Net Lease Office Properties (NLOP) posts 2025 loss amid asset sales
Filing Impact
Filing Sentiment
Form Type
10-K
Rhea-AI Filing Summary
Net Lease Office Properties reported a larger 2025 net loss while advancing its sell-down and de‑leveraging strategy. Total revenues were $118.9 million versus $142.2 million in 2024, and net loss attributable to NLOP widened to $145.3 million, driven mainly by higher impairments and losses on property sales.
The company sold 14 properties in 2025 for $198.6 million in net proceeds and transferred one international asset in satisfaction of a $45.7 million non‑recourse mortgage. These sales, plus cash flow, allowed full repayment of its mezzanine loan and several mortgages, leaving $21.9 million of debt outstanding at year‑end.
As of December 31, 2025, NLOP owned 24 U.S. office properties totaling about 3.4 million net‑leased square feet, with 79.0% occupancy and annualized base rent of approximately $54.1 million. Cash generation remained solid, with 2025 funds from operations of $60.2 million and adjusted FFO of $73.8 million supporting sizable special cash distributions declared during 2025 and early 2026.
Positive
- None.
Negative
- None.
Insights
NLOP accelerated asset sales, reduced debt sharply, but remains exposed to office and lease‑roll risks.
Net Lease Office Properties generated 2025 funds from operations of
Management used sale proceeds plus operating cash to fully repay the mezzanine loan (outstanding
The portfolio remains concentrated and short‑leased even after selling the KBR and Google assets in early
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
For the fiscal year ended December 31 , 2025
or
For the transition period from__________ to __________
Commission File Number: 001-41812
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation) | (I.R.S. Employer Identification No.) | |||||||
| (Address of principal executive offices) | (Zip Code) | |||||||
Investor Relations (212) 492-1140
(844 ) 656-7348
(Registrant’s telephone numbers, including area code)
(Former name or former address, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of exchange on which registered | ||||||||||||
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☑
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☑
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | ☑ | Non-accelerated filer | ☐ | |||||||||||||
Smaller reporting company | Emerging growth company | ||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☑
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of last business day of the registrant’s most recently completed second fiscal quarter: $479.1 million.
As of February 20, 2026, there were 14,814,075 shares of Common Stock of registrant outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant incorporates by reference its definitive Proxy Statement with respect to its 2026 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission within 120 days following the end of its fiscal year, into Part III of this Annual Report on Form 10-K.
INDEX
| Page No. | ||||||||
| PART I | ||||||||
| Item 1. | Business | 3 | ||||||
| Item 1A. | Risk Factors | 5 | ||||||
| Item 1B. | Unresolved Staff Comments | 17 | ||||||
| Item 1C. | Cybersecurity | 17 | ||||||
| Item 2. | Properties | 19 | ||||||
| Item 3. | Legal Proceedings | 19 | ||||||
| Item 4. | Mine Safety Disclosures | 19 | ||||||
| PART II | ||||||||
| Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 20 | ||||||
| Item 6. | Reserved | 20 | ||||||
| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 21 | ||||||
| Item 7A. | Quantitative and Qualitative Disclosures About Market Risk | 35 | ||||||
| Item 8. | Financial Statements and Supplementary Data | 37 | ||||||
| Item 9. | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure | 77 | ||||||
| Item 9A. | Controls and Procedures | 77 | ||||||
| Item 9B. | Other Information | 78 | ||||||
| Item 9C. | Disclosure Regarding Foreign Jurisdictions that Prevent Inspections | 78 | ||||||
| PART III | ||||||||
| Item 10. | Directors, Executive Officers and Corporate Governance | 79 | ||||||
| Item 11. | Executive Compensation | 79 | ||||||
| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 79 | ||||||
| Item 13. | Certain Relationships and Related Transactions, and Director Independence | 79 | ||||||
| Item 14. | Principal Accounting Fees and Services | 79 | ||||||
| PART IV | ||||||||
| Item 15. | Exhibits and Financial Statement Schedules | 80 | ||||||
| Item 16. | Form 10-K Summary | 82 | ||||||
SIGNATURES | ||||||||
Net Lease Office Properties 2025 10-K – 1 | |||||
Forward-Looking Statements
This Annual Report on Form 10-K (the “Report”), including Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of Part II of this Report, contains forward-looking statements within the meaning of the federal securities laws. These forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. These forward-looking statements include, but are not limited to statements regarding: the Spin-Off (as defined herein); our corporate strategy and estimated or future economic performance and results, including our expectations surrounding the impact of the broader macroeconomic environment and the ability of tenants to pay rent, financial condition, liquidity, results of operations, and prospects; our future capital expenditure and leverage levels, debt service obligations, and plans to fund our liquidity needs, including our ability to sell or dispose of properties and maintain debt covenant compliance; our ability to make shareholder distributions; prospective statements regarding our access to the capital markets; statements that we make regarding our ability to remain qualified for taxation as a real estate investment trust (“REIT”); and the impact of recently issued accounting pronouncements and other regulatory activity.
These statements are based on the current expectations of our management. It is important to note that our actual results could be materially different from those projected in such forward-looking statements. There are a number of risks and uncertainties that could cause actual results to differ materially from these forward-looking statements. Other unknown or unpredictable risks or uncertainties, like the risks related to fluctuating interest rates, the impact of inflation and tariffs on our tenants and us, the effects of pandemics and global outbreaks of contagious diseases, and domestic or geopolitical crises, such as terrorism, military conflict, war or the perception that hostilities may be imminent, political instability or civil unrest, or other conflict, could also have material adverse effects on our business, financial condition, liquidity, results of operations, and prospects. You should exercise caution in relying on forward-looking statements as they involve known and unknown risks, uncertainties, and other factors that may materially affect our future results, performance, achievements, or transactions. Information on factors that could impact actual results and cause them to differ from what is anticipated in the forward-looking statements contained herein is included in this Report, as well as in our other filings with the Securities and Exchange Commission (“SEC”), including but not limited to those described in Item 1A. Risk Factors and Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of this Report. Moreover, because we operate in a very competitive and rapidly changing environment, new risks are likely to emerge from time to time. Given these risks and uncertainties, potential investors are cautioned not to place undue reliance on these forward-looking statements as a prediction of future results, which speak only as of the date of this Report, unless noted otherwise. Except as required by federal securities laws and the rules and regulations of the SEC, we do not undertake to revise or update any forward-looking statements.
All references to “Notes” throughout the document refer to the footnotes to the consolidated financial statements of the registrant in Part II, Item 8. Financial Statements and Supplementary Data.
Net Lease Office Properties 2025 10-K – 2 | |||||
PART I
Item 1. Business.
General Development of Business
Net Lease Office Properties (“NLOP” or the “Company”) is a Maryland real estate investment trust that, together with our consolidated subsidiaries, owns a diversified portfolio of office properties that are primarily leased to corporate tenants on a single-tenant, net-lease basis. Our 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. We elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code (the “Code”) effective as of November 1, 2023.
The vast majority of our revenues originate from lease revenue provided by our real estate portfolio, which comprises single-tenant office facilities that are critical to our tenants’ operations. As of December 31, 2025, our portfolio comprised 24 properties, net-leased to 26 corporate tenants operating in a variety of industries, generating annualized base rent (“ABR”) of approximately $54.1 million. As of December 31, 2025, all of our properties were located in the United States. In January and February 2026, we sold four properties, including a property leased to our largest tenant (based on ABR as of December 31, 2025) (Note 17).
Pursuant to the terms of a separation and distribution agreement, W. P. Carey Inc. (“WPC”), a leading net-lease REIT listed on the New York Stock Exchange (“NYSE”) under the ticker symbol “WPC,” spun off a portfolio of 59 office assets into a separate publicly-traded company (the “Spin-Off”). To accomplish this Spin-Off, WPC formed NLOP on October 21, 2022. On November 1, 2023, WPC completed the Spin-Off. Following the closing of the Spin-Off, certain wholly-owned affiliates of WPC (our “Advisor”) externally manage NLOP pursuant to certain advisory agreements (the “NLOP Advisory Agreements”). The Spin-Off was accomplished via a pro rata dividend of 1 NLOP common share for every 15 shares of WPC common stock outstanding.
Our common shares are listed on the NYSE under the ticker symbol “NLOP.”
Narrative Description of Business
Business Objectives and Strategy
Our business plan is to focus on realizing value for our shareholders primarily through strategic asset management and disposition of our property portfolio over time. Our Advisor is generally responsible for all aspects of our 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 our borrowings, preparing and filing our financial statements and required filings with the SEC, and other management services, under the supervision of our Board of Trustees (our “Board”). We anticipate using the proceeds of dispositions to pay distributions to our shareholders, pay down debt, and reinvest in our properties through capital expenditures, as needed.
Financing Strategies
On September 20, 2023, in connection with the Spin-Off, we and certain of our wholly-owned subsidiaries entered into financing arrangements for which funding was subject to certain conditions (including the closing of the Spin-Off), including (i) a $335.0 million senior secured mortgage loan maturing on November 9, 2025, subject to two separate one-year extension options (the “NLOP Mortgage Loan”) and (ii) a $120.0 million mezzanine loan facility maturing on November 9, 2028 (the “NLOP Mezzanine Loan” and, together with the NLOP Mortgage Loan, the “NLOP Financing Arrangements”). The NLOP Financing Arrangements were initially collateralized by the assignment of certain of our previously unencumbered real estate properties. The NLOP Mortgage Loan was repaid during 2024 and the NLOP Mezzanine Loan was repaid during 2025 (as discussed below).
The funding of the NLOP Financing Arrangements occurred on November 1, 2023 (the date of the Spin-Off). We borrowed an aggregate of $455.0 million and each of the NLOP Mortgage Loan and the NLOP Mezzanine Loan was fully drawn. Approximately $343.9 million of the proceeds from the financing (net of transaction expenses) was transferred to WPC in connection with the Spin-Off.
Net Lease Office Properties 2025 10-K – 3 | |||||
The NLOP Financing Arrangements were structured, in part, to provide us with the ability to engage in dispositions of assets as contemplated by our overall strategy. We fully repaid the NLOP Mortgage Loan during 2024, with proceeds from such dispositions, as well as cash flow from rent on our properties and other sources. We fully repaid the NLOP Mezzanine Loan during 2025, using net proceeds from such dispositions, as well as excess cash flow from operations and other sources, including the application of loan reserves.
As of December 31, 2025, one additional property was encumbered by an outstanding individual mortgage of $21.9 million. We intend to repay or refinance this mortgage at maturity. We may also consider other options, including other forms of debt, additional mortgages, or leverage when available.
Our Portfolio
At December 31, 2025, our portfolio had the following characteristics:
•Number of properties — full or partial ownership interests in 24 net-leased properties;
•Total net-leased square footage — approximately 3.4 million; and
•Occupancy rate — approximately 79.0%.
For more information about our portfolio, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Portfolio Overview.
Tenant/Lease Information
At December 31, 2025, our tenants/leases had the following characteristics:
•Number of tenants — 26;
•Investment grade tenants as a percentage of total ABR — 20%;
•Implied investment grade tenants as a percentage of total ABR — 11%;
•Weighted-average lease term (“WALT”) — 3.9 years;
•91.6% of our leases as a percentage of total ABR provide rent adjustments as follows:
◦Fixed — 76.0%
◦Consumer Price Index (“CPI”) and similar — 15.3%
◦Other — 0.3%
Human Capital
We have no employees. However, employees of WPC are available to perform services under our Advisory Agreements. Our Advisory Agreements do not require the Advisor to dedicate any particular employees to us.
Available Information
We will supply to any shareholder, upon written request and without charge, a copy of this Report as filed with the SEC. Our filings can also be obtained for free on the SEC’s website at http://www.sec.gov. All filings we make with the SEC, including this Report, our quarterly reports on Form 10-Q, and our current reports on Form 8-K, as well as any amendments to those reports, are available for free on the Investor Relations portion of our website (http://www.nloproperties.com), as soon as reasonably practicable after they are filed with or furnished to the SEC.
Our Code of Business Conduct and Ethics, which applies to all trustees, officers, and employees, including our chief executive officer and chief financial officer, is also available on our website. We intend to make available on our website all disclosures that are required under the Securities Exchange Act of 1934 (the “Exchange Act”) or NYSE listing standards concerning amendments or waivers to our Code of Business Conduct and Ethics. We are providing our website address solely for the information of investors and do not intend for it to be an active link. We do not intend to incorporate the information contained on our website into this Report or other documents filed with or furnished to the SEC.
Net Lease Office Properties 2025 10-K – 4 | |||||
Item 1A. Risk Factors.
Our business, results of operations, financial condition, and ability to pay dividends could be materially adversely affected by various risks and uncertainties, including those enumerated below, which could cause such results to differ materially from those in any forward-looking statements. You should not consider this list exhaustive. New risk factors emerge periodically and we cannot assure you that the factors described below list all risks that may become material to us at any later time.
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 United States 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, inflation and interest rates, volatility in the public equity and debt markets, and international economic and other conditions, including pandemics, geopolitical instability, tariffs, 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, in addition to other adverse conditions currently affecting the office property market as discussed in the next risk factor, 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.
Ongoing remote and hybrid working trends may continue to materially adversely impact the value of our properties and our business, operating results, financial condition and prospects.
Remote and hybrid working arrangements for personnel changed work practices in a manner that has negatively impacted us and our business. In particular, the increased adoption of and familiarity with remote work practices, and the increase in tenants seeking to sublease their leased office space, as well as tenant uncertainty regarding office space needs given evolving remote and hybrid working trends, resulted in decreased demand for office space in certain places and certain types of properties. While office occupancy has generally improved in the past few years, it remains below historical levels in certain places and for certain classes of office properties. 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, has been adversely impacted by these trends. The need to reconfigure leased office space 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. The changes in work habits and reduced demand for office space have also resulted in adverse capital markets and financing conditions for office properties. The value of our properties and our business, operating
Net Lease Office Properties 2025 10-K – 5 | |||||
results, financial condition and prospects may continue to be materially adversely impacted by the negative trends impacting the office property market.
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. As of December 31, 2025, approximately 21.7% of our ABR was comprised by tenants with leases expiring in the next two years.
We derive our net income primarily 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 December 31, 2025, our portfolio had a WALT of 3.9 years. 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.
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.
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.
We are actively pursuing 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, has been 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.
Inflation has adversely affected our financial condition, cash flows and results of operations, and may continue to do so in the future.
Periods of inflation and elevated interest rates, particularly when sustained over a longer time horizon, have an adverse impact on our operations and financial condition. Continued inflation has adversely affected 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.
Net Lease Office Properties 2025 10-K – 6 | |||||
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 December 31, 2025, our top tenant in our portfolio (by ABR), KBR, represented approximately 37.2% of ABR, our three largest tenants in our portfolio (by ABR) represented approximately 52.0% of ABR, and our ten largest tenants in our portfolio (by ABR) represented approximately 84.5% of ABR. However, the property leased to KBR was sold in January 2026. In addition, as of December 31, 2025, the majority of our ABR 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. Additionally, a default by a single or major tenant could impact the resale value of our properties which could result in future impairments.
High geographic concentration of our properties could magnify the effects of adverse economic or regulatory developments in such geographic areas on our operations and financial condition.
As of December 31, 2025, 53.5% of our portfolio (as a percentage of ABR) was located in Texas (including 37.2% for our property leased to our tenant, KBR), representing the highest concentration of our assets, and 13.1% was located in California (including 5.7% for our property leased to our tenant, Google). However, the properties leased to KBR and Google were sold in January 2026. 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 result in future impairments or 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.
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. 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.
Net Lease Office Properties 2025 10-K – 7 | |||||
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. Additionally, the real property taxes on our properties may increase as property tax rates change and as those properties are assessed or reassessed by tax authorities. 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.
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. Our properties must also comply with the Americans with Disabilities Act and any equivalent state or local laws, to the extent that our properties are public accommodations as defined under such laws. 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. 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.
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
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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 cannot make any guaranty as to the future financial viability of the insurers that underwrite the policies maintained by our tenants. The insurance companies in our property insurance program include our Advisor’s captive insurance and we cannot make any guaranty that such captive insurance company will be adequately funded.
Risks Related to Financing and Our Indebtedness
We may need to incur more debt in the future.
As of December 31, 2025, we had approximately $21.9 million of total outstanding indebtedness. In connection with executing our business strategies going forward, we may need to invest in our current portfolio and we could elect to finance these endeavors by incurring additional indebtedness depending on various factors. The amount of such indebtedness may 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, 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.
At December 31, 2025, fixed-rate debt comprises 100% of our debt. We may incur additional fixed and variable-rate indebtedness in the future. 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;
•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 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.
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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 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.
Failure to hedge effectively against interest rate changes may have a material adverse effect on our business, financial condition and results of operations.
The interest rate instruments we may use to manage some of our exposure to interest 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 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 may rely on third-party sources of capital, including collateralized 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 provides 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;
•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.
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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 does 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 Advisor.
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 our Board and our Advisor’s 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.
Risks Related to Our Advisor
Our success is dependent on the performance of our Advisor, and we could be adversely affected if our Advisor ceases managing us.
Our ability to achieve our divestiture objectives and to pay distributions is largely dependent upon the performance of our Advisor in the disposition of investments, the selection of tenants, the determination of any financing arrangements and the management of our assets. We cannot guarantee that our Advisor will be able to successfully manage and achieve any potential disposition strategy.
We have limited independence from our Advisor and its affiliates, who may be subject to conflicts of interest.
Management functions are delegated to our Advisor, for which it earns fees pursuant to the NLOP Advisory Agreements. Therefore, our Advisor and its affiliates have potential conflicts of interest in their dealings with us, including, but not limited to, in the following circumstances:
•agreements between us and our Advisor, including agreements regarding compensation, are not negotiated on an arm’s-length basis, as would occur if the agreements were with unaffiliated third parties; and
•the negotiation or termination of the NLOP Advisory Agreements and other agreements with our Advisor and its affiliates, such as with our Advisor’s captive insurance subsidiary.
Although at least a majority of our Board must be independent and at least a majority of independent trustees must approve any transaction involving our Advisor, we have limited independence from our Advisor due to this delegation.
Payment of fees to our Advisor will reduce cash available for distribution.
Our Advisor performs services for us in connection with the management and leasing of our properties. Pursuant to the Advisory Agreement, we pay our Advisor cash fees for these services. The payment of these fees will reduce the amount of cash available for distribution to our shareholders.
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The occurrence of cyber incidents, or a deficiency in our Advisor’s 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. Information technology, communication networks, and other computer resources are essential for us to carry out important operational activities and maintain our business records.
Our Advisor has implemented processes, procedures, and controls, which are reviewed periodically and are intended to address ongoing and evolving cybersecurity risks. However, these measures do not guarantee that our financial results will not be negatively impacted by such an incident, especially in light of the fact that it is not always possible to anticipate, detect, or recognize threats to our systems. Additionally, as artificial intelligence (“AI”) technologies become increasingly sophisticated, the security risks associated with their use and the potential for misuse also increase. The primary risks that could directly result from the occurrence of a cyber incident include operational interruption, damage to our relationship with our tenants, expensive remediation efforts, liability exposure under federal and state law, and private data exposure. 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.
The occurrence of cyber incidents, or a deficiency in our Advisor’s 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.
Further information relating to cybersecurity risk management is discussed in Item 1C. “Cybersecurity” in this Report.
Risks Related to Our Status as a REIT
Failure to remain qualified as a REIT would materially and adversely affect us and the value of our common shares.
We have elected to be taxed as a REIT and believe we have operated and will operate in a manner that has allowed us to qualify and to remain qualified as a REIT for U.S. federal income tax purposes commencing with the taxable year ended December 31, 2023. We have not requested and do not plan to request a ruling from the Internal Revenue Service (“IRS”) that we qualify as a REIT and the IRS or any court could take a position different from our own. Therefore, we cannot guarantee that we 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 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.
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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. 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.
Under applicable Treasury Regulations, if WPC failed to qualify as a REIT in the year of, or certain periods prior to, the Spin-Off, unless WPC’s failure were subject to relief under U.S. federal income tax laws, we (and any of 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.
Even though 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 taxable REIT subsidiaries (“TRSs”) will be subject to income tax as regular corporations in the jurisdictions in which they operate.
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 are 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 members, 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% for taxable years through December 31, 2025 and 25% for subsequent taxable years 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.
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The tax imposed on REITs engaging in “prohibited transactions” may limit our ability to engage in transactions which would be treated as sales for federal income tax purposes.
A REIT’s net income from prohibited transactions is subject to a 100% penalty tax. In general, prohibited transactions are sales or other dispositions of property, other than foreclosure property, held primarily for sale to customers in the ordinary course of business, unless certain safe harbor exceptions apply. Although we and our subsidiary REIT(s) do not intend to hold any properties that would be characterized as held for sale to customers in the ordinary course of our business, such characterization is a factual determination and no guarantee can be given that the IRS would agree with our characterization of our properties or that we or our subsidiary REIT(s) will always be able to satisfy the available safe harbors. As a result, this tax may limit how many asset sales we can make in a given time period and impact our overall disposition strategy.
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 have made and intend to continue 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 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.
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, including the possibility of major tax legislation, 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 though we qualify as a REIT, certain of our business activities will be subject to other tax liabilities, which will continue to reduce our cash flows, and we will have potential deferred and contingent tax liabilities.
Even though we qualify for taxation as a REIT, we are subject to certain (i) taxes on our income and assets at a federal, state, local, and, through 2025, foreign level; (ii) taxes on any undistributed income and state, local, or, through 2025, 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 of these taxes would decrease our earnings and our cash available for distributions to shareholders.
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.
Certain provisions contained in our Declaration of Trust 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
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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.
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 our Board, 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 our Board 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
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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.
Our Declaration of Trust initially divides our Board into three classes. The initial terms of the second and third classes will expire at the second and third annual meetings of shareholders, respectively, held following the Spin-Off. Initially, shareholders will elect only one class of trustees each year. Shareholders will elect successors to trustees 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.
Neither our Declaration of Trust nor the Maryland REIT law requires shareholder approval for a sale of all or substantially all of our properties.
We may sell all or substantially all of our remaining properties in the future, and may do so pursuant to a plan of liquidation. In the event the Board determines in the future to sell all or substantially all of NLOP’s assets, potentially including pursuant to a plan of liquidation, the Board may take this action under Maryland law without shareholder approval and such approval is not required in our Declaration of Trust.
