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Item 2. Management’s Discussion and Analysis

2022-05-13 compared with 2021-11-12 · 113 added, 166 removed, 182 unchanged (61% of the section changed)

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As used in this section, unless the context otherwise requires, references to “we,” “our,” “us,” and “our company” refer to Postal Realty Trust, Inc., a Maryland corporation, together with our consolidated subsidiaries, including Postal Realty LP, a Delaware limited partnership, of which we are the sole general partner and which we refer to in this section as our Operating Partnership.

Prior to the closing of our initial public offering (our “IPO”) on May 17, 2019, Andrew Spodek, our chief executive officer and a member of our Board of Directors, directly or indirectly controlled 190 properties owned by the Predecessor that were contributed as part of the Formation Transactions (as defined below).

Of these 190 properties, 140 were held indirectly by our Predecessor through a series of holding companies, which we refer to collectively as “UPH.” The remaining 50 properties were owned by Mr.

Spodek through 12 limited liability companies and one limited partnership, which we refer to collectively as the “Spodek LLCs.” References to our “Predecessor” consist of UPH, the Spodek LLCs and Nationwide Postal Management, Inc., a property management company whose management business we acquired in the Formation Transactions, collectively.

Forward-Looking Statements

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• the solvency and financial health of the USPS;

• defaults on, early terminations of or non-renewal of leases by the USPS;

• defaults on, early terminations of or non-renewal of leases or relocation of postal offices by the USPS;

• the competitive market in which we operate;

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• change in our business, financing or investment strategy or the markets in which we operate;

• fluctuations in mortgage rates and increased operating costs;

• changes in the method pursuant to which reference rates are determined and the elimination of the London Interbank Offered Rate (“LIBOR”) after June 2023;

• general economic conditions;

• fluctuations in interest rates and increased operating costs;

• general economic conditions (including uncertainty regarding ongoing conflict between Russia and Ukraine and the related impact on macroeconomic conditions);

• financial market fluctuations;

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• lack or insufficient amounts of insurance;

• limitations imposed on our business in order to qualify and maintain our status as a REIT and our failure to qualify or maintain such status;

• limitations imposed on our business in order to maintain our status as a REIT and our failure to maintain such status;

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

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For a further discussion of these and other factors that could impact our future results, performance or transactions, you should carefully review and consider (i) the information contained under Item 1A titled “Risk Factors” herein and in our Annual Report on Form 10-K and (ii) such similar information as may be contained in our other reports and filings that we make with the Securities and Exchange Commission (the “SEC”).

We were formed as a Maryland corporation on November 19, 2018 and commenced operations upon completion of our IPO and the related formation transactions (the “Formation Transactions”).

We were formed as a Maryland corporation on November 19, 2018 and commenced operations upon completion of our initial public offering and the related formation transactions.

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

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

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

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

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

During the three months ended March 31, 2022, we acquired 50 properties leased to the USPS for approximately $27.6 million, including closing costs.

As of March 31, 2022, our portfolio consists of 1,016 owned properties, located in 49 states and one territory and comprising approximately 4.7 million net leasable interior square feet.

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

As of May 11, 2022, we owned approximately 81.9% of our outstanding common units of limited partnership interest in our Operating Partnership (the “OP Units”), including long term incentive units of our Operating Partnership (the “LTIP Units”).

Our Board of Directors oversees our business and affairs.

ATM Program and Follow-on Offering

ATM Program and Follow-on Offerings

On December 14, 2020, we 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.

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

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

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

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

As of March 31, 2022, we had approximately $43.1 million of availability remaining under the ATM Program.

On January 11, 2021, we priced a public offering of 3.25 million shares of our Class A common stock (the “January 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, we priced a public offering of 4.25 million shares of our 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.

Executive Overview

We are an internally managed REIT with a focus on acquiring and managing properties primarily leased to the USPS, ranging from last mile post offices to larger industrial facilities.

