March 29, 2024
Dear Fellow Stockholders,
2023 was another solid year for Postal Realty Trust as we continued to execute our consolidation
strategy. We did this at a moderate pace as a result of the increased economic uncertainty. We successfully
acquired 223 post offices for approximately $78 million. Notably, our 7.7% weighted average capitalization rate
for 2023 acquisitions increased by almost 100 basis points as compared to 2022. Amid evolving market dynamics,
we remained steadfast in our commitment to prudent growth by completing accretive transactions. Due to our
team’s efforts operating our portfolio as well as acquiring new assets, full-year 2023 AFFO per share increased
over 2022.
Throughout 2023, we maintained portfolio occupancy above 99% and collected all of our contractual
rents. The United States Postal Service (“USPS”) is a critical part of our nation’s infrastructure, enabling universal
mail and package delivery across the country. The strategic importance of our properties to the logistics network
and the local communities they serve provides us with stability in our portfolio and predictable cash flows. We
continue to prove that our business thrives throughout all economic conditions.
During the year, our team exhibited prudence in the capital markets by maintaining conservative
leverage and keeping dry powder available to close on our acquisition pipeline of postal properties. At year-
end, our debt outstanding had a weighted average interest rate of 4.14%, a weighted average maturity of four
years, and we had no significant debt maturities until 2027. During 2023, we funded acquisitions with a mix of debt
and equity. By securing additional debt at favorable terms and accessing equity through a combination of
our at-the-market offering program and use of operating partnership units, we demonstrated agility in
navigating the challenging capital markets. As a result of our performance, we were able to return value to
stockholders during the year through quarterly dividend payments aggregating to $0.95 per share. This
represented the fifth consecutive year that we increased our dividend.
Looking ahead to 2024, we remain focused on acquiring properties that are important to the USPS at
a weighted average capitalization rate of 7.5% or higher. With a strong balance sheet and a best-in-class team, we
are well positioned to capitalize on accretive opportunities as they arise.
We are grateful for the ongoing support of our stockholders and remain dedicated to delivering
sustained growth and stockholder value. We look forward to providing further updates on our achievements
throughout the year.
Respectfully,
Andrew Spodek
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☒
For the fiscal year ended December 31, 2023
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☐
For the transition period from _________ to _________
Commission file no: 001-38903
POSTAL REALTY TRUST, INC.
(Exact name of registrant as specified in its charter)
Maryland
(State or other jurisdiction of
incorporation or organization)
83-2586114
(IRS Employer
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
Class A Common Stock, par value
$0.01 per share
Trading Symbol
PSTL
Name of Each Exchange on Which
Registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes No
☒
☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes No
☒
☐
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 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 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
Non-accelerated filer
☐
☒
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 has filed a report on and attestation to its management’s assessment of the
effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.
7262(b)) by the registered public accounting firm that prepared or issued its audit report.
☐
If securities are registered pursuant to Section 12(b) of the Exchange Act, indicate by check mark whether financial
statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.
☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of
incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period
pursuant to §240.10D-1(b).
☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No
☒
☐
As of June 30, 2023, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate
market value of the registrant’s Class A common stock held by non-affiliates of the registrant was approximately $275.9
million, based on the closing sales price of $14.71 per share as reported on the New York Stock Exchange.
As of February 29, 2024, the registrant had 22,511,828 shares of Class A common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Definitive Proxy Statement for the 2024 Annual Meeting of Shareholders (to be filed with the
Securities and Exchange Commission no later than 120 days after the end of the registrant’s fiscal year end) are incorporated by
reference in this Annual Report on Form 10-K in response to Part II, Item 5 and Part III, Items 10, 11, 12, 13 and 14.
POSTAL REALTY TRUST, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2023
TABLE OF CONTENTS
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
ITEM 1. BUSINESS
ITEM 1A. RISK FACTORS
ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 1C. CYBERSECURITY
ITEM 2.
PROPERTIES
ITEM 3.
LEGAL PROCEEDINGS
ITEM 4. MINE SAFETY DISCLOSURES
PART I
PART II
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4
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ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
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ISSUER PURCHASES OF EQUITY SECURITIES
ITEM 6. RESERVED
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
FINANCIAL DISCLOSURE
ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9B. OTHER INFORMATION
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
ITEM 16. FORM 10-K SUMMARY
PART IV
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F-1
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains “forward-looking statements” within the meaning of federal securities
laws. These forward-looking statements are included throughout this Annual Report on Form 10-K, including in the sections
entitled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and
“Business”, and relate to matters such as our industry, business strategy, goals and expectations concerning our market position,
future operations, margins, profitability, capital expenditures, financial condition, liquidity, capital resources, cash flows, results
of operations and other financial and operating information. We have used the words “approximately,” “anticipate,” “assume,”
“believe,” “budget,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “future,” “intend,” “may,” “outlook,” “plan,”
“potential,” “predict,” “project,” “seek,” “should,” “target,” “will” and similar terms and phrases to identify forward-looking
statements in this Annual Report on Form 10-K.
Forward-looking statements involve numerous risks and uncertainties and you should not rely on them as predictions
of future events. Forward-looking statements depend on assumptions, data or methods which may be incorrect or imprecise and
we may not be able to realize them. In addition, important factors that could cause actual results to differ materially from such
forward-looking statements include the risk factors in Item 1A. “Risk Factors” and elsewhere in this Annual Report on Form
10-K. While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. New risks
and uncertainties arise from time to time, and we cannot predict those events or how they might affect us. We assume no
obligation to update any forward-looking statements after the date of this Annual Report on Form 10-K, except as required by
applicable law. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as
a prediction of actual results.
When we use the terms “we,” “us,” “our,” the “Company” and “our company” in this Annual Report on Form 10-K,
we are referring to Postal Realty Trust, Inc., a Maryland corporation, together with our consolidated subsidiaries, including
Postal Realty LP, a Delaware limited partnership, of which we are the sole general partner and which we refer to as our
"Operating Partnership.”
All of our forward-looking statements are subject to risks and uncertainties that may cause actual results to differ
materially from those that we are expecting, including:
•
•
•
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•
•
•
•
•
•
•
•
change in the status of the United States Postal Service (the "USPS") as an independent agency of the executive
branch of the U.S. federal government;
change in the demand for postal services delivered by the USPS;
our ability to come to an agreement with the USPS regarding new leases or lease renewals on the terms and timing
we expect, or at all;
the solvency and financial health of the USPS;
defaults on, early terminations of or non-renewal of leases or actual, potential or threatened relocation, closure or
consolidation of postal offices or delivery routes by the USPS;
the competitive market in which we operate;
changes in the availability of acquisition opportunities;
our inability to successfully complete real estate acquisitions or dispositions on the terms and timing we expect, or
at all;
our failure to successfully operate developed and acquired properties;
adverse economic or real estate developments, either nationally or in the markets in which our properties are
located;
decreased rental rates or increased vacancy rates;
change in our business, financing or investment strategy or the markets in which we operate;
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•
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•
•
•
•
•
•
•
•
•
•
•
•
•
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fluctuations in interest rates and increased operating costs, repair and maintenance expenses and capital
expenditures;
general economic conditions (including inflation, rising interest rates, uncertainty regarding ongoing conflict
between Russia and Ukraine and their related impact on macroeconomic conditions);
financial market fluctuations;
our failure to generate sufficient cash flows to service our outstanding indebtedness;
our failure to obtain necessary outside financing on favorable terms or at all;
failure to hedge effectively against interest rate changes;
our reliance on key personnel whose continued service is not guaranteed;
the outcome of claims and litigation involving or affecting us;
changes in real estate, taxation, zoning laws and other legislation and government activity and changes to real
property tax rates and the taxation of real estate investment trusts (“REITs”) in general;
operations through joint ventures and reliance on or disputes with co-venturers;
cybersecurity threats;
uncertainties and risks related to adverse weather conditions, natural disasters and climate change;
exposure to liability relating to environmental and health and safety matters;
governmental approvals, actions and initiatives, including the need for compliance with environmental
requirements;
lack or insufficient amounts of insurance;
limitations imposed on our business in order to maintain our status as a REIT and our failure to maintain such
status;
public health threats such as the coronavirus (COVID-19) pandemic; and
additional factors discussed under the sections captioned Item 1A. “Risk Factors,” Item 7. “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and Item 1. “Business.”
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ITEM 1. BUSINESS
General
PART I
We are an internally managed REIT with a focus on acquiring and managing properties leased primarily to the USPS,
ranging from last-mile post offices to industrial facilities. We believe that we are the largest owner and manager, measured by
net leasable square footage, of properties that are leased to the USPS.
We were organized in the state of Maryland on November 19, 2018 and commenced operations upon completion of
our initial public offering ("IPO") on May 17, 2019 and the related formation transactions. Our Class A common stock trades on
the New York Stock Exchange under the symbol “PSTL”. We elected to be taxed as a REIT for U.S. federal income tax
purposes, commencing with our short tax year ended December 31, 2019.
We conduct our business through a traditional UPREIT structure in which our properties are owned by our Operating
Partnership directly or through limited partnerships, limited liability companies or other subsidiaries. We are the sole general
partner of our Operating Partnership through which our properties are directly or indirectly owned. As of December 31, 2023,
we owned approximately 80.7% of the outstanding common units of limited partnership interest in our Operating Partnership
(the “OP Units”), including long term incentive units of our Operating Partnership (the “LTIP Units”). Our Board of Directors
oversees our business and affairs.
Real Estate Investments
As of December 31, 2023, we had net investments of approximately $528.8 million in 1,509 real estate properties
(including two properties accounted for as financing leases). The properties are located in 49 states and one territory, totaling
approximately 5.9 million net leasable interior square feet in the aggregate and were 99.7% occupied as of December 31, 2023
with a weighted average remaining lease term of approximately three years. As of December 31, 2023, we manage, through our
taxable REIT subsidiary ("TRS"), an additional 397 properties owned by our chief executive officer, Andrew Spodek, and his
affiliates. We have a right of first offer to purchase 250 of our 397 managed properties.
The majority of our leases are modified double-net leases, whereby the USPS is responsible for utilities, certain
maintenance obligations and reimbursement of property taxes and the landlord is responsible for insurance, roof and structure.
We believe this structure helps insulate us from increases in certain operating expenses and provides a more predictable cash
flow. We believe the overall opportunity for consolidation that exists within the postal logistics network is very attractive. We
continue to execute our strategy to acquire and consolidate postal properties that we believe will generate strong earnings for
our shareholders. We may also sell assets from time to time to recycle capital.
2023 Highlights
• We collected 100% of our contractual rents and our owned portfolio was 99.7% occupied as of December 31,
2023.
• We acquired 223 properties leased primarily to the USPS totaling approximately 532,000 net leasable interior
square feet, for approximately $78 million, excluding closing costs, during 2023.
• We amended our existing Credit Facilities (as defined below) in July 2023 to, among other things, add a daily
simple Secured Overnight Financing Rate ("SOFR") based option to the term SOFR-based floating interest rate
option as a benchmark rate for borrowings under the Credit Facilities and further exercised $35.0 million of
accordion under the term loans. We also entered into two interest rate swaps in 2023 with a total notional amount
of $35.0 million to manage our interest rate risks under the Credit Facilities.
• We issued 1,861,407 shares of Class A common stock under our at-the-market equity offering program (the "ATM
Program") during 2023, raising approximately $27.8 million in gross proceeds. In August 2023, we also amended
the ATM Program to increase the aggregate offering amount under the program from up to $50.0 million to up to
$150.0 million.
1
Dividends
• We have increased our quarterly dividend from $0.2375 for the fourth quarter 2022 dividend to $0.24 for the
fourth quarter 2023 dividend. Our dividend per share has increased every year since our IPO. Although we expect
to continue our policy of paying regular dividends, we cannot guarantee that we will maintain our current level of
dividends, that we will continue our recent pattern of increasing dividends per share or what our actual dividend
yield will be in any future period.
Tenant Concentration
We acquire and manage postal properties and report our business as a single reportable segment. Our properties are
leased primarily to the USPS. See the discussions under Item 1A. "Risk Factors—Risks Related to the USPS". In this Annual
Report, we make reference to certain financial and operational data in the public reports of the USPS filed with the Postal
Regulatory Commission (the "PRC"), available at www.usps.com or www.prc.gov. Information on, or accessible through, the
USPS’ website or the PRC’s website is not a part of, and is not incorporated into, this Annual Report or any other filing we file
or furnish with the Securities and Exchange Commission (the “SEC”).
Government Regulations
Compliance with various governmental regulations has an impact on our business, including our capital expenditures,
earnings and competitive position. The impact of these governmental regulations can be material to our business. We incur
costs to monitor and take action to comply with governmental regulations that are applicable to our business, which include,
among others: federal securities laws and regulations; REIT and other tax laws and regulations; environmental and health and
safety laws and regulations; legal requirements for federal government contractors; local zoning, usage and other regulations
relating to real property; and the Americans with Disabilities Act of 1990, as amended (the "ADA").
Our properties must comply with Title III of the ADA to the extent that such properties are “public accommodations”
as defined by the ADA. The ADA may require removal of structural barriers to access by persons with disabilities in certain
public areas of our properties where such removal is readily achievable. We believe the existing properties are in substantial
compliance with the ADA and that we will not be required to make substantial capital expenditures to address the requirements
of the ADA. However, noncompliance with the ADA could result in imposition of fines or an award of damages to private
litigants. The obligation to make readily achievable accommodations is an ongoing one, and we will continue to assess our
properties and to make alterations as appropriate in this respect.
Human Capital Resource Management
As of December 31, 2023, we employed 46 full-time employees. Our employees are primarily located at our corporate
office in Cedarhurst, New York. Our employees are not members of any labor union, and we consider our relations with our
employees to be satisfactory. As of December 31, 2023, 26% of our employees, 19% of our named executive officers and key
employees (defined as all employees with a title of vice president and higher) and 20% of the members of our Board of
Directors were female and 35% of our employees identified as a member of an ethnic and/or racial minority group.
Our human capital goals are focused on identifying, recruiting, retaining, developing, incentivizing and integrating our
existing and prospective employees. We endeavor to maintain workplaces that are free from discrimination or harassment on
the basis of color, race, sex, national origin, ethnicity, religion, age, disability, sexual orientation, gender identification or
expression or any other status protected by applicable law. The basis for any recruitment, hiring, development, training,
compensation and advancement at the Company are qualifications, performance, skills and experience. We believe our
employees are fairly compensated, and compensation and promotion decisions are made without regard to gender, race and
ethnicity. Employees are routinely recognized for outstanding performance.
We maintain both cash- and equity-based compensation programs designed to attract, retain and motivate our
employees. We recognize the importance of the health, safety and environmental well-being of our employees, and are
committed to providing and maintaining a healthy work environment. We offer a comprehensive benefits program as well as a
401(k) program, flexible spending accounts, income protection through our sick pay and long-term disability policies, paid
vacation, paid parental leave and holiday and personal days to balance work and personal life. In addition to our benefits
program, we offer a number of work life enhancements at our corporate headquarters, including, but not limited to, healthy
snacks and ergonomic workstations. We encourage our employees to take advantage of various internal training opportunities
and those provided by outside service providers to the extent these are business related. All corporate employees, including
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members of our management team, receive periodic training about our business, the Company’s structure and the important
laws and policies that affect the Company. In addition, many of our employees hold professional licenses and we encourage
them to attend, and reimburse them for, qualified ongoing continuing professional education. We also provide all of our
employees with biannual performance and career development reviews.
Environmental Matters
Under various federal, state and local laws, ordinances and regulations, as a current or former owner of real property,
we may be liable for costs of the removal or remediation of certain hazardous substances, waste or petroleum products at, on, in
or under the properties that we own, including costs for investigation or remediation, natural resource damages or third-party
liability for personal injury or property damage. These laws often impose liability without regard to fault including whether the
owner or operator knew of, or were responsible for, the presence or release of such materials and, therefore, it is possible that
we could incur these costs even after we sell some of the properties. Some of our properties have been, or may in the future be,
impacted by contamination arising from current or prior uses of the property or adjacent properties for commercial, industrial or
other purposes. In addition to the costs of cleanup, environmental contamination can affect the value of a property and,
therefore, an owner’s ability to borrow using the property as collateral or to sell the property.
Changes in laws increasing the potential liability for environmental conditions existing on properties or increasing the
restrictions on discharges or other conditions may result in significant unanticipated expenditures or may otherwise adversely
affect the operations of the tenants of our properties, which could materially and adversely affect us. We maintain an insurance
policy for environmental liabilities at all of our properties. However, any potential or existing environmental contamination
liabilities may be in excess of the coverage limits of, or not covered by, such insurance policy. We may also not be aware of all
potential or existing environmental contamination liabilities at the properties in our portfolio or the properties that we acquire in
the future. As a result, we could potentially incur material liability for these issues.
In addition, some of our buildings contain, or at one time contained, lead-based paint, asbestos containing materials,
underground storage tanks used to store petroleum products or other potentially hazardous or toxic substances, which could
lead to liability for adverse health effects or property damage or costs for remediation. Some of our properties have also at one
time developed and may in future develop harmful mold or other indoor air quality issues. Indoor air quality issues can also
stem from inadequate ventilation, chemical contamination from indoor or outdoor sources and other biological contaminants
such as pollen, viruses and bacteria. Indoor exposure to lead, asbestos or airborne toxins or irritants above certain levels can be
alleged to cause a variety of adverse health effects and symptoms, including allergic or other reactions. As a result, the presence
of lead, asbestos, underground storage tanks, mold or other airborne contaminants or other potentially hazardous or toxic
substances at any of our properties could require us to undertake a costly remediation program to contain or remove such
contaminants from the affected property. In addition, the presence of potentially hazardous or toxic substances could expose us
to liability from our tenants, employees of our tenants or others if property damage or personal injury occurs.
Availability of Reports Filed with the Securities and Exchange Commission
A copy of this Annual Report on Form 10-K, as well as our quarterly reports on Form 10-Q, current reports on Form 8-
K and any amendments to such reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended (the “Exchange Act”), are available, free of charge, on our Internet website (www.postalrealtytrust.com). All
of these reports are made available on our website as soon as reasonably practicable after they are electronically filed with or
furnished to the SEC. Our Corporate Governance Guidelines and Code of Business Conduct and Ethics and the charters of the
Audit and Corporate Governance and Compensation Committees of our Board of Directors are also available on our website at
https://investor.postalrealtytrust.com/govdocs, and are available in print to any stockholder upon written request to Postal
Realty Trust, Inc. c/o Investor Relations, 75 Columbia Avenue, Cedarhurst, New York 11516. Our telephone number is
(516) 295-7820. The information on or accessible through our website is not, and shall not be deemed to be, a part of this
Annual Report or incorporated into any other filing we file or furnish with the SEC. The SEC also maintains a website that
contains reports, proxy and information statements and other information we file with the SEC at www.sec.gov.
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ITEM 1A. RISK FACTORS
Risk Factor Summary
Risks Related to the USPS
• Our business is substantially dependent on the demand for leased postal properties.
• The USPS’ inability to meet its financial obligations may have a material adverse effect on our business.
• The USPS has a substantial amount of indebtedness and is subject to rising expenses.
• The USPS is subject to congressional oversight and regulation by the PRC and other agencies.
•
• The USPS’ potential insolvency, inability to pay rent or bankruptcy.
• Our properties may have a higher risk of terrorist attacks.
• Litigation and catastrophic events involving the USPS may disrupt our business.
Intense competition faced by the USPS.
Risks Related to Our Business and Operations
Increases in interest rates or unavailability of debt financing.
Failure to comply with covenants in our debt instruments could adversely affect our financial condition.
Failure to hedge effectively against interest rate changes may have a material adverse effect on our business.
• We may be unable to acquire and/or manage additional USPS-leased properties at competitive prices or at all.
• Our acquisitions may not achieve the returns we expect.
• Concentration of our postal properties in certain regions.
• We may be unable to renew leases or sell vacated properties on favorable terms, or at all, as leases expire.
• We may incur significant maintenance, repair and capital expenses under our leases.
•
Property vacancies could result in significant capital expenditures and illiquidity.
• As of February 29, 2024, the leases at 91 of our properties were expired.
• Our use of OP Units as consideration to acquire properties.
• Commercial real estate investments may be illiquid.
• An increase in the amount of USPS or U.S. government-owned real estate may adversely affect us.
• Our real estate taxes for properties where we are not reimbursed could increase.
• We may be exposed to risks associated with property development and redevelopment.
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• Mortgage debt obligations expose us to the possibility of foreclosure.
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• Our success depends on key personnel whose continued service is not guaranteed.
• Risks associated with on-going or future litigation.
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• Risks associated with potential joint venture investments.
• Competition for skilled personnel could increase our labor costs.
• Our growth depends on external sources of capital.
• We could incur significant costs and liabilities related to environmental matters.
• Our properties may contain or develop harmful mold or suffer from other air quality issues.
• We are subject to risks from natural disasters and risks associated with climate change.
• Our properties may be subject to impairment charges or reduction in value.
• Our title insurance policies may not cover all title defects.
•
• We may not be able to adapt to potential new business models.
• We have acquired properties that are subject to purchase options in favor of the USPS.
• We may incur goodwill and other intangible asset impairment charges.
• We may have difficulty implementing changes to our information technology systems.
• Use of social media may adversely impact our reputation and business.
• Our ability to pay dividends in the future.
Significant costs for complying with various federal, state and local laws, regulations and covenants.
Insurance on our properties may not adequately cover all losses.
Risks Related to Our Organizational Structure
• Mr. Spodek and his affiliates own, directly or indirectly, a substantial beneficial interest in our company.
• Conflicts of interest may exist or could arise in the future between the interests of our stockholders and the
interests of holders of units in our Operating Partnership.
• Our charter contains certain provisions restricting the ownership and transfer of our stock.
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• We could increase our equity issuance without stockholder approval.
• Certain provisions of the Maryland General Corporation Law could inhibit changes of control.
• Certain provisions of our Operating Partnership may delay or prevent unsolicited acquisitions of us.
• Tax protection agreements may limit our ability to sell or otherwise dispose of certain properties and may require
our Operating Partnership to maintain certain debt levels that otherwise would not be required.
• Our Board of Directors may change our strategies, policies and procedures without stockholder approval, and we
may become more highly leveraged, which may increase our risk of default under our debt obligations.
• Our rights and the rights of our stockholders to take action against our directors and officers are limited.
• We are a holding company with no direct operations, and the interests of our stockholders are structurally
subordinated to all liabilities and obligations of our Operating Partnership and its subsidiaries.
• Our Operating Partnership may issue additional OP Units to third parties without the consent of our stockholders.
Risks Related to Our Status as a REIT
Failure to remain qualified as a REIT would cause us to be taxed as a regular corporation.
Failure to make required distributions would subject us to federal corporate income tax.
•
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• Complying with REIT requirements may cause us to forego certain opportunities or investments.
• The prohibited transactions tax may limit our ability to dispose of our properties.
• We could be affected by tax liabilities or earnings and profits of our predecessor.
• There are uncertainties relating to the estimate of the accumulated earnings and profits attributable to United
Postal Holdings, Inc. ("UPH").
• A sale of assets acquired as part of the merger between us and UPH within five years after the merger would result
in corporate income tax.
• The ability of our Board of Directors to revoke our REIT qualification without stockholder approval may cause
adverse consequences to our stockholders.
• Our transactions with our TRS will cause us to be subject to a 100% penalty tax on certain income or deductions if
those transactions are not conducted on arm’s-length terms.
• You may be restricted from acquiring or transferring certain amounts of our Class A common stock.
• Dividends payable by REITs generally do not qualify for the reduced tax rates on dividend income from regular
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corporations.
If our Operating Partnership failed to qualify as a partnership for federal income tax purposes, we would cease to
qualify as a REIT.
• To maintain our REIT status, we may be forced to borrow funds during unfavorable market conditions or on
unfavorable terms at desired times.
• Covenants in our debt instruments may restrict our ability to pay distributions.
• New legislation or administrative or judicial action could adversely affect us or our stockholders.
General Risk Factors
Inflation may adversely affect our financial condition and results of operations.
• An increase in market interest rates may have an adverse effect on the market price of our securities.
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• Changes in accounting pronouncements could adversely impact our reported financial performance.
• We could be adversely impacted if there are deficiencies in our disclosure controls or internal controls.
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• The market price of our Class A common stock may be volatile and may decline.
• We face cybersecurity risks and risks associated with security breaches.
• Risks associated with third-party expectations relating to environmental, social and governance factors.
Future offerings of equity securities may adversely affect the market price of our Class A common stock.
The following risk factors may adversely affect our overall business, financial condition, results of operations, cash flows and
prospects; our ability to make distributions to our stockholders; our access to capital; or the market price of our Class A
common stock, as further described in each risk factor below. In addition to the information set forth in this Annual Report on
Form 10-K, one should carefully review and consider the information contained in our other reports and periodic filings that
we make with the SEC. Those risk factors could materially affect our overall business, financial condition, results of operations,
cash flows and prospects; our ability to make distributions to our stockholders; our access to capital; or the market price of our
Class A common stock. The risks that we describe in our public filings are not the only risks that we face. Additional risks and
uncertainties not presently known to us, or that we currently consider immaterial, also may materially adversely affect our
business, financial condition, results of operations, cash flows and prospects. Additional information regarding forward-looking
statements is included herein.
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Our business is substantially dependent on the demand for leased postal properties.
Risks Related to the USPS
Substantially all of our revenue come from properties leased to the USPS. Any significant decrease in the demand for
leased postal properties could have a material adverse effect on our business. The number of postal locations nationwide has
been decreasing over the prior decade. Additionally, on March 23, 2021, the USPS released the Delivering for America: Our
Vision and Ten-Year Plan to Achieve Financial Sustainability and Service Excellence (the “Ten-Year Plan”), which includes
evaluating the facility consolidations that were deferred in 2015 and potentially consolidating the facilities that remain
underutilized. The USPS has begun to undertake, and proposes to further undertake, a number of operational reforms and cost
reduction measures under the Ten-Year Plan and other USPS initiatives, such as higher rates, slower deliveries for certain
services, formation of large sorting and delivery centers and closure, relocation or consolidation of certain facilities and
delivery routes. Consolidation of our postal properties or delivery routes attached to our postal properties under the Ten-Year
Plan or other USPS initiatives may lead to the USPS vacating or declining to renew leases on such properties and materially
adversely affect our operations. As part of its larger, multi-phased plan, the USPS has included a number of our properties on
lists identifying postal facilities under consideration to relocate delivery routes into larger sorting and delivery centers. As of the
date of this report, the USPS had not vacated or notified us of its intention to vacate any properties related to route relocations.
Further reductions in the number of postal properties or downsizing of operations in existing postal properties under the Ten-
Year Plan or other USPS initiatives could result in entering into leases with the USPS in the future on less favorable terms than
current leases, the failure of the USPS to renew leases or the termination by the USPS of existing leases for our properties, the
decrease in value of the affected properties upon sale and the reduction of the number of acquisition opportunities available to
us.
The level of demand for postal properties may also be impacted by a variety of factors outside of our control, including
changes in U.S. federal government and USPS policies or funding, changes in population density, the health and sustainability
of local, regional and national economies, the existence of epidemics and pandemics, such as the COVID-19 pandemic, changes
in demand for the products and services of the USPS by its customers and the changing demands and uses of the USPS itself for
postal properties. Moreover, technological innovations, such as autonomous delivery devices, may decrease the need for hand
delivery or in-person pick up, thereby decreasing the demand for retail post offices or other postal properties. In addition,
package delivery service providers, such as FedEx, Amazon, UPS and DHL, began implementing autonomous delivery devices
to assist retail companies with same-day and last-mile deliveries, in addition to significantly expanding their own last-mile
delivery capabilities. The development, implementation and broad adoption of these devices may decrease the demand for
postal services.
The USPS is facing legislative constraints that are hindering its ability to maintain adequate liquidity to sustain its
current operations. If the USPS’ revenues decrease due to reduced demand for postal services, then the USPS may reduce its
number of postal properties.
The USPS’ inability to meet its financial obligations may render it insolvent or increase the likelihood of Congressional or
regulatory reform of the USPS, which may have a material adverse effect on our business and operations.
A significant portion of the USPS’ liabilities consist of unfunded fixed benefits, such as pensions and healthcare, to
retired USPS workers. Although Congress regularly debates the future of the USPS, the USPS is unlikely to be able to retire its
existing liabilities without regulatory or Congressional relief. If the USPS becomes unable to meet its financial obligations,
many of our leases may be vacated by the USPS, which would have a material adverse effect on our business and operations.
Any Congressional or regulatory action that decreases demand by the USPS for leased postal properties would also have a
material adverse effect on our business and operations. We cannot predict whether any currently contemplated reforms or any
reforms pursued by the U.S. federal government will ultimately take effect and, if so, how such reforms would specifically
affect us.
The USPS has a substantial amount of indebtedness and is subject to rising expenses.
The USPS has significant outstanding debt obligations to the Federal Financing Bank (the “FFB”). Under the note
purchase agreement between the USPS and the FFB (the "NPA"), the USPS can issue short-term or long-term notes to the FFB
and receive funds within two business days. If the FFB elects not to purchase the USPS' notes, the USPS would need to issue
and sell such notes potentially in the public or private debt markets to other parties or seek financing through other means. The
NPA will expire on September 30, 2025. There can be no assurance that the USPS will be able to extend the term of the NPA
beyond expiration or, if the FFB declines to purchase the notes issued by the USPS, obtain alternative sources of financing on
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the terms or timing that it expects or at all. If the USPS is unable to extend the NPA beyond expiration, the USPS may not be
able to refinance debt with the FFB in the future at comparable terms to those currently available.
