What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-12 compared with 2021-08-13 · 119 added, 125 removed, 229 unchanged (52% of the section changed)

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We make statements in this Quarterly Report that are forward-looking statements within the meaning of the federal securities laws.

In particular, statements pertaining to our capital resources, property performance and results of operations contain forward-looking statements.

Likewise, all of our statements regarding anticipated growth in our funds from operations and anticipated market conditions, demographics and results of operations are forward-looking statements.

In particular, statements pertaining to our capital resources, acquisitions, property performance and results of operations contain forward-looking statements.

You can identify forward-looking statements by the use of forward-looking terminology such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” “pro forma,” “estimates” or “anticipates” or the negative of these words and phrases or similar words or phrases which are predictions of or indicate future events or trends and which do not relate solely to historical matters.

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• change in the demand for postal services delivered by the USPS;

• our ability to come to an agreement with the USPS regarding new leases or lease renewals;

• the solvency and financial health of the USPS;

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• cybersecurity threats;

• environmental uncertainties and risks related to adverse weather conditions and natural disasters;

• uncertainties and risks related to adverse weather conditions, natural disasters and climate change;

• exposure to liability relating to environmental and health and safety matters;

• governmental approvals, actions and initiatives, including the need for compliance with environmental requirements;

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• public health threats such as the coronavirus (COVID-19) pandemic.

• our ability to come to an agreement with the USPS regarding new leases.

While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance.

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We conduct our business through a traditional UPREIT structure in which our properties are owned by our Operating Partnership directly or through limited partnerships, limited liability companies or other subsidiaries.

For the six months ended June 30, 2021, we acquired 125 postal properties leased to the USPS for approximately $57.5 million, including closing costs.

As of June 30, 2021, our portfolio consists of 852 owned postal properties, located in 49 states and comprising approximately 3.6 million net leasable interior square feet.

During the nine months ended September 30, 2021, we acquired 184 postal properties leased to the USPS for approximately $77.1 million, including closing costs.

As of September 30, 2021, our portfolio consists of 911 owned properties, located in 49 states and comprising approximately 3.7 million net leasable interior square feet.

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

As of June 30, 2021, we owned approximately 79.7% of our outstanding common units of limited partnership interest in our Operating Partnership (each, an “OP Unit,” and collectively, the “OP Units”), including long term incentive units of our Operating Partnership (each, a “LTIP Unit” and collectively, the “LTIP Units”).

As of September 30, 2021, we owned approximately 78.1% of our outstanding common units of limited partnership interest in our Operating Partnership (each, an “OP Unit,” and collectively, the “OP Units”), including long term incentive units of our Operating Partnership (each, a “LTIP Unit,” and collectively, the “LTIP Units”).

Our Board of Directors oversees our business and affairs.

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Davidson, which termination became effective May 14, 2021.

319,702 shares were issued under the ATM Program during the six months ended June 30, 2021.

As of June 30, 2021, we had approximately $43.6 million of availability remaining under the ATM Program.

344,717 shares were issued under the ATM Program during the nine months ended September 30, 2021.

As of September 30, 2021, we had approximately $43.1 million of availability remaining under the ATM Program.

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

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Geographic Concentration

As of June 30, 2021, we owned a portfolio of 852 postal properties located in 49 states leased primarily to the USPS.

For the six months ended June 30, 2021, 18.9% of our total of rental income was concentrated in Pennsylvania.

As of September 30, 2021, we owned a portfolio of 911 properties located in 49 states leased primarily to the USPS.

For the nine months ended September 30, 2021, 18.3% of our total of rental income was concentrated in Pennsylvania.

Such geographical concentration could expose us to certain downturns in the economies of those states or other changes in such states’ respective real estate market conditions.

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Emerging Growth Company

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies,” including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive

compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.

attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.

In addition, the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in the Securities Act of 1933, as amended (the “Securities Act”), for complying with new or revised accounting standards.

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Factors That May Influence Future Results of Operations

We are dependent on the USPS’s financial and operational stability.

We are dependent on the USPS’ financial and operational stability.

The USPS is currently facing a variety of circumstances that are threatening its ability to fund its operations and other obligations as currently conducted without intervention by the federal government.

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While the USPS has undertaken, and proposes to undertake, a number of operational reforms and cost reduction measures, including those outlined in its ten-year plan entitled Delivering for America:

Our Vision and Ten-Year Plan to Achieve Financial Sustainability and Service Excellence , the USPS has taken the position such measures alone will not be sufficient to maintain its ability to meet all of its existing obligations when due or allow it to make the critical infrastructure investments that have been deferred in recent years.

