What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2022-05-13 compared with 2021-11-12 · 273 added, 366 removed, 417 unchanged (61% of the section changed)

3 unchanged sentences

(In thousands, except par value and share data)

September 30,

2022 December 31, 2021

6 unchanged sentences

Total real estate properties, net 353,489 327,481

Investment in financing lease, net 511 515

Total investments 302,006 234,371

Investment in financing leases, net 16,189 16,213

Total real estate investments 369,678 343,694

Cash 5,958 5,857

Escrows and reserves 1,297 1,169

Rent and other receivables 2,454 4,172

Prepaid expenses and other assets, net 10,699 7,511

Escrows and reserves 929 1,059

Goodwill and other intangible assets 1,676 —

Deferred rent receivable 822 666

4 unchanged sentences

Term loan, net $ 49,391 $ 49,359

Revolving credit facility borrowings 44,500 78,000

Revolving credit facility 40,000 13,000

Secured borrowings, net 32,907 32,990

4 unchanged sentences

Class A common stock, par value $ 0.01 per share;

500,000,000 shares authorized, 13,682,076 and 9,437,197 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively

500,000,000 shares authorized, 18,765,418 and 18,564,421 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively

Class B common stock, par value $ 0.01 per share;

27,206 shares authorized:

27,206 shares issued and outstanding as of September 30, 2021 and December 31, 2020

27,206 shares issued and outstanding as of March 31, 2022 and December 31, 2021

Additional paid-in capital 239,779 237,969

7 unchanged sentences

POSTAL REALTY TRUST, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(in thousands, except share data )

For the Three Months Ended

September 30, For the Nine Months Ended

September 30,

2021 2020 2021 2020

Rental income $ 11,349 $ 8,487

15 unchanged sentences

Total interest expense, net ( 814 ) ( 991 )

Income (loss) before income tax expense 713 10 1,699 ( 1,235 )

Income before income tax expense 732 137

Income tax expense ( 11 ) ( 11 )

Net income (loss) 676 ( 20 ) 1,624 ( 1,280 )

Net (income) loss attributable to Operating Partnership unitholders’ non-controlling interests ( 145 ) 5 ( 320 ) 436

Net income (loss) attributable to common stockholders $ 531 $ ( 15 ) $ 1,304 $ ( 844 )

Net income (loss) per share:

Net income 721 126

Net income attributable to Operating Partnership unitholders’ non-controlling interests ( 126 ) ( 23 )

Net income attributable to common stockholders $ 595 $ 103

Net income per share:

Basic and Diluted $ 0.02 $ 0.00

1 unchanged sentence

Basic and Diluted 18,368,130 12,448,326

Comprehensive income (loss):

Net income (loss) $ 676 $ ( 20 ) $ 1,624 $ ( 1,280 )

Comprehensive income:

Net income $ 721 $ 126

Unrealized gain on financial instrument 2,511 —

Comprehensive income (loss) 1,070 ( 20 ) 2,018 ( 1,280 )

Comprehensive (income) loss attributable to Operating Partnership unitholders’ non-controlling interests ( 229 ) 5 ( 404 ) 436

Comprehensive income (loss) attributable to common stockholders $ 841 $ ( 15 ) $ 1,614 $ ( 844 )

Comprehensive income 3,232 126

Comprehensive income attributable to Operating Partnership unitholders’ non-controlling interests ( 565 ) ( 23 )

Comprehensive income attributable to common stockholders $ 2,667 $ 103

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

10 unchanged sentences

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

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

Issuance and amortization of equity-based compensation 103,463 1 519 — — 520 185 705

Issuance and amortization under ESPP 3,538 — 53 — — 53 — 53

Dividends declared ($ 0.17 per share)

— — — — ( 923 ) ( 923 ) ( 478 ) ( 1,401 )

Net loss — — — — ( 677 ) ( 677 ) ( 352 ) ( 1,029 )

Reallocation of non-controlling interest — — 2,219 — — 2,219 ( 2,219 ) —

Balance - March 31, 2020 5,420,111 $ 54 $ 54,187 $ — $ ( 4,176 ) $ 50,065 $ 26,008 $ 76,073

Issuance and amortization of equity-based compensation 42,297 — 351 — — 351 181 532

Amortization under ESPP — — 2 — — 2 — 2

Restricted stock withholdings ( 11,342 ) — ( 182 ) — — ( 182 ) — ( 182 )

Dividends declared ($ 0.20 per share)

— — — — ( 1,089 ) ( 1,089 ) ( 566 ) ( 1,655 )

Net loss — — — — ( 151 ) ( 151 ) ( 79 ) ( 230 )

Reallocation of non-controlling interest — — ( 6 ) — — ( 6 ) 6 —

Balance – June 30, 2020 5,451,066 $ 54 $ 54,352 $ — $ ( 5,416 ) $ 48,990 $ 25,550 $ 74,540

Net proceeds from sale of common stock 3,737,500 37 53,203 — — 53,240 — 53,240

1 unchanged sentence

Issuance and amortization under ESPP 3,987 — 66 — — 66 — 66

Dividends declared ($ 0.205 per share)

— 0 — — — ( 1,948 ) ( 1,948 ) ( 585 ) ( 2,533 )

Net loss — — — — ( 15 ) ( 15 ) ( 5 ) ( 20 )

Reallocation of non-controlling interest — — ( 2,845 ) — — ( 2,845 ) 2,845 —

Balance - September 30, 2020 9,476,557 $ 95 $ 100,435 — $ ( 7,379 ) 93,151 $ 27,996 121,147

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

Net proceeds from sale of common stock 3,737,500 37 53,203 — — 53,240 — 53,240

Issuance and amortization of equity-based compensation 149,121 1 885 — — 886 230 1,116

Issuance and amortization under ESPP 3,987 — 66 — — 66 — 66

Restricted stock withholdings ( 1,291 ) — ( 21 ) — — ( 21 ) — ( 21 )

4 unchanged sentences

Balance – March 31, 2021 13,353,720 $ 133 $ 151,114 $ — $ ( 11,730 ) $ 139,517 $ 31,083 $ 170,600

Net proceeds from sale of common stock 319,702 3 6,050 — — 6,053 — 6,053

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

Issuance of OP Units in connection with transactions — — — — — — 3,238 3,238

Issuance and amortization of equity-based compensation 199,102 2 1,426 — — 1,428 371 1,799

