Postal Realty Trust, Inc. 10-Q

Item 1. Financial Statements POSTAL REALTY TRUST, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except par value and share data) March 31, 2022 December 31, 2021 (Unaudited) Assets Investments: Real estate properties, at cost: Land $ 69,960 $ 64,538 Building and improvements 301,023 278,396 Tenant improvements 5,645 5,431 Total real estate properties, at cost 376,628 348,365 Less: Accumulated depreciation ( 23,139 ) ( 20,884 ) Total real estate properties, net 353,489 327,481 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 Goodwill and other intangible assets 1,676 — Deferred rent receivable 822 666 In-place lease intangibles, net 14,579 14,399 Above market leases, net 259 249 Total Assets $ 407,422 $ 377,717 Liabilities and Equity Liabilities: Term loan, net $ 49,391 $ 49,359 Revolving credit facility 40,000 13,000 Secured borrowings, net 32,907 32,990 Accounts payable, accrued expenses and other 6,563 8,225 Below market leases, net 9,978 8,670 Total Liabilities 138,839 112,244 Commitments and Contingencies Equity: Class A common stock, par value $ 0.01 per share; 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 188 186 Class B common stock, par value $ 0.01 per share; 27,206 shares authorized: 27,206 shares issued and outstanding as of March 31, 2022 and December 31, 2021 — — Additional paid-in capital 239,779 237,969 Accumulated other comprehensive income 2,838 766 Accumulated deficit ( 22,579 ) ( 18,879 ) Total Stockholders’ Equity 220,226 220,042 Operating Partnership unitholders’ non-controlling interests 48,357 45,431 Total Equity 268,583 265,473 Total Liabilities and Equity $ 407,422 $ 377,717 The accompanying notes are an integral part of these consolidated financial statements. 1 Table of Contents POSTAL REALTY TRUST, INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED) (in thousands, except share data ) For the Three Months Ended March 31, 2022 2021 Revenues: Rental income $ 11,349 $ 8,487 Fee and other 582 342 Total revenues 11,931 8,829 Operating expenses: Real estate taxes 1,590 1,089 Property operating expenses 1,530 910 General and administrative 3,642 2,569 Depreciation and amortization 4,110 3,169 Total operating expenses 10,872 7,737 Income from operations 1,059 1,092 Other income 487 36 Interest expense, net: Contractual interest expense ( 686 ) ( 645 ) Write-off and amortization of deferred financing fees ( 129 ) ( 145 ) Loss on early extinguishment of debt — ( 202 ) Interest income 1 1 Total interest expense, net ( 814 ) ( 991 ) Income before income tax expense 732 137 Income tax expense ( 11 ) ( 11 ) 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 Weighted average common shares outstanding: Basic and Diluted 18,368,130 12,448,326 Comprehensive income: Net income $ 721 $ 126 Unrealized gain on financial instrument 2,511 — 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. 2 Table of Contents POSTAL REALTY TRUST, INC. CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (DEFICIT) (UNAUDITED) (in thousands, except share data) Number of shares of Common Stock Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income Accumulated Equity (Deficit) Total Stockholders’ equity Operating Partnership unitholders’ non-controlling interests Total Equity 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 ) Dividends declared ($ 0.2175 per share) — — — — ( 2,916 ) ( 2,916 ) ( 650 ) ( 3,566 ) Net income — — — — 103 103 23 126 Reallocation of non-controlling interest — — ( 3,831 ) — — ( 3,831 ) 3,831 — Balance – March 31, 2021 13,353,720 $ 133 $ 151,114 $ — $ ( 11,730 ) $ 139,517 $ 31,083 $ 170,600 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 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 ) 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 – 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. 3 Table of Contents POSTAL REALTY TRUST, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (in thousands) For the Three Months Ended March 31, 2022 2021 Cash flows from operating activities: Net income $ 721 $ 126 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 2,346 1,768 Amortization of in-place intangibles 1,764 1,401 Write-off and amortization of deferred financing costs 129 145 Amortization of above/below market leases ( 522 ) ( 377 ) Amortization of intangible liability ( 16 ) ( 4 ) Equity based compensation 1,706 1,129 Loss on early extinguishment of debt — 202 Deferred rent receivable ( 156 ) ( 62 ) Deferred rent expense payable 3 — Other 12 23 Changes in assets and liabilities: Rent and other receivables 1,364 203 Prepaid expenses and other assets 606 163 Accounts payable, accrued expenses and other ( 1,337 ) ( 201 ) Net cash provided by operating activities 6,620 4,520 Cash flows from investing activities: Acquisition of real estate ( 25,456 ) ( 25,399 ) Investment in financing leases ( 10 ) — Escrows for acquisition and construction deposits ( 1,445 ) ( 298 ) Capital improvements ( 851 ) ( 372 ) Insurance proceeds related to property damage claims 378 125 Other investing activities ( 305 ) — Net cash used in investing activities ( 27,689 ) ( 25,944 ) Cash flows from financing activities: Repayments of secured borrowings ( 88 ) ( 13,782 ) 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 (costs) proceeds from issuance of shares ( 199 ) 53,725 Deferred offering costs — ( 135 ) Debt issuance costs — ( 5 ) Proceeds from issuance of ESPP shares 83 53 Shares withheld for payment of taxes on restricted share vesting ( 162 ) ( 21 ) Distributions and dividends ( 5,197 ) ( 3,566 ) Other financing activities ( 139 ) ( 102 ) Net cash provided by financing activities 21,298 22,614 Net increase (decrease) in Cash and Escrows and Reserves 229 1,190 Cash and Escrows and Reserves at the beginning of period 7,026 3,271 Cash and Escrow and Reserves at the end of period $ 7,255 $ 4,461 4 Table of Contents 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 Table of Contents POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. Organization and Description of Business Postal Realty Trust, Inc. (the “Company”) was organized in the state of Maryland on November 19, 2018. On May 17, 2019, the Company completed its initial public offering (“IPO”) of the Company’s Class A common stock, par value $ 0.01 per share (the “Class A common stock”). The Company contributed the net proceeds from the IPO to Postal Realty LP, a Delaware limited partnership (the “Operating Partnership”), in exchange for common units of limited partnership interest in the Operating Partnership (the “OP Units”). Both the Company and the Operating Partnership commenced operations upon completion of the IPO and certain related formation transactions. Prior to the completion of the IPO and the formation transactions, the Company had no operations. The Company’s interest in the Operating Partnership entitles the Company to share in distributions from, and allocations of profits and losses of the Operating Partnership in proportion to the Company’s percentage ownership of OP Units. As the sole general partner of the Operating Partnership, the Company has the exclusive power under the partnership agreement to manage and conduct the Operating Partnership’s business, subject to limited approval and voting rights of the limited partners. As of 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. 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. As a REIT, the Company generally will not be subject to federal income tax to the extent that it distributes its REIT taxable income for each tax year to its stockholders. REITs are subject to a number of organizational and operational requirements. Pursuant to the Jumpstart Our Business Startups 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. Note 2. Summary of Significant Accounting Policies Basis of Presentation The accompanying Consolidated Financial Statements include the financial position and results of operations of the Company, the Operating Partnership and its wholly owned subsidiaries. The Company consolidates the Operating Partnership, a VIE in which the Company is considered the primary beneficiary. The primary beneficiary is the entity that has (i) the power to direct the activities that most significantly impact the entity’s economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could be significant to the VIE. 6 Table of Contents POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) A non-controlling interest is defined as the portion of the equity in an entity not attributable, directly or indirectly, to the Company. Non-controlling interests are required to be presented as a separate component of equity in the Consolidated Balance Sheets. Accordingly, the presentation of net income reflects the income attributed to controlling and non-controlling interests. 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 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. This interim financial information does not necessarily represent or indicate what the operating results will be for the year ending December 31, 2022. All material intercompany accounts and transactions have been eliminated. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during the reporting period. Although management believes its estimates are reasonable, actual results could differ from those estimates. Offering and Other Costs Offering costs are recorded in “Total Stockholders’ Equity” in the Consolidated Balance Sheets as a reduction of additional paid-in capital. Deferred Costs Financing costs related to the issuance of the Company’s long-term debt, including the term loan facility component (the "2021 Term Loan") of the Company's existing credit facilities (the "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 Certain prior period amounts have been reclassified to conform to the current period’s presentation. 