What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2025-02-27 compared with 2024-03-06 · 343 added, 288 removed, 924 unchanged (41% of the section changed)

25 unchanged sentences

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.

4 unchanged sentences

New York, New York

March 6, 2024

February 27, 2025

We have served as the Company’s auditor since 2022.

12 unchanged sentences

Accumulated depreciation and amortization ( 292,679 ) ( 458,430 )

Assets held for sale, net 29,297 —

Net investments in real estate 707,443 1,171,825

1 unchanged sentence

Cash and cash equivalents

25,121 16,269

Other assets, net 29,200 65,435

Goodwill — 63,583

Total assets $ 1,305,089 $ 1,462,201

Total assets (a)

$ 805,069 $ 1,305,089

Liabilities and Equity

NLOP Mortgage Loan, net $ 266,844 $ —

NLOP Mezzanine Loan, net 106,299 —

Non-recourse mortgages, net $ 111,259 $ 168,836

Parent debt — 101,774

NLOP Mezzanine Loan, net 57,957 106,299

NLOP Mortgage Loan, net — 266,844

Debt, net 169,216 541,979

2 unchanged sentences

Deferred income taxes

10,450 11,998

Dividends payable — 1,060

Total liabilities 623,659 352,682

Total liabilities (a)

219,666 623,659

Commitments and contingencies ( Note 12 )

1 unchanged sentence

Common stock, $ 0.001 par value, 45,000,000 shares authorized;

14,620,919 shares issued and outstanding as of December 31, 2023

14,814,075 and 14,620,919 shares, respectively, issued and outstanding

Additional paid-in capital 855,813 855,554

1 unchanged sentence

Accumulated other comprehensive loss ( 40,157 ) ( 35,600 )

Net parent investment — 1,150,240

Total shareholders’ equity 581,228 677,009

2 unchanged sentences

Total liabilities and equity $ 805,069 $ 1,305,089

(a) See Note 3 for details related to variable interest entities (“VIEs”).

See Notes to Consolidated Financial Statements.

10 unchanged sentences

Operating Expenses

Depreciation and amortization 74,998 63,205 58,580

Impairment charges — real estate 78,237 63,143 —

Impairment charges — goodwill 62,456 — —

Depreciation and amortization 56,696 74,998 63,205

Reimbursable tenant costs 26,520 27,957 24,251

General and administrative 13,610 11,871 10,307

Property expenses, excluding reimbursable tenant costs 10,901 8,642 7,751

Separation and distribution related costs and other 8,446 6,025 —

General and administrative 7,502 13,610 11,871

Asset management fees 6,243 1,245 —

Separation and distribution related costs and other 16 8,446 6,025

Impairment charges — goodwill — 62,456 —

186,115 260,497 113,103

1 unchanged sentence

Interest expense ( 67,962 ) ( 42,613 ) ( 26,841 )

Loss on sale of real estate, net ( 3,608 ) — —

Gain (loss) on sale of real estate, net 20,216 ( 3,608 ) —

Other gains and (losses) ( 2,154 ) 456 ( 7 )

1 unchanged sentence

(Loss) income before income taxes ( 93,768 ) ( 131,297 ) 16,263

Provision for income taxes ( 425 ) ( 486 ) ( 1,646 )

Benefit from (provision for) income taxes 2,382 ( 425 ) ( 486 )

Net (Loss) Income ( 91,386 ) ( 131,722 ) 15,777

12 unchanged sentences

Net (Loss) Income $ ( 91,386 ) $ ( 131,722 ) $ 15,777

Other Comprehensive Income (Loss)

Other Comprehensive (Loss) Income

Foreign currency translation adjustments ( 5,748 ) 8,055 ( 1,233 )

Unrealized loss on derivative instruments ( 1,191 ) — —

Unrealized gain (loss) on derivative instruments 1,191 ( 1,191 ) —

( 4,557 ) 6,864 ( 1,233 )

16 unchanged sentences

Net transfers from parent 35,724 35,724 35,724

Other comprehensive income:

Foreign currency translation adjustments 3,435 3,435 3,435

Balance at December 31, 2021 — — — — ( 41,231 ) 1,098,737 1,057,506 — 1,057,506

Net income 15,779 15,779 ( 2 ) 15,777

Net transfers from parent 35,724 35,724 35,724

Acquisition of noncontrolling interests in connection with the CPA:18 Merger — 1,745 1,745

15 unchanged sentences

Balance at December 31, 2023 14,620,919 15 855,554 ( 142,960 ) ( 35,600 ) — 677,009 4,421 681,430

Net (loss) income ( 91,471 ) ( 91,471 ) 85 ( 91,386 )

Shares issued in connection with dividends paid 164,199 — 12 ( 12 ) — —

Shares issued upon delivery of vested restricted share awards 28,957 — ( 3 ) ( 3 ) ( 3 )

Amortization of stock-based compensation expense 250 250 250

Distributions to noncontrolling interest — ( 331 ) ( 331 )

Other comprehensive loss:

Foreign currency translation adjustments ( 5,748 ) ( 5,748 ) ( 5,748 )

Unrealized gain on derivative instruments 1,191 1,191 1,191

Balance at December 31, 2024 14,814,075 $ 15 $ 855,813 $ ( 234,443 ) $ ( 40,157 ) $ — $ 581,228 $ 4,175 $ 585,403

See Notes to Consolidated Financial Statements.

10 unchanged sentences

Impairment charges — real estate 78,237 63,143 —

Impairment charges — goodwill 62,456 — —

Loss on sale of real estate, net 3,608 — —

Stock-based compensation expense 2,904 3,161 2,398

(Gain) loss on sale of real estate, net ( 20,216 ) 3,608 —

Amortization of rent-related intangibles and deferred rental revenue ( 6,352 ) 140 1,959

Net realized and unrealized losses (gains) on extinguishment of debt, foreign currency exchange rate movements, and other 3,496 ( 247 ) 2,121

Deferred income tax benefit ( 3,271 ) ( 1,201 ) ( 1,043 )

1 unchanged sentence

2,313 ( 438 ) ( 3,043 )

Net realized and unrealized (gains) losses on extinguishment of debt, foreign currency exchange rate movements, and other ( 247 ) 2,121 16,508

Amortization of rent-related intangibles and deferred rental revenue 140 1,959 834

Stock-based compensation expense 250 2,904 3,161

Impairment charges — goodwill — 62,456 —

Proceeds from sales of net investments in sales-type leases 10,341 — —

Net changes in other operating assets and liabilities 13,157 ( 8,933 ) 1,075

7 unchanged sentences

Cash Flows — Financing Activities

Payments of mortgage principal and other debt instruments ( 366,596 ) ( 63,704 ) ( 39,940 )

Dividends paid ( 1,072 ) — —

Distributions to noncontrolling interest ( 331 ) ( 121 ) —

Other financing activities, net 15 ( 526 ) ( 7 )

Distributions to WPC in connection with the Spin-Off — ( 343,885 ) —

1 unchanged sentence

Proceeds from NLOP Mezzanine Loan — 113,646 —

Payments of mortgage principal and other debt instruments ( 63,704 ) ( 39,940 ) ( 264,078 )

Net transfers with Parent, including Spin-Off adjustments — ( 51,708 ) ( 24,594 )

1 unchanged sentence

Contributions from noncontrolling interests — 2,775 —

Other financing activities, net ( 526 ) ( 7 ) ( 277 )

Distributions to noncontrolling interests ( 121 ) — —

Net Cash Used in Financing Activities ( 367,984 ) ( 36,778 ) ( 64,541 )

11 unchanged sentences

(“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”), on October 21, 2022, to own the 59 office assets.

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.

Information with respect to number of properties and square footage is unaudited.

2 unchanged sentences

The Spin-Off was accomplished via a pro rata dividend of 1 NLOP common share for every 15 shares of WPC common stock outstanding.

NLOP intends to qualify and elect to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code, commencing with the Company’s taxable year ended December 31, 2023.

We elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code effective as of November 1, 2023.

NLOP operates as one segment, and through its subsidiaries, owns, operates, and finances office buildings.

Our consolidated operating results are regularly reviewed, in the aggregate, by the chief operating decision maker (“CODM”) to evaluate performance and allocate resources.

The CODM is our Chief Executive Officer, with oversight provided by our Board of Trustees (our “Board”).

Accordingly, all operations have been considered to represent one reportable segment, which are reported on our consolidated statements of operations and our consolidated balance sheets.