We are an internally managed REIT with a focus on acquiring and managing properties leased primarily to the USPS, ranging from last mile post offices to larger industrial facilities.

We believe the overall opportunity for consolidation that exists within the postal logistics network is very attractive.

We continue to execute our strategy to acquire and consolidate postal properties that will generate strong earnings for our shareholders.

We continue to execute our strategy to acquire and consolidate postal properties that we believe will generate strong earnings for our shareholders.

Geographic Concentration

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

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

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

Any material changes in the current payments programs or regulatory, economic, environmental or competitive conditions in any of these areas could have an effect on our overall business results.

In the event of negative economic or other changes in any of these markets, our business, financial condition and results of operations, our ability to make distributions to our shareholders and the trading price of our common shares may be adversely affected.

As of March 31, 2022, we owned a portfolio of 1,016 properties located in 49 states and one territory and leased primarily to the USPS.

For the three months ended March 31, 2022, 17.2% of our total of rental income was concentrated in Pennsylvania.

Emerging Growth Company

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies,” including not being required to comply with the auditor

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

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the "JOBS Act"), and we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies,” including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.

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

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The USPS is constrained by laws and regulations that restrict revenue sources and pricing, mandate certain expenses and cap its borrowing capacity.

As a result, among other consequences, the USPS is unable to fund its mandated expenses and continues to be subject to mandated payments to its retirement system and health benefits.

As a result, among other consequences, the USPS is unable to fund its mandated expenses and continues to be subject to mandated payments to its retirement system and benefits.

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

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

Further, although the USPS received a $10.0 billion loan under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, as amended by Public Law 116-260, the Consolidated Appropriations Act, 2021, there can be no assurances that this financing will be sufficient to sustain USPS operations in light of current shortfalls.

If the USPS becomes unable to meet its financial obligations or its revenue declines due to reduced demand for its services, the USPS may reduce its demand for leasing postal properties, which would have a material adverse effect on our business and operations.

For additional information regarding the risks associated with the USPS, see the section entitled “Risk Factors - Risks Related to the USPS” under Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021.

We derive revenues primarily from rent and tenant reimbursements under leases with the USPS for our properties, and fee and other income under the management agreements with respect to the postal properties owned by Mr.

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

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

Fee and other principally represent revenue PRM

receives from postal properties owned by Mr.

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

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

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

We derive revenues primarily from rent and tenant reimbursements under leases with the USPS for our properties, and fee and other from the management agreements with respect to the postal properties owned by Mr.

Spodek and his affiliates managed by our taxable REIT subsidiary (“TRS”), and income recognized from properties accounted for as financing leases.

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

Fee and other principally represent (i) revenue our TRS received from postal properties owned by Mr.

Spodek and his affiliates pursuant to the management agreements and is a percentage of the lease revenue for the managed property, (ii) revenue our TRS received from providing advisory services to third-party owners of postal properties and (iii) income recognized from properties accounted for as financing leases.

As of March 31, 2022, properties leased to our tenants had an average remaining lease term of approximately four years.

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

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

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We lease our properties primarily to the USPS.

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

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

insurance, roof and structure.

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

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Factors that may affect our ability to control these operating costs include but are not limited to:

the cost of periodic repair, renovation costs, the cost of re-leasing space and the potential for liability under applicable laws.

the cost of periodic repair, renovation costs, the cost of re-leasing space, inflation and the potential for liability under applicable laws.

Recoveries from the tenant are recognized as revenue on an accrual basis over the periods in which the related expenditures are incurred.

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Equity-Based Compensation Expense

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

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

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

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

Depreciation and Amortization

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Indebtedness and Interest Expense

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

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

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

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

We intend to use the Credit Facilities for working capital purposes, which may include repayment of mortgage indebtedness, property acquisitions and other general corporate purposes.

