Net Lease Office Properties(NLOP) - 2025 Q1 - Quarterly Report

PART I — FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) The company presents its unaudited Q1 2025 balance sheets, income statements, and cash flow statements Consolidated Balance Sheets 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 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 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 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][35] - During Q1 2025, the company paid its advisor, WPC, $1.26 million in asset management fees and $1.0 million in administrative reimbursements[49] - 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] - 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][107] Management's Discussion and Analysis of Financial Condition and Results of Operations Management analyzes financial results, highlighting the impact of property sales and debt reduction on performance and liquidity Financial Highlights and Summary Results 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] - Repaid $25.5 million of the NLOP Mezzanine Loan during Q1 2025 and fully repaid the remaining $35.6 million in April 2025[114] 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 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] - 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] Results of Operations 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] - Depreciation and amortization expense decreased by $8.2 million YoY, mainly from dispositions and accelerated amortization in the prior year[137] - 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] Liquidity and Capital Resources 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] - Scheduled debt principal payments total $108.8 million for the remainder of 2025, though maturities for $30.8 million were extended into 2026[153] - 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] 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 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] - A 1% change in annual interest rates would cause annual interest expense on variable-rate debt to change by $0.4 million[172] - The company has significant geographic concentration risk, with 96% of Q1 2025 consolidated revenues from domestic operations, including 43% from Texas[176] Controls and Procedures 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] - No material changes in internal control over financial reporting occurred during the quarter[179] PART II — OTHER INFORMATION Exhibits 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] 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]