As of December 31, 2024, NLOP’s portfolio was comprised of full or partial ownership interests in 39 properties, net-leased to 43 corporate tenants, totaling approximately 6.2 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 4.3 years.

12 unchanged sentences

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.

Net Lease Office Properties 2024 10-K – 46

Notes to Consolidated Financial Statements

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.

1 unchanged sentence

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.

Net Lease Office Properties 2023 10-K – 47

Notes to Consolidated Financial Statements

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 allocation of interest expense from WPC unsecured debt, excluding debt that is specifically attributable to NLOP ( Note 11 );

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 11 );

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 11 ).

22 unchanged sentences

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.

Net Lease Office Properties 2024 10-K – 47

Notes to Consolidated Financial Statements

Assumptions used in the model are property-specific where this information is available;

7 unchanged sentences

• leasing commissions and tenant improvement allowances.

Net Lease Office Properties 2023 10-K – 48

Notes to Consolidated Financial Statements

The discount rates and residual capitalization rates used to value the properties are selected based on several factors, including:

24 unchanged sentences

The amortization period for intangibles does not exceed the remaining depreciable life of the building.

Net Lease Office Properties 2024 10-K – 48

Notes to Consolidated Financial Statements

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.

3 unchanged sentences

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.

Net Lease Office Properties 2023 10-K – 49

Notes to Consolidated Financial Statements

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.

13 unchanged sentences

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 consolidated properties are less than their carrying value.

This assessment is used as a basis to determine whether it is necessary to calculate the fair values of the consolidated properties.

Impairments, if any, will be the difference between the reporting unit’s fair value and carrying amount, not to exceed the carrying amount of goodwill.

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, 2024 or 2023.

Other Accounting Policies

2 unchanged sentences

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.

Fixed price purchase and renewal options within a lease, as well as certain

Net Lease Office Properties 2024 10-K – 49

Notes to Consolidated Financial Statements

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.

3 unchanged sentences

The liabilities of these VIEs are non-recourse to us and can only be satisfied from each VIE’s respective assets.

Net Lease Office Properties 2023 10-K – 50

Notes to Consolidated Financial Statements

At December 31, 2023, we considered one entity to be a VIE (given certain decision-making rights each partner has in accordance with the partnership agreement), which we consolidated, as we are considered the primary beneficiary.

At both December 31, 2024 and 2023, we considered one entity to be a VIE (given certain decision-making rights each partner has in accordance with the partnership agreement), which we consolidated, as we are considered the primary beneficiary.

The following table presents a summary of selected financial data of the consolidated VIE included in our consolidated balance sheets (in thousands):

December 31, 2023

Land, buildings and improvements $ 37,917 $ 37,917

23 unchanged sentences

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 .

Net Lease Office Properties 2024 10-K – 50

Notes to Consolidated Financial Statements

Net investments in sales-type leases are accounted for under Accounting Standards Codification (“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.

1 unchanged sentence

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.

Net Lease Office Properties 2023 10-K – 51

Notes to Consolidated Financial Statements

Reclassifications — Certain prior period amounts have been reclassified to conform to the current period presentation.

We currently present Restricted cash on its own line item in the consolidated balance sheets.

Previously, restricted cash was included within Other assets, net in the consolidated balance sheets.

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.

11 unchanged sentences

$ 68,426 $ 67,829 $ 5,998

(a) Amount as of December 31, 2023 includes approximately $ 48.4 million related to certain reserve requirements pursuant to the NLOP Financing Arrangements ( Note 11 ).

(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 11 ).

Land, Buildings and Improvements — We carry land, buildings, and improvements at cost less accumulated depreciation.

1 unchanged sentence

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, deferred rental income, derivative assets, tenant receivables, deferred charges, escrow balances held by lenders, and restricted cash balances in Other assets, net.

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.

18 unchanged sentences

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 of Trustees.

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.

1 unchanged sentence

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 Stock-based compensation expense in the consolidated statements of operations.

Foreign Currency Translation and Transaction Gains and Losses — We have interests in international real estate investments in Europe, and the primary functional currencies for those investments are the euro, the British pound sterling, and the Norwegian krone.

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.

We perform the translation from these currencies to the U.S.

1 unchanged sentence

We report the gains and losses resulting from such translation as a component of other comprehensive income in equity.

These translation gains and losses are released to net income (within gain on sale of real estate, net, in the consolidated statements of operations) when we have substantially exited from all investments in the related currency.

These translation gains and losses are reclassified out of foreign currency translation adjustments (within Accumulated other comprehensive loss in the consolidated balance sheets) and released to net income (within Gain (loss) on sale of real estate, net, in the consolidated statements of operations) when we have substantially exited from all investments in the related currency.

During the year ended December 31, 2024, we exited all investments in the United Kingdom, which were denominated in the British pound sterling ( Note 13 , Note 16 ).

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 losses on extinguishment of debt and other in the consolidated statements of operations).

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.

3 unchanged sentences

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.

For derivatives designated and that qualify as cash flow hedges, the change in fair value of the derivative is recognized in Other comprehensive (loss) income 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.

20 unchanged sentences

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 year ended December 31, 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 year ended December 31, 2023.

For the years ended December 31, 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, 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.

4 unchanged sentences

Notes to Consolidated Financial Statements

Recent Accounting Pronouncements

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures .

ASU 2023-07 requires quarterly disclosure of segment expenses if they are (i) significant to the segment, (ii) regularly provided to the CODM, and (iii) included in each reported measure of a segment’s profit or loss.

In addition, ASU 2023-07 requires an annual disclosure of the CODM’s title and a description of how the CODM uses the segment’s profit/loss measure to assess segment performance and to allocate resources.

We adopted this guidance for our interim and annual periods beginning January 1, 2024.

The adoption of this standard did not have a material impact on our consolidated financial statements, but has resulted in incremental disclosures within the footnotes to our consolidated financial statements ( Note 17 ).

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 annual periods beginning after December 15, 2024, with early adoption permitted.

We are currently evaluating the impact of this guidance on our consolidated financial statements.

Merger with CPA:18 – Global

6 unchanged sentences

Nine of the net lease properties that WPC acquired in the CPA:18 Merger were transferred to NLOP in connection with the Spin-Off, with an aggregate net identifiable asset fair value at acquisition of $ 72.1 million.

Net Lease Office Properties 2024 10-K – 54

Notes to Consolidated Financial Statements

The table below summarizes the nine properties transferred to NLOP, which are included in the historical consolidated financial statements in the year ended December 31, 2022.

(dollars and square footage in thousands)

Tenant/Lease Guarantor City State Country ABR (a)

Tenant/Lease Guarantor (a)

City State Country ABR (a)

Square Footage (unaudited) (a)

3 unchanged sentences

Plano TX USA 2,577 166

Exelon Generation Company, LLC Warrenville IL USA 2,862 147

Exelon Generation Company, LLC (b)

Warrenville IL USA 2,862 147

Jacksonville FL USA 1,453 88

5 unchanged sentences

Norcross GA USA 586 51

Siemens AS (b)

Siemens AS (c)

Oslo n/a NO 4,322 166

(a) Information as of December 31, 2022.

(b) ABR amounts are subject to fluctuations in foreign currency exchange rates.

(b) We disposed of this property during the year ended December 31, 2024 ( Note 16 ).

Purchase Price Allocation

1 unchanged sentence

Costs related to the CPA:18 Merger have been expensed as incurred and classified within Separation and distribution related costs and other in the consolidated statements of operations, totaling $ 6.0 million for the year ended December 31, 2022.

Net Lease Office Properties 2023 10-K – 55

Notes to Consolidated Financial Statements

The purchase price was allocated to the assets acquired and liabilities assumed, based upon their preliminary fair values at August 1, 2022.

13 unchanged sentences

Goodwill 12,595

Net Lease Office Properties 2024 10-K – 55

Notes to Consolidated Financial Statements

The $ 12.6 million of goodwill attributed to NLOP was primarily due to the historical premium paid over CPA:18 – Global’s estimated fair value.

3 unchanged sentences

Our consolidated results of operations for the year ended December 31, 2022 include $ 9.8 million of total revenues, and $ 3.8 million of net loss associated with the results of operations for the properties acquired as part of the CPA:18 Merger.

The following consolidated pro forma financial information has been presented as if the CPA:18 Merger had occurred on January 1, 2021 for the years ended December 31, 2022 and 2021.

