Net Lease Office Properties(NLOP) - 2025 Q3 - Quarterly Report

Financial Performance - Lease revenues for the three months ended September 30, 2025, were $24,099,000, down 19.3% from $29,975,000 in the same period of 2024[17]. - Net loss for the three months ended September 30, 2025, was $64,140,000, compared to a net loss of $40,274,000 for the same period in 2024, indicating an increase in losses of 59.5%[17]. - Comprehensive loss for the three months ended September 30, 2025, was $23,817,000, compared to $38,519,000 for the same period in 2024, a decrease of 38.5%[20]. - Basic and diluted loss per share for the three months ended September 30, 2025, was $4.33, compared to $2.73 for the same period in 2024, indicating a significant increase in loss per share[17]. - The net cash provided by operating activities for the nine months ended September 30, 2025, is $42,157,000, compared to $61,378,000 for the same period in 2024[29]. - The company experienced a net loss of $55,622,000 for the nine months ended September 30, 2024[29]. - As of September 30, 2025, the company reported a net loss of $40.3 million for the three months ended, compared to a net loss of $64.2 million for the same period in 2024[101]. Asset and Liability Management - Total assets decreased from $805,069,000 as of December 31, 2024, to $522,551,000 as of September 30, 2025, representing a decline of approximately 35%[13]. - Total liabilities decreased from $219,666,000 as of December 31, 2024, to $88,331,000 as of September 30, 2025, a reduction of approximately 60%[13]. - Cash and cash equivalents increased from $25,121,000 as of December 31, 2024, to $38,689,000 as of September 30, 2025, showing a growth of 53.9%[13]. - Cash and cash equivalents increased to $38.7 million as of September 30, 2025, compared to $25.1 million as of December 31, 2024[43]. - Total cash and cash equivalents and restricted cash amounted to $41.1 million as of September 30, 2025, down from $68.4 million as of December 31, 2024[43]. - The fair value of non-recourse mortgages, net, was $47.1 million as of September 30, 2025, down from $111.3 million at December 31, 2024[76]. - The company’s scheduled mortgage debt principal payments total $47.1 million as of September 30, 2025, with $25.2 million due in 2025[97]. Impairment and Real Estate - Impairment charges on real estate for the three months ended September 30, 2025, were $50,892,000, up from $34,164,000 in the same period of 2024, reflecting a 48.9% increase[17]. - The company reported impairment charges of $133,629,000 related to real estate for the nine months ended September 30, 2025[29]. - The total impairment charges for real estate during the nine months ended September 30, 2025, amounted to $184.6 million, compared to $133.6 million for the same period in 2024[75]. - The company recognized impairment charges totaling $25.7 million on three properties during the three months ended September 30, 2025[79]. - The estimated fair value of a property in Houston, Texas, was determined to be $73.2 million, leading to an impairment charge of $81.6 million due to its carrying value being not fully recoverable[78]. - The company recognized a loss on the sale of real estate amounting to $3.4 million during the nine months ended September 30, 2025, due to a lowered estimated purchase price[66]. Distributions and Shareholder Returns - The company declared distributions of $3.10 per share, totaling $45,924,000[26]. - The company declared a special cash distribution of $3.10 per share in August 2025, totaling approximately $45.9 million, paid on September 3, 2025[100]. - The total distributions to noncontrolling interests amounted to $271,000 for the nine months ended September 30, 2025[29]. - The company reported a total of 14,814,075 shares outstanding as of September 30, 2025, which is consistent with the previous period[17]. Operational Highlights - The company’s total assets include 59 office properties acquired during the spin-off from W. P. Carey Inc.[33]. - As of September 30, 2025, the portfolio comprised 32 properties net leased to 36 corporate tenants, totaling approximately 5.4 million leasable square feet with a weighted-average lease term of 4.3 years[34]. - For the three months ended September 30, 2025, total operating lease income was $24.1 million, a decrease from $30.0 million in the same period of 2024[59]. - Lease termination income for the three months ended September 30, 2025, was $5.0 million, compared to $0.7 million for the same period in 2024[61]. - The company entered into a lease termination agreement with a tenant, resulting in a lease termination fee of $13.0 million, of which $4.8 million was recognized in the third quarter of 2025[60]. - The KBR, Inc. property in Houston, Texas, generated lease revenues of $6.9 million for Q3 2025, with reimbursable tenant costs of $(2.1) million[190]. - Tenant KBR, Inc. accounted for 27% of total revenues, while JPMorgan Chase Bank, N.A. accounted for 13%[191]. Risk Factors - The company anticipates potential risks related to fluctuating interest rates and macroeconomic conditions that could impact future performance[9]. - The company is exposed to interest rate risk, which could adversely affect profitability and the value of its real estate investment portfolio[183]. - The company’s interest rate cap agreements aim to limit exposure to interest rate movements, with a notional amount of $150.9 million as of September 30, 2025[90]. - The company sold all international investments during the nine months ended September 30, 2025, mitigating foreign currency exchange rate risk[187]. Debt and Financing - The company had a non-recourse mortgage loan with a principal balance of $25.2 million that was not repaid on its maturity date of January 6, 2025, accruing default interest at an annual rate of 5.0%[95]. - The company recognized a net loss on extinguishment of debt of less than $0.1 million during the nine months ended September 30, 2025, from prepaying three non-recourse mortgage loans totaling $24.5 million[96]. - The company’s weighted-average fixed interest rate for non-recourse mortgage notes payable was 8.2% as of September 30, 2025[94]. - The company reported total derivatives not designated as hedging instruments with a fair value of $0 at September 30, 2025, compared to $10,000 at December 31, 2024[85]. Future Outlook - The company plans to adopt the new income tax disclosure standards effective January 1, 2026, which is not expected to have a material impact on its consolidated financial statements[47].