Postal Realty Trust, Inc. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Financial Statements Page Report of Independent Registered Public Accounting Firm ( 2023: Deloitte & Touche LLP, New York, New York, PCAOB ID# 34 ) F- 2 Report of Independent Registered Public Accounting Firm ( 2022: BDO USA, LLP, New York, New York, PCAOB ID# 243 ) F- 3 Consolidated Balance Sheets as of December 31, 202 3 and 202 2 F- 4 Consolidated Statements of Operations and Comprehensive Income for the Years Ended December 31, 202 3 and 2022 F- 5 Consolidated Statements of Changes in Equity for the Years Ended December 31, 2023 and 2022 F- 6 Consolidated Statements of Cash Flows for the Years Ended December 31, 202 3 and 20 2 2 F- 7 Notes to Consolidated Financial Statements F- 9 Schedule III – Real Estate and Accumulated Depreciation 48 F-1 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors of Postal Realty Trust, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheet of Postal Realty Trust, Inc. (the "Company") as of December 31, 2023, the related consolidated statements of operations and comprehensive income, changes in equity, and cash flows, for the year ended December 31, 2023, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023, and the results of its operations and its cash flows for the year ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. /s/ Deloitte & Touche LLP New York, New York February 29, 2024 We have served as the Company's auditor since 2023. F-2 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Shareholders and Board of Directors Postal Realty Trust, Inc. Cedarhurst, New York Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheet of Postal Realty Trust, Inc. (the “Company”) as of December 31, 2022, the related consolidated statements of operations and comprehensive income, changes in equity, and cash flows for the year 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 the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion. /s/ BDO USA, LLP We served as the Company's auditor from 2017 to 2023. New York, New York March 7, 2023 F-3 Table of Contents POSTAL REALTY TRUST, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except par value and share data) December 31, 2023 December 31, 2022 Assets Investments: Real estate properties, at cost: Land $ 106,074 $ 90,020 Building and improvements 443,470 378,596 Tenant improvements 6,977 6,375 Total real estate properties, at cost 556,521 474,991 Less: Accumulated depreciation ( 43,791 ) ( 31,257 ) Total real estate properties, net 512,730 443,734 Investment in financing leases, net 16,042 16,130 Total real estate investments, net 528,772 459,864 Cash 2,235 1,495 Escrow and reserves 632 547 Rent and other receivables 4,750 4,613 Prepaid expenses and other assets, net 13,369 15,968 Goodwill 1,536 1,536 Deferred rent receivable 1,542 1,194 In-place lease intangibles, net 14,154 15,687 Above market leases, net 355 399 Total Assets $ 567,345 $ 501,303 Liabilities and Equity Liabilities: Term loans, net $ 198,801 $ 163,753 Revolving credit facility 9,000 — Secured borrowings, net 32,823 32,909 Accounts payable, accrued expenses and other, net 11,996 9,109 Below market leases, net 13,100 11,821 Total Liabilities 265,720 217,592 Commitments and Contingencies Equity: Class A common stock, par value $ 0.01 per share; 500,000,000 shares authorized, 21,933,005 and 19,528,066 shares issued and outstanding as of December 31, 2023 and December 31, 2022, respectively 219 195 Class B common stock, par value $ 0.01 per share; 27,206 shares authorized, 27,206 shares issued and outstanding as of December 31, 2023 and December 31, 2022 — — Additional paid-in capital 287,268 254,107 Accumulated other comprehensive income 4,621 7,486 Accumulated deficit ( 48,546 ) ( 32,557 ) Total Stockholders’ Equity 243,562 229,231 Operating partnership unitholders’ non-controlling interests 58,063 54,480 Total Equity 301,625 283,711 Total Liabilities and Equity $ 567,345 $ 501,303 The accompanying notes are an integral part of these consolidated financial statements. F-4 Table of Contents POSTAL REALTY TRUST, INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (in thousands, except share and per share data) For the Year Ended December 31, 2023 2022 Revenues: Rental income $ 60,970 $ 50,876 Fee and other 2,742 2,454 Total revenues 63,712 53,330 Operating expenses: Real estate taxes 8,549 7,168 Property operating expenses 6,825 5,625 General and administrative 14,654 13,110 Depreciation and amortization 19,688 17,727 Total operating expenses 49,716 43,630 Income from operations 13,996 9,700 Other income 679 1,029 Interest expense, net: Contractual interest expense ( 9,339 ) ( 5,378 ) Write-off and amortization of deferred financing fees ( 686 ) ( 596 ) Interest income 5 1 Total interest expense, net ( 10,020 ) ( 5,973 ) Income before income tax expense 4,655 4,756 Income tax expense ( 72 ) ( 12 ) Net income 4,583 4,744 Net income attributable to operating partnership unitholders’ non-controlling interests ( 874 ) ( 890 ) Net income attributable to common stockholders $ 3,709 $ 3,854 Net income per share: Basic and Diluted $ 0.12 $ 0.15 Weighted average common shares outstanding: Basic and Diluted 20,145,151 18,545,494 Comprehensive income: Net income $ 4,583 $ 4,744 Unrealized (loss) gain on derivative instruments ( 3,500 ) 8,249 Comprehensive income 1,083 12,993 Comprehensive income attributable to operating partnership unitholders’ non-controlling interests ( 239 ) ( 2,419 ) Comprehensive income attributable to common stockholders $ 844 $ 10,574 The accompanying notes are an integral part of these consolidated financial statements. F-5 Table of Contents POSTAL REALTY TRUST, INC. CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (in thousands, except 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, 2021 18,591,627 $ 186 $ 237,969 $ 766 $ ( 18,879 ) $ 220,042 $ 45,431 $ 265,473 Net proceeds from sale of common stock 751,382 7 11,332 — — 11,339 — 11,339 Issuance of operating partnership 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 Issuance and amortization under ESPP 13,417 — 217 — — 217 — 217 Restricted stock withholdings ( 27,729 ) — ( 424 ) — — ( 424 ) — ( 424 ) Dividends and distributions — — — — ( 17,532 ) ( 17,532 ) ( 4,034 ) ( 21,566 ) Other comprehensive income — — — 6,720 — 6,720 1,529 8,249 Net income — — — — 3,854 3,854 890 4,744 Reallocation of non-controlling interest — — 1,730 — — 1,730 ( 1,730 ) — Balance – December 31, 2022 19,555,272 $ 195 $ 254,107 $ 7,486 $ ( 32,557 ) $ 229,231 $ 54,480 $ 283,711 Net proceeds from sale of common stock 1,861,407 19 26,541 — — 26,560 — 26,560 Issuance of operating partnership units in connection with acquisition transactions — — — — — — 9,619 9,619 Shares issued upon redemption of operating partnership units 405,106 4 6,726 — — 6,730 ( 6,730 ) — Cash redemption for non-controlling interests — — — — — — ( 558 ) ( 558 ) Issuance and amortization of equity-based compensation 153,006 1 3,493 — — 3,494 2,308 5,802 Issuance and amortization under ESPP 14,810 — 215 — — 215 — 215 Restricted stock withholdings ( 29,390 ) — ( 445 ) — — ( 445 ) — ( 445 ) Dividends and distributions — — — — ( 19,698 ) ( 19,698 ) ( 4,664 ) ( 24,362 ) Other comprehensive loss — — — ( 2,865 ) — ( 2,865 ) ( 635 ) ( 3,500 ) Net income — — — — 3,709 3,709 874 4,583 Reallocation of non-controlling interest — — ( 3,369 ) — — ( 3,369 ) 3,369 — Balance – December 31, 2023 21,960,211 $ 219 $ 287,268 $ 4,621 $ ( 48,546 ) $ 243,562 $ 58,063 $ 301,625 The accompanying notes are an integral part of these consolidated financial statements. F-6 Table of Contents POSTAL REALTY TRUST, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) For the Year Ended December 31, 2023 2022 Cash flows from operating activities: Net income $ 4,583 $ 4,744 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 19,688 