Postal Realty Trust, Inc. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Financial Statements Page Report of Independent Registered Public Accounting Firm ( 2024: Deloitte & Touche LLP , New York, New York , PCAOB ID# 34 ) F- 2 Consolidated Balance Sheets as of December 31, 2024 and 2023 F- 4 Consolidated Statements of Operations and Comprehensive Income for the Years Ended December 31, 2024 and 2023 F- 5 Consolidated Statements of Changes in Equity for the Years Ended December 31, 2024 and 2023 F- 6 Consolidated Statements of Cash Flows for the Years Ended December 31, 2024 and 2023 F- 7 Notes to Consolidated Financial Statements F- 9 Schedule III – Real Estate and Accumulated Depreciation 53 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 sheets of Postal Realty Trust, Inc. (the "Company") as of December 31, 2024 and 2023, the related consolidated statements of operations and comprehensive income, changes in equity, and cash flows, for each of the two years in the period ended December 31, 2024, and the related notes and the schedule listed in the Index at Item 8 (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, 2024 and 2023, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2024, 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 audits. 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 audits 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 audits, 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 audits 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 audits 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 audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. F-2 Table of Contents Allocation of Purchase Price for Investments in Real Estate – Refer to Note 2 and Note 3 to the financial statements Critical Audit Matter Description Upon the acquisition of real estate, the Company allocates the purchase price of the real estate acquired based on the relative fair value of assets acquired and liabilities assumed at the date of acquisition. Based on their nature, these acquisitions generally qualify as asset acquisitions. Accordingly, the purchase price paid for assets acquired and liabilities assumed are allocated, based on their relative fair values, to land, building, in-place leases, and other intangible assets and assumed liabilities. Valuation assumptions utilized in determining the relative fair values include comparable sales transactions, costs to replace certain assets, market-based rental revenues, discount rates, and terminal capitalization rates. We identified the allocation of purchase price for investments in real estate as a critical audit matter because of the significant estimates management makes to determine the fair values of assets acquired and liabilities assumed. This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists, when performing audit procedures to evaluate the reasonableness of management's assumptions. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the assessment of the Company’s allocation of purchase price for investments in real estate included the following, among others: • We gained an understanding of the Company’s controls over the review of the purchase price allocation, including controls over the valuation methodology and assumptions for estimating the fair value of assets acquired and liabilities assumed. • We developed a range of independent estimates for the assumptions used in the fair value estimate, including the discount rate, capitalization rate, and market-based rental revenues using external market sources and compared those to the assumptions used by management. • We tested the allocation of the relative fair values to the assets acquired and liabilities assumed by comparing them to the average historical allocations determined by the Company to identify outliers for further investigation. • With the assistance of our fair value specialists, for certain of the acquisitions we tested, we: – Evaluated the reasonableness of the valuation and allocation methodology and related assumptions used by management, including discount rates, capitalization rates, market-based rental revenues, costs to replace certain assets and comparable sales transactions. – Tested the mathematical accuracy of the calculations and compared the key inputs used in the projections to external market sources. /s/ Deloitte & Touche LLP New York, New York February 26, 2025 We have served as the Company's auditor since 2023. F-3 Table of Contents POSTAL REALTY TRUST, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except par value and share data) December 31, 2024 December 31, 2023 Assets Investments: Real estate properties, at cost: Land $ 128,457 $ 106,074 Building and improvements 512,248 443,470 Tenant improvements 7,501 6,977 Total real estate properties, at cost 648,206 556,521 Less: Accumulated depreciation ( 58,175 ) ( 43,791 ) Total real estate properties, net 590,031 512,730 Investment in financing leases, net 15,951 16,042 Total real estate investments, net 605,982 528,772 Cash 1,799 2,235 Escrow and reserves 744 632 Rent and other receivables 6,658 4,750 Prepaid expenses and other assets, net 14,519 13,369 Goodwill 1,536 1,536 Deferred rent receivable 2,639 1,542 In-place lease intangibles, net 12,636 14,154 Above market leases, net 305 355 Total Assets $ 646,818 $ 567,345 Liabilities and Equity Liabilities: Term loans, net $ 248,790 $ 198,801 Revolving credit facility 14,000 9,000 Secured borrowings, net 33,918 32,823 Accounts payable, accrued expenses and other, net 16,441 11,996 Below market leases, net 16,171 13,100 Total Liabilities 329,320 265,720 Commitments and Contingencies Equity: Class A common stock, par value $ 0.01 per share; 500,000,000 shares authorized, 23,494,487 and 21,933,005 shares issued and outstanding as of December 31, 2024 and December 31, 2023, respectively 235 219 Class B common stock, par value $ 0.01 per share; 27,206 shares authorized, 27,206 shares issued and outstanding as of December 31, 2024 and December 31, 2023 — — Additional paid-in capital 310,031 287,268 Accumulated other comprehensive income 5,230 4,621 Accumulated deficit ( 64,211 ) ( 48,546 ) Total Stockholders’ Equity 251,285 243,562 Operating partnership unitholders’ non-controlling interests 66,213 58,063 Total Equity 317,498 301,625 Total Liabilities and Equity $ 646,818 $ 567,345 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, 2024 2023 Revenues: Rental income $ 73,143 $ 60,970 Fee and other 3,229 2,742 Total revenues 76,372 63,712 Operating expenses: Real estate taxes 9,850 8,549 Property operating expenses 9,124 6,825 General and administrative 16,008 14,654 Casualty and impairment losses, net 404 — Depreciation and amortization 22,202 19,688 Total operating expenses 57,588 49,716 Gain on sale of real estate assets 2,393 — Income from operations 21,177 13,996 Other income 21 679 Interest expense, net: Contractual interest expense ( 12,041 ) ( 9,339 ) Write-off and amortization of deferred financing fees ( 746 ) ( 686 ) Interest income 26 5 Total interest expense, net ( 12,761 ) ( 10,020 ) Income before income tax expense 8,437 4,655 Income tax expense ( 116 ) ( 72 ) Net income 8,321 4,583 Net income attributable to operating partnership unitholders’ non-controlling interests ( 1,725 ) ( 874 ) Net income attributable to common stockholders $ 6,596 $ 3,709 Net income per share: Basic and Diluted $ 0.21 $ 0.12 Weighted average common shares outstanding: Basic and Diluted 22,565,155 20,145,151 Comprehensive income: Net income $ 8,321 $ 4,583 Unrealized gain (loss) on derivative instruments 735 ( 3,500 ) Comprehensive income 9,056 1,083 Comprehensive income attributable to operating partnership unitholders’ non-controlling interests ( 1,851 ) ( 239 ) Comprehensive income attributable to common stockholders $ 7,205 $ 844 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, 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 ) Unrealized loss on derivative instruments — — — ( 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 Net proceeds from sale of common stock 1,420,791 14 19,437 — — 19,451 — 19,451 Issuance of operating partnership units in connection with acquisition transactions — — — — — — 9,409 9,409 Shares issued upon redemption of operating partnership units 52,778 1 861 — — 862 ( 862 ) — Issuance and amortization of equity-based compensation 118,887 1 3,313 — — 3,314 3,071 6,385 Issuance and amortization under ESPP 14,049 — 194 — — 194 — 194 Restricted stock withholdings ( 45,023 ) — ( 635 ) — — ( 635 ) — ( 635 ) Dividends and distributions — — — — ( 22,261 ) ( 22,261 ) ( 5,726 ) ( 27,987 ) Unrealized gain on derivative instruments — — — 609 — 609 126 735 Net income — — — — 6,596 6,596 1,725 8,321 Reallocation of non-controlling interest — — ( 407 ) — — ( 407 ) 407 — Balance – December 31, 2024 23,521,693 $ 235 $ 310,031 $ 5,230 $ ( 64,211 ) $ 251,285 $ 66,213 $ 317,498 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, 2024 2023 Cash flows from operating activities: Net income $ 8,321 $ 4,583 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 22,202 19,688 Write-off and amortization of deferred financing costs and debt discounts 748 686 Amortization of above/below market leases ( 2,920 ) ( 2,411 ) Amortization of intangible liability ( 258 ) ( 140 ) Casualty and impairment losses 404 — Gain on sale of real estate assets ( 2,393 ) — Gain on insurance proceeds received for damage due to property ( 55 ) ( 654 ) Equity based compensation 6,376 5,834 Other 5 50 Deferred rent receivable ( 1,097 ) ( 348 ) Changes in assets and liabilities: Rent and other receivables ( 1,789 ) 128 Prepaid expenses and other assets 67 ( 501 ) Accounts payable, accrued expenses and other 3,892 1,512 Net cash provided by operating activities 33,503 28,427 Cash flows from investing activities: Acquisition of real estate ( 82,027 ) ( 70,224 ) Proceeds from sale of real estate assets 5,982 — Escrows for acquisition and construction deposits ( 307 ) ( 103 ) Insurance proceeds related to property damage claims 55 654 Capital improvements ( 2,775 ) ( 2,868 ) Other investing activities ( 77 ) ( 68 ) Net cash used in investing activities ( 79,149 ) ( 72,609 ) Cash flows from financing activities: Repayments of secured borrowings ( 112 ) ( 106 ) Proceeds from term loans 50,000 35,000 Proceeds from revolving credit facility 71,000 62,000 Repayments of revolving credit facility ( 66,000 ) ( 53,000 ) Redemption of operating partnership units — ( 558 ) Net proceeds from issuance of shares 19,324 26,690 Debt issuance costs ( 366 ) ( 266 ) Deferred offering costs — ( 107 ) Proceeds from issuance of ESPP shares 163 183 Shares withheld for payment of taxes on restricted share vesting ( 700 ) ( 467 ) Distributions and dividends ( 27,987 ) ( 24,362 ) Net cash provided by financing activities 45,322 45,007 Net increase (decrease) in Cash and Escrows and Reserves ( 324 ) 825 Cash and Escrows and Reserves at the beginning of year 2,867 2,042 Cash and Escrow and Reserves at the end of year $ 2,543 $ 2,867 Supplemental Disclosure of Non-Cash Investing and Financing Activities Operating partnership units issued for property acquisitions $ 9,409 $ 9,619 Assumption of seller financing $ 1,400 $ — Unrealized gain (loss) on derivative instruments $ 735 $ ( 3,500 ) F-7 Table of Contents Reallocation of non-controlling interest $ 407 $ 3,369 Shares issued upon redemption of operating partnership units $ 862 $ 6,730 Reclassification of acquisition deposits and other deferred costs $ 188 $ 210 Write-off of fixed assets no longer in service $ 88 $ 147 Accrued capital expenditures included in accounts payable and accrued expenses $ 235 $ 348 Accrued taxes withheld included in accounts payable and accrued expenses $ 54 $ 118 Right of use assets $ 1,297 $ 169 Accrued costs of capital included in accounts payable and accrued expenses $ — $ 130 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, 2024, the Company held an approximately 79.2 % 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, 2024, the Company owned a portfolio of 1,703 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 360 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. 