Postal Realty Trust, Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis is based on, and should be read in conjunction with, the unaudited Consolidated Financial Statements and the related notes thereto of Postal Realty Trust, Inc. contained in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2021. As used in this section, unless the context otherwise requires, references to “we,” “our,” “us,” and “our company” refer to Postal Realty Trust, Inc., a Maryland corporation, together with our consolidated subsidiaries, including Postal Realty LP, a Delaware limited partnership, of which we are the sole general partner and which we refer to in this section as our Operating Partnership. Forward-Looking Statements This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of federal securities laws. In particular, statements pertaining to our capital resources, acquisitions, property performance and results of operations contain forward-looking statements. You can identify forward-looking statements by the use of forward-looking terminology such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” “pro forma,” “estimates” or “anticipates” or the negative of these words and phrases or similar words or phrases which are predictions of or indicate future events or trends and which do not relate solely to historical matters. You can also identify forward-looking statements by discussions of strategy, plans or intentions. Forward-looking statements involve numerous risks and uncertainties and you should not rely on them as predictions of future events. Forward-looking statements depend on assumptions, data or methods which may be incorrect or imprecise and we may not be able to realize them. We do not guarantee that the transactions and events described will happen as described (or that they will happen at all). The following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements: • change in the status of the United States Postal Service (“USPS”) as an independent agency of the executive branch of the U.S. federal government; • change in the demand for postal services delivered by the USPS; • our ability to come to an agreement with the USPS regarding new leases or lease renewals; • the solvency and financial health of the USPS; • defaults on, early terminations of or non-renewal of leases or relocation, closure or consolidation of postal offices or delivery routes by the USPS; • the competitive market in which we operate; • changes in the availability of acquisition opportunities; • our inability to successfully complete real estate acquisitions or dispositions on the terms and timing we expect, or at all; • our failure to successfully operate developed and acquired properties; • adverse economic or real estate developments, either nationally or in the markets in which our properties are located; • decreased rental rates or increased vacancy rates; • change in our business, financing or investment strategy or the markets in which we operate; • fluctuations in interest rates and increased operating costs; 26 Table of Contents • general economic conditions (including inflation, rising interest rates, uncertainty regarding ongoing conflict between Russia and Ukraine and their related impact on macroeconomic conditions); • financial market fluctuations; • our failure to generate sufficient cash flows to service our outstanding indebtedness; • our failure to obtain necessary outside financing on favorable terms or at all; • failure to hedge effectively against interest rate changes; • our reliance on key personnel whose continued service is not guaranteed; • the outcome of claims and litigation involving or affecting us; • changes in real estate, taxation, zoning laws and other legislation and government activity and changes to real property tax rates and the taxation of real estate investment trusts (“REITs”) in general; • operations through joint ventures and reliance on or disputes with co-venturers; • cybersecurity threats; • uncertainties and risks related to adverse weather conditions, natural disasters and climate change; • exposure to liability relating to environmental and health and safety matters; • governmental approvals, actions and initiatives, including the need for compliance with environmental requirements; • lack or insufficient amounts of insurance; • limitations imposed on our business in order to maintain our status as a REIT and our failure to maintain such status; and • public health threats such as the coronavirus (COVID-19) pandemic. While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. We disclaim any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, of new information, data or methods, future events or other changes after the date of this Quarterly Report on Form 10-Q, except as required by applicable law. You should not place undue reliance on any forward-looking statements that are based on information currently available to us or the third parties making the forward-looking statements. For a further discussion of these and other factors that could impact our future results, performance or transactions, you should carefully review and consider (i) the information contained under Item 1A titled “Risk Factors” herein and in our Annual Report on Form 10-K and (ii) such similar information as may be contained in our other reports and filings that we make with the Securities and Exchange Commission (the “SEC”). Overview Company We were formed as a