17,727 Write-off and amortization of deferred financing costs 686 596 Amortization of above/below market leases ( 2,411 ) ( 2,185 ) Amortization of intangible liability ( 140 ) ( 91 ) Gain on insurance proceeds received for damage due to property ( 654 ) ( 843 ) Equity based compensation 5,834 4,718 Other 47 47 Deferred rent receivable ( 348 ) ( 529 ) Deferred rent expense payable 3 8 Changes in assets and liabilities: Rent and other receivables 128 ( 358 ) Prepaid expenses and other assets ( 501 ) ( 95 ) Accounts payable, accrued expenses and other 1,512 852 Net cash provided by operating activities 28,427 24,591 Cash flows from investing activities: Acquisition of real estate ( 70,224 ) ( 116,212 ) Investment in financing leases — ( 10 ) Escrows for acquisition and construction deposits ( 103 ) ( 273 ) Insurance proceeds related to property damage claims 654 843 Capital improvements ( 2,868 ) ( 3,687 ) Other investing activities ( 68 ) ( 808 ) Net cash used in investing activities ( 72,609 ) ( 120,147 ) Cash flows from financing activities: Repayments of secured borrowings ( 106 ) ( 100 ) Proceeds from term loans 35,000 115,000 Proceeds from revolving credit facility 62,000 115,000 Repayments of revolving credit facility ( 53,000 ) ( 128,000 ) Redemption of operating partnership units ( 558 ) — Net proceeds from issuance of shares 26,690 11,446 Debt issuance costs ( 266 ) ( 811 ) Deferred offering costs ( 107 ) ( 199 ) Proceeds from issuance of ESPP shares 183 185 Shares withheld for payment of taxes on restricted share vesting ( 467 ) ( 383 ) Distributions and dividends ( 24,362 ) ( 21,566 ) Net cash provided by financing activities 45,007 90,572 Net increase (decrease) in Cash and Escrows and Reserves 825 ( 4,984 ) Cash and Escrows and Reserves at the beginning of year 2,042 7,026 Cash and Escrow and Reserves at the end of year $ 2,867 $ 2,042 Supplemental Disclosure of Non-Cash Investing and Financing Activities Operating partnership units issued for property acquisitions $ 9,619 $ 9,433 Unrealized (loss) gain on interest rate swaps, net $ ( 3,500 ) $ 8,249 Reallocation of non-controlling interest $ 3,369 $ 1,730 Operating partnership units issue for business acquisition $ — $ 1,451 F-7 Table of Contents Reclassification of acquisition deposits included in prepaid expenses and other assets $ 210 $ 696 Write-off of fixed assets no longer in service $ 147 $ 327 Accrued capital expenditures included in accounts payable and accrued expenses $ 348 $ 231 Accrued taxes withheld included in accounts payable and accrued expenses $ 118 $ 140 Right of use assets $ 169 $ 131 Accrued costs of capital included in accounts payable and accrued expenses $ 130 $ 107 The accompanying notes are an integral part of these consolidated financial statements. F-8 Table of Contents POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. Organization and Description of Business Postal Realty Trust, Inc. (the “Company”) was organized in the state of Maryland on November 19, 2018. On May 17, 2019, the Company completed its initial public offering (“IPO”) of the Company’s Class A common stock, par value $ 0.01 per share (the “Class A common stock”). The Company contributed the net proceeds from the IPO to Postal Realty LP, a Delaware limited partnership (the “Operating Partnership”), in exchange for common units of limited partnership interest in the Operating Partnership (the “OP Units”). 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. The Company’s interest in the Operating Partnership entitles the Company to share in distributions from, and allocations of profits and losses of, the Operating Partnership in proportion to the Company’s percentage ownership of OP Units. As the sole general partner of the Operating Partnership, the Company has the exclusive power under the partnership agreement to manage and conduct the Operating Partnership’s business, subject to limited approval and voting rights of the limited partners. As of December 31, 2023, the Company held an approximately 80.7 % interest in the Operating Partnership. As the sole general partner and the majority interest holder, the Company consolidates the financial position and results of operations of the Operating Partnership. The Operating Partnership is considered a variable interest entity (“VIE”) in which the Company is the primary beneficiary. As of December 31, 2023, the Company owned a portfolio of 1,509 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"). The Company also owns several, and may in the future further acquire, land parcels that may be added to existing or future leases with the USPS or used for other purposes that are consistent with the Company’s investment strategy. In addition, through its taxable REIT subsidiary (“TRS”), Real Estate Asset Counseling, 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. Additionally, any income earned by the TRS and any other TRS the Company may form in the future will be subject to federal, state and local corporate income tax. Pursuant to the Jumpstart Our Business Startups 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. Note 2. Summary of Significant Accounting Policies Basis of Presentation The accompanying Consolidated Financial Statements include the financial position and results of operations of the Company, the Operating Partnership and its wholly owned subsidiaries. The Company consolidates the Operating Partnership, a VIE in which the Company is considered the primary beneficiary. The primary beneficiary is the entity that has (i) the power to direct the activities that most significantly impact the F-9 Table of Contents POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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. 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 reflects the income attributed to controlling and non-controlling interests. Use of Estimates The preparation of financial statements in conformity with the U.S. 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. Offering and Other Costs Offering costs are recorded in “Total Stockholders’ Equity” on the Consolidated Balance Sheets as a reduction of additional paid-in capital. Segment Reporting The Company leases its properties primarily to the USPS and reports its business as a single reportable segment. Investments in Real Estate 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 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. Investments in real estate generally include land, buildings, tenant improvements and identified intangible assets, such as in-place lease intangibles and above or below-market lease intangibles. Direct and certain indirect costs clearly associated with the development, construction, leasing or expansion of real estate assets are capitalized as a cost of the property. Repairs and maintenance costs are expensed as incurred. Depreciation or amortization expense is computed using the straight-line method based upon the following estimated useful lives: Years Buildings and improvements 10 to 40 Equipment and fixtures 5 to 10 Tenant improvements Shorter of useful life or applicable lease term In-place lease value Remaining non-cancellable term of the in-place lease 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. F-10 Table of Contents POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Deferred Costs 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 "Revolving Credit Facility") of the Credit Facilities are deferred and amortized as an increase to interest expense over the terms of the Revolving Credit Facility and are included in “Prepaid expenses and other assets, net” on the Consolidated Balance Sheets. Cash and Escrows and Reserves Cash includes unrestricted cash with a maturity of three months or less. Escrows and reserves consist of restricted cash. The following table provides a reconciliation of cash and