Amortization under ESPP — — 8 — — 8 — 8

Restricted stock withholdings ( 10,906 ) — ( 221 ) — — ( 221 ) — ( 221 )

Dividends declared ($ 0.22 per share)

— — — — ( 2,951 ) ( 2,951 ) ( 668 ) ( 3,619 )

Net income — — — — 671 671 152 823

Reallocation of non-controlling interest — — 2,611 — — 2,611 ( 2,611 ) —

Balance – June 30, 2021 13,679,618 $ 136 $ 160,061 $ — $ ( 14,010 ) $ 146,187 $ 37,258 $ 183,445

Net proceeds from sale of common stock 25,015 1 408 — — 409 — 409

Issuance of OP Units in connection with transactions — — — — — — 6,480 6,480

Forfeiture and amortization of equity-based compensation ( 468 ) — 495 — — 495 326 821

Issuance and amortization under ESPP 5,387 — 100 — — 100 — 100

Restricted stock withholdings ( 3,492 ) — ( 62 ) — — ( 62 ) — ( 62 )

Dividends declared ($ 0.2275 per share)

— — — — ( 4,295 ) ( 4,295 ) ( 902 ) ( 5,197 )

Other comprehensive income — — — 310 — 310 84 394

Accumulated other comprehensive income — — — 2,072 — 2,072 439 2,511

Net income — — — — 595 595 126 721

Reallocation of non-controlling interest — — 346 — — 346 ( 346 ) —

Balance – September 30, 2021 13,709,282 $ 137 $ 163,314 $ 310 $ ( 16,533 ) $ 147,228 $ 41,190 $ 188,418

Balance – March 31, 2022 18,792,624 $ 188 $ 239,779 $ 2,838 $ ( 22,579 ) $ 220,226 $ 48,357 $ 268,583

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

2 unchanged sentences

(in thousands)

For the Nine Months Ended

September 30,

For the Three Months Ended

Cash flows from operating activities:

Net income (loss) $ 1,624 $ ( 1,280 )

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

Net income $ 721 $ 126

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

Depreciation 2,346 1,768

4 unchanged sentences

Equity based compensation 1,706 1,129

Loss on extinguishment of debt 202 —

Loss on early extinguishment of debt — 202

Deferred rent receivable ( 156 ) ( 62 )

7 unchanged sentences

Acquisition of real estate ( 25,456 ) ( 25,399 )

Investment in financing lease — ( 516 )

Repayment of financing lease 4 —

Investment in financing leases ( 10 ) —

Escrows for acquisition and construction deposits ( 1,445 ) ( 298 )

4 unchanged sentences

Cash flows from financing activities:

Proceeds from secured borrowings — 13,674

Repayments of secured borrowings ( 88 ) ( 13,782 )

Proceeds from term loan 50,000 —

Proceeds from revolving credit facility borrowings 101,000 43,500

Repayments of revolving credit facility borrowings ( 134,500 ) ( 48,500 )

Proceeds from other financing activity — 557

Proceeds from revolving credit facility 29,000 24,500

Repayments of revolving credit facility ( 2,000 ) ( 38,000 )

Repayments from other financing activity — ( 53 )

Net proceeds from issuance of shares 59,865 48,568

Net (costs) proceeds from issuance of shares ( 199 ) 53,725

Deferred offering costs — ( 135 )

Debt issuance costs — ( 5 )

7 unchanged sentences

Cash and Escrow and Reserves at the end of period $ 7,255 $ 4,461

Supplemental Disclosure of Non-Cash Investing and Financing Activities

Unrealized gain on interest rate swaps, net 2,511 —

OP Units issued for property acquisitions 1,787 —

OP Units issued for business acquisition 1,451 —

Reallocation of non-controlling interest 346 3,831

Reclassification of acquisition deposits included in prepaid expenses and other assets 280 792

Accrued capital expenditures included in accounts payable and accrued expenses 272 210

Write-off of fixed assets no longer in service 86 —

Accrued costs of capital included in accounts payable and accrued expenses — 378

Right of use assets — 1,118

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

5 unchanged sentences

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 (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”).

Both the Company and the Operating Partnership commenced operations upon completion of the IPO and certain related formation transactions.

Prior to the completion of the IPO and the formation transactions, the Company had no operations.

1 unchanged sentence

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 September 30, 2021, the Company held an approximately 78.1 % interest in the Operating Partnership.

As of March 31, 2022, the Company held an approximately 82.0 % interest in the Operating Partnership.

As the sole general partner and the majority interest holder, the Company consolidates the financial position and results of operations of the Operating Partnership.

The Operating Partnership is considered a variable interest entity (“VIE”) in which the Company is the primary beneficiary.

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.

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

As of September 30, 2021, the Company owned a portfolio of 911 properties located in 49 states.

The Company’s properties are primarily leased 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, his family members and their partners.

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

As of March 31, 2022, the Company owned a portfolio of 1,016 properties located in 49 states and one territory.

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

In addition, through its taxable REIT subsidiary (“TRS”), Real Estate Asset Counseling, LLC (formerly known as Postal Realty Management TRS, LLC) (“REAC”), the Company provides fee-based third party property management services for an additional 397 properties, which are owned by Mr.

Spodek and his affiliates, and certain advisory services to third-party owners of postal properties.

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

The Company 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.

1 unchanged sentence

REITs are subject to a number of organizational and operational requirements.

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

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

Summary of Significant Accounting Policies

3 unchanged sentences

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.

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

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

The accompanying Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X.

Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial state ments.

This interim financial information should be read in conjunction with the Consolidated and Combined Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

This interim financial information should be read in conjunction with the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

Management believes that all adjustments of a normal, recurring nature considered necessary for a fair presentation have been included.

7 unchanged sentences

Deferred Costs

Financing costs related to the issuance of the Company’s 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 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 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 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.

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 "Credit Facilities"), are deferred and amortized as an increase to interest expense over the term of the related debt instrument using the straight-line method, which approximates the effective-interest rate method, and are reported as a reduction of the related debt balance on the Consolidated Balance Sheets.

Deferred financing costs related to the revolving credit facility component (the "2021 Revolving Credit Facility") of the Credit Facilities are deferred and amortized as an increase to interest expense over the terms of the 2021 Revolving Credit Facility and are included in “Prepaid expenses and other assets, net” on the Consolidated Balance Sheets.

