The following discussion and analysis is based on, and should be read in conjunction with, the unaudited Consolidated Financial Statements and the related notes thereto of
Postal Realty Trust, Inc.contained in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2021. As used in this section, unless the context otherwise requires, references to "we," "our," "us," and "our company" refer to Postal Realty Trust, Inc., a Marylandcorporation, together with our consolidated subsidiaries, including Postal Realty LP, a Delawarelimited partnership, of which we are the sole general partner and which we refer to in this section as our Operating Partnership.
We make statements in this Quarterly Report that are forward-looking statements within the meaning of the federal securities laws. In particular, statements pertaining to our capital resources, acquisitions, property performance and results of operations contain forward-looking statements. You can identify forward-looking statements by the use of forward-looking terminology such as "believes," "expects," "may," "will," "should," "seeks," "approximately," "intends," "plans," "pro forma," "estimates" or "anticipates" or the negative of these words and phrases or similar words or phrases which are predictions of or indicate future events or trends and which do not relate solely to historical matters. You can also identify forward-looking statements by discussions of strategy, plans or intentions. 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. We do not guarantee that the transactions and events described will happen as described (or that they will happen at all). The following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements:
•Change of status of
•Change in demand for postal services provided by the
•our ability to come to terms with that
•the solvency and financial health of the
• Failures, early terminations or non-renewal of leases or relocation of post offices by the
•the competitive market in which we operate;
•changes in the availability of employment opportunities;
• our inability to successfully complete any property acquisition or sale on the terms and time 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 rents or increased vacancy rates;
•changes in our business, financing or investment strategy or in the markets in which we operate;
• interest rate fluctuations and increased operating costs;
•general economic conditions (including uncertainty regarding the ongoing conflict between
• financial market fluctuations;
• our failure to generate sufficient cash flows to service our outstanding debt;
• our failure to obtain necessary outside financing on favorable terms or at all;
•failure to effectively hedge against changes in interest rates;
• our dependence on key personnel whose continued service is not guaranteed;
•the outcome of claims and litigation in which we are a party or affecting us;
•changes in real estate, taxes, zoning and other legislation and governmental activities, and changes in property tax rates and taxation of Real Estate Investment Trusts (“REITs”) generally;
•operations through joint ventures and reliance on or disputes with fellow contractors;
• cyber security threats;
•uncertainties and risks related to adverse weather conditions, natural disasters and climate change;
•liability in relation to environmental, health and safety matters;
•Government approvals, policies and initiatives, including the need to comply with environmental regulations;
•missing or insufficient sums insured;
• restrictions imposed on our business to maintain our status as a REIT, and our failure to maintain that status; and
•Public health threats such as the coronavirus (COVID-19) pandemic.
While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. We disclaim any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, of new information, data or methods, future events or other changes after the date of this Quarterly Report on Form 10-Q, except as required by applicable law. You should not place undue reliance on any forward-looking statements that are based on information currently available to us or the third parties making the forward-looking statements. For a further discussion of these and other factors that could impact our future results, performance or transactions, you should carefully review and consider (i) the information contained under Item 1A titled "Risk Factors" herein and in our Annual Report on Form 10-K and (ii) such similar information as may be contained in our other reports and filings that we make with the
Securities and Exchange Commission(the "SEC").
We were formed as a
Marylandcorporation on November 19, 2018and commenced operations upon completion of our initial public offering and the related formation transactions. We conduct our business through a traditional UPREIT structure in which our properties are owned by our Operating Partnershipdirectly or through limited partnerships, limited liability companies or other subsidiaries. During the three months ended March 31, 2022, we acquired 50 properties leased to the USPSfor approximately $27.6 million, including closing costs. As of March 31, 2022, our portfolio consists of 1,016 owned properties, located in 49 states and one territory and comprising approximately 4.7 million net leasable interior square feet. 25
We are the sole general partner of our
Operating Partnershipthrough which our properties are directly or indirectly owned. As of May 11, 2022, we owned approximately 81.9% of our outstanding common units of limited partnership interest in our Operating Partnership(the "OP Units"), including long term incentive units of our Operating Partnership(the "LTIP Units"). Our Board of Directors oversees our business and affairs.
