What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2023-03-07 compared with 2022-03-14 · 286 added, 308 removed, 555 unchanged (52% of the section changed)

1 unchanged sentence

Financial Statements

Report of Independent Registered Public Accounting Fir m ( BDO USA, LLP;

Report of Independent Registered Public Accounting Firm (BDO USA, LLP;

New York, New York, PCAOB ID# 243 )

Consolidated Balance Sheets as of December 31, 202 2 and 202 1

Consolidated Statements of Operations and Comprehensive Income (Loss) for the Years Ended December 31, 2021 and 2020

Consolidated Statements of Operations and Comprehensive Income for the Years Ended December 31, 202 2 and 202 1

Consolidated Statements of Changes in Equity (Deficit) for the Years Ended December 31, 202 2 and 202 1

3 unchanged sentences

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Stockholders and Board of Directors

Shareholders and Board of Directors

Postal Realty Trust, Inc.

Cedarhurst, NY

Cedarhurst, New York

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Postal Realty Trust, Inc.

(the "Company") as of December 31, 2021 and 2020, the related consolidated statements of operations and comprehensive income (loss), changes in equity (deficit), and cash flows for the years then ended, and the related notes and financial statement schedule listed in the accompanying index (collectively referred to as the “consolidated financial statements”).

(the "Company") as of December 31, 2022 and 2021, the related consolidated statements of operations and comprehensive income, changes in equity (deficit), and cash flows for each of the years then ended, and the related notes and schedule listed in the accompanying index (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

17 unchanged sentences

March 7, 2023

FINANCIAL INFORMATION

Financial Statements

POSTAL REALTY TRUST, INC.

10 unchanged sentences

Investment in financing leases, net 16,130 16,213

Total real estate investments 343,694 234,371

Total real estate investments, net 459,864 343,694

Cash 1,495 5,857

2 unchanged sentences

Prepaid expenses and other assets, net 15,968 7,511

Goodwill 1,536 —

Deferred rent receivable 1,194 666

3 unchanged sentences

Liabilities and Equity

Term loan, net $ 49,359 $ —

Term loans, net $ 163,753 $ 49,359

Revolving credit facility — 13,000

Secured borrowings, net 32,909 32,990

Accounts payable, accrued expenses and other 8,225 5,891

Accounts payable, accrued expenses and other, net 9,109 8,225

Below market leases, net 11,821 8,670

4 unchanged sentences

Class B common stock, par value $ 0.01 per share;

27,206 shares authorized:

27,206 shares issued and outstanding as of December 31, 2021 and December 31, 2020

27,206 shares authorized, 27,206 shares issued and outstanding as of December 31, 2022 and December 31, 2021

Additional paid-in capital 254,107 237,969

Accumulated deficit ( 18,879 ) ( 8,917 )

Accumulated other comprehensive income 7,486 766

Accumulated deficit ( 32,557 ) ( 18,879 )

Total Stockholders’ Equity 229,231 220,042

4 unchanged sentences

POSTAL REALTY TRUST, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(in thousands, except per share data)

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(in thousands, except share and per share data)

For the Year Ended

16 unchanged sentences

Total interest expense, net ( 5,973 ) ( 3,653 )

Income (loss) before income tax expense 2,667 ( 552 )

Income before income tax expense 4,756 2,667

Income tax expense ( 12 ) ( 111 )

Net income (loss) 2,556 ( 641 )

Net (income) loss attributable to Operating Partnership unitholders’ non-controlling interests ( 501 ) 289

Net income (loss) attributable to common stockholders $ 2,055 $ ( 352 )

Net income (loss) per share:

Net income 4,744 2,556

Net income attributable to Operating Partnership unitholders’ non-controlling interests ( 890 ) ( 501 )

Net income attributable to common stockholders $ 3,854 $ 2,055

Net income per share:

Basic and Diluted $ 0.15 $ 0.10

1 unchanged sentence

Basic and Diluted 18,545,494 13,689,251

Comprehensive income (loss):

Net income (loss) $ 2,556 $ ( 641 )

Unrealized gain on financial instrument 960 —

Comprehensive income (loss) 3,516 ( 641 )

Comprehensive (income) loss attributable to Operating Partnership unitholders’ non-controlling interests ( 695 ) 289

Comprehensive income (loss) attributable to common stockholders $ 2,821 $ ( 352 )

Comprehensive income:

Net income $ 4,744 $ 2,556

Unrealized gain on derivative instruments 8,249 960

Comprehensive income 12,993 3,516

Comprehensive income attributable to Operating Partnership unitholders’ non-controlling interests ( 2,419 ) ( 695 )

Comprehensive income attributable to common stockholders $ 10,574 $ 2,821

The accompanying notes are an integral part of these consolidated financial statements.

POSTAL REALTY TRUST, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

Number of shares of Common Stock Common Stock Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Income Total Stockholders’ equity Operating Partnership unitholders’ non-controlling interests Total Equity

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (DEFICIT)

(in thousands, except share and per share data)

Number of shares of Common Stock Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income Accumulated Deficit Total Stockholders’ equity Operating Partnership unitholders’ non-controlling interests Total Equity

Balance - December 31, 2020 9,464,403 $ 95 $ 100,812 $ — $ ( 8,917 ) $ 91,990 $ 27,649 $ 119,639

Net proceeds from sale of common stock 8,969,717 90 138,371 — — 138,461 — 138,461

Issuance of OP Units in connection with a transaction — — — — — — 7,922 7,922

Issuance of OP Units in connection with acquisition transactions — — — — — — 15,501 15,501

Issuance and amortization of equity-based compensation 165,599 1 2,391 — — 2,392 1,175 3,567

3 unchanged sentences

— — — — ( 12,017 ) ( 12,017 ) ( 3,024 ) ( 15,041 )

Net loss — — — ( 352 ) — ( 352 ) ( 289 ) ( 641 )

Other comprehensive income — — — 766 — 766 194 960

Net income — — — — 2,055 2,055 501 2,556

Reallocation of non-controlling interest — — ( 3,435 ) — — ( 3,435 ) 3,435 —

1 unchanged sentence

Net proceeds from sale of common stock 751,382 7 11,332 — — 11,339 — 11,339

Issuance of OP Units in connection with a transaction — — — — — — 15,501 15,501

Issuance of OP Units in connection with acquisition transactions — — — — — — 10,884 10,884

Issuance and amortization of equity-based compensation 226,575 2 3,283 — — 3,285 1,510 4,795

10 unchanged sentences

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

For the Year Ended

Cash flows from operating activities:

Net income (loss) $ 2,556 $ ( 641 )

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation 7,718 4,492

Amortization of in-place intangibles 6,272 4,671

Net income $ 4,744 $ 2,556

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 17,727 13,990

Write-off and amortization of deferred financing costs 596 714

1 unchanged sentence

Amortization of intangible liability ( 91 ) ( 23 )

Gain on insurance proceeds received for damage due to property

( 843 ) ( 314 )

Equity based compensation 4,718 3,720

Reclassification of cumulative dividends paid on forfeited awards — 13

Loss on early extinguishment of debt — 202

16 unchanged sentences

Cash flows from financing activities:

Proceeds from secured borrowings $ — 43,899

Repayments of secured borrowings ( 100 ) ( 13,845 )

Proceeds from term loan 50,000 —

Proceeds from term loans 115,000 50,000

Proceeds from revolving credit facility 115,000 139,000

Repayments of revolving credit facility ( 128,000 ) ( 204,000 )

Proceeds from other financing activity — 557

Repayments from other financing activity — ( 53 )

1 unchanged sentence

Debt issuance costs ( 811 ) ( 1,346 )

Deferred offering costs ( 199 ) —

Proceeds from issuance of ESPP shares 185 127

4 unchanged sentences

Net increase (decrease) in Cash and Escrows and Reserves ( 4,984 ) 3,755

Cash and Escrows and Reserves at the beginning of period 3,271 13,184

Cash and Escrow and Reserves at the end of period $ 7,026 $ 3,271

Cash and Escrows and Reserves at the beginning of year 7,026 3,271

Cash and Escrow and Reserves at the end of year $ 2,042 $ 7,026

Supplemental Disclosure of Non-Cash Investing and Financing Activities

OP Units issued for property acquisitions $ 9,433 $ 15,511

Reallocation of non-controlling interest $ 3,436 $ 580

Right of use assets $ 1,071 $ —

Unrealized gain (loss) on interest rate swaps, net $ 8,249 $ 960

Reallocation of non-controlling interest $ 1,730 $ 3,435

OP Units issue for business acquisition $ 1,451 $ —

Reclassification of acquisition deposits included in prepaid expenses and other assets $ 696 $ 792

Write-off of fixed assets no longer in service $ 327 $ 40

Accrued capital expenditures included in accounts payable and accrued expenses $ 231 $ 660

Accrued taxes withheld included in accounts payable and accrued expenses $ 140 $ 99

Right of use assets $ 131 $ 1,071

Accrued costs of capital included in accounts payable and accrued expenses $ 107 $ 198

Reclassification of cost of capital included in prepaid expenses and other assets $ — $ 137

Accrued taxes withheld included in accounts payable and accrued expenses $ 99 $ —

Write-off of fixed assets no longer in service $ 40 $ 86

The accompanying notes are an integral part of these consolidated financial statements.

3 unchanged sentences

Postal Realty Trust, Inc.

(the “Company” “we”, “us”, or “our”) was organized in the state of Maryland on November 19, 2018.

(the “Company”) was organized in the state of Maryland on November 19, 2018.

On May 17, 2019, the Company completed its initial public offering (“IPO”) of the Company’s Class A common stock, par value $ 0.01 per share (the “Class A common stock”).

The Company contributed the net proceeds from the IPO to Postal Realty LP, a Delaware limited partnership (the “Operating Partnership”), in exchange for common units of limited partnership interest in the Operating Partnership (the “OP Units”).

Both the Company and the Operating Partnership commenced operations upon completion of the IPO and certain related formation transactions (the “Formation Transactions”).

Both the Company and the Operating Partnership commenced operations upon completion of the IPO and certain related formation transactions.

Prior to the completion of the IPO and the formation transactions, the Company had no operations.

4 unchanged sentences

The Operating Partnership is considered a variable interest entity (“VIE”) in which the Company is the primary beneficiary.