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 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. F-9 Table of Contents POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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. The Company's Chief Executive Officer is the Chief Operating Decision Maker ("CODM") who allocates resources and assesses financial performance. The CODM reviews net income and assesses the performance of the Company's current portfolio of properties primarily leased to the USPS and makes operating decisions accordingly. Net income is used by the CODM in assessing the operating performance of the segment and to monitor budget versus actual results. The measure of segment assets is reported on the Consolidated Balance Sheets as total assets. As a result, the Company conducts its business as a single operating segment. All expense categories on the consolidated statement of operations are significant. As a part of his review as the CODM, the CEO also separately examines the equity-based compensation component of general and administrative expenses, which is also considered a significant segment expense. 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, 2024 December 31, 2023 (in thousands) Cash $ 1,799 $ 2,235 Escrows and reserves: Maintenance reserve 422 314 Real estate tax reserve 225 231 ESPP reserve 97 87 Total escrows and reserves $ 744 $ 632 Cash and escrows and reserves $ 2,543 $ 2,867 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. F-12 Table of Contents POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Fair Value Measurements The following disclosure of estimated fair value was determined by management using available market information and appropriate valuation methodologies. However, considerable judgment is necessary to interpret market data and develop estimated fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could have realized on disposition of the assets and liabilities as of December 31, 2024 and 2023. 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, 2024 and 2023 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, 2024 and December 31, 2023, 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 $ 28.7 million and $ 28.0 million as compared to the principal balance of $ 34.3 million and $ 33.0 million as of December 31, 2024 and 2023, 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, 2024 and 2023, the fair value of the Company’s interest rate swap derivative assets was approximately $ 6.7 million and $ 6.4 million, respectively, included in “Prepaid expenses and other assets, net” on the Consolidated Balance Sheets. As of December 31, 2024 and 2023 , the fair value of the Company's interest rate swap derivative liabilities was approximately $ 0.3 million and $ 0.7 million, respectively, 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, 2024 and 2023. 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, 2024 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. F-13 Table of Contents POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Assets Held for Sale The Company may sell properties from time to time for various reasons, including the exercise of purchase options by our tenants. The Company classifies long-lived assets as held for sale once certain criteria have been met. The Company classifies a real estate property, or portfolio, as held for sale when: (i) management has approved the disposal, (ii) the property is available for sale in its present condition, (iii) an active program to locate a buyer has been initiated, (iv) it is probable that the property will be disposed of within one year, (v) the property is being marketed at a reasonable price relative to its current fair value, and (vi) it is unlikely that the disposal plan will significantly change or be withdrawn. Following the classification of a property as “held for sale,” no further depreciation or amortization is recorded on the assets and the assets are recorded at the lower of carrying value or fair market value, less cost to sell. There were no properties classified as held for sale as of December 31, 2024 and 2023. 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 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. During the year ended December 31, 2024, based upon an accumulation of costs in excess of what was originally expected, the Company assessed the recoverability of the carrying amount of its real estate and related intangibles. The assessment resulted in the remeasurement of one property, which was written down to its estimated fair value and was classified as Level 3 in the fair value hierarchy. The Company's estimate of the fair value was based on a discounted cash flow analysis. The Company used two significant unobservable inputs which was the cash flow discount rate ( 11.0 %) and the terminal capitalization rate ( 10.0 %). The remeasurement resulted in an impairment loss of $ 0.1 million, which is included in "Casualty and impairment loss, net" in the Company's Consolidated Statements of Operations and Comprehensive Income. No impairment was recorded during the year ended December 31, 2023. Concentration of Credit Risks As of December 31, 2024, the Company’s properties were leased primarily to a single tenant, the USPS. For the year ended December 31, 2024, approximately 11.9 % of the Company's total rental income, or $ 8.7 million, was concentrated in Pennsylvania. 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. 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. F-14 Table of Contents POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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, 2024 and 2023, the Company had unvested restricted shares of Class A common stock, LTIP Units and certain restricted stock units (“RSUs"), which provide for non-forfeitable rights to dividend and dividend-equivalent payments. 