Net Lease Office Properties: Form 10-Q for the period ended Jun 30, 2026

Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to assist in understanding our financial statements and the reasons for changes in certain key components of our financial statements from period to period. This item also provides our perspective on our financial position and liquidity, as well as certain other factors that may affect our future results. Our Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the 2025 Annual Report and subsequent reports filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Refer to Item 1 of the 2025 Annual Report for a description of our business.

Emerging Growth Company

NLOP is an “emerging growth company,” as defined in Section 2(a) of the U.S. Securities Act of 1933, as amended (the “Securities Act”), as modified by the Jumpstart Our Business Startups Act of 2012, as amended (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended, reduced disclosure obligations regarding executive compensation in NLOP’s periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation, and shareholder approval of any golden parachute payments not previously approved.

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. 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.

NLOP will remain an emerging growth company until the earlier of: (i) the last day of the fiscal year (a) following the fifth anniversary of the closing of the Spin-Off, (b) in which NLOP has total annual gross revenue of at least $1.235 billion, or (c) in which NLOP is deemed to be a large accelerated filer, which means the market value of the common equity of NLOP that is held by non-affiliates exceeds $700 million as of the last business day of its most recently completed second fiscal quarter; and (ii) the date on which NLOP has issued more than $1.00 billion in non-convertible debt securities during the prior three-year period. References herein to “emerging growth company” have the meaning associated with it in the JOBS Act.

Financial Highlights

During the six months ended June 30, 2026 and through the date of this Report, we completed the following (as further described in the consolidated financial statements):

Dispositions

• During the six months ended June 30, 2026, we sold six properties for total proceeds, net of selling costs, of $128.0 million (Note 12). These proceeds exclude a $20.0 million deposit received during the fourth of quarter of 2025 related to the disposition of a property in January 2026 located in Houston, Texas, and leased to KBR, our largest tenant by ABR as of December 31, 2025.

Special Cash Distributions

• In January 2026, our Board of Trustees declared a special cash distribution of $6.75 per share, totaling approximately $100.0 million. The distribution was paid on February 17, 2026 to shareholders of record as of January 30, 2026 (Note 10).
• In March 2026, our Board of Trustees declared a special cash distribution of $3.30 per share, totaling approximately $49.0 million. The distribution was paid on April 14, 2026 to shareholders of record as of March 30, 2026 (Note 10).
• Future special cash distributions will be at the discretion of our Board of Trustees and will depend upon, among other things, our actual and anticipated results of operations and liquidity, which will be affected by various factors, including the timely receipt of rental income from our portfolio; the timing of and proceeds from asset sales; our operating expenses (including management fees); capital expenditures for our portfolio; our current intention to maintain our qualification as a REIT; and other factors which may be outside of our control. There can be no assurance as to the amount or timing of future distributions.

Summary Results

(in thousands)

(a) Amount for the six months ended June 30, 2026 includes $8.0 million of proceeds from the sale of a net investment in sales-type lease (Note 5). Such proceeds are included within Net cash provided by operating activities in accordance with 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.

Since January 1, 2025 and through June 30, 2026, we have disposed of 21 properties for total proceeds, net of selling costs, of $340.3 million, which has resulted in significant declines in our revenues, expenses, net cash provided by operating activities, FFO, and AFFO.

Revenues

Total revenues decreased for the three and six months ended June 30, 2026 as compared to the same periods in 2025, primarily due to the impact of disposition activity.

Net (Loss) Income Attributable to NLOP

Net loss attributable to NLOP decreased for the three months ended June 30, 2026 as compared to the same period in 2025, primarily due to lower impairment charges and lower interest expense, partially offset by the impact of disposition activity. See Note 7 for information on impairment charges recorded during the reporting period.

We recognized net income attributable to NLOP for the six months ended June 30, 2026 as compared to net loss attributable to NLOP for the six months ended June 30, 2025, primarily due to lower impairment charges, higher gain on sale of real estate, and lower interest expense, partially offset by the impact of disposition activity and a non-cash allowance for credit loss recorded on a net investment in a sales-type lease during the six months ended June 30, 2026 (Note 5).

FFO

FFO decreased for the three and six months ended June 30, 2026 as compared to the same periods in 2025, primarily due to the impact of disposition activity and a non-cash allowance for credit loss recorded on a net investment in a sales-type lease during the six months ended June 30, 2026 (Note 5), partially offset by lower interest expense.

