What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-03-07 compared with 2022-03-14 · 95 added, 110 removed, 210 unchanged (49% of the section changed)

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The following discussion and analysis is based on, and should be read in conjunction with, the Consolidated Financial Statements and the related notes thereto of the Company as of and for the years ended December 31, 2022 and December 31, 2021.

Prior to the closing of our IPO on May 17, 2019, Andrew Spodek, our chief executive officer and a member of our Board of Directors, directly or indirectly controlled 190 properties owned by the Predecessor that were contributed as part of the Formation Transactions.

Of these 190 properties, 140 were held indirectly by our Predecessor through a series of holding companies, which we refer to collectively as “UPH Entities.” The remaining 50 properties were owned by Mr.

Spodek through 12 limited liability companies and one limited partnership, which we refer to collectively as the “Spodek LLCs.” References to our Predecessor consist of UPH Entities, the Spodek LLCs and Nationwide Postal Management, Inc., a property management company whose management business we acquired in the Formation Transactions, collectively.

This management’s discussion and analysis of financial condition and results of operations contains forward-looking statements that involve risks, uncertainties and assumptions.

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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.

For the year ended December 31, 2021, we acquired 239 properties (including one property accounted for as a

financing lease) leased primarily to the USPS for approximately $118 million, excluding closing costs.

As of December 31, 2021, our portfolio consists of 966 owned properties, located in 49 states and comprising approximately 4.5 million net leasable interior square feet.

For the year ended December 31, 2022, we acquired 320 properties leased primarily to the USPS for approximately $123 million, excluding closing costs.

As of December 31, 2022, our portfolio consists of 1,286 owned properties, located in 49 states and one territory and comprising approximately 5.3 million net leasable interior square feet.

We are the sole general partner of our Operating Partnership through which our properties are directly or indirectly owned.

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Our Board of Directors oversees our business and affairs.

Follow-On Equity Offerings and ATM Program

On December 14, 2020, we entered into separate open market sale agreements for our ATM Program with each of Jefferies LLC, Stifel, Nicolaus & Company, Incorporated, BMO Capital Markets Corp., Janney Montgomery Scott LLC and D.A.

Davidson & Co.

Davidson”), pursuant to which we may offer and sell, from time to time, shares of 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, raising approximately $6.9 million in gross proceeds.

On December 14, 2020, we entered into separate open market sale agreements for our at-the-market offering program (the "2020 ATM Program"), pursuant to which we may offer and sell, from time to time, shares of our Class A common stock having an aggregate sales price of up to $50.0 million.

On November 4, 2022, we terminated the 2020 ATM Program and entered into separate open market sale agreements with each of Jefferies LLC, BMO Capital Markets Corp., Janney Montgomery Scott LLC, Stifel, Nicolaus & Company, Incorporated and Truist Securities, Inc.

as agents (the "2022 ATM Program"), pursuant to which we may offer and sell, from time to time, shares of our Class A common stock having an aggregate sales price of up to $50.0 million.

The agreements also provide that we may enter into one or more forward sale agreements under separate master forward confirmations and related supplemental confirmations with affiliates of certain agents.

During the year ended December 31, 2022, 751,382 shares were issued under the 2020 ATM Program and the 2022 ATM Program, raising approximately $11.9 million in gross proceeds.

As of December 31, 2022, we had approximately $41.9 million of availability remaining under the 2022 ATM Program.

On January 11, 2021, we priced a public offering of 3.25 million shares of our 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 $0.3 million in other expenses relating to the January Follow-on Offering.

On November 16, 2021, we priced a public offering of 4.25 million shares of our Class A common stock (the “November Follow-on Offering”) at $17.00 per share.

On November 16, 2021, the underwriters purchased the full allotment of 637,500 shares pursuant to a 30-day option at $17.00 per share (the “November Additional Shares”).

The November Follow-on Offering, including the November Additional Shares, closed on November 19, 2021 resulting in $83.1 million in gross proceeds, and approximately $79.0 million in net proceeds after deducting approximately $4.1 million in underwriting discounts and before giving effect to $0.2 million in other expenses relating to the November Follow-on Offering.

Executive Overview

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Geographic Concentration

As of December 31, 2021, we owned a portfolio of 966 properties located in 49 states leased primarily to the USPS.

For the year ended December 31, 2021, approximately 18.3% of our total of rental income was concentrated in Pennsylvania.

