3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESUNAUDITED (CONTINUED)

Note 3. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidatedunaudited Consolidated and combined consolidated financial statements of the CompanyCombined Consolidated Financial Statements include the financial position and results of operations of the Company and its Predecessor, the Operating Partnership and its wholly owned subsidiaries. The Company did not have any operations from the date of formation to May 17, 2019. The Predecessor represents a combination of certain entities holding interests in real estate that were commonly controlled prior to the Formation Transactions. Due to their common control, the financial statements of the separate Predecessor entities which ownowned the properties and the management company are presented on a combined consolidated basis. The effects of all significant intercompany balances and transactions have been eliminated.

We consolidateThe Company consolidates the Operating Partnership, a VIE in which we arethe Company is considered the primary beneficiary. The primary beneficiary is the entity that has (i) the power to direct the activities that most significantly impact the entity’s economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could be significant to the VIE.

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 and combined consolidated balance sheets.Consolidated Balance Sheets. Accordingly, the presentation of net income is modified to present(loss) reflects the income attributed to controlling and non-controlling interests.

The accompanying consolidated and combined consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.

TheThis interim financial information furnishedshould be read in conjunction with the accompanying consolidated and combined consolidated financial statements reflectsincluded in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. Management believes that all adjustments that, in the opinion of management, area normal, recurring nature considered necessary for a fair presentation of the aforementioned consolidated and combined consolidatedhave been included. This interim financial statements for the interim periods. Operating results for the three and nine months ended September 30, 2019 areinformation does not necessarily indicative ofrepresent or indicate what the operating results that maywill be expected for the year ending December 31, 2019. These interim financial statements should be read in conjunction with,2020. All material intercompany accounts and follow the same policies and procedures as outlined in the audited combined consolidated financial statements for the year ended December 31, 2018, included in the Company’s final prospectus dated May 14, 2019.transactions have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, andthe disclosure of commitmentscontingent assets and contingencies at the date of the consolidated and combined consolidated financial statementsliabilities and the reported amounts of revenues and expenses during the reporting period. ActualAlthough management believes its estimates are reasonable, actual results could differ materially from thesethose estimates.

Cash and Escrows and Reserves

Cash included unrestricted cash with a maturity of three months or less. Escrows and reserves consisted of restricted cash. The following table provides a reconciliation of cash and escrows and reserves reported within the Company’s Consolidated Balance Sheets and Consolidated and Combined Consolidated Statements of Cash Flows:

POSTAL REALTY TRUST, INC.
NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS

UNAUDITED (CONTINUED)

Offering and Other CostsFair Value of Financial Instruments

CertainThe 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 costs related toamounts the IPO and the Formation Transactions paid by an affiliateCompany could realize on disposition of the Company’s initial sole shareholder were reimbursed byassets and liabilities as of March 31, 2020 and December 31, 2019. The use of different market assumptions and/or estimation methodologies may have a material effect on the Company from the proceedsestimated fair value amounts. Cash, escrows and reserves, receivables, prepaid expenses, accounts payable and accrued expenses are carried at amounts which reasonably approximate their fair values as of the IPO. Offering costs were recorded in stockholders’ equity as a reduction of additional paid-in capital. Transaction costs relatedMarch 31, 2020 and December 31, 2019 due to asset acquisitions were capitalized as part of the acquisition. As of September 30, 2019, approximately $0.5 million of offering and other costs are owed to an affiliate of the Company’s initial sole shareholder.their short maturities. 

Investments in Real Estate

Upon the acquisition of real estate, the purchase price is allocated based upon theThe fair value of the assets acquired and liabilities assumed.Company’s borrowings under its Credit Facility approximates carrying value. The allocation of the purchase price to the fair value of the tangible assetsCompany’s secured borrowings aggregated approximately $3.3 million and $3.2 million as compared to the principal balance of an acquired property is derived$3.2 million and $3.2 million as of March 31, 2020 and December 31, 2019, respectively. The fair value of the Company’s debt was categorized as a Level 3 basis (as provided by valuingASC 820, Fair Value Measurements and Disclosures). The fair value of these financial instruments was determined by using a discounted cash flow analysis based on the property as if it were vacant. All real estate acquisitions inborrowing rates currently available to the periods presented qualified as asset acquisitionsCompany for loans with similar terms and as such, acquisition-related feesmaturities. The fair value of the mortgage debt was determined by discounting the future contractual interest and acquisition-related expenses related to these asset acquisitions were capitalized and allocated to tangible and intangibleprincipal payments by a market rate.   

