Group 1 - F.I.L.A. SpA experienced a decline during the quarter due to an analyst downgrade [4] - The decline was attributed to uncertainties in the US market [4]

Core Viewpoint - The company Net Lease Office Properties (NLOP) is projected to achieve "net debt zero" and commence distributions in 2025, as previously forecasted in an update published in January [1]. Group 1 - NLOP is the largest position for the author, indicating significant confidence in its future performance [1]. - The forecast made in January regarding NLOP's financial status and distribution plans has been confirmed as the target date approaches [1].

Core Viewpoint - Net Lease Office Properties (NLOP) has declared a special cash distribution of $3.10 per common share, amounting to approximately $45.9 million, payable on September 3, 2025 [1]. Company Overview - NLOP is a publicly traded real estate investment trust (REIT) that owns a portfolio of high-quality office properties primarily leased to corporate tenants on a single-tenant net lease basis [3]. - The majority of NLOP's properties are located in the U.S., with one property situated in Europe [3]. Financial Information - The special cash distribution is payable to shareholders of record as of the close of business on August 18, 2025 [1].

PART I — FINANCIAL INFORMATION [Item 1. Financial Statements (Unaudited)](index=5&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) Q2 **2025** saw an **$81.5 million** net loss due to an **$81.8 million** impairment, with assets and liabilities declining Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | **Total Assets** | **$668,655** | **$805,069** | | Net investments in real estate | $582,501 | $707,443 | | Assets held for sale, net | $61,868 | $29,297 | | Cash and cash equivalents | $54,146 | $25,121 | | **Total Liabilities** | **$164,604** | **$219,666** | | Debt, net | $117,170 | $169,216 | | **Total Equity** | **$504,051** | **$585,403** | Consolidated Statement of Operations Highlights (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $29,174 | $39,029 | $58,387 | $83,036 | | Impairment charges — real estate | $81,817 | $8,222 | $82,737 | $12,287 | | Interest expense | ($4,400) | ($27,798) | ($10,146) | ($48,598) | | **Net (Loss) Income Attributable to NLOP** | **($81,540)** | **$12,451** | **($81,048)** | **($15,391)** | | **Diluted (Loss) Earnings Per Share** | **($5.50)** | **$0.84** | **($5.47)** | **($1.04)** | Consolidated Statement of Cash Flows Highlights (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $25,828 | $41,084 | | Net Cash Provided by Investing Activities | $22,706 | $177,543 | | Net Cash Used in Financing Activities | ($61,496) | ($205,179) | [Notes to Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Notes detail operations, policies, and key events including loan repayment, impairment, and property dispositions - As of **June 30, 2025**, NLOP's portfolio consisted of **36 properties** totaling approximately **5.9 million** leasable square feet with a weighted-average lease term of **4.0 years**[36](index=36&type=chunk) - During Q2 **2025**, the company recognized an impairment charge of **$81.6 million** on a property in Houston, Texas, leased to KBR, Inc., after commencing sale efforts for the property. The fair value was estimated at **$73.2 million**[80](index=80&type=chunk) - The NLOP Mezzanine Loan, with **$61.1 million** outstanding at year-end **2024**, was fully repaid during the six months ended **June 30, 2025**, using proceeds from dispositions and cash flow[93](index=93&type=chunk) - A non-recourse mortgage loan on a property in Norway with a **$45.5 million** balance is in a loan-to-value covenant breach as of **June 30, 2025**. Another domestic non-recourse loan of **$25.2 million** was not repaid at its January **2025** maturity[95](index=95&type=chunk)[96](index=96&type=chunk) - In August **2025**, the Board of Trustees declared a special cash distribution of **$3.10 per share**, totaling approximately **$45.9 million**[115](index=115&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=25&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes Q2 **2025** net loss to impairment; FFO increased from lower interest, AFFO decreased from dispositions - Key financial activities in H1 **2025** include selling **three properties** for **$25.4 million** and fully repaying the NLOP Mezzanine Loan, which had a **$61.1 million** principal at year-end **2024**[121](index=121&type=chunk)[122](index=122&type=chunk) FFO and AFFO Reconciliation Summary (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Net (loss) income attributable to NLOP | ($81,540) | $12,451 | ($81,048) | ($15,391) | | FFO (as defined by NAREIT) | $13,164 | ($1,979) | $25,257 | $7,938 | | AFFO attributable to NLOP | $16,909 | $17,402 | $31,874 | $37,416 | - FFO increased for Q2 and H1 **2025** compared to **2024**, primarily due to lower interest expense from debt repayments. AFFO decreased over the same periods, mainly due to the impact of property dispositions and lower other lease-related income[129](index=129&type=chunk)[131](index=131&type=chunk) [Portfolio Overview](index=27&type=section&id=Portfolio%20Overview) Portfolio includes **36 properties** with **88.1%** occupancy and **4.0-year** lease term; KBR, Inc. is top tenant Portfolio Summary | Metric | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | ABR (in thousands) | $87,987 | $88,124 | | Number of properties | 36 | 39 | | Occupancy | 88.1% | 85.2% | | Weighted-average lease term (years) | 4.0 | 4.3 | - The top ten tenants represent **66.3%** of total ABR. KBR, Inc. is the largest tenant, contributing **22.9%** of