Postal Realty Trust, Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis is based on, and should be read in conjunction with, the unaudited Consolidated Financial Statements and the related notes thereto of Postal Realty Trust, Inc. contained in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2022. As used in this section, unless the context otherwise requires, references to “we,” “our,” “us,” and “our company” refer to Postal Realty Trust, Inc., a Maryland corporation, together with our consolidated subsidiaries, including Postal Realty LP, a Delaware limited partnership, of which we are the sole general partner and which we refer to in this section as our Operating Partnership. Forward-Looking Statements This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of federal securities laws. In particular, statements pertaining to our capital resources, acquisitions, property performance and results of operations contain forward-looking statements. You can identify forward-looking statements by the use of forward-looking terminology such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” “pro forma,” “estimates” or “anticipates” or the negative of these words and phrases or similar words or phrases which are predictions of or indicate future events or trends and which do not relate solely to historical matters. You can also identify forward-looking statements by discussions of strategy, plans or intentions. Forward-looking statements involve numerous risks and uncertainties and you should not rely on them as predictions of future events. Forward-looking statements depend on assumptions, data or methods which may be incorrect or imprecise and we may not be able to realize them. We do not guarantee that the transactions and events described will happen as described (or that they will happen at all). The following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements: • change in the status of the United States Postal Service (“USPS”) as an independent agency of the executive branch of the U.S. federal government; • change in the demand for postal services delivered by the USPS; • our ability to come to an agreement with the USPS regarding new leases or lease renewals on the terms and timing we expect, or at all; • the solvency and financial health of the USPS; • defaults on, early terminations of or non-renewal of leases or actual, potential or threatened relocation, closure or consolidation of postal offices or delivery units by the USPS; • the competitive market in which we operate; • changes in the availability of acquisition opportunities; • our inability to successfully complete real estate acquisitions or dispositions on the terms and timing we expect, or at all; • our failure to successfully operate developed and acquired properties; • adverse economic or real estate developments, either nationally or in the markets in which our properties are located; • decreased rental rates or increased vacancy rates; • change in our business, financing or investment strategy or the markets in which we operate; 26 Table of Contents • fluctuations in interest rates and increased operating costs, repair and maintenance expenses and capital expenditures; • general economic conditions (including inflation, rising interest rates, uncertainty regarding ongoing conflict between Russia and Ukraine and their related impact on macroeconomic conditions); • financial market fluctuations; • our failure to generate sufficient cash flows to service our outstanding indebtedness; • our failure to obtain necessary outside financing on favorable terms or at all; • failure to hedge effectively against interest rate changes; • our reliance on key personnel whose continued service is not guaranteed; • the outcome of claims and litigation involving or affecting us; • changes in real estate, taxation, zoning laws and other legislation and government activity and changes to real property tax rates and the taxation of real estate investment trusts (“REITs”) in general; • operations through joint ventures and reliance on or disputes with co-venturers; • cybersecurity threats; • uncertainties and risks related to adverse weather conditions, natural disasters and climate change; • exposure to liability relating to environmental and health and safety matters; • governmental approvals, actions and initiatives, including the need for compliance with environmental requirements; • lack or insufficient amounts of insurance; • limitations imposed on our business in order to maintain our status as a REIT and our failure to maintain such status; and • public health threats such as the coronavirus (COVID-19) pandemic. While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. We disclaim any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, of new information, data or methods, future events or other changes after the date of this Quarterly Report on Form 10-Q, except as required by applicable law. You should not place undue reliance on any forward-looking statements that are based on information currently available to us or the third parties making the forward-looking statements. For a further discussion of these and other factors that could impact our future results, performance or transactions, you should carefully review and consider (i) the information contained under Item 1A titled “Risk Factors” herein and in our Annual Report on Form 10-K and (ii) such similar information as may be contained in our other reports and filings that we make with the Securities and Exchange Commission (the “SEC”). Overview Company We were formed as a Maryland corporation on November 19, 2018 and commenced operations upon completion of our initial public offering