Postal Realty Trust, Inc. [PSTL] Filings

10-Q 1 pstl-20240930.htm 10-Q pstl-20240930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2024


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to _________

Commission File Number: 001-38903

POSTAL REALTY TRUST, INC.

(Exact name of registrant as specified in its charter)


Maryland						83-2586114
(State or other jurisdiction of						(IRS Employer
incorporation or organization)						Identification No.)

75 Columbia Avenue

Cedarhurst, NY 11516

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (516) 295-7820

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol

Name of Each Exchange on Which Registered

Class A Common Stock, par value $0.01 per share

PSTL

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☒

Smaller reporting company

☒

Emerging growth company

☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of November 4, 2024, the registrant had 23,453,364 shares of Class A common stock outstanding.

Table of Contents

TABLE OF CONTENTS


		Page
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements	1
	Consolidated Balance Sheets (Unaudited) as of September 30, 2024 and December 31, 2023	1
	Consolidated Statements of Operations and Comprehensive (Loss) Income (Unaudited) for the Three and Nine Months Ended September 30, 2024 and 2023	2
	Consolidated Statements of Changes in Equity (Unaudited) for the Three and Nine Months Ended September 30, 2024 and 2023	3
	Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2024 and 2023	6
	Notes to Consolidated Financial Statements (Unaudited)	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	39
Item 4.	Controls and Procedures	39

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	40
Item 1A.	Risk Factors	40
Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchase of Equity Securities	40
Item 3.	Defaults Upon Senior Securities	40
Item 4.	Mine Safety Disclosures	40
Item 5.	Other Information	40
Item 6.	Exhibits	41
Signatures		42

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

POSTAL REALTY TRUST, INC.

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(In thousands, except par value and share data)


	September 30, 2024		December 31, 2023

Assets
Investments:
Real estate properties, at cost:
Land	$	119,293	$	106,074
Building and improvements	489,156		443,470
Tenant improvements	7,333		6,977
Total real estate properties, at cost	615,782		556,521
Less: Accumulated depreciation	(54,406)		(43,791)
Total real estate properties, net	561,376		512,730
Investment in financing leases, net	15,973		16,042
Total real estate investments, net	577,349		528,772
Cash	970		2,235
Escrow and reserves	537		632
Rent and other receivables	6,086		4,750
Prepaid expenses and other assets, net	10,254		13,369
Goodwill	1,536		1,536
Deferred rent receivable	2,004		1,542
In-place lease intangibles, net	12,392		14,154
Above market leases, net	270		355
Assets held for sale, net	3,657		—
Total Assets	$	615,055	$	567,345

Liabilities and Equity
Liabilities:
Term loans, net	$	199,051	$	198,801
Revolving credit facility	44,000		9,000
Secured borrowings, net	33,915		32,823
Accounts payable, accrued expenses and other, net	14,715		11,996
Below market leases, net	14,408		13,100
Total Liabilities	306,089		265,720

Commitments and Contingencies

Equity:
Class A common stock, par value $0.01 per share; 500,000,000 shares authorized; 23,313,185 and 21,933,005 shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively	233		219
Class B common stock, par value $0.01 per share; 27,206 shares authorized; 27,206 shares issued and outstanding as of September 30, 2024 and December 31, 2023	—		—
Additional paid-in capital	306,006		287,268
Accumulated other comprehensive income	2,316		4,621
Accumulated deficit	(63,001)		(48,546)
Total Stockholders’ Equity	245,554		243,562
Operating partnership unitholders’ non-controlling interests	63,412		58,063
Total Equity	308,966		301,625
Total Liabilities and Equity	$	615,055	$	567,345

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

Table of Contents

POSTAL REALTY TRUST, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME

(UNAUDITED)

(in thousands, except share and per share data)


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2024		2023		2024		2023
Revenues:
Rental income	$	18,772	$	15,438	$	52,740	$	44,699
Fee and other	895		668		2,264		2,012
Total revenues	19,667		16,106		55,004		46,711

Operating expenses:
Real estate taxes	2,487		2,089		7,174		6,101
Property operating expenses	2,536		1,917		7,007		4,955
General and administrative	3,884		3,352		12,094		11,121
Casualty and impairment losses, net	216		—		216		—
Depreciation and amortization	5,756		4,919		16,575		14,537
Total operating expenses	14,879		12,277		43,066		36,714

Income from operations	4,788		3,829		11,938		9,997

Other income	9		246		74		485

Interest expense, net:
Contractual interest expense	(3,246)		(2,446)		(8,771)		(6,793)
Write-off and amortization of deferred financing fees	(180)		(174)		(543)		(504)
Interest income	7		—		13		1
Total interest expense, net	(3,419)		(2,620)		(9,301)		(7,296)

Income before income tax expense	1,378		1,455		2,711		3,186
Income tax expense	(29)		(19)		(73)		(56)