The USPS also has a significant underfunded Postal Service Retiree Health Benefit Fund (the "PSRHBF") liability,
which the USPS is required to fund in future periods. Additionally, the USPS has significantly underfunded retirement benefits
amortization payable to the Civil Service Retirement System (the "CSRS") and Federal Employees Retirement System (the
"FERS") funds, which the USPS is required to fund in future periods. On March 8, 2022, Congress passed the Postal Service
Reform Act, which significantly alleviated the obligations of the USPS by repealing the requirement for USPS to pre-fund the
PSRHBF, forgiving the USPS' $57 billion outstanding liability under the PSRHBF and requiring future postal retirees to enroll
in Medicare, although significant underfunded liability remains under the PSRHBF in the long term. The USPS’ substantial
obligations under the NPA and the CSRS and FERS funds also remain outstanding.
In addition, the USPS' collective bargaining agreements include provisions for mandatory cost of living adjustments,
which, in recent years coupled with continued impacts to consumer inflation, have resulted in significant increase in labor costs
for the USPS. The USPS has also been exposed to rising commodity prices, primarily for diesel fuel, unleaded gasoline, and
aircraft fuel for transportation of mail and natural gas and heating oil for its facilities.
The USPS’ significant debt and unpaid health and retirement obligations have in the past required, and could in the
future require, the USPS to dedicate a substantial portion of its cash flow from operations to payments on debt and health and
retirement obligations, thus reducing the availability of cash flow to fund operating expenses, including lease payments,
working capital, capital expenditures and other business activities. If the USPS becomes unable to meet its debt and other
obligations or control its expenses and generate sufficient liquidity for its business, the USPS may reduce its demand for leasing
postal properties, which would have a material adverse effect on our business and operations.
The USPS is subject to congressional oversight and regulation by the PRC and other government agencies.
The USPS has a wide variety of stakeholders whose interests and needs are sometimes in conflict. The USPS operates
as an independent establishment of the executive branch of the U.S. government and, as a result, is subject to a variety of
regulations and other limitations applicable to federal agencies. The USPS is constrained by laws and regulations that restrict
revenue sources and mandate certain expenses. The ability of the USPS to raise rates for its products and services and sell new
products and services in new or existing markets is subject to the regulatory oversight and approval of the PRC. However, the
USPS' costs are not similarly constrained or capped. A large portion of the USPS' cost structure cannot be altered expeditiously
due to its universal service mission. Many of its employee costs, such as compensation and employee health benefit premiums,
are subject to contractual arrangements. Other employee costs such as workers' compensation costs and retiree pension benefit
amortization costs are mandated by law. Limitations on the USPS’ ability to take action could adversely affect its operating and
financial results, and as a result, reduce demand for leasing postal properties.
Furthermore, a change in the structure, mission or leasing requirements of the USPS, a significant reduction in the
USPS’ workforce, relocation of personnel resources, delivery routes or postal offices, other internal reorganization or a change
in the delivery routes serviced by our properties could affect our lease renewal opportunities and have a material adverse effect
on our business. In addition, any change in the U.S. federal government’s treatment of the USPS as an independent agency,
including, but not limited to, the privatization or outsourcing of all or a portion of the USPS business operations, may have a
material adverse effect on our business.
The business and results of operations of the USPS are significantly affected by competition from both competitors in the
delivery marketplace as well as substitute products and digital communication.
Failure of the USPS to compete effectively and operate efficiently, grow marketing mail and package delivery services
and increase revenue and contribution from other sources will adversely impact the USPS’ financial condition and this adverse
impact will become more substantial over time. The USPS’ marketplace competitors include both local and national providers
of package delivery services. The USPS’ competitors have different cost structures and fewer regulatory restrictions and are
able to offer differing services and pricing, which may hinder the USPS’ ability to remain competitive in these service areas. In
addition, most of the USPS’ competitors have access to capital markets, which allows them greater flexibility in the financing
and expansion of their business. Customer usage of postal services continues to shift to substitute products and digital
communication. The use of e-mail and other forms of electronic communication have reduced first class mail volume, as have
electronic billing and payment. Marketing mail continues to experience declines due to mailers’ growing use of digital
advertising including digital mobile advertising and a cyclical decline in advertising spending due to economic pressures. The
volume of periodicals services continues to decline as consumers increasingly use electronic media for news and information.
Periodical advertising has also experienced a decline as a result of move to electronic media.
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The growth in the USPS’ competitive service volumes, such as Priority Mail, Priority Mail Express, First-Class
Package Service, Parcel Select, Parcel Return Service and some types of International Mail, is largely attributable to certain of
the USPS’ largest customers, including UPS, FedEx and Amazon. In recent years, each of these customers has been
significantly expanding its own delivery capability that enables it to divert volume away from the USPS over time. If these
customers continue to divert significant volume away from the USPS, the growth in the USPS’ competitive service volumes
may not continue, and there may be reduced demand for leasing postal properties by the USPS, which would have a material
adverse effect on our business and operations.
The USPS’ potential insolvency, inability to pay rent or bankruptcy would have a material adverse effect on our financial
condition, results of operations, cash flow, cash available for distribution and our ability to service our debt obligations and
could result in our inability to continue as a going concern.
Default by the USPS is likely to cause a significant or complete reduction in the operating cash flow generated by our
properties. There can be no assurance that the USPS will be able to avoid insolvency, make timely rental payments or avoid
defaulting under or terminating its leases. If the USPS defaults, we may experience delays in enforcing our rights as landlord
and may incur substantial costs in protecting our investment. Because we depend on rental payments from the USPS, the
inability of the USPS to make its lease payments could adversely affect us and our ability to make distributions to our
stockholders.
Although we do not believe that bankruptcy protection under the United States bankruptcy code is available to the
USPS, the law is unclear. If the USPS were to file for bankruptcy, we would become a creditor, but we may not be able to
collect all or any of the pre-bankruptcy amounts owed to us by the USPS. In addition, if the USPS were to file for bankruptcy
protection, it potentially could terminate its leases with us under federal law, in which event we would have a general unsecured
claim against the USPS that would likely be worth less than the full amount owed to us for the remainder of the lease term. This
would have a severe adverse effect on our business, financial condition and results of operations.
Implementation of the Ten-Year Plan proposed by the USPS could have a material adverse effect on our operations,
financial position and results of operations.
The USPS has published its Ten-Year Plan to address the challenges of the shift from traditional letter-mail to package
delivery, underperformance in processing, transportation, delivery and retail operations, failure to meet service performance
standards and a perilous and worsening financial situation that has resulted in significant losses. The strategic initiatives are
designed to reverse projected losses and to operate at a positive net income in the long term. The Ten-Year Plan includes
realignment, procurement of new facilities, expansion of existing facilities and consolidation of underused facilities and
delivery routes as well as modernization of retail lobbies to enable expanded digital, small, medium-sized business and
government services, which could affect our operations if our postal properties are consolidated.
The USPS has recently begun to undertake a number of operational reforms and cost reduction measures under the
Ten-Year Plan, such as higher rates, slower deliveries for certain services, formation of large sorting and delivery centers and
closure, relocation or consolidation of certain facilities and delivery routes. The extent to which the implementation of this Ten-
Year Plan will affect our business, liquidity, financial condition and results of operations will depend on numerous factors that
we may not be able to accurately predict or assess. Portions of the Ten-Year Plan require Congressional approval, which we
cannot predict at this time and there will be additional conversations with stakeholders about implementation and changes to the
Ten-Year Plan. The USPS’ failure to implement the Ten-Year Plan or receive Congressional approval may affect its ability to
maintain adequate liquidity to sustain its current operations, which may result in the USPS reducing its number of postal
locations and adversely affecting our business and results of operations.
Because the USPS is an independent agency of the U.S. federal government, our properties may have a higher risk of
terrorist attacks than similar properties leased to non-governmental tenants.
Terrorist attacks may materially adversely affect our operations, as well as directly or indirectly damage our assets,
both physically and financially. Because the USPS is, and is expected to continue to be, an independent agency of the U.S.
federal government, our properties are presumed to have a higher risk of terrorist attack than similar properties that are leased to
non-governmental affiliated tenants. Terrorist attacks, to the extent that these properties are uninsured or underinsured, could
have a material adverse effect on our business, financial condition and results of operations.
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Litigation and catastrophic events involving the USPS may disrupt our business.
As a result of the proposed and executed operational, managerial and strategic changes within the USPS, including the
Ten-Year Plan, the USPS is the focal point of significant public criticism and litigation. As of the date of this report, several
lawsuits have been filed and remain pending against the USPS pertaining to operational change at the USPS, such as higher
rates and slower deliveries for certain services. If, as a result of such criticism or litigation, the USPS suffers reputational or
financial harm or an increase in regulatory scrutiny, the demand for USPS services may decline, which may lead to reduced
demand for USPS properties. The results of these changes or any future changes could lead to additional delays or financing
shortfalls for the USPS. The USPS is also at risk of the adverse impact of another regional epidemic, global pandemic or other
adverse public health developments in the future, such as those experienced during the COVID-19 pandemic, which could
reduce demand for USPS properties and adversely affect our business, financial condition and results of operations.
Risks Related to Our Business and Operations
We may be unable to acquire and/or manage additional USPS-leased properties at competitive prices or at all.
A significant portion of our business plan is to acquire additional properties that are leased to the USPS. There are a
limited number of such properties, and we will have fewer opportunities to grow our investments than REITs that purchase
properties that are leased to a variety of tenants or that are not leased when they are acquired. In addition, the current ownership
of properties leased to the USPS is highly fragmented with the overwhelming majority of owners holding a single property. As
a result, we have expended, and may in the future continue to expend, significant resources to source acquisition opportunities
and complete our due diligence, underwriting and acquisition accounting process on many individual properties, thereby
increasing our acquisition costs, lengthening the acquisition timeline and possibly reducing the amount that we are able to pay
for a particular property. Agreements for the acquisitions of postal properties are also subject to customary conditions to
closing, including completion of due diligence investigations and other conditions that are not within our control and may not
be satisfied. In this event, we may be unable to complete an acquisition after incurring significant acquisition-related costs.
Accordingly, our plan to grow our business largely by acquiring additional properties that are leased to the USPS and managing
properties leased to the USPS by third parties may not succeed.
We also face regular and significant competition for acquisition opportunities for properties leased to the USPS from
other market participants, including private investment funds, individual investors and others, and, as a result, we may be
unable to acquire a desired property at competitive price, or at all. This competition could also increase prices for properties we
may pursue and adversely affect our profitability and impede our growth. In addition, because of our public profile as the only
publicly traded REIT dedicated to USPS properties, our operations may generate new interest in USPS-leased properties from
other REITs, real estate companies and other investors with more resources than we have that did not previously focus on
investment opportunities with USPS-leased properties.
Our acquisitions may not achieve the returns we expect.
Our business has grown significantly through active acquisitions of postal properties. However, our acquisitions and
our ability to successfully integrate and operate the acquired properties are subject to the following significant risks:
• we may acquire properties that are not accretive to our results upon acquisition;
• we may not successfully manage and lease newly acquired properties to meet our financial or strategic goals and
realize the anticipated benefits;
• we may have to spend more than budgeted to make necessary improvements to acquired properties and we may
underestimate the repair, maintenance and capital expenses for the acquired properties;
• we may not be able to obtain sufficient and economical insurance coverage for the acquired properties;
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our cash flows from the acquired properties may be insufficient to meet the required principal and interest payments on
the property-level financing, if any;
the integration of acquired properties into our existing portfolio may require significant expenses and time from our
management team and may divert attention from other important areas of our business;
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•
changing market and regulatory conditions, particularly those associated with the USPS, may result in higher-than-
expected vacancy rates and lower than expected rental rates on newly acquired properties; and
• we may acquire properties subject to liabilities and without any recourse, or with only limited recourse, with respect to
unknown liabilities such as undisclosed environmental contamination, claims by tenants, vendors or other persons
dealing with the former owners of the properties and liabilities incurred in the ordinary course of business.
If we cannot integrate and operate acquired properties to meet our financial or strategic goals, our financial condition,
results of operations, cash flow, cash available for distributions and our ability to service our debt obligations could be
materially adversely affected.
We currently have a concentration of postal properties in certain regions and are exposed to changes in regional or local
conditions in these states.
Our business may be adversely affected by regional or local conditions and events in the areas in which we operate,
particularly in Pennsylvania, Wisconsin, Texas, California and North Carolina, where many of our postal properties are
concentrated. Developments or conditions in these regions that may adversely affect our occupancy levels and renewals, our
rental revenues, our funds from operations or the value of our properties include the following, among others:
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downturns in economic conditions;
unforeseen events beyond our control, including, among others, natural disasters, terrorist attacks and travel
related health concerns including pandemics and epidemics;
possible reduction of the USPS workforce, relocation of postal offices or consolidation of delivery routes by the
USPS; and
economic conditions that could cause an increase in our operating expenses, insurance and routine maintenance.
We may be unable to renew leases or sell vacated properties on favorable terms, or at all, as leases expire, which could
materially adversely affect us.
We cannot assure you that any leases will be renewed or that vacated properties will be sold on favorable terms, or at
all. Some of our leases also provide the tenants with a right to vacate their space during a specified period before the stated
terms of their leases expire. If they were to occur and we were not able to lease the vacant space to another tenant in a timely
manner or at all, such event could have a material adverse effect on our business, financial condition and results of operations.
As of the date of this report, the USPS has vacated two properties in our portfolio. For leases which include renewal options
that specify a maximum rate, the renewal may result in below-market lease rates over time. In addition, when we renew leases
with the USPS, we may have to spend substantial amounts for improvements and other inducements in order to renew such
leases. If we are subject to below-market lease rates on a significant number of our properties, rental rates for our properties
decrease, our existing tenants do not renew their leases or we do not sell vacated properties on favorable terms, our financial
condition, results of operations, cash flow, cash available for distributions and our ability to service our debt obligations could
be materially adversely affected.
We may incur significant maintenance, repair and capital expenses under our leases.
Under some of our leases, we retain certain obligations with respect to the property, including, among other things, the
responsibility for certain maintenance and repair obligations of the property and capital improvements such as roof or parking
lot replacement, asbestos-related projects, replacement of heating or ventilation equipment and major structural improvements.
The expenditure of any sums in connection therewith will reduce the cash available for distribution and may require us to fund
deficits resulting from operating a property. In addition, risks beyond our control, such as weather, labor conditions, material
shortages caused by supply chain disruptions or inflationary price increases for materials, could lead to cost overruns and
untimely completion of projects, which could also damage our relationship with tenants. Meeting these obligations also require
us to hire and maintain a sizable project management team and incur significant property management and administrative
expenses, which may continue to grow as we acquire more properties, particularly those with landlord being responsible for
certain maintenance and capital improvements. In addition, we may incur unexpected increase in maintenance, repair or capital
expenses as tenants adjust their standards, requirements, demands and expectations for the operation of the leased properties,
increase their inspection efforts and require certain upgrades or as we acquire more properties with landlord being responsible
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for certain maintenance and capital improvements. If we were to fail to meet these obligations, then the tenant could abate rent
or terminate the applicable lease, which could have a material adverse effect on our business, financial condition and results of
operations.
Property vacancies could result in significant capital expenditures and illiquidity.
The loss of a tenant through lease expiration may require us to spend significant amounts of capital to renovate the
property before it is suitable for a new tenant. Substantially all of the properties we acquire are specifically suited to the
particular business of the USPS and, as a result, if the USPS vacates a property, does not renew its lease or decides to relocate a
postal office to another location, we may be required to renovate the property at substantial costs, decrease the rent we charge
or provide other concessions in order to lease the property to another tenant. In the event we are required or elect to sell the
property, we may have difficulty selling it to a party other than the USPS, which may result in an impairment loss. This
potential illiquidity may limit our ability to quickly modify our portfolio in response to changes in economic or other
conditions, which may materially and adversely affect us.
As of February 29, 2024, the leases at 91 of our properties were expired and the USPS is occupying such properties as a
holdover tenant. If we are not successful in renewing these expired leases, we will likely experience reduced occupancy,
rental income and net operating income and potential impairment loss.
As of February 29, 2024, the leases at 91 of our properties, representing approximately 631,000 net leasable interior
square feet, were expired and the USPS is occupying such properties as a holdover tenant. When a lease expires, the USPS
becomes a holdover tenant on a month-to-month basis, typically paying the greater of estimated market rent or the rent amount
under the expired lease. While we currently anticipate that we will renew the leases that have expired or will expire, there can
be no guarantee that we will be successful in renewing these leases, obtaining positive rent renewal spreads or renewing the
leases in an expeditious manner on terms comparable to those of the expiring leases. Even if we are able to renew these expired
leases, the lease terms may not be comparable to those of the previous leases. If we are not successful, we will likely experience
reduced occupancy, rental income and net operating income and potential impairment loss, as well as diminished borrowing
capacity under our Credit Facilities, which could have a material adverse effect on our financial condition, results of operations
and ability to make distributions to stockholders.
Our use of OP Units as consideration to acquire properties could result in stockholder dilution and/or limit our ability to sell
such properties.
We have acquired and may continue to acquire properties or portfolios of properties through tax deferred contribution
transactions in exchange for OP Units, which may result in stockholder dilution. This acquisition structure may have the effect
of, among other things, reducing the amount of tax depreciation we could deduct over the tax life of the acquired properties and
increasing our tax compliance and other administrative expenses, and may require that we agree to protect the contributors’
ability to defer recognition of taxable gain through restrictions on our ability to dispose of the acquired properties and/or the
allocation of partnership debt to the contributors to maintain their tax bases. These restrictions could limit our ability to sell
properties at a time, or on terms, that would be favorable absent such restrictions.
Illiquidity of commercial real estate could significantly impede our ability to respond to adverse changes in the performance
of our properties and harm our financial condition.
Our ability to promptly sell one or more properties in our portfolio in response to changing economic, financial and
investment conditions and conditions of the USPS may be limited. Certain types of real estate and in particular, postal
properties, may have limited alternative uses and thus are relatively illiquid. Return of capital and realization of gains, if any,
from an investment generally will occur upon disposition or refinancing of the underlying property. We may be unable to
realize our investment objectives by sale, other disposition or refinancing at attractive prices within any given period of time or
may otherwise be unable to complete any exit strategy. In particular, our ability to dispose of one or more properties within a
specific time period is subject to certain limitations imposed by our tax protection agreements, as well as weakness in or even
the lack of an established market for a property, changes in the financial condition or prospects of prospective purchasers,
changes in national or international economic conditions and changes in laws, regulations or fiscal policies of jurisdictions in
which the property is located. Furthermore, if we dispose any property in transactions that are intended to qualify for federal
income tax deferral as a “like-kind exchange” under Section 1031 of the Code, it is possible that such transaction could later be
determined to have been taxable or that we may be unable to identify and complete the acquisition of a suitable replacement
property to complete a 1031 exchange and therefore face adverse tax consequences.
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In addition, the Internal Revenue Code of 1986, as amended (the "Code"), imposes restrictions on a REIT’s ability to
dispose of properties that are not applicable to other types of real estate companies. In particular, the tax laws applicable to
REITs effectively require that we hold our properties for investment, rather than primarily for sale in the ordinary course of
business, further limiting our ability to quickly adjust our portfolio in response to changing economic, financial and investment
conditions and conditions of the USPS.
An increase in the amount of USPS or U.S. government-owned real estate may adversely affect us.
In recent years, the USPS completed and also announced plans to further construct a significant number of new sorting
and delivery and other facilities across the country. If there is a large increase in the amount of real estate constructed and
owned by the USPS or other U.S. government agencies, the USPS may relocate from our properties to such USPS or U.S.
government-owned facilities at the expiration of their respective leases. Similarly, it may become more difficult for us to renew
our leases with the USPS when they expire or identify additional properties that are leased to the USPS in order to grow our
portfolio.
Our real estate taxes for properties where we are not reimbursed could increase due to property tax rate changes or
reassessment.
Even though we currently qualify as a REIT for U.S. federal income tax purposes, we are required to pay state and
local taxes on some of our properties. The real property taxes on our properties have increased in the past and may increase in
the future as property tax rates change or as our properties are assessed or reassessed by taxing authorities. Therefore, the
amount of property taxes we pay in the future may increase substantially from what we have paid in the past. If the property
taxes we pay increase, our financial condition, results of operations, cash flows, per share trading price of our Class A common
stock and our ability to satisfy our principal and interest obligations and to make distributions to our stockholders could be
adversely affected.
We may be exposed to risks associated with property development and redevelopment.
We may engage in development and redevelopment activities with respect to our properties, including build-to-suit
renovations and new developments for our existing or prospective tenants and, as a result, will be subject to certain risks, which
could adversely affect us, including our financial condition and results of operations. These risks include:
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•
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development costs that may be higher than anticipated;
cost overruns and delays of construction;
the availability of financing on favorable terms or at all;
various local, state and federal statutes, ordinances, rules and regulations concerning zoning, building design,
construction and similar matters;
registration and filing requirements in connection with these developments in certain states and localities;
the potential that we may expend funds on and devote management time to projects that we do not complete; and
the inability to complete construction and leasing of a property on schedule, resulting in increased debt service
expense and development and renovation costs.
These risks could result in substantial unanticipated delays or expenses and could prevent the initiation or the
completion of development and renovation activities, any of which could have a material adverse effect on our business,
financial condition and results of operations.
Increases in interest rates or unavailability of debt financing may make it difficult for us to finance or refinance our debt.
If debt financing, including mortgage loans, is unavailable to us at reasonable rates or at all, we may not be able to
finance the purchase of additional properties or refinance existing debt when it becomes due. If interest rates are higher when
we refinance our existing debt, our income and cash flow could be reduced, which would reduce cash available for distribution
to our stockholders and may hinder our ability to raise more capital by issuing more stock or by borrowing more money. In
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addition, to the extent we are unable to refinance our debt when it becomes due, we will have fewer debt guarantee
opportunities available to offer under our tax protection agreements, which could trigger an obligation to indemnify the
protected parties under the tax protection agreements.
Mortgage debt obligations expose us to the possibility of foreclosure, which could result in the loss of our investment in a
property or group of properties subject to mortgage debt.
Mortgage and other secured debt obligations increase our risk of property losses because defaults on indebtedness
secured by properties may result in foreclosure actions initiated by lenders and ultimately our loss of the property securing any
loans for which we are in default. Any foreclosure on a mortgaged property or group of properties could adversely affect the
overall value of our portfolio of properties. For tax purposes, a foreclosure on any of our properties that is subject to a
nonrecourse mortgage loan would be treated as a sale of the property for a purchase price equal to the outstanding balance of
the debt secured by the mortgage. If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the
property, we would recognize taxable income on foreclosure, but would not receive any cash proceeds, which could hinder our
ability to meet the REIT distribution requirements imposed by the Code. Foreclosures could also trigger our tax indemnification
obligations under the terms of our tax protection agreements with respect to the sales of certain properties.
In addition, some of our financing arrangements require us to make a lump-sum or “balloon” payment at maturity. Our
ability to satisfy a balloon payment at maturity is uncertain and may depend upon our ability to obtain additional financing or
our ability to sell the property. At the time the balloon payment is due, we may or may not be able to refinance the existing
financing on terms as favorable as the original loan or sell the property at a price sufficient to satisfy the balloon payment. Such
a refinancing or sale could affect the rate of return to stockholders and the projected time of disposition of our assets.
Covenants in our debt instruments could adversely affect our financial condition.
Our Credit Facilities and other debt instruments contain certain customary restrictions, requirements and other
limitations on our ability to incur indebtedness. Under our Credit Facilities, we must maintain certain ratios, including a
minimum fixed charge coverage ratio, maximum total leverage ratio, minimum tangible net worth, maximum secured leverage
ratio, maximum unsecured leverage ratio, minimum unsecured debt service coverage ratio and maximum secured recourse
leverage ratio. Our ability to borrow under our Credit Facilities and other debt instruments is subject to compliance with our
financial and other covenants.
Failure to comply with any of the covenants under our Credit Facilities or other debt instruments could result in a
default under one or more of our debt instruments. In particular, we could suffer a default under a secured debt instrument that
could exceed a cross-default threshold under our Credit Facilities, causing an event of default thereunder. Under those
circumstances, other sources of capital may not be available to us or be available only on unattractive terms. In addition, if we
breach covenants in any of our debt agreements, the lenders can declare a default and, if the debt is secured, take possession of
the collateral securing the defaulted loan.
Alternatively, even if a secured debt instrument is below the cross-default threshold for non-recourse secured debt
under our Credit Facilities, a default under such secured debt instrument may still cause a cross default under our Credit
Facilities because such secured debt instrument may not qualify as “non-recourse” under our Credit Facilities. Another possible
cross default could occur between the credit facilities that we enter into and any senior unsecured notes that we issue. Any of
the foregoing default or cross-default events could cause our lenders to accelerate the timing of payments and/or prohibit future
borrowings, either of which would have a material adverse effect on our business, operations, financial condition and liquidity.
Failure to hedge effectively against interest rate changes may adversely affect our financial condition, results of operations,
cash flow, cash available for distribution and our ability to service our debt obligations.
Subject to maintaining our qualification as a REIT, we manage our market risk on variable rate debt through the use of
interest rate swaps that fix the rate on all or a portion of our variable rate debt for varying periods up to maturity. See Note 6.
Derivatives and Hedging Activities in the Notes to our Consolidated Financial Statements included herein for further details. In
the future, we may use other derivative instruments such as interest cap agreements to, in effect, cap the interest rate on all or a
portion of the debt for varying periods up to maturity. These agreements involve risks, such as the risk that such arrangements
would not be effective in reducing our exposure to interest rate changes or that a court could rule that such an agreement is not
legally enforceable. In addition, interest rate hedging can be expensive, particularly during the recent period of rising and
volatile interest rates. Hedging could increase our costs and reduce the overall returns on our investments. In addition, while
hedging agreements would be intended to lessen the impact of rising interest rates on us, they could also expose us to the risk
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that the other parties to the agreements would not perform, we could incur significant costs associated with the settlement of the
agreements or that the underlying transactions could fail to qualify as highly-effective cash flow hedges under Financial
Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC"), Topic 815, Derivatives and Hedging.
The REIT provisions of the Code also limit our ability to hedge our liabilities. Generally, income from a hedging
transaction we enter into (i) to manage the risk of interest rate changes with respect to borrowings incurred or to be incurred to
acquire or carry real estate assets, (ii) to manage the risk of currency fluctuations with respect to any item of income or gain that
constitutes “qualifying income” for purposes of the 75% or 95% gross income tests applicable to REITs (or any property that
generates such income or gain) or (iii) that hedges against transactions described in clauses (i) and (ii) and is entered into in
connection with the extinguishment of debt or sale of property that is being hedged against by the transactions described in
clauses (i) and (ii) does not constitute “gross income” for purposes of the 75% or 95% gross income tests, provided that we
comply with certain identification requirements pursuant to the applicable sections of the Code and Treasury Regulations. To
the extent that we enter into other types of hedging transactions, the income from those transactions is likely to be treated as
non-qualifying income for purposes of both gross income tests. As a result of these rules, we may need to limit our use of
otherwise advantageous hedging techniques or implement those hedges through a TRS. The use of a TRS could increase the
cost of our hedging activities or expose us to greater risks than we would otherwise want to bear.
Our success depends on key personnel whose continued service is not guaranteed, and the loss of one or more of our key
personnel could adversely affect our ability to manage our business and to implement our growth strategies, or could create
a negative perception of our company in the capital markets.
Our continued success and our ability to manage anticipated future growth depend, in large part, upon the efforts of
key personnel, particularly Messrs. Spodek, Garber and Klein who have extensive market knowledge and relationships and
exercise substantial influence over our acquisition, operational and financing activities. Among the reasons that these
individuals are important to our success is that each has a national or regional industry reputation that attracts business and
investment opportunities and assists us in negotiations with investors, lenders, the USPS and owners of postal properties. If we
lose their services, such relationships could diminish or be adversely affected. Our employment agreements with Messrs.
Spodek, Garber and Klein do not guarantee their continued employment with us.
Many of our other senior executives also have extensive experience and strong reputations in the real estate industry,
particularly in the postal real estate sector, which aid us in identifying opportunities, having opportunities brought to us and
negotiating. Many of these individuals have developed specialized knowledge and skills in the postal real estate sector. The loss
of services of one or more members of our senior management team, or our inability to attract and retain highly qualified
personnel, could adversely affect our business, diminish our investment opportunities and weaken our relationships with
investors, lenders, owners of postal properties, business partners, existing and prospective tenants and industry participants,
which could materially adversely affect our financial condition, results of operations, cash flow and the per share trading price
of our Class A common stock.
We may be subject to on-going or future litigation, including existing claims relating to the entities that owned the properties
previously and otherwise in the ordinary course of business, which could have a material adverse effect on our financial
condition, results of operations, cash flow and the per share trading price of our Class A common stock.
We are, and may in the future be subject to, various claims, disputes and litigation, which may include existing claims
relating to the entities that owned the properties previously, disputes during the acquisition process and otherwise in the
ordinary course of business. Some of these claims may result in significant defense costs and potentially significant judgments
against us, some of which are not, or cannot be, insured against. In addition, with respect to any claims under our leases with
the USPS, the procedures for settling such disputes with the USPS under the Contract Disputes Act of 1978 could be costly,
time consuming and may divert the attention of management from other operations of our business. Specifically, the claim
process first requires a contractor to file a claim with a USPS-assigned contracting officer. After the contracting officer has
issued a final decision, the contractor may appeal such decision before the Postal Service Board of Contract Appeals or the U.S.
Court of Federal Claims. The U.S. government could also institute condemnation proceedings against us and seek to take our
property, or a leasehold interest therein, through its power of eminent domain, which may result in a costly and time consuming
dispute with the government. We generally intend to vigorously defend ourselves or pursue our claims. However, we cannot be
certain of the ultimate outcomes of any currently asserted claims or of those that may arise in the future. Resolution of these
types of matters against us may result in our having to pay significant fines, judgments, legal expenses or settlements, which, if
uninsured, or if the fines, judgments, and settlements and any related expenses exceed insured levels, could adversely impact
our earnings and cash flows, thereby having an adverse effect on our financial condition, results of operations, cash flow, cash
available for distribution and our ability to service our debt obligations. Certain litigation or the resolution of certain litigation
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may adversely affect our relationship with tenants, vendors and other parties involved in the disputes and impact the availability
or cost of some of our insurance coverage, which could materially adversely affect our results of operations and cash flows,
expose us to increased risks that would be uninsured and/or adversely impact our ability to attract officers and directors.