The Company's predecessor (the “Predecessor”) was a combination of limited liability companies (the “LLCs”), one C-Corporation (“UPH”), one S-Corporation (“NPM”) and one limited partnership.

The entities that comprised the Predecessor were majority owned and controlled by Mr.

Spodek and his affiliates and were acquired by contribution to, or merger with, the Company and the Operating Partnership.

The Predecessor did not represent a legal entity.

The Predecessor and its related assets and liabilities were under common control and were contributed to the Operating Partnership in connection with the Company’s IPO.

As of December 31, 2021, the Company owned a portfolio of 966 properties located in 49 states.

As of December 31, 2022, the Company owned a portfolio of 1,286 properties located in 49 states and one territory.

The Company's properties are leased primarily to a single tenant, the United States Postal Service (the "USPS").

In addition, through its taxable REIT subsidiary (“TRS”), Postal Realty Management TRS, LLC (“PRM”), the Company provides fee-based third party property management services for an additional 397 postal properties, which are owned by Mr.

Spodek and his affiliates.

Pursuant to the Company’s articles of amendment and restatement, Company is currently authorized to issue up to 500,000,000 shares of Class A common stock, 27,206 shares of Class B common stock, $ 0.01 par value per share (the “Class B common stock” or “Voting Equivalency stock”), and up to 100,000,000 shares of preferred stock.

The Company believes it has been organized in conformity with, and has operated in a manner that has enabled it to meet, the requirements for qualification as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the “Code”), and the Company elected to be taxed as a REIT under the Code commencing with the Company's short taxable year ended December 31, 2019.

In addition, through its taxable REIT subsidiary (“TRS”), Real Estate Asset Counseling, LLC (formerly known as Postal Realty Management TRS, LLC) (“REAC”), the Company provides fee-based third party property management services for an additional 397 properties, which are owned by Andrew Spodek, the Company's chief executive officer ("CEO"), and his affiliates, and certain advisory services to third-party owners of postal properties.

Pursuant to the Company’s articles of amendment and restatement, the Company is currently authorized to issue up to 500,000,000 shares of Class A common stock, 27,206 shares of Class B common stock, $ 0.01 par value per share (the “Voting Equivalency stock”), and up to 100,000,000 shares of preferred stock.

The Company elected to be taxed as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the “Code”), commencing with the Company's short taxable year ended December 31, 2019, and intends to continue to qualify as a REIT.

As a REIT, the Company generally will not be subject to federal income tax to the extent that it distributes its REIT taxable income for each tax year to its stockholders.

REITs are subject to a number of organizational and operational requirements.

Pursuant to the Jumpstart Our Business Startups Act (the “JOBS Act”), the Company qualifies as an emerging growth company (“EGC”).

An EGC may choose, as the Company has done, to take advantage of the extended private company transition period provided for complying with new or revised accounting standards that may be issued by the Financial Accounting Standards Board (“FASB”) or the Securities and Exchange Commission (the “SEC”).

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Pursuant to the Jumpstart Our Business Startups Act, the Company qualifies as an emerging growth company (“EGC”).

Summary of Significant Accounting Policies

3 unchanged sentences

The primary beneficiary is the entity that has (i) the power to direct the activities that most significantly impact the entity’s economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could be significant to the VIE.

Substantially all of the assets and liabilities of the Company relate to the Operating Partnership.

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A non-controlling interest is defined as the portion of the equity in an entity not attributable, directly or indirectly, to the Company.

Non-controlling interests are required to be presented as a separate component of equity in the Consolidated Balance Sheets.

Accordingly, the presentation of net income (loss) reflects the income attributed to controlling and non-controlling interests.

Accordingly, the presentation of net income reflects the income attributed to controlling and non-controlling interests.

Use of Estimates

1 unchanged sentence

generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during the reporting period.

As discussed in the applicable sections elsewhere in the Consolidated Financial Statements, the Company’s most significant assumptions and estimates are related to the valuation of investments in real estate properties and impairment of long-lived assets.

Although management believes its estimates are reasonable, actual results could differ from those estimates.

5 unchanged sentences

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.

9 unchanged sentences

Remaining non-cancellable term of the in-place lease

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The acquired above or below-market lease intangibles are amortized to “Rental income” over the applicable lease term, inclusive of any option periods for below-market leases.

Deferred Costs

Financing costs related to the issuance of the Company’s long-term debt, including the term loan facility component (the "2021 Term Loan") of the Company's existing credit facilities (the “2021 Credit Facilities”), established under a credit agreement dated as of August 9, 2021 (the “2021 Credit Agreement”), are deferred and amortized as an increase to interest expense over the term of the related debt instrument using the straight-line method, which approximates the effective interest rate method, and are reported as a reduction of the related debt balance on the Consolidated Balance Sheets.

Deferred financing costs related to the Company’s previous revolving credit facility (the “2019 Credit Facility”), which was established under a credit agreement dated as of September 27, 2019, as amended, and terminated on August 9, 2021, and the revolving credit facility component (the "2021 Revolving Credit Facility") of the 2021 Credit Facilities are deferred and amortized as an increase to interest expense over the terms of the 2019 Credit Facility and the 2021 Revolving Credit Facility, respectively, and are included in “Prepaid expenses and other assets, net” on the Consolidated Balance Sheets.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current period’s presentation.

Financing costs related to the issuance of the Company’s long-term debt, including the term loan facility component of the Company's existing credit facilities (the “Credit Facilities”), are deferred and amortized as an increase to interest expense over the term of the related debt instrument using the straight-line method, which approximates the effective interest rate method, and are reported as a reduction of the related debt balance on the Consolidated Balance Sheets.

Deferred financing costs related to the revolving credit facility component (the "2021 Revolving Credit Facility") of the Credit Facilities are

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

deferred and amortized as an increase to interest expense over the terms of the 2021 Revolving Credit Facility and are included in “Prepaid expenses and other assets, net” on the Consolidated Balance Sheets.

Cash and Escrows and Reserves

13 unchanged sentences

Rental income is recognized on a straight-line basis over the term of the lease.

In addition, certain lease agreements provide for reimbursements from tenants for real estate taxes and other recoverable costs, which are recorded on an accrual basis as part of “Rental income” in the Consolidated 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 management fees arise from contractual agreements with entities that are affiliated with the Company’s chief executive officer ("CEO").

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 credit worthiness, 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 consists 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 the Company’s CEO.

Management fee income is recognized as earned under the respective agreements.

Revenue from direct financing leases is recognized over the lease term using the effective interest rate method.

At lease inception, the Company records an asset within investments on the Consolidated Balance Sheets, which represents the Company’s net investment in the direct financing lease.

This initial net investment is determined by aggregating the total future minimum lease payments attributable to the direct financing lease and the estimated residual value of the property, if any, less unearned income.

Over the lease term, the investment in the direct financing lease is reduced and income is recognized as revenue in “Fee and other” 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.

At lease inception, the Company records an asset within "Investment in financing leases, net" on the Consolidated Balance Sheets, which represents the Company’s net investment in the direct financing lease.

This initial net investment is determined by aggregating the total future minimum lease payments attributable to the direct financing leases 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 and produces a constant periodic rate of return on the investment in financing leases, net.

Revenue from advisory services is generated from service contracts generally based on (i) time and expense arrangements (where the Company recognizes revenues based on hours incurred and contracted rates), (ii) fixed-fee arrangements (where the Company recognizes revenues earned to date by applying the proportional performance method) or (iii) performance-based or contingent arrangements (where the Company recognizes revenues at a point in time when the client receives the benefit of the promised service).

Reimbursable expenses for the advisory services, including those relating to travel, out-of-pocket expenses, outside consultants and other outside service costs, are generally included in revenues and in general and administrative expenses in the period in which the expense is incurred.

Business Combinations, Goodwill and Intangible Assets

The Company accounts for business combinations using the acquisition method, which requires the identification of the acquirer, the determination of the acquisition date and the allocation of the purchase price paid by the acquirer to the identifiable tangible and intangible assets acquired, the liabilities assumed, including any contingent consideration and any non-controlling interest in the acquiree at their acquisition date fair values.

Goodwill represents the excess of the purchase price over the fair value of net assets acquired, including the amount assigned to identifiable intangible assets.

Intangible assets may

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

include customer relationships, trademarks and acquired software.

Identifiable intangible assets with finite lives are amortized over their expected useful lives.

Acquisition-related costs are expensed in the periods in which the costs are incurred.

The results of operations of acquired businesses are included in the Company’s Consolidated Financial Statements from the acquisition date.

The Company evaluates goodwill for impairment at least annually, or as circumstances warrant.

Goodwill is evaluated at the reporting unit level by comparing the fair value of the reporting unit with its carrying amount including goodwill.

An impairment of goodwill exists if the carrying amount of the reporting unit exceeds its fair value.

The impairment loss is the amount by which the carrying amount exceeds the reporting unit’s fair value, limited to the total amount of goodwill allocated to that reporting unit.

Intangible assets with finite lives are amortized over their estimated useful lives and reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

If an impairment indicator is present, the Company evaluates recoverability of assets to be held and used by a comparison of the carrying value of the assets with future undiscounted net cash flows expected to be generated by the assets.

The Company groups assets at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows generated by other asset groups.

If the total of the expected undiscounted future cash flows is less than the carrying amount of the asset group, the Company will estimate the fair value of the asset group to determine the amount of an impairment loss that should be recognized.

As a REIT, the Company is generally not subject to federal corporate income tax on the net income (loss) that the Company distributes to its shareholders.

10 unchanged sentences

The Company recognizes estimated accrued interest and penalties related to uncertain tax positions in income tax expense.

Fair Value of Financial Instruments

Fair Value Measurements

The following disclosure of estimated fair value was determined by management using available market information and appropriate valuation methodologies.

However, considerable judgment is necessary to interpret market data and develop estimated fair value.

Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize on disposition of the assets and liabilities as of December 31, 2021 and 2020.

Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could have realized on disposition of the assets and liabilities as of December 31, 2022 and 2021.

The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

Cash, escrows and reserves, receivables, prepaid expenses and other assets, accounts payable and accrued expenses are carried at amounts which reasonably approximate their fair values as of December 31, 2021 and 2020 due to their short maturities.

As of December 31, 2021 and 2020, the Company had investment in direct financing leases, net with a carrying value of $ 16.2 million and $ 0.5 million, respectively, net and effective interest rates ranging from 6.48 % to 7.89 %.