ABR[135](index=135&type=chunk) - A significant concentration of lease expirations occurs in **2030**, accounting for **39.5%** of ABR and **33.4%** of square footage[136](index=136&type=chunk) [Results of Operations](index=28&type=section&id=Results%20of%20Operations) Q2 **2025** revenues decreased from dispositions; operating expenses surged from impairment, interest expense fell - Lease revenues for Q2 **2025** decreased by **$7.6 million** compared to Q2 **2024**, primarily due to disposition activity and tenant vacancies[142](index=142&type=chunk) - Impairment charges on real estate increased by **$73.6 million** in Q2 **2025** compared to Q2 **2024**, reaching **$81.8 million**[145](index=145&type=chunk)[146](index=146&type=chunk) - Interest expense for Q2 **2025** decreased by **$23.4 million** year-over-year, primarily due to the full repayment of the NLOP Mortgage Loan in **2024** and the NLOP Mezzanine Loan in April **2025**[153](index=153&type=chunk) - The company experienced a **$3.3 million loss** on the sale of real estate in Q2 **2025**, a significant reversal from the **$37.7 million gain** in Q2 **2024**[152](index=152&type=chunk)[154](index=154&type=chunk) [Liquidity and Capital Resources](index=32&type=section&id=Liquidity%20and%20Capital%20Resources) Company holds **$54.1 million** cash; debt shifted to **39%** variable-rate with **$80.5 million** payments due **2025** - Net cash from operating activities decreased by **$15.3 million** in the first six months of **2025** compared to the same period in **2024**, primarily due to lower proceeds from sales-type leases and the impact of dispositions[160](index=160&type=chunk) Debt Composition | Debt Type | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Fixed rate | 61% | 76% | | Variable rate | 39% | 24% | | **Total Debt (Carrying Value)** | **$117,170 thousand** | **$169,216 thousand** | - As of **June 30, 2025**, the company has scheduled debt principal payments of **$80.5 million** for the remainder of **2025** and **$36.6 million** for **2026**[166](index=166&type=chunk) - Cash resources at **June 30, 2025**, included **$54.1 million** in cash and cash equivalents and unleveraged properties with a carrying value of approximately **$471.8 million**[167](index=167&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=37&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Primary market risks include interest rate and foreign currency exposure, with credit concentration in KBR and Texas - At **June 30, 2025**, **61%** of debt is fixed-rate and **39%** is variable-rate. A **1%** change in annual interest rates would change annual interest expense on variable-rate debt by **$0.5 million**[187](index=187&type=chunk)[188](index=188&type=chunk) - Foreign currency risk is primarily from an investment in Norway. A **1%** change in the Norwegian krone to U.S. dollar exchange rate would change projected net cash flow by less than **$0.1 million** over the next **12 months**[190](index=190&type=chunk) - Significant credit risk concentrations exist. For the six months ended **June 30, 2025**, tenant KBR, Inc. represented **28%** of total revenues, and properties in Texas accounted for **43%** of total revenues[193](index=193&type=chunk) [Controls and Procedures](index=39&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls effective as of **June 30, 2025**, with no material changes in internal controls - The CEO and CFO concluded that as of **June 30, 2025**, the company's disclosure controls and procedures were effective at a reasonable level of assurance[195](index=195&type=chunk) - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[196](index=196&type=chunk) PART II — OTHER INFORMATION [Exhibits](index=40&type=section&id=Item%206.%20Exhibits) This section lists exhibits including officer certifications (SOX **302**/906) and XBRL interactive data files - The exhibits filed with the report include CEO and CFO certifications under Sarbanes-Oxley Sections **302** and **906**[199](index=199&type=chunk) - The filing also includes XBRL instance documents and related taxonomy files for interactive data[199](index=199&type=chunk) [Signatures](index=41&type=section&id=Signatures) The report was signed by the Chief Financial Officer and Chief Accounting Officer on **August 6, 2025** - The Form 10-Q was signed on **August 6, 2025**, by ToniAnn Sanzone, Chief Financial Officer, and Brian Zander, Chief Accounting Officer[201](index=201&type=chunk)

PART I — FINANCIAL INFORMATION [Item 1. Financial Statements (Unaudited)](index=5&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) The company presents its unaudited Q1 2025 balance sheets, income statements, and cash flow statements [Consolidated Balance Sheets](index=5&type=section&id=Consolidated%20Balance%20Sheets) Total assets decreased to $784.1 million, driven by lower real estate investments and debt repayments Consolidated Balance Sheets (in millions) | | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | **Total assets** | **$784.1** | **$805.1** | | Net investments in real estate | $692.3 | $707.4 | | Cash and cash equivalents | $28.2 | $25.1 | | Restricted cash | $37.6 | $43.3 | | **Total liabilities** | **$197.9** | **$219.7** | | Debt, net | $148.5 | $169.2 | | **Total equity** | **$586.2** | **$585.4** | [Consolidated Statements of Operations](index=6&type=section&id=Consolidated%20Statements%20of%20Operations) The company achieved a net income of $0.5 million in Q1 2025, a significant turnaround from a prior-year loss Consolidated Statements of Operations (in millions) | | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | **Total Revenues** | **$29.2** | **$44.0** | | Lease