Our Vision and Ten-Year Plan to Achieve Financial Sustainability and Service Excellence , such as higher rates and slower deliveries for certain services , the USPS has taken the position such measures alone will not be sufficient to maintain its ability to meet all of its existing obligations when due or allow it to make the critical infrastructure investments that have been deferred in recent years.

These measures have also led to significant criticism and litigation, which may result in reputational or financial harm or increased regulatory scrutiny of the USPS or reduced demand for its services.

The ongoing COVID-19 pandemic (including new or mutated variants of COVID-19) and measures being taken to prevent its spread also continue to have a material and unpredictable effect on the USPS’ operations and liquidity, including volatility in demand for mail services, significant changes in the mix of mail and packages processed through the USPS’ network and significant additional operating expenses caused by pandemic-related disruptions.

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Spodek, his family members and their partners managed by Postal Realty Management TRS, LLC (“PRM”), our taxable REIT subsidiary (“TRS”).

Rental income represents the lease revenue recognized under leases with the USPS which includes the impact of above and below market lease intangibles as well as tenant reimbursements for payments made by the USPS under the leases to reimburse us for the majority of real estate taxes paid at each property.

Fee and other income principally represent revenue PRM receives from postal properties owned by Mr.

Rental income represents the lease revenue recognized under leases with the USPS which includes the impact of above and below market lease intangibles as well as tenant reimbursements for payments made by our tenants under the leases to reimburse us for the majority of real estate taxes paid at each property.

Fee and other principally represent revenue PRM

receives from postal properties owned by Mr.

Spodek, his family members and their partners pursuant to the management agreements and is a percentage of the lease revenue for the managed properties.

As of June 30, 2021, properties leased to our tenants had an average remaining lease term of approximately 4.0 years.

Factors that could affect our rental income, tenant reimbursement and

fee and other income in the future include, but are not limited to:

As of September 30, 2021, properties leased to our tenants had an average remaining lease term of approximately 4.0 years.

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

(i) our ability to renew or replace expiring leases and management agreements;

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(iv) changes in market rental rates;

(v) changes to the USPS’s current property leasing program or form of lease;

(v) changes to the USPS’ current property leasing program or form of lease;

and (vi) our ability to provide adequate services and maintenance at our properties and managed properties.

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We lease our properties primarily to the USPS.

The majority of our leases are modified double-net leases, whereby the USPS is responsible for utilities, routine maintenance and the reimbursement of property taxes and the landlord is responsible for insurance and roof and structure.

The majority of our leases are modified double-net leases, whereby the tenant is responsible for utilities, routine maintenance and the reimbursement of property taxes and the landlord is responsible for insurance and roof and structure.

Thus, an increase in costs related to the landlord’s responsibilities under these leases could negatively influence our operating results.

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General and Administrative

General and administrative expense represents personnel costs, professional fees, legal fees, insurance, consulting fees, portfolio servicing costs and other expenses related to corporate governance, filing reports with the SEC and the New York Stock Exchange, and other compliance matters.

General and administrative expense represents personnel costs, professional fees, legal fees, insurance, consulting fees, information technology costs, and other expenses related to our day-to-day activities of being a public company.

While we expect that our general and administrative expenses will continue to rise as our portfolio grows, we expect that such expenses as a percentage of our revenues will decrease over time due to efficiencies and economies of scale.

Equity-Based Compensation Expense

All equity-based compensation expense is recognized in our consolidated statements of operations as components of general and administrative expense and property operating expenses.

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

We issue share-based awards to align our employees’ interests with those of our investors.

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

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

Indebtedness and Interest Expense

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

On January 30, 2020, we amended the 2019 Credit Agreement in order to exercise a portion of the Accordion Feature to increase the maximum amount available under the 2019 Credit Facility to $150.0 million, subject to the borrowing base properties identified therein remaining unencumbered and subject to an executed lease.

On June 25, 2020, we further amended the 2019 Credit Agreement to revise, among other items, certain definitions and borrowing base calculations to increase available capacity, as well as the restrictive covenant pertaining to consolidated tangible net worth.

On November 24, 2020, we amended the 2019 Credit Agreement to revise, among other items, certain definitions and borrowing base calculations to allow leases to parties other than the USPS at a real property subject to certain limitations.

On August 9, 2021, we entered into a $150.0 million senior unsecured revolving credit facility

and a $50.0 million senior unsecured term loan facility (together, the “2021 Credit Facilities”).

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

On August 9, 2021, we entered into a $150.0 million senior unsecured revolving credit facility (the "2021 Revolving Credit Facility") and a $50.0 million senior unsecured term loan facility (the "2021 Term Loan" and, together with the 2021 Revolving Credit Facility, the “2021 Credit Facilities”).

