What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-03-14 compared with 2021-03-30 · 676 added, 1060 removed, 187 unchanged (90% of the section changed)

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Financial Statements

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

New York, New York, PCAOB ID# 243 )

Consolidated Balance Sheets as of December 31, 2021 and 2020

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

Consolidated Statements of Changes in Equity (Deficit) for the Years Ended December 31, 2021 and 2020

Consolidated Statements of Cash Flows for the Years Ended December 31, 2021 and 2020

Notes to Consolidated Financial Statements

Schedule III – Real Estate and Accumulated Depreciation

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Balance Sheets as of December 31, 2020 and 2019

Consolidated and Combined Consolidated Statements of Operations for the Years Ended December 31, 2020 and 2019

Consolidated and Combined Consolidated Statements of Equity (Deficit) for the Years Ended December 31, 2020 and 2019

Consolidated and Combined Consolidated Statements of Cash Flows for the Years Ended December 31, 2020 and 2019

Notes to Consolidated and Combined Consolidated Financial Statements

Schedule III –

Real Estate Properties and Accumulated Depreciation

OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Stockholders and Board of Directors

1 unchanged sentence

Cedarhurst, NY

Opinion on the Consolidated and

Combined Consolidated Financial Statements

We have audited the accompanying consolidated balance

sheets of Postal Realty Trust, Inc.

as of December 31, 2020 and 2019, the related consolidated and

combined consolidated statements of operations, changes in equity (deficit), and cash flows of Postal

Realty Trust, Inc.

and its Predecessor (the “Company”) for the years then ended, and the related

notes and schedule (collectively referred to as the “consolidated and combined consolidated financial

statements”).

In our opinion, the consolidated and combined consolidated financial statements present fairly,

in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the

results of its operations and its cash flows for the years then ended , in

conformity with accounting principles generally accepted in the United States of America.

Opinion on the Consolidated Financial Statements

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

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

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated and combined

consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express

an opinion on the Company’s consolidated and combined consolidated financial statements based on our

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 consolidated and combined consolidated financial statements are free of material misstatement, whether

due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control

over financial reporting.

As part of our 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.

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our 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 consolidated financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our 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 consolidated and combined consolidated financial statements,

whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a

test basis, evidence regarding the amounts and disclosures in the consolidated and combined consolidated financial

Our audits also included evaluating the accounting principles used and significant estimates made by management, as

well as evaluating the overall presentation of the consolidated and combined consolidated financial statements.

believe that our audits provide a reasonable basis for our opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audits provide a reasonable basis for our opinion.

/s/ BDO USA, LLP

We have served as the Company's auditor

We have served as the Company's auditor since 2017.

New York, New York

2 unchanged sentences

Financial Statements

REALTY TRUST, INC.

BALANCE SHEETS

POSTAL REALTY TRUST, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except par value and share data)

2021 December 31,

Real estate properties, at cost:

Land $ 64,538 $ 46,303

Building and improvements 278,396 196,340

2 unchanged sentences

Accumulated depreciation ( 20,884 ) ( 13,215 )

(13,215,180 )

Total real estate properties, net 327,481 233,856

Investment in financing lease, net

Total investments

Investment in financing leases, net 16,213 515

Total real estate investments 343,694 234,371

Cash 5,857 2,212

Escrow and reserves 1,169 1,059

Rent and other receivables 4,172 3,521

Prepaid expenses and other assets, net 7,511 4,434

Escrow and reserves

Deferred rent receivable 666 216

1 unchanged sentence

Above market leases, net 249 50

$ 258,884,811

$ 136,788,197

Total Assets $ 377,717 $ 258,885

Liabilities and Equity

Secured borrowings, net

Term loan, net $ 49,359 $ —

Revolving credit facility 13,000 78,000

Secured borrowings, net 32,990 46,629

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

9 unchanged sentences

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

Total Stockholders’

Operating Partnership unitholders’

non-controlling interests

Accumulated other comprehensive income 766 —

Total Stockholders’ Equity 220,042 91,990

Operating Partnership unitholders’ non-controlling interests 45,431 27,649

Total Equity 265,473 119,639

Total Liabilities and Equity $ 377,717 $ 258,885

$ 258,884,811

$ 136,788,197

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

REALTY TRUST, INC.

AND COMBINED CONSOLIDATED STATEMENTS OF OPERATIONS

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

POSTAL REALTY TRUST, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(in thousands, except per share data)

For the Year Ended

Rental income $ 38,276 $ 23,315

Tenant reimbursements

Fee and other income

Fee and other 1,662 1,129

Total revenues 39,938 24,444

6 unchanged sentences

Income from operations 5,919 2,032

Other income 401 231

Interest expense, net:

1 unchanged sentence

Write-off and amortization of deferred financing fees ( 714 ) ( 472 )

Loss on early extinguishment of predecessor debt

Loss on early extinguishment of debt ( 202 ) —

Interest income 2 3

2 unchanged sentences

Income tax expense ( 111 ) ( 89 )

Net income attributable to non-controlling interest in properties

Net income attributable to Predecessor

Net loss attributable to Operating Partnership unitholders’

non-controlling interests

Net loss attributable to common stockholders

$ (1,497,213 )

Net loss per share:

Net income (loss) 2,556 ( 641 )

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

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

Net income (loss) per share:

Basic and Diluted $ 0.10 $ ( 0.10 )

1 unchanged sentence

Basic and Diluted 13,689,251 7,013,621

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

REALTY TRUST, INC.

AND COMBINED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

shares of Common

Member’s

Stockholders’

unitholders’

non-controlling

Non-controlling

Comprehensive income (loss):

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

Unrealized gain on financial instrument 960 —

Comprehensive income (loss) 3,516 ( 641 )

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

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

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

POSTAL REALTY TRUST, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

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

Balance - December 31, 2019 5,313,110 $ 53 $ 51,396 $ ( 2,576 ) $ — $ 48,873 $ 20,950 $ 69,823

$ (11,003,876 )

$ (2,095,823 )

$ (5,658,006 )

$ (5,613,413 )

Capital contributions

Distributions and dividends

income (loss)

- May 16, 2019

$ (11,174,220 )

$ (1,168,623 )

$ (5,203,220 )

$ (5,160,479 )

Net proceeds from sale of

Formation transactions

(31,586,914 )

(23,237,628 )

Issuance of OP Units in connection

with a transaction

Issuance and amortization

of equity-based compensation

Amortization under the Employee

Stock Purchase Plan (“ESPP”)

Net proceeds from sale of common stock 4,021,840 41 48,481 — — 48,522 — 48,522

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

Issuance and amortization of equity-based compensation 134,973 1 1,603 13 — 1,617 729 2,346

Issuance and amortization under ESPP 7,189 — 117 — — 117 — 117

Restricted stock withholdings ( 12,709 ) — ( 205 ) — — ( 205 ) — ( 205 )

Dividends declared ($ 0.79 per share)

Net income (loss)

of non-controlling interest

— — — ( 6,002 ) — ( 6,002 ) ( 2,243 ) ( 8,245 )

December 31, 2019

$ (2,575,754 )

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

Reallocation of non-controlling interest — — ( 580 ) — — ( 580 ) 580 —

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

$ (2,575,754 )

Net proceeds from sale of

Issuance of OP Units in connection

with a transaction

Issuance and amortization

of equity-based compensation

Issuance and amortization

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

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

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

Issuance and amortization under ESPP 9,104 — 171 — — 171 — 171

Restricted stock withholdings ( 17,196 ) — ( 341 ) — — ( 341 ) — ( 341 )

Dividends declared ($ 0.885 per share)

of non-controlling interest

December 31, 2020

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

$ (8,916,683 )

$ 119,638,526

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

REALTY TRUST, INC.

AND COMBINED CONSOLIDATED STATEMENTS OF CASH FLOWS

Other comprehensive income — — — — 766 766 194 960

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

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

Balance – December 31, 2021 18,591,627 $ 186 $ 237,969 $ ( 18,879 ) $ 766 $ 220,042 $ 45,431 $ 265,473

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

POSTAL REALTY TRUST, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Year Ended

Cash flows from operating activities:

$ (1,492,431 )

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

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

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

Depreciation 7,718 4,492

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

4 unchanged sentences

Reclassification of cumulative dividends paid on forfeited awards — 13

Loss on extinguishment of debt

Loss on early extinguishment of debt 202 —

Deferred rent receivable ( 450 ) ( 183 )

Deferred rent expense payable 12 17

Deferred tax liability

Changes in assets and liabilities:

1 unchanged sentence

Prepaid expenses and other assets ( 2,104 ) ( 563 )

Due to affiliates

Accounts payable, accrued expenses and other 1,098 1,847

2 unchanged sentences

Acquisition of real estate ( 89,464 ) ( 124,160 )

(124,159,835 )

(72,166,456 )

Investment in financing lease

Repayment of financing lease

Investment in financing leases ( 15,707 ) ( 517 )

Repayment of financing leases 19 2

Escrows for acquisition and construction deposits ( 487 ) ( 470 )

Insurance proceeds related to property damage claims 1,151 —

Capital improvements ( 1,900 ) ( 970 )

1 unchanged sentence

Net cash used in investing activities ( 106,725 ) ( 126,152 )

(126,152,208 )

(72,654,037 )

Cash flows from financing activities:

1 unchanged sentence

Repayments of secured borrowings ( 13,845 ) ( 110 )

(32,218,087 )

Proceeds from term loan 50,000 —

Proceeds from revolving credit facility 139,000 112,000

Repayments of revolving credit facility ( 204,000 ) ( 88,000 )

(88,000,000 )

Proceeds from other financing activity — 557

1 unchanged sentence

Net proceeds from issuance of shares 138,795 48,521

Other formation transactions

Debt issuance costs ( 1,346 ) ( 1,164 )

1 unchanged sentence

Shares withheld for payment of taxes on restricted share vesting ( 242 ) ( 206 )

Contributions from partners and members

Other financing activities ( 10 ) —

Distributions and dividends ( 15,041 ) ( 8,245 )

Net cash provided by financing activities 93,385 106,842

Net (decrease) increase in Cash and Escrows and Reserves

Net increase (decrease) in Cash and Escrows and Reserves 3,755 ( 9,913 )

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

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

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

REALTY TRUST, INC.

TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS

Supplemental Disclosure of Non-Cash Investing and Financing Activities

OP Units issued for property acquisitions $ 15,511 $ 7,922

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

Right of use assets $ 1,071 $ —

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

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

Accrued capital expenditures included in accounts payable and accrued expenses $ 660 $ 192

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

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

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

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

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

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Organization and Description of Business

Realty Trust, Inc.

(the “Company”

“we”, “us”, or “our”) 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 (our “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 (each, an “OP Unit,”

and collectively,

the “OP Units”).

Both the Company and the Operating Partnership commenced operations upon completion of the IPO and

certain related formation transactions (the “Formation Transactions”).

Prior to the completion of the IPO and the

Formation Transactions, the Company had no operations.

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.

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.

Postal Realty Trust, Inc.

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

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

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

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

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, 2021, the Company held an approximately 82.9 % 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 we are the primary beneficiary.

Predecessor (the “Predecessor”) was a combination of limited liability companies (the “LLCs”), one C-Corporation

(“UPH”), one S-Corporation (“NPM”) and one limited partnership.

The entities that comprised the Predecessor

were majority owned and controlled by Mr.

Spodek and his affiliates and were acquired by contribution to, or merger with,

the Company and the Operating Partnership.

Predecessor did not represent a legal entity.

The Predecessor and its related assets and liabilities were under common control

and were contributed to the Operating Partnership in connection with the Company’s IPO.

the periods prior to May 17, 2019, the Predecessor, through the LLCs, UPH and the limited partnership, owned 190 postal properties

in 33 states.

was formed on November 17, 2004, for the purpose of managing commercial real estate properties.

of December 31, 2020, the Company owned a portfolio of 726 postal properties located in 47 states.

Our properties are primarily

leased to a single tenant, the United States Postal Service (the “USPS”).

addition, through its taxable REIT subsidiary (“TRS”), Postal Realty Management TRS, LLC (“PRM”), the

Company provides fee-based third party property management services for an additional 400 postal properties, which are owned by

Spodek and his affiliates, his family members and their partners.

Company, until May 15, 2019, was authorized to issue up to 600,000,000 shares of common stock, par value $0.01 per share.

15, 2019, in connection with the IPO, the Company amended its articles of incorporation such that 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 (our

“Class B common stock”

or “Voting Equivalency stock”), and up to 100,000,000 shares of preferred stock.

Company believes it has been organized in conformity with, and has operated in a manner that has enabled it to meet, the requirements

or qualification as a real estate investment trust (“REIT”) under the Code, and the Company elected to be taxed as

a REIT under the Code commencing with our short taxable year ended December 31, 2019.

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.

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.

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

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

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

The Predecessor did not represent a legal entity.

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

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

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

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

Spodek and his affiliates.

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

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

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.

REALTY TRUST, INC.

NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS

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

An EGC may choose, as we have done, to take advantage of the extended private company transition period provided for complying

with new or revised accounting standards that may be issued by the Financial Accounting Standards Board (“FASB”) or

the Securities and Exchange Commission (the “SEC”).

Public Offering and Formation Transactions

the Company and the Operating Partnership commenced operations upon completion of the IPO and the Formation Transactions on May

The Company’s operations are carried out primarily through the Operating Partnership and the wholly owned subsidiaries

of the Operating Partnership.

May 17, 2019, the Company completed its IPO, pursuant to which it sold 4,500,000 shares of its Class A common stock at a public

offering price of $17.00 per share.

The Company raised $76.5 million in gross proceeds, resulting in net proceeds of approximately

$71.1 million after deducting approximately $5.4 million in underwriting discounts and before giving effect to $6.4 million in

other expenses relating to the IPO.

The Company’s Class A common stock began trading on the New York Stock Exchange under

the symbol “PSTL”

on May 15, 2019.

connection with the IPO and Formation Transactions, the Company, through its Operating Partnership, used a portion of the net

proceeds to repay approximately $31.7 million of outstanding indebtedness related to the Predecessor.

to the Formation Transactions, the Company, directly or through the Operating Partnership, acquired the entities that comprise

the Predecessor.

The initial properties and other interests were contributed in exchange for 1,333,112 OP Units, 637,058 shares

of Class A common stock, 27,206 shares of Voting Equivalency stock and $1.9 million of cash.

In addition, the Operating Partnership

purchased 81 postal properties (the “Acquisition Properties”) in exchange for $26.9 million in cash, including approximately

$1.0 million paid to Mr.

Spodek, the Company’s chief executive officer and a director for his non-controlling ownership

in nine of the Acquisition Properties.

Company’s results of operations for the year ended December 31, 2019 reflect the results of operations of the Predecessor

together with the Company, while the financial condition as of December 31, 2019 reflects solely the Company.

References in these

notes to consolidated financial statements to “Postal Realty Trust, Inc.”

signify the Company for the period after

the completion of the IPO and the Formation Transactions and the Predecessor for all prior periods.

following is a summary of the Predecessor Statement of Operations for the period from January 1, 2019 through May 16, 2019, and

the Company’s Statement of Operations for the period from May 17, 2019 through December 31, 2019.

These amounts are included

in the Consolidated and Combined Consolidated Statement of Operations herein for the year ended December 31, 2019.

REALTY TRUST, INC.

NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS

Postal Realty

Rental income

Tenant reimbursements

Fee and other income

Total revenues

Operating Expenses:

Real estate taxes

Property operating expenses

General and administrative

Depreciation and amortization

Total operating expenses

Income (loss) from operations

Interest expense, net:

Contractual interest expense

Write-off and amortization of deferred financing costs

Loss on early extinguishment of Predecessor debt

Interest income

Total interest expense, net

Income (loss) before income tax expense

Income tax expense

Net income (loss)

Net income attributable to noncontrolling interest in properties

Net income attributable to Predecessor

Net loss attributable to Operating Partnership unitholders’

noncontrolling interests

Net loss attributable to common stockholders

$ (1,497,213 )

REALTY TRUST, INC.

NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS

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

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

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Summary of Significant Accounting Policies

of Presentation

accompanying Consolidated and Combined Consolidated Financial Statements include the financial position and results of operations

of the Company and its Predecessor, the Operating Partnership and its wholly owned subsidiaries.

The Company did not have any

operations from the date of formation to May 17, 2019.

The Predecessor represents a combination of certain entities holding interests

in real estate that were commonly controlled prior to the Formation Transactions.

Due to their common control, the financial statements

of the separate Predecessor entities which owned the properties and the management company are presented on a combined consolidated

The effects of all significant intercompany balances and transactions have been eliminated.

Company consolidates the Operating Partnership, a VIE in which the Company is considered the primary beneficiary.

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.

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

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

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.

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

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

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

preparation of financial statements in conformity with GAAP 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.

Although management believes its estimates are reasonable, actual results could

differ from those estimates.

and Other Costs

of the costs related to the IPO and the Formation Transactions paid by an affiliate of the Company’s initial sole shareholder

were reimbursed by the Company from the proceeds of the IPO.

Offering costs were recorded in “Stockholders’

equity”

in the Company’s Consolidated Balance Sheets as a reduction of additional paid-in capital.

Company acquires and manages postal properties and reports our business as a single reportable segment.

in Real Estate

the acquisition of real estate, the purchase price is allocated based upon the relative fair value of the assets acquired and

liabilities assumed.

The allocation of the purchase price to the relative fair value of the tangible assets of an acquired property

is derived by valuing the property as if it were vacant.

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.

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.

REALTY TRUST, INC.

NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS

or amortization expense is computed using the straight-line method based upon the following estimated useful lives:

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.

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” in the Consolidated Balance Sheets as a reduction of additional paid-in capital.

Segment Reporting

The Company leases its properties primarily to the USPS and reports its business as a single reportable segment.

Investments in Real Estate

Upon the acquisition of real estate, the purchase price is allocated based upon the relative fair value of the assets acquired and liabilities assumed.

The allocation of the purchase price to the relative fair value of the tangible 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:

Buildings and improvements

4 unchanged sentences

Remaining non-cancellable term of the in-place lease

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.

Financing costs related to the issuance of the Company’s

secured long-term debt are deferred and amortized as an increase to interest expense over the term of the related debt instrument

using the effective-interest method and are reported as a reduction of the related debt balance on the Consolidated Balance Sheets.

Deferred financing costs related to the Company’s credit facility, or (the “Credit Facility”) are deferred and

amortized as an increase to interest expense over the term of the Credit Facility and are included in “Prepaid expenses and

other assets, net”

on the Consolidated Balance Sheets.