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. Recent Accounting Standards In November 2023, the Financial Accounting Standards Board issued ASU 2023-07, Segment Reporting (Topics 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”). ASU 2023-07 improves current segment disclosures and requires additional disclosures of segment expenses. The Company adopted the provisions of ASU 2023-07 as of December 31, 2024 which did not materially impact the Company’s consolidated financial statements, and the required segment disclosures are included above. In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (“ASU 2024-03”). The amendments in ASU 2024-03 apply to all public business entities and require disclosure of specified information about certain costs and expenses. ASU 2024-03 is effective for annual reporting periods beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted. We are currently evaluating the potential impact of adopting ASU 2024-03. Note 3. Real Estate Transactions The following tables summarizes the Company’s acquisitions for the years ended December 31, 2024 and 2023. The purchase prices including transaction costs were allocated to the separately identifiable tangible and intangible assets and F-15 Table of Contents POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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) 2024 March 31, 2024 (3) 29 $ 6,442 $ 12,362 $ 98 $ 1,372 $ 34 $ ( 1,442 ) $ — $ 18,866 June 30, 2024 (4) 70 6,191 21,955 144 1,733 11 ( 1,237 ) — 28,797 September 30, 2024 (5) 35 2,313 11,263 122 1,111 — ( 1,015 ) ( 34 ) 13,760 December 31, 2024 (6) 63 9,163 22,688 169 2,047 67 ( 2,527 ) ( 235 ) 31,372 197 $ 24,109 $ 68,268 $ 533 $ 6,263 $ 112 $ ( 6,221 ) $ ( 269 ) $ 92,795 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) 2023 March 31, 2023 (9) 39 $ 2,802 $ 14,271 $ 152 $ 1,134 $ 43 $ ( 826 ) $ — $ 17,576 June 30, 2023 (10) 39 3,241 12,054 117 1,066 24 ( 483 ) — 16,019 September 30, 2023 11) 70 4,916 19,282 182 1,709 58 ( 983 ) ( 342 ) 24,822 December 31, 2023 (12) 75 5,095 16,345 152 1,638 5 ( 1,571 ) ( 21 ) 21,643 Total 223 $ 16,054 $ 61,952 $ 603 $ 5,547 $ 130 $ ( 3,863 ) $ ( 363 ) $ 80,060 Explanatory Notes : (1) Includes an intangible liability related to unfavorable operating leases with purchase options on one property and a below market ground lease intangible asset on one property during the three months ended September 30, 2024, and intangible liabilities related to unfavorable operating leases with purchase options on five properties during the three months ended December 31, 2024 that is included in “Accounts payable, accrued expenses and other, net" and "Prepaid expenses and other assets, net" on the Consolidated Balance Sheets, as applicable. (2) Includes closing costs of approximately $ 0.3 million for the three months ended March 31, 2024, approximately $ 0.5 million for the three months ended June 30, 2024, approximately $ 0.4 million for the three months ended September 30, 2024 and approximately $ 0.7 million for the three months ended December 31, 2024. (3) Includes the acquisition of 29 properties in various states for cash consideration in individual or portfolio transactions for a price of approximately $ 18.9 million, including closing costs which was funded with both the issuance of OP Units to sellers (valued at approximately $ 5.8 million using the share price of Class A common stock on the date of each issuance of such OP Units) and cash consideration. (4) Includes the acquisition of 70 properties in various states in individual or portfolio transactions for a price of approximately $ 28.8 million, including closing costs, which was funded with cash consideration. Also, includes 36 properties acquired from a related party. See Note 9. Related Party Transactions for further details. (5) Includes the acquisition of 35 properties in various states in individual or portfolio transactions for a price of approximately $ 13.8 million, including closing costs, which was funded with both the issuance of OP Units to the sellers (valued at approximately $ 1.1 million using the share price of Class A common stock on the date of each issuance of such OP Units) and cash consideration. Also, includes a debt discount on two properties that is included in "Secured Borrowings, net." See Note 5. Debt for further details. (6) Includes the acquisition of 63 properties in various states in individual or portfolio transactions for a price of approximately $ 31.4 million, including closing costs, which was funded with both the issuance of OP Units to the sellers (valued at approximately $ 2.5 million using the share price of Class A common stock on the date of each issuance of such OP Units) and cash consideration. (7) 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, net” on the Consolidated Balance Sheets. F-16 Table of Contents POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (8) 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. (9) Includes the acquisition of 39 properties in various states for cash consideration in individual or portfolio transactions for approximately $ 17.6 million, including closing costs. (10) Includes the acquisition of 39 properties in various states in individual or portfolio transactions for 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. (11) Includes the acquisition of 70 properties in various states in individual or portfolio transactions for 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. (12) Includes the acquisition of 75 properties in various states in individual or portfolio transactions for 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. Sale of Real Estate During the year ended December 31, 2024, the Company sold two real estate properties for net proceeds of $ 6.0 million and recorded a net gain of $ 2.4 million. Casualty Loss During the year ended December 31, 2024, the Company recorded a casualty loss of $ 0.3 million reflecting the net book value of such asset damaged as a result of vandalism included within "Casualty and impairment losses, net" in the Consolidated Statement of Operations and Comprehensive Income. The Company expects insurance proceeds to cover substantially all of such loss subject to applicable deductibles. The Company has comprehensive all risk property insurance coverage on its property subject to the casualty loss, including for business interruption, with a $ 1.5 million limit of liability, subject to conditions, exclusions, deductibles and sub-limits. To the extent insurance proceeds ultimately exceed the difference between replacement cost and net book value of the damaged assets and any related expenses incurred, the excess will be reflected as income in the period those amounts are determinable and approved by the insurance company. No determination has been made as to the total amount of timing of insurance payments that may be