We amortize on a non-cash basis the deferred financing costs associated with its debt to interest expense using the straight-line method, which approximates the effective interest rate method over the terms of the related loans.

We amortize on a non-cash basis the deferred financing costs associated with our debt to interest expense using the straight-line method, which approximates the effective interest rate method over the terms of the related loans.

Any changes to the debt structure, including debt financing associated with property acquisitions, could materially influence the operating results depending on the terms of any such indebtedness.

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Under the Code, REITs are subject to numerous organizational and operational requirements, including a requirement that they distribute each year at least 90% of their REIT taxable income, determined without regard to the deduction for dividends paid and excluding any net capital gains.

If we fail to qualify for taxation as a REIT in any taxable year and do not qualify for certain statutory relief provisions, our income for that year will be taxed at regular corporate rates, and we would be disqualified from taxation as a REIT for the four taxable years following the year during which we ceased to qualify as a REIT.

If we fail to qualify for taxation as a REIT in any taxable

year and do not qualify for certain statutory relief provisions, our income for that year will be taxed at regular corporate rates, and we would be disqualified from taxation as a REIT for the four taxable years following the year during which we ceased to qualify as a REIT.

Even though we qualify as a REIT for federal income tax purposes, we may still be subject to state and local taxes on our income and assets and to federal income and excise taxes on our undistributed income.

Additionally, any income earned by PRM and any other TRS we form in the future will be subject to federal, state and local corporate income tax.

Additionally, any income earned by our existing TRS and any other TRS we form in the future will be subject to federal, state and local corporate income tax.

Lease Renewal

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

As of May 11, 2022, the leases at 22 of our properties, representing approximately 92,000 net leasable interior square feet and $0.8 million in annual contractual rental revenue, were expired and the USPS was occupying such properties as a holdover tenant.

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

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

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

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

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

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

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

While we currently anticipate that we will execute new leases for all properties that have expired or will expire, there can be no guarantee that we will be successful in executing new leases, obtaining positive rent renewal spreads or renewing the leases on terms comparable to those of the expiring leases.

Even if we are able to renew these expired leases, the lease terms may not be comparable to those of the previous leases.

If we are not successful, we will likely experience reduced occupancy, rental income and net operating income, as well as diminished borrowing capacity under our credit facilities, which could have a material adverse effect on our financial condition, results of operations and ability to make distributions to shareholders.

Results of Operations

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

Comparison of the Three Months Ended March 31, 2022 and the Three Months Ended March 31, 2021

For the Three Months Ended

September 30,

2022 2021 $ Change % Change

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Write-off and amortization of deferred financing fees (129) (145) 16 (11.0) %

Loss on early extinguishment of debt — (202) 202 (100.0) %

Interest income 1 1 — 0.0 %

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Income tax expense (11) (11) — — %

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

Net income $ 721 $ 126 $ 595 472.2 %

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

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

Fee and other .

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

Operating Expense

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

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

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

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

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

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

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

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

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

Total Interest Expense, Net

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

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

Income Tax Expense

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

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

For the Nine Months Ended

September 30,

2021 2020 $ Change % Change

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

Fee and other 1,137 817 320 39.2 %

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

Operating expenses

Real estate taxes 3,877 2,137 1,740 81.4 %

Property operating expenses 2,708 1,261 1,447 114.8 %

General and administrative 7,881 6,246 1,635 26.2 %

Depreciation and amortization 10,131 6,591 3,540 53.7 %

Total operating expenses 24,597 16,235 8,362 51.5 %

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

Other income 276 73 203 278.1 %

Interest expense, net

Contractual interest expense (2,000) (1,757) (243) 13.8 %

Write-off and amortization of deferred financing fees (585) (344) (241) 70.1 %

Loss on early extinguishment of debt (202) — (202) 100.0 %

Interest income 2 2 0 0.0 %

Total interest expense, net (2,785) (2,099) (686) 32.7 %

Income (loss) before income tax expense 1,699 (1,235) 2,934 (237.6) %

Income tax expense (75) (45) (30) 66.7 %

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

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

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

Rental income increased by $2.9 million to $11.3 million for the three months ended March 31, 2022 from $8.5 million for the three months ended March 31, 2021 due to the volume of our acquisitions.