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

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Lease Renewal

As of August 10, 2021, the leases at 28 of our properties were expired and the USPS was occupying such properties as a holdover tenant, representing approximately 59,000 net leasable interior square feet and $0.6 million in annual contractual rental revenue.

As of November 11, 2021, the leases at 34 of our properties, representing approximately 74,000 net leasable interior square feet and $0.7 million in annual contractual rental revenue, were expired and the USPS was occupying such properties as a holdover tenant.

As of the date of this report, the USPS had not vacated or notified us of its intention to vacate any of these properties.

When a lease expires, the USPS becomes a holdover tenant on a month-to-month basis typically paying the greater of estimated market rent or the rent amount under the expired lease.

As of the date of this report, we agreed in letters of intent to preliminary terms on rental rates for 59 properties that had expired or were scheduled to expire in 2021.

However, we had not entered into any definitive documentation with respect to the rental rates or leases for the 28 properties at which the USPS is a holdover tenant, and there can be no guarantee that any new leases that we enter into with the USPS will reflect our expectations with respect to terms or timing.

We might not be successful in renewing the leases that are in holdover status or that are expiring in 2021, or obtaining positive rent renewal spreads, or even renewing the leases on terms comparable to those of the expiring leases.

As of the date of this report, we renewed leases at 12 of our properties with leases that had expired or were scheduled to expire in 2021.

For the rest of properties with leases that are expired or are scheduled to expire in 2021, we have entered into letters of intent on preliminary terms for rental rates;

however, we had not entered into any definitive documentation with respect to these properties and there can be no guarantee that any new leases that we enter into with the USPS will reflect our expectations with respect to terms or timing.

We might not be successful in renewing the leases that are in holdover status or that are expiring, or obtaining positive rent renewal spreads, or even renewing the leases on terms comparable to those of the expiring leases.

If we are not successful, we will likely experience reduced occupancy, traffic, rental revenue and net operating income, which could have a material adverse effect on our financial condition, results of operations and ability to make distributions to shareholders.

Results of Operations

Comparison of the three months ended June 30, 2021 and June 30, 2020

Comparison of the three months ended September 30, 2021 and three months ended September 30, 2020

For the Three Months Ended

September 30,

2021 2020 $ Change % Change

Rental income $ 10,204 $ 6,014 $ 4,190 69.7 %

Fee and other income 551 312 239 76.6 %

Fee and other 325 276 49 17.8 %

Total revenues 10,529 6,290 4,239 67.4 %

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Income from operations 1,582 610 972 159.3 %

Other income 159 7 152 2,171.4 %

Interest expense, net

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Total interest expense, net (1,028) (607) (421) 69.4 %

Income (loss) before income tax expense 850 (225) 1,075 (477.8) %

Income before income tax expense 713 10 703 7,030.0 %

Income tax expense (37) (30) (7) 23.3 %

Net income (loss) $ 676 $ (20) $ 696 (3,480.0) %

Total revenues increased by $3.9 million for the three months ended June 30, 2021 compared to the three months ended June 30, 2020.

The increase in revenue is attributable to the full impact of the 261 properties that we acquired in 2020 and the 125 properties that we acquired during the six months ended June 30, 2021.

Rental income – Rental income includes net rental income as well as the recovery of certain operating costs and property taxes from tenants.

Rental income increased $3.7 million quarter over quarter primarily due to full impact of the 261 properties that we acquired in 2020 and the 125 properties that we acquired during the six months ended June 30, 2021.

Fee and other income .

Other revenue increased by $0.2 million to $0.6 million for the three months ended June 30, 2021 compared to the three months ended June 30, 2020 primarily due to higher management fee and miscellaneous income.

Rental income increased by $4.2 million to $10.2 million for the three months ended September 30, 2021 from $6.0 million for the three months ended September 30, 2020 due to the volume of our acquisitions.

Fee and other .

Other revenue increased by $0.05 million to $0.3 million for the three months ended September 30, 2021 from $0.3 million for the three months ended September 30, 2020 primarily due to higher management fees and miscellaneous income.

Operating Expense

Real estate taxes – Real estate taxes increased by $0.5 million for the three months ended June 30, 2021 compared to the three months ended June 30, 2020 as a result of the full impact of the 261 properties that we acquired in 2020 and the 125 properties that we acquired during the six months ended June 30, 2021.

Property operating expenses – Property operating expenses increased by $0.4 million to $0.8 million for June 30, 2021 from $0.4 million for the three months ended June 30, 2020.

Property management expenses are included within property

operating expenses and increased by $0.1 million to $0.3 million for the three months ended June 30, 2021 from $0.2 million for the three months ended June 30, 2020.

