EX-99.1 2 exhibit991-form10x12ba.htm EX-99.1 Document
Exhibit 99.1
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                     , 2023
Dear W. P. Carey Stockholder,
We are pleased to inform you that on                , 2023, the Board of Directors of W. P. Carey Inc., a Maryland corporation (“WPC”), declared a distribution of the outstanding common shares (“common shares”) of beneficial interest of Net Lease Office Properties, a Maryland real estate investment trust (“NLOP”) (the “Distribution”), which will be a publicly-traded real estate investment trust and hold the Office Properties (as hereinafter defined) and certain other assets.
Prior to the Distribution, WPC will contribute certain office properties to NLOP (the “Separation” and such properties, the “Office Properties”) and, pursuant to terms and conditions of a separation and distribution agreement, commence the Distribution on                , 2023. Following the Separation and the Distribution, NLOP will be a publicly-traded real estate investment trust, with a portfolio of 59 office properties previously owned by WPC, totaling approximately 9.2 million total leasable square feet. Following the Distribution, we will manage NLOP through certain of WPC’s wholly-owned subsidiaries pursuant to advisory agreements (collectively, the “Advisory Agreements”). Under the Advisory Agreements, we will offer strategic management services to NLOP, including asset management, property disposition support and various related services. NLOP will pay us management fees and also reimburse us for certain expenses incurred in providing services to NLOP.
We believe that this transaction will allow WPC and NLOP to focus on their respective portfolios with distinct business strategies. We also believe that the Separation and the Distribution will enable current and potential investors, and the financial community, to evaluate WPC and NLOP separately and better assess the performance and future prospects of each business, including allowing investors to better assess the financial and operational performance of the Office Properties, and make investment decisions based on the unique aspects of the evolving office property market and NLOP’s overall business plan to seek to maximize stockholder value.
The Distribution is expected to occur on                    , 2023, by way of a pro rata special dividend to WPC common stockholders of record as of the close of business on the record date for the Distribution. Assuming that the conditions to the Distribution are satisfied, holders of every 15 shares of WPC common stock, $0.001 par value per share (“WPC common stock”), will be entitled to receive one common share of NLOP. The Distribution is intended to be a taxable distribution to such WPC stockholders for U.S. federal income tax purposes. The Distribution of the common shares of NLOP is subject to the satisfaction of certain conditions.
WPC stockholders are not required to approve the Distribution, and you are not required to take any action to receive your common shares of NLOP. Following the Distribution, you will own shares in both WPC and NLOP. The number of shares of WPC stock that you own prior to the Distribution will not change as a result of the Distribution. WPC common stock will continue to trade on the New York Stock Exchange under the symbol “WPC.” NLOP has applied to list its common shares on the New York Stock Exchange under the symbol “NLOP.”
We have prepared the enclosed information statement, which is being mailed to all holders of shares of WPC common stock that are expected to receive common shares of NLOP in the Distribution. The information statement describes the Separation and the Distribution in detail and contains important information about NLOP, its business, financial condition and operations. We urge you to read the information statement carefully.
We want to thank you for your continued support of WPC, and we look forward to your future support of NLOP.
Sincerely,
Jason E. Fox
Chief Executive Officer


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                                 , 2023
Dear NLOP Shareholder,
It is our pleasure to welcome you as a shareholder of Net Lease Office Properties, a Maryland real estate investment trust (“NLOP”). Following the distribution of all of the common shares of beneficial interest (“common shares”) of NLOP (the “Distribution”) by W. P. Carey Inc. (“WPC”), our company will be a publicly-traded real estate investment trust that will own, operate and seek to maximize shareholder value through dispositions of high-quality office properties located in markets in the United States and Europe.
Following the Distribution, we will be managed by WPC through certain of its wholly-owned subsidiaries (the “Advisors”). Pursuant to advisory agreements, the Advisors will provide us with strategic management services, including asset management, property disposition support and various related services. We will pay management fees to the Advisors and will also reimburse the Advisors for certain expenses incurred in providing services to us.
After the Distribution, we, through our Board of Trustees and the Advisors, intend to focus on maximizing value for our shareholders primarily through strategic asset management and dispositions of our assets. We believe that our Advisors’ extensive experience, proven track record in office real estate and net lease properties, as well as their in-depth market knowledge and long-standing relationships with local, regional, national and international industry participants, will enable us to successfully execute our business strategy.
We expect that our common shares will be listed on the New York Stock Exchange under the symbol “NLOP.”
We invite you to learn more about NLOP by carefully reviewing the enclosed information statement, which describes the distribution of NLOP common shares in detail and contains important information about NLOP, our business, financial condition and results of operations, as well as certain risks related to our business. The information statement also explains how you will receive your NLOP common shares. We look forward to your support as a shareholder of NLOP.
Sincerely,
Jason E. Fox
Chief Executive Officer



Information contained herein is subject to completion or amendment. A Registration Statement on Form 10 relating to these securities has been filed with the U.S. Securities and Exchange Commission under the U.S. Securities Exchange Act of 1934, as amended.
PRELIMINARY AND SUBJECT TO COMPLETION, DATED OCTOBER 4, 2023
INFORMATION STATEMENT
Net Lease Office Properties
This information statement is being furnished in connection with the distribution by W. P. Carey Inc., a Maryland corporation (“WPC”), to its common stockholders of record as of the close of business on,                       2023, the expected record date for the distribution of all of the outstanding common shares of beneficial interest (“common shares”) of Net Lease Office Properties, a Maryland real estate investment trust (“NLOP”) (the “Distribution”), and until the Distribution Date (as defined below), a wholly-owned subsidiary of WPC. WPC is a Maryland real estate investment trust and leading owner of a diversified portfolio of commercial real estate listed on the New York Stock Exchange (the “NYSE”) under the symbol “WPC.”
Prior to the Distribution, WPC will contribute certain office properties to NLOP (the “Separation” and such properties, the “Office Properties”), and then, pursuant to terms and conditions of a separation and distribution agreement (the “Separation and Distribution Agreement”), commence the Distribution on                    , 2023. Following the Separation, we will own 59 office properties previously owned by WPC totaling approximately 9.2 million total leasable square feet (collectively with the Office Properties, the “NLOP Business”).
The Distribution will be conducted pursuant to the terms of the Separation and Distribution Agreement. The Distribution is subject to certain conditions, described under the heading “The Separation and the Distribution.”
We expect that the NLOP common shares will be distributed to WPC common stockholders of record as of the close of business on the record date for the Distribution, with such Distribution to occur on                       , 2023 (the “Distribution Date”). In the Distribution, WPC will distribute all of the outstanding NLOP common shares on a pro rata basis to such WPC common stockholders, in a transaction that is intended to be a taxable distribution for U.S. federal income tax purposes. For every 15 shares of WPC common stock, $0.001 par value per share (the “WPC common stock”), held of record by WPC stockholders as of the close of business on                          , 2023, the expected record date for the Distribution, such stockholder will receive one common share of beneficial interest of NLOP, $0.001 par value per share (the “NLOP common shares”). WPC stockholders will receive cash in lieu of any fractional NLOP common shares that such holders would have otherwise received as a result of the Distribution.
As discussed under “The Separation and the Distribution – Trading Before the Distribution Date,” if you sell your shares of WPC common stock in the “regular-way” market beginning as early as two days before the record date and up to and through the Distribution Date you also will be selling your right to receive NLOP common shares in connection with the Distribution. However, if you sell your shares of WPC common stock in the “ex-distribution” market during the same period, you will retain your right to receive NLOP common shares in connection with the Distribution.
There is no current trading market for NLOP common shares, although we expect that a limited market, commonly known as a “when-issued” trading market, will develop as early as three trading days prior to the Distribution Date, and we expect “regular-way” trading of NLOP common shares to begin on the first trading day following the completion of the Distribution. We expect that our common shares will be listed on the NYSE under the symbol “NLOP.”
Following the Distribution, we will be managed by WPC through certain of its wholly-owned subsidiaries (the “Advisors”). Pursuant to advisory agreements (collectively, the “Advisory Agreements”), the Advisors will provide us with strategic management services, including asset management, property disposition support and various related services. We will pay management fees to the Advisors and will also reimburse the Advisors for certain expenses incurred in providing services to us.
After the Distribution, we, through our Board of Trustees and the Advisors, intend to focus on maximizing value for our shareholders primarily through the thoughtful operation, strategic asset management, and dispositions of our assets. We believe that our Advisors’ extensive experience, proven track record in office real estate and net lease properties, as well as their in-depth market knowledge and long-standing relationships with local, regional, national and international industry participants, will enable us to successfully execute our business strategy.
We intend to elect and qualify to be taxed as a real estate investment trust for U.S. federal income tax purposes (a “REIT”), commencing with the taxable year in which the Distribution occurs. Our common shares will be subject to limitations on ownership and transfer that, among other purposes, are intended to assist us in qualifying as a REIT. Our declaration of trust (the “Declaration of Trust”) will contain certain restrictions relating to the ownership and transfer of our common shares, including, subject to certain exceptions, a 9.8% limit, in value or by number of shares, whichever is more restrictive, on the ownership of outstanding common shares and a 9.8% limit, in value or by number of shares, whichever is more restrictive, on the ownership of shares of each class and series of outstanding preferred shares. For more information, see “Description of Our Securities – Restrictions on Ownership and Transfer.”
Following the Distribution, we expect to be an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, and, as such, are allowed to provide in this information statement more limited disclosure than an issuer that would not so qualify. In addition, for so long as we remain an emerging growth company, we may also take advantage of certain limited exceptions from investor protection laws such as the Sarbanes-Oxley Act of 2002, as amended, and the Investor Protection and Securities Reform Act of 2010, for limited periods.
WPC stockholders are not required to approve the Distribution, and you are not required to take any action to receive your NLOP common shares.
In reviewing this information statement, you should carefully consider the matters described under the caption “Risk Factors” beginning on page 31.
Neither the U.S. Securities and Exchange Commission (the “SEC”) nor any state securities commission has approved or disapproved these securities or determined if this information statement is truthful or complete. Any representation to the contrary is a criminal offense.
This information statement does not constitute an offer to sell or the solicitation of an offer to buy any securities.
The date of this information statement is                  , 2023.
This information statement was first mailed to WPC stockholders on or about,                       , 2023.


TABLE OF CONTENTS
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SELECTED DEFINITIONS
Unless the context otherwise requires, all references in this information statement to “NLOP,” “our company,” “the company,” “us,” “our” and “we” refer to Net Lease Office Properties, a Maryland real estate investment trust, and its consolidated subsidiaries. The amounts shown in the tables in this information statement may not sum to totals due to rounding. Except as otherwise indicated or unless the context otherwise requires, all references to NLOP per share data assume the application of the Distribution Ratio, and references to:
•“ABR” means the contractual minimum annualized base rent for NLOP’s net-leased properties. If there is a rent abatement, NLOP annualizes the first monthly contractual base rent following the free rent period.
•“Advisors” means the US Advisor and the European Advisor, which are the entities named as the Advisors under the US Advisory Agreement and the European Advisory Agreement, respectively, together with their affiliates, that perform services on its behalf in connection with each such Advisory Agreement.
•“Advisory Agreements” means the US Advisory Agreement and the European Advisory Agreement, pursuant to which the Advisors will provide NLOP with strategic management services, including asset management, property disposition support and various related services.
•“Board” means the Board of Trustees of Net Lease Office Properties.
•“Bylaws” means the Amended and Restated Bylaws of NLOP to be effective immediately prior to the Distribution.
•“Code” means the Internal Revenue Code of 1986, as amended.
•“common shares” means NLOP’s common shares of beneficial interest, $0.001 par value per share.
•“Computershare” means Computershare Inc. and Computershare Trust Company, N.A.
•“CPA:18” means Corporate Property Associates 18 – Global Incorporated, a Maryland corporation, which WPC acquired in August 2022.
•“CPA:18 Properties” means the nine office properties WPC acquired as part of its acquisition of CPA:18.
•“Declaration of Trust” means NLOP’s Amended and Restated Declaration of Trust to be effective immediately prior to the Distribution.
•“Distribution” means the distribution of the outstanding common shares, by WPC, pursuant to the terms and conditions of the Separation and Distribution Agreement.
•“Distribution Date” means the date the common shares will be distributed by WPC to WPC common stockholders of record as of the close of business on the record date for the Distribution, with such Distribution to occur on                , 2023.
•“Distribution Ratio” means one NLOP common share for every 15 shares of WPC common stock.
•“European Advisor” means W. P. Carey & Co. B.V., a wholly-owned subsidiary of WPC.
•“European Advisory Agreement” means the European Advisory Agreement, between NLOP and W. P. Carey & Co. B.V., with respect to the Office Properties located in Europe.
•“GAAP” means U.S. generally accepted accounting principles.
•“investment grade rated tenants” means tenants or lease guarantors with investment grade ratings and subsidiaries of non-guarantor parent companies with investment grade ratings. 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.
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•“IRS” means the United States Internal Revenue Service.
•“Lenders” means JPMorgan Chase Bank, N.A., together with its successors and/or permitted assigns.
•“Mortgaged Properties” means the 40 properties owned indirectly by NLOP that were not subject to existing secured mortgage debt prior to the entry into the NLOP Mortgage Loan.
•“NLO Holding Company LLC” means NLO Holding Company LLC, a Delaware limited liability company and wholly-owned subsidiary of NLOP Mezzanine Borrower.
•“NLO OP LLC” or “operating company” refer exclusively to NLO OP LLC, a Delaware limited liability company, which will initially be a wholly-owned subsidiary of NLOP. Following the Separation, NLO OP LLC will function as the operating company of NLOP.
•“NLO MB TRS LLC” means NLO MB TRS LLC, a wholly-owned subsidiary of NLO Holding Company LLC.
•“NLO SubREIT LLC” means NLO SubREIT LLC, a Delaware limited liability company.
•“NLOP Business” means the Office Properties and related assets contributed by WPC to NLOP.
•“NLOP Borrowers” means the NLOP Mortgage Loan Borrowers and the NLOP Mezzanine Borrower.
•“NLOP Financing Arrangements” means the NLOP Mortgage Loan and the NLOP Mezzanine Loan.
•“NLOP Mezzanine Borrower” means a subsidiary of NLOP, which is expected to directly or indirectly own 100% of the equity of the NLOP Mortgage Loan Borrowers immediately following the Separation.
•“NLOP Mezzanine Loan” means the $120.0 million mezzanine loan facility entered into between the NLOP Mezzanine Borrower and the Lenders in connection with the Separation.
•“NLOP Mortgage Loan” means the $335.0 million senior secured mortgage loan entered into among the NLOP Mortgage Loan Borrowers and the Lenders in connection with the Separation.
•“NLOP Mortgage Loan Borrowers” means certain subsidiaries of NLOP, which are expected to collectively own the Mortgaged Properties immediately following the Separation.
•“NLOP Predecessor” means the combination of entities under common control that have been “carved-out” of WPC’s consolidated financial statements and presented on a combined basis.
•“NLOP Predecessor Business” means the historical activities of the NLOP Business prior to the Distribution.
•“Office Properties” means the certain office properties contributed by WPC to NLOP in the Separation.
•“REIT” means an entity that has elected to qualify to be taxed as a real estate investment trust for U.S. federal income tax purposes.
•“Separation” means the contribution of certain office properties by WPC to NLOP, pursuant to the terms and conditions of the Separation and Distribution Agreement.
•“Separation and Distribution Agreement” means the separation and distribution agreement between NLOP and WPC, which sets forth, among other things, NLOP’s agreements with WPC regarding the principal transactions necessary to separate NLOP from WPC. It also sets forth other agreements that govern certain aspects of NLOP’s relationship with WPC after the Distribution Date.
•“Tax Matters Agreement” means the tax matters agreement between WPC and NLOP that will govern the respective rights, responsibilities and obligations of WPC, NLOP and applicable subsidiaries after the
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Distribution with respect to tax liabilities and benefits, the preparation and filing of tax returns, the control of audits and other tax proceedings, and certain other tax matters.
•“TRS” means taxable REIT subsidiary as defined in Section 856(l) of the Code.
•“unencumbered property” means a property that is not subject to outstanding mortgage debt.
•“US Advisor” means W. P. Carey Management LLC, a wholly-owned subsidiary of WPC.
•“US Advisory Agreement” means the US Advisory Agreement, between NLOP and W. P. Carey Management LLC , with respect to the Office Properties located in the United States.
•“WALT” means the weighted-average lease term.
•“WPC” means W. P. Carey Inc., a Maryland corporation, and its consolidated subsidiaries.
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INFORMATION STATEMENT SUMMARY
The following is a summary of material information discussed in this information statement. This summary may not contain all of the details concerning the Separation, the Distribution or other information that may be important to you. To better understand the Separation, the Distribution and NLOP’s business and financial position, you should carefully review this entire information statement. Except as otherwise indicated or unless the context otherwise requires, the description of our business contained in this “Information Statement Summary” assumes the completion of all of the transactions referred to in this information statement in connection with the Separation and the Distribution, as anticipated and contemplated by the management of NLOP. Following the Separation and the Distribution, we expect to have the corporate infrastructure in place to conduct our business as an umbrella partnership REIT (an “UPREIT”). If we choose to operate as an UPREIT in the future, our properties would be owned by NLO OP LLC through subsidiary limited partnerships, limited liability companies or other legal entities and our properties would continue to be managed by the Advisors.
The description of our business contained in this “Information Statement Summary” assumes that the NLOP Business consists of the 59 office properties described herein for all historical periods described, including the nine CPA:18 Properties previously owned by CPA:18, which WPC acquired in August 2022. As further described in our combined financial statements included in this information statement, our combined financial statements for the historical periods prior to the acquisition of CPA:18 do not reflect the CPA:18 Properties.
About Net Lease Office Properties
NLOP was formed as a real estate investment trust under Maryland law, primarily to manage and monetize a diversified portfolio of 59 office properties comprising approximately 9.2 million total leasable square feet. Almost all of NLOP’s properties are located in the United States, except for five properties located in Europe. NLOP’s properties are primarily leased to corporate tenants on a single-tenant, net-lease basis. NLOP’s net leases generally specify a base rent with rent increases and require the tenant to pay substantially all costs associated with operating and maintaining the property.
NLOP’s business plan is to focus on realizing value for its shareholders primarily through strategic asset management and disposition of its property portfolio over time. NLOP anticipates using the proceeds of dispositions to pay down debt and pay distributions to its shareholders.
As of June 30, 2023, NLOP’s portfolio comprised 62 corporate tenants operating in a variety of industries, generating ABR of approximately $141.5 million, of which approximately 96.8% included fixed or inflation-linked rent increases.1 Approximately 67% of NLOP’s ABR comes from investment grade rated tenants, including companies such as JPMorgan Chase, FedEx, Google, and CVS Health. NLOP’s tenants have exhibited a strong track record of making scheduled rental payments throughout various economic environments, including the recent COVID-19 pandemic, where the NLOP Business had rent collections that remained at or above 99.9% throughout 2020, 2021 and 2022, and through June 30, 2023.
As of June 30, 2023, the WALT of the portfolio was 5.7 years. Leases accounting for less than 0.1% of NLOP’s ABR expire in 2023 and leases accounting for over 44% of ABR expire after 2028. In addition, as of June 30, 2023, NLOP’s overall portfolio net-leased square footage was 97.1% occupied, with 54 out of 59 of its properties at 100% occupancy. As of June 30, 2023, the gross book value of the NLOP Business was approximately $1.7 billion. As of June 30, 2023, portfolio includes approximately 1.5 million square feet of Green-Certified Buildings, 4 LEED-Certified Buildings and 1 BREEAM-Certified Building.
NLOP’s U.S. portfolio comprises 54 properties (approximately 7.9 million net-leased square feet), including 3 LEED-Certified Buildings, that were 96.8% occupied and leased to 57 corporate tenants, generating approximately 89.0% of total portfolio ABR, located in the following 18 states: Arizona, California, Florida, Georgia, Illinois, Iowa, Massachusetts, Michigan, Minnesota, Missouri, New Jersey, New Mexico, North Carolina, Pennsylvania, Tennessee, Texas, Virginia, and Wisconsin. NLOP’s European portfolio comprises five properties (approximately
1 Inclusive of ABR for the recently re-leased CVS Health campus in Scottsdale, AZ, which converts to a fixed rent increase structure upon completion of an in-process renovation, which is anticipated to occur in the first half of 2024.
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0.8 million net-leased square feet), including 1 LEED-Certified Building and 1 BREEAM-Certified Building, that were 100.0% occupied and leased to five corporate tenants, generating approximately 11.0% of total portfolio ABR, located in Norway, Poland and the United Kingdom.
NLOP is expected to be externally managed and advised by the Advisors, which are wholly-owned affiliates of WPC, which is the second largest net lease REIT with an enterprise value of approximately $23 billion as of June 30, 2023 and a 50-year history of owning and managing net lease real estate. Immediately prior to the completion of the Distribution, NLOP will be a wholly-owned subsidiary of WPC, which previously acquired and managed the properties owned by NLOP and therefore has extensive experience and knowledge of them. NLOP believes WPC has the necessary capabilities, systems and experience required to successfully manage NLOP through the Advisors, including asset management, legal, finance, and accounting. Concurrently with or prior to the Distribution, NLOP and the Advisors will enter into the Advisory Agreements, pursuant to which the Advisors will provide it with strategic management services, including asset management, property disposition support and various related services. NLOP will pay management fees to the Advisors and will also reimburse the Advisors for certain expenses incurred in providing services to it. For more information, see “The Separation and the Distribution – Related Agreements,” “Management – Advisory Agreements,” and “Certain Relationships and Related Person Transactions – Agreements with WPC and its Subsidiaries.”
Competitive Strengths
Experienced and Well-Regarded Advisors with Proven Track Record of Proactive Asset Management and Value Creation. Over the course of its 50-year history, the WPC management team has developed significant expertise in the single-tenant office real estate sector, including the operation, leasing, acquisition, and development of assets through many market cycles, and has a proven track record of execution. In addition, WPC has considerable experience maximizing value by repositioning assets through re-leasing, restructuring, and dispositions. NLOP believes that WPC’s senior management team’s knowledge and expertise, as well as its deep and long-standing relationships within the single-tenant office market, will provide it with unique market insights, and help facilitate NLOP’s plan to maximize the value of its portfolio.
High-Quality, Diversified Net Leased Portfolio with Favorable Exposure to Investment Grade Credit. NLOP’s portfolio consists of 59 properties diversified by tenant, geography, and industry. The portfolio includes tenants operating across a wide range of industries, including financial services, health care, government services, and telecommunications, among others, located across 18 states in the United States and three countries in Europe. As of June 30, 2023, no single tenant or wholly-owned subsidiary represents more than 13% of the total portfolio ABR and approximately 67% of ABR was generated from investment grade rated tenants. NLOP believes the diversity of its portfolio, and the high credit quality of its tenants will provide a strong, stable source of recurring cash flow, with built-in rent growth.
Consistent Performance Through Market Cycles / COVID-19 Performance. Throughout the COVID-19 pandemic, the NLOP Business’ rent collections remained at or above 99.9%. NLOP believes this performance demonstrates the resiliency of its tenant base and the importance of these properties to its tenants’ business operations. See “– Historical Rent Collection” below for NLOP’s properties collection performance since the onset of the COVID-19 pandemic.
Contractual Rent Increases and Limited Operating Costs Protect Against Inflation. More than 96% of NLOP’s leases benefit from contractual rent increases, including 21% that have contractual rent increases tied to the Consumer Price Index (CPI). In addition, NLOP has limited property-level operating costs and capital expenditure investment obligations during the remaining term of in-place leases as the properties are primarily subject to net leases where the tenant is responsible for maintaining the property and nearly all of the operating expenses at the property. NLOP also has limited entity operating costs since it is structured as an externally managed REIT through the Advisory Agreements with the Advisors, which NLOP believes will ensure further consistency in its overall cost structure and cash use, and actively scale in response to the completion of dispositions. As a result of the foregoing, its business has built-in protections to mitigate inflation risks.
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Staggered Lease Terms. As of June 30, 2023, the portfolio’s WALT was approximately 5.7 years, with leases accounting for over 44% of its ABR expiring after 2028. Furthermore, through 2029, leases representing no more than 16% of ABR expire in a given year. See “– NLOP Tenant Lease Expirations and Renewals” below for NLOP’s lease expirations by year.
Financing
As of June 30, 2023, 14 properties were encumbered by 11 outstanding mortgages totaling approximately $168.5 million. In addition, in connection with the Separation, on September 20, 2023, the NLOP Borrowers have entered into (i) the $335.0 million NLOP Mortgage Loan with the Lenders, and (ii) the $120.0 million NLOP Mezzanine Loan with the Lenders, both of which are expected to be funded, subject to the satisfaction of certain conditions, substantially concurrently with the Separation. As a result of these transactions, following the completion of the Separation, net of capitalized financing costs, NLOP expects to have approximately $590.6 million in consolidated outstanding indebtedness and $55.6 million in cash.
The NLOP Financing Arrangements are structured to provide it with the ability to engage in dispositions of assets as contemplated by its overall strategy and intends to pay down the NLOP Financing Arrangements with proceeds from such dispositions and cash flow from rent on its properties. As of the date that the NLOP Financing Arrangements were entered into, based on the appraisals provided to the Lenders, NLOP had a loan-to-value ratio of approximately 43% with respect to the Mortgaged Properties, implying a value of approximately $163 per square foot for the Mortgaged Properties.
For additional information regarding the NLOP Financing Arrangements, refer to the section entitled “Description of Material Indebtedness.”
Asset Management
WPC believes that proactive asset management is essential to maintaining and enhancing property values. Important aspects of asset management include entering into new or modified transactions to meet the evolving needs of current tenants, re-leasing properties, credit and real estate risk analysis, building expansions and redevelopments, maximizing value by repositioning assets, sustainability and efficiency analysis and retrofits, and dispositions. NLOP’s Advisors are expected to regularly engage directly with tenants and form working relationships with their decision makers in order to provide proactive solutions and to obtain an in-depth, real-time understanding of tenant credit. Through both engagement with its own tenants and analysis of markets in which it operates, WPC will establish views on the fundamental drivers of value for NLOP’s assets.
NLOP’s Advisors will monitor compliance by tenants with their lease obligations and other factors that could affect the financial performance of any of its real estate investments on an ongoing basis. NLOP’s Advisors will also review financial statements of NLOP’s tenants and periodically analyze each tenant’s financial condition, the industry in which each tenant operates and each tenant’s relative strength in its industry. Additionally, NLOP’s Advisors are expected to undertake physical inspections of the condition and maintenance of NLOP’s real estate investments. NLOP believes its Advisors’ in-depth understanding of its tenants’ businesses and direct relationships with their management teams will provide strong visibility into potential issues and opportunities. NLOP’s Advisors’ business intelligence platform is also expected to provide real-time information, allowing asset managers to work with tenants to enforce lease provisions, and where appropriate, consider lease modifications.
NLOP’s Advisors will be generally responsible for all aspects of its operations including but not limited to formulating and evaluating the terms of each proposed disposition, arranging and executing the disposition of each asset, negotiating and monitoring the terms of its borrowings, preparing and filing its financial statements and required filings with the SEC and other management services.