and the related formation transactions. We conduct our business through a traditional UPREIT structure in which our properties are owned by our Operating Partnership directly or through limited partnerships, limited liability companies or other subsidiaries. During the nine months ended September 30, 2023, we acquired 148 properties leased to the USPS for approximately $58.4 million, including closing costs. As of September 30, 2023, our portfolio consists of 1,434 27 Table of Contents owned properties, located in 49 states and one territory and comprising approximately 5.7 million net leasable interior square feet. We are the sole general partner of our Operating Partnership through which our properties are directly or indirectly owned. As of October 30, 2023, we owned approximately 81.9% of outstanding common units of limited partnership interest in our Operating Partnership (the “OP Units”), including long term incentive units of our Operating Partnership (the “LTIP Units”). Our Board of Directors oversees our business and affairs. ATM Program On November 4, 2022, we entered into separate open market sale agreements for our at-the-market offering program (the "ATM Program") with each of Jefferies LLC, BMO Capital Markets Corp., Janney Montgomery Scott LLC, Stifel, Nicolaus & Company, Incorporated and Truist Securities, Inc., as agents, pursuant to which we may offer and sell, from time to time, shares of our Class A common stock having an aggregate sales price of up to $50.0 million. The agreements also provide that we may enter into one or more forward sale agreements under separate master forward confirmations and related supplemental confirmations with affiliates of certain agents. On August 8, 2023, we amended the ATM Program to increase the aggregate offering amount under the program from up to $50.0 million to up to $150.0 million. During the nine months ended September 30, 2023, 1,435,304 shares were issued under the ATM Program (including 600,000 shares that were issued in September 2023 in settlement of forward sales transactions that we entered into in July 2023). As of September 30, 2023, we had an additional 198,847 shares of forward sales transactions that had yet been settled. On October 11, 2023, the remaining 198,847 shares were settled for net proceeds of approximately $2.9 million. As of September 30, 2023, we had approximately $117.3 million of availability remaining under the ATM Program. Executive Overview We are an internally managed REIT with a focus on acquiring and managing properties leased primarily to the USPS, ranging from last-mile post offices to larger industrial facilities. We believe the overall opportunity for consolidation that exists within the postal logistics network is very attractive. We continue to execute our strategy to acquire and consolidate postal properties that we believe will generate strong earnings for our shareholders. Geographic Concentration As of September 30, 2023, we owned a portfolio of 1,434 properties located in 49 states and one territory and leased primarily to the USPS. For the nine months ended September 30, 2023, approximately 13.5% of our total rental income was concentrated in Pennsylvania. Emerging Growth Company We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the "JOBS Act"), and we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies,” including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. In addition, the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in the Securities Act of 1933, as amended (the “Securities Act”), for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have availed ourselves of these exemptions; although, subject to certain restrictions, we may elect to stop availing ourselves of these exemptions in the future even while we remain an “emerging growth company.” We will remain an “emerging growth company” until the earliest to occur of (i) the last day of the fiscal year during which our total annual revenue equals or exceeds $1.235 billion (subject to periodic adjustment for inflation), (ii) the last day of the fiscal year following the fifth anniversary of our IPO, (iii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt or (iv) the date on which we are deemed to be a “large accelerated filer” under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). 28 Table of Contents We are also a “smaller reporting company” as defined in Regulation S-K under the Securities Act and have elected to take advantage of certain scaled disclosures available to smaller reporting companies. We may continue to be a smaller reporting company even after we are no longer an “emerging growth company.” We elected to be treated as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”), beginning with our short taxable year ended December 31, 2019 and intend to continue to qualify as a REIT. As long as we qualify as a REIT, we generally will not be subject to federal income tax to the extent that we distribute our taxable income for each tax year to our stockholders. Factors That May Influence Future Results of Operations The USPS We are dependent on the USPS’ financial and operational stability. The USPS is currently facing a variety of circumstances that are threatening its ability to fund its operations and other obligations as currently conducted without intervention by the federal government. The USPS is constrained by laws and regulations that restrict revenue sources and pricing, mandate certain expenses and cap its borrowing capacity. As a result, among other consequences, the USPS is unable to fund its mandated expenses and continues to be subject to mandated payments to its retirement system and benefits. While