In addition, assets that we have acquired or may acquire in the future may be subject to unknown or contingent
liabilities for which we may have limited recourse against the sellers. Unknown or contingent liabilities might include liabilities
for clean-up or remediation of environmental conditions, claims of customers, vendors or other persons dealing with the
acquired entities, tax liabilities and other liabilities whether incurred in the ordinary course of business or otherwise. In the
future, we may enter into transactions with limited representations and warranties or with representations and warranties that do
not survive the closing of the transactions, in which event we would have no or limited recourse against the sellers of such
properties. The total amount of costs and expenses that we may incur with respect to liabilities associated with acquired
properties may also exceed our expectations, which may adversely affect our business, financial condition and results of
operations.
Insurance on our properties may not adequately cover all losses and uninsured losses if we experience a substantial or
comprehensive loss of such properties.
We carry commercial property, liability, environmental, earthquake and terrorism coverage on our properties in our
portfolio, some of which are insured subject to limitations involving significant deductibles or co-payments and policy limits
that may not be sufficient to cover losses. Inflation, changes in building codes and ordinances, environmental considerations
and other factors, including terrorism or acts of war, may also make any insurance proceeds we receive insufficient to repair or
replace a property if it is damaged or destroyed. In those circumstances, the insurance proceeds received may not be adequate to
restore our economic position with respect to the affected real property and its generation of rental revenue. Certain types of
losses, generally of a catastrophic nature, such as earthquakes, storms, hurricanes and floods, are often subject to material
deductibles, may be uninsurable or are not economically insurable by us. In addition, in the event that we experience a
substantial or comprehensive loss of one of our properties, we may not be able to rebuild such property to its existing
specifications without significant capital expenditures which may exceed any amounts received pursuant to insurance policies.
Further, reconstruction or improvement of such a property would likely require significant upgrades to meet zoning and
building code requirements. The loss of our capital investment in or anticipated future returns from our properties due to
material uninsured losses could materially and adversely affect us.
In addition, if any one of insurance carriers or insurance programs that we work with were to become insolvent, we
would be forced to replace the existing insurance coverage with another suitable carrier, and any outstanding claims would be at
significant risk for collection. In such an event, we cannot be certain that we would be able to replace the coverage at similar or
otherwise favorable terms, or at all.
Potential future joint venture investments could be adversely affected by our lack of sole decision-making authority, our
reliance on co-venturers’ financial condition and disputes between us and our co-venturers.
In the future, we may co-invest with third parties through partnerships, joint ventures or other entities, acquiring non-
controlling interests in and managing the affairs of a property, partnership, joint venture or other entity. With respect to any such
arrangement or any similar arrangement that we may enter into in the future, we may not be in a position to exercise sole
decision-making authority regarding the development, property, partnership, joint venture or other entity. Investments in
partnerships, joint ventures or other entities may, under certain circumstances, involve risks not present where a third party is
not involved, including the possibility that partners or co-venturers might become bankrupt or fail to fund their share of
required capital contributions. Partners or co-venturers may have economic or other business interests or goals which are
inconsistent with our business interests or goals and may be in a position to take actions contrary to our policies or objectives,
and they may have competing interests in our markets that could create conflicts of interest. Such investments may also have
the potential risk of impasses on decisions, such as a sale or financing, because neither we nor the partner(s) or co-venturer(s)
would have full control over the partnership or joint venture. In addition, a sale or transfer by us to a third party of our interests
in the joint venture may be subject to consent rights or rights of first refusal, in favor of our joint venture partners, which would
in each case restrict our ability to dispose of our interest in the joint venture. Where we are a limited partner or non-managing
member in any partnership or limited liability company, if such entity takes or expects to take actions that could jeopardize our
status as a REIT or require us to pay tax, we may be forced to dispose of our interest in such entity. We may, in certain
circumstances, be liable for the actions of a partner, and the activities of a partner could adversely affect our ability to maintain
our qualification as a REIT or our exclusion or exemption from registration under the Investment Company Act of 1940, as
amended, even if we do not control the joint venture. Disputes between us and partners or co-venturers may result in litigation
or arbitration that would increase our expenses and prevent our officers and directors from focusing their time and effort on our
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business. Consequently, actions by or disputes with partners or co-venturers might result in subjecting properties owned by the
partnership or joint venture to additional risk. In addition, we may in certain circumstances be liable for the actions of our third-
party partners or co-venturers. Our joint ventures may be subject to debt and, during periods of volatile credit markets, the
refinancing of such debt may require equity capital calls.
Competition for skilled personnel could increase our labor costs.
We compete intensely with various real estate and other companies in attracting and retaining qualified and skilled
personnel. We depend on our ability to attract and retain skilled management personnel in order to successfully manage the day-
to-day operations of our company and execute our business plan. As we continue to grow, we have faced and may continue to
face increased challenges in hiring and retaining qualified and skilled personnel, especially during periods of labor shortage and
intense competition for talents. Competitive pressures may require that we enhance our pay and benefits package to compete
effectively for such personnel. We may not be able to offset such added costs by increasing the rates we charge the USPS. If
there is an increase in these costs or if we fail to attract and retain qualified and skilled personnel, our business and operating
results could be harmed.
Our growth depends on external sources of capital that are outside of our control and may not be available to us on
commercially reasonable terms or at all, which could limit our ability to, among other things, meet our capital and operating
needs or make the cash distributions to our stockholders necessary to qualify and maintain our qualification as a REIT.
In order to qualify and maintain our qualification as a REIT, we are required under the Code to, among other things,
distribute annually at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and
excluding any net capital gains. In addition, we will be subject to income tax at regular corporate rates to the extent that we
distribute less than 100% of our REIT taxable income, including any net capital gains. Because of these distribution
requirements, we may not be able to fund future capital needs, including any necessary capital expenditures, from operating
cash flow. Consequently, we rely on third-party sources to fund our capital needs. We may not be able to obtain such financing
on favorable terms or at all and any additional debt we incur will increase our leverage and likelihood of default. Our access to
third-party sources of capital depends, in part, on:
•
•
•
•
•
•
general market conditions and the conditions of the USPS;
the market’s perception of our growth potential;
our current debt levels;
our current and expected performance and future earnings;
our cash flow and cash distributions; and
the market price per share of our Class A common stock.
Historically, the capital markets have been subject to significant disruptions. If we cannot obtain capital from third-
party sources on cost effective terms, we may not be able to acquire or develop properties when strategic opportunities exist,
meet the capital and operating needs of our existing properties, satisfy our debt service obligations or make the cash
distributions to our stockholders necessary to qualify and maintain our qualification as a REIT. To the extent that we are able or
choose to access capital at a higher cost than we have experienced in recent years, as reflected in higher interest rates for debt
financing or a lower stock price for equity financing, our earnings per share and cash flow could also be adversely affected.
We could incur significant costs and liabilities related to environmental matters.
Under various federal, state and local laws and regulations relating to the environment, as a current or former owner of
real property, we may be liable for costs and damages resulting from the presence or release of hazardous or toxic substances,
waste or petroleum products at, on, in, under or migrating from such property, including costs to investigate, clean up such
contamination and liability for any alleged harm to human health, property or natural resources. Such laws often impose strict
liability without regard to fault, including whether the owner or operator knew of, or was responsible for, the presence of such
contamination, and the liability may be joint and several. These liabilities could be substantial and the cost of any required
investigation, remediation, removal, fines or other costs could exceed the value of the property and/or our aggregate assets. In
addition, the presence of contamination or the failure to remediate contamination at our properties may expose us to third-party
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liability for costs of remediation and/or personal or property damage or materially adversely affect our ability to sell, lease or
develop our properties or to borrow using the properties as collateral. In addition, environmental laws may create liens on
contaminated sites in favor of the government for damages and costs it incurs to address such contamination. Moreover, if
contamination is discovered on our properties, environmental laws may impose restrictions on the manner in which property
may be used or businesses may be operated, and these restrictions may require substantial expenditures. See Item 1.
"Business—Environmental Matters.”
We generally obtain environmental assessments by independent environmental consultants at the time of acquisition of
a property. If the consultant identifies any unexplained recognized environmental concerns, then the consultant may recommend
further investigation, usually through specific invasive property tests. Invasive testing may or may not include air, soil, soil
vapor or ground water sampling. Additionally, it may or may not include an asbestos and/or lead-based paint survey. These
environmental assessments may not reveal all environmental risks that might have a materially adverse economic effect on our
business, assets and results of operations or liquidity, and may not identify all potential environmental liabilities, and our
portfolio environmental and any site-specific insurance policies may be insufficient to cover any such environmental costs and
liabilities.
Some of our properties have been or may in the future be impacted by contamination arising from current or prior uses
of the property, or adjacent properties, for commercial or industrial purposes. Such contamination can arise from spills of
petroleum or hazardous substances or releases from tanks used to store such materials. We may not be aware of all potential or
existing environmental contamination liabilities at the properties in our portfolio or at the properties we acquire. As a result, we
could potentially incur material liability for these issues.
As the owner of the buildings on our properties, we could face liability for the presence of hazardous materials, such
as asbestos, lead or underground storage tanks used to store petroleum products or other potentially hazardous or toxic
substances, or other adverse conditions, such as poor indoor air quality, in our buildings. Environmental laws govern the
presence, maintenance, and removal of hazardous materials in buildings, and if we do not comply with such laws, we could
face fines for such noncompliance and could be required to abate, remove or otherwise address the hazardous material to
achieve compliance with applicable environmental laws and regulations. Also, we could be liable to third parties, such as
occupants or employees of the buildings, for damages related to exposure to hazardous materials or adverse conditions in our
buildings, and we could incur material expenses with respect to abatement or remediation of hazardous materials or other
adverse conditions in our buildings. If we incur material environmental liabilities in the future, we may find it difficult to sell or
lease any affected properties.
Our properties may contain or develop harmful mold or suffer from other air quality issues, which could lead to liability for
adverse health effects and costs of remediation.
When excessive moisture accumulates in buildings or on building materials, mold growth may occur, particularly if
the moisture problem remains undiscovered or is not addressed over a period of time. Some molds may produce airborne toxins
or irritants. Indoor air quality issues can also stem from inadequate ventilation, chemical contamination from indoor or outdoor
sources, and other biological contaminants such as pollen, viruses and bacteria. Indoor exposure to airborne toxins or irritants
above certain levels can be alleged to cause a variety of adverse health effects and symptoms, including allergic or other
reactions. As a result, the presence of significant mold or other airborne contaminants at any of our properties could require us
to undertake a costly remediation program to contain or remove the mold or other airborne contaminants from the affected
property or increase indoor ventilation. In addition, the presence of significant mold or other airborne contaminants could
expose us to liability from the USPS, employees of the USPS or others if property damage or personal injury is alleged to have
occurred.
We are subject to risks from natural disasters and the risks associated with climate change.
Natural disasters and severe weather such as flooding, wildfires, earthquakes, tornadoes or hurricanes have resulted in
the past and may in the future result in damages to our properties. Many of our properties are located in states like Oklahoma,
Texas, Missouri, Louisiana and Florida that historically have experienced heightened risk for natural disasters like tornados and
hurricanes. The extent of our casualty losses and loss in operating income in connection with such events is a function of the
severity of the event and the total amount of exposure in the affected area. While we carry insurance to cover a substantial
portion of the cost of such events, our insurance includes significant deductible amounts and certain items are not covered by
insurance. When we have geographic concentration of exposures, a single catastrophe (such as an earthquake) or destructive
weather event (such as a tornado or hurricane) affecting a region may have a significant negative effect on our financial
17
condition and results of operations. Our financial results may be adversely affected by our exposure to losses arising from
natural disasters or severe weather.
We also are exposed to risks associated with inclement winter weather, particularly in the Northeast, Mid-Atlantic and
Mid-West, including increased costs for the removal of snow and ice. Inclement weather also could increase the need for
maintenance and repair of our properties.
Lastly, we cannot predict the rate at which climate change will progress. However, the effects of climate change could
have a material adverse effect on our properties, operations and business. To the extent climate change causes changes in
weather patterns, our markets could experience increases in extreme and severe weather, including floods, hurricanes, severe
winter storms and tornadoes and unpredictable weather patterns. These conditions could result in physical damage to our
properties or declining demand for space in our buildings or the inability of us to operate the buildings at all in the areas
affected by these conditions. Climate change also may have indirect adverse effects on our business by increasing the cost of
(or making unavailable) property insurance on terms we find acceptable, increasing the cost of energy, maintenance, repair of
water and/or wind damage, cost of snow removal or related costs at our properties or causing the USPS to relocate its postal
offices to other locations. In recent years, a number of states and municipalities have adopted laws and policies on climate
change and emission reduction targets. Changes in federal, state, and local legislation and regulation based on concerns about
climate change could result in increased capital expenditures on our properties (for example, to improve their energy efficiency
and/or resistance to severe weather or limit greenhouse gas emissions) and administrative expenses (such as the climate change
disclosure rules proposed by the SEC) without a corresponding increase in revenue, which may result in adverse impacts to our
net income. Should the impact of climate change be material in nature or occur for lengthy periods of time, our properties,
operations or business would be adversely affected.
Our properties may be subject to impairment charges and we are subject to risks related to commercial real estate ownership
that could reduce the value of our properties.
We will assess whether there are any indicators that the value of our properties may be impaired. A property’s value is
considered to be impaired only if the estimated aggregate future cash flows (undiscounted and without interest charges) to be
generated by the property are less than the carrying value of the property. In our estimate of cash flows, we will consider factors
such as expected future operating income, trends and prospects, the effects of demand, competition and other factors. If we are
evaluating the potential sale of an asset or development alternatives, the undiscounted future cash flows analysis will consider
the most likely course of action at the balance sheet date based on current plans, intended holding periods and available market
information. We will be required to make subjective assessments as to whether there are impairments in the value of our
properties. These assessments may be influenced by factors beyond our control, such as early vacating or relocation by a tenant
or damage to properties due to flooding, earthquakes, tornadoes, hurricanes and other natural disasters, accidents, fire, civil
unrest, terrorist acts or acts of war. These assessments may have a direct impact on our earnings because recording an
impairment charge results in an immediate negative adjustment to earnings. There can be no assurance that we will not take
impairment charges in the future related to the impairment of our properties. Any such impairment could have a material
adverse effect on our business, financial condition and results of operations in the period in which the charge is taken.
In addition, our core business is the ownership of single-tenant commercial real estate. Accordingly, our performance
is subject to risks incident to the ownership of commercial real estate, which include the inability to collect rents from tenants
due to financial hardship, including bankruptcy; changes in local real estate conditions in the markets in which we operate;
changes in consumer trends and preferences that affect the demand for products and services offered by our tenants; inability to
lease or sell properties upon expiration or termination of existing leases; environmental risks, including the presence of
hazardous or toxic substances or materials on our properties; the subjectivity of real estate valuations and changes in such
valuations over time; the illiquid nature of real estate compared to most other financial assets; changes in laws and
governmental regulations, including those governing real estate usage and zoning; changes in interest rates and the availability
of financing; and changes in the general economic and business climate. The occurrence of any of these may cause the value of
our real estate to decline, which could materially and adversely affect us.
Our title insurance policies may not cover all title defects.
Our properties are insured by title policies. We have not, however, obtained new owner’s title insurance policies in
connection with the acquisition of our initial properties in our formation transactions and certain acquisitions subsequent to the
formation transactions. In some instances, these insurance policies are effective as of the time of the acquisition or later
refinancing. As such, it is possible that there may be title defects that have arisen since such acquisition or refinancing for which
we will have no title insurance coverage. If there were a material title defect related to any of our properties that is not
18
adequately covered by a title insurance policy, we could lose some or all of our capital invested in and our anticipated profits
from such property.
We may incur significant costs complying with various federal, state and local laws, regulations and covenants that are
applicable to our properties.
Properties are subject to various covenants and federal, state and local laws and regulatory requirements, including
permitting and licensing requirements. Local regulations, including municipal or local ordinances, zoning restrictions and
restrictive covenants imposed by community developers may restrict our use of our properties and may require us to obtain
approval from local officials or restrict our use of our properties and may require us to obtain approval from local officials of
community standards organizations at any time with respect to our properties, including prior to developing or acquiring a
property or when undertaking renovations of any of our existing properties. Among other things, these restrictions may relate to
fire and safety, seismic or hazardous material abatement requirements. There can be no assurance that existing laws and
regulatory policies will not adversely affect us or the timing or cost of any future development, acquisitions or renovations, or
that additional regulations will not be adopted that increase such delays or result in additional costs. Our growth strategy may
be affected by our ability to obtain permits, licenses and zoning relief.
In addition, federal and state laws and regulations, including laws such as the ADA and the Fair Housing Amendment
Act of 1988 ("FHAA"), impose further restrictions on our properties and operations. Under the ADA and the FHAA, all public
accommodations must meet federal requirements related to access and use by disabled persons. Some of our properties may
currently be in non-compliance with the ADA or the FHAA. If one or more of the properties in our portfolio is not in
compliance with the ADA, the FHAA or any other regulatory requirements, we may incur additional costs to bring the property
into compliance, incur governmental fines, award damages to private litigants or be unable to refinance such properties. In
addition, we do not know whether existing requirements will change or whether future requirements will require us to make
significant unanticipated expenditures that will adversely impact our financial condition, results of operations and cash flow.
We are also subject to compliance with a wide variety of complex legal requirements because we are a federal
government contractor. These laws, which are generally incorporated into our leases with the USPS, regulate how we conduct
business, require us to administer various compliance programs and require us to impose compliance responsibilities on some
of our contractors. Our failure to comply with these laws could subject us to fines, penalties and damages, cause us to be in
default of our leases with the USPS and bar us from entering into future leases with the USPS. There can be no assurance that
these potential costs and losses of revenue will not have a material adverse effect on our results of operations, financial
condition and cash flow.
We have acquired and may continue to acquire properties that are (i) leased to both the USPS and non-postal tenants, (ii)
leased solely to non-postal tenants or (iii) in markets that are new to us, and we may not be able to adapt to these new
business models.
We have acquired and may continue to acquire properties that are (i) leased to both the USPS and non-postal tenants,
(ii) leased solely to non-postal tenants or (iii) in markets that are new to us, and we may not be able to adapt to these new
business models. When we acquire such properties, we may face risks associated with lack of market or tenant knowledge or
understanding of the local economy or operations of the new tenant. Subject to maintaining our qualification as a REIT, we may
also provide other services through our TRS, such as consulting services for postal property owners, to complement our core
business. Additionally, we may face risks associated with forging new business relationships and unfamiliarity with local
government and local or tenant-specific permitting procedures. We work to mitigate such risks through extensive diligence and
research and associations with experienced service providers. However, there can be no guarantee that all such risks will be
eliminated.
We have acquired and may continue to acquire properties that are subject to purchase options in favor of the USPS.
Certain of our leases provide the USPS with the right to purchase the underlying property at fair market value or at
fixed prices as of dates as set forth in the lease agreement. We may in the future acquire additional properties that provide the
USPS with similar purchase options. If the USPS decides to exercise a purchase option, we would lose the right to future rent
from the property. If the purchase price we are entitled to receive is less than the price we paid for the related property, we may
incur losses. We may also not be able to reinvest the purchase price we receive in comparable investments that produce similar
or better returns and, as a result, experience a decline in lease revenues and profitability.
We may incur goodwill and other intangible asset impairment charges, which could adversely affect our earnings and
financial condition.
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In accordance with U.S. generally accepted accounting practices ("GAAP"), we are required to assess any goodwill
and indefinite-lived intangible assets assumed in any acquisition transactions, annually, or more frequently whenever events or
changes in circumstances indicate potential impairment, such as changing market conditions or any changes in key
assumptions. If the testing performed indicates that an asset may not be recoverable, we are required to record a non-cash
impairment charge for the difference between the carrying value of the goodwill or indefinite-lived intangible assets and the
implied fair value of the goodwill or intangible assets in the period the determination is made. We also continually evaluate
whether events or circumstances have occurred that indicate the remaining estimated useful lives of definite-lived intangible
assets, excluding goodwill, and other long-lived assets may warrant revision or whether the remaining balance of such assets
may not be recoverable. We use an estimate of the related undiscounted cash flow over the remaining life of such asset in
measuring whether the asset is recoverable. These impairment charges could be significant and could adversely affect our
financial condition, results of operations and cash available for distribution.
We may have difficulty implementing changes to our information technology systems.
We have made significant investments to update and improve our information technology systems and expect such
investments to continue in order to meet our business needs, including for sourcing acquisition opportunities, managing the
maintenance and repair of our properties and enhancing our cybersecurity. Transitioning to new or upgraded systems can create
difficulties, including potential disruptions to current processes and security complexities. In addition, our information
technology systems may require further modification as we grow and as our business needs change, which could prolong
difficulties we experience with transitions. Such significant investments in our systems may take longer to deploy and cost
more than originally planned. In addition, we may not realize the full benefits we hoped to achieve and we may need to expend
significant attention, time and resources to correct problems or find alternative sources for performing various functions.
Difficulties in implementing new or upgraded information technology systems or significant system failures or delays or the
failure to successfully modify our systems and respond to changes in our business needs could adversely affect our business and
results of operations.
Use of social media may adversely impact our reputation and business.
The use of social media platforms, including blogs, social media websites and other forms of internet-based
communication, has become commonplace. Negative commentary regarding us by third parties may be posted on social media
platforms or similar devices at any time and may harm our reputation or business. We also use social media platforms to
disseminate information and source acquisition opportunities. As laws and regulations rapidly evolve to govern the use of these
platforms and devices, the failure by us, our employees or third parties acting at our direction to abide by applicable laws and
regulations in the use of these platforms and devices could adversely impact our business or subject us to fines or other
penalties.
Furthermore, our reputation and our tenants’ reputations are important to our business. Our reputation affects our
ability to access capital, acquire additional properties and recruit and retain talented employees. Our tenants’ reputations affect
their ability to continue to operate profitably and make payments under their lease agreements with us on time. There are
numerous ways our reputation or our tenants’ reputation could be damaged. These include unethical behavior or misconduct,
workplace safety incidents, environmental impact, corporate governance issues, data breaches or human rights records. We or
our tenants may experience backlash from customers, government entities, advocacy groups, employees, and other stakeholders
that disagree with our operating decisions or public policy positions. If our or our tenants’ reputation is damaged, it could
adversely affect our business, results of operations, financial condition or ability to attract the most highly qualified employees.
We cannot assure shareholders of our ability to pay dividends in the future.
Our ability to pay dividends may be adversely affected by a number of factors, including the risk factors described in
this Annual Report on Form 10-K. Dividends and other distributions made by us will be authorized and determined by our
Board of Directors in its sole discretion out of funds legally available therefor and will be dependent upon a number of factors,
including restrictions under applicable law and other factors described below. We cannot assure you that future dividends will
be made or sustained or that our board of directors will not change our dividend policy in the future. Any dividends or other
distributions that we pay in the future will depend upon our actual results of operations, economic conditions, debt service
requirements, capital expenditures and other factors that could differ materially from our current expectations. We may also pay
a portion of our dividends in common stock.
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Risks Related to Our Organizational Structure
Mr. Spodek and his affiliates own, directly or indirectly, a substantial beneficial interest in our company on a fully diluted
basis and have the ability to exercise significant influence on our company and our Operating Partnership, including the
approval of significant corporate transactions.
Mr. Spodek and his affiliates held approximately 9.4% of the combined voting power of our outstanding shares of
common stock as of February 29, 2024. Pursuant to his ownership of Class A common stock and Class B common stock, $0.01
par value per share (the “Voting Equivalency stock”), Mr. Spodek and his affiliates have the ability to influence the outcome of
matters presented to our stockholders, including the election of our Board of Directors and approval of significant corporate
transactions, including business combinations, consolidations and mergers. Therefore, Mr. Spodek has substantial influence
over us and could exercise influence in a manner that is not in the best interests of our other stockholders. This concentration of
voting power might also have the effect of delaying or preventing a change of control that our stockholders may view as
beneficial.
Conflicts of interest may exist or could arise in the future between the interests of our stockholders and the interests of
holders of units in our Operating Partnership, which may impede business decisions that could benefit our stockholders.
Conflicts of interest may exist or could arise in the future as a result of the relationships between us and our affiliates,
on the one hand, and our Operating Partnership or any partner thereof, on the other. Our directors and officers have duties to our
company under Maryland law in connection with their management of our company. At the same time, we, as the general
partner of our Operating Partnership, have fiduciary duties and obligations to our Operating Partnership and its limited partners
under Delaware law and the partnership agreement of our Operating Partnership in connection with the management of our
Operating Partnership. Our fiduciary duties and obligations as the general partner of our Operating Partnership may come into
conflict with the duties of our directors and officers to our company. Mr. Spodek owns a significant interest in our Operating
Partnership as a limited partner and may have conflicts of interest in making decisions that affect both our stockholders and the
limited partners of our Operating Partnership. In addition, certain of our executive officers and directors have outside business
interests, including in the real estate industry. Their involvement in other businesses and real estate-related activities could
divert their attention from our day-to-day operations and also create conflicts of interest in potential acquisitions or other
business transactions.
The partnership agreement provides that, in the event of a conflict between the interests of our Operating Partnership
or any partner, on the one hand, and the separate interests of our company or our stockholders, on the other hand, we, in our
capacity as the general partner of our Operating Partnership, are under no obligation not to give priority to the separate interests
of our company or our stockholders, and that any action or failure to act on our part or on the part of our Board of Directors that
gives priority to the separate interests of our company or our stockholders that does not result in a violation of the contract
rights of the limited partners of the Operating Partnership under its partnership agreement does not violate the duty of loyalty
that we, in our capacity as the general partner of our Operating Partnership, owe to the Operating Partnership and its partners.
Additionally, the partnership agreement provides that we will not be liable to the Operating Partnership or any partner
for monetary damages for losses sustained, liabilities incurred or benefits not derived by the Operating Partnership or any
limited partner, except for liability for our intentional harm or gross negligence. Our Operating Partnership must indemnify us,
our directors and officers, officers of our Operating Partnership and our designees from and against any and all claims that
relate to the operations of our Operating Partnership, unless (1) an act or omission of the person was material to the matter
giving rise to the action and either was committed in bad faith or was the result of active and deliberate dishonesty, (2) the
person actually received an improper personal benefit in violation or breach of the partnership agreement or (3) in the case of a
criminal proceeding, the indemnified person had reasonable cause to believe that the act or omission was unlawful. Our
Operating Partnership must also pay or reimburse the reasonable expenses of any such person upon its receipt of a written
affirmation of the person’s good faith belief that the standard of conduct necessary for indemnification has been met and a
written undertaking to repay any amounts paid or advanced if it is ultimately determined that the person did not meet the
standard of conduct for indemnification. Our Operating Partnership will not indemnify or advance funds to any person with
respect to any action initiated by the person seeking indemnification without our approval (except for any proceeding brought
to enforce such person’s right to indemnification under the partnership agreement) or if the person is found to be liable to our
Operating Partnership on any portion of any claim in the action.
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Our charter contains certain provisions restricting the ownership and transfer of our stock that may delay, defer or prevent a
change of control transaction that might involve a premium price for our Class A common stock or that our stockholders
otherwise believe to be in their best interests.
Our charter contains certain ownership limits with respect to our stock. Our charter, among other restrictions,
prohibits, subject to certain exceptions, the beneficial or constructive ownership by any person of more than 8.5% in value or
number of shares, whichever is more restrictive, of the aggregate outstanding shares of our common stock or more than 8.5% of
the outstanding shares of any class or series of our preferred stock. Our Board of Directors, in its sole and absolute discretion,
may exempt a person, prospectively or retroactively, from this ownership limit if certain conditions are satisfied. This
ownership limit as well as other restrictions on ownership and transfer of our stock in our charter may:
•
•
discourage a tender offer, proxy contest, or other transactions or a change in management or of control that might
result in a premium price for our Class A common stock or that our stockholders otherwise believe to be in their
best interests; and
result in the transfer of shares acquired in excess of the restrictions to a trust for the benefit of a charitable
beneficiary and, as a result, the forfeiture by the acquirer of certain of the benefits of owning the additional shares.
We could increase the number of authorized shares of stock, classify and reclassify unissued stock and issue stock without
stockholder approval.
Our Board of Directors, without stockholder approval, has the power under our charter to amend our charter to
increase or decrease the aggregate number of shares of stock or the number of shares of stock of any class or series that we are
authorized to issue; provided that our board may not increase the number of shares of Voting Equivalency stock that we have
authority to issue or reclassify any shares of our capital stock as Voting Equivalency stock without the approval of the holders
of a majority of the outstanding shares of Class A common stock. In addition, under our charter, our Board of Directors, without
stockholder approval, has the power to authorize us to issue authorized but unissued shares of our Class A common stock or
preferred stock and to classify or reclassify any unissued shares of our Class A common stock or preferred stock into one or
more classes or series of stock and set the preference, conversion or other rights, voting powers, restrictions, limitations as to
dividends and other distributions, qualifications or terms or conditions of redemption for such newly classified or reclassified
shares. As a result, we may issue series or classes of common stock or preferred stock with preferences, dividends, powers and
rights, voting or otherwise, that are senior to, or otherwise conflict with, the rights of holders of our Class A common stock.
Although our Board of Directors has no such intention at the present time, it could establish a class or series of preferred stock
that could, depending on the terms of such series, delay, defer or prevent a transaction or a change of control that might involve
a premium price for our Class A common stock or that our stockholders otherwise believe to be in their best interests.