revenues | $27.4 | $38.3 | | **Total Operating Expenses** | **$22.3** | **$34.2** | | Depreciation and amortization | $9.7 | $18.0 | | Interest expense | ($5.7) | ($20.8) | | Loss on sale of real estate, net | ($1.0) | ($15.8) | | **Net Income (Loss)** | **$0.5** | **($27.8)** | | **Net Income (Loss) Attributable to NLOP** | **$0.5** | **($27.8)** | | **Basic and Diluted EPS** | **$0.03** | **($1.88)** | [Consolidated Statements of Cash Flows](index=9&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Operating cash flow decreased to $14.1 million, with investing proceeds from property sales and financing used for debt repayment Consolidated Statements of Cash Flows (in millions) | | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | **Net Cash Provided by Operating Activities** | **$14.1** | **$26.4** | | **Net Cash Provided by Investing Activities** | **$8.7** | **$26.8** | | Proceeds from sales of real estate | $9.2 | $32.4 | | **Net Cash Used in Financing Activities** | **($25.8)** | **($32.0)** | | Payments of mortgage principal and other debt | ($25.7) | ($30.9) | | **Net (decrease) increase in cash** | **($2.7)** | **$20.5** | [Notes to Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Key disclosures cover the REIT structure, related-party fees, property sales, and significant post-quarter debt repayments - As of March 31, 2025, NLOP's portfolio consisted of **37 properties** with a weighted-average lease term of **4.1 years**[34](index=34&type=chunk)[35](index=35&type=chunk) - During Q1 2025, the company paid its advisor, WPC, **$1.26 million** in asset management fees and **$1.0 million** in administrative reimbursements[49](index=49&type=chunk) - In Q1 2025, NLOP sold two properties for net proceeds of **$9.2 million**, recognizing a net loss of **$1.0 million** and exiting all euro-denominated investments[104](index=104&type=chunk) - Subsequent to quarter end, the company fully repaid the **$35.6 million** NLOP Mezzanine Loan and extended maturities on **$30.8 million** of other mortgage loans[106](index=106&type=chunk)[107](index=107&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=25&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management analyzes financial results, highlighting the impact of property sales and debt reduction on performance and liquidity [Financial Highlights and Summary Results](index=25&type=section&id=Financial%20Highlights%20and%20Summary%20Results) Q1 2025 featured property sales and significant debt repayments, leading to positive net income despite lower AFFO - Sold two properties for total net proceeds of **$9.2 million** during Q1 2025[113](index=113&type=chunk) - Repaid **$25.5 million** of the NLOP Mezzanine Loan during Q1 2025 and fully repaid the remaining **$35.6 million** in April 2025[114](index=114&type=chunk) Q1 Financial Summary (in millions) | | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Total revenues | $29.2 | $44.0 | | Net income (loss) attributable to NLOP | $0.5 | ($27.8) | | FFO attributable to NLOP | $12.1 | $9.9 | | AFFO attributable to NLOP | $15.0 | $20.0 | [Portfolio Overview](index=27&type=section&id=Portfolio%20Overview) The portfolio comprises 37 properties with 84.9% occupancy and significant tenant and lease expiration concentrations Portfolio Summary | | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Number of properties | 37 | 39 | | Occupancy | 84.9% | 85.2% | | Weighted-average lease term (in years) | 4.1 | 4.3 | - The top ten tenants contribute **66.3% of total ABR**, with KBR, Inc. alone accounting for **23.0%**[124](index=124&type=chunk) - Leases expiring in the remainder of 2025 account for **13.6% of ABR**, while a large concentration of leases (**39.6% of ABR**) expires in 2030[127](index=127&type=chunk) [Results of Operations](index=28&type=section&id=Results%20of%20Operations) Revenues declined YoY due to dispositions, but lower operating and interest expenses drove improved net income - Lease revenues decreased by **$10.9 million YoY**, primarily due to disposition activity and tenant vacancies[132](index=132&type=chunk) - Depreciation and amortization expense decreased by **$8.2 million YoY**, mainly from dispositions and accelerated amortization in the prior year[137](index=137&type=chunk) - Interest expense decreased by **$15.1 million YoY**, primarily due to debt repayments, including the full repayment of the NLOP Mortgage Loan in 2024[142](index=142&type=chunk) [Liquidity and Capital Resources](index=30&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains liquidity through operations and dispositions to meet debt obligations, including a major post-quarter repayment - Cash and cash equivalents totaled **$28.2 million** at March 31, 2025[152](index=152&type=chunk) - Scheduled debt principal payments total **$108.8 million** for the remainder of 2025, though maturities for **$30.8 million** were extended into 2026[153](index=153&type=chunk) - The NLOP Mezzanine Loan, with a principal of **$35.6 million**, was fully repaid in April 2025 using excess cash from operations and loan reserves[151](index=151&type=chunk) FFO and AFFO Reconciliation (in millions) | | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net income (loss) attributable to NLOP | $0.5 | ($27.8) | | **FFO (as defined by NAREIT) attributable to NLOP** | **$12.1** | **$9.9** | | **AFFO attributable to NLOP** | **$15.0** | **$20.0** | [Quantitative and Qualitative Disclosures About Market Risk](index=35&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Primary market risks include interest rate fluctuations on variable-rate debt and significant geographic revenue concentration - At March 31, 2025, **fixed-rate debt comprised 71%** of total debt, with variable-rate debt at 29%[170](index=170&type=chunk) - A **1% change** in annual interest rates would cause annual interest expense on variable-rate debt to change by **$0.4 million**[172](index=172&type=chunk) - The company has significant geographic concentration risk, with **96%** of Q1 2025 consolidated revenues from domestic operations, including **43% from Texas**[176](index=176&type=chunk) [Controls and Procedures](index=37&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective with no material changes in the quarter - Management concluded that **disclosure controls and procedures were effective** as of March 31, 2025[178](index=178&type=chunk) - **No material changes** in internal control over financial reporting occurred during the quarter[179](index=179&type=chunk) PART II — OTHER INFORMATION [Exhibits](index=38&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the report, including Sarbanes-Oxley certifications and XBRL data - Exhibits filed with the report include certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act and XBRL data files[182](index=182&type=chunk) [Signatures](index=39&type=section&id=Signatures) The report was duly authorized and signed by the company's Chief Financial Officer and Chief Accounting Officer - The report was signed on May 8, 2025, by ToniAnn Sanzone (CFO) and Brian Zander (CAO)[184](index=184&type=chunk)

Core Viewpoint - Net Lease Office Properties (NLOP) has successfully repaid its J.P. Morgan mezzanine loan and sold two office properties for a total of approximately $10 million, indicating a strategic move to reduce debt and optimize its asset portfolio [1][2]. Group 1: Debt Repayment - NLOP repaid the outstanding balance on the J.P. Morgan mezzanine loan, which totaled approximately $36 million, using net proceeds from asset sales and other funding sources [2]. - The company has now fully repaid all outstanding debt associated with J.P. Morgan financing arrangements, including a senior secured mortgage repaid in December 2024 [2]. Group 2: Property Sales - In March, NLOP sold two office properties for gross proceeds of $9.8 million, located in Houston, TX, and Krakow, Poland, leased to Emerson Electric Co. and Nokia Corporation, respectively [4]. - Following these sales, NLOP's portfolio consists of 37 office properties, with 36 located in the U.S. and one in Europe [4]. Group 3: Future Distributions - NLOP is considering making special distributions to shareholders using excess proceeds from future sales or other cash sources, with any decisions to be made at the discretion of the Board of Directors [3].

Group 1 - Net Lease Office Properties (NYSE: NLOP) is trading at a 25% discount to its balance sheet book value and a 22% discount based on risk-adjusted valuation estimates [1] - The company is focused on value investing, particularly in high-quality, long/short mid and small-cap companies [1] - The analyst utilizes data analytics skills to identify good investment opportunities from SEC filings and other data sources [1] Group 2 - The article does not provide any specific investment recommendations or advice regarding the suitability of investments for particular investors [2][3] - There is no indication of any stock, option, or similar derivative positions held by the analyst in the companies mentioned [2] - The views expressed in the article may not reflect those of Seeking Alpha as a whole, and the analysts are third-party authors without guaranteed licensing or certification [3]

Part I [Business](index=4&type=section&id=Item%201.%20Business) NLOP, a Maryland REIT spun off from W. P. Carey Inc. in November 2023, manages and disposes of its 39-property office portfolio to realize shareholder value and repay debt - NLOP was formed by WPC via a spin-off on November 1, 2023, to hold a portfolio of **59 office assets** and is externally managed by a WPC affiliate[17](index=17&type=chunk) - The company's primary business plan is to realize shareholder value by strategically managing and disposing of its property portfolio, with proceeds used for debt repayment and distributions[18](index=18&type=chunk) Portfolio Metrics | Metric | Value as of Dec 31, 2024 | | :--- | :--- | | Number of Properties | 39 | | Number of Tenants | 43 | | Annualized Base Rent (ABR) | $88.1 million | | Total Net-Leased Square Footage | ~5.6 million | | Occupancy Rate | ~85.2% | | Weighted-Average Lease Term (WALT) | 4.3 years | - In connection with the spin-off, NLOP secured **$455.0 million** in financing, including a **$335.0 million** mortgage loan fully repaid in 2024, with **$61.1 million** of the **$120.0 million** mezzanine loan outstanding as of December 31, 2024[19](index=19&type=chunk)[20](index=20&type=chunk)[21](index=21&type=chunk) [Risk Factors](index=6&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks from market volatility, remote work, tenant and geographic concentration, debt covenants limiting dividends, and the potential loss of REIT status - The business is vulnerable to market and economic volatility, including inflation and interest rate changes, which can decrease property values, affect tenant solvency, and limit capital access[29](index=29&type=chunk)[30](index=30&type=chunk) - Ongoing remote and hybrid work trends have negatively impacted office space demand, potentially affecting property values, occupancy rates, and asset disposition prices[31](index=31&type=chunk)[32](index=32&type=chunk) - The company faces significant tenant concentration risk, with the top tenant accounting for **22.9%** of ABR and the top ten for **64.6%** as