7 Table of Contents POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Cash and Escrows and Reserves Cash includes unrestricted cash with a maturity of three months or less. Escrows and reserves consist of restricted cash. The following table provides a reconciliation of cash and escrows and reserves reported within the Consolidated Balance Sheets and Consolidated Statements of Cash Flows: As of March 31, 2022 December 31, 2021 (in thousands) Cash $ 5,958 $ 5,857 Escrows and reserves: Maintenance reserve 855 827 Real estate tax reserve 386 250 ESPP reserve 56 92 Cash and escrows and reserves $ 7,255 $ 7,026 Revenue Recognition The Company has operating lease agreements with tenants, some of which contain provisions for future rental increases. Rental income is recognized on a straight-line basis over the term of the lease. In addition, certain lease agreements provide for reimbursements from tenants for real estate taxes and other recoverable costs, which are recorded on an accrual basis as part of “Rental income” in the Consolidated Statements of Operations and Comprehensive Income. 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 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. The 8 Table of Contents POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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 The following disclosure of estimated fair value was determined by management using available market information and appropriate valuation methodologies. However, considerable judgment is necessary to interpret market data and develop estimated fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could 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 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). The fair value of these financial instruments was determined by using a discounted cash flow analysis based on the borrowing rates currently available to the Company for loans with similar terms and maturities. The fair value of the mortgage debt was determined by discounting the future contractual interest and principal payments by a market rate. The Company's derivative assets, comprised of 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. The fair value of the Company's derivative assets was categorized as a Level 2 basis (as provided by ASC 820, Fair Value Measurements and Disclosures). The Company considers its own credit risk, as well as the credit risk of its counterparties, when evaluating the fair value of its derivative assets. As of 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. 9 Table of Contents POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Derivative Instruments and Hedging Activities In accordance with ASC 815, Derivatives and Hedging, the Company records all derivative instruments on the Consolidated Balance Sheets at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows are considered cash flow hedges. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. The Company may enter into derivative contracts that are intended to economically hedge certain of its risk, even though hedge accounting does not apply or the Company elects not to apply hedge accounting. See Note 6. Derivatives and Hedging Activities for further details. Impairment The carrying value of real estate investments and related intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment exists when the carrying amount of an asset exceeds the aggregate projected future cash flows over the anticipated holding period on an undiscounted basis. An impairment loss is measured based on the excess of the asset’s carrying amount over its estimated fair value. Impairment analyses will be based on current plans, intended holding periods and available market information at the time the analyses are prepared. If estimates of the projected future cash flows, anticipated holding periods or market conditions change, the evaluation of impairment losses may be different and such differences may be material. The evaluation of anticipated cash flows is subjective and is based, in part, on assumptions regarding future occupancy, rental rates and capital requirements that could differ materially from actual results. No impairments were recorded during the three months ended March 31, 2022 and 2021. Concentration of Credit Risks 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. The Company has deposited cash and maintains its bank deposits with large financial institutions in amounts that, from time to time, exceed federally insured limits. The Company has not experienced any losses in such accounts. Equity Based Compensation The Company accounts for equity-based compensation in accordance with ASC Topic 718 Compensation – Stock Compensation, which requires the Company to recognize an expense for the grant date fair value of equity-based awards. Equity-classified stock awards granted to employees and non-employees that have a service condition and/or a market condition are measured at fair value at date of grant and remeasured at fair value only upon a modification of the award. The Company will record forfeitures as they occur. The Company recognizes compensation expense on a straight-line basis over the requisite service period of each award, with the amount of compensation expense recognized at the end of a reporting period at least equal the portion of fair value of the respective award at grant date or modification date, as applicable, that has vested through that date. For awards with a market condition, compensation cost is not reversed if a market condition is not met so long as the requisite service has been rendered, as a market condition does not represent a vesting condition. See Note 11. Stockholder’s Equity for further details. 