ATM program and follow-up offerings
December 14, 2020, we entered into separate open market sale agreements for its at-the-market offering program (the "ATM Program") with each of Jefferies LLC, Stifel, Nicolaus & Company, Incorporated, BMO Capital Markets Corp., Janney Montgomery Scott LLCand D.A. Davidson & Co.("D.A. Davidson"), pursuant to which we may offer and sell, from time to time, shares our Class A common stock having an aggregate sales price of up to $50.0 million. On May 14, 2021, we delivered to D.A. Davidson a notice of termination of the open market sale agreement with D.A. Davidson, which termination became effective May 14, 2021. During the year ended December 31, 2021, 344,717 shares were issued under the ATM Program. As of March 31, 2022, we had approximately $43.1 millionof availability remaining under the ATM Program. On January 11, 2021, we priced a public offering of 3.25 million shares of our Class A common stock (the " January 2021Offering") at $15.25per share. On January 11, 2021, the underwriters purchased the full allotment of 487,500 shares pursuant to a 30-day option at $15.25per share (the " January 2021Additional Shares"). The January 2021Offering, including the January 2021Additional Shares, closed on January 14, 2021resulting in $57.0 millionin gross proceeds, and approximately $53.9 millionin net proceeds after deducting approximately $3.1 millionin underwriting discounts and before giving effect to $0.6 millionin other related expenses. On November 16, 2021, we priced a public offering of 4.25 million shares of our Class A common stock (the " November 2021Offering") at $17.00per share. On November 16, 2021, the underwriters purchased the full allotment of 637,500 shares pursuant to a 30-day option at $17.00per share (the " November 2021Additional Shares"). The November 2021Offering, including the November 2021Additional Shares, closed on November 19, 2021resulting in $83.1 millionin gross proceeds, and approximately $79.0 millionin net proceeds after deducting approximately $4.1 millionin underwriting discounts and before giving effect to $0.2 millionin other related expenses.
We are an internally managed REIT focused on acquiring and managing properties primarily leased to the
March 31, 2022, we owned a portfolio of 1,016 properties located in 49 states and one territory and leased primarily to the USPS. For the three months ended March 31, 2022, 17.2% of our total of rental income was concentrated in Pennsylvania. Emerging Growth Company We are an "emerging growth company," as defined in the Jumpstart Our Business Startups Act of 2012 (the "JOBS Act"), and we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not "emerging growth companies," including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. 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. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. 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." 26
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
$1.07 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 billionin non-convertible debt or (iv) the date on which we are deemed to be a "large accelerated filer" under the Securities Exchange Act of 1934, as amended (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 Internal Revenue Code of 1986, as amended (the "Code"), beginning with our short taxable year ending December 31, 2019. 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 affect future results of operations
We are dependent on the
USPS'financial and operational stability. The USPSis currently facing a variety of circumstances that are threatening its ability to fund its operations and other obligations as currently conducted without intervention by the federal government. The USPSis 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 USPSis unable to fund its mandated expenses and continues to be subject to mandated payments to its retirement system and benefits. While the USPShas undertaken, and proposes to undertake, a number of operational reforms and cost reduction measures, including those outlined in its ten-year plan entitled Delivering for America: Our Vision and Ten-Year Plan to Achieve Financial Sustainability and Service Excellence, such as higher rates and slower deliveries for certain services, the USPShas 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 USPSor reduced demand for its services. The ongoing COVID-19 pandemic (including new or mutated variants of COVID-19) and measures being taken to prevent its spread also continue to have a material and unpredictable effect on the USPS'operations and liquidity, including volatility in demand for mail services, significant changes in the mix of mail and packages processed through the USPS'network and significant additional operating expenses caused by pandemic-related disruptions. If the USPSbecomes unable to meet its financial obligations or its revenue declines due to reduced demand for its services, the USPSmay reduce its demand for leasing postal properties, which would have a material adverse effect on our business and operations. For additional information regarding the risks associated with the USPS, see the section entitled "Risk Factors - Risks Related to the USPS" under Item 1A of
our Annual Report on Form 10-K for the past year
We derive revenues primarily from rent and tenant reimbursements under leases with the
USPSfor our properties, and fee and other from the management agreements with respect to the postal properties owned by Mr. Spodekand his affiliates managed by our taxable REIT subsidiary ("TRS"), and income recognized from properties accounted for as financing leases. Rental income represents the lease revenue recognized under leases primarily with the USPSwhich includes the impact of above and below market lease intangibles as well as tenant reimbursements for payments made by our tenants under the leases to reimburse us for the majority of real estate taxes paid at each property. Fee and other principally represent (i) revenue our TRS received from postal properties owned by Mr. Spodekand his affiliates pursuant to the management agreements and is a percentage of the lease revenue for the managed property, (ii) revenue our TRS received from providing advisory services to third-party owners of postal properties and (iii) income recognized from properties accounted for as financing leases. As of March 31, 2022, properties leased to our tenants had an average remaining lease term of approximately four years. Factors that could affect our rental income and fee and other in the future include, but are not limited to: (i) our ability to renew or replace expiring leases and management agreements; (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.