Market interest rates may have an effect on the value of our common shares.
One of the factors that influences the price of our common shares is its dividend yield, or the dividend per share as a percentage of the price of our common shares, relative to market 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. 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.
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 proceeds from asset sales, 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.
Net Lease Office Properties 2025 10-K – 16 | |||||
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.
We are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, and the rules and regulations of the NYSE. We 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 Spin-Off; (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 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.
Because dividends received by non-U.S. shareholders are generally taxable, we or a withholding agent may be required to withhold a portion of our distributions to such persons.
Ordinary dividends received by non-U.S. shareholders 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. shareholders that own more than 10% of our common shares.
Item 1B. Unresolved Staff Comments.
None.
Item 1C. Cybersecurity.
As an externally managed company, our day-to-day operations are managed by our Advisor and our executive officers (all of whom are executive officers of our Advisor) under the oversight of our Board. We rely on our Advisor for assessing, identifying and managing material risks to our business from cybersecurity threats. Below are details our Advisor has provided to us regarding its cybersecurity program that are relevant to us.
Management and Board Oversight
Our Advisor’s cybersecurity approach incorporates a layered portfolio of comprehensive employee training programs, multiple resources to manage and monitor the evolving threat landscape and knowledgeable teams responsible for preventing and detecting cybersecurity risks.
Additionally, our Audit Committee, which consists solely of independent trustees, is responsible for overseeing cybersecurity risks and related initiatives. Our Audit Committee reviews our cybersecurity risks. It also reviews the steps our Advisor has taken to protect against threats to our information systems and security and receives updates on cybersecurity on a quarterly basis.
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Processes for Assessing, Identifying and Managing Material Risks from Cybersecurity Threats
Prevention and Preparation
Our Advisor employs a variety of measures to prevent threats related to privacy, information technology security and cybersecurity, which include password protection, frequent mandatory password change events, multi-factor authentication, internal phishing testing, vulnerability scanning and penetration testing.
Our Advisor’s information technology and internal audit teams utilize frameworks consistent with well-recognized industry cybersecurity frameworks to identify and mitigate information security risks and oversee an active cybersecurity training program.
In addition, our Advisor’s information technology team conducts routine security assessments as well as ongoing cybersecurity training campaigns for the Advisor’s employees and board of directors to enhance awareness and increase vigilance for the various types of cybersecurity attacks to which they may be exposed. Our Advisor’s internal audit team evaluates and monitors our internal controls over systems access in an effort to mitigate information security risks that may result from unauthorized access to systems and data.
Detection and Analysis
Cybersecurity incidents may be detected through a variety of means, including but not limited to automated event-detection notifications or similar technologies which are monitored by our Advisor’s managed cybersecurity provider, notifications from our Advisor’s employees, vendors or service providers, and notifications from third party information technology system providers. Once a potential cybersecurity incident is identified, including a third party cybersecurity event, the incident response team designated pursuant to our Advisor’s incident response plan follows the procedures set forth in the plan to investigate the potential incident, such as determining the nature of the event and assessing the severity of the event.
Containment, Eradication, Recovery, and Reporting
In the event of a cybersecurity incident, the incident response team is responsible for containing the cybersecurity incident, consistent with the procedures in the incident response plan.
Once a cybersecurity incident is contained, the focus shifts to remediation. Eradication and recovery activities depend on the nature of the cybersecurity incident. They may include returning affected systems to an operationally ready state and confirming that the affected systems are functioning normally.
Net Lease Office Properties 2025 10-K – 18 | |||||
In the event of a cybersecurity incident, the incident response team is responsible for following the steps outlined in our Advisor’s incident response plan, including notifying our Audit Committee and Board, as appropriate.
Cybersecurity Risks
Item 2. Properties.
Our principal corporate offices are located in the offices of our Advisor at One Manhattan West, 395 9th Avenue, 58th Floor, New York, NY 10001.
See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Portfolio Overview for a discussion of the properties we hold for rental operations and Part II, Item 8. Financial Statements and Supplementary Data — Schedule III — Real Estate and Accumulated Depreciation for a detailed listing of such properties.
Item 3. Legal Proceedings.
Various claims and lawsuits arising in the normal course of business are pending against us. The results of these proceedings are not expected to have a material adverse effect on our consolidated financial position or results of operations.
Item 4. Mine Safety Disclosures.
Not applicable.
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
Our common shares are listed on the NYSE under the ticker symbol “NLOP.” At February 20, 2026 there were 6,830 registered holders of record of our common shares. This figure does not reflect the beneficial ownership of shares of our common shares.
Share Price Performance Graph
The graph below provides an indicator of cumulative total shareholder returns for our common shares as compared with the S&P 500 Index and the MSCI US REIT Index. The graph assumes a $100 investment on November 2, 2023 (the date our common shares began trading on the NYSE), and its relative performance is tracked through December 31, 2025, together with the reinvestment of all dividends. The comparisons are based on historical data and are not indicative of, nor intended to forecast, the future performance of our common shares.
| At November 2, 2023 | At December 31, 2023 | At December 31, 2024 | At December 31, 2025 | ||||||||||||||||||||
| Net Lease Office Properties | $ | 100.00 | $ | 179.61 | $ | 303.34 | $ | 321.17 | |||||||||||||||
| S&P 500 Index | 100.00 | 110.81 | 138.53 | 163.30 | |||||||||||||||||||
| MSCI US REIT Index | 100.00 | 116.83 | 127.06 | 130.80 | |||||||||||||||||||
The share price performance included in this graph is not indicative of future share price performance.
Dividends
Dividends paid by NLOP will be authorized and determined by our Board, in its sole discretion, and will be dependent upon a number of factors. In general, we expect to pay dividends if and when we have excess cash available from disposition proceeds and as necessary to maintain our REIT qualification. Refer to Note 12 for information on the tax treatment of our dividends.
Item 6. Reserved
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to assist in understanding our financial statements and the reasons for changes in certain key components of our financial statements from period to period. This item also provides our perspective on our financial position and liquidity, as well as certain other factors that may affect our future results.
The following discussion should be read in conjunction with our consolidated financial statements in Item 8 of this Report and the matters described under Item 1A. Risk Factors. Please see our Annual Report on Form 10-K for the year ended December 31, 2024 for discussion of our financial condition and results of operations for the year ended December 31, 2023. Refer to Item 1. Business for a description of our business.
Basis of Presentation
Prior to the Spin-Off
The historical results of operations and liquidity and capital resources of NLOP prior to the Spin-Off do not represent the historical results of operations and liquidity and capital resources of a legal entity, but rather a combination of entities under common control that have been “carved-out” of WPC’s consolidated financial statements and presented herein, in each case, in accordance with U.S. generally accepted accounting principles (“GAAP”). Intercompany transactions and balances have been eliminated in combination. The preparation of the financial results of NLOP prior to the Spin-Off required management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the dates of the relevant reporting periods and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
The financial results of NLOP prior to the Spin-Off reflect the revenues and direct expenses of NLOP and include material assets and liabilities of WPC that are specifically attributable to NLOP. Equity represents the excess of total assets over total liabilities. Equity is impacted by contributions from and distributions to WPC, which are the result of treasury activities and net funding provided by or distributed to WPC prior to the Separation, as well as the allocated costs and expenses.
The financial results of NLOP prior to the Spin-Off also include an allocation of indirect costs and expenses incurred by WPC related to NLOP, primarily consisting of compensation and other general and administrative costs using the relative percentage of property revenue of NLOP and WPC management’s knowledge of NLOP. In addition, the financial results reflect the allocation of interest expense from WPC unsecured debt, excluding debt that is specifically attributable to NLOP; interest expense was allocated by calculating the unencumbered net investment in real estate of each property held by NLOP as a percentage of WPC’s total consolidated unencumbered net investment in real estate and multiplying that percentage by the interest expense on WPC unsecured debt. The amounts allocated in the financial results of NLOP prior to the Spin-Off are not necessarily indicative of the actual amount of such indirect expenses that would have been recorded had the NLOP been a separate independent entity during the applicable periods. NLOP believes the assumptions underlying NLOP’s allocation of indirect expenses prior to the Spin-Off are reasonable.
Emerging Growth Company
NLOP is an “emerging growth company,” as defined in Section 2(a) of the U.S. Securities Act of 1933, as amended (the “Securities Act”), as modified by the Jumpstart Our Business Startups Act of 2012, as amended (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended, reduced disclosure obligations regarding executive compensation in NLOP’s periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation, and shareholder approval of any golden parachute payments not previously approved.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt
Net Lease Office Properties 2025 10-K – 21 | |||||
out is irrevocable. NLOP has elected to take advantage of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, NLOP, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of NLOP’s financial statements with certain other public companies difficult or impossible because of the potential differences in accounting standards used.
NLOP will remain an emerging growth company until the earlier of: (i) the last day of the fiscal year (a) following the fifth anniversary of the closing of the Spin-Off, (b) in which NLOP has total annual gross revenue of at least $1.235 billion, or (c) in which NLOP is deemed to be a large accelerated filer, which means the market value of the common equity of NLOP that is held by non-affiliates exceeds $700 million as of the last business day of its most recently completed second fiscal quarter; and (ii) the date on which NLOP has issued more than $1.00 billion in non-convertible debt securities during the prior three-year period. References herein to “emerging growth company” have the meaning associated with it in the JOBS Act.
Significant Developments
Dispositions
In January 2026, we sold the KBR property located in Houston, Texas, for gross proceeds of $66.0 million (Note 17). KBR was our largest tenant by ABR as of December 31, 2025.
In January 2026, we sold a property located in Venice, California, for gross proceeds of $39.6 million (Note 17).
In February 2026, we sold a property located in Martinsville, Virginia, for gross proceeds of $3.9 million (Note 17).
In February 2026, we sold a property located in Raleigh, North Carolina, for gross proceeds of $8.7 million (Note 17).
Special Cash Distribution
In January 2026, our Board of Trustees declared a special cash distribution of $6.75 per share, totaling approximately $100.0 million. The distribution was paid on February 17, 2026 to shareholders of record as of January 30, 2026 (Note 17).
Financial Highlights
During the year ended December 31, 2025 and through the date of this Report, we completed the following (as further described in the consolidated financial statements):
Dispositions
•During the year ended December 31, 2025, we sold 14 properties for total proceeds, net of selling costs, of $198.6 million (Note 15).
•In September 2025, we disposed of our last international property by transferring ownership to a buyer, in satisfaction of the non-recourse mortgage loan encumbering the property for $45.7 million (Note 15).
Leasing Activity
•In September 2025, we entered into a lease termination agreement with a tenant at a property located in Oak Creek, Wisconsin, to terminate the lease on October 31, 2025 (the previous lease expiration date was May 31, 2032). In connection with the agreement, the tenant paid us a lease termination fee of $13.0 million, which was recognized within Other lease-related income in our consolidated statements of operations during the year ended December 31, 2025. This property was sold in December 2025 (Note 5).
Net Lease Office Properties 2025 10-K – 22 | |||||
Financing
•During the year ended December 31, 2025, we fully repaid the NLOP Mezzanine Loan, which had $61.1 million of outstanding principal as of December 31, 2024, using net proceeds from certain dispositions, as well as excess cash flow from operations and other sources, including the application of loan reserves (Note 10).
•During the year ended December 31, 2025, we repaid four non-recourse mortgage loans totaling $49.8 million with a weighted-average interest rate of 7.5% (Note 10).
Special Cash Distributions
•In August 2025, our Board of Trustees declared a special cash distribution of $3.10 per share, totaling approximately $45.9 million. The distribution was paid on September 3, 2025 to shareholders of record as of August 18, 2025 (Note 12).
•In November 2025, our Board of Trustees declared a special cash distribution of $4.10 per share, totaling approximately $60.7 million. The distribution was paid on December 19, 2025 to shareholders of record as of December 4, 2025 (Note 12).
•In December 2025, our Board of Trustees declared a special cash distribution of $5.10 per share, totaling approximately $75.6 million. The distribution was paid on January 20, 2026 to shareholders of record as of January 2, 2026 (Note 12).
•Future special cash distributions will be at the discretion of our Board of Trustees and will depend upon, among other things, our actual and anticipated results of operations and liquidity, which will be affected by various factors, including the timely receipt of rental income from our portfolio; the timing of and proceeds from asset sales; our operating expenses (including management fees); capital expenditures for our portfolio; our current intention to maintain our qualification as a REIT; and other factors which may be outside of our control. There can be no assurance as to the amount or timing of future distributions.
Summary Results
(in thousands)
| Years Ended December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Total revenues | $ | 118,915 | $ | 142,247 | |||||||
| Net loss attributable to NLOP | (145,262) | (91,471) | |||||||||
| Dividends declared | 182,212 | — | |||||||||
Net cash provided by operating activities (a) | 64,111 | 71,859 | |||||||||
| Net cash provided by investing activities | 208,242 | 297,749 | |||||||||
| Net cash used in financing activities | (218,885) | (367,984) | |||||||||
Supplemental financial measures (b): | |||||||||||
| Funds from operations attributable to NLOP (FFO) | 60,229 | 23,039 | |||||||||
| Adjusted funds from operations attributable to NLOP (AFFO) | 73,809 | 62,048 | |||||||||
__________
(a)Amount for the year ended December 31, 2024 includes $10.3 million of proceeds from the sale of a net investment in sales-type lease (Note 6). Such proceeds are included within Net cash provided by operating activities in accordance with Accounting Standards Codification (“ASC”) 842, Leases.
(b)We consider Funds from operations (“FFO”) and Adjusted funds from operations (“AFFO”), supplemental measures that are not defined by GAAP (a “non-GAAP measure”), to be important measures in the evaluation of our operating performance. See Supplemental Financial Measures below for our definition of this non-GAAP measure and a reconciliation to its most directly comparable GAAP measure.
Net Lease Office Properties 2025 10-K – 23 | |||||
Revenues
Total revenues decreased in 2025 as compared to 2024, primarily due to the impact of disposition activity and tenant vacancies at certain properties, partially offset by higher other lease-related income.
Net Loss Attributable to NLOP
Net loss attributable to NLOP increased in 2025 as compared to 2024, primarily due to higher impairment charges and higher loss on sale of real estate, partially offset by lower interest expense. See Note 8 for information on impairment charges recorded during the reporting period.
FFO
FFO increased in 2025 as compared to 2024, primarily due to lower interest expense and higher other lease-related income, partially offset by the impact of disposition activity.
AFFO
AFFO increased in 2025 as compared to 2024, primarily due to lower interest expense and higher other lease-related income, partially offset by the impact of disposition activity.
Portfolio Overview
Portfolio information is provided on a pro rata basis, unless otherwise noted below, to better illustrate the economic impact of our one jointly owned investment. See Terms and Definitions below for a description of pro rata amounts.
Portfolio Summary
| As of December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| ABR (in thousands) | $ | 54,122 | $ | 88,124 | |||||||
| Number of properties | 24 | 39 | |||||||||
| Number of tenants | 26 | 43 | |||||||||
| Occupancy | 79.0 | % | 85.2 | % | |||||||
| Weighted-average lease term (in years) | 3.9 | 4.3 | |||||||||
Leasable square footage (in thousands) (a) | 3,375 | 5,613 | |||||||||
__________
(a)Excludes 570,999 of operating square footage for a parking garage associated with the KBR property in Houston, Texas. This property was sold in January 2026 (Note 17).
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Portfolio
The tables below represent information about our portfolio at December 31, 2025 on a pro rata basis. See Terms and Definitions below for a description of pro rata amounts and ABR.
Top Ten Tenants by ABR
(dollars in thousands)
| Tenant | State/Country | ABR | ABR Percent | Square Footage (a) | Number of Properties | Weighted-Average Lease Term (Years) | ||||||||||||||||||||||||||||||||
KBR (a) (b) | Texas | $ | 20,158 | 37.2 | % | 913,713 | 1 | 4.5 | ||||||||||||||||||||||||||||||
| Iowa Board of Regents | Iowa | 4,056 | 7.5 | % | 191,700 | 1 | 4.8 | |||||||||||||||||||||||||||||||
| Omnicom | California | 3,961 | 7.3 | % | 120,000 | 1 | 2.7 | |||||||||||||||||||||||||||||||
| RRD | Illinois | 3,461 | 6.4 | % | 167,215 | 1 | 1.7 | |||||||||||||||||||||||||||||||
Google (b) | California | 3,108 | 5.7 | % | 67,681 | 1 | 4.8 | |||||||||||||||||||||||||||||||
| Intuit | Texas | 2,577 | 4.8 | % | 166,033 | 1 | 0.5 | |||||||||||||||||||||||||||||||
| Grande Communications | Texas | 2,407 | 4.5 | % | 134,009 | 5 | 2.7 | |||||||||||||||||||||||||||||||
| Cenlar FSB | Pennsylvania | 2,105 | 3.9 | % | 105,584 | 1 | 2.5 | |||||||||||||||||||||||||||||||
| iHeart Communications | Texas | 2,050 | 3.8 | % | 120,147 | 1 | 9.1 | |||||||||||||||||||||||||||||||
| Arbella Insurance | Massachusetts | 1,850 | 3.4 | % | 132,160 | 1 | 1.4 | |||||||||||||||||||||||||||||||
| Total | $ | 45,733 | 84.5 | % | 2,118,242 | 14 | 3.9 | |||||||||||||||||||||||||||||||
__________
(a)Excludes 570,999 of operating square footage for a parking garage associated with the KBR property in Houston, Texas.
(b)These properties were sold in January 2026 (Note 17).
Lease Expirations
(dollars in thousands)
Year of Lease Expiration (a) | Number of Leases Expiring | Number of Tenants with Leases Expiring | ABR | ABR Percent | Square Footage (b) | Square Footage Percent | ||||||||||||||||||||||||||||||||
| 2026 | 7 | 7 | $ | 6,188 | 11.4 | % | 409,351 | 12.1 | % | |||||||||||||||||||||||||||||
| 2027 | 5 | 4 | 5,586 | 10.3 | % | 318,176 | 9.4 | % | ||||||||||||||||||||||||||||||
| 2028 | 6 | 5 | 8,745 | 16.2 | % | 371,471 | 11.0 | % | ||||||||||||||||||||||||||||||
| 2029 | 3 | 2 | 1,918 | 3.5 | % | 113,277 | 3.4 | % | ||||||||||||||||||||||||||||||
| 2030 | 5 | 5 | 27,375 | 50.6 | % | 1,175,257 | 34.8 | % | ||||||||||||||||||||||||||||||
| 2031 | 1 | 1 | 631 | 1.2 | % | 50,600 | 1.5 | % | ||||||||||||||||||||||||||||||
| 2035 | 1 | 1 | 2,050 | 3.8 | % | 120,147 | 3.6 | % | ||||||||||||||||||||||||||||||
| 2037 | 1 | 1 | 545 | 1.0 | % | 31,120 | 0.9 | % | ||||||||||||||||||||||||||||||
| 2041 | 1 | 1 | 1,084 | 2.0 | % | 75,286 | 2.3 | % | ||||||||||||||||||||||||||||||
| Vacant | — | — | — | — | % | 710,428 | 21.0 | % | ||||||||||||||||||||||||||||||
| Total | 30 | $ | 54,122 | 100.0 | % | 3,375,113 | 100.0 | % | ||||||||||||||||||||||||||||||
__________
(a)Assumes tenants do not exercise any renewal options or purchase options.
(b)Excludes 570,999 of operating square footage for a parking garage associated with the KBR property in Houston, Texas. This property was sold in January 2026 (Note 17).
Net Lease Office Properties 2025 10-K – 25 | |||||
Terms and Definitions
Pro Rata Metrics —The portfolio information above contains certain metrics prepared on a pro rata basis. We refer to these metrics as pro rata metrics. We have one investment in which our economic ownership is less than 100%. On a full consolidation basis, we report 100% of the assets, liabilities, revenues, and expenses of this investment that is deemed to be under our control, even if our ownership is less than 100%. On a pro rata basis, we generally present our proportionate share, based on our economic ownership of this jointly owned investment, of the portfolio metrics of this investment. Multiplying our jointly owned investment’s financial statement line items by our percentage ownership and adding or subtracting those amounts from our totals, as applicable, may not accurately depict the legal and economic implications of holding an ownership interest of less than 100% in our jointly owned investment.
ABR — ABR represents contractual minimum annualized base rent for our properties. If there is a rent abatement, we annualize the first monthly contractual base rent following the free rent period.
Results of Operations
Revenues
| Years Ended December 31, | |||||||||||||||||
| (in thousands) | 2025 | 2024 | Change | ||||||||||||||
| Revenues | |||||||||||||||||
| Lease revenues | $ | 99,262 | $ | 128,857 | $ | (29,595) | |||||||||||
| Income from finance leases | 610 | 89 | 521 | ||||||||||||||
| Other lease-related income | 19,043 | 13,301 | 5,742 | ||||||||||||||
| $ | 118,915 | $ | 142,247 | $ | (23,332) | ||||||||||||
Lease Revenues
For the year ended December 31, 2025 as compared to 2024, lease revenues decreased by $29.6 million, primarily due to disposition activity and tenant vacancies at certain properties.
Income from Finance Leases
For the year ended December 31, 2025 as compared to 2024, income from finance leases increased by $0.5 million, primarily due to a reclassification of a net-lease asset to net investments in sales-type lease in the fourth quarter of 2025. We also disposed of a property classified as net investments in sales-type lease during the first quarter of 2024 (Note 6).
Other Lease-Related Income
Other lease-related income is described in Note 5.
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Operating Expenses
| Years Ended December 31, | |||||||||||||||||
| (in thousands) | 2025 | 2024 | Change | ||||||||||||||
| Operating Expenses | |||||||||||||||||
| Impairment charges — real estate | $ | 140,814 | $ | 78,237 | $ | 62,577 | |||||||||||
| Depreciation and amortization | 35,878 | 56,696 | (20,818) | ||||||||||||||
| Reimbursable tenant costs | 22,451 | 26,520 | (4,069) | ||||||||||||||
| Property expenses, excluding reimbursable tenant costs | 8,588 | 10,901 | (2,313) | ||||||||||||||
| General and administrative | 7,309 | 7,502 | (193) | ||||||||||||||
| Asset management fees | 4,577 | 6,243 | (1,666) | ||||||||||||||
| Separation and distribution related costs and other | — | 16 | (16) | ||||||||||||||
| $ | 219,617 | $ | 186,115 | $ | 33,502 | ||||||||||||
Impairment Charges — Real Estate
Our impairment charges on real estate are described in Note 8.