Certain provisions of the Maryland General Corporation Law could inhibit changes of control, which may discourage third
parties from conducting a tender offer or seeking other change of control transactions that could involve a premium price
for our Class A common stock or that our stockholders otherwise believe to be in their best interests.
Certain provisions of the Maryland General Corporation Law ("MGCL") may have the effect of inhibiting a third party
from making a proposal to acquire us or of impeding a change of control under circumstances that otherwise could provide the
holders of shares of our Class A common stock with the opportunity to realize a premium over the then-prevailing market price
of such shares, including:
•
•
“business combination” provisions that, subject to limitations, prohibit certain business combinations between us
and an “interested stockholder” (defined generally as any person who beneficially owns 10% or more of the
voting power of our shares or an affiliate thereof or an affiliate or associate of ours who was the beneficial owner,
directly or indirectly, of 10% or more of the voting power of our then outstanding voting stock at any time within
the two-year period immediately prior to the date in question) for five years after the most recent date on which
the stockholder becomes an interested stockholder, and thereafter imposes certain fair price and/or supermajority
stockholder voting requirements on these combinations; and
“control share” provisions that provide that holders of “control shares” of our company (defined as shares that,
when aggregated with other shares controlled by the stockholder, entitle the stockholder to exercise one of three
increasing ranges of voting power in electing directors) acquired in a “control share acquisition” (defined as the
direct or indirect acquisition of ownership or control of issued and outstanding “control shares”) have no voting
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rights with respect to their control shares, except to the extent approved by our stockholders by the affirmative
vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding all interested shares.
By resolution of our Board of Directors, we have opted out of the business combination provisions of the MGCL and
provide that any business combination between us and any other person is exempt from the business combination provisions of
the MGCL, provided that the business combination is first approved by our Board of Directors (including a majority of
directors who are not affiliates or associates of such persons). In addition, pursuant to a provision in our bylaws, we have opted
out of the control share provisions of the MGCL. However, our Board of Directors may by resolution elect to opt into the
business combination provisions of the MGCL and we may, by amendment to our bylaws, opt into the control share provisions
of the MGCL in the future.
Certain provisions of the MGCL permit our Board of Directors, without stockholder approval and regardless of what is
currently provided in our charter or bylaws, to implement certain corporate governance provisions, some of which (for
example, a classified board) are not currently applicable to us. If implemented, these provisions may have the effect of limiting
or precluding a third party from making an unsolicited acquisition proposal for us or of delaying, deferring or preventing a
change in control of us under circumstances that otherwise could provide the holders of shares of our Class A common stock
with the opportunity to realize a premium over the then current market price. Our charter contains a provision whereby we
elect, at such time as we become eligible to do so, to be subject to the provisions of Title 3, Subtitle 8 of the MGCL relating to
the filling of vacancies on our Board of Directors.
Our bylaws designate the Circuit Court for Baltimore City, Maryland as the sole and exclusive forum for certain types of
actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a
favorable judicial forum for disputes with us or our directors, officers or employees.
Our bylaws generally provide that, unless we consent in writing to the selection of an alternative forum, the Circuit
Court for Baltimore City, Maryland (or in certain circumstances, the United States District Court for the District of Maryland,
Northern Division) shall be the sole and exclusive forum for certain types of actions and proceedings that may be initiated by
our stockholders with respect to our company, our directors, our officers or our employees. This choice of forum provision may
limit a stockholder’s ability to bring a claim in a judicial forum that the stockholder believes is favorable for disputes with us or
our directors, officers or employees, which may discourage meritorious claims from being asserted against us and our directors,
officers and employees. Alternatively, if a court were to find this provision of our bylaws inapplicable to, or unenforceable in
respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving
such matters in other jurisdictions, which could adversely affect our business, financial condition or results of operations. We
adopted this provision because Maryland judges have more experience in dealing with issues of Maryland corporate law than
judges in any other state and we believe it makes it less likely that we will be forced to incur the expense of defending
duplicative actions in multiple forums and less likely that plaintiffs’ attorneys will be able to employ such litigation to coerce us
into otherwise unjustified settlements.
Certain provisions in the partnership agreement of our Operating Partnership may delay or prevent unsolicited acquisitions
of us.
Provisions in the partnership agreement of our Operating Partnership may delay, or make more difficult, unsolicited
acquisitions of us or changes of our control. These provisions could discourage third parties from making proposals involving
an unsolicited acquisition of us or change of our control, although some of our stockholders might consider such proposals, if
made, desirable. These provisions include, among others:
•
•
•
•
redemption rights;
a requirement that we may not be removed as the general partner of our Operating Partnership without our
consent;
transfer restrictions on OP Units;
our ability, as general partner, in some cases, to amend the partnership agreement and to cause the Operating
Partnership to issue units with terms that could delay, defer or prevent a merger or other change of control of us or
our Operating Partnership without the consent of the limited partners; and
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•
the right of the limited partners to consent to direct or indirect transfers of the general partnership interest,
including as a result of a merger or a sale of all or substantially all of our assets, in the event that such transfer
requires approval by our common stockholders.
As of February 29, 2024, Mr. Spodek and his affiliates owned approximately 37.5% of the outstanding OP Units
(including LTIP Units) that are not owned by us and approximately 3.9% of the outstanding shares of our Class A common
stock and all of the Voting Equivalency stock, which together represent an approximate 10.6% beneficial economic interest in
our Company on a fully diluted basis.
Tax protection agreements may limit our ability to sell or otherwise dispose of certain properties and may require our
Operating Partnership to maintain certain debt levels that otherwise would not be required to operate our business.
In connection with contributions of properties to our Operating Partnership, our Operating Partnership has entered and
may in the future enter into tax protection agreements under which it agrees to minimize the tax consequences to the
contributing partners resulting from the sale or other disposition of the contributed properties. Tax protection agreements may
make it economically prohibitive to sell any properties that are subject to such agreements even though it may otherwise be in
our stockholders’ best interests to do so. In addition, we may be required to maintain a minimum level of indebtedness
throughout the term of any tax protection agreement regardless of whether such debt levels are otherwise required to operate
our business or provide certain of our contributors the opportunity to guarantee debt or enter into a deficit restoration
obligations upon a future repayment, retirement, refinancing or other reduction (other than scheduled amortization) of currently
outstanding debt prior to the tenth anniversary of the completion of our formation transactions. If we fail to make such
opportunities available, we will be required to deliver to each such contributor a cash payment intended to approximate the
contributor’s tax liability resulting from our failure to make such opportunities available to that contributor and the tax
liabilities incurred as a result of such tax protection payment. Nevertheless, we have entered and may in the future enter into tax
protection agreements to assist contributors of properties to our Operating Partnership in deferring the recognition of taxable
gain as a result of and after any such contribution.
Our Board of Directors may change our strategies, policies and procedures without stockholder approval, and we may
become more highly leveraged, which may increase our risk of default under our debt obligations.
Our investment, financing, leverage and distribution policies, and our policies with respect to all other activities,
including growth, capitalization and operations, will be determined exclusively by our Board of Directors, and may be amended
or revised at any time by our Board of Directors without notice to or a vote of our stockholders. This could result in us
conducting operational matters, making investments or pursuing different business or growth strategies than those contemplated
in this report. Further, our charter and bylaws do not limit the amount or percentage of indebtedness, funded or otherwise, that
we may incur. Our Board of Directors may alter or eliminate our current policy on borrowing at any time without stockholder
approval. If this policy changed, we could become more highly leveraged which could result in an increase in our debt service.
Higher leverage also increases the risk of default on our obligations. In addition, a change in our investment policies, including
the manner in which we allocate our resources across our portfolio or the types of assets in which we seek to invest, may
increase our exposure to interest rate risk, real estate market fluctuations and liquidity risk. Changes to our policies with regards
to the foregoing could materially adversely affect our financial condition, results of operations and cash flow.
Our rights and the rights of our stockholders to take action against our directors and officers are limited.
Under Maryland law, generally, a director will not be liable if he or she performs his or her duties in good faith, in a
manner he or she reasonably believes to be in our best interests and with the care that an ordinarily prudent person in a like
position would use under similar circumstances. In addition, our charter limits the liability of our directors and officers to us
and our stockholders for money damages, except for liability resulting from:
•
•
actual receipt of an improper benefit or profit in money, property or services; or
active and deliberate dishonesty by the director or officer that was established by a final judgment as being
material to the cause of action adjudicated.
Our charter requires us to indemnify, and advance expenses to, each director and officer, to the maximum extent
permitted by Maryland law, in the defense of any proceeding to which he or she is made, or threatened to be made, a party by
reason of his or her service to us. We have entered into indemnification agreements with each of our executive officers and
directors whereby we will indemnify our directors and executive officers to the fullest extent permitted by Maryland law
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against all expenses and liabilities incurred in their capacity as an officer and/or director, subject to limited exceptions. As a
result, we and our stockholders may have more limited rights against our directors and officers than might otherwise exist
absent the current provisions in our charter or that might exist with other companies.
We are a holding company with no direct operations and, as such, we rely on funds received from our Operating
Partnership to pay liabilities, and the interests of our stockholders are structurally subordinated to all liabilities and
obligations of our Operating Partnership and its subsidiaries.
We are a holding company and conduct substantially all of our operations through our Operating Partnership. We do
not have, apart from an interest in our Operating Partnership, any independent operations. As a result, we rely on cash
distributions from our Operating Partnership to pay any dividends we declare on shares of our Class A common stock. We also
rely on distributions from our Operating Partnership to meet any of our obligations, including any tax liability on taxable
income allocated to us from our Operating Partnership. In addition, because we are a holding company, your claims as a
stockholder will be structurally subordinated to all existing and future liabilities and obligations (whether or not for borrowed
money) of our Operating Partnership and its subsidiaries. Therefore, in the event of our bankruptcy, liquidation or
reorganization, our assets and those of our Operating Partnership and its subsidiaries will be available to satisfy the claims of
our stockholders only after all of our and our Operating Partnership’s and its subsidiaries’ liabilities and obligations have been
paid in full.
Our Operating Partnership may issue additional OP Units to third parties without the consent of our stockholders, which
would reduce our ownership percentage in our Operating Partnership and could have a dilutive effect on the amount of
distributions made to us by our Operating Partnership and, therefore, the amount of distributions we can make to our
stockholders.
As of February 29, 2024, approximately 19.7% of the outstanding OP Units (including the LTIP Units) of our
Operating Partnership were held by third parties. We may, in connection with our acquisition of properties or otherwise,
continue to issue additional OP Units to third parties. Such issuances would reduce our ownership percentage in our Operating
Partnership and could affect the amount of distributions made to us by our Operating Partnership and, therefore, the amount of
distributions we can make to our stockholders. Holders of OP Units do not have any voting rights with respect to any such
issuances or other partnership level activities of our Operating Partnership.
Risks Related to Our Status as a REIT
Failure to remain qualified as a REIT would cause us to be taxed as a regular corporation, which would substantially
reduce funds available for distributions to our stockholders.
We have elected and intend to continue to operate in a manner that will allow us to qualify to be taxed as a REIT under
Sections 856-860 of the Code commencing with our short taxable year ended December 31, 2019. Qualification as a REIT
involves the application of highly technical and complex tax rules, for which there are only limited judicial and administrative
interpretations. The fact that we hold substantially all our assets through a partnership further complicates the application of the
REIT requirements. Even a seemingly minor technical or inadvertent mistake could jeopardize our REIT status. Our REIT
status depends upon various factual matters and circumstances that may not be entirely within our control. Moreover, our
qualification and taxation as a REIT depend upon our ability to meet on a continuing basis, through actual annual operating
results, certain qualification tests set forth in the federal tax laws. For example, in order to qualify as a REIT, at least 95% of our
gross income in any year must be derived from qualifying sources, such as rents from real property, and we must satisfy a
number of requirements regarding the composition of our assets. Also, we must make distributions to stockholders aggregating
annually at least 90% of our REIT taxable income, excluding net capital gains. No assurances can be given that our actual
results of operations for any particular taxable year will satisfy such requirements. In addition, new legislation, regulations,
administrative interpretations or court decisions, each of which could have retroactive effect, may make it more difficult or
impossible for us to qualify as a REIT, or could reduce the desirability of an investment in a REIT relative to other investments.
We have not requested and do not plan to request a ruling from the Internal Revenue Services (the "IRS") that we qualify as a
REIT, and the statements in this Annual Report on Form 10-K are not binding on the IRS or any court. Accordingly, we cannot
be certain that we will be successful in qualifying as a REIT.
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If we fail to maintain our qualification as a REIT in any taxable year, we will face serious tax consequences that will
substantially reduce the funds available for distributions to our stockholders because:
• we would not be allowed a deduction for dividends paid to stockholders in computing our taxable income and
would be subject to federal income tax at regular corporate rates;
• we could be subject to increased state and local taxes; and
•
unless we are entitled to relief under certain federal income tax laws, we could not re-elect REIT status until the
fifth calendar year after the year in which we failed to qualify as a REIT.
In addition, if we fail to qualify as a REIT, we will no longer be required to make distributions to our stockholders. As
a result of all these factors, our failure to qualify as a REIT could impair our ability to expand our business and raise capital,
and it would adversely affect the value of our Class A common stock.
Even if we qualify as a REIT, we may be subject to some U.S. federal, state and local income, property and excise
taxes on our income or property, including tax on income from some activities conducted as a result of foreclosure, and state or
local income, property and transfer taxes, and, in certain cases, a 100% penalty tax, in the event we sell property that we hold
primarily for sale to customers in the ordinary course of business. In addition, our TRS is subject to tax as a regular corporation
in the jurisdictions in which it operates, which would decrease cash available for distributions to stockholders.
Failure to make required distributions would subject us to federal corporate income tax.
We have operated and intend to continue to operate so as to maintain our qualification as a REIT for federal income
tax purposes. In order to maintain our qualification as a REIT, we generally are required to distribute at least 90% of our REIT
taxable income, determined without regard to the dividends paid deduction and excluding any net capital gains, each year to our
stockholders. To the extent that we satisfy this distribution requirement but distribute less than 100% of our REIT taxable
income, we will be subject to federal corporate income tax on our undistributed taxable income. In addition, we will be subject
to a 4% non-deductible excise tax if the actual amount that we pay out to our stockholders in a calendar year is less than a
minimum amount specified under the Code. Differences in timing between the recognition of income and the related cash
receipts, limitations on our ability or the ability of our subsidiaries to deduct interest expense from borrowings under Section
163(j) of the Code or the effect of required debt amortization payments could require us to borrow or raise capital on terms we
regard as unfavorable, or sell assets at prices or at times we regard as unfavorable to distribute out enough of our taxable
income to satisfy the distribution requirement and to avoid corporate income tax and the 4% nondeductible excise tax in a
particular year.
Complying with REIT requirements may cause us to forego otherwise attractive opportunities or liquidate otherwise
attractive investments.
To maintain qualification as a REIT for federal income tax purposes, we must continually satisfy tests concerning,
among other things, the sources of our income, the nature and diversification of our assets, the amounts we distribute to our
stockholders and the ownership of our capital stock. In order to meet these tests, we may be required to forego investments we
might otherwise make. Thus, compliance with the REIT requirements may hinder our performance.
In particular, we must ensure that at the end of each calendar quarter, at least 75% of the value of our assets consists of
cash, cash items, government securities and qualified real estate assets. The remainder of our investment in securities (other
than government securities, securities of TRSs and qualified real estate assets) generally cannot include more than 10% of the
outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one
issuer. In addition, in general, no more than 5% of the value of our assets (other than government securities, securities of TRSs
and qualified real estate assets) can consist of the securities of any one issuer, and no more than 20% of the value of our total
assets can be represented by the securities of one or more TRSs. If we fail to comply with these requirements at the end of any
calendar quarter, we must correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory
relief provisions to avoid losing our REIT qualification and suffering adverse tax consequences. As a result, we may be required
to liquidate otherwise attractive investments. These actions could have the effect of reducing our income and amounts available
for distribution to our stockholders.
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The prohibited transactions tax may limit our ability to dispose of our properties.
A REIT’s net income from prohibited transactions is subject to a 100% tax. In general, prohibited transactions are sales
or other dispositions of property other than foreclosure property, held primarily for sale to customers in the ordinary course of
business. We may be subject to the prohibited transaction tax equal to 100% of net gain upon a disposition of real property.
Although a safe harbor to the characterization of the sale of real property by a REIT as a prohibited transaction is available, we
cannot assure you that we can comply with the safe harbor or that we will avoid owning property that may be characterized as
held primarily for sale to customers in the ordinary course of business. Consequently, we may choose not to engage in certain
sales of our properties or may conduct such sales through our TRS, which would be subject to federal and state income
taxation.
We could be affected by tax liabilities or earnings and profits of our predecessor.
A portion of our predecessor, UPH, that was taxable as a C corporation merged into us as a part of our formation
transactions. As a result of the merger, any unpaid tax liabilities of such taxable C corporation were transferred to us. Under an
indemnification agreement, Mr. Spodek and his affiliates are required to make a payment to us in the event that there is a final
determination of any such tax liabilities. If Mr. Spodek and his affiliates do not make such payment, we would be responsible
for paying such tax liabilities, which would decrease cash available for distributions to stockholders.
There are uncertainties relating to the estimate of the accumulated earnings and profits attributable to UPH.
Because a portion of our predecessor, UPH, was a C corporation, to qualify as a REIT, we were required to distribute
to our stockholders prior to the end of the taxable year ended December 31, 2019 all of UPH’s accumulated earnings and profits
attributable taxable years prior to our formation transactions. Based on an earnings and profits study we obtained from an
accounting firm, we do not believe that we had any accumulated earnings and profits attributable to UPH. While we believe that
we satisfied the requirements relating to the distribution of UPH’s earnings and profits, the determination of the amount of
accumulated earnings and profits attributable to UPH is a complex factual and legal determination. There are substantial
uncertainties relating to the computation of our accumulated earnings and profits attributable to UPH, including our
interpretation of the applicable law differently from the IRS. In addition, the IRS could, in auditing UPH’s tax years through the
effective date of the merger with us, successfully assert that our taxable income should be increased, which could increase our
earnings and profits attributable to UPH. Although there are procedures available to cure a failure to distribute all of our non-
REIT earnings and profits, we cannot determine now whether we will be able to take advantage of them or the economic impact
to us of doing so. If it is determined that we had undistributed non-REIT earnings and profits as of the end of any taxable year
in which we elect to qualify as a REIT, and we are unable to cure the failure to distribute such earnings and profits, then we
would fail to qualify as a REIT under the Code.
A sale of assets acquired as part of the merger between us and UPH within five years after the merger would result in
corporate income tax, which would reduce the cash available for distribution to our stockholders.
If we sell any asset that we acquired as part of the merger between us and UPH within five years after the merger and
recognize a taxable gain on the sale, we will be taxed at the highest corporate rate on an amount equal to the lesser of:
•
•
the amount of gain that we recognize at the time of the sale; or
the amount of gain that we would have recognized if we had sold the asset at the time of the merger for its then
fair market value.
This rule potentially could inhibit us from selling assets acquired as part of the merger within five years after the
merger.
The ability of our Board of Directors to revoke our REIT qualification without stockholder approval may cause adverse
consequences to our stockholders.
Our charter provides that our Board of Directors may revoke or otherwise terminate our REIT election, without the
approval of our stockholders, if it determines that it is no longer in our best interests to continue to qualify as a REIT. If we
cease to qualify as a REIT, we would become subject to federal income tax on our taxable income and would no longer be
required to distribute most of our taxable income to our stockholders, which may have adverse consequences on our total return
to our stockholders.
27
Our transactions with our TRS will cause us to be subject to a 100% penalty tax on certain income or deductions if those
transactions are not conducted on arm’s-length terms.
Overall, no more than 20% of the value of a REIT’s assets may consist of stock or securities of one or more TRSs. In
addition, the Code limits the deductibility of interest paid or accrued by a TRS to its parent REIT to assure that the TRS is
subject to an appropriate level of corporate taxation and, in certain circumstances, other limitations on deductibility may apply.
The Code also imposes a 100% excise tax on certain transactions between a TRS and its parent REIT that are not conducted on
an arm’s-length basis.
Our TRS will be subject to applicable federal, foreign, state and local income tax on its taxable income, and its after-
tax net income will be available for distribution to us but is not required to be distributed to us. We believe that the aggregate
value of the stock and securities of our TRS will be less than 20% of the value of our total assets (including our TRS stock and
securities). Furthermore, we will monitor the value of our respective investments in our TRS for the purpose of ensuring
compliance with TRS ownership limitations and will structure our transactions with our TRS on terms that we believe are arm’s
length to avoid incurring the 100% excise tax described above. There can be no assurance, however, that we will be able to
comply with the 20% limitation discussed above or to avoid application of the 100% excise tax.
You may be restricted from acquiring or transferring certain amounts of our Class A common stock.
The restrictions on ownership and transfer in our charter may inhibit market activity in our capital stock and restrict
our business combination opportunities.
In order to maintain our qualification as a REIT for each taxable year, five or fewer individuals, as defined in the
Code, may not own, beneficially or constructively, more than 50% in value of our issued and outstanding stock at any time
during the last half of a taxable year. Attribution rules in the Code determine if any individual or entity beneficially or
constructively owns our capital stock under this requirement. Additionally, at least 100 persons must beneficially own our
capital stock during at least 335 days of a taxable year for each taxable year. To help ensure that we meet these tests, our charter
restricts the acquisition and ownership of shares of our capital stock.
Our charter, with certain exceptions, authorizes our Board of Directors to take such actions as are necessary to
preserve our qualification as a REIT. Unless exempted by our Board of Directors, our charter prohibits any person, other than
Mr. Spodek, from beneficially or constructively owning more than 8.5% in value or number of shares, whichever is more
restrictive, of the aggregate outstanding shares of our common stock or more than 8.5% in value of the outstanding shares of
any class or series of our preferred stock. Our charter permits Mr. Spodek to own up to 15.0% in value or number of shares,
whichever is more restrictive, of our outstanding shares of common stock. Our Board of Directors may not grant an exemption
from this restriction to any proposed transferee whose ownership would result in our failing to qualify as a REIT. This as well
as other restrictions on transferability and ownership will not apply, however, if our Board of Directors determines that it is no
longer in our best interests to continue to qualify as a REIT.
Dividends payable by REITs generally do not qualify for the reduced tax rates on dividend income from regular
corporations.
Qualified dividend income payable to U.S. stockholders that are individuals, trusts and estates is subject to the reduced
maximum tax rate applicable to capital gains. Dividends payable by REITs, however, generally are not eligible for the reduced
qualified dividend rates. For taxable years beginning before January 1, 2026, non-corporate taxpayers may deduct up to 20% of
certain pass-through business income, including “qualified REIT dividends” (generally, dividends received by a REIT
shareholder that are not designated as capital gain dividends or qualified dividend income), subject to certain limitations.
Although the reduced federal income tax rate applicable to qualified dividend income does not adversely affect the taxation of
REITs or dividends payable by REITs, the more favorable rates applicable to regular corporate dividends could cause investors
who are individuals, trusts and estates to perceive investments in REITs to be relatively less attractive than investments in the
stocks of non-REIT corporations that pay dividends, which could adversely affect the value of the shares of REITs, including
our Class A common stock. Tax rates could be changed in future legislation.
If our Operating Partnership failed to qualify as a partnership for federal income tax purposes, we would cease to qualify as
a REIT and suffer other adverse consequences.
We believe that our Operating Partnership has been and will be treated as a partnership for federal income tax
purposes. As a partnership, our Operating Partnership generally will not be subject to federal income tax on its income. Instead,
28
each of its partners, including us, will be allocated, and may be required to pay tax with respect to, its share of our Operating
Partnership’s income. We cannot assure you, however, that the IRS will not challenge the status of our Operating Partnership or
any other subsidiary partnership in which we own an interest as a partnership for federal income tax purposes, or that a court
would not sustain such a challenge. If the IRS were successful in treating our Operating Partnership or any such other
subsidiary partnership as an entity taxable as a corporation for federal income tax purposes, we could fail to meet the gross
income tests and certain of the asset tests applicable to REITs and, accordingly, we would likely cease to qualify as a REIT.
Also, the failure of our Operating Partnership or any subsidiary partnerships to qualify as a partnership could cause it to become
subject to federal and state corporate income tax, which would reduce significantly the amount of cash available for debt
service and for distribution to its partners, including us.
To maintain our REIT status, we may be forced to borrow funds during unfavorable market conditions, and the
unavailability of such capital on favorable terms at the desired times, or at all, may cause us to curtail our investment
activities or dispose of assets at inopportune times and/or on unfavorable terms, which could materially adversely affect our
financial condition, results of operations and cash flow.
In order to qualify as a REIT, we generally must distribute to our stockholders, on an annual basis, at least 90% of our
“REIT taxable income,” determined without regard to the deduction for dividends paid and excluding net capital gains. In
addition, we will be subject to U.S. federal income tax at the regular corporate rate to the extent that we distribute less than
100% of our net taxable income (including net capital gains) and will be subject to a 4% non-deductible excise tax on the
amount by which our distributions in any calendar year are less than a minimum amount specified under U.S. federal income
tax laws. We intend to continue to distribute our net income to our stockholders in a manner intended to satisfy the REIT 90%
distribution requirement and to avoid U.S. federal income tax and the 4% non-deductible excise tax.
In addition, from time to time our taxable income may exceed our net income as determined by GAAP. This may
occur, for instance, because realized capital losses are deducted in determining our GAAP net income, but may not be
deductible in computing our taxable income. In addition, we may incur non-deductible capital expenditures or be required to
make debt or amortization payments. As a result of the foregoing, we may generate less cash flow than taxable income in a
particular year and we may incur U.S. federal income tax and the 4% non-deductible excise tax on that income if we do not
distribute such income to stockholders in that year. In that event, we may be required to (i) use cash reserves, (ii) incur debt at
rates or times that we regard as unfavorable, (iii) sell assets in adverse market conditions, (iv) distribute amounts that would
otherwise be invested in future acquisitions, capital expenditures or repayment of debt, or (v) make a taxable distribution of our
shares as part of a distribution in which stockholders may elect to receive our shares or (subject to a limit measured as a
percentage of the total distribution) cash in order to satisfy the REIT 90% distribution requirement and to avoid U.S. federal
income tax and the 4% non-deductible excise tax in that year. These alternatives could increase our costs or reduce our equity.
Thus, compliance with the REIT requirements may hinder our ability to grow, which could adversely affect our business,
financial condition and results of operations.
Covenants in our agreements for our Credit Facilities or other borrowings may restrict our ability to pay distributions which
could cause us to fail to qualify as a REIT.
In order to maintain our qualification as a REIT, we are generally required under the Code to distribute annually at
least 90% of our net taxable income, determined without regard to the deduction for dividends paid and excluding any net
capital gains. In addition, we will be subject to income tax at regular corporate rates to the extent that we distribute less than
100% of our net taxable income, including any net capital gains. Under agreements for our Credit Facilities or other
borrowings, we may be subject to various financial covenants that may inhibit our ability to make distributions to our
stockholders, which could restrict us from making sufficient distributions to maintain our REIT status.
New legislation or administrative or judicial action, in each instance potentially with retroactive effect, could adversely
affect us or our stockholders.
The federal income tax treatment of REITs may be modified, possibly with retroactive effect, by legislative, judicial or
administrative action at any time, which could affect the federal income tax treatment of an investment in us. The federal
income tax rules dealing with REITs constantly are under review by persons involved in the legislative process, the IRS and the
U.S. Treasury Department, which could result in statutory changes as well as frequent revisions to regulations and
interpretations. We and our stockholders could be adversely affected by any new federal income tax law, regulation or
administrative interpretation.
29
General Risk Factors
An increase in market interest rates may have an adverse effect on the market price of our securities.
One of the factors that investors may consider in deciding whether to buy or sell our securities is our dividend rate as a
percentage of our share or unit price, relative to market interest rates. If market interest rates increase, prospective investors
may desire a higher dividend or interest rate on our securities or seek securities paying higher dividends or interest. The market
price of our Class A common stock likely will be based primarily on the earnings and return that we derive from our
investments and income with respect to our properties and our related distributions to stockholders, and not from the market
value or underlying appraised value of the properties or investments themselves. As a result, interest rate fluctuations and
capital market conditions can affect the market price of our Class A common stock. For instance, if interest rates rise without an
increase in our dividend rate, the market price of our Class A common stock could decrease because potential investors may
require a higher dividend yield on our Class A common stock as market rates on interest-bearing securities, such as bonds, rise.
In addition, rising interest rates would result in increased interest expense on our variable rate debt, thereby adversely affecting
cash flow and our ability to service our indebtedness and pay dividends.
Inflation may adversely affect our financial condition and results of operations.
In recent years, the consumer price index has increased substantially. Federal policies and recent global events, such as
the rising price of oil and the conflict between Russia and Ukraine, may have exacerbated, and may continue to exacerbate,
increases in the consumer price index. A sustained increase in inflation could have an adverse impact on our operating and
general and administrative expenses, interest expense and real estate acquisition costs. Similarly, professional service fees are
also subject to the impact of inflation and expected to increase proportionately with increasing market prices for such services.
During inflationary periods, these costs could increase at a rate higher than our rental revenue. Inflation could also have an
adverse effect on consumer spending, which could adversely impact demand for postal services and therefore the demand for
postal properties. Increased costs may also have an adverse impact on our tenants if increases in their operating expenses
exceed increases in revenue, which may adversely affect the tenants’ ability to pay rent owed to us. While certain of our leases
contain provisions, such as rent escalators, designed to mitigate the adverse impact of inflation, the increases in rent provided
by many of our leases may not keep up with the rate of inflation. Similarly, periodic rental increases through lease renewal may
not adequately protect us from the impact of inflation. If our operating and other expenses are increasing faster than anticipated
due to inflation, our financial condition, results of operations, cash flow, cash available for distributions and our ability to
service our debt obligations could be materially adversely affected.