the USPS has recently undertaken, and proposes to undertake, a number of operational reforms and cost reduction measures, such as higher rates and slower deliveries for certain services and closure, relocation or consolidation of certain facilities and delivery units, the USPS has taken the position such measures alone will not be sufficient to maintain its ability to meet all of its existing obligations when due or allow it to make the critical infrastructure investments that have been deferred in recent years. These measures have also led to significant criticism and litigation, which may result in reputational or financial harm or increased regulatory scrutiny of the USPS or reduced demand for its services. The COVID-19 pandemic and measures taken to prevent its spread have also had a material and unpredictable effect on the USPS’ operations and liquidity, including significant additional operating expenses caused by pandemic-related disruptions. The COVID-19 pandemic and other geopolitical and economic factors have also created significant inflationary pressures resulting in higher compensation, benefits, transportation and fuel costs for the USPS. If the USPS becomes unable to meet its financial obligations or its revenue declines due to reduced demand for its services, the USPS may reduce its demand for leasing postal properties, which would have a material adverse effect on our business and operations. For additional information regarding the risks associated with the USPS, see the section entitled “Risk Factors - Risks Related to the USPS” under Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022. Revenues We derive revenues primarily from rent and tenant reimbursements under leases with the USPS for our properties and fee and other from the management of postal properties owned by Andrew Spodek, our chief executive officer, and his affiliates managed by our taxable REIT subsidiary (“TRS”), income recognized from properties accounted for as financing leases and revenue from providing certain advisory services. Rental income represents the lease revenue recognized under the leases primarily with the USPS which includes the impact of above and below market lease intangibles as well as reimbursements to us made by our tenants for the real estate taxes paid at each property where tenants are responsible for such taxes under the leases. Certain of our leases include annual rent escalators. Fee and other principally represents (i) revenue our TRS received from postal properties owned by Mr. Spodek and his affiliates pursuant to the management agreements and is a percentage of the lease revenue for the managed properties, (ii) revenue our TRS received from providing advisory services to third-party owners of postal properties and (iii) income recognized from properties accounted for as financing leases. As of September 30, 2023, properties leased to our tenants had an average remaining lease term of approximately 3.2 years. Factors that could affect our rental income and fee and other in the future include, but are not limited to: (i) our ability to renew or replace expiring leases and management agreements; (ii) local, regional or national economic conditions; (iii) an oversupply of, or a reduction in demand for, postal space; (iv) changes in market rental rates; (v) changes to the USPS’ current property leasing program or form of lease; and (vi) our ability to provide adequate services and maintenance at our properties and managed properties. Operating Expenses We lease our properties primarily to the USPS. The majority of our leases are modified double-net leases, whereby the tenant is responsible for utilities, routine maintenance and reimbursement of property taxes and the landlord is responsible for insurance, roof and structure. Thus, an increase in costs related to the landlord’s responsibilities under these leases could negatively influence our operating results. Refer to “Lease Renewal” below for further discussion. Operating expenses generally consist of real estate taxes, property operating expenses, which consist of insurance, repairs and maintenance (other than those for which the tenant is responsible), property maintenance-related payroll and 29 Table of Contents depreciation and amortization. Factors that may affect our ability to control these operating costs include but are not limited to: the cost of periodic repair, age and durability of our properties, renovation costs, the cost of re-leasing space, inflation and the potential for liability under applicable laws. Recoveries from the tenant are recognized as revenue on an accrual basis over the periods in which the related expenditures are incurred. Tenant reimbursements and the related property operating expenses are recognized on a gross basis, because (i) generally, we are the primary obligor with respect to the real estate taxes and (ii) we bear the credit risk in the event the tenant does not reimburse the real estate taxes. The expenses of owning and operating a property are not necessarily reduced when circumstances, such as market factors and competition, cause a reduction in income from the property. If revenues drop, we may not be able to reduce our expenses accordingly. Costs associated with real estate investments generally will not be materially reduced even if a property is not fully occupied or other circumstances cause our revenues to decrease. As a result, if revenues decrease in the future, static operating costs may adversely affect our future cash flow and results of operations. General and Administrative General and administrative expense represents personnel costs, professional fees, legal fees, insurance, consulting