We lease our properties primarily to the
USPS. The majority of our leases are modified double-net leases, whereby the tenant is responsible for utilities, routine maintenance and reimbursement of property taxes and the landlord is responsible for 27
Insurance, roof and structure. Therefore, an increase in costs related to lessor obligations under these leases could adversely affect our results of operations. See “Rental Extension” 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, renovation costs, the cost of re-leasing space, inflation and the potential for liability under applicable laws. Recoveries from the tenant are recognized as revenue on an accrual basis over the periods in which the related expenditures are incurred. Tenant reimbursements and 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. General and Administrative 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 is recognized in our Consolidated Statements of Operations and Comprehensive Income as components of general and administrative expense and property operating expenses. We issue share-based awards to align our directors' and employees' interests with those of our investors.
depreciation and amortization
Depreciation and amortization expense relates primarily to depreciation on our properties and capital improvements to such properties and the amortization of certain lease intangibles. Other Income
Other income relates primarily to insurance claims related to property damage.
debt and interest expense
August 9, 2021, we entered into a $150.0 millionsenior unsecured revolving credit facility (the "2021 Revolving Credit Facility") and a $50.0 millionsenior unsecured term loan facility (the "2021 Term Loan" and, together with the 2021 Revolving Credit Facility, the "Credit Facilities"). In connection with entering into the Credit Facilities, we terminated our previous credit facility and paid off the outstanding loans thereunder. We intend to use the Credit Facilities for working capital purposes, which may include repayment of mortgage indebtedness, property acquisitions and other general corporate purposes. We amortize on a non-cash basis the deferred financing costs associated with 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 28
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 form in the future will be subject to federal, state and local corporate income tax. Lease Renewal As of
May 11, 2022, the leases at 22 of our properties, representing approximately 92,000 net leasable interior square feet and $0.8 millionin annual contractual rental revenue, were expired and the USPSwas occupying such properties as a holdover tenant. As of the date of this report, the USPShad not vacated or notified us of its intention to vacate any of these properties. When a lease expires, the USPSbecomes 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 execute new leases for all properties that have expired or will expire, there can be no guarantee that we will be successful in executing new leases, obtaining positive rent renewal spreads or renewing the leases on terms comparable to those of the expiring leases. Even if we are able to renew these expired leases, the lease terms may not be comparable to those of the previous leases. If we are not successful, we will likely experience reduced occupancy, rental income and net operating income, as well as diminished borrowing capacity under our credit facilities, which could have a material adverse effect on our financial condition, results of operations and ability to make distributions to shareholders. 29
Comparison of the Three Months Ended
March 31, 2022and the Three Months Ended March 31, 2021For the Three Months Ended March 31, 2022 2021 $ Change % Change Revenues Rental income $ 11,349 $ 8,487 $ 2,86233.7 % Fee and other 582 342 240 70.2 % Total revenues 11,931 8,829 3,102 35.1 % Operating expenses Real estate taxes 1,590 1,089 501 46.0 % Property operating expenses 1,530 910 620 68.1 % General and administrative 3,642 2,569 1,073 41.8 % Depreciation and amortization 4,110 3,169 941 29.7 % Total operating expenses 10,872 7,737 3,135 40.5 % Income from operations 1,059 1,092 (33) (3.0) % Other income 487 36 451 1,252.8 % Interest expense, net Contractual interest expense (686) (645) (41) 6.4 % Write-off and amortization of deferred financing fees (129) (145) 16 (11.0) % Loss on early extinguishment of debt - (202) 202 (100.0) % Interest income 1 1 - 0.0 % Total interest expense, net (814) (991) 