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Deferred Costs

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

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

Reclassifications

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

and Escrows and Reserves

includes unrestricted cash with a maturity of three months or less.

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

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 Company’s Consolidated Balance Sheets

and Consolidated and Combined Consolidated Statements of Cash Flows:

The following table provides a reconciliation of cash and escrows and reserves reported within the Consolidated Balance Sheets and Consolidated Statements of Cash Flows:

2021 December 31,

(in thousands)

$ 5,857 $ 2,212

Escrows and reserves:

2 unchanged sentences

Cash and escrows and reserves

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 “Tenant reimbursement

revenue”

on the Company’s Consolidated and Combined Consolidated Statement of Operations.

REALTY TRUST, INC.

NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS

and other income primarily consist of property management fees.

These fees arise from contractual agreements with entities that

are affiliated with the Company’s CEO.

$ 7,026 $ 3,271

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 (Loss).

Fee and other primarily consist of property management fees and income recognized from properties accounted for as financing leases.

The management fees arise from contractual agreements with entities that are affiliated with the Company’s chief executive officer ("CEO").

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

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 receipt

of insurance proceeds is deemed probable.

Any amount of insurance recovery in excess of the amount of the losses incurred is considered

a gain contingency and is not recorded in fee and other income until the proceeds are received.

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 proceeds are received.

Revenue from direct financing leases is recognized over the

lease term using the effective interest rate method.

At lease inception, we record an asset within investments on the Company’s

Consolidated Balance Sheets, which represents the Company’s net investment in the direct financing lease.

net investment is determined by aggregating the total future minimum lease payments attributable to the direct financing lease and

the estimated residual value of the property, if any, less unearned income.

Over the lease term, the investment in the direct financing

lease is reduced and income is recognized as revenue in “Fee and other income”

on the Company’s Consolidated

and Combined Consolidated Statement of Operations and produces a constant periodic rate of return on the investment in direct financing

As a REIT, the Company is generally not subject to federal corporate

income tax on our net income (loss) that the Company distributes to our shareholders.

The Operating Partnership which holds our

properties is a partnership for U.S.

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

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

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

Over the lease term, the investment in the direct financing lease is reduced and income is recognized as revenue in “Fee and other” in the Consolidated Statements of Operations and Comprehensive Income (Loss) and produces a constant periodic rate of return on the investment in financing leases, net.

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 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.

was subject to federal and state and local income taxes for tax years before the date of the IPO on May 17, 2019.

subsequent to the completion of the IPO and the Formation Transactions, PRM is subject to federal, state and local corporate income

taxes to the extent there is taxable income.

UPH and PRM account for income taxes in accordance with the asset and liability method.

Under the asset and liability method, deferred tax assets and liabilities are recognized based on the differences between the

financial statement carrying value of existing assets and liabilities and their respective tax bases based on enacted tax laws

and statutory tax rates applicable to the periods in which the temporary differences are expected to reverse.

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

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.

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

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.

REALTY TRUST, INC.

NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS

Value of Financial Instruments

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

methodologies.

A valuation allowance is established for deferred tax assets when management anticipates that it is more likely than not that all, or a portion, of these assets would not be realized.

In determining whether a valuation allowance is warranted, all positive and negative evidence and all sources of taxable income such as prior earnings history, expected future earnings, carryback and carryforward periods and tax strategies are considered to estimate if sufficient future taxable income will be generated to realize the deferred tax asset.

The assessment of the adequacy of a valuation allowance is based on estimates of taxable income by jurisdiction and the period over which deferred tax assets will be recoverable.

The tax effects of uncertain tax positions taken or expected to be taken in income tax returns are recognized only if they are “more likely-than-not” to be sustained on examination by the taxing authorities based on the technical merits as of the reporting date.

The tax benefits recognized in the financial statements from such positions are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement.

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

Fair Value of Financial Instruments

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.

the estimates presented herein are not necessarily indicative of the amounts the Company could realize on disposition of the assets

and liabilities as of December 31, 2020 and December 31, 2019.

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, accounts

payable and accrued expenses are carried at amounts which reasonably approximate their fair values as of December 31, 2020 and

December 31, 2019 due to their short maturities.

of December 31, 2020, the Company had an investment in a direct financing lease with a carrying value of $0.5

million and an effective interest rate of 7.89%.

The carrying value of the investment in a direct financing lease approximated

the fair market value as of December 31, 2020.

The fair value of the Company’s debt was categorized as a Level 3 basis (as

provided by ASC 820, Fair Value Measurements and Disclosures).

fair value of the Company’s borrowings under its Credit Facility approximates carrying value.

The fair value of the Company’s

secured borrowings aggregated approximately $47.1 million and $3.2 million as compared to the principal balance of $47.0 million

and $3.2 million as of December 31, 2020 and 2019, respectively.

The fair value of the Company’s debt was categorized as

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

The fair value of these financial instruments

was determined by using a discounted cash flow analysis based on the borrowing rates currently available to the Company for loans

with similar terms and maturities.

The fair value of the mortgage debt was determined by discounting the future contractual interest

and principal payments by a market rate.

about fair value of assets and liabilities is based on pertinent information available to management as of December 31, 2020 and

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, 2020 and current estimates of

fair value may differ significantly from the amounts presented herein.

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.

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

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

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

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

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

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

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

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

The fair value of the Company’s secured borrowings aggregated approximately $ 32.1 million and $ 47.1 million as compared to the principal balance of $ 33.2 million and $ 47.0 million as of December 31, 2021 and 2020, respectively.

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

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

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

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

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

The fair value of the Company's derivative assets was categorized as a Level 2 basis (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.

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

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Disclosure about fair value of assets and liabilities is based on pertinent information available to management as of December 31, 2021 and 2020.

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, 2021 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 risk, even though hedge accounting does not apply or the Company elects not to apply hedge accounting.

Derivatives and Hedging Activities for further details.

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.

No impairments were recorded during the years ended December 31, 2021 and 2020.

Concentration

of Credit Risks

As of December 31, 2020, the Company’s properties were

leased primarily to a single tenant, the USPS.

For the year ended December 31, 2020, our total rental income of $20.3 million was

concentrated in the following state:

Pennsylvania (10.0%).

For the year ended December 31, 2019, our total rental income of $8.9

million was concentrated in the following states:

Texas (14.2%), Massachusetts (14.0%), Wisconsin (12.9%) and Pennsylvania (9.9%).

The ability of the USPS to honor the terms of their leases is dependent upon regulatory, economic, environmental or competitive

conditions in any of these areas and could have an effect on our overall business results.

REALTY TRUST, INC.

NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS

Company has deposited cash and maintains its bank deposits with large financial institutions in amounts that exceed federally

insured limits.

Concentration of Credit Risks

As of December 31, 2021, the Company’s properties were leased primarily to a single tenant, the USPS.

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

For the year ended December 31, 2020, approximately 10.7 % of the Company's total rental income, or $ 2.5 million, was concentrated in Pennsylvania.

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

The 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 in the Company represent common units of limited partnership interest of the Operating Partnership (each, an “OP

and collectively, the OP Units”) held by the Predecessor’s prior investors and certain sellers of properties

to the Company and long-term incentive units of the Operating Partnership (each, an “LTIP Unit,”

and collectively,

the “LTIP Units”) primarily held by the Company’s CEO.

Upon completion of the IPO and the Formation Transactions,

the Operating Partnership issued 1,333,112 OP Units to the Predecessor’s prior investors as partial consideration for the

contribution of their interest in the Predecessor to the Operating Partnership and 114,706 LTIP Units to the Company’s CEO.

addition, during the years ended December 31, 2020 and 2019, the Company issued 483,333 and 824,350 OP Units, respectively to

certain contributors in connection with portfolio acquisitions.

Based Compensation

Company accounts for equity-based compensation in accordance with ASC Topic 718 Compensation –

Stock Compensation, which

requires the Company to recognize an expense for the grant date fair value of equity-based awards.

Equity-classified stock awards

granted to employees and non-employees that have a service condition and/or a market condition are measured at fair value at date

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

Non-controlling Interests

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

Stockholder’s Equity for further details.

Equity Based Compensation

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

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

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The Company will record forfeitures as they occur.

Company recognizes compensation expense on a straight-line basis over the requisite service period of each award, with the amount

of compensation expense recognized at the end of a reporting period at least equal the portion of fair value of the respective

award at grant date or modification date, as applicable, that has vested through that date.

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.

Stockholder’s Equity for further details.

The Company calculates net loss per share based upon the weighted

average shares outstanding less issued and outstanding non-vested shares of Class A common stock for the period beginning May 17,

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

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.

Stockholder’s 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 insurance company.

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

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

Earnings per Share

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

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

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

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

There were 2,849,804 and 2,277,466 potentially dilutive shares outstanding related to the issuance of OP Units and LTIP Units held

by non-controlling interests as of December 31, 2020 and 2019, respectively.

Application of Accounting Standards

February 2016, the FASB issued ASU 2016-02, Leases;

in July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic

842, Leases, and ASU 2018-11, Leases —

Targeted Improvements;

and in December 2018, the FASB issued ASU 2018-20, Narrow-Scope

Improvements for Lessors.

Earnings Per Share for further details.

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-2, Leases;

in July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases, and ASU 2018-11, Leases — Targeted Improvements;

and in December 2018, the FASB issued ASU 2018-20, Narrow-Scope Improvements for Lessors.