As of December 31, 2022, we owned a portfolio of 1,286 properties located in 49 states and one territory and leased primarily to the USPS.

For the year ended December 31, 2022, approximately 15.1% of our total rental income was concentrated in Pennsylvania.

Emerging Growth Company

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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.”

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 Exchange Act.

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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 Code beginning with our short taxable year ending December 31, 2019.

We elected to be treated as a REIT under the Code beginning with our short taxable year ended December 31, 2019 and intend to continue to qualify as a REIT.

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.

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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 health benefits.

While the USPS has undertaken, and proposes to undertake, a number of operational reforms and cost reduction measures, including those outlined in its Ten-Year Plan, 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.

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 units, 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.

Further, although the USPS received a $10 billion funding under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, there can be no assurances that this financing will be sufficient to sustain USPS operations in light of current shortfalls.

The ongoing COVID-19 pandemic (including new or mutated variants of COVID-19) and measures taken to prevent its spread also continue to have a material and unpredictable effect on the USPS’ operations and liquidity, including significant additional operating expenses caused by pandemic-related disruptions.

The COVID-19 pandemic and other geopolitical and economic factors have also created significant inflationary pressures resulting in higher compensation, benefits, 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 Item 1A.

For additional information regarding the risks associated with the USPS, see Item 1A.

"Risk Factors—Risks Related to the USPS".

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 Mr.

Spodek and his affiliates managed by PRM, our TRS, and income recognized from properties accounted for as financing leases.

We derive revenues primarily from rent and tenant reimbursements under leases with the USPS for our properties and fee and other from the management of postal properties owned by Mr.

Spodek and his affiliates, 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 PRM 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 and (ii) income recognized from properties accounted for as financing leases.

As of December 31, 2021, properties leased to our tenants had an average remaining lease term of approximately four years.

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 properties, (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 December 31, 2022, properties leased to our tenants had an average remaining lease term of approximately three years.

Factors that could affect our rental income and fee and other in the future include, but are not limited to:

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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.

Tenant reimbursements and the related property 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.

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.

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Equity-Based Compensation Expense

All equity-based compensation expense is recognized in our Consolidated Statements of Operations and Comprehensive Income (Loss) as components of general and administrative expense and property operating expenses.

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.

Depreciation and Amortization

Depreciation and amortization expense relates primarily to depreciation on our properties and capital improvements to such properties and the amortization of certain lease intangibles.

Other income relates primarily to insurance recoveries related to property damage claims.

Indebtedness and Interest Expense

On September 27, 2019, we entered into a credit agreement, as amended, which provided for a senior revolving credit facility (the “2019 Credit Facility”) with revolving commitments in an aggregate principal amount of $100.0 million and the option to increase the aggregate lending commitments under the agreement by up to $100.0 million.

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 2021 Credit Facilities, we terminated the 2019 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 LIBOR with 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.

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.

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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 PRM and any other TRS we form in the future will be subject to federal, state and local corporate income tax.

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

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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 leases on terms comparable to those of the expiring leases.

In 2022, in connection with our ongoing lease renewal negotiations with the USPS, we filed claims with the USPS regarding market rent and other amounts due under the expired leases during the holdover period.

The USPS subsequently determined that market rent for the expired leases was generally greater than the rent amount under the expired leases and agreed to pay us (i) a lump sum catch-up payment for increased rents from the date of lease expiration and (ii) increased rents reflecting the market rent

determined by USPS going forward.

However, because USPS did not accept market rent based on our estimate and other amounts in our claims, we appealed such decisions before the Postal Service Board of Contract Appeals (“PSBCA”) within the period prescribed in the Contract Disputes Act of 1978.

The PSBCA subsequently granted a joint request by the USPS and us to stay the appeals to enable further negotiations between the parties regarding the renewal of the expired leases.

While we currently anticipate that we will renew the leases that have expired or will expire, there can be no guarantee that we will be successful in renewing these leases, obtaining positive rent renewal spreads or renewing the 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 stockholders.

For additional information regarding the risks associated with the USPS, see Item 1A.

"Risk Factors—Risks Related to the USPS".