The following consolidated pro forma financial information has been presented as if the CPA:18 Merger had occurred on January 1, 2021 for the year ended December 31, 2022.

The pro forma financial information is not necessarily indicative of what the actual results would have been had the CPA:18 Merger on that date, nor does it purport to represent the results of operations for future periods.

Years Ended December 31,

(in thousands) 2022 2021

(in thousands) Year Ended December 31, 2022

Pro forma total revenues $ 168,237

3 unchanged sentences

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 proportionately reduced each month following the disposition of each portfolio property.

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 each month 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.

Net Lease Office Properties 2023 10-K – 56

Notes to Consolidated Financial Statements

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.

1 unchanged sentence

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):

Year Ended December 31, 2023

Years Ended December 31,

Asset management fees (a)

$ 6,243 $ 1,245

Administrative reimbursements (b)

$ 10,243 $ 1,912

(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.

Net Lease Office Properties 2024 10-K – 56

Notes to Consolidated Financial Statements

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):

1 unchanged sentence

Accounts payable 366 676

$ 835 $ 1,921

Other Transactions with WPC

8 unchanged sentences

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.

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Notes to Consolidated Financial Statements

The following table presents amounts of shared costs that were allocated to NLOP (in thousands):

Years Ended December 31,

2023 2022 2021

General and administrative (a)

2 unchanged sentences

17,756 18,861

Property insurance (c)

$ 31,366 $ 30,704

1 unchanged sentence

(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.

(c) Included within Property expenses, excluding reimbursable tenants costs in the consolidated statements of operations.

The following presents amounts owed to WPC by the Company as of December 31, 2022 (in thousands):

December 31, 2022

Parent debt (a)

Accounts payable, accrued expenses, and other liabilities (b)

Total $ 104,327

(a) 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.

(b) Represents amounts owed to WPC for accrued interest related to the Parent debt, and services and fees which were directly attributable to NLOP prior to the Spin-Off as discussed above.

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 .

2 unchanged sentences

We consolidate this investment.

Land, Buildings and Improvements

Net Lease Office Properties 2024 10-K – 57

Notes to Consolidated Financial Statements

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, are summarized as follows (in thousands):

Land and buildings leased to others, which are subject to operating leases, and real estate under construction, are summarized as follows (in thousands):

Land $ 94,123 $ 168,200

Buildings and improvements 635,775 1,035,791

Real estate under construction 447 —

Accumulated depreciation ( 152,067 ) ( 213,034 )

1 unchanged sentence

During 2024, the U.S.

dollar weakened against the euro and British pound sterling, but strengthened against the Norwegian krone.

dollar strengthened against the Norwegian krone and the euro.

As a result of this fluctuation in foreign currency exchange rates, the carrying value of our Land, buildings and improvements decreased by $ 5.9 million from December 31, 2023 to December 31, 2024.

Net Lease Office Properties 2023 10-K – 58

Notes to Consolidated Financial Statements

In connection with a change in lease classification due to an extension of the underlying lease, we reclassified a portfolio of four properties with an aggregate carrying value of $ 14.6 million from Net investments in finance leases to Land, buildings and improvements during the year ended December 31, 2023 ( Note 7 ).

During the year ended December 31, 2023, we reclassified a property classified as Land, buildings and improvements to Net investments in finance leases since we entered into a purchase agreement with the tenant occupying the property.

As a result, the carrying value of our Land, buildings and improvements (net of accumulated depreciation) decreased by $ 13.7 million from December 31, 2022 to December 31, 2023 ( Note 7 ).

Depreciation expense, including the effect of foreign currency translation, on our buildings and improvements subject to operating leases was $ 23.6 million, $ 31.2 million, and $ 28.9 million for the years ended December 31, 2024, 2023, and 2022, respectively.

During the year ended December 31, 2023, we capitalized accrued costs of $ 2.0 million within Land, buildings and improvements related to capital expenditures at certain properties, which is a non-cash investing activity.

During the year ended December 31, 2024, we capitalized accrued costs of $ 2.5 million within Land, buildings and improvements for capital expenditures related to damages at a property.

Dispositions of Properties

During 2023, we sold four properties, which were classified as Land, buildings and improvements.

During 2024, 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 $ 289.3 million from December 31, 2023 to December 31, 2024 ( Note 16 ).

Real Estate Under Construction

During the year ended December 31, 2024, we capitalized $ 0.4 million of real estate under construction related to a maintenance project at a property.

Operating Lease Income

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(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.

Other Lease-Related Income

For the year ended December 31, 2023, other lease-related income on our consolidated statements of operations included lease termination income of $ 4.4 million recognized from one tenant.

In addition, for the years ended December 31, 2023, 2022, and 2021, 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, $ 2.4 million, and $ 1.9 million, respectively.

Net Lease Office Properties 2024 10-K – 58

Notes to Consolidated Financial Statements

Other Lease-Related Income

For the years ended December 31, 2024 and 2023, other lease-related income on our consolidated statements of operations included lease termination income of $ 9.4 million and $ 4.4 million, respectively, recognized from three tenants.

In addition, for the years ended December 31, 2024, 2023, and 2022, 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 $ 2.0 million, $ 1.8 million, and $ 2.4 million, respectively.

Scheduled Future Lease Payments to be Received

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Total $ 401,695

See Note 7 for scheduled future lease payments to be received under non-cancelable finance leases.

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.

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Number of land lease arrangements — operating leases 2 4

Lease term range (excluding extension options not reasonably certain of being exercised) < 2 – 83 years

Remaining lease term range (excluding extension options not reasonably certain of being exercised) < 1 – 82 years

< 2 – 83 years

Cash paid for operating lease liabilities included in Net cash provided by operating activities totaled $ 0.5 million for all of the years ended December 31, 2023, 2022, and 2021.

Cash paid for operating lease liabilities included in Net cash provided by operating activities was $ 0.3 million, $ 0.5 million, and $ 0.5 million for the years ended December 31, 2024, 2023 and 2022, 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.

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Present value of future lease payments/lease obligations $ 259

Assets Held for Sale, Net

Below is a summary of our properties held for sale (in thousands):

Land, buildings and improvements — net lease and other

In-place lease intangible assets and other 3,891 —

Above-market rent intangible assets 1,382 —

Accumulated depreciation and amortization ( 7,042 ) —

Assets held for sale, net $ 29,297 $ —

As of December 31, 2024, we had one property classified as Assets held for sale, net, with a carrying value of $ 29.3 million.

Finance Receivables

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Our finance receivables portfolio consists of our Net investments in finance leases.

At both December 31, 2023 and 2022, there was no reserve or estimate of credit loss on the finance leases, and no material balances of our finance receivables were past due.

Operating leases are not included in finance receivables.

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Net Investments in Sales-Type Leases

On December 29, 2023, we entered into an agreement to sell a property located in the United Kingdom to the tenant occupying the property.

In accordance with ASC 842, Leases , we reclassified this net-lease asset to net investments in sales-type leases totaling $ 10.5 million on our consolidated balance sheets (based on the estimated purchase price and the foreign currency exchange rate of the British pound sterling on the agreement date), since this agreement resulted in a lease modification.

In connection with this transaction, we reclassified the following amounts to Net investments in finance leases:

(i) $ 17.9 million from Land, buildings and improvements, (ii) $ 5.3 million from In-place lease intangible assets and other, (iii) $ 0.1 million from Below-market rent intangible liabilities, net, (iv) $ 2.0 million from Other assets, net, and (v) $ 6.5 million from Accumulated depreciation and amortization.

We recognized an aggregate Loss on sale of real estate, net, of $ 8.3 million during the year ended December 31, 2023 related to this transaction, reflecting a balance of $ 0.2 million for accrued transaction costs within Accounts payable, accrued expenses and other liabilities for this investment.

This investment was sold in January 2024 ( Note 18 ).

Earnings from our net investments in sales-type leases are included in Income from finance leases in the consolidated financial statements, and totaled less than $ 0.1 million for the year ended December 31, 2023.

Prior to this reclassification to net investments in sales-type leases, earnings from this investment were recognized in Lease revenues in the consolidated financial statements.

One property 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, which had an aggregate carrying value of $ 10.5 million as of December 31, 2023.

Net investments in sales-type leases is summarized as follows (in thousands):

Lease payments receivable (a)

Lease payments receivable $ — $ 10,614

unearned income — ( 92 )

(a) Includes estimated purchase price and total rents owed.