Reclassifications

6 unchanged sentences

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

September 30,

2022 December 31,

9 unchanged sentences

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.

Fee and other primarily consists of property management fees.

These fees arise from contractual agreements with entities that are affiliated with the Company’s chief executive officer (the “CEO”).

Fee and other primarily consist of (i) property management fees, (ii) income recognized from properties accounted for as financing leases and (iii) fees earned from providing advisory services to third-party owners of postal properties.

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

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

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

At lease inception, the Company records an asset within investments in 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 direct financing lease, net.

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

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

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

Revenue from advisory services is generated from service contracts generally based on (i) time and expense arrangements (where the Company recognizes revenues based on hours incurred and contracted rates), (ii) fixed-fee arrangements (where the Company recognizes revenues earned to date by applying the proportional performance method) or (iii) performance-based or contingent arrangements (where the Company recognizes revenues at a point in time when the client obtains control of the promised service).

Reimbursable expenses for the advisory services, including those relating to travel, out-of-pocket expenses, outside consultants and other outside service costs, are generally included in revenues, and an equivalent amount of reimbursable expenses is included in general and administrative expenses in the period in which the expense is incurred.

Business Combinations, Goodwill and Intangible Assets

The Company accounts for business combinations using the acquisition method, which requires the identification of the acquirer, the determination of the acquisition date and the allocation of the purchase price paid by the acquirer to the identifiable tangible and intangible assets acquired, the liabilities assumed, including any contingent consideration and any non-controlling interest in the acquiree at their acquisition date fair values.

Goodwill represents the excess of the purchase price over the fair value of net assets acquired, including the amount assigned to identifiable intangible assets.

Intangible assets may include customer relationships, trademarks and acquired software.

Identifiable intangible assets with finite lives are amortized over their expected useful lives.

Acquisition-related costs are expensed in the periods in which the costs are incurred.

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

results of operations of acquired businesses are included in the Company’s Consolidated Financial Statements from the acquisition date.

The Company evaluates goodwill for impairment at least annually, or as circumstances warrant.

Goodwill is evaluated at the reporting unit level by comparing the fair value of the reporting unit with its carrying amount including goodwill.

An impairment of goodwill exists if the carrying amount of the reporting unit exceeds its fair value.

The impairment loss is the amount by which the carrying amount exceeds the reporting unit’s fair value, limited to the total amount of goodwill allocated to that reporting unit.

Intangible assets with finite lives are amortized over their estimated useful lives and reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

If an impairment indicator is present, the Company evaluates recoverability of assets to be held and used by a comparison of the carrying value of the assets with future undiscounted net cash flows expected to be generated by the assets.

The Company groups assets at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows generated by other asset groups.

If the total of the expected undiscounted future cash flows is less than the carrying amount of the asset group, the Company estimates the fair value of the asset group to determine whether an impairment loss should be recognized.

Fair Value of Financial Instruments

1 unchanged sentence

However, considerable judgment is necessary to interpret market data and develop estimated fair value.

Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize on disposition of the assets and liabilities as of September 30, 2021 and December 31, 2020.

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 March 31, 2022 and December 31, 2021.

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 September 30, 2021 and December 31, 2020 due to their short maturities.

As of September 30, 2021 and December 31, 2020, the Company had an investment in a direct financing lease with a carrying value of $ 0.5 million and $ 0.5 million, respectively, and an effective interest rate of 7.89 % and 7.89 %, respectively.

The carrying value of the investment in a direct financing lease approximated the fair market value as of September 30, 2021 and December 31, 2020.

The fair value of the Company’s direct financing lease 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.

The fair value of the Company’s secured borrowings aggregated approximately $ 33.2 million and $ 47.1 million as compared to the principal balance of $ 33.2 million and $ 47.0 million as of September 30, 2021 and December 31, 2020,

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

respectively.

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 March 31, 2022 and December 31, 2021 due to their short maturities.

As of March 31, 2022 and December 31, 2021, the Company had investment in financing leases, net with a carrying value of $ 16.2 million and $ 16.2 million, respectively, net and effective interest rates ranging from 6.48 % and 7.89 %.

The carrying value of the investment in financing leases approximated their fair market value as of March 31, 2022 and December 31, 2021.

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 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 $ 30.2 million and $ 32.1 million as compared to the principal balance of $ 33.1 million and $ 33.2 million as of March 31, 2022 and December 31, 2021, 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).

1 unchanged sentence

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

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

1 unchanged sentence

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 September 30, 2021, the fair value of the Company’s interest rate swap derivative instrument was approximately $ 0.4 million, included in “Prepaid expenses and other assets, net” on the Consolidated Balance Sheets.

Disclosure about fair value of assets and liabilities is based on pertinent information available to management as of September 30, 2021 and December 31, 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 September 30, 2021 and current estimates of fair value may differ significantly from the amounts presented herein.

As of March 31, 2022 and December 31, 2021, the fair value of the Company’s interest rate swap derivative instrument was approximately $ 3.5 million and $ 1.0 million, respectively, included in “Prepaid expenses and other assets, net” on the Consolidated Balance Sheets.

Disclosure about fair value of assets and liabilities is based on pertinent information available to management as of March 31, 2022 and December 31, 2021.

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 March 31, 2022 and current estimates of fair value may differ significantly from the amounts presented herein.

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Derivative Instruments and Hedging Activities

11 unchanged sentences

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 three and nine months ended September 30, 2021 and 2020.

No impairments were recorded during the three months ended March 31, 2022 and 2021.

Concentration of Credit Risks

As of September 30, 2021, the Company’s properties were leased primarily to a single tenant, the USPS.

For the nine months ended September 30, 2021, 18.3 % of the Company’s total rental income, or $ 27.7 million, was concentrated in Pennsylvania.

For the nine months ended September 30, 2020, no state had a concentration of rental income over 10% as a percentage of total rental income.

As of March 31, 2022, the Company’s properties were leased primarily to a single tenant, the USPS.

For the three months ended March 31, 2022, 17.2 % of the Company’s total rental income, or $ 2.0 million, was concentrated in Pennsylvania.

For the three months ended March 31, 2021, 19.6 % of the Company's total rental income, or $ 1.7 million, was concentrated in Pennsylvania .

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

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

7 unchanged sentences

Stockholder’s Equity for further details.

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Insurance Accounting

4 unchanged sentences

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 for the period beginning May 17, 2019.