The remainder of the increase of $0.3 million is related to expenses for repairs and maintenance and insurance in connection with the full impact of the 261 properties that we acquired in 2020 and the 125 properties that we acquired during the six months ended June 30, 2021.

General and administrative – General and administrative expenses increased by $0.8 million to $2.7 million for the three months ended June 30, 2021 from $1.9 million for the three months ended June 30, 2020, primarily due to higher equity-based compensation expense related to awards that have been granted throughout 2020 and 2021.

Depreciation and amortization – Depreciation and amortization expense increased by $1.1 million to $3.2 million for the three months ended June 30, 2021 from $2.2 million for three months ended June 30, 2020, and is primarily related to the full impact of the 261 properties that we acquired in 2020 and the 125 properties that we acquired during the six months ended June 30, 2021.

Real estate taxes – Real estate taxes increased by $0.8 million to $1.6 million for the three months ended September 30, 2021 from $0.8 million for the three months ended September 30, 2020 due to the volume of our acquisitions.

Property operating expenses – Property operating expenses increased by $0.5 million to $1.0 million for the three months ended September 30, 2021 from $0.5 million for the three months ended September 30, 2020.

Property management expenses are included within property operating expenses and increased by $0.2 million to $0.4 million for the three months

ended September 30, 2021 from $0.2 million for the three months ended September 30, 2020.

The remainder of the increase of $0.3 million is related to expenses for repairs and maintenance and insurance, which increase is due to the volume of our acquisitions.

General and administrative – General and administrative expenses increased by $0.6 million to $2.6 million for the three months ended September 30, 2021 from $2.0 million for the three months ended September 30, 2020 primarily due to an increase in equity-based compensation expense related to awards that have been granted to our employees throughout 2020 and 2021.

Depreciation and amortization – Depreciation and amortization expense increased by $1.3 million to $3.7 million for the three months ended September 30, 2021 from $2.4 million for three months ended September 30, 2020 due to the volume of our acquisitions.

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

Other income increased by $0.2 million to $0.2 million for the three months ended September 30, 2021 from $0.01 million for the three months ended September 30, 2020, primarily due to higher insurance recoveries.

Total Interest Expense, Net

During the three months ended June 30, 2021, we incurred total interest expense, net of $0.8 million compared to $0.7 million for the three months ended June 30, 2020.

The increase in interest expense is primarily related to higher amount of borrowings under the 2019 Credit Facility.

During the three months ended September 30, 2021, we incurred total interest expense, net of $1.0 million compared to $0.6 million for the three months ended September 30, 2020.

The increase in interest expense is primarily related to higher amount of borrowings under the 2021 Credit Facilities, increased amortization of deferred financing costs under the 2021 Credit Facilities and the 2019 Credit Facility and a write-off of fees related to the termination of the 2019 Credit Facility.

Income Tax Expense

During the three months ended June 30, 2021, income tax expense increased by $0.02 million to $0.03 million from $0.01 million for the three months ended June 30, 2020 and was primarily attributable to an increase in income tax expense related to PRM for the three months ended June 30, 2021.

Comparison of the six months ended June 30, 2021 and June 30, 2020

For the Six Months Ended

During the three months ended September 30, 2021, income tax expense increased by $0.01 million to $0.04 million from $0.03 million for the three months ended September 30, 2020, primarily attributable to an increase in income tax expense related to PRM for the three months ended September 30, 2021.

Comparison of the nine months ended September 30, 2021 and September 30, 2020

For the Nine Months Ended

September 30,

2021 2020 $ Change % Change

Rental income $ 27,668 $ 16,209 $ 11,459 70.7 %

Fee and other income 929 607 322 53.0 %

Fee and other 1,137 817 320 39.2 %

Total revenues 28,805 17,026 11,779 69.2 %

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Income from operations 4,208 791 3,417 432.0 %

Other income 276 73 203 278.1 %

Interest expense, net

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Net income (loss) $ 1,624 $ (1,280) $ 2,904 (226.9) %

Total revenues increased by $7.6 million for the six months ended June 30, 2021 compared to the six months ended June 30, 2020.

The increase in revenue is attributable to the full impact of the 261 properties that we acquired in 2020 and the 125 properties that we acquired during the six months ended June 30, 2021.

Rental income – Rental income includes net rental income as well as the recovery of certain operating costs and property taxes from tenants.

Rental income increased $7.3 million primarily due to the full impact of the 261 properties that we acquired in 2020 and the 125 properties that we acquired during the six months ended June 30, 2021.

Fee and other income .

Other revenue increased by $0.3 million to $0.9 million for the six months ended June 30, 2021 compared to the six months ended June 30, 2020 primarily due to a higher management fee and miscellaneous income.

