Net Lease Office Properties Files Q1 2024 10-Q

TL;DR

<b>Net Lease Office Properties has filed its Q1 2024 10-Q report.</b>

AI Summary

Net Lease Office Properties (NLOP) filed a Quarterly Report (10-Q) with the SEC on May 10, 2024. Filed 10-Q for the period ending March 31, 2024. Reporting period covers Q1 2024. Company is Net Lease Office Properties. Incorporated in Maryland (MD). Fiscal year ends December 31.

Why It Matters

For investors and stakeholders tracking Net Lease Office Properties, this filing contains several important signals. This filing provides the latest financial and operational details for Net Lease Office Properties for the first quarter of 2024. Investors and analysts can use this report to assess the company's performance and financial health.

Risk Assessment

Risk Level: low — Net Lease Office Properties shows low risk based on this filing. The filing is a standard quarterly report (10-Q) and does not contain immediate, significant new risks or events.

Analyst Insight

Review the Q1 2024 financial statements and any disclosed operational updates to understand Net Lease Office Properties' current performance.

Key Numbers

• 2024-03-31 — Reporting Period End Date (CONFORMED PERIOD OF REPORT)
• 2024-05-10 — Filing Date (FILED AS OF DATE)
• 1231 — Fiscal Year End (FISCAL YEAR END)

Key Players & Entities

• Net Lease Office Properties (company) — CONFORMED NAME
• Maryland (location) — STATE OF INCORPORATION
• 2024-03-31 (date) — CONFORMED PERIOD OF REPORT
• 2024-05-10 (date) — FILED AS OF DATE
• 0001952976-24-000034 (filing_id) — ACCESSION NUMBER
• W. P. Carey Inc. (company) — BUSINESS ADDRESS

FAQ

Industry Context

Net Lease Office Properties operates within the Real Estate Investment Trusts (REITs) sector, specifically focusing on office properties.

Regulatory Implications

The filing is made under the Securities Exchange Act of 1934, requiring public companies to submit regular financial disclosures.

What Investors Should Do

1. Analyze the balance sheet and income statement for Q1 2024.
2. Review any management discussion and analysis (MD&A) for operational commentary.
3. Check for any new disclosures regarding tenants, properties, or financing.

Key Dates

• 2024-03-31: Quarterly Period End — End of the reporting period for the 10-Q filing.
• 2024-05-10: Filing Date — Date the 10-Q was officially filed with the SEC.

Year-Over-Year Comparison

This is the Q1 2024 10-Q filing, following previous filings for the fiscal year 2023.

Key Financial Figures

• $0.001 — hares of Beneficial Interest, par value $0.001 per share NLOP New York Stock Exchange

Filing Documents

• nlop-20240331.htm (10-Q) — 1057KB
• nlop2024q110-qexh101.htm (EX-10.1) — 48KB
• nlop2024q110-qexh311.htm (EX-31.1) — 9KB
• nlop2024q110-qexh312.htm (EX-31.2) — 9KB
• nlop2024q110-qexh32.htm (EX-32) — 5KB
• nlop-20240331_g1.jpg (GRAPHIC) — 760KB
• 0001952976-24-000034.txt (&nbsp;) — 8112KB
• nlop-20240331.xsd (EX-101.SCH) — 54KB
• nlop-20240331_cal.xml (EX-101.CAL) — 73KB
• nlop-20240331_def.xml (EX-101.DEF) — 287KB
• nlop-20240331_lab.xml (EX-101.LAB) — 562KB
• nlop-20240331_pre.xml (EX-101.PRE) — 442KB
• nlop-20240331_htm.xml (XML) — 755KB

— FINANCIAL INFORMATION

PART I — FINANCIAL INFORMATION

Financial Statements (Unaudited)

Item 1. Financial Statements (Unaudited) Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023 3 Consolidated Statements of Operations for the Three Months Ended March 31, 2024 and 2023 4 Consolidated Statements of Comprehensive (Loss) Income for the Three Months Ended March 31, 2024 and 2023 5 Consolidated Statements of Equity for the Three Months Ended March 31, 2024 and 2023 6 Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2024 and 2023 7