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NLOP’s U.S. Assets as of June 30, 2023:
#Primary TenantIndustry
Credit(1)
CityState
SF(2)
ABR
(in thousands)		Rent Increase Type
Date of Next Increase
WALT(3)
1KBR, Inc.⁴Construction & EngineeringNon-IGHoustonTexas1,062,746⁵$18,179Fixed: One-time 7.78%Jan-276.8
2FedEx CorporationAir Freight & LogisticsIGColliervilleTennessee390,380$5,450Fixed: 0.75% annuallyOct-2316.4
3BCBSM, Inc.Managed Health CareIGEaganMinnesota442,542$4,952Fixed: 2.00% annuallyFeb-243.6
4JPMorgan Chase Bank, N.A.Diversified BanksIGFort WorthTexas384,246$4,661CPI: 0.0% Floor / 2.0% CapMar-246.7
5McKesson Corporation (US Oncology)Health Care DistributorsIGThe WoodlandsTexas204,063$4,406Fixed: 4.88% every 3 yrsJan-240.6
6CVS Health CorporationHealth Care ServicesIGScottsdaleArizona354,888$4,300
None6
N/A15.5
7Omnicom Group, Inc.AdvertisingIGPlaya VistaCalifornia120,000$3,961NoneN/A5.3
8Pharmaceutical Product Development, LLCPharmaceuticalsIGMorrisvilleNorth Carolina219,812$3,905Fixed: 2.00% annuallyOct-2310.4
9Orbital ATK, Inc.Aerospace & DefenseIGPlymouthMinnesota191,336$3,746Fixed: 2.00% annuallyDec-231.4
10R.R. Donnelley & Sons CompanyCommercial PrintingNon-IGWarrenvilleIllinois167,215$3,261Fixed: 2.00% annuallySep-234.3
11Board of Regents, State of IowaGovernment Related ServicesIGCoralvilleIowa191,700$3,254CPI: 0.0% Floor / No CapNov-257.3
12Caremark RX, L.L.C.⁴Health Care ServicesIGChandlerArizona183,000⁵$3,213Fixed: $0.50/SF annuallyDec-230.9
13Bankers Financial Corporation⁴Property & Casualty InsuranceNon-IGSt. PetersburgFlorida167,581⁵$3,073Fixed: 2.50% annuallyAug-245.1
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DMG MORI SEIKI U.S.A., INC.7
Industrial MachineryIGHoffman EstatesIllinois104,598$3,027Fixed: One-time 12.00% in '19N/A6.3
15JPMorgan Chase Bank, N.A.Diversified BanksIGTampaFlorida176,150$2,934CPI: 0.0% Floor / 2.0% CapMar-246.7
16Exelon Generation Company, LLCElectric UtilitiesIGWarrenvilleIllinois146,745$2,862Fixed: $0.50/SF annuallyJul-243.0
17Google, LLCInternet Software & ServicesIGVeniceCalifornia67,681$2,844Fixed: 3.00% annuallyJan-242.3
18BCBSM, Inc.Managed Health CareIGEaganMinnesota227,666$2,831Fixed: 2.00% annuallyFeb-243.6
19ICU MEDICAL, INC.⁴Health Care SuppliesNon-IGPlymouthMinnesota182,250$2,770Fixed: 3.25% annuallyFeb-244.2
20Intuit Inc.Internet Software & ServicesIGPlanoTexas166,033$2,577Fixed: 'One-time $2.00/SF in '21N/A3.0
21BCBSM, Inc.Managed Health CareIGEaganMinnesota144,864$2,522Fixed: 2.00% annuallyFeb-243.6
22BCBSM, Inc.Managed Health CareIGEaganMinnesota202,608$2,519Fixed: 2.00% annuallyFeb-243.6
23AVT Technology Solutions LLCTechnology DistributorsIGTempeArizona132,070$2,405Fixed: 3.00% annuallyN/A0.6
24Veritas Bermuda, LTDSystems SoftwareNon-IGRosevilleMinnesota136,125$2,167Fixed: 2.00% annuallyDec-239.4
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25Cenlar FSBRegional BanksNon-IGYardleyPennsylvania105,584$2,000Fixed: 2.70% annuallyJan-245.0
26Raytheon CompanyAerospace & DefenseIGTucsonArizona143,650$1,978CPI: 0.0% Floor / 2.0% CapApr-248.8
27iHeartCommunications, Inc.BroadcastingNon-IGSan AntonioTexas120,147$1,971Fixed: 2.00% annuallyFeb-2411.6
28Cofinity, Inc./Aetna Life Insurance Co.⁴Multi-line InsuranceIGSouthfieldMichigan94,453⁵$1,907Fixed: One-time 6.90% in '23N/A1.6
29Arbella Service Company, Inc.Property & Casualty InsuranceIGQuincyMassachusetts132,160$1,850Fixed: 'One-time $1.00/SF in '22N/A3.9
30ICF Consulting Group, Inc.IT Consulting & Other ServicesNon-IGMartinsvilleVirginia93,333$1,725CPI: 0.0% Floor / No CapJan-243.6
31Safelite Group, Inc.Specialized Consumer ServicesNon-IGRio RanchoNew Mexico94,649$1,473Fixed: 2.00% annuallyJan-245.9
32Acosta, Inc.AdvertisingNon-IGJacksonvilleFlorida88,062$1,453Fixed: $0.50/SF annuallyJul-244.1
33Master Lock Company, LLCBuilding ProductsNon-IGOak CreekWisconsin120,883$1,409Fixed: 2.00% annuallyJun-248.9
34JPMorgan Chase Bank, N.A.⁴Diversified BanksIGTampaFlorida135,666⁵$1,360CPI: 0.0% Floor / 2.0% CapMar-241.7
35Midcontinent Independent Stm Op IncElectric UtilitiesIGEaganMinnesota60,463$1,118Fixed: $0.25/SF annuallyMar-242.7
36Emerson Electric Co.Industrial MachineryIGHoustonTexas52,144$1,056Fixed: $0.50/SF annuallyNov-232.3
37North American Lighting, Inc.Auto Parts & EquipmentNon-IGFarmington HillsMichigan75,286$1,032Fixed: 2.50% annuallyApr-242.8
38Radiate Holdings, L.P.Cable & SatelliteNon-IGSan MarcosTexas47,000$1,013CPI: 0.0% Floor / 3.0% CapAug-235.2
39International Business Machines CorporationIT Consulting & Other ServicesIGHartlandWisconsin81,082$909CPI: 0.0% Floor / No CapDec-232.4
40Pioneer Credit Recovery, Inc.⁴Diversified Support ServicesNon-IGMoorestownNew Jersey65,567$899Fixed: 2.50% annuallyJan-241.6
41Arcfield Acquisition CorporationAerospace & DefenseNon-IGKing of PrussiaPennsylvania88,578$851Fixed: One-time 17.50% in '23N/A3.1
42Charter Communications Operating, LLCCable & SatelliteNon-IGBridgetonMissouri78,080$781Fixed: $0.50/SF annuallyApr-241.8
43Carhartt, Inc.Apparel, Accessories & LuxuryNon-IGDearbornMichigan58,722$748Fixed: 2.65% annuallyNov-2311.4
44Xileh Holding Inc.Multi-Sector HoldingsIGAuburn HillsMichigan55,490$694Fixed: 2.50% annuallyJan-2414.5
45Undisclosed – multi-national provider of industrial gasesIndustrial GasesIGHoustonTexas49,821$605Fixed: 2.00% annuallyJan-242.5
46APCO Holdings, Inc.Property & Casualty InsuranceNon-IGNorcrossGeorgia50,600$600Fixed: 2.50% annuallyMar-247.7
47AVL Michigan Holding CorporationAuto Parts & EquipmentNon-IGPlymouthMichigan70,000$575Fixed: $0.25/SF annuallyJan-240.6
48Radiate Holdings, L.P.Cable & SatelliteNon-IGWacoTexas30,699$446CPI: 0.0% Floor / 3.0% CapAug-235.2
49S&ME, Inc.Environmental & Facilities ServicesNon-IGRaleighNorth Carolina27,770$417Fixed: 3.00% annuallyOct-231.3
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50Radiate Holdings, L.P.Cable & SatelliteNon-IGCorpus ChristiTexas20,717$334CPI: 0.0% Floor / 3.0% CapAug-235.2
51BCBSM, Inc.Managed Health CareIGEaganMinnesota29,916$298Fixed: 2.00% annuallyFeb-243.6
52Radiate Holdings, L.P.Cable & SatelliteNon-IGOdessaTexas21,193$223CPI: 0.0% Floor / 3.0% CapAug-235.2
53Radiate Holdings, L.P.Cable & SatelliteNon-IGSan MarcosTexas14,400$200CPI: 0.0% Floor / 3.0% CapAug-235.2
54BCBSM, Inc.Managed Health CareIGEaganMinnesota12,286$183Fixed: 2.00% annuallyFeb-243.6
U.S. Total7,884,700$125,9265.8
_________________
(1)“IG” refers to investment grade rated tenants.
(2)Excludes 570,999 of operating square footage for a parking garage associated with the KBR, Inc. property in Houston, Texas.
(3)Assumes parties do not exercise any renewal or purchase options pursuant to their applicable leases.
(4)Denotes multi-tenant property. Primary tenant generating largest percentage of ABR shown. Industry and credit for primary tenant.
(5)Denotes leased property that is not 100% occupied.
(6)Converts to a fixed rent increase structure upon completion of an in-process renovation, which is anticipated to occur in the first half of 2024.
(7)Subsequent to June 30, 2023, the tenant’s lease was extended to December 2038. In conjunction with the extension, the annual rent will be reduced to $2.5 million with annual fixed increases of 3.0% effective January 1, 2024.
NLOP’s European Assets as of June 30, 2023:
#Primary TenantIndustry
Credit(1)
CityCountrySFABR
(in thousands)		Rent Increase Type
Date of Next Increase
WALT(2)
1Total E&P Norge ASOil & Gas Exploration & ProductionIGStavangerNorway275,725$4,896Fixed: 2.50% annuallyJan-248.0
2Siemens ASIndustrial ConglomeratesIGOsloNorway165,904$4,252CPI: 0.0% Floor / No CapJan-242.5
3E.On UK PLCInternet RetailIGHoughton le SpringUnited Kingdom217,339$3,607CPI: 2.0% Floor / 4.0% CapN/A2.1
4Undisclosed – UK insurance companyProperty & Casualty InsuranceIGNewportUnited Kingdom80,664$1,753CPI: 2.0% Floor / 4.0% CapJun-2410.9
5Nokia CorporationCommunications EquipmentIGKrakowPoland53,400$1,024CPI: 0.0% Floor / No CapSep-231.2
European Total793,032$15,5345.0
_________________
(1)“IG” refers to investment grade rated tenants.
(2)Assumes parties do not exercise any renewal or purchase options pursuant to their applicable leases.
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NLOP’s Tenant Lease Expirations and Renewals as of June 30, 2023:
Expiration Year(1)
ABR
(in thousands)		% of Total ABR
 SF(2)
% of SF
2023$51—%3,778—%
2024$16,37411.6%829,5279.6%
2025$17,77312.6%940,11210.8%
2026$9,1366.5%574,7156.6%
2027$21,83715.4%1,559,45218.0%
2028$13,6579.7%627,6277.2%
2029$4,8783.4%217,8752.5%
2030$27,88119.7%1,663,76919.2%
2031$5,4973.9%326,3253.8%
2032$5,5543.9%400,6584.6%
2033$3,9052.8%219,8122.5%
Thereafter$14,91710.5%1,060,29112.2%
Vacant$0—%253,7912.9%
Total$141,460100.0%8,677,732100.0%
__________________
(1)Assumes parties do not exercise any renewal or purchase options pursuant to their applicable leases.
(2)Excludes 570,999 of operating square footage for a parking garage associated with one asset.
NLOP’s Top 10 Industries by ABR as of June 30, 2023:
#IndustryABR
(in thousands)		% of Total ABR
 SF(1)
% of SF
1Construction & Engineering$17,03212.0%911,67310.5%
2Managed Health Care$13,3059.4%1,059,88212.2%
3Diversified Banks$8,8916.3%664,9617.7%
4Health Care Services$7,5135.3%472,0285.4%
5Property & Casualty Insurance$7,2775.1%374,7814.3%
6Aerospace & Defense$6,5764.6%423,5644.9%
7Air Freight & Logistics$5,4503.9%390,3804.5%
8Internet Software & Services$5,4213.8%233,7142.7%
9Advertising$5,4143.8%208,0622.4%
10Oil & Gas Exploration & Production$4,8963.5%275,7253.2%
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Other(2)
$59,68542.3%3,662,96242.2%
Total$141,460100.0%8,677,732100.0%
__________________
(1)Excludes 570,999 of operating square footage for a parking garage associated with one asset.
(2)Includes ABR from tenants in the following industries: Health Care Distributors, Industrial Conglomerates, Industrial Machinery, Electric Utilities, Pharmaceuticals, Internet Retail, Commercial Printing, Government Related Services, Cable & Satellite, IT Consulting & Other Services, Technology Distributors, Regional Banks, Systems Software, Health Care Supplies, Broadcasting, Multi-line Insurance, Auto Parts & Equipment, Specialized Consumer Services, Building Products, Communications Equipment, Apparel, Accessories & Luxury, Multi-Sector Holdings, Diversified Real Estate Activities, Electronic Equipment & Instruments, Industrial Gases, Diversified Support Services, Environmental & Facilities Services, Education Services, Restaurants, Integrated Telecommunications, Wireless Telecommunications, and Alternative Carriers.
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NLOP’s top ten tenants represent approximately 50% of the portfolio on an ABR basis as of June 30, 2023.
NLOP’s Top 10 Tenants by ABR as of June 30, 2023:
#TenantState / CountryABR
(in thousands)		% of Total ABR
 SF(1)
# of Properties
WALT(2)
1KBR, Inc.Texas$17,03212.0%911,67317.0
2BCBSM, Inc.Minnesota$13,3059.4%1,059,88263.6
3JPMorgan Chase Bank, N.A.Florida, Texas$8,8916.3%664,96135.9
4FedEx CorporationTennessee$5,4503.9%390,380116.4
5Total E&P Norge ASNorway$4,8963.5%275,72518.0
6McKesson Corporation (US Oncology)Texas$4,4063.1%204,06310.6
7CVS Health CorporationArizona$4,3003.0%354,888115.5
8Siemens ASNorway$4,2523.0%165,90412.5
9Omnicom Group, Inc.California$3,9612.8%120,00015.3
10Pharmaceutical Product Development, LLCNorth Carolina$3,9052.8%219,812110.4
Top 10 Tenants Total$70,39849.8%4,367,288177.0
__________________
(1)Excludes 570,999 of operating square footage for a parking garage associated with one asset.
(2)Assumes parties do not exercise any renewal or purchase options pursuant to their applicable leases.
NLOP’s U.S. and European properties represent approximately 89% and 11%, respectively, of the portfolio on an ABR basis as of June 30, 2023.
NLOP’s Geographic Diversification by ABR as of June 30, 2023:
#StateABR
(in thousands)		% of Total ABR
 SF(1)
# of Properties
WALT(2)
1Texas$35,66925.2%2,173,209125.7
2Minnesota$23,10716.3%1,630,056103.8
3Arizona$11,8968.4%813,60847.4
4Illinois$9,1506.5%418,55834.5
5Florida$8,8206.2%567,45944.9
6California$6,8054.8%187,68124.0
7Tennessee$5,4503.9%390,380116.4
8Michigan$4,9563.5%353,95155.0
9North Carolina$4,3223.1%247,58229.5
10Iowa$3,2542.3%191,70017.3
11Pennsylvania$2,8512.0%194,16224.4
12Wisconsin$2,3171.6%201,96526.4
13Massachusetts$1,8501.3%132,16013.9
14Virginia$1,7251.2%93,33313.6
15New Mexico$1,4731.0%94,64915.9
16New Jersey$8990.6%65,56711.6
17Missouri$7810.6%78,08011.8
18Georgia$6000.4%50,60017.7
U.S. Total$125,92689.0%7,884,700545.8
__________________
(1)Excludes 570,999 of operating square footage for a parking garage associated with one asset.
(2)Assumes parties do not exercise any renewal or purchase options pursuant to their applicable leases.
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#CountryABR
(in thousands)		% of Total ABR SF# of Properties
WALT(1)
1Norway$9,1496.5%441,62925.4
2United Kingdom$5,3613.8%298,00325.0
3Poland$1,0240.7%53,40011.2
Europe Total$15,53411.0%793,03255.0
__________________
(1)Assumes parties do not exercise any renewal or purchase options pursuant to their applicable leases.
Historical Rent Collection:
PeriodQ2 ‘23Q1 ‘23Q4 ‘22Q3 ‘22Q2 ‘22Q1 ‘22Q4 ‘21Q3 ‘21Q2 ‘21Q1 ‘21
% Collected(1)
100.0%100.0%100.0%100.0%100.0%99.9%100.0%100.0%100.0%100.0%
__________________
(1)Based on total contractual rent collected for the applicable period divided by total contractual rent charged for the applicable period.
For more information, see “Business and Properties.”
The Separation and the Distribution
The Distribution is expected to occur on                     , 2023, subject to the satisfaction or waiver of all conditions to the Distribution set forth in the Separation and Distribution Agreement, by way of a special dividend to WPC common stockholders. In the Distribution, each such WPC common stockholder will be entitled to receive one NLOP common share for every 15 shares of WPC common stock held at the close of business on the record date. WPC stockholders will not be required to make any payment to surrender or exchange their WPC common stock, or to take any other action to receive their NLOP common shares in the Distribution. The Distribution of NLOP common shares as described in this information statement is subject to the satisfaction or waiver of certain conditions, including the Separation.
Upon completion of the Distribution, NLOP and WPC will be two publicly-traded entities.
Following consummation of the Separation and the Distribution, holders of record of WPC common stock as of the close of business on the record date for the Distribution will hold one NLOP common share for every 15 shares of WPC common stock held at the close of business on such date (and cash in lieu of any fractional shares of NLOP).
The foregoing assumes that the holder does not transfer any shares prior to the record date for the Distribution. For more information, see “The Separation and the Distribution – Trading Before the Distribution Date.”
Structure and Formation of NLOP Prior to WPC’s Distribution
We were formed on October 21, 2022 in Maryland as a wholly-owned subsidiary of WPC. Following the Distribution, we will be managed by the Advisors pursuant to the Advisory Agreements. The WPC Board considered a number of potential risks and benefits in evaluating the Separation and the Distribution and creating a newly separately traded public company and concluded that the potential benefits of the Separation and the Distribution outweighed the risks. For more information on how the material terms of the spin-off were determined, see “The Separation and the Distribution – Reasons for the Separation and the Distribution” and “The Separation and the Distribution—Background of Negotiations with Respect to Agreements with WPC and its Subsidiaries.”
Prior to the Distribution, WPC expects to complete the Separation to separate the Office Properties and certain other assets such that these businesses and assets are owned directly or indirectly by NLO OP LLC and are expected to be managed by the Advisors pursuant to the Advisory Agreements.
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The following transactions, among others, are expected to occur in advance of the Distribution:
•As a result of the Separation, we will own a portfolio of 59 office properties, subject to approximately $168.5 million of existing secured property level indebtedness, based on principal balances as of June 30, 2023;
•As a result of these transactions, following the completion of the Separation, net of capitalized financing costs, we expect to have approximately $590.6 million in consolidated outstanding indebtedness, including as a result of the NLOP Financing Arrangements;
•We and WPC will separate our respective liabilities as set forth in the Separation and Distribution Agreement; and
•In addition to the Separation and Distribution Agreement, we and WPC and/or certain of its subsidiaries will enter into the Tax Matters Agreement and the Advisory Agreements.
Ownership Structure
The simplified structure of WPC prior to the Distribution is set forth below:
informationstatementsummarb.jpg
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The simplified structure of each of WPC and NLOP following the Distribution is set forth below:
informationstatementsummarc.jpg
NLOP’s Post-Distribution Relationship with WPC
We will enter into a Separation and Distribution Agreement with WPC concurrently with or prior to the Distribution. In addition, concurrently with or prior to the Distribution, we will enter into various other agreements to effect the Separation and the Distribution, which will provide a framework for our post-Distribution relationship with WPC, such as the Tax Matters Agreement and the Advisory Agreements. For more information, see “Certain Relationships and Related Person Transactions.” These agreements will provide for the allocation between us and WPC of WPC’s assets, liabilities and obligations (including its investments, property, and tax-related assets and liabilities), attributable to periods prior to, at and after the Distribution, and will govern certain relationships between us and WPC after the Distribution.
In advance of the Distribution, each party to the Separation and Distribution Agreement will use commercially reasonable efforts to obtain any third-party consents required to effect the separation of liabilities contemplated by the Separation and Distribution Agreement. To the extent that a party is unable to obtain a release from a guarantee or other obligation that is contemplated to be assigned to the other party, the party benefiting from the guarantee or obligation will indemnify and hold harmless the other party from any liability arising from such guarantee or obligation, and will not renew or extend the term of, increase obligations under, or transfer, the applicable obligation or liability.
Following the Distribution, we will be externally managed and advised by the Advisors, which are wholly-owned subsidiaries of WPC. Pursuant to the Advisory Agreements, the Advisors will provide us with strategic management services, including asset management, property disposition support and various related services. We will pay management fees to the Advisors of $625,000 per calendar month, which will be subject to adjustment each month upon the dispositions of portfolio properties, as described in the section entitled “Management – Advisory Agreements” and will also reimburse the Advisors a base administrative reimbursement amount of $333,333.33 per calendar month, for certain administrative services, including day-to-day management services, investor relations, accounting, tax, legal, and other administrative matters, in each case paid to the US Advisor and allocated to the
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European Advisor by WPC. In addition to the administrative reimbursement amount, we will reimburse the Advisors for specified out-of-pocket expenses they incur in connection with their services.
For additional information regarding the Separation and Distribution Agreement, the Advisory Agreements and other transaction agreements, please refer to the sections entitled “Risk Factors – Risks Related to the Separation and the Distribution,” beginning on page 43, “Risk Factors – Risks Related to Our Advisors,” beginning on page 48, “The Separation and the Distribution – The Separation and Distribution Agreement,” “The Separation and the Distribution – Related Agreements,” “Management – Advisory Agreements” and “Certain Relationships and Related Person Transactions.”
Reasons for the Separation and Distribution
The WPC Board of Directors believes that the Separation and the Distribution are in the best interests of WPC and its stockholders for a number of reasons, including the following:
•Creates two separate companies that focus on executing distinct business strategies. The Separation and the Distribution will allow WPC’s management to focus on owning and growing its core portfolio which has higher growth prospects and less leasing risk over the long-term, while assisting NLOP in maximizing value of our portfolio of office assets through operations and dispositions. We believe that our focus on our distinct portfolio and our ability to focus our strategies based on the unique characteristics of our portfolio will allow us to more effectively create value for our shareholders.
•Enhance investor transparency and better highlight WPC’s and our attributes. The Separation and the Distribution will enable current and potential investors and the financial community to evaluate NLOP and WPC separately and better assess the performance and future prospects of each business given their distinct strategies and growth profiles. Additionally, the Separation and the Distribution will allow individual investors to better control their asset allocation decisions, providing investors the opportunity to invest in a REIT that is positioned to realize maximized value through strategic asset management and disposition of the properties over time.
•Continue to leverage WPC’s asset management expertise. We believe WPC has the necessary capabilities, systems and experience required to successfully manage NLOP through the Advisors, including asset management, legal, finance, and accounting. Important aspects of asset management include entering into new or modified transactions to meet the evolving needs of current tenants, re-leasing properties, credit and real estate risk analysis, building expansions and redevelopments, repositioning assets, sustainability and efficiency analysis and retrofits, and dispositions. The Advisors expect to regularly engage directly with tenants and form working relationships with their decision makers in order to provide proactive solutions and to obtain an in-depth, real-time understanding of tenant credit. Through both engagement with its own tenants and analysis of markets in which it operates, WPC will establish views on the fundamental drivers of value for its assets. Our Advisors will also monitor compliance by tenants with their lease obligations and other factors that could affect the financial performance of any of our real estate investments on an ongoing basis. WPC will also review financial statements of our tenants and periodically analyze each tenant’s financial condition, the industry in which each tenant operates and each tenant’s relative strength in its industry. Additionally, WPC is expected to undertake physical inspections of the condition and maintenance of our real estate investments. We believe WPC’s in-depth understanding of our tenants’ businesses and direct relationships with their management teams will provide strong visibility into potential issues. W. P Carey’s business intelligence platform is expected to provide real-time information, allowing asset managers to work with tenants to enforce lease provisions, and where appropriate, consider lease modifications.
The WPC Board of Directors also considered a number of potentially negative factors in evaluating the Separation and the Distribution, and concluded that the potential benefits of the Separation and the Distribution outweighed these factors. For more information, see “The Separation and the Distribution – Reasons for the Separation and the Distribution.”
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Agreements to be Entered into in Connection with the Separation and the Distribution
Separation and Distribution Agreement with WPC
Concurrently with or prior to the Distribution, we and WPC will enter into the Separation and Distribution Agreement, which sets forth, among other things, our agreements with WPC regarding the principal transactions necessary to separate us from WPC. It also sets forth other agreements that govern certain aspects of our relationship with WPC after the Distribution Date. Pursuant to the Separation and Distribution Agreement, the Office Properties, including the material assets related thereto arising after the Distribution, and all liabilities related thereto will be transferred from WPC to NLOP in connection with the Separation and Distribution. The anticipated costs of the spin-off are expected to be approximately $46.8 million, of which approximately $31.5 million relates to the fees and expenses related to the NLOP Financing Arrangements. Substantially all of the anticipated costs will be borne by NLOP. The anticipated costs will primarily relate to advisory and professional costs, financing costs including third-party property reporting, transfer costs, public filing costs, and printing and other related costs. For more information, see “The Separation and the Distribution – The Separation and Distribution Agreement” and “Certain Relationships and Related Person Transactions – Agreements with WPC and its Subsidiaries.”
Acquisition of Assets; Assumption of Liabilities
The Separation and Distribution Agreement identifies the assets to be transferred, the liabilities to be assumed and the contracts to be assigned to each of us and WPC as part of the Separation, and it provides for when and how these transfers, assumptions and assignments will occur. Pursuant to the Separation and Distribution Agreement, the Office Properties, including the material assets related thereto that exist as of or arise after the Distribution, and all liabilities related thereto will be transferred from WPC to NLOP in connection with the Separation and Distribution. The scope of assumed liabilities, transferred assets, excluded assets and excluded liabilities will be governed by the terms of our Separation and Distribution Agreement which will be filed as an exhibit to the registration statement on Form 10 of which this information statement is a part. In particular, the Separation and Distribution Agreement provides, among other things, that subject to the terms and conditions contained therein:
•certain assets related to our business (the “NLOP Assets”) will be retained by NLOP or one of NLOP’s subsidiaries or transferred to NLOP or one of NLOP’s subsidiaries, including:
◦all issued capital stock or other equity interests in subsidiaries, partnerships or similar entities that primarily relate to the NLOP Business, including certain subsidiaries that currently own or shall own, prior to the Distribution, the Office Properties;
◦all right, title and interest (whether as owner, mortgagee or holder of a security interest) of the properties described in the section “Business and Properties,” which shall be achieved through a combination of direct transfers of the property, or the equity interests of certain subsidiaries, partnerships or similar entities that own such properties;
◦all of the intellectual property relating to NLOP’s business;
◦all contracts entered into in the name of, or expressly on behalf of, any of NLOP’s business, including all leases related to the Office Properties;
◦all permits used primarily in NLOP’s business;
◦all books and records, wherever located, primarily related to NLOP’s business;
◦all accounts receivable related to periods after the Distribution, rights, claims, demands, causes of action, judgments, decrees and rights to indemnify or contribution in favor of WPC that are primarily related to NLOP’s business; and
◦other assets mutually agreed by the parties prior to the Distribution.
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•certain liabilities related to NLOP’s business or the NLOP Assets (collectively, the “NLOP Liabilities”) will be retained by or transferred to NLOP or one of NLOP’s subsidiaries, including:
◦existing mortgage debt attached to certain of the Office Properties, in an aggregate amount of $168.5 million as of June 30, 2023;
◦the $335.0 million NLOP Mortgage Loan, which is secured by first priority mortgages and deeds of trust encumbering the interests of the NLOP Mortgage Loan Borrowers in the Mortgaged Properties and by pledges of equity of the NLOP Mortgage Loan Borrowers (and, with respect to the NLOP Mortgage Loan Borrowers that are limited partnerships, the general partners thereof), NLO Holding Company LLC, and each of NLO MB TRS LLC and NLO SubREIT LLC;
◦the $120.0 million NLOP Mezzanine Loan entered into between the NLOP Mezzanine Borrower and the Lenders;
◦any known or unknown liabilities relating to the NLOP Business, including any disputes or claims with respect to tenants, property sellers or governmental authorities, including all contracts entered into in the name of, or expressly on behalf of, any of NLOP’s business, including all leases related to the Office Properties and all other contractual obligations with respect to service providers, tenants, property sellers and other third parties;
◦any known or unknown liabilities (including environmental liabilities) relating to underlying circumstances or facts existing, or events occurring, prior to the Distribution, to the extent relating to us or the NLOP Assets;
◦any guarantees and indemnities in respect of any of the NLOP Assets or NLOP Liabilities, including such guarantees or indemnities related to the indebtedness being assumed by NLOP described above;
◦any known or unknown third-party claims to the extent relating to NLOP’s business and the NLOP Assets;
◦any insurance charges related to the Office Property Business and NLOP Assets pursuant to any insurance policies held by WPC or us for the benefit of the NLOP Business and NLOP Assets; and
◦other liabilities mutually agreed upon by the parties prior to the Distribution.
•all of the assets and liabilities (including whether accrued, contingent or otherwise) other than the NLOP Assets and NLOP Liabilities (the “WPC Assets” and the “WPC Liabilities,” respectively), will be retained by or transferred to WPC or one of its subsidiaries.
For additional information regarding the NLOP Financing Arrangements, refer to the section entitled “Description of Material Indebtedness.”
Tax Matters Agreement with WPC
Concurrently with or prior to the Distribution, we will enter into a Tax Matters Agreement with WPC that will govern the respective rights, responsibilities and obligations of WPC, us and applicable subsidiaries after the Distribution with respect to tax liabilities and benefits, the preparation and filing of tax returns, the control of audits and other tax proceedings, tax covenants, tax indemnification, cooperation and information sharing. The Tax Matters Agreement will provide that (a) NLOP and applicable subsidiaries will generally assume liability for all taxes reported, or required to be reported, on an NLOP tax return following the Distribution, and (b) WPC will assume liability for all taxes reported, or required to be reported, (i) on a WPC tax return or (ii) any joint tax return involving both WPC and NLOP following the Distribution, and (c) NLOP will generally assume sole responsibility for any transfer taxes. For more information, see “The Separation and the Distribution – Related Agreements” and “Certain Relationships and Related Person Transactions – Agreements with WPC and its Subsidiaries.”
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Advisory Agreements with the Advisors
Concurrently with or prior to the Distribution, (i) we and the US Advisor will enter into the US Advisory Agreement and (ii) we and the European Advisor will enter into the European Advisory Agreement, pursuant to which the Advisors will provide us with strategic management services, including asset management, property disposition support and various related services. We will pay management fees to the Advisors and will also reimburse the Advisors for certain expenses incurred in providing services to us. For more information, see “The Separation and the Distribution – Related Agreements,” “Management – Advisory Agreements” and “Certain Relationships and Related Person Transactions – Agreements with WPC and its Subsidiaries.”