Fee and other .

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

Other revenue increased by $0.2 million to $0.6 million for the three months ended March 31, 2022 from $0.3 million for the three months ended March 31, 2021 primarily due to income received from properties accounted for as financing leases.

Operating Expense

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

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

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

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

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

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

Real estate taxes – Real estate taxes increased by $0.5 million to $1.6 million for the three months ended March 31, 2022 from $1.1 million for the three months ended March 31, 2021 due to the volume of our acquisitions.

Property operating expenses – Property operating expenses increased by $0.6 million to $1.5 million for the three months ended March 31, 2022 from $0.9 million for the three months ended March 31, 2021.

Property management expenses are included within property operating expenses and increased by $0.2 million to $0.6 million for the three months ended March 31, 2022 from $0.4 million for the three months ended March 31, 2021, due to expanding our property management staff

as a result of our continued growth as well as an increase in equity-based compensation expense related to awards that have been granted to our property management employees.

The remainder of the increase of $0.4 million is related to expenses for repairs and maintenance and insurance, which increase is primarily due to the volume of our acquisitions.

General and administrative – General and administrative expenses increased by $1.1 million to $3.6 million for the three months ended March 31, 2022 from $2.6 million for the three months ended March 31, 2021 primarily due to expanding our staff as a result of our continued growth as well as an increase in equity-based compensation expense related to awards that have been granted to our employees in 2021 and during the three months ended March 31, 2022.

Depreciation and amortization – Depreciation and amortization expense increased by $0.9 million to $4.1 million for the three months ended March 31, 2022 from $3.2 million for three months ended March 31, 2021 due to the volume of our acquisitions.

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

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

Other income increased by $0.5 million to $0.5 million for the three months ended March 31, 2022 from $0.04 million for the three months ended March 31, 2021, primarily due to higher insurance recoveries.

Total Interest Expense, Net

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

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

Income Tax Expense

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

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

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

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

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

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

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

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

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

During the three months ended March 31, 2022, we incurred total interest expense, net of $0.8 million compared to $1.0 million for the three months ended March 31, 2021.

The decrease in interest expense is primarily related to the loss on early extinguishment of debt of $0.2 million incurred in connection with the paydown of two mortgage financings during the three months ended March 31, 2021.

Comparison of the Three Months Ended March 31, 2022 and the Three Months Ended March 31, 2021

We had $6.0 million of cash and $1.3 million of escrows and reserves as of March 31, 2022 compared to $3.3 million of cash and $1.1 million of escrows and reserves as of March 31, 2021.

Cash flow from operating activities – Net cash provided by operating activities increased by $2.1 million to $6.6 million for the three months ended March 31, 2022 compared to $4.5 million for the same period in 2021.

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

Cash flow to investing activities – Net cash used in investing activities for the three months ended March 31, 2022 primarily consisted of $25.5 million of acquisitions and $2.6 million of escrow deposits for acquisition, capital improvements and other investing activities, offset by $0.4 million of insurance proceeds that were received.

Net cash used in investing activities for the three months ended March 31, 2021 primarily consisted of $25.4 million of acquisitions.

Cash flow from financing activities – Net cash provided by financing activities decreased by $1.3 million to $21.3 million for the three months ended March 31, 2022 compared to $22.6 million for the three months ended March 31, 2021.

The decrease was primarily related to a decrease in net proceeds from issuance of shares and increased payments of dividends and distributions, offset by an increase in net borrowings under our credit facilities and pay down of two mortgage financings during the three months ended March 31, 2021.