escrows and reserves reported within the Consolidated Balance Sheets and Consolidated Statements of Cash Flows: As of December 31, 2023 December 31, 2022 (in thousands) Cash $ 2,235 $ 1,495 Escrows and reserves: Maintenance reserve 314 206 Real estate tax reserve 231 240 ESPP reserve 87 101 Cash and escrows and reserves $ 2,867 $ 2,042 Revenue Recognition The Company has operating lease agreements with tenants, some of which contain provisions for future rental increases. Rental income is recognized on a straight-line basis over the term of the lease. In addition, certain lease agreements provide for reimbursements from tenants for real estate taxes and other recoverable costs, which are recorded on an accrual basis as part of “Rental income” in the Consolidated Statements of Operations and Comprehensive Income. The Company’s determination of the probability to collect lease payments is impacted by numerous factors, including the Company's assessment of the tenant’s creditworthiness, economic conditions, historical experience with the tenant, future prospects for the tenant and the length of the lease term. If leases currently classified as probable of collection 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. For certain leases with lease incentive costs, such costs are included in “Prepaid expenses and other assets, net” on the Consolidated Balance Sheets and amortized on a straight-line basis over the respective lease terms as a reduction of rental revenues. 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 "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 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 interest 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." F-11 Table of Contents POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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 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. Income Taxes 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. The Operating Partnership which holds the Company's properties is a partnership for U.S. federal income tax purposes and is not subject to U.S. federal income taxes as the revenues and expenses pass through to the respective owners where they are taxed. The states and cities in which the Operating Partnership operates generally follows the U.S. federal income tax treatment. A valuation allowance is established for deferred tax assets when management anticipates that it is more likely than not that all, or a portion, of these assets would not be realized. In determining whether a valuation allowance is warranted, all positive and negative evidence and all sources of taxable income such as prior earnings history, expected future earnings, carryback and carryforward periods and tax strategies are considered to estimate if sufficient future taxable income will be generated to realize the deferred tax asset. The assessment of the adequacy of a valuation allowance is based on estimates of taxable income by jurisdiction and the period over which deferred tax assets will be recoverable. The tax effects of uncertain tax positions taken or expected to be taken in income tax returns are recognized only if they are “more likely-than-not” to be sustained on examination by the taxing authorities based on the technical merits as of the reporting date. The tax benefits recognized in the financial statements from such positions are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. The Company recognizes estimated accrued interest and penalties related to uncertain tax positions in income tax expense. Fair Value Measurements F-12 Table of Contents POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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 have realized on disposition of the assets and liabilities as of December 31, 2023 and 2022. 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 (excluding derivatives), accounts payable and accrued expenses are carried at amounts which reasonably approximate their fair values as of December 31, 2023 and 2022 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, 2023 and December 31, 2022, 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 $ 28.0 million and $ 27.5 million as compared to the principal balance of $ 33.0 million and $ 33.1 million as of December 31, 2023 and 2022, respectively. The fair value of the Company’s secured borrowings was categorized as a Level 3 fair value estimate (as provided by ASC 820, Fair Value Measurements and Disclosures) and was determined by discounting the future contractual interest and principal payments by a market rate. The Company's derivative assets and liabilities, 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 amount of future cash flows on a discounted basis and incorporating a measure of non-performance risk. The fair value of the Company's derivative assets and liabilities was categorized as a Level 2 fair value estimate (as provided by ASC 820, Fair Value Measurements and Disclosures). 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 and liabilities. As of December 31, 2023 and 2022, the fair value of the Company’s interest rate swap derivative assets was approximately $ 6.4 million and $ 9.2 million, respectively, included in “Prepaid expenses and other assets, net” on the Consolidated Balance Sheets. As of December 31, 2023, the fair value of the Company's interest rate swap derivative liabilities was approximately $ 0.7 million included in "Accounts payable, accrued expenses and other, net" on the Consolidated Balance Sheets. Disclosures about fair value of assets and liabilities are based on pertinent information available to management as of December 31, 2023 and 2022. Although management is not aware of any factors that would significantly affect the fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since December 31, 2023 and current estimates of fair value may differ significantly from the amounts presented herein. Derivative Instruments and Hedging Activities In accordance with ASC 815, Derivatives and Hedging, the Company records all derivative instruments on the Consolidated Balance Sheets at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows are considered cash flow hedges. 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 risks, even though hedge accounting does not apply or the Company elects not to apply hedge accounting. See Note 6. 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. An impairment exists when the carrying amount of an asset exceeds the aggregate projected future cash flows over the anticipated holding period on an undiscounted basis. An impairment loss is measured based on the excess of the asset’s carrying amount over its estimated fair value. Impairment analyses will be based on current plans, intended holding periods and available market information at the F-13 Table of Contents POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) time the analyses are prepared. If estimates of the projected future cash flows, anticipated holding periods or market conditions change, the evaluation of impairment losses may be different and such differences may be material. The evaluation of anticipated cash flows is subjective and is based, in part, on assumptions regarding future occupancy, rental rates and capital requirements that could differ materially from actual results. No impairments were recorded during the years ended December 31, 2023 and 2022. Concentration of Credit Risks As of December 31, 2023, the Company’s properties were leased primarily to a single tenant, the USPS. For the year ended December 31, 2023, approximately 13.2 % of the Company's total rental income, or $ 8.0 million, was concentrated in Pennsylvania. For the year ended December 31, 2022, approximately 15.1 % of the Company's total rental income, or $ 7.7 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 