Rental income includes net rental income as well as the recovery of certain operating costs and property taxes from tenants.

Rental income increased by $11.5 million to $27.7 million for the nine months ended September 30, 2021 from $16.2 million for the nine months ended September 30, 2020 due to the volume of our acquisitions.

Fee and other .

Other revenue increased by $0.3 million to $1.1 million for the nine months ended September 30, 2021 from $0.8 million for the nine months ended September 30, 2020, primarily due to higher management fees and miscellaneous income.

Operating Expense

Real estate taxes – Real estate taxes increased by $0.9 million for the six months ended June 30, 2021 compared to the six months ended June 30, 2020 as a result of the full impact of the 261 properties that we acquired in 2020 and the 125 properties that we acquired during the six months ended June 30, 2021.

Property operating expenses – Property operating expenses increased by $0.9 million to $1.7 million for the six months ended June 30, 2021 from $0.8 million for the six months ended June 30, 2020.

Property management expenses are

included within property operating expenses and increased by $0.3 million to $0.7 million for the six months ended June 30, 2021 from $0.4 million for the six months ended June 30, 2020.

The remainder of the increase of $0.6 million is related to expenses for repairs and maintenance and insurance in connection with the full impact of the 261 properties that we acquired in 2020 and the 125 properties that we acquired during the six months ended June 30, 2021.

General and administrative – General and administrative expenses increased by $1.1 million to $5.3 million for the six months ended June 30, 2021 from $4.2 million for the six months ended June 30, 2020, primarily due to higher equity-based compensation expense related to awards that have been granted throughout 2020 and 2021.

Depreciation and amortization – Depreciation and amortization expense increased by $2.2 million to $6.4 million for the six months ended June 30, 2021 from $4.2 million for the six months ended June 30, 2020, and is primarily related to the full impact of the 261 properties that we acquired in 2020 and the 125 properties that we acquired during the six months ended June 30, 2021.

Real estate taxes – Real estate taxes increased by $1.7 million to $3.9 million for the nine months ended September 30, 2021 from $2.1 million for the nine months ended September 30, 2020 due to the volume of our acquisitions.

Property operating expenses – Property operating expenses increased by $1.4 million to $2.7 million for the nine months ended September 30, 2021 from $1.3 million for the nine months ended September 30, 2020.

Property management expenses are included within property operating expenses and increased by $0.5 million to $1.1 million for the nine months ended September 30, 2021 from $0.6 million for the nine months ended September 30, 2020.

The remainder of the increase of $0.9 million is related to expenses for repairs and maintenance and insurance, which increase is due to the volume of our acquisitions.

General and administrative – General and administrative expenses increased by $1.6 million to $7.9 million for the nine months ended September 30, 2021 from $6.2 million for the nine months ended September 30, 2020 primarily due to an increase in equity-based compensation expense related to awards that have been granted to our employees throughout 2020 and 2021.

Depreciation and amortization – Depreciation and amortization expense increased by $3.5 million to $10.1 million for the nine months ended September 30, 2021 from $6.6 million for the nine months ended September 30, 2020 due to the volume of our acquisitions.

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

Other income increased by $0.2 million to $0.3 million for the nine months ended September 30, 2021 from $0.1 million for the nine months ended September 30, 2020, primarily due to higher insurance recoveries.

Total Interest Expense, Net

During the six months ended June 30, 2021, we incurred total interest expense, net of $1.8 million compared to $1.5 million for the six months ended June 30, 2020.

During the nine months ended September 30, 2021, we incurred total interest expense, net of $2.8 million compared to $2.1 million for the nine months ended September 30, 2020.

The increase in interest expense is primarily related to the loss on early extinguishment of debt of $0.2 million incurred in connection with the pay down of two mortgage financings during the nine months ended September 30, 2021 and higher amount of borrowings under the 2021 Credit Facilities and, prior to its termination, the 2019 Credit Facility.

Income Tax Expense

During the six months ended June 30, 2021, income tax expense increased by $0.02 million to $0.03 million from $0.01 million for the six months ended June 30, 2020 and was primarily attributable to an increase in expense related to PRM for the six months ended June 30, 2021.

Comparison of the six months ended June 30, 2021 and the six months ended June 30, 2020

We had $4.9 million of cash and $1.2 million of escrows and reserves as of June 30, 2021 compared to $4.9 million of cash and $0.7 million of escrows and reserves as of June 30, 2020.

Cash flow from operating activities – Net cash provided by operating activities increased by $5.2 million to $8.4 million for the six months ended June 30, 2021 compared to $3.2 million for the same period in 2020.

The increase is primarily due to the addition of postal properties that were acquired in 2020 and the six months ended June 30, 2021, all of which have generated additional rental income and related changes in working capital.