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

As of March 31, 2022 and 2021, the Company had unvested restricted shares of Class A common stock, long term incentive units of the Operating Partnership ("LTIP Units") and certain restricted stock units (“RSUs”), which provide for non-forfeitable rights to dividend and dividend equivalent payments.

Accordingly, these unvested restricted shares of Class A common stock, LTIP Units and RSUs are considered participating securities and are included in the computation of basic and diluted 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 3,847,486 and 2,855,102 potential shares outstanding related to OP Units and long term incentive units of the Operating Partnership (each, an “LTIP Unit”, and collectively, the “LTIP Units”), which 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 September 30, 2021 and 2020, respectively.

These OP Units and LTIP Units would not be dilutive and were not included in the diluted earnings per share for all periods presented.

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 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.

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

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.

Topic 842 also requires the Company to assess the probability of collecting substantially all of its rental revenue and make direct adjustments to rental revenue for operating lease receivables that are not believed to be collectible.

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

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 Company’s Consolidated Statements of Operations and Comprehensive Income (Loss).

During the nine months ended September 30, 2021, the Company recorded a 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.

Earnings Per Share for further details.

Future Application of Accounting Standards

9 unchanged sentences

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

The following tables summarizes the Company’s acquisitions for the nine months ended September 30, 2021.

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):

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Nine Months Ended Number of

Real Estate Acquisitions

The following tables summarizes the Company’s acquisitions for the three months ended March 31, 2022.

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

5 unchanged sentences

March 31, 2022 (3) 50 $ 5,422 $ 22,233 $ 214 $ 1,889 $ 28 $ ( 1,848 ) $ ( 363 ) $ 27,575

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

Total 184 $ 12,190 $ 58,657 $ 843 $ 5,776 $ 111 $ ( 1,211 ) $ 742 $ 77,108

Explanatory Notes :

(1) Represents an insurance receivable 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 is in the process of rebuilding such property which remains under lease to the USPS 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 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.

(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 and $ 0.5 million for the three months ended September 30, 2021.

(3) Includes the acquisition of 54 postal 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 postal properties in various states in individual or portfolio transactions for a price of 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 postal properties in various states in individual or portfolio transactions for a price of 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.

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) Includes an intangible liability related to unfavorable operating leases on two properties during the three months ended March 31, 2022 that is included in “Accounts payable, accrued expenses and other” on the Consolidated Balance Sheets.

(2) Includes closing costs of approximately $ 0.6 million for the three months ended March 31, 2022.

(3) Includes the acquisition of 50 properties in various states in individual or portfolio transactions for a price of approximately $ 27.6 million, including closing costs, which was funded with both the issuance of OP Units to the sellers as non-cash consideration (valued at approximately $ 1.8 million using the share price of Class A common stock on the date of each issuance of such OP Units) and borrowings under the Credit Facilities .

Intangible Assets and Liabilities

The following table summarizes the Company’s 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

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(in thousands)

September 30, 2021:

March 31, 2022:

In-place lease intangibles

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Above-market leases

319 ( 70 ) 249

Below-market leases

( 13,654 ) 4,984 ( 8,670 )

Amortization of in-place lease intangibles was $ 1.7 million and $ 4.6 million for the three and nine months ended September 30, 2021, respectively, and $ 1.2 million and $ 3.4 million for the three and nine months ended September 30, 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 $ 8,714 and $ 21,432 for the three and nine months ended September 30, 2021, respectively, and $ 5,213 and $ 11,895 for the three and nine months ended September 30, 2020, respectively, and is included in “Rental income” in the Consolidated Statements of Operations and Comprehensive Income (Loss).

Amortization of acquired below market leases was $ 0.4 million and $ 1.2 million for the three and nine months ended September 30, 2021, respectively, and $ 0.3 million and $ 0.9 million for the three and nine months ended September 30, 2020, respectively, and is included in “Rental income” in the Consolidated Statements of Operations and Comprehensive Income (Loss).

Amortization of in-place lease intangibles was $ 1.8 million and $ 1.4 million for the three months ended March 31, 2022 and 2021, respectively.

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

Amortization of acquired above market leases was $ 0.02 million and $ 0.01 million for the three months ended March 31, 2022 and 2021, respectively, and is included in “Rental income” in the Consolidated Statements of Operations and Comprehensive Income.

Amortization of acquired below market leases was $ 0.5 million and $ 0.4 million for the three months ended March 31, 2022 and 2021, respectively, and is included in “Rental income” in the Consolidated Statements of Operations and Comprehensive Income.

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Future amortization/accretion of these intangibles is below (in thousands):

9 unchanged sentences

$ 14,579 $ 259 $ ( 9,978 )

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes the Company’s indebtedness as of September 30, 2021 and December 31, 2020 (dollars in thousands):

The following table summarizes the Company’s indebtedness as of March 31, 2022 and December 31, 2021 (dollars in thousands):

Outstanding Balance as of

September 30,

2022 Outstanding

1 unchanged sentence

2021 Interest

September 30,

2022 Maturity Date

Revolving Credit Facility Borrowings (1):

Revolving Credit Facility (1):

2021 Revolving Credit Facility $ 40,000 $ 13,000 LIBOR+ 150 bps (2)

2019 Credit Facility — 78,000 — —

2021 Term Loan (1)

9 unchanged sentences

282 366 6.00 % January 2025

First Oklahoma Bank – April 2020 (7)

— 4,522 4.25 % April 2040

First Oklahoma Bank – June 2020 (8)

— 9,152 4.25 % June 2040

AIG – December 2020 (7)

4 unchanged sentences

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 2021 Revolving Credit Facility and a $ 50.0 million senior unsecured term loan facility (the "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.

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

In connection with entering into the Credit Facilities, the Company terminated its previous credit facility and paid off the outstanding loans thereunder.

The Credit Facilities include an accordion feature which permit the Company to borrow up to an additional $ 150.0 million under the 2021 Revolving Credit Facility and, prior to the First Amendment (as defined below), 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.

Prior to the First Amendment, borrowings under the Credit Facilities carried 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 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 September 30, 2021 .

Derivatives and Hedging Activities below for further details.

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

During the three and nine months ended September 30, 2020, the Company incurred $ 0.1 million and $ 0.3 million, respectively, of

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

unused facility fees related to the 2019 Credit Facility.

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

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

Dollar LIBOR rate was 0.08025 %.