received as a result of the event. F-17 Table of Contents POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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, 2024: (in thousands) In-place lease intangibles $ 51,630 $ ( 38,994 ) $ 12,636 Above-market leases 795 ( 490 ) 305 Below-market leases ( 29,069 ) 12,898 ( 16,171 ) December 31, 2023: 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 ) Amortization of in-place lease intangibles was $ 7.6 million and $ 7.1 million for the years ended December 31, 2024 and 2023, 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 $ 0.2 million for the years ended December 31, 2024 and 2023, respectively, and is included in “Rental income” in the Consolidated Statements of Operations and Comprehensive Income. Amortization of acquired below market leases was $ 3.1 million and $ 2.6 million for the years ended December 31, 2024 and 2023, respectively, and is included in “Rental income” in the Consolidated Statements of Operations and Comprehensive Income. As of December 31, 2024, the weighted average amortization period for the Company’s intangible assets was approximately 3.0 years, 3.2 years and 9.1 years for in-place lease intangibles, above-market leases and below-market leases, respectively. Future amortization/accretion of these intangibles is below (in thousands): Year Ending December 31, In-place lease intangibles Above-market leases Below-market leases 2025 $ 5,749 $ 121 $ ( 2,885 ) 2026 3,524 93 ( 2,345 ) 2027 1,721 47 ( 1,891 ) 2028 842 22 ( 1,526 ) 2029 527 17 ( 1,343 ) Thereafter 273 5 ( 6,181 ) Total $ 12,636 $ 305 $ ( 16,171 ) F-18 Table of Contents POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 5. Debt The following table summarizes the Company’s indebtedness as of December 31, 2024 and December 31, 2023 (dollars in thousands): Outstanding Balance as of December 31, 2024 Outstanding Balance as of December 31, 2023 Interest Rate at December 31, 2024 Maturity Date Revolving Credit Facility (1) : Revolving Credit Facility $ 14,000 $ 9,000 SOFR + 148 bps (2) January 2026 2021 Term Loan 75,000 75,000 SOFR + 143 bps (2) January 2027 2022 Term Loan 175,000 125,000 SOFR + 143 bps (2) February 2028 Secured Borrowings: Vision Bank (3) 1,409 1,409 3.69 % September 2041 First Oklahoma Bank (4) 299 316 3.63 % December 2037 Vision Bank – 2018 (5) 844 844 3.69 % September 2041 Seller Financing (6) 100 194 6.00 % January 2025 AIG (7) 30,225 30,225 2.80 % January 2031 Seller Financing - 2024 (8) 1,400 — 5.00 % September 2039 Total Principal 298,277 241,988 Unamortized deferred financing costs ( 1,360 ) ( 1,364 ) Unamortized debt discount ( 209 ) — Total Debt $ 296,708 $ 240,624 Explanatory Notes: (1) On August 9, 2021, the Company had 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. On October 25, 2024, the Company amended the Credit Facilities (the "Third Amendment") to, among other things, replace the Bank of Montreal with Truist Bank as the administrative agent, letter of credit issuer and swingline lender. In addition, the Third Amendment increases the 2022 Term Loan commitments in an aggregate principal amount of up to $ 50.0 million in which the Company further exercised $ 40.0 million under the 2022 Term Loan, and on a delayed-draw basis, $ 10.0 million. The Credit Facilities include an accordion feature which permits the Company to borrow up to an additional (i) $ 150.0 million under the Revolving Credit Facility and (ii) $ 50.0 million under the Term Loans, subject to customary terms and conditions. The Revolving Credit Facility matures in January 2026, which may be extended for two six-month periods subject to customary conditions, the 2021 Term Loan matures in January 2027 and the 2022 Term Loan matures in February 2028. Borrowings under the Credit Facilities carry an interest rate of, (i) in the case of the Revolving Credit Facility, either a base rate plus a margin ranging from 0.5 % to 1.0 % per annum or Adjusted Term SOFR (as defined below) plus a margin ranging from 1.5 % to 2.0 % per annum, or (ii) in the case of the Term Loans, either a base rate plus a margin ranging from 0.45 % to 0.95 % per annum or Adjusted Term SOFR plus a margin ranging from 1.45 % to 1.95 % per annum, in each case depending on 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 F-19 Table of Contents POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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, 2024 and 2023, 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, 2024, 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 2023, the applicable margins for the Credit Facilities were reduced by 0.02 % for the year ended December 31, 2024, 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. (8) In connection with the acquisition of two properties, the Company obtained seller financing secured by the properties in the amount of $ 1.4 million based on a fixed interest rate of 5.00 % with interest-only payments through September 1, 2039. The weighted average maturity date for the Company's indebtedness as of December 31, 2024 and 2023 was approximately 3.2 years and 4.2 years, respectively. Cash paid for interest during the years ended December 31, 2024 and 2023 was $ 12.0 million and $ 9.2 million, respectively. F-20 Table of Contents POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The scheduled principal repayments of indebtedness as of December 31, 2024 are as follows (in thousands): Year Ending December 31, Amount 2025 $ 118 2026 14,636 2027 75,773 2028 175,800 2029 828 Thereafter 31,122 Total $ 298,277 Note 6. Derivatives and Hedging Activities As of December 31, 2024, the Company had nine interest rate swaps with a total notional amount of $ 250.0 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 $ 40,000 5.271 % October 2024 February 2028 $ 10,000 5.552 % November 2024 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 $ 2.9 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 cash flow 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, 2024 and 2023 (in thousands): F-21 Table of Contents POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Years Ended December 31, Derivatives in Cash Flow Hedging Relationships (Interest Rate Swaps) 2024 2023 Amount of gain recognized