Emerging Growth Company
Upon completion of the Distribution, NLOP is expected to be 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 (the “Sarbanes-Oxley Act”), 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 stockholder 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 Distribution, (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.
Corporate Information
We were formed on October 21, 2022, in Maryland as a wholly-owned subsidiary of WPC. Prior to the contribution of NLOP’s business to us, which will occur in connection with the Separation, we will have no operations and no assets other than nominal cash from our initial capitalization. Our principal corporate offices are located in the offices of WPC at One Manhattan West, 395 9th Avenue, 58th Floor, New York, New York 10001.
We have no employees. As of June 30, 2023, the Advisors had 194 employees available to perform services under the Advisory Agreements, 141 of which were located in the United States and 53 of which were located in Europe.
Commencing shortly prior to the Distribution, we will also maintain a website at nloproperties.com. Our website and the information contained therein or connected thereto will not be deemed to be incorporated by reference herein, and you should not rely on any such information in making an investment decision.
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Reason for Furnishing this Information Statement
This information statement is being furnished solely to provide information to stockholders of WPC who will receive NLOP common shares in the Distribution. It is not and should not be construed as an inducement or encouragement to buy or sell any of NLOP’s securities. The information contained in this information statement is believed by us to be accurate as of the date set forth on its cover. Changes may occur after that date and neither we nor WPC will update the information except in the normal course of our and its respective disclosure obligations and practices.
Risks Associated with NLOP’s Business and the Separation and the Distribution
An investment in NLOP common shares is subject to a number of risks, including risks relating to the Separation and the Distribution. The following list of risk factors is not exhaustive. Please read the information in “Risk Factors,” beginning on page 31 for a more thorough description of these and other risks.
Risks Related to Our Properties and Business
•Market and economic volatility due to adverse economic and geopolitical conditions, health crises or dislocations in the credit markets, could have a material adverse effect on our business, financial condition, results of operations, our ability to dispose of assets and repay debt, and our ability to pay dividends and/or distributions.
•The COVID-19 pandemic, and ongoing remote working trends that began with the COVID-19 pandemic, may continue to materially adversely impact the value of our properties and our business, operating results, financial condition and prospects.
•We may be unable to find buyers for our properties on a timely basis or at desirable sales prices in accordance with our strategic plan.
•The majority of our properties depend upon a single tenant for all or a majority of their rental income; therefore, our financial condition, including our ability to make distributions to shareholders, may be adversely affected by the bankruptcy or insolvency, a downturn in the business, or a lease termination of such a single tenant.
•We 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.
•Tenant defaults may have a material adverse effect on our business, financial condition and results of operations.
•Our 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.
Risks Related to the Separation and Distribution
•We have no operating history as an independent company, and our historical financial information is not necessarily representative of the results that we would have achieved as a separate, publicly-traded company and may not be a reliable indicator of our future results.
•WPC may fail to perform under the various transaction agreements that will be executed as part of the Separation and the Distribution, or we may fail to have necessary systems and services in place when certain of the transaction agreements expire.
•The Distribution of NLOP common shares is intended to be a taxable distribution to holders of WPC common stock for U.S. federal income tax purposes.
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•Potential indemnification obligations owed to WPC pursuant to the Separation and Distribution Agreement may have a material adverse effect on our business, financial condition and results of operations.
•Our agreements with WPC and/or certain of its subsidiaries in connection with the Separation and the Distribution involve conflicts of interest, and we may have received better terms from unaffiliated third parties than the terms we will receive in these agreements.
•Pursuant to the Separation and Distribution Agreement, WPC will indemnify us for certain pre-Distribution liabilities and liabilities related to the legacy WPC assets. However, there can be no assurance that these indemnities will be sufficient to insure us against the full amount of such liabilities, or that WPC’s ability to satisfy its indemnification obligation will not be impaired in the future.
•Substantial sales of our common shares may occur in connection with the Distribution, which could cause our share price to decline.
•No market currently exists for the NLOP common shares and we cannot be certain that an active trading market for our common shares will develop or be sustained after the Distribution. The combined post-Distribution value of WPC common stock and our common shares may not equal or exceed the value of WPC common stock prior to the Distribution, and the price of our common shares may be volatile or may decline.
Risks Related to Our Advisors
•Our success is dependent on the performance of the Advisors, and we could be adversely affected if WPC ceases managing the NLOP Business on our behalf.
•We have limited independence from the Advisors and their affiliates, who may be subject to conflicts of interest.
•We may be deterred from terminating the Advisory Agreements or engaging in certain business combination transactions.
•Payment of fees to the Advisors will reduce cash available for distribution.
Risks Related to Financing and Our Indebtedness
•We expect to have a significant amount of indebtedness and may need to incur more in the future.
•We have existing debt and refinancing risks that could affect our cost of operations.
•We may not be able to secure additional financing on favorable terms, or at all, to meet out capital needs.
•The NLOP Financing Arrangements may limit our ability to pay dividends on our common shares, including repurchasing our common shares.
•Financial covenants could materially adversely affect our ability to conduct our business.
Risks Related to Our Status as a REIT
•Failure to qualify as a REIT would materially and adversely affect us and the value of our common shares.
•If WPC failed to qualify as a REIT during certain periods prior to the Distribution, we (and any of our subsidiary REITs) would be prevented from electing to qualify as a REIT for up to five years following the distribution.
Risks Related to an Investment in our Common Shares
•Limitations on the ownership of our common shares and other provisions of our Declaration of Trust may preclude the acquisition or change of control of our company.
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•Until the 2027 annual meeting of shareholders, we will have a classified Board and that may reduce the likelihood of certain takeover transactions.
•We 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.
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QUESTIONS AND ANSWERS ABOUT THE DISTRIBUTION
What is NLOP, and why is WPC separating the NLOP Business and distributing NLOP common shares? 
Net Lease Office Properties (NYSE: NLOP) is expected to be a publicly-traded REIT with a portfolio of 59 office properties and related assets, totaling approximately 9.2 million leasable square feet and generating approximately $141.5 million in ABR as of June 30, 2023.
NLOP was formed primarily to manage and opportunistically monetize the Office Properties of WPC after the Distribution. The Separation of the NLOP Business from WPC and the Distribution of NLOP common shares will enable NLOP and WPC to focus on their respective operations. NLOP and WPC expect that the Separation and the Distribution will result in the enhanced long-term performance of each business. For more information, see “The Separation and the Distribution – Background” and “The Separation and the Distribution – Reasons for the Separation and the Distribution.”
Why am I receiving this document?
You are receiving this document because you are a holder of shares of WPC common stock. If you are a holder of record of WPC common stock as of the close of business on                    , 2023, the expected record date for the Distribution, you will be entitled to receive one NLOP common share for every 15 shares of WPC common stock that you hold at the close of business on such date (and cash in lieu of any fractional shares of NLOP). The Distribution is expected to occur on                    , 2023.
What is the Separation of the NLOP Business from WPC?
WPC will effect a reorganization, subject to the terms and conditions of the Separation and Distribution Agreement, pursuant to which WPC will contribute certain office assets to NLOP. Following the Separation, NLOP will own the Office Properties and certain other assets previously owned by WPC.
By separating the NLOP Business into a stand-alone REIT, investors will have the opportunity to invest in two separate entities, each with distinct business strategies.
What assets will NLOP own following the Separation?
NLOP will own 59 Office Properties, totaling approximately 9.2 million total leasable square feet.
What is the Distribution and how will the Distribution work?
To accomplish the Distribution, WPC will distribute one NLOP common share for every 15 shares of WPC common stock held at the close of business on the record date. The NLOP common shares will be distributed to WPC common stockholders at the close of business on the record date on a pro rata basis.
What is the record date for the Distribution?
The record date for the Distribution is                    , 2023.
When will the Distribution occur?
It is expected that the NLOP common shares will be distributed by WPC on                    , 2023, to holders of record of WPC common stock at the close of business on the record date, subject to the satisfaction or waiver of all conditions to the Distribution set forth in the Separation and Distribution Agreement.
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What do WPC stockholders need to do to participate in the Distribution?
Stockholders of WPC as of the record date will not be required to take any action to receive NLOP common shares in the Distribution. No stockholder approval of the Distribution is required and you are not being asked for a proxy. You do not need to pay any consideration, exchange or surrender your existing shares of WPC common stock or take any other action to receive your NLOP common shares. The Distribution will not affect the number of outstanding shares of WPC common stock or any rights of WPC stockholders, although it will affect the market value of each outstanding share of WPC common stock.
How will NLOP common shares be issued?
You will receive NLOP common shares through the same channels that you currently use to hold or trade shares of WPC common stock, whether through a brokerage account, directly by WPC’s transfer agent, Computershare, in a 401(k) plan or other channels. Receipt of NLOP common shares will be documented for you in the same manner that you typically receive stockholder updates, such as monthly broker statements and 401(k) statements or statements from Computershare.
If you own shares of WPC common stock as of the close of business on the record date, including shares held in certificated form, Computershare, as the distribution agent, will distribute NLOP common shares to you or to your brokerage firm on your behalf or will record your shares in book-entry form. All shares of NLOP will be issued in uncertificated book-entry form. No physical stock certificates representing the shares of NLOP will be delivered. For registered stockholders, Computershare will mail to you an account statement that reflects your NLOP common shares and for shares held in street name (such as in a brokerage account) your bank or brokerage firm will credit your account for the shares.
No fractional shares of NLOP will be issued in the Distribution. For registered stockholders, Computershare will distribute to you any cash in lieu of fractional shares you are entitled to receive and for shares held in street name, you will automatically receive cash in lieu of fractional shares in your account following the settlement of any necessary sales by your custodian or broker.
How many NLOP shares will I receive in the Distribution?
For every 15 shares of WPC common stock held of record by you as of the close of business on the record date you will receive one NLOP common share. Based on approximately 213,925,817 shares of WPC common stock outstanding as of September 26, 2023, a total of approximately 14,261,721 NLOP common shares will be distributed. The foregoing amounts do not reflect any equity issued by either WPC or NLOP after September 26, 2023, and therefore exclude any subsequent issuances pursuant to WPC’s “at-the-market” and equity forward programs related to the sale of additional WPC common stock having an aggregate gross sales price of up to $1.0 billion, including approximately 4.7 million shares expected to be issued before November 1, 2023 through settlement of all unsettled equity forwards. You will receive cash in lieu of any fractional NLOP common shares that you would have otherwise received as a result of the Distribution.
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Will NLOP issue fractional shares in the Distribution?
NLOP will not distribute fractional shares of its common shares in the Distribution. Instead, all fractional shares that registered holders of WPC stock would otherwise have been entitled to receive will be aggregated into whole shares and Computershare will cause them to be sold in the open market. We expect Computershare, acting on behalf of WPC, may take several weeks after the Distribution Date to fully distribute the aggregate net cash proceeds of these sales on a pro rata basis (based on the fractional share such holder would otherwise be entitled to receive) to those registered stockholders who would otherwise have been entitled to receive fractional shares.
All fractional shares that street name holders of WPC stock would otherwise have been entitled to receive will be transferred to brokerages via The Depository Trust Company (DTC) and sold in the open market by brokers.
Recipients of cash in lieu of fractional shares will not be entitled to any interest on the amounts of payment made in lieu of fractional shares.
What are the material U.S. federal income tax consequences of the Distribution to holders of WPC common stock?
The distribution of NLOP common shares in the Distribution is intended to be a taxable distribution to WPC common stockholders for U.S. federal income tax purposes. An amount equal to the fair market value of the NLOP common shares received by a U.S. stockholder (as defined in “Certain U.S. Federal Income Tax Consequences of the Distribution”) of WPC common stock in the Distribution will generally be treated as a taxable dividend to such stockholder to the extent of the U.S. stockholder’s ratable share of any current or accumulated earnings and profits of WPC (including income or gain taken into account in connection with the Distribution) allocable to the Distribution, with the excess treated first as a non-taxable return of capital to the extent of the U.S. stockholder’s tax basis in WPC common stock and any remaining excess treated as capital gain. WPC will not be able to advise U.S. stockholders of the amount of earnings and profits of WPC until after the end of the calendar year in which the Distribution occurs. The particular consequences of the Distribution to each WPC stockholder depend on such holder’s particular facts and circumstances, and you are urged to consult your tax advisor regarding the consequences of the Distribution to you in light of your specific circumstances. For more information, see “Certain U.S. Federal Income Tax Consequences of the Distribution.”
How will the Distribution affect my tax basis and holding period in my shares of WPC common stock for U.S. federal income tax purposes?
The tax basis of WPC common stock held by a WPC stockholder at the time of the Distribution will be reduced (but not below zero) to the extent the fair market value of the NLOP common shares distributed to such WPC stockholder exceeds WPC’s current and accumulated earnings and profits allocable to such holder’s shares. The holding period of WPC stockholders in their WPC shares will not be affected by the Distribution. See “Certain U.S. Federal Income Tax Consequences of the Distribution.”
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What will my tax basis and holding period be for NLOP common shares I receive in the Distribution for U.S. federal income tax purposes?
The tax basis of a WPC stockholder in NLOP common shares received by such holder in the Distribution will generally equal the fair market value of such shares on the Distribution Date. The holding period for such shares will generally begin the day after the Distribution Date. See “Certain U.S. Federal Income Tax Consequences of the Distribution.”
What are the conditions to the Distribution?
The Distribution is subject to a number of conditions, including, among others:
•the consummation of the Separation;
•the satisfaction of conditions to borrowing under the NLOP Financing Arrangements, and the funding of all borrowings under the NLOP Financing Arrangements shall have occurred;
•the SEC declaring effective the registration statement of which this information statement forms a part, with no stop order in effect with respect thereto, and no proceeding for such purpose pending before, or threatened by, the SEC;
•no order, injunction, or decree issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the Separation, the Distribution or any of the related transactions shall be in effect;
•the acceptance for listing on the NYSE of the NLOP common shares to be distributed, subject to official notice of distribution; and
•the execution of ancillary agreements, including the Tax Matters Agreement and the Advisory Agreements.

WPC and NLOP cannot assure you that any or all of these conditions will be met. For a complete discussion of all of the conditions to the Distribution, please refer to “The Separation and the Distribution – The Separation and Distribution Agreement – Conditions to the Distribution.”
What is the expected date of completion of the Distribution?
The completion and timing of the Distribution are dependent upon a number of conditions, including the conditions listed above. It is expected that the NLOP common shares will be distributed by WPC on                    , 2023, to the holders of record of shares of WPC common stock at the close of business on the record date. However, no assurance can be provided as to the timing of the Distribution or that all conditions to the Distribution will be met.
Will the NLOP common shares be listed on an exchange?
NLOP expects its common shares to be listed on the NYSE under the symbol “NLOP.” NLOP anticipates that trading in its common shares will begin on a “when-issued” basis as early as three trading days prior to the Distribution Date and will continue up to and through the Distribution Date and that “regular-way” trading in NLOP common shares will begin on the first trading day following the completion of the Distribution. If trading begins on a “when-issued” basis, you may purchase or sell NLOP common shares up to and through the Distribution Date, but your transaction will not settle until after the Distribution Date. NLOP cannot predict the trading prices for its common shares before, on or after the Distribution Date.
What will happen to the listing of WPC common stock?
WPC common stock will continue to trade on the NYSE under the symbol “WPC” after the Distribution.
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What if I want to sell my WPC common stock or my NLOP common shares (once received)?
WPC common stock is currently listed on the NYSE and we expect that NLOP common shares will be listed on the NYSE upon completion of the Distribution.
If you would like to sell your WPC common stock or NLOP common shares, you should consult with your financial advisors, such as your stockbroker, bank or tax advisor.
What is “regular-way” and “ex-distribution” trading of WPC stock?
Beginning shortly before the record date and continuing up to and through the Distribution Date, it is expected that there will be two markets in WPC common stock: a “regular-way” market and an “ex-distribution” market.
Shares of WPC common stock that trade on the “regular-way” market will trade with an entitlement to NLOP common shares distributed in the Distribution. Shares of WPC common stock that trade on or after the “ex-distribution” market will trade without an entitlement to NLOP common shares distributed pursuant to the Distribution.
If you decide to sell any WPC common stock before the Distribution Date, you should make sure your stockbroker, bank or other nominee understands whether you want to sell your WPC common stock with or without your entitlement to NLOP common shares in the Distribution.
Will the number of shares of WPC common stock that I own change as a result of the Distribution?
No. The number of shares of WPC common stock that you own will not change as a result of the Distribution.
Will the Distribution affect the market price of my shares of WPC stock?
Yes. As a result of the Distribution, WPC expects the trading price of shares of WPC common stock immediately following the Distribution to be lower than the “regular-way” trading price of such shares immediately prior to the Distribution because the trading price of shares of WPC common stock will no longer reflect the value of the NLOP Business. WPC believes that, over time following the Distribution, assuming the same market conditions and the realization of the expected benefits of the Separation and the Distribution, shares of WPC common stock and NLOP common shares should have a higher aggregate market value as compared to the market value of shares of WPC common stock if the Separation and the Distribution did not occur. There can be no assurance, however, that such a higher aggregate market value will be achieved. This means, for example, that the combined trading prices of one share of WPC common stock and one NLOP common share after the Distribution may be equal to, greater than, or less than the trading price of one share of WPC common stock before the Distribution.
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How will NLOP be organized?
NLOP intends to qualify and elect to be taxed as a REIT under Sections 856 through 860 of the Code, commencing with the taxable year in which the Distribution occurs. As a REIT, NLOP generally will not be subject to U.S. federal income tax on REIT taxable income that it distributes to its shareholders. A company’s qualification as a REIT depends on its ability to meet, on a continuing basis, through actual investment and operating results, various complex requirements under the Code relating to, among other things, the sources of its gross income, the composition and values of its assets, its distribution levels and the diversity of ownership of its shares. NLOP believes that, after the Distribution, it will be organized in conformity with the requirements for qualification and taxation as a REIT under the Code, and that its intended manner of operation will enable it to meet the requirements for qualification and taxation as a REIT. For a discussion of the U.S. federal income taxation of REITs, please refer to “Material U.S. Federal Income Tax Consequences –Taxation of Our Company.”
What indebtedness will NLOP have after the Separation?
Immediately following the Separation, we will own a portfolio of 59 office properties, subject to approximately $168.5 million of existing secured property level indebtedness, based on principal balances as of June 30, 2023. In addition, to provide initial liquidity, to fund the payment to WPC contemplated by the Separation, and to pay fees and expenses, in connection with the Separation, NLOP has entered into the $335.0 million NLOP Mortgage Loan and the $120.0 million NLOP Mezzanine Loan, both of which are expected to be funded, subject to the satisfaction of certain conditions, substantially concurrently with the Separation.
As a result of these transactions, following the completion of the Separation, net of capitalized financing costs, we expect to have approximately $590.6 million in consolidated outstanding indebtedness and $55.6 million in cash.
What will NLOP’s relationship be with WPC following the Distribution?
NLOP and WPC will be independent companies following the Distribution. Concurrently with or prior to the Distribution, NLOP will enter into the Separation and Distribution Agreement with WPC. In addition, concurrently with or prior to the Distribution, NLOP will enter into various other agreements to effect the Separation and the Distribution and provide a framework for its relationship with WPC after the Separation, such as Tax Matters Agreement and the Advisory Agreements.
Following the Distribution, we will be managed by the Advisors. Pursuant to the Advisory Agreements, the Advisors will provide us with strategic management services, including asset management, property disposition support and various related services. We will pay management fees to the Advisors and will also reimburse the Advisors for certain expenses incurred in providing services to us.
For additional information regarding the Separation and Distribution Agreement, other transaction agreements and our relationship with WPC following the Distribution, please refer to the sections entitled “Risk Factors – Risks Related to the Separation and the Distribution,” “Risk Factors – Risks Related to our Advisor,” “The Separation and Distribution Agreement – The Separation Agreement,” “The Separation and Distribution Agreement – Related Agreements,” “Conflicts of Interest,” “Management – Advisory Agreements” and “Certain Relationships and Related Person Transactions.”
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Who will manage NLOP after the Distribution?
Following the Distribution, we will be managed by the Advisors. Pursuant to the Advisory Agreements, the Advisors will provide us with strategic management services, including asset management, property disposition support, and various related services. We will pay management fees to the Advisors and will also reimburse the Advisor for certain expenses incurred in providing services to us. For more information regarding NLOP’s management, please refer to “Management.”
Are there risks associated with owning NLOP common shares?
Yes. Ownership of NLOP common shares is subject to both general and specific risks related to NLOP’s business, the industry in which it operates, its ongoing contractual relationships with WPC and its status as a separate, publicly-traded company. Ownership of NLOP common shares is also subject to risks relating to the Separation. These risks are described in the “Risk Factors” section of this information statement beginning on page 31. You are encouraged to read that section carefully.
Does NLOP plan to pay dividends?
NLOP generally intends to pay dividends in an amount at least equal to the amount that will be required for NLOP to qualify as a REIT and to avoid current entity level U.S. federal income taxes. To qualify as a REIT, NLOP must distribute annually to its shareholders at least 90% of its REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gain. Please refer to “Material U.S. Federal Income Tax Consequences – Material U.S. Federal Income Tax Considerations Regarding NLOP’s Taxation as a REIT.”
Dividends paid by NLOP will be authorized and determined by our Board, in its sole discretion, out of legally available funds, and will be dependent upon a number of factors, including restrictions under applicable law and other factors described under “Dividend Policy.”
The NLOP Financing Arrangements also have certain limitations on dividends applicable to a REIT. We expect permitted dividends under the NLOP Financing Arrangements to include, among other things, the amount required for us (or any of our subsidiary REITs) to avoid the imposition of income and excise taxes; however, we may be required to borrow funds at unfavorable rates or utilize other procedures to satisfy our (or our subsidiary REITs’) distribution requirements.
NLOP may pay dividends from sources other than cash flow from operations or funds from operations, including proceeds from dispositions, which may reduce the amount of capital available for operations, may have negative tax implications, and may have a negative effect on the value of your shares under certain conditions. NLOP also intends to declare taxable dividends that are paid in NLOP’s common shares. For additional information regarding such dividends, please refer to “Material U.S. Federal Income Tax Consequences – Taxation of Our Company – Distribution Requirements.” NLOP cannot assure you that its dividend policy will remain the same in the future, or that any estimated dividends will be paid or sustained.
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Who will be the distribution agent for the NLOP common shares?
The distribution agent for the NLOP common shares will be Computershare. For questions relating to the transfer or mechanics of the Distribution, you should contact:
Computershare (Mail)
Net Lease Office Properties
Shareowner Services
P.O. Box 43006
Providence, Rhode Island 02940-3006
Computershare (Overnight Delivery)
Net Lease Office Properties
Shareowner Services
150 Royall St., Suite 101
Canton, Massachusetts 02021
Or
c/o Net Lease Office Properties
One Manhattan West
395 9th Avenue, 58th Floor
New York, New York 10001
Institutional Investor Relations
1-212-492-1140
institutionalir@nloproperties.com
Individual Investor Relations
1-844-NLO REIT (656-7348)
ir@nloproperties.com
NLOP’s Institutional Investor Relations and Individual Investor Relations email addresses will become operational following the Distribution.
Who will be the transfer agent for NLOP common shares?
The transfer agent for the NLOP common shares will be Computershare:
Computershare (Mail)
Net Lease Office Properties
Shareowner Services
P.O. Box 43006
Providence, Rhode Island 02940-3006
Computershare (Overnight Delivery)
Net Lease Office Properties
Shareowner Services
150 Royall St., Suite 101
Canton, Massachusetts 02021
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Where can I find more information about WPC and NLOP?
Before the Distribution, if you have any questions relating to WPC’s business performance, you should contact:
W. P. Carey Inc.
One Manhattan West
395 9th Avenue, 58th Floor
New York, New York 10001
Institutional Investor Relations
1-212-492-1110
institutionalir@wpcarey.com
Individual Investor Relations
1-800-WP CAREY (972-2739)
ir@wpcarey.com
After the Distribution, NLOP shareholders who have any questions relating to NLOP’s business performance should contact NLOP at:
c/o Net Lease Office Properties
One Manhattan West
395 9th Avenue, 58th Floor
New York, New York 10001
Institutional Investor Relations
1-212-492-1140
institutionalir@nloproperties.com
Individual Investor Relations
1-844-NLO REIT (656-7348)
ir@nloproperties.com
NLOP’s Institutional Investor Relations and Individual Investor Relations email addresses are expected to become operational following the Distribution.
NLOP will maintain a website at nloproperties.com which is expected to be operational in October 2023.
The websites of WPC and NLOP are not incorporated by reference into this information statement.
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SUMMARY HISTORICAL COMBINED FINANCIAL DATA
The following tables set forth the summary historical combined financial data of the NLOP Business that were carved out of WPC’s consolidated financial statements. The summary historical financial data set forth below as of June, 30, 2023, December 31, 2022 and 2021, and for the six months ended June 30, 2023 and for the years ended December 31, 2022, 2021, and 2020 has been derived from the NLOP Business combined financial statements, which are included elsewhere in this information statement.
The summary historical combined financial data set forth below does not indicate results expected for any future periods. The summary historical combined financial data is qualified in its entirety by, and should be read in conjunction with, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the NLOP Business’ combined financial statements and related notes thereto included elsewhere in this information statement.
Six Months Ended June 30,
(in thousands)20232022
Income Statement Data:
Lease revenues$82,996 $70,696 
Property expenses, excluding reimbursable tenant costs4,127 3,861 
Net income7,568 12,649 
Cash Flow Data:
Net Cash Provided by Operating Activities43,222 38,427 
Net Cash Used in Investing Activities (2,541)(1,778)
Net Cash Used in Financing Activities(40,445)(41,889)
Years Ended December 31,
(in thousands)202220212020
Income Statement Data:
Lease revenues$151,249 $143,958 $138,907 
Property expenses, excluding reimbursable tenant costs7,751 6,429 8,252 
Net income15,779 1,418 16,016 
Cash Flow Data:
Net Cash Provided by Operating Activities84,282 75,335 73,657 
Net Cash Used in Investing Activities (22,918)(4,184)(4,488)
Net Cash Used in Financing Activities(64,541)(77,245)(65,807)
June 30,December 31,
(in thousands)202320222021
Balance Sheet Data:
Investments in real estate$1,731,579 $1,736,711 $1,498,296 
Net investments in real estate1,301,355 1,344,686 1,169,846 
Total assets1,421,000 1,462,201 1,274,719 
Non-recourse mortgages, net167,111 174,289 37,476 
Parent debt98,224 101,774 112,427 
Total liabilities337,595 352,682 217,213 
Total liabilities and equity1,421,000 1,462,201 1,274,719 
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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 Funds from Operations (“FFO”) and adjusted funds from operations (“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, Inc. (“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 sales of property, impairment charges on real estate, 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.
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 loans receivable and direct financing 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, and spin-off expenses. We also exclude realized and unrealized gains/losses on foreign currency exchange 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. 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, or as alternatives to net cash provided by operating activities computed under GAAP, or as indicators of our ability to fund our cash needs.
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See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Supplemental Financial Measures” for further descriptions of NLOP’s non-GAAP measures and reconciliations to the most comparable measure in accordance with GAAP.
Six Months Ended June 30,
(in thousands)20232022
FFO (as defined by NAREIT) attributable to NLOP Predecessor
$42,906 $41,576 
AFFO attributable to NLOP Predecessor
$48,102 $42,658 
Years Ended December 31,
(in thousands)202220212020
FFO (as defined by NAREIT) attributable to NLOP Predecessor
$78,897 $59,998 $73,184 
AFFO attributable to NLOP Predecessor
$88,718 $77,497 $71,841 
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RISK FACTORS
You should carefully consider the following risks and other information in this information statement in evaluating our company and our common shares. Any of the following risks could materially and adversely affect our business, results of operations and financial condition.
Risks Related to Our Properties and Business
Market and economic volatility due to adverse economic and geopolitical conditions, health crises or dislocations in the credit markets, could have a material adverse effect on our business, financial condition, results of operations, our ability to dispose of assets, and our ability to pay dividends and/or distributions.
Our business may be adversely affected by market and economic volatility experienced by the U.S. and global economies, the real estate industry as a whole and/or the local economies in the markets in which our properties are located. Such adverse economic and geopolitical conditions may be due to, among other issues, rising inflation and interest rates, volatility in the public equity and debt markets, and international economic and other conditions, including pandemics, geopolitical instability (such as the war in Ukraine), sanctions and other conditions beyond our control. These current conditions, or similar conditions existing in the future, may adversely affect our business, financial condition, results of operations and/or distributions as a result of one or more of the following, among other potential consequences:
•significant job losses may occur, which may decrease demand for our office space, causing market rental rates and property values to be negatively impacted, and create increased challenges in disposing of properties in accordance with our strategic plan;
•reduced values of our properties may limit our ability to dispose of assets at attractive prices or to obtain debt financing secured by our properties and may reduce the availability of unsecured loans;
•inflation may adversely affect tenant leases with stated rent increases, which could be lower than the increase in inflation at any given time;
•the financial condition of our tenants may be adversely affected, which may result in tenant defaults under leases due to inflationary pressure, bankruptcy, lack of liquidity, lack of funding, operational failures or for other reasons;
•our ability to borrow on terms and conditions that we find acceptable, or at all, may be limited, which could reduce our ability to refinance existing debt and increase our future interest expense;
•the value and liquidity of our short-term investments and cash deposits could be reduced as a result of a deterioration of the financial condition of the institutions that hold our cash deposits or the institutions or assets in which we have made short-term investments, a dislocation of the markets for our short-term investments, increased volatility in market rates for such investments or other factors; and
•to the extent we enter into derivative financial instruments, one or more counterparties to our derivative financial instruments could default on their obligations to us, or could fail, increasing the risk that we may not realize the benefits of these instruments.