Notes to Consolidated Financial Statements

Notes to Consolidated Financial Statements 8

Management's Discussion and Analysis of Financial Condition and Results of Operations

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 23

Quantitative and Qualitative Disclosures About Market Risk

Item 3. Quantitative and Qualitative Disclosures About Market Risk 34

Controls and Procedures

Item 4. Controls and Procedures 37

— OTHER INFORMATION

PART II — OTHER INFORMATION

Exhibits

Item 6. Exhibits 38

Signatures

Signatures 39 Net Lease Office Properties 3/31/2024 10-Q – 1

Forward-Looking Statements

Forward-Looking Statements This Quarterly Report on Form 10-Q (this "Report"), including Management's Discussion and Analysis of Financial Condition and Results of Operations in Item 2 of Part I of this Report, contains forward-looking statements within the meaning of the federal securities laws. These forward-looking statements generally are identified by the words "believe," "project," "expect," "anticipate," "estimate," "intend," "strategy," "plan," "may," "should," "will," "would," "will be," "will continue," "will likely result," and similar expressions. These forward-looking statements include, but are not limited to, statements regarding: our corporate strategy and estimated or future economic performance and results, including our expectations surrounding the impact of the broader macroeconomic environment and the ability of tenants to pay rent, financial condition, liquidity, results of operations, and prospects; our future capital expenditure and leverage levels, debt service obligations, and plans to fund our liquidity needs, including our ability to sell or dispose of properties; prospective statements regarding our access to the capital markets; statements that we make regarding our ability to remain qualified for taxation as a real estate investment trust ("REIT"); and the impact of recently issued accounting pronouncements and regulatory activity. These statements are based on the current expectations of our management. It is important to note that our actual results could be materially different from those projected in such forward-looking statements. There are a number of risks and uncertainties that could cause actual results to differ materially from these forward-looking statements. Other unknown or unpredictable risks or uncertainties, like the risks related to inflation and increased interest rates, the effects of pandemics and global outbreaks of contagious diseases, and domestic or geopolitical crises, such as terrorism, military conflict

— FINANCIAL INFORMATION

PART I — FINANCIAL INFORMATION

Financial Statements

Item 1. Financial Statements. NET LEASE OFFICE PROPERTIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) (in thousands, except share and per share amounts) March 31, 2024 December 31, 2023 Assets Investments in real estate: Land, buildings and improvements $ 1,139,227 $ 1,203,991 Net investments in finance leases — 10,522 In-place lease intangible assets and other 345,665 357,788 Above-market rent intangible assets 57,483 57,954 Investments in real estate 1,542,375 1,630,255 Accumulated depreciation and amortization ( 457,349 ) ( 458,430 ) Net investments in real estate 1,085,026 1,171,825 Restricted cash 48,593 51,560 Cash and cash equivalents 39,753 16,269 Other assets, net 58,427 65,435 Total assets $ 1,231,799 $ 1,305,089 Liabilities and Equity Debt: NLOP Mortgage Loan, net $ 259,807 $ 266,844 NLOP Mezzanine Loan, net 108,038 106,299 Non-recourse mortgages, net 147,328 168,836 Debt, net 515,173 541,979 Accounts payable, accrued expenses and other liabilities 52,471 59,527 Below-market rent intangible liabilities, net 9,202 10,643 Deferred income taxes 3,346 10,450 Dividends payable — 1,060 Total liabilities 580,192 623,659 Commitments and contingencies ( Note 10 ) Preferred stock, $ 0.001 par value, 5,000,000 shares authorized; none issued — — Common stock, $ 0.001 par value, 45,000,000 shares authorized; 14,785,118 and 14,620,919 shares, respectively, issued and outstanding 15 15 Additional paid-in capital 855,641 855,554 Distributions in excess of accumulated earnings ( 170,813 ) ( 142,960 ) Accumulated other comprehensive loss ( 37,618 ) ( 35,600 ) Total shareholders' equity 647,225 677,009 Noncontrolling interests 4,382 4,421 Total equity 651,607 681,430 Total liabilities and equity $ 1,231,799 $ 1,305,089 See Notes to Consolidated Financial Statements. Net Lease Office Properties 3/31/2024 10-Q – 3 NET LEASE OFFICE PROPERTIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (in thousands, except share and per shar