Disclosure about fair value of assets and liabilities.

Investments in real estate generally include land, buildings, tenant improvementsliabilities is based on pertinent information available to management as of March 31, 2020 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 on buildings generallyDecember 31, 2019. Although management is provided on a straight-line basis over 40 years. Tenant improvements are depreciated over the shorter of their estimated useful lives or the term of the related lease. The acquired in-place lease values are amortized to expense over the average remaining non-cancellable term of the respective in-place leases. The acquired above or below-market lease intangibles are amortized to rent income over the applicable lease term, inclusivenot aware of any option periodsfactors that would significantly affect the fair value amounts, such amounts have not been comprehensively revalued for below-market leases.purposes of these financial statements since March 31, 2020 and current estimates of fair value may differ significantly from the amounts presented herein.

Impairment 

The carrying value of real estate investments and related intangible assets isare 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. For the three and nine months ended September 30, 2019 and 2018, no impairment loss was recorded.

DuringNo impairments were recorded during the three months ended September 30, 2019,March 31, 2020 and 2019. 

Concentration of Credit Risks 

As of March 31, 2020, the Company acquired eighteenCompany’s properties forwere leased to a purchase price of $11.1 million, inclusive of acquisition costs of $0.1 million. Duringsingle tenant, the USPS, other than a de minimis non-postal tenant that shares space in a building leased to the USPS. For the three months ended June 30, 2019, the Company acquired the Acquisition Properties in connection with the IPO forMarch 31, 2020, no state had a purchase priceconcentration of $27.3 million, inclusiverental income over 10% as a percentage of acquisition costs of $0.4 million. Duringtotal rental income. For the three months ended March 31, 2019, the Predecessor acquired one property for a purchase priceour total rental income of $645,120, inclusive of acquisition costs of $10,120. The purchase prices 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$1.5 million was allocated as follows:

During the nine months ended September 30, 2018, the Predecessor acquired seven properties for an aggregate purchase price of $1,334,591, inclusive of acquisition costs of $19,598. The purchase price was 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 was allocated as follows:

Cash and Restricted Cash

Cash and cash equivalents include cash and highly liquid investment securities with maturities at acquisition of three months or less. Restricted cash is presented as escrows and reservesconcentrated in the accompanying consolidatedfollowing states: Texas (13.8%), Massachusetts (13.4%), Wisconsin (12.3%) and combined consolidated balance sheets. Cash and restricted cash consistOhio (10.4%). The ability of the following:

Fair ValueUSPS to honor the terms of Financial Instruments

The following disclosuretheir leases is dependent upon regulatory, economic, environmental or competitive conditions in any of estimated fair value was determined by management using available market informationthese areas and appropriate valuation methodologies. However, considerable judgment is necessary to interpret market data and develop estimated fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize on disposition of the assets and liabilities at September 30, 2019 and December 31, 2018. The use of different market assumptions and/or estimation methodologies may have a materialan effect on the estimated fair value amounts. Cash, escrows and deposits, receivables, prepaid expenses, accounts payable and accrued expenses and due to affiliates are carried at amounts which reasonably approximate their fair values as of September 30, 2019 and December 31, 2018 due to their short maturities. The fair value of the Company’s borrowings under its senior revolving credit facility approximates carrying value. The fair value of the Company’s secured borrowings aggregated approximately $3,208,680 and $33,586,000, as compared to the principal balance of $3,272,911 and $35,019,149 as of September 30, 2019 and December 31, 2018, respectively. The fair value of the Company’s debt was categorized as a level 3 basis (as provided by ASC 820,Fair Value Measurements and Disclosures). The fair value was estimated using a discounted cash flow analysis valuation based on the borrowing rates currently available to the Company for loans with similar terms and maturities. The fair value of the mortgage debt was determined by discounting the future contractual interest and principal payments by a market rate.

Disclosure about fair value of assets and liabilities is based on pertinent information available to management as of September 30, 2019 and December 31, 2018, respectively. Although management is not aware of any factors that would significantly affect the fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since September 30, 2019 and current estimates of fair value may differ significantly from the amounts presented herein.

Revenue Recognition

our overall business results. 

The Company has operating lease agreementsdeposited cash and maintains its bank deposits with tenants, some of which contain provisions for future rent 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 tenant reimbursement revenue.

