What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2025-02-27 compared with 2024-03-06 · 113 added, 178 removed, 240 unchanged (55% of the section changed)

4 unchanged sentences

Risk Factors .

Please see our Annual Report on Form 10-K for the year ended December 31, 2023 for discussion of our financial condition and results of operations for the year ended December 31, 2022.

Refer to Item 1.

2 unchanged sentences

Prior to the Spin-Off

The historical results of operations and liquidity and capital resources of NLOP prior to the Spin-Off do not represent the historical results of operations and liquidity and capital resources of a legal entity, but rather a combination of entities under common control that have been “carved-out” of WPC’s consolidated financial statements and presented on a combined basis, in each case, in accordance with U.S.

generally accepted accounting principles (“GAAP”).

6 unchanged sentences

The financial results of NLOP prior to the Spin-Off also include an allocation of indirect costs and expenses incurred by WPC related to NLOP, primarily consisting of compensation and other general and administrative costs using the relative percentage of property revenue of NLOP and WPC management’s knowledge of NLOP.

In addition, the financial results reflect allocation of interest expense from WPC unsecured debt, excluding debt that is specifically attributable to NLOP;

In addition, the financial results reflect the allocation of interest expense from WPC unsecured debt, excluding debt that is specifically attributable to NLOP;

interest expense was allocated by calculating the unencumbered net investment in real estate of each property held by NLOP as a percentage of WPC’s total consolidated unencumbered net investment in real estate and multiplying that percentage by the interest expense on WPC unsecured debt.

5 unchanged sentences

Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards.

The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable.

The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt

Net Lease Office Properties 2024 10-K – 24

can adopt the new or revised standard at the time private companies adopt the new or revised standard.

out is irrevocable.

NLOP has elected to take advantage of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, NLOP, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard.

This may make comparison of NLOP’s financial statements with certain other public companies difficult or impossible because of the potential differences in accounting standards used.

3 unchanged sentences

References herein to “emerging growth company” have the meaning associated with it in the JOBS Act.

Significant Developments

On November 1, 2023, WPC completed the Spin-Off of 59 office properties into NLOP.

The Spin-Off was accomplished via a pro rata dividend of 1 NLOP common share for every 15 shares of WPC common stock outstanding, resulting in a distribution of an aggregate of 14,620,919 NLOP common shares.

Following the closing of the Spin-Off, NLOP operates as a separate publicly-traded REIT, for which WPC serves as our Advisor pursuant to the NLOP Advisory Agreements executed in connection with the Spin-Off.

Financial Highlights

During the year ended December 31, 2023, we completed the following (as further described in the consolidated financial statements):

• We disposed of four properties for total proceeds, net of selling costs, of $38.9 million ( Note 16 ).

Leasing Activity

• During the fourth quarter of 2023, we entered into (i) an amended and restated lease agreement (the “Lease Extension”) with respect to the two properties leased by BCBSM, Inc.

located at 1800 Yankee Doodle Road and 3400 Yankee Doodle Road in Eagan, Minnesota (the “Extension Premises”) and (ii) lease termination agreements (collectively, the “Lease Terminations”) with respect to the four properties leased by BCBSM, Inc.

located at 3535 Blue Cross Road, 1750 Yankee Doodle Road, 3311 Terminal Drive, and 3545 Blue Cross Road (the “Termination Premises”).

The Lease Extension, among other things, extends the lease expiration date for the Extension Premises by ten years until January 31, 2037, subject to the tenant’s right to further extend the lease term for two additional five-year periods following the new lease expiration date.

The Lease Terminations, among other things, shorten the lease term of each of the Termination Premises from January 31, 2027 to the earlier of (i) June 30, 2024 and (ii) the sale of the respective property.

In connection with the Lease Terminations, the tenant has agreed to pay NLOP termination fees of approximately $12.0 million to $13.0 million in the aggregate for all of the Termination Premises payable and determined based on the date of each property’s termination date.

We sold the property located at 3311 Terminal Drive in December 2023 for gross proceeds of $2.5 million.

Net Lease Office Properties 2023 10-K – 24

Financing Transactions

• On September 20, 2023, in connection with the Spin-Off, we and certain of our wholly-owned subsidiaries entered into financing arrangements for which funding was subject to certain conditions (including the closing of the Spin-Off), including (i) a $335.0 million NLOP Mortgage Loan maturing on November 9, 2025, with two separate one-year extension options subject to certain conditions, and (ii) a $120.0 million NLOP Mezzanine Loan maturing on November 9, 2028.

At that time, NLOP was a wholly-owned subsidiary of WPC.

The funding of these NLOP Financing Arrangements occurred on November 1, 2023 (the date of the Spin-Off).

We borrowed an aggregate of $455.0 million and each of the NLOP Mortgage Loan and the NLOP Mezzanine Loan was fully drawn.

Approximately $343.9 million of the proceeds from the financing (net of transaction expenses) was transferred to WPC in connection with the Spin-Off ( No te 1 , Note 11 ).

Dividends to Shareholders

On December 8, 2023, our Board of Trustees authorized a common share dividend of $0.34 per share paid on January 29, 2024 to shareholders of record as of the close of business on December 18, 2023 (the “Record Date”).