The carrying value of the investment in financing leases approximated their fair market value as of December 31, 2021 and 2020.

The fair value of the Company’s direct financing leases was categorized as a Level 3 basis (as provided by ASC 820, Fair Value Measurements and Disclosures).

The fair value of the Company’s borrowings under its 2019 Credit Facility and 2021 Credit Facilities approximates carrying value because such borrowings are subject to a variable rate.

Cash, escrows and reserves, receivables, prepaid expenses and other assets (excluding derivatives), accounts payable and accrued expenses are carried at amounts which reasonably approximate their fair values as of December 31, 2022 and 2021 due to their short maturities.

The fair value of the Company’s borrowings under its Credit Facilities approximates carrying value because such borrowings are subject to a variable market rate, which reprices frequently.

The fair value was determined using the Adjusted Term SOFR (as defined below) as of December 31, 2022, and London Interbank Offered Rate (“LIBOR”) as of December 31, 2021, plus an applicable spread under the Credit Facilities, a Level 2 classification in the fair value hierarchy.

The fair value of the Company’s secured borrowings aggregated approximately $ 27.5 million and $ 32.1 million as compared to the principal balance of $ 33.1 million and $ 33.2 million as of December 31, 2022 and 2021, respectively.

The fair value of the Company’s debt was categorized as a Level 3 basis (as provided by ASC 820, Fair Value Measurements and Disclosures).

The fair value of these financial instruments was determined by using a discounted cash flow analysis based on the borrowing rates currently available to the Company for loans with similar terms and maturities.

The fair value of the Company’s

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

secured debt was categorized as a Level 3 basis (as provided by ASC 820, Fair Value Measurements and Disclosures).

The fair value of the mortgage debt was determined by discounting the future contractual interest and principal payments by a market rate.

The Company's derivative assets, comprised of one interest rate swap derivative instrument entered into on August 9, 2021 in connection with the 2021 Credit Facilities, are recorded at fair value based on a variety of observable inputs, including contractual terms, interest rate curves, yield curves, measure of volatility, and correlations of such inputs.

The Company's derivative assets, comprised of interest rate swap derivative instruments entered into in connection with the Credit Facilities, are recorded at fair value based on a variety of observable inputs, including contractual terms, interest rate curves, yield curves, measure of volatility, and correlations of such inputs.

The Company measures its derivatives at fair value on a recurring basis based on the expected size of future cash flows on a discounted basis and incorporating a measure of non-performance risk.

1 unchanged sentence

The Company considers its own credit risk, as well as the credit risk of its counterparties, when evaluating the fair value of its derivative assets.

As of December 31, 2021, the fair value of the Company’s interest rate swap derivative instrument was approximately $ 1.0 million, included in “Prepaid expenses and other assets, net” on the Consolidated Balance Sheets.

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2022 and 2021, the fair value of the Company’s interest rate swap derivative instruments was approximately $ 9.2 million and $ 1.0 million, respectively, included in “Prepaid expenses and other assets, net” on the Consolidated Balance Sheets.

Disclosure about fair value of assets and liabilities is based on pertinent information available to management as of December 31, 2022 and 2021.

5 unchanged sentences

Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge.

The Company may enter into derivative contracts that are intended to economically hedge certain of its risk, even though hedge accounting does not apply or the Company elects not to apply hedge accounting.

The Company may enter into derivative contracts that are intended to economically hedge certain of its risks, even though hedge accounting does not apply or the Company elects not to apply hedge accounting.

Derivatives and Hedging Activities for further details.

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.

9 unchanged sentences

For the year ended December 31, 2021, approximately 18.3 % of the Company's total rental income, or $ 7.0 million, was concentrated in Pennsylvania.

The ability of the USPS to honor the terms of its leases is dependent upon regulatory, economic, environmental or competitive conditions in any of these areas and could have an effect on the Company’s overall business results.

The ability of the USPS to honor the terms of its leases is dependent upon regulatory, economic, environmental or competitive conditions in Pennsylvania or other regions where the Company operates in and could have a material effect on the Company’s overall business results.

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company has deposited cash and maintains its bank deposits with large financial institutions in amounts that, from time to time, exceed federally insured limits.

1 unchanged sentence

Non-controlling Interests

Non-controlling interests in the Company represent OP Units held by the Predecessor’s prior investors and certain sellers of properties to the Company and LTIP Units held by the Company’s CEO and the Company's Board of Directors.

Non-controlling interests in the Company represent OP Units held by the Company’s prior investors and certain sellers of properties to the Company and long term incentive units of the Operating Partnership ("LTIP Units") held by the Company’s CEO and certain other employees and the Company's Board of Directors.

Stockholder’s Equity for further details.

1 unchanged sentence

The Company accounts for equity-based compensation in accordance with ASC Topic 718 Compensation – Stock Compensation, which requires the Company to recognize an expense for the grant date fair value of equity-based awards.

Equity-classified stock awards granted to employees and non-employees that have a service condition and/or a market condition

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

are measured at fair value at date of grant and remeasured at fair value only upon a modification of the award.

The Company will record forfeitures as they occur.

Equity-classified stock awards granted to employees and non-employees that have a service condition and/or a market condition are measured at fair value at date of grant and remeasured at fair value only upon a modification of the award.

The Company records forfeitures as they occur.

The Company recognizes compensation expense on a straight-line basis over the requisite service period of each award, with the amount of compensation expense recognized at the end of a reporting period at least equal the portion of fair value of the respective award at grant date or modification date, as applicable, that has vested through that date.

3 unchanged sentences

The Company carries liability insurance to mitigate its exposure to certain losses, including those relating to property damage and business interruption.

The Company records the estimated amount of expected insurance proceeds for property damage and other losses incurred as an asset (typically a receivable from the insurer) and income up to the amount of the losses incurred when the amount is determinable and approved by insurance company.

Any amount of insurance recovery in excess of the amount of the losses incurred is considered a gain contingency and is not recorded in other income until the amount is determinable and approved by insurance company.

Insurance recoveries for business interruption for lost revenue or profit are accounted for as gain contingencies in their entirety, and therefore are not recorded in income until the amount is determinable and approved by insurance company.

Earnings per Share

The Company calculates net income (loss) per share based upon the weighted average shares outstanding less issued and outstanding non-vested shares of Class A common stock.

As of December 31, 2021 and 2020, the Company had unvested restricted shares of Class A common stock, LTIP Units and RSUs which provide for non-forfeitable rights to dividend and dividend-equivalent payments.

Accordingly, these unvested restricted shares of Class A common stock, LTIP Units and RSUs are considered participating securities and are included in the computation of basic and diluted net income per share pursuant to the two-class method.

Diluted earnings per share is calculated after giving effect to all potential dilutive shares outstanding during the period.

The Company calculates earnings per share ("EPS") based upon the weighted average shares outstanding less issued and outstanding non-vested shares of Class A common stock.

As of December 31, 2022 and 2021, the Company had unvested restricted shares of Class A common stock, LTIP Units and certain restricted stock units (“RSUs"), which provide for non-forfeitable rights to dividend and dividend-equivalent payments.

Diluted EPS is calculated after giving effect to all potential dilutive shares outstanding during the period.

Earnings Per Share for further details.

7 unchanged sentences

The Company elected to utilize the following practical expedients provided by Topic 842, including:

the package of practical expedients that allows an entity not to reassess upon adoption (i) whether an expired or existing contract contains a lease, (ii) whether a lease classification related to expired or existing lease arrangements, and (iii) whether costs incurred on expired or existing leases qualify as initial direct costs, and as a lessor, the practical expedient not to separate certain non-lease components, such as common area maintenance, from the lease component if the timing and pattern of transfer are the same for the non-lease component and associated lease component, and the lease component would be classified as an operating lease if accounted for separately.

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

expired or existing leases qualify as initial direct costs, and as a lessor, the practical expedient not to separate certain non-lease components, such as common area maintenance, from the lease component if the timing and pattern of transfer are the same for the non-lease component and associated lease component, and the lease component would be classified as an operating lease if accounted for separately.

Topic 842 requires lessees to record most leases on their balance sheet through a right-of-use (“ROU”) model, in which a lessee records a ROU asset and a lease liability on their balance sheet.

2 unchanged sentences

Lease expense will be recognized based on the effective interest method for leases accounted for as finance leases and on a straight-line basis over the term of the lease for leases accounted for as operating leases.

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The accounting by a lessor under Topic 842 is largely unchanged from that of Topic 840.

7 unchanged sentences

However, the Company elected the lessor practical expedient allowing the Company to not separate these components when certain conditions are met.

With this election, the Company combined tenant reimbursements with rental income on its Consolidated Statements of Operations and Comprehensive Income (Loss) for the period beginning with the three months ended March 31, 2021.

Upon adoption of the standard, the Company’s comparative statement of operations have been reclassified to conform to the new single component presentation of rental revenues and tenant reimbursements, classified within rental income in the Consolidated Statements of Operations and Comprehensive Income (Loss).

During the year ended December 31, 2021, the Company recorded an operating ROU asset and a related operating lease liability, each totaling approximately $ 1.2 million, related to one office lease and four ground leases.

The ROU lease asset is included in “Prepaid expenses and other assets, net” and the operating lease liability is included in “Accounts payable, accrued expenses and other” on the Consolidated Balance Sheets.

With this election, effective on January 1, 2021, the Company combined tenant reimbursements with rental income on its Consolidated Statements of Operations and Comprehensive Income.

In December 2022, the FASB issued ASU 2022-06, Deferral of the Sunset Date of Topic 848 (“ASU 2022-06”) which was issued to defer the sunset date of Reference Rate Reform (topic 848):

Facilitation of the Effects of Reference Rate Reform to December 31, 2024.

ASU 2022-06 is effective immediately for all companies.

ASU 2022-06 had no impact on the Company's Consolidated Financial Statements for the year ended December 31, 2022.

Future Application of Accounting Standards

3 unchanged sentences

2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses .

The guidance changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income.

The guidance replaces the current ‘incurred loss’ model with an ‘expected loss’ approach.

The Company will also be required to disclose information about how it developed the allowances, including changes in the factors that influenced the Company’s estimate of expected credit losses and the reasons for those changes.

The guidance changes how entities measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income.

The guidance replaced the previous "incurred loss" model with an "expected loss" approach.