Net Lease Office Properties 2024 10-K – 60

Notes to Consolidated Financial Statements

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, 2023 are as follows (in thousands):

Years Ending December 31, Total

Total $ 10,614

(a) Amount is comprised of the net investment in sales-type lease described above, representing the estimated purchase price of the investment plus remaining rents.

This investment was sold in January 2024 for gross proceeds of approximately $ 10.5 million ( Note 18 ).

At December 31, 2023, there was no reserve or estimate of credit loss on the financing leases.

Earnings from our net investments in sales-type leases were included in Income from finance leases in the consolidated financial statements, and totaled less than $ 0.1 million for both the years ended December 31, 2024 and 2023.

Prior to its reclassification to net investments in sales-type leases, earnings from this investment were recognized in Lease revenues in the consolidated financial statements.

Net Investments in Direct Financing Leases

One investment was classified as a direct financing lease as of December 31, 2022.

During the year ended December 31, 2023, we reclassified this investment (comprised of four properties) with an aggregate carrying value of $ 14.6 million from Net investments in finance leases to Land, buildings and improvements in connection with a change in lease classification due to an extension of the underlying lease.

Net investments in direct financing leases is summarized as follows (in thousands):

Lease payments receivable $ — $ 11,423

Unguaranteed residual value — 14,558

unearned income — ( 11,253 )

Income from direct financing leases, which is included in Income from finance leases in the consolidated financial statements, was $ 1.2 million, $ 1.7 million, and $ 1.7 million for the years ended December 31, 2023, 2022, and 2021, respectively.

During the year ended December 31, 2023, we reclassified an investment classified as a direct financing lease (comprised of four properties) with an aggregate carrying value of $ 14.6 million from Net investments in finance leases to Land, buildings and improvements in connection with a change in lease classification due to an extension of the underlying lease.

Income from direct financing leases, which is included in Income from finance leases in the consolidated financial statements, was $ 1.2 million and $ 1.7 million for the years ended December 31, 2023 and 2022, respectively.

We had no net investments in direct financing leases as of December 31, 2024 and 2023.

Credit Quality of Finance Receivables

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The credit quality evaluation of our finance receivables is updated quarterly.

Net Lease Office Properties 2023 10-K – 62

Notes to Consolidated Financial Statements

A summary of our finance receivables by internal credit quality rating is as follows (dollars in thousands):

Number of Tenants / Obligors at December 31, Carrying Value at December 31,

Internal Credit Quality Indicator 2023 2022 2023 2022

1 1 — $ 10,522 $ —

3 — 1 — 14,728

$ 10,522 $ 14,728

Our finance receivable internal credit quality rating was one as of December 31, 2023.

Goodwill and Other Intangibles

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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 and other intangible liabilities, net 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 the CPA:18 Merger ( Note 4 ) and certain other 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 9 ).

The following table presents a reconciliation of our goodwill (in thousands):

Balance at January 1, 2022

Foreign currency translation adjustments ( 276 )

Balance at December 31, 2021

Acquisition of CPA:18 – Global ( Note 4 )

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Balance at December 31, 2023

Current accounting guidance requires that we test for the recoverability of goodwill at the reporting unit level.

We have only one reporting unit.

The test for recoverability must be conducted at least annually, or more frequently if events or changes in circumstances indicate that the carrying value of goodwill may not be recoverable.

We perform our annual test for impairment in October and continue to assess events and circumstances through to the end of the reporting period.

Following the completion of the Spin-Off on November 1, 2023, we performed a test for impairment of goodwill, and recorded an impairment for the total amount of goodwill of $ 62.5 million as of December 31, 2023 ( Note 9 ).

Net Lease Office Properties 2024 10-K – 61

Notes to Consolidated Financial Statements

Intangible assets, intangible liabilities, and goodwill are summarized as follows (in thousands):

Intangible assets and liabilities are summarized as follows (in thousands):

Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount

Finite-Lived Intangible Assets

Lease Intangibles:

In-place lease $ 207,988 $ ( 123,040 ) $ 84,948 $ 353,525 $ ( 212,456 ) $ 141,069

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$ 238,500 $ ( 140,612 ) $ 97,888 $ 411,479 $ ( 245,396 ) $ 166,083

Goodwill — — — 63,583 — 63,583

Total intangible assets $ 411,479 $ ( 245,396 ) $ 166,083 $ 493,537 $ ( 201,510 ) $ 292,027

Finite-Lived Intangible Liabilities

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Total intangible liabilities $ ( 18,856 ) $ 12,551 $ ( 6,305 ) $ ( 26,801 ) $ 16,158 $ ( 10,643 )

See Note 7 for a description of intangible assets and liabilities reclassified to net investments in sales-type leases during the year ended December 31, 2023.

During the year ended December 31, 2024, the U.S.

dollar strengthened against the Norwegian krone and the euro, resulting in a decrease of $ 0.5 million in the carrying value of our net intangible assets from December 31, 2023 to December 31, 2024.

Net amortization of intangibles, including the effect of foreign currency translation, was $ 35.4 million, $ 47.7 million, and $ 36.0 million for the years ended December 31, 2024, 2023, and 2022, respectively.

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Based on the intangible assets and liabilities recorded at December 31, 2024, 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 in Lease Revenues Increase to Amortization Total

Years Ending December 31, Net Decrease (Increase) in Lease Revenues Increase to Amortization Total

2025 $ 1,963 $ 19,226 $ 21,189

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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.

Net Lease Office Properties 2023 10-K – 64

Notes to Consolidated Financial Statements

Items Measured at Fair Value on a Recurring Basis

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For significant Level 3 items, we have also provided the unobservable inputs.

Net Lease Office Properties 2024 10-K – 62

Notes to Consolidated Financial Statements

Derivative Assets — Our derivative assets, which are included in Other assets, net in the consolidated financial statements, are comprised of interest rate caps ( Note 10 ).

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These derivative instruments were classified as Level 2 as these instruments are custom, over-the-counter contracts with various bank counterparties that are not traded in an active market.

We did not have any transfers into or out of Level 1, Level 2, and Level 3 category of measurements during either the years ended December 31, 2023 or 2022.

Gains and losses (realized and unrealized) recognized on items measured at fair value on a recurring basis included in earnings are reported within Other gains and (losses) on our consolidated financial statements.

Our material financial instruments had the following carrying values and fair values as of the dates shown (dollars in thousands):

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Level Carrying Value Fair Value Carrying Value Fair Value

NLOP Mortgage Loan, net (a) (b) (c)

Non-recourse mortgages, net (a) (b) (c)

3 $ 111,259 $ 91,642 $ 168,836 $ 165,077

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3 57,957 61,753 106,299 113,797

Non-recourse mortgages, net (a) (b) (c)

NLOP Mortgage Loan, net (a) (b) (c)

3 — — 266,844 291,358

(a) The carrying value of the NLOP Mortgage Loan, net includes unamortized deferred financing costs of $ 6.7 million at December 31, 2023.

The carrying value of the NLOP Mezzanine Loan, net includes unamortized deferred financing costs of $ 2.4 million at December 31, 2023.

The carrying value of Non-recourse mortgages, net includes unamortized deferred financing costs of less than $ 0.1 million at both December 31, 2023 and 2022.

(b) The carrying value of the NLOP Mortgage Loan, net includes unamortized discount of $ 15.3 million at December 31, 2023.

The carrying value of the NLOP Mezzanine Loan, net includes unamortized discount of $ 5.6 million at December 31, 2023.

The carrying value of Non-recourse mortgages, net includes unamortized discount of $ 0.7 million and unamortized premium of $ 2.0 million at December 31, 2023 and 2022, respectively.

(c) We determined the estimated fair value of our NLOP Mortgage Loan, NLOP Mezzanine Loan, and non-recourse mortgage loans 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.

(a) The carrying value of Non-recourse mortgages, net includes unamortized deferred financing costs of less than $ 0.1 million at December 31, 2023.

The carrying value of the NLOP Mezzanine Loan, net ( Note 11 ) includes unamortized deferred financing costs of $ 1.0 million and $ 2.4 million at December 31, 2024 and 2023, respectively.

The carrying value of the NLOP Mortgage Loan, net ( Note 11 ) includes unamortized deferred financing costs of $ 6.7 million at December 31, 2023.

(b) The carrying value of Non-recourse mortgages, net includes unamortized premium of $ 0.4 million and unamortized discount of $ 0.7 million at December 31, 2024 and 2023, respectively.