(3) Five properties are collateralized under this loan.

Spodek also provided a personal guarantee of payment for the entire outstanding amount thereunder as of December 31, 2020 and for 50 % of the outstanding amount thereunder as of September 30, 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 %.

During the three months ended March 31, 2022 and 2021, the Company incurred $ 0.06 million and $ 0.05 million, respectively, of unused facility fees related to its previous credit facility and the 2021 Revolving Credit Facility.

As of March 31, 2022, the Company was in compliance with all of the Credit Facilities’ debt covenants.

On May 11, 2022, the Company amended the Credit Facilities (the "First Amendment") to, among other things, add a new $ 75.0 million senior unsecured delayed draw term loan facility (the "2022 Term Loan") that matures in February 2028, increase the accordion feature under the Credit Facilities for term loans to $ 75.0 million, replace LIBOR with the Secured Overnight Financing Rate ("SOFR") as the benchmark interest rate and allow for a decrease in the applicable margin by 0.02 % if the Company achieves certain sustainability targets.

As amended, the 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 Adjusted Term SOFR (as defined below) plus a margin ranging from 1.5 % to 2.0 % per annum, or (ii) in the case of the 2021 Term Loan and the 2022 Term Loan, either a base rate plus a margin ranging from 0.45 % to 0.95 % per annum or Adjusted Term SOFR plus a margin ranging from 1.45 % to 1.95 % per annum, in each case depending on the Company's consolidated leverage ratio .

The Adjusted Term SOFR option is SOFR plus a term SOFR adjustment of 0.10 %, subject to a 0 % floor (the “Adjusted Term SOFR”).

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

Dollar LIBOR rate.

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

Spodek also provided a personal guarantee of payment for 50 % of the outstanding amount thereunder.

The loan has a fixed interest rate of 3.69 % for the first five years with interest payments only, 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 %.

The loan has a fixed interest rate of 3.625 % fixed for the first five years , then adjusting annually thereafter to a variable annual rate of Wall Street Journal Prime Rate with a minimum annual rate of 3.625 %.

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

(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 $ 105,661 with the first installment due on January 2, 2021 based on a 6.0 % interest rate per annum through January 2, 2025.

(7) 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 %.

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 nine months ended September 30, 2021.

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

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

Interest rates resets 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 nine months ended September 30, 2021.

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

(9) The loan is secured by a first mortgage lien on an industrial property located in Warrendale, PA (the “Industrial Facility”).

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

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

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

The weighted average maturity date for the Company’s indebtedness as of September 30, 2021 and December 31, 2020 was 6.1 years and 6.6 years, respectively.

The weighted average maturity date for the Company's indebtedness as of March 31, 2022 and December 31, 2021 was 5.7 years and 6.5 years, respectively.

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The scheduled principal repayments of indebtedness as of September 30, 2021 are as follows (in thousands):

The scheduled principal repayments of indebtedness as of March 31, 2022 are as follows (in thousands):

Year Ending December 31, Amount

2022 - Remaining $ 12

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 September 30, 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 Statement 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 $ 0.4 million will be reclassified from “Accumulated other comprehensive income” as an increase to interest expense.

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 of the Credit Facilities through January 29, 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 March 31, 2022.

Upon entry into the First Amendment, the Company concurrently amended this interest rate swap to reference SOFR instead of LIBOR.

On May 11, 2022, the Company entered into two additional interest rate swaps that effectively fixed the SOFR component of the interest rate on $ 50.0 million of the Credit Facilities through February 11, 2028.

The interest rate swaps initially applied to the $ 50.0 million amount outstanding under the 2022 Term Loan, fixing the interest rate for the 2022 Term Loan initially at 4.237 %.

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

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

The interest rate swaps are designated as cash flow hedges, with any gain or loss recorded in “Accumulated other comprehensive income” in the Consolidated Statements of Operations and Comprehensive Income and subsequently reclassified into interest expense as interest payments are made on the Company’s Credit Facilities.

During the next twelve months, the Company estimates that an additional $ 0.5 million will be reclassified from “Accumulated other comprehensive income” as a decrease to interest expense.

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

The table below presents the effect of the Company’s interest rate swap derivative instrument on the Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended September 30, 2021 and 2020.

The table below presents the effect of the Company’s interest rate swap derivative instrument on the Consolidated Statements of Operations and Comprehensive Income for the three months ended March 31, 2022 and 2021.

For the Three Months Ended

September 30, For the Nine Months Ended

September 30,

Derivatives in Cash Flow Hedging Relationships (Interest Rate Swaps) 2022 2021

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

$ 339 $ — $ 339 $ —

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

$ ( 55 ) $ — $ ( 55 ) $ —

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 $ 1.0 million and $ 2.8 million for the three and nine months ended September 30, 2021, respectively, and $ 0.6 million and $ 2.1 million for the three and nine months ended September 30, 2020, respectively.

As of September 30, 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 September 30, 2021, it could have been required to settle its obligations under the agreements at their termination value.

Interest expense, net presented in the Consolidated Statements of Operations and Comprehensive Income, in which the effects of cash flow hedges are recorded, totaled $ 0.8 million and $ 1.0 million for the three months ended March 31, 2022 and 2021, respectively.

As of March 31, 2022, 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 March 31, 2022, it could have been required to settle its obligations under the agreements at their termination value.

POSTAL REALTY TRUST, INC.

1 unchanged sentence

Lessor Accounting

As of September 30, 2021, the Company’s properties were leased primarily to the USPS.

Certain leases have expired and the balance expire at various dates through September 30, 2030.

As of March 31, 2022, 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 March 31, 2022 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 one that is a direct financing lease.The Company’s operating leases and direct financing lease are described below.

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.

1 unchanged sentence

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

As a result, rental income and tenant reimbursements were aggregated into a single line within rental income in the Consolidated Statements of Operations and Comprehensive Income.

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

For the Three Months Ended

September 30, For the Nine Months Ended

September 30,

2021 2020 2021 2020

Fixed payments

2 unchanged sentences

$ 11,349 $ 8,487

$ 10,204 $ 6,014 $ 27,668 $ 16,209

Future minimum lease payments to be received as of September 30, 2021 under non-cancellable operating leases for the next five years and thereafter are as follows:

Future minimum lease payments to be received as of March 31, 2022 under non-cancellable operating leases for the next five years and thereafter are as follows:

Year Ending December 31, Amount (1)

3 unchanged sentences

(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 September 30, 2021, the leases at 26 of the Company’s properties were expired, and the USPS was occupying such properties as a holdover tenant.