Depreciation and Amortization
For the year ended December 31, 2025 as compared to 2024, depreciation and amortization expense decreased by $20.8 million, primarily due to the impact of disposition activity and accelerated amortization of intangible assets in connection with a lease restructuring during the year ended December 31, 2024.
Reimbursable Tenant Costs
For the year ended December 31, 2025 as compared to 2024, reimbursable tenant costs decreased by $4.1 million, primarily due to the impact of disposition activity, as well as lower real estate taxes and maintenance costs at certain properties.
Property Expenses, Excluding Reimbursable Tenant Costs
For the year ended December 31, 2025 as compared to 2024, property expenses, excluding reimbursable tenant costs, decreased by $2.3 million, primarily due to the impact of disposition activity, partially offset by tenant vacancies (which resulted in property expenses no longer being reimbursable).
General and Administrative
For the year ended December 31, 2025 as compared to 2024, general and administrative expenses decreased by $0.2 million, primarily due to lower professional fees.
Asset Management Fees
Asset management fees paid to our Advisor are calculated based on the ABR of properties in our portfolio and are being proportionately reduced following the disposition of each portfolio property (Note 4).
For the year ended December 31, 2025 as compared to 2024, asset management fees decreased by $1.7 million, primarily due to the impact of disposition activity.
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Other Income and Expenses, and (Provision for) Benefit from Income Taxes
| Years Ended December 31, | |||||||||||||||||
| (in thousands) | 2025 | 2024 | Change | ||||||||||||||
| Other Income and Expenses, and (Provision for) Benefit from Income Taxes | |||||||||||||||||
| (Loss) gain on sale of real estate, net | $ | (29,006) | $ | 20,216 | $ | (49,222) | |||||||||||
| Interest expense | (12,739) | (67,962) | 55,223 | ||||||||||||||
| Other gains and (losses) | (2,557) | (2,154) | (403) | ||||||||||||||
| (Provision for) benefit from income taxes | (158) | 2,382 | (2,540) | ||||||||||||||
| $ | (44,460) | $ | (47,518) | $ | 3,058 | ||||||||||||
(Loss) Gain on Sale of Real Estate, Net
(Loss) gain on sale of real estate, net, consists of (loss) gain on (i) the sale of properties that were disposed of, net of taxes, (ii) properties subject to a purchase agreement resulting in a lease modification during the reporting period, (iii) properties included in assets held for sale and subject to a revised estimated purchase price, or (iv) the reclassification of foreign currency translation adjustments from accumulated other comprehensive income to net loss since we exited all investments denominated in a currency (which totaled losses of $41.6 million for the year ended December 31, 2025), as more fully described in Note 3, Note 5 and Note 15.
Interest Expense
Interest expense comprises interest on Non-recourse mortgages, our NLOP Mortgage Loan, and our NLOP Mezzanine Loan. Our NLOP Mortgage Loan was fully repaid in December 2024 and our NLOP Mezzanine Loan was fully repaid in April 2025 (Note 10).
For the year ended December 31, 2025 as compared to 2024, interest expense decreased by $55.2 million, primarily due to repayments of our debt since January 1, 2024 (Note 10).
Other Gains and (Losses)
For the year ended December 31, 2025, other gains and (losses) of $(2.6) million primarily comprised (i) a non-cash allowance for credit loss on a sales-type lease of $(4.8) million (Note 6), (ii) interest income on our cash deposits of $2.1 million, (iii) escrow refund related to facility improvements of $0.4 million, and (iv) loss on extinguishment of debt of $(0.3) million primarily related to the full repayment of the NLOP Mezzanine Loan in April 2025 (Note 10).
For the year ended December 31, 2024, other gains and (losses) of $(2.2) million primarily comprised (i) loss of $(3.2) million related to damages at a property, (ii) net realized and unrealized losses on our interest rate cap derivative of $(1.0) million (Note 9), (iii) net realized and unrealized gains on foreign currency exchange rate movements of $(0.8) million, (iv) loss of $(0.3) million on extinguishment of debt, (v) interest income on our cash deposits of $2.3 million, and (vi) gain of $0.9 million related to a forfeited deposit on a potential disposition.
(Provision for) Benefit from Income Taxes
For the year ended December 31, 2025, we recognized a provision for income taxes of $0.2 million, as compared to a benefit from income taxes of $2.4 million for the year ended December 31, 2024, primarily due to the impact of an impairment charge recognized on an international property during 2024.
Net Lease Office Properties 2025 10-K – 28 | |||||
Liquidity and Capital Resources
Sources and Uses of Cash During the Year
We use the cash flow generated from our investments primarily to meet our operating expenses, pay distributions to shareholders, make capital expenditures as necessary, and pay debt service. Our cash flows fluctuate periodically due to a number of factors, which may include, among other things: the timing of capital expenditures and sales of real estate; the timing of the repayment of debt and receipt of lease revenues; the timing and amount of other lease-related payments; and the timing of advisory fees and reimbursements paid to our Advisor. Despite these fluctuations, we believe that we will generate sufficient cash from operations to meet our normal recurring short-term and long-term liquidity needs. We may also use existing cash resources and proceeds from dispositions of properties in order to meet these needs. We assess our ability to access capital on an ongoing basis. The following table summarizes the changes in cash flows for the periods presented (in thousands):
| Years Ended December 31, | |||||||||||||||||
| 2025 | 2024 | Change | |||||||||||||||
| Net cash provided by operating activities | $ | 64,111 | $ | 71,859 | $ | (7,748) | |||||||||||
| Net cash provided by investing activities | 208,242 | 297,749 | (89,507) | ||||||||||||||
| Net cash used in financing activities | (218,885) | (367,984) | 149,099 | ||||||||||||||
Net Cash Provided by Operating Activities — Net cash provided by operating activities decreased by $7.7 million during 2025 as compared to 2024, primarily due to the impact of disposition activity and $10.3 million of proceeds received from the sale of a net investment in sales-type lease during 2024 (Note 6), partially offset by lower interest expense.
Net Cash Provided by Investing Activities — Net cash provided by investing activities decreased by $89.5 million during 2025 as compared to 2024, primarily due to lower proceeds from dispositions (Note 15).
Net Cash Used in Financing Activities — Net cash used in financing activities decreased by $149.1 million during 2025 as compared to 2024, primarily due to lower payments of the NLOP Financing Arrangements and mortgage principal (following the full repayment of the NLOP Mortgage Loan during 2024 and full repayment of the NLOP Mezzanine Loan during 2025 (Note 10)), partially offset by $106.7 million of distributions paid during 2025.
Net Lease Office Properties 2025 10-K – 29 | |||||
Summary of Financing
The table below summarizes our non-recourse mortgages and NLOP Mezzanine Loan (dollars in thousands):
| December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Carrying Value | |||||||||||
| Fixed rate: | |||||||||||
Non-recourse mortgages, net (a) | $ | 21,900 | $ | 71,488 | |||||||
NLOP Mezzanine Loan, net (a) (b) | — | 57,957 | |||||||||
| 21,900 | 129,445 | ||||||||||
| Variable rate: | |||||||||||
Non-recourse mortgages, net (a) | — | 39,771 | |||||||||
| — | 39,771 | ||||||||||
| $ | 21,900 | $ | 169,216 | ||||||||
| Percent of Total Debt | |||||||||||
| Fixed rate | 100 | % | 76 | % | |||||||
| Variable rate | — | % | 24 | % | |||||||
| 100 | % | 100 | % | ||||||||
| Weighted-Average Interest Rate at End of Year | |||||||||||
| Fixed rate | 7.0 | % | 9.0 | % | |||||||
| Variable rate | — | % | 4.9 | % | |||||||
| Total debt | 7.0 | % | 8.1 | % | |||||||
____________
(a)Aggregate debt balance includes unamortized discount, net, totaling $1.8 million and unamortized deferred financing costs totaling $1.0 million as of December 31, 2024.
(b)In April 2025, we fully repaid the NLOP Mezzanine Loan (Note 10).
During the year ended December 31, 2025, we fully repaid the NLOP Mezzanine Loan, which had $61.1 million of outstanding principal as of December 31, 2024, using net proceeds from certain dispositions, as well as excess cash flow from operations and other sources, including the application of loan reserves (Note 10).
Cash Resources
At December 31, 2025, our cash resources consisted of the following:
•cash and cash equivalents totaling $119.6 million; and
•unleveraged properties that had an aggregate asset carrying value of approximately $276.8 million at December 31, 2025, although there can be no assurance that we would be able to sell or obtain financing for these properties.
Net Lease Office Properties 2025 10-K – 30 | |||||
Cash Requirements and Liquidity
As of December 31, 2025, scheduled debt principal payments total $21.9 million during 2026 (Note 10).
During the next 12 months following December 31, 2025 and thereafter, we expect that our significant cash requirements will include:
•making scheduled principal and balloon payments on our non-recourse mortgage debt obligations, totaling $21.9 million, which are due during the next 12 months;
•making scheduled interest payments on our non-recourse mortgage debt obligations, totaling $0.9 million, which are due during the next 12 months; and
•other normal recurring operating expenses.
We expect to fund these cash requirements through cash generated from operations and cash received from dispositions of properties.
Our liquidity could be adversely affected by refinancing debt at higher interest rates or an unanticipated disruption to our operating cash flow, which could include interrupted rent collections or greater-than-anticipated operating expenses.
Environmental Obligations
In connection with the purchase of many of our properties, we have required the sellers to perform environmental reviews. We believe, based on the results of these reviews, that these properties were in substantial compliance with federal, state, and foreign environmental statutes at the time the properties were acquired. In most instances where contamination has been identified, tenants are actively engaged in the remediation process and addressing identified conditions. We believe that the ultimate resolution of any environmental matters should not have a material adverse effect on our financial condition, liquidity, or results of operations. We record environmental obligations within Accounts payable, accrued expenses and other liabilities in the consolidated financial statements. See Item 1A. Risk Factors for further discussion of potential environmental risks.
New Tax Legislation
Effective July 4, 2025, certain changes to U.S. tax law were approved that may impact us and our shareholders. Among other changes, this legislation (i) permanently extended the 20% deduction for “qualified REIT dividends” for individuals and other non-corporate taxpayers under Section 199A of the Code, (ii) increased the percentage limit under the REIT asset test applicable to TRSs from 20% to 25% for taxable years beginning after December 31, 2025, and (iii) increases the base on which the 30% interest deduction limit under Section 163(j) of the Code applies by excluding depreciation, amortization, and depletion from the definition of “adjusted taxable income” (i.e. based on EBITDA rather than EBIT) for taxable years beginning after December 31, 2024.
Critical Accounting Estimates
Our significant accounting policies are described in Note 3. Many of these accounting policies require judgment and the use of estimates and assumptions when applying these policies in the preparation of our consolidated financial statements. On a quarterly basis, we evaluate these estimates and judgments based on historical experience as well as other factors that we believe to be reasonable under the circumstances. These estimates are subject to change in the future if underlying assumptions or factors change. Certain accounting policies, while significant, may not require the use of estimates. Below is a summary of certain critical accounting estimates used in the preparation of our consolidated financial statements. Please also refer to our accounting policies described under Critical Accounting Policies and Estimates in Note 3.
Net Lease Office Properties 2025 10-K – 31 | |||||
Impairments of Real Estate
For real estate assets held for investment and related intangible assets in which an impairment indicator is identified, we follow a two-step process to determine whether an asset is impaired and to determine the amount of the charge. First, we compare the carrying value of the property’s asset group to the estimated future net undiscounted cash flow that we expect the property’s asset group will generate, including any estimated proceeds from the eventual sale of the property’s asset group. The undiscounted cash flow analysis requires us to make our best estimate of market rents, residual values, and holding periods. We estimate market rents and residual values using market information from outside sources such as third-party market research, external appraisals, broker quotes, or recent comparable sales.
Holding periods used in the undiscounted cash flow analysis are evaluated on an individual property basis based on our strategic hold time for each asset. Depending on the assumptions made and estimates used, the future cash flow projected in the evaluation of long-lived assets and associated intangible assets can vary within a range of outcomes. We consider the likelihood of possible outcomes in determining our estimate of future cash flows and, if warranted, we apply a probability-weighted method to the different possible scenarios. If the future net undiscounted cash flow of the property’s asset group is less than the carrying value, the carrying value of the property’s asset group is considered not recoverable. We then measure the impairment loss as the excess of the carrying value of the property’s asset group over its estimated fair value, less costs to sell.
Supplemental Financial Measures
In the real estate industry, analysts and investors employ certain non-GAAP supplemental financial measures in order to facilitate meaningful comparisons between periods and among peer companies. Additionally, in the formulation of our goals and in the evaluation of the effectiveness of our strategies, we use FFO and AFFO, which are non-GAAP measures defined by our management. We believe that these measures are useful to investors to consider because they may assist them to better understand and measure the performance of our business over time and against similar companies. A description of FFO and AFFO and reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are provided below.
Funds from Operations and Adjusted Funds from Operations
Due to certain unique operating characteristics of real estate companies, as discussed below, the National Association of Real Estate Investment Trusts (“NAREIT”), an industry trade group, has promulgated a non-GAAP measure known as FFO, which we believe to be an appropriate supplemental measure, when used in addition to and in conjunction with results presented in accordance with GAAP, to reflect the operating performance of a REIT. The use of FFO is recommended by the REIT industry as a supplemental non-GAAP measure. FFO is not equivalent to, nor a substitute for, net income or loss as determined under GAAP.
We define FFO, a non-GAAP measure, consistent with the standards established by the White Paper on FFO approved by the Board of Governors of NAREIT, as restated in December 2018. The White Paper defines FFO as net income or loss computed in accordance with GAAP, excluding gains or losses from the sale of certain real estate, impairment charges on real estate or other assets incidental to the company’s main business, gains or losses on changes in control of interests in real estate, and depreciation and amortization from real estate assets; and after adjustments for unconsolidated partnerships and jointly owned investments. Adjustments for unconsolidated partnerships and jointly owned investments are calculated to reflect FFO on the same basis.
We also modify the NAREIT computation of FFO to adjust GAAP net income for certain non-cash charges, such as amortization of real estate-related intangibles, deferred income tax benefits and expenses, straight-line rent and related reserves, other non-cash rent adjustments, non-cash allowance for credit losses on finance leases, stock-based compensation, non-cash environmental accretion expense, amortization of discounts and premiums on debt, and amortization of deferred financing costs. Our assessment of our operations is focused on long-term sustainability and not on such non-cash items, which may cause short-term fluctuations in net income but have no impact on cash flows. Additionally, we exclude non-core income and expenses, such as gains or losses from extinguishment of debt, merger and acquisition expenses, and spin-off expenses. We also exclude realized and unrealized gains/losses on foreign currency exchange rate movements, which are not considered fundamental attributes of our business plan and do not affect our overall long-term operating performance. We refer to our modified definition of FFO as AFFO. We exclude these items from GAAP net income to arrive at AFFO because they are not the primary drivers in our decision-making process and excluding these items provides investors with a view of our portfolio performance over time and makes it more comparable to other REITs. AFFO also reflects adjustments for jointly owned
Net Lease Office Properties 2025 10-K – 32 | |||||
investments. We use AFFO as one measure of our operating performance when we formulate corporate goals and evaluate the effectiveness of our strategies.
We believe that AFFO is a useful supplemental measure for investors to consider because we believe it will help them better assess the sustainability of our operating performance without the potentially distorting impact of these short-term fluctuations. However, there are limits on the usefulness of AFFO to investors. For example, impairment charges and unrealized foreign currency losses that we exclude may become actual realized losses upon the ultimate disposition of the properties in the form of lower cash proceeds or other considerations. We use our FFO and AFFO measures as supplemental financial measures of operating performance. We do not use our FFO and AFFO measures as, nor should they be considered to be, alternatives to net income computed under GAAP, alternatives to net cash provided by operating activities computed under GAAP, or indicators of our ability to fund our cash needs.
FFO and AFFO were as follows (in thousands):
| Years Ended December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Net loss attributable to NLOP | $ | (145,262) | $ | (91,471) | |||||||
| Adjustments: | |||||||||||
Impairment charges — real estate (a) | 140,814 | 78,237 | |||||||||
| Depreciation and amortization of real property | 35,878 | 56,696 | |||||||||
Loss (gain) on sale of real estate, net (b) | 29,006 | (20,216) | |||||||||
Proportionate share of adjustments for noncontrolling interests (c) | (207) | (207) | |||||||||
| Total adjustments | 205,491 | 114,510 | |||||||||
| FFO (as defined by NAREIT) attributable to NLOP | 60,229 | 23,039 | |||||||||
| Adjustments: | |||||||||||
| Amortization of deferred financing costs | 4,970 | 31,446 | |||||||||
Other (gains) and losses (d) | 4,620 | 3,855 | |||||||||
| Straight-line and other leasing and financing adjustments | 2,523 | 2,314 | |||||||||
| Above- and below-market rent intangible lease amortization, net | 1,080 | 3,003 | |||||||||
| Other amortization and non-cash items | 439 | 1,449 | |||||||||
| Tax benefit — deferred | — | (3,271) | |||||||||
| Stock-based compensation | — | 250 | |||||||||
| Separation and distribution related costs and other | — | 16 | |||||||||
Proportionate share of adjustments for noncontrolling interests (c) | (52) | (53) | |||||||||
| Total adjustments | 13,580 | 39,009 | |||||||||
| AFFO attributable to NLOP | $ | 73,809 | $ | 62,048 | |||||||
| Summary | |||||||||||
| FFO (as defined by NAREIT) attributable to NLOP | $ | 60,229 | $ | 23,039 | |||||||
| AFFO attributable to NLOP | $ | 73,809 | $ | 62,048 | |||||||
__________
(a)Amount for the year ended December 31, 2025 represents impairment charges totaling $84.8 million recognized on the KBR property in Houston, Texas (Note 8).
(b)Amount for the year ended December 31, 2025 includes loss on sale of real estate of $41.6 million, comprising foreign currency translation adjustments reclassified from accumulated other comprehensive income to net loss since we exited all investments denominated in the Norwegian krone during the third quarter of 2025 and the euro during the first quarter of 2025 (Note 3, Note 15).
(c)Adjustments disclosed elsewhere in this reconciliation are on a consolidated basis. This adjustment reflects our FFO or AFFO on a pro rata basis.
(d)Amount for the year ended December 31, 2025 includes a non-cash allowance for credit loss recorded on a net investment in a sales-type lease of $4.8 million (Note 6). Amount for the year ended December 31, 2024 includes a loss of $3.2 million related to damages at a property. These amounts also include gains and losses on extinguishment of debt and foreign currency transactions.
Net Lease Office Properties 2025 10-K – 33 | |||||
While we believe that FFO and AFFO are important supplemental measures, they should not be considered as alternatives to net income as an indication of a company’s operating performance. These non-GAAP measures should be used in conjunction with net income as defined by GAAP. FFO and AFFO, or similarly titled measures disclosed by other REITs, may not be comparable to our FFO and AFFO measures.
Net Lease Office Properties 2025 10-K – 34 | |||||
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Market Risk
Market risk is the exposure to loss resulting from changes in interest rates, foreign currency exchange rates, and equity prices. The primary market risk that we are exposed to is interest rate risk.
We are also exposed to further market risk as a result of tenant concentrations in certain industries and/or geographic regions, since adverse market factors can affect the ability of tenants in a particular industry/region to meet their respective lease obligations. In order to manage this risk, we view our collective tenant roster as a portfolio and monitor its diversification.
Interest Rate Risk
The values of our real estate and related fixed-rate debt obligations are subject to fluctuations based on changes in interest rates. The value of our real estate is also subject to fluctuations based on local and regional economic conditions and changes in the creditworthiness of lessees, which may affect our ability to refinance debt when balloon payments are scheduled, if we do not choose to repay the debt when due. Interest rates are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political conditions, and other factors beyond our control. An increase in interest rates would likely cause the fair value of our assets to decrease. Increases in interest rates may also have an impact on the credit profile of certain tenants.
We are exposed to the effects of interest rate changes as a result of borrowings used to maintain liquidity and to fund the financing and refinancing of our real estate investment portfolio and operations. Our profitability and the value of our real estate investment portfolio may be adversely affected during any period as a result of interest rate changes.
We have borrowed funds at a combination of fixed and variable rates. Interest rate fluctuations will generally not affect future earnings or cash flows on fixed-rate debt unless such debt matures or is otherwise terminated. However, interest rate changes will affect the fair value of fixed-rate instruments. At December 31, 2025, fixed-rate debt comprises 100% of our debt. We have entered into, and may continue to enter into, interest rate cap agreements with counterparties related to variable-rate debt. See Note 9 for additional information on our interest rate caps.
Our debt obligations are more fully described in Note 10 and Liquidity and Capital Resources — Summary of Financing in Item 7 above. The following table presents principal cash flows based upon expected maturity dates of our debt obligations outstanding at December 31, 2025 (in thousands):
| 2026 | 2027 | 2028 | 2029 | 2030 | Total | Fair Value | |||||||||||||||||||||||||||||||||||
| Fixed-rate debt | $ | 21,900 | $ | — | $ | — | $ | — | $ | — | $ | 21,900 | $ | 21,900 | |||||||||||||||||||||||||||
Foreign Currency Exchange Rate Risk
We sold all of our international investments during the year ended December 31, 2025 (Note 3, Note 15).
Concentration of Credit Risk
Concentrations of credit risk arise when a number of tenants are engaged in similar business activities, or activities in the same geographic region, or have similar economic features that would cause their ability to meet contractual obligations, including those to the Company, to be similarly affected by changes in economic conditions. The Company is subject to tenant, geographic and industry concentrations. Any downturn of the economic conditions in one or more of these tenants, geographies or industries could result in a material reduction of our cash flows or material losses to us.