Net income	1,349		1,436		2,638		3,130
Net income attributable to operating partnership unitholders’ non-controlling interests	(278)		(270)		(544)		(604)

Net income attributable to common stockholders	$	1,071	$	1,166	$	2,094	$	2,526

Net income per share:
Basic and Diluted	$	0.03	$	0.04	$	0.04	$	0.08
Weighted average common shares outstanding:
Basic and Diluted	22,737,484		20,277,417		22,375,339		19,712,504
Comprehensive (loss) income:
Net income	$	1,349	$	1,436	$	2,638	$	3,130
Unrealized (loss) gain on derivative instruments	(5,775)		2,070		(2,942)		2,632
Comprehensive (loss) income	(4,426)		3,506		(304)		5,762
Comprehensive income (loss) attributable to operating partnership unitholders’ non-controlling interests	913		(660)		95		(1,108)
Comprehensive (loss) income attributable to common stockholders	$	(3,513)	$	2,846	$	(209)	$	4,654

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

Table of Contents

POSTAL REALTY TRUST, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(UNAUDITED)

(in thousands, except share data)


	Number of shares of Common Stock	Common Stock		Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total Stockholders’ equity		Operating Partnership Unitholders’ Non-controlling Interests		Total Equity


Balance – December 31, 2023	21,960,211	$	219	$	287,268	$	4,621	$	(48,546)	$	243,562	$	58,063	$	301,625
Net proceeds from sale of common stock	576,087	6		7,861		—		—		7,867		—		7,867
Issuance of operating partnership units in connection with acquisition transactions	—	—		—		—		—		—		5,788		5,788
Issuance and amortization of equity-based compensation, net of forfeitures	120,941	1		1,147		—		—		1,148		965		2,113
Issuance and amortization under the employee stock purchase plan ("ESPP")	5,137	—		77		—		—		77		—		77
Restricted stock withholdings	(27,919)	—		(396)		—		—		(396)		—		(396)
Dividends and distributions	—	—		—		—		(5,520)		(5,520)		(1,339)		(6,859)
Unrealized gain on derivative instruments	—	—		—		2,267		—		2,267		552		2,819
Net income	—	—		—		—		206		206		50		256
Reallocation of non-controlling interest	—	—		(1,079)		—		—		(1,079)		1,079		—
Balance – March 31, 2024	22,634,457	$	226	$	294,878	$	6,888	$	(53,860)	$	248,132	$	65,158	$	313,290
Net proceeds from sale of common stock	57,993	1		684		—		—		685		—		685
Shares issued upon redemption of operating partnership units	52,778	1		861		—		—		862		(862)		—
Issuance and amortization of equity-based compensation, net of forfeitures	(316)	—		722		—		—		722		711		1,433
Issuance and amortization under the ESPP	—	—		6		—		—		6		—		6

Dividends and distributions	—	—		—		—		(5,490)		(5,490)		(1,438)		(6,928)
Unrealized gain on derivative instruments	—	—		—		11		—		11		3		14
Net income	—	—		—		—		817		817		215		1,032
Reallocation of non-controlling interest	—	—		(265)		—		—		(265)		265		—
Balance – June 30, 2024	22,744,912	$	228	$	296,886	$	6,899	$	(58,533)	$	245,480	$	64,052	$	309,532
Net proceeds from sale of common stock	601,266	5		8,374		—		—		8,379		—		8,379

Table of Contents


Issuance of operating partnership units in connection with acquisition transactions	—	—		—		—		—		—		1,122		1,122
Issuance and amortization of equity-based compensation, net of forfeitures	(1,738)	—		719		—		40		759		697		1,456
Issuance and amortization under the ESPP	8,912	—		118		—		—		118		—		118
Restricted stock withholdings	(12,961)	—		(184)		—		—		(184)		—		(184)
Dividends and distributions	—	—		—		—		(5,579)		(5,579)		(1,452)		(7,031)
Unrealized loss on derivative instruments	—	—		—		(4,583)		—		(4,583)		(1,192)		(5,775)
Net income	—	—		—		—		1,071		1,071		278		1,349
Reallocation of non-controlling interest	—	—		93		—		—		93		(93)		—
Balance – September 30, 2024	23,340,391	$	233	$	306,006	$	2,316	$	(63,001)	$	245,554	$	63,412	$	308,966

