statement of Operations. Fee and other income primarily consists of property management fees. These fees arise from contractual agreements with entities that are affiliated with the Company’s chief executive officer (the “CEO”). Management fee income is recognized as earned under the respective agreements. Revenue from direct financing leases is recognized over the lease term using the effective interest rate method. At lease inception, the Company records an asset within investments in the 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” in the Consolidated Statements of Operations and produces a constant periodic rate of return on the investment in direct financing lease, net. 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 June 30, 2021 and December 31, 2020. 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 June 30, 2021 and December 31, 2020 due to their short maturities. As of June 30, 2021 and December 31, 2020, the Company had an investment in a direct financing lease with a carrying value of $ 0.5 million and $ 0.5 million, respectively, and an effective interest rate of 7.89 % and 7.89 %, respectively. The carrying value of the investment in a direct financing lease approximated the fair market value as of June 30, 2021 and December 31, 2020. The fair value of the Company’s direct financing lease 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 2019 Credit Facility approximates carrying value. The fair value of the Company’s secured borrowings aggregated approximately $ 33.3 million and $ 47.1 million as compared to the principal balance of $ 33.2 million and $ 47.0 million as of June 30, 2021 and December 31, 2020, respectively. The fair value of the 8 Table of Contents POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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 June 30, 2021 and December 31, 2020. 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 June 30, 2021 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 three and six months ended June 30, 2021 and 2020. Concentration of Credit Risks As of June 30, 2021, the Company’s properties were leased primarily to a single tenant, the USPS. For the six months ended June 30, 2021, 18.9 % of the Company’s total rental income, or $ 17.5 million, was concentrated in Pennsylvania. For the six months ended June 30, 2020, no state had a concentration of rental income over 10% as a percentage of total rental income. 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 the Company’s overall business results. 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. 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. Insurance Accounting 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 the amount is determinable and approved by insurance company. 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 amount 9 Table of Contents POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) is determinable and approved by insurance company. 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 amount is determinable and approved by insurance company. Earnings per Share The Company calculates net income (loss) per share based upon the weighted average shares outstanding less issued and outstanding non-vested shares of Class A common stock for the period beginning May 17, 2019. Diluted earnings per share is calculated after giving effect to all potential dilutive shares outstanding during the period. There were 3,497,577 and 2,855,102 potential shares outstanding related to OP Units and long term incentive units of the Operating Partnership (each, an “LTIP Unit” and collectively, the “LTIP Units”), which are redeemable for cash, or at the Company’s option, shares of Class A common stock on a one -for-one basis, held by non-controlling interests as of June 30, 2021 and 2020, respectively. These OP Units and LTIP Units would not be dilutive and were not included in the diluted earnings per share for all periods presented. Recently Adopted Accounting Pronouncements In February 2016, the FASB issued ASU 2016-2, 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 was effective for the Company on January 1, 2021 as a result of its classification as an EGC. The Company elected to utilize the following 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. 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 requires the Company to assess the probability of collecting substantially all of its rental revenue and make direct adjustments to rental revenue for operating lease receivables that are not believed to be collectible. 