Pennsylvania or other regions where the Company operates in and could have a material effect on the Company’s overall business results. The Company has deposited cash and maintains its bank deposits with large financial institutions in amounts that, from time to time, exceed federally insured limits. The Company has not experienced any losses in such accounts. Non-controlling Interests 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. See Note 11. Stockholders’ Equity for further details. Equity-Based Compensation The Company accounts for equity-based compensation in accordance with ASC Topic 718 Compensation – Stock Compensation, which requires the Company to recognize an expense for the grant date fair value of equity-based awards. Equity-classified stock awards granted to employees and non-employees that have a service condition and/or a market condition are measured at fair value at date of grant and remeasured at fair value only upon a modification of the award. The Company records forfeitures as a reduction of equity-based compensation expense as such forfeitures 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 to the portion of fair value of the respective award at grant date or modification date, as applicable, that has vested through that date. For awards with a market condition, compensation cost is not reversed if a market condition is not met so long as the requisite service has been rendered, as a market condition does not represent a vesting condition. See Note 11. Stockholders’ Equity for further details. Insurance Accounting The Company carries liability insurance to mitigate its exposure to certain losses, including those relating to property damage and business interruption. The Company records the estimated amount of expected insurance proceeds for property damage and other losses incurred as an asset (typically a receivable from the insurer) and income up to the amount of the losses incurred when the amount is determinable and approved by the 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 the 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 the insurance company. Earnings per Share 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, 2023 and 2022, the Company had unvested restricted shares of Class A common stock, LTIP Units and certain restricted stock units (“RSUs"), which provide for non- F-14 Table of Contents POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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 EPS pursuant to the two-class method. Diluted EPS is calculated after giving effect to all potential dilutive shares outstanding during the period. See Note 10. Earnings Per Share for further details. Recently Adopted Accounting Pronouncements In December 2022, the FASB issued ASU No. 2022-06, Deferral of the Sunset Date of Topic 848, 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 No. 2022-06 is effective immediately for all companies. ASU No. 2022-06 had no impact on the Company's Consolidated Financial Statements for the years ended December 31, 2023 and December 31, 2022. In September 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and in November 2018 issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses. The guidance changed 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. ASU No. 2018-19 excludes operating lease receivables from the scope of this guidance. This guidance became effective for the Company and was adopted by the Company on January 1, 2023. The Company had two direct financing leases with a net investment balance aggregating approximately $ 16.0 million as of December 31, 2023 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. Future Application of Accounting Standards In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures. ASU No. 2023-07 improves disclosures about public entities' reportable segments and addresses requests from investors for additional, more detailed information about a reportable segment's expenses. The provisions in this amendment are applicable to public entities with a single reportable segment. The standard is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company has one reportable segment and continues to evaluate additional disclosures that may be required for entities with a single reportable segment. Note 3. Real Estate Acquisitions The following tables summarizes the Company’s acquisitions for the years ended December 31, 2023 and 2022. The purchase prices including transaction costs were allocated to the separately identifiable tangible and intangible assets and liabilities based on their relative fair values at the date of acquisition. The total purchase price including transaction costs was allocated as follows (in thousands, except for the number of properties): Three Months Ended Number of Properties Land Building and Improvements Tenant Improvements In-place lease intangibles Above- market leases Below- market leases Other (1) Total (2) 2023 March 31, 2023 (3) 39 $ 2,802 $ 14,271 $ 152 $ 1,134 $ 43 $ ( 826 ) $ — $ 17,576 June 30, 2023 (4) 39 3,241 12,054 117 1,066 24 ( 483 ) — 16,019 September 30, 2023 (5) 70 4,916 19,282 182 1,709 58 ( 983 ) ( 342 ) 24,822 December 31, 2023 (6) 75 5,095 16,345 152 1,638 5 ( 1,571 ) ( 21 ) 21,643 223 $ 16,054 $ 61,952 $ 603 $ 5,547 $ 130 $ ( 3,863 ) $ ( 363 ) $ 80,060 F-15 Table of Contents POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Three Months Ended Number of Properties Land Building and Improvements Tenant Improvements In-place lease intangibles Above- market leases Below- market leases Other (7) Total (8) 2022 March 31, 2022 (9) 50 $ 5,422 $ 22,233 $ 214 $ 1,889 $ 28 $ ( 1,848 ) $ ( 363 ) $ 27,575 June 30, 2022 (10) 150 13,039 41,462 380 3,520 2 ( 1,675 ) 16 56,744 September 30, 2022 (11) 66 2,950 18,012 195 1,532 8 ( 1,360 ) — 21,337 December 31, 2022 (12) 54 4,070 15,587 155 1,264 199 ( 540 ) — 20,735 Total 320 $ 25,481 $ 97,294 $ 944 $ 8,205 $ 237 $ ( 5,423 ) $ ( 347 ) $ 126,391 Explanatory Notes : (1) Includes an intangible liability related to unfavorable operating leases with purchase options on two properties during the three months ended September 30, 2023 and an above market ground lease intangible liability on one property during the three months ended December 31, 2023 that is each included in “Accounts payable, accrued expenses and other” on the Consolidated Balance Sheets. (2) Includes closing costs of approximately $ 0.3 million for the three months ended March 31, 2023, approximately $ 0.2 million for the three months ended June 30, 2023, approximately $ 0.7 million for the three months ended September 30, 2023 and approximately $ 0.6 million for the three months ended December 31, 2023. (3) Includes the acquisition of 39 properties in various states for cash consideration in individual or portfolio transactions for a price of approximately $ 17.6 million, including closing costs. (4) Includes the acquisition of 39 properties in various states in individual or portfolio transactions for a price of approximately $ 16.0 million, including closing costs, which was funded with both the issuance of OP Units to the sellers (valued at approximately $ 0.5 million using the share price of Class A common stock on the date of each issuance of such OP Units) and cash consideration. (5) Includes the acquisition of 70 properties in various states in individual or portfolio transactions for a price of approximately $ 24.8 million, including closing costs, which was funded with both the issuance of OP Units to the sellers (valued at approximately $ 2.8 million using the share price of Class A common stock on the date of each issuance of such OP Units) and cash consideration. (6) Includes the acquisition of 75 properties in various states in individual or portfolio transactions for a price of approximately $ 21.6 million, including closing costs, which was