fees, information technology costs and other expenses related to our day-to-day activities of being a public company. While we expect that our general and administrative expenses will continue to rise as our portfolio grows, we expect that such expenses as a percentage of our revenues will decrease over time due to efficiencies and economies of scale. Equity-Based Compensation Expense All equity-based compensation expense is recognized in our Consolidated Statements of Operations and Comprehensive Income as components of general and administrative expense and property operating expenses. We issue share-based awards to align our directors' and employees’ interests with those of our investors. Indebtedness and Interest Expense On August 9, 2021, we entered into a $150.0 million senior unsecured revolving credit facility (the "Revolving Credit Facility") and a $50.0 million senior unsecured term loan facility (the "2021 Term Loan"). On May 11, 2022, we amended the Credit Facilities (the "First Amendment") to, among other things, add a new $75.0 million senior unsecured delayed draw term loan facility (the "2022 Term Loan" and, together with the Revolving Credit Facility and the 2021 Term Loan, the “Credit Facilities”), replace the London Interbank Offered Rate with the Secured Overnight Financing Rate ("SOFR") as the benchmark interest rate and allow for a decrease in the applicable margin by 0.02% if we achieve certain sustainability targets. On December 6, 2022, we exercised $40.0 million of term loan accordion under the 2022 Term Loan. On July 24, 2023, we amended the Credit Facilities (the "Second Amendment") to, among other things, add a daily simple SOFR-based option to the term SOFR-based floating interest rate option as a benchmark rate for borrowings under the Credit Facilities and further exercised $25.0 million of term loan accordion under the 2021 Term Loan and, on a delayed-draw basis, $10.0 million of term loan accordion under the 2022 Term Loan. We intend to use the Credit Facilities for working capital purposes, which may include repayment of mortgage indebtedness, property acquisitions and other general corporate purposes. We amortize on a non-cash basis the deferred financing costs associated with our debt to interest expense using the straight-line method, which approximates the effective interest rate method over the terms of the related loans. Any changes to the debt structure, including debt financing associated with property acquisitions, could materially influence the operating results depending on the terms of any such indebtedness. Income Tax Benefit (Expense) As a REIT, we generally will not be subject to federal income tax on our net taxable income that we distribute currently to our stockholders. Under the Code, REITs are subject to numerous organizational and operational requirements, including a requirement that they distribute each year at least 90% of their REIT taxable income, determined without regard to the deduction for dividends paid and excluding any net capital gains. If we fail to qualify for taxation as a REIT in any taxable year and do not qualify for certain statutory relief provisions, our income for that year will be taxed at regular corporate rates, and we would be disqualified from taxation as a REIT for the four taxable years following the year during which we ceased to qualify as a REIT. Even though we qualify as a REIT for federal income tax purposes, we may still be subject to state and local taxes on our income and assets and to federal income and excise taxes on our undistributed income. Additionally, any income earned by our existing TRS and any other TRS we form in the future will be subject to federal, state and local corporate income tax. 30 Table of Contents Lease Renewal As of October 30, 2023, the leases at 60 of our properties, representing approximately 522,000 net leasable interior square feet, were expired and the USPS was occupying such properties as a holdover tenant. As of the date of this report, the USPS had not vacated or notified us of its intention to vacate any of these properties. When a lease expires, the USPS becomes a holdover tenant on a month-to-month basis typically paying the greater of estimated market rent or the rent amount under the expired lease. While we currently anticipate that we will renew the leases that have expired or will expire, there can be no guarantee that we will be successful in renewing these leases, obtaining positive rent renewal spreads or renewing the leases on terms comparable to those of the expiring leases. Even if we are able to renew these expired leases, the lease terms may not be comparable to those of the previous leases. If we are not successful, we will likely experience reduced occupancy, rental income and net operating income, as well as diminished borrowing capacity under our Credit Facilities, which could have a material adverse effect on our financial condition, results of operations and ability to make distributions to shareholders. Refer to “Risk Factors - Risks Related to the USPS” under Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022 for additional information regarding the risks associated with the USPS. Results of Operations Comparison of the Three Months Ended September 30, 2023 and the Three Months Ended September 30, 2022 For the Three Months Ended September 30, (Amounts in thousands) 2023 2022 $ Change % Change Revenues Rental income $ 15,438 $ 13,181 $ 2,257 17.1 % Fee and other 668 594 74 12.5 % Total revenues 16,106 13,775 2,331 16.9 % Operating expenses Real estate taxes 2,089 1,836 253 13.8 % Property operating expenses 1,917 1,346 571 42.4 % General and administrative 