Shareholders had the option to elect to receive their dividend in the form of cash or additional NLOP shares, with the aggregate amount of cash distributed by NLOP limited to a maximum of 20% of the total dividend.

The total number of shares issued in the share dividend was 164,199 shares.

Cash paid in connection with the share dividend totaled $1.1 million, which includes cash paid in lieu of fractional shares.

Dividends paid by NLOP will be authorized and determined by our Board of Trustees, in its sole discretion, and will be dependent upon a number of factors.

While the Company paid a dividend in January 2024, it does not intend to pay regular dividends going forward, except as may be necessary to maintain its REIT qualification.

During the year ended December 31, 2024 and through the date of this Report, we completed the following (as further described in the consolidated financial statements):

• During the year ended December 31, 2024, we sold 14 properties for total proceeds, net of selling costs, of $320.1 million ( Note 16 ).

• In April 2024, we disposed of two properties by transferring ownership to the respective mortgage lenders, in satisfaction of non-recourse mortgage loans encumbering the properties totaling $33.0 million ( Note 16 ).

Debt Repayments

• During the year ended December 31, 2024, we (i) fully repaid the NLOP Mortgage Loan, which had $288.9 million of outstanding principal as of December 31, 2023, and (ii) repaid $53.2 million of outstanding principal on the NLOP Mezzanine Loan, in each case using proceeds from certain dispositions, as well as cash flow from rent on our properties and other sources ( Note 11 ).

• During the year ended December 31, 2024, we prepaid two non-recourse mortgage loans totaling $20.8 million, which had a weighted-average interest rate of 5.2% ( Note 11 ).

• In February 2025, we repaid $3.3 million of outstanding principal on the NLOP Mezzanine Loan using excess cash ( Note 18 ).

Summary Results

1 unchanged sentence

Years Ended December 31,

2023 2022 2021

Total revenues $ 142,247 $ 174,965

Net (loss) income attributable to NLOP (131,746) 15,779 1,418

Net cash provided by operating activities 70,966 84,282 75,335

Net cash provided by (used in) investing activities 27,693 (22,918) (4,184)

Net loss attributable to NLOP (91,471) (131,746)

Dividends declared — 4,971

Net cash provided by operating activities (a)

71,859 70,966

Net cash provided by investing activities 297,749 27,693

Net cash used in financing activities (367,984) (36,778)

Supplemental financial measures (a) :

Supplemental financial measures (b) :

Funds from operations attributable to NLOP (FFO) 23,039 72,253

Adjusted funds from operations attributable to NLOP (AFFO) 62,048 93,928

(a) We consider Funds from operations (“FFO”) and Adjusted funds from operations (“AFFO”), supplemental measures that are not defined by GAAP (a “non-GAAP measure”), to be important measures in the evaluation of our operating performance.

See Supplemental Financial Measures below for our definition of this non-GAAP measure and a reconciliation to its most directly comparable GAAP measure.

Net Lease Office Properties 2024 10-K – 25

Revenue increased in 2023 as compared to 2022, primarily due to higher lease revenues contributed from the nine properties acquired in the CPA:18 Merger (which closed on August 1, 2022 and as defined in Note 1 ) and lease termination income recognized during 2023, partially offset by the impact of disposition activity.

Total revenues increased in 2022 as compared to 2021, primarily due to revenues received from the nine properties acquired in the CPA:18 Merger.

Net Income Attributable to NLOP

Net income attributable to NLOP decreased in 2023 as compared to 2022, primarily due to impairment charges recognized during the current year, higher interest expense, and an increase in depreciation and amortization expense from the nine properties acquired in the CPA:18 Merger, partially offset by higher lease revenues contributed from the nine properties acquired in the CPA:18 Merger and merger-related expenses incurred in 2022.

Net income attributable to NLOP increased in 2022 as compared to 2021, primarily due to higher lease revenue contributed from the nine properties acquired in the CPA:18 Merger and decrease in loss on extinguishment of debt, partially offset by the merger-related expenses incurred in connection with the CPA:18 Merger in 2022.

FFO decreased in 2023 as compared to 2022, primarily due to higher interest expense and Spin-Off costs, partially offset by higher lease revenues contributed from the nine properties acquired in the CPA:18 Merger and lease termination income recognized during 2023.

FFO increased in 2022 as compared to 2021, primarily due to decrease in loss on extinguishment of debt, offset by merger-related expenses incurred in connection with the CPA:18 Merger in 2022.

AFFO increased in 2023 as compared to 2022, primarily due to the nine properties acquired in the CPA:18 Merger and lease termination income recognized during 2023, partially offset by higher interest expense.

AFFO increased in 2022 as compared to 2021, primarily due to lower interest expense and an increase in lease revenues from the properties acquired in the CPA:18 Merger.

(a) Amount for the year ended December 31, 2024 includes $10.3 million of proceeds from the sale of a net investment in sales-type lease ( Note 7 ).

Such proceeds are included within Net cash provided by operating activities in accordance with Accounting Standards Codification (“ASC”) 842, Leases .

(b) We consider Funds from operations (“FFO”) and Adjusted funds from operations (“AFFO”), supplemental measures that are not defined by GAAP (a “non-GAAP measure”), to be important measures in the evaluation of our operating performance.