Balance – December 31, 2022	19,555,272	$	195	$	254,107	$	7,486	$	(32,557)	$	229,231	$	54,480	$	283,711
Net proceeds from sale of common stock	55,082	1		709		—		—		710		—		710
Shares issued upon redemption of operating partnership units	22,798	—		409		—		—		409		(409)		—
Issuance and amortization of equity-based compensation, net of forfeitures	146,627	1		1,376		—		—		1,377		568		1,945
Issuance and amortization under the ESPP	6,446	—		94		—		—		94		—		94
Restricted stock withholdings	(21,310)	—		(327)		—		—		(327)		—		(327)
Dividends and distributions	—	—		—		—		(4,787)		(4,787)		(1,176)		(5,963)
Unrealized loss on derivative instruments	—	—		—		(2,279)		—		(2,279)		(558)		(2,837)
Net income	—	—		—		—		348		348		85		433
Reallocation of non-controlling interest	—	—		(2,338)		—		—		(2,338)		2,338		—
Balance – March 31, 2023	19,764,915	$	197	$	254,030	$	5,207	$	(36,996)	$	222,438	$	55,328	$	277,766
Net proceeds from sale of common stock	265,225	3		3,840		—		—		3,843		—		3,843
Issuance of operating partnership units in connection with acquisition transactions	—	—		—		—		—		—		548		548
Cash redemption from non-controlling interests	—	—		—		—		—		—		(558)		(558)
Issuance and amortization of equity-based compensation, net of forfeitures	(165)	—		684		—		—		684		558		1,242
Issuance and amortization under the ESPP	—	—		6		—		—		6		—		6
Dividends and distributions	—	—		—		—		(4,770)		(4,770)		(1,167)		(5,937)
Unrealized gain on derivative instruments	—	—		—		2,727		—		2,727		672		3,399

Table of Contents


Net income	—	—		—		—		1,012		1,012		249		1,261
Reallocation of non-controlling interest	—	—		(229)		—		—		(229)		229		—
Balance – June 30, 2023	20,029,975	$	200	$	258,331	$	7,934	$	(40,754)	$	225,711	$	55,859	$	281,570
Net proceeds from sale of common stock	1,114,997	11		16,178		—		—		16,189		—		16,189
Issuance of OP Units in connection with acquisition transactions	—	—		—		—		—		—		2,753		2,753
Shares issued upon redemption of OP Units	379,635	4		6,271		—		—		6,275		(6,275)		—
Issuance and amortization of equity-based compensation, net of forfeitures	7,205	—		718		—		—		718		591		1,309
Issuance and amortization under ESPP	8,364	—		116		—		—		116		—		116
Dividends and distributions	—	—		—		—		(4,941)		(4,941)		(1,167)		(6,108)
Unrealized gain on derivative instruments	—	—		—		1,680		—		1,680		390		2,070
Net income	—	—		—		—		1,166		1,166		270		1,436
Reallocation of non-controlling interest	—	—		(2,029)		—		—		(2,029)		2,029		—
Balance – September 30, 2023	21,540,176	$	215	$	279,585	$	9,614	$	(44,529)	$	244,885	$	54,450	$	299,335

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

Table of Contents

POSTAL REALTY TRUST, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)


	For the Nine Months Ended September 30,
	2024		2023
Cash flows from operating activities:
Net income	$	2,638	$	3,130
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	10,778		9,254
Amortization of in-place intangibles	5,797		5,283
Write-off and amortization of deferred financing fees and amortization of debt discounts	544		504

Amortization of above/below market leases	(2,188)		(1,776)
Amortization of intangible liability	(181)		(79)
Casualty and impairment losses	216		—
Gain on insurance proceeds received for damage due to property	(40)		(441)
Equity based compensation	5,000		4,529
Reclassification of cumulative dividends paid on forfeited awards	40		—

Deferred rent receivable	(462)		(249)
Deferred rent expense payable	1		3
Other	(29)		35

Changes in assets and liabilities:
Rent and other receivables	(1,246)		(486)
Prepaid expenses and other assets	973		315
Accounts payable, accrued expenses and other	2,456		1,299
Net cash provided by operating activities	24,297		21,321

Cash flows from investing activities:
Acquisition of real estate	(53,209)		(54,910)


Escrows for acquisition deposits	(380)		(269)
Capital improvements	(2,190)		(2,092)
Insurance proceeds related to property damage claims	40		441
Other investing activities	(154)		(15)
Net cash used in investing activities	(55,893)		(56,845)

Cash flows from financing activities:


Repayments of secured borrowings	(107)		(101)
Proceeds from term loans	—		35,000
Proceeds from revolving credit facility	57,000		49,000
Repayments of revolving credit facility	(22,000)		(49,000)
Redemption of operating partnership units	—		(558)
Net proceeds from issuance of shares	16,827		20,808
Deferred offering costs	—		(107)
Debt issuance costs	(5)		(261)
Proceeds from issuance of ESPP shares	163		182
Value of shares withheld for payment of taxes related to employee stock compensation	(700)		(467)
Dividends and distributions	(20,818)		(18,008)
Other financing activities	(124)		(119)
Net cash provided by financing activities	30,236		36,369

Net (decrease) increase in Cash and Escrows and Reserves	(1,360)		845
Cash and Escrows and Reserves at the beginning of period	2,867		2,042
Cash and Escrow and Reserves at the end of period	$	1,507	$	2,887