funded with both the issuance of OP Units to the sellers (valued at approximately $ 6.3 million using the share price of Class A common stock on the date of each issuance of such OP Units) and cash consideration. The aggregate purchase price for the quarter includes several land parcels that the Company acquired for approximately $0.4 million, which may in the future be added to existing or future leases with the USPS or used for other purposes that are consistent with the Company’s investment strategy. (7) 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. (8) 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. (9) Includes the acquisition of 50 properties in various states in individual or portfolio transactions for 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 cash consideration. (10) Includes the acquisition of 150 properties in various states in individual or portfolio transactions for approximately $ 56.7 million, including closing costs, which was funded with both the issuance of OP Units to the sellers as non-cash F-16 Table of Contents POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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 cash consideration. (11) Includes the acquisition of 66 properties in various states in individual or portfolio transactions for 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 cash consideration. (12) Includes the acquisition of 54 properties in various states in individual or portfolio transactions for 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 cash consideration. Note 4. Intangible Assets and Liabilities The following table summarizes the Company's intangible assets and liabilities: As of Gross Asset (Liability) Accumulated Amortization Net Carrying Amount December 31, 2023: (in thousands) In-place lease intangibles $ 45,621 $ ( 31,467 ) $ 14,154 Above-market leases 686 ( 331 ) 355 Below-market leases ( 22,940 ) 9,840 ( 13,100 ) December 31, 2022: In-place lease intangibles $ 40,074 $ ( 24,387 ) $ 15,687 Above-market leases 556 ( 157 ) 399 Below-market leases ( 19,077 ) 7,256 ( 11,821 ) Amortization of in-place lease intangibles was $ 7.1 million and $ 7.0 million for the years ended December 31, 2023 and 2022, respectively. This amortization is included in “Depreciation and amortization” in the Consolidated Statements of Operations and Comprehensive Income. Amortization of acquired above market leases was $ 0.2 million and $ 0.1 million for the years ended December 31, 2023 and 2022, respectively, and is included in “Rental income” in the Consolidated Statements of Operations and Comprehensive Income. Amortization of acquired below market leases was $ 2.6 million and $ 2.3 million for the years ended December 31, 2023 and 2022, respectively, and is included in “Rental income” in the Consolidated Statements of Operations and Comprehensive Income. As of December 31, 2023, the weighted average amortization period for the Company’s intangible assets was approximately 2.9 years, 2.3 years and 8.8 years for in-place lease intangibles, above-market leases and below-market leases, respectively. F-17 Table of Contents POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Future amortization/accretion of these intangibles is below (in thousands): Year Ending December 31, In-place lease intangibles Above-market leases Below-market leases 2024 $ 6,307 $ 150 $ ( 2,592 ) 2025 4,013 98 ( 1,914 ) 2026 2,351 75 ( 1,559 ) 2027 962 28 ( 1,220 ) 2028 308 3 ( 1,011 ) Thereafter 213 1 ( 4,804 ) Total $ 14,154 $ 355 $ ( 13,100 ) Note 5. Debt The following table summarizes the Company’s indebtedness as of December 31, 2023 and December 31, 2022 (dollars in thousands): Outstanding Balance as of December 31, 2023 Outstanding Balance as of December 31, 2022 Interest Rate at December 31, 2023 Maturity Date Revolving Credit Facility (1) : Revolving Credit Facility $ 9,000 $ — SOFR + 148 bps (2) January 2026 2021 Term Loan 75,000 50,000 SOFR + 143 bps (2) January 2027 2022 Term Loan 125,000 115,000 SOFR + 143 bps (2) February 2028 Secured Borrowings: Vision Bank (3) 1,409 1,409 3.69 % September 2041 First Oklahoma Bank (4) 316 333 3.63 % December 2037 Vision Bank – 2018 (5) 844 844 3.69 % September 2041 Seller Financing (6) 194 282 6.00 % January 2025 AIG – December 2020 (7) 30,225 30,225 2.80 % January 2031 Total Principal 241,988 198,093 Unamortized deferred financing costs ( 1,364 ) ( 1,431 ) Total Debt $ 240,624 $ 196,662 Explanatory Notes: (1) On August 9, 2021, the Company entered into the Credit Facilities, which initially included the $ 150.0 million 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. On December 6, 2022, the Company exercised $ 40.0 million of term loan accordion under the 2022 Term Loan. On July 24, 2023, the Company 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 $ 35.0 million of accordion under the Term Loans. The Credit Facilities include an accordion feature which permits the Company to borrow up to an additional $ 150.0 million under the Revolving Credit Facility subject to customary terms and conditions. As of December 31, 2023, the accordion feature under the Term Loans has been fully exercised. The Revolving Credit Facility matures in January 2026, F-18 Table of Contents POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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 the Company's consolidated leverage ratio. With respect to the 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 Revolving Credit Facility. The Credit Facilities contain a number of customary financial and non-financial covenants. During the years ended December 31, 2023 and 2022, the Company incurred $ 0.3 million and $ 0.3 million, respectively, of unused facility fees related to the Revolving Credit Facility. As of December 31, 2023, the Company was in compliance with all of the Credit Facilities’ debt covenants. (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 the Company's achievement of certain sustainability targets for 2022, the applicable margins for the Credit Facilities were reduced by 0.02 % for the year ended 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 %. (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) 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 (ending in January 2026) 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, 2023 and 2022 was approximately 4.2 years and 5.5 years, respectively. Cash paid for interest during the years ended December 31, 2023 and 2022 was $ 9.2 million and $ 5.1 million, respectively. F-19 Table of Contents POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The scheduled principal repayments of indebtedness as of December 31, 2023 are as follows (in thousands): Year Ending December 31, Amount 2024 $ 112 2025 118 2026 9,636 2027 75,776 2028 125,803 Thereafter 30,543 Total $ 241,988 Note 6. Derivatives and Hedging Activities As of December 31, 2023, the Company had seven interest rate swaps with a total notional amount of $ 200.0 million that are used to manage its interest rate risk and fix the SOFR component on the Term Loans of the Credit Facilities: Notional Amount ( $ in thousands) Fixed Rate (1) Effective Date Maturity Date $ 50,000 2.27 % May 2022 January 2027 $ 25,000 4.217 % May 2022 February 2028 $ 25,000 4.217 % May 2022 February 2028 $ 25,000 4.79 % July 2022 February 2028 $ 40,000 4.932 % December 2022 February 2028 $ 25,000 5.736 % July 2023 January 2027 $ 10,000 6.049 % September 2023 February 2028 Explanatory Note : (1) Reflects the all-in effective interest rate for the specified portion of the Term Loans hedged by the interest rate swaps. 