Fee and other income primarily consist of property management fees. These fees arise from contractual agreements with entitieslarge financial institutions in amounts that are affiliated with the Company’s CEO. Management fee income is recognized as earned under the respective agreements.

exceed federally insured limits. The Company carries liability insurance to mitigate its exposure to certainhas not experienced any 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 receipt of insurance proceeds is deemed probable. Any amount of insurance recovery in excess of the amount of the losses incurred is considered a gain contingency and is not recorded in fee and other income until the proceeds are received. 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 proceeds are received.

such accounts.  

Income Taxes

UPH was subject to federal income tax and state franchise taxes in jurisdictions where it conducts business. See Note 8. Income Taxes for a discussion of the treatment of the deferred tax assets and liabilities in connection with the IPO.

Income taxes or credits resulting from earnings or losses for the LLCs, the limited partnership and NPM were payable by or accrue to the benefit of the members/partners/shareholders of such entities. No provision has been made for income taxes for these pass-through entities in the combined consolidated financial statements.

For periods subsequent to the completion of the IPO and the Formation Transactions, PRM is subject to federal, state and local corporate income taxes to the extent there is taxable income.

Noncontrolling Interests

Noncontrolling interests in the Company represent common units of limited partnership interest of the Operating Partnership (“Common Units”) held by the Predecessor’s prior investors and long term incentive units of the Operating Partnership (“LTIP Units”) held by the Company’s CEO. Upon completion of the IPO and the Formation Transactions, the Operating Partnership issued 1,333,112 Common Units to the Predecessor’s prior investors as partial consideration for the contribution of their interest in the Predecessor to the Operating Partnership and 114,706 LTIP Units to the Company’s CEO. During the three months ended September 30, 2019, the Company issued 5,298 LTIP Units to an employee.

Dividends

On June 26, 2019, the board of directors of the Company approved and the Company declared a pro-rated cash dividend of $0.063 per share and common unit for the period from May 17, 2019, the closing date of the IPO, to September 30, 2019. The dividend was paid on July 31, 2019 to stockholders and common unitholders of record as of the close of business on July 9, 2019 consisting of $0.3 million in dividends to stockholders and $0.1 million to common unitholders. On November 5, 2019, the board of directors of the Company approved and the Company declared a cash dividend of $0.14 per share and common unit for the quarter ended September 30, 2019. The dividend will be paid on December 2, 2019 to stockholders and common unitholders of record as of the close of business on November 15, 2019 consisting of $0.7 million in dividends to stockholders and $0.2 million to common unitholders.

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 estimated grant dateCompany will record forfeitures as they occur. 

The Company recognizes compensation expense on a straight-line basis over the requisite service period of each award, with the amount of compensation expense recognized at the end of a reporting period at least equal the portion of fair value of restricted stock unitsthe 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 amortized over their respectivenot 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 periods. condition. 

See Note 11. Stockholder’s Equity for further details.

Earnings per Share

The Company calculates net income (loss)loss per share based upon the weighted average shares outstanding duringless issued and outstanding non-vested shares of Class A common stock for the period beginning May 17, 2019. Diluted earnings per share is calculated after giving effect to all potential dilutive shares outstanding during the period. There were 1,453,1162,827,737 potentially dilutive shares outstanding related to the issuance of CommonOP Units and LTIP Units held by noncontrollingnon-controlling interests as of September 30, 2019.March 31, 2020.

POSTAL REALTY TRUST, INC.
NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS

UNAUDITED (CONTINUED)

Reclassifications

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

Accounting Standards Adopted in 2019

In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2014-09,Revenue from Contracts with Customers (“ASU 2014-09”) and established Accounting Standards Codification (“ASC”) Topic 606. ASU 2014-09, as amended by subsequent ASUs on the topic, establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most of the existing revenue recognition guidance.