Supplemental Disclosure of Non-Cash Investing and Financing Activities
Shares issued upon redemption of operating partnership units	862		6,683

Table of Contents


Reallocation of non-controlling interest	1,250	4,595
Operating partnership units issued for property acquisitions	6,910	3,301
Transfer of investment properties, net to assets held for sale	3,657	—
Assumption of seller financing	1,400	—
Unrealized (loss) gain on interest rate swaps, net	(2,942)	2,632
Accrued capital expenditures included in accounts payable and accrued expenses	202	229
Reclassification of acquisition deposits included in prepaid expenses and other assets	147	205
Write-off of fixed assets no longer in service	62	147
Reclassification of construction deposits included in prepaid expenses and other assets	63	113
Accrued costs of capital included in accounts payable and accrued expenses	25	65
Right of use assets, net	281	—

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

Table of Contents

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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 September 30, 2024, the Company held an approximately 79.5% 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 September 30, 2024, the Company owned a portfolio of 1,642 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”). The Company also owns several, and may in the future further acquire, land parcels that may be added to existing or future leases with the USPS or used for other purposes that are consistent with the Company’s investment strategy.

In addition, through its taxable REIT subsidiary (“TRS”), Real Estate Asset Counseling, LLC (“REAC”), the Company provides fee-based third-party property management services for an additional 360 properties, which are owned by Andrew Spodek, the Company's chief executive officer ("CEO"), 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 elected to be taxed as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the “Code”), commencing with the Company's short taxable year ended December 31, 2019, and intends to continue to qualify as a REIT. 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. Additionally, any income earned by the TRS and any other TRS the Company may form in the future will be subject to federal, state and local corporate income tax.

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 unaudited 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

Table of Contents

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(CONTINUED)

that could be significant to the VIE. Substantially all of the assets and liabilities of the Company relate to the Operating Partnership.

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 unaudited 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 statements.

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, 2023. 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, 2024. 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. As discussed in the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, the Company’s most significant assumptions and estimates are related to the valuation of investments in real estate properties and impairment of long-lived assets. 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” on the Consolidated Balance Sheets as a reduction of additional paid-in capital.

Deferred Costs and Discounts

Financing costs related to the issuance of the Company’s long-term debt, including the term loan facility component 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 "Revolving Credit Facility") of the Credit Facilities are deferred and amortized as an increase to interest expense over the terms of the Revolving Credit Facility and are included in “Prepaid expenses and other assets, net” on the Consolidated Balance Sheets. Debt discounts represent fair value adjustments to account for the difference between the stated rates and market rates of debt assumed or entered in connection with the Company’s property acquisitions. The debt discounts are amortized to interest expense over the term of the related loans 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. As of September 30, 2024, the net unamortized debt discounts was $0.2 million.

Reclassifications

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

Table of Contents

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(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
	September 30, 2024		December 31, 2023
	(in thousands)
Cash	$	970	$	2,235
Escrows and reserves:
Maintenance reserve	395		314
Real estate tax reserve	85		231
ESPP reserve	57		87
Total escrows and reserves	$	537	$	632
Cash and escrows and reserves	$	1,507	$	2,867

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 (Loss) Income. The Company’s determination of the probability to collect lease payments is impacted by numerous factors, including the Company's assessment of the tenant’s creditworthiness, economic conditions, historical experience with the tenant, future prospects for the tenant and the length of the lease term. If leases currently classified as probable of collection are subsequently reclassified as not probable, any outstanding lease receivables (including straight-line rent receivables) would be written-off with a corresponding decrease in rental income. For certain leases with lease incentive costs, such costs are included in “Prepaid expenses and other assets, net” on the Consolidated Balance Sheets and amortized on a straight-line basis over the respective lease terms as a reduction of rental revenues.

Fee and other primarily consists 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 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 "Investment in financing leases, net" on the Consolidated Balance Sheets, which represents the Company’s net investment in the direct financing lease. This initial net investment is determined by aggregating the total future minimum lease payments attributable to the direct financing lease and the estimated residual value of the property, if any, less unearned income. Over the lease term, the investment in the direct financing lease is reduced and interest is recognized as revenue in “Fee and other” in the Consolidated Statements of Operations and Comprehensive (Loss) 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 receives the benefit 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 in general and administrative expenses in the period in which the expense is incurred.

Fair Value Measurements

Table of Contents

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(CONTINUED)

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 have realized on disposition of the assets and liabilities as of September 30, 2024 and December 31, 2023. 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 (excluding derivatives), accounts payable and accrued expenses are carried at amounts which reasonably approximate their fair values as of September 30, 2024 and December 31, 2023 due to their short maturities.