The COVID-19 pandemic, and ongoing remote working trends that began with the COVID-19 pandemic, may continue to materially adversely impact the value of our properties and our business, operating results, financial condition and prospects.
Temporary closures of businesses and the resulting remote working arrangements for personnel in response to the pandemic may result in long-term changed work practices that could negatively impact us and our business. For example, the increased adoption of and familiarity with remote work practices, and the recent increase in tenants seeking to sublease their leased space, as well as tenant uncertainty regarding office space needs given evolving remote and hybrid working trends which began with the COVID-19 pandemic, could result in decreased demand for office space. If this trend was to continue or accelerate, our tenants may elect to not renew their leases, or to renew
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them for less space than they currently occupy, which could increase the vacancy and decrease rental income and the value of our properties. The increase in remote work practices may continue in a post-pandemic environment. Real estate sales prices depend on a number of factors, including occupancy percentages, and lease rates, and in light of current office space utilization trends, our ability to find buyers for our properties at desirable prices, or at all, may be adversely impacted by these trends. The need to reconfigure leased office space, either in response to the pandemic or tenants’ needs, may impact space requirements and also may require us to spend increased amounts for tenant improvements. If substantial office space reconfiguration is required, the tenant may explore other office space and find it more advantageous to relocate than to renew its lease and renovate the existing space. If so, the value of our properties and our business, operating results, financial condition and prospects may be materially adversely impacted.
We could experience difficulties or delays renewing leases or re-leasing space, which will increase our costs to maintain such properties without receiving income.
We derive a significant portion of our net income from rent received from our tenants, and our profitability is significantly dependent upon ability to minimize vacancies in our properties and ensure our tenants timely pay rent at an attractive rate. If a tenant experiences a downturn in its business or other types of financial distress, it may be unable to make timely rental payments. If lease defaults occur, we may experience delays in enforcing our rights as landlord. As of June 30, 2023, our portfolio had a WALT of 5.7 years, and no properties were fully vacant. If our tenants decide not to renew their leases, terminate early or default on their lease, or if we fail to find suitable tenants to lease our vacant properties, we may not be able to re-lease the space or may experience delays in finding suitable replacement tenants and may be in default under the NLOP Financing Arrangements. Even if tenants decide to renew or lease new space, the terms of renewals or new leases, including the cost of required renovations or concessions to tenants, particularly commercial tenants, may be less favorable to us than current lease terms, and we may not have the available capital to pay for improvements, renovations, or rent concessions, which could further adversely impact our ability to renew leases or re-lease vacant properties on favorable terms, or at all. As a result, our net income and ability to pay dividends to shareholders could be materially adversely affected. Further, if one of our properties cannot be leased on terms and conditions favorable to us, the property may not be marketable at a suitable price without substantial capital improvements, alterations, or at all, which could inhibit our ability to effectively dispose of those properties.
We may be unable to find buyers for our properties on a timely basis or at desirable sales prices in accordance with our strategic plan.
As described in this information statement, we intend to pursue dispositions of our properties. Real estate sales prices are constantly changing and fluctuate based on many factors, including as a result of changes in interest rates, supply and demand dynamics, occupancy percentages, lease rates, the availability of suitable buyers, the perceived quality and dependability of income flows from tenancies and a number of other factors, both local and national. In particular, in light of current office space utilization trends, our ability to find buyers for our properties at desirable prices, or at all, may be adversely impacted by these trends, and we may be required to sell our properties for less than their market value. If we are not able to find buyers for our assets or if we have overestimated the value of our assets, any distributions to our shareholders may be delayed or reduced. In addition, our ability to dispose of properties may also be adversely affected by the terms of prepayment or assumption costs associated with debt encumbering our real estate assets, transactional fees and expenses or unknown liabilities.
Inflation may adversely affect our financial condition, cash flows and results of operations.
Increased inflation could have a more pronounced negative impact on interest expense and general and administrative expenses, as these costs could increase at a rate higher than our rents. Also, inflation may adversely affect tenant leases with stated rent increases or limits on such tenant’s obligation to pay its share of operating expenses, which could be lower than the increase in inflation at any given time. It may also limit our ability to recover all of our operating expenses. Inflation could also have an adverse effect on consumer spending, which could impact our tenants’ sales and, in turn, our average rents. In addition, renewals of leases or future leases may not be negotiated on current terms, in which event we may recover a smaller percentage of our operating expenses.
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We depend on significant tenants, and the majority of our properties depend upon a single tenant for all or a majority of their rental income; therefore, our financial condition, including our ability to make distributions to shareholders, may be adversely affected by the bankruptcy or insolvency, a downturn in the business, or a lease termination of such a single tenant.
As of June 30, 2023, our 10 largest tenants in our portfolio (by ABR) represented approximately 50% of ABR and our three largest tenants in our portfolio (by ABR) represented approximately 28% of ABR. In addition, as of June 30, 2023, the majority of our annualized rental revenue was from our properties leased to single tenants. The value of our single tenant properties is materially dependent on the performance of those tenants under their respective leases. These tenants face competition within their industries and other factors that could reduce their ability to pay us rent. Lease payment defaults by such tenants could cause us to reduce the amount of distributions that we pay to our shareholders. A default by a single or major tenant, the failure of a guarantor to fulfill its obligations or other premature termination of a lease to such a tenant or such tenant’s election not to extend a lease upon its expiration could have an adverse effect on our financial condition, results of operations, liquidity and ability to pay distributions to our shareholders.
High geographic concentration of our properties of our tenants could magnify the effects of adverse economic or regulatory developments in such geographic areas on our operations and financial condition.
As of June 30, 2023, 25% of our portfolio (as a percentage of ABR) was located in Texas, representing the highest concentration of our assets, and 16% was located in Minnesota. We are susceptible to adverse developments in the economic or regulatory environments of the geographic areas in which we concentrate, such as business layoffs or downsizing, industry slowdowns, relocations of businesses, increases in real estate and other taxes or costs of complying with governmental regulations. Any adverse developments in the economy or real estate market in the areas in which we concentrate or any decrease in demand for office space resulting from regulatory or business environment in the areas in which we concentrate could impact our ability to generate revenues sufficient to meet our operating expenses or other obligations, which could have an adverse effect on our financial condition, results of operations, liquidity and ability to pay distributions to our shareholders.
Our performance is subject to risks inherent in owning real estate investments.
We are generally subject to risks incidental to the ownership of real estate. These risks include:
•changes in supply of or demand for office properties in our market or sub-markets;
•competition for tenants in our market or sub-markets;
•the ongoing need for capital improvements;
•increased operating costs, which may not necessarily be offset by increased rents, including insurance premiums, utilities and real estate taxes, due to inflation and other factors;
•changes in tax, real estate and zoning laws;
•changes in governmental rules and fiscal policies;
•inability of tenants to pay rent;
•competition from the development of new office space in our market or sub-markets and the quality of competition, such as the attractiveness of our properties as compared to our competitors’ properties based on considerations such as convenience of location, rental rates, amenities and safety record; and
•civil unrest, acts of war, terrorism, acts of God, including earthquakes, hurricanes and other natural disasters (which may result in uninsured losses) and other factors beyond our control.
Should any of the foregoing occur, it may have a material adverse effect on our business, financial condition and results of operations.
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We 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.
We compete with a number of other owners and operators of office properties to renew leases with our existing tenants and to attract new tenants. To the extent that we are able to renew leases that are scheduled to expire in the short-term or re-let such space to new tenants, heightened competition may require us to give rent concessions or provide tenant improvements to a greater extent than we otherwise would have.
If our competitors offer space at rental rates below current market rates or below the rental rates we currently charge our tenants, we may lose potential tenants, and we may be pressured to reduce our rental rates below those we currently charge, or may not be able to increase rates to market rates, in order to retain tenants upon expiration of their existing leases. Even if our tenants renew their leases or we are able to re-let the space, the terms and other costs of renewal or re-letting, including the cost of required renovations, increased tenant improvement allowances, leasing commissions, declining rental rates, and other potential concessions, may be less favorable than the terms of our current leases and could require significant capital expenditures. Our inability to renew leases or re-let space in a reasonable time, a decline in rental rates or an increase in tenant improvement, leasing commissions, or other costs may have a material adverse effect on our business, financial condition and results of operations.
Tenant defaults may have a material adverse effect on our business, financial condition and results of operations.
The majority of our revenues and income comes from rental income from real property. As such, our business, financial condition and results of operations could be adversely affected if our tenants default on their lease obligations. Our ability to manage our assets is also subject to federal bankruptcy laws, state laws that limit creditors’ rights and remedies available to real property owners to collect delinquent rents and international laws. If a tenant becomes insolvent or bankrupt, we cannot be sure that we could recover the premises from the tenant promptly or from a trustee or debtor-in-possession in any bankruptcy proceeding relating to that tenant. We also cannot be sure that we would receive any rent in the proceeding sufficient to cover our expenses with respect to the premises. If a tenant becomes bankrupt, the federal bankruptcy code will apply and, in some instances, may restrict the amount and recoverability of our claims against the tenant. A tenant’s default on its obligations may have a material adverse effect on our business, financial condition and results of operations.
Some 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.
Certain of our leases permit our tenants to terminate their leases as to all or a portion of their leased premises prior to their stated lease expiration dates under certain circumstances, such as providing notice by a certain date and, in most cases, paying a termination fee. To the extent that our tenants exercise early termination rights, our cash flow and earnings will be adversely affected, and we can provide no assurances that we will be able to generate an equivalent amount of net effective rent by leasing the vacated space to new third-party tenants. If our tenants elect to terminate their leases early, it may have a material adverse effect on our business, financial condition and results of operations.
Our 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.
Costs associated with our business, such as debt repayments, real estate taxes, insurance premiums and maintenance costs, are relatively inelastic and generally do not decrease, and may increase, when a property is not fully occupied, rental rates decrease, a tenant fails to pay rent or other circumstances cause a reduction in property revenues. As a result, if revenues drop, we may not be able to reduce our expenses accordingly, which may have a material adverse effect on our business, financial condition and results of operations.
Property taxes may increase without notice.
The real property taxes on our properties and any other properties that we develop or acquire in the future may increase as property tax rates change and as those properties are assessed or reassessed by tax authorities. While the
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majority of our leases are under a net lease structure, some or all of such property taxes may not be collectible from our tenants. In such event, our financial condition, results of operations, cash flows, trading price of our common shares and our ability to satisfy our principal and interest obligations and to pay dividends to our shareholders could be adversely affected, which may have a material adverse effect on our business, financial condition and results of operations.
Real estate property investments are illiquid. We may not be able to dispose of properties when desired or on favorable terms.
Real estate investments are relatively illiquid. Our ability to quickly sell or exchange any of our properties in response to changes in economic and other conditions will be limited. No assurances can be given that we will recognize full value, at a price and at terms that are acceptable to us, for any property that we are required to sell for liquidity reasons. Our inability to respond rapidly to changes in the performance of our investments could adversely affect our financial condition and results of operations.
We, 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.
We, 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.
Failure to comply with these requirements could subject us, or our tenants, to governmental fines or private litigant damage awards. In addition, compliance with these requirements, including new requirements or stricter interpretation of existing requirements, may require us, or our tenants, to incur significant expenditures. We do not know whether existing requirements will change or whether future requirements, including any requirements that may emerge from pending or future climate change legislation, will develop. Environmental noncompliance liability also could impact a tenant’s ability to make rental payments to us. Furthermore, our reputation could be negatively affected if we violate environmental laws or regulations, which may have a material adverse effect on our business, financial condition and results of operations.
In addition, as a current or former owner or operator of real property, we may be subject to liabilities resulting from the presence of hazardous substances, waste or petroleum products at, on, under or emanating from such property, including investigation and cleanup costs, natural resource damages, third-party liability for cleanup costs, personal injury or property damage and costs or losses arising from property use restrictions. In particular, some of our properties are adjacent to or near other properties that have contained or currently contain underground storage tanks used to store petroleum products or other hazardous or toxic substances. In addition, certain of our properties are on, adjacent to or near sites upon which others, including former owners or tenants of our properties, have engaged, or may in the future engage, in activities that have released or may have released petroleum products or other hazardous or toxic substances. Cleanup liabilities are often imposed without regard to whether the owner or operator knew of, or was responsible for, the presence of such contamination, and the liability may be joint and several. The presence of hazardous substances also may result in use restrictions on impacted properties or result in liens on contaminated sites in favor of the government for damages it incurs to address contamination. We also may be liable for the costs of removal or remediation of hazardous substances or waste disposal or treatment facilities if we arranged for disposal or treatment of hazardous substances at such facilities, whether or not we own such facilities. Moreover, buildings and other improvements on our properties may contain asbestos-containing material or other hazardous building materials or could have indoor air quality concerns (e.g., from airborne contaminants such as mold), which may subject us to costs, damages and other liabilities including abatement cleanup, personal injury, and property damage liabilities. The foregoing could adversely affect occupancy and our ability to develop, sell or borrow against any affected property and could require us to make significant unanticipated expenditures that may have a material adverse effect on our business, financial condition and results of operations.
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Because we own properties located outside the United States, we are exposed to additional risks.
We own properties located outside the United States. As of June 30, 2023, our real estate properties located outside of the United States represented 11.0% of ABR. These investments may be affected by factors particular to the local jurisdiction where the property is located and may expose us to additional risks, including:
•enactment of laws relating to foreign ownership of property (including expropriation of investments), or laws and regulations relating to our ability to repatriate invested capital, profits, or cash and cash equivalents back to the United States;
•legal systems where the ability to enforce contractual rights and remedies may be more limited than under U.S. law;
•difficulty in complying with conflicting obligations in various jurisdictions and the burden of observing a variety of evolving foreign laws, regulations, and governmental rules and policies, which may be more stringent than U.S. laws and regulations (including land use, zoning, environmental, financial, and privacy laws and regulations, such as the European Union’s General Data Protection Regulation);
•tax requirements vary by country and existing foreign tax laws and interpretations may change (e.g., the on-going implementation of the European Union’s Anti-Tax Avoidance Directives), which may result in additional taxes on our international investments;
•changes in operating expenses in particular countries;
•a lack of publicly available information in certain jurisdictions may impair our ability to receive timely and accurate financial information from tenants, which may be necessary to meet reporting obligations to financial institutions or governmental and regulatory agencies; and
•geopolitical risk and adverse market conditions caused by changes in national or regional economic or political conditions, including among others, political instability and withdrawal from the European Union (which may impact relative interest rates and the terms or availability of mortgage funds).
The Advisors may engage third-party asset managers in international jurisdictions to monitor compliance with legal requirements and lending agreements. If the Advisors fail to properly mitigate such additional risks, it could result in operational failures, governmental sanctions, or other liabilities.
We are also subject to potential fluctuations in exchange rates between the euro and the U.S. dollar because we translate revenue denominated in euros into U.S. dollars for our financial statements. Our results of our foreign operations are adversely affected by a stronger U.S. dollar relative to foreign currencies (i.e., absent other considerations, a stronger U.S. dollar will reduce both our revenues and our expenses), which may in turn adversely affect the price of our common shares.
We may be materially adversely affected by laws, regulations or other issues related to climate change.
If we become subject to laws or regulations related to climate change, our business, financial condition and results of operations could be materially adversely affected. The federal government has enacted certain climate change laws and regulations which may, among other things, regulate “carbon footprints” and greenhouse gas emissions. In addition, the SEC has recently proposed rule amendments that would require us to prepare a wide range of new climate-related disclosures, including with respect to our climate-related risks, greenhouse gas emissions, and other climate-related targets, goals and plans. Such laws and regulations could result in substantial compliance costs, retrofit costs and construction costs, including monitoring and reporting costs and capital expenditures for environmental control facilities and other new equipment. Non-compliance with these laws or regulations may result in potential cost increases, litigation, fines, penalties, brand or reputational damage, loss of tenants, lower valuation and higher investor activism activities. We cannot predict how future laws and regulations, or future interpretations of current laws and regulations related to climate change will affect our business, financial condition and results of operations. Additionally, the potential physical impacts of climate change on our operations are highly uncertain. These may include changes in rainfall and storm patterns and intensity, water shortages,
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changing sea levels and changing temperatures. These impacts may have a material adverse effect on our business, financial condition and results of operations.
Compliance or failure to comply with the Americans with Disabilities Act could result in substantial costs.
Our properties must comply with the Americans with Disabilities Act (the “ADA”) and any equivalent state or local laws, to the extent that our properties are public accommodations as defined under such laws. Under the ADA, all public accommodations must meet federal requirements related to access and use by disabled persons. If one or more of our properties is not in compliance with the ADA or any equivalent state or local laws, we may be required to incur additional costs to bring such property into compliance with the ADA or similar state or local laws. Noncompliance with the ADA or similar state and local laws could also result in the imposition of fines or an award of damages to private litigants. We cannot predict the ultimate amount of the cost of compliance with the ADA or any equivalent state or local laws. If we incur substantial costs to comply with the ADA or any equivalent state or local laws, it may have a material adverse effect on our business, financial condition and results of operations.
Our assets may be subject to impairment charges.
We will regularly review our real estate assets for impairment, and based on these reviews, we may record impairment losses that have a material adverse effect on our business, financial condition and results of operations. Negative or uncertain market and economic conditions, as well as market volatility, increase the likelihood of incurring impairment losses. Such impairment losses may have a material adverse effect on our business, financial condition and results of operations.
Uninsured and underinsured losses may adversely affect our operations.
We, or in certain instances, tenants at our properties, carry comprehensive commercial general liability, fire, extended coverage, business interruption, rental loss coverage, environmental and umbrella liability coverage on all of our properties. We also carry wind and flood coverage on properties in areas where we believe such coverage is warranted, in each case with limits of liability that we deem adequate. Similarly, we are insured against the risk of direct physical damage in amounts we believe to be adequate to reimburse us, on a replacement cost basis, for costs incurred to repair or rebuild each property, including loss of rental income during the reconstruction period. However, we may be subject to certain types of losses that are generally uninsured losses, including, but not limited to losses caused by riots, war or acts of God. In the event of substantial property loss, the insurance coverage may not be sufficient to pay the full current market value or current replacement cost of the property. In the event of an uninsured loss, we could lose some or all of our capital investment, cash flow and anticipated profits related to one or more properties. Inflation, changes in building codes and ordinances, environmental considerations and other factors also might make it not feasible to use insurance proceeds to replace a property after it has been damaged or destroyed. Under such circumstances, the insurance proceeds we receive might not be adequate to restore our economic position with respect to such property, which may have a material adverse effect on our business, financial condition and results of operations.
We may be subject to litigation, which could have a material adverse effect on our financial condition.
We may be subject to litigation, including claims related to our assets and operations that are otherwise in the ordinary course of business. Some of these claims may result in significant defense costs and potentially significant judgments against us, some of which we may not be insured against. While we generally intend to vigorously defend ourselves against such claims, we cannot be certain of the ultimate outcomes of claims that may be asserted against us. Unfavorable resolution of such litigation may result in our having to pay significant fines, judgments, or settlements, which, if uninsured – or if the fines, judgments and settlements exceed insured levels – would adversely impact our earnings and cash flows, thereby negatively impacting our ability to service debt and pay dividends to our shareholders, which may have a material adverse effect on our business, financial condition and results of operations. Certain litigation, or the resolution of certain litigation, may affect the availability or cost of some of our insurance coverage, expose us to increased risks that would be uninsured, or adversely impact our ability to attract officers and trustees, each of which may have a material adverse effect on our business, financial condition and results of operations.
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If we are unable to satisfy the regulatory requirements of the Sarbanes-Oxley Act, or if our disclosure controls or internal control over financial reporting is not effective, investors could lose confidence in our reported financial information, which could adversely affect the perception of our business and the trading price of our common shares.
As a public company, we will become subject to the reporting requirements of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Sarbanes-Oxley Act and the Dodd-Frank Act and will be required to prepare our financial statements in accordance with the rules and regulations promulgated by the SEC. The design and effectiveness of our disclosure controls and procedures and internal control over financial reporting may not prevent all errors, misstatements or misrepresentations. Although the Advisors will continue to review the effectiveness of our disclosure controls and procedures and internal controls over financial reporting, there can be no guarantee that our internal controls over financial reporting will be effective in accomplishing all of our control objectives. If we are not able to comply with these and other requirements in a timely manner, or if we or our independent registered public accounting firm identify deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses, the market price of our common shares could decline and we could be subject to sanctions or investigations by the NYSE, the SEC or other regulatory authorities, which may have a material adverse effect on our business, financial condition and results of operations.
Risks Related to Financing and Our Indebtedness
We expect to have a significant amount of indebtedness and may need to incur more in the future.
Immediately following the Distribution, net of capitalized financing costs, we expect to have approximately $590.6 million of total outstanding indebtedness. In addition, in connection with executing our business strategies going forward, we expect to need to invest in our current portfolio and we may elect to finance these endeavors by incurring additional indebtedness. The amount of such indebtedness could have material adverse consequences for us, including:
•hindering our ability to adjust to changing market, industry or economic conditions;
•limiting our ability to access the capital markets to raise additional equity or refinance maturing debt on favorable terms;
•limiting the amount of free cash flow available for future operations, dividends, share repurchases or other uses;
•making us more vulnerable to economic or industry downturns, including interest rate increases; and
•placing us at a competitive disadvantage compared to less leveraged competitors.
Moreover, to respond to competitive challenges, we may be required to raise substantial additional capital to execute our business strategy. Our ability to arrange additional financing will depend on, among other factors, our financial position and performance, as well as prevailing market conditions and other factors beyond our control. If we are able to obtain additional financing and if we received credit ratings, these credit ratings could be adversely affected, which could further raise our borrowing costs and further limit our future access to capital and our ability to satisfy our obligations under our indebtedness, which may have a material adverse effect on our business, financial condition and results of operations.
We have existing debt and refinancing risks that could affect our cost of operations.
Following the Distribution, we may have both fixed and variable rate indebtedness and may incur additional indebtedness in the future, including borrowings under the NLOP Financing Arrangements. As a result, we are, and expect to be, subject to the risks normally associated with debt financing including:
•that interest rates may rise;
•that our cash flow will be insufficient to make required payments of principal and interest;
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•that we will be unable to refinance some or all of our debt or increase the availability of overall debt on terms as favorable as those of our existing debt, or at all;
•that any refinancing will not be on terms as favorable as those of our existing debt;
•that required payments on mortgages and on our other debt are not reduced if the economic performance of any property declines;
•that debt service obligations will reduce funds available for distribution to our shareholders;
•that any default on our debt, due to noncompliance with financial covenants or otherwise, could result in acceleration of those obligations;
•that we may be unable to refinance or repay the debt as it becomes due; and
•that if our degree of leverage is viewed unfavorably by lenders, it could affect our ability to obtain additional financing.
If we are unable to repay or refinance our indebtedness as it becomes due, we may need to sell assets or to seek protection from our creditors under applicable law, which may have a material adverse effect on our business, financial condition and results of operations.
We may not be able to secure additional financing on favorable terms, or at all, to meet our capital needs.
In connection with the Separation and Distribution, we have entered into the NLOP Financing Arrangements; however, we may require additional capital to implement our business plan, respond to business opportunities, challenges or unforeseen circumstances and may determine to engage in equity or debt financings, refinance the NLOP Financing Arrangements or enter into new credit facilities. If we are unable to refinance or repay the debt as it becomes due or obtain adequate financing or financing on terms satisfactory to us, when we require it, our ability to continue to support our business plan and to respond to business challenges could be limited.
The NLOP Financing Arrangements will limit our ability to pay dividends on our common shares, including repurchasing our common shares.
Under the instruments governing the NLOP Financing Arrangements and the Separation and the Distribution, permitted dividends may be limited to the amount required for us (and our subsidiary REITs) to avoid the imposition of income and excise taxes. Our ability to pay dividends in cash may be limited and we may be required to utilize alternative financing or other procedures to satisfy the applicable REIT distribution requirements (including the payment of dividends on our common stock in common shares, as described more fully in “Material U.S. Federal Income Tax Consequences – Taxation of Our Company – Distribution Requirements,” which may place downward pressure on the market price of our common shares). Any inability to pay dividends may negatively impact our REIT status or could cause shareholders to sell our common shares, which may have a material adverse effect on our business, financial condition and results of operations.
We may not be able to engage in potentially desirable strategic or capital-raising transactions that require the issuance of interests in our operating company while the NLOP Financing Arrangements remain outstanding.
For so long as the NLOP Financing Arrangements remain outstanding, we are generally prohibited from engaging in certain transactions that would affect the ownership of our operating company, including admitting new members or other capital raising transactions, if there have been material changes in the direct or indirect ownership of NLOP Mezzanine Borrower during the preceding three year period. This restriction may limit our ability to pursue strategic transactions or engage in other transactions that may maximize the value of our business.
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Our governing documents do not limit the amount of indebtedness we may incur and we may become more highly leveraged.
Our Board may permit us to incur additional debt and would do so, for example, if it were necessary to maintain our status as a REIT. We might become more highly leveraged as a result, and our financial condition, results of operations and funds available for distribution to shareholders might be negatively affected, and the risk of default on our indebtedness could increase, which may have a material adverse effect on our business, financial condition and results of operations.
If we become an UPREIT, we would be a holding company with no direct operations and would rely on distributions received from our operating company, NLO OP LLC and its subsidiaries, including NLOP Mezzanine Borrower, to make distributions to our shareholders.
While we will not conduct our business as an UPREIT immediately following the Separation and the Distribution, we may do so in the future, in which case we would become a holding company and conduct all of our operations through our operating company, and would rely on distributions from our operating company, NLO OP LLC and its subsidiaries, including NLOP Mezzanine Borrower, to make any distributions to our shareholders and to meet any of our obligations. The ability of our operating company to make distributions to us would depend on its operating results and the ability of subsidiaries of our operating company to make distributions to our operating company, which could be subject to restrictions of any of its subsidiaries. While NLO OP LLC is currently expected to be our wholly owned subsidiary, if we elected to admit third party members, we would expect to amend and restate the operating agreement for NLO OP LLC to reflect such terms as would be customary and appropriate for an UPREIT, and those members would be entitled to the rights and remedies set forth thereunder, including with respect to conversion to our common shares, redemption, and other rights that could adversely affect the rights of our shareholders. In addition, the claims of our shareholders would be structurally subordinated to all existing and future liabilities and other obligations and any preferred equity of the operating company and its subsidiaries, including in the case of any liquidation, bankruptcy or reorganization of our company.
Financial covenants could materially adversely affect our ability to conduct our business.
The instruments governing the NLOP Financing Arrangements contain restrictions on the amount of debt we may incur and other restrictions and requirements on our operations. These restrictions, as well as any additional restrictions to which we may become subject in connection with additional financings or refinancings, could restrict our ability to pursue business initiatives, effect certain transactions or make other changes to our business that may otherwise be beneficial to us, which could adversely affect our results of operations. In addition, violations of these covenants could cause declarations of default under, and acceleration of, any related indebtedness, which would result in adverse consequences to our financial condition. The instruments governing the NLOP Financing Arrangements also contain cross-default provisions that give the lenders the right to declare a default if we are in default resulting in (or permitting the) acceleration of other debt under other loans in excess of certain amounts. In the event of a default, we may be required to repay such debt with capital from other sources, which may not be available to us on attractive terms, or at all, which may have a material adverse effect on our business, financial condition and results of operations. Additionally, the NLOP Mortgage Loan is secured by first priority mortgages and deeds of trust encumbering the interests of the NLOP Mortgage Loan Borrowers in the Mortgaged Properties, as well as by pledges of equity of the NLOP Mortgage Loan Borrowers (and, with respect to the NLOP Mortgage Loan Borrowers that are limited partnerships, the general partners thereof), NLO Holding Company LLC, and each of NLO MB TRS LLC and NLO SubREIT LLC. Any inability to service our obligations under the NLOP Mortgage Loan could lead to foreclosure on the assets securing such debt, which could have a materially adverse effect on our business, financial condition and results of operations.
The NLOP Mortgage Loan Agreement (as defined below) also contains certain cash management provisions which provide that all cash from the Mortgaged Properties is held by the Lenders and applied pursuant to a waterfall set forth in the NLOP Mortgage Loan Agreement, with excess cash flow being retained by the Lenders (subject to NLOP Mortgage Borrowers’ right to request funds for certain permitted payments). In addition, upon the occurrence of certain trigger events (such as specified events of default or a bankruptcy event with respect to NLOP Mortgage Borrower), the Lenders have the right to retain any excess cash flow as additional collateral for the loan, until such
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trigger event is cured, subject to certain rights to distributions for REIT compliance purposes and current interest on the NLOP Mezzanine Loan. For more information regarding the NLOP Financing Arrangements, see “Description of Material Indebtedness.”
Failure 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.
The interest rate and foreign exchange rate hedge instruments we may use to manage some of our exposure to interest rate and foreign exchange rate volatility involve risk, such as the risk that counterparties may fail to honor their obligations under these arrangements. Failure to hedge effectively against such interest rate and foreign exchange rate changes may have a material adverse effect on our business, financial condition and results of operations.
We 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.