This group of ASUs is collectively referred to as Topic 842.

Topic 842 supersedes the existing standards

for lease accounting (Topic 840, Leases).

Topic 842 will be effective for the Company on January 1, 2021 as a result of its classification

as an emerging growth company.

REALTY TRUST, INC.

NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS

Company expects to elect the practical expedients provided by Topic 842, including:

the package of practical expedients that allows

an entity not to reassess upon adoption (i) whether an expired or existing contract contains a lease, (ii) whether a lease classification

related to expired or existing lease arrangements, and (iii) whether costs incurred on expired or existing leases qualify as initial

direct costs, and as a lessor, the practical expedient not to separate certain non-lease components, such as common area maintenance,

from the lease component if the timing and pattern of transfer are the same for the non-lease component and associated lease component,

and the lease component would be classified as an operating lease if accounted for separately.

842 requires lessees to record most leases on their balance sheet through a right-of-use (“ROU”) model, in which a

lessee records a ROU asset and a lease liability on their balance sheet.

Leases that are less than 12 months do not need to be

accounted for under the ROU model.

Lessees will account for leases as financing or operating leases, with the classification affecting

the timing and pattern of expense recognition in the income statement.

Lease expense will be recognized based on the effective

interest method for leases accounted for as finance leases and on a straight-line basis over the term of the lease for leases

accounted for as operating leases.

As of December 31, 2020, the Company was the lessee under one office lease and two ground leases

that would require accounting under the ROU model.

Upon adoption of Topic 842, the Company expects to record a ROU asset and corresponding

lease liability of approximately $1.1 million on its Consolidated Balance Sheet.

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

Under Topic 842, lessors will continue to

account for leases as a sales-type, direct-financing, or operating.

A lease will be treated as a sale if it is considered to transfer

control of the underlying asset to the lessee.

A lease will be classified as direct-financing if risks and rewards are conveyed

without the transfer of control.

Topic 842 supersedes the existing standards for lease accounting (Topic 840, Leases).

Topic 842 was effective for the Company on January 1, 2021 as a result of its classification as an EGC.

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

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

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

Leases that are less than 12 months do not need to be accounted for under the ROU model.

Lessees will account for leases as financing or operating leases, with the classification affecting the timing and pattern of expense recognition in the income statement.

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

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Under Topic 842, lessors will continue to account for leases as a sales-type, direct-financing, or operating.

A lease will be treated as a sale if it is considered to transfer control of the underlying asset to the lessee.

A lease will be classified as direct-financing if risks and rewards are conveyed without the transfer of control.

Otherwise, the lease is treated as an operating lease.

Topic 842 requires accounting for a transaction

as a financing in a sale leaseback in certain circumstances, including when the seller-lessee is provided an option to purchase

the property from the landlord at the tenant’s option.

The Company expects that this provision could change the accounting

for these types of leases in the future.

Topic 842 requires accounting for a transaction as a financing in a sale leaseback in certain circumstances, including when the seller-lessee is provided an option to purchase the property from the landlord at the tenant’s option.

Topic 842 also includes the concept of separating lease and non-lease components.

Topic 842, non-lease components, such as common area maintenance, would be accounted for under Topic 606 and separated from the

lease payments.

However, the Company will elect the lessor practical expedient allowing the Company to not separate these components

when certain conditions are met.

Upon adoption of Topic 842, the Company expects to combine tenant reimbursements with rental

income on its consolidated statements of operations.

September 2016, the FASB issued ASU No.

Under Topic 842, non-lease components, such as common area maintenance, would be accounted for under Topic 606 and separated from the lease payments.

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

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

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

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

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

Future Application of Accounting Standards

In September 2016, the FASB issued ASU No.

2016-13, Financial Instruments-Credit Losses (Topic 326):

of Credit Losses on Financial Instruments and in November 2018 issued ASU No.

2018-19, Codification Improvements to Topic

326, Financial Instruments - Credit Losses .

The guidance changes how entities will measure credit losses for most financial

assets and certain other instruments that are not measured at fair value through net income.

The guidance replaces the current

‘incurred loss’

model with an ‘expected loss’

The Company will also be required to disclose

information about how it developed the allowances, including changes in the factors that influenced the Company’s estimate

of expected credit losses and the reasons for those changes.

2018-19 excludes operating lease receivables from the scope

of this guidance.

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

growth company.

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

consolidated financial statements.

REALTY TRUST, INC.

NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS

Measurement of Credit Losses on Financial Instruments and in November 2018 issued ASU No.

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

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

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

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

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

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

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

Real Estate Acquisitions

following tables summarizes the Company’s acquisitions for the years ended December 31, 2020 and 2019.

The purchase prices

including transaction costs were allocated to the separately identifiable tangible and intangible assets and liabilities based

on their relative fair values at the date of acquisition.

The total purchase price including transaction costs was allocated as

The following tables summarizes the Company’s acquisitions for the years ended December 31, 2021 and 2020.

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

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

Three Months Ended Number of Properties Land Building and Improvements Tenant Improvements In-place lease intangibles Above- market leases Below- market leases Other (1)

March 31, 2021 (3)

54 $ 3,493 $ 19,793 $ 428 $ 2,201 $ 51 $ ( 474 ) $ 723 $ 26,215

June 30, 2021 (4)

71 5,364 23,550 268 2,207 28 ( 156 ) ( 5 ) 31,256

September 30, 2021 (5)

59 3,333 15,314 147 1,368 32 ( 581 ) 24 19,637

December 31, 2021 (6)

54 6,096 21,031 186 1,750 123 ( 371 ) ( 157 ) 28,658

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

Three Months Ended Number of Properties Land Building and Improvements Tenant Improvements In-place lease intangibles Above- market leases Below- market leases Other (7)

March 31, 2020 (9)(10)(11)

83 $ 4,826 $ 24,573 $ 294 $ 2,477 $ 7 $ ( 1,616 ) $ ( 34 ) $ 30,527

June 30, 2020 (12)

19 2,555 7,344 55 693 — ( 39 ) — 10,608

September 30, 2020 (13)

122 6,075 19,426 317 2,301 37 ( 1,068 ) ( 33 ) 27,055

December 31, 2020 (14)

36 7,699 51,059 1,201 4,627 — ( 680 ) — 63,906

Includes an intangible

liability related to unfavorable operating leases on three properties that is included in “Accounts Payable, accrued

expenses and other”

on the Company’s Consolidated Balance Sheets.

Includes acquisition

costs of $0.3 million for the three months ended March 31, 2020, $0.2 million for the three months ended June 30, 2020, $0.8

million for the three months ended September 30, 2020 and $1.3 million for the three months ended December 31, 2020

acquisition of a 21-property portfolio leased to the USPS.

The contract purchase price for the portfolio was $13.8 million,

exclusive of closing costs, and giving effect to 483,333 OP Units issued to the sellers at a value of $17.00 per unit.

closing price of the Company’s common stock on January 10, 2020 was $16.39;

therefore, total consideration at closing,

including closing costs, was approximately $13.6 million of which $7.9 million represented the non-cash consideration

(the value of the OP Units) issued to the sellers.

acquisition of a 42-property portfolio leased to the USPS.

The aggregate purchase price of such portfolio was approximately

$8.8 million, including closing costs, which was funded with borrowings under our Credit Facility.

acquisition of 20 postal properties in individual or smaller portfolio transactions for approximately $8.1 million, including

closing costs.

the acquisition of a 13-property portfolio leased to the USPS in various states for approximately $7.2 million, including

closing costs.

In addition, the Company purchased six postal properties in individual or smaller portfolio transactions for

approximately $3.4 million, including closing costs.

the acquisition of 122 postal properties in various states in individual or portfolio transactions for approximately $27.1 million,

including closing costs, which was funded with borrowings under our Credit Facility.

In addition, the Company closed on one postal

property which is a direct financing lease and is included in “Investment in financing lease, net”

on the Company’s

Consolidated Balance Sheets.

REALTY TRUST, INC.

NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS

the acquisition of 35 postal properties in various states in individual or portfolio transactions

for approximately $16.3 million, including closing costs, which was funded with borrowings

under our Credit Facility.

In addition, the Company acquired an industrial property (“Industrial

Facility”) for a total of $47.6 million, including closing costs, primarily leased to

The property was initially funded with borrowings under our Credit Facility.

to Note 5 for a discussion of the subsequent property level financing related to the acquisition.

acquisition costs of $10,120 for the three months ended March 31, 2019, $0.4 million

for the three months ended June 30, 2019, $0.1 million for the three months ended September

30, 2019 and $0.8 million for the three months ended December 31, 2019.

property was acquired by the Predecessor.

Company acquired the Acquisition Properties in connection with the IPO.

(12) Includes

the acquisition of a 113-building portfolio leased to the USPS.

The contract purchase

price for the portfolio was $31.4 million, excluding closing costs, and included 824,350

OP Units to be issued to the sellers at a value of $17.00 per unit.

The closing price

of the Company’s common stock on November 22, 2019 was $16.05;

therefore, total

consideration at closing, excluding closing costs was approximately $30.6 million

of which $13.2 million represented the non-cash consideration (the value of the

OP Units) issued to the sellers.