Maryland corporation on November 19, 2018 and commenced operations upon completion of our initial public offering and the related formation transactions. We conduct our business through a traditional UPREIT structure in which our properties are owned by our Operating Partnership directly or through limited partnerships, limited liability companies or other subsidiaries. During the nine months ended September 30, 2022, we acquired 266 properties leased to the USPS for approximately $105.7 million, including closing costs. As of September 30, 2022, our portfolio consists of 1,232 owned properties, located in 49 states and one territory and comprising approximately 5.2 million net leasable interior square feet. 27 Table of Contents We are the sole general partner of our Operating Partnership through which our properties are directly or indirectly owned. As of November 2, 2022, we owned approximately 80.4% of our outstanding common units of limited partnership interest in our Operating Partnership (the “OP Units”), including long term incentive units of our Operating Partnership (the “LTIP Units”). Our Board of Directors oversees our business and affairs. ATM Program On December 14, 2020, we 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 we may offer and sell, from time to time, shares our Class A common stock having an aggregate sales price of up to $50.0 million. On May 14, 2021, we 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. During the year ended December 31, 2021, 344,717 shares were issued under the ATM Program. During the nine months ended September 30, 2022, 227,473 shares were issued under the ATM Program. As of September 30, 2022, we had approximately $39.4 million of availability remaining under the ATM Program. Executive Overview We are an internally managed REIT with a focus on acquiring and managing properties leased primarily to the USPS, ranging from last mile post offices to larger industrial facilities. We believe the overall opportunity for consolidation that exists within the postal logistics network is very attractive. We continue to execute our strategy to acquire and consolidate postal properties that we believe will generate strong earnings for our shareholders. Geographic Concentration As of September 30, 2022, we owned a portfolio of 1,232 properties located in 49 states and one territory and leased primarily to the USPS. For the nine months ended September 30, 2022, 15.4% of our total rental income was concentrated in Pennsylvania. Emerging Growth Company We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the "JOBS Act"), and we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies,” including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. In addition, the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in the Securities Act of 1933, as amended (the “Securities Act”), for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have availed ourselves of these exemptions; although, subject to certain restrictions, we may elect to stop availing ourselves of these exemptions in the future even while we remain an “emerging growth company.” We will remain an “emerging growth company” until the earliest to occur of (i) the last day of the fiscal year during which our total annual revenue equals or exceeds $1.235 billion (subject to periodic adjustment for inflation), (ii) the last day of the fiscal year following the fifth anniversary of our IPO, (iii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt or (iv) the date on which we are deemed to be a “large accelerated filer” under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We are also a “smaller reporting company” as defined in Regulation S-K under the Securities Act and have elected to take advantage of certain scaled disclosures available to smaller reporting companies. We may continue to be a smaller reporting company even after we are no longer an “emerging growth company.” We elected to be treated as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”), beginning with our short taxable year ending December 31, 2019. As long as we qualify as a REIT, we generally will not be subject to federal income tax to the extent that we distribute our taxable income for each tax year to our stockholders. 28 Table of Contents Factors That May Influence Future Results of Operations The USPS We are dependent on the USPS’ financial and operational stability. The USPS is currently facing a variety of circumstances that are threatening its ability to fund its operations and other obligations as currently conducted without intervention by the federal government. The USPS is constrained by laws and regulations that restrict revenue sources and pricing, mandate certain expenses and cap its borrowing capacity. As a result, among other consequences, the USPS is unable to fund its mandated expenses and continues to be subject to mandated payments to its retirement system and benefits. While the USPS has recently undertaken, and proposes to undertake, a number of operational reforms and cost reduction measures, such as higher rates and slower deliveries for certain services and potential closure, relocation or consolidation of certain facilities and delivery routes, the USPS has taken the position such measures alone will not be sufficient to maintain its ability to meet all of its existing obligations when due or allow it to make the critical infrastructure investments that have been