In order to qualify to be taxed as a REIT, we (and any of our subsidiary REITs) generally must distribute annually at least 90% of REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gain, to shareholders. Because of this distribution requirement, we may not be able to fund all future capital needs from income from operations. As a result we will continue to rely on third-party sources of capital, including lines of credit, collateralized or unsecured debt (both construction financing and permanent debt) and equity issuances. Our access to third-party sources of capital depends on a number of factors, including general market conditions, the market’s view of the quality of our assets, the market’s perception of our growth potential, our current debt levels and our current and expected future earnings. If we are unable to obtain a sufficient level of third-party financing to fund our capital needs, our ability to make distributions to our shareholders may be adversely affected which may have a material adverse effect on our business, financial condition and results of operations.
We may amend our divestiture strategy and business policies without shareholder approval.
Our Board may change our divestiture strategy, financing strategy or leverage policies with respect to operations, indebtedness, capitalization and dividends at any time without the consent of our shareholders, which could result in an investment portfolio with a different risk profile. Such a change in our strategy may increase our exposure to interest rate risk, default risk and real estate market fluctuations, among other risks. These changes could adversely affect our ability to pay dividends to our shareholders, and may have a material adverse effect on our business, financial condition and results of operations.
Decreases in property values may reduce the amount we receive upon the sale of any of our assets.
Our disposition strategy may provide for the sale of some or all our assets, which are real estate investments, and we cannot predict whether we will be able to do so at a price or on terms and conditions acceptable to us. Investments in real properties are relatively illiquid. The amounts we receive upon the sale of any of our assets depends on the underlying value of such assets, and the underlying value of such assets may be reduced by a number of factors that are beyond our control, including, without limitation, the following:
•changes in general economic or local conditions;
•changes in supply of or demand for similar or competing properties in an area;
•changes in interest rates and availability of mortgage funds that may render the sale of our properties difficult or unattractive;
•increases in operating expenses;
•the financial performance of our tenants, and the ability of our tenants to satisfy their obligations under their leases;
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•vacancies and inability to lease or sublease space;
•potential major repairs which are not presently contemplated or other contingent liabilities associated with such assets;
•competition; and
•changes in tax, real estate, environmental and zoning laws.
Defaults under future sale agreements may delay or reduce the cash we receive pursuant to any future sale agreements.
In connection with any sales of our assets, we will seek to enter into binding sales agreements for any such sales. The consummation of any potential sale for which we will enter into a sale agreement in the future will be subject to satisfaction of closing conditions. If any potential transaction contemplated by any such future sale agreement do not close because of a buyer default, failure of a closing condition or for any other reason, we may not be able to enter into a new agreement on a timely basis or on terms that are as favorable as the original sale agreement. We will also incur additional costs involved in locating a new buyer and negotiating a new sale agreement for any such sale. If we incur these additional costs, potential distributions to our shareholders would be reduced.
Shareholder litigation related to any disposition strategy could result in substantial costs and distract our Board and Advisors.
Historically, extraordinary corporate actions by a company, such as disposition strategies, often lead to securities class action lawsuits being filed against that company. Defending ourselves in any litigation related to any disposition strategy may be expensive and, even if we ultimately prevail, the process of defending against lawsuits will divert NLOP’s Board and the Advisors’ attention from implementing the disposition strategy and otherwise operating our business. If we do not prevail in any lawsuit, we may be liable for damages. We cannot predict the amount of any such damages; however, if applicable, they may be significant and may cause potential distributions to our shareholders to be reduced and/or delayed.
NLOP is an emerging growth company within the meaning of the Securities Act, and if NLOP takes advantage of certain exemptions from disclosure requirements available to “emerging growth companies,” this could make NLOP’s securities less attractive to investors and may make it more difficult to compare NLOP’s performance with other public companies.
NLOP is an “emerging growth company” within the meaning of the Securities Act, as modified by the JOBS Act, and NLOP 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, 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. NLOP does not intend to take advantage of these exemptions at this time, but may do so in the future. As a result, if NLOP decides to take advantage of these exemptions, NLOP shareholders may not have access to certain information they may deem important.
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 Distribution, (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. If NLOP decides to take advantage of certain exemptions from disclosure requirements available to it as an emerging growth company, NLOP cannot predict whether investors will find NLOP’s common shares less attractive because NLOP may rely on these exemptions. If some investors find NLOP’s securities less attractive as a result of NLOP’s reliance on these
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exemptions, the trading prices of NLOP’s securities may be lower than they otherwise would be, there may be a less active trading market for NLOP’s securities and the trading prices of NLOP’s securities may be more volatile.
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 an 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.
Risks Related to the Separation and the Distribution
We have no operating history as an independent company, and our historical financial information is not necessarily representative of the results that we would have achieved as a separate, publicly-traded company, do not reflect certain assets in our portfolio that were acquired by WPC in connection with its merger with CPA:18, and may not be a reliable indicator of our future results.
Our historical financial information included in this information statement is derived solely from the consolidated financial statements and accounting records of WPC for the corresponding periods presented, which is not necessarily representative of the results that we would have achieved as a separate, publicly-traded company. Furthermore, our historical financial information does not include the nine properties acquired from CPA:18 in connection with the merger between WPC and CPA:18 in August 2022, and thus the financial information contained in this information statement does not include historical financial information related to all of the assets that will be included in our portfolio after the Distribution. Our historical information also does not include the impact of the NLOP Financing. Accordingly, the historical financial information included in this information statement does not necessarily reflect the financial condition, results of operations or cash flows that we would have achieved as a separate, publicly-traded company during the periods presented, or those that we will achieve in the future. Factors which could cause our results to materially differ from those reflected in such historical financial information and which may adversely impact our ability to achieve similar results in the future may include, but are not limited to, the following:
•the financial results in this information statement do not reflect the CPA:18 Properties, or the impacts thereof on the historical financial results of the portfolio;
•the financial results in this information statement do not reflect all of the expenses we will incur as a public company;
•prior to the Separation and the Distribution, portions of our business have been operated by WPC, and as part of its corporate organizations;
•after the Separation, we will need to rely on systems, infrastructure, and personnel of WPC;
•after the Distribution, we will be unable to use WPC’s economies of scope and scale in procuring various goods and services. Although we will enter into certain agreements with WPC and/or certain of its subsidiaries in connection with the Separation and Distribution, including the Advisory Agreements, these agreements may not fully capture the benefits previously enjoyed as a result of our business being integrated within the business WPC, and may result in us paying higher charges than paid in the past by WPC for necessary services;
•prior to the Separation and the Distribution, the working capital requirements and capital for general corporate purposes, including, research and development, and capital expenditures, relative to the assets we will acquire in the Separation were satisfied as part of the corporation-wide cash management policies of WPC. While we have entered into the NLOP Financing Arrangements, following the Distribution, we will
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have limited cash due to the distribution payment to WPC contemplated by the Separation, and we may need to obtain additional financing from banks, through public offerings or private placements of debt or equity securities, strategic relationships or other arrangements, which may not be on terms as favorable those obtained by WPC, and the cost of capital for our business may be higher than WPC’s cost of capital prior to the Separation and the Distribution, which may have a material adverse effect on our business, financial condition and results of operations; and
•our cost structure, management, financing and business operations will be significantly different from that of WPC as a result of our operating as an independent public company. These changes will result in increased costs on a comparable basis focused on assets under management, including, but not limited to, legal, accounting, compliance and other costs associated with being a public company with equity securities traded on the NYSE.
Other significant changes may occur in our cost structure, management, financing and business operations as a result of our status as an independent company. For additional information about the past financial performance of our business assets and the basis of presentation of the historical combined financial statements of our business, please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the historical financial statements and accompanying notes included elsewhere in this information statement.
WPC may fail to perform under the various transaction agreements that will be executed as part of the Separation and the Distribution, or we may fail to have necessary systems and services in place when certain of the transaction agreements expire.
Concurrently with or prior to the Distribution, we will enter into agreements with WPC and/or certain of its subsidiaries in connection with the Separation and the Distribution including the Separation and Distribution Agreement, the Tax Matters Agreement and the Advisory Agreements. Certain of these agreements will provide for the performance of services by each company for the benefit of the other for a period of time after the Distribution. We will rely on WPC to satisfy its performance and payment obligations under such agreements. If WPC is unable to satisfy such obligations, including its indemnification obligations, we could incur operational difficulties or losses, which may have a material adverse effect on our business, financial condition and results of operations.
If we do not have in place similar agreements with other providers of these services when the transaction agreements terminate and we are not able to provide these services internally, we may not be able to operate our business effectively and our profitability may decline, which may have a material adverse effect on our business, financial condition and results of operations. For more information, see “Certain Relationships and Related Person Transactions.”
The distribution of NLOP common shares in the Distribution is intended to be a taxable distribution to WPC common stockholders for U.S. federal income tax purposes.
The distribution of NLOP common shares in the Distribution is intended to be a taxable distribution to WPC common stockholders for U.S. federal income tax purposes. Accordingly, an amount equal to the fair market value of the NLOP common shares received by a holder of WPC common stock in the Distribution will generally be treated as a taxable dividend to the extent of the stockholder’s ratable share of any current or accumulated earnings and profits of WPC (including income or gain taken into account in connection with the Distribution) allocable to the Distribution, with the excess treated first as a non-taxable return of capital to the extent of the stockholder’s tax basis in WPC common stock and any remaining excess treated as capital gain. A stockholder’s tax basis in shares of WPC common stock held at the time of the Distribution will be reduced (but not below zero) to the extent the fair market value of NLOP common shares distributed by WPC to such holder in the Distribution exceeds such holder’s ratable share of WPC’s current and accumulated earnings and profits allocable to the Distribution. The stockholder’s holding period for such WPC shares for U.S. federal income tax purposes will not be affected by the Distribution. WPC will not be able to advise you of the amount of earnings and profits of WPC until after the end of the calendar year in which the Distribution occurs.
Additionally, WPC’s current earnings and profits are measured as of the end of the tax year and are generally allocated to all distributions made during such tax year on a pro rata basis. As a result, a proportionate part of
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WPC’s current earnings and profits for the entire taxable year of the Distribution will be allocated to the Distribution. That proportionate part will be treated as dividend income to WPC stockholders even if such holders have not held WPC common stock for the entire taxable year of WPC in which the Distribution occurs. Thus, WPC stockholders who do not hold WPC common stock for the entire taxable year of WPC in which the Distribution occurs may be allocated a disproportionate amount of ordinary income attributable to WPC’s current earnings and profits as a result of the Distribution.
WPC or other applicable withholding agents may be required or permitted to withhold at the applicable rate on all or a portion of the Distribution payable to Non-U.S. stockholders (as defined in “Certain U.S. Federal Income Tax Consequences of the Distribution”) of WPC common stock, and any such withholding may be satisfied by WPC or such agent by withholding a selling a portion of the NLOP common shares that otherwise would be distributable to Non-U.S. stockholders or by withholding from other property held in the Non-U.S. stockholder’s account with the withholding agent.
Although WPC intends to treat the Distribution as a taxable distribution and will ascribe a value to the NLOP common shares in the Distribution for tax purposes, this treatment and valuation are not binding on the United States Internal Revenue Service (the “IRS”) or any other taxing authority. Also, although WPC intends to take the position that the Distribution does not constitute a partial liquidation for U.S. federal income tax purposes, this position is not binding on the IRS or any other tax authority. These tax authorities could assert that the Distribution is a distribution in partial liquidation of WPC for U.S. federal income tax purposes. If the IRS successfully made such an assertion, the portion of the Distribution involving a distribution to WPC’s non-corporate stockholders may be treated as a payment in exchange for such stockholders’ WPC stock instead of as a dividend. Such treatment may result in adverse tax consequences to WPC and NLOP. These taxing authorities could also ascribe a higher valuation to the NLOP common shares, particularly if NLOP common shares trade at prices significantly above the value ascribed to those shares by WPC in the period following the Distribution. Such a higher valuation may cause a larger reduction in the tax basis of WPC common stock held by its common stockholders or may cause such stockholders to recognize additional dividend or capital gain income. You should consult your tax advisor as to the particular tax consequences of the Distribution to you, including the applicability of any U.S. federal, state, local and non-U.S. tax laws.
Potential indemnification obligations owed to WPC pursuant to the Separation and Distribution Agreement may have a material adverse effect on our business, financial condition and results of operations.
The Separation and Distribution Agreement provides for, among other things, the principal corporate transactions required to effect the Separation and the Distribution, certain conditions to the Separation and the Distribution and provisions governing our relationship with WPC with respect to and following the Distribution. Among other things, the Separation and Distribution Agreement provides for indemnification obligations designed to make us financially responsible for substantially all liabilities that may exist related to our business activities, whether incurred prior to or after the Distribution, as well as certain obligations of WPC that we will assume pursuant to the Separation and Distribution Agreement. If we are required to indemnify WPC under the circumstances set forth in the Separation and Distribution Agreement, we may be subject to substantial liabilities, which may have a material adverse effect on our business, financial condition and results of operations.
WPC may not be able to transfer its interests in certain properties in the Separation pursuant to certain agreements, due to the need to obtain the consent of third parties.
Certain covenants and other restrictions contained in debt agreements secured by certain of the legacy WPC properties may require WPC to obtain lender consent in order for such properties to be transferred to us in the Separation. There is no assurance that WPC will be able to obtain such consents on terms that it determines to be reasonable, or at all. Failure to obtain such consents could require WPC to retain properties subject to these consents, which may have a material adverse effect on our business, financial condition and results of operations.
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After the Distribution, certain of our trustees may have actual or potential conflicts of interest because of their previous or continuing equity interests in, or positions at, WPC.
We expect that certain of our trustees will be persons who are or have served as employees or directors of WPC or who may own WPC common stock or other equity awards. Following the Distribution, even though our Board will consist of a majority of independent trustees, we expect that certain of our trustees will continue to have a financial interest in WPC common stock. Continued ownership of WPC common stock and equity awards, or service as a director and trustee at both companies, could create, or appear to create, potential conflicts of interest, which may have a material adverse effect on our business, financial condition and results of operations.
We may not achieve some or all of the expected benefits of the Separation and the Distribution, and the Separation and the Distribution may have a material adverse effect on our business, financial condition and results of operations.
We may not be able to achieve the full strategic and financial benefits expected to result from the Separation and the Distribution, or such benefits may be delayed due to a variety of circumstances, not all of which may be under our control. We may not achieve the anticipated benefits of the Separation and the Distribution for a variety of reasons, including, among others: (i) diversion of the Advisors’ attention from operating our business; (ii) disruption of our ongoing business or inconsistencies in our services, standards, controls, procedures and policies, which could adversely affect our ability to maintain relationships with tenants; (iii) increased susceptibility to market fluctuations and other adverse events following the Separation and the Distribution; and (iv) lack of diversification in our business, compared to WPC’s businesses prior to the Separation and the Distribution. Failure to achieve some or all of the benefits expected to result from the Separation and the Distribution, or a delay in realizing such benefits, may have a material adverse effect on our business, financial condition and results of operations.
Our agreements with WPC and/or certain of its subsidiaries in connection with the Separation and the Distribution involve conflicts of interest, and we may have received better terms from unaffiliated third parties than the terms we will receive in these agreements.
Because the Separation and the Distribution involve the combination and division of certain of WPC’s existing businesses into an independent company, we expect to enter into certain agreements with WPC to provide a framework for our relationship with WPC and/or certain of its subsidiaries following the Separation and the Distribution, including the Separation and Distribution Agreement, the Tax Matters Agreement, and the Advisory Agreements. The terms of these agreements will be determined while portions of our business are still owned by WPC and will be negotiated by persons who are at the time employees, officers or directors of WPC or their subsidiaries, or who expect to be employees, officers or directors of WPC following the Separation and Distribution, and, accordingly, may have conflicts of interest. For example, during the period in which the terms of those agreements will be negotiated, we will not have a Board of Trustees that will be independent of WPC. As a result, the terms of those agreements may not reflect terms that would have resulted from arm’s-length negotiations between unaffiliated third parties, which may have a material adverse effect on our business, financial condition and results of operations. For more information, see “The Separation and the Distribution – Reasons for the Separation and the Distribution.”
No vote of the WPC stockholders is required in connection with the Separation or the Distribution, so shareholder recourse is limited to divestiture.
No vote of the WPC stockholders is required in connection with the Separation and the Distribution. Accordingly, if the Distribution occurs and you do not want to receive NLOP common shares in the Distribution, your only recourse will be to divest your shares of WPC common stock prior to the record date for the Distribution.
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Pursuant to the Separation and Distribution Agreement, WPC will indemnify us for certain pre-Distribution liabilities and liabilities related to the legacy WPC assets. However, there can be no assurance that these indemnities will be sufficient to insure us against the full amount of such liabilities, or that WPC’s ability to satisfy its indemnification obligation will not be impaired in the future.
Pursuant to the Separation and Distribution Agreement, WPC will indemnify us for certain liabilities. However, third parties could seek to hold us responsible for any of the liabilities that WPC retains, and there can be no assurance that WPC will be able to fully satisfy its indemnification obligations to us. Moreover, even if we ultimately succeed in recovering from WPC any amounts for which we were held liable by such third parties, any indemnification received may be insufficient to fully offset the financial impact of such liabilities or we may be temporarily required to bear these losses while seeking recovery from WPC, which may have a material adverse effect on our business, financial condition and results of operations.
Substantial sales of our common shares may occur in connection with the Distribution, which could cause our share price to decline.
The common shares that WPC intends to distribute to its stockholders generally may be sold immediately in the public market. Upon completion of the Distribution, we expect that we will have an aggregate of approximately 14,261,721 common shares issued and outstanding, based on the number of issued and outstanding shares of WPC common stock as of September 26, 2023. NLOP common shares following the Distribution will be freely tradable without restriction or further registration under the Securities Act unless the shares are owned by one of our “affiliates,” as that term is defined in Rule 405 under the Securities Act.
Although we have no actual knowledge of any plan or intention on the part of any of our 5% or greater shareholders to sell their NLOP common shares following the Distribution, it is possible that some of our large shareholders will sell our common shares that they receive in the Distribution. For example, our shareholders may sell our common shares because our concentration in office real properties, our business profile or our market capitalization as an independent company does not fit their investment objectives, or because our common shares are not included in certain indices after the Distribution. A portion of WPC common stock is held by index funds, and if we are not included in these indices at the time of the Distribution, these index funds may be required to sell our shares. The sales of significant amounts of our common shares, or the perception in the market that this may occur, may result in the lowering of the market price of our shares, which may have a material adverse effect on our business, financial condition and results of operations.
No market currently exists for the NLOP common shares and we cannot be certain that an active trading market for our common shares will develop or be sustained after the Distribution. The combined post-Distribution value of WPC common stock and our common shares may not equal or exceed the value of WPC common stock prior to the Distribution, and the price of our common shares may be volatile or may decline.
A public market for our common shares does not currently exist. We anticipate that beginning as early as three trading days prior to the Distribution Date, trading of our common shares will begin on a “when-issued” basis and will continue through the Distribution Date. However, we cannot guarantee that an active trading market will develop or be sustained for our common shares after the Distribution. Nor can we predict the prices at which our common shares may trade after the Distribution. The market price of our common shares may fluctuate widely as a result of a number of factors, many of which are outside of our control. In addition, the stock market is subject to fluctuations in share prices and trading volumes that affect the market prices of the shares of many companies. These fluctuations in the stock market may adversely affect the market price of our common shares. Among the factors that could affect the market price of our common shares are:
•actual or anticipated quarterly fluctuations in our business, financial condition and operating results;
•changes in revenues or earnings estimates or publication of research reports and recommendations by financial analysts or actions taken by rating agencies with respect to our securities or those of other REITs;
•the ability of our tenants to pay rent to us and meet their other obligations to us under current lease terms;
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•our ability to re-lease spaces as leases expire;
•our ability to refinance our indebtedness as it matures;
•any changes in our dividend policy;
•any future issuances of equity securities;
•strategic actions by us or our competitors, such as restructurings;
•general market conditions and, in particular, developments related to market conditions for the real estate industry; and
•domestic and international economic factors unrelated to our performance.
Additionally, we cannot assure you that the combined trading prices of WPC common stock and our common shares after the Distribution will be equal to or greater than the trading price of WPC common stock prior to the Distribution. Until the market has fully evaluated the business of WPC without the NLOP Business, the price at which WPC common stock trades may fluctuate more significantly than might otherwise be typical, even with other market conditions, including general volatility, held constant. Similarly, until the market has fully evaluated our business as a stand-alone entity, the prices at which our common shares trade may fluctuate more significantly than might otherwise be typical, even with other market conditions, including general volatility, held constant. The increased volatility of our share price following the Distribution may have a material adverse effect on our business, financial condition and results of operations.
Risks Related to Our Advisors
Our success is dependent on the performance of the Advisors, and we could be adversely affected if WPC ceases managing the NLOP Business on our behalf.
Our ability to achieve our divestiture objectives and to pay distributions is largely dependent upon the performance of the Advisors in the disposition of investments, the selection of tenants, the determination of any financing arrangements, the completion of our build-to-suit and development projects, and the management of our assets. We cannot guarantee that the Advisors will be able to successfully manage and achieve any potential distribution strategy.
If WPC ceases managing the NLOP Business on our behalf, we would have to find a new advisor, who may not be familiar with our company, may not provide the same level of services as the Advisors, and may charge fees that are higher than the fees we pay to the Advisors, all of which may materially adversely affect our performance and delay or otherwise negatively impact our ability to effect a disposition strategy. Also, please see the risk “We have limited independence from the Advisors and their affiliates, who may be subject to conflicts of interest” below.
We may be deterred from terminating the Advisory Agreements or engaging in certain business combination transactions.
Lenders for certain financing arrangements related to our assets may request change of control provisions in their loan documentation that would make the termination or replacement of WPC or its affiliates as the anticipated Advisors an event of default or an event triggering the immediate repayment of the full outstanding balance of the loan. If an event of default or a repayment event occurs with respect to any of our loans, our revenues and distributions to our shareholders may be adversely affected.
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We have limited independence from the Advisors and their affiliates, who may be subject to conflicts of interest.
We expect to delegate our management functions to the Advisors, for which they will earns fees pursuant to the Advisory Agreements. Therefore, the Advisor and its affiliates will have potential conflicts of interest in their dealings with us, including, but not limited to, in the following circumstances:
•agreements between us and the Advisors, including agreements regarding compensation, are not negotiated on an arm’s-length basis, as would occur if the agreements were with unaffiliated third parties;
•competition with WPC for investments, which are resolved by the Advisors (although the Advisors will be required to use their best efforts to present a continuing and suitable investment program to us, allocation decisions present conflicts of interest, which may not be resolved in the manner most favorable to our interests);
•decisions regarding asset sales, which could impact the timing and amount of fees payable to the Advisors; and
•the negotiation or termination of the Advisory Agreements and other agreements with the Advisors and their affiliates.
Although at least a majority of our Board must be independent, we will have limited independence from the Advisor due to this delegation.
Payment of fees to the Advisors will reduce cash available for distribution.
The Advisors are expected to perform services for us in connection with the management and leasing of our properties, and the administration of our other investments. Pursuant to the Advisory Agreements, we will pay the Advisors cash fees for these services. The payment of these fees and distributions will reduce the amount of cash available for distribution to our shareholders.
The occurrence of cyber incidents, or a deficiency in the Advisors’ cybersecurity, could negatively impact our business by causing a disruption to our operations, a compromise or corruption of our confidential information, and/or damage to our business relationships, all of which could negatively impact our financial results.
The occurrence of cyber incidents, or a deficiency in the Advisors’ cybersecurity, could negatively impact our business by causing a disruption to our operations, a compromise or corruption of our confidential information, and/or damage to our business relationships, all of which could negatively impact our financial results.
A cyber incident is considered to be any adverse event that threatens the confidentiality, integrity, or availability of our information resources, which could be an intentional attack or an unintentional accident or error. The Advisors use information technology and other computer resources to carry out important operational activities and to maintain our business records. With the advent of remote work environments and technologies, we face heightened cybersecurity risks as the Advisors’ employees and counterparties increasingly depend on the internet and face greater exposure to malware and phishing attacks. These heightened cybersecurity risks may increase our vulnerability to cyber-attacks and cause disruptions to our internal control procedures.
In addition, the Advisors may store or come into contact with sensitive information and data. If the Advisors or third-party service providers fail to comply with applicable privacy or data security laws in handling this information (including the General Data Protection Regulation and the California Consumer Privacy Act), we could face significant legal and financial exposure to claims of governmental agencies and parties whose privacy is compromised, including sizable fines and penalties. The Advisors have implemented processes, procedures, and controls intended to address ongoing and evolving cybersecurity risks, but these measures, as well as our increased awareness of a risk of a cyber incident, do not guarantee that our financial results will not be negatively impacted by such an incident. The primary risks that could directly result from the occurrence of a cyber incident include operational interruption, damage to our relationship with our tenants, and private data exposure. A significant and extended disruption could damage our business or reputation; cause a loss of revenue; have an adverse effect on tenant relations; cause an unintended or unauthorized public disclosure; or lead to the misappropriation of
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proprietary, personal identifying and confidential information; all of which could result in us incurring significant expenses to address and remediate or otherwise resolve these kinds of issues. There can be no assurance that the insurance we maintain to cover some of these risks will be sufficient to cover the losses from any future breaches of our systems.
Risks Related to Our Status as a REIT
Failure to qualify as a REIT would materially and adversely affect us and the value of our common shares.
We will elect to be taxed as a REIT and believe we will operate in a manner that will allow us to qualify and to remain qualified as a REIT for U.S. federal income tax purposes commencing with the taxable year in which the Distribution occurs. We have not requested and do not plan to request a ruling from the IRS that we qualify as a REIT and the statements in this information statement are not binding on the IRS or any court. Therefore, we cannot guarantee that we will qualify as a REIT or that we will remain qualified as such in the future. If we (or any of our subsidiary REITs) fail to qualify as a REIT or lose our REIT status, we (or our subsidiary REITs) will face significant tax consequences that would substantially reduce our cash available for distribution to our shareholders for each of the years involved because:
•we would not be allowed a deduction for dividends paid to shareholders in computing our taxable income and would be subject to regular U.S. federal corporate income tax;
•we could be subject to increased state and local taxes; and
•unless we are entitled to relief under applicable statutory provisions, we could not elect to be taxed as a REIT for four taxable years following the year during which we were disqualified.
Any such corporate tax liability could be substantial and would reduce our cash available for, among other things, our operations and distributions to shareholders. In addition, if we fail to qualify as a REIT, we will not be required to make distributions to our shareholders. As a result of all these factors, our failure to qualify as a REIT also could impair our ability to expand our business and raise capital, and could materially and adversely affect the trading price of our common shares. The risks described herein related to our REIT qualification are equally applicable to any subsidiary REITs in which we invest. If any of our subsidiary REITs fail to qualify as a REIT, such failure could jeopardize our qualification as a REIT unless such failure was subject to relief under U.S. federal income tax laws.
Qualification as a REIT involves the application of highly technical and complex Code provisions for which there are only limited judicial and administrative interpretations. The determination of various factual matters and circumstances not entirely within our control may affect our ability to qualify as a REIT. In order to qualify as a REIT, we must satisfy a number of requirements, including requirements regarding the ownership of our common shares, requirements regarding the composition of our assets and gross income. Also, we must make distributions to shareholders aggregating annually at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gains. See “Material U.S. Federal Income Tax Consequences – Taxation of Our Company.” In addition, legislation, new regulations, administrative interpretations or court decisions may materially and adversely affect our investors, our ability to qualify as a REIT for federal income tax purposes or the desirability of an investment in a REIT relative to other investments.
Even if we qualify as a REIT for federal income tax purposes, we may be subject to some federal, state and local income, property and excise taxes on our income or property and, in certain cases, a 100% penalty tax, in the event we sell property as a dealer. In addition, our TRSs will be subject to income tax as regular corporations in the jurisdictions in which they operate.
If WPC failed to qualify as a REIT during certain periods prior to the Distribution, we (and any of our subsidiary REITs) would be prevented from electing to qualify as a REIT (for up to five years following the Distribution).
Under applicable Treasury Regulations, if WPC failed, or fails, to qualify as a REIT during certain periods prior to the Distribution, unless WPC’s failure were subject to relief under U.S. federal income tax laws, we (and any of
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our subsidiary REITs) would be prevented from electing to qualify as a REIT prior to the fifth calendar year following the year in which WPC failed to qualify.
If 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.
One or more of our subsidiaries may be treated as a partnership or disregarded entity for federal income tax purposes and, therefore, will not be subject to federal income tax on its income. Instead, each of its partners or its member, as applicable, which may include us, will be allocated, and may be required to pay tax with respect to, such partner’s or member’s share of its income. We cannot assure you that the IRS will not challenge the status of any subsidiary partnership or limited liability company in which we own an interest as a disregarded entity or partnership for federal income tax purposes, or that a court would not sustain such a challenge. If the IRS were successful in treating any subsidiary partnership or limited liability company as an entity taxable as a corporation for federal income tax purposes, we (or any of our subsidiary REITs) could fail to meet the gross income tests and certain of the asset tests applicable to REITs and, accordingly, we (or any of our subsidiary REITs) may cease to qualify as a REIT. Also, the failure of any subsidiary partnerships or limited liability company to qualify as a disregarded entity or partnership for applicable income tax purposes could cause it to become subject to federal and state corporate income tax, which would reduce significantly the amount of cash available for debt service and for distribution to its partners or members, including us.
Ownership 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.