177 (17.9) % Income before income tax expense 732 137 595 434.3 % Income tax expense (11) (11) - - % Net income $ 721 $ 126 $ 595472.2 % Revenues 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 $2.9 millionto $11.3 millionfor the three months ended March 31, 2022from $8.5 millionfor the three months ended March 31, 2021due to the volume of our acquisitions. Fee and other. Other revenue increased by $0.2 millionto $0.6 millionfor the three months ended March 31, 2022from $0.3 millionfor the three months ended March 31, 2021primarily due to income received from properties accounted for as financing leases. Operating Expense Real estate taxes - Real estate taxes increased by $0.5 millionto $1.6 millionfor the three months ended March 31, 2022from $1.1 millionfor the three months ended March 31, 2021due to the volume of our acquisitions. Property operating expenses - Property operating expenses increased by $0.6 millionto $1.5 millionfor the three months ended March 31, 2022from $0.9 millionfor the three months ended March 31, 2021. Property management expenses are included within property operating expenses and increased by $0.2 millionto $0.6 millionfor the three months ended March 31, 2022from $0.4 millionfor the three months ended March 31, 2021, due to expanding our property management staff 30
as a result of our continued growth as well as an increase in equity-based compensation expense related to awards that have been granted to our property management employees. The remainder of the increase of
$0.4 millionis related to expenses for repairs and maintenance and insurance, which increase is primarily due to the volume of our acquisitions. General and administrative - General and administrative expenses increased by $1.1 millionto $3.6 millionfor the three months ended March 31, 2022from $2.6 millionfor the three months ended March 31, 2021primarily due to expanding our staff as a result of our continued growth as well as an increase in equity-based compensation expense related to awards that have been granted to our employees in 2021 and during the three months ended March 31, 2022. Depreciation and amortization - Depreciation and amortization expense increased by $0.9 millionto $4.1 millionfor the three months ended March 31, 2022from $3.2 millionfor three months ended March 31, 2021due to the volume of our acquisitions.
Other income primarily includes insurance recoveries related to property damage claims. Other income increased by
$0.5 millionto $0.5 millionfor the three months ended March 31, 2022from $0.04 millionfor the three months ended March 31, 2021, primarily due to higher insurance recoveries.
Total interest expense, net
During the three months ended
March 31, 2022, we incurred total interest expense, net of $0.8 millioncompared to $1.0 millionfor the three months ended March 31, 2021. The decrease in interest expense is primarily related to the loss on early extinguishment of debt of $0.2 millionincurred in connection with the paydown of two mortgage financings during the three months ended March 31, 2021. Cash Flows
Comparison of the past three months
Cash flow from operating activities - Net cash provided by operating activities increased by
$2.1 millionto $6.6 millionfor the three months ended March 31, 2022compared to $4.5 millionfor the same period in 2021. The increase is primarily due to the volume of properties that we have acquired, all of which have generated additional rental income and related changes in working capital. Cash flow to investing activities - Net cash used in investing activities for the three months ended March 31, 2022primarily consisted of $25.5 millionof acquisitions and $2.6 millionof escrow deposits for acquisition, capital improvements and other investing activities, offset by $0.4 millionof insurance proceeds that were received. Net cash used in investing activities for the three months ended March 31, 2021primarily consisted of $25.4 millionof acquisitions. Cash flow from financing activities - Net cash provided by financing activities decreased by $1.3 millionto $21.3 millionfor the three months ended March 31, 2022compared to $22.6 millionfor the three months ended March 31, 2021. The decrease was primarily related to a decrease in net proceeds from issuance of shares and increased payments of dividends and distributions, offset by an increase in net borrowings under our credit facilities and pay down of two mortgage financings during the three months ended March 31, 2021.