AFFO

AFFO decreased for the three and six months ended June 30, 2026 as compared to the same periods in 2025, primarily due to the impact of disposition activity, partially offset by lower interest expense.

Portfolio Overview

Portfolio information is provided on a pro rata basis, unless otherwise noted below, to better illustrate the economic impact of our one jointly owned investment. See Terms and Definitions below for a description of pro rata amounts.

Portfolio Summary

(a) Excludes 570,999 of operating square footage for a parking garage at a domestic property as of December 31, 2025. This property was sold in January 2026 (Note 12).

Portfolio

The tables below represent information about our portfolio at June 30, 2026 on a pro rata basis. See Terms and Definitions below for a description of pro rata amounts and ABR.

Tenant List

(dollars in thousands)

(a) This property is vacant as of the date of this Report.

(b) In July 2026, we entered into lease amendments with this tenant to (i) extend the leases at four of the five properties it occupies and (ii) terminate the lease early at the fifth property, as described in Note 13.

Lease Expirations

(dollars in thousands)

(a) Assumes tenants do not exercise any renewal options or purchase options.

Terms and Definitions

Pro Rata Metrics — The portfolio information above contains certain metrics prepared on a pro rata basis. We refer to these metrics as pro rata metrics. We have one investment in which our economic ownership is less than 100%. On a full consolidation basis, we report 100% of the assets, liabilities, revenues, and expenses of this investment that is deemed to be under our control, even if our ownership is less than 100%. On a pro rata basis, we generally present our proportionate share, based on our economic ownership of this jointly owned investment, of the portfolio metrics of this investment. Multiplying this jointly owned investment’s financial statement line items by our percentage ownership and adding or subtracting those amounts from our totals, as applicable, may not accurately depict the legal and economic implications of holding an ownership interest of less than 100% in our jointly owned investment.

ABR — ABR represents contractual minimum annualized base rent for our properties. If there is a rent abatement, we annualize the first monthly contractual base rent following the free rent period.

Results of Operations

Revenues

(in thousands)

Lease Revenues

For the three and six months ended June 30, 2026 as compared to the same periods in 2025, lease revenues decreased by $21.2 million and $41.2 million, respectively, primarily due to disposition activity.

Income from Finance Leases

For the six months ended June 30, 2026 as compared to the same period in 2025, income from direct finance leases increased by $0.6 million, primarily due to the reclassification of two net-lease assets to net investments in sales-type leases during the fourth quarter of 2025. During the first quarter of 2026, one of these assets was sold and one was reclassified as a net-lease property (Note 5).

Other Lease-Related Income

Other lease-related income is described in Note 4.

Operating Expenses

(in thousands)

Net Lease Office Properties 6/30/2026 10-Q – 25

Impairment Charges — Real Estate

Our impairment charges on real estate are described in Note 7.

Depreciation and Amortization

For the three and six months ended June 30, 2026 as compared to the same periods in 2025, depreciation and amortization expense decreased by $6.9 million and $14.4 million, respectively, primarily due to the impact of disposition activity.

General and Administrative

In May 2026, a reduction in the base administrative reimbursement to our Advisor was agreed upon and approved by our Board of Trustees; effective July 1, 2026, the reimbursement is $2.0 million annually instead of $4.0 million annually (Note 3). Such reimbursements are included in general and administrative expenses.

For the three and six months ended June 30, 2026 as compared to the same periods in 2025, general and administrative expenses decreased by $0.3 million and $0.1 million, respectively, primarily due to lower professional fees.

Property Expenses, Excluding Reimbursable Tenant Costs

For the three and six months ended June 30, 2026 as compared to the same periods in 2025, property expenses, excluding reimbursable tenant costs, decreased by $1.8 million and $3.5 million, respectively, primarily due to the impact of disposition activity.

Asset Management Fees

Asset management fees paid to our Advisor are calculated based on the ABR of properties in our portfolio and are being proportionately reduced following the disposition of each portfolio property (Note 3).

For the three and six months ended June 30, 2026 as compared to the same periods in 2025, asset management fees decreased by $0.8 million and $1.6 million, respectively, due to the impact of disposition activity.

Reimbursable Tenant Costs

For the three and six months ended June 30, 2026 as compared to the same periods in 2025, reimbursable tenant costs decreased by $6.3 million and $11.9 million, respectively, primarily due to the impact of disposition activity.