From time to time we (or any of our subsidiary REITs) may own interests in one or more TRSs. A TRS is a corporation, other than a REIT, in which a REIT directly or indirectly holds stock and that has made a joint election with such REIT to be treated as a TRS. If a TRS owns more than 35% of the total voting power or value of the outstanding securities of another corporation, such other corporation will also be treated as a TRS. Other than some activities relating to lodging and health care facilities, a TRS may generally engage in any business, including the provision of customary or non-customary services to tenants of its parent REIT. A TRS is subject to federal income tax as a regular C corporation. In addition, a 100% excise tax will be imposed on certain transactions between a TRS and its parent REIT that are not conducted on an arm’s-length basis.
A REIT’s ownership of securities of a TRS is not subject to the 5% or 10% asset tests applicable to REITs. Not more than 25% of the value of our total assets may be represented by securities (including securities of TRSs), other than those securities includable in the 75% asset test, and not more than 20% of the value of our total assets may be represented by securities of TRSs. We intend to structure our transactions with any TRSs that we (or any of our subsidiary REITs) own to ensure that they are entered into on arm’s-length terms to avoid incurring the 100% excise tax described above. There can be no assurance, however, that we will be able to comply with the above limitations or to avoid application of the 100% excise tax discussed above.
Distribution requirements imposed by law limit our flexibility.
To maintain our status as a REIT for federal income tax purposes, we generally are required to distribute to our shareholders at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gains, each year. We also are subject to tax at regular corporate rates to the extent that we distribute less than 100% of our taxable income (including net capital gains) each year.
In addition, we are subject to a 4% non-deductible excise tax to the extent that we fail to distribute during any calendar year at least the sum of 85% of our ordinary income for that calendar year, 95% of our capital gain net income for the calendar year, and any amount of that income that was not distributed in prior years.
We intend to make distributions to our shareholders to comply with the distribution requirements of the Code as well as to reduce our exposure to federal income taxes and the non-deductible excise tax. Differences in timing between the receipt of income and the payment of expenses to arrive at taxable income, along with the effect of
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required debt amortization payments, could require us to borrow funds to meet the distribution requirements that are necessary to achieve the tax benefits associated with qualifying as a REIT. These distribution requirements are equally applicable to any subsidiary REIT in which we invest.
We 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.
In order to satisfy our REIT distribution requirements, we are permitted, subject to certain conditions and limitations, to make distributions that are in part payable in our common shares. Taxable shareholders receiving such distributions will be required to report dividend income as a result of such distribution for both the cash and share components of the distribution and even if we distributed no cash or only nominal amounts of cash to such shareholder.
If we make any taxable dividend payable in cash and common shares, taxable shareholders receiving such dividends will be required to include the full amount of the dividend as ordinary income to the extent of our current and accumulated earnings and profits, as determined for U.S. federal income tax purposes. As a result, shareholders may be required to pay income tax with respect to such dividends in excess of the cash dividends received. If a shareholder sells our shares that it receives as a dividend in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the dividend, depending on the market price of the shares at the time of the sale. Furthermore, with respect to certain non-U.S. shareholders, we may be required to withhold federal income tax with respect to such dividends, including in respect of all or a portion of such dividend that is payable in our shares. If, in any taxable dividend payable in cash and shares, a significant number of our shareholders determine to sell our shares in order to pay taxes owed on dividends, it may be viewed as economically equivalent to a dividend reduction and put downward pressure on the market price of our shares.
Legislative or other actions affecting REITs could have a negative effect on us or our investors.
The rules dealing with federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Department of the Treasury. Changes to the tax laws, with or without retroactive application, could adversely affect us or our investors, including holders of our common shares or debt securities. We cannot predict how changes in the tax laws might affect us or our investors. New legislation, Treasury Regulations, administrative interpretations or court decisions could significantly and negatively affect our ability to qualify as a REIT, the federal income tax consequences of such qualification, or the federal income tax consequences of an investment in us. Also, the law relating to the tax treatment of other entities, or an investment in other entities, could change, making an investment in such other entities more attractive relative to an investment in a REIT.
Even if we qualify as a REIT, certain of our business activities will be subject to corporate level income tax and foreign taxes, which will continue to reduce our cash flows, and we will have potential deferred and contingent tax liabilities.
Even if we qualify for taxation as a REIT, we may be subject to certain (i) federal, state, local, and foreign taxes on our income and assets; (ii) taxes on any undistributed income and state, local, or foreign income; and (iii) franchise, property, and transfer taxes. In addition, we could be required to pay an excise or penalty tax under certain circumstances in order to utilize one or more relief provisions under the Code to maintain qualification for taxation as a REIT, which could be significant in amount. Any TRS assets and operations would continue to be subject, as applicable, to federal and state corporate income taxes and to foreign taxes in the jurisdictions in which those assets and operations are located. Any of these taxes would decrease our earnings and our cash available for distributions to stockholders. We will also be subject to a federal corporate level tax at the highest regular corporate rate (currently 21%) on all or a portion of the gain recognized from a sale of assets formerly held by any C corporation that we acquire on a carry-over basis transaction occurring within a five-year period after we acquire such assets, to the extent the built-in gain based on the fair market value of those assets on the effective date of the REIT election is in excess of our then tax basis. The tax on subsequently sold assets will be based on the fair market value and built-
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in gain of those assets as of the beginning of our holding period. Gains from the sale of an asset occurring after the specified period will not be subject to this corporate level tax.
Risks Related to an Investment in Our Common Shares
Limitations 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.
Certain provisions that will be contained in our Declaration of Trust and the NLOP Financing Arrangements may have the effect of discouraging a third party from making an acquisition proposal for us and may thereby inhibit a change of control. Provisions of our Declaration of Trust are designed to assist us in maintaining our qualification as a REIT under the Code by preventing concentrated ownership of our shares that might jeopardize REIT qualification. Among other things, unless exempted by our Board, no person may actually or constructively own more than 9.8% of the aggregate of the outstanding common shares of NLOP by value or by number of shares, whichever is more restrictive, or 9.8% of the aggregate of the outstanding shares of each class and series of outstanding preferred shares of NLOP by value or by number of shares, whichever is more restrictive. Our Board may, in its sole discretion, grant exemptions to the share ownership limits, subject to such conditions and the receipt by our Board of certain representations and undertakings.
In addition to these ownership limits, our Declaration of Trust also prohibits any person from (a) beneficially or constructively owning, as determined by applying certain attribution rules of the Code, shares that would result in us or any of our subsidiary REITs, as applicable, being “closely held” under Section 856(h) of the Code, (b) transferring our shares if such transfer would result in our shares being owned by fewer than 100 persons (determined under the principles of Section 856(a)(5) of the Code), (c) beneficially or constructively owning our shares to the extent such ownership would cause any income of us or any of our subsidiary REITs, as applicable, that would otherwise qualify as “rents from real property” for purposes of Section 856(d) of the Code to fail to qualify as such (including, but not limited to, as a result of causing us or any of our subsidiary REITs, as applicable, to constructively own an interest in a tenant if the income derived by us or any of our subsidiary REITs, as applicable, from that tenant for our or any of our subsidiary REIT’s, as applicable, taxable year during which such determination is being made would reasonably be expected to equal or exceed the lesser of 1% of our or any of our subsidiary REIT’s, as applicable, gross income or an amount that would cause us or any of our subsidiary REITs, as applicable, to fail to satisfy any of the REIT gross income requirements) and (d) beneficially or constructively owning our shares that would cause us or any of our subsidiary REITs, as applicable, to otherwise to fail to qualify as a REIT. If any transfer of our shares occurs which, if effective, would result in any person beneficially or constructively owning shares in excess, or in violation, of the above transfer or ownership limitations (such person, a prohibited owner), then that number of shares, the beneficial or constructive ownership of which otherwise would cause such person to violate the transfer of ownership limitations (rounded up to the nearest whole share), will be automatically transferred to a charitable trust for the exclusive benefit of a charitable beneficiary, and the prohibited owner will not acquire any rights in such shares. If the transfer to the charitable trust would not be effective for any reason to prevent the violation of the above transfer or ownership limitations, then the transfer of that number of shares that otherwise would cause any person to violate the above limitations will be void. The prohibited owner will not benefit economically from ownership of any shares in the charitable trust, will have no rights to dividends or other distributions and will not possess any rights to vote or other rights attributable to the shares held in the charitable trust.
Generally, the ownership limits imposed under the Code are based upon direct or indirect ownership by “individuals,” but only during the last half of a taxable year. The ownership limits contained in our Declaration of Trust are based upon direct or indirect ownership at any time by any “person,” which term includes entities. These ownership limitations in our Declaration of Trust are common in REIT governing documents and are intended to provide added assurance of compliance with the tax law requirements, and to minimize administrative burdens. However, the ownership limits on our common shares also might delay, defer or prevent a transaction or a change in control of our company that might involve a premium price for our common shares or otherwise be in the best interest of our shareholders.
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Furthermore, under our Declaration of Trust, our Board has the authority to classify and reclassify any of our unissued shares into shares with such preferences, rights, powers and restrictions as our Board may determine. The authorization and issuance of a new class of shares could have the effect of delaying or preventing someone from taking control of us, even if a change in control were in our shareholders’ best interests, which could have a material adverse effect on our business, financial condition and results of operations.
Maryland law may limit the ability of a third party to acquire control of us.
The Maryland Business Combination Act (Title 3, Subtitle 6 of the Maryland General Corporation Law (the “MGCL”)) (the “Business Combination Act”) imposes conditions and restrictions on certain “business combinations” (including, among other transactions, a merger, consolidation, share exchange, or, in certain circumstances, an asset transfer or issuance of equity securities) between a Maryland real estate investment trust and certain persons who beneficially own at least 10% of the corporation’s stock or affiliates of such persons (an “interested shareholder”). Unless approved in advance by the Board of Trustees of the trust, or otherwise exempted by the statute, such a business combination is prohibited for a period of five years after the most recent date on which the interested shareholder became an interested shareholder. After such five-year period, a business combination with an interested shareholder must be: (a) recommended by the Board of Trustees of the trust, and (b) approved by the affirmative vote of at least (i) 80% of the trust’s outstanding shares entitled to vote and (ii) two-thirds of the trust’s outstanding shares entitled to vote which are not held by the interested shareholder with whom the business combination is to be effected, unless, among other things, the trust’s common shareholders receive a “fair price” (as defined by the statute) for their shares and the consideration is received in cash or in the same form as previously paid by the interested shareholder for his or her shares. As permitted under Maryland law, we have elected by resolution of our Board to opt out of the foregoing provisions on business combinations. However, we cannot assure you that our Board will not opt to be subject to such provisions in the future, including opting to be subject to such provisions retroactively.
The Maryland Control Share Acquisition Act (the “MCSAA”) provides that a holder of “control shares” (defined as shares (other than shares acquired directly from us) that, when aggregated with other shares controlled by the shareholder, entitle the shareholder to exercise one of three increasing ranges of voting power in electing trustees) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of ownership or control of issued and outstanding “control shares”) have no voting rights with respect to the control shares, except to the extent approved by a vote of two-thirds of the votes entitled to be cast on the matter, excluding all interested shares. As permitted under Maryland law, our Bylaws contain a provision exempting any acquisition of our shares by any person from the foregoing provisions on control shares. In the event that our Bylaws are amended to modify or eliminate this provision, certain acquisitions of outstanding shares of our common shares may constitute control share acquisitions and may be subject to the MCSAA.
Until the 2027 annual meeting of shareholders, we will have a classified Board and that may reduce the likelihood of certain takeover transactions.
Following the Distribution, our Declaration of Trust will initially divide our Board into three classes. The initial terms of the first, second and third classes will expire at the first, second and third annual meetings of shareholders, respectively, held following the Distribution. Initially, shareholders will elect only one class of trustees each year. Shareholders will elect successors to trustees of the first class for a two-year term and successors to trustees of the second class for a one-year term, in each case upon the expiration of the terms of the initial trustees of each class. Commencing with the 2027 annual meeting of shareholders, each trustee shall be elected annually for a term of one year and shall hold office until the next succeeding annual meeting and until a successor is duly elected and qualifies. Until the 2027 annual meeting of the shareholders, our Board will be classified, which may reduce the possibility of certain attempts to change control of the Company, such as through a tender offer or a proxy contest, even though a change in control might be in our best interests.
Market interest rates may have an effect on the value of our common shares.
One of the factors that will influence the price of our common shares following the Distribution will be its dividend yield, or the dividend per share as a percentage of the price of our common shares, relative to market
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interest rates. Any further increase in market interest rates, which have been rapidly increasing, may lead prospective purchasers of our common shares to expect a higher dividend yield, and higher interest rates would likely increase our borrowing costs and potentially decrease funds available for distribution. If market interest rates continue to increase and we are unable to increase our dividend in response, including due to an increase in borrowing costs, insufficient funds available for distribution or otherwise, investors may seek alternative investments with a higher dividend yield, which would result in selling pressure on, and a decrease in the market price of, our common shares. As a result, the price of our common shares may decrease as market interest rates increase, which may have a material adverse effect on our business, financial condition and results of operations.
The 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.
Our Declaration of Trust authorizes our Board to, among other things, issue additional common shares without shareholder approval. In addition, our Board has the power under our Declaration of Trust to amend our Declaration of Trust to increase (or decrease) the number of authorized shares of any class from time to time, without approval of our shareholders. We cannot predict whether future issuances or sales of our common shares, or the availability of shares for resale in the open market, will decrease the per share trading price of our common shares. The issuance of a substantial number of our common shares in the open market, or the perception that such issuances might occur, could adversely affect the per share trading price of our common shares. In addition, any such issuance could dilute our existing shareholders’ interests in our company. In addition, prior to the completion of the Distribution, we intend to adopt an equity compensation plan, and we may issue our common shares or grant equity incentive awards exercisable for or convertible or exchangeable into our common shares under the plan. Future issuances of our common shares may be dilutive to existing shareholders, which may have a material adverse effect on our business, financial condition and results of operations.
Future 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.
In the future, we may attempt to increase our capital resources by making additional offerings of debt or equity securities (or causing NLO OP LLC or the NLOP Borrowers to issue such debt securities), including medium-term notes, senior or subordinated notes and additional classes or series of preferred shares. Upon liquidation, holders of our debt securities and shares of preferred shares or preferred units and lenders with respect to other borrowings will be entitled to receive our available assets prior to distribution of such assets to holders of our common shares. Additionally, any convertible or exchangeable securities that we may issue in the future may have rights, preferences and privileges more favorable than those of our common shares, and may result in dilution to owners of our common shares. Holders of our common shares are not entitled to preemptive rights or other protections against dilution. Any preferred shares that we issue in the future could have a preference on liquidating distributions or a preference on dividends that could limit our ability to pay dividends to the holders of our common shares. Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Any such future offerings may reduce the per share trading price of our common shares, which may have a material adverse effect on our business, financial condition and results of operations.
We may change our dividend policy.
Future dividends will be declared and paid at the discretion of our Board, and the amount and timing of dividends will depend upon cash generated by operating activities, our business, financial condition, results of operations, capital requirements, annual distribution requirements under the REIT provisions of the Code, and such other factors as our Board deems relevant. Our Board may change our dividend policy at any time, and there can be no assurance as to the manner in which future dividends will be paid or that the current dividend level will be maintained in future periods. Any reduction in our dividends may cause investors to seek alternative investments, which would result in selling pressure on, and a decrease in the market price of, our common shares. As a result, the price of our common shares may decrease, which may have a material adverse effect on our business, financial condition and results of operations.
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We 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.
Following the Distribution, we will be subject to the reporting requirements of the Securities Exchange Act of 1934, or the Exchange Act, the Sarbanes-Oxley Act, and the rules and regulations of the NYSE. Our financial results historically were included within the consolidated results of WPC, and until the Distribution occurs, we have not been and will not be directly subject to reporting and other requirements of the Exchange Act and Section 404 of the Sarbanes-Oxley Act. After the Distribution, we will qualify as an “emerging growth company.” For so long as we remain an emerging growth company, we will be exempt from Section 404(b) of the Sarbanes-Oxley Act, which requires auditor attestation to the effectiveness of internal control over financial reporting. We will cease to be an emerging growth company on the date that is the earliest of (i) the last day of the fiscal year in which we have total gross annual revenues of $1.235 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of the Distribution; (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC. We cannot predict if investors will find our common shares less attractive because we may rely on the exemptions available to us as an emerging growth company. If some investors find our common shares less attractive as a result, there may be a less active trading market for our common shares and our share price may be more volatile.
We will, however, be immediately subject to Section 404(a) of the Sarbanes-Oxley Act and, as of the expiration of our emerging growth company status, we will be broadly subject to enhanced reporting and other requirements under the Exchange Act and Sarbanes-Oxley Act. This will require, among other things, annual management assessments of the effectiveness of our internal control over financial reporting beginning in our second annual report filed after the Distribution and a report by our independent registered public accounting firm addressing these assessments. These and other obligations will place significant demands on the Advisors and the Advisors will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costlier. If we are unable to do this in a timely and effective fashion, our ability to comply with our financial reporting requirements and other rules that apply to reporting companies could be impaired and our business, prospects, financial condition and results of operations could be harmed.
Because dividends received by non-U.S. stockholders are generally taxable, we or a withholding agent may be required to withhold a portion of our distributions to such persons.
Ordinary dividends received by non-U.S. stockholders that are not effectively connected with the conduct of a U.S. trade or business are generally subject to U.S. withholding tax at a rate of 30%, unless reduced by an applicable income tax treaty. Additional rules with respect to certain capital gain distributions will apply to non-U.S. stockholders that own more than 10% of our common shares.
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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This information statement and other materials we and WPC have filed or will file with the SEC contain, or will contain, forward-looking statements. Certain statements that are not in the present or past tense or that discuss our expectations (including any use of the words “anticipate,” “assume,” “believe,” “estimate,” “expect,” “forecast,” “guidance,” “intend,” “may,” “might,” “outlook,” “project,” “should” or similar expressions) are intended to identify such forward-looking statements, which generally are not historical in nature. The matters discussed in these forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from those projected, anticipated or implied in the forward-looking statements.
Although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, we can give no assurance that our expectations will be attained, and it is possible that our actual results may differ materially from those indicated by these forward-looking statements due to a variety of risks and uncertainties. Such factors include, but are not limited to:
•WPC’s inability or failure to perform under the various transaction agreements that will be executed as part of the Separation and the Distribution;
•our lack of operating history as an independent company;
•risks associated with potentially operating our business as an UPREIT in the future;
•risks associated with the NLOP Financing Arrangements;
•conditions associated with the global market, including an oversupply of office space, tenant financial difficulties and general economic conditions;
•potential impacts of inflation;
•reduced demand for office space, including as a result of remote work and flexible work arrangements that allow work from remote locations other than the employer’s office premises;
•that the distribution of our common shares in the Distribution is intended to be a taxable distribution and will not qualify for tax-free treatment;
•our ability to meet mortgage debt obligations on certain of our properties;
•the availability of refinancing current debt obligations;
•the availability of additional financing;
•changes in any credit rating we may subsequently obtain;
•changes in the real estate industry and in performance of the financial markets and interest rates and our ability to effectively hedge against interest rate and exchange rate changes;
•the actual or perceived impact of global and economic conditions;
•our ability to enter into new leases or renewal leases on favorable terms;
•the potential for termination of existing leases pursuant to tenant termination rights;
•the amount, growth and relative inelasticity of our expenses;
•risks associated with the ownership and development of real property;
•risks associated with the ownership of properties located outside the United States;
•risks associated with having a classified Board;
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•risks associated with the Advisors;
•risks associated with any potential future equity investments;
•risks associated with being an emerging growth company;
•the outcome of claims and litigation involving or affecting the company;
•applicable legal and regulatory changes, including those related to climate change;
•risks associated with potential dispositions of our properties;
•risks associated with the fact that our historical financial information may not be a reliable indicator of our future results;
•risks associated with achieving expected synergies or cost savings;
•risks associated with the potential volatility of our common shares; and
•other risks and uncertainties detailed from time to time in our SEC filings.
Except as required by law, we undertake no obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, of new information, data or methods, future events or other changes.
Other factors that could cause actual results or events to differ materially from those anticipated include the matters described under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” In particular, information included under “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business and Properties,” and “The Separation and the Distribution” contain forward-looking statements.
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THE SEPARATION AND THE DISTRIBUTION
Background
Prior to the Separation and Distribution, we will initially be a wholly-owned subsidiary of WPC. Prior to the Distribution, 59 office properties will be separated from the remainder of WPC’s business through the Separation. Subject to the satisfaction or waiver of the conditions to the Distribution, all of the outstanding NLOP common shares will be distributed pro rata to the holders of WPC common stock. The material terms of the transactions between WPC and NLOP, including the Separation and Distribution Agreement, the Advisory Agreements and the amounts that are expected to be transferred to WPC in connection with the Separation were determined by consultations with members of management, external counsel and financial and tax advisors, as well as a review of precedent transactions of similar nature. These terms are intended to reflect mutually beneficial economic benefits to both WPC and NLOP, to provide NLOP with the operational support, capitalization and assets necessary to operate as a separate publicly-traded company and to fairly compensate WPC for the assets and services being provided.
On                    , 2023, the WPC Board of Directors approved the distribution of all of the issued and outstanding NLOP common shares at a ratio of share of one NLOP common share for every 15 shares of WPC common stock held as of the close of business on the record date of                    , 2023. Following the Distribution, we and WPC will be two independent, publicly-traded REITs.
It is expected that, on                    , 2023, subject to the satisfaction or waiver of all conditions to the Distribution set forth in the Separation and Distribution Agreement, each WPC common stockholder will be entitled to receive one NLOP common share for every 15 shares of WPC common stock held at the close of business on the record date.
NLOP will not distribute fractional common shares in the Distribution. Instead, all fractional shares that WPC stockholders would otherwise have been entitled to receive will be aggregated into whole shares and Computershare will cause them to be sold in the open market. We expect Computershare, acting on behalf of WPC, may take several weeks after the Distribution Date to fully distribute the aggregate net cash proceeds of these sales on a pro rata basis (based on the fractional share such holder would otherwise be entitled to receive) to those stockholders who would otherwise have been entitled to receive fractional shares. Recipients of cash in lieu of fractional shares will not be entitled to any interest on the amounts of payment made in lieu of fractional shares.
WPC stockholders will not be required to make any payment, surrender or exchange their WPC common stock, or take any other action to receive their NLOP common shares in the Distribution. The Distribution of NLOP common shares as described in this information statement is subject to the satisfaction or waiver of certain conditions, including consummation of the Separation. For a more detailed description of these conditions, please refer to the section entitled “The Separation and Distribution Agreement – Conditions to the Distribution.”
Reasons for the Separation and the Distribution
The WPC Board of Directors believes that the Separation and the Distribution are in the best interests of WPC and its stockholders for a number of reasons, including the following:
•Creates two separate companies that focus on executing distinct business strategies. The Separation and the Distribution will allow WPC’s management to focus on owning and growing its core portfolio which has higher growth prospects and less leasing risk over the long-term, while assisting NLOP in maximizing value of its portfolio of office assets through operations and dispositions. In assessing the Separation and Distribution, the WPC Board of Directors also considered its alternatives to the Separation and Distribution, including the potential sale of the office assets, and determined that the Separation and Distribution provided WPC and its stockholders with the optimal combination of flexibility, timing and certainty, including allowing WPC to accelerate its business strategy, while allowing NLOP to retain flexibility in enacting its disposition strategy, including the timing thereof. We believe that our focus on our distinct portfolio and our ability to focus our strategies based on the unique characteristics of our portfolio will allow us to more effectively create value for our shareholders.
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•Enhance investor transparency and better highlight WPC’s and our attributes. The Separation and the Distribution will enable current and potential investors and the financial community to evaluate NLOP and WPC separately and better assess the performance and future prospects of each business given their distinct strategies and growth profiles. Additionally, the Separation and the Distribution will allow individual investors to better control their asset allocation decisions, providing investors the opportunity to invest in a REIT that is positioned to realize maximized value through programmatic disposition of the properties over time as the office sector recovers.
•Continue to leverage WPC’s asset management expertise. We believe WPC, has the necessary capabilities, systems and experience required to successfully manage NLOP through the Advisors, including asset management, legal, finance, and accounting. Important aspects of asset management include entering into new or modified transactions to meet the evolving needs of current tenants, re-leasing properties, credit and real estate risk analysis, building expansions and redevelopments, repositioning assets, sustainability and efficiency analysis and retrofits, and dispositions. The Advisors are expected to regularly engage directly with tenants and form working relationships with their decision makers in order to provide proactive solutions and to obtain an in-depth, real-time understanding of tenant credit. Through both engagement with its own tenants and analysis of markets in which it operates, WPC will establish views on the fundamental drivers of value for its assets. Our Advisors will monitor compliance by tenants with their lease obligations and other factors that could affect the financial performance of any of our real estate investments on an ongoing basis, which typically involves ensuring that each tenant has paid real estate taxes and other expenses relating to the properties it occupies and is maintaining appropriate insurance coverage. WPC will also review financial statements of our tenants and undertakes physical inspections of the condition and maintenance. Additionally, WPC is expected to periodically analyze each tenant’s financial condition, the industry in which each tenant operates, and each tenant’s relative strength in its industry. We believe WPC’s in-depth understanding of our tenants’ businesses and direct relationships with their management teams will provide strong visibility into potential issues and opportunities. W. P Carey’s business intelligence platform is expected to provide real-time information, allowing asset managers to work with tenants to enforce lease provisions, and where appropriate, consider lease modifications.
The WPC Board of Directors also considered a number of potentially negative factors in evaluating the Separation and the Distribution, including the following:
•Assumption of certain costs and liabilities. Certain costs and liabilities of WPC will have an increased impact on us as a stand-alone company, and we and WPC will separately bear certain costs, such as the costs associated with being a public company.
•One-time costs of the Separation. Each of WPC and us will incur costs in connection with our transition to being a separate, stand-alone public company, that may include accounting, tax, legal and other professional services costs and costs to separate information systems.
•Inability to realize anticipated benefits of the Separation. We may not achieve the anticipated benefits of the Separation for a variety of reasons, including: (i) following the Separation, we may be more susceptible to market fluctuations and other adverse events than if we were still a part of WPC; and (ii) following the Separation, NLOP’s business will be less diversified than WPC’s businesses prior to the Separation.
•Taxability of the Distribution. The Distribution is expected to be treated as a taxable distribution to WPC common stockholders for U.S. federal income tax purposes.
The WPC Board of Directors concluded that the potential benefits of the Separation outweighed these factors. For more information, see “Risk Factors” beginning on page 31.
Background of Negotiations with Respect to Agreements with WPC and its Subsidiaries
As described above and elsewhere in this information statement, the agreements with WPC and/or certain of its subsidiaries are intended to provide for an orderly transition to our status as an independent, publicly-traded
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company. While the negotiations of these agreements were completed while we were a wholly owned subsidiary of WPC, and thus were necessarily not negotiated on an arm’s-length basis, the terms are intended to reflect mutually beneficial economic benefits to both WPC and NLOP, to provide NLOP with the operational support, capitalization and assets necessary to operate as a separate publicly-traded company and to fairly compensate WPC for the assets and services being provided.
In particular, with respect to the Separation and Distribution Agreement, the terms thereof are intended to reflect reasonable terms for a transaction of this nature. The estimated $356.5 million to be transferred to WPC in connection with the Separation and Distribution is intended to represent a reasonable allocation of the proceeds from the NLOP Financing Arrangements between us and WPC that is intended to factor in our anticipated liquidity and capital requirements following the Separation and Distribution, including providing adequate capital for operations, plus cash reserves to address certain projected expenses, such as projected tenant improvements and other capital expenditures for anticipated re-leasing activities anticipated to occur in the near term, and the relative leverage ratios of us and WPC after giving effect to the Separation and Distribution. In addition, the estimated reimbursement of $46.8 million for costs and expenses related to the Separation and Distribution is intended to function as reimbursement for actual expenses incurred by WPC to effectuate the Separation and Distribution, including the fees and expenses related to the NLOP Financing Arrangements, advisory fees, legal fees and transfer taxes.
With respect to the terms of the Advisory Agreements, including the fees and reimbursed expenses payable thereunder, WPC considered its asset management expertise, including WPC’s significant expertise in the single-tenant office real estate sector, including the operation, leasing, acquisition, and development of office assets through many market cycles, as well as the anticipated costs of WPC providing the services thereunder, while also comparing the proposed terms to those of similar arrangements in other publicly traded, managed REITs and WPC’s own experiences as an asset manager. In addition, in establishing the terms of the Advisory Agreements, WPC considered our historical and anticipated cash flow following the Separation and Distribution, and the terms of the NLOP Financing Arrangements, and the anticipated impacts of the proposed fees and expenses on our operations and our ability effectuate our business strategy. For example, as further described in “Management—Advisory Agreements,” WPC’s management fees are structured to reduce ratably with the disposition of assets, which WPC believes will allow us to maintain the advantages of WPC’s management expertise, while mitigating the costs related thereto as the available rental revenue decreases. The Advisory Agreements also provide that the majority of the independent trustees of NLOP will retain the right to approve certain materials transactions going forward, including the entry into and termination or modification of material transactions with WPC, as described in “Management—Advisory Agreements.”
Ownership Structure
Structure and Formation of NLOP Prior to WPC’s Distribution
We were formed as a Maryland real estate investment trust on October 21, 2022, and, until the Distribution, will be a wholly-owned subsidiary of WPC. On                    , 2023, we and WPC expect to complete the Separation to separate the Office Properties of WPC, such that ownership of WPC’s office real properties will be consolidated within us and our subsidiaries. Following the Distribution, we expect to have the corporate infrastructure in place to conduct our business as an UPREIT through our operating company, NLO OP LLC. If we choose to operate as an UPREIT in the future, we would expect to amend and restate the operating agreement for NLO OP LLC to reflect such terms as would be customary and appropriate for an UPREIT.