liquidity and capital resources
Analysis of liquidity and capital resources
We had approx
August 9, 2021, we entered into the Credit Facilities, which include the $150.0 million2021 Revolving Credit Facility and the $50.0 million2021 Term Loan, with Bank of Montreal, as administrative agent, and BMO Capital Markets Corp., People's United Bank, National Association, JPMorgan Chase Bank, N.A. and Truist Securities, Inc.as joint lead arrangers and joint book runners. Additional participants in the Credit Facilities include Stifel Bank & Trustand TriState Capital Bank. In connection with entering into the Credit Facilities, we terminated our previous credit facility and paid off the 31 -------------------------------------------------------------------------------- Table of Contents outstanding loans thereunder. As of March 31, 2022, we had $90.0 millionof aggregate principal amount outstanding under our Credit Facilities, with $50.0 milliondrawn on the 2021 Term Loan and $40.0 milliondrawn on the 2021 Revolving Credit Facility. The Credit Facilities include an accordion feature which permit us to borrow up to an additional $150.0 millionunder the 2021 Revolving Credit Facility and, prior to the First Amendment (as defined below), up to an additional $50.0 millionunder the 2021 Term Loan, in each case subject to customary terms and conditions. The 2021 Revolving Credit Facility matures in January 2026, which may be extended for two six-month periods subject to customary conditions, and the 2021 Term Loan matures in January 2027. Prior to the First Amendment, borrowings under the Credit Facilities carried an interest rate of, (i) in the case of the 2021 Revolving Credit Facility, either a base rate plus a margin ranging from 0.5% to 1.0% per annum or the London Interbank Offered Rate ("LIBOR") plus a margin ranging from 1.5% to 2.0% per annum, or (ii) in the case of the 2021 Term Loan, either a base rate plus a margin ranging from 0.45% to 0.95% per annum or LIBOR plus a margin ranging from 1.45% to 1.95% per annum, in each case depending on a consolidated leverage ratio. With respect to the 2021 Revolving Credit Facility, we will pay, if the usage is equal to or less than 50%, an unused facility fee of 0.20% per annum, or if the usage is greater than 50%, an unused facility fee of 0.15% per annum, in each case on the average daily unused commitments under the 2021 Revolving Credit Facility. The 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 March 31, 2022, we were in compliance with all of the Credit Facilities' debt covenants. On May 11, 2022, we amended the Credit Facilities (the "First Amendment") to, among other things, add a new $75.0 millionsenior unsecured delayed draw term loan facility (the "2022 Term Loan") that matures in February 2028, increase the accordion feature under the Credit Facilities for term loans to $75.0 million, replace LIBOR with the Secured Overnight Financing Rate ("SOFR") as the benchmark interest rate and allow for a decrease in the applicable margin by 0.02% if the Company achieves certain sustainability targets. As amended, the Credit Facilities carry an interest rate of, (i) in the case of the 2021 Revolving Credit Facility, either a base rate plus a margin ranging from 0.5% to 1.0% per annum or Adjusted Term SOFR (as defined below) plus a margin ranging from 1.5% to 2.0% per annum, or (ii) in the case of the 2021 Term Loan and the 2022 Term Loan, either a base rate plus a margin ranging from 0.45% to 0.95% per annum or Adjusted Term SOFR plus a margin ranging from 1.45% to 1.95% per annum, in each case depending on a consolidated leverage ratio. The Adjusted Term SOFR option is SOFR plus a term SOFR adjustment of 0.10%, subject to a 0% floor (the "Adjusted Term SOFR"). The transition to SOFR did not materially impact the interest rate applied to our borrowings. On August 9, 2021, we entered into an interest rate swap (the "2021 Interest Rate Swap") that effectively fixed the LIBOR component of the interest rate on $50.0 millionof the Credit Facilities through January 2027. The 2021 Interest Rate Swap initially applied to the $50.0 million2021 Term Loan, fixing the interest rate for the 2021 Term Loan at 2.291% as of March 31, 2022. Upon entry into the First Amendment, we concurrently amended this interest rate swap to reference SOFR instead of LIBOR. On May 11, 2022, we entered into two additional interest rate swaps (the "2022 Interest Rate Swaps") that effectively fixed the SOFR component of the interest rate on $50.0 millionof the Credit Facilities through February 2028. The 2022 Interest Rate Swaps initially applied to the $50.0 millionamount outstanding under the 2022 Term Loan, fixing the interest rate for the 2022 Term Loan initially at 4.237%. Our short-term liquidity requirements primarily consist of operating expenses and other expenditures associated with our properties, distributions to our limited partners and distributions to our stockholders required to qualify for REIT status, capital expenditures and, potentially, acquisitions. We expect to meet our short-term liquidity requirements through net cash provided by operations, cash, borrowings under our Credit Facilities and the potential issuance of securities. Our long-term liquidity requirements primarily consist of funds necessary for the repayment of debt at maturity, property acquisitions and non-recurring capital improvements. We expect to meet our long-term liquidity requirements with net cash from operations, long-term indebtedness including 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. 32
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 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
USPSwill 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.