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 elected the lessor practical expedient allowing the Company to not separate these components when certain conditions are met. With this election, the Company combined tenant reimbursements with rental income on its Consolidated Statements of Operations for the period beginning with the three months ended March 31, 2021. Upon adoption of the standard, the Company’s comparative statement of operations have been reclassified to conform to the new single component presentation of rental revenues and tenant reimbursements, classified within rental income in the Company’s consolidated statements of operations. During the six months ended June 30, 2021, the Company recorded a right of use asset and a related operating lease liability, each totaling approximately $ 1.2 million, related to one office lease and three ground leases. The right of use lease 10 Table of Contents POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) asset is included in “Prepaid expenses and other assets, net” and the operating lease liability is included in “Accounts payable, accrued expenses and other” on the Consolidated Balance Sheets. Future Application of Accounting Standards 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 EGC. The Company is currently in the process of evaluating the impact the adoption of the guidance will have on its consolidated financial statements. Note 3. Real Estate Acquisitions The following tables summarizes the Company’s acquisitions for the six months ended June 30, 2021. 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 (in thousands): Six 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) 2021 March 31, 2021 (3) 54 $ 3,493 $ 19,793 $ 428 $ 2,201 $ 51 $ ( 474 ) $ 723 $ 26,215 June 30, 2021 (4) 71 $ 5,364 $ 23,550 $ 268 $ 2,207 $ 28 $ ( 156 ) $ ( 5 ) $ 31,256 Total 125 $ 8,857 $ 43,343 $ 696 $ 4,408 $ 79 $ ( 630 ) $ 718 $ 57,471 Explanatory Notes : (1) Represents an insurance receivable related to a property in a small portfolio that was destroyed by arson prior to acquisition by the Company during the three months ended March 31, 2021. The Company is in the process of rebuilding such property which remains under lease to the USPS using the insurance proceeds assigned by the seller to the Company. The insurance proceeds were received in April 2021. Also includes an intangible liability related to an unfavorable operating lease on a property during the three months ended June 30, 2021 that is included in “Accounts payable, accrued expenses and other” on the Company’s Consolidated Balance Sheets. (2) Includes acquisition costs of $ 0.5 million for the three months ended March 31, 2021 and $ 0.9 million for the three months ended June 30, 2021. (3) Includes the acquisition of 54 postal properties in various states in individual or portfolio transactions for approximately $ 26.2 million, including closing costs, which was funded with borrowings under the 2019 Credit Facility. (4) Includes the acquisition of 71 postal properties in various states in individual or portfolio transactions for a price of approximately $ 31.3 million, including closing costs, which was funded with both the issuance of OP Units to the sellers as non-cash consideration (valued at approximately $ 9.0 million using the share price of Class A common stock on the date of each issuance of such OP Units) and borrowings under the 2019 Credit Facility. 11 Table of Contents POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 4. Intangible Assets and Liabilities The following table summarizes the Company’s intangible assets and liabilities as a result of the application of acquisition accounting: As of Gross Asset (Liability) Accumulated (Amortization) /Accretion Net Carrying Amount (in thousands) June 30, 2021: In-place lease intangibles $ 28,601 $ ( 14,023 ) $ 14,578 Above-market leases 164 ( 48 ) 116 Below-market leases ( 12,702 ) 4,123 ( 8,579 ) December 31, 2020: In-place lease intangibles $ 24,165 $ ( 11,143 ) $ 13,022 Above-market leases 85 ( 35 ) 50 Below-market leases ( 12,076 ) 3,350 ( 8,726 ) Amortization of in-place lease intangibles was $ 1.5 million and $ 2.9 million for the three and six months ended June 30, 2021, respectively, and $ 1.1 million and $ 2.2 million for the three and six months ended June 30, 2020, respectively. This amortization is included in “Depreciation and amortization” in the Consolidated Statements of Operations. Amortization of acquired above market leases was $ 0.01 million for each of the three and six months ended June 30, 2021 and $ 3,576 and $ 6,682 for the three and six months ended June 30, 2020, respectively, and is included in “Rental income” in the Consolidated Statements of Operations. Amortization of acquired below market leases was $ 0.4 million and $ 0.8 million for the three and six months ended June 30, 2021, respectively, and $ 0.3 million and $ 0.6 million for the three and six months ended June 30, 2020, respectively, and is included in “Rental income” in the Consolidated Statements of Operations. Future amortization/accretion of these intangibles is below (in thousands): Year Ending December 31, In-place lease intangibles Above-market leases Below-market leases 2021-Remaining $ 3,110 $ 16 $ ( 822 ) 2022 4,288 30 ( 1,372 ) 2023 2,976 28 ( 1,186 ) 2024 2,091 25 ( 1,004 ) 2025 1,230 17 ( 830 ) Thereafter 883 — ( 3,365 ) Total $ 14,578 $ 116 $ ( 8,579 ) 12 Table of Contents POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 5. Debt The following table summarizes the Company’s indebtedness as of June 30, 