The factors we consider in determining the credit risk of our tenants include, but are not limited to: payment history; credit status (credit ratings for public companies are used as a primary metric); change in tenant space needs (i.e., expansion/downsize); tenant financial performance; economic conditions in a specific geographic region; and industry specific credit considerations. We believe that the credit risk of our portfolio is reduced by the high quality and diversity of our existing tenant base, reviews of prospective tenants’ risk profiles prior to lease execution and consistent monitoring of our portfolio to identify potential problem tenants.
Net Lease Office Properties 2025 10-K – 35 | |||||
For the year ended December 31, 2025, our consolidated portfolio had the following significant characteristics in excess of 10%, based on the percentage of our consolidated total revenues:
•27% related to our tenant KBR, 13% related to our tenant Master Lock (including a lease termination fee of $13.0 million received during the year ended December 31, 2025 (Note 5)), and 12% related to our tenant JPMorgan Chase; we sold the KBR property in January 2026 (Note 17) and we sold the properties leased to Master Lock and JPMorgan Chase during 2025 (Note 15); and
•97% related to domestic operations, which included concentrations of 41%, 13%, and 11% in Texas, Wisconsin, and Minnesota, respectively.
Net Lease Office Properties 2025 10-K – 36 | |||||
Item 8. Financial Statements and Supplementary Data.
| TABLE OF CONTENTS | Page No. | ||||
Report of Independent Registered Public Accounting Firm (PCAOB ID | 38 | ||||
Consolidated Balance Sheets as of December 31, 2025 and 2024 | 39 | ||||
Consolidated Statements of Operations for the Years Ended December 31, 2025, 2024, and 2023 | 40 | ||||
Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2025, 2024, and 2023 | 41 | ||||
Consolidated Statements of Equity for the Years Ended December 31, 2025, 2024, and 2023 | 42 | ||||
Consolidated Statements of Cash Flows for the Years Ended December 31, 2025, 2024, and 2023 | 43 | ||||
Notes to Consolidated Financial Statements | 44 | ||||
Schedule II — Valuation and Qualifying Accounts for the Years Ended December 31, 2025, 2024, and 2023 | 74 | ||||
Schedule III — Real Estate and Accumulated Depreciation as of December 31, 2025 | 75 | ||||
Notes to Schedule III for the Years Ended December 31, 2025, 2024, and 2023 | 76 | ||||
Financial statement schedules other than those listed above are omitted because the required information is given in the financial statements, including the notes thereto, or because the conditions requiring their filing do not exist.
Net Lease Office Properties 2025 10-K – 37 | |||||
Report of Independent Registered Public Accounting Firm
To the Board of Trustees and Shareholders of Net Lease Office Properties
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Net Lease Office Properties and its subsidiaries (the “Company”) as of December 31, 2025 and 2024, and the related consolidated statements of operations, of comprehensive loss, of equity and of cash flows for each of the three years in the period ended December 31, 2025, including the related notes and financial statement schedules listed in the accompanying index (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2025 in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
February 25, 2026
We have served as the Company’s auditor since 2022.
Net Lease Office Properties 2025 10-K – 38 | |||||
NET LEASE OFFICE PROPERTIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
| December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Assets | |||||||||||
| Investments in real estate: | |||||||||||
| Land, buildings and improvements | $ | $ | |||||||||
| Net investments in finance leases | |||||||||||
In-place lease intangible assets and other | |||||||||||
Above-market rent intangible assets | |||||||||||
| Investments in real estate | |||||||||||
| Accumulated depreciation and amortization | ( | ( | |||||||||
| Assets held for sale, net | |||||||||||
| Net investments in real estate | |||||||||||
Cash and cash equivalents | |||||||||||
| Restricted cash | |||||||||||
| Other assets, net | |||||||||||
Total assets (a) | $ | $ | |||||||||
| Liabilities and Equity | |||||||||||
| Debt: | |||||||||||
| Non-recourse mortgages, net | $ | $ | |||||||||
| NLOP Mezzanine Loan, net | |||||||||||
| Debt, net | |||||||||||
| Accounts payable, accrued expenses and other liabilities | |||||||||||
| Below-market rent intangible liabilities, net | |||||||||||
| Dividends payable | |||||||||||
Total liabilities (a) | |||||||||||
Commitments and contingencies (Note 11) | |||||||||||
Preferred stock, $ | |||||||||||
Common stock, $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Distributions in excess of accumulated earnings | ( | ( | |||||||||
| Accumulated other comprehensive loss | ( | ||||||||||
| Total shareholders’ equity | |||||||||||
| Noncontrolling interests | |||||||||||
| Total equity | |||||||||||
| Total liabilities and equity | $ | $ | |||||||||
__________
(a)See Note 3 for details related to variable interest entities (“VIEs”).
See Notes to Consolidated Financial Statements.
Net Lease Office Properties 2025 10-K – 39 | |||||
NET LEASE OFFICE PROPERTIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
| Years Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Revenues | |||||||||||||||||
| Lease revenues | $ | $ | $ | ||||||||||||||
| Income from finance leases | |||||||||||||||||
| Other lease-related income | |||||||||||||||||
| Operating Expenses | |||||||||||||||||
| Impairment charges — real estate | |||||||||||||||||
| Depreciation and amortization | |||||||||||||||||
| Reimbursable tenant costs | |||||||||||||||||
| Property expenses, excluding reimbursable tenant costs | |||||||||||||||||
| General and administrative | |||||||||||||||||
| Asset management fees | |||||||||||||||||
| Separation and distribution related costs and other | |||||||||||||||||
| Impairment charges — goodwill | |||||||||||||||||
| Other Income and Expenses | |||||||||||||||||
| (Loss) gain on sale of real estate, net | ( | ( | |||||||||||||||
| Interest expense | ( | ( | ( | ||||||||||||||
| Other gains and (losses) | ( | ( | |||||||||||||||
| ( | ( | ( | |||||||||||||||
| Loss before income taxes | ( | ( | ( | ||||||||||||||
| (Provision for) benefit from income taxes | ( | ( | |||||||||||||||
| Net Loss | ( | ( | ( | ||||||||||||||
| Net income attributable to noncontrolling interests | ( | ( | ( | ||||||||||||||
| Net Loss Attributable to NLOP | $ | ( | $ | ( | $ | ( | |||||||||||
| Basic and Diluted Loss Per Share | $ | ( | $ | ( | $ | ( | |||||||||||
| Weighted-Average Shares Outstanding | |||||||||||||||||
| Basic and Diluted | |||||||||||||||||
See Notes to Consolidated Financial Statements.
Net Lease Office Properties 2025 10-K – 40 | |||||
NET LEASE OFFICE PROPERTIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
| Years Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Net Loss | $ | ( | $ | ( | $ | ( | |||||||||||
| Other Comprehensive Income (Loss) | |||||||||||||||||
| Foreign currency translation adjustments | ( | ||||||||||||||||
| Unrealized gain (loss) on derivative instruments | ( | ||||||||||||||||
| ( | |||||||||||||||||
| Comprehensive Loss | ( | ( | ( | ||||||||||||||
| Amounts Attributable to Noncontrolling Interests | |||||||||||||||||
| Net income | ( | ( | ( | ||||||||||||||
| Comprehensive income attributable to noncontrolling interests | ( | ( | ( | ||||||||||||||
| Comprehensive Loss Attributable to NLOP | $ | ( | $ | ( | $ | ( | |||||||||||
See Notes to Consolidated Financial Statements.
Net Lease Office Properties 2025 10-K – 41 | |||||
NET LEASE OFFICE PROPERTIES
CONSOLIDATED STATEMENTS OF EQUITY
(in thousands, except share and per share amounts)
| Common Stock | Additional Paid-In Capital | Distributions in Excess of Accumulated Earnings | Accumulated Other Comprehensive Loss | Net Parent Investment | Total Shareholders’ and Parent Company Equity | Noncontrolling Interests | Total Equity | ||||||||||||||||||||||||||||||||||||||||||||||
| $0.001 Par Value | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at January 1, 2023 | $ | $ | $ | $ | ( | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
| Net (loss) income | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Distributions to WPC in connection with the Spin-Off | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Common shares issued in connection with the Spin-Off | ( | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Net transfers from parent, including Spin-Off adjustments | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Amortization of stock-based compensation expense | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Contributions from noncontrolling interest | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interest | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends declared ($ | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Unrealized loss on derivative instruments | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2023 | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Net (loss) income | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued in connection with dividends paid | ( | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued upon delivery of vested restricted share awards | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Amortization of stock-based compensation expense | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interest | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Unrealized gain on derivative instruments | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2024 | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Net (loss) income | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interest | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
Distributions declared ($ | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2025 | $ | $ | $ | ( | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
See Notes to Consolidated Financial Statements.
Net Lease Office Properties 2025 10-K – 42 | |||||
NET LEASE OFFICE PROPERTIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
| Years Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Cash Flows — Operating Activities | |||||||||||||||||
| Net loss | $ | ( | $ | ( | $ | ( | |||||||||||
| Adjustments to net loss: | |||||||||||||||||
| Impairment charges — real estate | |||||||||||||||||
| Depreciation and amortization, including intangible assets and deferred financing costs | |||||||||||||||||
| Loss (gain) on sale of real estate, net | ( | ||||||||||||||||
| Allowance for credit losses | |||||||||||||||||
Straight-line rent adjustments | ( | ||||||||||||||||
| Net realized and unrealized losses (gains) on extinguishment of debt, foreign currency exchange rate movements, and other | ( | ||||||||||||||||
| Amortization of rent-related intangibles and deferred rental revenue | ( | ( | |||||||||||||||
| Deferred income tax benefit | ( | ( | |||||||||||||||
| Stock-based compensation expense | |||||||||||||||||
| Impairment charges — goodwill | |||||||||||||||||
| Net changes in other operating assets and liabilities | ( | ( | |||||||||||||||
| Proceeds from sales of net investments in sales-type leases | |||||||||||||||||
| Net Cash Provided by Operating Activities | |||||||||||||||||
| Cash Flows — Investing Activities | |||||||||||||||||
| Proceeds from sales of real estate | |||||||||||||||||
| Non-refundable deposit for disposition | |||||||||||||||||
| Funding for real estate construction, redevelopments, and other capital expenditures on real estate | ( | ( | ( | ||||||||||||||
| Other investing activities, net | ( | ||||||||||||||||
| Net Cash Provided by Investing Activities | |||||||||||||||||
| Cash Flows — Financing Activities | |||||||||||||||||
| Payments of mortgage principal and other debt instruments | ( | ( | ( | ||||||||||||||
| Distributions paid | ( | ( | |||||||||||||||
| Other financing activities, net | ( | ( | |||||||||||||||
| Distributions to noncontrolling interest | ( | ( | ( | ||||||||||||||
| Distributions to WPC in connection with the Spin-Off | ( | ||||||||||||||||
| Proceeds from NLOP Mortgage Loan | |||||||||||||||||
| Proceeds from NLOP Mezzanine Loan | |||||||||||||||||
| Net transfers with Parent, including Spin-Off adjustments | ( | ||||||||||||||||
| Payment of financing costs | ( | ||||||||||||||||
| Contributions from noncontrolling interests | |||||||||||||||||
| Net Cash Used in Financing Activities | ( | ( | ( | ||||||||||||||
| Change in Cash and Cash Equivalents and Restricted Cash During the Year | |||||||||||||||||
| Effect of exchange rate changes on cash and cash equivalents and restricted cash | ( | ( | |||||||||||||||
| Net increase in cash and cash equivalents and restricted cash | |||||||||||||||||
| Cash and cash equivalents and restricted cash, beginning of year | |||||||||||||||||
| Cash and cash equivalents and restricted cash, end of year | $ | $ | $ | ||||||||||||||
See Notes to Consolidated Financial Statements.
Net Lease Office Properties 2025 10-K – 43 | |||||
NET LEASE OFFICE PROPERTIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Business and Organization
Pursuant to the terms of a separation and distribution agreement, W. P. Carey Inc. (“WPC”) spun off a portfolio of 59 office assets into a separate publicly-traded company (the “Spin-Off”). To accomplish this Spin-Off, WPC formed a Maryland real estate investment trust, Net Lease Office Properties (“NLOP” or the “Company”), on October 21, 2022, to own the 59 office assets.
On November 1, 2023, WPC completed the Spin-Off, contributing 59 office properties to NLOP. Following the closing of the Spin-Off, NLOP operates as a separate publicly-traded real estate investment trust (“REIT”), and certain wholly-owned affiliates of WPC (our “Advisor”) externally manage NLOP pursuant to certain advisory agreements (the “NLOP Advisory Agreements”). The Spin-Off was accomplished via a pro rata dividend of 1 NLOP common share for every 15 shares of WPC common stock outstanding.
We elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code (the “Code”) effective as of November 1, 2023.
As of December 31, 2025, NLOP’s portfolio comprised full or partial ownership interests in 24 properties, net-leased to 26 corporate tenants, totaling approximately 3.9 million leasable square feet (including 0.6 million of operating square footage for a parking garage at a domestic property), with a weighted-average lease term of 3.9 years. All references to number of properties, square footage, and occupancy are unaudited.
NLOP operates as one segment, and through its subsidiaries, owns, operates, and finances office buildings. Our business is characterized as owning a diversified portfolio of office properties that are primarily leased to corporate tenants on a single-tenant, net-lease basis. These economic characteristics are similar across various geographic locations and industries in which our tenants operate and therefore considered one operating segment. Our consolidated operating results, including net income, are regularly reviewed, in the aggregate, by our chief operating decision maker (“CODM”) to evaluate performance and allocate resources, which can be found on our consolidated financial statements. The CODM is our Chief Executive Officer, with oversight provided by our Board of Trustees (our “Board”).
Our revenues are largely derived from the long-term leases that we execute with tenants. These revenues are classified as either Lease revenues (Note 5) or Income from finance leases (Note 6) in accordance with Accounting Standards Codification (“ASC”) 842, Leases.
Our operating expenses are regularly reviewed by our CODM. All expenses are reviewed, but our CODM is regularly provided with the following significant expenses, which are included in our consolidated financial statements and require no additional disaggregation: Property expenses, excluding reimbursable tenant costs, General and administrative expenses, Asset management fees, Interest expense, and (Provision for) benefit from income taxes.
Note 2. Basis of Presentation
NLOP
For periods after November 1, 2023, the consolidated financial statements include the results of NLOP and all entities in which the Company has a controlling interest. Intercompany transactions and balances have been eliminated in consolidation.
Net Lease Office Properties 2025 10-K – 44 | |||||
Notes to Consolidated Financial Statements
Prior to the Spin-Off
For periods prior to November 1, 2023, the accompanying historical consolidated financial statements and related notes of NLOP do not represent the balance sheet, statement of operations and cash flows of a legal entity, but rather a combination of entities under common control that have been “carved-out” of WPC’s consolidated financial statements and presented herein, in each case, in accordance with U.S. generally accepted accounting principles (“GAAP”). Intercompany transactions and balances have been eliminated in combination. The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the dates of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. In the opinion of management, the financial information for the periods presented in this Report reflects all normal and recurring adjustments necessary for a fair presentation of financial position, results of operations, and cash flows.
These consolidated financial statements reflect the revenues and direct expenses of NLOP and include material assets and liabilities of WPC that are specifically attributable to NLOP. Equity in these consolidated financial statements represents the excess of total assets over total liabilities. Equity is impacted by contributions from and distributions to WPC, which are the result of treasury activities and net funding provided by or distributed to WPC prior to the Spin-Off, as well as the allocated costs and expenses described below.
The consolidated financial statements also include an allocation of indirect costs and expenses incurred by WPC related to NLOP, primarily consisting of compensation and other general and administrative costs using the relative percentage of property ABR of NLOP and WPC management’s knowledge of NLOP. In addition, the consolidated financial statements reflect the allocation of interest expense from WPC unsecured debt, excluding debt that is specifically attributable to NLOP (Note 10); interest expense was allocated by calculating the unencumbered net investment in real estate of each property held by NLOP as a percentage of WPC’s total consolidated unencumbered net investment in real estate and multiplying that percentage by the corporate interest expense on WPC unsecured debt (Note 10). The amounts allocated in the accompanying consolidated financial statements are not necessarily indicative of the actual amount of such indirect expenses that would have been recorded had NLOP been a separate independent entity during the applicable periods. WPC believes the assumptions underlying WPC’s allocation of indirect expenses are reasonable.
Goodwill attributable to NLOP was determined by first identifying those assets within NLOP that were previously deemed to be a part of a business combination and that WPC paid a premium for. This premium was then allocated to NLOP assets based on the fair values of NLOP assets at the time of acquisition relative to the value of all the real estate acquired as part of the business combination. Any goodwill directly attributable to deferred taxes assumed as part of a business combination and related to our European operations is recorded in its functional currency and translated at period end rates where applicable.
The amounts allocated in the accompanying consolidated financial statements are not necessarily indicative of the actual amount of such indirect expenses that would have been recorded had NLOP been a separate independent entity. WPC believes the assumptions underlying WPC’s allocation of indirect expenses are reasonable.
Note 3. Summary of Significant Accounting Policies
Critical Accounting Policies and Estimates
Accounting for Acquisitions
In accordance with the guidance for business combinations, we determine whether a transaction or other event is a business combination, which requires that the assets acquired and liabilities assumed constitute a business. If the assets acquired are not a business, we account for the transaction or other event as an asset acquisition. Under both methods, we recognize the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquired entity. In addition, for transactions that are business combinations, we evaluate the existence of goodwill or a gain from a bargain purchase. We capitalize acquisition-related costs and fees associated with asset acquisitions. We immediately expense acquisition-related costs and fees associated with business combinations. There were no acquisitions during the reporting period.
Net Lease Office Properties 2025 10-K – 45 | |||||
Notes to Consolidated Financial Statements
Purchase Price Allocation of Tangible Assets — When we acquire properties with leases classified as operating leases, we allocate the purchase price to the tangible and intangible assets and liabilities acquired based on their estimated fair values. The tangible assets consist of land, buildings, and site improvements. The intangible assets and liabilities include the above- and below-market value of leases and the in-place leases, which includes the value of tenant relationships. Land is typically valued utilizing the sales comparison (or market) approach. Buildings are valued, as if vacant, using the cost and/or income approach. The fair value of real estate is determined (i) by applying a discounted cash flow analysis to the estimated net operating income for each property in the portfolio during the remaining anticipated lease term, and (ii) by the estimated residual value, which is based on a hypothetical sale of the property upon expiration of a lease factoring in the re-tenanting of such property at estimated market rental rates and applying a selected capitalization rate.
Assumptions used in the model are property-specific where this information is available; however, when certain necessary information is not available, we use available regional and property-type information. Assumptions and estimates include the following:
•a discount rate or internal rate of return;
•market rents, growth factors of rents, and market lease term;
•capitalization rates to be applied to an estimate of market rent at the beginning and/or the end of the market lease term;
•the marketing period necessary to put a lease in place;
•carrying costs during the marketing period; and
•leasing commissions and tenant improvement allowances.
The discount rates and residual capitalization rates used to value the properties are selected based on several factors, including:
•the creditworthiness of the lessees;
•industry surveys;
•property type;
•property location and age;
•current lease rates relative to market lease rates; and
•anticipated lease duration.
In the case where a tenant has a purchase option deemed to be favorable to the tenant, or the tenant has long-term renewal options at rental rates below estimated market rental rates, we generally include the value of the exercise of such purchase option or long-term renewal options in the determination of residual value.
The remaining economic life of leased assets is estimated by relying in part upon third-party appraisals of the leased assets and industry standards. Different estimates of remaining economic life will affect the depreciation expense that is recorded.
Purchase Price Allocation of Intangible Assets and Liabilities — For acquired properties that do not qualify as sale-leaseback transactions, we record above- and below-market lease intangible assets and liabilities for acquired properties based on the present value (using a discount rate reflecting the risks associated with the leases acquired including consideration of the credit of the lessee) of the difference between (i) the contractual rents to be paid pursuant to the leases negotiated or in place at the time of acquisition of the properties and (ii) our estimate of fair market lease rates for the property or equivalent property, both of which are measured over the estimated lease term, which includes renewal options that have rental rates below estimated market rental rates. We discount the difference between the estimated market rent and contractual rent to a present value using an interest rate reflecting our current assessment of the risk associated with the lease acquired, which includes a consideration of the credit of the lessee. When we enter into sale-leaseback transactions with above- or below-market leases, the intangibles will be accounted for as loan receivables or prepaid rent liabilities, respectively. We measure the fair value of below-market purchase option liabilities we acquire as the excess of the present value of the fair value of the real estate over the present value of the tenant’s exercise price at the option date. We determine these values using our estimates or by relying in part upon third-party valuations conducted by independent appraisal firms.
We amortize the above-market lease intangible as a reduction of lease revenue over the remaining contractual lease term. We amortize the below-market lease intangible as an increase to lease revenue over the initial term and any renewal periods in the respective leases. We include the value of below-market leases in Below-market rent and other intangible liabilities in the consolidated financial statements.
Net Lease Office Properties 2025 10-K – 46 | |||||
Notes to Consolidated Financial Statements
For acquired properties with tenants in place, we record in-place lease intangible assets based on the estimated value ascribed to the avoidance of costs of leasing the properties for remaining primary in-place lease terms. The cost avoidance is derived first by determining the in-place lease term on the subject lease. Then, based on our review of the market, the cost to be borne by a property owner to replicate a market lease to the remaining in-place term is estimated. These costs consist of: (i) rent lost during downtime (i.e., assumed periods of vacancy), (ii) estimated expenses that would be incurred by the property owner during periods of vacancy, (iii) rent concessions (i.e., free rent), (iv) leasing commissions, and (v) tenant improvements allowances given to tenants. We determine these values using our estimates or by relying in part upon third-party valuations. We amortize the value of in-place lease intangibles to depreciation and amortization expense over the remaining initial term of each lease. The amortization period for intangibles does not exceed the remaining depreciable life of the building.
If a lease is terminated, we charge the unamortized portion of above- and below-market lease values to rental income and in-place lease values to amortization expense. If a lease is amended, we will determine whether the economics of the amended lease continue to support the existence of the above- or below-market lease intangibles.
Purchase Price Allocation of Debt — When we acquire leveraged properties (for example, through the CPA:18 Merger), the fair value of the related debt instruments is determined using a discounted cash flow model with rates that take into account the credit of the tenants, where applicable, and interest rate risk. Such resulting premium or discount is amortized over the remaining term of the obligation. We also consider the value of the underlying collateral, taking into account the quality of the collateral, the credit quality of the tenant, the time until maturity and the current interest rate.