The carrying value of the NLOP Mezzanine Loan, net ( Note 11 ) includes unamortized discount of $ 2.2 million and $ 5.6 million at December 31, 2024 and 2023, respectively.

The carrying value of the NLOP Mortgage Loan, net ( Note 11 ) includes unamortized discount of $ 15.3 million at December 31, 2023.

(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.

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Our impairment policies are described in Note 3 .

Net Lease Office Properties 2023 10-K – 65

Notes to Consolidated Financial Statements

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 (in thousands):

Year Ended December 31, 2023

Years Ended December 31,

Measurements Impairment

Charges Fair Value

Measurements Impairment

Impairment Charges

Real estate and intangibles $ 58,088 $ 63,143

Real estate $ 200,316 $ 78,237 $ 58,088 $ 63,143

Goodwill — — — 62,456

Impairment charges, and their related triggering events and fair value measurements, recognized during the year ended December 31, 2023, were as follows (during the years ended December 31, 2022 and 2021, no impairment was deemed necessary):

Real Estate and Intangibles

$ 78,237 $ 125,599

Net Lease Office Properties 2024 10-K – 63

Notes to Consolidated Financial Statements

Impairment charges, and their related triggering events and fair value measurements, recognized during the years ended December 31, 2024 and 2023, were as follows (during the year ended December 31, 2022, no impairment was deemed necessary):

The impairment charges described below are reflected within Impairment charges — real estate in our consolidated statements of operations.

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.

Five of these properties were sold during 2024.

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):

• Market rents of 200 Norwegian krone per square foot;

• Terminal capitalization rate of 10.0 %;

• Residual discount rate of 10.0 %;

• Cash flow discount rate of 8.0 %.

Second property (impairment charge of $ 12.2 million):

• Market rents ranging from $ 7 per square foot to $ 15 per square foot;

• Terminal capitalization rate of 9.0 %;

• 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;

• Cash flow discount rate of 9.0 %.

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.

One of the properties was sold in November 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.

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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.

This property was disposed of in April 2024.

Net Lease Office Properties 2024 10-K – 64

Notes to Consolidated Financial Statements

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 ( No te 8 ).

Risk Management and Use of Derivative Financial Instruments

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We own investments in the United States and Europe and are subject to risks associated with fluctuating foreign currency exchange rates.

Net Lease Office Properties 2023 10-K – 66

Notes to Consolidated Financial Statements

Derivative Financial Instruments

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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.

For derivatives designated and that qualify as cash flow hedges, the change in fair value of the derivative is recognized in Other comprehensive (loss) income until the hedged item is recognized in earnings.

Such gains and losses are recorded within Interest expense in our consolidated statements of operations.

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Interest rate cap Other assets, net $ — $ 433

Derivatives Not Designated as Hedging Instruments

Interest rate cap Other assets, net 10 —

Total derivatives $ 10 $ 433

Net Lease Office Properties 2024 10-K – 65

Notes to Consolidated Financial Statements

The following tables present the impact of our derivative instruments in the consolidated financial statements (in thousands):

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Other Comprehensive (Loss) Income

Derivatives in Cash Flow Hedging Relationships Year Ended December 31, 2023

Years Ended December 31,

Derivatives in Cash Flow Hedging Relationships 2024 2023

Interest rate cap $ 1,191 $ ( 1,191 )

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Other Comprehensive (Loss) Income

Derivatives in Cash Flow Hedging Relationships Location of Gain (Loss) Recognized in Income Year Ended December 31, 2023

Derivatives in Cash Flow Hedging Relationships Location of Gain (Loss) Recognized in Income Years Ended December 31,

Interest rate cap Other gains and (losses) $ ( 951 ) $ —

Interest rate cap Interest expense ( 477 ) ( 144 )

Total $ ( 1,428 ) $ ( 144 )

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.

As of December 31, 2023, we estimate that an additional $ 0.9 million will be reclassified as Interest expense during the next 12 months.

Net Lease Office Properties 2023 10-K – 67

Notes to Consolidated Financial Statements

The following table presents the impact of our derivative instruments in the consolidated financial statements (in thousands):

Amounts reported in Other comprehensive (loss) income 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 Year Ended December 31, 2023

Derivatives in Cash Flow Hedging Relationships Location of Gain (Loss) Recognized in Income Years Ended December 31,

Interest rate cap Interest expense $ ( 17 ) $ ( 2 )

Derivatives Not in Cash Flow Hedging Relationships

Interest rate cap Other gains and (losses) ( 431 ) —

Total $ ( 448 ) $ ( 2 )

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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), 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 while allowing participants to share in downward shifts in interest rates.

We have obtained, and may in the future obtain, variable-rate debt (our NLOP Financing Arrangements ( Note 11 )), 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 ( Note 11 )).

The interest rate caps that our consolidated subsidiaries had outstanding at December 31, 2024 are summarized as follows (currency in thousands):

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December 31, 2024

Designated as Cash Flow Hedging Instruments

Not Designated as Cash Flow Hedging Instruments

Interest rate cap 1 150,904 USD $ 10

Net Lease Office Properties 2024 10-K – 66

Notes to Consolidated Financial Statements

Credit Risk-Related Contingent Features

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No collateral was received as of December 31, 2024.

At December 31, 2023, both our total credit exposure and the maximum exposure to any single counterparty was $ 0.4 million.

At December 31, 2024, both our total credit exposure and the maximum exposure to any single counterparty was less than $ 0.1 million.

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”).

Approximately $ 343.9 million of the proceeds from the financing (net of transaction expenses) was transferred to WPC in connection with the Spin-Off.

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, 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.

The NLOP Financing Arrangements were initially collateralized by the assignment of 40 of our previously unencumbered real estate properties.

As of December 31, 2023, the NLOP Financing Arrangements are collateralized by 36 of our properties, following the dispositions of four properties in December 2023.

As of December 31, 2024, the NLOP Mortgage Loan was repaid and the remaining outstanding principal balance on the NLOP Mezzanine Loan was secured by pledges of equity in 26 of our properties, following the dispositions of 14 properties during 2023 and 2024.

For a list of our encumbered properties, please see Schedule III — Real Estate and Accumulated Depreciation .

The NLOP Mortgage Loan bears interest at an annual rate of one-month forward-looking term rate based on the Secured Overnight Financing Rate (“SOFR”), subject to a floor of 3.85 %, plus 5.0 %.

In addition, NLOP entered into an interest rate cap agreement that limits our SOFR rate exposure to 5.35 % ( Note 10 ).

The NLOP Mezzanine Loan bears interest at an annual rate of 14.5 % ( 10.0 % of which is required to be paid current on a monthly basis, and 4.5 % of which is a payment-in-kind accrual, on a quarterly basis).

Net Lease Office Properties 2023 10-K – 68

Notes to Consolidated Financial Statements

The NLOP Mortgage Loan is subject to certain deleveraging thresholds that require us to make repayments on the original loan balance totaling 15 % (or $ 50.3 million) on or prior to November 1, 2024, which is 12 months following the funding date of the loan, 25 % (or $ 83.8 million) on or prior to November 1, 2025, which is 12 months following the initial deleveraging threshold of the loan, such that no less than 40 % of the loan has been repaid, and, in the event we exercise the first one-year extension option, 30 % (or $ 100.5 million) on or prior to November 1, 2026, which is 12 months following the second deleveraging threshold of the loan, such that no less than 70 % of the loan has been repaid.

To the extent the deleveraging thresholds are not met, we may be subject to certain fees and restrictions, in accordance with the terms of the NLOP Financing Arrangements, until these thresholds are met.

Additionally, property sales are subject to the satisfaction of certain conditions, including satisfaction of a debt yield test and minimum release prices.

We are required to use the net proceeds from property sales collateralizing the NLOP Financing Arrangements to repay the portions of the NLOP Mortgage Loan and NLOP Mezzanine Loan representing the release amount for any individual property sale.

In connection with the dispositions of four properties during the period from November 1, 2023 to December 31, 2023, we repaid $ 33.3 million and $ 5.7 million on the NLOP Mortgage Loan and NLOP Mezzanine Loan, respectively.

Additionally, we repaid $ 12.8 million from excess cash from operations on the NLOP Mortgage Loan.

We expect to use the net proceeds from property sales, as well as cash flow from rent on our properties and other sources, to repay the NLOP Mezzanine Loan.