See Supplemental Financial Measures below for our definition of this non-GAAP measure and a reconciliation to its most directly comparable GAAP measure.

Total revenues decreased in 2024 as compared to 2023, primarily due to the impact of disposition activity and tenant vacancies at certain properties, partially offset by higher other lease-related income.

Net Loss Attributable to NLOP

Net loss attributable to NLOP decreased in 2024 as compared to 2023, primarily due to an impairment charge recognized on goodwill during 2023 and higher gain on sale of real estate, partially offset by higher interest expense and the impact of disposition activity.

FFO decreased in 2024 as compared to 2023, primarily due to higher interest expense (including amortization of deferred financing costs) and the impact of disposition activity, partially offset by higher other lease-related income and Spin-Off costs recognized during 2023.

AFFO decreased in 2024 as compared to 2023, primarily due to the impact of disposition activity, partially offset by higher other lease-related income.

Portfolio Overview

18 unchanged sentences

Texas $ 20,156 22.9 % 913,713 1 5.5

Minnesota 13,007 9.1 % 1,029,966 5 5.4

JPMorgan Chase Bank, N.A.

Florida, Texas 9,069 10.3 % 666,869 3 4.4

FedEx Corporation Tennessee 5,491 3.9 % 390,380 1 15.9

Total E&P Norge AS (b)

Norway 5,185 3.6 % 275,725 1 7.5

Siemens AS (b)

Norway 4,198 4.8 % 165,905 1 1.0

McKesson Corporation (US Oncology) (c)

Texas 4,406 3.1 % 204,063 1 0.1

CVS Health Corporation Arizona 4,300 3.0 % 354,888 1 15.0

Pharmaceutical Product Development, LLC North Carolina 4,063 4.6 % 219,812 1 8.9

1 unchanged sentence

California 3,961 4.5 % 120,000 1 3.7

Donnelley & Sons Company Illinois 3,393 3.9 % 167,215 1 2.7

Board of Regents, State of Iowa Iowa 3,254 3.7 % 191,700 1 5.8

Bankers Financial Corporation Florida 3,228 3.6 % 111,357 1 0.6

Google, LLC California 2,930 3.3 % 67,681 1 5.8

Northrop Grumman Systems Corporation Minnesota 2,679 3.0 % 191,336 1 4.9

Total $ 56,931 64.6 % 2,815,588 12 4.7

1 unchanged sentence

(b) ABR amounts are subject to fluctuations in foreign currency exchange rates.

Net Lease Office Properties 2024 10-K – 27

15 unchanged sentences

2037 1 1 545 0.6 % 31,120 0.6 %

2035 2 2 2,911 2.0 % 201,229 2.4 %

2037 2 2 5,735 4.0 % 402,962 4.8 %

2038 2 2 7,327 5.1 % 459,486 5.5 %

2039 1 1 5,491 3.9 % 390,380 4.6 %

Vacant — — — — % 833,297 14.8 %

13 unchanged sentences

Results of Operations

Years Ended December 31, 2023 vs.

(in thousands) 2023 2022 2021 Change Change

Years Ended December 31,

(in thousands) 2024 2023 Change

Lease revenues $ 128,857 $ 166,034 $ (37,177)

3 unchanged sentences

Lease Revenues

For the year ended December 31, 2023 as compared to 2022, lease revenues increased by $14.8 million, primarily due to lease revenue from the nine properties acquired through the CPA:18 Merger (which closed on August 1, 2022), partially offset by the impact of disposition activity during the fourth quarter of 2023.

For the year ended December 31, 2022 as compared to 2021, lease revenues increased by $7.3 million, primarily due to additional lease revenue from the nine properties acquired through the CPA:18 Merger, partially offset by a decrease in lease revenues at our multi-tenant property in Houston, Texas.

For the year ended December 31, 2024 as compared to 2023, lease revenues decreased by $37.2 million, primarily due to disposition activity, tenant vacancies at certain properties, and the anticipated reimbursement of $3.3 million of rent to a tenant since the tenant had to vacate a property during a period of maintenance (this reimbursement was formally agreed upon in February 2025 ( Note 18 )).

Income from Finance Leases

For the year ended December 31, 2023 as compared to 2022, income from finance leases decreased by $0.6 million, primarily due to the reclassification of our remaining direct financing lease investment to operating lease during the third quarter of 2023 ( Note 7 ).

Income from finance leases remained consistent during the year ended December 31, 2022 as compared to 2021.

For the year ended December 31, 2024 as compared to 2023, income from finance leases decreased by $1.1 million, primarily due to the reclassification of our remaining direct financing lease investment to operating lease during the third quarter of 2023, as well as the disposition of our remaining property classified as net investments in sales-type lease during the first quarter of 2024 ( Note 7 ).

Other Lease-Related Income

Other lease-related income is described in Note 6 .

For the year ended December 31, 2023 as compared to 2022, other lease-related income increased by $4.5 million, primarily due to lease termination income recognized from a tenant during 2023.

For the year ended December 31, 2022 as compared to 2021, other lease-related income increased by $1.0 million, primarily due to a $0.5 million increase related to additional parking garage income at a property with the return-to-office trend post COVID-19 pandemic.