The guidance also requires entities to disclose information about how they developed the allowances, including changes in the factors that influenced estimate of expected credit losses and the reasons for those changes.

2018-19 excludes operating lease receivables from the scope of this guidance.

This guidance will be effective for the Company on January 1, 2023 as a result of its classification as an EGC.

The Company is currently in the process of evaluating the impact the adoption of the guidance will have on its consolidated financial statements.

This guidance became effective for the Company and was adopted by the Company on January 1, 2023.

Upon adoption of this guidance, the Company had two direct financing leases with a net investment balance aggregating approximately $ 16.1 million prior to any credit loss adjustment.

Historically, the Company has had no collection issues related to these direct financing leases and its other leases in which the Company is the lessor;

therefore, the Company assessed the probability of default on these leases based on the lessee’s status as an independent agency of the executive branch of the U.S.

federal government, financial condition and business prospects and the remaining term of the leases.

Based on the aforementioned, the Company did not recognize any credit loss adjustment for such leases.

Real Estate Acquisitions

The following tables summarizes the Company’s acquisitions for the years ended December 31, 2022 and 2021.

The purchase prices including transaction costs were allocated to the separately identifiable tangible and intangible assets and liabilities based on their relative fair values at the date of acquisition.

The purchase prices including transaction costs were allocated to the separately identifiable tangible and intangible assets and

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

liabilities based on their relative fair values at the date of acquisition.

The total purchase price including transaction costs was allocated as follows (in thousands, except for the number of properties):

19 unchanged sentences

Total 238 $ 18,286 $ 79,688 $ 1,029 $ 7,526 $ 234 $ ( 1,582 ) $ 585 $ 105,766

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Explanatory Notes :

(1) Includes an intangible liability related to unfavorable operating leases on two properties during the three months ended March 31, 2022 that is included in “Accounts payable, accrued expenses and other” on the Consolidated Balance Sheets.

During the three months ended June 30, 2022, includes a below-market ground lease intangible asset.

(2) Includes closing costs of approximately $ 0.6 million for the three months ended March 31, 2022, approximately $ 1.7 million for the three months ended June 30, 2022, approximately $ 0.5 million for the three months ended September 30, 2022 and approximately $ 0.5 million for the three months ended December 31, 2022.

(3) Includes the acquisition of 50 properties in various states in individual or portfolio transactions for a price of approximately $ 27.6 million, including closing costs, which was funded with both the issuance of OP Units to the sellers as non-cash consideration (valued at approximately $ 1.8 million using the share price of Class A common stock on the date of each issuance of such OP Units) and borrowings under the Credit Facilities.

(4) Includes the acquisition of 150 properties in various states in individual or portfolio transactions for a price of approximately $ 56.7 million, including closing costs, which was funded with both the issuance of OP Units to the sellers as non-cash consideration (valued at approximately $ 2.0 million using the share price of Class A common stock on the date of each issuance of such OP Units) and borrowings under the Credit Facilities.

(5) Includes the acquisition of 66 properties in various states in individual or portfolio transactions for a price of approximately $ 21.3 million, including closing costs, which was funded with both the issuance of OP Units to the sellers as non-cash consideration (valued at approximately $ 4.7 million using the share price of Class A common stock on the date of each issuance of such OP Units) and borrowings under the Credit Facilities.

(6) Includes the acquisition of 54 properties in various states in individual or portfolio transactions for a price of approximately $ 20.7 million, including closing costs, which was funded with both the issuance of OP Units to the sellers as non-cash consideration (valued at approximately $ 0.9 million using the share price of Class A common stock on the date of each issuance of such OP Units) and borrowings under the Credit Facilities.

(7) Represents an insurance receivable assigned to the Company related to a property in a small portfolio that was destroyed by arson prior to acquisition by the Company during the three months ended March 31, 2021.

1 unchanged sentence

The insurance proceeds were received in April 2021.

Also includes an intangible liability related to an unfavorable operating lease on a property acquired during the three months ended June 30, 2021 that is included in “Accounts payable, accrued expenses and other” on the Consolidated Balance Sheets.

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Balance Sheets.

During the three months ended September 30, 2021, includes a below-market ground lease intangible asset.

1 unchanged sentence

(8) Includes closing costs of $ 0.5 million for the three months ended March 31, 2021, $ 0.9 million for the three months ended June 30, 2021, $ 0.5 million for the three months ended September 30, 2021 and $ 0.8 million for the three months ended December 31, 2021.

(3) Includes the acquisition of 54 properties in various states in individual or portfolio transactions for approximately $ 26.2 million, including closing costs, which was funded with borrowings under the 2019 Credit Facility.

(4) Includes the acquisition of 71 properties in various states in individual or portfolio transactions for approximately $ 31.3 million, including closing costs, which was funded with both the issuance of OP Units to the sellers as non-cash consideration (valued at approximately $ 9.0 million using the share price of Class A common stock on the date of each issuance of such OP Units) and borrowings under the 2019 Credit Facility.

(5) Includes the acquisition of 59 properties in various states in individual or portfolio transactions for approximately $ 19.6 million, including closing costs, which was funded with both the issuance of OP Units to the sellers as non-cash consideration (valued at approximately $ 6.5 million using the share price of Class A common stock on the date of each issuance of such OP Units) and borrowings under the 2021 Credit Facilities and, prior to its termination, the 2019 Credit Facility.

(9) Includes the acquisition of 54 properties in various states in individual or portfolio transactions for approximately $ 26.2 million, including closing costs, which was funded with borrowings under the Company's previous credit facility.

(10) Includes the acquisition of 71 properties in various states in individual or portfolio transactions for approximately $ 31.3 million, including closing costs, which was funded with both the issuance of OP Units to the sellers as non-cash consideration (valued at approximately $ 9.0 million using the share price of Class A common stock on the date of each issuance of such OP Units) and borrowings under the Company's previous credit facility.

(11) Includes the acquisition of 59 properties in various states in individual or portfolio transactions for approximately $ 19.6 million, including closing costs, which was funded with both the issuance of OP Units to the sellers as non-cash consideration (valued at approximately $ 6.5 million using the share price of Class A common stock on the date of each issuance of such OP Units) and borrowings under the Credit Facilities and, prior to its termination, the Company's previous credit facility.

(12) Includes the acquisition of 54 properties in various states in individual or portfolio transactions for approximately $ 28.7 million, including closing costs, which was funded with borrowings under the Credit Facilities.

In addition, the Company closed on one property accounted for as a direct financing lease and is included in “Investment in financing leases, net” on the Consolidated Balance Sheets.

(7) Includes an intangible liability related to unfavorable operating leases on three properties that is included in “Accounts Payable, accrued expenses and other” on the Consolidated Balance Sheets.

(8) Includes closing costs of $ 0.3 million for the three months ended March 31, 2020, $ 0.2 million for the three months ended June 30, 2020, $ 0.8 million for the three months ended September 30, 2020 and $ 1.3 million for the three months ended December 31, 2020.

(9) Includes the acquisition of a 21 -property portfolio leased to the USPS for approximately $ 13.6 million, including closing costs, which was partially funded with the issuance of OP Units to the sellers as non-cash consideration (valued at approximately $ 7.9 million using the share price of Class A common stock on the date of each issuance of such OP Units).

(10) Includes the acquisition of a 42 -property portfolio leased to the USPS.

The aggregate purchase price of such portfolio was approximately $ 8.8 million, including closing costs, which was funded with borrowings under the 2019 Credit Facility.

(11) Includes the acquisition of 20 properties in individual or smaller portfolio transactions for approximately $ 8.1 million, including closing costs.

(12) Includes the acquisition of a 13 -property portfolio leased to the USPS in various states for approximately $ 7.2 million, including closing costs.

In addition, the Company purchased six properties in individual or smaller portfolio transactions for approximately $ 3.4 million, including closing costs.

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(13) Includes the acquisition of 122 properties in various states in individual or portfolio transactions for approximately $ 27.1 million, including closing costs, which was funded with borrowings under the 2019 Credit Facility.

In addition, the Company closed on one property which is a direct financing lease and is included in “Investment in financing leases, net” on the Consolidated Balance Sheets.

(14) Includes the acquisition of 35 properties in various states in individual or portfolio transactions for approximately $ 16.3 million, including closing costs, which was funded with borrowings under the 2019 Credit Facility.

In addition, the Company acquired an industrial property (“Industrial Facility”) for a total of $ 47.6 million, including closing costs, primarily leased to the USPS.

The property was initially funded with borrowings under the 2019 Credit Facility.

Refer to Note 5.

Debt for a discussion of the subsequent property level financing related to the acquisition.

Intangible Assets and Liabilities

1 unchanged sentence

As of Gross Asset

(Liability) Accumulated

(Amortization)/

Accretion Net

(Liability) Accumulated Amortization Net

December 31, 2022:

10 unchanged sentences

Above-market leases

319 ( 70 ) 249

Below-market leases

1 unchanged sentence

Amortization of in-place lease intangibles was $ 7.0 million and $ 6.3 million for the years ended December 31, 2022 and 2021, respectively.

This amortization is included in “Depreciation and amortization” in the Consolidated Statements of Operations and Comprehensive Income (Loss).

Amortization of acquired above market leases was $ 0.03 million and $ 0.02 million for the years ended December 31, 2021 and 2020, respectively, and is included in “Rental income” on the Consolidated Statements of Operations and Comprehensive Income (Loss).

Amortization of acquired below market leases was $ 1.6 million and $ 1.3 million for the years ended December 31, 2021 and 2020, respectively, and is included in “Rental income” in the Consolidated Statements of Operations and Comprehensive Income (Loss).

This amortization is included in “Depreciation and amortization” in the Consolidated Statements of Operations and Comprehensive Income.

Amortization of acquired above market leases was $ 0.1 million and $ 0.03 million for the years ended December 31, 2022 and 2021, respectively, and is included in “Rental income” on the Consolidated Statements of Operations and Comprehensive Income.

Amortization of acquired below market leases was $ 2.3 million and $ 1.6 million for the years ended December 31, 2022 and 2021, respectively, and is included in “Rental income” in the Consolidated Statements of Operations and Comprehensive Income.

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2022, the weighted average amortization period for the Company’s intangible assets was approximately 3.2 years, 3.3 years and 8.8 years for in-place lease intangibles, above-market leases and below-market leases, respectively.