3,352 3,040 312 10.3 % Depreciation and amortization 4,919 4,637 282 6.1 % Total operating expenses 12,277 10,859 1,418 13.1 % Income from operations 3,829 2,916 913 31.3 % Other income 246 44 202 459.1 % Interest expense, net Contractual interest expense (2,446) (1,670) (776) 46.5 % Write-off and amortization of deferred financing fees (174) (156) (18) 11.5 % Total interest expense, net (2,620) (1,826) (794) 43.5 % Income before income tax (expense) benefit 1,455 1,134 321 28.3 % Income tax (expense) benefit (19) 16 (35) (218.8) % Net income $ 1,436 $ 1,150 $ 286 24.9 % 31 Table of Contents Revenues Rental income – Rental income includes net rental income as well as the recovery of certain operating costs and property taxes from tenants. Rental income increased by $2.3 million to $15.4 million for the three months ended September 30, 2023 from $13.2 million for the three months ended September 30, 2022, primarily due to the volume of our acquisitions. Fee and other – Fee and other revenue increased by $0.1 million to $0.7 million for the three months ended September 30, 2023 from $0.6 million for the three months ended September 30, 2022, primarily due to income received from advisory services and an increase in management fees. Operating Expenses Real estate taxes – Real estate taxes increased by $0.3 million to $2.1 million for the three months ended September 30, 2023 from $1.8 million for the three months ended September 30, 2022, primarily due to the volume of our acquisitions. Property operating expenses – Property operating expenses increased by $0.6 million to $1.9 million for the three months ended September 30, 2023 from $1.3 million for the three months ended September 30, 2022. Property management expenses are included within property operating expenses and increased by $0.1 million to $0.6 million for the three months ended September 30, 2023 from $0.5 million for the three months ended September 30, 2022. The increase in property operating expenses of $0.5 million was related to an increase in repairs and maintenance. General and administrative – General and administrative expenses increased by $0.3 million to $3.4 million for the three months ended September 30, 2023 from $3.0 million for the three months ended September 30, 2022, primarily due to expanding our staff, an increase in information technology related costs as a result of our continued growth and an increase in equity-based compensation expense related to awards that have been granted to our employees throughout 2022 and 2023. Depreciation and amortization – Depreciation and amortization expense increased by $0.3 million to $4.9 million for the three months ended September 30, 2023 from $4.6 million for three months ended September 30, 2022, primarily due to the volume of our acquisitions. Other Income Other income primarily includes insurance recoveries related to property damage claims. Other income increased by $0.2 million to $0.2 million for the three months ended September 30, 2023 from $0.04 million for the three months ended September 30, 2022, primarily due to an increase in property related insurance recoveries. Total Interest Expense, Net During the three months ended September 30, 2023, we incurred total interest expense, net of $2.6 million compared to $1.8 million for the three months ended September 30, 2022. The increase in interest expense is primarily related to additional borrowings under the Credit Facilities and increased interest rates. 32 Table of Contents Comparison of the Nine Months Ended September 30, 2023 and Nine Months Ended September 30, 2022 For the Nine Months Ended September 30, 2023 2022 $ Change % Change Revenues Rental income $ 44,699 $ 36,665 $ 8,034 21.9 % Fee and other 2,012 1,765 247 14.0 % Total revenues 46,711 38,430 8,281 21.5 % Operating expenses Real estate taxes 6,101 5,131 970 18.9 % Property operating expenses 4,955 4,106 849 20.7 % General and administrative 11,121 9,990 1,131 11.3 % Depreciation and amortization 14,537 12,966 1,571 12.1 % Total operating expenses 36,714 32,193 4,521 14.0 % Income from operations 9,997 6,237 3,760 60.3 % Other income 485 718 (233) (32.5) % Interest expense, net Contractual interest expense (6,793) (3,467) (3,326) 95.9 % Write-off and amortization of deferred financing fees (504) (440) (64) 14.5 % Interest income 1 1 — — % Total interest expense, net (7,296) (3,906) (3,390) 86.8 % Income before income tax expense 3,186 3,049 137 4.5 % Income tax expense (56) (13) (43) 330.8 % Net income $ 3,130 $ 3,036 $ 94 3.1 % Revenues Rental income – Rental income includes net rental income as well as the recovery of certain operating costs and property taxes from tenants. Rental income increased by $8.0 million to $44.7 million for the nine months ended September 30, 2023 from $36.7 million for the nine months ended September 30, 2022, primarily due to the volume of our acquisitions. Fee and other – Other revenue increased by $0.2 million to $2.0 million for the nine months ended September 30, 2023 from $1.8 million for the nine months ended September 30, 2022, primarily due to income received from properties accounted for as financing leases, income received from advisory services and an increase in management fees. Operating Expense Real estate taxes – Real estate taxes increased by $1.0 million to $6.1 million for the nine months ended September 30, 2023 from $5.1 million for the nine months ended September 30, 2022, primarily due to the volume of our acquisitions. Property operating expenses – Property operating expenses increased by $0.8 million to $5.0 million for the nine months ended September 30, 2023 from $4.1 million for the nine months ended September 30, 2022. Property management expenses are included within property operating expenses and increased by $0.3 million to $1.9 million for the nine months ended September 30, 2023 from $1.6 million for the nine months ended September 30, 2022. The remainder of the increase of $0.5 million is related to expenses for repairs and maintenance and insurance, which increase is due to the volume of our acquisitions. 