In addition, historically, during periods of increasing interest rates, real estate valuations have generally decreased as a
result of rising capitalization rates, which tend to be positively correlated with interest rates. Consequently, prolonged periods
of higher interest rates may negatively impact the valuation of our portfolio and result in the decline of the quoted trading price
of our securities and market capitalization, as well as lower sales proceeds from future dispositions.
30
Changes in accounting pronouncements could adversely impact our reported financial performance.
Accounting policies and methods are fundamental to how we record and report our financial condition and results of
operations. From time to time the Financial Accounting Standards Board and the SEC, which create and interpret appropriate
accounting standards, may change the financial accounting and reporting standards or their interpretation and application of
these standards that govern the preparation of our financial statements. These changes could have a material impact on our
reported financial condition and results of operations. In some cases, we could be required to apply a new or revised standard
retroactively, resulting in reclassifying or restating prior period financial statements.
We could be adversely impacted if there are deficiencies in our disclosure controls and procedures or internal control over
financial reporting.
Our disclosure controls and procedures and internal control over financial reporting may not prevent all errors,
misstatements or misrepresentations. There can be no guarantee that our internal control over financial reporting will be
effective in accomplishing all control objectives all of the time. Deficiencies in our internal controls over financial reporting
that may occur in the future could result in misstatements of our results of operations, restatements of our financial statements
or otherwise adversely impact our financial condition, results of operations, cash flows, or the market price of our Class A
common stock and our ability to satisfy our debt service obligations and to pay dividends and distributions to the holders of our
Class A common stock.
Future offerings of equity securities, which would dilute our existing stockholders and may be senior to our Class A
common stock for the purposes of dividend distributions, may adversely affect the market price of our Class A common
stock.
In the future, we may attempt to increase our capital resources by making additional offerings of equity securities,
including classes of preferred or common stock. Additional equity offerings may dilute the holdings of our existing
stockholders or reduce the market price of our Class A common stock, or both. Preferred stock or units could have a preference
on liquidating distributions or a preference on dividend or distribution payments that could limit our ability to make a dividend
distribution to the holders of our common stock and common units. Because our decision to issue securities in any future
offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount,
timing or nature of our future offerings. Thus, our stockholders bear the risk of our future offerings reducing the market price of
our Class A common stock and diluting their holdings in us.
The market price of our Class A common stock has been, and may continue to be, volatile and has declined, and may
continue to decline, which may result in a substantial or complete loss of your investment in our Class A common stock.
The stock markets have previously and recently experienced significant price and volume fluctuations. As a result, the
market price of our Class A common stock has been and could be similarly volatile in the future, and investors in our Class A
common stock may experience a decrease in the value of their investments, including decreases unrelated to our operating
performance or prospects. The market price of our Class A common stock could be subject to wide fluctuations in response to a
number of factors, including:
•
•
•
•
•
•
•
our operating performance and the performance of other similar companies;
the operating performance of the USPS;
actual or anticipated differences in our operating results;
changes in our revenues or earnings estimates or recommendations by securities analysts;
publication of research reports about us or our industry by securities analysts;
additions and departures of key personnel;
strategic decisions by us or our competitors, such as mergers and acquisitions, divestments, spin-offs, joint
ventures, strategic investments or changes in business strategy;
31
•
•
•
•
•
•
•
the passage of legislation or other regulatory developments or executive policies that adversely affect us or our
industry;
speculation in the press or investment community;
actions by institutional stockholders;
changes in accounting principles;
terrorist acts;
general market conditions, including factors unrelated to our performance; and
pandemics and epidemics, such as the COVID-19 pandemic, and the related governmental and economic
responses thereto.
In addition, while we expect to continue to make regular quarterly distributions to the holders of our Class A common
stock, if sufficient cash is not available for distribution from our operations, we may have to fund distributions from working
capital or net proceeds from asset sales, borrow to provide funds for such distributions, or reduce the amount of such
distributions. To the extent we borrow to fund distributions, our future interest costs would increase, thereby reducing our
earnings and cash available for distribution from what they otherwise would have been. If cash available for distribution
generated by our assets is less than expected, or if such cash available for distribution decreases in future periods from expected
levels, our inability to make distributions, or to make distributions at expected levels, could result in a decrease in the market
price of our Class A common stock.
In the past, securities class action litigation has often been instituted against companies following periods of volatility
in their stock price. This type of litigation could result in substantial costs and divert our management’s attention and resources.
Future sales of our Class A common stock, preferred stock, or securities convertible into or exchangeable or exercisable for
our Class A common stock could depress the market price of our Class A common stock.
We cannot predict whether future sales of our Class A common stock, preferred stock, or securities convertible into or
exchangeable or exercisable for our Class A common stock or the availability of these securities for resale in the open market
will decrease the market price of our Class A common stock. Sales of a substantial number of these securities in the public
market, including sales upon the redemption of OP Units, or the perception that these sales might occur, may cause the market
price of our common shares to decline and you could lose all or a portion of your investment. Future issuances of our Class A
common stock, preferred stock, or other securities convertible into or exchangeable or exercisable for our Class A common
stock, including, without limitation, OP Units, in connection with property, portfolio or business acquisitions and issuances of
equity-based awards to participants in our 2019 Equity Incentive Plan, could have an adverse effect on the market price of our
Class A common stock. Future issuances of these securities also could adversely affect the terms upon which we obtain
additional capital through the sale of equity securities. In addition, future sales or issuances of our Class A common stock may
be dilutive to existing stockholders.
We face cybersecurity risks and risks associated with security breaches.
We face cybersecurity risks and risks associated with security breaches or disruptions, such as through physical or
electronic break-ins, cyber-attacks or cyber intrusions over the Internet, malware, computer viruses, attachments to emails,
social engineering and phishing schemes or persons inside our organization. The risk of a security breach or disruption,
particularly through cyber-attacks or cyber intrusions, including by computer hackers, nation-state affiliated actors, and cyber
terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around
the world have increased. These incidents may result in disruption of our operations, delays or interruptions to our ability to
meet tenant needs, material harm to our financial condition, cash flows and the market price of our common shares,
misappropriation of assets, compromise or corruption of confidential information collected in the course of conducting our
business, liability for stolen information or assets, increased cybersecurity protection and insurance costs, regulatory
enforcement, litigation, inability to access or rely upon critical business records and damage to our stakeholder relationships.
These risks require continuous and likely increasing attention and other resources from us to, among other actions, identify and
quantify these risks, upgrade and expand our technologies, systems and processes to adequately address them and provide
periodic training for our employees and contractors to assist them in detecting phishing, malware and other schemes. Such
32
attention diverts time and other resources from other activities and there is no assurance that our efforts will be effective. There
can be no assurance that our security efforts and measures will be effective or that attempted security breaches or disruptions
would not be successful or damaging. Even the most well protected information, networks, systems and facilities remain
potentially vulnerable because the techniques used in such attempted security breaches evolve and generally are not recognized
until launched against a target, and in some cases, are designed to not be detected and, in fact, may not be detected.
Accordingly, we may be unable to anticipate these techniques or to implement adequate security barriers or other preventative
measures, and thus it is impossible for us to entirely mitigate this risk. Additionally, we rely on third-party service providers in
our conduct of day-to-day property management, leasing and other activities at our properties and we can provide no assurance
that the networks and systems that our third-party vendors have established or used will be effective.
In the normal course of business, we and our service providers (including service providers engaged in providing
property management, leasing, accounting and/or payroll services) collect and retain certain personal information provided by
our tenants, employees and vendors. We also rely extensively on computer systems to process transactions and manage our
business. We can provide no assurance that the data security measures designed to protect confidential information on our
systems established by us and our service providers will be able to prevent unauthorized access to this personal information. We
maintain cyber liability insurance; however, this insurance may not be sufficient to cover the financial, legal, business, or
reputational losses that may result from an interruption or breach of our systems. Some of our employees also work remotely,
which could introduce additional cybersecurity risks. There can be no assurance that our efforts to maintain the security and
integrity of the information we and our service providers collect and our and their computer systems will be effective or that
attempted security breaches or disruptions would not be successful or damaging with the potential for disruption in our
operations, material harm to our financial condition, cash flows and the market price of our common shares, increased
cybersecurity protection and insurance costs, regulatory enforcement, litigation and damage to our stakeholder relationships.
Third-party expectations relating to environmental, social and governance factors may impose additional costs and expose
us to new risks.
Certain investors may use environmental, social and governance factors to guide their investment strategies and, in
some cases, may choose not to invest in our securities if they believe our policies relating to corporate responsibility are
inadequate. Third-party providers of corporate responsibility ratings and reports on companies have increased in number,
resulting in varied and in some cases inconsistent standards. In addition, the criteria by which corporate responsibility practices
are assessed are evolving, which could result in greater expectations of us and cause us to undertake costly initiatives to satisfy
such new criteria. We may face reputational damage in the event that our corporate responsibility procedures or standards do
not meet the standards set by various constituencies. In addition, in the event that we communicate certain initiatives and goals
regarding environmental, social and governance matters, we could fail, or be perceived to fail, in our achievement of such
initiatives or goals, or we could be criticized for the scope of such initiatives or goals. If we fail to satisfy the expectations of
investors, tenants and other stakeholders or our initiatives are not executed as planned, our reputation and financial results could
be adversely affected.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 1C. CYBERSECURITY
Risk Management and Strategy
Our various corporate information technology, accounting and financial reporting platforms, enterprise applications
and related systems (our “Information Systems”) are necessary for our business. We use these systems, among others, to
manage key aspects of our business, including relationships with our tenants and vendors, accounting, acquisitions, internal and
external communications and property and asset management. We also rely on the secure collection, storage, transmission and
processing of proprietary, confidential and sensitive data related to our business (our “Sensitive Data”). We utilize a third-party
managed information technology service provider (the “MSP”) for cybersecurity services, including threat detection and
response, vulnerability assessment and monitoring, security incident response and recovery and general cybersecurity education
and awareness. Our cybersecurity risk management is integrated into our overall enterprise risk management and shares
common methodologies, reporting channels and governance processes that apply across our enterprise risk management.
We and our MSP identify, assess and manage material cybersecurity threats and risks to our Information Systems and
Sensitive Data through the following, among others:
33
•
•
•
a multidisciplinary team, including a dedicated technology committee (the “Technology Committee”) comprising
members from senior management, asset management and accounting and legal functions, in conjunction with our
MSP and other third-party service vendors, to identify, assess and manage cybersecurity threats and risks;
various internal processes and procedures to monitor and evaluate threat environment and our risk profile using
methods such as manual and automated tools, subscribing to reports and services that identify and analyze
cybersecurity threats, conducting scans of the threat environment, evaluating our industry’s risk profile, utilizing
internal and external audits and conducting threat and vulnerability assessments;
various technical, physical and organizational processes and policies to manage and mitigate material cybersecurity
risks, such as risk assessments, incident detection and response, vulnerability management, disaster recovery and
business continuity plans, internal controls within our accounting and financial reporting functions, encryption of data,
network security controls, access controls, physical security, asset management, systems monitoring, vendor risk
management program, employee training and penetration testing; and
• working with third-party vendors from time to time that assist us to identify, assess and manage cybersecurity risks,
such as professional services firms and penetration testing firms.
For third-party service vendors that perform a variety of important functions for our business, we seek to engage
reliable, reputable service vendors that maintain cybersecurity programs. Depending on the nature and risk profile of the
services provided and the sensitivity of information processed, we may from time to time conduct a review of the cybersecurity
practices of such vendor, contractually imposing obligations on the vendor and conducting periodic reassessments during their
engagement. We are currently not aware of any risks from cybersecurity threats, including as a result of any cybersecurity
incidents, which have materially affected or, to our knowledge, are reasonably likely to materially affect our business, financial
condition and results of operations. See to Item 1A. “Risk Factors” in this annual report on Form 10-K, including “We face
cybersecurity risks and risks associated with security breaches”, for additional discussion about cybersecurity-related risks.
Governance
Our Board of Directors oversees our strategy and risk management, including material cybersecurity risks. The Audit
Committee of the Board of Directors (the “Audit Committee”) oversees our cybersecurity and information technology risk
exposures, as well as our cybersecurity and information technology policies and programs, in accordance with its charter. The
Audit Committee holds quarterly meetings and receives periodic reports from, and also engages in regular discussions with,
management and also our MSP regarding our significant cybersecurity risk exposures and the measures implemented to monitor
and control these risks. Our Technology Committee also meets at least quarterly to assess cybersecurity risks and prepares
reports to the Audit Committee. A number of members of our Technology Committee have gained relevant knowledge, skills
and experience in information technology and cybersecurity risk management, including overseeing third-party vendors in such
areas, over their careers at the Company or other organizations.
Management is responsible for hiring and overseeing third-party vendors related to cybersecurity and integrating
cybersecurity risk considerations into our overall risk management strategy. Our internal cybersecurity incident response
processes are designed to escalate cybersecurity incidents to members of management depending on the circumstances and
reporting to the Audit Committee for certain cybersecurity incidents, which also allows decisions regarding the public
disclosure and reporting of such incidents to be made by management, the Audit Committee and the Board in a timely manner.
34
ITEM 2. PROPERTIES
As of December 31, 2023, we owned a portfolio of 1,509 properties located in 49 states and one territory, comprising
approximately of 5.9 million net leasable interior square feet. Our properties are leased primarily to the USPS. The following
map shows our footprint of owned properties as of December 31, 2023. As of December 31, 2023, we also managed an
additional 397 properties owned by our chief executive officer and his affiliates.
Information regarding our properties as of December 31, 2023 are included in Item 15. “Exhibits and Financial
Statement Schedules—Schedule III. Real Estate and Accumulated Depreciation” of this Annual Report on Form 10-K.
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Scheduled Lease Expirations
As of December 31, 2023, the weighted average remaining years to maturity pursuant to our leases with the USPS was
approximately three years, with expirations through 2031, assuming tenants do not exercise any existing renewal, termination
or purchase options. The table below details scheduled lease expirations, as of December 31, 2023, for our properties for the
periods indicated.
Year
2023(2)(3)
2024
2025
2026
2027
2028
2029
2030
2031
Totals
Explanatory Notes:
Number of
Leases
Expiring
Total Lease
Square Footage
%
Amount
Annualized Lease
Revenue(1)
88
107
217
302
431
109
124
127
6
1,511
619,182
474,895
618,453
1,099,533
1,372,088
324,231
427,532
890,854
35,800
5,862,568
Amount
4,077,999
4,851,676
7,306,019
10,823,220
14,094,974
4,018,369
4,641,361
4,863,592
258,126
100.0 % $ 54,935,336
10.6 %
8.1 %
10.5 %
18.8 %
23.4 %
5.5 %
7.3 %
15.2 %
0.6 %
%
7.4 %
8.8 %
13.3 %
19.7 %
25.7 %
7.3 %
8.4 %
8.9 %
0.5 %
100.0 %
(1) Annualized contractual rent in effect on December 31, 2023 for all of our leases (including those accounted for as direct
financing leases).
(2) Includes approximately 588,000 of interior lease square footage occupied by month-to-month holdover leases or leases
that expired during the year ended December 31, 2023. Holdover rent is typically paid as the greater of estimated market
rent or the rent amount due under the expired lease.
(3) Includes a property for which we received notice in August 2023 from the USPS to terminate the lease for such property,
which termination became effective in February 2024.
ITEM 3. LEGAL PROCEEDINGS
We and our subsidiaries are, from time to time, parties to litigation arising from the ordinary course of their business.
We are not presently subject to any material litigation nor, to our knowledge, is any other litigation threatened against us, other
than routine actions for negligence or other claims and administrative proceedings arising in the ordinary course of business,
some of which are expected to be covered by liability insurance and all of which collectively are not expected to have a
material adverse effect on our liquidity, results of operations or business or financial condition.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our Class A common stock trades on the New York Stock Exchange under the symbol “PSTL”. As of February 29,
2024, there were 22,511,828 shares of Class A common stock issued and outstanding and four stockholders of record. This
number of stockholders of record does not represent the actual number of beneficial owners of our Class A common stock
because shares of our Class A common stock are frequently held in “street name” by securities dealers and others for the benefit
of beneficial owners who may vote the shares.
In addition, as of February 29, 2024, there were 27,206 shares of Voting Equivalency stock issued and outstanding and
5,581,207 OP Units and LTIP units held by limited partners other than the Company outstanding. All shares of Voting
Equivalency stock issued and outstanding are held by Mr. Spodek and his affiliates. No public trading market exists for such
shares or units.
We intend to continue to declare quarterly dividends on our Class A common stock. The actual amount and timing of
dividends, however, will be at the discretion of our Board of Directors and will depend upon our financial condition in addition
to the requirements of the Code, and no assurance can be given as to the amounts or timing of future distributions.
Securities Authorized for Issuance Under Equity Compensation Plans
The information required by Item 5 is incorporated by reference to our Definitive Proxy Statement for our 2024 annual
stockholders’ meeting.
ITEM 6. RESERVED
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis is based on, and should be read in conjunction with, the Consolidated Financial
Statements and the related notes thereto of the Company as of and for the years ended December 31, 2023 and 2022. This
management’s discussion and analysis of financial condition and results of operations contains forward-looking statements that
involve risks, uncertainties and assumptions. See “Cautionary Statement Regarding Forward-Looking Statements” for a
discussion of the risks, uncertainties and assumptions associated with those statements. Our actual results may differ materially
from those expressed or implied in the forward-looking statements as a result of various factors, including, but not limited to,
those in Item 1A. “Risk Factors” and included in other portions of this report.
Overview
Company
We were formed as a Maryland corporation on November 19, 2018 and commenced operations upon completion of
our IPO and the related formation transactions. We conduct our business through a traditional UPREIT structure in which our
properties are owned by our Operating Partnership directly or through limited partnerships, limited liability companies or other
subsidiaries. For the year ended December 31, 2023, we acquired 223 properties leased to the USPS for approximately $78
million, excluding closing costs. As of December 31, 2023, our portfolio consists of 1,509 owned properties, located in 49
states and one territory and comprising approximately 5.9 million net leasable interior square feet.
We are the sole general partner of our Operating Partnership through which our properties are directly or indirectly
owned. As of February 29, 2024, we owned approximately 80.3% of our outstanding OP Units, including LTIP Units. Our
Board of Directors oversees our business and affairs.
37
ATM Program
On November 4, 2022, we entered into separate open market sale agreements with each of Jefferies LLC, BMO
Capital Markets Corp., Janney Montgomery Scott LLC, Stifel, Nicolaus & Company, Incorporated and Truist Securities, Inc. as
agents, pursuant to which we may offer and sell, from time to time, shares of our Class A common stock having an aggregate
sales price of up to $50.0 million. On August 8, 2023, we amended the ATM Program to increase the aggregate offering amount
under the program from up to $50.0 million to up to $150.0 million. The agreements also provide that we may enter into one or
more forward sale agreements under separate master forward confirmations and related supplemental confirmations with
affiliates of certain agents. During the year ended December 31, 2023, 1,861,407 shares were issued under the ATM Program,
raising approximately $27.8 million in gross proceeds. As of December 31, 2023, we had approximately $114.1 million of
availability remaining under the ATM Program.
Executive Overview
We are an internally managed REIT with a focus on acquiring and managing properties leased primarily to the USPS,
ranging from last-mile post offices to industrial facilities. We believe the overall opportunity for consolidation that exists within
the postal logistics network is very attractive. We continue to execute our strategy to acquire and consolidate postal properties
that we believe will generate strong earnings for our shareholders.
Geographic Concentration
As of December 31, 2023, we owned a portfolio of 1,509 properties located in 49 states and one territory and leased
primarily to the USPS. For the year ended December 31, 2023, approximately 13.2% of our total rental income was
concentrated in Pennsylvania.
Emerging Growth Company
We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the "JOBS
Act"), and we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to
other public companies that are not “emerging growth companies,” including not being required to comply with the auditor
attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive
compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding
advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.
In addition, the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition
period provided in the Securities Act of 1933, as amended (the “Securities Act”), for complying with new or revised accounting
standards. We have availed ourselves of these exemptions; although, subject to certain restrictions, we may elect to stop
availing ourselves of these exemptions in the future even while we remain an “emerging growth company.”
We will remain an “emerging growth company” until the earliest to occur of (i) the last day of the fiscal year during
which our total annual revenue equals or exceeds $1.235 billion (subject to periodic adjustment for inflation), (ii) the last day of
the fiscal year following the fifth anniversary of our IPO, (iii) the date on which we have, during the previous three-year period,
issued more than $1.0 billion in non-convertible debt or (iv) the date on which we are deemed to be a “large accelerated filer”
under the Exchange Act.
We are also a “smaller reporting company” as defined in Regulation S-K under the Securities Act and have elected to
take advantage of certain scaled disclosures available to smaller reporting companies. We may continue to be a smaller
reporting company even after we are no longer an “emerging growth company.”
We elected to be treated as a REIT under the Code beginning with our short taxable year ended December 31, 2019
and intend to continue to qualify as a REIT. As long as we qualify as a REIT, we generally will not be subject to federal income
tax to the extent that we distribute our taxable income for each tax year to our stockholders.
Factors That May Influence Future Results of Operations
The USPS
We are dependent on the USPS’ financial and operational stability. The USPS is currently facing a variety of
circumstances that are threatening its ability to fund its operations and other obligations as currently conducted without
38
intervention by the federal government. The USPS is constrained by laws and regulations that restrict revenue sources and
pricing, mandate certain expenses and cap its borrowing capacity. As a result, among other consequences, the USPS is unable to
fund its mandated expenses and continues to be subject to mandated payments to its retirement system and benefits. While the
USPS has recently undertaken, and proposes to undertake, a number of operational reforms and cost reduction measures, such
as higher rates and slower deliveries for certain services and closure, relocation or consolidation of certain facilities and
delivery routes, the USPS has taken the position such measures alone will not be sufficient to maintain its ability to meet all of
its existing obligations when due or allow it to make the critical infrastructure investments that have been deferred in recent
years. These measures have also led to significant criticism and litigation, which may result in reputational or financial harm or
increased regulatory scrutiny of the USPS or reduced demand for its services. The occurrence of a regional epidemic or a global
pandemic, such as the COVID-19 pandemic, and measures taken to prevent its spread may also have a material and
unpredictable effect on the USPS’ operations and liquidity, including significant additional operating expenses caused by
pandemic-related disruptions. The lingering effect of the COVID-19 pandemic and other geopolitical and economic factors
have also created significant inflationary pressures resulting in higher compensation, benefits, transportation and fuel costs for
the USPS. If the USPS becomes unable to meet its financial obligations or its revenue declines due to reduced demand for its
services, the USPS may reduce its demand for leasing postal properties, which would have a material adverse effect on our
business and operations. For additional information regarding the risks associated with the USPS, see Item 1A. "Risk Factors—
Risks Related to the USPS".
Revenues
We derive revenues primarily from rent and tenant reimbursements under leases with the USPS for our properties and
fee and other from the management of postal properties owned by Mr. Spodek and his affiliates, income recognized from
properties accounted for as financing leases and revenue from providing certain advisory services. Rental income represents the
lease revenue recognized under the leases primarily with the USPS which includes the impact of above and below market lease
intangibles as well as reimbursements to us made by our tenants for the real estate taxes paid at each property where tenants are
responsible for such taxes under the leases. Certain of our leases include annual rent escalators. Fee and other principally
represents (i) revenue our TRS received from postal properties owned by Mr. Spodek and his affiliates pursuant to the
management agreements and is a percentage of the lease revenue for the managed properties, (ii) revenue our TRS received
from providing advisory services to third-party owners of postal properties and (iii) income recognized from properties
accounted for as financing leases. As of December 31, 2023, properties leased to our tenants had an average remaining lease
term of approximately three years. Factors that could affect our rental income and fee and other in the future include, but are not
limited to: (i) our ability to renew or replace expiring leases and management agreements; (ii) local, regional or national
economic conditions; (iii) an oversupply of, or a reduction in demand for, postal space; (iv) changes in market rental rates; (v)
changes to the USPS’ current property leasing program or form of lease; and (vi) our ability to provide adequate services and
maintenance at our properties and managed properties.
Operating Expenses
We lease our properties primarily to the USPS. The majority of our leases are modified double-net leases, whereby the
tenant is responsible for utilities, certain maintenance obligations and reimbursement of property taxes and the landlord is
responsible for insurance, roof and structure. Thus, an increase in costs related to the landlord’s responsibilities under these
leases could negatively influence our operating results. Refer to “Lease Renewal” below for further discussion.
Operating expenses generally consist of real estate taxes, property operating expenses, which consist of insurance,
repairs and maintenance (other than those for which the tenant is responsible), property maintenance-related payroll and
depreciation and amortization. Factors that may affect our ability to control these operating costs include but are not limited to:
the cost of periodic repair, age and durability of our properties, renovation costs, landlord’s responsibilities under the leases, the
cost of re-leasing space, inflation and the potential for liability under applicable laws. Recoveries from the tenant are
recognized as revenue on an accrual basis over the periods in which the related expenditures are incurred. Tenant
reimbursements and the related property operating expenses are recognized on a gross basis, because (i) generally, we are the
primary obligor with respect to the real estate taxes and (ii) we bear the credit risk in the event the tenant does not reimburse the
real estate taxes.
The expenses of owning and operating a property are not necessarily reduced when circumstances, such as market
factors and competition, cause a reduction in income from the property. If revenues drop, we may not be able to reduce our
expenses accordingly. Costs associated with real estate investments generally will not be materially reduced even if a property
is not fully occupied or other circumstances cause our revenues to decrease. As a result, if revenues decrease in the future, static
operating costs may adversely affect our future cash flow and results of operations.
39
General and Administrative Expense
General and administrative expense represents personnel costs, professional fees, legal fees, insurance, consulting fees,
information technology costs and other expenses related to our day-to-day activities of being a public company. While we
expect that our general and administrative expenses will continue to rise as our portfolio grows, we expect that such expenses as
a percentage of our revenues will decrease over time due to efficiencies and economies of scale.
Equity-Based Compensation Expense
All equity-based compensation expense
in our Consolidated Statements of Operations and
is recognized
Comprehensive Income as components of general and administrative expense and property operating expenses. We issue share-
based awards to align our directors’ and employees’ interests with those of our investors.
Indebtedness and Interest Expense
On August 9, 2021, we entered into a $150.0 million senior unsecured revolving credit facility (the "Revolving Credit
Facility") and a $50.0 million senior unsecured term loan facility (the "2021 Term Loan"). On May 11, 2022, we amended the
Credit Facilities (the "First Amendment") to, among other things, add a new $75.0 million senior unsecured delayed draw term
loan facility (the "2022 Term Loan" and, together with the Revolving Credit Facility and the 2021 Term Loan, the “Credit
Facilities”), replace LIBOR with SOFR as the benchmark interest rate and allow for a decrease in the applicable margin by
0.02% if we achieve certain sustainability targets. On December 6, 2022, we exercised $40.0 million of term loan accordion
under the 2022 Term Loan. On July 24, 2023, we further amended the Credit Facilities (the "Second Amendment") to, among
other things, add a daily simple SOFR-based option to the term SOFR-based floating interest rate option as a benchmark rate
for borrowings under the Credit Facilities and exercised $35.0 million of accordion under the term loans.
We intend to use the Credit Facilities for working capital purposes, which may include repayment of mortgage
indebtedness, property acquisitions and other general corporate purposes. We amortize on a non-cash basis the deferred
financing costs associated with our debt to interest expense using the straight-line method, which approximates the effective
interest rate method over the terms of the related loans. Any changes to the debt structure, including debt financing associated
with property acquisitions, could materially influence the operating results depending on the terms of any such indebtedness.
Income Tax Benefit (Expense)
As a REIT, we generally will not be subject to federal income tax on our net taxable income that we distribute
currently to our stockholders. Under the Code, REITs are subject to numerous organizational and operational requirements,
including a requirement that they distribute each year at least 90% of their REIT taxable income, determined without regard to
the deduction for dividends paid and excluding any net capital gains. If we fail to qualify for taxation as a REIT in any taxable
year and do not qualify for certain statutory relief provisions, our income for that year will be taxed at regular corporate rates,
and we would be disqualified from taxation as a REIT for the four taxable years following the year during which we ceased to
qualify as a REIT. Even though we qualify as a REIT for federal income tax purposes, we may still be subject to state and local
taxes on our income and assets and to federal income and excise taxes on our undistributed income. Additionally, any income
earned by our existing TRS and any other TRS we may form in the future will be subject to federal, state and local corporate
income tax.
Lease Renewal
As of February 29, 2024, the leases at 91 of our properties, representing approximately 631,000 net leasable interior
square feet, had expired and the USPS was occupying such properties as a holdover tenant. See Item 2. "Properties—Lease
Expiration Schedule”. As of the date of this report, the USPS had not vacated or notified us of its intention to vacate any of
these properties. When a lease expires, the USPS becomes a holdover tenant on a month-to-month basis typically paying the
greater of estimated market rent or the rent amount under the expired lease. While we currently anticipate that we will renew
the leases that have expired or will expire, there can be no guarantee that we will be successful in renewing these leases,
obtaining positive rent renewal spreads or renewing the leases on terms comparable to those of the expiring leases. Even if we
are able to renew these expired leases, the lease terms may not be comparable to those of the previous leases. If we are not
successful, we will likely experience reduced occupancy, rental income and net operating income, as well as diminished
borrowing capacity under our Credit Facilities, which could have a material adverse effect on our financial condition, results of
operations and ability to make distributions to stockholders. For additional information regarding the risks associated with the
USPS, see Item 1A. "Risk Factors—Risks Related to the USPS".