Net Lease Office Properties 2023 10-K – 29

Operating Expenses

Years Ended December 31, 2023 vs.

(in thousands) 2023 2022 2021 Change Change

Years Ended December 31,

(in thousands) 2024 2023 Change

Operating Expenses

Depreciation and amortization $ 74,998 $ 63,205 $ 58,580 $ 11,793 $ 4,625

Impairment charges — real estate $ 78,237 $ 63,143 $ 15,094

Impairment charges — goodwill 62,456 — — 62,456 —

Depreciation and amortization 56,696 74,998 (18,302)

Reimbursable tenant costs 26,520 27,957 (1,437)

General and administrative 13,610 11,871 10,307 1,739 1,564

Property expenses, excluding reimbursable tenant costs 10,901 8,642 2,259

Separation and distribution related costs and other 8,446 6,025 — 2,421 6,025

General and administrative 7,502 13,610 (6,108)

Asset management fees 6,243 1,245 4,998

Separation and distribution related costs and other 16 8,446 (8,430)

Impairment charges — goodwill — 62,456 (62,456)

$ 186,115 $ 260,497 $ (74,382)

Depreciation and Amortization

For the year ended December 31, 2023 as compared to 2022, depreciation and amortization expense increased by $11.8 million, primarily due to the impact of the nine properties acquired in the CPA:18 Merger and accelerated amortization of in-place lease intangibles in connection with a lease restructuring during 2023.

For the year ended December 31, 2022 as compared to 2021, depreciation and amortization expense increased by $4.6 million, primarily due to the impact of the nine properties acquired in the CPA:18 Merger, partially offset by the weakening of foreign currencies (primarily the euro and British pound sterling) in relation to the U.S.

dollar between the periods.

Impairment Charges — Real Estate

Our impairment charges on real estate are described in Note 9 .

Impairment Charges — Goodwill

Our impairment charges on goodwill are described in Note 9

Depreciation and Amortization

For the year ended December 31, 2024 as compared to 2023, depreciation and amortization expense decreased by $18.3 million, primarily due to the impact of disposition activity, partially offset by accelerated amortization of intangible assets in connection with a lease restructuring.

Net Lease Office Properties 2024 10-K – 29

Reimbursable Tenant Costs

For the year ended December 31, 2023 as compared to 2022, reimbursable tenant costs increased by $3.7 million, primarily due to the addition of nine properties acquired in the CPA:18 Merger ( Note 4 ).

For the year ended December 31, 2022 as compared to 2021, reimbursable tenant costs increased by $0.6 million primarily due to the addition of nine properties acquired in the CPA:18 Merger ( Note 4 ).

For the year ended December 31, 2024 as compared to 2023, reimbursable tenant costs decreased by $1.4 million, primarily due to the impact of dispositions, partially offset by higher insurance premiums paid on certain properties.

Property Expenses, Excluding Reimbursable Tenant Costs

For the year ended December 31, 2024 as compared to 2023, property expenses, excluding reimbursable tenant costs, increased by $2.3 million, primarily due to tenant vacancies during 2024 (which resulted in property expenses no longer being reimbursable).

General and Administrative

For the year ended December 31, 2023 as compared to 2022, general and administrative expenses increased by $1.7 million, primarily due to annual audit fees and investor relations expenses.

For the year ended December 31, 2022 as compared to 2021, general and administrative expenses increased by $1.6 million, primarily due to higher compensation expenses and increased professional fees resulting from the CPA:18 Merger.

General and administrative expenses were allocated to NLOP based on the relative percentage of annualized based rent of NLOP.

Prior to the Spin-Off on November 1, 2023 ( Note 1 ), general and administrative expenses were allocated to NLOP based on the relative percentage of annualized based rent of NLOP.

The amounts allocated are not necessarily indicative of the actual amount of indirect expenses that would have been recorded had NLOP been a separate independent entity.

Net Lease Office Properties 2023 10-K – 30

Property Expenses, Excluding Reimbursable Tenant Costs

For the year ended December 31, 2023 as compared to 2022, property expenses, excluding reimbursable tenant costs, increased by $0.9 million, primarily driven by the nine properties acquired through the CPA:18 Merger.

For the year ended December 31, 2022 as compared to 2021, property expenses, excluding reimbursable tenant costs, increased by $1.3 million, primarily due to a maintenance expense increase related to our multi-tenant property in Houston, Texas, as a result of the return-to-office trend post COVID-19 pandemic.

For the year ended December 31, 2024 as compared to 2023, general and administrative expenses decreased by $6.1 million, primarily since 2024 and the last two months of 2023 represent actual direct expenses incurred (including $4.0 million and $0.7 million of administrative reimbursements paid to our Advisor during 2024 and 2023, respectively ( Note 5 )), compared to the allocation of expenses described above for the first ten months of 2023.

Asset Management Fees

Upon completion of the Spin-Off on November 1, 2023 ( Note 1 ), we began paying asset management fees to our Advisor, which totaled $6.2 million and $1.2 million during the years ended December 31, 2024 and 2023, respectively ( Note 5 ).

Separation and Distribution Related Costs and Other

For the year ended December 31, 2023, separation and distribution related costs and other are comprised of costs related to the Spin-Off, which closed on November 1, 2023 ( Note 1 ).