of December 31, 2024, where a major tenant default could severely impact financial results[39](index=39&type=chunk) - High geographic concentration exists, with **39.4%** of the portfolio's ABR in Texas and **10.1%** in Minnesota, making the company susceptible to adverse regional economic developments[40](index=40&type=chunk) - The NLOP Financing Arrangements contain covenants limiting dividend payments, requiring distributions over **$1.0 million** to be paid in a combination of cash and common shares[59](index=59&type=chunk)[91](index=91&type=chunk) - Failure to maintain REIT qualification would result in significant adverse tax consequences, including corporate income tax and inability to deduct shareholder dividends[80](index=80&type=chunk) [Unresolved Staff Comments](index=21&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments from the SEC - None[111](index=111&type=chunk) [Cybersecurity](index=21&type=section&id=Item%201C.%20Cybersecurity) NLOP relies on its Advisor for cybersecurity risk management, overseen by the Board and Audit Committee, with no material incidents reported as of December 31, 2024 - As an externally managed company, NLOP relies on its Advisor to assess, identify, and manage cybersecurity threats, with oversight from the Board of Trustees and Audit Committee[112](index=112&type=chunk)[114](index=114&type=chunk)[115](index=115&type=chunk) - The Advisor's cybersecurity program focuses on prevention, detection, and response, including multi-factor authentication, automated monitoring, and incident recovery[117](index=117&type=chunk)[118](index=118&type=chunk)[123](index=123&type=chunk) - As of December 31, 2024, the company is not aware of any material cybersecurity incidents impacting it in the last three years[127](index=127&type=chunk) [Properties](index=22&type=section&id=Item%202.%20Properties) The company's principal corporate offices are located at its Advisor's offices in New York, with detailed property information in Item 7 and Schedule III - The company's principal corporate offices are located at its Advisor's offices in New York, NY[128](index=128&type=chunk) [Legal Proceedings](index=22&type=section&id=Item%203.%20Legal%20Proceedings) The company is involved in various claims and lawsuits in the normal course of business, not expecting a material adverse effect on its financial position or results of operations - Various pending claims and lawsuits are not expected to have a material adverse effect on the company's consolidated financial position or results of operations[130](index=130&type=chunk) [Mine Safety Disclosures](index=23&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[131](index=131&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=24&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) NLOP common shares trade on the NYSE, demonstrating significant outperformance against market indices since November 2023, with dividends subject to Board discretion and debt agreement limitations - The company's common shares are listed on the NYSE under the ticker symbol **NLOP**[134](index=134&type=chunk) Performance Graph | Index | Value at Nov 2, 2023 | Value at Dec 31, 2024 | | :--- | :--- | :--- | | Net Lease Office Properties | $100.00 | $303.34 | | S&P 500 Index | $100.00 | $138.53 | | MSCI US REIT Index | $100.00 | $127.06 | - Dividend payments are at the Board's discretion, influenced by REIT status requirements and covenants in NLOP Financing Arrangements that may limit distributions[137](index=137&type=chunk) [Reserved](index=24&type=section&id=Item%206.%20Reserved) This item is reserved [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=25&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) In 2024, NLOP executed its disposition strategy, selling 14 properties for **$320.1 million** and fully repaying its **$335.0 million** mortgage loan, resulting in decreased revenues, a narrowed net loss, and reduced AFFO, with future liquidity reliant on operating cash flow and further dispositions [Financial Highlights](index=26&type=section&id=Financial%20Highlights) In 2024, the company executed its disposition strategy by selling 14 properties for **$320.1 million** and transferring two properties to lenders, enabling full repayment of the NLOP Mortgage Loan and significant paydown of the Mezzanine Loan - Sold **14 properties** for total net proceeds of **$320.1 million** during the year ended December 31, 2024[150](index=150&type=chunk) - Fully repaid the NLOP Mortgage Loan, which had **$288.9 million** outstanding at the end of 2023[150](index=150&type=chunk) - Repaid **$53.2 million** of principal on the NLOP Mezzanine Loan during 2024, with an additional **$3.3 million** repaid in February 2025[150](index=150&type=chunk) [Summary Results](index=26&type=section&id=Summary%20Results) For 2024, total revenues decreased to **$142.2 million** from **$175.0 million** in 2023 due to dispositions, while net loss improved to **$(91.5) million** from **$(131.7) million**, and AFFO declined to **$62.0 million** from **$93.9 million** Financial Performance Summary | (in thousands) | 2024 | 2023 | | :--- | :--- | :--- | | Total revenues | $142,247 | $174,965 | | Net loss attributable to NLOP | $(91,471) | $(131,746) | | FFO attributable to NLOP | $23,039 | $72,253 | | AFFO attributable to NLOP | $62,048 | $93,928 | [Portfolio Overview](index=27&type=section&id=Portfolio%20Overview) As of December 31, 2024, NLOP's portfolio comprised **39 properties** with **85.2%** occupancy and a **4.3-year** weighted-average lease term, with **64.6%** of ABR from the top ten tenants and **22.6%** from leases expiring in 2025-2026 Portfolio