40
Results of Operations
Comparison of the years ended December 31, 2023 and December 31, 2022
(Amounts in thousands)
Revenues
Rental income
Fee and other
Total revenues
Operating expenses
Real estate taxes
Property operating expenses
General and administrative
Depreciation and amortization
Total operating expenses
For the Year Ended
December 31,
2023
2022
$ Change
% Change
$
60,970 $
2,742
63,712
50,876 $
2,454
53,330
10,094
288
10,382
8,549
6,825
14,654
19,688
49,716
7,168
5,625
13,110
17,727
43,630
1,381
1,200
1,544
1,961
6,086
19.8 %
11.7 %
19.5 %
19.3 %
21.3 %
11.8 %
11.1 %
13.9 %
Income from operations
13,996
9,700
4,296
44.3 %
Other income
679
1,029
(350)
(34.0) %
Interest expense, net
Contractual interest expense
Write-off and amortization of deferred financing fees
Interest income
Total interest expense, net
Income before income tax expense
Income tax expense
Net income
Revenues
(9,339)
(686)
5
(10,020)
4,655
(72)
4,583 $
(5,378)
(596)
1
(5,973)
4,756
(12)
4,744 $
(3,961)
(90)
4
(4,047)
(101)
(60)
(161)
$
73.7 %
15.1 %
400.0 %
67.8 %
(2.1) %
500.0 %
(3.4) %
Rental income – Rental income includes net rental income as well as the recovery of certain operating costs and
property taxes from tenants. Rental income increased by $10.1 million to $61.0 million for the year ended December 31, 2023
from $50.9 million for the year ended December 31, 2022, primarily due to the volume of our acquisitions.
Fee and other - Fee and other revenue increased by $0.3 million to $2.7 million for the year ended December 31, 2023
from $2.5 million for the year ended December 31, 2022, primarily due to an increase in income received from advisory
services and management fees.
Operating Expenses
Real estate taxes – Real estate taxes increased by $1.4 million to $8.5 million for the year ended December 31, 2023
from $7.2 million for the year ended December 31, 2022, primarily due to the volume of our acquisitions.
Property operating expenses – Property operating expenses increased by $1.2 million to $6.8 million for the year
ended December 31, 2023 from $5.6 million for the year ended December 31, 2022. Property management expenses are
included within property operating expenses and increased by $0.4 million to $2.5 million for the year ended December 31,
41
2023 from $2.1 million for the year ended December 31, 2022. The remainder of the increase of $0.9 million is related to
expenses for repairs and maintenance and insurance, which increase is primarily due to the volume of our acquisitions.
General and administrative – General and administrative expenses increased by $1.5 million to $14.7 million for the
year ended December 31, 2023 from $13.1 million for the year ended December 31, 2022, primarily due to expanding our staff,
an increase in information technology related costs as a result of our continued growth and an increase in equity-based
compensation expense related to awards that have been granted to our employees throughout 2022 and 2023.
Depreciation and amortization – Depreciation and amortization expense increased by $2.0 million to $19.7 million for
the year ended December 31, 2023 from $17.7 million for the year ended December 31, 2022, primarily due to the volume of
our acquisitions.
Other Income
Other income primarily includes insurance recoveries related to property damage claims. Other income decreased by
$0.4 million to $0.7 million for the year ended December 31, 2023 from $1.0 million for the year ended December 31, 2022,
primarily due to lower insurance recoveries from claims.
Total Interest Expense, Net
During the year ended December 31, 2023, we incurred total interest expense, net of $10.0 million compared to $6.0
million for the year ended December 31, 2022. The increase in interest expense of $4.0 million was primarily due to additional
borrowings under the Credit Facilities and increased interest rates.
Cash Flows
Comparison of the year ended December 31, 2023 and the year ended December 31, 2022
We had $2.2 million of cash and $0.6 million of escrows and reserves as of December 31, 2023 compared to $1.5
million of cash and $0.5 million of escrows and reserves as of December 31, 2022.
Cash flows from operating activities – Net cash provided by operating activities increased by $3.8 million to $28.4
million for the year ended December 31, 2023 compared to $24.6 million for the year ended December 31, 2022. The increase
is primarily due to the volume of our acquisitions, all of which have generated additional rental income and related changes in
working capital.
Cash flows from investing activities – Net cash used in investing activities of $72.6 million for the year ended
December 31, 2023 primarily consisted of $73.1 million of acquisitions and capital improvements offset by $0.7 million of
insurance proceeds that were received. Net cash used in investing activities of $120.1 million for the year ended December 31,
2022 primarily consisted of $119.9 million of acquisitions and capital improvements offset by $0.8 million of insurance
proceeds that were received.
Cash flows from financing activities – Net cash provided by financing activities decreased by $45.6 million to
$45.0 million for the year ended December 31, 2023 compared to $90.6 million for the year ended December 31, 2022. The
decrease was primarily related to an increase in payments of dividends and distributions and a decrease in net proceeds received
from term loans and the Revolving Credit Facility during the year ended December 31, 2023, partially offset by an increase in
net proceeds from issuance of shares and lower amount of repayments under the Revolving Credit Facility during the year
ended December 31, 2023.
Liquidity and Capital Resources
We had approximately $2.2 million of cash and $0.6 million of escrows and reserves as of December 31, 2023.
Revolving Credit Facility and Term Loans
On August 9, 2021, we entered into the Credit Facilities, which initially included the $150.0 million Revolving Credit
Facility and the $50.0 million 2021 Term Loan, with Bank of Montreal, as administrative agent, and BMO Capital Markets
Corp., M&T Bank, JPMorgan Chase Bank, N.A. and Truist Securities, Inc. as joint lead arrangers and joint book runners.
Additional participants in the Credit Facilities include Stifel Bank & Trust and TriState Capital Bank. On May 11, 2022, we
42
entered into the First Amendment to, among other things, add the 2022 Term Loan (and, together with the 2021 Term Loan, the
"Term Loans"). On December 6, 2022, we exercised $40.0 million of accordion feature under the 2022 Term Loan. On July 24,
2023, we entered into the Second Amendment and further exercised $35.0 million of accordion under the Term Loans. As of
December 31, 2023, we had $209.0 million of aggregate principal amount outstanding under our Credit Facilities, with
$75.0 million drawn on the 2021 Term Loan, $115.0 million drawn on the 2022 Term Loan and $9.0 million drawn on the
Revolving Credit Facility.
The Credit Facilities include an accordion feature which permit us 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 a consolidated leverage ratio. With respect to the Revolving Credit
Facility, we will pay, if the usage is equal to or less than 50%, an unused facility fee of 0.20% per annum, or if the usage is
greater than 50%, an unused facility fee of 0.15% per annum, in each case on the average daily unused commitments under the
Revolving Credit Facility.
The Credit Facilities are guaranteed, jointly and severally, by us and certain of our indirect subsidiaries and contain
customary covenants that, among other things, restrict, subject to certain exceptions, our ability to incur indebtedness, grant
liens on assets, make certain types of investments, engage in acquisitions, mergers or consolidations, sell assets, enter into
certain transactions with affiliates and pay dividends or make distributions. The Credit Facilities require compliance with
consolidated financial maintenance covenants to be tested quarterly, including a minimum fixed charge coverage ratio,
maximum total leverage ratio, minimum tangible net worth, maximum secured leverage ratio, maximum unsecured leverage
ratio, minimum unsecured debt service coverage ratio and maximum secured recourse leverage ratio. The Credit Facilities also
contain certain customary events of default, including the failure to make timely payments under the Credit Facilities, any event
or condition that makes other material indebtedness due prior to its scheduled maturity, the failure to satisfy certain covenants
and specified events of bankruptcy and insolvency. As of December 31, 2023, we were in compliance with all of the Credit
Facilities’ debt covenants.
As of December 31, 2023, we had seven interest rate swaps with a total notional amount of $200.0 million that are
used to manage our interest rate risk and fix the SOFR component on the Term Loans of the Credit Facilities (together, the
"Interest Rate Swaps"). See Note 6. Derivatives and Hedging Activities in the Notes to our Consolidated Financial Statements
included under Item 8 herein for further details regarding the Interest Rate Swaps.
Capital Resources and Financing Strategy
Our short-term liquidity requirements primarily consist of operating expenses and other expenditures associated with
our properties, distributions to our limited partners and distributions to our stockholders required to qualify for REIT status,
capital expenditures and property acquisitions. We expect to meet our short-term liquidity requirements through net cash
provided by operations, cash, borrowings under our Credit Facilities and the potential issuance of securities. We have an
effective shelf registration statement on file with the SEC under which we may issue equity financing through the instruments
and on the terms most attractive to us at such time, including through our $150.0 million ATM Program.
Our long-term liquidity requirements primarily consist of funds necessary for the repayment of debt at maturity,
distributions to our limited partners and distributions to our stockholders required to qualify for REIT status, property
acquisitions and non-recurring capital improvements. We expect to meet our long-term liquidity requirements with net cash
from operations, long-term indebtedness including our Credit Facilities and mortgage financing, the issuance of equity and debt
securities and proceeds from select sales of our properties. We also may fund property acquisitions and non-recurring capital
improvements using our Credit Facilities pending permanent property-level financing.
We believe we have access to multiple sources of capital to fund our long-term liquidity requirements, including the
incurrence of additional debt and the issuance of additional equity securities. However, in the future, there may be a number of
factors that could have a material and adverse effect on our ability to access these capital sources, including unfavorable
conditions in the overall equity and credit markets, our degree of leverage, our unencumbered asset base, borrowing restrictions
imposed by our lenders, general market conditions for REITs, our operating performance, liquidity and market perceptions
about us. The success of our business strategy will depend, to a significant degree, on our ability to access these various capital
43
sources. In addition, we continuously evaluate possible acquisitions of postal properties, which largely depend on, among other
things, the market for owning and leasing postal properties and the terms on which the USPS will enter into new or renewed
leases.
To maintain our qualification as a REIT, we must make distributions to our stockholders aggregating annually at least
90% of our REIT taxable income determined without regard to the deduction for dividends paid and excluding capital gains. As
a result of this requirement, we cannot rely on retained earnings to fund our business needs to the same extent as other entities
that are not REITs. If we do not have sufficient funds available to us from our operations to fund our business needs, we will
need to find alternative ways to fund those needs. Such alternatives may include, among other things, divesting ourselves of
properties (whether or not the sales price is optimal or otherwise meets our strategic long-term objectives), incurring
indebtedness or issuing equity securities in public or private transactions, the availability and attractiveness of the terms of
which cannot be assured.
Consolidated Indebtedness
As of December 31, 2023, we had approximately $242.0 million of outstanding consolidated principal indebtedness.
The following table sets forth information as of December 31, 2023 and 2022 with respect to our outstanding indebtedness (in
thousands):
Amount
Outstanding
as of
December 31,
2023
Amount
Outstanding
as of
December 31,
2022
Interest
Rate
as of
December 31,
2023
Maturity Date
$
$
9,000 $
75,000
125,000
1,409
316
844
194
30,225
241,988 $
— SOFR+148 bps(2)
50,000 SOFR+143 bps(2)
115,000 SOFR+143 bps(2)
January 2026
January 2027
February 2028
1,409
333
844
282
30,225
198,093
3.69 %
3.63 %
3.69 %
6.00 %
2.80 %
September 2041
December 2037
September 2041
January 2025
January 2031
Revolving Credit Facility(1):
Revolving Credit Facility
2021 Term Loan
2022 Term Loan
Secured Borrowings:
Vision Bank(3)
First Oklahoma Bank(4)
Vision Bank – 2018(5)
Seller Financing(6)
AIG – December 2020(7)
Total Principal
Explanatory Notes:
(1) See above under "—Revolving Credit Facility and Term Loans" for details regarding the Credit Facilities. During the years
ended December 31, 2023 and 2022, we incurred $0.3 million and $0.3 million, respectively, of unused facility fees related
to the Revolving Credit Facility.
(2) Based upon the one-month Adjusted Term SOFR, which is SOFR plus a term SOFR adjustment of 0.10%, subject to a 0%
floor (the “Adjusted Term SOFR”). Upon our achievement of certain sustainability targets for 2022, the applicable
margins for the Credit Facilities were reduced by 0.02% for the year ended December 31, 2023, 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%.
44
(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, we obtained seller financing secured by the property in the amount of $0.4
million requiring five annual payments of principal and interest of $0.1 million with the first installment due on January 2,
2021 based on a 6.0% interest rate per annum through January 2, 2025.
(7) The loan is secured by a first mortgage lien on an industrial property located in Warrendale, Pennsylvania. The loan has a
fixed interest rate of 2.80% with interest-only payments for the first five years (ending in January 2026) and fixed payments
of principal and interest thereafter based on a 30-year amortization schedule.
Secured Borrowings as of December 31, 2023
As of December 31, 2023, we had approximately $33.0 million of secured borrowings outstanding, all of which are
currently fixed-rate debt with a weighted average interest rate of 2.89% per annum.
Contractual Obligations and Other Long-Term Liabilities
The following table provides information with respect to our commitments as of December 31, 2023, including any
guaranteed or minimum commitments under contractual obligations (in thousands).
Payments Due by Period
Contractual Obligations
Credit Facilities
Principal payments on mortgage loans
Interest payments(1)
Operating lease obligations(2)
Total
$
$
Total
2024
2025 to 2026 2027 to 2028
More than
five years
209,000 $
32,988
41,999
2,032
286,019 $
— $
112
10,443
162
10,717 $
9,000 $
754
20,038
162
29,954 $
200,000 $
1,579
8,811
90
210,480 $
—
30,543
2,707
1,618
34,868
Explanatory Notes:
(1) The amounts shown relate to (i) the Revolving Credit Facility based on the outstanding balance and interest rate in effect
as of December 31, 2023 and assuming an unused facility fee under the Revolving Credit Facility through the remainder of
the term based on such outstanding balance, (ii) the Term Loans based on the interest rate fixed through the Interest Rate
Swaps and outstanding balance as of December 31, 2023 and (iii) the mortgage loans based on the outstanding balance
and, for mortgage loans with interest rates adjustable after a certain period, interest rate in effect as of December 31, 2023
with respect to their future interest payments.
(2) Operating lease obligations relate to three leases for our corporate headquarters and eight ground leases at certain of our
properties.
Dividends
To maintain our qualification as a REIT, we are required to pay dividends to stockholders at least equal to 90% of our
REIT taxable income determined without regard to the deduction for dividends paid and excluding net capital gains. During the
year ended December 31, 2023, we paid cash dividends of $0.95 per share.
Subsequent Events
2024 Financing Activity
We had net credit facility activity of $2.0 million during the period subsequent to December 31, 2023. As of the date of
this report, we had $211.0 million drawn on the Credit Facilities, with $75.0 million drawn on the 2021 Term Loan,
$125.0 million drawn on the 2022 Term Loan and $11.0 million drawn on the Revolving Credit Facility.
45
2024 Real Estate Acquisitions
Subsequent to December 31, 2023, we have acquired eight properties in individual or small portfolio transactions for
approximately $4.5 million, excluding closing costs.
Dividends
Our Board of Directors approved and, on February 2, 2024, we declared a fourth quarter 2023 common stock dividend
of $0.24 per share which was paid on February 29, 2024 to stockholders of record on February 16, 2024.
Critical Accounting Estimates
Our discussion and analysis of our financial condition and results of operations are based upon the historical
consolidated financial statements of the Company that have been prepared in accordance with GAAP. The preparation of these
financial statements requires us to exercise our best judgment in making estimates that affect the reported amounts of assets,
liabilities, revenues and expenses. Set forth below is a summary of accounting policies and estimates that we believe are critical
to the preparation of our Consolidated Financial Statements. We believe that all of the decisions and assessments applied were
reasonable at the time made, based upon information available to us at that time. Due to the inherently judgmental nature of the
various projections and assumptions used, and unpredictability of economic and market conditions, actual results may differ
from estimates, and changes in estimates and assumptions could have a material effect on our financial statements in the future.
Our accounting policies and estimates are more fully discussed in Note 2. Summary of Significant Accounting Policies in the
Notes to the Consolidated Financial Statements.
Investments in Real Estate Properties
Upon the acquisition of real estate, the purchase price is allocated based upon the relative fair value of the assets
acquired and liabilities assumed. The allocation of the purchase price to the relative fair value of the tangible and intangible
assets of an acquired property is derived by valuing the property as if it were vacant. All real estate acquisitions in the periods
presented qualified as asset acquisitions and, as such, acquisition-related fees and acquisition-related expenses related to these
asset acquisitions are capitalized as part of the acquisition.
Investments in real estate generally include land, buildings, tenant improvements and identified intangible assets, such
as in-place lease intangibles and above or below-market lease intangibles. Direct and certain indirect costs clearly associated
with the development, construction, leasing or expansion of real estate assets are capitalized as a cost of the property. Repairs
and maintenance costs are expensed as incurred.
We acquired 223 properties for approximately $78 million, excluding closing costs, during 2023 and 320 properties for
approximately $123 million, excluding closing costs, during 2022. These transactions were accounted for as asset acquisitions,
and the purchase price of each was allocated based on the relative fair value of the asset acquired and liabilities assumed.
Revenue Recognition
We have 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 our Consolidated Statements of Operations and Comprehensive 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 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.
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 our chief executive officer.
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, we record an asset within
investments on the Consolidated Balance Sheets, which represents our 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
46
lease and the estimated residual value of the property, if any, less unearned income. Over the lease term, the investment in the
direct financing lease is reduced and income is recognized as revenue in “Fee and other” in the Consolidated Statements of
Operations and Comprehensive Income and produces a constant periodic rate of return on the investment in financing leases,
net.
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. As of December 31, 2023 and 2022, no impairment related to our
long-lived assets was identified.
New Accounting Pronouncements
For a discussion of our adoption of new accounting pronouncements, please see Note 2. Summary of Significant
Accountant Policies in the Notes to the Consolidated Financial Statements.
Inflation
Because most of our leases provide for fixed annual rental payments without annual rent escalations, our rental
revenues are fixed while our property operating expenses are subject to inflationary increases. A majority of our leases provide
for tenant reimbursement of real estate taxes and thus the tenant must reimburse us for real estate taxes. We believe that if
inflation increases expenses over time, increases in lease renewal rates will materially offset such increase.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss from adverse changes in market prices and interest rates. Our future earnings, cash flows
and fair values relevant to financial instruments are dependent upon prevailing market interest rates. Our primary market risk
results from our indebtedness, which bears interest at both fixed and variable rates. As of December 31, 2023, our indebtedness
was approximately $242.0 million, consisting of approximately $209.0 million of variable-rate debt and approximately $33.0
million of fixed-rate debt. Of the $209.0 million variable-rate debt, $200.0 million relates to the Term Loans, which have been
fixed through the Interest Rate Swaps. When factoring in the Term Loans as fixed-rate debt through the Interest Rate Swaps, as
of December 31, 2023, approximately $9.0 million of our indebtedness was variable-rate debt and approximately
$233.0 million was fixed-rate debt. Assuming no increase in the amount of our outstanding variable-rate indebtedness, if the
one-month Adjusted Term SOFR were to increase or decrease by 1.0%, our cash flows would decrease or increase by
approximately $0.1 million on an annualized basis.
Subject to maintaining our status as a REIT for federal income tax purposes, we manage our market risk on variable
rate debt through the use of interest rate swaps that fix the rate on all or a portion of our variable rate debt for varying periods
up to maturity, such as the Interest Rate Swaps. In the future, we may use other derivative instruments such as interest cap
agreements to, in effect, cap the interest rate on all or a portion of the debt for varying periods up to maturity. This in turn,
reduces the risks of variability of cash flows created by variable rate debt and mitigates the risk of increases in interest rates.
Our objective when undertaking such arrangements will be to reduce our floating rate exposure. However, we provide no
assurance that our efforts to manage interest rate volatility will successfully mitigate the risks of such volatility in our portfolio
and we do not intend to enter into hedging arrangements for speculative purposes.
47
POSTAL REALTY TRUST, INC.
INDEX TO FINANCIAL STATEMENTS
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Statements
Report of Independent Registered Public Accounting Firm (2023: Deloitte & Touche LLP, New York, New
York, PCAOB ID# 34)
Report of Independent Registered Public Accounting Firm (2022: BDO USA, LLP, New York, New York,
PCAOB ID# 243)
Consolidated Balance Sheets as of December 31, 2023 and 2022
Consolidated Statements of Operations and Comprehensive Income for the Years Ended December 31, 2023
and 2022
Consolidated Statements of Changes in Equity for the Years Ended December 31, 2023 and 2022
Consolidated Statements of Cash Flows for the Years Ended December 31, 2023 and 2022
Notes to Consolidated Financial Statements
Schedule III – Real Estate and Accumulated Depreciation
Page
F-2
F-3
F-4
F-5
F-6
F-7
F-9
48
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Postal Realty Trust, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Postal Realty Trust, Inc. (the "Company") as of December 31,
2023, the related consolidated statements of operations and comprehensive income, changes in equity, and cash flows, for the
year ended December 31, 2023, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as
the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position
of the Company as of December 31, 2023, and the results of its operations and its cash flows for the year ended December 31,
2023, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on
the Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to
error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over
financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting
but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due
to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ Deloitte & Touche LLP
New York, New York
February 29, 2024
We have served as the Company's auditor since 2023.
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Shareholders and Board of Directors
Postal Realty Trust, Inc.
Cedarhurst, New York
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheet of Postal Realty Trust, Inc. (the “Company”) as of December 31,
2022, the related consolidated statements of operations and comprehensive income, changes in equity, and cash flows for the
year then ended, and the related notes and schedule listed in the accompanying index (collectively referred to as the
“consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects,
the financial position of the Company at December 31, 2022, and the results of its operations and its cash flows for the year
then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express
an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered
with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement,
whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over
financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over
financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements,
whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a
test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ BDO USA, LLP
We served as the Company's auditor from 2017 to 2023.
New York, New York
March 7, 2023
F-3
POSTAL REALTY TRUST, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except par value and share data)
Assets
Investments:
Real estate properties, at cost:
Land
Building and improvements
Tenant improvements
Total real estate properties, at cost
Less: Accumulated depreciation
Total real estate properties, net
Investment in financing leases, net
Total real estate investments, net
Cash
Escrow and reserves
Rent and other receivables
Prepaid expenses and other assets, net
Goodwill
Deferred rent receivable
In-place lease intangibles, net
Above market leases, net
Total Assets
Liabilities and Equity
Liabilities:
Term loans, net
Revolving credit facility
Secured borrowings, net
Accounts payable, accrued expenses and other, net
Below market leases, net
Total Liabilities
Commitments and Contingencies
Equity:
Class A common stock, par value $0.01 per share; 500,000,000 shares authorized,
21,933,005 and 19,528,066 shares issued and outstanding as of December 31, 2023 and
December 31, 2022, respectively
Class B common stock, par value $0.01 per share; 27,206 shares authorized, 27,206
shares issued and outstanding as of December 31, 2023 and December 31, 2022
Additional paid-in capital
Accumulated other comprehensive income
Accumulated deficit
Total Stockholders’ Equity
Operating partnership unitholders’ non-controlling interests
Total Equity
Total Liabilities and Equity
December 31,
2023
December 31,
2022
$
$
$
$
106,074 $
443,470
6,977
556,521
(43,791)
512,730
16,042
528,772
2,235
632
4,750
13,369
1,536
1,542
14,154
355
567,345 $
90,020
378,596
6,375
474,991
(31,257)
443,734
16,130
459,864
1,495
547
4,613
15,968
1,536
1,194
15,687
399
501,303
198,801 $
9,000
32,823
11,996
13,100
265,720
163,753
—
32,909
9,109
11,821
217,592
219
195
—
287,268
4,621
(48,546)
243,562
58,063
301,625
567,345 $
—
254,107
7,486
(32,557)
229,231
54,480
283,711
501,303
The accompanying notes are an integral part of these consolidated financial statements.
F-4
POSTAL REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(in thousands, except share and per share data)
Revenues:
Rental income
Fee and other
Total revenues
Operating expenses:
Real estate taxes
Property operating expenses
General and administrative
Depreciation and amortization
Total operating expenses
Income from operations
Other income
Interest expense, net:
Contractual interest expense
Write-off and amortization of deferred financing fees
Interest income
Total interest expense, net
Income before income tax expense
Income tax expense
Net income
Net income attributable to operating partnership unitholders’ non-controlling interests
Net income attributable to common stockholders
Net income per share:
Basic and Diluted
Weighted average common shares outstanding:
Basic and Diluted
Comprehensive income:
Net income
Unrealized (loss) gain on derivative instruments
Comprehensive income
Comprehensive income attributable to operating partnership unitholders’ non-controlling
interests
Comprehensive income attributable to common stockholders
For the Year Ended
December 31,
2023
2022
$
60,970 $
2,742
63,712
8,549
6,825
14,654
19,688
49,716
13,996
679
(9,339)
(686)
5
(10,020)
4,655
(72)
4,583
(874)
50,876
2,454
53,330
7,168
5,625
13,110
17,727
43,630
9,700
1,029
(5,378)
(596)
1
(5,973)
4,756
(12)
4,744
(890)
$
$
$
$
3,709 $
3,854
0.12 $
0.15
20,145,151
18,545,494
4,583 $
(3,500)
1,083
(239)
844 $
4,744
8,249
12,993
(2,419)
10,574
The accompanying notes are an integral part of these consolidated financial statements.
F-5
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POSTAL REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Write-off and amortization of deferred financing costs
Amortization of above/below market leases
Amortization of intangible liability
Gain on insurance proceeds received for damage due to property
Equity based compensation
Other
Deferred rent receivable
Deferred rent expense payable
Changes in assets and liabilities:
Rent and other receivables
Prepaid expenses and other assets
Accounts payable, accrued expenses and other
Net cash provided by operating activities
Cash flows from investing activities:
Acquisition of real estate
Investment in financing leases
Escrows for acquisition and construction deposits
Insurance proceeds related to property damage claims
Capital improvements
Other investing activities
Net cash used in investing activities
Cash flows from financing activities:
Repayments of secured borrowings
Proceeds from term loans
Proceeds from revolving credit facility
Repayments of revolving credit facility
Redemption of operating partnership units
Net proceeds from issuance of shares
Debt issuance costs
Deferred offering costs
Proceeds from issuance of ESPP shares
Shares withheld for payment of taxes on restricted share vesting
Distributions and dividends
Net cash provided by financing activities
Net increase (decrease) in Cash and Escrows and Reserves
Cash and Escrows and Reserves at the beginning of year
Cash and Escrow and Reserves at the end of year
Supplemental Disclosure of Non-Cash Investing and Financing Activities
Operating partnership units issued for property acquisitions
Unrealized (loss) gain on interest rate swaps, net
Reallocation of non-controlling interest
Operating partnership units issue for business acquisition
F-7
For the Year Ended
December 31,
2023
2022
$
4,583 $
4,744
19,688
686
(2,411)
(140)
(654)
5,834
47
(348)
3
128
(501)
1,512
28,427
(70,224)
—
(103)
654
(2,868)
(68)
(72,609)
(106)
35,000
62,000
(53,000)
(558)
26,690
(266)
(107)
183
(467)
(24,362)
45,007
825
2,042
2,867 $
9,619 $
(3,500) $
3,369 $
— $
17,727
596
(2,185)
(91)
(843)
4,718
47
(529)
8
(358)
(95)
852
24,591
(116,212)
(10)
(273)
843
(3,687)
(808)
(120,147)
(100)
115,000
115,000
(128,000)
—
11,446
(811)
(199)
185
(383)
(21,566)
90,572
(4,984)
7,026
2,042
9,433
8,249
1,730
1,451
$
$
$
$
$
Reclassification of acquisition deposits included in prepaid expenses and other assets
Write-off of fixed assets no longer in service
Accrued capital expenditures included in accounts payable and accrued expenses
Accrued taxes withheld included in accounts payable and accrued expenses
Right of use assets
Accrued costs of capital included in accounts payable and accrued expenses
$
$
$
$
$
$
210 $
147 $
348 $
118 $
169 $
130 $
696
327
231
140
131
107
The accompanying notes are an integral part of these consolidated financial statements.
F-8
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 December 31, 2023, the Company held an approximately 80.7% 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 December 31, 2023, the Company owned a portfolio of 1,509 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 397 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 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
F-9
POSTAL REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
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. 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.
Use of Estimates
The preparation of financial statements in conformity with the U.S. generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities and the reported amounts of revenues and expenses during the reporting period. As discussed in
the applicable sections elsewhere in the Consolidated Financial Statements, 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.
Segment Reporting
The Company leases its properties primarily to the USPS and reports its business as a single reportable segment.
Investments in Real Estate
Upon the acquisition of real estate, the purchase price is allocated based upon the relative fair value of the assets
acquired and liabilities assumed. The allocation of the purchase price to the relative fair value of the tangible and intangible
assets of an acquired property is derived by valuing the property as if it were vacant. All real estate acquisitions in the periods
presented qualified as asset acquisitions and, as such, acquisition-related fees and acquisition-related expenses related to these
asset acquisitions are capitalized as part of the acquisition.
Investments in real estate generally include land, buildings, tenant improvements and identified intangible assets, such
as in-place lease intangibles and above or below-market lease intangibles. Direct and certain indirect costs clearly associated
with the development, construction, leasing or expansion of real estate assets are capitalized as a cost of the property. Repairs
and maintenance costs are expensed as incurred.
Depreciation or amortization expense is computed using the straight-line method based upon the following estimated
useful lives:
Buildings and improvements
Equipment and fixtures
Tenant improvements
In-place lease value
Years
10 to 40
5 to 10
Shorter of useful life or applicable lease term
Remaining non-cancellable term of the in-place lease
The acquired above or below-market lease intangibles are amortized to “Rental income” over the applicable lease
term, inclusive of any option periods for below-market leases.
Deferred Costs
Financing costs related to the issuance of the Company’s long-term debt, including the term loan facility component of
the Company's existing credit facilities (the “Credit Facilities”), are deferred and amortized as an increase to interest expense
F-10
POSTAL REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
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.