Impairments
Real Estate — We periodically assess whether there are any indicators that the value of our long-lived real estate and related intangible assets may be impaired or that their carrying value may not be recoverable. These impairment indicators include, but are not limited to, vacancies, an upcoming lease expiration, a tenant with credit difficulty, the termination of a lease by a tenant, or a likely disposition of the property.
For real estate assets held for investment and related intangible assets in which an impairment indicator is identified, we follow a two-step process to determine whether an asset is impaired and to determine the amount of the charge. First, we compare the carrying value of the property’s asset group to the estimated future net undiscounted cash flow that we expect the property’s asset group will generate, including any estimated proceeds from the eventual sale of the property’s asset group. The undiscounted cash flow analysis requires us to make our best estimate of market rents, residual values, and holding periods. We estimate market rents and residual values using market information from outside sources such as third-party market research, external appraisals, broker quotes, or recent comparable sales.
As our investment objective is to realize value for our shareholders, holding periods used in the undiscounted cash flow analysis are evaluated on an individual property basis based on our strategic hold time of each asset. Depending on the assumptions made and estimates used, the future cash flow projected in the evaluation of long-lived assets and associated intangible assets can vary within a range of outcomes. We consider the likelihood of possible outcomes in determining our estimate of future cash flows and, if warranted, we apply a probability-weighted method to the different possible scenarios. If the future net undiscounted cash flow of the property’s asset group is less than the carrying value, the carrying value of the property’s asset group is considered not recoverable. We then measure the impairment loss as the excess of the carrying value of the property’s asset group over its estimated fair value.
Assets Held for Sale — We generally classify real estate assets that are subject to operating leases as held for sale when we have entered into a contract to sell the property, all material due diligence requirements have been satisfied, we received a non-refundable deposit, and we believe it is probable that the disposition will occur within one year. When we classify an asset as held for sale, we compare the asset’s fair value less estimated costs to sell to its carrying value, and if the fair value less estimated costs to sell is less than the property’s carrying value, we reduce the carrying value to the fair value less estimated costs to sell. We will continue to review the property for subsequent changes in the fair value, and may recognize a loss on sale of real estate, if warranted.
Goodwill — We evaluate goodwill for possible impairment at least annually or upon the occurrence of a triggering event. To identify any impairment, we first assess qualitative factors to determine whether it is more likely than not that the fair value of the Company is less than its carrying value. This assessment is used as a basis to determine whether it is necessary to calculate the fair value of the Company. Impairments, if any, will be the difference between the Company’s fair value and carrying amount, not to exceed the carrying amount of goodwill. The Company did not have goodwill as of December 31, 2025 or 2024.
Net Lease Office Properties 2025 10-K – 47 | |||||
Notes to Consolidated Financial Statements
Credit Losses
The allowance for credit losses, which is recorded as a reduction to Net investments in finance leases on our consolidated balance sheets, is measured on an individual basis for our finance leases (Note 6), incorporating information such as the lessee’s credit rating, the expected value of the underlying collateral upon its repossession, and likelihood of closing for an agreed-upon sale (for certain net investments in sales-type leases). Included in our assessment are factors that incorporate forward-looking information. Allowance for credit losses is included in our consolidated statements of operations within Other gains and (losses).
Other Accounting Policies
Variable Interest Entities
When we obtain an economic interest in an entity, we evaluate the entity to determine if it should be deemed a variable interest entity (“VIE”) and, if so, whether we are the primary beneficiary and are therefore required to consolidate the entity. We apply accounting guidance for consolidation of VIEs to certain entities in which the equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. Fixed price purchase and renewal options within a lease, as well as certain decision-making rights within a loan or joint-venture agreement, can cause us to consider an entity a VIE. Limited partnerships and other similar entities that operate as a partnership will be considered a VIE unless the limited partners hold substantive kick-out rights or participation rights. Significant judgment is required to determine whether a VIE should be consolidated. We review the contractual arrangements provided for in the partnership agreement or other related contracts to determine whether the entity is considered a VIE, and to establish whether we have any variable interests in the VIE. We then compare our variable interests, if any, to those of the other variable interest holders to determine which party is the primary beneficiary of the VIE based on whether the entity (i) has the power to direct the activities that most significantly impact the economic performance of the VIE and (ii) has the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. The liabilities of these VIEs are non-recourse to us and can only be satisfied from each VIE’s respective assets.
| December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Land, buildings and improvements | $ | $ | |||||||||
| In-place lease intangible assets and other | |||||||||||
| Above-market rent intangible assets | |||||||||||
| Accumulated depreciation and amortization | ( | ( | |||||||||
| Total assets | |||||||||||
| Total liabilities | $ | $ | |||||||||
Net Lease Office Properties 2025 10-K – 48 | |||||
Notes to Consolidated Financial Statements
Leases
As a Lessee: Right-of-use (“ROU”) assets, included within in-place lease intangible assets and other on our consolidated balance sheets, represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments under the lease. We determine if an arrangement contains a lease at contract inception and determine the classification of the lease at commencement. Operating lease ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. We do not include renewal options in the lease term when calculating the lease liability unless we are reasonably certain we will exercise the option. Variable lease payments are excluded from the ROU assets and lease liabilities and are recognized in the period in which the obligation for those payments is incurred. Our variable lease payments consist of increases as a result of the Consumer Price Index (“CPI”) or other comparable indices, taxes, and maintenance costs. Lease expense for lease payments is recognized on a straight-line basis over the term of the lease. Below-market land lease intangible assets and above-market land lease intangible liabilities are included as a component of ROU assets. See Note 5 for additional disclosures on the presentation of these amounts in our consolidated balance sheets.
The implicit rate within our operating leases is generally not determinable and, as a result, we use our incremental borrowing rate at the lease commencement date to determine the present value of lease payments. The determination of our incremental borrowing rate requires judgment. We determine our incremental borrowing rate for each lease using estimated baseline mortgage rates. These baseline rates are determined based on a review of current mortgage debt market activity for benchmark securities across domestic and international markets, utilizing a yield curve. The rates are then adjusted for various factors, including level of collateralization and lease term.
As a Lessor: We combine non-lease components (lease arrangements that include common area maintenance services) with related lease components (lease revenues), since both the timing and pattern of transfer are the same for the non-lease component and related lease component, the lease component is the predominant component, and the lease component would otherwise be classified as an operating lease. For (i) operating lease arrangements involving real estate that include common area maintenance services and (ii) all real estate arrangements that include real estate taxes and insurance costs, we present these amounts within lease revenues in our consolidated statements of operations. We record amounts reimbursed by the lessee in the period in which the applicable expenses are incurred if the reimbursements are deemed collectible.
Net investments in sales-type leases are accounted for under ASC 842, Leases. Upon lease commencement or lease modification, we assess lease classification to determine whether the lease should be classified as an operating, direct financing, or sales-type lease. If the lease is determined to be a sales-type lease, we record a net investment in the lease, which is equal to the sum of the lease payments receivable and the unguaranteed residual value, discounted at the rate implicit in the lease. Any difference between the fair value of the asset and the net investment in the lease is considered a gain on sale of real estate and recognized upon execution of the lease.
Cash and Cash Equivalents — We consider all short-term, highly liquid investments that are both readily convertible to cash and have a maturity of three months or less at the time of purchase to be cash equivalents. Items classified as cash equivalents include commercial paper and money market funds. Our cash and cash equivalents are held in the custody of several financial institutions, and these balances, at times, exceed federally insurable limits. We seek to mitigate this risk by depositing funds only with major financial institutions.
| December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
Cash and cash equivalents | $ | $ | $ | ||||||||||||||
Restricted cash (a) | |||||||||||||||||
Total cash and cash equivalents and restricted cash | $ | $ | $ | ||||||||||||||
__________
(a)Amounts as of December 31, 2024 and 2023 include approximately $41.7 million and $48.4 million, respectively, related to certain reserve requirements pursuant to the NLOP Financing Arrangements (Note 10). In April 2025, we fully repaid the NLOP Mezzanine Loan and are no longer subject to such reserve requirements (Note 10).
Net Lease Office Properties 2025 10-K – 49 | |||||
Notes to Consolidated Financial Statements
Land, Buildings and Improvements — We carry land, buildings, and improvements at cost less accumulated depreciation. We capitalize costs that extend the useful life of properties or increase their value, while we expense maintenance and repairs that do not improve or extend the lives of the respective assets as incurred.
Gain/Loss on Sale — We recognize gains and losses on the sale of properties when the transaction meets the definition of a contract, criteria are met for the sale of one or more distinct assets, and control of the properties is transferred.
Other Assets and Liabilities — We include prepaid expenses, straight-line rent receivables, derivative assets, tenant receivables, deferred charges, escrow balances held by lenders, and restricted cash balances in Other assets, net. We include amounts held on behalf of tenants, operating lease liabilities, and deferred revenue in Accounts payable, accrued expenses and other liabilities.
Revenue Recognition, Real Estate Leased to Others — We lease real estate to others primarily on a net leased basis, whereby the tenant is generally responsible for operating expenses relating to the property, including property taxes, insurance, maintenance, repairs, and improvements.
Our leases generally provide for either scheduled rent increases, periodic rent adjustments based on formulas indexed to changes in the CPI or similar indices. CPI-based adjustments are contingent on future events and are therefore not included as minimum rent in straight-line rent calculations.
For our operating leases, we recognize future minimum rental revenue on a straight-line basis over the non-cancelable lease term of the related leases and charge expenses to operations as incurred (Note 5). We record leases accounted for under the direct financing method as a net investment in direct financing leases (Note 6). The net investment is equal to the cost of the leased assets. The difference between the cost and the gross investment, which includes the residual value of the leased asset and the future minimum rents, is unearned income. We defer and amortize unearned income to income over the lease term so as to produce a constant periodic rate of return on our net investment in the lease.
Asset Retirement Obligations — Asset retirement obligations relate to the legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development, and/or normal operation of a long-lived asset. The fair value of a liability for an asset retirement obligation is recorded in the period in which it is incurred or at the point of acquisition of an asset with an assumed asset retirement obligation, and the cost of such liability is recorded as an increase in the carrying amount of the related long-lived asset by the same amount. The liability is accreted each period and the capitalized cost is depreciated over the estimated remaining life of the related long-lived asset. Revisions to estimated retirement obligations result in adjustments to the related capitalized asset and corresponding liability.
In order to determine the fair value of the asset retirement obligations, we make certain estimates and assumptions including, among other things, projected cash flows, the borrowing interest rate, and an assessment of market conditions that could significantly impact the estimated fair value. These estimates and assumptions are subjective.
Depreciation — We compute depreciation of building and related improvements using the straight-line method over the estimated remaining useful lives of the properties (not to exceed 40
Net Parent Investment — In the consolidated balance sheets, the net parent investment represents WPC’s historical investment in NLOP prior to the Spin-Off, accumulated net earnings after taxes, and the net effect of transactions between NLOP and WPC.
Stock-Based Compensation — We have granted restricted share units (“RSUs”) to the independent trustees on our Board. Grants were awarded in the name of the recipient subject to certain restrictions of transferability and a risk of forfeiture. Stock-based compensation expense for all equity-classified stock-based compensation awards is based on the grant date fair value estimated in accordance with current accounting guidance for share-based payments, which includes awards granted to certain nonemployees. We recognize these compensation costs for only those shares expected to vest on a straight-line basis over the requisite service or performance period of the award. We include stock-based compensation within Additional paid-in capital in the consolidated statements of equity and General and administrative expenses in the consolidated statements of operations.
Net Lease Office Properties 2025 10-K – 50 | |||||
Notes to Consolidated Financial Statements
Foreign Currency Translation and Transaction Gains and Losses — During the year ended December 31, 2025, we exited all investments denominated in euros and Norwegian krone, and as a result, we did not own any international real estate investments as of December 31, 2025. During the year ended December 31, 2024, we exited all investments in the United Kingdom, which were denominated in the British pound sterling (Note 12, Note 15). Prior to our exit from international investments, we performed the translation from foreign currencies to the U.S. dollar for assets and liabilities using current exchange rates in effect at the balance sheet date and for revenue and expense accounts using the average exchange rate during the month in which the transaction occurred. We reported the gains and losses resulting from such translation as a component of other comprehensive income in equity. These translation gains and losses were fully reclassified out of foreign currency translation adjustments (within Accumulated other comprehensive loss in the consolidated balance sheets) and released to net income (within (Loss) gain on sale of real estate, net, in the consolidated statements of operations) when we exited from all investments in the related currency (Note 12, Note 15).
A transaction gain or loss (measured from the transaction date or the most recent intervening balance sheet date, whichever is later), realized upon settlement of a foreign currency transaction generally will be included in net income for the period in which the transaction is settled. Also, foreign currency intercompany transactions that are scheduled for settlement, consisting primarily of accrued interest and the translation to the reporting currency of intercompany debt that is short-term or has scheduled principal payments, are included in the determination of net income (within Other gains and (losses) in the consolidated statements of operations).
The translation impact of foreign currency transactions of a long-term nature (that is, settlement is not planned or anticipated in the foreseeable future), in which the entities involved in the transactions are combined, are not included in net income but are reported as a component of other comprehensive income in equity.
Derivative Instruments — We measure derivative instruments at fair value and record them as assets or liabilities, depending on our rights or obligations under the applicable derivative contract. Derivatives that are not designated as hedges must be adjusted to fair value through earnings. For derivatives designated and that qualify as cash flow hedges, the change in fair value of the derivative is recognized in Other comprehensive income (loss) until the hedged transaction affects earnings. Gains and losses on the cash flow hedges representing hedge components excluded from the assessment of effectiveness are recognized in earnings over the life of the hedge on a systematic and rational basis, as documented at hedge inception in accordance with our accounting policy election. Such gains and losses are recorded within Interest expense in our consolidated statements of operations. The earnings recognition of excluded components is presented in the same line item as the hedged transactions. In accordance with fair value measurement guidance, counterparty credit risk is measured on a net portfolio position basis.
Income Taxes — We conduct business in various states and municipalities within the United States (and formerly in Europe (Note 15)), and as a result, we or one or more of our subsidiaries file income tax returns in the United States federal jurisdiction and various state and foreign jurisdictions. As a REIT, our domestic real estate operations are generally not subject to federal tax. These operations may be subject to certain state and local taxes, as applicable.
Significant judgment is required in determining our tax provision and in evaluating our tax positions. We establish tax reserves based on a benefit recognition model, which could result in a greater amount of benefit (and a lower amount of reserve) being initially recognized in certain circumstances. Provided that the tax position is deemed more likely than not of being sustained, we recognize the largest amount of tax benefit that is greater than 50% likely of being ultimately realized upon settlement. We derecognize the tax position when it is no longer more likely than not of being sustained.
Our earnings and profits, which determine the taxability of distributions to shareholders, differ from net income reported for financial reporting purposes due primarily to differences in depreciation, and timing differences of rent recognition and certain expense deductions, for federal income tax purposes.
Net Lease Office Properties 2025 10-K – 51 | |||||
Notes to Consolidated Financial Statements
We recognize deferred income taxes in certain of our subsidiaries taxable in the United States or in foreign jurisdictions (prior to the disposition of our last international property (Note 15)). Deferred income taxes are generally the result of temporary differences (items that are treated differently for tax purposes than for GAAP purposes as described in Note 14). In addition, deferred tax assets arise from unutilized tax net operating losses, generated in prior years. Deferred income taxes are computed under the asset and liability method. The asset and liability method requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between tax bases and financial bases of assets and liabilities. We provide a valuation allowance against our deferred income tax assets when we believe that it is more likely than not that all or some portion of the deferred income tax asset may not be realized. Whenever a change in circumstances causes a change in the estimated realizability of the related deferred income tax asset, the resulting increase or decrease in the valuation allowance is included in deferred income tax expense (benefit).
Earnings Per Share — Basic earnings per share is calculated by dividing net income available to common shareholders by the weighted-average number of shares of common shares outstanding during the year. Diluted earnings per share reflects potentially dilutive securities (RSUs) using the treasury stock method, except when the effect would be anti-dilutive.
Earnings per share is computed by dividing the net loss for the year by the weighted-average number of common shares outstanding during the period post Spin-Off. For the years ended December 31, 2025, 2024, and 2023, we recognized net loss. Therefore, all potentially dilutive securities were antidilutive and accordingly, basic net loss per share equals diluted net loss per share for the years ended December 31, 2025, 2024, and 2023. The calculation of basic and diluted earnings per share for any of the periods presented prior to the Spin-Off were based on the number of shares outstanding on November 1, 2023. For periods prior to the Spin-Off, it is assumed that there are no dilutive equity instruments as there were no NLOP stock-based awards outstanding prior to the Spin-Off.
Use of Estimates — The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts and the disclosure of contingent amounts in our consolidated financial statements and the accompanying notes. Actual results could differ from those estimates.
Recent Accounting Pronouncements
In November 2024, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures. ASU 2024-03 requires all public business entities to provide additional disclosure of the nature of expenses included in the consolidated statements of operations. ASU 2024-03 is effective for public business entities (including emerging growth companies, since there is not a different transition date for private companies) for annual periods beginning after December 15, 2026 and for interim reporting periods beginning after December 15, 2027, on a prospective basis, with early adoption permitted. The Company is an emerging growth company and is currently evaluating the impact of this standard on its consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. ASU 2023-09 requires public companies to annually (i) disclose specific categories in the rate reconciliation disclosure and (ii) provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than five percent of the amount computed by multiplying pre-tax income or loss by the applicable statutory income tax rate). ASU 2023-09 also requires entities to disclose their income tax payments to international, federal, state, and local jurisdictions, among other changes. ASU 2023-09 is effective for entities other than public business entities (including emerging growth companies) for annual periods beginning after December 15, 2025. The Company is an emerging growth company and plans to adopt this standard for the annual period beginning January 1, 2026 on a prospective basis, which is not expected to have a material impact on the Company’s consolidated financial statements.
Net Lease Office Properties 2025 10-K – 52 | |||||
Notes to Consolidated Financial Statements
Note 4. Agreements and Transactions with Related Parties
Advisory Agreements
Pursuant to the NLOP Advisory Agreements, which we entered into on November 1, 2023, our Advisor provides us with strategic management services, including asset management, property disposition support, and various related services. We pay our Advisor an asset management fee that was initially set at an annual amount of $7.5 million and is being proportionately reduced following the disposition of each portfolio property. In addition, we reimburse our Advisor a base administrative amount of approximately $4.0 million annually, for certain administrative services, including day-to-day management services, investor relations, accounting, tax, legal, and other administrative matters.
On October 31, 2023, we entered into a Separation and Distribution Agreement, which set forth the various individual transactions to be consummated that comprised the Separation and the Distribution, including the assets transferred to and liabilities assumed by us, as well as the responsibility and obligation of us and our Advisor with respect to Spin-Off related costs.
On October 31, 2023, we also entered into a Tax Matters Agreement, which governs the respective rights, responsibilities, and obligations of us and our Advisor after the Spin-Off, 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 following tables present a summary of fees we paid and expenses we reimbursed to our Advisor in accordance with the terms of the NLOP Advisory Agreements (in thousands):
| Years Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
Asset management fees (a) | $ | $ | $ | ||||||||||||||
Administrative reimbursements (b) | |||||||||||||||||
| $ | $ | $ | |||||||||||||||
__________
(a)Included within Asset management fees in the consolidated statements of operations.
(b)Included within General and administrative expenses in the consolidated statements of operations.
The following table presents a summary of amounts due to affiliates, which are included within Accounts payable, accrued expenses and other liabilities in the consolidated financial statements (in thousands):
| December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Accounts payable | $ | $ | |||||||||
| Asset management fees payable | |||||||||||
| $ | $ | ||||||||||
Other Transactions with WPC
Spin-Off
In September 2023, we entered into the $455 million NLOP Financing Arrangements (as defined and described in Note 10), which were funded upon the closing of the Spin-Off on November 1, 2023. Approximately $343.9 million of the proceeds from the NLOP Financing Arrangements was transferred to WPC in accordance with the Separation and Distribution Agreement. The remainder of the proceeds from the NLOP Financing Arrangements was used to pay fees and expenses related to the origination of the NLOP Financing Arrangements and other transaction costs, was deposited with the Lenders in satisfaction of the reserve requirements pursuant to the NLOP Financing Arrangements, and was used for other general corporate expenses.
Net Lease Office Properties 2025 10-K – 53 | |||||
Notes to Consolidated Financial Statements
NLOP Share Costs
Historically, prior to the Spin-Off, NLOP was managed and operated in the normal course of business consistent with other affiliates of WPC. Accordingly, certain shared costs were allocated to NLOP and reflected as expenses in the consolidated statements of operations. Management considers the allocation methodologies used to be reasonable and appropriate reflections of the historical WPC expenses attributable to NLOP for purposes of the consolidated financial statements of NLOP. However, the expenses reflected in the consolidated statements of operations may not be indicative of the actual expenses that would have been incurred during the periods presented if NLOP historically operated as a separate, stand-alone entity. In addition, the expenses reflected in the consolidated statements of operations may not be indicative of related expenses that will be incurred in the future by NLOP.
The following table presents amounts of shared costs that were allocated to NLOP (in thousands):
| Year Ended December 31, 2023 | |||||
General and administrative (a) | $ | ||||
Interest expense (b) | |||||
Total | $ | ||||
__________
(a)General and administrative fees are inclusive of expenses such as employee compensation and benefits, stock-based compensation and professional fees.
(b)NLOP’s income statement prior to the Spin-Off includes an allocation of interest expense associated with WPC unsecured debt utilized partially to fund property assets of NLOP.
Net parent investment shown in the consolidated statements of equity include contributions from WPC, which are the result of treasury activities and net funding provided by WPC prior to the Spin-Off, and also includes the indirect costs and expenses allocated to NLOP by WPC as described in Note 2.
Other Transactions with Related Parties
Captive Insurance Company
Under the NLOP Advisory Agreements, our Advisor manages the insurance for our real property portfolio as part of its property insurance program. In March 2025, our Advisor formed a wholly owned captive insurance company, which commenced operations in May 2025 and insures a portion of the North American real property portfolios of each of WPC and us. We pay insurance premiums to all the insurance companies in the property insurance program, including the Advisor’s captive insurance company, which in turn will pay out claims in respect of our properties on a pro rata basis.