(2) As of March 31, 2022, the leases at 11 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.

(3) The USPS vacated one property at the end of September 2021.

The Company is moving forward with marketing the property for lease, though there can be no assurance as to when or on what terms the property will be leased.

Purchase Option Provisions

As of March 31, 2022, operating leases for 50 of the Company’s properties provided the USPS with the option to purchase the underlying property either at fair market value or at fixed prices, in each case as of dates set forth in the lease agreement.

As of March 31, 2022, 47 of these properties acquired for an aggregate purchase price of approximately $ 36.2

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Direct Financing Lease

As of September 30, 2021 and 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 September 30, 2021 and December 31, 2020 are summarized in the table below (in thousands):

September 30,

million had an aggregate purchase option price of approximately $ 43.4 million and the remaining three properties acquired for an aggregate purchase price of approximately $ 6.7 million had purchase options exercisable at fair market value.

Direct Financing Leases

As of March 31, 2022 and 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 March 31, 2022 and December 31, 2021 are summarized in the table below (in thousands):

Total minimum lease payment receivable

2 unchanged sentences

( 17,879 ) ( 18,139 )

Investment in financing lease, net

Future lease payments to be received under the Company’s direct financing lease as of September 30, 2021 for the next five years and thereafter are as follows:

Investment in financing leases, net $ 16,189 $ 16,213

Revenue earned under direct financing leases for the three months ended March 31, 2022 and 2021 were $ 0.3 million and $ 0.01 million, respectively, which is recorded in "Fee and other" in the Consolidated Statements of Operations and Comprehensive Income.

Future lease payments to be received under the Company’s direct financing leases as of March 31, 2022 for the next five years and thereafter are as follows:

Year Ending December 31, Amount

3 unchanged sentences

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 September 30, 2021, these leases had remaining terms, including renewal options, of three to 51 years and a weighted average remaining lease term of 21.4 years.

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

September 30,

As of March 31, 2022, these leases had remaining terms, including renewal options, of two to 51 years and a weighted average remaining lease term of 22.5 years.

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

ROU asset – operating leases

$ 1,011 $ 1,058

Lease liability – operating leases $ 1,026 $ 1,071

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 liabilities are measured at the commencement date based on the present value of future lease payments.

Operating lease assets and liabilities are measured at the commencement date based on the present value of future lease payments.

As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments.

The Company used a 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.

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Operating lease expense for each of the three and nine months ended September 30, 2021 and 2020 was $ 0.06 million and $ 0.1 million, respectively.

Future minimum lease payments to be paid by the Company as a lessee for operating leases as of September 30, 2021 for the next five years and thereafter are as follows (in thousands):

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 three months ended March 31, 2022 and 2021 was $ 0.06 million and $ 0.1 million, respectively.

Future minimum lease payments to be paid by the Company as a lessee for operating leases as of March 31, 2022 for the next five years and thereafter are as follows (in thousands):

2022 — Remaining $ 171

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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

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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 nine months ended September 30, 2021, the Company received 100 % of its rents and the Company believes there was no material impact caused by COVID-19 on the Company.

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

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

state corporate income tax liability for PRM.

For the three and nine months ended September 30, 2021, income tax expense related to PRM was $ 0.02 million and $ 0.06 million, respectively.

For the three and nine months ended September 30, 2020, income tax expense related to PRM was $ 0.02 million and $ 0.05 million, respectively.

In connection with the IPO, the indirect sole shareholder of UPH agreed to reimburse the Company for unrecognized tax benefits primarily related to the utilization of certain loss carryforwards at UPH.

For the three months ended March 31, 2022, the Company received 100 % of its rents and the Company believes there was no material impact caused by COVID-19 on the Company.

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

REAC performs management services, including for properties the Company does not own, and advisory services to third-party owners of postal properties.

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

For each of the three months ended March 31, 2022 and 2021, income tax expense related to REAC was $ 0.01 million.

In connection with the IPO, the indirect sole shareholder of United Postal Holdings, Inc.

("UPH"), a portion of our predecessor, agreed to reimburse the Company for unrecognized tax benefits primarily related to the utilization of certain loss carryforwards at UPH.

The Company recorded an indemnification asset in the same amount as the unrecognized tax benefits.

The indirect sole shareholder of UPH will be responsible for all tax related matters related to UPH.

As of September 30, 2021 and December 31, 2020, the Company had unrecognized tax benefits of $ 0.2 million and $ 0.4 million, respectively, which are inclusive of interest and penalties, and a corresponding indemnification asset, which is recorded in prepaid expenses and other assets on the Consolidated Balance Sheets.

During the three months ended September 30, 2021, the Company reversed $ 0.2 million of unrecognized tax benefits and the corresponding indemnification asset due to the expiration of statute of limitations.

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.

As of March 31, 2022 and December 31, 2021, the Company had unrecognized tax benefits of $ 0.2 million and $ 0.2 million, respectively, which are inclusive of interest and penalties, and a corresponding indemnification asset, which are included in "Prepaid expenses and other assets" on the Consolidated Balance Sheets.

Related Party Transactions

Management Fee Income

PRM recognized management fee income of $ 0.3 million and $ 1.0 million for the three and nine months ended September 30, 2021, respectively, and $ 0.3 million and $ 0.8 million for the three and nine months ended September 30, 2020, respectively, from various properties 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 was $ 0.3 million and $ 0.3 million as of September 30, 2021 and December 31, 2020, respectively, are included in “Rents and other receivables” on the Consolidated Balance Sheets.

REAC recognized management fee income of $ 0.3 million for each of the three months ended March 31, 2022 and 2021 from various parties which were affiliated with the Company's CEO.

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

Accrued management fees receivable of $ 0.3 million and $ 0.3 million as of March 31, 2022 and December 31, 2021, respectively, are included in “Rents and other receivables” on the Consolidated Balance Sheets.

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Related Party Lease

2 unchanged sentences

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 three and nine months ended September 30, 2021 were $ 0.05 million and $ 0.1 million, respectively, and for the three and nine months ended September 30, 2020 was $ 0.05 million and $ 0.1 million, respectively, and was recorded in “General and administrative expenses” in the Consolidated Statements of Operations and Comprehensive Income (Loss).