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:
Cash
Escrows and reserves:
Maintenance reserve
Real estate tax reserve
ESPP reserve
Cash and escrows and reserves
Revenue Recognition
As of
December 31,
2023
December 31,
2022
(in thousands)
2,235 $
314
231
87
2,867 $
1,495
206
240
101
2,042
$
$
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. 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 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
F-11
POSTAL REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
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.
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
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 will estimate the fair value of the asset group to determine the amount of an impairment loss that should be
recognized.
Income Taxes
As a REIT, the Company is generally not subject to federal corporate income tax on the net income (loss) that the
Company distributes to its shareholders. The Operating Partnership which holds the Company's properties is a partnership for
U.S. federal income tax purposes and is not subject to U.S. federal income taxes as the revenues and expenses pass through to
the respective owners where they are taxed. The states and cities in which the Operating Partnership operates generally follows
the U.S. federal income tax treatment.
A valuation allowance is established for deferred tax assets when management anticipates that it is more likely than
not that all, or a portion, of these assets would not be realized. In determining whether a valuation allowance is warranted, all
positive and negative evidence and all sources of taxable income such as prior earnings history, expected future earnings,
carryback and carryforward periods and tax strategies are considered to estimate if sufficient future taxable income will be
generated to realize the deferred tax asset. The assessment of the adequacy of a valuation allowance is based on estimates of
taxable income by jurisdiction and the period over which deferred tax assets will be recoverable.
The tax effects of uncertain tax positions taken or expected to be taken in income tax returns are recognized only if
they are “more likely-than-not” to be sustained on examination by the taxing authorities based on the technical merits as of the
reporting date. The tax benefits recognized in the financial statements from such positions are measured based on the largest
benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. The Company recognizes
estimated accrued interest and penalties related to uncertain tax positions in income tax expense.
Fair Value Measurements
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 December 31, 2023 and 2022. The use of different market
assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. Cash, escrows
F-12
POSTAL REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
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 December 31, 2023 and 2022 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 December 31, 2023 and December 31, 2022, 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 $28.0 million and $27.5 million as compared to the principal balance of $33.0 million and $33.1 million as of
December 31, 2023 and 2022, 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 December 31, 2023 and 2022, the fair value of the Company’s interest rate swap
derivative assets was approximately $6.4 million and $9.2 million, respectively, included in “Prepaid expenses and other assets,
net” on the Consolidated Balance Sheets. As of December 31, 2023, the fair value of the Company's interest rate swap
derivative liabilities was approximately $0.7 million 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
December 31, 2023 and 2022. Although management is not aware of any factors that would significantly affect the fair value
amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since December 31,
2023 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.
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 years ended
December 31, 2023 and 2022.
F-13
POSTAL REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Concentration of Credit Risks
As of December 31, 2023, the Company’s properties were leased primarily to a single tenant, the USPS. For the year
ended December 31, 2023, approximately 13.2% of the Company's total rental income, or $8.0 million, was concentrated in
Pennsylvania. For the year ended December 31, 2022, approximately 15.1% of the Company's total rental income, or $7.7
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 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.
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 long term incentive units of the Operating Partnership ("LTIP Units") held by the Company’s
CEO and certain other employees and the Company's Board of Directors. See Note 11. Stockholders’ Equity for further details.
Equity-Based Compensation
The Company accounts for equity-based compensation in accordance with ASC Topic 718 Compensation – Stock
Compensation, which requires the Company to recognize an expense for the grant date fair value of equity-based awards.
Equity-classified stock awards granted to employees and non-employees that have a service condition and/or a market
condition 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.
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 December 31, 2023 and 2022, the Company had unvested
restricted shares of Class A common stock, 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.
F-14
POSTAL REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Recently Adopted Accounting Pronouncements
In December 2022, the FASB issued ASU No. 2022-06, Deferral of the Sunset Date of Topic 848, which was issued to
defer the sunset date of Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform to December
31, 2024. ASU No. 2022-06 is effective immediately for all companies. ASU No. 2022-06 had no impact on the Company's
Consolidated Financial Statements for the years ended December 31, 2023 and December 31, 2022.
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 changed how entities measure credit losses
for most financial assets and certain other instruments that are not measured at fair value through net income. The guidance
replaced the previous "incurred loss" model with an "expected loss" approach. The guidance also requires entities to disclose
information about how they developed the allowances, including changes in the factors that influenced 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 became effective for the Company and was adopted by the Company on January 1, 2023. The
Company had two direct financing leases with a net investment balance aggregating approximately $16.0 million as of
December 31, 2023 prior to any credit loss adjustment. Historically, the Company has had no collection issues related to these
direct financing leases and its other leases in which the Company is the lessor; therefore, the Company assessed the probability
of default on these leases based on the lessee’s status as an independent agency of the executive branch of the U.S. federal
government, financial condition and business prospects and the remaining term of the leases. Based on the aforementioned, the
Company did not recognize any credit loss adjustment for such leases.
Future Application of Accounting Standards
In November 2023, the FASB issued ASU 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 Acquisitions
The following tables summarizes the Company’s acquisitions for the years ended December 31, 2023 and 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
2023
March 31, 2023(3)
June 30, 2023(4)
September 30, 2023(5)
December 31, 2023(6)
Three Months Ended
2022
March 31, 2022(9)
June 30, 2022(10)
September 30, 2022(11)
December 31, 2022(12)
Total
Number of
Properties
Land
Building and
Improvements
Tenant
Improvements
In-place
lease
intangibles
Above-
market
leases
Below-
market
leases
Other(1)
Total(2)
39 $
39
70
75
223 $
2,802 $
3,241
4,916
5,095
16,054 $
14,271 $
12,054
19,282
16,345
61,952 $
152 $
117
182
152
603 $
1,134 $
1,066
1,709
1,638
5,547 $
43 $
24
58
5
130 $
(826) $
(483)
(983)
(1,571)
(3,863) $
— $
—
(342)
(21)
(363) $
17,576
16,019
24,822
21,643
80,060
Number of
Properties
Land
Building and
Improvements
Tenant
Improvements
In-place
lease
intangibles
Above-
market
leases
Below-
market
leases
Other(7)
Total(8)
50 $
150
66
54
320 $
5,422 $
13,039
2,950
4,070
25,481 $
22,233 $
41,462
18,012
15,587
97,294 $
214 $
380
195
155
944 $
1,889 $
3,520
1,532
1,264
8,205 $
28 $
2
8
199
237 $
(1,848) $
(1,675)
(1,360)
(540)
(5,423) $
(363) $
16
—
—
(347) $
27,575
56,744
21,337
20,735
126,391
F-15
POSTAL REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Explanatory Notes:
(1) Includes an intangible liability related to unfavorable operating leases with purchase options on two properties during the
three months ended September 30, 2023 and an above market ground lease intangible liability on one property during the
three months ended December 31, 2023 that is each included in “Accounts payable, accrued expenses and other” on the
Consolidated Balance Sheets.
(2) Includes closing costs of approximately $0.3 million for the three months ended March 31, 2023, approximately $0.2
million for the three months ended June 30, 2023, approximately $0.7 million for the three months ended September 30,
2023 and approximately $0.6 million for the three months ended December 31, 2023.
(3) Includes the acquisition of 39 properties in various states for cash consideration in individual or portfolio transactions for
a price of approximately $17.6 million, including closing costs.
(4) Includes the acquisition of 39 properties in various states in individual or portfolio transactions for a price of
approximately $16.0 million, including closing costs, which was funded with both the issuance of OP Units to the sellers
(valued at approximately $0.5 million using the share price of Class A common stock on the date of each issuance of such
OP Units) and cash consideration.
(5) Includes the acquisition of 70 properties in various states in individual or portfolio transactions for a price of
approximately $24.8 million, including closing costs, which was funded with both the issuance of OP Units to the sellers
(valued at approximately $2.8 million using the share price of Class A common stock on the date of each issuance of such
OP Units) and cash consideration.
(6) Includes the acquisition of 75 properties in various states in individual or portfolio transactions for a price of
approximately $21.6 million, including closing costs, which was funded with both the issuance of OP Units to the sellers
(valued at approximately $6.3 million using the share price of Class A common stock on the date of each issuance of such
OP Units) and cash consideration. The aggregate purchase price for the quarter includes several land parcels that the
Company acquired for approximately $0.4 million, which may in the future be added to existing or future leases with the
USPS or used for other purposes that are consistent with the Company’s investment strategy.
(7) 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.
During the three months ended June 30, 2022, includes a below-market ground lease intangible asset.
(8) Includes closing costs of approximately $0.6 million for the three months ended March 31, 2022, approximately $1.7
million for the three months ended June 30, 2022, approximately $0.5 million for the three months ended September 30,
2022 and approximately $0.5 million for the three months ended December 31, 2022.
(9) Includes the acquisition of 50 properties in various states in individual or portfolio transactions for 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 cash consideration.
(10) Includes the acquisition of 150 properties in various states in individual or portfolio transactions for approximately
$56.7 million, including closing costs, which was funded with both the issuance of OP Units to the sellers as non-cash
consideration (valued at approximately $2.0 million using the share price of Class A common stock on the date of each
issuance of such OP Units) and cash consideration.
(11) Includes the acquisition of 66 properties in various states in individual or portfolio transactions for approximately
$21.3 million, including closing costs, which was funded with both the issuance of OP Units to the sellers as non-cash
consideration (valued at approximately $4.7 million using the share price of Class A common stock on the date of each
issuance of such OP Units) and cash consideration.
(12) Includes the acquisition of 54 properties in various states in individual or portfolio transactions for approximately
$20.7 million, including closing costs, which was funded with both the issuance of OP Units to the sellers as non-cash
F-16
POSTAL REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
consideration (valued at approximately $0.9 million using the share price of Class A common stock on the date of each
issuance of such OP Units) and cash consideration.
Note 4. Intangible Assets and Liabilities
The following table summarizes the Company's intangible assets and liabilities:
As of
December 31, 2023:
In-place lease intangibles
Above-market leases
Below-market leases
December 31, 2022:
In-place lease intangibles
Above-market leases
Below-market leases
Gross Asset
(Liability)
Accumulated
Amortization
(in thousands)
Net
Carrying
Amount
$
$
45,621 $
686
(22,940)
(31,467) $
(331)
9,840
14,154
355
(13,100)
40,074 $
556
(19,077)
(24,387) $
(157)
7,256
15,687
399
(11,821)
Amortization of in-place lease intangibles was $7.1 million and $7.0 million for the years ended December 31, 2023
and 2022, 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 $0.2 million and $0.1 million for the years ended December 31,
2023 and 2022, respectively, and is included in “Rental income” in the Consolidated Statements of Operations and
Comprehensive Income. Amortization of acquired below market leases was $2.6 million and $2.3 million for the years ended
December 31, 2023 and 2022, respectively, and is included in “Rental income” in the Consolidated Statements of Operations
and Comprehensive Income.
As of December 31, 2023, the weighted average amortization period for the Company’s intangible assets was
approximately 2.9 years, 2.3 years and 8.8 years for in-place lease intangibles, above-market leases and below-market leases,
respectively.
Future amortization/accretion of these intangibles is below (in thousands):
Year Ending December 31,
2024
2025
2026
2027
2028
Thereafter
Total
In-place lease
intangibles
Above-market
leases
Below-market
leases
$
$
6,307 $
4,013
2,351
962
308
213
14,154 $
150 $
98
75
28
3
1
355 $
(2,592)
(1,914)
(1,559)
(1,220)
(1,011)
(4,804)
(13,100)
F-17
POSTAL REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Note 5. Debt
The following table summarizes the Company’s indebtedness as of December 31, 2023 and December 31, 2022
(dollars in thousands):
Revolving Credit Facility(1):
Revolving Credit Facility
2021 Term Loan
2022 Term Loan
Secured Borrowings:
Vision Bank(3)
First Oklahoma Bank(4)
Vision Bank – 2018(5)
Seller Financing(6)
AIG – December 2020(7)
Total Principal
Unamortized deferred financing costs
Total Debt
$
Explanatory Notes:
Outstanding
Balance as of
December 31,
2023
Outstanding
Balance as of
December 31,
2022
Interest Rate at
December 31,
2023
Maturity Date
$
9,000 $
75,000
125,000
— SOFR +148 bps(2)
50,000 SOFR +143 bps(2)
115,000 SOFR +143 bps(2)
January 2026
January 2027
February 2028
1,409
316
844
194
30,225
241,988
(1,364)
240,624 $
1,409
333
844
282
30,225
198,093
(1,431)
196,662
3.69 % September 2041
3.63 % December 2037
3.69 % September 2041
January 2025
6.00 %
January 2031
2.80 %
(1) On August 9, 2021, the Company entered into the Credit Facilities, which initially included the $150.0 million Revolving
Credit Facility and the $50.0 million 2021 Term Loan. 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" and, together with the 2021 Term Loan, the "Term Loans"), replace the 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. On December 6, 2022, the Company exercised $40.0 million
of term loan accordion under the 2022 Term Loan. On July 24, 2023, the Company amended the Credit Facilities (the
"Second Amendment") to, among other things, add a daily simple SOFR-based option to the term SOFR-based floating
interest rate option as a benchmark rate for borrowings under the Credit Facilities and further exercised $35.0 million of
accordion under the Term Loans.
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. As of December 31, 2023, the
accordion feature under the Term Loans has been fully exercised. 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.
F-18
POSTAL REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
During the years ended December 31, 2023 and 2022, the Company incurred $0.3 million and $0.3 million, respectively, of
unused facility fees related to the Revolving Credit Facility. As of December 31, 2023, the Company was in compliance
with all of the Credit Facilities’ debt covenants.
(2) Based upon the one-month Adjusted Term SOFR, which is SOFR plus a term SOFR adjustment of 0.10% subject to a 0%
floor (the “Adjusted Term SOFR”). Upon the Company's achievement of certain sustainability targets for 2022, the
applicable margins for the Credit Facilities were reduced by 0.02% for the year ended December 31, 2023, 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.
The weighted average maturity date for the Company's indebtedness as of December 31, 2023 and 2022 was
approximately 4.2 years and 5.5 years, respectively.
Cash paid for interest during the years ended December 31, 2023 and 2022 was $9.2 million and $5.1 million,
respectively.
The scheduled principal repayments of indebtedness as of December 31, 2023 are as follows (in thousands):
Year Ending December 31,
2024
2025
2026
2027
2028
Thereafter
Total
Note 6. Derivatives and Hedging Activities
Amount
112
118
9,636
75,776
125,803
30,543
241,988
$
$
As of December 31, 2023, the Company had seven interest rate swaps with a total notional amount of $200.0 million
that are used to manage its interest rate risk and fix the SOFR component on the Term Loans of the Credit Facilities:
F-19
POSTAL REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Notional Amount ($ in thousands)
$50,000
$25,000
$25,000
$25,000
$40,000
$25,000
$10,000
Fixed Rate(1)
2.27%
4.217%
4.217%
4.79%
4.932%
5.736%
6.049%
Effective Date
May 2022
May 2022
May 2022
July 2022
December 2022
July 2023
September 2023
Maturity Date
January 2027
February 2028
February 2028
February 2028
February 2028
January 2027
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.
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” 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 $3.9 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 instruments in the Consolidated
Statements of Operations and Comprehensive Income for the years ended December 31, 2023 and 2022 (in thousands):
Derivatives in Cash Flow Hedging Relationships (Interest Rate
Swaps)
Amount of gain recognized on derivative in "Accumulated other
comprehensive income"
Amount of income (loss) reclassified from "Accumulated other
comprehensive income" into interest expense
$
$
2023
1,115 $
(4,615) $
2022
8,604
(355)
Years Ended December 31,
"Interest expense, net" presented in the Consolidated Statements of Operations and Comprehensive Income, in which
the effects of cash flow hedges are recorded, totaled $10.0 million and $6.0 million for the years ended December 31, 2023 and
2022, respectively.
Note 7. Leases
Lessor Accounting
As of December 31, 2023, the Company's properties were leased primarily to the USPS, with leases expiring at various
dates through May 31, 2031. Certain leases had expired and were in holdover status as of December 31, 2023 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
F-20
POSTAL REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
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):
Fixed payments
Variable payments
Years Ended December 31,
2023
2022
$
$
52,668 $
8,302
60,970 $
43,808
7,068
50,876
Future minimum lease payments to be received as of December 31, 2023 under non-cancellable operating leases for
the next five years and thereafter are as follows (in thousands):(1)
Year Ending December 31,
2024(2)(3)
2025
2026
2027
2028
Thereafter
Total
Explanatory Notes:
Amount
48,158
42,375
33,760
19,633
11,122
9,827
164,875
$
$
(1) The above minimum lease payments to be received do not include reimbursements from tenants for real estate taxes and
other reimbursed expenses.
(2) As of December 31, 2023, the leases at 81 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.
Purchase Option Provisions
As of December 31, 2023, operating leases for 74 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 December 31, 2023, 70 of these properties had an aggregate carrying value of approximately $52.9 million
with an aggregate purchase option price of approximately $67.9 million and the remaining four properties had an aggregate
carrying value of approximately $2.9 million with purchase options exercisable at fair market value.
F-21
POSTAL REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Investment in Financing Leases, Net
As of 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 December 31, 2023 and 2022 are summarized in the table below (in thousands):
Total minimum lease payment receivable
Less: unearned income
Investment in financing leases, net
As of December 31,
2022
2023
$
$
32,078 $
(16,036)
16,042 $
33,215
(17,085)
16,130
Revenue earned under direct financing leases for the years ended December 31, 2023 and 2022 were $1.0 million and
$1.1 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 December 31, 2023 for the
next five years and thereafter are as follows (in thousands):
Year Ending December 31,
2024
2025
2026
2027
2028
Thereafter
Total
Lessee Accounting
Amount
1,137
1,137
1,137
1,137
1,137
26,393
32,078
$
$
As a lessee, the Company has ground and office leases which were classified as operating leases. As of December 31,
2023, these leases had remaining terms, including renewal options, of 0.4 years to 59 years and a weighted average remaining
lease term of 23.3 years. Operating right of use ("ROU") assets and lease liabilities are included in “Prepaid expenses and other
assets, net” and “Accounts payable, accrued expenses and other, net” on the Consolidated Balance Sheets as follows (in
thousands):
ROU asset – operating leases
Lease liability – operating leases
As of
December 31,
2023
As of
December 31,
2022
$
$
967 $
994 $
1,010
1,014
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 discount rate ranging from 4.25% to 7.35% based on the yield of its current borrowings in determining its
lease liabilities.
Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. The lease terms
may include options to extend or terminate the lease if it is reasonably certain that the Company will exercise that option.
F-22
POSTAL REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Operating lease expense for each of the twelve months ended December 31, 2023 and 2022 was $0.2 million. See Note
9. Related Party Transactions for more details.
Future minimum lease payments to be paid by the Company as a lessee for operating leases as of December 31, 2023
for the next five years and thereafter are as follows (in thousands):
2024
2025
2026
2027
2028
Thereafter
Total future minimum lease payments
Interest discount
Total
Note 8. Income Taxes
TRS
$
$
$
162
87
75
48
42
1,619
2,033
(1,039)
994
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 the years ended
December 31, 2023 and 2022, income tax expense and income tax benefit related to REAC was $0.1 million and 3,670,
respectively.
Other
As of December 31, 2022, the Company’s Consolidated Balance Sheets reflected a liability for unrecognized tax
benefits in the amount of $0.02 million primarily related to the utilization of certain loss carryforwards by United Postal
Holdings, Inc. ("UPH") through May 16, 2019. For the year ended December 31, 2022, the Company accrued interest and
penalties of $0.01 million. During the years ended December 31, 2023 and 2022, the Company reversed $0.02 million and
$0.2 million, respectively, of unrecognized tax benefits inclusive of interest and penalties due to the expiration of statute of
limitations, with an offsetting adjustment to the indemnification asset.
A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows (in thousands):
For the Years Ended December
31,
2023
2022
Gross unrecognized tax benefits, beginning of year
Reductions to unrecognized tax benefits as a result of a lapse of the applicable statute of
limitations
Total
$
$
23
$
(23)
—
$
188
(165)
23
The Company and REAC are subject to examinations by federal and state and local tax authorities beginning with the
short tax year ended December 31, 2019. UPH was subject to examinations by federal tax authorities for tax years 2018 through
2019.
Cash paid for taxes for each of the years ended December 31, 2023 and 2022 was $0.05 million and $0.1 million,
respectively.
F-23
POSTAL REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Note 9. Related Party Transactions
Management Fee Income
REAC recognized management fee income of $1.3 million and $1.2 million for the years ended December 31, 2023
and 2022, respectively, from various parties which were affiliated with the Company's CEO. These amounts are included in
“Fee and other” in the Consolidated Statements of Operations and Comprehensive Income. Accrued management fees
receivable of $0.3 million and $0.3 million as of December 31, 2023 and 2022, respectively, are included in “Rent and other
receivables” on the Consolidated Balance Sheets.
Related Party Lease
On May 17, 2019, the Company entered into a lease for office space in Cedarhurst, New York with an entity affiliated
with the Company’s CEO (the “Office Lease”). Pursuant to the Office Lease, the monthly rent is $15,000 subject to escalations.
The term of the Office Lease is five years commencing on May 17, 2019 and will expire on May 16, 2024. Rental expenses
associated with the Office Lease for the years ended December 31, 2023 and 2022 were $0.2 million and $0.2 million,
respectively, and was recorded in “General and administrative expenses” in the Consolidated Statements of Operations and
Comprehensive Income. 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 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
December 31, 2023 and December 31, 2022, 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.
Note 10. 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).
Numerator for earnings per share – basic and diluted:
Net income attributable to common stockholders
Less: Income attributable to participating securities
Numerator for earnings per share — basic and diluted
Denominator for earnings per share – basic and diluted(1)
Basic and diluted earnings per share
Explanatory Note:
For the Years Ended
December 31,
2023
2022
$
$
$
3,709 $
(1,367)
2,342 $
20,145,151
0.12 $
3,854
(997)
2,857
18,545,494
0.15
(1) Diluted EPS reflects the potential dilution of the conversion of obligations and the assumed exercises of securities
including the effects of restricted shares and RSUs issued under the Company’s 2019 Equity Incentive Plan (the “Plan”)
(See Note 11. Stockholders’ Equity). The effect of such shares and RSUs would not be dilutive and were not included in the
computation of weighted average number of shares outstanding for the periods presented in the table above. 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.
The income allocable to such OP Units and LTIP Units is allocated on this same basis and reflected as non-controlling
F-24
POSTAL REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
interests in these 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 EPS.
Note 11. Stockholders’ Equity
ATM Program
On November 4, 2022, the Company entered into separate open market sale agreements with each of Jefferies LLC,
BMO Capital Markets Corp., Janney Montgomery Scott LLC, Stifel, Nicolaus & Company, Incorporated and Truist Securities,
Inc., as agents (the "ATM Program"), pursuant to which the Company may offer and sell, from time to time, shares of its Class
A common stock having an aggregate sales price of up to $50.0 million. The agreements also provide that the Company may
enter into one or more forward sale agreements under separate master forward confirmations and related supplemental
confirmations with affiliates of certain agents. On August 8, 2023, the Company amended the ATM Program to increase the
aggregate offering amount under the program from up to $50.0 million to up to $150.0 million.
The following table summarizes the activity under the ATM Program for the periods presented (dollars and shares
issued in thousands, except per share amounts). During the year ended December 31, 2023, 1,861,407 shares were issued under
the ATM Program. As of December 31, 2023, the Company had approximately $114.1 million remaining that may be issued
under the ATM Program.
Years Ended December 31,
2023
2022
Shares issued(1)
Gross proceeds received
Fees, issuance and other costs
Net proceeds received
Average gross sales price per share
$
$
$
1,861
27,810 $
1,250
26,560 $
14.94 $
751
11,869
530
11,339
15.80
Explanatory Note:
(1) During the year ended December 31, 2023, the Company entered into forward sales transactions under the ATM Program
for the sale of 798,847 shares of its Class A common stock, which were all subsequently settled during 2023.
Dividends and Distributions
During the year ended December 31, 2023, the Company's Board of Directors approved and the Company declared
and paid dividends or distributions, as applicable, of $24.4 million to Class A common stockholders, Voting Equivalency
stockholders, OP unitholders and LTIP unitholders, or $0.95 per share or unit, as shown in the table below.
Declaration Date
February 1, 2023
April 24, 2023
July 26, 2023
October 23, 2023
Record Date
February 15, 2023
May 5, 2023
August 7, 2023
November 1, 2023
Date Paid
February 28, 2023
May 31, 2023
August 31, 2023
November 30, 2023
Amount Per Share or Unit
0.2375
$
0.2375
$
0.2375
$
0.2375
$
F-25
POSTAL REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
During the year ended December 31, 2022, the Company's Board of Directors approved and the Company declared
and paid dividends or distributions, as applicable, of $21.6 million to Class A common stockholders, Voting Equivalency
stockholders, OP unitholders and LTIP unitholders, or $0.925 per share or unit, as shown in the table below.
Declaration Date
February 1, 2022
April 28, 2022
July 27, 2022
October 26, 2022
Non-controlling Interests
Record Date
February 15, 2022
May 13, 2022
August 8, 2022
November 7, 2022
Date Paid
February 28, 2022
May 27, 2022
August 26, 2022
November 28, 2022
Amount Per Share or Unit
0.2275
$
0.2300
$
0.2325
$
0.2350
$
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 employees and the Board of Directors in
connection with the IPO and/or as a part of their compensation. During the year ended December 31, 2023, the Company issued
143,288 LTIP Units to the Company's CEO for his 2022 incentive bonus, his election to defer 100% of his 2023 annual salary
and for long term incentive compensation, 75,489 LTIP Units to the Company’s president for his 2022 incentive bonus and his
election to defer 50% of his 2023 annual salary, 57,057 LTIP Units to the Company's Chief Financial Officer for his 2022
incentive bonus and for long term incentive compensation, 40,635 LTIP Units to the Board of Directors for their annual
retainers as compensation for their services as directors, 25,510 LTIP Units to an employee for his 2022 incentive bonus, his
election to defer a portion of his 2023 annual salary and for long term incentive compensation and 8,447 LTIP Units to a
consultant under the consultancy agreement with the Company. In addition, during the years ended December 31, 2023 and
2022, the Company issued 693,648 and 661,398 OP Units, respectively, to certain contributors in connection with portfolio
acquisitions (for further details, see Note 3. Real Estate Acquisitions) and a business acquisition (for further details, see Note
13. Business Acquisitions).
As of December 31, 2023 and December 31, 2022, non-controlling interests consisted of 4,387,334 OP Units and
884,621 LTIP Units and 4,133,619 OP Units and 536,868 LTIP Units, respectively. This represented approximately 19.3% and
19.2% of the outstanding Operating Partnership units as of December 31, 2023 and 2022, respectively. OP Units and shares of
Class A common stock generally have the same economic characteristics, as they share equally in the total net income or loss
and distributions of the Operating Partnership. Beginning on or after the date which is 12 months after the date on which a
limited partner first receives the OP Units, such limited partner will generally 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 such OP Units in
exchange for cash, or at the Company’s sole discretion, shares of Class A common stock, on an one-for-one basis determined in
accordance with and subject to adjustment under the partnership agreement.
During the year ended December 31, 2023, 402,433 OP Units and 2,673 LTIP Units were redeemed for 405,106 shares
of Class A common stock. For redemption of OP Units using shares of Class A common stock, the Company adjusted the
carrying value of non-controlling interests to reflect its share of the book value of the Operating Partnership reflecting the
change in the Company’s ownership of the Operating Partnership. Such adjustments are recorded to additional paid-in capital as
a reallocation of non-controlling interest in the Consolidated Statements of Changes in Equity. During the year ended
December 31, 2023, 37,500 OP Units were also redeemed for cash for the total amount of $0.6 million.
The Operating Partnership unitholders are entitled to share in cash distributions from the Operating Partnership in
proportion to their percentage ownership of OP Units.
Restricted Stock and Other Awards
Pursuant to the Company’s 2019 Equity Incentive Plan (the “Equity Incentive Plan” or the “Plan”), the Company may
grant equity incentive awards to its directors, officers, employees and consultants. As of December 31, 2023, the remaining
shares available under the Plan for future issuance was 1,034,609. 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.
F-26
POSTAL REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The following table presents a summary of the Company's outstanding restricted shares of Class A common stock,
LTIP Units and RSUs. The balance as of December 31, 2023 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)
Outstanding, as of January 1, 2023
Granted
Conversion to common stock
Vesting of restricted shares and RSUs(5)
Forfeited
Outstanding, as of December 31, 2023
449,076
131,166
—
(76,010)
(5,830)
498,402
536,868
350,426
(2,673)
—
—
884,621
Explanatory Notes:
(1) Represents restricted shares awards included in Class A common stock.
Total
Shares/Units/
RSUs
1,215,444 $
602,501 $
(2,673) $
(103,466) $
(17,046) $
1,694,760 $
229,500
120,909
—
(27,456)
(11,216)
311,737
Weighted
Average
Grant Date
Fair Value
16.12
15.53
18.02
13.11
8.86
16.16
(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, five years or eight years.
(3) Includes 143,288 LTIP Units granted to the Company’s CEO, 75,489 LTIP Units granted to the Company's president and
57,057 LTIP Units granted to the Company's Chief Financial Officer, which vest over three years or cliff vest at the end of
eight years. Also includes 25,510 LTIP Units granted to an employee of the Company, a portion of which vested on
December 31, 2023 with the remaining to vest over three years or cliff vest at the end of eight years, 40,635 LTIP Units
granted to the Company's independent directors that vest over three years or cliff vest at the end of three years and 8,447
LTIP Units granted to a consultant under the consultancy agreement with the Company, with 3,304 of such units vested on
June 30, 2023 and 5,143 remaining to vest on June 30, 2024.