2021 and December 31, 2020 (dollars in thousands): Outstanding Balance as of June 30, 2021 Outstanding Balance as of December 31, 2020 Interest Rate at June 30, 2021 Maturity Date 2019 Credit Facility (1) $ 82,500 $ 78,000 LIBOR+ 170 bps (2) September 2023 Vision Bank (3) 1,425 1,459 4.00 % September 2036 First Oklahoma Bank (4) 357 364 4.50 % December 2037 Vision Bank – 2018 (5) 852 869 5.00 % January 2038 Seller Financing (6) 366 445 6.00 % January 2025 First Oklahoma Bank – April 2020 (7) — 4,522 4.25 % April 2040 First Oklahoma Bank – June 2020 (8) — 9,152 4.25 % June 2040 AIG – December 2020 (9) 30,225 30,225 2.80 % January 2031 Total Principal 115,725 125,036 Unamortized deferred financing costs ( 194 ) ( 407 ) Total Debt $ 115,531 $ 124,629 Explanatory Notes : (1) On September 27, 2019, the Company entered into the 2019 Credit Agreement, which provided 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 2019 Credit Agreement in order to exercise a portion of the Accordion Feature to increase the maximum amount available under the 2019 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 2019 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. On November 24, 2020, the Company further amended the 2019 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. On August 9, 2021, the Company entered into a $ 150.0 million senior unsecured revolving credit facility and a $ 50.0 million senior unsecured term loan facility (together, the “2021 Credit Facilities”). In connection with entering into the 2021 Credit Facilities, the Company terminated the 2019 Credit Facility and paid off the outstanding loans thereunder. See Note 12 – “Subsequent Events” for a description of the material terms of the 2021 Credit Facilities. The interest rates applicable to loans under the 2019 Credit Facility were, at the Company’s 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 three months ended March 31, 2020, an unused facility fee on the revolving commitments under the 2019 Credit Facility of 0.75 % per annum for the first $ 100.0 million and 0.25 % per annum for the portion of revolving commitments exceeding $ 100.0 million, and, for the periods 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 2019 Credit Facility. During the three and six months ended June 30, 2021, the Company incurred $ 0.05 million and $ 0.1 million, respectively, of unused facility fees related to the 2019 Credit Facility. During the three and six months ended June 30, 2020, the Company incurred $ 0.1 million and $ 0.2 million, respectively, of unused facility fees related to the 2019 Credit Facility. As of June 30, 2021, the Company was in compliance with all of the 2019 Credit Facility’s debt covenants. 13 Table of Contents POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (2) As of June 30, 2021, the one-month LIBOR rate was 0.10 %. (3) Five properties are collateralized under this loan 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, the Company 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 %. On February 3, 2021, the Company fully repaid this mortgage financing and wrote off $ 0.06 million of deferred financing to costs to loss on early extinguishment of debt for the three and six months ended June 30, 2021. See the Consolidated Statements of Operations. (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 %. On February 3, 2021, the Company fully repaid this mortgage financing and wrote off $ 0.15 million of deferred financing to costs to loss on early extinguishment of debt for the three and six months ended June 30, 2021. See the Consolidated Statements of Operations. (9) The loan is secured by a cross-collateralized and cross-defaulted first mortgage lien on an industrial property located in Warrendale, PA (the “Industrial Facility”). 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. The weighted average maturity date for the Company’s secured borrowing as of June 30, 2021 and December 31, 2020 was 4.5 years and 6.6 years, respectively. The scheduled principal repayments of indebtedness as of June 30, 2021 are as follows (in thousands): Year Ending December 31, Amount 2021 - Remaining $ 59 2022 205 2023 82,718 2024 229 2025 241 Thereafter 32,273 Total $ 115,725 Note 6. Leases Lessor Accounting As of June 30, 2021, all of the Company’s properties are 100 % leased to the USPS with the exception of the multi-tenant Industrial Facility. Certain leases have expired and the balance expire at various dates through November 30, 2029. Certain leases contain renewal and termination options exercisable at the lessee’s election. Therefore, such options are only recognized once they are deemed reasonably certain, typically at the time the option is exercised. All of the Company’s leases 14 Table of Contents POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) are operating leases with the exception of one that is a direct financing lease. The Company’s operating leases and direct financing lease are described below. Rental income related to the Company’s leases is recognized on a straight-line basis over