Rental expenses associated with the Office Lease for each of the three months ended March 31, 2022 and 2021 were $ 0.05 million and was recorded in “General and administrative expenses” in the Consolidated Statements of Operations and Comprehensive Income.

The Company determined this Office Lease was an operating lease.

For further detail 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 the Company’s Board of Directors ratified the no consideration transfer.

For further details, see Note 7.

As disclosed above in Note 5.

Spodek, the Company’s CEO, 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

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

million as of September 30, 2021 and December 31, 2020, respectively.

Spodek, the Company's CEO, personally guaranteed a portion of or the entire amount outstanding under the Company's loans with First Oklahoma Bank and Vision Bank, totaling $ 1.9 million and $ 1.9 million as of March 31, 2022 and December 31, 2021, 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 2021 Offering (as defined below).

Earnings Per Share

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).

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

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

For the Three Months Ended

September 30, For the Nine Months Ended

September 30,

2021 2020 2021 2020

Numerator for earnings per share – basic and diluted:

Net income (loss) attributable to common stockholders $ 531 $ ( 15 ) $ 1,304 $ ( 844 )

Net income attributable to common stockholders $ 595 $ 103

Income attributable to participating securities ( 229 ) ( 147 )

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Basic and diluted earnings per share $ 0.02 $ 0.00

Explanatory Notes :

(1) OP Units and LTIP Units would not be dilutive and were not included in the computation of diluted EPS for all periods presented.

Explanatory Note :

(1) For the three months ended March 31, 2022, 492,686 restricted shares of Class A common stock, 135,276 RSUs, 3,651,937 OP Units and 493,654 LTIP Units would not be dilutive and were not included in the computation of weighted average number of shares outstanding for the period.

For the three months ended March 31, 2021, 364,311 restricted shares of Class A common stock, 88,503 RSUs, 2,640,795 OP Units and 346,268 LTIP Units would not be dilutive and were not included in the computation of weighted average number of shares outstanding for the period.

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 March 31, 2022 and 2021, 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 and LTIP Units would have no net impact on the determination of diluted earnings per share.

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 Company priced a public offering of 3.25 million shares of its Class A common stock (the “January 2021 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 2021 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 $ 0.6 million in other expenses relating to the January Follow-on Offering.

The January 2021 Offering, including the January 2021 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 $ 0.6 million in other related expenses.

On November 16, 2021, the Company priced a public offering of 4.25 million shares of its Class A common stock (the “November 2021 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 2021 Additional Shares”).

The November 2021 Offering, including the November 2021 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 related expenses.

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.

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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).

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

As of September 30, 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

Three Months Ended

September 30, 2021 Nine Months Ended

September 30, 2021

Shares issued 25 345

Gross proceeds $ 494 $ 6,894

Fees and issuance costs 85 432

Net proceeds $ 409 $ 6,462

Average gross sales price per share $ 19.76 $ 20.00

During the three and nine months ended September 30, 2021, the Board of Directors approved and the Company declared and paid dividends of $ 3.9 million and $ 11.1 million, respectively, to Class A common stockholders, Voting Equivalency stockholders, OP unitholders and LTIP unitholders, or $ 0.2225 per share and $ 0.6600 per share, respectively, as shown in the table below.

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

During the three months ended March 31, 2022, the Company did not issue any shares under the ATM Program.

As of March 31, 2022, the Company had approximately $ 43.1 million remaining that may be issued under the ATM Program.

During the three months ended March 31, 2022, the Board of Directors approved and the Company declared and paid dividends of $ 5.2 million to Class A common stockholders, Voting Equivalency stockholders, OP unitholders and LTIP unitholders, or $ 0.2275 per share or unit, as shown in the table below.

Declaration Date Record Date Date Paid Amount Per Share

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

February 1, 2022 February 15, 2022 February 28, 2022 $ 0.2275

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 nine months ended September 30, 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.

As of September 30, 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 21.9 % and 23.1 % of the outstanding Operating Partnership units as of September 30, 2021 and December 31, 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.

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

During the three months ended March 31, 2022, the Company issued 118,389 LTIP Units in January 2022 to the Company’s CEO for his 2021 incentive bonus, his election to defer 100 % of his 2022 annual salary and for long term incentive compensation.

In addition, during the three months ended March 31, 2022, the Company issued 179,716 OP Units to certain contributors in connection with portfolio acquisition and business acquisition (for further details, see Note 13.

Business Acquisitions).

As of March 31, 2022 and December 31, 2021, non-controlling interests consisted of 3,651,937 OP Units and 493,654 LTIP Units and 3,472,221 OP Units and 375,265 LTIP Units, respectively.

This represented approximately 18.0 % and 17.1 % of the outstanding Operating Partnership units as of March 31, 2022 and December 31, 2021, respectively.

OP 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,

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

The Operating Partnership unitholders are entitled to share in cash distributions from the Operating Partnership in proportion to their percentage ownership of OP Units.

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Pursuant to the Company’s 2019 Equity Incentive Plan (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 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.

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.

On April 27, 2021, the Board of Directors further amended the Plan to provide for an automatic increase annually in the number of shares of Class A common stock available for issuance under the Plan (the “Plan Pool”), 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.

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.

As of September 30, 2021, the remaining

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

shares available under the Plan for future issuance was 506,814 .

As of March 31, 2022, the remaining shares available under the Plan for future issuance was 1,211,337 .

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 stock, LTIP Units and RSUs.

The balance as of September 30, 2021 represents unvested shares of restricted stock and LTIP Units and RSUs that are outstanding, whether vested or not:

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 March 31, 2022 represents unvested restricted shares of Class A common stock and LTIP Units and RSUs that are outstanding, whether vested or not:

Shares (1)(2)

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( 8,968 ) — — ( 8,968 ) $ 16.40

( 1,168 ) — — ( 1,168 ) $ 16.60

Outstanding, as of September 30, 2021 315,781 375,264 128,753 819,798 $ 15.70

Outstanding, as of March 31, 2022 492,686 493,654 219,604 1,205,944 $ 16.22

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 .

(2) The time-based restricted share awards granted to the Company's officers and employees typically vest in three annual installments or cliff vest at the end of three years or eight years .

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

(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) During the nine months ended September 30, 2021, 46,714 RSUs were granted to certain officers and employees of the Company subject to the achievement of a service condition and a market condition.