10 unchanged sentences

$ 15,687 $ 399 $ ( 11,821 )

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes the Company’s indebtedness as of December 31, 2022 and December 31, 2021 (dollars in thousands):

4 unchanged sentences

Revolving Credit Facility (1) :

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

2019 Credit Facility — 78,000 — —

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

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:

7 unchanged sentences

282 366 6.00 % January 2025

First Oklahoma Bank – April 2020 (7)

First Oklahoma Bank – June 2020 (8)

AIG – December 2020 (7)

4 unchanged sentences

Explanatory Notes:

(1) On September 27, 2019, the Company entered into the 2019 Credit Facility, which provided for revolving commitments in an aggregate principal amount of $ 100.0 million with an accordion feature that permitted the Company to borrow up to an additional $ 100.0 million for an aggregate total of $ 200.0 million.

On August 9, 2021, the Company entered into the 2021 Credit Facilities, which include the $ 150.0 million 2021 Revolving Credit Facility and the $ 50.0 million 2021 Term Loan.

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

The 2021 Credit Facilities include an accordion feature which will permit the Company 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 the London Interbank Offered Rate (“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 the Company's consolidated leverage ratio.

With respect to the 2021 Revolving Credit Facility, the Company will pay, if the usage is equal to or less than 50 %, an unused facility fee of 0.20 % per annum, or if the usage is greater than 50 %, an unused facility fee of 0.15 % per annum, in each case on the average daily unused commitments under the 2021 Revolving Credit Facility.

The 2021 Credit Facilities contain a number of customary financial and non-financial covenants.

In addition, on August 9, 2021, the Company entered into an interest rate swap that effectively fixed the LIBOR component of the interest rate on $ 50.0 million portion of the 2021 Credit Facilities through January 2027.

The interest rate swap initially applied to the $ 50.0 million 2021 Term Loan, fixing the interest rate for the 2021 Term Loan at 2.291 % as of December 31, 2021.

Derivatives and Hedging Activities below for further details.

(1) On August 9, 2021, the Company entered into the Credit Facilities, which included the $ 150.0 million 2021 Revolving Credit Facility and the $ 50.0 million 2021 Term Loan.

On May 11, 2022, the Company 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 Term Loan, the "Term Loans"), replace the 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 the Company achieves certain sustainability targets.

The Credit Facilities include an accordion feature which will permit the Company 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 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

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

During the years ended December 31, 2021 and 2020, the Company 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.

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 the Company's consolidated leverage ratio.

The Credit Facilities contain a number of customary financial and non-financial covenants.

During the years ended December 31, 2022 and 2021, the Company incurred $ 0.3 million and $ 0.1 million, respectively, of unused facility fees related to its previous credit facility and the 2021 Revolving Credit Facility.

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

(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, the Company 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 %.

(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 as of December 31, 2022 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, the Company 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.

(6) In connection with the acquisition of a property, the Company obtained seller financing secured by the property in the amount of $ 0.4 million requiring five annual payments of principal and interest of $ 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, the Company obtained $ 4.5 million of mortgage financing, at a fixed interest rate of 4.25 % with interest only for the first 18 months, which would have reset in November 2026 to the greater of Prime or 4.25 %.

On February 3, 2021, the Company fully repaid this mortgage financing and wrote off $ 0.06 million of deferred financing to costs to loss on early extinguishment of debt for the year ended December 31, 2021.

See the Consolidated Statements of Operations and Comprehensive Income (Loss).

(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, the Company fully repaid this mortgage financing and wrote off $ 0.15 million of deferred financing to costs to loss on early extinguishment of debt for the year ended December 31, 2021.

See the Consolidated Statements of Operations and Comprehensive Income (Loss).

(9) The loan is secured by a first mortgage lien on the Industrial Facility.

(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.

The weighted average maturity date for the Company's indebtedness as of December 31, 2021 and 2020 was 6.5 years and 6.6 years, respectively.

The weighted average maturity date for the Company's indebtedness as of December 31, 2022 and 2021 was approximately 5.5 years and 6.5 years, respectively.

Cash paid for interest during the years ended December 31, 2022 and 2021 was $ 5.1 million and $ 2.7 million, respectively.

8 unchanged sentences

Derivatives and Hedging Activities

As disclosed above in Note 5.

Debt, the Company entered into one interest rate swap derivative instrument on August 9, 2021 in connection with its 2021 Credit Facilities, which fixed the LIBOR component of the interest rate on $ 50.0 million portion of the 2021 Credit Facilities through January 29, 2027.

The interest rate swap was 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.

The Company’s objectives in using the interest rate derivative are to add stability to interest expense and to manage its exposure to interest rate movements.

To accomplish these objectives, the Company uses the interest rate swap as part of its interest rate risk management strategy.

The interest rate swap is designated as a cash flow hedge, with its gain or loss recorded in “Accumulated other comprehensive income” in the Consolidated Statements of Operations and Comprehensive Income (Loss) and subsequently reclassified into interest expense as interest payments are made on the Company’s 2021 Credit Facilities.

During the next twelve months, the Company estimates that an additional $ 0.2 million will be reclassified from “Accumulated other comprehensive income” as an increase to interest expense.

The Company has five interest rate swaps with a total notional amount of $ 165.0 million that are used to manage its interest rate risk and fix the SOFR component on the Credit Facilities.

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.

The Company’s objectives in using the interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements.

To accomplish these objectives, the Company uses the interest rate swaps as part of its interest rate risk management strategy.

The interest rate swaps are designated as cash flow hedges, with any gain or loss recorded in “Accumulated other comprehensive income” on the Consolidated Balance Sheets and subsequently reclassified into interest expense as interest payments are made on the Credit Facilities.

During the next twelve months, the Company estimates that an additional $ 4.9 million will be reclassified from “Accumulated other comprehensive income” as a decrease to interest expense.

The Company does not use derivatives for trading or speculative purposes and currently does not have any derivatives that are not designated as hedges.

The table below presents the effect of the Company’s interest rate swap derivative instrument in the Consolidated Statements of Operations and Comprehensive Income (Loss) for the year ended December 31, 2021.

Twelve Months Ended December 31,

The table below presents the effect of the Company’s interest rate swap derivative instruments on the Consolidated Statements of Operations and Comprehensive Income for the years ended December 31, 2022 and 2021 (in thousands).

Years Ended December 31,

Derivatives in Cash Flow Hedging Relationships (Interest Rate Swaps) 2022 2021

Amount of gain recognized on derivative in "Accumulated other comprehensive income" $ 8,604 $ 809

Amount of (loss) reclassified from "Accumulated other comprehensive income" into interest expense $( 151 )

Interest expense, net presented in the Consolidated Statements of Operations and Comprehensive Income (Loss), in which the effects of cash flow hedges are recorded, totaled $ 3.7 million and $ 2.8 million for the years ended December 31, 2021 and 2020, respectively.

As of December 31, 2021, the Company does not have any derivatives in a net liability position and has not posted any collateral related to these agreements.

Amount of gain (loss) reclassified from "Accumulated other comprehensive income" into interest expense $ ( 355 ) $ 151

Interest expense, net presented in the Consolidated Statements of Operations and Comprehensive Income, in which the effects of cash flow hedges are recorded, totaled $ 6.0 million and $ 3.7 million for the years ended December 31, 2022 and 2021, respectively.

As of December 31, 2022, the Company did not have any derivatives in a net liability position and did not post any collateral related to these agreements.

If the Company had breached any of these provisions as of December 31, 2022, it could have been required to settle its obligations under the agreements at their termination value.

11 unchanged sentences

The Company elected the practical expedient to account for its lease and non-lease components as a single combined operating lease component under Topic 842.

As a result, rental income and tenant reimbursements were aggregated into a single line within rental income in the Consolidated Statements of Operations and Comprehensive Income (Loss).

As a result, rental income and tenant reimbursements were aggregated into a single line within rental income in the Consolidated Statements of Operations and Comprehensive Income.

The following table represents rental revenue that the Company recognized related to its operating leases (in thousands):

Twelve Months Ended December 31,

Years Ended December 31,

Fixed payments $ 43,808 $ 32,769

6 unchanged sentences

(2) As of December 31, 2022, the leases at 81 of the Company's properties were expired, and the USPS was occupying such properties as a holdover tenant.

As such, the above minimum lease payments to be received do not include payments under these holdover leases.

Holdover rent is typically paid as the greater of estimated market rent or the rent amount due under the expired lease.

Subsequent to December 31, 2021, the Company executed all leases for these properties.

Purchase Option Provisions

2 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2021, 42 of these properties acquired for an aggregate purchase price of approximately $ 24.9 million had an aggregate purchase option price of approximately $ 30.6 million and the remaining four properties acquired for an aggregate purchase price of approximately $ 6.8 million had purchase options exercisable at fair market value.

Direct Financing Leases

As of December 31, 2022, 57 of these properties acquired for an aggregate purchase price of approximately $ 44.8 million had an aggregate purchase option price of approximately $ 53.5 million and the remaining three properties acquired for an aggregate purchase price of approximately $ 2.6 million had purchase options exercisable at fair market value.

Investment in Financing Leases, Net

As of December 31, 2022, financing leases for two of the Company’s properties provide the USPS with the option to purchase the underlying property at fixed prices as of dates set forth in the lease agreement.

4 unchanged sentences

Investment in financing leases, net $ 16,130 $ 16,213

Revenue earned under direct financing leases for the years ended December 31, 2021 and 2020 were $ 0.2 million and $ 0.02 million, respectively, which is recorded in "Fee and other" in the Consolidated Statements of Operations and Comprehensive Income (Loss).

Revenue earned under direct financing leases for the years ended December 31, 2022 and 2021 were $ 1.1 million and $ 0.2 million, respectively, which is recorded in "Fee and other" in the Consolidated Statements of Operations and Comprehensive Income.

Future lease payments to be received under the Company’s direct financing leases as of December 31, 2022 for the next five years and thereafter are as follows (in thousands):

3 unchanged sentences

On January 1, 2021 the Company adopted Topic 842 and recognized ROU assets of $ 1.2 million and lease liabilities of $ 1.2 million.

As of December 31, 2021, these leases had remaining terms, including renewal options, of two to 51 years and a weighted average remaining lease term of 21.9 years.

As of December 31, 2022, these leases had remaining terms, including renewal options, of one to 56 years and a weighted average remaining lease term of 22.6 years.