The fair value of the Company’s borrowings under its Credit Facilities approximates carrying value because such borrowings are subject to a variable market rate, which reprices frequently. The fair value was determined using the Adjusted Term SOFR (as defined below) as of September 30, 2024 and December 31, 2023, plus an applicable spread under the Credit Facilities, a Level 2 classification in the fair value hierarchy. The fair value of the Company’s secured borrowings aggregated approximately $29.7 million and $28.0 million as compared to the principal balance of $34.3 million and $33.0 million as of September 30, 2024 and December 31, 2023, respectively. The fair value of the Company’s secured borrowings was categorized as a Level 3 fair value estimate (as provided by ASC 820, Fair Value Measurements and Disclosures) and was determined by discounting the future contractual interest and principal payments by a market rate.

The Company's derivative assets and liabilities, 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 amount 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 and liabilities was categorized as a Level 2 fair value estimate (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 and liabilities. As of September 30, 2024 and December 31, 2023, the fair value of the Company’s interest rate swap derivative assets was approximately $3.8 million and $6.4 million, respectively, included in “Prepaid expenses and other assets, net” on the Consolidated Balance Sheets. As of September 30, 2024 and December 31, 2023, the fair value of the Company's interest rate swap derivative liabilities was approximately $1.1 million and $0.7 million, respectively, included in "Accounts payable, accrued expenses and other, net" on the Consolidated Balance Sheets.

Disclosures about fair value of assets and liabilities are based on pertinent information available to management as of September 30, 2024 and December 31, 2023. Although management is not aware of any factors that would significantly affect the fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since September 30, 2024 and current estimates of fair value may differ significantly from the amounts presented herein.

Derivative Instruments and Hedging Activities

In accordance with ASC 815, Derivatives and Hedging, the Company records all derivative instruments on the Consolidated Balance Sheets at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows are considered cash flow hedges. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. The Company may enter into derivative contracts that are intended to economically hedge certain of its risks, 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.

Assets Held for Sale

The Company may sell properties from time to time for various reasons, including the exercise of purchase options by our tenants. The Company classifies long-lived assets as held for sale once certain criteria have been met. The Company classifies a real estate property, or portfolio, as held for sale when: (i) management has approved the disposal, (ii) the property is available for sale in its present condition, (iii) an active program to locate a buyer has been initiated, (iv) it is probable that the property will be disposed of within one year, (v) the property is being marketed at a reasonable price relative to its fair value, and (vi) it is unlikely that the disposal plan will significantly change or be withdrawn. Following the classification of a

Table of Contents

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(CONTINUED)

property as “held for sale,” no further depreciation or amortization is recorded on the assets and the assets are recorded at the lower of carrying value or fair market value, less cost to sell. The Company had two properties classified as held for sale as of September 30, 2024. There were no properties classified as held for sale as of December 31, 2023.

Impairment of Long-Lived Assets

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 and nine months ended September 30, 2024 and 2023.

Concentration of Credit Risks

As of September 30, 2024, the Company’s properties were leased primarily to a single tenant, the USPS. For the nine months ended September 30, 2024, approximately 12.2% of the Company’s total rental income, or $6.4 million, was concentrated in Pennsylvania. For the nine months ended September 30, 2023, approximately 13.5% of the Company's total rental income, or $6.0 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 Pennsylvania or other regions where the Company operates in and could have a material 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 records forfeitures as a reduction of equity-based compensation expense as such forfeitures 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 to 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. Stockholders’ Equity for further details.

Insurance Accounting

The Company carries liability insurance to mitigate its exposure to certain losses, including those relating to property damage and business interruption. The Company records the estimated amount of expected insurance proceeds for property damage and other losses incurred as an asset (typically a receivable from the insurer) and income up to the amount of the losses incurred when the amount is determinable and approved by the 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 the 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 the insurance company.

Table of Contents

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(CONTINUED)

Earnings Per Share

The Company calculates earnings per share ("EPS") based upon the weighted average shares outstanding less issued and outstanding non-vested shares of Class A common stock. As of September 30, 2024 and 2023, 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 EPS pursuant to the two-class method. Diluted EPS 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 November 2023, the FASB issued Accounting Standards Codification ("ASC") No. 2023-07, Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures. ASU No. 2023-07 improves disclosures about public entities' reportable segments and addresses requests from investors for additional, more detailed information about a reportable segment's expenses. The provisions in this amendment are applicable to public entities with a single reportable segment. The standard is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company has one reportable segment and continues to evaluate additional disclosures that may be required for entities with a single reportable segment.