Results of Operations

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Total interest expense, net (5,973) (3,653) (2,320) 64 %

Income (loss) before income tax expense 2,667 (552) 3,219 (583) %

Income before income tax expense 4,756 2,667 2,089 78 %

Income tax expense (12) (111) 99 (89) %

Net income (loss) $ 2,556 $ (641) $ 3,197 (499) %

Net income $ 4,744 $ 2,556 $ 2,188 86 %

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 $12.6 million to $50.9 million for the year ended December 31, 2022 from $38.3 million for the year ended December 31, 2021, primarily due to the volume of our acquisitions.

Fee and other - Fee and other increased by $0.5 million to $1.7 million for the year ended December 31, 2021 from $1.1 million for the year ended December 31, 2020 primarily due to higher management fees, income recognized from properties accounted for as financing leases and miscellaneous income.

Fee and other - Fee and other revenue increased by $0.8 million to $2.5 million for the year ended December 31, 2022 from $1.7 million for the year ended December 31, 2021, primarily due to higher income received from properties accounted for as financing leases.

Operating Expenses

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Property management expenses are included within property operating expenses and increased by $0.6 million to $2.1 million for the year ended December 31, 2022 from $1.5 million for the year ended December 31, 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 throughout 2021 and 2022.

The remainder of the increase of $1.4 million is related to expenses related to 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 $2.4 million to $10.6 million for the year ended December 31, 2021 from $8.2 million for the year ended December 31, 2020, primarily due to expanding our 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 employees throughout 2020 and 2021.

The remainder of the increase of $1.0 million is for expenses related to 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 $2.5 million to $13.1 million for the year ended December 31, 2022 from $10.6 million for the year ended December 31, 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 throughout 2021 and 2022.

Depreciation and amortization – Depreciation and amortization expense increased by $3.7 million to $17.7 million for the year ended December 31, 2022 from $14.0 million for the year ended December 31, 2021, primarily due to the volume of our acquisitions.

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During the year ended December 31, 2022, we incurred total interest expense, net of $6.0 million compared to $3.7 million for the year ended December 31, 2021.

The increase in interest expense was primarily related to the loss on early extinguishment of debt of $0.2 million incurred in connection with the pay down of two mortgage financings during the year ended December 31, 2021 and higher amount of borrowings under our 2021 Credit Facilities and, prior to its termination, our 2019 Credit Facility.

Income Tax Expense

Income tax expense increased by $0.02 million to $0.1 million for the year ended December 31, 2021 from $0.1 million for the year ended December 31, 2020, primarily due to an increase in expense related to PRM during 2021.

The increase in interest expense of $2.3 million was primarily related to higher amount of borrowings under our Credit Facilities to finance our acquisitions and increased interest rates.

Comparison of the year ended December 31, 2022 and the year ended December 31, 2021

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The increase is primarily due to the volume of our acquisitions, all of which have generated additional rental income and related changes in working capital.

Cash flow from investing activities – Net cash used in investing activities of $106.7 million for the year ended December 31, 2021 primarily consisted of $91.4 million of acquisitions and capital improvements and $15.7 million of investment in a financing lease, offset by $1.2 million of insurance proceeds that were received.

Net cash used in investing activities for the year ended December 31, 2020 primarily consisted of $125.6 million of acquisitions and capital improvements and investment in a financing lease.

Cash flow from financing activities – Net cash provided by financing activities decreased by $13.5 million to $93.4 million for the year ended December 31, 2021 compared to $106.8 million provided by the year ended December 31, 2020.

The decrease was primarily related to increased payment of dividends and distributions and the pay down of secured borrowings and the 2019 Credit Facility in connection with entering into the 2021 Credit Facilities during the year ended December 31, 2021, offset by borrowings under the 2021 Credit Facilities and net proceeds from issuance of Class A common stock during the year ended December 31, 2021.

Cash flow from investing activities – Net cash used in investing activities of $120.1 million for the year ended December 31, 2022 primarily consisted of $119.9 million of acquisitions and capital improvements offset by $0.8 million of insurance proceeds that were received.

Net cash used in investing activities for the year ended December 31, 2021 primarily consisted of $91.4 million of acquisitions and capital improvements and $15.7 million of investment in a financing lease offset by $1.2 million of insurance proceeds that were received.

Cash flow from financing activities – Net cash provided by financing activities decreased by $2.8 million to $90.6 million for the year ended December 31, 2022 compared to $93.4 million for the year ended December 31, 2021.

