Net Lease Office Properties (NLOP) risk factors, FY2024 10-K

Risks Related to Our Properties and Business

1. 01The ongoing remote working trends that began with the impact of the novel coronavirus (the “COVID-19 pandemic”), may continue to materially adversely impact the value of our properties and our business, operating results, financial condition and prospects
2. 02Net Lease Office Properties 2024 10-K – 5
3. 03We face considerable competition in the leasing market and may be unable to renew existing leases or re-let space on terms similar to our existing leases, or we may expend significant capital in our efforts to re-let space, which may adversely affect our business, financial condition and results of operations
4. 04We may be unable to find buyers for our properties on a timely basis or at desirable sales prices in accordance with our strategic plan
5. 05Inflation has adversely affected our financial condition, cash flows and results of operations, and may continue to do so in the future
6. 06Net Lease Office Properties 2024 10-K – 6
7. 07High geographic concentration of our properties could magnify the effects of adverse economic or regulatory developments in such geographic areas on our operations and financial condition
8. 08Tenant defaults may have a material adverse effect on our business, financial condition and results of operations
9. 09Some of our leases provide tenants with the right to terminate their leases early, which may have a material adverse effect on our business, financial condition and results of operations
10. 10Our expenses may remain constant or increase, even if our revenues decrease, which may have a material adverse effect on our business, financial condition and results of operations
11. 11Real estate property investments are illiquid. We may not be able to dispose of properties when desired or on favorable terms
12. 12We, our tenants and our properties are subject to various federal, state and local regulatory requirements, such as environmental laws, state and local fire and safety requirements, building codes and land use regulations
13. 13Because we invest in properties located outside the United States, we are exposed to additional risks
14. 14Our Advisor may engage third-party asset managers in international jurisdictions to monitor compliance with legal requirements and lending agreements. If our Advisor fails to properly mitigate such additional risks, it could result in operational failures, governmental sanctions, or other liabilities
15. 15We may be materially adversely affected by laws, regulations or other issues related to climate change as well as by potential physical impacts related to climate change
16. 16Uninsured and underinsured losses may adversely affect our operations

Risks Related to Financing and Our Indebtedness

1. 17We have a significant amount of indebtedness and may need to incur more in the future
2. 18Net Lease Office Properties 2024 10-K – 9
3. 19We have existing debt and refinancing risks that could affect our cost of operations
4. 20We may not be able to secure additional financing on favorable terms, or at all, to meet our capital needs
5. 21The NLOP Financing Arrangements will limit our ability to pay dividends on our common shares
6. 22We may not be able to engage in potentially desirable strategic or capital-raising transactions that require the issuance of interests in NLO OP LLC while the NLOP Financing Arrangements remain outstanding
7. 23Our governing documents do not limit the amount of indebtedness we may incur and we may become more highly leveraged
8. 24If we become an umbrella partnership REIT (an “UPREIT”), we would be a holding company with no direct operations and would rely on distributions received from NLO OP LLC and its subsidiaries, including NLO Mezzanine Borrower LLC, to make distributions to our shareholders
9. 25Financial covenants limit our ability to pay distributions and could materially adversely affect our ability to conduct our business
10. 26Failure to hedge effectively against interest rate changes and foreign exchange rate changes may have a material adverse effect on our business, financial condition and results of operations
11. 27We depend on external sources of capital that are outside of our control, which may affect our ability to pursue strategic opportunities, refinance or repay our indebtedness and make distributions to our shareholders
12. 28We may amend our divestiture strategy and business policies without shareholder approval
13. 29Decreases in property values may reduce the amount we receive upon the sale of any of our assets
14. 30Defaults under future sale agreements may delay or reduce the cash we receive pursuant to any future sale agreements
15. 31Shareholder litigation related to any disposition strategy could result in substantial costs and distract our Board and Advisor

Risks Related to Our Advisor

1. 32Our success is dependent on the performance of our Advisor, and we could be adversely affected if our Advisor ceases managing us
2. 33We have limited independence from our Advisor and its affiliates, who may be subject to conflicts of interest
3. 34Payment of fees to our Advisor will reduce cash available for distribution
4. 35Net Lease Office Properties 2024 10-K – 13

Risks Related to Our Status as a REIT

1. 36Failure to remain qualified as a REIT would materially and adversely affect us and the value of our common shares
2. 37If certain of our (or any of our subsidiary REITs’) subsidiaries, including our operating company, fail to qualify as partnerships or disregarded entities for federal income tax purposes, we (or any of our subsidiary REITs) could cease to qualify as a REIT and suffer other adverse consequences
3. 38Ownership of TRSs is subject to certain restrictions, and we (or any of our subsidiary REITs) will be required to pay a 100% penalty tax on certain income or deductions if transactions with TRSs are not conducted on arm’s-length terms
4. 39The tax imposed on REITs engaging in “prohibited transactions” may limit our ability to engage in transactions which would be treated as sales for federal income tax purposes
5. 40Distribution requirements imposed by law limit our flexibility
6. 41Net Lease Office Properties 2024 10-K – 15
7. 42We may pay dividends on our common shares in common shares and/or cash. Our shareholders may sell our common shares to pay tax on such dividends, placing downward pressure on the market price of our common shares
8. 43Legislative or other actions affecting REITs could have a negative effect on us or our investors
9. 44Even though we qualify as a REIT, certain of our business activities will be subject to other tax liabilities, which will continue to reduce our cash flows, and we will have potential deferred and contingent tax liabilities

Risks Related to an Investment in Our Common Shares

1. 45Limitations on the ownership of our common shares and other provisions of our Declaration of Trust and the NLOP Financing Arrangements may preclude the acquisition or change of control of our company
2. 46Maryland law may limit the ability of a third party to acquire control of us
3. 47Net Lease Office Properties 2024 10-K – 17
4. 48Until the 2027 annual meeting of shareholders, we will have a classified Board and that may reduce the likelihood of certain takeover transactions
5. 49Market interest rates may have an effect on the value of our common shares
6. 50The number of our common shares available for future issuance or sale could adversely affect the per share trading price of our common shares and may be dilutive to current shareholders
7. 51Future offerings of debt securities, which would be senior to our common shares upon liquidation, or preferred equity securities which may be senior to our common shares for purposes of dividends or upon liquidation, may materially adversely affect the per share trading price of our common shares
8. 52We may change our dividend policy
9. 53We will incur increased costs as a result of operating as a public company. If we fail to maintain proper and effective internal controls, our ability to produce accurate and timely financial statements could be impaired, which could result in sanctions or other penalties that would harm our business
10. 54Because dividends received by non-U.S. shareholders are generally taxable, we or a withholding agent may be required to withhold a portion of our distributions to such persons