Note 3. Real Estate Transactions

The following tables summarizes the Company’s acquisitions for the nine months ended September 30, 2024. 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)
2024
March 31, 2024	(3)	29	$	6,442	$	12,362	$	98	$	1,372	$	34	$	(1,442)	$	—	$	18,866
June 30, 2024	(4)	70	$	6,191	$	21,955	$	144	$	1,733	$	11	$	(1,237)	$	—	$	28,797
September 30, 2024	(5)	35	$	2,313	$	11,263	$	122	$	1,111	$	—	$	(1,015)	$	(34)	$	13,760
Total		134	$	14,946	$	45,580	$	364	$	4,216	$	45	$	(3,694)	$	(34)	$	61,423

Explanatory Notes:

(1)Includes an intangible liability related to unfavorable operating leases with purchase options on one property and a below market ground lease intangible asset on one property during the three months ended September 30, 2024 that is included in “Accounts payable, accrued expenses and other" and "Prepaid expenses and other assets, net" on the Consolidated Balance Sheets, respectively.

(2)Includes closing costs of approximately $0.3 million for the three months ended March 31, 2024, $0.5 million for the three months ended June 30, 2024 and $0.4 million for the three months ended September 30, 2024. The total for the three months ended September 30, 2024 includes a debt discount on two properties that is included in "Secured Borrowings, net."

(3)Includes the acquisition of 29 properties in various states for cash consideration in individual or portfolio transactions for a price of approximately $18.9 million, including closing costs, which was funded with both the issuance of OP Units to the sellers (valued at approximately $5.8 million using the share price of Class A common stock on the date of each issuance of such OP Units) and cash consideration.

Table of Contents

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(CONTINUED)

(4)Includes the acquisition of 70 properties in various states for cash consideration in individual or portfolio transactions for a price of approximately $28.8 million, including closing costs, which was funded with cash consideration. Also, includes 36 properties acquired from a related party. See Note 9. Related Party Transactions for further details.

(5)Includes the acquisition of 35 properties in various states for cash consideration in individual or portfolio transactions for a price of approximately $13.8 million, including closing costs, which was funded with both the issuance of OP Units to the sellers (valued at approximately $1.1 million using the share price of Class A common stock on the date of each issuance of such OP Units) and cash consideration. Also includes, a debt discount on two properties during three months ended September 30, 2024 that is included in "Secured Borrowings, net." See Note 5. Debt for further details.

In addition, during the nine months ended September 30, 2024, the Company sold one property with an immaterial net book value, which transaction was completed in April 2024.

Assets Held for Sale

During the three and nine months ended September 30, 2024, the Company committed to plans to dispose of two properties with an aggregate carrying balance of $3.7 million, consisting of $1.7 million of land and $2.0 million of buildings and other real estate assets and classified those properties as "Assets held for sale, net" on the Company's Consolidated Balance Sheet. Subsequent to quarter end, the Company sold the two assets for an aggregate $6.3 million to two independent buyers.

Casualty Loss

During the three and nine months ended September 30, 2024, the Company recorded a casualty loss of $0.2 million reflecting the net book value of such asset damaged as a result of vandalism included within "Casualty and impairment losses" in the Consolidated Statement of Operations and Comprehensive (Loss) Income. The Company expects insurance proceeds to cover substantially all of such loss subject to applicable deductibles.

The Company has comprehensive all risk property insurance coverage on its property subject to the casualty loss, including for business interruption, with a $1.5 million limit of liability, subject to conditions, exclusions, deductibles and sub-limits.

To the extent insurance proceeds ultimately exceed the difference between replacement cost and net book value of the damaged assets and any related expenses incurred, the excess will be reflected as income in the period those amounts are determinable and approved by the insurance company.

No determination has been made as to the total amount of timing of insurance payments that may be received as a result of the event.

Table of Contents

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(CONTINUED)

Note 4. Intangible Assets and Liabilities

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


As of	Gross Asset (Liability)		Accumulated Amortization		Net Carrying Amount
			(in thousands)
September 30, 2024:
In-place lease intangibles	$	49,582	$	(37,190)	$	12,392
Above-market leases	728		(458)		270
Below-market leases	(26,543)		12,135		(14,408)

December 31, 2023:
In-place lease intangibles	$	45,621	$	(31,467)	$	14,154
Above-market leases	686		(331)		355
Below-market leases	(22,940)		9,840		(13,100)

Amortization of in-place lease intangibles was $2.0 million and $5.8 million for the three and nine months ended September 30, 2024, respectively, and $1.7 million and $5.3 million for the three and nine months ended September 30, 2023, respectively. This amortization is included in “Depreciation and amortization” in the Consolidated Statements of Operations and Comprehensive (Loss) Income.

Amortization of acquired above-market leases was $0.04 million and $0.1 million for each of the three and nine months ended September 30, 2024 and 2023, and is included in “Rental income” in the Consolidated Statements of Operations and Comprehensive (Loss) Income. Amortization of acquired below-market leases was $0.8 million and $2.3 million for the three and nine months ended September 30, 2024, respectively, and $0.6 million and $1.9 million for the three and nine months ended September 30, 2023, respectively, and is included in “Rental income” in the Consolidated Statements of Operations and Comprehensive (Loss) Income.