The decrease was primarily related to a reduction in net proceeds from issuance of shares, increased payments of dividends and

distributions and a decrease in net proceeds received from the 2021 Revolving Credit Facility during the year ended December 31, 2022, partially offset by an increase in net proceeds received from the 2022 Term Loan and lower amount of repayments under the 2021 Revolving Credit Facility during the year ended December 31, 2022.

Liquidity and Capital Resources

Analysis of Liquidity and Capital Resources

We had approximately $1.5 million of cash and $0.5 million of escrows and reserves as of December 31, 2022.

On August 9, 2021, we entered into the 2021 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.

Revolving Credit Facility and Term loans

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., M&T Bank, JPMorgan Chase Bank, N.A.

and Truist Securities, Inc.

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Additional participants in the Credit Facilities include Stifel Bank & Trust and TriState Capital Bank.

In connection with entering into the 2021 Credit Facilities, we terminated the 2019 Credit Facility and paid off the outstanding loans thereunder.

As of December 31, 2021, we had $63.0 million of aggregate principal amount outstanding under our 2021 Credit Facilities, with $50.0 million drawn on the 2021 Term Loan and $13.0 million drawn on the 2021 Revolving Credit Facility.

The 2021 Credit Facilities include an accordion feature which will permit us to borrow up to an additional $150.0 million under the 2021 Revolving Credit Facility and up to an additional $50.0 million under the 2021 Term Loan, 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, and the 2021 Term Loan matures in January 2027.

Borrowings under the 2021 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 LIBOR plus a margin ranging from 1.5% to 2.0% per annum, or (ii) in the case of the 2021 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 a consolidated leverage ratio.

On May 11, 2022, we entered into the First Amendment to, among other things, add the 2022 Term Loan (and, together with the 2021 Term Loan, the "Term Loans").

On December 6, 2022, we further exercised $40.0 million of accordion feature under the 2022 Term Loan.

As of December 31, 2022, we had $165.0 million of aggregate principal amount outstanding under our Credit Facilities, with $50.0 million drawn on the 2021 Term Loan and $115.0 million drawn on the 2022 Term Loan and $150.0 million of borrowing capacity remaining under the 2021 Revolving Credit Facility.

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 $35.0 million under the Term Loans (after our exercise of the $40.0 million term loan accordion in December 2022), 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 Term Loans, 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.

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As of December 31, 2022, we were in compliance with all of the Credit Facilities’ debt covenants.

In addition, on August 9, 2021, we entered into the 2021 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 2021 Interest Rate Swap initially applied to the $50.0 million 2021 Term Loan, fixing the interest rate for the 2021 Term Loan at 2.291% as of December 31, 2021.

On March 5, 2021, the Financial Conduct Authority announced that U.S.

Dollar LIBOR will no longer be published after June 30, 2023.

This announcement has several implications, including setting the spread that may be used to automatically convert contracts from LIBOR to the SOFR.

The 2021 Credit Facilities provide that, on or about the LIBOR cessation date (subject to an early opt-in election), LIBOR shall be replaced as a benchmark rate in the 2021 Credit Facilities with a new benchmark rate, with such adjustments as set forth in the 2021 Credit Facilities.

We are not able to predict when LIBOR will cease to be available or when there will be enough liquidity in the SOFR markets.

We are monitoring and evaluating the risks related to changes in LIBOR availability, which include potential changes in interest paid on debt and amounts received and paid on the 2021 Interest Rate Swap.

In addition, the value of debt or derivative instruments tied to LIBOR may also be impacted as LIBOR is limited and discontinued and contracts must be transitioned to a new alternative rate.

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 have five interest rate swaps with a total notional amount of $165.0 million that are used to manage our interest rate risk and fix the SOFR component on the Credit Facilities (together, the "Interest Rate Swaps").

Within the $165.0 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 December 31, 2022.

An 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 December 31, 2022.

An additional $25.0 million of the swaps mature in February 2028 and fix the additional $25.0 million amount outstanding under the 2022 Term Loan at 4.81% as of December 31, 2022.

The remaining $40.0 million of the swaps mature in February 2028 and fix the remaining $40.0 million amount outstanding under the 2022 Term Loan at 4.952% as of December 31, 2022.

Capital Resources and Financing Strategy

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 have an effective shelf registration statement on file with the SEC under which we may issue equity financing through the instruments and on the terms most attractive to us at such time, including through our $50.0 million 2022 ATM Program.