on derivative in "Accumulated other comprehensive income" $ 5,809 $ 1,115 Amount of income (loss) reclassified from "Accumulated other comprehensive income" into interest expense $ 5,074 $ ( 4,615 ) "Interest expense, net" presented in the Consolidated Statements of Operations and Comprehensive Income, in which the effects of cash flow hedges are recorded, totaled $ 12.8 million and $ 10.0 million for the years ended December 31, 2024 and 2023, respectively. As of December 31, 2024, the Company also had derivatives in a net liability position and did not post any collateral related to these agreements. If the Company had breached any of these provisions as of December 31, 2024, it could have been required to settle its obligations under the agreements of any interest rate swap in a net liability position for approximately $ 0.3 million, which is at their termination value. Note 7. Leases Lessor Accounting As of December 31, 2024, the Company's properties were leased primarily to the USPS, with leases expiring at various dates through February 28, 2035. Certain leases had expired and were in holdover status as of December 31, 2024 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, 2024 2023 Fixed payments $ 63,523 $ 52,668 Variable payments 9,620 8,302 $ 73,143 $ 60,970 F-22 Table of Contents POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Future minimum lease payments to be received as of December 31, 2024 under non-cancellable operating leases for the next five years and thereafter are as follows (in thousands) :(1) Year Ending December 31, Amount 2025 (2) $ 64,709 2026 56,251 2027 41,626 2028 30,064 2029 21,292 Thereafter 48,324 Total $ 262,266 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, 2024, the leases at seven 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. Purchase Option Provisions As of December 31, 2024, operating leases for 84 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, 2024, 80 of these properties had an aggregate carrying value of approximately $ 57.9 million with an aggregate purchase option price of approximately $ 75.0 million and the remaining four properties had an aggregate carrying value of approximately $ 3.3 million with purchase options exercisable at fair market value. Investment in Financing Leases, Net As of December 31, 2024 and 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, 2024 and 2023 are summarized in the table below (in thousands): As of December 31, 2024 2023 Total minimum lease payment receivable $ 30,940 $ 32,078 Less: unearned income ( 14,989 ) ( 16,036 ) Investment in financing leases, net $ 15,951 $ 16,042 F-23 Table of Contents POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Revenue earned under direct financing leases for the years ended December 31, 2024 and 2023 were $ 1.0 million and $ 1.0 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, 2024 for the next five years and thereafter are as follows (in thousands): Year Ending December 31, Amount 2025 $ 1,137 2026 1,137 2027 1,137 2028 1,137 2029 1,137 Thereafter 25,255 Total $ 30,940 Lessee Accounting As a lessee, the Company has ground and office leases which were classified as operating leases. As of December 31, 2024, these leases had remaining terms, including renewal options, of 0.6 years to 58.0 years and a weighted average remaining lease term of 21.6 years. Operating right of use ("ROU") assets and lease liabilities are included in “Prepaid expenses and other assets, net” and “Accounts payable, accrued expenses and other, net” on the Consolidated Balance Sheets as follows (in thousands): As of December 31, 2024 As of December 31, 2023 ROU asset – operating leases $ 2,188 $ 967 Lease liability – operating leases $ 2,165 $ 994 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 the years ended December 31, 2024 and 2023 were $ 0.3 million and $ 0.2 million, respectively. See Note 9. Related Party Transactions for more details. F-24 Table of Contents POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Future minimum lease payments to be paid by the Company as a lessee for operating leases as of December 31, 2024 for the next five years and thereafter are as follows (in thousands): 2025 $ 325 2026 325 2027 318 2028 319 2029 324 Thereafter 2,017 Total future minimum lease payments $ 3,628 Interest discount ( 1,463 ) Total $ 2,165 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, 2024 and 2023, income tax expense and income tax benefit related to REAC was $ 0.1 million and $ 0.1 million, respectively. Other In connection with the IPO, the indirect sole shareholder of United Postal Holdings, Inc. ("UPH"), a portion of the Company's predecessor, agreed to reimburse the Company for unrecognized tax benefits primarily related to the utilization of certain loss carryforwards at UPH. The Company recorded an indemnification asset in the same amount as the unrecognized tax benefits. The indirect sole shareholder of UPH will be responsible for all tax related matters related to UPH. During the year ended December 31, 2023, the Company reversed $ 0.02 million 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 For the Year Ended December 31, 2023 Gross unrecognized tax benefits, beginning of year $ 23 Reductions to unrecognized tax benefits as a result of a lapse of the applicable statute of limitations ( 23 ) Total $ — The Company and REAC are subject to examinations by federal and state and local tax authorities beginning with the tax year ended December 31, 2021. 