Total 260 $ 21,155 $ 102,402 $ 1,867 $ 10,098 $ 44 $ ( 3,403 ) $ ( 67 ) $ 132,096

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Explanatory Notes :

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

The Company completed rebuilding such property which remained under lease to the USPS in the three months ended December 31, 2021 primarily using the insurance proceeds assigned by the seller to the Company.

The insurance proceeds were received in April 2021.

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

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

During the three months ended December 31, 2021, includes an intangible liability related to unfavorable operating leases on two properties that is included in “Accounts Payable, accrued expenses and other” on the Consolidated Balance Sheets.

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

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

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

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

(6) Includes the acquisition of 54 properties in various states in individual or portfolio transactions for approximately $ 28.7 million, including closing costs, which was funded with borrowings under the 2021 Credit Facilities.

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

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

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

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

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

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

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

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

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

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

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

Refer to Note 5.

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

Intangible Assets and Liabilities

following table summarizes our intangible assets and liabilities as a result of the application of acquisition accounting:

The following table summarizes the Company's intangible assets and liabilities:

As of Gross Asset

(Liability) Accumulated

(Amortization)/

Accretion Net

December 31, 2021:

(in thousands)

In-place lease intangibles

1 unchanged sentence

Above-market leases

319 ( 70 ) 249

Below-market leases

5 unchanged sentences

Below-market leases

of in-place lease intangibles was $4.7 million and $2.1 million for the years ended December 31, 2020 and 2019, respectively.

This amortization is included in “Depreciation and amortization”

on the Company’s Consolidated and Combined

Consolidated Statements of Operations.

Amortization of acquired

above market leases was $0.02 million and $0.01 million for the years ended December 31, 2020 and 2019, respectively, and is included

in “Rental income”

on the Company’s Consolidated and Combined Consolidated Statements of Operations.

of acquired below market leases was $1.3 million and $0.5 million for the years ended December 31, 2020 and 2019, respectively,

and is included in “Rental income”

on the Company’s Consolidated and Combined Consolidated Statements of Operations.

REALTY TRUST, INC.

NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS

As of December 31,

2020, the weighted average amortization period for the Company’s intangible assets was approximately 3.8 years, 3.7 years

and 7.7 years for in-place lease intangibles, above-market leases and below-market leases, respectively.

amortization/accretion of these intangibles is below:

Year Ending December 31,

In-place lease

( 12,076 ) 3,350 ( 8,726 )

Amortization of in-place lease intangibles was $ 6.3 million and $ 4.7 million for the years ended December 31, 2021 and 2020, respectively.

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

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

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

As of December 31, 2021, the weighted average amortization period for the Company’s intangible assets was approximately 3.4 years, 4.0 years and 7.9 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

2022 $ 5,463 $ 71 $ ( 1,621 )

following table summarizes the Company’s indebtedness as of December 31, 2020 and December 31, 2019:

Balance as of

2023 3,734 67 ( 1,256 )

2024 2,595 50 ( 1,071 )

2025 1,529 41 ( 896 )

2026 796 20 ( 728 )

282 — ( 3,098 )

$ 14,399 $ 249 $ ( 8,670 )

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes the Company’s indebtedness as of December 31, 2021 and December 31, 2020 (dollars in thousands):

Outstanding Balance as of December 31,

2021 Outstanding Balance as of December 31,

2020 Interest Rate at December 31,

2021 Maturity Date

Revolving Credit Facility (1) :

LIBOR+170bps (2)

September 2023

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

2019 Credit Facility — 78,000 — —

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

Secured Borrowings:

Vision Bank (3)

2 unchanged sentences

349 364 3.63 % December 2037

Vision Bank –

Vision Bank – 2018 (5)

844 869 3.69 % September 2041

Seller Financing (6)

First Oklahoma Bank –

April 2020 (7)

First Oklahoma Bank –

June 2020 (8)

December 2020 (9)

366 445 6.00 % January 2025

First Oklahoma Bank – April 2020 (7)

First Oklahoma Bank – June 2020 (8)

AIG – December 2020 (9)

30,225 30,225 2.80 % January 2031

Total Principal 96,193 125,036

Unamortized deferred financing costs ( 844 ) ( 407 )

$ 124,628,626

REALTY TRUST, INC.

NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS

27, 2019, the Company entered into a credit agreement (as amended, the “Credit Agreement”) with People’s

United Bank, National Association, individually and as administrative agent, BMO Capital Markets Corp., as syndication agent,

and certain other lenders.

The Credit Agreement provides for revolving commitments in an aggregate principal amount of $100.0 million

with an accordion feature (“the Accordion Feature”) that permits the Company 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

On January 30, 2020, the Company amended the Credit Agreement in order to exercise a portion of the Accordion Feature

to increase the maximum amount available under the Credit Facility to $150.0 million, subject to the borrowing base properties

identified therein remaining unencumbered and subject to an enforceable lease.

On June 25, 2020, the Company further

amended the 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 (as defined in such

On November 24, 2020, the Company further amended the Credit Agreement to revise, among other items, certain definitions

and borrowing base calculations to allow leases other than the USPS as a Real Property subject to certain to certain limitations

(as defined in such amendment).

interest rates applicable to loans under the Credit Facility are, 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

In addition, the Company paid, for the period through and including the calendar quarter ended March 31, 2020, an unused

facility fee on the revolving commitments under the 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 Credit Facility.

the years ended December 31, 2020 and 2019, the Company incurred $0.3 million and $0.1 million, respectively, of unused fees related

to the Credit Facility.

The Company’s ability to borrow under the Credit Facility is subject to ongoing compliance with

a number of customary affirmative and negative covenants.

As of December 31, 2020, the Company was in compliance with all of the

Credit Facility’s debt covenants.

As of December

31, 2020, the one-month LIBOR rate was 0.15%.

Five properties

are collateralized under this loan as of December 31, 2020 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”)

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%.

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%.

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.

In connection

with the purchase of a 13-property portfolio, the Company obtained $4.5 million of mortgage financing, at a fixed interest

rate of 4.25% with interest only for the first 18 months, which resets in November 2026 to the greater of Prime or 4.25%.

loan is collateralized by first mortgage liens on 22 properties.

Interest rates resets in January 2027 to the greater of Prime

The loan is secured by a cross-collateralized and cross-defaulted first mortgage lien on the Industrial Property.

Total Debt $ 95,349 $ 124,629

Explanatory Notes:

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

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

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

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

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

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

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

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

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

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

Derivatives and Hedging Activities below for further details.

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

During the years ended December 31, 2021 and 2020, the Company incurred $ 0.1 million and $ 0.3 million, respectively, of unused facility fees related to the 2019 Credit Facility and the 2021 Revolving Credit Facility.

As of December 31, 2021, the Company was in compliance with all of the 2021 Credit Facilities’ debt covenants.

(2) Based upon the one-month U.S.

Dollar LIBOR rate.

(3) Five properties are collateralized under this loan as of December 31, 2021.

Spodek also provided a personal guarantee of payment for the entire outstanding amount thereunder as of December 31, 2020 and for 50.0 % of the outstanding amount thereunder as of December 31, 2021.

On September 30, 2021, the Company amended this loan to extend its maturity to September 2041 and reduce its interest rate to 3.69 % fixed for five years with interest payments only, then adjusting every subsequent five year period thereafter with principal and interest payments to the rate based on the five year weekly average yield on United States Treasury securities adjusted to a constant maturity of five years , as made available to the Board of Governors of the Federal Reserve System (the " Five-Year Treasury Rate"), plus a margin of 2.75 %, with a minimum annual rate of 2.75 %.

(4) The loan is collateralized by first mortgage liens on four properties and a personal guarantee of payment by Mr.

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

(5) The loan is collateralized by first mortgage liens on one property and a personal guarantee of payment by Mr.

(6) In connection with the acquisition of a property, the Company obtained seller financing secured by the property in the amount of $ 0.4 million requiring five annual payments of principal and interest of $ 0.1 million with the first installment due on January 2, 2021 based on a 6.0 % interest rate per annum through January 2, 2025.

(7) In connection with the purchase of a 13 -property portfolio, the Company obtained $ 4.5 million of mortgage financing, at a fixed interest rate of 4.25 % with interest only for the first 18 months, which would have reset in November 2026 to the greater of Prime or 4.25 %.

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

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

(8) The loan was collateralized by first mortgage liens on 22 properties.

Interest rates would have reset in January 2027 to the greater of Prime or 4.25 %.

On February 3, 2021, the Company fully repaid this mortgage financing and wrote off $ 0.15 million of deferred financing to costs to loss on early extinguishment of debt for the year ended December 31, 2021.

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

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

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.

REALTY TRUST, INC.

NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS

weighted average maturity date for our secured borrowing as of December 31, 2020 and 2019 was 6.6 years and 15.7 years, respectively.

paid for interest during the years ended December 31, 2020 and 2019 was $2.3 million and $1.1 million, respectively.

scheduled principal repayments of indebtedness as of December 31, 2020 are as follows:

Year Ending December 31,

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

Cash paid for interest during the years ended December 31, 2021 and 2020 was $ 2.7 million and $ 2.3 million, respectively.

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The scheduled principal repayments of indebtedness as of December 31, 2021 are as follows (in thousands):

Year Ending December 31, Amount

Thereafter 82,115

Total $ 96,193

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Derivatives and Hedging Activities

As disclosed above in Note 5.

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

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

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

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

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

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

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

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

Twelve Months Ended December 31,

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

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

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

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

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

If the Company had breached any of these provisions as of December 31, 2021, it could have been required to settle its obligations under the agreements at their termination value.