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 $ 3.9 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 instruments in the Consolidated Statements of Operations and Comprehensive Income for the years ended December 31, 2023 and 2022 (in thousands): Years Ended December 31, Derivatives in Cash Flow Hedging Relationships (Interest Rate Swaps) 2023 2022 Amount of gain recognized on derivative in "Accumulated other comprehensive income" $ 1,115 $ 8,604 Amount of income (loss) reclassified from "Accumulated other comprehensive income" into interest expense $ ( 4,615 ) $ ( 355 ) F-20 Table of Contents POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) "Interest expense, net" presented in the Consolidated Statements of Operations and Comprehensive Income, in which the effects of cash flow hedges are recorded, totaled $ 10.0 million and $ 6.0 million for the years ended December 31, 2023 and 2022, respectively. Note 7. Leases Lessor Accounting As of December 31, 2023, the Company's properties were leased primarily to the USPS, with leases expiring at various dates through May 31, 2031. Certain leases had expired and were in holdover status as of December 31, 2023 as discussed below. Certain leases contain renewal, termination and/or purchase options exercisable at the lessee’s election. Therefore, such options are only recognized once they are deemed reasonably certain, typically at the time the option is exercised. All of the Company’s leases are operating leases with the exception of two that are direct financing leases. The Company’s operating leases and direct financing leases are described below. Rental income related to the Company’s leases is recognized on a straight-line basis over the remaining lease term. The Company’s total revenue includes fixed base rental payments provided under the lease and variable payments which principally consist of tenant expense reimbursements for certain property operating expenses, including real estate taxes. The Company elected the practical expedient to account for its lease and non-lease components as a single combined operating lease component under 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. The following table represents rental revenue that the Company recognized related to its operating leases (in thousands): Years Ended December 31, 2023 2022 Fixed payments $ 52,668 $ 43,808 Variable payments 8,302 7,068 $ 60,970 $ 50,876 Future minimum lease payments to be received as of December 31, 2023 under non-cancellable operating leases for the next five years and thereafter are as follows (in thousands) :(1) Year Ending December 31, Amount 2024 (2)(3) $ 48,158 2025 42,375 2026 33,760 2027 19,633 2028 11,122 Thereafter 9,827 Total $ 164,875 Explanatory Notes : (1) The above minimum lease payments to be received do not include reimbursements from tenants for real estate taxes and other reimbursed expenses. (2) As of December 31, 2023, 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. F-21 Table of Contents POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (3) In August 2023, the Company received notice from the USPS to terminate the lease for one property, which termination became effective in February 2024. Purchase Option Provisions As of December 31, 2023, operating leases for 74 of the Company’s properties provided the USPS with the option to purchase the underlying property either at fair market value or at fixed prices, in each case as of dates set forth in the lease agreement. As of December 31, 2023, 70 of these properties had an aggregate carrying value of approximately $ 52.9 million with an aggregate purchase option price of approximately $ 67.9 million and the remaining four properties had an aggregate carrying value of approximately $ 2.9 million with purchase options exercisable at fair market value. Investment in Financing Leases, Net As of December 31, 2023, 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. The components of the Company’s net investment in financing leases as of December 31, 2023 and 2022 are summarized in the table below (in thousands): As of December 31, 2023 2022 Total minimum lease payment receivable $ 32,078 $ 33,215 Less: unearned income ( 16,036 ) ( 17,085 ) Investment in financing leases, net $ 16,042 $ 16,130 Revenue earned under direct financing leases for the years ended December 31, 2023 and 2022 were $ 1.0 million and $ 1.1 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, 2023 for the next five years and thereafter are as follows (in thousands): Year Ending December 31, Amount 2024 $ 1,137 2025 1,137 2026 1,137 2027 1,137 2028 1,137 Thereafter 26,393 Total $ 32,078 Lessee Accounting As a lessee, the Company has ground and office leases which were classified as operating leases. As of December 31, 2023, these leases had remaining terms, including renewal options, of 0.4 years to 59 years and a weighted average remaining lease term of 23.3 years. Operating right of use ("ROU") assets and lease liabilities are included in “Prepaid expenses and other F-22 Table of Contents POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) assets, net” and “Accounts payable, accrued expenses and other, net” on the Consolidated Balance Sheets as follows (in thousands): As of December 31, 2023 As of December 31, 2022 ROU asset – operating leases $ 967 $ 1,010 Lease liability – operating leases $ 994 $ 1,014 The difference between the recorded ROU assets and lease liabilities is mainly due to the reclassification of the below market ground lease intangible asset which was included within the ROU assets recognized upon transition. Operating lease assets and liabilities are measured at the commencement date based on the present value of future lease payments. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. The Company used a discount rate ranging from 4.25 % to 7.35 % 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, 2023 and 2022 was $ 0.2 million. See Note 9. Related Party Transactions for more details. Future minimum lease payments to be paid by the Company as a lessee for operating leases as of December 31, 2023 for the next five years and thereafter are as follows (in thousands): 2024 $ 162 2025 87 2026 75 2027 48 2028 42 Thereafter 1,619 Total future minimum lease payments $ 2,033 Interest discount ( 1,039 ) Total $ 994 Note 8. Income Taxes TRS 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, 2023 and 2022, income tax expense and income tax benefit related to REAC was $ 0.1 million and 3,670 , respectively. Other As of December 31, 2022, the Company’s Consolidated Balance Sheets reflected a liability for unrecognized tax benefits in the amount of $ 0.02 million primarily related to the utilization of certain loss carryforwards by United Postal Holdings, Inc. ("UPH") through May 16, 2019. For the year ended December 31, 2022, the Company accrued interest and penalties of $ 0.01 million. During the years ended December 31, 2023 and 2022, the Company reversed $ 0.02 million and F-23 Table of Contents POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) $ 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): For the Years Ended December 31, 2023 2022 Gross unrecognized tax benefits, beginning of year $ 23 $ 188 Reductions to unrecognized tax benefits as a result of a lapse of the applicable statute of limitations ( 23 ) ( 165 ) Total $ — $ 23 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, 2023 and 2022 was $ 0.05 million and $ 0.1 million, respectively. Note 9. Related Party Transactions Management Fee Income REAC recognized management fee income of $ 1.3 million and $ 1.2 million for the years ended December 31, 2023 and 2022, 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, 2023 and 2022, respectively, are included in “Rent and other receivables” on the Consolidated Balance Sheets. Related Party Lease On May 17, 2019, the Company entered into a lease for office space in Cedarhurst, New York with an entity affiliated with the Company’s CEO (the “Office Lease”). Pursuant to the Office Lease, the monthly rent is $ 15,000 subject to escalations. 