During the year ended December 31, 2025, we paid property insurance premiums totaling $3.2 million, of which $0.7 million was paid to our Advisor, covering the annual period commencing May 1, 2025. We amortize the insurance premiums over the policy period, which is reflected in Reimbursable tenant costs and Property expenses, excluding reimbursable tenant costs in our consolidated statements of operations.
Other
At December 31, 2025, we owned an interest in one jointly owned investment in real estate, with the remaining interest held by a third party. We consolidate this investment.
Net Lease Office Properties 2025 10-K – 54 | |||||
Notes to Consolidated Financial Statements
Note 5. Land, Buildings and Improvements, and Assets Held for Sale
Land, Buildings and Improvements
Land and buildings leased to others, which are subject to operating leases, and real estate under construction, are summarized as follows (in thousands):
| December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Land | $ | $ | |||||||||
| Buildings and improvements | |||||||||||
| Real estate under construction | |||||||||||
| Less: Accumulated depreciation | ( | ( | |||||||||
| $ | $ | ||||||||||
During the year ended December 31, 2025, we recognized impairment charges on nine properties, which reduced the carrying value of Land, buildings and improvements by $134.8 million (Note 8).
During the year ended December 31, 2025, we reclassified two properties classified as Land, buildings and improvements to Net investments in finance leases since we entered into agreements to sell the properties to the respective tenants. As a result, the carrying value of our Land, buildings and improvements decreased by $31.8 million from December 31, 2025 to December 31, 2024 (Note 6). One of these properties was sold in February 2026 (Note 17).
Depreciation expense, including the effect of foreign currency translation, on our buildings and improvements subject to operating leases was $14.9 million, $23.6 million, and $31.2 million for the years ended December 31, 2025, 2024, and 2023, respectively.
Dispositions of Properties
During 2025, we disposed of 15 properties, which were classified as Land, buildings and improvements. As a result, the carrying value of our Land, buildings and improvements decreased by $214.8 million from December 31, 2024 to December 31, 2025 (Note 15).
Real Estate Under Construction
During the year ended December 31, 2025, we capitalized $0.8 million of real estate under construction related to a capital project at an existing property, which was placed into service for $1.3 million.
Leases
Operating Lease Income
Lease income related to operating leases recognized and included in the consolidated statements of operations is as follows (in thousands):
| Years Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Lease income — fixed | $ | $ | $ | ||||||||||||||
Lease income — variable (a) | |||||||||||||||||
| Total operating lease income | $ | $ | $ | ||||||||||||||
__________
(a)Includes (i) rent increases based on changes in the CPI and other comparable indices and (ii) reimbursements for property taxes, insurance, and common area maintenance services.
Net Lease Office Properties 2025 10-K – 55 | |||||
Notes to Consolidated Financial Statements
Other Lease-Related Income
In September 2025, we entered into a lease termination agreement with a tenant at a property located in Oak Creek, Wisconsin, to terminate the lease on October 31, 2025 (the previous lease expiration date was May 31, 2032). In connection with the agreement, the tenant paid us a lease termination fee of $13.0 million, which was recognized within Other lease-related income in our consolidated statements of operations for the year ended December 31, 2025. The property was sold in December 2025 (Note 15).
For the years ended December 31, 2025, 2024, and 2023, other lease-related income on our consolidated statements of operations included lease termination income of $15.8 million, $9.4 million, and $4.4 million, respectively (including the amount related to the lease termination described above for the year ended December 31, 2025).
In addition, for the years ended December 31, 2025, 2024, and 2023, other lease-related income on our consolidated statements of operations included income from a parking garage attached to one of our net-leased properties totaling $1.8 million, $2.0 million, and $1.8 million, respectively.
Scheduled Future Lease Payments to be Received
Scheduled future lease payments to be received (exclusive of expenses paid by tenants, percentage of sales rents, and future CPI-based adjustments) under non-cancelable operating leases at December 31, 2025 are as follows (in thousands):
| Years Ending December 31, | Total | |||||||
| 2026 | $ | |||||||
| 2027 | ||||||||
| 2028 | ||||||||
| 2029 | ||||||||
| 2030 | ||||||||
| Thereafter | ||||||||
| Total | $ | |||||||
See Note 6 for scheduled future lease payments to be received under non-cancelable sales-type leases.
Lease Cost
Lease costs for operating leases (land leases) are included in (i) property expenses, excluding reimbursable tenant costs, and (ii) reimbursable tenant costs in the consolidated statements of operations. Certain information related to the total lease cost for operating leases is as follows (in thousands):
| Years Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
Fixed lease cost | $ | $ | $ | ||||||||||||||
Variable lease cost | |||||||||||||||||
| Total lease cost | $ | $ | $ | ||||||||||||||
Net Lease Office Properties 2025 10-K – 56 | |||||
Notes to Consolidated Financial Statements
Other Information
Supplemental balance sheet information related to ROU assets and lease liabilities is as follows (dollars in thousands):
| December 31, | |||||||||||||||||
| Location on Consolidated Balance Sheets | 2025 | 2024 | |||||||||||||||
Operating ROU assets — land leases (a) | $ | $ | |||||||||||||||
| Operating lease liabilities | $ | $ | |||||||||||||||
| Weighted-average remaining lease term — operating leases | |||||||||||||||||
| Weighted-average discount rate — operating leases | % | % | |||||||||||||||
Number of land lease arrangements — operating leases (a) | |||||||||||||||||
| Remaining lease term range (excluding extension options not reasonably certain of being exercised) | < | ||||||||||||||||
__________
(a)Our only land lease arrangement as of December 31, 2025 was at a property classified as held for sale, which was sold in January 2026 (Note 17).
Cash paid for operating lease liabilities included in Net cash provided by operating activities was less than $0.1 million, $0.3 million, and $0.5 million for the years ended December 31, 2025, 2024 and 2023, respectively. There are no land or office direct financing leases for which we are the lessee, therefore there are no related ROU assets or lease liabilities.
Undiscounted Cash Flows
A reconciliation of the undiscounted cash flows for operating leases recorded on the consolidated balance sheet within Accounts payable, accrued expenses and other liabilities as of December 31, 2025 is as follows (in thousands):
| Years Ending December 31, | Total | |||||||
| 2026 | $ | |||||||
| 2027 | ||||||||
| 2028 | ||||||||
| 2029 | ||||||||
| 2030 | ||||||||
| Thereafter | ||||||||
| Total lease payments | ||||||||
| Less: amount of lease payments representing interest | ( | |||||||
| Present value of future lease payments/lease obligations | $ | |||||||
Net Lease Office Properties 2025 10-K – 57 | |||||
Notes to Consolidated Financial Statements
Assets Held for Sale, Net
Below is a summary of our properties held for sale (in thousands):
| December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
Land, buildings and improvements | $ | $ | |||||||||
| In-place lease intangible assets and other | |||||||||||
| Above-market rent intangible assets | |||||||||||
| Accumulated depreciation and amortization | ( | ( | |||||||||
| Assets held for sale, net | $ | $ | |||||||||
As of December 31, 2025 and 2024, we had four and one properties, respectively, classified as Assets held for sale, net, with a carrying value of $96.3 million and $29.3 million, respectively. We sold three of these properties in January and February 2026 (Note 17).
During the year ended December 31, 2025, we reclassified a property from held for sale to held and used, in accordance with ASC 360, Property, Plant, and Equipment. As a result, we reclassified $25.9 million from Assets held for sale, net, to the following line items: (i) $25.9 million to Land, buildings and improvements, (ii) $3.9 million to In-place lease intangible assets and other, (iii) $1.4 million to Above-market rent intangible assets, and (iv) $5.3 million to Accumulated depreciation and amortization. In addition, the estimated purchase price for this property was lowered during the second quarter of 2025. As a result, we recognized a loss on sale of real estate of $3.4 million during the year ended December 31, 2025, reflecting the updated estimated purchase price, in accordance with ASC 360, Property, Plant, and Equipment. We sold this property in December 2025.
Note 6. Finance Receivables
Assets representing rights to receive money on demand or at fixed or determinable dates are referred to as finance receivables. Our finance receivables portfolio consists of our Net investments in finance leases. Operating leases are not included in finance receivables. See Note 3 and Note 5 for information on ROU operating lease assets recognized in our consolidated balance sheets.
Net Investments in Sales-Type Leases
A property located in the United Kingdom was classified as a net investment in sales-type leases as of December 31, 2023. We had previously entered into an agreement to sell the property to the tenant occupying the property during the fourth quarter of 2023 and recognized a Loss on sale of real estate, net, of $8.3 million during the year ended December 31, 2023 related to this transaction. During the year ended December 31, 2024, we sold this property.
In October 2025, we reclassified a net-lease property located in Dallas, Texas, to net investments in sales-type leases totaling $38.0 million on our consolidated balance sheets (based on the estimated purchase price) in accordance with ASC 842, Leases, since the property is expected to be sold to the tenant occupying the property, resulting in a lease modification. In connection with this transaction, we reclassified the following amounts to Net investments in finance leases: (i) $31.7 million from Land, buildings and improvements, (ii) $7.5 million from In-place lease intangible assets and other, (iii) $0.3 million from Below-market rent intangible liabilities, net, and (iv) $8.4 million from Accumulated depreciation and amortization. We recognized an aggregate Gain on sale of real estate, net, of $5.4 million during the year ended December 31, 2025 related to this transaction, reflecting a balance of $2.1 million within Accounts payable, accrued expenses and other liabilities for this investment.
In December 2025, we reclassified a net-lease property located in Raleigh, North Carolina, to net investments in sales-type leases totaling $8.7 million on our consolidated balance sheets (based on the estimated purchase price) in accordance with ASC 842, Leases, since the property is expected to be sold to the tenant occupying the property, resulting in a lease modification. In connection with this transaction, we reclassified the following amounts to Net investments in finance leases: (i) $3.7 million from Land, buildings and improvements, (ii) $0.7 million from Other assets, net, and (iii) $1.4 million from Accumulated depreciation and amortization. We recognized an aggregate Gain on sale of real estate, net, of $5.5 million during the year ended December 31, 2025 related to this transaction, reflecting a balance of $0.2 million within Accounts payable, accrued expenses and other liabilities for this investment. This property was sold in February 2026 (Note 17).
Net Lease Office Properties 2025 10-K – 58 | |||||
Notes to Consolidated Financial Statements
Earnings from our net investments in sales-type leases are included in Income from finance leases in the consolidated financial statements, and totaled $0.6 million, less than $0.1 million, and less than $0.1 million for the years ended December 31, 2025, 2024, and 2023, respectively. Prior to these reclassifications to net investments in sales-type leases, earnings from these investments were recognized in Lease revenues in the consolidated financial statements.
Net investments in sales-type leases is summarized as follows (in thousands):
| December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
Lease payments receivable (a) | $ | $ | |||||||||
| Less: unearned income | ( | ||||||||||
Less: allowance for credit losses (b) | ( | ||||||||||
| $ | $ | ||||||||||
__________
(a)Includes estimated purchase price and total rents owed.
(b)During the year ended December 31, 2025, we recorded a net allowance for credit loss of $4.8 million on our net investment in sales-type lease, which was included within Other gains and (losses) in our consolidated statements of operations, reflecting the possibility that the sale is not completed due to unresolved maintenance work at the property.
Scheduled Future Lease Payments to be Received
Scheduled future lease payments to be received (exclusive of expenses paid by tenants, percentage of sales rents, and future CPI-based adjustments) under non-cancelable finance leases at December 31, 2025 are as follows (in thousands):
| Years Ending December 31, | Total | |||||||
2026 (a) | $ | |||||||
| 2027 | ||||||||
| 2028 | ||||||||
| 2029 | ||||||||
| 2030 | ||||||||
| Thereafter | ||||||||
| Total | $ | |||||||
__________
(a)Amount comprises the net investments in sales-type leases described above, representing the estimated purchase prices of the investments plus remaining rents. One of these properties was sold in February 2026 (Note 17).
See Note 5 for scheduled future lease payments to be received under non-cancelable operating leases.
Net Investments in Direct Financing Leases
During the year ended December 31, 2023, we reclassified an investment classified as a direct financing lease (comprising four properties) with an aggregate carrying value of $14.6 1.2 million for the year ended December 31, 2023. We had no net investments in direct financing leases as of December 31, 2025 and 2024.
Net Lease Office Properties 2025 10-K – 59 | |||||
Notes to Consolidated Financial Statements
Credit Quality of Finance Receivables
We evaluate the credit quality of our finance receivables utilizing an internal five-point credit rating scale, with one representing the highest credit quality and five representing the lowest. A credit quality of one through three indicates a range of investment grade to stable. A credit quality of four through five indicates a range of inclusion on the watch list to risk of default. The credit quality evaluation of our finance receivables is updated quarterly.
A summary of our finance receivables by internal credit quality rating, excluding our allowance for credit losses, is as follows (dollars in thousands):
| Number of Tenants / Obligors at December 31, | Carrying Value at December 31, | |||||||||||||||||||||||||
| Internal Credit Quality Indicator | 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||||
| 1 | $ | $ | ||||||||||||||||||||||||
| 2 | ||||||||||||||||||||||||||
| 3 | ||||||||||||||||||||||||||
| 4 | ||||||||||||||||||||||||||
| 5 | ||||||||||||||||||||||||||
| $ | $ | |||||||||||||||||||||||||
Note 7. Goodwill and Other Intangibles
We have recorded lease intangibles that are being amortized over periods ranging from two years to 26 years. In-place lease intangibles, at cost are included in In-place lease intangible assets and other in the consolidated financial statements. Above-market rent intangibles, at cost are included in Above-market rent intangible assets in the consolidated financial statements. Accumulated amortization of in-place lease and above-market rent intangibles is included in Accumulated depreciation and amortization in the consolidated financial statements. Below-market rent intangibles are included in Below-market rent intangible liabilities, net in the consolidated financial statements.
In connection with certain business combinations, we recorded goodwill as a result of consideration exceeding the fair values of the assets acquired and liabilities assumed (Note 3). During the year ended December 31, 2023, we recorded an impairment for the total amount of goodwill of $62.5 million (Note 8). The following table presents a reconciliation of our goodwill (in thousands):
| Goodwill | |||||
Balance at January 1, 2023 | $ | ||||
Impairment charges (Note 8) | ( | ||||
| Foreign currency translation adjustments | ( | ||||
Balance at December 31, 2023 | $ | ||||
Intangible assets and liabilities are summarized as follows (in thousands):
| December 31, | |||||||||||||||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | ||||||||||||||||||||||||||||||
| Finite-Lived Intangible Assets | |||||||||||||||||||||||||||||||||||
| In-place lease | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||
| Above-market rent | ( | ( | |||||||||||||||||||||||||||||||||
| $ | $ | ( | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||
| Finite-Lived Intangible Liabilities | |||||||||||||||||||||||||||||||||||
| Below-market rent | $ | ( | $ | $ | ( | $ | ( | $ | $ | ( | |||||||||||||||||||||||||
| Total intangible liabilities | $ | ( | $ | $ | ( | $ | ( | $ | $ | ( | |||||||||||||||||||||||||
Net Lease Office Properties 2025 10-K – 60 | |||||
Notes to Consolidated Financial Statements
See Note 6 for a description of intangible assets and liabilities reclassified to net investments in sales-type leases during the year ended December 31, 2025.
Net amortization of intangibles, including the effect of foreign currency translation, was $21.5 million, $35.4 million, and $47.7 million for the years ended December 31, 2025, 2024, and 2023, respectively. Amortization of below-market rent and above-market rent intangibles is recorded as an adjustment to Lease revenues and amortization of in-place lease intangibles is included in Depreciation and amortization.
Based on the intangible assets and liabilities recorded at December 31, 2025, scheduled annual net amortization of intangibles for each of the next five calendar years and thereafter is as follows (in thousands):
| Years Ending December 31, | Net Decrease (Increase) in Lease Revenues | Increase to Amortization | Total | |||||||||||||||||
| 2026 | $ | $ | $ | |||||||||||||||||
| 2027 | ||||||||||||||||||||
| 2028 | ||||||||||||||||||||
| 2029 | ||||||||||||||||||||
| 2030 | ||||||||||||||||||||
| Thereafter | ( | |||||||||||||||||||
| Total | $ | $ | $ | |||||||||||||||||
Note 8. Fair Value Measurements
The fair value of an asset is defined as the exit price, which is the amount that would either be received when an asset is sold or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The guidance establishes a three-tier fair value hierarchy based on the inputs used in measuring fair value. These tiers are: Level 1, for which quoted market prices for identical instruments are available in active markets, such as money market funds and U.S. Treasury securities; Level 2, for which there are inputs other than quoted prices included within Level 1 that are observable for the instrument, such as certain derivative instruments including interest rate caps; and Level 3, for securities that do not fall into Level 1 or Level 2 and for which little or no market data exists, therefore requiring us to develop our own assumptions.
Items Measured at Fair Value on a Recurring Basis
The methods and assumptions described below were used to estimate the fair value of each class of financial instrument. For significant Level 3 items, we have also provided the unobservable inputs.
Derivative Assets — Our derivative assets, which were included in Other assets, net in the consolidated financial statements, comprised interest rate caps (Note 9).
Our material financial instruments had the following carrying values and fair values as of the dates shown (dollars in thousands):
| December 31, 2025 | December 31, 2024 | ||||||||||||||||||||||||||||
| Level | Carrying Value | Fair Value | Carrying Value | Fair Value | |||||||||||||||||||||||||
Non-recourse mortgages, net (a) (b) (c) | 3 | $ | $ | $ | $ | ||||||||||||||||||||||||
NLOP Mezzanine Loan, net (a) (b) (c) (d) | 3 | ||||||||||||||||||||||||||||
__________
Net Lease Office Properties 2025 10-K – 61 | |||||
Notes to Consolidated Financial Statements
(a)The carrying value of the NLOP Mezzanine Loan, net (Note 10) includes unamortized deferred financing costs of $1.0 million at December 31, 2024.
(b)The carrying value of Non-recourse mortgages, net includes unamortized premium of $0.4 million at December 31, 2024. The carrying value of the NLOP Mezzanine Loan, net (Note 10) includes unamortized discount of $2.2 million at December 31, 2024.
(c)We determined the estimated fair value of our non-recourse mortgage loans, NLOP Mezzanine Loan, and NLOP Mortgage Loan using a discounted cash flow model that estimates the present value of the future loan payments by discounting such payments at current estimated market interest rates. The estimated market interest rates consider interest rate risk and the value of the underlying collateral, which includes quality of the collateral, the credit quality of the tenant/obligor, and the time until maturity.
(d)In April 2025, we fully repaid the NLOP Mezzanine Loan (Note 10).
We estimated that our other financial assets and liabilities, excluding finance receivables (Note 6), had fair values that approximated their carrying values at both December 31, 2025 and 2024.
Items Measured at Fair Value on a Non-Recurring Basis (Including Impairment Charges)
We periodically assess whether there are any indicators that the value of our real estate investments may be impaired or that their carrying value may not be recoverable. Our impairment policies are described in Note 3.
The following table presents information about assets for which we recorded an impairment charge and that were measured at fair value on a non-recurring basis (classified as Level 3) (in thousands):
| Years Ended December 31, | |||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||||||||||||||||||||
| Fair Value Measurements | Impairment Charges | Fair Value Measurements | Impairment Charges | Fair Value Measurements | Impairment Charges | ||||||||||||||||||||||||||||||
Impairment Charges | |||||||||||||||||||||||||||||||||||
| Real estate | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Goodwill | |||||||||||||||||||||||||||||||||||
| $ | $ | $ | |||||||||||||||||||||||||||||||||
Impairment charges, and their related triggering events and fair value measurements, recognized during the years ended December 31, 2025, 2024, and 2023 were as follows:
Real Estate
The impairment charges described below are reflected within Impairment charges — real estate in our consolidated statements of operations.
2025 — During the year ended December 31, 2025, we recognized an impairment charge of $81.6 million on a property in Houston, Texas, leased to KBR. After performing a strategic review of the asset at the direction of our Board of Trustees during the second quarter of 2025, we commenced sale efforts for the property. As a result, this met our likely disposition impairment trigger event in accordance with ASC 360, Property, Plant, and Equipment, at which time we determined that the carrying value of the asset was not fully recoverable. The impairment charge reflects the excess of the asset’s carrying amount over its estimated fair value. The fair value was determined based on valuation techniques consistent with ASC 820, Fair Value Measurement, which factored in current market conditions, existing lease terms, and assumptions about the highest and best use of the asset, using the following unobservable inputs:
•Cash flow discount rate of 10.0
•Future sale value discount rate of 10.0
•Future buyer required return of 15.0 % commencing on an assumed future sale date and ending after an assumed buyer hold period.
Net Lease Office Properties 2025 10-K – 62 | |||||
Notes to Consolidated Financial Statements
During the fourth quarter of 2025, we recognized another impairment charge of $3.2 million on this property, in order to reduce its carrying value to its estimated fair value, which approximated its estimated selling price, less costs to sell. This property was classified as held for sale as of December 31, 2025 (Note 5) and sold in January 2026 (Note 17).
Additionally, during the year ended December 31, 2025, we recognized an impairment charge of $14.6 million on a property in Warrenville, Illinois, due to changes in expected cash flows related to the existing tenant’s lease expiration in 2027, in order to reduce its carrying value to its estimated fair value. The fair value measurement for this property was determined by using the following unobservable inputs:
•Market rents of $14 per square foot;
•Cash flow discount rate of 7.0 %;
•Property residual value of $35.90 per square foot, based on comparable dispositions;
•Future sale value discount rate of 8.0 %; and
•Terminal capitalization rate of 8.5 %.
In addition, during the year ended December 31, 2025, we recognized an impairment charge of $10.6 million on a property in Quincy, Massachusetts, due to changes in expected cash flows related to the existing tenant’s lease expiration in 2027, in order to reduce its carrying value to its estimated fair value. The fair value measurement for this property was determined by using the following unobservable inputs:
•Market rents of $20 per square foot;
•Cash flow discount rate of 8.0 %;
•Future sale value discount rate of 11.0 %; and
•Terminal capitalization rate of 8.5 %.