For the year ended December 31, 2022, separation and distribution related costs and other are comprised of costs related to the CPA:18 Merger, which closed on August 1, 2022 ( Note 4 ).

Asset Management Fees

Upon completion of the Spin-Off on November 1, 2023 ( Note 1 ), we began paying asset management fees to our Advisor, which totaled $1.2 million during the year ended December 31, 2023 ( Note 5 ).

Other Income and Expenses, and Provision for Income Taxes

Years Ended December 31, 2023 vs.

2022 2022 vs.

(in thousands) 2023 2022 2021 Change Change

Impairment Charges — Goodwill

Our impairment charges on goodwill are described in Note 9 .

Other Income and Expenses, and Benefit from (Provision for) Income Taxes

Years Ended December 31,

(in thousands) 2024 2023 Change

Other Income and Expenses

Interest expense $ (67,962) $ (42,613) $ (25,349)

Loss on sale of real estate, net (3,608) — — (3,608) —

Gain (loss) on sale of real estate, net 20,216 (3,608) 23,824

Other gains and (losses) (2,154) 456 (2,610)

Provision for income taxes (425) (486) (1,646) 61 1,160

Benefit from (provision for) income taxes 2,382 (425) 2,807

$ (47,518) $ (46,190) $ (1,328)

Interest Expense

Interest expense is comprised of interest on Non-recourse mortgages, our NLOP Mortgage Loan, and our NLOP Mezzanine Loan, as well as interest expense on Parent debt specific to NLOP properties and that was allocated to NLOP based on the relative percentage of unencumbered net investment in real estate of each property compared to WPC (prior to the Spin-Off).

Interest expense is comprised of interest on Non-recourse mortgages, our NLOP Mortgage Loan, and our NLOP Mezzanine Loan, as well as interest expense on Parent Debt (as defined in Note 11 ) specific to NLOP properties and that was allocated to NLOP based on the relative percentage of unencumbered net investment in real estate of each property compared to WPC (prior to the Spin-Off).

The amounts allocated to Parent Debt in the accompanying audited consolidated financial statements are not necessarily indicative of the actual amount of interest expense that would have been recorded had NLOP been a separate independent entity during the applicable periods.

We expect increasing interest rates and higher debt balances to have a material impact on our results of operations depending on the terms we are able to obtain in new financings or refinancings.

For the year ended December 31, 2023 as compared to 2022, interest expense increased by $15.8 million, primarily due to the $455.0 million of NLOP Financing Arrangements entered into during 2023 ( Note 11 ).

The weighted-average interest rate for our debt instruments as of December 31, 2023 increased to 9.5% as compared to 4.8% as of December 31, 2022.

For the year ended December 31, 2022 as compared to 2021, interest expense decreased by $1.8 million, primarily due to the reduction of our non-recourse mortgages outstanding by repaying at or close to maturity a total of $36.8 million of non-recourse mortgage loans with a weighted-average interest rate of 4.3% throughout 2022, partially offset by additional interest expense from non-recourse mortgage loans encumbering the properties acquired through the CPA:18 Merger.

Net Lease Office Properties 2024 10-K – 30

Loss on Sale of Real Estate, Net

Loss on sale of real estate, net, consists of loss on the sale of properties that were (i) disposed of or (ii) subject to a purchase agreement resulting in a lease modification, during the reporting period, as more fully described in Note 6 , Note 7 , and Note 16 .

For the year ended December 31, 2024 as compared to 2023, interest expense increased by $25.3 million, primarily due to the $455.0 million of NLOP Financing Arrangements that were funded on November 1, 2023 ( Note 11 ).

Since our NLOP Mortgage Loan was fully repaid during 2024 and we repaid $53.2 million of outstanding principal on the NLOP Mezzanine Loan during 2024, we expect Interest expense to be lower in future periods.

Gain (Loss) on Sale of Real Estate, Net

Gain (loss) on sale of real estate, net, consists of gain (loss) on the sale of properties that were (i) disposed of or (ii) subject to a purchase agreement resulting in a lease modification, during the reporting period, as more fully described in Note 6 , Note 7 , and Note 16 .

Other Gains and (Losses)

For the year ended December 31, 2024, other gains and (losses) of $(2.2) million were primarily comprised of (i) loss of ($3.2) million related to damages at a property, (ii) net realized and unrealized losses on our interest rate cap derivative of ($1.0) million ( Note 10 ), (iii) net realized and unrealized gains on foreign currency exchange rate movements of ($0.8) million, (iv) loss of ($0.3) million on extinguishment of debt, (v) interest income on our cash deposits of $2.3 million, and (vi) gain of $0.9 million related to a forfeited deposit on a potential disposition.

For the year ended December 31, 2023, other gains and (losses) of $0.5 million were primarily comprised of net realized and unrealized losses on foreign currency exchange rate movements.

For the year ended December 31, 2022, other gains and (losses) were immaterial.

For the year ended December 31, 2021, other gains and (losses) of $17.2 million were primarily comprised of loss on extinguishment of debt recognized in connection with certain prepayments of non-recourse mortgage loans.

Provision for Income Taxes

For the year ended December 31, 2023 as compared to 2022, provision for income taxes was relatively flat.