deferred in recent years. These measures have also led to significant criticism and litigation, which may result in reputational or financial harm or increased regulatory scrutiny of the USPS or reduced demand for its services. The ongoing COVID-19 pandemic (including new or mutated variants of COVID-19) and measures being taken to prevent its spread also continue to have a material and unpredictable effect on the USPS’ operations and liquidity, including volatility in demand for mail services, significant changes in the mix of mail and packages processed through the USPS’ network and significant additional operating expenses caused by pandemic-related disruptions. The COVID-19 pandemic and other geopolitical and economic factors have also created inflationary pressures resulting in higher compensation, transportation and fuel costs for the USPS. If the USPS becomes unable to meet its financial obligations or its revenue declines due to reduced demand for its services, the USPS may reduce its demand for leasing postal properties, which would have a material adverse effect on our business and operations. For additional information regarding the risks associated with the USPS, see the section entitled “Risk Factors - Risks Related to the USPS” under Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021. Revenues We derive revenues primarily from rent and tenant reimbursements under leases with the USPS for our properties, and fee and other from the management agreements with respect to the postal properties owned by Andrew Spodek, our chief executive officer, and his affiliates managed by our taxable REIT subsidiary (“TRS”), income recognized from properties accounted for as financing leases and revenue from providing certain advisory services. Rental income represents the lease revenue recognized under leases primarily with the USPS which includes the impact of above and below market lease intangibles as well as tenant reimbursements for payments made by our tenants under the leases to reimburse us for the majority of real estate taxes paid at each property. Fee and other principally represent (i) revenue our TRS received from postal properties owned by Mr. Spodek and his affiliates pursuant to the management agreements and is a percentage of the lease revenue for the managed property, (ii) revenue our TRS received from providing advisory services to third-party owners of postal properties and (iii) income recognized from properties accounted for as financing leases. As of September 30, 2022, properties leased to our tenants had an average remaining lease term of approximately four years. Factors that could affect our rental income and fee and other in the future include, but are not limited to: (i) our ability to renew or replace expiring leases and management agreements; (ii) local, regional or national economic conditions; (iii) an oversupply of, or a reduction in demand for, postal space; (iv) changes in market rental rates; (v) changes to the USPS’ current property leasing program or form of lease; and (vi) our ability to provide adequate services and maintenance at our properties and managed properties. Operating Expenses We lease our properties primarily to the USPS. The majority of our leases are modified double-net leases, whereby the tenant is responsible for utilities, routine maintenance and reimbursement of property taxes and the landlord is responsible for insurance, roof and structure. Thus, an increase in costs related to the landlord’s responsibilities under these leases could negatively influence our operating results. Refer to “Lease Renewal” below for further discussion. Operating expenses generally consist of real estate taxes, property operating expenses, which consist of insurance, repairs and maintenance (other than those for which the tenant is responsible), property maintenance-related payroll and depreciation and amortization. Factors that may affect our ability to control these operating costs include but are not limited to: the cost of periodic repair, renovation costs, the cost of re-leasing space, inflation and the potential for liability under applicable laws. Recoveries from the tenant are recognized as revenue on an accrual basis over the periods in which the related expenditures are incurred. Tenant reimbursements and operating expenses are recognized on a gross basis, because (i) generally, we are the primary obligor with respect to the real estate taxes and (ii) we bear the credit risk in the event the tenant does not reimburse the real estate taxes. 29 Table of Contents The expenses of owning and operating a property are not necessarily reduced when circumstances, such as market factors and competition, cause a reduction in income from the property. If revenues drop, we may not be able to reduce our expenses accordingly. Costs associated with real estate investments generally will not be materially reduced even if a property is not fully occupied or other circumstances cause our revenues to decrease. As a result, if revenues decrease in the future, static operating costs may adversely affect our future cash flow and results of operations. General and Administrative General and administrative expense represents personnel costs, professional fees, legal fees, insurance, consulting fees, information technology costs and other expenses related to our day-to-day activities of being a public company. While we expect that our general and administrative