Summary | Portfolio Summary | As of Dec 31, 2024 | As of Dec 31, 2023 | | :--- | :--- | :--- | | ABR (in thousands) | $88,124 | $142,438 | | Number of properties | 39 | 55 | | Occupancy | 85.2% | 97.0% | | Weighted-average lease term (years) | 4.3 | 5.8 | Top Tenants by ABR | Top Tenant | % of ABR | | :--- | :--- | | KBR, Inc. | 22.9% | | JPMorgan Chase Bank, N.A. | 10.3% | | Siemens AS | 4.8% | | **Total Top 10** | **64.6%** | Lease Expiration Schedule | Year of Lease Expiration | ABR Percent | | :--- | :--- | | 2025 | 15.8% | | 2026 | 6.8% | | **Total 2025-2026** | **22.6%** | [Results of Operations](index=30&type=section&id=Results%20of%20Operations) In 2024, lease revenues decreased by **$37.2 million** due to dispositions, operating expenses fell to **$186.1 million** (from **$260.5 million** in 2023), real estate impairment charges increased to **$78.2 million**, interest expense rose by **$25.3 million**, and a net gain of **$20.2 million** on property sales was recognized Revenues | (in thousands) | 2024 | 2023 | Change | | :--- | :--- | :--- | :--- | | Lease revenues | $128,857 | $166,034 | $(37,177) | | **Total revenues** | **$142,247** | **$174,965** | **$(32,718)** | Operating Expenses | (in thousands) | 2024 | 2023 | Change | | :--- | :--- | :--- | :--- | | Impairment charges — real estate | $78,237 | $63,143 | $15,094 | | Depreciation and amortization | $56,696 | $74,998 | $(18,302) | | General and administrative | $7,502 | $13,610 | $(6,108) | | Impairment charges — goodwill | $— | $62,456 | $(62,456) | | **Total Operating Expenses** | **$186,115** | **$260,497** | **$(74,382)** | Other Income and Expenses | (in thousands) | 2024 | 2023 | Change | | :--- | :--- | :--- | :--- | | Interest expense | $(67,962) | $(42,613) | $(25,349) | | Gain (loss) on sale of real estate, net | $20,216 | $(3,608) | $23,824 | [Liquidity and Capital Resources](index=32&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity is driven by operating cash flow and property dispositions, with **$71.9 million** from operations and **$297.7 million** from investing activities in 2024, used to repay **$368.0 million** in debt, reducing total debt to **$169.2 million** by year-end, with **$105.0 million** in debt payments due in 2025 Cash Flow Summary | (in thousands) | 2024 | 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $71,859 | $70,966 | | Net cash provided by investing activities | $297,749 | $27,693 | | Net cash used in financing activities | $(367,984) | $(36,778) | Debt Summary | Debt Summary (Carrying Value, in thousands) | Dec 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Fixed rate | $129,445 | $231,337 | | Variable rate | $39,771 | $310,642 | | **Total Debt, net** | **$169,216** | **$541,979** | - Significant cash requirements over the next 12 months include **$105.0 million** in scheduled debt principal payments, **$5.1 million** in non-recourse mortgage interest, and **$9.0 million** in NLOP Mezzanine Loan interest[192](index=192&type=chunk)[197](index=197&type=chunk) [Critical Accounting Estimates](index=34&type=section&id=Critical%20Accounting%20Estimates) The company's most critical accounting estimate is real estate impairment, involving a two-step process of comparing carrying value to undiscounted cash flows and then to fair value, requiring significant judgment on market rents, residual values, and holding periods - Real estate impairment assessment is a critical accounting estimate involving a two-step process: a recoverability test using undiscounted cash flows, followed by a fair value measurement if the asset is not recoverable[198](index=198&type=chunk)[199](index=199&type=chunk) - The analysis requires significant management estimates regarding market rents, residual values, and strategic holding periods for each asset, often utilizing third-party market data and broker quotes[198](index=198&type=chunk)[271](index=271&type=chunk) [Supplemental Financial Measures](index=35&type=section&id=Supplemental%20Financial%20Measures) The company uses non-GAAP measures FFO and AFFO to evaluate operating performance, with 2024 FFO at **$23.0 million** and AFFO at **$62.0 million**, both decreasing from 2023 primarily due to higher interest expense and property dispositions FFO and AFFO Reconciliation | (in thousands) | 2024 | 2023 | | :--- | :--- | :--- | | Net loss attributable to NLOP | $(91,471) | $(131,746) | | **FFO (as defined by NAREIT) attributable to NLOP** | **$23,039** | **$72,253** | | **AFFO attributable to NLOP** | **$62,048** | **$93,928** | - AFFO is calculated by adjusting FFO for certain non-cash items such as amortization of deferred financing costs, straight-line rent adjustments, stock-based compensation, and non-core expenses like separation costs[203](index=203&type=chunk)[206](index=206&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=38&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risks include interest rate risk, with **76%** fixed-rate debt, foreign currency risk from European properties, and significant credit concentration risk from tenants and geographic areas like Texas (**36%** of domestic revenues) - The company is exposed to interest rate risk, with **76%** fixed-rate and **24%** variable-rate debt as of December 31, 2024; a **1%** change in rates would alter annual interest expense on variable-rate debt by **$0.4 million**[215](index=215&type=chunk)[216](index=216&type=chunk) - Foreign currency exchange risk from two European investments means a **1%** change in euro or Norwegian krone exchange rates against the U.S. dollar would alter projected net cash flow by approximately **$0.1 million**[218](index=218&type=chunk) - The