During the year ended December 31, 2024, we repaid $ 53.2 million of outstanding principal on the NLOP Mezzanine Loan, using proceeds from certain dispositions, as well as cash flow from rent on our properties and other sources.

In February 2025, we repaid $ 3.3 million of outstanding principal on the NLOP Mezzanine Loan using excess cash ( Note 18 ).

The following table presents a summary of our NLOP Financing Arrangements (dollars in thousands):

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Principal Outstanding Balance at December 31,

NLOP Mortgage Loan (a) (b) (c)

NLOP Mezzanine Loan (a)

$ 120,000 14.5 %

NLOP Mezzanine Loan (d)

11/9/2028 $ 61,141 $ 114,336

(a) Interest rate is based on SOFR plus 5.0 %.

The interest rate is subject to an interest rate cap that limits our SOFR rate exposure at 5.35 %.

(b) The NLOP Mortgage loan is subject to two separate one-year extension options.

(c) Balance excludes unamortized discount of $ 15.3 million and unamortized deferred financing costs of $ 6.7 million at December 31, 2023.

(d) Balance excludes unamortized discount of $ 5.6 million and unamortized deferred financing costs of $ 2.4 million at December 31, 2023.

NLOP Mortgage Loan (b)

335,000 N/A N/A — 288,895

$ 61,141 $ 403,231

(a) Balance excludes unamortized discount of $ 2.2 million and $ 5.6 million at December 31, 2024 and 2023, respectively, and unamortized deferred financing costs of $ 1.0 million and $ 2.4 million at December 31, 2024 and 2023, respectively.

(b) Balance excludes unamortized discount of $ 15.3 million at December 31, 2023 and unamortized deferred financing costs of $ 6.7 million at December 31, 2023.

Net Lease Office Properties 2024 10-K – 67

Notes to Consolidated Financial Statements

Non-Recourse Mortgages

1 unchanged sentence

For a list of our encumbered properties, please see Schedule III — Real Estate and Accumulated Depreciation .

At December 31, 2023, the weighted-average interest rate for our total non-recourse mortgage notes payable was 4.8 % (fixed-rate and variable-rate non-recourse mortgage notes payable were both 4.8 %), with maturity dates ranging from January 2024 to May 2026.

At December 31, 2024, our non-recourse mortgage notes payable encumbered six properties, with an aggregate weighted-average interest rate of 4.5 % (fixed-rate and variable-rate non-recourse mortgage notes payable were 4.3 % and 4.9 %, respectively), with maturity dates ranging from January 2025 to May 2026.

A non-recourse mortgage loan with an outstanding principal balance of $ 25.2 million as of December 31, 2024 and a maturity date of January 6, 2025 has not been repaid as of the date of this Report ( Note 18 ).

In connection with the Spin-Off, the lender of one of our non-recourse mortgages with a principal balance of approximately $ 19 million and a maturity date of November 2025 did not release WPC as guarantor on the loan ( Note 18 ).

This non-recourse mortgage loan encumbers a property classified as Assets held for sale, net, as of December 31, 2024 ( Note 6 ).

Non-recourse mortgages for properties acquired in the CPA:18 Merger were $ 138.4 million for the year ended December 31, 2022.

1 unchanged sentence

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, which eliminates in consolidation.

These debt instruments are reflected in these financials as Parent debt, and had fixed interest rates that averaged 5.9 % and 5.8 % at December 31, 2022 and 2021, respectively.

During the years ended December 31, 2022 and 2021, we prepaid Parent debt totaling $ 3.1 million and $ 8.4 million, respectively.

In connection with the Spin-Off, WPC assigned to us the receivable related to these debt amounts (“Parent Debt”), which eliminates in consolidation.

During the year ended December 31, 2022, we prepaid Parent Debt totaling $ 3.1 million.

Parent Debt for a property acquired in the CPA:18 Merger was $ 3.9 million for the year ended December 31, 2022.

Net Lease Office Properties 2023 10-K – 69

Notes to Consolidated Financial Statements

Repayments and Scheduled Mortgage Payments During 2023

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.

1 unchanged sentence

The weighted-average interest rate for these non-recourse mortgage loans on their respective dates of repayment was 5.2 %.

Repayments and Scheduled Mortgage Payments During 2022

Repayments During 2022

During the year ended December 31, 2022, we repaid at or close to maturity non-recourse mortgage loans totaling $ 36.8 million.

5 unchanged sentences

During the year ended December 31, 2024, the U.S.

dollar strengthened against the Norwegian krone, resulting in an decrease of $ 1.4 million in the carrying value of our Non-recourse mortgages, net from December 31, 2022 to December 31, 2023.

dollar strengthened against the Norwegian krone, resulting in a decrease of $ 4.5 million in the carrying value of our Non-recourse mortgages, net from December 31, 2023 to December 31, 2024.

Net Lease Office Properties 2024 10-K – 68

Notes to Consolidated Financial Statements

Scheduled Debt Principal Payments

7 unchanged sentences

Certain amounts are based on the applicable foreign currency exchange rate at December 31, 2024.

The credit agreements for certain of our non-recourse mortgage loan agreements, NLOP Mortgage Loan, and NLOP Mezzanine Loan include customary financial maintenance covenants that require us to maintain certain ratios and benchmarks at the end of each quarter.

The credit agreements for certain of our non-recourse mortgage loan agreements and NLOP Financing Arrangements include customary financial maintenance covenants that require us to maintain certain ratios and benchmarks at the end of each quarter.

We were in compliance with all of these covenants at December 31, 2024.

3 unchanged sentences

The results of these proceedings are not expected to have a material adverse effect on our consolidated financial position or results of operations.

Net Lease Office Properties 2023 10-K – 70

Notes to Consolidated Financial Statements

Common Shares

During the fourth quarter of 2023, our Board of Trustees declared a dividend of $ 0.34 per share, which was paid on January 29, 2024 to shareholders of record as of December 18, 2023.

Dividends paid to shareholders 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,

2024 2023 2022

Return of capital $ 0.34 $ — $ —

Total dividends paid $ 0.34 $ — $ —

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.

1 unchanged sentence

Cash paid in connection with the share dividend totaled $ 1.1 million, which includes cash paid in lieu of fractional shares.

Net Lease Office Properties 2024 10-K – 69

Notes to Consolidated Financial Statements

Earnings Per Share

4 unchanged sentences

Weighted-average shares outstanding – basic and diluted 14,789,514 14,631,265 14,620,919

For the year ended December 31, 2023, we recognized net loss.

For the years ended December 31, 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.

For the years ended December 31, 2022 and 2021, there were no potentially dilutive securities excluded from the computation of diluted earnings per share.

For the year ended December 31, 2022, there were no potentially dilutive securities excluded from the computation of diluted earnings per share.

Reclassifications Out of Accumulated Other Comprehensive Loss

3 unchanged sentences

$ — $ ( 41,231 ) $ ( 41,231 )

Other comprehensive income before reclassifications — 3,435 3,435

Balance at December 31, 2021 — ( 41,231 ) ( 41,231 )

Other comprehensive loss before reclassifications — ( 1,233 ) ( 1,233 )

6 unchanged sentences

Balance at December 31, 2023 ( 1,191 ) ( 34,409 ) ( 35,600 )

Other comprehensive loss before reclassifications ( 237 ) ( 1,433 ) ( 1,670 )

Amounts reclassified from accumulated other comprehensive loss to:

Other gains and (losses) 951 — 951

Interest expense 477 — 477

Gain (loss) on sale of real estate, net ( Note 16 )

— ( 4,315 ) ( 4,315 )

Total 1,428 ( 4,315 ) ( 2,887 )

Net current period other comprehensive loss 1,191 ( 5,748 ) ( 4,557 )

Balance at December 31, 2024 $ — $ ( 40,157 ) $ ( 40,157 )

See Note 10 for additional information on our derivatives activity recognized within Other comprehensive (loss) income for the periods presented.

Stock-Based and Other Compensation

1 unchanged sentence

At December 31, 2024, we maintained the stock-based compensation plan described below.

The total compensation expense for awards issued under this plan was less than $ 0.1 million for the period from November 1, 2023 to December 31, 2023, which was included in General and administrative expense in the consolidated financial statements.

The total compensation expense for awards issued under this plan was $ 0.3 million for the year ended December 31, 2024 and less than $ 0.1 million for the period from November 1, 2023 to December 31, 2023, which was included in General and administrative expenses in the consolidated financial statements.