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Lessor Accounting

As of December 31, 2021, the Company's properties were leased primarily to the USPS, with leases expiring at various dates through May 31, 2031.

Certain leases had expired and were in holdover status as of December 31, 2021 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 (Loss).

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

Twelve Months Ended December 31,

Fixed payments $ 32,769 $ 20,269

Variable payments 5,507 3,046

$ 38,276 $ 23,315

of December 31, 2020, all of our properties are 100% leased to the USPS with the exception of the multi tenanted Industrial Facility.

Certain leases have expired and the balance expire at various dates through November 30, 2029.

minimum lease payments to be received as of December 31, 2020 under non-cancellable operating leases for the next five years and

thereafter are as follows:

Year Ending December 31,

The above minimum

lease payments to be received do not include reimbursements from tenants for real estate taxes and other reimbursed expenses.

Future minimum lease payments to be received as of December 31, 2021 under non-cancellable operating leases for the next five years and thereafter are as follows (in thousands) :(1)

Year Ending December 31, Amount

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, 2021, the leases at 16 of the Company's properties were expired, and the USPS was occupying such properties as a holdover tenant.

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

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

Purchase Option Provisions

As of December 31, 2021, operating leases for 46 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

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Direct Financing Leases

As of December 31, 2021, 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, 2021 and 2020 are summarized in the table below (in thousands):

As of December 31,

31, 2020, the leases at 15 of our properties were expired, and the USPS was occupying such properties as a holdover tenant.

In addition, the lease at one of our properties is a month to month lease.

Holdover rent is typically paid as the greater

of estimated market rent or the rent amount due under the expired lease.

Subsequent to December 31, 2020, we have executed

all leases for these properties.

The Company has

received notice on one property which the USPS intends to vacate in August 2021.

REALTY TRUST, INC.

TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS

Financing Lease

of December 31, 2020, the Company has one direct financing lease agreement related to one of its postal properties.

The components

of the Company’s net investment in financing lease as of December 31, 2020 are summarized in the table below:

minimum lease payment receivable

Total minimum lease payment receivable $ 34,352 $ 1,010

unearned income ( 18,139 ) ( 495 )

in financing lease, net

lease payments to be received under the Company’s direct financing lease as of December 31, 2020 for the next five years

and thereafter are as follows:

Ending December 31,

the year ended December 31, 2020, the Company assumed an operating ground lease at two acquired properties which includes rent

escalations throughout the lease term (including renewal options).

Ground lease expense is included in “Property Operating

Expenses”

on the Company’s Consolidated and Combined Consolidated Statements of Operations.

table below presents the future minimum ground lease payments as of December 31, 2020.

Ending December 31,

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

Investment in financing leases, net $ 16,213 $ 515

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

Future lease payments to be received under the Company’s direct financing leases as of December 31, 2021 for the next five years and thereafter are as follows (in thousands):

Year Ending December 31, Amount

Lessee Accounting

As a lessee, the Company has ground and office leases which were classified as operating leases.

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

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

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

As of December 31,

ROU asset – operating leases

Lease liability – operating leases

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

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

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

Future minimum lease payments to be paid by the Company as a lessee for operating leases as of December 31, 2021 for the next five years and thereafter are as follows (in thousands):

Total future minimum lease payments

Interest discount

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

Year Ending December 31, Amount

Thereafter 1,155

Total $ 1,277

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

Year Ending December 31, Amount

Impact of COVID-19

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

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

economy and business activity

globally, the full impact of which is not yet known and may result in an adverse impact to the Company’s tenant and operating

For the year ended December 31, 2020, the Company received 100% of its rents and there was no material impact on the

REALTY TRUST, INC.

NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS

and state income tax expense for December 31, 2019 relate to UPH.

The federal and state income tax expense for the year ended

December 31, 2019 is comprised of the following:

Provision for income taxes

For the Year Ended December 31,

Total current expense

Total deferred benefit

Total income tax expense

(1) Represents

the activity of UPH from January 1, 2019 to the IPO.

effective tax rate before income taxes varies from the current statutory US Federal income tax rate as follows:

the Year Ended December 31,

Tax expense at Federal statutory rates

Flow-through entities

REIT non-taxable income

Valuation allowance

Uncertain tax position (“FIN 48”)

Total US Federal income tax rate

the year ended December 31, 2020, the Company recorded a benefit of $0.01 million due to finalizing certain state taxes filings

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

PRM performs management services, including

for properties the Company does not own.

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

For the years ended December 31, 2020 and 2019, income tax expense related to PRM was $0.07 million and zero, respectively.

REALTY TRUST, INC.

NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS

of December 31, 2020, the Company’s consolidated balance sheets reflect a liability for unrecognized tax benefits in the

amounts of $0.4 million, primarily related to the utilization of certain loss carryforwards by UPH through May 16, 2019.

years ended December 31, 2020 and 2019, the Company has accrued interest and penalties of $0.07 million and $0.06 million, respectively.

These balances are included in the combined consolidated balance sheets in accounts payable, accrued expenses and other liabilities.

As of December 31, 2020, the Company estimates that unrecognized tax benefits may decrease by approximately $0.2 million within

twelve months of the balance sheet date due to expiring statutes of limitation.

In connection with the IPO, the indirect sole

shareholder of UPH agreed to reimburse the Company for unrecognized tax benefits.

The Company recorded an indemnification asset

in the same amount as the unrecognized tax benefits inclusive of accrued interest and penalties that existed as of the date of

Accordingly, the Company’s unrecognized tax benefits, if recognized, would result in a decrease to the indemnification

asset and have no impact on the effective tax rate.

During the three months ended September 30, 2020, the Company reversed $0.1

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.

reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:

For the Years Ended

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

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

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

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

For the years ended December 31, 2021 and 2020, the Company has accrued interest and penalties of $ 0.04 million and $ 0.07 million, respectively.

These balances are included in the Consolidated Balance Sheets in "Accounts payable, accrued expenses and other liabilities".

As of December 31, 2021, the Company estimates that unrecognized tax benefits may decrease by approximately $ 0.2 million within twelve months of the balance sheet date due to expiring statutes of limitation.

In connection with the IPO, the Company recorded an indemnification asset for the unrecognized tax benefits due to an agreement from the indirect sole shareholder of UPH to reimburse the Company for such benefits.

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

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

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

For the Years Ended December 31,

Gross unrecognized tax benefits, beginning of year $ 364 $ 488

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

Decreases based on positions taken in prior year

Reductions to unrecognized tax benefits as a result of a lapse of the applicable statute of limitations ( 176 ) ( 96 )

Increases based on tax positions taken in prior periods — —

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

The Company and PRM

are subject to exam by federal and state and local tax authorities for the short tax year ended December 31, 2019.

UPH is subject

to exam by federal tax authorities for tax years 2017 through 2019.

Cash paid for taxes for each of the years ended December

31, 2020 and 2019 was $0.1 and $0.02 million, respectively.

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

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

in the CARES Act are tax provisions which increase allowable interest expense deductions for 2019 and 2020 and increase the ability

for taxpayers to use net operating losses.

While we do not expect these provisions to have a material impact on the Company’s

taxable income or tax liabilities, we will continue to analyze the provisions of the CARES Act and related guidance as it is published.

REALTY TRUST, INC.

NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS

Total $ 188 $ 364

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

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, 2021 and 2020 was $ 0.1 million and $ 0.1 million, respectively.

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

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

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

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

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Related Party Transactions

PRM recognized management fee income of $1.1 million for the

year ended December 31, 2020 and the Predecessor recognized management fee income of $0.4 million for the period of January 1,

2019 through May 16, 2019 from various properties which were affiliated with Mr.

Following the IPO, PRM recognized management

fee income of $0.6 million for the period of May 17, 2019 through December 31, 2019 from various properties which are affiliated

with the Company’s CEO.

These amounts are included in “Fee and other income”

on the Company’s Consolidated

and Combined Consolidated Statements of Operations.

Accrued management fees receivable of $0.3 million and $0.08 million as of

December 31, 2020 and 2019, respectively, are included in “Rents and other receivables”

on the Company’s Consolidated

Balance Sheets.

October 1, 2018, the Predecessor entered into a lease for office space in Cedarhurst, New York with an entity affiliated with

the Predecessor (the “Office Lease”).

Pursuant to the Office Lease, the monthly rent was $15,000 subject to escalations.

The term of the Office Lease was five years commencing on October 1, 2018 (with rent commencing on January 1, 2019) and was set

to expire on September 30, 2023.

In connection with the IPO, the Office Lease was terminated.

On May 17, 2019, the Company entered

into a new lease for office space in Cedarhurst, New York with an entity affiliated with the Company’s CEO (the “New

Lease”).

Pursuant to the New Lease, the monthly rent is $15,000 subject to escalations.

The term of the New Lease is five

years commencing on May 17, 2019 and will expire on May 16, 2024.

Rental expenses associated with the office lease for the years

ended December 31, 2020 and 2019 was $0.2 million and $0.1 million, respectively, was recorded in “General and administrative

expenses”

on the Company’s Consolidated and Combined Consolidated Statements of Operations.

following table represents the Company’s future rental payments related to the New Lease:

Year Ending December 31,

of Real Property

May 28, 2020, the Company completed the separation of deed and transfer of the real property attributable to a de minimis non-postal

tenant that shares space in a building leased to the USPS.