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, 2024 and 2023 was $ 0.09 million and $ 0.05 million, respectively. F-25 Table of Contents POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 9. Related Party Transactions Management Fee Income REAC recognized management fee income of $ 1.4 million and $ 1.3 million for the years ended December 31, 2024 and 2023, 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 $ 0.4 million and $ 0.3 million as of December 31, 2024 and 2023, respectively, are included in “Rent and other receivables” on the Consolidated Balance Sheets. Related Party Lease In connection with the Company's IPO and the related formation transactions 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 expired on May 16, 2024. In May 2024, the Office Lease was extended to the December 31, 2024 at the same rental rate. Rental expenses associated with the Office Lease for the years ended December 31, 2024 and 2023 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. In December 2024, the Company entered into a new lease with the Company's CEO (the "2025 Office Lease"). Pursuant to the 2025 Office Lease, the monthly rent is $ 18,750 subject to escalations. The term of the 2025 Office Lease is five years commencing on January 1, 2025 and will expire on December 31, 2029. Right of First Offer Transactions In connection with the Company's IPO and the related formation transactions, the Company entered into a Right of First Offer Agreement (the “ROFO Agreement”) with certain members of the family (the “Related Party”) of Andrew Spodek, the Company’s CEO. Pursuant to the ROFO Agreement, the Company has the right of first offer to acquire from the Related Party 250 properties that are currently managed by the Company. On May 30, 2024, the Company acquired from the Related Party a portfolio of 36 properties currently leased to the USPS for approximately $ 12.5 million in cash, excluding closing costs. The transaction was approved by a special committee of the Company’s Board of Directors consisting of four independent directors. The Company has a remaining right of first offer to purchase 214 of the 360 managed properties. 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 $ 1.8 million and $ 1.9 million as of December 31, 2024 and December 31, 2023, 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-26 Table of Contents POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) For the Years Ended December 31, 2024 2023 Numerator for earnings per share – basic and diluted: Net income attributable to common stockholders $ 6,596 $ 3,709 Less: Income attributable to participating securities ( 1,791 ) ( 1,367 ) Numerator for earnings per share — basic and diluted $ 4,805 $ 2,342 Denominator for earnings per share – basic and diluted (1) 22,565,155 20,145,151 Basic and diluted earnings per share $ 0.21 $ 0.12 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 for its at the market offering programs 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. On November 4, 2024, the Company entered into separate open market sale agreements for the ATM Program with each of Mizuho Securities USA LLC (“Mizuho”) and M&T Securities, Inc. (“M&T”), as additional sales agents, Mizuho Markets Americas LLC, as additional forward purchaser, and Mizuho, as additional forward seller (in its capacity as agent for its affiliated forward purchaser). There was no change to the aggregate offering amount of $ 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, 2024, 1,420,791 shares were issued under the ATM Program. As of December 31, 2024, the Company had approximately $ 93.7 million remaining that may be issued under the ATM Program. Years Ended December 31, 2024 2023 Shares issued (1) 1,421 1,861 Gross proceeds received $ 20,395 $ 27,810 Fees, issuance and other costs ( 944 ) ( 1,250 ) Net proceeds received $ 19,451 $ 26,560 Average gross sales price per share $ 14.35 $ 14.94 F-27 Table of Contents POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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 During the year ended December 31, 2024, the Company's Board of Directors approved and the Company declared and paid dividends or distributions, as applicable, of $ 28.0 million to Class A common stockholders, Voting Equivalency stockholders, OP unitholders and LTIP unitholders, or $ 0.96 per share or unit, as shown in the table below. Declaration Date Record Date Date Paid Amount Per Share or Unit February 2, 2024 February 16, 2024 February 29, 2024 $ 0.24 April 30, 2024 May 8, 2024 May 31, 2024 $ 0.24 July 23, 2024 August 2, 2024 August 30, 2024 $ 0.24 October 22, 2024 November 4, 2024 November 29, 2024 $ 0.24 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 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, 2024, the Company issued 151,916 LTIP Units to the Company's CEO for his 2023 incentive bonus, his election to defer 100 % of his 2024 annual salary and for long term incentive compensation, 51,490 LTIP Units to the Company’s president for his 2023 incentive bonus, 53,906 LTIP Units to the Company's Chief Financial Officer for his 2023 incentive bonus and for long term incentive compensation, 43,526 LTIP Units in May 2024 to the Board of Directors for their annual retainers as compensation for their services as directors and for long term incentive compensation, 51,940 LTIP Units to certain other employees for their 2023 incentive bonus and for long term incentive compensation and 4,545 LTIP Units to a consultant under the consultancy agreement with the Company. In addition, during the years ended December 31, 2024 and 2023, the Company issued 664,182 and 693,648 OP Units, respectively, to certain contributors in connection with portfolio acquisitions (for further details, see Note 3. Real Estate Acquisitions). As of December 31, 2024 and December 31, 2023, non-controlling interests consisted of 4,998,738 OP Units and 1,241,944 LTIP Units and 4,387,334 OP Units and 884,621 LTIP Units, respectively. This represented approximately 20.9 % and 19.3 % of the outstanding Operating Partnership units as of December 31, 2024 and 2023, 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 person first became holder of common units, each limited partner and assignees of limited partners 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 the OP Units held by such limited partner or assignee 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. F-28 Table of Contents POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) During the year ended December 31, 2024, 52,778 OP Units were redeemed for 52,778 shares of Class A common stock. 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. 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, 2024, the remaining shares available under the Plan for future issuance was 1,062,618 . 