Net Lease Office Properties 2024 10-K – 70

1 unchanged sentence

2023 Incentive Award Plan

The 2023 Incentive Award Plan (the “2023 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 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 restricted stock units (“RSUs”), stock options (including ISOs and nonqualified stock options), restricted stock, dividend equivalents, stock payments, other incentive awards, long-term incentive plan (“LTIP”) units, and stock appreciation rights (“SARs”).

At December 31, 2023, 721,347 shares remained available for issuance under the 2023 Share Incentive Plan, which is more fully described in Item 11 of this Report.

Through the date of this Report, we have only issued RSUs under the 2023 Share Incentive Plan to members of our Board of Trustees (we have no employees).

Nonvested RSUs at December 31, 2023 and changes during the period from November 1, 2023 to December 31, 2023 were as follows:

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, 2024, 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, 2024 and changes during the period from November 1, 2023 to December 31, 2023 and the year ended December 31, 2024 were as follows:

Shares Weighted-Average Grant Date Fair Value

Balance at November 1, 2023 — $ —

Nonvested at December 31, 2023 (b)

Nonvested at December 31, 2023

( 28,653 ) 10.47

(a) The grant date fair value of RSUs reflect our stock price on the date of grant on a one -for-one basis.

(b) At December 31, 2023, total unrecognized compensation expense related to these awards was approximately $ 0.2 million, with an aggregate weighted-average remaining term of 0.8 years.

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.

Income Tax Provision

The components of our provision for income taxes for the periods presented are as follows (in thousands):

The components of our (benefit from) provision for income taxes for the periods presented are as follows (in thousands):

Years Ended December 31,

1 unchanged sentence

Current $ 11 $ 58 $ —

Deferred — — —

State and Local

Current 242 357 469

Deferred — — —

Current 636 1,211 1,060

Deferred ( 3,271 ) ( 1,201 ) ( 1,043 )

Total Provision for Income Taxes $ 425 $ 486 $ 1,646

( 2,635 ) 10 17

Total (Benefit from) Provision for Income Taxes $ ( 2,382 ) $ 425 $ 486

Net Lease Office Properties 2024 10-K – 71

6 unchanged sentences

$ ( 12,280 ) $ ( 6,757 ) $ ( 758 )

Election of TRS Status (a)

Change in valuation allowance 10,592 3,179 1,169

2 unchanged sentences

Non-deductible expense 5 1 ( 45 )

Election of TRS Status (a)

Other ( 169 ) ( 520 ) ( 52 )

Total provision for income taxes $ 425 $ 486 $ 1,646

(a) Represents deferred taxes recorded as a result of our TRS status election for certain of our domestic real estate properties.

Total (benefit from) provision for income taxes $ ( 2,382 ) $ 425 $ 486

(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

17 unchanged sentences

• Tax net operating losses in certain subsidiaries, including those domiciled in foreign jurisdictions, that may be realized in future periods if the respective subsidiary generates sufficient taxable income.

As of December 31, 2023, net operating loss carryforwards in foreign jurisdictions were less than $ 0.1 million, which will not expire as they can be carried forward indefinitely.

As of December 31, 2022, net operating loss carryforwards in foreign jurisdictions were $ 0.3 million, which began to expire in 2023.

As of December 31, 2024, U.S.

federal net operating loss carryforwards were $ 0.6 million, which will not expire as they can be carried forward indefinitely.

There are also state net operating loss carryforwards of $ 0.2 million, which will begin to expire in 2044.

As of December 31, 2024, net operating loss carryforwards in foreign jurisdictions were $ 0.1 million, which will not expire as they can be carried forward indefinitely.

Net Lease Office Properties 2024 10-K – 72

Notes to Consolidated Financial Statements

The net deferred tax liability in the table above is comprised of deferred tax asset balances, net of certain deferred tax liabilities and valuation allowances, of $ 0.1 million at December 31, 2023, which are included in Other assets, net in the consolidated balance sheets, and other deferred tax liability balances of $ 10.5 million at December 31, 2023, which are included in Deferred income taxes in the consolidated balance sheets.

As of December 31, 2022, net deferred tax liability balances of $ 12.0 million were included in Deferred income taxes in the consolidated balance sheets.

The net deferred tax liability in the table above is comprised of deferred tax asset balance, net of certain deferred tax liabilities and valuation allowances, of $ 0.1 million at December 31, 2023, which is included in Other assets, net in the consolidated balance sheets, and other deferred tax liability balance of $ 10.5 million at December 31, 2023, which is included in Deferred income taxes in the consolidated balance sheets.

There were no such balances as of December 31, 2024.

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.

7 unchanged sentences

Income taxes paid were $ 0.7 million, $ 2.7 million, and $ 1.8 million for the years ended December 31, 2024, 2023, and 2022, 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 primarily in the United States and Europe, 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.

Property Dispositions

Our property dispositions are also discussed in Note 6 .

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 Loss on sale of real estate, net, on the consolidated statements of operations.

Our property dispositions are also discussed in Note 6 and Note 7 .

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.

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).

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.

Net Lease Office Properties 2024 10-K – 73

Notes to Consolidated Financial Statements

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 6 ) or Income from finance leases and loans receivable ( Note 7 ) 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 Benefit from (provision for) income taxes.

Geographic Information

Our portfolio is comprised of domestic and international investments.

At December 31, 2023, our international investments were comprised of investments in Poland, the United Kingdom, and Norway.

At December 31, 2024, our international investments were comprised of investments in Poland and Norway.

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, 2024, 2023, or 2022, or at least 10% of our total long-lived assets at December 31, 2024 or 2023.

One domestic tenant comprised 17.9 %, 20.2 %, and 22.1 % of our total lease revenues for the years ended December 31, 2023, 2022, and 2021, respectively, and 14.4 % and 13.3 % of our total long-lived assets at December 31, 2023 and 2022, respectively.

One domestic tenant comprised (i) 23.4 %, 17.9 %, and 20.2 % of our total lease revenues for the years ended December 31, 2024, 2023, and 2022, respectively, and (ii) 22.5 % and 14.4 % of our total long-lived assets at December 31, 2024 and 2023, respectively.

Another domestic tenant comprised 12.7 % of our total lease revenues for the year ended December 31, 2024.

The following tables present geographic information (in thousands):

6 unchanged sentences

Domestic $ 677,933 $ 1,025,078

International 146,747 162,743

International (b)

29,510 146,747

Total $ 707,443 $ 1,171,825

(a) Consists of Net investments in real estate.

Net Lease Office Properties 2023 10-K – 74

Notes to Consolidated Financial Statements

(b) We sold three international properties during the year ended December 31, 2024 and only have two international properties remaining ( Note 6 , Note 7 , Note 16 ).

Subsequent Events

In January 2024, we sold one property for gross proceeds of $ 10.5 million ( Note 7 ).

Non-Recourse Mortgage Guarantee

In January 2024, the lender that did not consent to release WPC as guarantor of a non-recourse mortgage loan with a principal balance of approximately $ 19 million ( Not e 11 ) notified us that we were in default of the loan.

The lender has not accelerated the principal payment schedule and we are working with them on a resolution, which we expect to be finalized during the year ending December 31, 2024.

Non-Recourse Mortgage Non-Payment

A non-recourse mortgage loan with an outstanding principal balance of $ 13.2 million as of December 31, 2023 and a maturity date of January 6, 2024 has not been repaid as of the date of this Report.

This non-recourse mortgage loan encumbers a property classified as Assets held for sale, net, as of December 31, 2024 ( Note 6 ).

Net Lease Office Properties 2024 10-K – 74

Notes to Consolidated Financial Statements

Repayments of NLOP Mezzanine Loan

In February 2025, we repaid $ 3.3 million of outstanding principal on the NLOP Mezzanine Loan using excess cash ( Note 11 ).

Rent Reimbursement

In February 2025, we entered into an agreement to reimburse a tenant $ 3.3 million of rent (as a rent credit) since the tenant had to vacate a property during a period of maintenance, which was included in our consolidated statements of operations for the year ended December 31, 2024 as a reduction to Lease revenues since it was treated as a contingency.

Net Lease Office Properties 2024 10-K – 75

NET LEASE OFFICE PROPERTIES

2 unchanged sentences

(in thousands)

Description Balance at

of Period Other Additions Deductions Balance at

End of Period

Description Balance at Beginning of Year Other Additions Deductions Balance at End of Year

Year Ended December 31, 2024

21 unchanged sentences

King of Prussia, PA — 1,219 6,283 1,295 — 1,219 7,578 8,797 5,021 1968 Jan.