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, 2023 and 2022 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. Leases. Guarantees As disclosed above in Note 5. Debt, Mr. Spodek personally guaranteed a portion of or the entire amount outstanding under the Company's loans with First Oklahoma Bank and Vision Bank, totaling $ 1.9 million and $ 1.9 million as of December 31, 2023 and December 31, 2022, respectively. As a guarantor, Mr. Spodek’s interests with respect to the amount of debt he is guaranteeing (and the terms of any repayment or default) may not align with the Company's interests and could result in a conflict of interest. Note 10. 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). F-24 Table of Contents POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) For the Years Ended December 31, 2023 2022 Numerator for earnings per share – basic and diluted: Net income attributable to common stockholders $ 3,709 $ 3,854 Less: Income attributable to participating securities ( 1,367 ) ( 997 ) Numerator for earnings per share — basic and diluted $ 2,342 $ 2,857 Denominator for earnings per share – basic and diluted (1) 20,145,151 18,545,494 Basic and diluted earnings per share $ 0.12 $ 0.15 Explanatory Note: (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. Stockholders’ Equity). 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. Note 11. Stockholders’ Equity ATM Program On November 4, 2022, the Company 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 "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. On August 8, 2023, the Company 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. 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, 2023, 1,861,407 shares were issued under the ATM Program. As of December 31, 2023, the Company had approximately $ 114.1 million remaining that may be issued under the ATM Program. Years Ended December 31, 2023 2022 Shares issued (1) 1,861 751 Gross proceeds received $ 27,810 $ 11,869 Fees, issuance and other costs 1,250 530 Net proceeds received $ 26,560 $ 11,339 Average gross sales price per share $ 14.94 $ 15.80 Explanatory Note: (1) During the year ended December 31, 2023, the Company entered into forward sales transactions under the ATM Program for the sale of 798,847 shares of its Class A common stock, which were all subsequently settled during 2023. Dividends and Distributions F-25 Table of Contents POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) During the year ended December 31, 2023, the Company's Board of Directors approved and the Company declared and paid dividends or distributions, as applicable, of $ 24.4 million to Class A common stockholders, Voting Equivalency stockholders, OP unitholders and LTIP unitholders, or $ 0.95 per share or unit, as shown in the table below. Declaration Date Record Date Date Paid Amount Per Share or Unit February 1, 2023 February 15, 2023 February 28, 2023 $ 0.2375 April 24, 2023 May 5, 2023 May 31, 2023 $ 0.2375 July 26, 2023 August 7, 2023 August 31, 2023 $ 0.2375 October 23, 2023 November 1, 2023 November 30, 2023 $ 0.2375 During the year ended December 31, 2022, the Company's Board of Directors approved and the Company declared and paid dividends or distributions, as applicable, of $ 21.6 million to Class A common stockholders, Voting Equivalency stockholders, OP unitholders and LTIP unitholders, or $ 0.925 per share or unit, as shown in the table below. Declaration Date Record Date Date Paid Amount Per Share or Unit 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 October 26, 2022 November 7, 2022 November 28, 2022 $ 0.2350 Non-controlling Interests 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 employees and the Board of Directors in connection with the IPO and/or as a part of their compensation. During the year ended December 31, 2023, the Company issued 143,288 LTIP Units to the Company's CEO for his 2022 incentive bonus, his election to defer 100 % of his 2023 annual salary and for long term incentive compensation, 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, 57,057 LTIP Units to the Company's Chief Financial Officer for his 2022 incentive bonus and for long term incentive compensation, 40,635 LTIP Units to the Board of Directors for their annual retainers as compensation for their services as directors, 25,510 LTIP Units to an employee for his 2022 incentive bonus, his election to defer a portion of his 2023 annual salary and for long term incentive compensation and 8,447 LTIP Units to a consultant under the consultancy agreement with the Company. In addition, during the years ended December 31, 2023 and 2022, the Company issued 693,648 and 661,398 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, 2023 and December 31, 2022, non-controlling interests consisted of 4,387,334 OP Units and 884,621 LTIP Units and 4,133,619 OP Units and 536,868 LTIP Units, respectively. This represented approximately 19.3 % and 19.2 % of the outstanding Operating Partnership units as of December 31, 2023 and 2022, respectively. 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. Beginning on or after the date which is 12 months after the date on which a limited partner first receives the OP Units, such limited partner will generally 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 such OP Units in exchange for cash, or at the Company’s sole discretion, shares of Class A common stock, on an one-for-one basis determined in accordance with and subject to adjustment under the partnership agreement. During the year ended December 31, 2023, 402,433 OP Units and 2,673 LTIP Units were redeemed for 405,106 shares of Class A common stock. For redemption of OP Units using shares of Class A common stock, the Company adjusted the carrying value of non-controlling interests to reflect its share of the book value of the Operating Partnership reflecting the change in the Company’s ownership of the Operating Partnership. Such adjustments are recorded to additional paid-in capital as a reallocation of non-controlling interest in the Consolidated Statements of Changes in Equity. During the year ended December 31, 2023, 37,500 OP Units were also redeemed for cash for the total amount of $ 0.6 million. F-26 Table of Contents POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The Operating Partnership unitholders are entitled to share in cash distributions from the Operating Partnership in proportion to their percentage ownership of OP Units. Restricted Stock and Other Awards Pursuant to the Company’s 2019 Equity Incentive Plan (the “Equity Incentive Plan” or the “Plan”), the Company may grant equity incentive awards to its directors, officers, employees and consultants. As of December 31, 2023, the remaining shares available under the Plan for future issuance was 1,034,609 . The Plan provides for grants of stock options, stock awards, stock appreciation rights, performance units, incentive awards, other equity-based awards (including LTIP Units) and dividend equivalents in connection with the grant of performance units and other equity-based awards. The following table presents a summary of the Company's outstanding restricted shares of Class A common stock, LTIP Units and RSUs. The balance as of December 31, 2023 represents unvested restricted shares of Class A common stock and LTIP Units and RSUs that are outstanding, whether vested or not: Restricted Shares (1)(2) LTIP Units (3) RSUs (4) Total Shares/Units/RSUs Weighted Average Grant Date Fair Value Outstanding, as of January 1, 2023 449,076 536,868 229,500 1,215,444 $ 16.12 Granted 131,166 350,426 120,909 602,501 $ 15.53 Conversion to common stock — ( 2,673 ) — ( 2,673 ) $ 18.02 Vesting of restricted shares and RSUs (5) ( 76,010 ) — ( 27,456 ) ( 103,466 ) $ 13.11 Forfeited ( 5,830 ) — ( 11,216 ) ( 17,046 ) $ 8.86 Outstanding, as of December 31, 2023 498,402 884,621 311,737 1,694,760 $ 16.16 Explanatory