company has significant credit risk concentration, with **94%** of 2024 consolidated revenues from domestic operations, geographically concentrated with **36%** in Texas and **19%** in Minnesota[219](index=219&type=chunk)[221](index=221&type=chunk) [Financial Statements and Supplementary Data](index=40&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) The 2024 consolidated financial statements, audited by PricewaterhouseCoopers LLP, report total assets of **$805.1 million**, total liabilities of **$219.7 million**, a net loss of **$91.5 million**, and detail property dispositions, debt repayment, impairment charges, and related-party transactions [Report of Independent Registered Public Accounting Firm](index=41&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) PricewaterhouseCoopers LLP issued an unqualified opinion on the consolidated financial statements, affirming their fair presentation of NLOP's financial position, operations, and cash flows in conformity with U.S. GAAP - The auditor, PricewaterhouseCoopers LLP, issued an unqualified opinion on the consolidated financial statements[225](index=225&type=chunk) - The audit was conducted in accordance with PCAOB standards, and as an emerging growth company, an audit of internal control over financial reporting was neither required nor performed[227](index=227&type=chunk) [Consolidated Financial Statements](index=42&type=section&id=Consolidated%20Financial%20Statements) The consolidated financial statements reflect a significant reduction in assets and liabilities from 2023 to 2024 due to dispositions, with total assets decreasing to **$805.1 million** and total debt to **$169.2 million**, while the net loss improved to **$91.5 million** in 2024 Consolidated Balance Sheet | Consolidated Balance Sheet (in thousands) | Dec 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Net investments in real estate | $707,443 | $1,171,825 | | **Total assets** | **$805,069** | **$1,305,089** | | Debt, net | $169,216 | $541,979 | | **Total liabilities** | **$219,666** | **$623,659** | | **Total shareholders' equity** | **$581,228** | **$677,009** | Consolidated Statement of Operations | Consolidated Statement of Operations (in thousands) | 2024 | 2023 | | :--- | :--- | :--- | | Total Revenues | $142,247 | $174,965 | | Total Operating Expenses | $186,115 | $260,497 | | **Net (Loss) Income Attributable to NLOP** | **$(91,471)** | **$(131,746)** | | **Basic and Diluted (Loss) Per Share** | **$(6.18)** | **$(9.00)** | [Notes to Consolidated Financial Statements](index=47&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail NLOP's formation via the WPC spin-off, accounting policies, **$455 million** in financing and repayments, the disposition of **14 properties** for **$320.1 million**, **$78.2 million** in real estate impairment charges, and **$10.2 million** in advisory fees paid in 2024 - The company was formed via a spin-off from W. P. Carey Inc. on November 1, 2023, acquiring a portfolio of **59 office properties**, operating as a single segment focused on owning, operating, and financing office buildings[248](index=248&type=chunk)[249](index=249&type=chunk)[251](index=251&type=chunk) - The company pays its Advisor an asset management fee (initially **$7.5 million** annually, reduced with dispositions) and reimburses administrative costs (**~$4.0 million** annually), totaling **$10.2 million** in fees and reimbursements in 2024[324](index=324&type=chunk)[327](index=327&type=chunk) - In 2024, the company sold **14 properties** for net proceeds of **$320.1 million**, recognizing a net gain of **$22.5 million**, and transferred two properties to lenders to satisfy mortgage debt[423](index=423&type=chunk)[424](index=424&type=chunk)[425](index=425&type=chunk) - The company fully repaid its **$335.0 million** NLOP Mortgage Loan during 2024, with the NLOP Mezzanine Loan having an outstanding principal of **$61.1 million** at year-end 2024, bearing **14.5%** interest[386](index=386&type=chunk)[388](index=388&type=chunk)[390](index=390&type=chunk) - In 2024, the company recognized real estate impairment charges of **$78.2 million** on **twelve properties**, following a **$62.5 million** goodwill impairment charge in 2023 that wrote the balance down to zero[364](index=364&type=chunk)[366](index=366&type=chunk)[372](index=372&type=chunk) [Changes in and Disagreements With Accountants on Accounting and Financial Disclosure](index=81&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20With%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with its accountants on any matter of accounting principles, practices, or financial statement disclosure - None[447](index=447&type=chunk) [Controls and Procedures](index=81&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2024, with no material changes identified in the most recent quarter - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2024[449](index=449&type=chunk) - Based on an assessment using the COSO framework, management concluded that the company's internal control over financial reporting was effective as of December 31, 2024[453](index=453&type=chunk) - There were no changes in internal control over financial reporting during the most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, internal controls[454](index=454&type=chunk) [Other Information](index=82&type=section&id=Item%209B.%20Other%20Information) During the fourth quarter of 2024, no trustee, officer, or the company adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement - No trustee or officer adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement during the fourth quarter of 2024[456](index=456&type=chunk) [Disclosure Regarding Foreign Jurisdictions that Prevent Inspections](index=82&type=section&id=Item%209C.