the remaining lease term. The Company’s total revenue includes fixed base rental payments provided under the lease and variable payments which principally consist of tenant expense reimbursements for certain property operating expenses, including real estate taxes. The Company elected the practical expedient to account for its lease and non-lease components as a single combined operating lease component under the new leasing standard. As a result, rental income and tenant reimbursements were aggregated into a single line within rental revenues in the consolidated statement of operations. The following table represents rental revenue that the Company recognized related to its operating leases (in thousands): For the Three Months Ended June 30, For the Six Months Ended June 30, 2021 2020 2021 2020 Fixed payments $ 7,823 $ 4,640 $ 15,168 $ 8,941 Variable payments 1,154 653 2,296 1,254 $ 8,977 $ 5,293 $ 17,464 $ 10,195 Future minimum lease payments to be received as of June 30, 2021 under non-cancellable operating leases for the next five years and thereafter are as follows: Year Ending December 31, Amount (1) (in thousands) 2021 - Remaining (2)(3) $ 15,210 2022 29,129 2023 26,675 2024 23,535 2025 17,547 Thereafter 18,600 Total $ 130,696 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 June 30, 2021, the leases at 18 of the Company’s properties were expired, and the USPS was occupying such properties as a holdover tenant. Holdover rent is typically paid as the greater of estimated market rent or the rent amount due under the expired lease. (3) The Company has received notice on one property which the USPS intends to vacate at the end of August 2021. 15 Table of Contents POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Direct Financing Lease As of June 30, 2021 and 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 June 30, 2021 and December 31, 2020 are summarized in the table below (in thousands): As of June 30, 2021 As of December 31, 2020 Total minimum lease payment receivable $ 987 $ 1,010 Less: unearned income ( 475 ) ( 495 ) Investment in financing lease, net $ 512 $ 515 Future lease payments to be received under the Company’s direct financing lease as of June 30, 2021 for the next five years and thereafter are as follows: Year Ending December 31, Amount (in thousands) 2021 – Remaining $ 22 2022 46 2023 46 2024 46 2025 46 Thereafter 781 Total $ 987 Lessee Accounting As a lessee, the Company has ground and office leases which were classified as operating leases. On January 1, 2021 the Company adopted ASC 842 and recognized right-of-use assets of $ 1.2 million and lease liabilities of $ 1.2 million. The difference between the recorded right-of-use assets and lease liabilities is mainly due to the reclassification of the below market ground lease intangible asset which was included within the right-of-use assets recognized upon transition. As of June 30, 2021, these leases had remaining terms, including renewal options, of 3 to 36 years and a weighted average remaining lease term of 20.3 years. Operating right-of-use assets and lease liabilities are included in “Prepaid expenses and other assets, net” and “Accounts payable, accrued expense and other” in the Consolidated Balance Sheets as follows (in thousands): As of June 30, 2021 Right-of-use asset – operating leases $ 1,124 Lease liability – operating leases $ 1,155 Operating lease liabilities are measured at the commencement date based on the present value of future lease payments. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. The Company used a weighted average discount rate of 4.25 % based on the yield of its current borrowings in determining its lease liabilities. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. The lease terms may include options to extend or terminate the lease if it is reasonably certain that the Company will exercise that option. 16 Table of Contents POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Operating lease expense for each of the three and six months ended June 30, 2021 and 2020 was $ 0.06 million and $ 0.1 million, respectively. Future minimum lease payments to be paid by the Company as a lessee for operating leases as of June 30, 2021 for the next five years and thereafter are as follows (in thousands): 2021 — Remaining $ 112 2022 227 2023 233 2024 109 2025 35 Thereafter 1,171 Total future minimum lease payments 1,887 Interest discount ( 732 ) Total $ 1,155 Future minimum ground lease payments under ASC 840 as of December 31, 2020 were as follows ( in thousands): Year Ending December 31, Amount 2021 $ 24 2022 24 2023 24 2024 24 2025 26 Thereafter 1,155 Total $ 1,277 Future minimum office lease payments under ASC 840 as of December 31, 2020 were as follows ( in thousands): Year Ending December 31, Amount 2021 $ 189 2022 195 2023 200 2024 76 Total $ 660 Impact of COVID-19 On March 11, 2020, the World Health Organization declared the outbreak of a coronavirus (COVID-19) 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 six months ended June 30, 2021, the Company received 100 % of