Cash flow to investing activities – Net cash used in investing activities increased by $13.7 million to $48.0 million for the six months ended June 30, 2021 compared to $34.3 million for the same period in 2020.

The increase was related to the purchase of postal properties that were acquired during the six months ended June 30, 2021.

Cash flow from financing activities – Net cash provided by financing activities increased by $19.0 million to $42.5 million for the six months ended June 30, 2021 compared to $23.5 million provided by the same period in 2020.

The increase was primarily related to proceeds received from our January Follow-on Offering and ATM Program offset by the pay down of two mortgage financings, reduced net borrowings on our 2019 Credit Facility during the six months ended June 30, 2021 and an increase in payment of dividends.

During the nine months ended September 30, 2021, income tax expense increased by $0.03 to $0.08 million from $0.05 million for the nine months ended September 30, 2020, primarily attributable to an increase in expense related to PRM for the nine months ended September 30, 2021.

Comparison of the nine months ended September 30, 2021 and the nine months ended September 30, 2020

We had $4.0 million of cash and $0.9 million of escrows and reserves as of September 30, 2021 compared to $7.8 million of cash and $0.7 million of escrows and reserves as of September 30, 2020.

Cash flow from operating activities – Net cash provided by operating activities increased by $7.5 million to $13.4 million for the nine months ended September 30, 2021 compared to $6.0 million for the same period in 2020.

The increase is primarily due to the volume of postal properties that we have acquired, all of which have generated additional rental income and related changes in working capital.

Cash flow to investing activities – Net cash used in investing activities for the nine months ended September 30, 2021 primarily consisted of $60.7 million of acquisitions and $1.9 million of escrow deposits for acquisition, capital improvements and other investing activities, offset by $1.0 million of insurance proceeds that were received.

Net cash used in investing activities for the nine months ended September 30, 2020 primarily consisted of $60.6 million of acquisitions and the investment in a financing lease.

Cash flow from financing activities – Net cash provided by financing activities decreased by $1.1 million to $49.8 million for the nine months ended September 30, 2021 compared to $50.9 million for the nine months ended September 30, 2021.

The decrease was primarily related to the pay down of two mortgage financings and no mortgage borrowings in 2021, higher debt issuance costs and increased payment of dividends and distributions, offset by an increase in net proceeds from issuance of shares and increased net borrowings under our credit facilities during the nine months ended September 30, 2021.

Liquidity and Capital Resources

Analysis of Liquidity and Capital Resources

We had approximately $4.9 million of cash and $1.2 million of escrows and reserves as of June 30, 2021.

As of June 30, 2021, we had $82.5 million outstanding under the 2019 Credit Facility.

On January 30, 2020, we exercised the Accordion Feature to increase permitted borrowings to $150.0 million from $100.0 million subject to the borrowing base properties identified therein remaining unencumbered and subject to an executed lease.

On June 25, 2020, we

further amended the 2019 Credit Agreement to revise, among other items, certain definitions and borrowing base calculations to increase available capacity, as well as the restrictive covenant pertaining to consolidated tangible net worth.

On November 24, 2020, we amended the 2019 Credit Agreement to revise, among other items, certain definitions and borrowing base calculations to allow leases other than the USPS at a real property subject to certain limitations.

We had approximately $4.0 million of cash and $0.9 million of escrows and reserves as of September 30, 2021.

As of September 30, 2021, we had $94.5 million outstanding under the 2021 Credit Facilities.

On August 9, 2021, we entered into the 2021 Credit Facilities with Bank of Montreal, as administrative agent, and BMO Capital Markets Corp., People’s United Bank, National Association, JPMorgan Chase Bank, N.A.

3 unchanged sentences

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

The 2021 Credit Facilities include an accordion feature which will permit us to borrow up to an additional $150.0 million under the Revolving Facility and up to an additional $50.0 million under the Term Loan, in each case subject to customary terms and conditions.

The Revolving Facility matures in January 2026, which may be extended for two six-month periods subject to customary conditions, and the Term Loan matures in January 2027.

Borrowings under the 2021 Credit Facilities carry an interest rate of, (i) in the case of the Revolving Facility, either a base rate plus a margin ranging from 0.5% to 1.0% per annum or LIBOR plus a margin ranging from 1.5% to 2.0% per annum, or (ii) in the case of the Term Loan, either a base rate plus a margin ranging from 0.45% to 0.95% per annum or LIBOR plus a margin ranging from 1.45% to 1.95% per annum, in each case depending on a consolidated leverage ratio.