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, 2024 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, 2024 498,402 884,621 311,737 1,694,760 $ 16.16 Granted 102,125 357,323 114,136 573,584 $ 14.29 Vesting of restricted shares and RSUs (5) ( 61,401 ) — ( 50,544 ) ( 111,945 ) $ 15.19 Forfeited ( 33,784 ) — ( 28,383 ) ( 62,167 ) $ 14.02 Outstanding, as of December 31, 2024 505,342 1,241,944 346,946 2,094,232 $ 15.76 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 . Also includes 5,336 shares of restricted stock granted to a consultant under the consultancy agreement with the Company, which shares will vest on February 28, 2025. (3) Includes 151,916 LTIP Units granted to the Company’s CEO, 51,490 LTIP Units granted to the Company's President and 53,906 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 51,940 LTIP Units granted to certain other employees of the Company, certain of which vested fully on date of grant with the remaining vesting over three years or cliff vest at the end of eight years , 43,526 LTIP Units granted to the Company's independent directors that vest over three years or cliff vest at the end of three years and 4,545 LTIP Units granted to a consultant under the consultancy agreement with the Company, which shares will vest on June 30, 2025. (4) Includes 79,296 RSUs granted to certain officers and employees of the Company during the year ended December 31, 2024 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, 2026. 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 34,841 time-based RSUs issued for 2023 incentive F-29 Table of Contents POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) bonuses to certain employees that vested fully on February 2, 2024, the date of grant. RSUs reflect the right to receive shares of Class A common stock, subject to the applicable vesting criteria. (5) Includes 66,921 of restricted shares and RSUs that vested and 45,023 shares of restricted shares and RSUs that were withheld to satisfy minimum statutory withholding requirements. In January 2025, the Company issued 198,335 LTIP Units to the Company’s CEO for his 2024 incentive bonus and his election to defer 100 % of his 2025 annual salary and 90,909 LTIP Units to the Company’s President for his 2024 incentive bonus. LTIP Units issued to the Company’s CEO and President in lieu of cash compensation will cliff vest on the eighth anniversary of February 1, 2025. In addition, in January 2025, the Company issued 36,459 restricted shares of Class A common stock for annual grants to employees and 13,814 RSUs, 111,292 LTIP units and 10,286 restricted shares of Class A common stock to other employees for their 2024 incentive bonus. RSUs reflect the right to receive shares of Class A common stock. RSUs and certain LTIP Units issued to employees for 2024 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, 2025, 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, 2025. The Company also issued 768 restricted shares of Class A common stock in January 2025 to certain employees for work anniversaries, which shares vested fully on the date of grant. In January 2025, the Company also issued an aggregate of 44,574 LTIP Units and 28,668 of restricted shares of Class A common stock to certain officers and employees 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, 2028, subject to continued employment with the Company. In February 2025, the Company issued 90,362 RSUs to certain officers and employees of 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, 2027. 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) during the performance period of the RSUs. 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, 2022, the Company issued 47,005 RSUs (the “2022 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, 2024. In January 2025, the Company's CGC Committee determined that the Company's total stockholder return for such three-year performance period did not meet the threshold F-30 Table of Contents POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) performance hurdles for the 2022 Performance-Based Awards and, as a result, approved the cancellation of 47,005 RSUs for such awards. During the year ended December 31, 2024, the Company recognized compensation expense of $ 5.8 million and $ 0.5 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, 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. The fair value of restricted shares that vested during the years ended December 31, 2024 and 2023 was $ 1.6 million and $ 1.5 million, respectively. The weighted average grant date fair value for awards issued in 2024 and 2023 was $ 14.29 and $ 15.53 , respectively. As of December 31, 2024, there was $ 16.4 million of total unrecognized compensation cost related to unvested awards, which is expected to be recognized over a weighted average period of 4.8 years. 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, 2024 and 2023, 58,569 and 44,520 shares have been issued under the ESPP since commencement, respectively. During the years ended December 31, 2024 and 2023, 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, 2024, 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. 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, 2024: The Company's Board of Directors approved, and on January 30, 2025, the Company declared a fourth quarter 2024 common stock dividend of $ 0.2425 per share, which is payable on February 28, 2025 to stockholders of record as of February 14, 2025. As of February 26, 2025, the Company had $ 26.0 million drawn on the Revolving Credit Facility. As of February 26, 2025 and during the period subsequent to December 31, 2024, the Company closed on the acquisitions of 18 properties for approximately $ 8.4 million, excluding closing costs. As of February 26, 2025, the Company sold one vacant property for a total sales price of approximately $ 0.8 million. F-31 Table of Contents POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) As of February 26, 2025 and during the period subsequent to December 31, 2024, the Company had entered into definitive agreements to acquire 15 properties for approximately $ 11.0 million. The majority of these transactions are anticipated to close during the second and third quarters of 2025, 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-32 Table of Contents ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.