its rents and the Company believes there was no material impact caused by COVID-19 on the Company. Note 7. Income Taxes 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 three and six months ended June 30, 2021, income tax expense related to 17 Table of Contents POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) PRM was $ 0.03 million and $ 0.04 million, respectively. For the three and six months ended June 30, 2020, income tax expense related to PRM was $ 0.02 million and $ 0.03 million, respectively. Other In connection with the IPO, the indirect sole shareholder of UPH agreed to reimburse the Company for unrecognized tax benefits primarily related to the utilization of certain loss carryforwards at UPH. The Company recorded an indemnification asset in the same amount as the unrecognized tax benefits. The indirect sole shareholder of UPH will be responsible for all tax related matters related to UPH. As of June 30, 2021 and December 31, 2020, the Company had unrecognized tax benefits of $ 0.5 million and $ 0.4 million, respectively, which is inclusive of interest and penalties and a corresponding indemnification asset which is recorded in prepaid expenses and other assets on the Consolidated Balance Sheets. 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 the Company does not expect these provisions to have a material impact on the Company’s taxable income or tax liabilities, the Company will continue to analyze the provisions of the CARES Act and related guidance as it is published. Note 8. Related Party Transactions Management Fee Income PRM recognized management fee income of $ 0.4 million and $ 0.7 million for the three and six months ended June 30, 2021, respectively, and $ 0.2 million and $ 0.5 million for the three and six months ended June 30, 2020, respectively, from various properties which were affiliated with the Company's CEO. These amounts are included in “Fee and other income” in the Consolidated Statements of Operations. Accrued management fees receivable was $ 0.4 million and $ 0.3 million as of June 30, 2021 and December 31, 2020, respectively, are included in “Rents and other receivables” in the 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 three and six months ended June 30, 2021 was $ 0.05 million and $ 0.1 million, respectively, and for the three and six months ended June 30, 2020 was $ 0.05 million and $ 0.1 million, respectively, and was recorded in “General and administrative expenses” in the Consolidated Statements of Operations. The Company determined this lease was an operating lease. For further detail see Note 6 – Leases. 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 the Company’s Board of Directors ratified the no consideration transfer. 18 Table of Contents POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Guarantees Mr. Spodek, the Company’s CEO, has personally guaranteed the Company’s loans with First Oklahoma Bank that were obtained prior to 2020 and Vision Bank, totaling $ 2.6 million and $ 2.7 million as of June 30, 2021 and December 31, 2020, 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 the Company’s interests and could result in a conflict of interest. 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 (dollars in thousands, except share and per share data). For the Three Months Ended June 30, For the Six Months Ended June 30, 2021 2020 2021 2020 Numerator for earnings per share – basic and diluted: Net income (loss) attributable to common stockholders $ 671 $ ( 151 ) $ 772 $ ( 829 ) Less: Income attributable to participating securities ( 179 ) ( 89 ) ( 324 ) ( 161 ) Numerator for earnings per share — basic and diluted $ 492 $ ( 240 ) $ 448 $ ( 990 ) Denominator for earnings per share – basic and diluted (1) 13,081,018 5,205,153 12,766,791 5,189,900 Basic and diluted earnings per share $ 0.04 $ ( 0.05 ) $ 0.04 $ ( 0.19 ) Explanatory Notes : (1) OP Units and LTIP Units would not be dilutive and were not included in the computation of diluted earnings per share for all periods presented. Note 10. Stockholder’s Equity On January 11, 2021, the Company priced a public offering of 3.25 million shares of its Class A common stock (the “January 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 “January Additional Shares”). The January Follow-on Offering, including the January 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 $ 0.6 million in other expenses relating to the January Follow-on Offering. ATM Program On December 14, 2020, the Company entered into separate open market sale agreements for its at-the-market offering program (the "ATM Program") with each of Jefferies LLC, Stifel, Nicolaus & Company, Incorporated, BMO Capital Markets Corp., Janney Montgomery Scott LLC and D.A. Davidson & Co. (“D.A. Davidson”), pursuant to which the Company may offer and sell, from time to time, shares of the Company’s Class A common stock having an aggregate sales price of up to $ 50.0 million. On May 14, 2021, the Company delivered to D.A. Davidson a notice of termination of the open market sale agreement with D.A. Davidson, which termination became effective May 14, 2021. 