expenses will continue to rise as our portfolio grows, we expect that such expenses as a percentage of our revenues will decrease over time due to efficiencies and economies of scale. Equity-Based Compensation Expense All equity-based compensation expense is recognized in our Consolidated Statements of Operations and Comprehensive Income as components of general and administrative expense and property operating expenses. We issue share-based awards to align our directors' and employees’ interests with those of our investors. Indebtedness and Interest Expense On August 9, 2021, we entered into a $150.0 million senior unsecured revolving credit facility (the "2021 Revolving Credit Facility") and a $50.0 million senior unsecured term loan facility (the "2021 Term Loan"). In connection with entering into the credit facilities, we terminated our previous credit facility and paid off the outstanding loans thereunder. On May 11, 2022, we amended the Credit Facilities (the "First Amendment") to, among other things, add a new $75.0 million senior unsecured delayed draw term loan facility (the "2022 Term Loan" and, together with the 2021 Revolving Credit Facility and the 2021 Term Loan, the “Credit Facilities”), replace the London Interbank Offered Rate (“LIBOR”) with the Secured Overnight Financing Rate ("SOFR") as the benchmark interest rate and allow for a decrease in the applicable margin by 0.02% if we achieve certain sustainability targets. We intend to use the Credit Facilities for working capital purposes, which may include repayment of mortgage indebtedness, property acquisitions and other general corporate purposes. We amortize on a non-cash basis the deferred financing costs associated with our debt to interest expense using the straight-line method, which approximates the effective interest rate method over the terms of the related loans. Any changes to the debt structure, including debt financing associated with property acquisitions, could materially influence the operating results depending on the terms of any such indebtedness. Income Tax Benefit (Expense) As a REIT, we generally will not be subject to federal income tax on our net taxable income that we distribute currently to our stockholders. Under the Code, REITs are subject to numerous organizational and operational requirements, including a requirement that they distribute each year at least 90% of their REIT taxable income, determined without regard to the deduction for dividends paid and excluding any net capital gains. If we fail to qualify for taxation as a REIT in any taxable year and do not qualify for certain statutory relief provisions, our income for that year will be taxed at regular corporate rates, and we would be disqualified from taxation as a REIT for the four taxable years following the year during which we ceased to qualify as a REIT. Even though we qualify as a REIT for federal income tax purposes, we may still be subject to state and local taxes on our income and assets and to federal income and excise taxes on our undistributed income. Additionally, any income earned by our existing TRS and any other TRS we form in the future will be subject to federal, state and local corporate income tax. Lease Renewal As of November 2, 2022, the leases at 72 of our properties, representing approximately 249,000 net leasable interior square feet and $2.4 million in annual contractual rental revenue, were expired and the USPS was occupying such properties as a holdover tenant. As of the date of this report, the USPS had not vacated or notified us of its intention to vacate any of these properties. When a lease expires, the USPS becomes a holdover tenant on a month-to-month basis typically paying the greater of estimated market rent or the rent amount under the expired lease. While we currently anticipate that we will execute new leases for all properties that have expired or will expire, there can be no guarantee that we will be successful in executing new leases, obtaining positive rent renewal spreads or renewing the 30 Table of Contents leases on terms comparable to those of the expiring leases. Even if we are able to renew these expired leases, the lease terms may not be comparable to those of the previous leases. If we are not successful, we will likely experience reduced occupancy, rental income and net operating income, as well as diminished borrowing capacity under our credit facilities, which could have a material adverse effect on our financial condition, results of operations and ability to make distributions to shareholders. Refer to “Risk Factors - Risks Related to the USPS” under Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021 for additional information regarding the risks associated with the USPS. Results of Operations Comparison of the Three Months Ended September 30, 2022 and the Three Months Ended September 30, 2021 For the Three Months Ended September 30, 2022 2021 $ Change % Change Revenues Rental income $ 13,181 $ 10,204 $ 2,977 29.2 % Fee and other 594 325 269 82.8 % Total revenues 13,775 10,529 3,246 30.8 % Operating expenses Real estate taxes 1,836 1,625 211 13.0 % Property operating expenses 1,346 983 363 36.9 % General and administrative 3,040 2,596 444 17.1 % Depreciation and amortization 4,637 3,743 894 23.9 % Total operating expenses 10,859 8,947 1,912 21.4 % Income from operations 2,916 1,582 1,334 84.3 % Other income 44 159 (115) (72.3) % Interest expense, net Contractual