Liquidity and Capital Resources

Analysis of Liquidity and Capital Resources

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

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

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

We had approximately $6.0 million of cash and $1.3 million of escrows and reserves as of March 31, 2022.

On August 9, 2021, we entered into the Credit Facilities, which include the $150.0 million 2021 Revolving Credit Facility and the $50.0 million 2021 Term Loan, with Bank of Montreal, as administrative agent, and BMO Capital Markets Corp., People’s United Bank, National Association, JPMorgan Chase Bank, N.A.

and Truist Securities, Inc.

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Additional participants in the Credit Facilities include Stifel Bank & Trust and TriState Capital Bank.

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

The 2021 Credit Facilities include an accordion feature which will permit us to borrow up to an additional $150.0 million under the 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.

In connection with entering into the Credit Facilities, we terminated our previous credit facility and paid off the

outstanding loans thereunder.

As of March 31, 2022, we had $90.0 million of aggregate principal amount outstanding under our Credit Facilities, with $50.0 million drawn on the 2021 Term Loan and $40.0 million drawn on the 2021 Revolving Credit Facility.

The Credit Facilities include an accordion feature which permit us 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 LIBOR plus a margin ranging from 1.5% to 2.0% per annum, or (ii) in the case of the 2021 Term Loan, either a base rate plus a margin ranging from 0.45% to 0.95% per annum or LIBOR plus a margin ranging from 1.45% to 1.95% per annum, in each case depending on a consolidated leverage ratio.

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 a consolidated leverage ratio.

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

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

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

The Credit Facilities require compliance with consolidated financial maintenance covenants to be tested quarterly, including a minimum fixed charge coverage ratio, maximum total leverage ratio, minimum tangible net worth, maximum secured leverage ratio, maximum unsecured leverage ratio, minimum unsecured debt service coverage ratio and maximum secured recourse leverage ratio.

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

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

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

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

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

This announcement has several implications, including setting the spread that may be used to automatically convert contracts from LIBOR to the Secured Overnight Financing Rate ("SOFR").

The 2021 Credit Facilities provide that, on or about the LIBOR cessation date (subject to an early opt-in election), LIBOR shall be replaced as a benchmark rate in the 2021 Credit Facilities with a new benchmark rate, with such adjustments as set forth in the 2021 Credit Facilities.

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

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

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

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

On May 11, 2022, we 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 a 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”).

The transition to SOFR did not materially impact the interest rate applied to our borrowings.

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

The 2021 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, we concurrently amended this interest rate swap to reference SOFR instead of LIBOR.

On May 11, 2022, we entered into two additional interest rate swaps (the "2022 Interest Rate Swaps") that effectively fixed the SOFR component of the interest rate on $50.0 million of the Credit Facilities through February 2028.

The 2022 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%.

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

We expect to meet our short-term liquidity requirements through net cash provided by operations, cash, borrowings under the 2021 Credit Facilities and the potential issuance of securities.

We expect to meet our short-term liquidity requirements through net cash provided by operations, cash, borrowings under our Credit Facilities and the potential issuance of securities.

Our long-term liquidity requirements primarily consist of funds necessary for the repayment of debt at maturity, property acquisitions and non-recurring capital improvements.

We expect to meet our long-term liquidity requirements with net cash from operations, long-term indebtedness including the 2021 Credit Facilities and mortgage financing, the issuance of equity and debt securities and proceeds from select sales of our properties.

We also may fund property acquisitions and non-recurring capital improvements using the 2021 Credit Facilities pending permanent property-level financing.

We expect to meet our long-term liquidity requirements with net cash from operations, long-term indebtedness including our Credit Facilities and mortgage financing, the issuance of equity and debt securities and proceeds from select sales of our properties.

We also may fund property acquisitions and non-recurring capital improvements using our Credit Facilities pending permanent property-level financing.

We believe we have access to multiple sources of capital to fund our long-term liquidity requirements, including the incurrence of additional debt and the issuance of additional equity securities.