19 Table of Contents POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The following table summarizes the activity under the ATM Program for the period presented (dollars in thousands, except per share amounts). There was no activity under the ATM Program for the three months ended March 31, 2021. As of June 30, 2021, the Company had approximately $ 43.6 million remaining that may be issued under the ATM Program. Three Months Ended June 30, 2021 Shares issued 319,702 Gross proceeds $ 6,400 Fees and issuance costs 347 Net proceeds $ 6,053 Average gross sales price per share $ 20.02 Dividends During the three and six months ended June 30, 2021, the Board of Directors approved and the Company declared and paid dividends of $ 3.6 million and $ 7.2 million, respectively, to Class A common stockholders, Voting Equivalency stockholders, OP unitholders and LTIP unitholders, or $ 0.22 per share and $ 0.4375 per share, respectively, as shown in the table below. Declaration Date Record Date Date Paid Amount Per Share January 29, 2021 February 12, 2021 February 26, 2021 $ 0.2175 April 30, 2021 May 14, 2021 May 28, 2021 $ 0.2200 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 and the Board of Directors in connection with the IPO and/or in lieu of their cash compensation. During the six months ended June 30, 2021, the Company issued 137,259 LTIP Units in February 2021 to the Company’s CEO for his 2020 incentive bonus, his election to defer 100 % of his 2021 annual salary and for long term incentive compensation and issued 28,997 LTIP Units in June 2021 to the Board of Directors for their annual retainers as compensation for their services as directors. As of June 30, 2021 and December 31, 2020, non-controlling interests consisted of 3,122,312 OP Units and 375,265 LTIP Units and 2,640,795 OP Units and 209,009 LTIP Units, respectively. This represented approximately 20.3 % and 23.1 % of the outstanding Operating Partnership units as of June 30, 2021 and December 31, 2020, respectively. Operating Partnership units and shares of common stock generally have 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 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 “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 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. On April 27, 2021, the Board of Directors further amended the Plan to provide for an automatic increase annually in the number of shares of Class A common stock available for 20 Table of Contents POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) issuance under the Plan (the “Plan Pool”), allowing the Plan Pool to equal to 10 % of the Company’s fully diluted shares (including securities convertible into shares of the Class A common stock) outstanding on the last day of the immediately preceding fiscal year. The stockholders approved such amendment on June 18, 2021. As of June 30, 2021, the remaining shares available under the Plan for future issuance was 506,346 . 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. The following table presents a summary of restricted stock, LTIP Units and RSUs. The balance as of June 30, 2021 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, 2021 218,613 209,008 62,096 489,717 $ 15.33 Granted 156,754 166,256 76,828 399,838 $ 15.19 Vesting of restricted shares (5) ( 68,589 ) — — ( 68,589 ) $ 16.59 Forfeited ( 700 ) — — ( 700 ) $ 16.60 Outstanding, as of June 30, 2021 306,078 375,264 138,924 820,266 $ 15.70 Explanatory Notes : (1) Represents restricted shares awards included in Class A common stock. (2) The time-based restricted share awards granted to the Company’s 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 the Company’s directors vest over three years . (3) Includes 346,268 LTIP Units to the Company’s CEO that vest over eight years and 28,997 LTIP Units to the Company's independent directors that vest over three years or cliff vest at the end of three years . (4) During the six months ended June 30, 2021, 46,714 RSUs was granted to certain officers and employees of the Company 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, 2023. 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 26,997 time-based RSUs issued for 2020 incentive bonuses to certain employees that vested fully on February 11, 2021, the date of grant, and 3,117 time-based RSUs granted to an employee for their election to defer a portion of their 2021 salary that will vest on December 31, 2021. RSUs reflect the right to receive shares of Class A common stock, subject to the applicable vesting criteria. (5) Includes 34,566 of restricted shares that vested and 12,197 shares of restricted shares that were withheld to satisfy minimum statutory withholding requirements. During the three months ended June 30, 2021 and 2020, the Company recognized compensation expense of $ 0.8 million and $ 0.5 million, respectively, related to all awards. During the six months ended June 30, 2021 and 2020, the Company recognized compensation expense of $ 1.9 million and $ 1.2 