interest expense (1,670) (734) (936) 127.5 % Write-off and amortization of deferred financing fees (156) (295) 139 (47.1) % Interest income — 1 (1) (100.0) % Total interest expense, net (1,826) (1,028) (798) 77.6 % Income before income tax benefit (expense) 1,134 713 421 59.0 % Income tax benefit (expense) 16 (37) 53 (143.2) % Net income $ 1,150 $ 676 $ 474 70.1 % Revenues Rental income – Rental income includes net rental income as well as the recovery of certain operating costs and property taxes from tenants. Rental income increased by $3.0 million to $13.2 million for the three months ended September 30, 2022 from $10.2 million for the three months ended September 30, 2021 due to the volume of our acquisitions. Fee and other – Fee and other revenue increased by $0.3 million to $0.6 million for the three months ended September 30, 2022 from $0.3 million for the three months ended September 30, 2021 primarily due to income received from properties accounted for as financing leases. 31 Table of Contents Operating Expense Real estate taxes – Real estate taxes increased by $0.2 million to $1.8 million for the three months ended September 30, 2022 from $1.6 million for the three months ended September 30, 2021 due to the volume of our acquisitions. Property operating expenses – Property operating expenses increased by $0.4 million to $1.3 million for the three months ended September 30, 2022 from $1.0 million for the three months ended September 30, 2021. Property management expenses are included within property operating expenses and increased by $0.1 million to $0.5 million for the three months ended September 30, 2022 from $0.4 million for the three months ended September 30, 2021 due to expanding our property management staff as a result of our continued growth as well as an increase in equity-based compensation expense related to awards that have been granted to our property management employees. The remainder of the increase of $0.3 million is related to expenses for repairs and maintenance and insurance, which increase is primarily due to the volume of our acquisitions. General and administrative – General and administrative expenses increased by $0.4 million to $3.0 million for the three months ended September 30, 2022 from $2.6 million for the three months ended September 30, 2021 primarily due to expanding our staff and increase in information technology costs as a result of our continued growth as well as an increase in equity-based compensation expense related to awards that have been granted to our employees in 2021 and during the three months ended September 30, 2022. Depreciation and amortization – Depreciation and amortization expense increased by $0.9 million to $4.6 million for the three months ended September 30, 2022 from $3.7 million for three months ended September 30, 2021 due to the volume of our acquisitions. Other Income Other income primarily includes insurance recoveries related to property damage claims. Other income decreased by $0.1 million to $0.04 million for the three months ended September 30, 2022 from $0.2 million for the three months ended September 30, 2021, primarily due to lower insurance recoveries. Total Interest Expense, Net During the three months ended September 30, 2022, we incurred total interest expense, net of $1.8 million compared to $1.0 million for the three months ended September 30, 2021. The increase in interest expense is primarily related to higher amount of borrowings under the Credit Facilities to finance our acquisitions. 32 Table of Contents Comparison of the Nine Months Ended September 30, 2022 and Nine Months Ended September 30, 2021 For the Nine Months Ended September 30, 2022 2021 $ Change % Change Revenues Rental income $ 36,665 $ 27,668 $ 8,997 32.5 % Fee and other 1,765 1,137 628 55.2 % Total revenues 38,430 28,805 9,625 33.4 % Operating expenses Real estate taxes 5,131 3,877 1,254 32.3 % Property operating expenses 4,106 2,708 1,398 51.6 % General and administrative 9,990 7,881 2,109 26.8 % Depreciation and amortization 12,966 10,131 2,835 28.0 % Total operating expenses 32,193 24,597 7,596 30.9 % Income from operations 6,237 4,208 2,029 48.2 % Other income 718 276 442 160.1 % Interest expense, net Contractual interest expense (3,467) (2,000) (1,467) 73.4 % Write-off and amortization of deferred financing fees (440) (585) 145 (24.8) % Loss on early extinguishment of debt — (202) 202 (100.0) % Interest income 1 2 (1) (50.0) % Total interest expense, net (3,906) (2,785) (1,121) 40.3 % Income before income tax expense 3,049 1,699 1,350 79.5 % Income tax expense (13) (75) 62 (82.7) % Net income $ 3,036 $ 1,624 $ 1,412 86.9 % Revenues Rental income includes net rental income as well as the recovery of certain operating costs and property taxes from tenants. Rental income increased by $9.0 million to $36.7 million for the nine months ended September 30, 2022 from $27.7 million for the nine months ended September 30, 2021 due to the volume of our acquisitions. Fee and other . Other revenue increased by $0.6 million to $1.8 million for the nine months ended September 30, 2022 from $1.1 million for the nine months ended September 30, 2021, primarily due to income received from properties accounted for as financing leases. Operating Expense Real estate taxes – Real estate taxes increased by $1.3 million to $5.1 million for the nine months ended September 30, 2022 from $3.9 million for the nine months ended September 30, 2021 due to the volume of our acquisitions. Property operating expenses – Property operating expenses increased by $1.4 million to $4.1 million for the nine months ended September 30, 2022 from $2.7 million for the nine months ended September 30, 2021. Property management expenses are included within property operating expenses and increased by $0.5 million to $1.6 million for the nine months ended September 30, 2022 from $1.1 million for the nine months ended September 30, 2021. The remainder of the increase of $0.9 million is related to expenses for repairs and maintenance and insurance, which increase is due to the volume of our acquisitions. 