Prior to the Separation, WPC will use commercially reasonable efforts to obtain any third-party consents required to effect the separation of assets and liabilities contemplated by the Separation and Distribution Agreement. To the extent that a party is unable to obtain a release from a guarantee or other obligation that is contemplated to be assigned to the other party, the party benefiting from the guarantee or obligation will indemnify and hold harmless the other party from any liability arising from such guarantee or obligation, and will not renew or extend the term of, increase obligations under, or transfer, the applicable obligation or liability.
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The following transactions, among others, are expected to occur in advance of the Distribution:
•WPC will have taken all actions necessary to complete the Separation, including but not limited to the following steps:
◦we will have formed or transferred the various subsidiaries we are contemplated to own, directly or indirectly, following the Separation;
◦we expect to satisfy the funding conditions pursuant to the NLOP Financing Arrangements, including that, (i) the registration statement on Form 10 of which this information statement is a part shall have been declared effective by the SEC; (ii) the common shares shall have been approved for listing on the NYSE (or other nationally recognized stock exchange); and (iii) WPC shall have authorized and declared the Distribution to be effected on or prior to November 10, 2023, and substantially concurrently with the Distribution, cause the Lender to fund the proceeds of the $335.0 million NLOP Mortgage Loan and the $120.0 million NLOP Mezzanine Loan; and
◦we expect to have distributed $356.5 million to WPC from the net proceeds of the NLOP Financing Arrangements;
•as a result of the Separation, we will own a portfolio of 59 office properties, subject to approximately $168.5 million of existing secured property level indebtedness, based on principal balances as of June 30, 2023;
•as a result of these transactions, following the completion of the Separation, net of capitalized financing costs, we expect to have approximately $590.6 million in consolidated outstanding indebtedness; and
•in addition to the Separation and Distribution Agreement, concurrently with or prior to the Distribution, we and WPC and/or certain of its subsidiaries will enter into the Tax Matters Agreement and the Advisory Agreements.
Our Declaration of Trust provides for two classes of shares: common shares and preferred shares. Subject to satisfaction of the conditions to the Distribution, WPC will effect the distribution of NLOP common shares to WPC common stockholders as of the close of business on the record date as described above under “– Background.”
The Separation and Distribution Agreement
The following discussion summarizes the material provisions of the Separation and Distribution Agreement. The Separation and Distribution Agreement sets forth, among other things, our agreements with WPC regarding the principal transactions necessary to separate us from WPC. It also sets forth other agreements that govern certain aspects of our relationship with WPC after the Distribution Date. The form of this agreement will be filed as an exhibit to the registration statement on Form 10 of which this information statement is a part.
Acquisition of Assets; Assumption of Liabilities
The Separation and Distribution Agreement identifies the assets to be transferred, the liabilities to be assumed and the contracts to be assigned to each of us and WPC as part of the Separation, and it provides for when and how these transfers, assumptions and assignments will occur. Pursuant to the Separation and Distribution Agreement, the Office Properties, including the material assets related thereto that exist as of or arise after the Distribution, and all liabilities related thereto will be transferred from WPC to NLOP in connection with the Separation and Distribution. The scope of assumed liabilities, transferred assets, excluded assets and excluded liabilities will be governed by the terms of our Separation and Distribution Agreement which will be filed as an exhibit to the registration statement on
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Form 10 of which this information statement is a part. In particular, the Separation and Distribution Agreement provides, among other things, that subject to the terms and conditions contained therein:
•certain assets related to our business (the “NLOP Assets”) will be retained by NLOP or one of NLOP’s subsidiaries or transferred to NLOP or one of NLOP’s subsidiaries, including:
◦all issued capital stock or other equity interests in subsidiaries, partnerships or similar entities that primarily relate to the NLOP Business, including certain subsidiaries that currently own or shall own, prior to the Distribution, the Office Properties;
◦all right, title and interest (whether as owner, mortgagee or holder of a security interest) of the properties described in the section “Business and Properties,” which shall be achieved through a combination of direct transfers of the property, or the equity interests of certain subsidiaries, partnerships or similar entities that own such properties;
◦all of the intellectual property relating to NLOP’s business;
◦all contracts entered into in the name of, or expressly on behalf of, any of NLOP’s business, including all leases related to the Office Properties;
◦all permits used primarily in NLOP’s business;
◦all books and records, wherever located, primarily related to NLOP’s business;
◦all accounts receivable related to periods after the Distribution, rights, claims, demands, causes of action, judgments, decrees and rights to indemnify or contribution in favor of WPC that are primarily related to NLOP’s business; and
◦other assets mutually agreed by the parties prior to the Distribution.
•certain liabilities related to NLOP’s business or the NLOP Assets (collectively, the “NLOP Liabilities”) will be retained by or transferred to NLOP or one of NLOP’s subsidiaries, including:
◦existing mortgage debt attached to certain of the Office Properties, in an aggregate amount of $168.5 million as of June 30, 2023;
◦the $335.0 million NLOP Mortgage Loan, which is secured by first priority mortgages and deeds of trust encumbering the interests of the NLOP Mortgage Loan Borrowers in the Mortgaged Properties and by pledges of equity of the NLOP Mortgage Loan Borrowers (and, with respect to the NLOP Mortgage Loan Borrowers that are limited partnerships, the general partners thereof), NLO Holding Company LLC, and each of NLO MB TRS LLC and NLO SubREIT LLC;
◦the $120.0 million NLOP Mezzanine Loan entered into between the NLOP Mezzanine Borrower and the Lenders;
◦any known or unknown liabilities relating to the NLOP Business, including any disputes or claims with respect to tenants, property sellers or governmental authorities, including all contracts entered into in the name of, or expressly on behalf of, any of NLOP’s business, including all leases related to the Office Properties and all other contractual obligations with respect to service providers, tenants, property sellers and other third parties;
◦any known or unknown liabilities (including environmental liabilities) relating to underlying circumstances or facts existing, or events occurring, prior to the Distribution, to the extent relating to us or the NLOP Assets;
◦any guarantees and indemnities in respect of any of the NLOP Assets or NLOP Liabilities, including such guarantees or indemnities related to the indebtedness being assumed by NLOP described above;
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◦any known or unknown third-party claims to the extent relating to NLOP’s business and the NLOP Assets;
◦any insurance charges related to the Office Property Business and NLOP Assets pursuant to any insurance policies held by WPC or us for the benefit of the NLOP Business and NLOP Assets; and
◦other liabilities mutually agreed upon by the parties prior to the Distribution.
•all of the assets and liabilities (including whether accrued, contingent or otherwise) other than the NLOP Assets and NLOP Liabilities (the “WPC Assets” and the “WPC Liabilities,” respectively), will be retained by or transferred to WPC or one of its subsidiaries.
For additional information regarding the NLOP Financing Arrangements, refer to the section entitled “Description of Material Indebtedness.”
Information in this information statement with respect to the assets and liabilities of the parties following the Distribution is presented based on the allocation of such assets and liabilities pursuant to the Separation and Distribution Agreement, unless the context otherwise indicates. The Separation and Distribution Agreement provides that, in the event that the transfer or assignment of certain assets and liabilities to us or WPC, as applicable, does not occur prior to the Separation, then until such assets or liabilities can be transferred or assigned, we or WPC, as applicable, will hold such assets on behalf of and for the benefit of the other party and will pay, perform and discharge such liabilities, for which the other party will reimburse us or WPC, as applicable, for all commercially reasonable payments made in connection with the performance and discharge of such liabilities.
The Distribution
The Separation and Distribution Agreement governs the rights and obligations of the parties regarding the Distribution following the completion of the Separation. On the Distribution Date, WPC will distribute to its common stockholders that held shares of WPC common stock as of the record date all of the issued and outstanding NLOP common shares on a pro rata basis. No holders of units or other interests of WPC will be entitled to receive any NLO OP LLC units or any other form of compensation from us in connection with the Distribution (other than the $356.5 million contribution of funds raised under the NLOP Financing Arrangements described below).
Conditions to the Distribution
The Separation and Distribution Agreement provides that the Distribution is subject to the satisfaction (or waiver by WPC) of certain conditions, including:
•the consummation of the Separation;
•the satisfaction of conditions to borrowing under the NLOP Financing Arrangements, and the funding of all borrowings under the NLOP Financing Arrangements shall have occurred;
•the transfer of $356.5 million of funds raised under the NLOP Financing Arrangements to WPC;
•the SEC declaring effective the registration statement of which this information statement forms a part, with no stop order in effect with respect thereto, and no proceeding for such purpose pending before, or threatened by, the SEC;
•the mailing of this information statement;
•any material third-party consents necessary to consummate the Separation and Distribution shall have been obtained;
•no order, injunction, or decree issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the Separation, the Distribution or any of the related transactions shall be in effect;
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•the NLOP common shares to be distributed shall have been approved for listing on the NYSE, subject to official notice of distribution; and
•the execution of ancillary agreements by us and WPC and/or certain of its subsidiaries, including the Tax Matters Agreement and the Advisory Agreements.
Release of Claims
Neither party will be liable to the other for indirect, punitive, exemplary, remote, speculative or similar damages in excess of compensatory damages, other than with respect to a third-party claim. Each of us and WPC will also release the other party and its respective directors or trustees, as applicable, officers, employees, agents and equity holders from all pre-closing liabilities related to the releasing party’s business or assets owned by such party after the Distribution, other than liabilities for any willful or intentional misconduct, fraud, gross negligence or bad faith. Neither party will make any claim against the other or such directors or trustees, as applicable, officers, employees, agents or equity holders with respect to any such liability.
Indemnification
In the Separation and Distribution Agreement, we agree to indemnify, defend and hold harmless WPC, each of its affiliates and each of their respective directors, officers and employees, from and against all liabilities relating to, arising out of or resulting from:
•the NLOP Liabilities and our failure to pay any NLOP Liabilities in accordance with their terms;
•third-party claims relating to the Office Property Business or NLOP Assets;
•our breach of the Separation and Distribution Agreement or any ancillary agreement; and
•any untrue statement of material fact in the registration statement to which this information statement is a part (other than statements explicitly made by WPC, which will be limited to those specified on a schedule to the Separation and Distribution Agreement).
WPC agrees to indemnify, defend and hold harmless, us and each of our affiliates and each of our and our affiliates’ respective trustees or directors, as applicable, officers and employees from and against all liabilities relating to, arising out of or resulting from:
•all WPC Liabilities and the failure of WPC to pay any WPC Liabilities in accordance with their terms;
•third-party claims relating to the WPC Assets;
•the breach by WPC of the Separation and Distribution Agreement or any ancillary agreement; and
•any untrue statement of material fact in the registration statement to which this information statement is a part, to the extent such statement is explicitly made by WPC (which will be limited to those specified on a schedule to the Separation and Distribution Agreement).
Neither we nor WPC will be liable to the other for indirect, punitive, exemplary, remote, speculative or similar damages in excess of compensatory damages, other than liability with respect to a third-party claim.
Dispute Resolution
The Separation and Distribution Agreement contains provisions that govern, except as otherwise provided in any ancillary agreement, the resolution of disputes, controversies or claims that may arise between us and WPC related to the Separation or Distribution by arbitration, if they are unable to be resolved first through good-faith negotiation by the parties.
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Expenses
The Separation and Distribution Agreement will contain provisions that govern our and WPC’s responsibility for costs and expenses incurred prior to the Distribution Date in connection with the Separation and the Distribution, including costs and expenses relating to transfer taxes, legal and tax counsel, financial advisors and accounting advisory work related to the Separation and the Distribution. The anticipated costs of the spin-off are expected to be approximately $46.8 million, of which approximately $31.5 million relates to the fees and expenses related to the NLOP Financing Arrangements, substantially all of which will be borne by NLOP. The anticipated costs will primarily relate to advisory and professional costs, financing costs including third party property reporting, transfer costs, public filing costs, and printing and other related costs.
Mortgage Debt
We will acquire properties previously owned by WPC, subject to existing mortgage debt. As of June 30, 2023, NLOP’s portfolio had approximately $168.5 million of secured mortgage debt outstanding on 14 office properties, which NLOP expects to assume in connection with the Separation. We will use commercially reasonable efforts to have WPC and its subsidiaries released from all debt obligations, including guarantees, relating to our properties.
Financing
As a result of these transactions, including the existing mortgage debt and NLOP Financing Arrangements, following the completion of the Separation, net of capitalized financing costs, we expect to have approximately $590.6 million in consolidated outstanding indebtedness and $55.6 million in cash.
Intellectual Property
WPC shall retain all rights to intellectual property of WPC immediately prior to the Distribution, including the “W. P. Carey” name and all related intellectual property, including Internet domain names, trademarks and the “WPC” ticker symbol. We shall retain all rights to the “NLOP” name and all related intellectual property, including Internet domain names and the “NLOP” ticker symbol.
Information Sharing
We and WPC will use commercially reasonable efforts after the Distribution to share with the other party all information relating to matters prior to the Distribution, and such other party’s assets held by the disclosing party. The parties will agree on records retention policies and will keep copies of all historic records and agreements to support future diligence and audits. The Separation and Distribution Agreement will include a customary confidentiality agreement.
Other Matters
Other matters governed by the Separation and Distribution Agreement include access to financial and other information, confidentiality, access to and provision of records and treatment of outstanding guarantees and similar credit support.
Amendments
No provision of the Separation and Distribution Agreement may be amended or modified except by a written instrument signed by us and WPC.
Related Agreements
Tax Matters Agreement
Concurrently with or prior to the Distribution, we and WPC will enter into a Tax Matters Agreement that will govern the respective rights, responsibilities and obligations of WPC and us after the Distribution with respect to tax liabilities and benefits, the preparation and filing of tax returns, the control of audits and other tax proceedings, tax covenants, tax indemnification, cooperation and information sharing. The Tax Matters Agreement will provide that
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(a) NLOP and applicable subsidiaries will generally assume liability for all taxes reported, or required to be reported, on an NLOP tax return following the Distribution, (b) WPC will assume liability all taxes reported, or required to be reported, (i) on a WPC tax return or (ii) any joint tax return involving both WPC and NLOP following the Distribution, and (c) NLOP will generally assume sole responsibility for any transfer taxes. Our obligations under the Tax Matters Agreement are not limited in amount or subject to any cap. If we are required to pay any liabilities under the circumstances set forth in the Tax Matters Agreement or pursuant to applicable tax law, the amounts may be significant. The form of this agreement will be filed as an exhibit to the registration statement on Form 10 of which this information statement is a part.
Advisory Agreements
Concurrently with or prior to the Distribution, (i) we and the US Advisor will enter into the US Advisory Agreement and (ii) we and the European Advisor will enter into the European Advisory Agreement, pursuant to which the Advisors will provide us with strategic management services, including asset management, property disposition support and various related services. We will pay management fees to the Advisors and will also reimburse the Advisors for certain expenses incurred in providing services to us. The forms of these agreements will be filed as an exhibit to the registration statement on Form 10 of which this information statement is a part. For more information regarding the Advisory Agreements, see “Management – Advisory Agreements.”
When and How You Will Receive the Distribution
WPC expects to distribute NLOP common shares on                    , 2023, the Distribution Date, to all holders of shares of outstanding WPC common stock as of the close of business on the record date. Computershare currently serves as the transfer agent and registrar for WPC common stock and will serve as the distribution agent in connection with the Distribution. Thereafter, Computershare will serve as the transfer agent and registrar for NLOP common shares. If you own shares of WPC common stock as of the close of business on the record date, the NLOP common shares, as applicable, that you are entitled to receive in the Distribution will be issued in book-entry form, as of the Distribution Date. No physical stock certificates representing the shares of NLOP will be delivered. If you are a registered holder, Computershare will then mail you a direct registration account statement that reflects your NLOP common shares, as applicable. If you hold your shares through a bank or brokerage firm, your bank or brokerage firm will credit your account for the shares. Book-entry form refers to a method of recording share ownership when no physical share certificates are issued to shareholders, as is the case in this Distribution. If you sell shares of WPC common stock in the “regular-way” market up to and including the Distribution Date, you will be selling your right to receive NLOP common shares on such shares of WPC common stock in the Distribution.
Commencing on or shortly after the Distribution Date, if you are the registered holder, and your shares are recorded with Computershare, they will mail to you an account statement that indicates the number of NLOP common shares that have been registered in book-entry form in your name.
WPC stockholders who hold their shares of WPC common stock through a bank or brokerage firm would be said to hold the shares in “street name” and ownership would be recorded on the bank or brokerage firm’s books. If you hold shares of WPC common stock through a bank or brokerage firm, your bank or brokerage firm will credit your account for the NLOP common shares, as applicable, that you are entitled to receive in the Distribution. If you have any questions concerning the mechanics of having shares held in “street name,” please contact your bank or brokerage firm.
Transferability of Shares You Receive
NLOP common shares distributed in connection with the Distribution will be transferable without registration under the Securities Act, except for shares received by persons who may be deemed to be our affiliates. Persons who may be deemed to be our affiliates after the Distribution generally include individuals or entities that control, are controlled by, or are under common control with us, which may include certain of our executive officers, trustee or principal shareholders. Securities held by our affiliates will be subject to resale restrictions under the Securities Act. Our affiliates will be permitted to sell our common shares only pursuant to an effective registration statement or an exemption from the registration requirements of the Securities Act, such as the exemption afforded by Rule 144 under the Securities Act.
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The Number of NLOP Common Shares You Will Receive
For every 15 shares of WPC common stock that you own as of the close of business on                    , 2023, the expected record date for the Distribution, you will receive one NLOP common share.
Results of the Distribution
After the Distribution, we will be an independent, publicly-traded REIT. The actual number of shares to be distributed will be determined at the close of business on the record date for the Distribution, and will reflect any exercise of WPC stock options between the date the WPC Board of Directors declares the Distribution and the record date for the Distribution. The Distribution will not affect the number of outstanding shares of WPC common stock or any rights of WPC common stockholders.
Concurrently with or prior to the Distribution, we will enter into the Separation and Distribution Agreement with WPC and will enter into other agreements with WPC concurrently with or prior to the Distribution to effect the Separation and the Distribution. These agreements will provide a framework for our relationship with WPC after the Separation and the Distribution.
Additionally, these agreements will allocate between us and WPC the assets, liabilities and obligations of WPC (including intellectual property, and tax-related assets and liabilities) that are attributable to periods prior to the Distribution. For a more detailed description of these agreements, see “Certain Relationships and Related Person Transactions.”
Market for NLOP Common Shares
There is currently no public trading market for NLOP common shares. We expect to have our common shares authorized for listing on the NYSE under the symbol “NLOP.” We have not and will not set the initial price of our common shares. The initial price will be established by the public markets. We cannot predict the price at which our common shares will trade after the Distribution. In fact, the combined trading prices, after the Distribution, of the NLOP common shares that each WPC stockholder will receive in the Distribution and the WPC common stock held at the record date may not equal the “regular-way” trading price of a share of WPC stock immediately prior to the Distribution. The price at which NLOP common shares trade may fluctuate significantly, particularly until an orderly public market develops. Trading prices for NLOP common shares will be determined in the public markets and may be influenced by many factors.
Trading Before the Distribution Date
Beginning as early as three trading days prior to the Distribution Date and continuing up to and including the Distribution Date, WPC expects that there will be two markets for shares of WPC common stock: a “regular-way” market and an “ex-distribution” market. Shares of WPC common stock that trade on the “regular-way” market will trade with an entitlement to NLOP common shares distributed in the Distribution. Shares of WPC common stock that trade on the “ex-distribution” market will trade without an entitlement to NLOP common shares distributed pursuant to the Distribution. Therefore, if you sell your shares of WPC common stock in the “regular-way” market up to and including through the Distribution Date, you will be selling your right to receive NLOP common shares in the Distribution. If you own shares of WPC common stock at the close of business on the record date and sell those shares on the “ex-distribution” market up to and including through the Distribution Date, you will receive the NLOP common shares that you are entitled to receive pursuant to your ownership of shares of WPC common stock as of the record date.
Furthermore, beginning as early as three trading days prior to the Distribution Date and continuing up to and including the Distribution Date, NLOP expects that there will be a “when-issued” market for its common shares. “When-issued” trading refers to a sale or purchase made conditionally, because the security has been authorized but not yet issued. The “when-issued” trading market will be a market for NLOP common shares that will be distributed to holders of WPC common stock on the Distribution Date. If you owned shares of WPC common stock at the close of business on the record date, you would be entitled to NLOP common shares distributed pursuant to the Distribution. With respect to WPC stockholders, you may trade this entitlement to NLOP common shares, without
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the WPC common stock you own, on the “when-issued” market. On the first trading day following the Distribution Date, “when-issued” trading with respect to NLOP common shares will end, and “regular-way” trading will begin. You should consult your bank, broker, nominee or other advisor before selling your shares to be sure you understand the effects of the NYSE trading procedures described above.
Conditions to the Distribution
NLOP has announced that the Distribution is expected to be effective at 5:01 p.m., Eastern time, on                    , 2023, which is the expected Distribution Date, provided that certain conditions shall have been satisfied (or waived by WPC in its sole discretion), including:
•the consummation of the Separation;
•the satisfaction of conditions to borrowing under the NLOP Financing Arrangements, and the funding of all borrowings under the NLOP Financing Arrangements shall have occurred;
•the transfer of $356.5 million of funds raised under the NLOP Financing Arrangements to WPC;
•the SEC declaring effective the registration statement of which this information statement forms a part, with no stop order in effect with respect thereto, and no proceeding for such purpose pending before, or threatened by, the SEC;
•the mailing of this information statement;
•any material third-party consents necessary to consummate the Separation and Distribution shall have been obtained;
•no order, injunction, or decree issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the Separation, the Distribution or any of the related transactions shall be in effect;
•the NLOP common shares to be distributed shall have been accepted for listing on the NYSE, subject to official notice of distribution; and
•the execution of ancillary agreements by WPC and/or certain of its subsidiaries and NLOP, including the Tax Matters Agreement and the Advisory Agreements.
WPC does not intend to notify its stockholders of any modifications to the terms of the Separation or the Distribution that, in the judgment of its board of directors (or officers insofar as permitted by its board of directors), are not material. The WPC Board of Directors might, however, consider material, for example, significant changes to the Distribution Ratio, or to the assets to be contributed or the liabilities to be assumed in the Separation. To the extent that the WPC Board of Directors determines that any modifications by WPC materially change the material terms of the Distribution, WPC will notify WPC stockholders in a manner reasonably calculated to inform them about the modification as may be required by law, by, for example, publishing a press release, filing a current report on Form 8-K, or circulating a supplement to this information statement.
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CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION
The following is a summary of U.S. federal income tax consequences generally applicable to the Distribution. For purposes of this section under this heading “Certain U.S. Federal Income Tax Consequences of the Distribution”: (i) references to “NLOP,” “we,” “our” and “us” mean only NLOP and not its subsidiaries or other lower-tier entities, except as otherwise indicated; and (ii) references to WPC refer to W. P. Carey, Inc. and not its subsidiaries, except as otherwise indicated.
The information in this summary is based on: the Code; current, temporary and proposed regulations promulgated by the U.S. Treasury Department (“Treasury Regulations”); the legislative history of the Code; current administrative interpretations and practices of the IRS; and court decisions; all as currently in effect, and all of which are subject to differing interpretations or to change, possibly with retroactive effect. No assurance can be given that the IRS would not assert, or that a court would not sustain, a position contrary to any of the tax consequences described below. The summary is also based upon the assumption that WPC, NLOP, and their respective subsidiaries and affiliated entities will operate in accordance with their applicable organizational documents or partnership agreements and the agreements and other documents applicable to the Distribution. This summary is for general information only and is not legal or tax advice. The Code provisions applicable to the Distribution are highly technical and complex, and this summary is qualified in its entirety by the express language of applicable Code provisions, Treasury Regulations, and administrative and judicial interpretations thereof.
Moreover, this summary does not purport to discuss all aspects of U.S. federal income taxation that may be important to a particular investor in light of its investment or tax circumstances, or to investors subject to special tax rules, such as:
•financial institutions;
•insurance companies;
•broker-dealers;
•regulated investment companies;
•REITs;
•partnerships and trusts;
•persons holding 10% or more (by vote or value) of our outstanding common shares, except to the extent discussed below);
•persons who hold our shares on behalf of another person as a nominee;
•persons who receive our shares through the exercise of employee stock options or otherwise as compensation;
•persons holding our shares as part of a “straddle,” “hedge,” “conversion transaction,” “synthetic security” or other integrated investment;
•and, except to the extent discussed below:
•tax-exempt organizations; and
•non-U.S. investors.
This summary assumes that investors will hold their WPC common stock and NLOP common shares as a “capital asset” within the meaning of Section 1221 of the Code (generally, property held for investment). This summary also assumes that investors will hold their WPC common stock at all times from the record date through the Distribution Date. Special rules may apply to determine the tax consequences to an investor that purchases or
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sells WPC common stock between the record date and the Distribution Date. You are urged to consult your tax advisor regarding the consequences to you of any such sale.
For purposes of this discussion under this heading “Certain U.S. Federal Income Tax Consequences of the Distribution,” a “U.S. stockholder” is a stockholder of WPC that is for U.S. federal income tax purposes:
•a citizen or resident of the United States;
•a corporation created or organized in the United States or under the laws of the United States, or of any state thereof, or the District of Columbia;
•an estate, the income of which is includable in gross income for U.S. federal income tax purposes regardless of its source; or
•a trust if a U.S. court is able to exercise primary supervision over the administration of such trust and one or more U.S. fiduciaries have the authority to control all substantial decisions of the trust.
A “Non-U.S. stockholder” is a stockholder of WPC that is neither a U.S. stockholder nor a partnership (or other entity treated as a partnership) for U.S. federal income tax purposes. If a partnership, including for this purpose any entity that is treated as a partnership for U.S. federal income tax purposes, holds WPC stock, the tax treatment of a partner in the partnership will generally depend upon the status of the partner and the activities of the partnership. An investor that is a partnership and the partners in such partnership should consult their tax advisors about the U.S. federal income tax consequences of the Distribution.
The U.S. federal income tax treatment of the Distribution depends in some instances on determinations of fact and interpretations of complex provisions of U.S. federal income tax law for which no clear precedent or authority may be available. In addition, the tax consequences of the Distribution to any particular stockholder of WPC will depend on the stockholder’s particular tax circumstances. You are urged to consult your tax advisor regarding the federal, state, local, and foreign income and other tax consequences to you of the Distribution in light of your particular investment or tax circumstances.
Treatment of the Distribution in General
The Distribution is intended to be a taxable distribution to WPC stockholders. Accordingly, each WPC stockholder will be treated as receiving an amount equal to the fair market value of the NLOP common shares received by such stockholder (and cash received in lieu of fractional shares of NLOP, as described below) pursuant to the Distribution, as of the date of the Distribution. We refer to such amount as the “Distribution Amount.” The tax consequences of the Distribution to WPC’s stockholders are thus generally the same as the tax consequences of WPC’s cash distributions. The discussion below describes the U.S. federal income tax consequences to a U.S. stockholder, a Non-U.S. stockholder and a tax-exempt holder of WPC common stock upon receipt of NLOP shares pursuant to the Distribution.
Although WPC intends to take the position that the Distribution does not constitute a partial liquidation for U.S. federal income tax purposes, this position is not binding on the IRS or any other tax authority. These tax authorities could assert that the Distribution is a distribution in partial liquidation of WPC for U.S. federal income tax purposes. If the IRS successfully made such an assertion, the portion of the Distribution involving a distribution to WPC’s non-corporate stockholders may be treated as a payment in exchange for such stockholders’ WPC stock instead of as a dividend.
Although WPC will ascribe a value to the NLOP common shares in the Distribution for tax purposes, this valuation will not be binding on the United States Internal Revenue Service (the “IRS”) or any other taxing authority. These taxing authorities could also ascribe a higher valuation to the NLOP common shares, particularly if NLOP common shares trade at prices significantly above the value ascribed to those shares by WPC in the period following the Distribution. Such a higher valuation may affect the Distribution Amount and may cause a larger reduction in the tax basis of WPC common stock held by its common shareholders or may cause such shareholders to recognize additional dividend or capital gain income.
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The Distribution will also be a taxable transaction for WPC. WPC generally will recognize any net gain, based on the difference between its tax basis in the NLOP common shares and the fair market value of the NLOP shares, each as of the Distribution Date. Also, WPC may recognize some gain in connection with the formation and capitalization of NLOP and its subsidiaries, in which case such gain generally would reduce WPC’s subsequent gain upon the Distribution of NLOP shares. WPC expects that its earnings and profits will be increased as a result of any income or gain recognized in connection with the Distribution and the formation and capitalization of NLOP and its subsidiaries, which may increase the portion of the Distribution Amount treated as dividend income to U.S. stockholders, as described below.
Any cash received by a U.S. stockholder in lieu of a fractional share of NLOP common shares will be treated as if such fractional share had been (i) received by the stockholder as part of the Distribution and then (ii) sold by such stockholder, via the distribution agent, for the amount of cash received. As described below, the basis of the fractional share deemed received by a U.S. stockholder will equal the fair market value of such share on the date of the Distribution, and the amount paid in lieu of a fractional share will be net of the distribution agent’s brokerage fees.