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Note 1. Business and Organization Pursuant to the terms of a separation and distribution agreement, W. P. Carey Inc. ("WPC") spun off a portfolio of 59 office assets into a separate publicly-traded company (the "Spin-Off"). To accomplish this Spin-Off, WPC formed a Maryland real estate investment trust, Net Lease Office Properties ("NLOP"), on October 21, 2022, to own the 59 office assets. Information with respect to number of properties and square footage is unaudited. On November 1, 2023, WPC completed the Spin-Off, contributing 59 office properties to NLOP. Following the closing of the Spin-Off, NLOP operates as a separate publicly-traded real estate investment trust ("REIT"), and certain wholly-owned affiliates of WPC (our "Advisor") externally manage NLOP pursuant to certain advisory agreements (the "NLOP Advisory Agreements"). The Spin-Off was accomplished via a pro rata dividend of 1 NLOP common share for every 15 shares of WPC common stock outstanding. NLOP intends to qualify and elect to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code, commencing with the Company's taxable year ended December 31, 2023. NLOP operates as one segment, and through its subsidiaries, owns, operates, and finances office buildings. As of March 31, 2024, NLOP's portfolio was comprised of full or partial ownership interests in 53 properties, net leased to 55 corporate tenants, totaling approximately 8.6 million leasable square feet (including 0.6 million of operating square footage for a parking garage at a domestic property), with a weighted-average lease term of 5.7 years. Note 2. Basis of Presentation Basis of Presentation NLOP For periods after November 1, 2023, the consolidated financial statements include the results of NLOP and all entities in which the Company has a controlling interest. Intercompany transactions and balances have been eliminated in consolidation. Our int

Notes to Consolidated Financial Statements (Unaudited)

Notes to Consolidated Financial Statements (Unaudited) Prior to the Spin-Off For periods prior to November 1, 2023, the accompanying historical consolidated financial statements and related notes of NLOP do not represent the balance sheet, statement of operations and cash flows 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 herein, in each case, in accordance with GAAP. Intercompany transactions and balances have been eliminated in combination. The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the dates of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. In the opinion of management, the financial information for the periods presented in this Report reflects all normal and recurring adjustments necessary for a fair presentation of financial position, results of operations, and cash flows. These consolidated financial statements reflect the revenues and direct expenses of NLOP and include material assets and liabilities of WPC that are specifically attributable to NLOP. Equity in these consolidated financial statements represents the excess of total assets over total liabilities. Equity is impacted by contributions from and distributions to WPC, which are the result of treasury activities and net funding provided by or distributed to WPC prior to the Spin-Off, as well as the allocated costs and expenses described below. The consolidated financial statements 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 annualized base rent ("ABR") of NLOP and

Notes to Consolidated Financial Statements (Unaudited)