Collierville, TN 27,600 3,154 70,038 3,513 ( 14,386 ) — 62,319 62,319 26,164 1999 Jan.

Bridgeton, MO 1,095 842 4,762 2,523 ( 196 ) 842 7,089 7,931 4,575 1972 Jan.

Rio Rancho, NM — 1,190 9,353 5,866 ( 238 ) 2,287 13,884 16,171 8,644 1999 Jul.

11 unchanged sentences

Quincy, MA — 2,316 21,537 127 — 2,316 21,664 23,980 6,681 1989 Jun.

Scottsdale, AZ 19,550 22,300 42,329 11,380 — 22,300 53,709 76,009 4,315 1977 Jan.

Southfield, MI 1,096 1,726 4,856 89 — 1,726 4,945 6,671 1,585 1985 Jan.

Houston, TX — 522 7,448 228 ( 1,166 ) 404 6,628 7,032 3,201 1999 Jan.

Chandler, AZ 7,062 5,318 27,551 105 — 5,318 27,656 32,974 7,843 2000 Mar.

Stavanger, Norway — 10,296 91,744 — ( 39,734 ) 6,347 55,959 62,306 13,320 1975 Aug.

Houghton-le-Spring, United Kingdom — 2,912 30,140 — ( 6,084 ) 2,375 24,593 26,968 5,827 2007 Aug.

Roseville, MN — 2,560 16,025 435 — 2,560 16,460 19,020 3,223 2001 Nov.

The Woodlands, TX — 1,697 52,289 — ( 29,342 ) 645 23,999 24,644 7,427 2009 Oct.

Hoffman Estates, IL 10,193 5,550 14,214 — — 5,550 14,214 19,764 1,951 2009 Oct.

Tampa, FL — 2,025 31,821 1,557 ( 8,124 ) 1,476 25,803 27,279 5,419 1985 Oct.

Tampa, FL — 1,864 18,022 410 — 1,864 18,432 20,296 2,946 1985 Oct.

Hartland, WI 1,999 1,454 6,406 — — 1,454 6,406 7,860 933 2001 Oct.

Houston, TX — 2,136 2,344 — ( 1,143 ) 1,544 1,793 3,337 445 1982 Oct.

2 unchanged sentences

Eagan, MN — 4,312 32,878 — ( 19,216 ) 1,524 16,450 17,974 5,078 1969 Oct.

Warrenville, IL — 3,662 23,711 — — 3,662 23,711 27,373 3,869 2002 Oct.

Houston, TX — 23,161 104,266 3,345 — 23,161 107,611 130,772 16,606 1973 Oct.

Krakow, Poland — 2,381 6,212 245 ( 3,659 ) 1,279 3,900 5,179 912 2003 Oct.

Plymouth, MN — 2,871 26,353 1,000 ( 11,515 ) 1,605 17,104 18,709 4,429 1999 Oct.

San Antonio, TX — 3,094 16,624 — — 3,094 16,624 19,718 2,763 2002 Oct.

Oak Creek, WI — 2,858 11,055 — — 2,858 11,055 13,913 1,938 2000 Oct.

Morrisville, NC — 2,374 30,140 7,071 — 2,374 37,211 39,585 5,172 1998 Mar.

Norcross, GA — 1,795 2,676 — — 1,795 2,676 4,471 162 1999 Aug.

Farmington Hills, MI 5,980 2,195 5,213 — — 2,195 5,213 7,408 315 2001 Aug.

Eagan, MN 8,828 1,298 7,445 — — 1,298 7,445 8,743 450 2013 Aug.

Net Lease Office Properties 2024 10-K – 77

12 unchanged sentences

Description Encumbrances Land Buildings Land Buildings Total

Eagan, MN 9,853 2,654 19,287 — — 2,654 19,287 21,941 2,716 1982 Oct.

Eagan, MN 9,583 3,112 15,419 — — 3,112 15,419 18,531 2,201 2001 Oct.

Eagan, MN 7,872 3,396 16,754 — ( 6,832 ) 2,088 11,230 13,318 2,419 1985 Oct.

Warrenville, IL 5,756 3,662 23,711 — — 3,662 23,711 27,373 3,241 2002 Oct.

Houston, TX 24,610 23,161 104,266 2,290 — 23,161 106,556 129,717 13,885 1973 Oct.

Auburn Hills, MI 3,118 1,910 6,773 272 — 1,910 7,045 8,955 956 2012 Oct.

Tempe, AZ 13,184 — 19,533 — ( 1,265 ) — 18,268 18,268 2,668 2000 Oct.

Krakow, Poland — 2,381 6,212 — ( 259 ) 2,309 6,025 8,334 837 2003 Oct.

Plymouth, MN 8,280 2,871 26,353 741 — 2,871 27,094 29,965 3,747 1999 Oct.

San Antonio, TX 7,866 3,094 16,624 — — 3,094 16,624 19,718 2,315 2002 Oct.

Oak Creek, WI 5,549 2,858 11,055 — — 2,858 11,055 13,913 1,624 2000 Oct.

Morrisville, NC 9,879 2,374 30,140 2,650 — 2,374 32,790 35,164 4,273 1998 Mar.

Norcross, GA 2,545 1,795 2,676 — — 1,795 2,676 4,471 95 1999 Aug.

Farmington Hills, MI 6,087 2,195 5,213 — — 2,195 5,213 7,408 185 2001 Aug.

Eagan, MN 8,704 1,298 7,445 — — 1,298 7,445 8,743 264 2013 Aug.

Plymouth, MN 25,213 4,624 29,243 — — 4,624 29,243 33,867 1,038 1982 Aug.

Plano, TX 21,803 3,667 28,073 — ( 1,111 ) 3,667 26,962 30,629 1,698 2001 Aug.

Jacksonville, FL 9,657 2,084 6,673 — — 2,084 6,673 8,757 404 2001 Aug.

Warrenville, IL 19,893 3,285 11,666 484 — 3,285 12,150 15,435 447 2001 Aug.

Coralville, IA — 2,222 35,695 — — 2,222 35,695 37,917 2,159 2015 Aug.

4 unchanged sentences

(b) The increase (decrease) in net investment was primarily due to (i) impairment charges and (ii) changes in foreign currency exchange rates.

(c) Excludes (i) gross lease intangible assets of $ 411.5 million and the related accumulated amortization of $ 245.4 million, (ii) gross lease intangible liabilities of $ 26.8 million and the related accumulated amortization of $ 16.2 million, and (iii) net investments in sales-type leases of $ 10.5 million.

(c) Excludes (i) gross lease intangible assets of $ 238.5 million and the related accumulated amortization of $ 140.6 million, (ii) gross lease intangible liabilities of $ 18.9 million and the related accumulated amortization of $ 12.6 million, (iii) assets held for sale of $ 29.3 million, and (iv) real estate under construction of $ 0.4 million.

(d) A reconciliation of real estate and accumulated depreciation follows:

7 unchanged sentences

Beginning balance $ 1,203,991 $ 1,287,547 $ 1,100,230

Impairment charges ( 57,607 ) — —

Dispositions ( 371,638 ) ( 35,287 ) —

Reclassification to sales-type lease ( 17,861 ) — —

Reclassification from direct financing leases 14,558 — —

Impairment charges ( 73,301 ) ( 57,607 ) —

Reclassification to assets held for sale ( 31,066 ) — —

Capital improvements 8,372 13,398 4,723

Foreign currency translation adjustment ( 6,460 ) ( 757 ) ( 14,273 )

Reclassification to sales-type lease — ( 17,861 ) —

Reclassification from direct financing leases — 14,558 —

Acquisitions through CPA:18 Merger — — 196,867

5 unchanged sentences

Beginning balance $ 213,034 $ 190,516 $ 163,836

Depreciation expense 31,237 28,923 27,493

Dispositions ( 82,339 ) ( 4,782 ) —

Reclassification to sales-type lease ( 4,163 ) — —

Depreciation expense 23,687 31,237 28,923

Reclassification to assets held for sale ( 1,769 ) — —

Foreign currency translation adjustment ( 546 ) 226 ( 2,243 )

Reclassification to sales-type lease — ( 4,163 ) —

Ending balance $ 152,067 $ 213,034 $ 190,516

3 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data