March 31, 2022, we had approximately $123.1 millionof outstanding consolidated principal indebtedness. The following table sets forth information as of March 31, 2022with respect to our outstanding indebtedness (in thousands): Outstanding Balance as of Interest Maturity March 31, 2022 Rate at March 31, 2022 Date Revolving Credit Facility(1): 2021 Revolving Credit Facility $ 40,000 LIBOR+150bps (2) January 2026 2021 Term Loan(1) 50,000 LIBOR+145bps (2) January 2027 Secured Borrowings: Vision Bank(3) 1,409 3.69 % September 2041 First Oklahoma Bank(4) 345 3.625 % December 2037 Vision Bank - 2018(5) 844 3.69 % September 2041 Seller Financing(6) 282 6.00 % January 2025 AIG - December 2020(7) 30,225 2.80 % January 2031 Total Principal $ 123,105Explanatory Notes:
(1) For details of the credit facilities and the first amendment, see “- Analysis of Liquidity and Capital Resources” above.
During the three months ended
(2)Based on one month
(3)Five properties are collateralized under this loan and
Mr. Spodekalso provided a personal guarantee of payment for 50% of the outstanding amount thereunder. The loan has a fixed interest rate of 3.69% for the first five years with interest payments only, then adjusting every subsequent five year period thereafter with principal and interest payments to the rate based on the five year weekly average yield on United States Treasury securities adjusted to a constant maturity of five years, as made available to the Board of Governorsof 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, then adjusting annually thereafter to a variable annual rate of Wall Street Journal Prime Rate with a minimum annual rate of 3.625%. 33
(5)The loan is collateralized by first mortgage liens on one property and a personal guarantee of payment by
Mr. Spodek. The loan has a fixed interest rate of 3.69% for the first five years with interest payments only, then adjusting every subsequent five year period thereafter with principal and interest payments to the rate based on the Five-Year Treasury Rate, plus a margin of 2.75%, with a minimum annual rate of 2.75%.
(6) In connection with the acquisition of a property, we have secured by the property seller financing in the amount of
(7) The loan is secured by a first-rank mortgage on commercial property
March 31, 2022, we had approximately $33.1 millionof secured borrowings outstanding, all of which are currently fixed rate debt with a weighted average interest rate of 2.90% per annum.
To maintain our qualification as a REIT, we are required to pay dividends to stockholders at least equal to 90% of our REIT taxable income determined without regard to the deduction for dividends paid and excluding net capital gains. During the three months ended
March 31, 2022, we paid cash dividends of $0.2275per share. Our Board of Directors approved, and on April 28, 2022, we declared a first quarter common stock dividend of $0.23per share, which will be paid on May 27, 2022to stockholders of record as of May 13, 2022.
Subsequent real estate acquisitions
In connection to
Critical Accounting Policies and Estimates
See the heading entitled “Critical Accounting Policies and Estimates” in
our Annual Report on Form 10-K for the past year
New accounting pronouncements
For a discussion of our adoption of new accounting pronouncements, please see Note 2. Summary of Significant Accounting Policies in the Notes to the of our Consolidated Financial Statements included herein.
Because most of our leases provide for fixed annual rental payments without annual rent escalations, our rental revenues are fixed while our property operating expenses are subject to inflationary increases. 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. 34
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