However, in the future, there may be a number of factors that could have a material and adverse effect on our ability to access these capital sources, including unfavorable conditions in the overall equity and credit markets, our degree of leverage, our unencumbered asset base, borrowing restrictions imposed by our lenders, general market conditions for REITs, our operating performance, liquidity and market perceptions about us.

The success of our business strategy will depend, to a significant degree, on our ability to access these various capital

The success of our business strategy will depend, to a significant degree, on our ability to access these various capital sources.

In addition, we continuously evaluate possible acquisitions of postal properties, which largely depend on, among other things, the market for owning and leasing postal properties and the terms on which the USPS will enter into new or renewed leases.

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Consolidated Indebtedness

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

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

Balance as of September 30, 2021

Rate at September 30, 2021

Revolving Credit Facility Borrowings (1) :

As of March 31, 2022, we had approximately $123.1 million of outstanding consolidated principal indebtedness.

The following table sets forth information as of March 31, 2022 with respect to our outstanding indebtedness (in thousands):

Balance as of March 31, 2022

Rate at March 31, 2022

Revolving Credit Facility (1) :

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

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Explanatory Notes :

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

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

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

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

Dollar LIBOR rate was 0.08025%.

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

Spodek for 50% of the outstanding amount thereunder.

On September 30, 2021, we amended this loan to extend its maturity to September 2041 and reduce its interest rate to 3.69% fixed for five years with interest payments only, then adjusting every subsequent 5 year period thereafter with principal and interest payments to the rate based on the five-year weekly average yield on United States Treasury securities adjusted to a constant maturity of five years, as made available to the Board of Governors of the Federal Reserve System (the "Five-Year Treasury Rate"), plus a margin of 2.75%, with a minimum annual rate of 2.75%.

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

During the three months ended March 31, 2022, we incurred $0.06 million of unused facility fees related to the 2021 Revolving Credit Facility.

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

The loan has a fixed interest rate of 3.625% 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, we obtained seller financing secured by the property in the amount of $0.4 million requiring five annual payments of principal and interest of $105,661 with the first installment due on January 2, 2021 based on a 6.0% interest rate per annum through January 2, 2025.

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

(6) In connection with the acquisition of a property, we obtained seller financing secured by the property in the amount of $0.4 million requiring five annual payments of principal and interest of $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.

Secured Borrowings as of September 30, 2021

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

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

Secured Borrowings as of March 31, 2022

As of March 31, 2022, we had approximately $33.1 million of secured borrowings outstanding, all of which are currently fixed rate debt with a weighted average interest rate of 2.90% per annum.

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

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

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

During the three months ended March 31, 2022, we paid cash dividends of $0.2275 per share.

Our Board of Directors approved, and o n April 28, 2022 , we declared a first quarter common stock dividend of $0.23 per share, which will be paid on May 27, 2022 to stockholders of record as of May 13, 2022 .

Subsequent Real Estate Acquisitions

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

Off-Balance Sheet Arrangements

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

Subsequent to March 31, 2022, we have acquired 44 properties in individual or portfolio transactions for an aggregate of approximately $14.0 million, excluding closing costs.

Critical Accounting Policies and Estimates

Refer to the heading titled “Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2020 for a discussion of the critical accounting policies and estimates of the Predecessor and us, as applicable.

Refer to the heading titled “Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2021 for a discussion of our critical accounting policies and estimates.

New Accounting Pronouncements

For a discussion of our adoption of new accounting pronouncements, please see Note 2 of our Consolidated Financial Statements included herein.

For a discussion of our adoption of new accounting pronouncements, please see Note 2.

Summary of Significant Accounting Policies in the Notes to the of our Consolidated Financial Statements included herein.

Because most of our leases provide for fixed annual rental payments without annual rent escalations, our rental revenues are fixed while our property operating expenses are subject to inflationary increases.

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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 2. Management’s Discussion and Analysis