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Financial report summary
?Risks
- Our business is substantially dependent on the demand for leased 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.
- 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 government agencies.
- 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.
- 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.
- 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.
- 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.
- Litigation and catastrophic events involving the USPS may disrupt 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.
- We currently have a concentration of postal properties in certain regions and are exposed to changes in regional or local conditions in these states.
- 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 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 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.
- Our use of OP Units as consideration to acquire properties could result in stockholder dilution and/or limit our ability to sell such properties.
- 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.
- 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 due to property tax rate changes or reassessment.
- We may be exposed to risks associated with property development and redevelopment.
- Increases in interest rates or unavailability of debt financing may make it difficult for us to finance or refinance our debt.
- 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.
- Covenants in our debt instruments could adversely affect our financial condition.
- 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.
- 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.
- Insurance on our properties may not adequately cover all losses and uninsured losses if we experience a substantial or comprehensive loss of such properties.
- 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.
- Competition for skilled personnel could increase our labor costs.
- 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.
- 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, which could lead to liability for adverse health effects and costs of remediation.
- We are subject to risks from natural disasters and the risks associated with climate change.
- 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.
- Our title insurance policies may not cover all title defects.
- We may incur significant costs complying with various federal, state and local laws, regulations and covenants that are applicable to our properties.
- 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 subject to purchase options in favor of the USPS.
- We may incur goodwill and other intangible asset impairment charges, which could adversely affect our earnings and financial condition.
- We may have difficulty implementing changes to our information technology systems.
- Use of social media may adversely impact our reputation and business.
- We cannot assure shareholders of our ability to pay dividends in the future.
- 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.
- 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.
- 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.
- We could increase the number of authorized shares of stock, classify and reclassify unissued stock and issue stock without stockholder approval.
- 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.
- 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.
- Certain provisions in the partnership agreement 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 to operate our business.
- 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, 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.
- 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.
- Failure to make required distributions would subject us to federal corporate income tax.
- Complying with REIT requirements may cause us to forego otherwise attractive opportunities or liquidate otherwise attractive 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 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, which would reduce the cash available for distribution to our stockholders.
- 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 corporations.
- 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.
- 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.
- 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.
- New legislation or administrative or judicial action, in each instance potentially with retroactive effect, could adversely affect us or our stockholders.
- An increase in market interest rates may have an adverse effect on the market price of our securities.
- Inflation may adversely affect our financial condition and results of operations.
- Changes in accounting pronouncements could adversely impact our reported financial performance.
- We could be adversely impacted if there are deficiencies in our disclosure controls and procedures or internal control over financial reporting.
- 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.
- 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.
- 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 face cybersecurity risks and risks associated with security breaches.
- Third-party expectations relating to environmental, social and governance factors may impose additional costs and expose us to new risks.
Management Discussion
- 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 $2.6 million to $17.4 million for the three months ended June 30, 2024 from $14.8 million for the three months ended June 30, 2023, primarily due to the volume of our acquisitions.
- Real estate taxes – Real estate taxes increased by $0.4 million to $2.4 million for the three months ended June 30, 2024 from $2.0 million for the three months ended June 30, 2023, primarily due to the volume of our acquisitions.
- Property operating expenses – Property operating expenses increased by $0.7 million to $2.1 million for the three months ended June 30, 2024 from $1.4 million for the three months ended June 30, 2023. Property management expenses are included within property operating expenses and increased by $0.2 million to $0.7 million for the three months ended June 30, 2024 from $0.5 million for the three months ended June 30, 2023. The remainder of the increase in property operating expenses of $0.5 million was related to an increase in insurance and repairs and maintenance expenses.