10 Table of Contents POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Insurance Accounting The Company carries liability insurance to mitigate its exposure to certain losses, including those relating to property damage and business interruption. The Company records the estimated amount of expected insurance proceeds for property damage and other losses incurred as an asset (typically a receivable from the insurer) and income up to the amount of the losses incurred when the amount is determinable and approved by insurance company. Any amount of insurance recovery in excess of the amount of the losses incurred is considered a gain contingency and is not recorded in other income until the amount is determinable and approved by insurance company. Insurance recoveries for business interruption for lost revenue or profit are accounted for as gain contingencies in their entirety, and therefore are not recorded in income until the amount is determinable and approved by insurance company. Earnings per Share The Company calculates net income 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. See Note 10. Earnings Per Share for further details. Future Application of Accounting Standards In September 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and in November 2018 issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses . The guidance changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The guidance replaces the current "incurred loss" model with an "expected loss" approach. The Company will also be required to disclose information about how it developed the allowances, including changes in the factors that influenced the Company’s estimate of expected credit losses and the reasons for those changes. ASU No. 2018-19 excludes operating lease receivables from the scope of this guidance. This guidance will be effective for the Company on January 1, 2023, as a result of its classification as an EGC. The Company is currently in the process of evaluating the impact the adoption of the guidance will have on its consolidated financial statements. 11 Table of Contents POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 3. Real Estate Acquisitions The following tables summarizes the Company’s acquisitions for the three months ended March 31, 2022. The purchase prices including transaction costs were allocated to the separately identifiable tangible and intangible assets and liabilities based on their relative fair values at the date of acquisition. The total purchase price including transaction costs was allocated as follows (in thousands, except for the number of properties): Three Months Ended Number of Properties Land Building and Improvements Tenant Improvements In-place lease intangibles Above- market leases Below- market leases Other (1) Total (2) 2022 March 31, 2022 (3) 50 $ 5,422 $ 22,233 $ 214 $ 1,889 $ 28 $ ( 1,848 ) $ ( 363 ) $ 27,575 Explanatory Notes : (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 . Note 4. Intangible Assets and Liabilities The following table summarizes the Company’s intangible assets and liabilities: As of Gross Asset (Liability) Accumulated (Amortization) /Accretion Net Carrying Amount (in thousands) March 31, 2022: In-place lease intangibles $ 33,758 $ ( 19,179 ) $ 14,579 Above-market leases 347 ( 88 ) 259 Below-market leases ( 15,502 ) 5,524 ( 9,978 ) December 31, 2021: In-place lease intangibles $ 31,814 $ ( 17,415 ) $ 14,399 Above-market leases 319 ( 70 ) 249 Below-market leases ( 13,654 ) 4,984 ( 8,670 ) 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. 12 Table of Contents POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Future amortization/accretion of these intangibles is below (in thousands): Year Ending December 31, In-place lease intangibles Above-market leases Below-market leases 2022-Remaining $ 4,116 $ 60 $ ( 1,316 ) 2023 4,174 77 ( 1,529 ) 2024 3,000 59 ( 1,294 ) 2025 1,795 42 ( 1,049 ) 2026 999 21 ( 875 ) Thereafter 495 — ( 3,915 ) Total $ 14,579 $ 259 $ ( 9,978 ) Note 5. Debt The following table summarizes the Company’s indebtedness as of March 31, 2022 and December 31, 2021 (dollars in thousands): Outstanding Balance as of March 31, 2022 Outstanding Balance as of December 31, 2021 Interest Rate at March 31, 2022 Maturity Date Revolving Credit Facility (1): 2021 Revolving Credit Facility $ 40,000 $ 13,000 LIBOR+ 150 bps (2) January 2026 2021 Term Loan (1) 50,000 50,000 LIBOR+ 145 bps (2) January 2027 Secured Borrowings: Vision Bank (3) 1,409 1,409 3.69 % September 2041 First Oklahoma Bank (4) 345 349 3.625 % December 2037 Vision Bank – 2018 (5) 844 844 3.69 % September 2041 Seller Financing (6) 282 366 6.00 % January 2025 AIG – December 2020 (7) 30,225 30,225 2.80 % January 2031 Total Principal 123,105 96,193 Unamortized deferred financing costs ( 807 ) ( 844 ) Total Debt $ 122,298 $ 95,349 Explanatory Notes : (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. 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. 13 Table of Contents POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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. Spodek. 