Notes to Consolidated Financial Statements (Unaudited) At both March 31, 2024 and December 31, 2023, we considered one entity to be a VIE (given certain decision-making rights each partner has in accordance with the partnership agreement), which we consolidated, as we are considered the primary beneficiary. The following table presents a summary of selected financial data of the consolidated VIE included in our consolidated balance sheets (in thousands): March 31, 2024 December 31, 2023 Land, buildings and improvements $ 37,917 $ 37,917 In-place lease intangible assets and other 9,685 9,685 Above-market rent intangible assets 4,338 4,338 Accumulated depreciation and amortization ( 4,327 ) ( 3,679 ) Total assets 49,064 49,410 Total liabilities $ 304 $ 304 Cash and Cash Equivalents and Restricted Cash The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the consolidated balance sheets to the consolidated statements of cash flows (in thousands): March 31, 2024 December 31, 2023 Cash and cash equivalents $ 39,753 $ 16,269 Restricted cash (a) 48,593 51,560 Total cash and cash equivalents and restricted cash $ 88,346 $ 67,829 __________ (a) Amounts as of March 31, 2024 and December 31, 2023 include approximately $ 45.3 million and $ 48.4 million related to certain reserve requirements pursuant to the NLOP Financing Arrangements ( Note 9 ). Net Parent Investment In the consolidated statements of equity, the net parent investment represents WPC's historical investment in NLOP prior to the Spin-Off, accumulated net earnings after taxes, and the net effect of transactions between NLOP and WPC. Earnings Per Share Basic earnings per share is calculated by dividing net income available to common shareholders by the weighted-average number of shares of common shares outstanding during the year. Diluted earnings per share reflects potentially dilutive securities using the treasury stock met

Notes to Consolidated Financial Statements (Unaudited)

Notes to Consolidated Financial Statements (Unaudited) Note 3. Agreements and Transactions with Related Parties Advisory Agreements Pursuant to the NLOP Advisory Agreements, which we entered into on November 1, 2023, our Advisor provides us with strategic management services, including asset management, property disposition support, and various related services. We pay our Advisor an asset management fee that was initially set at an annual amount of $ 7.5 million and is being proportionately reduced each month following the disposition of each portfolio property. In addition, we reimburse our Advisor a base administrative amount of approximately $ 4.0 million annually, for certain administrative services, including day-to-day management services, investor relations, accounting, tax, legal, and other administrative matters. The following tables present a summary of fees we paid and expenses we reimbursed to our Advisor in accordance with the terms of the NLOP Advisory Agreements (in thousands): Three Months Ended March 31, 2024 Asset management fees (a) $ 1,804 Administrative reimbursements (b) 1,000 $ 2,804 __________ (a) Included within Asset management fees in the consolidated statements of operations. (b) Included within General and administrative expenses in the consolidated statements of operations. The following table presents a summary of amounts due to affiliates, which are included within Accounts payable, accrued expenses and other liabilities in the consolidated financial statements (in thousands): March 31, 2024 December 31, 2023 Asset management fees payable $ 595 $ 1,245 Administrative reimbursements payable and other 375 676 $ 970 $ 1,921 Other Transactions with WPC NLOP Share Costs Historically, prior to the Spin-Off, NLOP was managed and operated in the normal course of business consistent with other affiliates of WPC. Accordingly, certain shared costs were allocated to NLOP and reflected as expenses in the consolidat

Notes to Consolidated Financial Statements (Unaudited)

Notes to Consolidated Financial Statements (Unaudited) Net parent investment shown in the consolidated statements of equity include contributions from WPC, which are the result of treasury activities and net funding provided by WPC prior to the Spin-Off, and also includes the indirect costs and expenses allocated to NLOP by WPC as described in Note 2 . Other Transactions with Related Parties At March 31, 2024, we owned an interest in one jointly owned investment in real estate, with the remaining interest held by a third party. We consolidate this investment. Note 4. Land, Buildings and Improvements Land, Buildings and Improvements Land and buildings leased to others, which are subject to operating leases, are summarized as follows (in thousands): March 31, 2024 December 31, 2023 Land $ 159,937 $ 168,200 Buildings and improvements 979,290 1,035,791 Less: Accumulated depreciation ( 206,401 ) ( 213,034 ) $ 932,826 $ 990,957 During the three months ended March 31, 2024, the U.S. dollar strengthened against the British pound sterling, euro, and Norwegian Krone. As a result of this fluctuation in foreign currency exchange rates, the carrying value of our Land, buildings and improvements decreased by $ 4.9 million from December 31, 2023 to March 31, 2024. Depreciation expense, in

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