At the time of the IPO a property located in Milwaukee, WI, a portion

of which is leased to the USPS, was contributed to the Company.

It was intended that the non-postal portion of the property would

revert back to an entity affiliated with Mr.

Management Fee Income

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

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

Accrued management fees receivable of $ 0.3 million and $ 0.3 million as of December 31, 2021 and 2020, respectively, are included in “Rents and other receivables” on the Consolidated Balance Sheets.

Related Party Lease

On May 17, 2019, the Company entered into a lease for office space in Cedarhurst, New York with an entity affiliated with the Company’s CEO (the “Office Lease”).

Pursuant to the Office Lease, the monthly rent is $ 15,000 subject to escalations.

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

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

The Company determined this Office Lease was an operating lease.

For further details, see Note 7.

Transfer of Real Property

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

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

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

Spodek once a separation of the deed was completed.

The portion of the property

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

The independent members of our Board

of Directors ratified the no consideration transfer.

Spodek, our chief executive officer, has personally guaranteed our loans with First Oklahoma Bank that were obtained prior to

2020 and Vision Bank, totaling $2.7 million and $2.8 million as of December 31, 2020 and December 31, 2019, respectively.

guarantor, Mr.

Spodek’s interests with respect to the debt he is guaranteeing (and the terms of any repayment or default)

may not align with our interests and could result in a conflict of interest.

REALTY TRUST, INC.

NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS

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

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

As disclosed above in Note 5.

Spodek personally guaranteed a portion of or the entire amount outstanding under the Company's loans with First Oklahoma Bank and Vision Bank, totaling $ 1.9 million and $ 2.7 million as of December 31, 2021 and December 31, 2020, 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.

Share Purchase

On November 16, 2021, Mr.

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

Earnings Per Share

per share (“EPS”) is calculated by dividing net income (loss) attributable to common stockholders by the weighted

average number of shares outstanding for the period.

The following table presents a reconciliation of income (loss) from operations

used in the basic and diluted EPS calculations.

For the Years Ended

Numerator for earnings per share –

basic and diluted:

Net loss attributable to common stockholders

$ (1,497,213 )

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

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

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended December 31,

Numerator for earnings per share – basic and diluted:

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

Income attributable to participating securities ( 658 ) ( 346 )

Numerator for earnings per share —

basic and diluted

Denominator for earnings per share –

basic and diluted

Numerator for earnings per share — basic and diluted $ 1,397 $ ( 698 )

Denominator for earnings per share – basic and diluted (1)

13,689,251 7,013,621

Basic and diluted earnings per share $ 0.10 $ ( 0.10 )

statements of operations prior to May 17, 2019 represents the activity of the Predecessor and EPS was not applicable.

Stockholder’s Equity

Company issued 4.5 million shares of Class A common stock in conjunction with the IPO resulting in net proceeds of approximately

$71.1 million after deducting approximately $5.4 million in underwriting discounts and before giving effect to $6.4 million in

other expenses relating to the IPO.

In addition, the Company issued 637,058 shares of Class A common stock and 27,206 shares of

Voting Equivalency stock in connection with the Formation Transactions.

Each outstanding share of Voting Equivalency stock entitles

its holder to 50 votes on all matters on which Class A common stockholders are entitled to vote, including the election of

directors, and holders of shares of Class A common stock and Voting Equivalency stock will vote together as a single class.

Shares of Voting Equivalency stock are convertible into shares of Class A common stock, on a one-for-one basis, at the election

of the holder at any time.

Additionally, one share of Voting Equivalency stock will automatically convert into one share of Class A

common stock for each 49 OP Units transferred (including by the exercise of redemption rights afforded with respect to OP Units)

to a person other than a permitted transferee.

This ratio is a function of the fact that each share of Voting Equivalency stock

entitles its holder to 50 votes on all matters on which Class A common stockholders are entitled to vote and maintains the

voting proportion of holders of Voting Equivalency stock with the holder’s economic interest in our Company.

On July 15, 2020, the

Company priced a public offering of 3.5 million shares of its Class A Common Stock (the “Follow-on Offering”) at $13.00

On July 17, 2020, the underwriters purchased an additional 521,840 shares pursuant to a 30-day option to purchase up

to an additional 525,000 shares at $13.00 per share (the “Additional Shares”).

The Follow-on Offering, including the

Additional Shares, closed on July 20, 2020 resulting in $52.2 million in gross proceeds, and approximately $49.4 million in net

proceeds after deducting approximately $2.9 million in underwriting discounts and before giving effect to $0.9 million in other

estimated expenses relating to the Follow-on Offering.

the year ended December 31, 2020, the Board approved and the Company declared and paid dividends of $8.2 million to Class A common

stockholders, Voting Equivalency stockholders, OP unitholders and LTIP unitholders, or $0.79 per share as shown in the table below.

REALTY TRUST, INC.

NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS

April 30, 2020

July 30, 2020

August 14, 2020

August 31, 2020

October 30, 2020

November 16, 2020

November 30, 2020

the year ended December 31, 2019, the Board approved, and the Company declared and paid dividends of $1.4 million to Class A common

stockholders, Voting Equivalency stockholders, OP unitholders and LTIP unitholders, or $0.203 per share as shown in the table

June 26, 2019

July 31, 2019

November 5, 2019

November 15, 2019

Explanatory Note:

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

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

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

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

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

Stockholder’s Equity

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

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

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

On November 16, 2021, the Company priced a public offering of 4.25 million shares of its Class A common stock (the “November Follow-on Offering”) at $ 17.00 per share.

On November 16, 2021, the underwriters purchased the full allotment of 637,500 shares pursuant to a 30-day option at $ 17.00 per share (the “November Additional Shares”).

The November Follow-on Offering, including the November Additional Shares, closed on November 19, 2021 resulting in $ 83.1 million in gross proceeds, and approximately $ 79.0 million in net proceeds after deducting approximately $ 4.1 million in underwriting discounts and before giving effect to $ 0.2 million in other expenses relating to the November Follow-on Offering.

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

Davidson & Co.

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

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

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

Davidson, which termination became effective May 14, 2021.

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

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

As of December 31, 2021, the Company had approximately $ 43.1 million remaining that may be issued under the ATM Program.

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2021

Non-controlling

interests in the Company represent OP Units held by the Predecessor’s prior investors and certain sellers of properties

to the Company and LTIP Units primarily issued to the Company’s CEO in connection with the IPO and in lieu of cash compensation.

During the year ended December 31, 2020, the Company issued 483,333 OP Units in January 2020 in connection with a portfolio that

the Company acquired, 53,230 LTIP Units in February 2020 to the Company’s CEO for his 2019 incentive bonus, 13,708 LTIP

Units in March 2020 to the Company’s CEO and 27,365 LTIP Units in May 2020 to the Company’s CEO for his salary

for the period of May 18, 2020 to December 31, 2020.

of December 31, 2020 and December 31, 2019, non-controlling interests consisted of 2,640,795 OP Units and 209,009 LTIP Units

and 2,157,462 OP Units and 120,004 LTIP Units, respectively.

This represented approximately 23.1% and 30.0% of the outstanding

Operating Partnership units as of December 31, 2020 and 2019, respectively.

Operating Partnership units and shares of common stock

have essentially the same economic characteristics, as they share equally in the total net income or loss distributions of the

Operating Partnership.

Beginning on or after the date which is 12 months after the later of (i) the completion of the IPO or (ii)

the date on which a person first became a holder of common units, each limited partner and assignees of limited partners will

have the right, subject to the terms and conditions set forth in the partnership agreement to require the Operating Partnership

to redeem all or a portion of the OP Units held by such limited partner or assignee in exchange for cash, or at the Company’s

sole discretion, in shares of the Company’s Class A common stock, on a one-for-one basis determined in accordance with

and subject to adjustment under the partnership agreement.

Operating Partnership unitholders are entitled to share in cash distributions from the Operating Partnership in proportion to

their percentage ownership of OP Units.

Stock and Other Awards

to the Company’s 2019 Equity Incentive Plan (the “Equity Incentive Plan”

or the “Plan”), the Company

may grant equity incentive awards to its directors, officers, employees and consultants.

The maximum number of shares of Class

A Common Stock that were authorized for issuance under the Plan were 541,584.

On April 27, 2020, the Board of Directors amended

the Equity Incentive Plan to increase the total number of shares of Class A common stock that may be issued under the Plan from

541,584 shares to 1,291,584 shares.

Shares issued 345

Gross proceeds $ 6,894

Fees and issuance costs 432

Net proceeds $ 6,462

Average gross sales price per share $ 20.00

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

Declaration Date Record Date Date Paid Amount Per Share or Unit

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

April 30, 2021 May 14, 2021 May 28, 2021 $ 0.2200

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

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

During the year ended December 31, 2020, the Company's Board of Directors approved and the Company declared and paid dividends of $ 8.2 million to Class A common stockholders, Voting Equivalency stockholders, OP unitholders and LTIP unitholders, or $ 0.79 per share or unit, as shown in the table below.

Declaration Date Record Date Date Paid Amount Per Share or Unit

January 30, 2020 February 14, 2020 February 28, 2020 $ 0.1700

April 30, 2020 May 11, 2020 May 29, 2020 $ 0.2000

July 30, 2020 August 14, 2020 August 31, 2020 $ 0.2050

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

Non-controlling Interests

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

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

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

As of December 31, 2021 and December 31, 2020, non-controlling interests consisted of 3,472,221 OP Units and 375,265 LTIP Units and 2,640,795 OP Units and 209,009 LTIP Units, respectively.