Furthermore, during the year ended December 31, 2025, we recognized impairment charges totaling $30.8 million on six properties, in order to reduce their carrying values to their estimated fair values, which approximated their estimated selling prices, less costs to sell. Five of these properties were sold in 2025 and one was sold in February 2026 (Note 17).
2024 — During the year ended December 31, 2024, we recognized impairment charges totaling $47.7 million on nine properties in order to reduce their carrying values to their estimated fair values, which approximated their estimated selling prices, less costs to sell. Five of these properties were sold during 2024 and four were sold during 2025.
Additionally, during the year ended December 31, 2024, we recognized impairment charges totaling $30.6 million on three properties due to changes in expected cash flows related to the existing tenants’ lease expirations in 2025, in order to reduce their carrying values to their estimated fair values. The fair value measurement for these properties were determined by using the following unobservable inputs:
First property (impairment charge of $17.1 million; this property was sold in 2025):
•Market rents of 200 Norwegian krone per square foot;
•Terminal capitalization rate of 10.0 %;
•Residual discount rate of 10.0 %; and
•Cash flow discount rate of 8.0 %.
Second property (impairment charge of $12.2 million; this property was sold in 2025):
•Market rents ranging from $7 per square foot to $15 per square foot;
•Terminal capitalization rate of 9.0 %; and
•Cash flow discount rate of 14.0 %.
Third property (impairment charge of $1.2 million):
•Estimated base rent collection of $0.6 million through the end of the lease term;
•Comparable vacant sale prices ranging from $0.3 million per acre to $0.7 million per acre; and
•Cash flow discount rate of 9.0 %.
Net Lease Office Properties 2025 10-K – 63 | |||||
Notes to Consolidated Financial Statements
2023 — During the year ended December 31, 2023, we recognized impairment charges totaling $32.7 million on three properties leased to the same tenant due to the tenant’s lease expiration in 2024, in order to reduce their carrying values to their estimated fair values, which approximated their estimated selling prices, less costs to sell. One of the properties was sold in 2024.
Additionally, we recognized an impairment charge of $29.3 million on a property due to the tenant’s lease expiration in 2024, in order to reduce its carrying value to its estimated fair value. The fair value measurement for this property was determined by using the following unobservable inputs (this property was sold in 2025):
•Market rents ranging from $23 per square foot to $31 per square foot;
•Terminal capitalization rate of 8.3 %; and
•Cash flow discount rate of 9.3 %.
We also recognized an impairment charge of $1.1 million on a property due to the tenant’s lease expiration in 2024, in order to reduce its carrying value to its estimated fair value, which approximated its estimated selling price, less costs to sell. This property was disposed of in 2024.
Goodwill
The impairment charges described below are reflected within Impairment charges — goodwill in our consolidated statements of operations.
During the year ended December 31, 2023, we recognized an impairment charge of $62.5 million on goodwill in order to reduce its carrying value to zero , since the Company’s trading value as a public company subsequent to the completion of the Spin-Off resulted in a market capitalization that was significantly below the carrying value of our net assets (Note 7).
Note 9. Risk Management and Use of Derivative Financial Instruments
Risk Management
In the normal course of our ongoing business operations, we encounter economic risk. There are four main components of economic risk that impact us: interest rate risk, credit risk, market risk, and foreign currency risk. We are primarily subject to interest rate risk on our interest-bearing liabilities, including our unhedged variable-rate non-recourse mortgage loans. Credit risk is the risk of default on our operations and our tenants’ inability or unwillingness to make contractually required payments. Market risk includes changes in the value of our properties and related loans, due to changes in interest rates or other market factors. We own investments in the United States and previously owned investments in Europe, and have been subject to risks associated with fluctuating foreign currency exchange rates.
Derivative Financial Instruments
When we use derivative instruments, it is generally to reduce our exposure to fluctuations in interest rates. We have not entered into, and do not plan to enter into, financial instruments for trading or speculative purposes. The primary risks related to our use of derivative instruments include a counterparty to a hedging arrangement defaulting on its obligation and a downgrade in the credit quality of a counterparty to such an extent that our ability to sell or assign our side of the hedging transaction is impaired. While we seek to mitigate these risks by entering into hedging arrangements with large financial institutions that we deem to be creditworthy, it is possible that our hedging transactions, which are intended to limit losses, could adversely affect our earnings. Furthermore, if we terminate a hedging arrangement, we may be obligated to pay certain costs, such as transaction or breakage fees. We have established policies and procedures for risk assessment and the approval, reporting, and monitoring of derivative financial instrument activities.
We measure derivative instruments at fair value and record them as assets or liabilities, depending on our rights or obligations under the applicable derivative contract. Derivatives that are not designated as hedges must be adjusted to fair value through earnings. For derivatives designated and that qualify as cash flow hedges, the change in fair value of the derivative is recognized in Other comprehensive income (loss) until the hedged item is recognized in earnings. Such gains and losses are recorded within Interest expense in our consolidated statements of operations. The earnings recognition of excluded components is presented in the same line item as the hedged transactions.
Net Lease Office Properties 2025 10-K – 64 | |||||
Notes to Consolidated Financial Statements
All derivative transactions with an individual counterparty are governed by a master International Swap and Derivatives Association agreement, which can be considered as a master netting arrangement; however, we report all our derivative instruments on a gross basis on our consolidated financial statements. Our interest rate cap matured in November 2025. As of December 31, 2025, we do not have any derivative financial instruments. At December 31, 2024, no
The following table sets forth certain information regarding our derivative instruments (in thousands):
| Asset Derivatives Fair Value at | ||||||||||||||||||||
| Derivatives Not Designated as Hedging Instruments | Balance Sheet Location | December 31, 2025 | December 31, 2024 | |||||||||||||||||
| Interest rate cap | Other assets, net | $ | $ | |||||||||||||||||
| Total derivatives | $ | $ | ||||||||||||||||||
The following tables present the impact of our derivative instruments in the consolidated financial statements (in thousands):
| Amount of Gain (Loss) Recognized on Derivatives in Other Comprehensive Income (Loss) | ||||||||||||||||||||
| Years Ended December 31, | ||||||||||||||||||||
| Derivatives in Cash Flow Hedging Relationships | 2025 | 2024 | 2023 | |||||||||||||||||
| Interest rate cap | $ | $ | $ | ( | ||||||||||||||||
| Total | $ | $ | $ | ( | ||||||||||||||||
| Amount of Gain (Loss) on Derivatives Reclassified from Other Comprehensive Income (Loss) | ||||||||||||||||||||||||||
| Derivatives in Cash Flow Hedging Relationships | Location of Gain (Loss) Recognized in Income | Years Ended December 31, | ||||||||||||||||||||||||
| 2025 | 2024 | 2023 | ||||||||||||||||||||||||
| Interest rate cap | Other gains and (losses) | $ | $ | ( | $ | |||||||||||||||||||||
| Interest rate cap | Interest expense | ( | ( | |||||||||||||||||||||||
| Total | $ | $ | ( | $ | ( | |||||||||||||||||||||
Amounts reported in Other comprehensive income (loss) related to interest rate derivative contracts will be reclassified to Interest expense as interest is incurred on our variable-rate debt.
| Amount of Gain (Loss) on Derivatives Recognized in Income | ||||||||||||||||||||||||||
| Derivatives in Cash Flow Hedging Relationships | Location of Gain (Loss) Recognized in Income | Years Ended December 31, | ||||||||||||||||||||||||
| 2025 | 2024 | 2023 | ||||||||||||||||||||||||
| Interest rate cap | Interest expense | $ | $ | ( | $ | ( | ||||||||||||||||||||
| Derivatives Not in Cash Flow Hedging Relationships | ||||||||||||||||||||||||||
| Interest rate cap | Other gains and (losses) | ( | ( | |||||||||||||||||||||||
| Total | $ | ( | $ | ( | $ | ( | ||||||||||||||||||||
See below for information on our purposes for entering into derivative instruments.
Interest Rate Caps
We are exposed to the impact of interest rate changes primarily through our borrowing activities. We have obtained, and may in the future obtain, variable-rate debt (our NLOP Financing Arrangements (Note 10)), and, as a result, we have entered into, and may continue to enter into, interest rate cap agreements with counterparties. Interest rate caps limit the effective borrowing rate of variable-rate debt obligations. Our objective in using these derivatives is to limit our exposure to interest rate movements.
During the third quarter of 2024, we de-designated our interest rate cap as a hedging instrument, since we determined that the derivative is no longer highly effective, given mismatches between the hedged notional of the interest rate cap versus the outstanding principal on the NLOP Mortgage Loan (which was fully repaid during 2024 and is defined in Note 10). This interest rate cap matured in November 2025.
Net Lease Office Properties 2025 10-K – 65 | |||||
Notes to Consolidated Financial Statements
Note 10. Debt
Debt Facility
On September 20, 2023, in connection with the Spin-Off (Note 1), we and certain of our wholly-owned subsidiaries entered into financing arrangements for which funding was subject to certain conditions (including the closing of the Spin-Off), including (i) a $335.0 million senior secured mortgage loan with an original maturity on November 9, 2025, with two separate one-year extension options subject to certain conditions (the “NLOP Mortgage Loan”) and (ii) a $120.0 million mezzanine loan facility maturing on November 9, 2028 (the “NLOP Mezzanine Loan” and, together with the NLOP Mortgage Loan, the “NLOP Financing Arrangements”). Upon closing of the Spin-Off on November 1, 2023 (Note 1), the NLOP Financing Arrangements were drawn in full, and approximately $343.9 million of the proceeds from the financing (net of transaction expenses) was transferred to WPC in connection with the Spin-Off.
During the year ended December 31, 2025, we fully repaid the NLOP Mezzanine Loan, which had $61.1 million of outstanding principal as of December 31, 2024, using net proceeds from certain dispositions, as well as excess cash flow from operations and other sources, including the application of loan reserves. During the year ended December 31, 2024, we fully repaid the NLOP Mortgage Loan, which had $288.9 million of outstanding principal as of December 31, 2023, using proceeds from certain dispositions, as well as cash flow from rent on our properties and other sources.
Non-Recourse Mortgages
Non-recourse mortgages consist of mortgage notes payable, which are collateralized by the assignment of real estate properties. At December 31, 2025, our only non-recourse mortgage note payable encumbered one property, with a fixed interest rate of 7.0 %, and a maturity date of July 2026. This mortgage encumbered a property classified as net investments in sales-type lease as of December 31, 2025 (Note 6).
Parent Debt
Prior to the Spin-Off, certain wholly-owned affiliates of WPC entered into debt agreements with the international NLOP entities to provide the funding necessary to acquire certain international assets. In connection with the Spin-Off, WPC assigned to us the receivable related to these debt amounts (“Parent Debt”), which eliminates in consolidation.
Repayments During 2025
During the year ended December 31, 2025, we repaid four non-recourse mortgage loans totaling $49.8 million. We recognized a net loss on extinguishment of debt of $0.1 million on these repayments, which is included within Other gains and (losses) on our consolidated statements of operations. The weighted-average interest rate for these non-recourse mortgage loans was 7.5 %.
Repayments During 2024
During the year ended December 31, 2024, we prepaid two non-recourse mortgage loans totaling $20.8 million. We recognized a net loss on extinguishment of debt of $0.3 million on these repayments, which is included within Other gains and (losses) on our consolidated statements of operations. The weighted-average interest rate for these non-recourse mortgage loans was 5.2 %. As a result of one of the repayments, WPC no longer serves as guarantor for any of our non-recourse mortgage loans.
Repayments During 2023
During the year ended December 31, 2023, we (i) repaid a non-recourse mortgage loan at maturity with an aggregate principal balance of approximately $0.3 million, and (ii) prepaid a non-recourse mortgage loan of $2.9 million. We recognized an aggregate net gain on extinguishment of debt of less than $0.1 million on these repayments, which is included within Other gains and (losses) on our consolidated statements of operations. The weighted-average interest rate for these non-recourse mortgage loans on their respective dates of repayment was 5.2 %.
Net Lease Office Properties 2025 10-K – 66 | |||||
Notes to Consolidated Financial Statements
Interest Paid
For the years ended December 31, 2025, 2024, and 2023, interest paid was $9.2 million, $41.3 million, and $39.3 million, respectively.
Scheduled Debt Principal Payments
Scheduled debt principal payments as of December 31, 2025 are as follows (in thousands):
| Years Ending December 31, | Total | |||||||
| 2026 | $ | |||||||
| 2027 | ||||||||
| 2028 | ||||||||
| 2029 | ||||||||
| 2030 | ||||||||
| Total | $ | |||||||
Note 11. Commitments and Contingencies
At December 31, 2025, we were not involved in any material litigation. Various claims and lawsuits arising in the normal course of business are pending against us. The results of these proceedings are not expected to have a material adverse effect on our consolidated financial position or results of operations.
Note 12. Equity
Common Shares
Dividends paid to shareholders may consist of ordinary income, capital gains, return of capital or a combination thereof for income tax purposes. Our dividends per share are summarized as follows:
| Dividends Paid | |||||||||||||||||
| During the Years Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Return of capital | $ | $ | $ | ||||||||||||||
| Total dividends paid | $ | $ | $ | ||||||||||||||
During the fourth quarter of 2023, our Board declared a dividend of $0.34 per share, which was paid on January 29, 2024 to shareholders of record as of December 18, 2023. Shareholders had the option to elect to receive their dividend in the form of cash or additional NLOP shares, with the aggregate amount of cash distributed by NLOP limited to a maximum of 20% of the total dividend. The total number of shares issued in the share dividend was 164,199 shares. Cash paid in connection with the share dividend totaled $1.1 million, which includes cash paid in lieu of fractional shares.
Special Cash Distributions
In August 2025, our Board of Trustees declared a special cash distribution of $3.10 per share, totaling approximately $45.9 million. The distribution was paid on September 3, 2025 to shareholders of record as of August 18, 2025.
In November 2025, our Board of Trustees declared a special cash distribution of $4.10 per share, totaling approximately $60.7 million. The distribution was paid on December 19, 2025 to shareholders of record as of December 4, 2025.
In December 2025, our Board of Trustees declared a special cash distribution of $5.10 per share, totaling approximately $75.6 million. The distribution was paid on January 20, 2026 to shareholders of record as of January 2, 2026.
Net Lease Office Properties 2025 10-K – 67 | |||||
Notes to Consolidated Financial Statements
Earnings Per Share
The following table summarizes basic and diluted earnings (dollars in thousands):
| Years Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Net loss – basic and diluted | $ | ( | $ | ( | $ | ( | |||||||||||
| Weighted-average shares outstanding – basic and diluted | |||||||||||||||||
For the years ended December 31, 2025, 2024, and 2023, we recognized net loss. Therefore, all potentially dilutive securities are antidilutive and accordingly, basic net loss per share equals diluted net loss per share.
Reclassifications Out of Accumulated Other Comprehensive Loss
The following tables present a reconciliation of changes in Accumulated other comprehensive loss by component for the periods presented (in thousands):
| Gains and (Losses) on Derivative Instruments | Foreign Currency Translation Adjustments | Total | |||||||||||||||
Balance at January 1, 2023 | $ | $ | ( | $ | ( | ||||||||||||
| Other comprehensive income before reclassifications | ( | ||||||||||||||||
| Amounts reclassified from accumulated other comprehensive loss to: | |||||||||||||||||
| Interest expense | |||||||||||||||||
| Total | |||||||||||||||||
| Net current period other comprehensive income | ( | ||||||||||||||||
| Balance at December 31, 2023 | ( | ( | ( | ||||||||||||||
| Other comprehensive loss before reclassifications | ( | ( | ( | ||||||||||||||
| Amounts reclassified from accumulated other comprehensive loss to: | |||||||||||||||||
| Other gains and (losses) | |||||||||||||||||
| Interest expense | |||||||||||||||||
Gain on sale of real estate, net (Note 15) | ( | ( | |||||||||||||||
| Total | ( | ( | |||||||||||||||
| Net current period other comprehensive loss | ( | ( | |||||||||||||||
| Balance at December 31, 2024 | ( | ( | |||||||||||||||
| Other comprehensive loss before reclassifications | ( | ( | |||||||||||||||
| Amounts reclassified from accumulated other comprehensive loss to: | |||||||||||||||||
Loss on sale of real estate, net (Note 15) | |||||||||||||||||
| Total | |||||||||||||||||
| Net current period other comprehensive income | |||||||||||||||||
| Balance at December 31, 2025 | $ | $ | $ | ||||||||||||||
See Note 9 for additional information on our derivatives activity recognized within Other comprehensive income (loss) for the periods presented.
Net Lease Office Properties 2025 10-K – 68 | |||||
Notes to Consolidated Financial Statements
Note 13. Stock-Based and Other Compensation
Stock-Based Compensation
At December 31, 2025, we maintained the stock-based compensation plan described below. There were no unvested shares outstanding at December 31, 2025 and 2024. The total compensation expense for awards issued under this plan was $0.3 million for the year ended December 31, 2024.
2023 Incentive Award Plan
The 2023 Incentive Award Plan provides that the maximum aggregate number of our common shares that may be issued under the Incentive Award Plan will be 750,000 common shares. The maximum number of common shares that may be issued in connection with awards of incentive stock options (“ISOs”) under the 2023 Incentive Award Plan is 1,500,000 common shares. The 2023 Incentive Award Plan provides for the grant of various stock- and cash-based awards, including RSUs, stock options (including ISOs and nonqualified stock options), restricted stock, dividend equivalents, stock payments, other incentive awards, long-term incentive plan units, and stock appreciation rights. At December 31, 2025, 720,939 shares remained available for issuance under the 2023 Incentive Award Plan. Through the date of this Report, we have only issued RSUs under the 2023 Incentive Award Plan to members of our Board (we have no employees).
Nonvested RSUs at December 31, 2025 and changes during the period from November 1, 2023 to December 31, 2023 and the year ended December 31, 2024 were as follows (there was no activity during the year ended December 31, 2025):
| RSU Awards | |||||||||||
| Shares | Weighted-Average Grant Date Fair Value | ||||||||||
| Balance at November 1, 2023 | $ | ||||||||||
Granted (a) | |||||||||||
Nonvested at December 31, 2023 | |||||||||||
Vested (b) | ( | ||||||||||
Nonvested at December 31, 2024 | $ | ||||||||||
__________
(a)The grant date fair value of RSUs reflect our share price on the date of grant on a one -for-one basis.
(b)The grant date fair value of shares vested during the year ended December 31, 2024 was $0.3 million.
Note 14. Income Taxes
Income Tax Provision
The components of our provision for (benefit from) income taxes for the periods presented are as follows (in thousands):
| Years Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Federal | |||||||||||||||||
| Current | $ | $ | $ | ||||||||||||||
| State and Local | |||||||||||||||||
| Current | |||||||||||||||||
| Foreign | |||||||||||||||||
| Current | |||||||||||||||||
| Deferred | ( | ( | |||||||||||||||
| ( | |||||||||||||||||
| Total Provision for (Benefit from) Income Taxes | $ | $ | ( | $ | |||||||||||||
Net Lease Office Properties 2025 10-K – 69 | |||||
Notes to Consolidated Financial Statements
A reconciliation of effective income tax for the periods presented is as follows (in thousands):
| Years Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Pre-tax loss attributable to taxable subsidiaries | $ | ( | $ | ( | $ | ( | |||||||||||
Federal provision at statutory tax rate (21%) | $ | ( | $ | ( | $ | ( | |||||||||||
| Change in valuation allowance | |||||||||||||||||
| Non-deductible expense | |||||||||||||||||
| Rate differential | ( | ( | ( | ||||||||||||||
| State and local taxes, net of federal benefit | ( | ( | |||||||||||||||
Election of TRS Status (a) | |||||||||||||||||
| Other | ( | ( | |||||||||||||||
| Total Provision for (Benefit from) Income Taxes | $ | $ | ( | $ | |||||||||||||
__________
(a)Represents deferred taxes recorded as a result of our taxable REIT subsidiary (“TRS”) status election for certain of our domestic real estate properties.
Deferred Income Taxes
Deferred income taxes at December 31, 2025 and 2024 consist of the following (in thousands):
| December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Deferred Tax Assets | |||||||||||
| Net operating loss and other tax credit carryforwards | $ | $ | |||||||||
| Basis differences — foreign investments | |||||||||||
| Other | |||||||||||
| Total deferred tax assets | |||||||||||
| Valuation allowance | ( | ( | |||||||||
| Net Deferred Tax Assets | $ | $ | |||||||||
There were no deferred tax liabilities as of December 31, 2025 or 2024. Our deferred tax assets and liabilities are primarily the result of temporary differences related to the following:
•Basis differences between tax and GAAP for certain real estate investments. For income tax purposes, in certain acquisitions, we assume the seller’s basis, or the carry-over basis, in the acquired assets. The carry-over basis is typically lower than the purchase price, or the GAAP basis, resulting in a deferred tax liability with an offsetting increase to goodwill or the acquired tangible or intangible assets;
•Timing differences generated by differences in the GAAP basis and the tax basis of assets such as those related to capitalized acquisition costs, straight-line rent, prepaid rents, and intangible assets; and
•Tax net operating losses in certain subsidiaries that may be realized in future periods if the respective subsidiary generates sufficient taxable income.
As of December 31, 2025, U.S. federal net operating loss carryforwards were $35.0 million, which will not expire as they can be carried forward indefinitely. There are also state net operating loss carryforwards of $5.3 million, which will begin to expire in 2044.
Our taxable subsidiaries recognize tax positions in the financial statements only when it is more likely than not that the position will be sustained on examination by the relevant taxing authority based on the technical merits of the position. A position that meets this standard is measured at the largest amount of benefit that will more likely than not be realized on settlement. A liability is established for differences between positions taken in a tax return and amounts recognized in the financial statements.
Net Lease Office Properties 2025 10-K – 70 | |||||
Notes to Consolidated Financial Statements
At both December 31, 2025 and 2024, we had unrecognized tax benefits totaling $0.1 0.1
Income Taxes Paid
Income taxes paid were $0.7 million, $0.7 million, and $2.7 million during the years ended December 31, 2025, 2024, and 2023, respectively.