For the year ended December 31, 2022 as compared to 2021, provision for income taxes decreased by $1.2 million , primarily due to $0.6 million income tax benefit for the Oslo, Norway property acquired through the CPA:18 Merger, and $0.3 million provision decrease related to a property in Stavanger, Norway.

Benefit from (Provision for) Income Taxes

For the year ended December 31, 2024, we recognized a benefit from income taxes of $2.4 million, as compared to a provision for income taxes of $0.4 million for the year ended December 31, 2023, primarily due to the impact of an impairment charge recognized on an international property during 2024.

Liquidity and Capital Resources

10 unchanged sentences

The following table summarizes the changes in cash flows for the periods presented (in thousands):

Years Ended December 31, 2023 vs.

2022 2022 vs.

2023 2022 2021 Change Change

Years Ended December 31,

2024 2023 Change

Net cash provided by operating activities $ 71,859 $ 70,966 $ 893

Net cash provided by (used in) investing activities 27,693 (22,918) (4,184) 50,611 (18,734)

Net cash provided by investing activities 297,749 27,693 270,056

Net cash used in financing activities (367,984) (36,778) (331,206)

Net Cash (Used in) Provided by Operating Activities — Net cash provided by operating activities decreased by $13.3 million during 2023 as compared to 2022, primarily due to higher interest expense and Spin-Off related costs incurred during 2023.

Net cash provided by operating activities increased by $8.9 million during 2022 as compared to 2021, primarily due to rental income from properties acquired in the CPA:18 Merger.

Net Cash Provided by (Used in) Investing Activities — Net cash provided by (used in) investing activities increased by $50.6 million during 2023 as compared to 2022, primarily due to the disposition of four properties during 2023 ( Note 16 ), as well as cash consideration paid attributable to NLOP for the CPA:18 Merger during 2022 ( Note 4 ).

Net cash provided by (used in) investing activities decreased by $18.7 million during 2022 as compared to 2021, primarily due to cash consideration paid attributable to NLOP for the CPA:18 Merger during 2022 ( Note 4 ).

Net Cash Provided by Operating Activities — Net cash provided by operating activities increased by $0.9 million during 2024 as compared to 2023, primarily due to $10.3 million of proceeds received from the sale of a net investment in sales-type lease during 2024 ( Note 7 ) and Spin-Off related costs incurred during 2023 ( Note 1 ), substantially offset by the impact of dispositions.

Net Cash Provided by Investing Activities — Net cash provided by investing activities increased by $270.1 million during 2024 as compared to 2023, primarily due to higher proceeds from dispositions ( Note 16 ).

Net Cash Used in Financing Activities — Net cash used in financing activities increased by $331.2 million during 2024 as compared to 2023, primarily due to higher payments of the NLOP Financing Arrangements and mortgage principal.

Net Lease Office Properties 2024 10-K – 31

Net Cash Used in Financing Activities — Net cash used in financing activities decreased by $27.8 million during 2023 as compared to 2022, primarily due to proceeds from the NLOP Financing Arrangements, partially offset by distributions made to WPC in connection with the Spin-Off.

Net cash used in financing activities decreased by $12.7 million during 2022 as compared to 2021, primarily due to a decrease in prepayments of mortgage principal and other debt instruments.

Summary of Financing

The table below summarizes our non-recourse mortgages, NLOP Mortgage Loan, and NLOP Mezzanine Loan (dollars in thousands):

Carrying Value (a)

Non-recourse mortgages (b)

Carrying Value

Non-recourse mortgages, net (a)

$ 71,488 $ 125,038

NLOP Mezzanine Loan (b)

NLOP Mezzanine Loan, net (a)

57,957 106,299

129,445 231,337

Variable rate:

NLOP Mortgage Loan — Amount subject to interest rate cap (b)

Non-recourse mortgages (b)

Non-recourse mortgages, net (a)

39,771 43,798

NLOP Mortgage Loan, net — Amount subject to interest rate cap (a)

39,771 310,642

7 unchanged sentences

Total debt 8.1 % 9.5 %

(a) This table excludes Parent debt.

(b) Aggregate debt balance includes unamortized discount, net, totaling $21.6 million and $2.0 million as of December 31, 2023 and 2022, respectively, and unamortized deferred financing costs totaling $9.2 million and less than $0.1 million as of December 31, 2023 and 2022, respectively.

In connection with the Spin-Off, we and certain of our wholly-owned subsidiaries entered into the NLOP Financing Arrangements, comprised of the NLOP Mortgage Loan and NLOP Mezzanine Loan ( Note 11 ).

The NLOP Financing Arrangements are collateralized by the assignment of certain of our previously unencumbered real estate properties.

Additionally, property sales are subject to the satisfaction of certain conditions, including satisfaction of a debt yield test and minimum release prices.

We are required to use the net proceeds from property sales collateralizing the NLOP Financing Arrangements to repay the portions of the NLOP Mortgage Loan and NLOP Mezzanine Loan representing the release amount for any individual property sale.

On November 1, 2023, we fully drew down $335.0 million under the NLOP Mortgage Loan and $120.0 million under the NLOP Mezzanine Loan.

Approximately $343.9 million of the proceeds from the financing was transferred to WPC in accordance with the Separation and Distribution Agreement.