This standard is effective for interim and annual reporting periods that begin on or after December 15, 2018 as a result of the Company’s status as an emerging growth company. The Company and the Predecessor adopted ASU 2014-09 on January 1, 2019 using the modified retrospective method however, there was no cumulative effect required to be recognized in retained earnings at the date of application. Substantially all of the Company’s revenue is derived from its tenant leases and therefore falls outside the scope of this guidance. With respect to its fee-based revenue, the Company earns monthly base management fees subject to the terms of the contractual agreements with entities that are affiliated with the Company for the day-to-day operations and administration of its managed properties. These services are provided in exchange for monthly management fees, which are based on a percentage of revenues collected from post offices owned by entities that are affiliated with the Company. The Company determined that there is no change to revenue recognition for base management fees as the underlying services are considered to be individual performance obligations composed of a series of distinct services satisfied over time, for which revenue is recognized monthly as earned over the life of the management agreement as services are provided. The total amount of consideration from the contracts is variable as it is based on monthly revenues, which are influenced by multiple factors, some of which are outside the Company’s control. Therefore, the Company recognizes the revenue at the end of each month once the uncertainty is resolved. Due to the standardized terms of the management agreements, the Company accounts for all management agreements in a similar, consistent manner. Therefore, no disaggregated information relating to management agreements is presented.

Future Application of Accounting Standards

In February 2016, the FASB issued ASU No. 2016-02,Leases(“ASU 2016-02”). ASU 2016-02, outlines a new model for accounting by lessees, whereby all leases, existing and new, with lease terms greater than one year will be recognized on the balance sheet. For lessors, however, the accounting remains largely unchanged from the current model, changes have been made to align certain lessor and lessee accounting guidance and the key aspects of the lessor accounting model with new revenue recognition standard discussed above. Under the new guidance, contract consideration will be allocated to its lease components and non-lease components (such as maintenance). For the Company as a lessor, any non-lease components will be accounted for under ASC Topic 606,Revenue from Contracts with Customers, unless the Company elects a lessor practical expedient to not separate the non-lease components from the associated lease component (see discussion below). The new guidance also includes a definition ofinitial direct costs that is narrower than the prior definitionLeases; in current GAAP (Topic 840,Leases). This will result in a change to the accounting for the Company’s internal leasing costs, which will be expensed as incurred, as opposed to being capitalized and deferred. Commissions subsequent to successful lease execution will continue to be capitalized.

ASU 2016-02 initially provided for one retrospective transition method; however, a second transition method was later added with ASU 2018-11 as described below. To ease the transition, the new lease accounting guidance permits companies to utilize certain practical expedients in their implementation of the new standard:

In July 2018, the FASB issued ASU No. 2018-10,Codification Improvements to Topic 842,,Leases,. These amendments provide minor clarifications and corrections to ASU 2016-02,Leases (Topic 842). In July 2018, the FASB issued ASU No. 2018-11,Leases (Topic 842):Targeted Improvements. The amendments in this Update provide entities with an additional optional transition method to adopt ASU 2016-02. Under this new transition method, an entity may apply the new leases standard at the adoption date instead of the earliest comparative period presented in its financial statements and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Consequently, an entity’s reporting under this additional transition method for the comparative periods presented in the financial statements prior to the adoption date of the new leases standard will continue to be in accordance with current GAAP (Topic 840,Leases). The amendments in ASU 2018-11, also provide lessors with a practical expedient, by class of underlying asset, to not separate non-lease components from the associated lease componentLeases — Targeted Improvements; and instead, to account for those components as a single component if the non-lease components otherwise would be accounted for under the new revenue guidance (“Topic 606”). To elect the practical expedient, the timing and pattern of transfer of the lease and non-lease components must be the same and the lease component must meet the criteria to be classified as an operating lease if accounted for separately. If these criteria are met, the single component will be accounted for under either under Topic 842 or Topic 606 depending on which component(s) are predominant. The lessor practical expedient to not separate non-lease components from the associated component must be elected for all existing and new leases.

As lessor, the Company expects that post-adoption substantially all existing leases will have no change in the timing of revenue recognition until their expiration or termination. The Company expects to elect the package of practical expedients and the lessor practical expedient to not separate non-lease components such as maintenance from the associated lease for all existing and new leases and to account for the combined component as a single lease component. The timing of revenue recognition is expected to be the same for the majority of the Company’s new leases as compared to similar existing leases; however, certain categories of new leases could have different revenue recognition patterns as compared to similar existing leases. As lessee, the Company expects to record a right of use asset and related liability for the office lease disclosed in Note 9. Related Party Transactions.