33 Table of Contents General and administrative – General and administrative expenses increased by $2.1 million to $10.0 million for the nine months ended September 30, 2022 from $7.9 million for the nine months ended September 30, 2021 primarily due to expanding our staff and increase in information technology costs as a result of our continued growth, as well as an increase in equity-based compensation expense related to awards that have been granted to our employees. Depreciation and amortization – Depreciation and amortization expense increased by $2.8 million to $13.0 million for the nine months ended September 30, 2022 from $10.1 million for the nine months ended September 30, 2021 due to the volume of our acquisitions. Other Income Other income primarily includes insurance recoveries related to property damage claims. Other income increased by $0.4 million to $0.7 million for the nine months ended September 30, 2022 from $0.3 million for the nine months ended September 30, 2021, primarily due to higher insurance recoveries. Total Interest Expense, Net During the nine months ended September 30, 2022, we incurred total interest expense, net of $3.9 million compared to $2.8 million for the nine months ended September 30, 2021. The increase in interest expense is primarily related due to a higher amount of borrowings under the Credit Facilities to finance our acquisitions. Cash Flows Comparison of the Nine Months Ended September 30, 2022 and the Nine Months Ended September 30, 2021 We had $4.6 million of cash and $0.3 million of escrows and reserves as of September 30, 2022 compared to $4.0 million of cash and $0.9 million of escrows and reserves as of September 30, 2021. Cash flow from operating activities – Net cash provided by operating activities increased by $5.1 million to $18.6 million for the nine months ended September 30, 2022 compared to $13.4 million for the same period in 2021. The increase is primarily due to the volume of properties that we have acquired, all of which have generated additional rental income and related changes in working capital. Cash flow to investing activities – Net cash used in investing activities for the nine months ended September 30, 2022 primarily consisted of $96.4 million of acquisitions and $4.1 million of escrow deposits for acquisition and construction, capital improvements and other investing activities, offset by $0.6 million of insurance proceeds that were received. Net cash used in investing activities for the nine months ended September 30, 2021 primarily consisted of $60.7 million of acquisitions. Cash flow from financing activities – Net cash provided by financing activities increased by $29.5 million to $79.3 million for the nine months ended September 30, 2022 compared to $49.8 million for the nine months ended September 30, 2021. The increase was primarily related to our 2022 Term Loan, additional borrowings under our 2021 Revolving Credit Facility, proceeds received from our ATM Program and the paydown of two mortgage financings during the nine months ended September 30, 2021, offset by a decrease in net proceeds from issuance of shares and increased payments of dividends and distributions. Liquidity and Capital Resources Analysis of Liquidity and Capital Resources We had approximately $4.6 million of cash and $0.3 million of escrows and reserves as of September 30, 2022. On August 9, 2021, we entered into the Credit Facilities, which include the $150.0 million 2021 Revolving Credit Facility and the $50.0 million 2021 Term Loan, with Bank of Montreal, as administrative agent, and BMO Capital Markets Corp., People’s United Bank, National Association, JPMorgan Chase Bank, N.A. and Truist Securities, Inc. as joint lead arrangers and joint book runners. Additional participants in the Credit Facilities include Stifel Bank & Trust and TriState Capital Bank. In connection with entering into the Credit Facilities, we terminated our previous credit facility and paid off the outstanding loans thereunder. On May 11, 2022, we entered into the First Amendment to, among other things, add the 2022 Term Loan. As of September 30, 2022, we had $156.0 million of aggregate principal amount outstanding under our Credit Facilities, with $50.0 million drawn on the 2021 Term Loan, $75.0 million drawn on the 2022 Term Loan and $31.0 million drawn on the 2021 Revolving Credit Facility. 