Other Income and Expenses, and Provision for Income Taxes

(in thousands)

Gain (Loss) on Sale of Real Estate, Net

Gain (loss) gain on sale of real estate, net, consists of gain or loss on (i) the sale of properties that were disposed of, net of taxes, (ii) properties included in assets held for sale and subject to a revised estimated purchase price, or (iii) the reclassification of foreign currency translation adjustments from accumulated other comprehensive income to net loss since we exited all investments denominated in a currency (which totaled losses of $1.1 million for the six months ended June 30, 2025), as more fully described in Note 4 and Note 12.

Interest Expense

Interest expense comprises interest on our non-recourse mortgages and our NLOP Mezzanine Loan. Our NLOP Mezzanine Loan was fully repaid in April 2025 (Note 8).

For the three and six months ended June 30, 2026 as compared to the same periods in 2025, interest expense decreased by $4.0 million and $9.4 million, respectively, primarily due to repayments of our debt since January 1, 2025 (Note 8).

Other Gains and (Losses)

For the three months ended June 30, 2026, other gains and (losses) of $0.2 million primarily comprised interest income on our cash deposits of $0.2 million.

For the three months ended June 30, 2025, other gains and (losses) of $0.7 million primarily comprised (i) interest income on our cash deposits of $0.4 million, (ii) escrow refund related to facility improvements of $0.4 million, (iii) loss on extinguishment of debt of ($0.2) million related to the full repayment of the NLOP Mezzanine Loan in April 2025 (Note 8), and (iv) net realized and unrealized gains on foreign currency exchange rate movements of $0.1 million.

For the six months ended June 30, 2026, other gains and (losses) of $10.0 million primarily comprised (i) a non-cash allowance for credit loss on a sales-type lease of $(11.0) million (Note 5) and (ii) interest income on our cash deposits of $1.0 million.

For the six months ended June 30, 2025, other gains and (losses) of $1.1 million primarily comprised (i) interest income on our cash deposits of $0.8 million, (ii) escrow refund related to facility improvements of $0.4 million, (iii) loss on extinguishment of debt of ($0.2) million related to the full repayment of the NLOP Mezzanine Loan in April 2025 (Note 8), and (iv) net realized and unrealized gains on foreign currency exchange rate movements of $0.1 million.

Provision for Income Taxes

For the three and six months ended June 30, 2026 as compared to the same periods in 2025, provision for income taxes decreased by less than $0.1 million and $0.1 million, respectively, primarily due to the disposition of our remaining international properties during 2025.

Liquidity and Capital Resources

Sources and Uses of Cash During the Period

We use the cash flow generated from our investments primarily to meet our operating expenses, pay distributions to shareholders, make capital expenditures as necessary, and pay debt service. Our cash flows fluctuate periodically due to a number of factors, which may include, among other things: the timing of capital expenditures and sales of real estate; the timing of the repayment of debt and receipt of lease revenues; the timing and amount of other lease-related payments; and the timing of advisory fees and reimbursements paid to our Advisor. Despite these fluctuations, we believe that we will generate sufficient cash from operations to meet our normal recurring short-term and long-term liquidity needs. We may also use existing cash resources and proceeds from dispositions of properties in order to meet these needs. We assess our ability to access capital on an ongoing basis. The following table summarizes the changes in cash flows for the periods presented (in thousands):

Net Cash Provided by Operating Activities — Net cash provided by operating activities decreased by $15.9 million during the six months ended June 30, 2026 as compared to the same period in 2025, primarily due to the impact of disposition activity, partially offset by $8.0 million of proceeds received from the sale of a net investment in sales-type lease during the current year period.

Net Cash Provided by Investing Activities — Net cash provided by investing activities increased by $96.6 million during the six months ended June 30, 2026 as compared to the same period in 2025, primarily due to higher proceeds from dispositions during the current year period.

Net Cash Used in Financing Activities — Net cash used in financing activities increased by $163.0 million during the six months ended June 30, 2026 as compared to the same period in 2025, primarily due to $224.4 million of distributions paid during the current year period, partially offset by lower debt payments (following the full repayment of the NLOP Mezzanine Loan during 2025 (Note 8)).

Summary of Financing

At both June 30, 2026 and December 31, 2025, our non-recourse mortgage is a mortgage note payable (which is collateralized by the assignment of a real estate property that was leased to Intuit as of June 30, 2026 but is vacant as of the date of this Report), with a fixed interest rate of 7.0% and maturity date of July 2026. This non-recourse mortgage loan was not repaid on its maturity date of July 6, 2026, and the lender has the right to commence foreclosure proceedings. As of the date of this Report, the lender has not exercised such a right. This loan has accrued default interest at an annual rate of 5.0% since the original maturity date, in addition to the base interest rate of 7.0% (Note 8, Note 13).