Tax Basis and Holding Period of NLOP Common Shares Received by Holders of WPC Common Stock
A WPC stockholder’s tax basis in NLOP common shares received in the Distribution generally will equal the fair market value of such shares on the Distribution Date, and the holding period for such shares will begin the day after the Distribution Date.
Tax Treatment of the Distribution to U.S. Stockholders of WPC’s Common Stock
The following discussion describes the U.S. federal income tax consequences to a U.S. stockholder upon the receipt of NLOP common shares in the Distribution.
Ordinary Dividends. The portion of the Distribution Amount received by a U.S. stockholder that is payable out of WPC’s current or accumulated earnings and profits and that is not designated by WPC as a capital gain dividend will generally be taken into account by such U.S. stockholder as ordinary income and will not be eligible for the dividends received deduction for corporations. With limited exceptions, dividends paid by WPC are not eligible for taxation at the preferential income tax rates for qualified dividends received by U.S. stockholders that are individuals, trusts, and estates from taxable C corporations. Such U.S. stockholders, however, are taxed at the preferential rates on dividends designated by and received from a REIT such as WPC to the extent that the dividends are attributable to:
•income retained by the REIT in the prior taxable year on which the REIT was subject to corporate level income tax (less the amount of tax);
•dividends received by the REIT from TRSs or other taxable C corporations; or
•income in the prior taxable year from the sales of “built-in gain” property acquired by the REIT from C corporations in carryover basis transactions (less the amount of corporate tax on such income).
WPC’s current earnings and profits are measured as of the end of the tax year and are generally allocated to all distributions made during such tax year on a pro rata basis. As a result, a proportionate part of WPC’s current earnings and profits for the entire taxable year of WPC in which the Distribution occurs (including income and gain recognized by WPC in connection with the Distribution, and other property sales and taxable transactions occurring during the taxable year) will be allocated to the Distribution. That proportionate part will be treated as dividend income even for a stockholder of record that has not held its WPC stock for the entire taxable year of WPC in which the Distribution occurs. Thus, a stockholder that does not hold its WPC common stock for the entire taxable year of WPC in which the Distribution occurs may be allocated a disproportionate amount of ordinary income attributable to WPC’s current earnings and profits as a result of the Distribution.
In addition, for taxable years that begin before January 1, 2026, stockholders that are individuals, trusts or estates are generally entitled to a deduction equal to 20% of the aggregate amount of ordinary income dividends
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received from a REIT (not including capital gain dividends, as described below, or dividends eligible for reduced rates applicable to qualified dividend income, as described above), subject to certain limitations.
Non-Dividend Distributions. If a distribution (including the Distribution Amount with respect to the Distribution) to a WPC U.S. stockholder exceeds such stockholder’s ratable share of WPC’s current and accumulated earnings and profits, the distribution will generally represent a return of capital and will not be taxable to such stockholder to the extent that the amount of such distribution does not exceed the adjusted basis of the holder’s WPC shares in respect of which the distribution was made. Rather, the distribution will reduce the adjusted basis of the holder’s shares in WPC. To the extent that such distribution exceeds the adjusted basis of a U.S. stockholder’s WPC shares, the holder generally must include such distribution in income as long-term capital gain, or short-term capital gain if the holder’s WPC shares have been held for one year or less.
Capital Gain Dividends. A distribution that WPC designates as a capital gain dividend will generally be taxed to U.S. stockholders as long-term capital gain, to the extent that such distribution does not exceed WPC’s actual net capital gain for the taxable year, without regard to the period for which the holder that receives such distribution has held its WPC stock. Corporate U.S. stockholders may be required to treat up to 20% of some capital gain dividends as ordinary income. Long-term capital gains are generally taxable at reduced maximum federal rates in the case of U.S. stockholders that are individuals, trusts, and estates, and ordinary income rates in the case of stockholders that are corporations.
Tax Treatment of the Distribution to Tax-Exempt U.S. Stockholders of WPC’s Common Stock
Tax-exempt entities, including qualified employee pension and profit-sharing trusts and individual retirement accounts, generally are exempt from U.S. federal income taxation. Such entities, however, may be subject to taxation on their unrelated business taxable income (“UBTI”). While some investments in real estate may generate UBTI, the IRS has ruled that dividend distributions from a REIT to a tax-exempt entity do not constitute UBTI. Based on that ruling, and provided that (1) a tax-exempt holder has not held WPC stock as “debt financed property” within the meaning of the Code (i.e., where the acquisition or holding of the property is financed through a borrowing by the tax-exempt holder), and (2) such WPC stock is not otherwise used in an unrelated trade or business, the Distribution generally should not give rise to UBTI to a tax-exempt holder.
Tax-exempt holders that are social clubs, voluntary employee benefit associations, supplemental unemployment benefit trusts, and qualified group legal services plans exempt from U.S. federal income taxation under sections 501(c)(7), (c)(9), or (c)(17) of the Code are subject to different UBTI rules, which will generally require such stockholders to characterize the Distribution Amount to such holders as UBTI.
In certain circumstances, a pension trust that owns more than 10% of WPC’s stock could be required to treat a percentage of any portion of the Distribution Amount treated as a dividend as UBTI, if WPC is a “pension-held REIT.” WPC generally will not be a pension-held REIT unless (1) it is required to “look through” one or more of its pension stockholders in order to satisfy certain REIT requirements and (2) either (i) one pension trust owns more than 25% of the value of WPC’s stock, or (ii) a group of pension trusts, each individually holding more than 10% of the value of WPC’s stock, collectively owns more than 50% of WPC’s stock. Certain restrictions on ownership and transfer of WPC’s stock should generally prevent a tax-exempt entity from owning more than 10% of the value of WPC’s stock, and should generally prevent WPC from becoming a pension-held REIT.
Tax Treatment of the Distribution to Non-U.S. Stockholders of WPC’s Common Stock
The following discussion describes the U.S. federal income tax consequences to a Non-U.S. stockholder upon the receipt of NLOP common shares in the Distribution.
Ordinary Dividends. The portion of the Distribution Amount received by a Non-U.S. stockholder that is (1) payable out of WPC’s earnings and profits, (2) not attributable to WPC’s capital gains, and (3) not effectively connected with a U.S. trade or business of the Non-U.S. stockholder, will be treated as a dividend that is subject to U.S. withholding tax at the rate of 30%, unless reduced or eliminated by treaty.
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In general, Non-U.S. stockholders will not be considered to be engaged in a U.S. trade or business solely as a result of their ownership of WPC stock. In cases where the dividend income from a Non-U.S. stockholder’s investment in WPC stock is, or is treated as, effectively connected with the Non-U.S. stockholder’s conduct of a U.S. trade or business, the Non-U.S. stockholder generally will be subject to U.S. federal income tax at graduated rates, in the same manner as U.S. stockholders are taxed with respect to such dividends. Such income must generally be reported on a U.S. income tax return filed by or on behalf of the Non-U.S. stockholder. The income may also be subject to the 30% (or such lower rate as may be specified by an applicable income tax treaty) branch profits tax in the case of a Non-U.S. stockholder that is a corporation.
Non-Dividend Distributions. Unless WPC’s stock constitutes a U.S. real property interest (“USRPI”), the Distribution Amount, to the extent not made out of WPC’s earnings and profits, will not be subject to U.S. income tax. If WPC cannot determine at the time of the Distribution whether or not the Distribution Amount will exceed WPC’s current and accumulated earnings and profits, WPC or the applicable withholding agent is expected to withhold on the Distributions (including any cash in lieu of fractional shares of NLOP) at the rate applicable to ordinary dividends, as described above.
If WPC’s stock constitutes a USRPI, as described below, distributions that it makes in excess of the sum of (a) the stockholder’s allocable share of WPC’s earnings and profits, plus (b) the stockholder’s basis in its WPC stock, will be taxed under the Foreign Investment in Real Property Tax Act of 1980 (“FIRPTA”) in the same manner as if the WPC stock had been sold, and the collection of the tax would be enforced by a refundable withholding tax at a rate of 15% of the amount by which the distribution exceeds the stockholder’s share of WPC’s earnings and profits. In such situations, the Non-U.S. stockholder would be required to file a U.S. federal income tax return and would be subject to the same treatment and same tax rates as a U.S. stockholder with respect to such excess, subject to applicable alternative minimum tax and a special alternative minimum tax in the case of non-resident alien individuals.
Subject to certain exceptions discussed below, WPC’s stock will be treated as a USRPI if, at any time during a prescribed testing period, 50% or more of its assets consist of interests in real property located within the United States, excluding, for this purpose, interests in real property solely in a capacity as a creditor. We expect that 50% or more of WPC’s assets will consist of USRPIs. Even if the foregoing 50% test is met, however, WPC’s stock nonetheless will not constitute a USRPI if WPC is a “domestically controlled qualified investment entity.” A domestically controlled qualified investment entity includes a REIT, less than 50% of the value of which is held directly or indirectly by Non-U.S. stockholders at all times during a specified testing period (after applying certain presumptions regarding the ownership of WPC stock, as described in the Code). Although it is anticipated that WPC will be a domestically controlled qualified investment entity, and that a distribution with respect to WPC’s stock in excess of WPC’s earnings and profits will not be subject to taxation under FIRPTA, no assurance can be given that WPC is or will remain a domestically controlled qualified investment entity.
In the event that WPC is not a domestically controlled qualified investment entity, but its stock is “regularly traded,” as defined by applicable Treasury Regulations, on an established securities market, a distribution to a Non-U.S. stockholder nonetheless would not be subject to tax under FIRPTA; provided that the Non-U.S. stockholder held 10% or less of WPC’s stock at all times during a specified testing period. It is anticipated that WPC’s stock will be regularly traded.
Gain in respect of a non-dividend distribution that would not otherwise be subject to FIRPTA will nonetheless be taxable in the United States to a Non-U.S. stockholder in two cases: (1) if the Non-U.S. stockholder’s investment in WPC stock is effectively connected with a U.S. trade or business conducted by such Non-U.S. stockholder, the Non-U.S. stockholder will be subject to the same treatment as a U.S. stockholder with respect to such gain, or (2) if the Non-U.S. stockholder is a nonresident alien individual who was present in the United States for 183 days or more during the taxable year and certain other requirements are met, the nonresident alien individual will be subject to a 30% tax on the individual’s capital gain.
Capital Gain Dividends. Under FIRPTA, a dividend that WPC makes to a Non-U.S. stockholder, to the extent attributable to gains from dispositions of USRPIs that WPC held directly or through pass-through subsidiaries (such gains, “USRPI Capital Gains”), will, except as described below, be considered effectively connected with a U.S.
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trade or business of the Non-U.S. stockholder and will be subject to U.S. income tax at the rates applicable to U.S. individuals or corporations. WPC will be required to withhold tax equal to 15% of the maximum amount that could have been designated as a USRPI capital gain dividend. Distributions subject to FIRPTA may also be subject to a 30% branch profits tax in the hands of a Non-U.S. stockholder that is a corporation. A distribution is not a USRPI capital gain dividend if WPC held an interest in the underlying asset solely as a creditor.
In addition, if a Non-U.S. stockholder owning more than 10% of WPC common stock disposes of such stock during the 30-day period preceding the ex-dividend date of any dividend payment by WPC, and such Non-U.S. stockholder acquires or enters into a contract or option to acquire WPC common stock within 61 days of the first day of such 30-day period described above, and any portion of such dividend payment would, but for the disposition, be treated as USRPI capital gain to such Non-U.S. stockholder under FIRPTA, then such Non-U.S. stockholder will be treated as having USRPI capital gain in an amount that, but for the disposition, would have been treated as USRPI capital gain.
Capital gain dividends received by a Non-U.S. stockholder that are attributable to dispositions of WPC’s assets other than USRPIs are not subject to U.S. federal income tax, unless (1) the gain is effectively connected with the Non-U.S. stockholder’s U.S. trade or business, in which case the Non-U.S. stockholder would be subject to the same treatment as U.S. stockholders with respect to such gain, or (2) the Non-U.S. stockholder is a nonresident alien individual who was present in the United States for 183 days or more during the taxable year and certain other requirements are met, in which case the Non-U.S. stockholder will incur a 30% tax on his capital gains.
A dividend that would otherwise have been treated as a USRPI capital gain dividend will not be so treated or be subject to FIRPTA, and generally will not be treated as income that is effectively connected with a U.S. trade or business, but instead will be treated in the same manner as ordinary income dividends (discussed above); provided that (1) the dividend is received with respect to a class of stock that is regularly traded on an established securities market located in the United States, and (2) the recipient Non-U.S. stockholder does not own, actually or constructively more than 10% of that class of stock at any time during the year ending on the date on which the dividend is received. WPC anticipates that its stock will be “regularly traded” on an established securities exchange.
Special FIRPTA Rules. FIRPTA contains special rules that provide exemptions from FIRPTA and otherwise modify the application of the foregoing FIRPTA rules for particular types of non-U.S. investors, including “qualified foreign pension funds” and their wholly-owned foreign subsidiaries and certain widely held, publicly-traded “qualified collective investment vehicles.”
Withholding of Amounts Distributable to Non-U.S. Stockholders in the Spin-off. If withholding is required on any amounts otherwise distributable to a Non-U.S. stockholder in the Distribution, WPC or other applicable withholding agents may collect the amount required to be withheld by converting to cash for remittance to the IRS a sufficient portion of NLOP common shares that such Non-U.S. stockholder may otherwise receive or would withhold from other property held in the Non-U.S. stockholder’s account with the withholding agent, and such holder may bear brokerage or other costs for this withholding procedure. A Non-U.S. stockholder may seek a refund from the IRS of any amounts withheld if it is subsequently determined that the amounts withheld exceeded the holder’s U.S. tax liability for the year in which the Distribution occurred.
Backup Withholding Tax and Information Reporting
U.S. Holders. A U.S. stockholder may be subject to information reporting and backup withholding with respect to the Distribution. Certain U.S. stockholders are exempt from backup withholding, including corporations and certain tax-exempt organizations. A U.S. stockholder will be subject to backup withholding if such holder is not otherwise exempt and:
•the holder fails to furnish the holder’s taxpayer or identification number, which for an individual is ordinarily his or her social security number;
•the holder furnishes an incorrect taxpayer identification number;
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•the applicable withholding agent is notified by the IRS that the holder previously failed to properly report payments of interest or dividends; or
•the holder fails to certify under penalties of perjury that the holder has furnished a correct taxpayer identification number and that the IRS has not notified the holder that the holder is subject to backup withholding.
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against a U.S. stockholder’s U.S. federal income tax liability, provided the required information is timely furnished to the IRS. U.S. stockholders should consult their tax advisors regarding their qualification for an exemption from backup withholding and the procedures for obtaining such an exemption.
Non-U.S. Stockholders. The distribution of NLOP common shares generally will not be subject to backup withholding, provided the applicable withholding agent does not have actual knowledge or reason to know the holder is a United States person and the holder either certifies its non-U.S. status, such as by furnishing a valid IRS Form W-8BEN, W-8BEN-E, W-8ECI, or other applicable IRS Form W-8, or otherwise establishes an exemption. However, information returns are required to be filed with the IRS in connection with any dividends on WPC’s common stock paid to the Non-U.S. stockholder, regardless of whether any tax was actually withheld. In addition, proceeds of a sale of such stock within the United States or conducted through certain U.S.-related brokers generally will not be subject to backup withholding or information reporting, if the applicable withholding agent receives the certification described above and does not have actual knowledge or reason to know that such holder is a United States person, or the holder otherwise establishes an exemption. Proceeds of a sale of such stock conducted through a non-U.S. office of a non-U.S. broker generally will not be subject to backup withholding or information reporting.
Copies of information returns that are filed with the IRS may also be made available under the provisions of an applicable treaty or agreement to the tax authorities of the country in which the Non-U.S. stockholder resides or is established.
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against a Non-U.S. stockholder’s U.S. federal income tax liability, provided the required information is timely furnished to the IRS.
Additional Withholding Tax on Payments Made to Foreign Accounts
Withholding taxes may be imposed under Sections 1471 to 1474 of the Code (such sections commonly referred to as the Foreign Account Tax Compliance Act, or FATCA) on certain types of payments made to non-U.S. financial institutions and certain other non-U.S. entities. Specifically, a 30% withholding tax may be imposed on any portion of the Distribution Amount that is treated as a dividend and that is paid to a “foreign financial institution” or a “non-financial foreign entity” (each as defined in the Code), unless (1) the foreign financial institution undertakes certain diligence and reporting obligations, (2) the non-financial foreign entity either certifies it does not have any “substantial United States owners” (as defined in the Code) or furnishes identifying information regarding each substantial United States owner, or (3) the foreign financial institution or non-financial foreign entity otherwise qualifies for an exemption from these rules. If the payee is a foreign financial institution and is subject to the diligence and reporting requirements in clause (1) above, it must enter into an agreement with the U.S. Department of the Treasury requiring, among other things, that it undertake to identify accounts held by certain “specified United States persons” or “United States owned foreign entities” (each as defined in the Code), annually report certain information about such accounts, and withhold 30% on certain payments to non-compliant foreign financial institutions and certain other account holders. Foreign financial institutions located in jurisdictions that have an intergovernmental agreement with the United States governing FATCA may be subject to different rules.
Holders should consult their tax advisors regarding the potential application of withholding under FATCA to the Distribution.
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Time for Determination of the Tax Consequences of the Distribution
The tax consequences of the Distribution will be affected by a number of facts that are yet to be determined, including WPC’s final earnings and profits for 2023 (including as a result of the income and gain WPC recognizes in connection with the Distribution), the fair market value of NLOP common shares on the Distribution Date and the extent to which WPC recognizes gain on the sales of USRPIs or other capital assets. Thus, a definitive calculation of the U.S. federal income tax consequences of the Distribution will not be possible until after the end of the 2023 calendar year. WPC will provide its stockholders with tax information on an IRS Form 1099-DIV, informing them of the character of distributions made during the taxable year, including the Distribution.
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MANAGEMENT COMPENSATION
For information regarding estimates of the amounts of all fees, compensation, income, partnership distributions and other payments that the Advisors and their affiliates will be entitled to receive in connection with their service as an Advisor, including under the Advisory Agreements, see “Management—Advisory Agreements” and “Management—Executive and Trustee Compensation”. These payments will result from non-arm’s-length bargaining. For more information, see “Conflicts of Interest.”

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CONFLICTS OF INTEREST
There are various conflicts of interest in the operation of our business. The independent trustees have an obligation to function on our behalf in all situations in which a conflict of interest arises and have a fiduciary obligation to act on behalf of the our shareholders. Possible conflicts of interest include the following:
•Agreements between the Advisors, affiliates of the Advisors or entities managed by the Advisors and us are not arm’s-length agreements. Agreements and arrangements between the Advisors or their affiliates and us will not be the result of arm’s-length negotiations. In addition, as a result of the fact that we and the Advisors have some common management, our Board may encounter conflicts of interest in enforcing our rights against the Advisors in the event of a default by, or disagreement with, the Advisors, or in invoking powers, rights or options pursuant to any agreement between the Advisors and us. In making such determinations, our trustees will use their judgment and may, but are not required to, retain the services of advisors, professional service providers or other third parties to assist them. We may enter into transactions with the other entities that are managed by the Advisors or WPC.
•We delegate our management functions to the Advisors and their affiliates. We expect to delegate our management functions to the Advisors, for which the Advisors will earns fees pursuant to the Advisory Agreements. Although at least a majority of our Board must be independent, because the Advisors will earns fees from us, we will have limited independence from the Advisors. This limited independence may exacerbate the conflicts of interest described in this section by giving the Advisors and WPC substantial control over us while having different economic incentives than our shareholders.
•All of our officers and certain of our trustees have ownership interests in WPC. All of our officers and certain of our trustees own shares in WPC, which is the parent company of the Advisors. These ownership interests may result in conflicts by creating an incentive for members of our management to make decisions or enter into transactions on our behalf, that may be beneficial to WPC and not necessarily beneficial to us. Please see “Security Ownership of Certain Beneficial Owners and Management” for more information.
•We may enter into transactions with or take loans from the Advisors or their affiliates. We may borrow funds from the Advisors or their affiliates if doing so is consistent with our objectives and policies and if other conditions are met. We may borrow funds from the Advisors or their affiliates to facilitate refinancings if we are unable to obtain a permanent loan at that time or, in the judgment of the Board, it is not in our best interest to obtain a permanent loan at the interest rates then prevailing and the Board has reason to believe that we will be able to obtain a permanent loan on or prior to the end of the loan term provided by WPC or its affiliates.
•The Advisors and their affiliates are engaged in or will engage in additional management, investment or disposition activities that have and may have in the future overlapping objectives with us. In addition, the Advisors and their affiliates do invest, and may establish other investment vehicles that will invest in, commercial real estate-related assets. The Advisors may face conflicts of interest in allocating investment, purchase and sale, leasing and financing opportunities among WPC or its affiliates and other entities that it advises. These conflicts may be affected by variations in the economic benefits to the Advisors and such entities from different allocations of such opportunities. All such conflicts of interest will be resolved by the Advisors in their sole discretion. The Advisors will use its best efforts to present suitable buyers, tenants or investment opportunities (if any) to us consistent with our procedures, objectives and policies. However, the Advisors’ decisions as to the allocation of these opportunities may present conflicts of interest, which may not be resolved in the manner that is favorable to our interests. If the Advisors or any of their affiliates is presented with a potential investment in an asset that might be made by WPC or by one or more investment entity that it advises or manages, the decision as to the suitability of the asset for investment by a particular entity will be made by the Advisors in their sole discretion based upon a variety of commercial and economic factors. Similarly, if the Advisors or any of their affiliates, or one or more investment entity that it advises or manages, is competing for the same or similar buyers or tenants as NLOP, the decision as to the strategy with respect such business opportunities, and the decision to pursue transactions with such entities will be made by the Advisors in their sole discretion based upon a variety of commercial factors.
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•There may be competition from the Advisors and their affiliates for the time and services of our officers and trustees. We will depend on our trustees and the Advisors for our operations and for the operation and disposition of our investments. The Advisors are expected to enter into the Advisory Agreements with us pursuant to which they will perform certain functions relating to our management services. For more information, see “The Separation and the Distribution – Related Agreements” and “Management – Advisory Agreements.” The Advisors and their affiliates may be performing similar services for other REITs, partnerships or other investment entities offered or managed in the future by affiliates of the Advisors. The Advisors and their affiliates will devote the time to our affairs as they, within their sole discretion, exercised in good faith, determine to be necessary for our benefit and that of our shareholders. Neither the Advisors, WPC nor any of their affiliates are restricted from acting as general partner, advisor, underwriter, selling agent in public or private offerings of securities in REITs, real estate partnerships or other entities which may have objectives similar to ours and which are sponsored by affiliated or non-affiliated persons.
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DIVIDEND POLICY
We are a newly formed company that has not commenced operations, and as a result, we have not paid any dividends as of the date of this information statement. We intend to elect and qualify to be taxed as a REIT for U.S. federal income tax purposes commencing with the taxable year in which the Distribution occurs. We intend to make distributions to our shareholders to satisfy the requirements to qualify as a REIT. To qualify as a REIT, we must annually distribute to our shareholders at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gain. Please refer to “Material U.S. Federal Income Tax Consequences – Material U.S. Federal Income Tax Considerations Regarding NLOP’s Taxation as a REIT.”
We cannot assure you that our dividend policy will remain the same in the future, or that any estimated dividends will be paid or sustained. Dividends paid by us will be authorized and determined by our Board, in its sole discretion, out of legally available funds, and will be dependent upon a number of factors, including restrictions under applicable law, actual and projected financial condition, liquidity, funds from operations and results of operations, the revenue we actually receive from our properties, our operating expenses, our debt service requirements, our capital expenditures, prohibitions and other limitations under our financing arrangements, the annual REIT distribution requirements and such other factors as our Board deems relevant. For more information regarding risk factors that could materially and adversely affect our ability to pay dividends, see “Risk Factors” beginning on page 31.
Our dividends may be funded from a variety of sources, including cash flows from operations and disposition proceeds. To the extent that our funds available for distribution are less than the amount we must distribute to our shareholders to satisfy the requirements to qualify as a REIT, we intend to declare taxable dividends that are paid in our common shares or other various means to cover any such shortfall, including distributions in shares, borrowing additional indebtedness or other loans, selling certain of our assets or using a portion of the net proceeds we receive from future offerings of equity, equity-related securities or debt securities. In addition, our Declaration of Trust allows us to issue shares of preferred equity that could have a preference on dividends, and if we do, the dividend preference on the preferred equity could limit our ability to pay dividends to the holders of our common shares. The NLOP Financing Arrangements will also limit our ability to pay dividends on our common shares. See “Risk Factors – Risks Related to Financing and our Indebtedness – The NLOP Financing Arrangements will limit our ability to pay dividends on our common shares, including repurchasing our common shares.”
For a discussion of the tax treatment of distributions to holders of our common shares, please refer to “Material U.S. Federal Income Tax Consequences – Material U.S. Federal Income Tax Considerations Regarding NLOP’s Taxation as a REIT – Material U.S. Federal Income Tax Consequences to Holders of Our Common Shares.”
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NET LEASE OFFICE PROPERTIES PREDECESSOR
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial statements and notes thereto should be read in conjunction with the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” our audited combined financial statements and accompanying notes included elsewhere in this Information Statement and our unaudited combined financial statements and accompanying notes included elsewhere in this Information Statement.
Our unaudited pro forma condensed combined statement of income for the year ended December 31, 2022 has been derived from our audited combined financial statements for the year ended December 31, 2022, which are included elsewhere in this Information Statement, and our unaudited pro forma condensed combined statement of income for the six months ended June 30, 2023 and our unaudited pro forma condensed combined balance sheet as of June 30, 2023 have been derived from our unaudited combined financial statements as of and for the six months ended June 30, 2023, which are included elsewhere in this Information Statement.
Pursuant to the terms of a separation and distribution agreement, WPC intends to spin off a portfolio of 59 real property assets into a separate publicly-traded company. To accomplish this separation, on October 21, 2022, WPC formed NLOP, a Maryland real estate investment trust, to own the NLOP Predecessor.
Our unaudited pro forma condensed combined statements of income for the year ended December 31, 2022 and six months ended June 30, 2023 give effect to the Pro Forma Transactions (as defined below) as if they had occurred on January 1, 2022, the beginning of the most recent fiscal year for which audited financial statements are available. Our unaudited pro forma condensed combined balance sheet gives effect to the Pro Forma Transactions as if they had occurred on June 30, 2023, our most recent balance sheet date. As the CPA:18 Merger (as defined below) was completed on August 1, 2022, the combined statement of income and balance sheet for the six months ended and as of June 30, 2023 already include the financial results of the nine properties acquired as part of WPC’s merger with CPA:18 on August 1, 2022 (the “CPA:18 Merger”). The unaudited pro forma condensed combined financial statements give effect to the following (collectively referred to as the “Pro Forma Transactions”):
•the Separation and Distribution;
•transaction costs specifically related to the Separation and the Distribution;
•the inclusion of the financial results of CPA:18 and the related purchase price allocation for the seven months ended July 31, 2022, prior to the merger; and
•the post-spin-off capital structure, including; (i) the assumed issuance of 14,260,078 shares of common stock and (ii) the incurrence by NLOP Predecessor of $455.0 million aggregate principal amount of indebtedness under the NLOP Financing Arrangements, (iii) the contribution of the WPC receivable related to the parent debt, and the use of proceeds therefrom, including the transfer of $356.5 million to WPC, as described in the “Description of Material Indebtedness” section of this information statement.
The pro forma adjustments are based on the best information available as of the date of this Information Statement and assumptions that management believes are reasonable given the information available as of the date of this Information Statement. The adjustments in our unaudited pro forma condensed combined financial statements have been identified and presented to provide relevant information in accordance with Article 11 of SEC regulation S-X, as amended, necessary for an illustrative understanding upon consummation of the Pro Forma Transactions.
Our unaudited pro forma condensed combined financial statements are for informational purposes only and are not intended to represent what our results of operations or financial position would have been had the Pro Forma Transactions occurred on the dates indicated. The unaudited pro forma condensed combined financial statements also should not be considered indicative of our future results of operations or financial position as an independent, publicly-traded company.
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The accompanying unaudited pro forma condensed combined financial statements have been prepared from WPC’s historical accounting records and are presented on a stand-alone basis including transaction accounting adjustments to reflect as if our operations had been conducted independently from WPC. The values presented as Historical CPA:18 in the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2022 were derived from the historical records of CPA:18. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2022 gives effect to NLOP’s acquisition of CPA:18 as if that acquisition had occurred on January 1, 2022.
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NET LEASE OFFICE PROPERTIES PREDECESSOR
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
As of June 30, 2023
Historical NLOP Predecessor
Transaction Accounting
Adjustments		(Notes)Pro Forma Combined
Assets
Investments in real estate:
Land, buildings and improvements$1,283,261 $— $1,283,261 
Net investments in direct financing leases14,602 — 14,602 
In-place lease intangible assets and other375,127 — 375,127 
Above-market rent intangible assets58,589 — 58,589 
Investments in real estate1,731,579 — 1,731,579 
Accumulated depreciation and amortization(430,224)— (430,224)
Net investments in real estate1,301,355 — 1,301,355 
Cash and cash equivalents5,538 50,090 (c)55,628 
Other assets, net51,626 — (h)51,626 
Goodwill62,481 — 62,481 
Total assets
$1,421,000 $50,090 $1,471,090 
Liabilities and Equity
Non-recourse mortgages, net