The remainder of the proceeds from the NLOP Financing Arrangements was used to pay fees and expenses related to the origination of the NLOP Financing Arrangements and other transaction costs, was deposited with the Lenders in satisfaction of the reserve requirements pursuant to the NLOP Financing Arrangements, and was used for other general corporate expenses.

Net Lease Office Properties 2023 10-K – 33

In connection with the dispositions of four properties during the period from November 1, 2023 to December 31, 2023, we repaid $33.3 million and $5.7 million on the NLOP Mortgage Loan and NLOP Mezzanine Loan, respectively.

Additionally, we repaid $12.8 million from excess cash from operations on the NLOP Mortgage Loan.

At December 31, 2023, we had $288.9 million and $114.3 million outstanding on the NLOP Mortgage Loan and NLOP Mezzanine Loan, respectively.

(a) Aggregate debt balance includes unamortized discount, net, totaling $1.8 million and $21.6 million as of December 31, 2024 and 2023, respectively, and unamortized deferred financing costs totaling $1.0 million and $9.2 million as of December 31, 2024 and 2023, respectively.

In connection with the Spin-Off, we and certain of our wholly-owned subsidiaries entered into the NLOP Financing Arrangements, comprised of the NLOP Mortgage Loan and NLOP Mezzanine Loan, as discussed in Note 1 1 .

During the year ended December 31, 2024, we (i) fully repaid the NLOP Mortgage Loan, which had $288.9 million of outstanding principal as of December 31, 2023, and (ii) repaid $53.2 million of outstanding principal on the NLOP Mezzanine Loan, in each case using proceeds from certain dispositions, as well as cash flow from rent on our properties and other sources.

At December 31, 2024, we had $61.1 million total principal outstanding on the NLOP Mezzanine Loan.

In February 2025, we repaid $3.3 million of outstanding principal on the NLOP Mezzanine Loan using excess cash ( Note 18 ).

Cash Resources

3 unchanged sentences

• unleveraged properties that had an aggregate asset carrying value of approximately $78.9 million at December 31, 2024, although there can be no assurance that we would be able to sell or obtain financing for these properties.

Net Lease Office Properties 2024 10-K – 32

Cash Requirements and Liquidity

2 unchanged sentences

• making scheduled principal and balloon payments on our non-recourse mortgage debt obligations, totaling $110.8 million, with $105.0 million due during the next 12 months;

• making scheduled interest payments on our non-recourse mortgage obligations (future interest payments total $12.7 million, with $6.2 million due during the next 12 months);

• making scheduled principal payments on the NLOP Financing Arrangements, totaling $403.2 million, with $4.1 million due during the next 12 months;

• making scheduled interest payments on the NLOP Financing Arrangements (future interest payments total $145.5 million, with $47.5 million due during the next 12 months);

includes 4.5% payment-in-kind interest on the NLOP Mezzanine Loan that we have the option to capitalize into the principal balance;

• making scheduled interest payments on our non-recourse mortgage debt obligations (future interest payments total $5.3 million, with $5.1 million due during the next 12 months);

• making scheduled principal payments on the NLOP Mezzanine Loan, totaling $61.1 million (no amounts are due during the next 12 months);

• making scheduled interest payments on the NLOP Mezzanine Loan (future interest payments total $35.9 million, with $9.0 million due during the next 12 months);

includes 4.5% payment-in-kind interest that we have the option to capitalize into the principal balance;

• funding future capital commitments and tenant improvement allowances;

1 unchanged sentence

We expect to fund these cash requirements through cash generated from operations and cash received from dispositions of properties.

Our liquidity could be adversely affected by refinancing debt at higher interest rates, unanticipated costs, and greater-than-anticipated operating expenses.

Our liquidity could be adversely affected by refinancing debt at higher interest rates or an unanticipated disruption to our operating cash flow, which could include interrupted rent collections or greater-than-anticipated operating expenses.

Certain amounts disclosed above are based on the applicable foreign currency exchange rate at December 31, 2024.

Environmental Obligations

In connection with the purchase of many of our properties, we required the sellers to perform environmental reviews.

We believe, based on the results of these reviews, that our properties were in substantial compliance with federal, state, and foreign environmental statutes at the time the properties were acquired.

In connection with the purchase of many of our properties, we have required the sellers to perform environmental reviews.

We believe, based on the results of these reviews, that these properties were in substantial compliance with federal, state, and foreign environmental statutes at the time the properties were acquired.

In most instances where contamination has been identified, tenants are actively engaged in the remediation process and addressing identified conditions.

2 unchanged sentences

Risk Factors for further discussion of potential environmental risks.

Net Lease Office Properties 2023 10-K – 34

Critical Accounting Estimates

6 unchanged sentences

Please also refer to our accounting policies described under Critical Accounting Policies and Estimates in Note 3 .

Accounting for Acquisitions

In accordance with the guidance for business combinations and asset acquisitions, we recognize the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquired entity.

When we acquire properties with leases classified as operating leases, we allocate the purchase price to the tangible and intangible assets and liabilities acquired based on their estimated fair values.

The tangible assets consist of land, buildings, and site improvements.

The intangible assets and liabilities include the above- and below-market value of leases and the in-place leases, which includes the value of tenant relationships.