Our long-term liquidity requirements primarily consist of funds necessary for the repayment of debt at maturity, distributions to our limited partners and distributions to our stockholders required to qualify for REIT status, 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.

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As of December 31, 2022, we had approximately $198.1 million of outstanding consolidated principal indebtedness.

The following table sets forth information as of December 31, 2021 and 2020 with respect to our outstanding indebtedness:

The following table sets forth information as of December 31, 2022 and 2021 with respect to our outstanding indebtedness (in thousands):

Amount Outstanding as of December 31,

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Revolving Credit Facility (1) :

2021 Revolving Credit Facility $ 13,000 $ — LIBOR+150 bps(2) January 2026

2019 Credit Facility — 78,000 — —

2021 Term Loan 50,000 — LIBOR+145 bps(2) January 2027

2021 Revolving Credit Facility $ — $ 13,000 SOFR+150 bps (2)

2021 Term Loan 50,000 50,000 SOFR+145 bps (2)

2022 Term Loan 115,000 — SOFR+145 bps (2)

February 2028

Secured Borrowings:

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282 366 6.00 % January 2025

First Oklahoma Bank – April 2020 (7)

First Oklahoma Bank – June 2020 (8)

AIG – December 2020 (7)

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Explanatory Notes:

(1) See above under "—Analysis of Liquidity and Capital Resources" for details regarding the 2021 Credit Facilities.

During the years ended December 31, 2021 and 2020, we incurred $0.1 million and $0.3 million, respectively, of unused facility fees related to the 2019 Credit Facility and the 2021 Revolving Credit Facility.

(2) Based upon the one-month U.S.

Dollar LIBOR rate.

(3) Five properties are collateralized under this loan as of December 31, 2021.

Spodek also provided a personal guarantee of payment for the entire outstanding amount thereunder as of December 31, 2020 and for 50.0% of the outstanding amount thereunder as of December 31, 2021.

On September 30, 2021, we amended this loan to extend its maturity to September 2041 and reduce its interest rate to 3.69% fixed for five years with interest payments only, 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%.

(1) See above under "—Revolving Credit Facility and Term loans" for details regarding the Credit Facilities.

During the years ended December 31, 2022 and 2021, we incurred $0.3 million and $0.1 million, respectively, of unused facility fees related to our previous credit facility and 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.

On July 23, 2021, we amended this loan to reduce its interest rate to 3.625% fixed for five years, then adjusting annually thereafter to a variable annual rate of Wall Street Journal Prime Rate ("Prime") with a minimum annual rate of 3.625%.

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.

On September 30, 2021, we amended this loan to extend its maturity to September 2041 and reduce its interest rate to 3.69% fixed for five years with interest payments only, 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) In connection with the purchase of a 13-property portfolio, we obtained $4.5 million of mortgage financing, at a fixed interest rate of 4.25% with interest only for the first 18 months, which would have reset in November 2026 to the greater of Prime or 4.25%.

On February 3, 2021, we 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 year ended December 31, 2021.

(8) The loan was collateralized by first mortgage liens on 22 properties.

Interest rates would have reset in January 2027 to the greater of Prime or 4.25%.

On February 3, 2021, we 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 year ended December 31, 2021.

(7) The loan is secured by a first mortgage lien on an industrial property located in Warrendale, Pennsylvania.

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Secured Borrowings as of December 31, 2022

As of December 31, 2021, we had approximately $33.2 million of secured borrowings outstanding, all of which is currently fixed-rate debt with a weighted average interest rate of 2.90% per annum.

During the year ended December 31, 2021, we repaid two mortgage loans in the aggregate amount of $13.7 million and amended several other mortgage loans to reduce their interest rates.

As of December 31, 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.

Contractual Obligations and Other Long-Term Liabilities

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Explanatory Notes :

(1) The amounts shown relate to (i) the 2021 Revolving Credit Facility based on the outstanding balance and interest rate in effect as of December 31, 2021 and assuming an unused facility fee under the 2021 Revolving Credit Facility through the

remainder of the term based on such outstanding balance, (ii) the 2021 Term Loan based on the interest rate fixed through the 2021 Interest Rate Swap and outstanding balance as of December 31, 2021 and (iii) the mortgage loans based on the outstanding balance and interest rate in effect as of December 31, 2021.