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. Spodek. 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 Treasury Rate, plus a margin of 2.75 %, with a minimum annual rate of 2.75 %. (6) In connection with the acquisition of a property, the Company obtained seller financing secured by the property in the amount of $ 0.4 million requiring five annual payments of principal and interest of $ 0.1 million with the first installment due on January 2, 2021 based on a 6.0 % interest rate per annum through January 2, 2025. (7) The loan is secured by a first mortgage lien on an industrial property located in Warrendale, Pennsylvania. The loan has a fixed interest rate of 2.80 % with interest-only payments for the first five years 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 March 31, 2022 and December 31, 2021 was 5.7 years and 6.5 years, respectively. 14 Table of Contents POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The scheduled principal repayments of indebtedness as of March 31, 2022 are as follows (in thousands): Year Ending December 31, Amount 2022 - Remaining $ 12 2023 106 2024 112 2025 118 2026 40,641 Thereafter 82,116 Total $ 123,105 Note 6. Derivatives and Hedging Activities 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 for the three months ended March 31, 2022 and 2021. For the Three Months Ended March 31, Derivatives in Cash Flow Hedging Relationships (Interest Rate Swaps) 2022 2021 Amount of gain recognized on derivative in "Accumulated other comprehensive income" $ 2,426 $ — Amount of (loss) reclassified from "Accumulated other comprehensive income" into interest expense $ ( 85 ) $ — 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. 15 Table of Contents POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 7. Leases Lessor Accounting 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 two that are direct financing leases. The Company's operating leases and direct financing leases are described below. Rental income related to the Company’s leases is recognized on a straight-line basis over the remaining lease term. The Company’s total revenue includes fixed base rental payments provided under the lease and variable payments which principally consist of tenant expense reimbursements for certain property operating expenses, including real estate taxes. The Company elected the practical expedient to account for its lease and non-lease components as a single combined operating lease component under Topic 842. As a result, rental income and tenant reimbursements were aggregated into a single line within rental income in the Consolidated Statements of Operations and Comprehensive Income. The following table represents rental revenue that the Company recognized related to its operating leases (in thousands): For the Three Months Ended March 31, 2022 2021 Fixed payments $ 9,664 $ 7,345 Variable payments 1,685 1,142 $ 11,349 $ 8,487 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) (in thousands) 2022 - Remaining (2) $ 26,940 2023 33,904 2024 30,962 2025 25,355 2026 18,689 Thereafter 20,324 Total $ 156,174 Explanatory Notes : (1) The above minimum lease payments to be received do not include reimbursements from tenants for real estate taxes and other reimbursed expenses. (2) As of 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. 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 16 Table of Contents POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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): As of March 31, 2022 As of December 31, 2021 Total minimum lease payment receivable $ 34,068 $ 34,352 Less: unearned income ( 17,879 ) ( 18,139 ) 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 (in thousands) 2022 – Remaining $ 853 2023 1,137 2024 1,137 2025 1,137 2026 1,137 Thereafter 28,667 Total $ 34,068 Lessee Accounting As a lessee, the Company has ground and office leases which were classified as operating leases. 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): As of March 31, 2022 As of December 31, 2021 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 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. 17 Table of Contents POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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 2023 233 2024 109 2025 35 2026 35 Thereafter 1,144 Total future minimum lease payments 1,727 Interest discount ( 701 ) Total $ 1,026 Impact of COVID-19 On March 11, 2020, the World Health Organization declared the outbreak of a coronavirus (COVID-19) pandemic which has been ongoing. The resulting restrictions on travel and quarantines imposed have had a negative impact on the U.S. economy and business activity globally, the full impact of which is not yet known and may result in an adverse impact to the Company’s tenants and operating results. 