(3) Includes 464,657 LTIP Units granted to the Company’s CEO that vest over eight years and 28,997 LTIP Units granted to the Company's independent directors that vest over three years or cliff vest at the end of three years .

(4) Includes 47,005 RSUs granted to certain officers and employees of the Company during the three months ended March 31, 2022, 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, 2024.

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 an employee for their election to defer a portion of their 2021 salary that will vest on December 31, 2021.

Also, includes 40,961 time-based RSUs issued for 2021 incentive bonuses to certain employees that vested fully on January 31, 2022, the date of grant, and 2,885 time-based RSUs granted to certain employees for their election to defer a portion of their 2022 salary that will vest on December 31, 2022.

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 5,476 of restricted shares that vested and 3,492 shares of restricted shares that were withheld to satisfy minimum statutory withholding requirements.

During the three months ended September 30, 2021 and 2020, the Company recognized compensation expense of $ 0.8 million and $ 0.6 million, respectively, related to all awards.

During the nine months ended September 30, 2021 and 2020, the Company recognized compensation expense of $ 2.7 million and $ 1.8 million, respectively, related to all awards.

As of September 30, 2021, there was $ 9.1 million of total unrecognized compensation cost related to unvested awards, which is expected to be recognized over a weighted average period of 4.5 years.

During the three months ended March 31, 2022 and 2021, the Company recognized compensation expense of $ 1.7 million and $ 1.1 million, respectively, related to all awards.

As of March 31, 2022, there was $ 13.4 million of total unrecognized compensation cost related to unvested awards, which is expected to be recognized over a weighted average period of 4.7 years.

Employee Stock Purchase Plan

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A total of 100,000 shares of Class A common stock was reserved for sale and authorized for issuance under the ESPP.

The Code permits the Company to provide up to a 15 % discount on the lesser of the fair market value of such shares of Class A

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

common stock at the beginning of the offering period and the close of the offering period.

As of September 30, 2021 and December 31, 2020, 16,293 and 7,189 shares have been issued under the ESPP since commencement, respectively.

During each of the three months ended September 30, 2021 and 2020, the Company recognized compensation expense of $ 0.01 million.

During the nine months ended September 30, 2021 and 2020, the Company recognized compensation expense of $ 0.03 million and $ 0.02 million, respectively.

The Code permits the Company to provide up to a 15 % discount on the lesser of the fair market value of such shares of Class A common stock at the beginning of the offering period and the close of the offering period.

As of March 31, 2022 and December 31, 2021, 21,680 and 16,293 shares have been issued under the ESPP since commencement, respectively.

During the three months ended March 31, 2022 and 2021, the Company recognized compensation expense of $ 0.02 million and $ 0.01 million, respectively.

Commitments and Contingencies

As of September 30, 2021, 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.

As of March 31, 2022, 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 the transactions contemplated by such contracts on time, or that the Company will consummate any transaction contemplated by any definitive contract.

Business Acquisition

On March 4, 2022, the Company acquired a postal real estate consulting business and its employees (the “Business”) through the issuance of 79,794 OP Units and $ 0.2 million in cash for an aggregate purchase price of approximately $ 1.7 million to complement the Company's core business of acquiring, managing, servicing and being a consolidator of postal properties.

The accounting for a business combination is dependent upon obtaining valuations and other information for certain assets and liabilities which have not yet been completed or obtained to a point where definitive estimates can be made.

The process for estimating the fair values of identified intangible assets, certain tangible assets and assumed liabilities require the use of judgment to determine the appropriate assumptions.

Until the Company finalizes estimates of the fair value of assets acquired and liabilities assumed, substantially all of the purchase price allocation for the Business is provisional.

Additional purchase price adjustments will be recorded during the measurement period not to exceed one year beyond the acquisition date.

These adjustments may have a material impact on the Company’s results of operations and financial position.

The Company has provisionally recorded an intangible asset related to the customer relationships and trade name of approximately $ 0.2 million and goodwill of approximately $ 1.5 million.

The goodwill recorded is deductible for income tax purposes.

All assets acquired in connection with the business acquisition were assigned to the Company’s single reportable segment.

The results of operations of this acquired business have been included since the acquisition date.

Pro forma information has not been presented for this business acquisition because such information is not material to the financial statements .

Subsequent Events

The Company has evaluated subsequent events through the date on which this Form 10-Q was filed, the date on which these financial statements were issued, and identified the items below for discussion.

The Company's Board of Directors approved, and on November 4, 2021, the Company declared a third quarter common stock dividend of $ 0.2250 per share, which is payable on November 30, 2021 to stockholders of record as of November 15, 2021.

As of the date of this report, the Company had $ 117.5 million drawn on the 2021 Credit Facilities, with $ 50.0 million drawn on the 2021 Term Loan and $ 67.5 million drawn on the 2021 Revolving Credit Facility.

As of November 11, 2021 and during the period subsequent to September 30, 2021, the Company closed on the acquisitions of 17 postal properties for approximately $ 17.9 million, excluding closing costs.

As of November 11, 2021 and during the period subsequent to September 30, 2021, the Company had entered into definitive agreements to acquire 30 postal properties for approximately $ 15.3 million, some of which include OP Units as part of the consideration.

The majority of these transactions are anticipated to close during the fourth quarter of 2021 and the first quarter of 2022, subject to the satisfaction of customary closing conditions.

The Company's Board of Directors approved, and on April 28, 2022, the Company declared a first quarter common stock dividend of $ 0.23 per share, which is payable on May 27, 2022 to stockholders of record as of May 13, 2022.

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On May 11, 2022, the Company entered into the First Amendment to the Credit Facilities.

Debt for additional details.

As of the date of these Consolidated Financial Statements, the Company had $ 110.0 million drawn on the Credit Facilities, with $ 50.0 million drawn on the 2021 Term Loan, $ 50.0 million drawn on the 2022 Term Loan and $ 10.0 million drawn on the 2021 Revolving Credit Facility.

As of May 11, 2022 and during the period subsequent to March 31, 2022, the Company closed on the acquisitions of 44 properties for approximately $ 14.0 million, excluding closing costs, some of which include OP Units as part of the consideration.

As of May 11, 2022 and during the period subsequent to March 31, 2022, the Company had entered into definitive agreements to acquire 107 properties for approximately $ 34.6 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.

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-Q

Item 1. Financial Statements