We elected to be taxed as a REIT under Section 856 through 860 of the Internal Revenue Code effective as of November 1, 2023. In order to maintain our qualification as a REIT, we are required, among other things, to distribute at least 90% of our REIT net taxable income to our stockholders and meet certain tests regarding the nature of our income and assets. As a REIT, we are not subject to federal income taxes on our income and gains that we distribute to our stockholders as long as we satisfy certain requirements, principally relating to the nature of our income and the level of our distributions, as well as other factors. We believe that we have operated, and we intend to continue to operate, in a manner that allows us to continue to qualify as a REIT. We conduct business in the United States, and as a result, we or one or more of our subsidiaries file income tax returns in the United States federal jurisdiction and various state, local, and foreign jurisdictions.
Note 15. Property Dispositions
Our property dispositions are also discussed in Note 5.
2025 — During the year ended December 31, 2025, we sold 14 properties, for total proceeds, net of selling costs, of $198.6 million, and recognized net gains on these sales totaling $10.5 million.
In September 2025, we transferred ownership of a property in Oslo, Norway, and the related non-recourse mortgage loan, which had an aggregate net asset carrying value of approximately $27.0 million and mortgage principal outstanding of $45.7 million, respectively, on the date of transfer, to a buyer, resulting in a net gain of $14.5 million (we also transferred cash on hand of $6.3 million to the lender and wrote off $2.1 million of working capital). Additionally, in accordance with ASC 830-30-40, Foreign Currency Matters, we reclassified an aggregate of $40.5 million of net foreign currency translation losses from Accumulated other comprehensive loss to Loss on sale of real estate, net (as an increase to Loss on sale of real estate, net), since the sale represented a disposal of all of our investments denominated in Norwegian krone (Note 3, Note 12).
In connection with the sale of a property in Poland in March 2025, and in accordance with ASC 830-30-40, Foreign Currency Matters, we reclassified an aggregate of $1.1 million of net foreign currency translation losses from Accumulated other comprehensive loss to Loss on sale of real estate, net (as an increase to Loss on sale of real estate, net), since the sale represented a disposal of all of our investments denominated in euros (Note 3, Note 12).
2024 — During the year ended December 31, 2024, we sold 14 properties for total proceeds, net of selling costs, of $320.1 million, and recognized a net gain on these sales totaling $22.5 million, which is included in Gain (loss) on sale of real estate, net, on the consolidated statements of operations (inclusive of income taxes totaling $0.1 million recognized upon sale). In connection with the sale of a property in the United Kingdom in October 2024, and in accordance with ASC 830-30-40, Foreign Currency Matters, we reclassified an aggregate of $4.3 million of net foreign currency translation gains from Accumulated other comprehensive loss to Gain on sale of real estate, net (as an increase to Gain on sale of real estate, net), since the sale represented a disposal of all of our United Kingdom investments (Note 3, Note 12).
In April 2024, we transferred ownership of a property in Warrenville, Illinois, and the related non-recourse mortgage loan, which had an aggregate net asset carrying value of approximately $19.3 million and mortgage principal outstanding of $19.8 million, respectively, on the date of transfer, to the mortgage lender, resulting in a net loss of $1.0 million (we also wrote off $1.4 million of working capital).
In April 2024, we transferred ownership of a property in Tempe, Arizona, and the related non-recourse mortgage loan, which had an aggregate net asset carrying value of approximately $13.3 million and mortgage principal outstanding of $13.2 million, respectively, on the date of transfer, to the mortgage lender, resulting in a net loss of $1.3 million (we also wrote off $1.2 million of working capital).
Net Lease Office Properties 2025 10-K – 71 | |||||
Notes to Consolidated Financial Statements
2023 — During the year ended December 31, 2023, we sold four properties for total proceeds, net of selling costs, of $38.9 million, and recognized a net gain on these sales totaling $4.7 million, which is included in Gain (loss) on sale of real estate, net, on the consolidated statements of operations.
Note 16. Segment Information
Reportable Segment Information
The Company operates as one reportable segment. Our business is characterized as owning a diversified portfolio of office properties that are primarily leased to corporate tenants on a single-tenant, net-lease basis. These economic characteristics are similar across various geographic locations and industries in which our tenants operate and therefore considered one operating segment. Our consolidated operating results, including net income, are regularly reviewed, in the aggregate, by our CODM to evaluate performance and allocate resources, which can be found on our consolidated financial statements (Note 1, Note 3).
Our revenues are largely derived from the long-term leases that we execute with tenants. These revenues are classified as either Lease revenues (Note 5) or Income from finance leases (Note 6) in accordance with ASC 842, Leases.
Our operating expenses are regularly reviewed by our CODM. All expenses are reviewed, but our CODM is regularly provided with the following significant expenses, which are included in our consolidated financial statements and require no additional disaggregation: Property expenses, excluding reimbursable tenant costs, General and administrative expenses, Asset management fees, Interest expense, and (Provision for) benefit from income taxes.
Geographic Information
At December 31, 2025, our portfolio comprises domestic investments. We sold all of our investments in Norway and Poland during 2025. We sold all of our investments in the United Kingdom during 2024. No international tenant or country individually comprised at least 10% of our total lease revenues for the years ended December 31, 2025, 2024, or 2023, or at least 10% of our total long-lived assets at December 31, 2025 or 2024.
Our tenant KBR comprised (i) 29.5 %, 23.4 %, and 17.9 % of our total lease revenues for the years ended December 31, 2025, 2024, and 2023, respectively, and (ii) 21.1 % and 22.5 % of our total long-lived assets at December 31, 2025 and 2024, respectively. We sold the KBR property in January 2026 (Note 17). Our tenants Iowa Board of Regents and Intuit comprised 13.9 % and 10.7 %, respectively, of our total long-lived assets at December 31, 2025. Our tenant JPMorgan Chase comprised 13.7 % and 12.7 % of our total lease revenues for the years ended December 31, 2025 and 2024, respectively. We sold all properties leased to JPMorgan Chase during the year ended December 31, 2025. The following tables present geographic information (in thousands):
| Years Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Revenues | |||||||||||||||||
| Domestic | $ | $ | $ | ||||||||||||||
| International | |||||||||||||||||
| Total | $ | $ | $ | ||||||||||||||
| December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
Long-lived Assets (a) | |||||||||||
| Domestic | $ | $ | |||||||||
International (b) | |||||||||||
| Total | $ | $ | |||||||||
__________
(a)Consists of Net investments in real estate.
(b)We sold two international properties during the year ended December 31, 2025 and have no international properties remaining (Note 5, Note 15).
Net Lease Office Properties 2025 10-K – 72 | |||||
Notes to Consolidated Financial Statements
Note 17. Subsequent Events
Dispositions
In January 2026, we sold the KBR property located in Houston, Texas, for gross proceeds of $66.0 million. This property was classified as held for sale as of December 31, 2025 (Note 5).
In January 2026, we sold a property located in Venice, California, for gross proceeds of $39.6 million. This property was classified as held for sale as of December 31, 2025 (Note 5).
In February 2026, we sold a property located in Martinsville, Virginia, for gross proceeds of $3.9 million. This property was classified as held for sale as of December 31, 2025 (Note 5).
In February 2026, we sold a property located in Raleigh, North Carolina, for gross proceeds of $8.7 million (Note 6).
Special Cash Distribution
In January 2026, our Board of Trustees declared a special cash distribution of $6.75 per share, totaling approximately $100.0 million. The distribution was paid on February 17, 2026 to shareholders of record as of January 30, 2026.
Net Lease Office Properties 2025 10-K – 73 | |||||
NET LEASE OFFICE PROPERTIES
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 2025, 2024, and 2023
(in thousands)
| Description | Balance at Beginning of Year | Other Additions | Deductions | Balance at End of Year | ||||||||||||||||||||||
| Year Ended December 31, 2025 | ||||||||||||||||||||||||||
| Valuation reserve for deferred tax assets | $ | $ | $ | ( | $ | |||||||||||||||||||||
| Year Ended December 31, 2024 | ||||||||||||||||||||||||||
| Valuation reserve for deferred tax assets | $ | $ | $ | ( | $ | |||||||||||||||||||||
| Year Ended December 31, 2023 | ||||||||||||||||||||||||||
| Valuation reserve for deferred tax assets | $ | $ | $ | ( | $ | |||||||||||||||||||||
Net Lease Office Properties 2025 10-K – 74 | |||||
NET LEASE OFFICE PROPERTIES
SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2025
(in thousands)
| Initial Cost to Company | Cost Capitalized Subsequent to Acquisition (a) | Increase (Decrease) in Net Investments (b) | Gross Amount at which Carried at Close of Period (c) (d) | Accumulated Depreciation (d) | Date of Construction | Date Acquired | Life on which Depreciation in Latest Statement of Income is Computed | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Description | Encumbrances | Land | Buildings | Land | Buildings | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Land, Buildings and Improvements (Office Property Locations) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| King of Prussia, PA | $ | $ | $ | $ | $ | $ | $ | $ | $ | 1968 | Jan. 1998 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Rio Rancho, NM | ( | 1999 | Jul. 1998 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Yardley, PA | 2002 | Sep. 2012 | 30 yrs. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| San Marcos, TX | 2000 | Sep. 2012 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Playa Vista, CA | 1999 | Sep. 2012 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Odessa, TX | 2000 | Sep. 2012 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| San Marcos, TX | 1996 | Sep. 2012 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Corpus Christi, TX | 2000 | Sep. 2012 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Waco, TX | 1969 | Sep. 2012 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Quincy, MA | ( | 1989 | Jun. 2013 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Houston, TX | ( | 1982 | Oct. 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Eagan, MN | ( | 2005 | Oct. 2018 | N/A | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Eagan, MN | ( | 1969 | Oct. 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Warrenville, IL | ( | 2002 | Oct. 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| San Antonio, TX | 2002 | Oct. 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Norcross, GA | 1999 | Aug. 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Farmington Hills, MI | 2001 | Aug. 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Coralville, IA | 2015 | Aug. 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | ( | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(a)Consists of the cost of improvements subsequent to acquisition and acquisition costs, including construction costs on build-to-suit transactions, legal fees, appraisal fees, title costs, and other related professional fees. For business combinations, transaction costs are excluded.
(b)The increase (decrease) in net investment was primarily due to impairment charges.
(c)Excludes (i) gross lease intangible assets of $55.9 million and the related accumulated amortization of $40.3 million, (ii) gross lease intangible liabilities of $4.5 million and the related accumulated amortization of $2.5 million, (iii) net investments in sales-type leases of $41.9 million, and (iv) assets held for sale of $96.3 million.
(d)A reconciliation of real estate and accumulated depreciation follows:
Net Lease Office Properties 2025 10-K – 75 | |||||
NET LEASE OFFICE PROPERTIES
NOTES TO SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION
(in thousands)
| Reconciliation of Real Estate Subject to Operating Leases | |||||||||||||||||
| Years Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Beginning balance | $ | $ | $ | ||||||||||||||
| Dispositions | ( | ( | ( | ||||||||||||||
| Impairment charges | ( | ( | ( | ||||||||||||||
| Reclassification to assets held for sale | ( | ( | |||||||||||||||
| Reclassification to sales-type lease | ( | ( | |||||||||||||||
| Reclassification from assets held for sale | |||||||||||||||||
| Capital improvements | |||||||||||||||||
| Foreign currency translation adjustment | ( | ( | |||||||||||||||
| Reclassification from real estate under construction | |||||||||||||||||
| Reclassification from direct financing leases | |||||||||||||||||
| Ending balance | $ | $ | $ | ||||||||||||||
| Reconciliation of Accumulated Depreciation for Real Estate Subject to Operating Leases | |||||||||||||||||
| Years Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Beginning balance | $ | $ | $ | ||||||||||||||
| Dispositions | ( | ( | ( | ||||||||||||||
| Reclassification to assets held for sale | ( | ( | |||||||||||||||
| Depreciation expense | |||||||||||||||||
| Reclassification to sales-type lease | ( | ( | |||||||||||||||
| Foreign currency translation adjustment | ( | ||||||||||||||||
| Ending balance | $ | $ | $ | ||||||||||||||
At December 31, 2025, the aggregate cost of real estate that we and our consolidated subsidiaries own for federal income tax purposes was approximately $641.9 million.
Net Lease Office Properties 2025 10-K – 76 | |||||
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Disclosure Controls and Procedures
Our disclosure controls and procedures include internal controls and other procedures designed to provide reasonable assurance that information required to be disclosed in this and other reports filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized, and reported within the required time periods specified in the SEC’s rules and forms; and that such information is accumulated and communicated to management, including our chief executive officer and chief financial officer, to allow timely decisions regarding required disclosures. It should be noted that no system of controls can provide complete assurance of achieving a company’s objectives and that future events may impact the effectiveness of a system of controls.
Our chief executive officer and chief financial officer, after conducting an evaluation, together with members of our management, of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2025, have concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) were effective as of December 31, 2025 at a reasonable level of assurance.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.
Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate.
We assessed the effectiveness of our internal control over financial reporting at December 31, 2025. In making this assessment, we used criteria set forth in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our assessment, we concluded that, at December 31, 2025, our internal control over financial reporting is effective based on those criteria.
This Annual Report on Form 10-K does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting, due to an exemption established by the rules of the SEC for “emerging growth companies.”
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
Net Lease Office Properties 2025 10-K – 77 | |||||
Item 9B. Other Information.
During the three months ended December 31, 2025, no trustee or officer of the Company, nor the Company itself, adopted terminated
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable.
Net Lease Office Properties 2025 10-K – 78 | |||||
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
This information will be contained in our definitive proxy statement for the 2026 Annual Meeting of Shareholders, to be filed within 120 days following the end of our fiscal year, and is incorporated herein by reference.
Item 11. Executive and Trustee Compensation.
This information will be contained in our definitive proxy statement for the 2026 Annual Meeting of Shareholders, to be filed within 120 days following the end of our fiscal year, and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
This information will be contained in our definitive proxy statement for the 2026 Annual Meeting of Shareholders, to be filed within 120 days following the end of our fiscal year, and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Trustee Independence.
This information will be contained in our definitive proxy statement for the 2026 Annual Meeting of Shareholders, to be filed within 120 days following the end of our fiscal year, and is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services.
This information will be contained in our definitive proxy statement for the 2026 Annual Meeting of Shareholders, to be filed within 120 days following the end of our fiscal year, and is incorporated herein by reference.
Net Lease Office Properties 2025 10-K – 79 | |||||
PART IV
Item 15. Exhibits and Financial Statement Schedules.
(1) and (2) — Financial statements and schedules: see index to financial statements and schedules included in Item 8.
(3) Exhibits:
The following exhibits are filed with this Report. Documents other than those designated as being filed herewith are incorporated herein by reference.
| Exhibit No. | Description | Method of Filing | ||||||||||||
| 2.1* | Separation and Distribution Agreement, dated October 31, 2023, between W. P. Carey Inc. and Net Lease Office Properties | Filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K, filed on November 2, 2023 and incorporated herein by reference | ||||||||||||
| 2.2* | Tax Matters Agreement, dated October 31, 2023, between W. P. Carey Inc. and Net Lease Office Properties | Filed as Exhibit 2.2 to the Company’s Current Report on Form 8-K, filed on November 2, 2023 and incorporated herein by reference | ||||||||||||
| 3.1 | Amended and Restated Declaration of Trust of Net Lease Office Properties | Filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed on November 2, 2023 and incorporated herein by reference | ||||||||||||
| 3.2 | Amended and Restated Bylaws of Net Lease Office Properties | Filed as Exhibit 3.2 to the Company’s Current Report on Form 8-K, filed on November 2, 2023 and incorporated herein by reference | ||||||||||||
| 4.1 | Description of Securities Registered under Section 12 of the Exchange Act | Filed as Exhibit 4.1 to Annual Report on Form 10-K for the year ended December 31, 2023, filed March 5, 2024 and incorporated herein by reference | ||||||||||||
| 10.1* | Advisory Agreement, dated November 1, 2023, between W. P. Carey Management LLC and Net Lease Office Properties | Filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K/A, filed on November 7, 2023 and incorporated herein by reference | ||||||||||||
| 10.2* | Advisory Agreement, dated November 1, 2023, between W. P. Carey & Co. B.V. and Net Lease Office Properties | Filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed on November 2, 2023 and incorporated herein by reference | ||||||||||||
| 10.3† | Net Lease Office Properties and NLO OP LLC 2023 Incentive Award Plan | Filed as Exhibit 10.7 to the Company’s Current Report on Form 8-K, filed on November 2, 2023 and incorporated herein by reference | ||||||||||||
| 10.4† | Form of Net Lease Office Properties and NLO OP LLC Restricted Stock Unit Award Agreement | Filed as Exhibit 10.8 to the Company’s Current Report on Form 8-K, filed on November 2, 2023 and incorporated herein by reference | ||||||||||||
| 10.5 | Form of Indemnification Agreement entered into between Net Lease Office Properties and each of its trustees and executive officers | Filed as Exhibit 10.9 to the Company’s Current Report on Form 8-K, filed on November 2, 2023 and incorporated herein by reference | ||||||||||||
| 19.1 | Filed herewith | |||||||||||||
| 21.1 | List of Registrant Subsidiaries | Filed herewith | ||||||||||||
| 23.1 | Consent of PricewaterhouseCoopers LLP | Filed herewith | ||||||||||||
Net Lease Office Properties 2025 10-K – 80 | |||||
| Exhibit No. | Description | Method of Filing | ||||||||||||
| 31.1 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | Filed herewith | ||||||||||||
| 31.2 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | Filed herewith | ||||||||||||
| 32 | Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | Filed herewith | ||||||||||||
| 97.1 | Clawback Policy | Filed as Exhibit 97.1 to Annual Report on Form 10-K for the year ended December 31, 2023, filed March 6, 2024 and incorporated herein by reference | ||||||||||||
| 101.INS | XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL Document. | Filed herewith | ||||||||||||
| 101.SCH | XBRL Taxonomy Extension Schema Document | Filed herewith | ||||||||||||
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | Filed herewith | ||||||||||||
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | Filed herewith | ||||||||||||
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | Filed herewith | ||||||||||||
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | Filed herewith | ||||||||||||
| 104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) | Filed herewith | ||||||||||||
______________________
† The referenced exhibit is a management contract or compensation plan or arrangement required to be filed as an exhibit pursuant to Item 15 (a)(3) of Form 10-K.
* Certain exhibits and schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company hereby undertakes to furnish supplemental copies of any of the omitted exhibits and schedules upon request by the SEC; provided, however, that the Company may request confidential treatment pursuant to Rule 24b-2 of the Exchange Act for any exhibits or schedules so furnished.
Net Lease Office Properties 2025 10-K – 81 | |||||
Item 16. Form 10-K Summary.
None.
Net Lease Office Properties 2025 10-K – 82 | |||||
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Net Lease Office Properties | |||||||||||
| Date: | February 25, 2026 | By: | /s/ ToniAnn Sanzone | ||||||||
| ToniAnn Sanzone | |||||||||||
| Chief Financial Officer | |||||||||||
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Signature | Title | Date | ||||||||||||
| /s/ Jason E. Fox | Chief Executive Officer and Chair of the Board | February 25, 2026 | ||||||||||||
| Jason E. Fox | (Principal Executive Officer) | |||||||||||||
| /s/ ToniAnn Sanzone | Chief Financial Officer | February 25, 2026 | ||||||||||||
| ToniAnn Sanzone | (Principal Financial Officer) | |||||||||||||
| /s/ Brian Zander | Chief Accounting Officer | February 25, 2026 | ||||||||||||
| Brian Zander | (Principal Accounting Officer) | |||||||||||||
| /s/ Axel K.A. Hansing | Trustee | February 25, 2026 | ||||||||||||
| Axel K.A. Hansing | ||||||||||||||
| /s/ Jean Hoysradt | Trustee | February 25, 2026 | ||||||||||||
| Jean Hoysradt | ||||||||||||||
| /s/ John J. Park | Trustee | February 25, 2026 | ||||||||||||
| John J. Park | ||||||||||||||
| /s/ Richard J. Pinola | Trustee | February 25, 2026 | ||||||||||||
| Richard J. Pinola | ||||||||||||||
Net Lease Office Properties 2025 10-K – 83 | |||||
FAQ
How did Net Lease Office Properties (NLOP) perform financially in 2025?
Net Lease Office Properties posted a 2025 net loss of $145.3 million on total revenues of $118.9 million. Despite the loss, NLOP generated $60.2 million of FFO and $73.8 million of AFFO, reflecting strong cash earnings from its net‑leased office portfolio.
What is the size and occupancy of NLOP’s property portfolio?
As of December 31, 2025, NLOP owned 24 net‑leased office properties totaling about 3.4 million square feet. Portfolio occupancy was approximately 79.0%, with annualized base rent of about $54.1 million, all from properties located in the United States.
What major asset sales did NLOP complete and how were proceeds used?
In 2025 NLOP sold 14 properties for net proceeds of $198.6 million and transferred an international asset securing a $45.7 million loan. Proceeds, plus cash flow, were primarily used to fully repay the NLOP mezzanine loan and several mortgages, significantly reducing leverage.
How much debt does Net Lease Office Properties have outstanding?
At December 31, 2025, NLOP reported total outstanding indebtedness of about $21.9 million, secured by one property. Earlier, the company had fully repaid its NLOP mezzanine loan and four additional non‑recourse mortgage loans using disposition proceeds and operating cash flow.
What dividends and special distributions has NLOP declared?
In 2025 NLOP declared special cash distributions of $3.10, $4.10, and $5.10 per share. In January 2026, the board also approved a special cash distribution of $6.75 per share, totaling about $100.0 million, funded largely by asset sale proceeds.
What are the key risks facing Net Lease Office Properties’ business model?
NLOP highlights risks from weak office demand, ongoing remote and hybrid work trends, tenant defaults, and difficulty selling properties at attractive prices. Additional risks include lease rollover concentration, geographic exposure, inflation, financing constraints, and maintaining REIT qualification and required distributions.
How concentrated is NLOP’s tenant and geographic exposure?
As of December 31, 2025, NLOP’s three largest tenants represented about 52.0% of annualized base rent and its ten largest tenants about 84.5%. Approximately 53.5% of ABR was in Texas and 13.1% in California, though major Texas and California assets were sold in early 2026.
Net Lease Office