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

The 2021 Credit Facilities include an accordion feature which will permit us to borrow up to an additional $150.0 million under the 2021 Revolving Credit Facility and up to an additional $50.0 million under the 2021 Term Loan, in each case subject to customary terms and conditions.

The 2021 Revolving Credit Facility matures in January 2026, which may be extended for two six-month periods subject to customary conditions, and the 2021 Term Loan matures in January 2027.

Borrowings under the 2021 Credit Facilities carry an interest rate of, (i) in the case of the 2021 Revolving Credit Facility, either a base rate plus a margin ranging from 0.5% to 1.0% per annum or LIBOR plus a margin ranging from 1.5% to 2.0% per annum, or (ii) in the case of the 2021 Term Loan, either a base rate plus a margin ranging from 0.45% to 0.95% per annum or LIBOR plus a margin ranging from 1.45% to 1.95% per annum, in each case depending on a consolidated leverage ratio.

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

The 2021 Credit Facilities are guaranteed, jointly and severally, by us and certain of our indirect subsidiaries and contains customary covenants that, among other things, restrict, subject to certain exceptions, our ability to incur indebtedness, grant liens on assets, make certain types of investments, engage in acquisitions, mergers or consolidations, sell assets, enter into certain transactions with affiliates and pay dividends or make distributions.

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The 2021 Credit Facilities also contain certain customary events of default, including the failure to make timely payments under the 2021 Credit Facilities, any event or condition that makes other material indebtedness due prior to its scheduled maturity, the failure to satisfy certain covenants and specified events of bankruptcy and insolvency.

As of August 11, 2021, management believed that we were in compliance with all of the financial and non-financial covenants contained in the 2021 Credit Facilities.

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

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

As of September 30, 2021, we were in compliance with all of the 2021 Credit Facilities’ debt covenants.

In addition, on August 9, 2021, we entered into an interest rate swap (the "Interest Rate Swap") that effectively fixed the LIBOR component of the interest rate on $50.0 million portion of the 2021 Credit Facilities through January 2027.

The Interest Rate Swap initially applied to the $50.0 million 2021 Term Loan, fixing the interest rate for the 2021 Term Loan at 2.291% as of September 30, 2021 .

On March 5, 2021, the Financial Conduct Authority announced that USD LIBOR will no longer be published after June 30, 2023.

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

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

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

Our short-term liquidity requirements primarily consist of operating expenses and other expenditures associated with our properties, distributions to our limited partners and distributions to our stockholders required to qualify for REIT status, capital expenditures and, potentially, acquisitions.

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Consolidated Indebtedness

As of June 30, 2021, we had approximately $115.7 million of outstanding consolidated principal indebtedness.

The following table sets forth information as of June 30, 2021 with respect to our outstanding indebtedness (in thousands):

Balance as of June 30, 2021

Rate at June 30, 2021

2019 Credit Facility (1)

As of September 30, 2021, we had approximately $127.7 million of outstanding consolidated principal indebtedness.

The following table sets forth information as of September 30, 2021 with respect to our outstanding indebtedness (in thousands):

Balance as of September 30, 2021

Rate at September 30, 2021

Revolving Credit Facility Borrowings (1) :

2021 Revolving Credit Facility $ 44,500 LIBOR+150bps (2)

2021 Term Loan (1)

50,000 LIBOR+145bps (2)

September 2023

Secured Borrowings:

Vision Bank (3)

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Vision Bank – 2018 (5)

852 5.00 % January 2038

844 3.69 % September 2041

Seller Financing (6)

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Explanatory Notes :

(1) The 2019 Credit Agreement provides for revolving commitments in an aggregate principal amount of $100.0 million with Accordion Feature that permits us to borrow up to an additional $100.0 million for an aggregate total of $200.0 million, subject to customary terms and conditions, and a maturity date of September 27, 2023.

On November 24, 2020, we further amended the 2019 Credit Agreement to revise, among other items, certain definitions and borrowing base calculations to allow leases to parties other than the USPS as a real property subject to certain limitations.

On August 9, 2021, in connection with entering into the 2021 Credit Facilities, we terminated the 2019 Credit Facility and paid off the outstanding loans thereunder.

The interest rates applicable to loans under the 2019 Credit Facility were, at our option, equal to either a base rate plus a margin ranging from 0.7% to 1.4% per annum or LIBOR plus a margin ranging from 1.7% to 2.4% per annum, each based on a consolidated leverage ratio.

In addition, we paid, for the period through and including the three months ended March 31, 2020, an unused facility fee on the revolving commitments under the 2019 Credit Facility of 0.75% per annum for the first $100 million and 0.25% per annum for the portion of revolving commitments exceeding $100.0 million, and, for the period thereafter, an unused facility fee of 0.25% per annum for the aggregate unused revolving commitments, with both periods utilizing calculations of daily unused commitments under the 2019 Credit Facility.