Operating ROU assets and lease liabilities are included in “Prepaid expenses and other assets, net” and “Accounts payable, accrued expense and other” on the Consolidated Balance Sheets as follows (in thousands):

8 unchanged sentences

rate based on the information available at the commencement date in determining the present value of future payments.

The Company used a weighted average discount rate of 4.25 % based on the yield of its current borrowings in determining its lease liabilities.

The Company used a discount rate ranging from 4.25 % to 6.37 % based on the yield of its current borrowings in determining its lease liabilities.

Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

The lease terms may include options to extend or terminate the lease if it is reasonably certain that the Company will exercise that option.

Operating lease expense for each of the twelve months ended December 31, 2021 and 2020 was $ 0.2 million and $ 0.1 million, respectively.

Operating lease expense for each of the twelve months ended December 31, 2022 and 2021 was $ 0.2 million.

Future minimum lease payments to be paid by the Company as a lessee for operating leases as of December 31, 2022 for the next five years and thereafter are as follows (in thousands):

1 unchanged sentence

Interest discount

Future minimum ground lease payments under Topic 840 as of December 31, 2020 were as follows (in thousands):

Year Ending December 31, Amount

Thereafter 1,155

Total $ 1,277

Future minimum office lease payments under Topic 840 as of December 31, 2020 were as follows (in thousands):

Year Ending December 31, Amount

Impact of COVID-19

On March 11, 2020, the World Health Organization declared the outbreak of a coronavirus (COVID-19) pandemic which has been ongoing.

The resulting restrictions on travel and quarantines imposed have had a negative impact on the U.S.

economy and business activity globally, the full impact of which is not yet known and may result in an adverse impact to the Company’s tenants and operating results.

For the year ended December 31, 2021, the Company received 100 % of its rents and the Company believes there was no material impact caused by COVID-19 on the Company.

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In connection with the IPO, the Company and PRM jointly elected to treat PRM as a TRS.

PRM performs management services, including for properties the Company does not own.

PRM generates income, resulting in federal and state corporate income tax liability for PRM.

For the years ended December 31, 2021 and 2020, income tax expense related to PRM was $ 0.1 million and $ 0.1 million, respectively.

As of December 31, 2021 and 2020, the Company’s consolidated balance sheets reflect a liability for unrecognized tax benefits in the amounts of $ 0.2 million and $ 0.4 million, respectively, primarily related to the utilization of certain loss carryforwards by UPH through May 16, 2019.

In connection with the IPO, the Company and REAC jointly elected to treat REAC as a TRS.

REAC performs management services, including for properties the Company does not own, and advisory services to third-party owners of postal properties.

REAC generates income, resulting in federal and state corporate income tax liability for REAC.

For the years ended December 31, 2022 and 2021, income tax benefit and income tax expense related to REAC was $ 3,670 and $ 0.1 million, respectively.

As of December 31, 2022 and 2021, the Company’s consolidated balance sheets reflect a liability for unrecognized tax benefits in the amounts of $ 0.02 million and $ 0.2 million, respectively, primarily related to the utilization of certain loss carryforwards by United Postal Holdings, Inc.

("UPH") through May 16, 2019.

For the years ended December 31, 2022 and 2021, the Company has accrued interest and penalties of $ 0.01 million and $ 0.04 million, respectively.

3 unchanged sentences

Accordingly, the Company’s unrecognized tax benefits, if recognized, would result in a decrease to the indemnification asset and have no impact on the effective tax rate.

During the years ended December 31, 2021 and 2020, the Company reversed $ 0.2 million and $ 0.1 million, respectively, of unrecognized tax benefits inclusive of interest and penalties due to the expiration of statute of limitations, with an offsetting adjustment to the indemnification asset.

During the years ended December 31,

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2022 and 2021, the Company reversed $ 0.2 million and $ 0.2 million, respectively, of unrecognized tax benefits inclusive of interest and penalties due to the expiration of statute of limitations, with an offsetting adjustment to the indemnification asset.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows (in thousands):

1 unchanged sentence

Gross unrecognized tax benefits, beginning of year $ 188 $ 364

Additions based on tax positions taken in the current year — —

Reductions to unrecognized tax benefits as a result of a lapse of the applicable statute of limitations ( 165 ) ( 176 )

Increases based on tax positions taken in prior periods — —

Decreases based on tax positions taken in prior periods — ( 28 )

Total $ 23 $ 188

The Company and PRM are subject to examinations by federal and state and local tax authorities beginning with the short tax year ended December 31, 2019.

The Company and REAC are subject to examinations by federal and state and local tax authorities beginning with the short tax year ended December 31, 2019.

UPH was subject to examinations by federal tax authorities for tax years 2018 through 2019.

Cash paid for taxes for each of the years ended December 31, 2022 and 2021 was $ 0.1 million and $ 0.1 million, respectively.

On March 27, 2020, the President signed into law the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).

The CARES Act was enacted to provide economic relief to companies and individuals in response to the COVID-19 pandemic.

Included in the CARES Act are tax provisions which increase allowable interest expense deductions for 2019 and 2020 and increase the ability for taxpayers to use net operating losses.

These provisions did not result in a material impact to the Company’s taxable income or tax liabilities.

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Related Party Transactions

Management Fee Income

PRM recognized management fee income of $ 1.3 million and $ 1.1 million for the year ended December 31, 2021 and 2020, respectively, from various parties which were affiliated with the Company's CEO.

These amounts are included in “Fee and other” in the Consolidated Statements of Operations and Comprehensive Income (Loss).

REAC recognized management fee income of $ 1.2 million and $ 1.3 million for the years ended December 31, 2022 and 2021, respectively, from various parties which were affiliated with the Company's CEO.

These amounts are included in “Fee and other” in the Consolidated Statements of Operations and Comprehensive Income.

Accrued management fees receivable of $ 0.3 million and $ 0.3 million as of December 31, 2022 and 2021, respectively, are included in “Rents and other receivables” on the Consolidated Balance Sheets.

3 unchanged sentences

The term of the Office Lease is five years commencing on May 17, 2019 and will expire on May 16, 2024.

Rental expenses associated with the Office Lease for the years ended December 31, 2021 and 2020 was $ 0.2 million and $ 0.2 million, respectively, and was recorded in “General and administrative expenses” in the Consolidated Statements of Operations and Comprehensive Income (Loss).

Rental expenses associated with the Office Lease for the years ended December 31, 2022 and 2021 were $ 0.2 million and $ 0.2 million, respectively, and was recorded in “General and administrative expenses” in the Consolidated Statements of Operations and Comprehensive Income.

The Company determined this Office Lease was an operating lease.

For further details, see Note 7.

Transfer of Real Property

On May 28, 2020, the Company completed the separation of deed and transfer of the real property attributable to a de minimis non-postal tenant that shares space in a building leased to the USPS.

At the time of the IPO a property located in Milwaukee, WI, a portion of which is leased to the USPS, was contributed to the Company.

It was intended that the non-postal portion of the property would revert back to an entity affiliated with Mr.

Spodek once a separation of the deed was completed.

The portion of the property leased to the USPS remains owned by a wholly owned subsidiary of the Operating Partnership.

The independent members of the Company's Board of Directors ratified the no consideration transfer.

As disclosed above in Note 5.

4 unchanged sentences

On November 16, 2021, Mr.

Spodek acquired 58,823 shares of the Company's Class A common stock at a price of $ 17.00 per share as a part of the Company's November Follow-on Offering (as defined below).

Earnings Per Share

Earnings per share (“EPS”) is calculated by dividing net income (loss) attributable to common stockholders by the weighted average number of shares outstanding for the period.

The following table presents a reconciliation of income (loss) from operations used in the basic and diluted EPS calculations (dollars in thousands, except share and per share data).

Spodek acquired 58,823 shares of the Company's Class A common stock at a price of $ 17.00 per share as a part of the Company's public offering of Class A common stock in November 2021.

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Earnings Per Share

EPS is calculated by dividing net income attributable to common stockholders by the weighted average number of shares outstanding for the period.

The following table presents a reconciliation of income from operations used in the basic and diluted EPS calculations (dollars in thousands, except share and per share data).

For the Years Ended December 31,

Numerator for earnings per share – basic and diluted:

Net income (loss) attributable to common stockholders $ 2,055 $ ( 352 )

Net income attributable to common stockholders $ 3,854 $ 2,055

Income attributable to participating securities ( 997 ) ( 658 )

4 unchanged sentences

Explanatory Note:

(1) For the year ended December 31, 2021, 302,552 restricted shares of Class A common stock, 85,386 restricted stock units (“RSUs”), 3,472,221 OP Units and 375,264 LTIP Units would not be dilutive and were not included in the computation of diluted EPS.

For the year ended December 31, 2020, 218,613 restricted shares of Class A common stock, 62,096 RSUs, 2,640,795 OP Units and 209,008 LTIP Units would not be dilutive and were not included in the computation of diluted EPS.

OP Units and LTIP Units are redeemable for cash or, at the Company’s option, shares of Class A common stock on an one-for-one basis, held by non-controlling interests as of December 31, 2021 and 2020, respectively.

The income allocable to such OP Units and LTIP Units is allocated on this same basis and reflected as non-controlling interests in the accompanying Consolidated Financial Statements.

As such, the assumed conversion of these OP Units would have no net impact on the determination of diluted earnings per share.

(1) Diluted EPS reflects the potential dilution of the conversion of obligations and the assumed exercises of securities including the effects of restricted shares and RSUs issued under the Company’s 2019 Equity Incentive Plan (the “Plan”) (See Note 11.

Stockholder’s Equity).

On January 11, 2021, the Company priced a public offering of 3.25 million shares of its Class A common stock (the “January Follow-on Offering”) at $ 15.25 per share.

On January 11, 2021, the underwriters purchased the full allotment of 487,500 shares pursuant to a 30-day option at $ 15.25 per share (the “January Additional Shares”).

The January Follow-on Offering, including the January Additional Shares, closed on January 14, 2021 resulting in $ 57.0 million in gross proceeds, and approximately $ 53.9 million in net proceeds after deducting approximately $ 3.1 million in underwriting discounts and before giving effect to $ 0.3 million in other expenses relating to the January Follow-on Offering.

On November 16, 2021, the Company priced a public offering of 4.25 million shares of its 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.