33 Table of Contents General and administrative – General and administrative expenses increased by $1.1 million to $11.1 million for the nine months ended September 30, 2023 from $10.0 million for the nine months ended September 30, 2022 primarily due to expanding our staff, an increase in information technology related costs as a result of our continued growth and an increase in equity-based compensation expense related to awards that have been granted to our employees throughout 2022 and 2023. Depreciation and amortization – Depreciation and amortization expense increased by $1.6 million to $14.5 million for the nine months ended September 30, 2023 from $13.0 million for the nine months ended September 30, 2022, primarily due to the volume of our acquisitions. Other Income Other income primarily includes insurance recoveries related to property damage claims. Other income decreased by $0.2 million to $0.5 million for the nine months ended September 30, 2023 from $0.7 million for the nine months ended September 30, 2022, primarily due to lower insurance recoveries. Total Interest Expense, Net During the nine months ended September 30, 2023, we incurred total interest expense, net of $7.3 million compared to $3.9 million for the nine months ended September 30, 2022. The increase in interest expense is primarily related due to additional borrowings under the Credit Facilities and increased interest rates. Cash Flows Comparison of the Nine Months Ended September 30, 2023 and the Nine Months Ended September 30, 2022 We had $2.5 million of cash and $0.4 million of escrows and reserves as of September 30, 2023 compared to $4.6 million of cash and $0.3 million of escrows and reserves as of September 30, 2022. Cash flows from operating activities – Net cash provided by operating activities increased by $2.8 million to $21.3 million for the nine months ended September 30, 2023 compared to $18.6 million for the same period in 2022. The increase is primarily due to the volume our acquisitions, all of which have generated additional rental income and related changes in working capital. Cash flows to investing activities – Net cash used in investing activities for the nine months ended September 30, 2023 primarily consisted of $54.9 million of acquisitions and $2.4 million of escrow deposits for acquisition and construction, capital improvements and other investing activities. Net cash used in investing activities for the nine months ended September 30, 2022 primarily consisted of $96.4 million of acquisitions and $4.1 million of escrow deposits for acquisition and construction, capital improvements and other investing activities, offset by $0.6 million of insurance proceeds that were received. Cash flows from financing activities – Net cash provided by financing activities decreased by $42.9 million to $36.4 million for the nine months ended September 30, 2023 compared to $79.3 million for the nine months ended September 30, 2022. The decrease was primarily related to less proceeds received on the Credit Facilities and an increase in dividends and distributions. This is offset by an increase in net proceeds received from issuance of shares in 2023. Liquidity and Capital Resources We had approximately $2.5 million of cash and $0.4 million of escrows and reserves as of September 30, 2023. Revolving Credit Facility and Term Loans On August 9, 2021, we entered into the Credit Facilities, which include the $150.0 million Revolving Credit Facility and the $50.0 million 2021 Term Loan, with Bank of Montreal, as administrative agent, and BMO Capital Markets Corp., M&T Bank, JPMorgan Chase Bank, N.A. and Truist Securities, Inc. as joint lead arrangers and joint book runners. Additional participants in the Credit Facilities include Stifel Bank & Trust and TriState Capital Bank. On May 11, 2022, we entered into the First Amendment to, among other things, add the 2022 Term Loan (and, together with the 2021 Term Loan, the "Term Loans"). On December 6, 2022, we exercised $40.0 million of accordion feature under the 2022 Term Loan. On July 24, 2023, we entered into the Second Amendment and further exercised $25.0 million of term loan accordion under the 2021 Term Loan and, on a delayed-draw basis, $10.0 million of term loan accordion under the 2022 Term Loan (which was fully drawn down on September 27, 2023). 34 Table of Contents As of September 30, 2023, we had $200.0 million of aggregate principal amount outstanding under our Credit Facilities, with $75.0 million drawn on the 2021 Term Loan, $125.0 million drawn on the 2022 Term Loan and no amount drawn on the Revolving Credit Facility. The Credit Facilities include an accordion feature which permit us to borrow up to an additional $150.0 million under the Revolving Credit Facility subject to customary terms and conditions. The Revolving Credit Facility matures in January 2026, which may be extended for two six-month periods subject to customary conditions, the 2021 Term Loan matures in January 2027 and the 2022 Term Loan matures in February 2028. Borrowings under the Credit Facilities carry an interest rate of, (i) in the case of the Revolving Credit Facility, either a base rate plus a margin ranging from 0.5% to 1.0% per annum or Adjusted Term SOFR (as defined below) plus a margin ranging