(2) Operating lease obligations relate to the lease for our corporate headquarters and four ground leases at certain of our properties.

To qualify and 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.

(1) The amounts shown relate to (i) the 2021 Revolving Credit Facility based on the outstanding balance and interest rate in effect as of December 31, 2022 and assuming an unused facility fee under the 2021 Revolving Credit Facility through the remainder of the term based on such outstanding balance, (ii) the Term Loans based on the interest rate fixed through the

Interest Rate Swaps and outstanding balance as of December 31, 2022 and (iii) the mortgage loans based on the outstanding balance and interest rate in effect as of December 31, 2022.

(2) Operating lease obligations relate to two leases for our corporate headquarters and seven ground leases at certain of our properties.

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 year ended December 31, 2022, we paid cash dividends of $0.925 per share.

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We had net credit facility activity of $17.0 million during the period subsequent to December 31, 2022.

As of the date of this report, we had $78.0 million drawn on the 2021 Credit Facilities, with $50.0 million drawn on the 2021 Term Loan and $28.0 million drawn on the 2021 Revolving Credit Facility.

As of the date of this report, we had $182.0 million drawn on the Credit Facilities, with $50.0 million drawn on the 2021 Term Loan, $115.0 million drawn on the 2022 Term Loan and $17.0 million drawn on the 2021 Revolving Credit Facility.

2023 Real Estate Acquisitions

Subsequent to December 31, 2021, we have acquired 39 properties in individual or small portfolio transactions for approximately $11.8 million, excluding closing costs, some of which include OP Units as part of the consideration.

Subsequent to December 31, 2022, we have acquired 24 properties in individual or small portfolio transactions for approximately $12.7 million, excluding closing costs.

Our Board of Directors approved, and on February 1, 2023, we declared a fourth quarter common stock dividend of $0.2375 per share which was paid on February 28, 2023 to stockholders of record on February 15, 2023.

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Summary of Significant Accounting Policies in the Notes to the Consolidated Financial Statements.

Investments in Real Estate

Investments in Real Estate Properties

Upon the acquisition of real estate, the purchase price is allocated based upon the relative fair value of the assets acquired and liabilities assumed.

The allocation of the purchase price to the relative fair value of the tangible assets of an acquired property is derived by valuing the property as if it were vacant.

The allocation of the purchase price to the relative fair value of the tangible and intangible assets of an acquired property is derived by valuing the property as if it were vacant.

All real estate acquisitions in the periods presented qualified as asset acquisitions and, as such, acquisition-related fees and acquisition-related expenses related to these asset acquisitions are capitalized as part of the acquisition.

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Repairs and maintenance costs are expensed as incurred.

We acquired 320 properties for approximately $123 million, excluding closing costs, during 2022 and 238 properties for approximately $103 million, excluding closing costs, during 2021.

These transactions were accounted for as asset

acquisitions, and the purchase price of each was allocated based on the relative fair value of the asset acquired and liabilities assumed.

Revenue Recognition

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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 our Consolidated Statements of Operations and Comprehensive Income (Loss).

Fee and other primarily consist of property management fees and income recognized from properties accounted for as financing leases.

The Company’s determination of the probability to collect lease payments is impacted by numerous factors, including the Company's assessment of the tenant’s creditworthiness, economic conditions, historical experience with the tenant, future prospects for the tenant and the length of the lease term.

If leases currently classified as probable are subsequently reclassified as not probable, any outstanding lease receivables (including straight-line rent receivables) would be written-off with a corresponding decrease in rental income.

Fee and other primarily consist of (i) property management fees, (ii) income recognized from properties accounted for as financing leases and (iii) fees earned from providing advisory services to third-party owners of postal properties.

The management fees arise from contractual agreements with entities that are affiliated with our chief executive officer.

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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” in the Consolidated Statements of Operations and Comprehensive Income (Loss) and produces a constant periodic rate of return on the investment in financing leases, net.

Over the lease term, the investment in the direct financing lease is reduced and income is recognized as revenue in “Fee and other” in the Consolidated Statements of Operations and Comprehensive Income and produces a constant periodic rate of return on the investment in financing leases, net.

Impairment of Long-Lived Assets

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.

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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.

As of December 31, 2022 and 2021, no impairment related to our long-lived assets was identified.

New Accounting Pronouncements

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

What changed 10-K

Item 7. Management’s Discussion and Analysis