During the three and six months ended June 30, 2021, we incurred $0.05 million and $0.1 million, respectively, of unused facility fees related to the 2019 Credit Facility.

During the three and six months ended June 30, 2020, we incurred $0.1 million and $0.2 million, respectively, of unused facility fees related to the 2019 Credit Facility.

As of June 30, 2021, we were in compliance with all of the 2019 Credit Facility’s debt covenants.

(2) As of June 30, 2021, the one-month LIBOR rate was 0.10%.

(3) Five properties are collateralized under this loan with Mr.

Spodek as the guarantor.

On September 8, 2021 and every five years thereafter, the interest rate will reset at a variable annual rate of Wall Street Journal Prime Rate (“Prime”) + 0.5%.

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

During the three and nine months ended September 30, 2021, we incurred $0.05 million and $0.2 million, respectively, of unused facility fees related to the 2019 Credit Facility and the 2021 Revolving Credit Facility.

During the three and nine months ended September 30, 2020, we incurred $0.1 million and $0.3 million, respectively, of unused facility fees related to the 2019 Credit Facility.

(2) As of September 30, 2021, the one-month U.S.

Dollar LIBOR rate was 0.08025%.

(3) Five properties are collateralized under this loan with a personal guarantee of payment by Mr.

Spodek for 50% of the outstanding amount thereunder.

On September 30, 2021, we amended this loan to extend its maturity to September 2041 and reduce its interest rate to 3.69% fixed for five years with interest payments only, then adjusting every subsequent 5 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.

Interest rate resets on December 31, 2022 to Prime + 0.25%.

On August 3, 2021, we amended the loan with First Oklahoma Bank to reduce its interest rate to 3.625% fixed for five years then adjusting annually to Prime with a minimum annual rate of 3.625%.

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

Interest rate resets on January 31, 2023 to Prime + 0.5%.

(6) In connection with the acquisition of a property, we obtained seller financing secured by the property in the amount of $0.4 million requiring five annual payments of principal and interest of $105,661 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 cross-collateralized and cross-defaulted first mortgage lien on the industrial property located in Warrendale, PA.

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

The loan has a fixed interest rate of 2.80% with interest-only payments for the first five years and fixed payments of principal and interest thereafter based on a 30-year amortization schedule.

Secured Borrowings as of June 30, 2021

As of June 30, 2021, we had approximately $33.2 million of secured borrowings outstanding, all of which is fixed rate debt with a weighted average interest rate of 2.96% per annum.

During the six months ended June 30, 2021, we repaid two mortgage loans in the aggregate amount of $13.7 million.

On August 3, 2021, we also amended the secured loan with First Oklahoma Bank to reduce its interest rate to 3.625% fixed for five years then adjusting annually to Prime with a minimum annual rate of 3.625%.

Secured Borrowings as of September 30, 2021

As of September 30, 2021, we had approximately $33.2 million of secured borrowings outstanding, all of which are fixed rate debt with a weighted average interest rate of 2.90% per annum.

During the nine months ended September 30, 2021, we repaid two mortgage loans in the aggregate amount of $13.7 million.

To maintain our qualification as a REIT, we are required to pay dividends to stockholders at least equal to 90% of our REIT taxable income determined without regard to the deduction for dividends paid and excluding net capital gains.

During the three months and six months ended June 30, 2021, we paid cash dividends of $0.22 per share and $0.4375 per share, respectively.

On July 26, 2021, our Board of Directors approved and we declared a second quarter common stock dividend of $0.2225 per share which will be paid on August 27, 2021 to stockholders of record on August 13, 2021.

During the three and nine months ended September 30, 2021, we paid cash dividends of $0.2225 per share and $0.66 per share, respectively.

Our Board of Directors approved, and o n November 4, 2021, we declared a third quarter common stock dividend of $0.2250 per share, which will be paid on November 30, 2021 to stockholders of record as of November 15, 2021.

Subsequent Real Estate Acquisitions

Subsequent to June 30, 2021, we have acquired 37 postal properties in individual or small portfolio transactions for an aggregate of approximately $12.1 million, excluding closing costs, some of which include OP Units as part of the consideration.

Subsequent to September 30, 2021, we have acquired 17 postal properties in individual or portfolio transactions for an aggregate of approximately $17.9 million, excluding closing costs.

Off-Balance Sheet Arrangements

As of June 30, 2021, we did not have any off-balance sheet arrangements.

As of September 30, 2021, we did not have any off-balance sheet arrangements.

Critical Accounting Policies and Estimates

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What changed 10-Q

Item 2. Management’s Discussion and Analysis