from 1.5% to 2.0% per annum, or (ii) in the case of the Term Loans, either a base rate plus a margin ranging from 0.45% to 0.95% per annum or Adjusted Term SOFR plus a margin ranging from 1.45% to 1.95% per annum, in each case depending on a consolidated leverage ratio. With respect to the Revolving Credit Facility, we will pay, if the usage is equal to or less than 50%, an unused facility fee of 0.20% per annum, or if the usage is greater than 50%, an unused facility fee of 0.15% per annum, in each case on the average daily unused commitments under the Revolving Credit Facility. The Credit Facilities are guaranteed, jointly and severally, by us and certain of our indirect subsidiaries and contain customary covenants that, among other things, restrict, subject to certain exceptions, our ability to incur indebtedness, grant liens on assets, make certain types of investments, engage in acquisitions, mergers or consolidations, sell assets, enter into certain transactions with affiliates and pay dividends or make distributions. The Credit Facilities require compliance with consolidated financial maintenance covenants to be tested quarterly, including a minimum fixed charge coverage ratio, maximum total leverage ratio, minimum tangible net worth, maximum secured leverage ratio, maximum unsecured leverage ratio, minimum unsecured debt service coverage ratio and maximum secured recourse leverage ratio. The Credit Facilities also contain certain customary events of default, including the failure to make timely payments under the Credit Facilities, any event or condition that makes other material indebtedness due prior to its scheduled maturity, the failure to satisfy certain covenants and specified events of bankruptcy and insolvency. As of September 30, 2023, we were in compliance with all of the Credit Facilities’ debt covenants. As of September 30, 2023, we had seven interest rate swaps with a total notional amount of $200.0 million that are used to manage our interest rate risk and fix the SOFR component on the Term Loans of the Credit Facilities (together, the "Interest Rate Swaps"). See Note 6. Derivatives and Hedging Activities in the Notes to our unaudited Consolidated Financial Statements included under Item 1 herein for further details regarding the Interest Rate Swaps. Capital Resources and Financing Strategy Our short-term liquidity requirements primarily consist of operating expenses and other expenditures associated with our properties, distributions to our limited partners and distributions to our stockholders required to qualify for REIT status, capital expenditures and, potentially, acquisitions. We expect to meet our short-term liquidity requirements through net cash provided by operations, cash, borrowings under our Credit Facilities and the potential issuance of securities. We have an effective shelf registration statement on file with the SEC under which we may issue equity financing through the instruments and on the terms most attractive to us at such time, including through our $150.0 million ATM Program. Our long-term liquidity requirements primarily consist of funds necessary for the repayment of debt at maturity, distributions to our limited partners and distributions to our stockholders required to qualify for REIT status, property acquisitions and non-recurring capital improvements. We expect to meet our long-term liquidity requirements with net cash from operations, long-term indebtedness including our Credit Facilities and mortgage financing, the issuance of equity and debt securities and proceeds from select sales of our properties. We also may fund property acquisitions and non-recurring capital improvements using our Credit Facilities pending permanent property-level financing. We believe we have access to multiple sources of capital to fund our long-term liquidity requirements, including the incurrence of additional debt and the issuance of additional equity securities. However, in the future, there may be a number of factors that could have a material and adverse effect on our ability to access these capital sources, including unfavorable conditions in the overall equity and credit markets, our degree of leverage, our unencumbered asset base, borrowing restrictions imposed by our lenders, general market conditions for REITs, our operating performance, liquidity and market perceptions about us. The success of our business strategy will depend, to a significant degree, on our ability to access these various capital sources. In addition, we continuously evaluate possible acquisitions of postal properties, which largely depend on, among other things, the market for owning and leasing postal properties and the terms on which the USPS will enter into new or renewed leases. 35 Table of Contents To maintain our qualification as a REIT, we must make distributions to our stockholders aggregating annually at least 90% of our REIT taxable income determined without regard to the deduction for dividends paid and excluding capital gains. As a result of this requirement, we cannot rely on retained earnings to fund our business needs to the same extent as other entities that are not REITs. If we do not have sufficient funds available to us from our operations to fund our business needs, we will need to find alternative ways to fund those needs. Such alternatives may include, among other things, divesting ourselves of properties (whether or not the sales price is optimal or otherwise meets our strategic long-term objectives), incurring indebtedness or issuing equity securities in public or private transactions, the availability and attractiveness of the terms of which cannot be assured. Consolidated