On December 14, 2020, the Company entered into separate open market sale agreements for its at-the-market offering program (the "ATM Program") with each of Jefferies LLC, Stifel, Nicolaus & Company, Incorporated, BMO Capital Markets Corp., Janney Montgomery Scott LLC and D.A.

Davidson & Co.

Davidson”), pursuant to which the Company may offer and sell, from time to time, shares of the Company’s Class A common stock having an aggregate sales price of up to $ 50.0 million.

On May 14, 2021, the Company delivered to D.A.

Davidson a notice of termination of the open market sale agreement with D.A.

Davidson, which termination became effective May 14, 2021.

The following table summarizes the activity under the ATM Program for the periods presented (dollars and shares issued in thousands, except per share amounts).

During the year ended December 31, 2021, 344,717 shares were issued under the ATM Program.

The effect of such shares and RSUs would not be dilutive and were not included in the computation of weighted average number of shares outstanding for the periods presented in the table above.

OP Units and LTIP Units are redeemable for cash or, at the Company’s option, shares of Class A common stock on an one-for-one basis.

The income allocable to such OP Units and LTIP Units is allocated on this same basis and reflected as non-controlling interests in these Consolidated Financial Statements.

As such, the assumed conversion of these OP Units and LTIP Units would have no net impact on the determination of diluted EPS.

Stockholder’s Equity

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

On November 4, 2022, the Company 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 the Company may offer and sell, from time to time, shares of its Class A common stock having an aggregate sales price of up to $ 50.0 million.

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

The following table summarizes the activity under the 2020 ATM Program and the 2022 ATM Program for the periods presented (dollars and shares issued in thousands, except per share amounts).

During the year ended December 31, 2022, 751,382 shares were issued under the 2020 ATM Program and the 2022 ATM Program.

As of December 31, 2022, the Company had approximately $ 41.9 million remaining that may be issued under the 2022 ATM Program.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2021

Shares issued 751 345

5 unchanged sentences

Declaration Date Record Date Date Paid Amount Per Share or Unit

January 29, 2021 February 12, 2021 February 26, 2021 $ 0.2175

February 1, 2022 February 15, 2022 February 28, 2022 $ 0.2275

April 28, 2022 May 13, 2022 May 27, 2022 $ 0.2300

July 27, 2022 August 8, 2022 August 26, 2022 $ 0.2325

November 4, 2021 November 15, 2021 November 30, 2021 $ 0.2250

October 26, 2022 November 7, 2022 November 28, 2022 $ 0.2350

During the year ended December 31, 2021, the Company's Board of Directors approved and the Company declared and paid dividends of $ 15.0 million to Class A common stockholders, Voting Equivalency stockholders, OP unitholders and LTIP unitholders, or $ 0.885 per share or unit, as shown in the table below.

3 unchanged sentences

July 27, 2021 August 13, 2021 August 27, 2021 $ 0.2225

October 30, 2020 November 16, 2020 November 30, 2020 $ 0.2150

November 4, 2021 November 15, 2021 November 30, 2021 $ 0.2250

Non-controlling Interests

Non-controlling interests in the Company represent OP Units held by the Predecessor’s prior investors and certain sellers of properties to the Company and LTIP Units primarily issued to the Company's CEO and the Board of Directors in connection with the IPO and/or in lieu of their cash compensation.

During the year ended December 31, 2021, the Company issued 137,259 LTIP Units in February 2021 to the Company's CEO for his 2020 incentive bonus, his election to defer 100 % of his 2021 annual salary and for long term incentive compensation and issued 28,997 LTIP Units in June 2021 to the Board of Directors for their annual retainers as compensation for their services as directors.

In addition, during the years ended December 31, 2021 and 2020, the Company issued 831,426 and 483,333 OP Units, respectively, to certain contributors in connection with portfolio acquisitions.

Non-controlling interests in the Company represent OP Units held by the Company’s prior investors and certain sellers of properties to the Company and LTIP Units primarily issued to the Company's CEO and the Board of Directors in connection with the IPO and/or in lieu of their cash compensation.

During the year ended December 31, 2022, the Company issued 118,389 LTIP Units in January 2022 to the Company's CEO for his 2021 incentive bonus, his election to defer 100 % of his 2022 annual salary and for long term incentive compensation, issued 38,174 LTIP Units in June 2022 to the Board of Directors for their annual retainers as compensation for their services as directors and issued 5,040 LTIP Units in July 2022 to a consultant under the consultancy agreement with the Company.

In addition, during the years ended December 31, 2022 and 2021, the Company issued 661,398 and 831,426 OP Units, respectively, to certain contributors in connection with portfolio acquisitions (for further details, see Note 3.

Real Estate Acquisitions) and a business acquisition (for further details, see Note 13.

Business Acquisitions).

As of December 31, 2022 and December 31, 2021, non-controlling interests consisted of 4,133,619 OP Units and 536,868 LTIP Units and 3,472,221 OP Units and 375,265 LTIP Units, respectively.

This represented approximately 19.2 % and 17.1 % of the outstanding Operating Partnership units as of December 31, 2022 and 2021, respectively.

Operating Partnership units and shares of common stock generally have the same economic characteristics, as they share equally in the total net income or loss distributions of the Operating Partnership.

Beginning on or after the date which is 12 months after the later of (i) the completion of the IPO or (ii) the date on which a person first became a holder of common units, each limited partner and assignees of limited partners will have the right, subject to the terms and conditions set forth in the partnership agreement to require the Operating Partnership to redeem all or a portion of the OP Units held by such limited partner or assignee in exchange for cash, or at the Company’s sole discretion, shares of the Class A common stock, on an one-for-one basis determined in accordance with and subject to adjustment under the partnership agreement.

OP Units and shares of Class A common stock generally have the same economic characteristics, as they share equally in the total net income or loss and distributions of the Operating Partnership.

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

require the Operating Partnership to redeem all or a portion of the OP Units held by such limited partner or assignee in exchange for cash, or at the Company’s sole discretion, shares of the Class A common stock, on an one-for-one basis determined in accordance with and subject to adjustment under the partnership agreement.

The Operating Partnership unitholders are entitled to share in cash distributions from the Operating Partnership in proportion to their percentage ownership of OP Units.

1 unchanged sentence

Pursuant to the Company’s 2019 Equity Incentive Plan (the “Equity Incentive Plan” or the “Plan”), the Company may grant equity incentive awards to its directors, officers, employees and consultants.

The maximum number of shares of Class A common stock that were originally authorized for issuance under the Plan were 541,584 .

On April 27, 2020, the Board of Directors amended the Plan to increase the total number of shares of Class A common stock that may be issued under the Plan (the “Plan Pool”) from 541,584 shares to 1,291,584 shares.

The stockholders approved such amendment on June 26, 2020.

As of December 31, 2022, the remaining shares available under the Plan for future issuance was 1,198,736 .

On April 27, 2021, the Board of Directors further amended the Plan to provide for an automatic increase annually in the Plan Pool starting from January 1, 2022, allowing the Plan Pool to equal to 10 % of the Company’s fully diluted shares (including securities convertible into shares of the Class A common stock) outstanding on the last day of the immediately preceding fiscal year.

The stockholders approved such amendment on June 18, 2021.

The Plan provides for grants of stock options, stock awards, stock appreciation rights, performance units, incentive awards, other equity-based awards (including LTIP Units) and dividend equivalents in connection with the grant of performance units and other equity-based awards.

11 unchanged sentences

(1) Represents restricted shares awards included in Class A common stock.

(2) The time-based restricted share awards granted to the Company's officers and employees typically vest in three annual installments or cliff vest at the end of eight years .

(2) The time-based restricted share awards granted to the Company's officers and employees typically vest in three annual installments or cliff vest at the end of three years or eight years .

The time-based restricted share awards granted to the Company's independent directors vest over three years .

6,931 shares of Class A common stock were issued to a consultant under the consultancy agreement with the Company.

(3) Includes 346,268 LTIP Units to the Company’s CEO that vest over eight years and 28,997 LTIP Units to the Company's independent directors that vest over three years or cliff vest at the end of three years .

(3) Includes 118,389 LTIP Units to the Company’s CEO that vest over eight years , 38,174 LTIP Units to the Company's independent directors that vest over three years or cliff vest at the end of three years and 5,040 LTIP Units granted to a consultant under the consultancy agreement with the Company that vested on December 31, 2022.

(4) Includes 47,005 RSUs granted to certain officers and employees of the Company during the year ended December 31, 2022 subject to the achievement of a service condition and a market condition.

1 unchanged sentence

The number of market-based RSUs is based on the number of shares issuable upon achievement of the market-based metric at target.

Also, includes 26,997 time-based RSUs issued for 2020 incentive bonuses to certain employees that vested fully on February 11, 2021, the date of grant, and 3,117 time-based RSUs granted to certain employees for their election to defer 2021 salary that vest on December 31, 2021.

Also, includes 40,963 time-based RSUs issued for 2021 incentive bonuses to certain employees that vested fully on January 31, 2022, the date of grant, and 12,780 time-based RSUs granted to certain employees for their election to defer 2022 salary that vested on December 31, 2022.

RSUs reflect the right to receive shares of Class A common stock, subject to the applicable vesting criteria.

(5) Includes 52,412 of restricted shares that vested and 27,729 shares of restricted shares that were withheld to satisfy minimum statutory withholding requirements.

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(5) Includes 54,295 of restricted shares that vested and 17,196 shares of restricted shares that were withheld to satisfy minimum statutory withholding requirements.

In January 2022, the Company issued 100,850 LTIP Units to the Company’s CEO for his 2021 incentive bonus and his election to defer 100 % of his 2022 annual salary, 46,161 restricted shares of Class A common stock to the Company’s president for his 2021 incentive bonus and 43,343 restricted shares of Class A common stock to the Company's Chief Financial Officer for his 2021 incentive bonus and his election to defer a portion of his 2022 annual salary.

In addition, in January 2022, the Company issued 37,299 restricted shares of Class A common stock for annual grants to employees and consultants and 43,848 RSUs and 42,838 restricted shares of Class A common stock to other employees for their 2021 incentive bonus and election by an employee to defer a portion of 2022 annual salary.

In January 2023, the Company issued 123,197 LTIP Units to the Company’s CEO for his 2022 incentive bonus and his election to defer 100 % of his 2023 annual salary, 75,489 LTIP Units to the Company’s president for his 2022 incentive bonus and his election to defer 50% of his 2023 annual salary and 45,698 LTIP Units to the Company's Chief Financial Officer for his 2022 incentive bonus.