(4) Includes 63,512 RSUs granted to certain officers and employees of the Company during the year ended December 31, 2023
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 performance-based hurdles relating to the Company’s specified absolute and relative total
stockholder return goals and continued employment with the Company over the approximately three-year period from the
grant date through December 31, 2025. 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 46,258 time-based RSUs issued for 2022 incentive
bonuses to certain employees that vested fully on January 31, 2023, the date of grant, and 11,138 time-based RSUs granted
to certain employees for their election to defer a portion of their 2023 salary that vested on December 31, 2023. RSUs
reflect the right to receive shares of Class A common stock, subject to the applicable vesting criteria.
(5) Includes 74,082 of restricted shares that vested and 29,384 shares of restricted shares that were withheld to satisfy
minimum statutory withholding requirements.
In February 2024, the Company issued 132,693 LTIP Units to the Company’s CEO for his 2023 incentive bonus and
his election to defer 100% of his 2024 annual salary, 51,490 LTIP Units to the Company’s president for his 2023 incentive
bonus and 43,038 LTIP Units to the Company's Chief Financial Officer for his 2023 incentive bonus. LTIP Units issued to the
Company’s CEO, president and Chief Financial Officer in lieu of cash compensation will cliff vest on the eighth anniversary of
February 1, 2024.
In addition, in February 2024, the Company issued 32,579 restricted shares of Class A common stock for annual grants
to employees and consultants and 34,841 RSUs, 48,778 LTIP units and 31,883 restricted shares of Class A common stock to
other employees for their 2023 incentive bonus. RSUs reflect the right to receive shares of Class A common stock. RSUs and
certain LTIP Units issued to employees for 2023 incentive bonuses vested fully on the date of grant. Certain restricted shares of
Class A common stock issued to employees and consultants will vest in three equal, annual installments on each of the first
three anniversaries of February 1, 2024, while other restricted shares of Class A common stock and LTIP Units issued to
F-27
POSTAL REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
employees in lieu of cash compensation will cliff vest on the third, fifth or eighth anniversary of February 1, 2024. The
Company also issued 703 restricted shares of Class A common stock in February 2024 to certain employees for work
anniversaries, which shares vested fully on the date of grant.
In February 2024, the Company also issued an aggregate of 33,253 LTIP Units, 31,625 of restricted shares of Class A
common stock and 79,296 RSUs to certain officers of the Company. The LTIP Units and restricted shares of Class A common
stock will vest in three equal, annual installments over the approximately three-year period ending February 1, 2027, subject to
continued employment with the Company. The RSUs are market-based awards and are subject to the achievement of
performance-based hurdles relating to the Company’s absolute and relative total stockholder return goals and continued
employment with the Company over the approximately three-year period from the grant date through December 31, 2026. Such
RSU recipients may earn up to 200% of the RSUs that were issued. Upon vesting pursuant to the terms of the RSUs, the RSUs
that vest will be settled in shares of Class A common stock and the recipients will be entitled to receive the distributions that
would have been paid with respect to a share of Class A common stock (for each share that vests) on or after the date the RSUs
were initially granted.
During the year ended December 31, 2020, the Company issued 38,672 RSUs (the “2020 Performance-Based
Awards”) to certain employees that were market-based awards and subject to the achievement of performance-based hurdles
relating to the Company’s absolute total stockholder return goals and continued employment with the Company over the
approximately three-year performance period ended December 31, 2022. In January 2023, the Company's Corporate
Governance and Compensation Committee of the Board of Directors ("CGC Committee") determined that the Company's total
stockholder return for such three-year performance period exceeded the threshold performance hurdles for the 2020
Performance-Based Awards and, as a result, approved the payout of (i) 27,456 RSUs for such awards, which were settled using
the Company’s shares of Class A common stock, and (ii) their cash dividends for the three-year performance period.
During the year ended December 31, 2021, the Company issued 46,714 RSUs (the “2021 Performance-Based
Awards”) to certain employees that were market-based awards and subject to the achievement of performance-based hurdles
relating to the Company’s absolute total stockholder return goals and continued employment with the Company over the
approximately three-year performance period ended December 31, 2023. In February 2024, the Company's CGC Committee
determined that the Company's total stockholder return for such three-year performance period met the threshold performance
hurdles for the 2021 Performance-Based Awards and, as a result, approved the payout of (i) 23,357 RSUs for such awards,
which were settled using the Company’s shares of Class A common stock, and (ii) their cash dividends for the three-year
performance period.
During the year ended December 31, 2023, the Company recognized compensation expense of $5.2 million and $0.6
million in “General and administrative expenses” and "Property operating expenses" in the Consolidated Statements of
Operations and Comprehensive Income, respectively, related to all awards. During the year ended December 31, 2022, the
Company recognized compensation expense of $4.3 million and $0.4 million in “General and administrative expenses” and
"Property operating expenses" in the Consolidated Statements of Operations and Comprehensive Income, respectively.
The fair value of restricted shares that vested during the years ended December 31, 2023 and 2022 was $1.5 million
and $1.2 million, respectively. The weighted average grant date fair value for awards issued in 2023 and 2022 was $15.53 and
$16.88, respectively. As of December 31, 2023, there was $15.1 million of total unrecognized compensation cost related to
unvested awards, which is expected to be recognized over a weighted average period of 5.0 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 Company’s 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 December 31, 2023
and 2022, 44,520 and 29,710 shares have been issued under the ESPP since commencement, respectively. During the years
ended December 31, 2023 and 2022, the Company recognized compensation expense of $0.03 million and $0.03 million,
respectively, related to ESPP.
F-28
POSTAL REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Note 12. Commitments and Contingencies
As of December 31, 2023, 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 and results of operations, 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 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.
In connection with the acquisition, the Company recorded an intangible asset related to the customer relationships and
trade name of approximately $0.2 million in “Prepaid expenses and other assets, net” on the Consolidated Balance Sheets,
which is being amortized over the estimated useful life of four years, 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 in the
Consolidated financial Statements since the acquisition date. For the year ended December 31, 2022, the Company recorded
revenue of $0.03 million and net loss of $0.09 million in connection with the acquired business. 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
In addition to the subsequent events discussed elsewhere in the notes to the Consolidated Financial Statements, the
following events occurred subsequent to December 31, 2023:
The Company's Board of Directors approved, and on February 2, 2024, the Company declared a fourth quarter 2023
common stock dividend of $0.24 per share, which was paid on February 29, 2024 to stockholders of record as of February 16,
2024.
As of February 29, 2024, the Company had $211.0 million drawn on the Credit Facilities, with $75.0 million drawn on
the 2021 Term Loan, $125.0 million drawn on the 2022 Term Loan and $11.0 million drawn on the Revolving Credit Facility.
As of February 29, 2024 and during the period subsequent to December 31, 2023, the Company issued 483,341 shares
of its Class A common stock under the ATM Program for gross proceeds of approximately $6.9 million.
As of February 29, 2024 and during the period subsequent to December 31, 2023, the Company closed on the
acquisitions of eight properties for approximately $4.5 million, excluding closing costs.
As of February 29, 2024 and during the period subsequent to December 31, 2023, the Company had entered into
definitive agreements to acquire twenty properties for approximately $13.9 million. The majority of these transactions are
anticipated to close during the second and third quarters of 2024, 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.
F-29
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as such term is defined in Rule 13a-15(e) and 15d-15(e) under the
Exchange Act, that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is
processed, recorded, summarized and reported within the time periods specified in the rules and regulations of the SEC and that
such information is accumulated and communicated to management, including our Chief Executive Officer (Principal
Executive Officer) and Chief Financial Officer (Principal Financial Officer), as appropriate, to allow for timely decisions
regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that
any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the
desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures.
We have carried out an evaluation, under the supervision and with the participation of management, including our
Principal Executive Officer and Principal Financial Officer, regarding the effectiveness of our disclosure controls and
procedures as of December 31, 2023, the end of the period covered by this Annual Report on Form 10-K. Based on the
foregoing, our Principal Executive Officer and Principal Financial Officer have concluded, as of December 31, 2023, that our
disclosure controls and procedures were effective in ensuring that information required to be disclosed by us in reports filed or
submitted under the Exchange Act (i) is processed, recorded, summarized and reported within the time periods specified in the
SEC’s rules and forms and (ii) is accumulated and communicated to our management, including our Principal Executive Officer
and Principal Financial Officer, as appropriate to allow for timely decisions regarding required disclosure.
Management’s Report on Internal Control Over Financial Reporting
Our management, including our Principal Executive Officer and Principal Financial Officer, is responsible for
establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act. Under the supervision and with the participation of our management, including our Principal
Executive Officer and Principal Financial Officer, we conducted an evaluation of the effectiveness of our internal control over
financial reporting based on the original framework in Internal Control - Integrated Framework issued in 2013 by the
Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in
Internal Control - Integrated Framework, our management concluded that our internal control over financial reporting was
effective as of December 31, 2023.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting that occurred during our most recent fiscal quarter
that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
On December 14, 2023, an affiliate of Andrew Spodek, our chief executive officer, terminated its previously disclosed
pre-arranged trading plan, which was entered into on May 11, 2023, and entered into a new pre-arranged trading plan (the
“10b5-1 plan”) that is intended to satisfy the affirmative defense of Rule 10b5-1(c) under the Exchange Act. Under the new
10b5-1 plan, the affiliate of Mr. Spodek can purchase up to 70,000 shares of our Class A common stock between March 14,
2024 and March 13, 2025, subject to price and trading limitations under the plan.
On February 29, 2024, we mutually terminated the open market sale agreement dated November 4, 2022 with Janney
Montgomery Scott LLC in connection with our ATM Program. For description of the material terms and conditions of the
terminated sale agreement and details regarding our ATM Program, see Item 7. "Management’s Discussion and Analysis of
Financial Condition and Results of Operations—Overview—ATM Program.” We did not incur any penalties as a result of such
termination.
44
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
45
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by Item 10 is incorporated by reference to our definitive Proxy Statement for our 2024
PART III
annual stockholders’ meeting.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated by reference to our definitive Proxy Statement for our 2024
annual stockholders’ meeting.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The information required by Item 12 is incorporated by reference to our definitive Proxy Statement for our 2024
annual stockholders’ meeting.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by Item 13 is incorporated by reference to our definitive Proxy Statement for our 2024
annual stockholders’ meeting.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by Item 14 is incorporated by reference to our definitive Proxy Statement for our 2024
annual stockholders’ meeting.
46
PART IV
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(1) Financial Statements
Our consolidated financial statements and notes thereto, together with the Reports of Independent Registered Public
Accounting Firm are included in Item 8 of this Annual Report on Form 10-K commencing on page F-1.
(2) Financial Statement Schedules
Our financial statement schedule is included in Part IV of this Annual Report on Form 10-K.
(3) Exhibits
A list of exhibits to this Annual Report on Form 10-K is set forth on the Index to Exhibits commencing on page 50 and
is incorporated herein by reference.
47
Postal Realty Trust, Inc.
Schedule III - Real Estate and Accumulated Depreciation
As of December 31, 2023
Initial Cost to Company
Land
Cost
Capitalized
Subsequent to
Acquisition
State/Territory
Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New
Hampshire
New Jersey
New Mexico
New York
North
Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Puerto Rico
South
Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
Number of
Properties (1)
30
1
12
32
31
21
8
3
27
31
1
12
77
30
35
31
27
34
44
8
20
59
61
30
45
13
31
5
8
9
8
58
59
22
41
59
5
103
1
26
24
28
96
4
21
27
9
45
86
9
1,507
Explanatory Notes:
Encumbrances
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
316
—
—
—
—
—
—
—
—
—
—
—
844
—
—
31,634
—
194
—
—
—
—
—
—
—
—
—
—
32,988 $
$
Buildings &
Improvements
19,222
51
6,808
5,932
20,710
11,377
5,245
799
13,644
8,170
1,447
1,346
9,544
8,310
6,665
10,005
4,385
8,685
4,673
1,632
10,174
12,108
11,605
8,116
7,650
3,359
3,309
3,301
1,231
3,624
1,825
18,462
19,200
2,256
13,935
10,685
3,104
66,677
349
5,844
2,927
10,147
22,966
2,044
4,512
11,480
1,691
8,570
18,048
3,019
440,868 $
3,455
15
1,454
1,613
12,176
1,531
1,166
361
6,490
1,795
1,810
99
1,487
1,497
886
1,103
1,167
2,238
1,570
852
3,529
3,291
1,306
1,797
1,384
435
233
591
519
782
726
5,324
6,404
231
3,218
2,080
1,555
9,416
99
1,967
422
3,037
5,442
318
1,395
2,949
539
1,240
2,820
260
106,074 $
Buildings &
Accumulated
Gross Amount Carried at Close of Period (2)
Improvements
Total
Land
22,850
19,395
66
51
8,270
6,816
7,574
5,961
33,210
21,034
12,974
11,443
6,489
5,323
1,160
799
20,231
13,741
10,159
8,364
3,425
1,615
1,445
1,346
11,483
9,996
10,203
8,706
7,733
6,847
11,716
10,613
5,581
4,414
11,046
8,808
6,607
5,037
2,516
1,664
13,787
10,258
16,009
12,718
13,295
11,989
10,097
8,300
9,190
7,806
3,888
3,453
3,659
3,426
3,892
3,301
1,758
1,239
4,422
3,640
2,551
1,825
24,118
18,794
25,797
19,393
2,491
2,260
17,432
14,214
12,974
10,894
4,686
3,131
76,745
67,329
448
349
8,962
6,995
3,380
2,958
13,278
10,241
29,015
23,573
2,362
2,044
5,931
4,536
14,518
11,569
2,246
1,707
10,021
8,781
21,552
18,732
3,279
3,019
556,521 $
450,447 $
3,455
15
1,454
1,613
12,176
1,531
1,166
361
6,490
1,795
1,810
99
1,487
1,497
886
1,103
1,167
2,238
1,570
852
3,529
3,291
1,306
1,797
1,384
435
233
591
519
782
726
5,324
6,404
231
3,218
2,080
1,555
9,416
99
1,967
422
3,037
5,442
318
1,395
2,949
539
1,240
2,820
260
106,074 $
Depreciation
1,352
10
224
972
1,300
1,208
489
55
963
688
111
304
868
742
637
972
341
1,165
590
196
2,229
1,411
880
660
791
391
242
198
121
136
98
1,220
1,910
280
1,405
1,479
124
6,976
19
521
292
1,042
3,447
102
321
796
182
498
2,673
160
43,791
Depreciable
Life
(Yrs) (3)
40
40
40
40
40
40
40
40
40
40
40
40
40
40
40
40
40
40
40
40
40
40
40
40
40
40
40
40
40
40
40
40
40
40
40
40
40
40
40
40
40
40
40
40
40
40
40
40
40
40
Date Acquired
2013-2023
2018
2021-2023
2013-2023
2019-2023
2019-2023
2013-2022
2020-2023
2013-2023
2013-2023
2021
2013-2023
2013-2023
2019-2023
2013-2023
2013-2023
2013-2023
2013-2023
2013-2023
2013-2022
2007-2023
2011-2023
2013-2023
2013-2023
2013-2023
2013-2023
2013-2023
2013-2023
2019-2022
2019-2023
2019-2023
2019-2023
2013-2023
2013-2023
2006-2023
2013-2023
2020-2023
2005-2023
2022
2019-2023
2013-2023
2013-2023
2005-2023
2020-2023
2019-2023
2019-2023
2013-2023
2019-2023
2005-2023
2013-2023
173
—
8
29
324
66
78
—
97
194
168
—
452
396
182
608
29
123
364
32
84
610
384
184
156
94
117
—
8
16
—
332
193
4
279
209
27
652
—
1,151
31
94
607
—
24
89
16
211
684
—
9,579 $
(1) Excludes two properties accounted for as direct financing leases.
(2) The aggregate cost for Federal Income Tax purposes was approximately $573.5 million as of December 31, 2023.
(3) Estimated useful life for buildings.
48
The following table reconciles real estate for the years ended December 31, 2023 and 2022:
Beginning Balance
Acquisitions
Capital Improvements
Write-offs
Other
Ending Balance
Explanatory Note:
For the Years Ended
December 31,
2023
474,991 $
78,608
3,068
(145)
(1)
556,521 $
2022
348,365
123,719
3,251
(322)
(22)
474,991
$
$
(1) Other includes reclassification adjustments.
The following table reconciles accumulated depreciation for the years ended December 31, 2023 and 2022:
Beginning Balance
Depreciation expense
Write-offs and other
Ending Balance
For the Years Ended
December 31,
2023
2022
$
$
(31,257) $
(12,503)
(31)
(43,791) $
(20,884)
(10,695)
322
(31,257)
49
Exhibit
Number
3.1
3.2
4.1
4.2
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
EXHIBIT INDEX
Description
Articles of Amendment and Restatement of the Company, dated as of May 15, 2019 (incorporated by reference to Exhibit 3.1
to the Company’s Quarterly Report on Form 10-Q filed on June 27, 2019).
Amended and Restated Bylaws of the Company, effective as of August 4, 2023 (incorporated by reference to Exhibit 3.1 to
the Company's Quarterly Report on Form 10-Q filed on August 8, 2023).
Form of Certificate of Class A Common Stock of the Company (incorporated by reference to Exhibit 4.1 to the Company’s
Registration Statement on Form S-11/A filed on May 7, 2019).
Description of Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (incorporated
by reference to Exhibit 4.2 to the Company’s Annual Report on Form 10-K filed with the Commission on March 27, 2020).
First Amended and Restated Agreement of Limited Partnership of the Postal Realty LP, dated May 16, 2019 (incorporated by
reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on June 27, 2019).
Postal Realty Trust, Inc. Amended and Restated Alignment of Interest Program (incorporated by reference to Exhibit 10.1 to
the Company’s Current Report on Form 8-K filed on April 29, 2020).†
Representation, Warranty and Indemnity Agreement, dated as of May 14, 2019, by and among the Company, Postal Realty LP
and Andrew Spodek (incorporated by reference to Exhibit 10.14 to the Company’s Quarterly Report on Form 10-Q filed on
June 27, 2019).†
Tax Indemnification Agreement, dated as of May 14, 2019, by and among the Company, United Properties Holding, Inc.,
United Post Office Investments, Inc. and Andrew Spodek (incorporated by reference to Exhibit 10.15 to the Company’s
Quarterly Report on Form 10-Q filed on June 27, 2019).†
Form of Right of First Offer Agreement (incorporated by reference to Exhibit 10.18 to the Company’s Registration Statement
on Form S-11/A filed on May 7, 2019).†
Tax Protection Agreement, dated as of May 14, 2019, by and among the Company, Postal Realty LP, Andrew Spodek, Tayaka
Holdings, LLC and IDJ Holdings, LLC (incorporated by reference to Exhibit 10.17 to the Company’s Quarterly Report on
Form 10-Q filed on June 27, 2019).†
Tax Protection Agreement, dated as of May 14, 2019, by and among the Company, Postal Realty LP and Nationwide Postal
Management Holdings, Inc. (incorporated by reference to Exhibit 10.18 to the Company’s Quarterly Report on Form 10-Q
filed on June 27, 2019).†
Tax Protection Agreement, dated as of May 14, 2019, by and among the Company, Postal Realty LP and Unlimited Postal
Holdings LP (incorporated by reference to Exhibit 10.19 to the Company’s Quarterly Report on Form 10-Q filed on June 27,
2019).†
Form of Third Party Management Agreement (incorporated by reference to Exhibit 10.11 of the Company’s Registration
Statement on Form S-11/A filed on May 7, 2019).
Indemnification Agreement, dated as of May 17, 2019, by and between the Company and Patrick Donahue (incorporated by
reference to Exhibit 10.21 to the Company’s Quarterly Report on Form 10-Q filed on June 27, 2019).†
Indemnification Agreement, dated as of May 17, 2019, by and between the Company and Anton Feingold (incorporated by
reference to Exhibit 10.22 to the Company’s Quarterly Report on Form 10-Q filed on June 27, 2019).†
Indemnification Agreement, dated as of May 17, 2019, by and between the Company and Jeremy Garber (incorporated by
reference to Exhibit 10.23 to the Company’s Quarterly Report on Form 10-Q filed on June 27, 2019).†
Indemnification Agreement, dated as of May 17, 2019, by and between the Company and Jane Gural-Senders (incorporated
by reference to Exhibit 10.24 to the Company’s Quarterly Report on Form 10-Q filed on June 27, 2019).†
Indemnification Agreement, dated as of May 17, 2019, by and between the Company and Barry Lefkowitz (incorporated by
reference to Exhibit 10.25 to the Company’s Quarterly Report on Form 10-Q filed on June 27, 2019).†
Indemnification Agreement, dated as of May 17, 2019, by and between the Company and Andrew Spodek (incorporated by
reference to Exhibit 10.26 to the Company’s Quarterly Report on Form 10-Q filed on June 27, 2019).†
Indemnification Agreement, dated as of January 1, 2021, by and between the Company and Robert B. Klein (incorporated by
reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on August 13, 2021).†
Indemnification Agreement, dated as of May 17, 2019, by and between the Company and Matt Brandwein (incorporated by
reference to Exhibit 10.27 to the Company’s Quarterly Report on Form 10-Q filed on June 27, 2019).†
Amended and Restated Employment Agreement, dated October 17, 2023, by and between the Company and Andrew Spodek
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 20, 2023).†*
Amended and Restated Employment Agreement, dated October 17, 2023, by and between the Company and Jeremy Garber
(incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on October 20, 2023).†*
Amended and Restated Employment Agreement, dated October 17, 2023, by and between the Company and Robert Klein
(incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on October 20, 2023).†*
2019 Equity Incentive Plan of the Company (incorporated by reference to Exhibit 10.2 to the Company’s Registration
Statement on Form S-11/A filed on May 7, 2019).†
Amendment No. 1 to the Postal Realty Trust, Inc. 2019 Equity Incentive Plan, effective as of June 26, 2020 (incorporated by
reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 1, 2020).†
Amendment No. 2 to the Postal Realty Trust, Inc. 2019 Equity Incentive Plan, effective as of June 18, 2021 (incorporated by
reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 21, 2021).†
Form of 2019 Equity Incentive Plan Stock Award Agreement and Notice (incorporated by reference to Exhibit 10.5 of the
Company’s Registration Statement on Form S-11/A filed on May 7, 2019).†
Form of 2019 Employee Stock Purchase Plan of the Company (incorporated by reference to Exhibit 10.4 to the Company’s
Registration Statement on Form S-11/A filed on May 7, 2019).†
50
Exhibit
Number
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
10.34
21.1
23.1
23.2
31.1
31.2
32.1
32.2
Description
Form of LTIP Unit Vesting Agreement (incorporated by reference to Exhibit 10.6 of the Company’s Registration Statement on
Form S-11/A filed on May 7, 2019).†
Credit Agreement, dated August 9, 2021, by and among Postal Realty LP, the Company, the certain subsidiaries from time to
time party thereto as guarantors, and Bank of Montreal, as administrative agent, and the several banks and financial
institutions party thereto as lenders (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
filed on August 10, 2021).
First Amendment to Credit Agreement, dated May 11, 2022, by and among Postal Realty LP, the Company, the certain
subsidiaries from time to time party thereto as guarantors, and Bank of Montreal, as administrative agent, and the several
banks and financial institutions party thereto as lenders (incorporated by reference to Exhibit 10.1 to the Company’s Current
Report on Form 8-K filed on May 11, 2022).
Second Amendment to Credit Agreement, dated July 24, 2023, by and among Postal Realty LP, the Company, the certain
subsidiaries from time to time party thereto as guarantors, and Bank of Montreal, as administrative agent, and the several
banks and financial institutions party thereto as lenders (incorporated by reference to Exhibit 10.1 to the Company's Current
Report on Form 8-K filed on July 26, 2023).
Open-End Mortgage, Security Agreement, Fixture Filing, Financing Statement and Assignment of Leases and Rents, dated as
of December 18, 2020, by and among Thorn Hill Postal Realty Holdings LLC, The United States Life Insurance Company in
the City of New York and National Union Fire Insurance Company of Pittsburgh, PA (incorporated by reference to Exhibit
10.1 to the Company’s Current Report on Form 8-K filed on December 21, 2020).
Promissory Note (USLIC), dated December 18, 2020, made by Thorn Hill Postal Realty Holdings LLC to The United States
Life Insurance Company in the City of New York (incorporated by reference to Exhibit 10.2 to the Company’s Current Report
on Form 8-K filed on December 21, 2020).
Promissory Note (USLIC – Fortitude), dated December 18, 2020, made by Thorn Hill Postal Realty Holdings LLC to The
United States Life Insurance Company in the City of New York (incorporated by reference to Exhibit 10.3 to the Company’s
Current Report on Form 8-K filed on December 21, 2020).
Promissory Note (NUFIC), dated December 18, 2020, made by Thorn Hill Postal Realty Holdings LLC to National Union
Fire Insurance Company of Pittsburgh, PA (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on
Form 8-K filed on December 21, 2020).
Suretyship Agreement, dated December 18, 2020, in favor of The United States Life Insurance Company in the City of New
York and National Union Fire Insurance Company of Pittsburgh, PA (incorporated by reference to Exhibit 10.5 to the
Company’s Current Report on Form 8-K filed on December 21, 2020).
Subsidiaries of the Company.*
Consent of Deloitte & Touche LLP.*
Consent of BDO USA, P.C.*
Certification of Annual Report by Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002.*
Certification of Annual Report by Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002.*
Certification of Chief Executive Officer furnished pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.*
Certification of Chief Financial Officer furnished pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.*
Incentive Compensation Recoupment Policy.*
INSTANCE DOCUMENT**
SCHEMA DOCUMENT**
CALCULATION LINKBASE DOCUMENT**
LABELS LINKBASE DOCUMENT**
PRESENTATION LINKBASE DOCUMENT**
DEFINITION LINKBASE DOCUMENT**
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
97.1
101.INS
101.SCH
101.CAL
101.LAB
101.PRE
101.DEF
104
_______________________
* Filed herewith
† Compensatory plan or arrangement
** Submitted electronically herewith. Attached as Exhibit 101 to this report are the following documents formatted in XBRL
(eXtensible Business Reporting Language): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Operations
and Comprehensive Income; (iii) Consolidated Statements of Changes in Equity; (iv) Consolidated Statements of Cash
Flows; and (v) Notes to Consolidated Financial Statements.
ITEM 16. FORM 10-K SUMMARY
None.
51
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: February 29, 2024
By:
POSTAL REALTY TRUST, INC.
/s/ Andrew Spodek
Andrew Spodek
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.
Name
/s/ Andrew Spodek
Andrew Spodek
/s/ Robert B. Klein
Robert B. Klein
/s/ Matt Brandwein
Matt Brandwein
/s/ Patrick Donahoe
Patrick Donahoe
/s/ Barry Lefkowitz
Barry Lefkowitz
/s/ Jane Gural-Senders
Jane Gural-Senders
/s/ Anton Feingold
Anton Feingold
Title
Date
Chief Executive Officer and Director
(Principal Executive Officer)
February 29, 2024
Chief Financial Officer
(Principal Financial Officer)
February 29, 2024
Senior Vice President, Chief Accounting Officer
(Principal Accounting Officer)
February 29, 2024
Independent Director, Chair of
Board of Directors
February 29, 2024
Independent Director
February 29, 2024
Independent Director
February 29, 2024
Independent Director
February 29, 2024
52
Board of Directors
Patrick R. Donahoe
Chair of the Board of Directors
Former Postmaster General of the United States
Andrew Spodek
Chief Executive Officer and Director
Barry Lefkowitz
Director
President and Chief Executive Officer of Huntington
Road Advisors LLC and Co-Founder of HMC Real
Estate Services LLC
Jane Gural-Senders
Director
Executive Director and Principal of GFP Real Estate
LLC
Anton Feingold
Director
Partner and Associate General Counsel in the Legal
Group of Ares Management
Corporate Headquarters
75 Columbia Avenue
Cedarhurst, New York 11516
www.postalrealtytrust.com
516-232-8900
Executive Officers
Andrew Spodek
Chief Executive Officer and Director
Jeremy Garber
President and Treasurer
Robert Klein
Chief Financial Officer
Transfer Agent
Equiniti Trust Company, LLC
800-937-5449
Independent Registered Public Accounting Firm
Deloitte & Touche LLP
30 Rockefeller Plaza
New York, New York 10112
Annual Meeting
Friday, May 17, 2024
10:00 am (Eastern Time)
75 Columbia Avenue
Cedarhurst, New York 11516
Forward-Looking and Cautionary Statements
This Annual Report contains “forward-looking statements.” Forward-looking statements include statements identified
by words such as “could,” “may,” “might,” “will,” “likely,” “anticipates,” “intends,” “plans,” “seeks,” “believes,”
“estimates,” “expects,” “continues,” “projects” and similar references to future periods, or by the inclusion of forecasts
or projections. Forward-looking statements, including, among others, statements regarding Postal Realty Trust, Inc.’s
(the “Company”) anticipated growth and ability to obtain financing, renew or replace expiring leases on favorable
terms, or at all, and close on pending transactions on the terms or timing it expects, if at all, are based on the Company’s
current expectations and assumptions regarding capital market conditions, the Company’s business, the economy and
other future conditions. Because forward-looking statements relate to the future, by their nature, they are subject to
inherent uncertainties, risks and changes in circumstances that are difficult to predict. As a result, the Company’s
actual results may differ materially from those contemplated by the forward-looking statements. Important factors that
could cause actual results to differ materially from those in the forward-looking statements include the USPS’
terminations or non-renewals of leases, changes in demand for postal services delivered by the USPS, the solvency
and financial health of the USPS, competitive, financial market and regulatory conditions, general real estate market
conditions, the Company’s competitive environment and other factors set forth under “Risk Factors” in the Company’s
filings with the Securities and Exchange Commission. Any forward-looking statement made in this Annual Report
speaks only as of the date on which it is made. The Company undertakes no obligation to publicly update or revise
any forward-looking statement, whether as a result of new information, future developments or otherwise.