Indebtedness As of September 30, 2023, we had approximately $233.0 million of outstanding consolidated principal indebtedness. The following table sets forth information as of September 30, 2023 with respect to our outstanding indebtedness (in thousands): Outstanding Balance as of September 30, 2023 Interest Rate at September 30, 2023 Maturity Date Revolving Credit Facility (1) $ — SOFR+148 bps (2) January 2026 2021 Term Loan (1) 75,000 SOFR+143 bps (2) January 2027 2022 Term Loan (1) 125,000 SOFR+143 bps (2) February 2028 Secured Borrowings: Vision Bank (3) 1,409 3.69 % September 2041 First Oklahoma Bank (4) 320 3.63 % December 2037 Vision Bank – 2018 (5) 844 3.69 % September 2041 Seller Financing (6) 194 6.00 % January 2025 AIG (7) 30,225 2.80 % January 2031 Total Principal $ 232,992 Explanatory Notes : (1) See above under "— Revolving Credit Facility and Term Loans " for details regarding the Credit Facilities. During the three and nine months ended September 30, 2023, we incurred $0.07 million and $0.2 million, respectively, of unused facility fees related to the Revolving Credit Facility. (2) Based upon the one-month Adjusted Term SOFR, which is SOFR plus a term SOFR adjustment of 0.10%, subject to a 0% floor (the “Adjusted Term SOFR”) . Upon our achievement of certain sustainability targets for 2022 , the applicable margins for the Credit Facilities were reduced by 0.02% for the year ending December 31, 2023, which is reflected in the margins noted in the table above. (3) Five properties are collateralized under this loan and Mr. Spodek also provided a personal guarantee of payment for 50% of the outstanding amount thereunder. The loan has a fixed interest rate of 3.69% for the first five years with interest payments only (ending in October 2026), then adjusting every subsequent five year period thereafter with principal and interest payments to the rate based on the five year weekly average yield on United States Treasury securities adjusted to a constant maturity of five years, as made available to the Board of Governors of the Federal Reserve System (the "Five-Year Treasury Rate"), plus a margin of 2.75%, with a minimum annual rate of 2.75%. (4) The loan is collateralized by first mortgage liens on four properties and a personal guarantee of payment by Mr. Spodek. The loan has a fixed interest rate of 3.625% for the first five years (ending in August 2026), then adjusting annually thereafter to a variable annual rate of Wall Street Journal Prime Rate with a minimum annual rate of 3.625%. (5) The loan is collateralized by first mortgage liens on one property and a personal guarantee of payment by Mr. Spodek. The loan has a fixed interest rate of 3.69% for the first five years with interest payments only (ending in October 2026), then adjusting every subsequent five year period thereafter with principal and interest payments to the rate based on the Five-Year Treasury Rate, plus a margin of 2.75%, with a minimum annual rate of 2.75%. 36 Table of Contents (6) In connection with the acquisition of a property, we obtained seller financing secured by the property in the amount of $0.4 million requiring five annual payments of principal and interest of $0.1 million with the first installment due on January 2, 2021 based on a 6.0% interest rate per annum through January 2, 2025. (7) The loan is secured by a first mortgage lien on an industrial property located in Warrendale, Pennsylvania. The loan has a fixed interest rate of 2.80% with interest-only payments for the first five years and fixed payments of principal and interest thereafter based on a 30-year amortization schedule. Secured Borrowings as of September 30, 2023 As of September 30, 2023, we had approximately $33.0 million of secured borrowings outstanding, all of which are currently fixed-rate debt with a weighted average interest rate of 2.89% per annum. Dividends To maintain our qualification as a REIT, we are required to pay dividends to stockholders at least equal to 90% of our REIT taxable income determined without regard to the deduction for dividends paid and excluding net capital gains. During the three and nine months ended September 30, 2023, we paid cash dividends of $0.2375 and $0.713 per share, respectively. Our Board of Directors approved, and o n October 23, 2023 , we declared a third quarter common stock dividend of $0.2375 per share, which will be paid on November 30, 2023 to stockholders of record as of November 1, 2023. Inflation Because most of our leases provide for fixed annual rental payments without annual rent escalations, our rental revenues are fixed while our property operating expenses are subject to inflationary increases. A majority of our leases provide for tenant reimbursement of real estate taxes and thus the tenant must reimburse us for real estate taxes. We believe that if inflation increases expenses over time, increases in lease renewal rates will materially offset such increase. Subsequent Real Estate Acquisitions As of October 30, 2023 and d uring the period s ubsequent to September 30, 2023, we have acquired six properties in individual or portfolio transactions for an aggregate of approximately $1.9 million, excluding closing costs. Critical Accounting Estimates Refer to the heading titled “Critical Accounting Estimates” under Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2022 for a discussion of our critical accounting estimates. Recently Adopted Accounting Pronouncements For a discussion of our adoption of new accounting pronouncements, please see Note 2. Summary of Significant Accounting Policies in the Notes to our unaudited Consolidated Financial Statements included under Item 1 herein. 37 Table of Contents