million, respectively, related to all awards. As of June 30, 2021, there was $ 9.9 million of total unrecognized compensation cost related to unvested awards, which is expected to be recognized over a weighted average period of 4.8 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 Class A common stock at a 21 Table of Contents POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) discount. A total of 100,000 shares of Class A common stock was reserved for sale and authorized for issuance under the ESPP. The Code permits the Company to provide up to a 15 % discount on the lesser of the fair market value of such shares of Class A common stock at the beginning of the offering period and the close of the offering period. As of June 30, 2021 and December 31, 2020, 11,176 and 7,189 shares have been issued under the ESPP since commencement, respectively. During each of the three months ended June 30, 2021 and 2020, the Company recognized compensation expense of $ 0.01 million. During the six months ended June 30, 2021 and 2020, the Company recognized compensation expense of $ 0.02 million and $ 0.01 million, respectively. Note 11. Commitments and Contingencies As of June 30, 2021, 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 The Company has evaluated subsequent events through the date on which this Form 10-Q was filed, the date on which these financial statements were issued. On July 26, 2021, the Company’s Board of Directors approved, and the Company declared a second quarter common stock dividend of $ 0.2225 per share which is payable on August 27, 2021 to stockholders of record as August 13, 2021. On August 3, 2021, the Company amended its loan with the First Oklahoma Bank to reduce its interest rate to 3.625 % fixed for five years then adjusting annually to Prime with a minimum annual rate of 3.625 %. On August 9, 2021, the Company terminated the 2019 Credit Facility and entered into the 2021 Credit Facilities, which include a $ 150.0 million senior unsecured revolving credit facility (the “Revolving Facility”) and a $ 50.0 million senior unsecured term loan facility (the “Term Loan”). The 2021 Credit Facilities include an accordion feature which will permit the Company to borrow up to an additional $ 150.0 million under the Revolving Facility and up to an additional $ 50.0 million under the Term Loan, in each case subject to customary terms and conditions. The Revolving Facility matures in January 2026, which may be extended for two six-month periods subject to customary conditions, and the Term Loan matures in January 2027. Borrowings under the 2021 Credit Facilities carry an interest rate of, (i) in the case of the Revolving Facility, either a base rate plus a margin ranging from 0.5 % to 1.0 % per annum or LIBOR plus a margin ranging from 1.5 % to 2.0 % per annum, or (ii) in the case of the Term Loan, either a base rate plus a margin ranging from 0.45 % to 0.95 % per annum or LIBOR plus a margin ranging from 1.45 % to 1.95 % per annum, in each case depending on the Company's consolidated leverage ratio. With respect to the Revolving Facility, the Company will pay, if the usage is equal to or less than 50 %, an unused facility fee of 0.20 % per annum, or if the usage is greater than 50 %, an unused facility fee of 0.15 % per annum, in each case on the average daily unused commitments under the Revolving Facility. The 2021 Credit Facilities contain a number of customary financial and non-financial covenants. As of August 11, 2021, management of the Company believed that the Company was in compliance with all of the financial and non-financial covenants contained in the 2021 Credit Facilities. In addition, on August 9, 2021, the Company entered into an interest rate swap that effectively fixed the LIBOR component of the interest rate on $ 50.0 million portion of the 2021 Credit Facilities through January 2027. The interest rate swap initially applied to the $ 50.0 million Term Loan, fixing the interest rate for the Term Loan at 2.291 % as of the date of this report. As of the date of this report, the Company had $ 92.5 million drawn on the 2021 Credit Facilities, with $ 50.0 million drawn on the Term Loan and $ 42.5 million drawn on the Revolving Facility. As of August 11, 2021, the Company closed on the acquisitions of 37 postal properties for approximately $ 12.1 million, excluding closing costs, during the period subsequent to June 30, 2021, some of which include OP Units as part of the consideration. 22 Table of Contents POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) As of August 11, 2021, the Company had entered into definitive agreements to acquire 25 postal properties for approximately $ 7.4 million, some of which include OP Units as part of the consideration. The majority of these transactions are anticipated to close during the third and fourth quarters of 2021, subject to the satisfaction of customary closing conditions. However, the Company can provide no assurances that the properties will be consummated on the terms of timeframe described herein, or at all. 23 Table of Contents