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


Year Ending December 31,	In-place lease intangibles		Above-market leases		Below-market leases
2024-Remaining	$	1,729	$	31	$	(732)
2025	5,131		108		(2,536)
2026	3,005		79		(2,024)
2027	1,428		34		(1,655)
2028	613		8		(1,312)
Thereafter	486		10		(6,149)
Total	$	12,392	$	270	$	(14,408)

Table of Contents

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(CONTINUED)

Note 5. Debt

The following table summarizes the Company’s indebtedness as of September 30, 2024 and December 31, 2023 (dollars in thousands):


	Outstanding Balance as of September 30, 2024		Outstanding Balance as of December 31, 2023		Interest Rate at September 30, 2024		Maturity Date

Revolving Credit Facility(1)	$	44,000	$	9,000	SOFR+158 bps(2)		January 2026
2021 Term Loan(1)	75,000		75,000		SOFR+153 bps(2)		January 2027
2022 Term Loan(1)	125,000		125,000		SOFR+153 bps(2)		February 2028

Secured Borrowings:
Vision Bank(3)	1,409		1,409		3.69	%	September 2041
First Oklahoma Bank(4)	303		316		3.63	%	December 2037
Vision Bank – 2018(5)	844		844		3.69	%	September 2041
Seller Financing(6)	100		194		6.00	%	January 2025
AIG(7)	30,225		30,225		2.80	%	January 2031
Seller Financing - 2024 (8)	1,400		—		5.00	%	September 2039
Total Principal	278,281		241,988
Unamortized deferred financing costs	(1,104)		(1,364)
Unamortized debt discount	(211)		—
Total Debt	$	276,966	$	240,624

Explanatory Notes:

(1)The Company have entered into the Credit Facilities, which include the $150.0 million Revolving Credit Facility, the $75.0 million senior unsecured term loan facility (the "2021 Term Loan") and the $125.0 million senior unsecured term loan facility (the "2022 Term Loan"). On October 25, 2024, the Company amended the Credit Facilities (the "Third Amendment") to, among other things, replace the Bank of Montreal with Truist Bank as the administrative agent, letter of credit issuer and swingline lender. In addition, the Third Amendment increases the 2022 Term Loan commitments in an aggregate principal amount of up to $50.0 million in which the Company further exercised $40.0 million under the 2022 Term Loan, and on a delayed-draw basis, $10.0 million. The Credit Facilities include an accordion feature which permits the Company to borrow up to an additional $150.0 million under the Revolving Credit Facility, subject to customary terms and conditions. The Revolving Credit Facility matures in January 2026, which may be extended for two six-month periods subject to customary conditions, the 2021 Term Loan matures in January 2027 and the 2022 Term Loan matures in February 2028. Borrowings under the Credit Facilities carry an interest rate of, (i) in the case of the 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 Term Loans, 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. With respect to the 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 Revolving Credit Facility. The Credit Facilities contain a number of customary financial and non-financial covenants.

During the three and nine months ended September 30, 2024, the Company incurred $0.05 million and $0.2 million, respectively, and during the three and nine months ended September 30, 2023, the Company incurred $0.07 million and $0.2 million, respectively, of unused facility fees related to the Revolving Credit Facility. As of September 30, 2024, the Company was in compliance with all of the Credit Facilities’ debt covenants.

(2)Based upon the one-month Adjusted Term SOFR, which is the applicable Term Secured Overnight Financing Rate plus an adjustment of 0.10%, subject to a 0% floor (the “Adjusted Term SOFR”). Upon the Company's achievement of certain

Table of Contents

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(CONTINUED)

sustainability targets for 2023, the applicable margins for the Credit Facilities were reduced by 0.02% for the year ending December 31, 2024, which is reflected in the margins noted in the table above.

(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 (ending in October 2026), 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% for the first five years (ending in August 2026), 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 (ending in October 2026), 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 (ending in January 2026) and fixed payments of principal and interest thereafter based on a 30-year amortization schedule.

(8)In connection with the acquisition of two properties, the Company obtained seller financing secured by the properties in the amount of $1.4 million based on a fixed interest rate of 5.00% with interest-only payments through September 1, 2039.

The weighted average maturity date for the Company's indebtedness as of September 30, 2024 and December 31, 2023 was approximately 3.3 years and 4.2 years, respectively.