This represented approximately 17.1 % and 23.1 % of the outstanding Operating Partnership units as of December 31, 2021 and 2020, respectively.

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

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

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

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

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

The stockholders approved such amendment on June 26, 2020.

As of December 31, 2020, the remaining

shares available under the Plan for future issuance was 767,782.

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.

REALTY TRUST, INC.

NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS

following table presents a summary of restricted stock, LTIP Units and RSUs.

The balance as of December 31, 2020 represents

unvested shares of restricted stock and LTIP Units and RSUs that are outstanding, whether vested or not:

As of December 31, 2021, the remaining shares available under the Plan for future issuance was 511,969 .

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

The stockholders approved such amendment on June 18, 2021.

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

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, 2021 represents unvested restricted shares of Class A common stock and LTIP Units and RSUs that are outstanding, whether vested or not:

Shares (1)(2)

(“RSUs”) (4)

Shares Weighted

Outstanding, as of January 1, 2021 218,613 209,009 62,096 489,718 $ 15.33

Granted 156,754 166,256 76,828 399,838 $ 16.31

Vesting of restricted shares (5)

( 71,491 ) — ( 10,171 ) ( 81,662 ) $ 15.00

Forfeited ( 1,324 ) — — ( 1,324 ) $ 16.60

Outstanding, as of December 31, 2021 302,552 375,265 128,753 806,570 $ 15.71

Represents restricted

shares awards included in common stock.

The time-based

restricted share awards granted to our officers and employees typically vest in three annual installments or cliff vest at

the end of eight years.

The time-based restricted share awards granted to our directors’

vest over one to

LTIP units to

our officers and employees typically vest over three to eight years.

During the year ended December 31, 2020, 2,843 LTIPs

issued to an employee vested as a result of a modification of the award as well as 13,708 LTIPs issued to the Company’s

In May 2020, pursuant to the Plan, the Company issued 27,365 LTIP Units to the Company’s CEO in lieu of his salary

payable for the period from the one-year anniversary of the IPO to December 31, 2020.

LTIP Units issued to the Company’s

CEO in lieu of cash compensation cliff vest on the eighth anniversary of the date of grant.

In connection with the termination

of an employee and entering into a consultancy agreement, 10,787 restricted shares of Class A common stock and 5,298 LTIPs

were forfeited.

6,931 shares of Class A common stock are issuable to such consultant under the consultancy agreement

with the Company.

Includes 38,672

RSUs granted to certain officers of the Company during the year ended December 31, 2020 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 hurdles relating

to the Company’s absolute total stockholder return and continued employment with the Company over the approximately three-year

period from the grant date through December 31, 2022.

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 13,253 time-based RSUs issued for 2019 incentive bonuses

to certain employees that vested fully on February 14, 2020, the date of grant and 10,171 time-based RSUs granted to certain

employees for their election to defer 2020 salary that vest on December 31, 2020.

RSUs reflect the right to receive shares

of Class A common stock, subject to the applicable vesting criteria.

Includes 52,497

of restricted shares that vested and 12,710 shares of restricted shares that were withheld to satisfy minimum statutory withholding

requirements.

February 2021, in connection with the Equity Incentive Plan, the Company issued 118,305 LTIP Units to the Company’s CEO

for his 2020 incentive bonus and his election to defer 100% of his 2021 annual salary, 71,591 restricted shares of Class A common

stock to the Company’s president for his 2020 incentive bonus and his election to defer of a portion of his 2021 annual

salary and 3,117 restricted shares of Class A common stock to our Chief Financial Officer for his election to defer a portion

of his 2021 annual salary.

In addition, in February 2021, in connection with the Equity Incentive Plan, the Company issued 17,239

restricted shares of Class A common stock for annual grants, 30,114 restricted stock units (each, an “RSU,”

and collectively,

“RSUs”) and 30,114 restricted shares of Class A common stock to other employees for 2020 incentive bonus and

elections by certain employees to defer 2021 annual salary.

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 eight years .

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

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

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

(4) Includes 46,714 RSUs granted to certain officers and employees of the Company during the year ended December 31, 2021 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 hurdles relating to the Company’s absolute total stockholder return and continued employment with the Company over the approximately three-year period from the grant date through December 31, 2023.

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

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

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

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

RSUs issued for 2020 incentive bonuses will vest fully on the date of grant.

RSUs issued in lieu of deferrals of 2020 annual salary

cliff vest on December 31, 2021.

LTIP Units issued to the Company’s CEO and restricted shares of Class A common stock

issued to the president and Chief Financial Officer in lieu of cash compensation cliff vest on the eighth anniversary of

February 1, 2021.

Certain restricted shares of Class A common stock issued to employees will vest in three equal, annual installments

on each of the first three anniversaries of the date of grant, while other restricted shares of Class A common stock issued to

employees in lieu of cash compensation cliff will vest on the eighth anniversary of February 1, 2021.

REALTY TRUST, INC.

NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS

addition, in February 2021, the Company issued an aggregate of 18,954 LTIP Units, 27,760 of restricted shares of Class

A common stock and 46,714 RSUs to certain officers of the Company.

The LTIP Units and restricted shares of Class A common

stock will vest in three equal, annual installments over the approximately three year period ending December 31, 2023,

subject to continued employment with the Company and the RSUs are subject to the achievement of performance-based vesting conditions

and continued employment with the Company.

The RSUs are market-based awards and are subject to the achievement of performance-based

hurdles relating to the Company’s absolute total stockholder return and continued employment with the Company over the approximately three-year

period from the grant date through December 31, 2023.

Such RSU recipients may earn up to 100% of the RSUs that were

Upon vesting pursuant to the terms of the RSUs, the RSUs that vest will be settled in shares of Class A common stock and

the recipients will be entitled to receive the distributions that would have been paid with respect to a share of Class A common

stock (for each share that vests) on or after the date the RSUs were initially granted.

the years ended December 31, 2020 and 2019, the Company recognized compensation expense of $2.4 million and $1.0 million, respectively,

related to all awards.

fair value of restricted shares that vested during the year ended December 31, 2020 was $1.1 million.

As of December

31, 2020, there was $5.4 million of total unrecognized compensation cost related to unvested awards, which is expected

to be recognized over a weighted average period of 3.84 years.

Stock Purchase Plan

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 will be reserved for sale and authorized for issuance under the ESPP.

Code permits us to provide up to a 15% discount on the lesser of the fair market value of such shares of stock at the beginning

of the offering period and the close of the offering period.

As of December 31, 2020, 7,189 shares have been issued under the

ESPP since commencement.

During each of the years ended December 31, 2020 and 2019, the Company recognized compensation expense

of $0.02 million.

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

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

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

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

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

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

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

Such RSU recipients may earn up to 150 % of the RSUs that were issued.

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

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

The fair value of restricted shares that vested during the years ended December 31, 2021 and 2020 was $ 1.6 million and $ 1.1 million, respectively.

The weighted average grant date fair value for awards issued in 2021 and 2020 was $ 16.31 and $ 14.20 , respectively.

As of December 31, 2021, there was $ 8.1 million of total unrecognized compensation cost related to unvested awards, which is expected to be recognized over a weighted average period of 4.43 years.

Employee Stock Purchase Plan

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

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

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

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

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

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

Commitments and Contingencies

of December 31, 2020, the Company was not involved in any litigation nor to its knowledge is any litigation threatened against

the Predecessor or the Company, as applicable, that, in management’s opinion, would result in any material adverse effect

on the Company’s financial position, or which is not covered by insurance.

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.

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

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

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

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Subsequent Events

January 11, 2021, the Company priced a public offering of 3.25 million shares of its Class A Common Stock (the “Secondary

Follow-on Offering”) at $15.25 per share.

On January 11, 2021, the underwriters purchased the full allotment of 487,500

shares pursuant to a 30-day option at $15.25 per share (the “Additional Shares”).

The Secondary Follow-on Offering,

including the Additional Shares, closed on January 14, 2021 resulting in $57.0 million in gross proceeds, and approximately $53.9

million in net proceeds after deducting approximately $3.1 million in underwriting discounts and before giving effect to $0.3

million in other estimated expenses relating to the Secondary Follow-on Offering.

REALTY TRUST, INC.

NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS

January 21, 2021, the Company received an executed early renewal notice for 135 properties under a master lease that were scheduled

to expire on February 28, 2022 extending the maturity to February 28, 2027.

January 29, 2021, the Company’s Board of Directors approved, and the Company declared a fourth quarter common stock dividend

of $0.2175 per share which is payable on February 26, 2021 to stockholders of record as of February 12, 2021.

February 3, 2021, the Company fully repaid $13.7 million of the First Oklahoma Bank-April 2020 and First Oklahoma Bank-June 2020

of March 30, 2021, the Company had net credit facility activity of $10.5 million during the period subsequent to December 31,

As of the date of this report, the Company had $67.5 million drawn on its credit facility.

As of March 30, 2021,

the Company closed on the acquisitions of 54 postal properties for approximately $25.7 million during the period subsequent to

December 31, 2020.

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

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

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

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

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

The majority of these transactions are anticipated to close during the second and third quarters of 2022, 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.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data