Notes: (1) Represents restricted shares awards included in Class A common stock. (2) The time-based restricted share awards granted to the Company's officers and employees typically vest in three annual installments or cliff vest at the end of three years , five years or eight years . (3) Includes 143,288 LTIP Units granted to the Company’s CEO, 75,489 LTIP Units granted to the Company's president and 57,057 LTIP Units granted to the Company's Chief Financial Officer, which vest over three years or cliff vest at the end of eight years . Also includes 25,510 LTIP Units granted to an employee of the Company, a portion of which vested on December 31, 2023 with the remaining to vest over three years or cliff vest at the end of eight years, 40,635 LTIP Units granted to the Company's independent directors that vest over three years or cliff vest at the end of three years and 8,447 LTIP Units granted to a consultant under the consultancy agreement with the Company, with 3,304 of such units vested on June 30, 2023 and 5,143 remaining to vest on June 30, 2024. (4) Includes 63,512 RSUs granted to certain officers and employees of the Company during the year ended December 31, 2023 subject to the achievement of a service condition and a market condition. Such RSUs are market-based awards and are subject to the achievement of performance-based hurdles relating to the Company’s specified 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. 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 46,258 time-based RSUs issued for 2022 incentive bonuses to certain employees that vested fully on January 31, 2023, the date of grant, and 11,138 time-based RSUs granted to certain employees for their election to defer a portion of their 2023 salary that vested on December 31, 2023. RSUs reflect the right to receive shares of Class A common stock, subject to the applicable vesting criteria. (5) Includes 74,082 of restricted shares that vested and 29,384 shares of restricted shares that were withheld to satisfy minimum statutory withholding requirements. F-27 Table of Contents POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) In February 2024, the Company issued 132,693 LTIP Units to the Company’s CEO for his 2023 incentive bonus and his election to defer 100 % of his 2024 annual salary, 51,490 LTIP Units to the Company’s president for his 2023 incentive bonus and 43,038 LTIP Units to the Company's Chief Financial Officer for his 2023 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, 2024. In addition, in February 2024, the Company issued 32,579 restricted shares of Class A common stock for annual grants to employees and consultants and 34,841 RSUs, 48,778 LTIP units and 31,883 restricted shares of Class A common stock to other employees for their 2023 incentive bonus. RSUs reflect the right to receive shares of Class A common stock. RSUs and certain LTIP Units issued to employees for 2023 incentive bonuses vested fully on the date of grant. 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, 2024, 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, 2024. The Company also issued 703 restricted shares of Class A common stock in February 2024 to certain employees for work anniversaries, which shares vested fully on the date of grant. In February 2024, the Company also issued an aggregate of 33,253 LTIP Units, 31,625 of restricted shares of Class A common stock and 79,296 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, 2027, 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, 2026. 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 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 ("CGC Committee") 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, 2021, the Company issued 46,714 RSUs (the “2021 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, 2023. In February 2024, the Company's CGC Committee determined that the Company's total stockholder return for such three-year performance period met the threshold performance hurdles for the 2021 Performance-Based Awards and, as a result, approved the payout of (i) 23,357 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, 2023, the Company recognized compensation expense of $ 5.2 million and $ 0.6 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, 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. The fair value of restricted shares that vested during the years ended December 31, 2023 and 2022 was $ 1.5 million and $ 1.2 million, respectively. The weighted average grant date fair value for awards issued in 2023 and 2022 was $ 15.53 and $ 16.88 , respectively. As of December 31, 2023, there was $ 15.1 million of total unrecognized compensation cost related to unvested awards, which is expected to be recognized over a weighted average period of 5.0 years. F-28 Table of Contents POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Employee Stock Purchase Plan In connection with the IPO, the Company established the Postal Realty Trust, Inc. 2019 Qualified Employee Stock Purchase Plan (“ESPP”), which allows the Company’s employees to purchase shares of the 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, 2023 and 2022, 44,520 and 29,710 shares have been issued under the ESPP since commencement, respectively. During the years ended December 31, 2023 and 2022, the Company recognized compensation expense of $ 0.03 million and $ 0.03 million, respectively, related to ESPP. Note 12. Commitments and Contingencies As of December 31, 2023, 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. In the ordinary course of the Company’s business, the Company enters into non-binding (except with regard to exclusivity and confidentiality) letters of intent indicating a willingness to negotiate for acquisitions. There can be no assurance that definitive contracts will be entered into with respect to any matter covered by letters of intent, that the Company will close the transactions contemplated by such contracts on time, or that the Company will consummate any transaction contemplated by any definitive contract. Note 13. 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. Note 14. Subsequent Events In addition to the subsequent events discussed elsewhere in the notes to the Consolidated Financial Statements, the following events occurred subsequent to December 31, 2023: The Company's Board of Directors approved, and on February 2, 2024, the Company declared a fourth quarter 2023 common stock dividend of $ 0.24 per share, which was paid on February 29, 2024 to stockholders of record as of February 16, 2024. As of February 29, 2024, the Company had $ 211.0 million drawn on the Credit Facilities, with $ 75.0 million drawn on the 2021 Term Loan, $ 125.0 million drawn on the 2022 Term Loan and $ 11.0 million drawn on the Revolving Credit Facility. As of February 29, 2024 and during the period subsequent to December 31, 2023, the Company issued 483,341 shares of its Class A common stock under the ATM Program for gross proceeds of approximately $ 6.9 million. As of February 29, 2024 and during the period subsequent to December 31, 2023, the Company closed on the acquisitions of eight properties for approximately $ 4.5 million, excluding closing costs. F-29 Table of Contents POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) As of February 29, 2024 and during the period subsequent to December 31, 2023, the Company had entered into definitive agreements to acquire twenty properties for approximately $ 13.9 million. The majority of these transactions are anticipated to close during the second and third quarters of 2024, subject to the satisfaction of customary closing conditions. However, the Company can provide no assurances that the properties will be consummated on the terms of timeframe described herein, or at all. F-30 Table of Contents ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.