The scheduled principal repayments of indebtedness as of September 30, 2024 are as follows (in thousands):


Year Ending December 31,	Amount

2024 - Remaining	$	5
2025	118
2026	44,637
2027	75,779
2028	125,805
Thereafter	31,937
Total	$	278,281

Table of Contents

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(CONTINUED)

Note 6. Derivatives and Hedging Activities

As of September 30, 2024, the Company had seven interest rate swaps with a total notional amount of $200.0 million that are used to manage its interest rate risk and fix the SOFR component on the term loans of the Credit Facilities:


Notional Amount ($ in thousands)	Fixed Rate (1)	Effective Date	Maturity Date
$50,000	2.27%	May 2022	January 2027
$25,000	4.217%	May 2022	February 2028
$25,000	4.217%	May 2022	February 2028
$25,000	4.79%	July 2022	February 2028
$40,000	4.932%	December 2022	February 2028
$25,000	5.736%	July 2023	January 2027
$10,000	6.049%	September 2023	February 2028

Explanatory Note:

(1)Reflects the all-in effective interest rate for the specified portion of the Term Loans hedged by the interest rate swaps.

On October 25, 2024, in connection with the exercise of the $40.0 million term loan accordion under the 2022 Term Loan, the Company further entered into an interest rate swap that effectively fixed the interest rate on the additional $40.0 million of the 2022 Term Loan through February 2028 at 5.3705%.

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 (loss) income” on the Consolidated Balance Sheets and subsequently reclassified into interest expense as interest payments are made on the Credit Facilities. During the next twelve months, the Company estimates that an additional $2.2 million will be reclassified from “Accumulated other comprehensive (loss) 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 instruments in the Consolidated Statements of Operations and Comprehensive (Loss) Income for the three and nine months ended September 30, 2024 and 2023 (in thousands):


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
Derivatives in Cash Flow Hedging Relationships (Interest Rate Swaps)	2024		2023		2024		2023
Amount of (loss) gain recognized on derivative in "Accumulated other comprehensive (loss) income"	$	(4,456)	$	3,345	$	1,035	$	5,897
Amount of income reclassified from "Accumulated other comprehensive (loss) income" into interest expense	$	1,319	$	1,275	$	3,977	$	3,265

"Interest expense, net" presented in the Consolidated Statements of Operations and Comprehensive (Loss) Income, in which the effects of cash flow hedges are recorded, totaled $3.4 million and $9.3 million for the three and nine months ended September 30, 2024, respectively and $2.6 million and $7.3 million for the three and nine months ended September 30, 2023, respectively.

As of September 30, 2024, the Company also had derivatives in a net liability position and did not post any collateral related to these agreements. If the Company had breached any of these provisions as of September 30, 2024, it could have been required to settle its obligations under the agreements of any interest rate swap in a net liability position for approximately $1.1 million, which is at their termination value.

Table of Contents

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(CONTINUED)

Note 7. Leases

Lessor Accounting

As of September 30, 2024, the Company's properties were leased primarily to the USPS, with leases expiring at various dates through December 31, 2034. Certain leases had expired and were in holdover status as of September 30, 2024 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 (Loss) Income.

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


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2024		2023		2024		2023
Fixed payments	$	16,219	$	13,299	$	45,777	$	38,703
Variable payments	2,553		2,139		6,963		5,996
	$	18,772	$	15,438	$	52,740	$	44,699

Future minimum lease payments to be received as of September 30, 2024 (excluding base rental payments from properties classified as held for sale under non-cancellable operating leases for the next five years and thereafter are as follows (in thousands):


Year Ending December 31,	Amount (1)(2)(3)
2024 - Remaining	$	14,804
2025	56,523
2026	47,850
2027	33,614
2028	23,157
Thereafter	49,721
Total	$	225,669

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 September 30, 2024, the leases at 24 of the Company's properties were expired and the USPS was occupying such properties as a holdover tenant. As such, the above minimum lease payments to be received do not include payments under these holdover leases. Holdover rent is typically paid as the greater of estimated market rent or the rent amount due under the expired lease.

(3)In August 2023, the Company received notice from the USPS to terminate the lease for one property, which termination became effective in February 2024.

Table of Contents

POSTAL REALTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(CONTINUED)

Purchase Option Provisions

As of September 30, 2024, operating leases for 76 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 September 30, 2024, 72 of these properties had an aggregate carrying value of approximately $54.5 million with an aggregate purchase option price of approximately $71.1 million and the remaining four properties had an aggregate carrying value of approximately $3.3 million with purchase options exercisable at fair market value.

Investment in Financing Leases, Net

As of September 30, 2024 and December 31, 2023, 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 September 30, 2024 and December 31, 2023 are summarized in the table below (in thousands):


	As of September 30, 2024		As of December 31, 2023

Total minimum lease payment receivable	$	31,225	$	32,078
Less: unearned income	(15,252)		(16,036)
Investment in financing leases, net	$	15,973	$	16,042

Revenue earned under direct financing leases for each of the three and nine months ended September 30, 2024 and 2023 were $0.3 million and $0.8 million, 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 September 30, 2024 for the next five years and thereafter are as follows (in thousands):


Year Ending December 31,	Amount
	(in thousands)
2024 – Remaining	$	284
2025	1,137
2026	1,137
2027	1,137