In December 2018, the FASB issued ASU 2018-20,Leases(Topic 842), Narrow-Scope Improvements for LessorsLessors. This group of ASUs is collectively referred to as Topic 842. Topic 842 supersedes the existing standards for lease accounting (Topic 840, Leases). This ASU modifies ASU No. 2016-02 to permit lessors, as an accounting policy election, not to evaluate whether certain sales taxes and other similar taxes are lessor costs or lessee costs. Instead, those lessors will account for those costs as if they are lessee costs. Consequently, a lessor making this election will exclude from the consideration in the contract and from variable payments not included in the consideration in the contract all collections from lessees of taxes within the scope of the election and will provide certain disclosures (includes sales, use, value added, and some excise taxes and excludes real estate taxes). The Company has elected not to evaluate whether the aforementioned costs are lessor or lessee costs. ASU 2018-20 also provides that certain lessor costs require lessors to exclude from variable payments, and therefore revenue, specifically lessor costs paid by lessees directly to third parties. The amendments also require lessors to account for costs excluded from the consideration of a contract that are paid by the lessor and reimbursed by the lessee as variable payments. A lessor will record those reimbursed costs as revenue.

Topic 842 will be effective for the Company on January 1, 2021 as a result of its classification as an emerging growth company.

The Company continuesexpects to evaluateelect the FASB’s activitiespractical expedients provided by Topic 842, including: the package of practical expedients that allows an entity not to reassess upon adoption (i) whether an expired or existing contract contains a lease, (ii) whether a lease classification related to expired or existing lease arrangements, and (iii) whether costs incurred on expired or existing leases qualify as initial direct costs, and as a lessor, the new leasing standardpractical expedient not to separate certain non-lease components, such as common area maintenance, from the lease component if the timing and pattern of transfer are the same for the non-lease component and associated lease component, and the potential impactlease component would be classified as an operating lease if accounted for separately.

Topic 842 requires lessees to record most leases on its financial results, policiestheir balance sheet through a right-of-use (“ROU”) model, in which a lessee records an ROU asset and disclosures upon adoption,a lease liability on their balance sheet. Leases that are less than 12 months do not need to be accounted for under the ROU model. Lessees will account for leases as financing or operating leases, with the classification affecting the timing and pattern of expense recognition in the income statement. Lease expense will be recognized based on the effective interest method for leases accounted for as finance leases and on a straight-line basis over the term of the lease for leases accounted for as operating leases. As of March 31, 2020, the Company was the lessee under one office lease and one ground lease that would require accounting under the ROU model.

The accounting by a lessor under Topic 842 is largely unchanged from that of Topic 840. Under Topic 842, lessors will continue to account for leases as a sales-type, direct-financing, or operating. A lease will be treated as a sale if it is considered to transfer control of the underlying asset to the lessee. A lease will be classified as direct-financing if risks and rewards are conveyed without the transfer of control. Otherwise, the lease is treated as an operating lease. Topic 842 requires accounting for a transaction as a financing in a sale leaseback in certain circumstances, including when the seller-lessee is provided an option to purchase the property from the landlord at the tenant’s option. The Company expects that this provision could change the accounting for costs which may be paid bythese types of leases in the lessee directly to a third party,future. Topic 842 also includes the concept of separating lease and non-lease components. Under Topic 842, non-lease components, such as real estate taxes.

In December 2018,common area maintenance, would be accounted for under Topic 606 and separated from the FASB issued ASU No. 2018-20,Leases — Narrow-Scope Improvements for Lessorswhich provides guidancelease payments. However, the Company will elect the lessor practical expedient allowing the Company to not separate these components when certain conditions are met. Upon adoption of Topic 842, in requiring lessorsthe Company expects to recognize certain variable payment amounts in profit or loss in the period when the changes in facts and circumstances on which the variable payment is based occur. The Company is currently assessing the impact this guidance will havecombine tenant reimbursements with rental income on its consolidated financial statements.statements of operations.

In September 2016, the FASB issued ASU No. 2016-13,Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and in November 2018 issued ASU No. 2018-19,Codification Improvements to Topic 326, Financial Instruments - Credit Losses. The guidance changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The guidance replaces the current ‘incurred loss’ model with an ‘expected loss’ approach. The Company will also be required to disclose information about how it developed the allowances, including changes in the factors that influenced the Company’s estimate of expected credit losses and the reasons for those changes. ASU No. 2018-19 excludes operating lease receivables from the scope of this guidance. This guidance will be effective for the Company on January 1, 2023 as a result of its classification as an emerging growth company. The Company is currently in the process of evaluating the impact the adoption of the guidance will have on its consolidated financial statements.

POSTAL REALTY TRUST, INC.
NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS

UNAUDITED (CONTINUED)

Note 4. Real Estate Acquisitions

The following tables summarizes the Company’s acquisitions for the three months ended March 31, 2020. 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 allocation. The total purchase price including transaction costs was allocated as follows:

4. INTANGIBLE ASSETS AND LIABILITIESExplanatory Notes:

Note 5. Intangible Assets and Liabilities 

The following table summarizes our intangible assets and liabilities as a result of the application of acquisition accounting: 

Amortization of in-place lease intangibles was $1.2$1.1 million and $0.6$0.2 million for the ninethree months ended September 30,March 31, 2020 and 2019, and 2018, respectively. This amortization is included in depreciation“Depreciation and amortization inamortization” on the consolidatedCompany’s Consolidated and combined consolidated statementsCombined Consolidated Statements of operations. Operations. 

Amortization of acquired above market leases was $7,851$3,106 and $6,319$2,370 for the ninethree months ended September 30,March 31, 2020 and 2019, and 2018, respectively, and is included in rent income in“Rental income” on the consolidatedCompany’s Consolidated and combined consolidated statementsCombined Consolidated Statements of operations.Operations. Amortization of acquired below market leases was $334,627$0.3 million and $215,955$0.1 million for the ninethree months ended September 30,March 31, 2020 and 2019, and 2018, respectively, and is included in rent income in“Rental income” on the consolidatedCompany’s Consolidated and combined consolidated statementsCombined Consolidated Statements of operations.Operations. 

Future amortization/accretion of these intangibles is below:

The balance of these intangible assets and liabilities will be amortized as follows:

POSTAL REALTY TRUST, INC.
NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS

UNAUDITED (CONTINUED)

5. DEBTNote 6. Debt

The following table summarizes the Company’s indebtedness as of September 30, 2019March 31, 2020 and December 31, 2018:2019:

Explanatory Notes:

The interest rates applicable to loans under the Credit Facility are, at our option, equal to either a base rate plus a margin ranging from 0.7% to 1.4% per annum or LIBOR plus a margin ranging from 1.7% to 2.4% per annum, each based on a consolidated leverage ratio. In addition, the Company will pay, for the period through and including the calendar quarter ended March 31, 2020, an unused facility fee on the revolving commitments under the Credit Facility of 0.75% per annum for the first $100 million and 0.25% per annum for the portion of revolving commitments exceeding $100.0 million, and for the period thereafter, an unused facility fee of 0.25% per annum for the aggregate unused revolving commitments, with both periods utilizing calculations of daily unused commitments under the Credit Facility.

During the three months ended March 31, 2020, the Company incurred $0.2 million of unused fees related to the Credit Facility. The Company’s ability to borrow under the Credit Facility is subject to ongoing compliance with a number of customary affirmative and negative covenants. As of March 31, 2020, the Company was in compliance with all of the Credit Facility’s debt covenants.

POSTAL REALTY TRUST, INC.
NOTES TO CONSOLIDATED AND COMBINED CONSOLIDATED FINANCIAL STATEMENTS

UNAUDITED (CONTINUED)

Principal payments on debt through maturity

The scheduled principal repayments of indebtedness as of March 31, 2020 are as follows:

In connection with the IPO, the Company repaid approximately $31.7 million of outstanding indebtedness and wrote off approximately $0.2 million of deferred financing costs which are recorded in loss on extinguishment of debt in the consolidated and combined consolidated statements of operations.

Note 7. Leases

The Vision Bank loan, First Oklahoma Bank loan and Vision Bank – 2018 loan contain a personal guarantyAs of payment by Mr. Spodek.

6. LOANS PAYABLE – RELATED PARTY

In June 2018, pursuant to a loan modification agreement, interest-only promissory notes aggregating $3,544,215 bearing interest at 1.9% per annum, requiring interest only payments, and maturing between August 1, 2036 through July 1, 2041 were assumed by an affiliate of the Predecessor and recorded as an increase in equity of the Predecessor. Interest expense incurred for these notes was $33,671 for the nine months ended September 30, 2018.

7. OPERATING LEASE AGREEMENTS

At September 30, 2019,March 31, 2020, all of the properties owned by the Company are leased towere occupied by a single tenant, the USPS, other than a de-minimisde minimis non-postal tenant that shares space in a building leased to the USPS. TheCertain leases have expired and the balance expire at various dates through January 31, 2028.November 30, 2029.