Cash Resources

At June 30, 2026, our cash resources consisted of the following:

• cash and cash equivalents totaling $23.7 million; and
• unleveraged properties that had an aggregate asset carrying value of approximately $151.4 million at June 30, 2026, although there can be no assurance that we would be able to sell or obtain financing for these properties.

Cash Requirements and Liquidity

As of June 30, 2026, scheduled debt principal payments total $21.9 million during the remainder of 2026 (Note 8, Note 13).

During the next 12 months following June 30, 2026 and thereafter, we expect that our significant cash requirements will include:

• making scheduled principal and balloon payments on our remaining non-recourse mortgage debt obligation totaling $21.9 million, which are due during the next 12 months (this non-recourse mortgage loan, which has a maturity date of July 6, 2026, has not been repaid as of the date of this Report (Note 8, Note 13));
• making scheduled interest payments on our non-recourse mortgage obligation totaling $0.1 million, which are due during the next 12 months; and
• other normal recurring operating expenses.

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

Our liquidity could be adversely affected by real estate market conditions (which could impact our ability to dispose of properties) and an unanticipated disruption to our operating cash flow, which could include interrupted rent collections or greater-than-anticipated operating expenses.

Supplemental Financial Measures

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 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.

Funds from Operations and Adjusted Funds from Operations

Due to certain unique operating characteristics of real estate companies, as discussed below, the National Association of Real Estate Investment Trusts (“NAREIT”), an industry trade group, has promulgated a non-GAAP measure known as FFO, which we believe to be an appropriate supplemental measure, when used in addition to and in conjunction with results presented in accordance with GAAP, to reflect the operating performance of a REIT. The use of FFO is recommended by the REIT industry as a supplemental non-GAAP measure. FFO is not equivalent to, nor a substitute for, net income or loss as determined under GAAP.

We define FFO, a non-GAAP measure, consistent with the standards established by the White Paper on FFO approved by the Board of Governors of NAREIT, as restated in December 2018. The White Paper defines FFO as net income or loss computed in accordance with GAAP, excluding gains or losses from the sale of certain real estate, impairment charges on real estate or other assets incidental to the company’s main business, gains or losses on changes in control of interests in real estate, and depreciation and amortization from real estate assets; and after adjustments for unconsolidated partnerships and jointly owned investments. Adjustments for unconsolidated partnerships and jointly owned investments are calculated to reflect FFO on the same basis.

We also modify the NAREIT computation of FFO to adjust GAAP net income for certain non-cash charges, such as amortization of real estate-related intangibles, deferred income tax benefits and expenses, straight-line rent and related reserves, other non-cash rent adjustments, non-cash allowance for credit losses on finance leases, stock-based compensation, non-cash environmental accretion expense, amortization of discounts and premiums on debt, and amortization of deferred financing costs. Our assessment of our operations is focused on long-term sustainability and not on such non-cash items, which may cause short-term fluctuations in net income but have no impact on cash flows. Additionally, we exclude non-core income and expenses, such as gains or losses from extinguishment of debt, merger and acquisition expenses, and spin-off expenses. We also exclude realized and unrealized gains/losses on foreign currency exchange rate movements, which are not considered fundamental attributes of our business plan and do not affect our overall long-term operating performance. We refer to our modified definition of FFO as AFFO. 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. We use AFFO as one measure of our operating performance when we formulate corporate goals and evaluate the effectiveness of our strategies.

We believe that AFFO is a useful supplemental measure for investors to consider as we believe it will help them to better assess the sustainability of our operating performance without the potentially distorting impact of these short-term fluctuations. However, there are limits on the usefulness of AFFO to investors. For example, impairment charges and unrealized foreign currency losses that we exclude may become actual realized losses upon the ultimate disposition of the properties in the form of lower cash proceeds or other considerations. We use our FFO and AFFO measures as supplemental financial measures of operating performance. We do not use our FFO and AFFO measures as, nor should they be considered to be, alternatives to net income computed under GAAP, alternatives to net cash provided by operating activities computed under GAAP, or indicators of our ability to fund our cash needs.

FFO and AFFO were as follows (in thousands):

(a) Amounts for the three and six months ended June 30, 2025 include an impairment charge of $81.6 million recognized on the KBR property in Houston, Texas, which was sold in January 2026 (Note 7).

(b) Adjustments disclosed elsewhere in this reconciliation are on a consolidated basis. This adjustment reflects our FFO or AFFO on a pro rata basis.

(c) Amount for the six months ended June 30, 2026 includes a non-cash allowance for credit loss recorded on a net investment in a sales-type lease of $11.0 million (Note 5). These amounts also include gains and losses on extinguishment of debt and foreign currency transactions.

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. These non-GAAP measures should be used in conjunction with net income as defined by GAAP. FFO and AFFO, or similarly titled measures disclosed by other REITs, may not be comparable to our FFO and AFFO measures.

Market Risk

Market risk is the exposure to loss resulting from changes in interest rates, foreign currency exchange rates, and equity prices. The primary market risk that we are exposed to is interest rate risk.

We are also exposed to further market risk as a result of tenant concentrations in certain industries and/or geographic regions, since adverse market factors can affect the ability of tenants in a particular industry/region to meet their respective lease obligations. In order to manage this risk, we view our collective tenant roster as a portfolio and monitor its diversification.

Interest Rate Risk

The values of our real estate and related fixed-rate debt obligations are subject to fluctuations based on changes in interest rates. The value of our real estate is also subject to fluctuations based on local and regional economic conditions and changes in the creditworthiness of lessees, which may affect our ability to refinance debt when balloon payments are scheduled, if we do not choose to repay the debt when due. Interest rates are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political conditions, and other factors beyond our control. An increase in interest rates would likely cause the fair value of our assets to decrease. Increases in interest rates may also have an impact on the credit profile of certain tenants.

We are exposed to the effects of interest rate changes as a result of borrowings used to maintain liquidity and to fund the financing and refinancing of our real estate investment portfolio and operations. Our profitability and the value of our real estate investment portfolio may be adversely affected during any period as a result of interest rate changes.

We have borrowed funds at fixed rates. Interest rate fluctuations will generally not affect future earnings or cash flows on fixed rate debt unless such debt matures or is otherwise terminated. However, interest rate changes will affect the fair value of fixed rate instruments. At June 30, 2026, fixed-rate debt comprises 100% of our debt.

Our debt obligations are more fully described in Note 8 and Liquidity and Capital Resources — Summary of Financing in Item 2 above. The following table presents principal cash flows based upon the expected maturity date of our debt obligation outstanding at June 30, 2026 (in thousands):

(a) Our remaining non-recourse mortgage loan, which has a maturity date of July 6, 2026, has not been repaid as of the date of this Report (Note 13).

Concentration of Credit Risk

Concentrations of credit risk arise when a number of tenants are engaged in similar business activities, or activities in the same geographic region, or have similar economic features that would cause their ability to meet contractual obligations, including those to the Company, to be similarly affected by changes in economic conditions. The Company is subject to tenant, geographic and industry concentrations. Any downturn of the economic conditions in one or more of these tenants, geographies or industries could result in a material reduction of our cash flows or material losses to us.

The factors we consider in determining the credit risk of our tenants include, but are not limited to: payment history; credit status (credit ratings for public companies are used as a primary metric); change in tenant space needs (i.e., expansion/downsize); tenant financial performance; economic conditions in a specific geographic region; and industry specific credit considerations. We believe that the credit risk of our portfolio is reduced by the high quality and diversity of our existing tenant base, reviews of prospective tenants’ risk profiles prior to lease execution and consistent monitoring of our portfolio to identify potential problem tenants.

For the six months ended June 30, 2026, our consolidated portfolio had the following significant characteristics in excess of 10%, based on the percentage of our consolidated total revenues:

• 13% related to our tenant Iowa Board of Regents, 13% related to our tenant Omnicom, and 10% related to our tenant RRD; and
• 100% related to domestic operations; which included concentrations of 32%, 13%, 13%, and 10% in Texas, California, Iowa, and Illinois, respectively.

Disclosure Controls and Procedures

Our disclosure controls and procedures include internal controls and other procedures designed to provide reasonable assurance that information required to be disclosed in this and other reports filed under the Exchange Act is recorded, processed, summarized, and reported within the required time periods specified in the SEC’s rules and forms; and that such information is accumulated and communicated to management, including our chief executive officer and chief financial officer, to allow timely decisions regarding required disclosures. It should be noted that no system of controls can provide complete assurance of achieving a company’s objectives and that future events may impact the effectiveness of a system of controls.

Our chief executive officer and chief financial officer, after conducting an evaluation, together with members of our management, of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2026, have concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) were effective as of June 30, 2026 at a reasonable level of assurance.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.