LTIP Units issued to the Company’s CEO, president and Chief Financial Officer in lieu of cash compensation will cliff vest on the eighth anniversary of February 1, 2023.

In addition, in January 2023, the Company issued 45,767 restricted shares of Class A common stock for annual grants to employees and consultants and 47,455 RSUs, 22,205 LTIP units and 44,650 restricted shares of Class A common stock to other employees for their 2022 incentive bonus and election by certain employees to defer a portion of their 2023 annual salaries.

RSUs reflect the right to receive shares of Class A common stock.

RSUs issued for 2021 incentive bonuses vested fully on the date of grant.

RSUs issued in lieu of deferral of 2022 annual salary will cliff vest on December 31, 2022.

LTIP Units issued to the Company’s CEO and restricted shares of Class A common stock issued to the president and Chief Financial Officer in lieu of cash compensation will cliff vest on the eighth anniversary of February 1, 2022.

Certain restricted shares of Class A common stock issued to employees and consultants will vest in three equal, annual installments on each of the first three anniversaries of February 1, 2022, while other restricted shares of Class A common stock issued to employees in lieu of cash compensation will cliff vest on the third or eighth anniversary of February 1, 2022.

In addition, in January 2022, the Company issued an aggregate of 17,539 LTIP Units, 29,467 of restricted shares of Class A common stock and 47,007 RSUs to certain officers of the Company.

The LTIP Units and restricted shares of Class A common stock will vest in three equal, annual installments over the approximately three-year period ending December 31, 2024, subject to continued employment with the Company.

The RSUs are market-based awards and are subject to the achievement of performance-based hurdles relating to the Company’s absolute total stockholder return and continued employment with the Company over the approximately three-year period from the grant date through December 31, 2024.

RSUs and certain LTIP Units issued to employees for 2022 incentive bonuses vested fully on the date of grant.

RSUs and certain LTIP Units issued to employees in lieu of deferral of 2023 annual salary will cliff vest on December 31, 2023.

Certain restricted shares of Class A common stock issued to employees and consultants will vest in three equal, annual installments on each of the first three anniversaries of February 1, 2023, while other restricted shares of Class A common stock and LTIP Units issued to employees in lieu of cash compensation will cliff vest on the third, fifth or eighth anniversary of February 1, 2023.

The Company also issued 4,626 restricted shares of Class A common stock in February 2023 to certain employees and consultants for work anniversaries, which shares vested fully on the date of grant, and 3,304 LTIP Units in January 2023 to a consultant under the consultancy agreement with the Company.

In January 2023, the Company also issued an aggregate of 34,755 LTIP Units, 28,757 of restricted shares of Class A common stock and 63,512 RSUs to certain officers of the Company.

The LTIP Units and restricted shares of Class A common stock will vest in three equal, annual installments over the approximately three-year period ending February 1, 2026, subject to continued employment with the Company.

The RSUs are market-based awards and are subject to the achievement of performance-based hurdles relating to the Company’s absolute and relative total stockholder return goals and continued employment with the Company over the approximately three-year period from the grant date through December 31, 2025.

Such RSU recipients may earn up to 200 % of the RSUs that were issued.

Upon vesting pursuant to the terms of the RSUs, the RSUs that vest will be settled in shares of Class A common stock and the recipients will be entitled to receive the distributions that would have been paid with respect to a share of Class A common stock (for each share that vests) on or after the date the RSUs were initially granted.

During the years ended December 31, 2021 and 2020, the Company recognized compensation expense of $ 3.6 million and $ 2.4 million, respectively, related to all awards.

During the year ended December 31, 2020, the Company issued 38,672 RSUs (the “2020 Performance-Based Awards”) to certain employees that were market-based awards and subject to the achievement of performance-based hurdles relating to the Company’s absolute total stockholder return goals and continued employment with the Company over the approximately three-year performance period ended December 31, 2022.

In January 2023, the Company's Corporate Governance and Compensation Committee of the Board of Directors determined that the Company's total stockholder return for such three-year performance period exceeded the threshold performance hurdles for the 2020 Performance-Based Awards and, as a result, approved the payout of (i) 27,456 RSUs for such awards, which were settled using the Company’s shares of Class A common stock, and (ii) their cash dividends for the three-year performance period.

During the year ended December 31, 2022, the Company recognized compensation expense of $ 4.3 million and $ 0.4 million in “General and administrative expenses” and "Property operating expenses" in the Consolidated Statements of Operations and Comprehensive Income, respectively, related to all awards.

During the year ended December 31, 2021, the Company recognized compensation expense of $ 3.4 million and $ 0.2 million in “General and administrative expenses” and "Property operating expenses" in the Consolidated Statements of Operations and Comprehensive Income, respectively.

The fair value of restricted shares that vested during the years ended December 31, 2022 and 2021 was $ 1.2 million and $ 1.6 million, respectively.

3 unchanged sentences

In connection with the IPO, the Company established the Postal Realty Trust, Inc.

2019 Employee Stock Purchase Plan (“ESPP”), which allows the Company’s employees to purchase shares of the Company’s Class A common stock at a discount.

A total of 100,000 shares of Class A common stock are reserved for sale and authorized for issuance under the ESPP.

The Code permits the Company to provide up to a 15 % discount on the lesser of the fair market value of such shares of stock at the beginning of the offering period and the close of the offering period.

As of December 31, 2021 and 2020, 16,293 and 7,189 shares have been issued under the ESPP since commencement, respectively.

During each of the years ended December 31, 2021 and 2020, the Company recognized compensation expense of $ 0.02 million.

Commitments and Contingencies

As of December 31, 2021, the Company was not involved in any litigation nor, to its knowledge, is any litigation threatened against the Company that, in management’s opinion, would result in any material adverse effect on the Company’s financial position, or which is not covered by insurance.

In the ordinary course of the Company’s business, the Company enters into non-binding (except with regard to exclusivity and confidentiality) letters of intent indicating a willingness to negotiate for acquisitions.

There can be no assurance that definitive contracts will be entered into with respect to any matter covered by letters of intent, that the Company will close

2019 Qualified Employee Stock Purchase Plan (“ESPP”), which allows the Company’s employees to purchase shares of the Company’s Class A common stock at a discount.

A total of 100,000 shares of Class A common stock was reserved for sale and authorized for issuance under the ESPP.

The Code permits the Company to provide up to a 15 % discount on the lesser of the fair market value of such shares of Class A common stock at the beginning of the offering period and the close of the offering period.

As of December 31, 2022

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

the transactions contemplated by such contracts on time, or that the Company will consummate any transaction contemplated by any definitive contract.

and 2021, 29,710 and 16,293 shares have been issued under the ESPP since commencement, respectively.

During the years ended December 31, 2022 and 2021, the Company recognized compensation expense of $ 0.03 million and $ 0.02 million , respectively, related to ESPP.

Commitments and Contingencies

As of December 31, 2022, the Company was not involved in any litigation nor, to its knowledge, is any litigation threatened against the Company that, in management’s opinion, would result in any material adverse effect on the Company’s financial position and results of operations, or which is not covered by insurance.

There can be no assurance that definitive contracts will be entered into with respect to any matter covered by letters of intent, that the Company will close the transactions contemplated by such contracts on time, or that the Company will consummate any transaction contemplated by any definitive contract.

Business Acquisition

On March 4, 2022, the Company acquired a postal real estate consulting business and its employees through the issuance of 79,794 OP Units and $ 0.2 million in cash for an aggregate purchase price of approximately $ 1.7 million to complement the Company's core business of acquiring, managing, servicing and being a consolidator of postal properties.

In connection with the acquisition, the Company recorded an intangible asset related to the customer relationships and trade name of approximately $ 0.2 million in “Prepaid expenses and other assets, net” on the Consolidated Balance Sheets, which is being amortized over the estimated useful life of four years, and goodwill of approximately $ 1.5 million.

The goodwill recorded is deductible for income tax purposes.

All assets acquired in connection with the business acquisition were assigned to the Company’s single reportable segment.

The results of operations of this acquired business have been included in the Consolidated financial Statements since the acquisition date.

For the year ended December 31, 2022, the Company recorded revenue of $ 0.03 million and net loss of $ 0.09 million in connection with the acquired business.

Pro forma information has not been presented for this business acquisition because such information is not material to the financial statements.

Subsequent Events

The Company's Board of Directors approved, and on February 1, 2022, the Company declared a fourth quarter common stock dividend of $ 0.2275 per share which is payable on February 28, 2022 to stockholders of record as of February 15, 2022.

As of March 11, 2022, the Company had $ 78.0 million drawn on the 2021 Credit Facilities, with a $ 50.0 million drawn on the 2021 Term Loan and $ 28.0 million drawn on the 2021 Revolving Credit Facility.

On March 4, 2022, the Company acquired a postal real estate consulting business and its employees through the issuance of 79,794 OP Units and $ 225,000 in cash to complement the Company's core business of acquiring, managing, servicing and being a consolidator of postal properties.

As of March 11, 2022 and during the period subsequent to December 31, 2021, the Company closed on the acquisitions of 39 properties for approximately $ 11.8 million, excluding closing costs, some of which include OP Units as part of the consideration.

As of March 11, 2022 and during the period subsequent to December 31, 2021, the Company had entered into definitive agreements to acquire 12 properties for approximately $ 13.5 million, some of which include OP Units as part of the consideration.

In addition to the subsequent events discussed elsewhere in the notes to the Consolidated financial Statements, the following events occurred subsequent to December 31, 2022:

The Company's Board of Directors approved, and on February 1, 2023, the Company declared a fourth quarter common stock dividend of $ 0.2375 per share, which was paid on February 28, 2023 to stockholders of record as of February 15, 2023.

As of March 7, 2023, the Company 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.

As of March 7, 2023 and during the period subsequent to December 31, 2022, the Company closed on the acquisitions of 24 properties for approximately $ 12.7 million, excluding closing costs.

As of March 7, 2023 and during the period subsequent to December 31, 2022, the Company had entered into definitive agreements to acquire nine properties for approximately $ 1.8 million.

The majority of these transactions are anticipated to close during the second and third quarters of 2023, subject to the satisfaction of customary closing conditions.

2 unchanged sentences

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 8. Financial Statements and Supplementary Data