%20Disclosure%20Regarding%20Foreign%20Jurisdictions%20that%20Prevent%20Inspections) This item is not applicable to the company - Not applicable[457](index=457&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=83&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information regarding directors, executive officers, and corporate governance is incorporated by reference from the 2025 Annual Meeting of Shareholders proxy statement - Information regarding directors, executive officers, and corporate governance will be contained in the definitive proxy statement for the 2025 Annual Meeting of Shareholders and is incorporated by reference[460](index=460&type=chunk) [Executive and Trustee Compensation](index=83&type=section&id=Item%2011.%20Executive%20Compensation) Information regarding executive and trustee compensation is incorporated by reference from the 2025 Annual Meeting of Shareholders proxy statement - Information regarding executive and trustee compensation will be contained in the definitive proxy statement for the 2025 Annual Meeting of Shareholders and is incorporated by reference[461](index=461&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=83&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information regarding security ownership of certain beneficial owners and management is incorporated by reference from the 2025 Annual Meeting of Shareholders proxy statement - Information regarding security ownership will be contained in the definitive proxy statement for the 2025 Annual Meeting of Shareholders and is incorporated by reference[462](index=462&type=chunk) [Certain Relationships and Related Transactions, and Trustee Independence](index=83&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information regarding certain relationships, related transactions, and trustee independence is incorporated by reference from the 2025 Annual Meeting of Shareholders proxy statement - Information regarding certain relationships, related transactions, and director independence will be contained in the definitive proxy statement for the 2025 Annual Meeting of Shareholders and is incorporated by reference[463](index=463&type=chunk) [Principal Accounting Fees and Services](index=83&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Information regarding principal accounting fees and services is incorporated by reference from the 2025 Annual Meeting of Shareholders proxy statement - Information regarding principal accounting fees and services will be contained in the definitive proxy statement for the 2025 Annual Meeting of Shareholders and is incorporated by reference[464](index=464&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=84&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists exhibits filed with the Form 10-K, including key agreements related to the spin-off, financing, and corporate governance, and references financial statements and schedules in Item 8 - This section provides an index of all exhibits filed with the report, including key agreements related to the spin-off, financing, and corporate governance[467](index=467&type=chunk)[468](index=468&type=chunk)[469](index=469&type=chunk) [Form 10-K Summary](index=87&type=section&id=Item%2016.%20Form%2010-K%20Summary) This item is not applicable, and no summary is provided - None[472](index=472&type=chunk)

Core Viewpoint - Net Lease Office Properties (NYSE: NLOP) has announced the income tax treatment of dividends for the year 2024, advising shareholders to consult their tax advisors for specific tax implications [1]. Summary by Relevant Sections - **Dividend Information**: The dividend per share for the record date of December 18, 2023, is reported as $0.34, with no capital gain distributions or non-dividend distributions [2][4]. - **Tax Treatment**: The dividends are categorized as qualified dividends, which are included in the taxable ordinary dividends amount. Additionally, unrecaptured Section 1250 gain and Section 897 capital gain are subsets of the taxable capital gain distributions [3][4]. - **Shareholder Options**: Shareholders had the option to receive dividends in cash or additional NLOP shares, with cash distributions limited to a maximum of 20% of the total dividend [4]. - **Company Overview**: Net Lease Office Properties is a publicly traded real estate investment trust that primarily owns high-quality office properties leased to corporate tenants on a single-tenant net lease basis, with most properties located in the U.S. and a few in Europe [5].

Core Insights - Net Lease Office Properties (NLOP) sold five office properties for gross proceeds of $43.3 million in November and December 2024 [1] - The total gross proceeds from office property sales in 2024 reached approximately $364 million, with occupied sales contributing $319 million at a weighted-average disposition cap rate of about 10.5% [3] Company Overview - NLOP is a publicly traded real estate investment trust (REIT) that owns high-quality office properties primarily leased to corporate tenants on a single-tenant net lease basis [4] - The majority of NLOP's properties are located in the U.S., with two properties in Europe [4] Financial Transactions - Net proceeds from the recent property sales were used to repay approximately $30 million on J.P. Morgan's senior secured mortgage and about $5 million on its mezzanine loan [2] - As of December 31, 2024, the full repayment of J.P. Morgan's senior secured mortgage was achieved, leaving an outstanding balance of approximately $61 million on its mezzanine loan [2]