The recorded allocations of tangible and intangible assets incorporate discount rates, capitalization rates, interest rates, market rents, leasing commissions, and certain other assumptions and estimates.

We use considerable judgment in developing such assumptions and estimates, and significant increases or decreases in these key assumptions and estimates would result in a significantly lower or higher fair value measurement of the real estate assets being acquired.

Net Lease Office Properties 2024 10-K – 33

Impairments of Real Estate

10 unchanged sentences

In the real estate industry, analysts and investors employ certain non-GAAP supplemental financial measures in order to facilitate meaningful comparisons between periods and among peer companies.

Additionally, in the formulation of our goals and in the evaluation of the effectiveness of our strategies, we use Funds from Operations (“FFO”) and AFFO, which are non-GAAP measures defined by our management.

Additionally, in the formulation of our goals and in the evaluation of the effectiveness of our strategies, we use FFO and AFFO, which are non-GAAP measures defined by our management.

We believe that these measures are useful to investors to consider because they may assist them to better understand and measure the performance of our business over time and against similar companies.

A description of FFO and AFFO and reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are provided below.

Net Lease Office Properties 2023 10-K – 35

Funds from Operations and Adjusted Funds from Operations

12 unchanged sentences

We exclude these items from GAAP net income to arrive at AFFO as they are not the primary drivers in our decision-making process and excluding these items provides investors a view of our portfolio performance over time and makes it more comparable to other REITs.

AFFO also reflects adjustments for jointly owned investments.

AFFO also reflects adjustments for jointly owned

Net Lease Office Properties 2024 10-K – 34

We use AFFO as one measure of our operating performance when we formulate corporate goals and evaluate the effectiveness of our strategies.

4 unchanged sentences

We do not use our FFO and AFFO measures as, nor should they be considered to be, alternatives to net income computed under GAAP, or as alternatives to net cash provided by operating activities computed under GAAP, or as indicators of our ability to fund our cash needs.

Net Lease Office Properties 2023 10-K – 36

Consolidated FFO and AFFO were as follows (in thousands):

FFO and AFFO were as follows (in thousands):

Years Ended December 31,

2023 2022 2021

Net (loss) income attributable to NLOP $ (131,746) $ 15,779 $ 1,418

Net loss attributable to NLOP $ (91,471) $ (131,746)

Impairment charges — real estate 78,237 63,143

Depreciation and amortization of real property 56,696 74,998

Impairment charges — real estate (a)

Impairment charges — goodwill (b)

Loss on sale of real estate, net 3,608 — —

Proportionate share of adjustments for noncontrolling interests (c)

(Gain) loss on sale of real estate, net (20,216) 3,608

Impairment charges — goodwill (a)

Proportionate share of adjustments for noncontrolling interests (b)

Total adjustments 114,510 203,999

FFO (as defined by NAREIT) attributable to NLOP 23,039 72,253

Separation and distribution related costs and other (d)

8,446 6,025 —

Amortization of deferred financing costs 31,446 7,672

Above- and below-market rent intangible lease amortization, net 4,335 1,959 834

Stock-based compensation 2,904 3,161 2,398

Other (gains) and losses (c)

Tax benefit — deferred and other (3,271) (1,200)

Above- and below-market rent intangible lease amortization, net 3,003 4,335

Straight-line and other leasing and financing adjustments 2,314 (631)

Other amortization and non-cash items 1,449 547

Other (gains) and losses (e)

(337) 7 17,234

Proportionate share of adjustments for noncontrolling interests (c)

Stock-based compensation 250 2,904

Separation and distribution related costs and other (d)

Proportionate share of adjustments for noncontrolling interests (b)

Total adjustments 39,009 21,675

2 unchanged sentences

AFFO attributable to NLOP $ 62,048 $ 93,928

(a) Amount for the year ended December 31, 2023 represents impairment charges recognized on five properties ( Note 9 ).

(b) Amount for the year ended December 31, 2023 represents an impairment charge to reduce the carrying value of goodwill to zero, since the Company’s trading value as a public company subsequent to the completion of the Spin-Off resulted in a market capitalization that was significantly below the carrying value of our net assets ( Note 8 , Note 9 ).

(a) Amount for the year ended December 31, 2023 represents an impairment charge to reduce the carrying value of goodwill to zero, since the Company’s trading value as a public company subsequent to the completion of the Spin-Off resulted in a market capitalization that was significantly below the carrying value of our net assets ( Note 8 , Note 9 ).

(b) Adjustments disclosed elsewhere in this reconciliation are on a consolidated basis.

This adjustment reflects our FFO or AFFO on a pro rata basis.

Amount for the year ended December 31, 2024 includes a loss of $3.2 million related to damages at a property.

(d) Amount for the year ended December 31, 2023 is primarily comprised of costs related to the Spin-Off ( Note 1 ).

Amount for the year ended December 31, 2022 is primarily comprised of costs incurred in connection with the CPA:18 Merger ( Note 4 ).

(e) Primarily comprised of gains and losses on extinguishment of debt, and foreign currency transactions.

Net Lease Office Properties 2024 10-K – 35

While we believe that FFO and AFFO are important supplemental measures, they should not be considered as alternatives to net income as an indication of a company’s operating performance.

3 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis