8-K
Net Lease Office Properties (NLOP)
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of report (Date of earliest event reported): May 10, 2024
Net Lease Office Properties
(Exact Name of Registrant as Specified in its Charter)
| Maryland | 001-41812 | 92-0887849 | |
|---|---|---|---|
| (State of incorporation) | (Commission File Number) | (IRS Employer Identification No.) | |
| One Manhattan West, 395 9th Avenue, 58th Floor | |||
| New York, | New York | 10001 | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (844) 656-7348
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
|---|---|---|
| Common Shares of Beneficial Interest, par value $0.001 per share | NLOP | New York Stock Exchange |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☑
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 7.01 Regulation FD Disclosure.
On May 10, 2024, Net Lease Office Properties (the “Company”) made available certain unaudited supplemental financial information at March 31, 2024. A copy of this supplemental information is attached as Exhibit 99.1.
The information furnished pursuant to this Item 7.01, including Exhibit 99.1, shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that Section, and shall not be incorporated by reference into any filing under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits
| Exhibit No. | Description |
|---|---|
| 99.1 | Supplemental financial information of the Company at March 31, 2024. |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document). |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Net Lease Office Properties | |||
|---|---|---|---|
| Date: | May 10, 2024 | By: | /s/ ToniAnn Sanzone |
| ToniAnn Sanzone | |||
| Chief Financial Officer |
Document
Exhibit 99.1
Net Lease Office Properties
Supplemental Financial Information
First Quarter 2024
Terms and Definitions
As used in this supplemental package, the terms “Net Lease Office Properties,” “NLOP,” “we,” “us” and “our” include Net Lease Office Properties, its consolidated subsidiaries and its predecessors, unless otherwise indicated. Other terms and definitions are as follows:
| REIT | Real estate investment trust |
|---|---|
| WPC | W. P. Carey Inc., a net-lease REIT (also our “Advisor”) |
| Spin-Off | The spin-off of 59 office properties owned by WPC into NLOP, a separate publicly-traded REIT, which was completed on November 1, 2023 |
| U.S. | United States |
| ABR | Contractual minimum annualized base rent |
| SEC | Securities and Exchange Commission |
| NAREIT | National Association of Real Estate Investment Trusts (an industry trade group) |
| WALT | Weighted-average lease term |
| NLOP Mortgage Loan | Our $335.0 million senior secured mortgage loan |
| NLOP Mezzanine Loan | Our $120.0 million mezzanine loan facility |
| NLOP Financing Arrangements | The NLOP Mortgage Loan and NLOP Mezzanine Loan, which are collateralized by the assignment of certain of our previously unencumbered real estate properties |
| SOFR | Secured Overnight Financing Rate |
Important Note Regarding Non-GAAP Financial Measures
This supplemental package includes certain “non-GAAP” supplemental measures that are not defined by generally accepted accounting principles (“GAAP”), including funds from operations (“FFO”); adjusted funds from operations (“AFFO”); pro rata cash net operating income (“pro rata cash NOI”); and normalized pro rata cash NOI. FFO is a non-GAAP measure defined by NAREIT. Reconciliations of these non-GAAP financial measures to their most directly comparable GAAP measures are provided within this supplemental package. In addition, refer to the Disclosures Regarding Non-GAAP and Other Metrics section in the Appendix for a description of these non-GAAP financial measures and other metrics.
Amounts may not sum to totals due to rounding.
Net Lease Office Properties
Supplemental Information – First Quarter 2024
| Table of Contents | | --- || Summary Metrics | 1 | | --- | --- | | Components of Net Asset Value | 3 | | Consolidated Statement of Operations | 4 | | FFO and AFFO, Consolidated | 5 | | Consolidated Balance Sheets | 6 | | Capitalization | 7 | | Debt Overview | 8 | | Dispositions | 9 | | Capital Expenditures and Leasing Activity | 10 | | Top Ten Tenants | 11 | | Lease Expirations | 12 | | Property List | 13 | | Appendix | | | Normalized Pro Rata Cash NOI | 17 | | Disclosures Regarding Non-GAAP and Other Metrics | 19 |
Net Lease Office Properties
First Quarter 2024
| Summary Metrics |
|---|
As of or for the three months ended March 31, 2024.
| Financial Results | |||
|---|---|---|---|
| Revenues, including reimbursable costs – consolidated ($000s) | $ | 44,007 | |
| Net loss attributable to NLOP ($000s) | (27,842) | ||
| Net loss attributable to NLOP per diluted share | (1.88) | ||
| Normalized pro rata cash NOI ($000s) (a) (b) | 30,968 | ||
| AFFO attributable to NLOP ($000s) (a) (b) | 20,014 | ||
| AFFO attributable to NLOP per diluted share (a) (b) | 1.35 | ||
| Balance Sheet and Capitalization | |||
| Equity market capitalization – based on quarter end share price of $23.80 ($000s) | $ | 351,886 | |
| Total consolidated debt ($000s) | 515,173 | ||
| Gross assets ($000s) (c) | 1,438,200 | ||
| Total consolidated debt to gross assets | 35.8 | % | |
| NLOP Mortgage Loan principal outstanding (as a % of original principal) (d) | 82.9 | % | |
| NLOP Mezzanine Loan principal outstanding (as a % of original principal) (d) | 95.3 | % | |
| Advisory Fees and Reimbursements Paid to WPC | |||
| Asset management fees (e) | $ | 1,804 | |
| Administrative reimbursements (f) | 1,000 | ||
| Portfolio (Pro Rata) (b) | |||
| ABR (in thousands) (g) | $ | 128,331 | |
| Number of properties | 53 | ||
| Number of tenants | 55 | ||
| Occupancy | 92.6 | % | |
| Weighted-average lease term (in years) | 5.7 | ||
| Leasable square footage (in thousands) (h) | 8,023 | ||
| ABR from investment grade tenants as a % of total ABR (i) | 60.8 | % | |
| Dispositions – number of properties sold | 2 | ||
| Dispositions – gross proceeds (in thousands) | $ | 43,569 | |
| Subsequent to Quarter End | |||
| NLOP Mortgage Loan principal outstanding as of the date of this report (as a % of original principal) | 59.5 | % | |
| NLOP Mezzanine Loan principal outstanding as of the date of this report (as a % of original principal) | 83.2 | % | |
| Dispositions – number of properties sold | 2 | ||
| Dispositions – gross proceeds (in thousands) | $ | 98,484 | |
| Dispositions – number of properties transferred (j) | 2 | ||
| Dispositions – gross proceeds (in thousands) (j) | $ | 32,990 |
________
(a)Normalized pro rata cash NOI and AFFO are non-GAAP measures. See the Disclosures Regarding Non-GAAP and Other Metrics section in the Appendix for a description of our non-GAAP measures and for details on how certain non-GAAP measures are calculated.
(b)Presented on a pro rata basis. See the Disclosures Regarding Non-GAAP and Other Metrics section in the Appendix for a description of pro rata.
(c)Gross assets represent consolidated total assets before accumulated depreciation on buildings and improvements. Gross assets are net of accumulated amortization on in-place lease intangible assets of $216.2 million and above-market rent intangible assets of $34.7 million.
(d)Original principal outstanding for the NLOP Mortgage Loan was $335.0 million. Original principal outstanding for the NLOP Mezzanine Loan was $120.0 million.
(e)Pursuant to certain advisory agreements, 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 proportionately reduced each month following the disposition of each portfolio property.
(f)Pursuant to certain advisory agreements, we will 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.
(g)See the Disclosures Regarding Non-GAAP and Other Metrics section in the Appendix for a description of ABR.
(h)Excludes 570,999 of operating square footage for a parking garage at a domestic property.
| Net Lease Office Properties | 1 |
|---|
(i)Percentage of portfolio is based on ABR, as of March 31, 2024. Includes tenants or guarantors with investment grade ratings (41.0%) and subsidiaries of non-guarantor parent companies with investment grade ratings (19.8%). Investment grade refers to an entity with a rating of BBB- or higher from Standard & Poor’s Ratings Services or Baa3 or higher from Moody’s Investors Service. See the Disclosures Regarding Non-GAAP and Other Metrics section in the Appendix for a description of ABR.
(j)Represents the transfer of ownership of properties and the related non-recourse mortgage loans to their respective mortgage lenders. Gross proceeds from these dispositions represent the mortgage principal outstanding on the respective dates of transfer.
| Net Lease Office Properties | 2 |
|---|
Net Lease Office Properties
First Quarter 2024
| Components of Net Asset Value |
|---|
Dollars in thousands.
| Three Months Ended March 31, 2024 | ||
|---|---|---|
| Normalized Pro Rata Cash NOI (a) (b) | $ | 30,968 |
| Balance Sheet – Selected Information | As of March 31, 2024 | |
| Assets | ||
| Book value of select real estate (c) | $ | 30,897 |
| Cash and cash equivalents | 39,753 | |
| Restricted cash, including escrow (d) | 48,593 | |
| Other assets, net: | ||
| Straight-line rent adjustments | $ | 30,060 |
| Lease termination fees receivable (from BCBSM, Inc.) | 11,890 | |
| Deferred charges | 10,105 | |
| Accounts receivable | 4,024 | |
| Prepaid expenses | 1,186 | |
| Securities and derivatives | 428 | |
| Deferred income taxes | 78 | |
| Taxes receivable | 73 | |
| Other | 583 | |
| Total other assets, net | $ | 58,427 |
| Liabilities | ||
| NLOP Mortgage Loan (e) | $ | 277,609 |
| NLOP Mezzanine Loan (f) | 114,336 | |
| Non-recourse mortgages, net (g) | 147,755 | |
| Deferred income taxes | 3,346 | |
| Dividends payable | — | |
| Accounts payable, accrued expenses and other liabilities: | ||
| Prepaid and deferred rents | $ | 14,731 |
| Accounts payable and accrued expenses | 13,491 | |
| Operating lease liabilities | 4,647 | |
| Accrued taxes payable | 3,181 | |
| Tenant security deposits | 814 | |
| Other | 15,607 | |
| Total accounts payable, accrued expenses and other liabilities | $ | 52,471 |
________
(a)Normalized pro rata cash NOI is a non-GAAP measure. See the Disclosures Regarding Non-GAAP and Other Metrics section in the Appendix for a description of our non-GAAP measures and for details on how they are calculated.
(b)Presented on a pro rata basis. See the Disclosures Regarding Non-GAAP and Other Metrics section in the Appendix for a description of pro rata.
(c)Represents the value of real estate not appropriately captured in normalized pro rata cash NOI, such as vacant assets.
(d)Comprised of approximately $45.3 million related to certain reserve requirements for debt service, capital improvements, and real estate taxes pursuant to the NLOP Mortgage Loan and NLOP Mezzanine Loan. Approximately $3.3 million is related to certain reserve requirements for other loan agreements.
(e)Excludes unamortized discount, net totaling $12.4 million and unamortized deferred financing costs totaling $5.4 million as of March 31, 2024.
(f)Excludes unamortized discount, net totaling $4.4 million and unamortized deferred financing costs totaling $1.9 million as of March 31, 2024.
(g)Excludes unamortized discount, net totaling $0.4 million as of March 31, 2024.
| Net Lease Office Properties | 3 |
|---|
Net Lease Office Properties
First Quarter 2024
| Consolidated Statement of Operations |
|---|
In thousands, except share and per share amounts.
| Three Months Ended March 31, 2024 | ||
|---|---|---|
| Revenues | ||
| Lease revenues | $ | 38,314 |
| Income from finance leases | 89 | |
| Other lease-related income | 5,604 | |
| 44,007 | ||
| Operating Expenses | ||
| Depreciation and amortization | 17,970 | |
| Reimbursable tenant costs | 6,200 | |
| Impairment charges — real estate | 4,065 | |
| Property expenses, excluding reimbursable tenant costs | 2,251 | |
| General and administrative (a) | 1,901 | |
| Asset management fees (b) | 1,804 | |
| Separation and distribution related costs and other | 16 | |
| 34,207 | ||
| Other Income and Expenses | ||
| Interest expense | (20,800) | |
| Loss on sale of real estate, net | (15,776) | |
| Other gains and (losses) | (821) | |
| (37,397) | ||
| Loss before income taxes | (27,597) | |
| Provision for income taxes | (224) | |
| Net Loss | (27,821) | |
| Net income attributable to noncontrolling interests | (21) | |
| Net Loss Attributable to NLOP | $ | (27,842) |
| Basic and Diluted Loss Per Share | $ | (1.88) |
| Weighted-Average Shares Outstanding | ||
| Basic and Diluted | 14,785,118 |
________
(a)Includes $1.0 million of administrative reimbursements to our Advisor.
(b)Amount is comprised of fees paid to Advisor for strategic management services, including asset management, property disposition support, and various related services.
| Net Lease Office Properties | 4 |
|---|
Net Lease Office Properties
First Quarter 2024
| FFO and AFFO, Consolidated |
|---|
In thousands, except share and per share amounts.
| Three Months Ended March 31, 2024 | ||
|---|---|---|
| Net loss attributable to NLOP | $ | (27,842) |
| Adjustments: | ||
| Depreciation and amortization of real property | 17,970 | |
| Loss on sale of real estate, net | 15,776 | |
| Impairment charges — real estate (a) | 4,065 | |
| Proportionate share of adjustments for noncontrolling interests (b) | (52) | |
| Total adjustments | 37,759 | |
| FFO (as defined by NAREIT) Attributable to NLOP (c) | 9,917 | |
| Adjustments: | ||
| Amortization of deferred financing costs | 7,030 | |
| Above- and below-market rent intangible lease amortization, net | 1,077 | |
| Other (gains) and losses | 944 | |
| Straight-line and other leasing and financing adjustments | 777 | |
| Other amortization and non-cash items | 314 | |
| Tax benefit – deferred and other | (123) | |
| Stock-based compensation | 75 | |
| Separation and distribution related costs and other | 16 | |
| Proportionate share of adjustments for noncontrolling interests (b) | (13) | |
| Total adjustments | 10,097 | |
| AFFO Attributable to NLOP (c) | $ | 20,014 |
| Summary | ||
| FFO (as defined by NAREIT) attributable to NLOP (c) | $ | 9,917 |
| FFO (as defined by NAREIT) attributable to NLOP per diluted share (c) | $ | 0.67 |
| AFFO attributable to NLOP (c) | $ | 20,014 |
| AFFO attributable to NLOP per diluted share (c) | $ | 1.35 |
| Diluted weighted-average shares outstanding | 14,785,118 |
________
(a)Represents impairment charges recognized on two properties.
(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)FFO and AFFO are non-GAAP measures. See the Disclosures Regarding Non-GAAP and Other Metrics section in the Appendix for a description of our non-GAAP measures.
| Net Lease Office Properties | 5 |
|---|
Net Lease Office Properties
First Quarter 2024
| Consolidated Balance Sheets |
|---|
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 | ||
| 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 |
| Net Lease Office Properties | 6 | |||
| --- |
Net Lease Office Properties
First Quarter 2024
| Capitalization |
|---|
In thousands, except share and per share amounts. As of March 31, 2024.
| Total Enterprise Value | Shares | Share Price | Market Value | ||
|---|---|---|---|---|---|
| Equity | |||||
| Common equity | 14,785,118 | $ | 23.80 | $ | 351,886 |
| Total Equity Market Capitalization | 351,886 | ||||
| Outstanding Balance (a) | |||||
| Debt | |||||
| NLOP Mortgage Loan | 277,609 | ||||
| NLOP Mezzanine Loan | 114,336 | ||||
| Non-recourse mortgages | 147,755 | ||||
| Total Debt | 539,700 | ||||
| Less: Cash and cash equivalents | (39,753) | ||||
| Net Debt | 499,947 | ||||
| Total Enterprise Value | $ | 851,833 |
________
(a)Excludes unamortized discount, net totaling $17.2 million and unamortized deferred financing costs totaling $7.3 million as of March 31, 2024.
| Net Lease Office Properties | 7 |
|---|
Net Lease Office Properties
First Quarter 2024
| Debt Overview |
|---|
Dollars in thousands. Pro rata. As of March 31, 2024.
| Maturity Date | Fixed / Floating | Interest Rate | Total Outstanding Balance (a) | % of Total | ||||
|---|---|---|---|---|---|---|---|---|
| NLOP Financing Arrangements | ||||||||
| NLOP Mortgage Loan (b) | 11/9/2025 | Floating | 10.4 | % | $ | 277,609 | 51.4 | % |
| NLOP Mezzanine Loan (c) | 11/9/2028 | Fixed | 14.5 | % | 114,336 | 21.2 | % | |
| Other Mortgages (Tenant Listed) | ||||||||
| Exelon Generation Company, LLC (d) | 4/17/2024 | Fixed | 6.5 | % | 19,830 | 3.7 | % | |
| Vacant (formerly AVT Technology Solutions LLC) (d) | 4/26/2024 | Fixed | 5.1 | % | 13,160 | 2.4 | % | |
| Orbital ATK, Inc. | 1/6/2025 | Fixed | 4.2 | % | 25,621 | 4.7 | % | |
| Midcontinent Independent Stm Op Inc | 5/6/2025 | Fixed | 4.0 | % | 9,076 | 1.7 | % | |
| Intuit Inc. | 5/6/2025 | Fixed | 4.0 | % | 21,900 | 4.1 | % | |
| Acosta, Inc. | 8/6/2025 | Fixed | 4.4 | % | 10,014 | 1.9 | % | |
| Siemens AS | 12/15/2025 | Floating | 4.8 | % | 40,082 | 7.4 | % | |
| Merative L.P. | 4/1/2026 | Fixed | 5.7 | % | 1,899 | 0.4 | % | |
| North American Lighting, Inc. | 5/6/2026 | Fixed | 4.8 | % | 6,173 | 1.1 | % | |
| Total Debt Outstanding | 9.7 | % | $ | 539,700 | 100.0 | % |
________
(a)Excludes unamortized discount, net totaling $17.2 million and unamortized deferred financing costs totaling $7.3 million as of March 31, 2024.
(b)The NLOP Mortgage Loan bears interest at an annual rate of one-month forward-looking term rate based on SOFR, subject to a floor of 3.85%, plus 5.0%. In addition, we entered into an interest rate cap agreement that limits our SOFR rate exposure at 5.35% under the terms set forth under the NLOP Mortgage Loan. The NLOP Mortgage Loan is subject to two separate one-year extension options. In April 2024, we repaid $78.1 million of outstanding principal on the NLOP Mortgage Loan using proceeds from certain dispositions. See the Summary Metrics section for the NLOP Mortgage Loan principal outstanding (as a % of original principal) following these repayments.
(c)The NLOP Mezzanine Loan bears interest at an annual rate of 14.5% (10.0% of which is required to be paid current on a monthly basis, and 4.5% of which is a payment-in-kind accrual, on a quarterly basis). In April 2024, we repaid $14.5 million of outstanding principal on the NLOP Mezzanine Loan using proceeds from certain dispositions. See the Summary Metrics section for the NLOP Mezzanine Loan principal outstanding (as a % of original principal) following these repayments.
(d)In April 2024, we transferred ownership of these properties and the related non-recourse mortgage loans to their respective mortgage lenders, as described in the Summary Metrics section.
| Net Lease Office Properties | 8 |
|---|
Net Lease Office Properties
First Quarter 2024
| Dispositions |
|---|
Dollars in thousands. Pro rata.
| Tenant / Lease Guarantor | Property Location(s) | Gross Sale Price | ABR | Closing Date | Gross Square Footage | ||
|---|---|---|---|---|---|---|---|
| 4Q23 | |||||||
| Raytheon Company | Tucson, AZ | $ | 24,575 | $ | 1,978 | Dec-23 | 143,650 |
| Carhartt, Inc. | Dearborn, MI | 9,806 | 748 | Dec-23 | 58,722 | ||
| BCBSM, Inc. | Eagan, MN | 2,500 | 298 | Dec-23 | 29,916 | ||
| AVL Michigan Holding Corporation | Plymouth, MI | 6,200 | 575 | Dec-23 | 70,000 | ||
| 4Q23 Total | 43,081 | 3,599 | 302,288 | ||||
| 1Q24 | |||||||
| Undisclosed – UK insurance company (a) | Newport, United Kingdom | 10,497 | 1,761 | Jan-24 | 80,664 | ||
| Total E&P Norge AS (a) | Stavanger, Norway | 33,072 | 5,185 | Mar-24 | 275,725 | ||
| 1Q24 Total | 43,569 | 6,946 | 356,389 | ||||
| Total Dispositions (b) | $ | 86,650 | $ | 10,545 | 658,677 |
________
(a)Amount reflects the applicable exchange rate on the date of the transaction.
(b)In April 2024, we disposed of four properties, as described in the Summary Metrics section.
| Net Lease Office Properties | 9 |
|---|
Net Lease Office Properties
First Quarter 2024
| Capital Expenditures and Leasing Activity |
|---|
Capital Expenditures
In thousands. For the three months ended March 31, 2024.
| Tenant Improvements and Leasing Costs | ||
|---|---|---|
| Tenant Improvements (Tenant Listed) | ||
| CVS Health Corporation | $ | 2,306 |
| 2,306 | ||
| Leasing Costs | — | |
| Tenant Improvements and Leasing Costs | 2,306 | |
| Maintenance Capital Expenditures (Tenant Listed) | ||
| Pharmaceutical Product Development, LLC | 2,759 | |
| Xileh Holding Inc. | 261 | |
| KBR, Inc. | 145 | |
| Bankers Financial Corporation | 118 | |
| Other | 70 | |
| 3,353 | ||
| Total: Tenant Improvements and Leasing Costs, and Maintenance Capital Expenditures | $ | 5,659 |
Leasing Activity
Note: There was no leasing activity during the first quarter of 2024.
| Net Lease Office Properties | 10 |
|---|
Net Lease Office Properties
First Quarter 2024
| Top Ten Tenants |
|---|
Dollars in thousands. Pro rata. As of March 31, 2024.
| Tenant / Lease Guarantor | State / Country | ABR | ABR % | Square Footage (a) | Number of Properties | Weighted-Average Lease Term (Years) | ||
|---|---|---|---|---|---|---|---|---|
| KBR, Inc. | Texas | $ | 20,156 | 15.7 | % | 913,713 | 1 | 6.2 |
| BCBSM, Inc. | Minnesota | 12,788 | 10.0 | % | 1,029,966 | 5 | 4.8 | |
| JPMorgan Chase Bank, N.A. | Florida, Texas | 9,069 | 7.1 | % | 666,869 | 3 | 5.2 | |
| FedEx Corporation (b) | Tennessee | 5,491 | 4.3 | % | 390,380 | 1 | 15.7 | |
| Siemens AS (c) | Norway | 4,404 | 3.4 | % | 165,905 | 1 | 1.7 | |
| CVS Health Corporation | Arizona | 4,300 | 3.3 | % | 354,888 | 1 | 15.1 | |
| Pharmaceutical Product Development, LLC | North Carolina | 3,983 | 3.1 | % | 219,812 | 1 | 9.7 | |
| Omnicom Group, Inc. | California | 3,961 | 3.1 | % | 120,000 | 1 | 4.5 | |
| Orbital ATK, Inc. | Minnesota | 3,821 | 3.0 | % | 191,336 | 1 | 5.7 | |
| E.On UK PLC (c) | United Kingdom | 3,602 | 2.8 | % | 217,339 | 1 | 1.3 | |
| Total (d) | $ | 71,575 | 55.8 | % | 4,270,208 | 16 | 6.7 |
________
(a)Excludes 570,999 of operating square footage for a garage at a domestic property.
(b)This property was sold in April 2024.
(c)ABR amounts are subject to fluctuations in foreign currency exchange rates.
(d)See the Disclosures Regarding Non-GAAP and Other Metrics section in the Appendix for a description of pro rata.
| Net Lease Office Properties | 11 |
|---|
Net Lease Office Properties
First Quarter 2024
| Lease Expirations |
|---|
Dollars in thousands. Pro rata. As of March 31, 2024.
| Year of Lease Expiration (a) | Number of Leases Expiring | Number of Tenants with Leases Expiring | ABR | ABR % | Square Footage (b) | Square Footage % | |||
|---|---|---|---|---|---|---|---|---|---|
| Remaining 2024 | 9 | 6 | $ | 12,443 | 9.7 | % | 863,272 | 10.8 | % |
| 2025 | 13 | 13 | 17,162 | 13.4 | % | 859,031 | 10.7 | % | |
| 2026 | 8 | 8 | 9,376 | 7.3 | % | 574,783 | 7.2 | % | |
| 2027 | 7 | 6 | 8,713 | 6.8 | % | 499,571 | 6.2 | % | |
| 2028 | 7 | 6 | 13,903 | 10.8 | % | 627,627 | 7.8 | % | |
| 2029 | 5 | 4 | 6,785 | 5.3 | % | 358,013 | 4.5 | % | |
| 2030 | 5 | 4 | 31,157 | 24.3 | % | 1,669,375 | 20.8 | % | |
| 2031 | 1 | 1 | 615 | 0.5 | % | 50,600 | 0.6 | % | |
| 2032 | 2 | 2 | 3,620 | 2.8 | % | 257,008 | 3.2 | % | |
| 2033 | 1 | 1 | 3,983 | 3.1 | % | 219,812 | 2.7 | % | |
| 2035 | 2 | 2 | 2,951 | 2.3 | % | 201,229 | 2.5 | % | |
| 2037 | 2 | 2 | 5,374 | 4.2 | % | 402,962 | 5.0 | % | |
| 2038 | 1 | 1 | 2,458 | 1.9 | % | 104,598 | 1.3 | % | |
| 2039 | 2 | 2 | 9,791 | 7.6 | % | 745,268 | 9.3 | % | |
| Vacant | — | — | — | — | % | 589,924 | 7.4 | % | |
| Total (c) | 65 | $ | 128,331 | 100.0 | % | 8,023,073 | 100.0 | % |
________
(a)Assumes tenants do not exercise any renewal options or purchase options.
(b)Excludes 570,999 of operating square footage for a garage at a domestic property.
(c)See the Disclosures Regarding Non-GAAP and Other Metrics section in the Appendix for a description of pro rata.
| Net Lease Office Properties | 12 |
|---|
Net Lease Office Properties
First Quarter 2024
| Property List |
|---|
Dollars in thousands. Pro rata. As of March 31, 2024.
U.S. Assets:
| Encumbered Status | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| # | Primary Tenant | Industry | Credit (a) | City | State | Square Footage (b) | ABR | Rent Increase Type | Date of Next Increase | WALT (c) | NLOP Mortgage Loan | Other Mortgages | |||
| 1 | KBR, Inc. (d) (e) | Construction & Engineering | Non-IG | Houston | Texas | 1,064,788 | $21,294 | Fixed: One-time 7.78% | Jan-27 | 6.1 | ✓ | $— | |||
| 2 | FedEx Corporation (sold on 4/26/24) (f) | Air Freight & Logistics | IG | Collierville | Tennessee | 390,380 | $5,491 | Fixed: 0.75% annually | Oct-24 | 15.7 | ✓ | $— | |||
| 3 | BCBSM, Inc. | Managed Health Care | IG | Eagan | Minnesota | 442,542 | $5,051 | Fixed: 2.00% annually | N/A | 0.2 | ✓ | $— | |||
| 4 | JPMorgan Chase Bank, N.A. | Diversified Banks | IG | Fort Worth | Texas | 386,154 | $4,755 | CPI: 0.0% Floor / 2.0% Cap | Mar-25 | 5.9 | ✓ | $— | |||
| 5 | CVS Health Corporation | Health Care Services | IG | Scottsdale | Arizona | 354,888 | $4,300 | Fixed: 2.00% annually | Est. 2025 (g) | 15.1 | ✓ | $— | |||
| 6 | Pharmaceutical Product Development, LLC | Pharmaceuticals | IG | Morrisville | North Carolina | 219,812 | $3,983 | Fixed: 2.00% annually | Oct-24 | 9.7 | ✓ | $— | |||
| 7 | Omnicom Group, Inc. | Advertising | IG | Playa Vista | California | 120,000 | $3,961 | None | N/A | 4.5 | ✓ | $— | |||
| 8 | Orbital ATK, Inc. (h) | Aerospace & Defense | IG | Plymouth | Minnesota | 191,336 | $3,821 | Fixed: Rent reset to market | Dec-24 | 5.7 | $25,621 | ||||
| 9 | R.R. Donnelley & Sons Company | Commercial Printing | Non-IG | Warrenville | Illinois | 167,215 | $3,327 | Fixed: 2.00% annually | Sep-24 | 3.5 | ✓ | $— | |||
| 10 | Caremark RX, L.L.C. (d) (e) | Health Care Services | IG | Chandler | Arizona | 183,000 | $3,271 | Fixed: $0.50/SF annually | N/A | 0.2 | ✓ | $— | |||
| 11 | Board of Regents, State of Iowa (i) | Government Related Services | IG | Coralville | Iowa | 191,700 | $3,254 | CPI: 0.0% Floor / No Cap | Nov-25 | 6.6 | $— | ||||
| 12 | Bankers Financial Corporation (d) (e) | Property & Casualty Insurance | Non-IG | St. Petersburg | Florida | 167,581 | $3,150 | Fixed: 2.50% annually | Aug-24 | 4.3 | ✓ | $— | |||
| 13 | JPMorgan Chase Bank, N.A. | Diversified Banks | IG | Tampa | Florida | 176,150 | $2,993 | CPI: 0.0% Floor / 2.0% Cap | Mar-25 | 5.9 | ✓ | $— | |||
| 14 | Exelon Generation Company, LLC (transferred to the lender on 4/17/24) (j) | Electric Utilities | IG | Warrenville | Illinois | 146,745 | $2,935 | Fixed: $0.50/SF annually | Jul-24 | 2.2 | $19,830 | ||||
| 15 | Google, LLC | Internet Software & Services | IG | Venice | California | 67,681 | $2,930 | Fixed: 3.00% annually | Jan-25 | 1.6 | $— | ||||
| 16 | BCBSM, Inc. | Managed Health Care | IG | Eagan | Minnesota | 227,666 | $2,887 | Fixed: 2.00% annually | N/A | 0.2 | ✓ | $— | |||
| 17 | ICU MEDICAL, INC. (d) | Health Care Supplies | Non-IG | Plymouth | Minnesota | 182,250 | $2,821 | Fixed: 3.25% annually | Feb-25 | 3.5 | ✓ | $— | |||
| 18 | BCBSM, Inc. | Managed Health Care | IG | Eagan | Minnesota | 202,608 | $2,704 | Fixed: 2.00% annually | Jan-25 | 12.8 | ✓ | $— | |||
| 19 | Intuit Inc. | Internet Software & Services | IG | Plano | Texas | 166,033 | $2,577 | Fixed: One-time $2.00/SF in '21 | N/A | 2.2 | $21,900 | ||||
| 20 | DMG MORI SEIKI U.S.A., INC. (sold on 4/30/24) (f) | Industrial Machinery | IG | Hoffman Estates | Illinois | 104,598 | $2,458 | Fixed: 3.00% annually | Jan-25 | 14.8 | ✓ | $— | |||
| 21 | Veritas Bermuda, LTD | Systems Software | Non-IG | Roseville | Minnesota | 136,125 | $2,211 | Fixed: 2.00% annually | Dec-24 | 8.7 | ✓ | $— | Net Lease Office Properties | 13 | |
| --- | |||||||||||||||
| 22 | Cenlar FSB | Regional Banks | Non-IG | Yardley | Pennsylvania | 105,584 | $2,053 | Fixed: 2.70% annually | Jan-25 | 4.2 | ✓ | $— | |||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | |||
| 23 | iHeartCommunications, Inc. | Broadcasting | Non-IG | San Antonio | Texas | 120,147 | $2,010 | Fixed: 2.00% annually | Feb-25 | 10.8 | ✓ | $— | |||
| 24 | BCBSM, Inc. | Managed Health Care | IG | Eagan | Minnesota | 144,864 | $1,958 | Fixed: 2.00% annually | Jan-25 | 12.8 | ✓ | $— | |||
| 25 | Cofinity, Inc./Aetna Life Insurance Co. (d) (e) | Multi-line Insurance | IG | Southfield | Michigan | 94,453 | $1,907 | Fixed: One-time 6.90% in '23 | N/A | 0.8 | ✓ | $— | |||
| 26 | Arbella Service Company, Inc. | Property & Casualty Insurance | IG | Quincy | Massachusetts | 132,160 | $1,850 | Fixed: 'One-time $1.00/SF in '22 | N/A | 3.2 | ✓ | $— | |||
| 27 | ICF Consulting Group, Inc. | IT Consulting & Other Services | Non-IG | Martinsville | Virginia | 93,333 | $1,785 | CPI: 0.0% Floor / No Cap | Jan-25 | 2.8 | ✓ | $— | |||
| 28 | Safelite Group, Inc. | Specialized Consumer Services | Non-IG | Rio Rancho | New Mexico | 94,649 | $1,500 | Fixed: 2.00% annually | Jan-25 | 5.2 | ✓ | $— | |||
| 29 | Acosta, Inc. | Advertising | Non-IG | Jacksonville | Florida | 88,062 | $1,497 | Fixed: $0.50/SF annually | Jul-24 | 3.3 | $10,014 | ||||
| 30 | Master Lock Company, LLC | Building Products | Non-IG | Oak Creek | Wisconsin | 120,883 | $1,409 | Fixed: 2.00% annually | Jun-24 | 8.2 | ✓ | $— | |||
| 31 | JPMorgan Chase Bank, N.A. (d) (e) | Diversified Banks | IG | Tampa | Florida | 135,733 | $1,387 | CPI: 0.0% Floor / 2.0% Cap | N/A | 1.0 | ✓ | $— | |||
| 32 | Midcontinent Independent Stm Op Inc. | Electric Utilities | IG | Eagan | Minnesota | 60,463 | $1,133 | Fixed: $0.25/SF annually | Mar-25 | 1.9 | $9,076 | ||||
| 33 | Emerson Electric Co. | Industrial Machinery | IG | Houston | Texas | 52,144 | $1,082 | Fixed: $0.50/SF annually | Nov-24 | 1.6 | ✓ | $— | |||
| 34 | Radiate Holdings, L.P. | Cable & Satellite | Non-IG | San Marcos | Texas | 47,000 | $1,043 | CPI: 0.0% Floor / 3.0% Cap | Aug-24 | 4.4 | $— | ||||
| 35 | North American Lighting, Inc. | Auto Parts & Equipment | Non-IG | Farmington Hills | Michigan | 75,286 | $1,032 | Fixed: 2.50% annually | Apr-24 | 2.0 | $6,173 | ||||
| 36 | Arcfield Acquisition Corporation | Aerospace & Defense | Non-IG | King of Prussia | Pennsylvania | 88,578 | $1,000 | Fixed: One-time 17.50% in '23 | N/A | 2.3 | ✓ | $— | |||
| 37 | Merative L.P. | IT Consulting & Other Services | Non-IG | Hartland | Wisconsin | 81,082 | $940 | CPI: 0.0% Floor / No Cap | Dec-24 | 11.7 | $1,899 | ||||
| 38 | Pioneer Credit Recovery, Inc. (d) | Diversified Support Services | Non-IG | Moorestown | New Jersey | 65,567 | $912 | Fixed: 2.50% annually | N/A | 0.9 | ✓ | $— | |||
| 39 | Charter Communications Operating, LLC | Cable & Satellite | Non-IG | Bridgeton | Missouri | 78,080 | $781 | Fixed: $0.50/SF annually | Apr-24 | 1.0 | ✓ | $— | |||
| 40 | Xileh Holding Inc. | Multi-Sector Holdings | IG | Auburn Hills | Michigan | 55,490 | $711 | Fixed: 2.50% annually | Jan-25 | 13.8 | ✓ | $— | |||
| 41 | Undisclosed – multi-national provider of industrial gases | Industrial Gases | IG | Houston | Texas | 49,821 | $617 | Fixed: 2.00% annually | Jan-25 | 1.8 | ✓ | $— | |||
| 42 | APCO Holdings, Inc. | Property & Casualty Insurance | Non-IG | Norcross | Georgia | 50,600 | $615 | Fixed: 2.50% annually | Mar-25 | 6.9 | ✓ | $— | |||
| 43 | Radiate Holdings, L.P. | Cable & Satellite | Non-IG | Waco | Texas | 30,699 | $459 | CPI: 0.0% Floor / 3.0% Cap | Aug-24 | 4.4 | $— | ||||
| 44 | S&ME, Inc. | Environmental & Facilities Services | Non-IG | Raleigh | North Carolina | 27,770 | $430 | Fixed: 3.00% annually | N/A | 0.5 | ✓ | $— | |||
| 45 | Radiate Holdings, L.P. | Cable & Satellite | Non-IG | Corpus Christi | Texas | 20,717 | $344 | CPI: 0.0% Floor / 3.0% Cap | Aug-24 | 4.4 | $— | ||||
| 46 | Radiate Holdings, L.P. | Cable & Satellite | Non-IG | Odessa | Texas | 21,193 | $230 | CPI: 0.0% Floor / 3.0% Cap | Aug-24 | 4.4 | $— | ||||
| 47 | Radiate Holdings, L.P. | Cable & Satellite | Non-IG | San Marcos | Texas | 14,400 | $206 | CPI: 0.0% Floor / 3.0% Cap | Aug-24 | 4.4 | ✓ | $— | |||
| 48 | BCBSM, Inc. | Managed Health Care | IG | Eagan | Minnesota | 12,286 | $187 | Fixed: 2.00% annually | N/A | 0.2 | ✓ | $— | |||
| 49 | Vacant (formerly McKesson Corporation) (k) | N/A | N/A | The Woodlands | Texas | 204,063 | $0 | N/A | N/A | N/A | ✓ | $— | Net Lease Office Properties | 14 | |
| --- | |||||||||||||||
| 50 | Vacant (formerly AVT Technology Solutions LLC) (transferred to the lender on 4/26/24) (j) | N/A | N/A | Tempe | Arizona | 132,070 | 0 | N/A | N/A | $13,160 | |||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | |||||
| U.S. Total (k) | 7,586,429 | 119,252 | 6.0 | $107,673 |
All values are in US Dollars.
European Assets:
| Encumbered Status | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| # | Primary Tenant | Industry | Credit (a) | City | Country | Square Footage | ABR | Date of Next Increase | WALT (c) | NLOP Mortgage Loan | Other Mortgages |
| 1 | Siemens AS | Industrial Conglomerates | IG | Oslo | Norway | 165,905 | 4,404 | Jan-25 | 1.7 | $40,082 | |
| 2 | E.On UK PLC | Internet Retail | IG | Houghton le Spring | United Kingdom | 217,339 | 3,603 | N/A | 1.3 | $— | |
| 3 | Nokia Corporation | Communications Equipment | IG | Krakow | Poland | 53,400 | 1,072 | Sep-24 | 5.4 | $— | |
| European Total (l) | 436,644 | 9,079 | 2.0 | $40,082 |
All values are in US Dollars.
________
✓ Indicates an asset that is in the NLOP Financing Arrangements collateral pool.
_ Indicates an asset that was disposed of in April 2024, as described in the Summary Metrics section.
(a)“IG” refers to investment grade rated tenants.
(b)Excludes 570,999 of operating square footage for a parking garage associated with the KBR, Inc. property in Houston, Texas.
(c)Assumes parties do not exercise any renewal or purchase options pursuant to their applicable leases.
(d)Denotes multi-tenant property. Primary tenant generating largest percentage of ABR shown. Industry, credit, rent increase type and next rent increase are for primary tenant.
(e)Denotes leased property that is not 100% occupied.
(f)These properties were sold in April 2024, as described in the Summary Metrics section.
(g)Fixed rent increase structure with 2.00% annual bumps commences upon completion of an in-process renovation, which is anticipated to occur in 2024. The first rent increase will be one year after completion of the renovation.
(h)In the fourth quarter of 2023, the lease term was extended by five years. In connection with the rent terms under the renewal term, rent is based on fair market value. The determination of rent has not been finalized as of the date of this report.
(i)We own a 90% controlling interest in this consolidated property.
(j)In April 2024, we transferred ownership of these properties and the related non-recourse mortgage loans to their respective mortgage lenders, as described in the Summary Metrics section.
(k)Denotes property that is vacant as of the date of this report.
(l)See the Disclosures Regarding Non-GAAP and Other Metrics section in the Appendix for a description of pro rata.
| Net Lease Office Properties | 15 |
|---|
Net Lease Office Properties
Appendix
First Quarter 2024
| Net Lease Office Properties | 16 |
|---|
Net Lease Office Properties
First Quarter 2024
| Normalized Pro Rata Cash NOI |
|---|
In thousands.
| Three Months Ended March 31, 2024 | |||||
|---|---|---|---|---|---|
| Consolidated Lease Revenues and Other | |||||
| Total lease revenues – as reported | $ | 38,314 | |||
| Income from finance leases – as reported | 89 | ||||
| Parking garage revenues (a) | 513 | ||||
| Less: Consolidated Reimbursable and Non-Reimbursable Property Expenses | |||||
| Reimbursable property expenses – as reported | 6,200 | ||||
| Non-reimbursable property expenses – as reported | 2,251 | ||||
| 30,465 | |||||
| Adjustments for Pro Rata Ownership of Real Estate Joint Ventures: | |||||
| Less: Pro rata share of NOI attributable to noncontrolling interests | (90) | ||||
| (90) | |||||
| 30,375 | |||||
| Adjustments for Pro Rata Non-Cash Items: | |||||
| Add: Above- and below-market rent intangible lease amortization | 1,077 | ||||
| Less: Straight-line and other leasing and financing adjustments | 777 | ||||
| Add: Other non-cash items | 98 | ||||
| 1,952 | |||||
| Pro Rata Cash NOI (b) | 32,327 | ||||
| Adjustment to normalize for intra-period dispositions (c) | (1,359) | ||||
| Normalized Pro Rata Cash NOI (b) | $ | 30,968 | Net Lease Office Properties | 17 | |
| --- |
Net Lease Office Properties
First Quarter 2024
The following table presents a reconciliation from Net loss attributable to NLOP to Normalized pro rata cash NOI:
| Three Months Ended March 31, 2024 | ||
|---|---|---|
| Net Loss Attributable to NLOP | ||
| Net loss attributable to NLOP – as reported | $ | (27,842) |
| Adjustments for Consolidated Operating Expenses | ||
| Add: Operating expenses – as reported | 34,207 | |
| Less: Property expenses, excluding reimbursable tenant costs – as reported | (2,251) | |
| 31,956 | ||
| Adjustments for Other Consolidated Revenues and Expenses: | ||
| Less: Other lease-related income (excluding parking garage revenues) | (5,091) | |
| Less: Reimbursable property expenses – as reported | (6,200) | |
| Add: Other income and (expenses) – as reported | 37,397 | |
| Add: Provision for income taxes – as reported | 224 | |
| 26,330 | ||
| Other Adjustments: | ||
| Adjustment to normalize for intra-period dispositions (c) | (1,359) | |
| Add: Above- and below-market rent intangible lease amortization | 1,077 | |
| Less: Straight-line and other leasing and financing adjustments | 777 | |
| Add: Property expenses, excluding reimbursable tenant costs, non-cash | 98 | |
| Add: Adjustments for pro rata ownership | (69) | |
| 524 | ||
| Normalized Pro Rata Cash NOI (b) | $ | 30,968 |
________
(a)Amount is comprised of revenues from a parking garage at a domestic property and is included in Other lease-related income on our consolidated income statements.
(b)Pro rata cash NOI and normalized pro rata cash NOI are non-GAAP measures. See the Disclosures Regarding Non-GAAP and Other Metrics section that follows for a description of our non-GAAP measures and for details on how pro rata cash NOI and normalized pro rata cash NOI are calculated.
(c)For properties disposed of during the period, the adjustment eliminates our pro rata share of cash NOI for the period.
| Net Lease Office Properties | 18 |
|---|
Net Lease Office Properties
First Quarter 2024
| Disclosures Regarding Non-GAAP and Other Metrics |
|---|
Non-GAAP Financial Disclosures
FFO and AFFO
Due to certain unique operating characteristics of real estate companies, as discussed below, 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 (other than those realized on the settlement of foreign currency derivatives), 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 that are currently not engaged in acquisitions, mergers and restructuring, which are not part of our normal business operations. AFFO also reflects adjustments for jointly owned investments. We use AFFO as one measure of our operating performance when we formulate corporate goals, evaluate the effectiveness of our strategies and determine executive compensation.
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 exchange rate 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, or as alternatives to net cash provided by operating activities computed under GAAP, or as indicators of our ability to fund our cash needs.
Pro Rata Cash NOI
Cash net operating income (“cash NOI”) is a non-GAAP financial measure that is intended to reflect the performance of our properties. We define cash NOI as cash rents from our properties less non-reimbursable property expenses. Cash NOI excludes amortization of intangibles and straight-line rent adjustments that are included in GAAP lease revenues. We present cash NOI on a pro rata basis (“pro rata cash NOI”) to account for our share of income related to noncontrolling interests. We believe that pro rata cash NOI is a helpful measure that both investors and management can use to evaluate the financial performance of our properties and it allows for comparison of our operating performance between periods and to other REITs. Pro rata cash NOI should not be considered as an alternative to net income as an indication of our financial performance or to cash flows as a measure of liquidity or our ability to fund all needs. The method by which we calculate and present cash NOI and/or pro rata cash NOI may not be directly comparable to the way other REITs present such metrics.
Normalized Pro Rata Cash NOI
Normalized pro rata cash NOI is pro rata cash NOI as defined above adjusted primarily to exclude our pro rata share of cash NOI from properties disposed of during the most recent quarter. We believe this measure provides a helpful representation of our net operating income from our in-place leased properties.
| Net Lease Office Properties | 19 |
|---|
Net Lease Office Properties
First Quarter 2024
Other Metrics
Pro Rata Metrics
This supplemental package 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 though 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 assets, liabilities, revenues and expenses of this investment. Multiplying our 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 and reflects exchange rates as of March 31, 2024. If there is a rent abatement, we annualize the first monthly contractual base rent following the free rent period. ABR is presented on a pro rata basis.
| Net Lease Office Properties | 20 |
|---|