34 Table of Contents The Credit Facilities include an accordion feature which permit us to borrow up to an additional $150.0 million under the 2021 Revolving Credit Facility and up to an additional $75.0 million under the term loans, in each case subject to customary terms and conditions. The 2021 Revolving Credit Facility matures in January 2026, which may be extended for two six-month periods subject to customary conditions, the 2021 Term Loan matures in January 2027 and the 2022 Term Loan matures in February 2028. Borrowings under the Credit Facilities carry an interest rate of, (i) in the case of the 2021 Revolving Credit Facility, either a base rate plus a margin ranging from 0.5% to 1.0% per annum or Adjusted Term SOFR (as defined below) plus a margin ranging from 1.5% to 2.0% per annum, or (ii) in the case of the 2021 Term Loan and the 2022 Term Loan, either a base rate plus a margin ranging from 0.45% to 0.95% per annum or Adjusted Term SOFR plus a margin ranging from 1.45% to 1.95% per annum, in each case depending on a consolidated leverage ratio. With respect to the 2021 Revolving Credit Facility, we 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 2021 Revolving Credit Facility. The Credit Facilities are guaranteed, jointly and severally, by us and certain of our indirect subsidiaries and contain customary covenants that, among other things, restrict, subject to certain exceptions, our ability to incur indebtedness, grant liens on assets, make certain types of investments, engage in acquisitions, mergers or consolidations, sell assets, enter into certain transactions with affiliates and pay dividends or make distributions. The Credit Facilities require compliance with consolidated financial maintenance covenants to be tested quarterly, including a minimum fixed charge coverage ratio, maximum total leverage ratio, minimum tangible net worth, maximum secured leverage ratio, maximum unsecured leverage ratio, minimum unsecured debt service coverage ratio and maximum secured recourse leverage ratio. The Credit Facilities also contain certain customary events of default, including the failure to make timely payments under the Credit Facilities, any event or condition that makes other material indebtedness due prior to its scheduled maturity, the failure to satisfy certain covenants and specified events of bankruptcy and insolvency. As of September 30, 2022, we were in compliance with all of the Credit Facilities’ debt covenants. We have four interest rate swaps with a total notional amount of $125.0 million that are used to manage our interest rate risk and fix the SOFR component on the Credit Facilities. Within the $125.0 million, $50.0 million of the swaps mature in January 2027 and fix the interest rate of the 2021 Term Loan at 2.291% as of September 30, 2022. The additional $50.0 million of the swaps mature in February 2028 and fix the first $50.0 million amount outstanding under the 2022 Term Loan at 4.237% as of September 30, 2022. The remaining $25.0 million of the swaps mature in February 2028 and fix the remaining $25.0 million amount outstanding under the 2022 Term Loan at 4.81% as of September 30, 2022. Our short-term liquidity requirements primarily consist of operating expenses and other expenditures associated with our properties, distributions to our limited partners and distributions to our stockholders required to qualify for REIT status, capital expenditures and, potentially, acquisitions. We expect to meet our short-term liquidity requirements through net cash provided by operations, cash, borrowings under our Credit Facilities and the potential issuance of securities. Our long-term liquidity requirements primarily consist of funds necessary for the repayment of debt at maturity, property acquisitions and non-recurring capital improvements. We expect to meet our long-term liquidity requirements with net cash from operations, long-term indebtedness including our Credit Facilities and mortgage financing, the issuance of equity and debt securities and proceeds from select sales of our properties. We also may fund property acquisitions and non-recurring capital improvements using our Credit Facilities pending permanent property-level financing. We believe we have access to multiple sources of capital to fund our long-term liquidity requirements, including the incurrence of additional debt and the issuance of additional equity securities. However, in the future, there may be a number of factors that could have a material and adverse effect on our ability to access these capital sources, including unfavorable conditions in the overall equity and credit markets, our degree of leverage, our unencumbered asset base, borrowing restrictions imposed by our lenders, general market conditions for REITs, our operating performance, liquidity and market perceptions about us. The success of our business strategy will depend, to a significant degree, on our ability to access these various capital sources. In addition, we continuously evaluate possible acquisitions of postal properties, which largely depend on, among other things, the market for owning and leasing postal properties and the terms on which the USPS will enter into new or renewed leases. To maintain our qualification as a REIT, we must make distributions to our stockholders aggregating annually at least 90% of our REIT taxable income determined without regard to the deduction for dividends paid and excluding capital gains. As a result of this requirement, we cannot rely on retained earnings to fund our business needs to the same extent as other entities that are not REITs. If we do not have sufficient funds available to us from our operations to fund our business needs, we will need to find alternative ways to fund those needs. Such alternatives may include, among other things, divesting ourselves of properties (whether or not the sales price is optimal or otherwise meets our strategic long-term objectives), incurring 35 Table of Contents indebtedness or issuing equity securities in public or private transactions, the availability and attractiveness of the terms of which cannot be assured. Consolidated Indebtedness As of September 30, 2022, we had approximately $189.1 million of outstanding consolidated principal indebtedness. The following table sets forth information as of September 30, 2022 with respect to our outstanding indebtedness (in thousands): Outstanding Balance as of September 30, 2022 Interest Rate at September 30, 2022 Maturity Date Revolving Credit Facility (1) : 2021 Revolving Credit Facility $ 31,000 SOFR+150 bps (2) January 2026 2021 Term Loan (1) 50,000 SOFR+145 bps (2) January 2027 2022 Term Loan (1) 75,000 SOFR+145 bps (2) February 2028 Secured Borrowings: Vision Bank (3) 1,409 3.69 % September 2041 First Oklahoma Bank (4) 337 3.625 % December 2037 Vision Bank – 2018 (5) 844 3.69 % September 2041 Seller Financing (6) 282 6.00 % January 2025 AIG – December 2020 (7) 30,225 2.80 % January 2031 Total Principal $ 189,097 Explanatory Notes : (1) See above under "— Analysis of Liquidity and Capital Resources" for details regarding the Credit Facilities. During the three and nine months ended September 30, 2022, we incurred $0.06 million and $0.2 million, respectively, of unused facility fees related to the 2021 Revolving Credit Facility. (2) Based upon the one-month Adjusted Term SOFR, which is SOFR plus a term SOFR adjustment of 0.10%, subject to a 0% floor (the “Adjusted Term SOFR”) . (3) Five properties are collateralized under this loan and Mr. Spodek also provided a personal guarantee of payment for 50% of the outstanding amount thereunder. The loan has a fixed interest rate of 3.69% for the first five years with interest payments only (ending in October 2026), then adjusting every subsequent five year period thereafter with principal and interest payments to the rate based on the five year weekly average yield on United States Treasury securities adjusted to a constant maturity of five years, as made available to the Board of Governors of the Federal Reserve System (the "Five-Year Treasury Rate"), plus a margin of 2.75%, with a minimum annual rate of 2.75%. (4) The loan is collateralized by first mortgage liens on four properties and a personal guarantee of payment by Mr. Spodek. The loan has a fixed interest rate of 3.625% for the first five years (ending in August 2026), then adjusting annually thereafter to a variable annual rate of Wall Street Journal Prime Rate with a minimum annual rate of 3.625%. (5) The loan is collateralized by first mortgage liens on one property and a personal guarantee of payment by Mr. Spodek. The loan has a fixed interest rate of 3.69% for the first five years with interest payments only (ending in October 2026), then adjusting every subsequent five year period thereafter with principal and interest payments to the rate based on the Five-Year Treasury Rate, plus a margin of 2.75%, with a minimum annual rate of 2.75%. (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 $0.1 million with the first installment due on January 2, 2021 based on a 6.0% interest rate per annum through January 2, 2025. (7) The loan is secured by a first mortgage lien on an industrial property located in Warrendale, Pennsylvania. 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. 36 Table of Contents Secured Borrowings as of September 30, 2022 As of September 30, 2022, we had approximately $33.1 million of secured borrowings outstanding, all of which are currently fixed rate debt with a weighted average interest rate of 2.90% per annum. Dividends To maintain our qualification as a REIT, we are required to pay dividends to stockholders at least equal to 90% of our REIT taxable income determined without regard to the deduction for dividends paid and excluding net capital gains. During the three and nine months ended September 30, 2022, we paid cash dividends of $0.2325 and $0.69, respectively, per share. Our Board of Directors approved, and o n October 26, 2022 , we declared a third quarter common stock dividend of $0.2350 per share, which will be paid on November 28, 2022 to stockholders of record as of November 7, 2022 Inflation Because most of our leases provide for fixed annual rental payments without annual rent escalations, our rental revenues are fixed while our property operating expenses are subject to inflationary increases. A majority of our leases provide for tenant reimbursement of real estate taxes and thus the tenant must reimburse us for real estate taxes. We believe that if inflation increases expenses over time, increases in lease renewal rates will materially offset such increase. Subsequent Real Estate Acquisitions Subsequent to September 30, 2022, we have acquired 7 properties in individual or portfolio transactions for an aggregate of approximately $5.9 million, excluding closing costs. Critical Accounting Policies and Estimates Refer to the heading titled “Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2021 for a discussion of our critical accounting policies and estimates. New Accounting Pronouncements For a discussion of our adoption of new accounting pronouncements, please see Note 2. Summary of Significant Accounting Policies in the Notes to the of our Consolidated Financial Statements included herein. 37 Table of Contents