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. Note 8. Income Taxes TRS In connection with the IPO, the Company and REAC jointly elected to treat REAC as a TRS. REAC performs management services, including for properties the Company does not own, and advisory services to third-party owners of postal properties. REAC generates income, resulting in federal and state corporate income tax liability for REAC. For each of the three months ended March 31, 2022 and 2021, income tax expense related to REAC was $ 0.01 million. Other 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 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. Note 9. Related Party Transactions Management Fee Income 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. 18 Table of Contents POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Related Party Lease On May 17, 2019, the Company entered into a lease for office space in Cedarhurst, New York with an entity affiliated with the Company’s CEO (the “Office Lease”). Pursuant to the Office Lease, the monthly rent is $ 15,000 subject to escalations. The term of the Office Lease is five years commencing on May 17, 2019 and will expire on May 16, 2024. Rental expenses associated with the Office Lease for 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 details, see Note 7. Leases. Guarantees As disclosed above in Note 5. Debt, Mr. 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). Note 10. Earnings Per Share 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 March 31, 2022 2021 Numerator for earnings per share – basic and diluted: Net income attributable to common stockholders $ 595 $ 103 Less: Income attributable to participating securities ( 229 ) ( 147 ) Numerator for earnings per share — basic and diluted $ 366 $ ( 44 ) Denominator for earnings per share – basic and diluted (1) 18,368,130 12,448,326 Basic and diluted earnings per share $ 0.02 $ 0.00 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. 19 Table of Contents POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 11. 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 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 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. ATM Program On December 14, 2020, the Company entered into separate open market sale agreements for its at-the-market offering program (the "ATM Program") with each of Jefferies LLC, Stifel, Nicolaus & Company, Incorporated, BMO Capital Markets Corp., Janney Montgomery Scott LLC and D.A. Davidson & Co. (“D.A. Davidson”), pursuant to which the Company may offer and sell, from time to time, shares of the Company’s Class A common stock having an aggregate sales price of up to $ 50.0 million. On May 14, 2021, the Company delivered to D.A. Davidson a notice of termination of the open market sale agreement with D.A. Davidson, which termination became effective May 14, 2021. 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. Dividends 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 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 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, 20 Table of Contents POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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. Restricted Stock and Other Awards 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 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 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 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 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: Restricted Shares (1)(2) LTIP Units (3) RSUs (4) Total Shares Weighted Average Grant Date Fair Value Outstanding, as of January 1, 2022 302,552 375,265 128,753 806,570 $ 15.71 Granted 199,102 118,389 90,851 408,342 $ 17.24 Vesting of restricted shares (5) ( 8,968 ) — — ( 8,968 ) $ 16.40 Forfeited — — — — $ — 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 three years or eight years . The time-based restricted share awards granted to the Company's independent directors vest over three years . (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 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. 21 Table of Contents POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (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 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 In connection with the IPO, the Company established the Postal Realty Trust, Inc. 2019 Qualified Employee Stock Purchase Plan (“ESPP”), which allows the Company’s employees to purchase shares of the Class A common stock at a discount. A total of 100,000 shares of Class A common stock was reserved for sale and authorized for issuance under the ESPP. The Code permits the Company to provide up to a 15 % discount on the lesser of the fair market value of such shares of Class A common stock at the beginning of the offering period and the close of the offering period. As of 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. Note 12. Commitments and Contingencies 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. Note 13. 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 . Note 14. Subsequent Events 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. 22 Table of Contents POSTAL REALTY TRUST, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) On May 11, 2022, the Company entered into the First Amendment to the Credit Facilities. See Note 5. 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. 23 Table of Contents