Net Lease Office PropertiesNLOP
Net Lease Office Properties Fair Value Disclosure
Fair Value Measurements
The fair value of an asset is defined as the exit price, which is the amount that would either be received when an asset is sold or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The guidance establishes a three-tier fair value hierarchy based on the inputs used in measuring fair value. These tiers are: Level 1, for which quoted market prices for identical instruments are available in active markets, such as money market funds and U.S. Treasury securities; Level 2, for which there are inputs other than quoted prices included within Level 1 that are observable for the instrument, such as certain derivative instruments including interest rate caps; and Level 3, for securities that do not fall into Level 1 or Level 2 and for which little or no market data exists, therefore requiring us to develop our own assumptions.
Items Measured at Fair Value on a Recurring Basis
The methods and assumptions described below were used to estimate the fair value of each class of financial instrument. For significant Level 3 items, we have also provided the unobservable inputs.
Derivative Assets — Our derivative assets, which were included in Other assets, net in the consolidated financial statements, comprised interest rate caps (Note 9).
The valuation of our derivative instruments is determined using a discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, as well as observable market-based inputs, including interest rate curves, spot and forward rates, and implied volatilities. We incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of our derivative instruments for the effect of nonperformance risk, we have considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees. 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.
Our material financial instruments had the following carrying values and fair values as of the dates shown (dollars in thousands):
| December 31, 2025 | December 31, 2024 | ||||||||||||||||||||||||||||
| Level | Carrying Value | Fair Value | Carrying Value | Fair Value | |||||||||||||||||||||||||
Non-recourse mortgages, net (a) (b) (c) | 3 | $ | 21,900 | $ | 21,900 | $ | 111,259 | $ | 91,642 | ||||||||||||||||||||
NLOP Mezzanine Loan, net (a) (b) (c) (d) | 3 | — | — | 57,957 | 61,753 | ||||||||||||||||||||||||
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(a)The carrying value of the NLOP Mezzanine Loan, net (Note 10) includes unamortized deferred financing costs of $1.0 million at December 31, 2024.
(b)The carrying value of Non-recourse mortgages, net includes unamortized premium of $0.4 million at December 31, 2024. The carrying value of the NLOP Mezzanine Loan, net (Note 10) includes unamortized discount of $2.2 million at December 31, 2024.
(c)We determined the estimated fair value of our non-recourse mortgage loans, NLOP Mezzanine Loan, and NLOP Mortgage Loan using a discounted cash flow model that estimates the present value of the future loan payments by discounting such payments at current estimated market interest rates. The estimated market interest rates consider interest rate risk and the value of the underlying collateral, which includes quality of the collateral, the credit quality of the tenant/obligor, and the time until maturity.
We estimated that our other financial assets and liabilities, excluding finance receivables (Note 6), had fair values that approximated their carrying values at both December 31, 2025 and 2024.
Items Measured at Fair Value on a Non-Recurring Basis (Including Impairment Charges)
We periodically assess whether there are any indicators that the value of our real estate investments may be impaired or that their carrying value may not be recoverable. Our impairment policies are described in Note 3.
The following table presents information about assets for which we recorded an impairment charge and that were measured at fair value on a non-recurring basis (classified as Level 3) (in thousands):
| Years Ended December 31, | |||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||||||||||||||||||||
| Fair Value Measurements | Impairment Charges | Fair Value Measurements | Impairment Charges | Fair Value Measurements | Impairment Charges | ||||||||||||||||||||||||||||||
Impairment Charges | |||||||||||||||||||||||||||||||||||
| Real estate | $ | 180,307 | $ | 140,814 | $ | 200,316 | $ | 78,237 | $ | 58,088 | $ | 63,143 | |||||||||||||||||||||||
| Goodwill | — | — | — | — | — | 62,456 | |||||||||||||||||||||||||||||
| $ | 140,814 | $ | 78,237 | $ | 125,599 | ||||||||||||||||||||||||||||||
Impairment charges, and their related triggering events and fair value measurements, recognized during the years ended December 31, 2025, 2024, and 2023 were as follows:
Real Estate
The impairment charges described below are reflected within Impairment charges — real estate in our consolidated statements of operations.
2025 — During the year ended December 31, 2025, we recognized an impairment charge of $81.6 million on a property in Houston, Texas, leased to KBR. After performing a strategic review of the asset at the direction of our Board of Trustees during the second quarter of 2025, we commenced sale efforts for the property. As a result, this met our likely disposition impairment trigger event in accordance with ASC 360, Property, Plant, and Equipment, at which time we determined that the carrying value of the asset was not fully recoverable. The impairment charge reflects the excess of the asset’s carrying amount over its estimated fair value. The fair value was determined based on valuation techniques consistent with ASC 820, Fair Value Measurement, which factored in current market conditions, existing lease terms, and assumptions about the highest and best use of the asset, using the following unobservable inputs:
•Cash flow discount rate of 10.0% commencing on June 30, 2025 and ending on an assumed future sale date;
•Future sale value discount rate of 10.0% commencing on June 30, 2025 and ending on an assumed future sale date; and
•Future buyer required return of 15.0% commencing on an assumed future sale date and ending after an assumed buyer hold period.
During the fourth quarter of 2025, we recognized another impairment charge of $3.2 million on this property, in order to reduce its carrying value to its estimated fair value, which approximated its estimated selling price, less costs to sell. This property was classified as held for sale as of December 31, 2025 (Note 5) and sold in January 2026 (Note 17).
Additionally, during the year ended December 31, 2025, we recognized an impairment charge of $14.6 million on a property in Warrenville, Illinois, due to changes in expected cash flows related to the existing tenant’s lease expiration in 2027, in order to reduce its carrying value to its estimated fair value. The fair value measurement for this property was determined by using the following unobservable inputs:
•Market rents of $14 per square foot;
•Cash flow discount rate of 7.0%;
•Property residual value of $35.90 per square foot, based on comparable dispositions;
•Future sale value discount rate of 8.0%; and
•Terminal capitalization rate of 8.5%.
In addition, during the year ended December 31, 2025, we recognized an impairment charge of $10.6 million on a property in Quincy, Massachusetts, due to changes in expected cash flows related to the existing tenant’s lease expiration in 2027, in order to reduce its carrying value to its estimated fair value. The fair value measurement for this property was determined by using the following unobservable inputs:
•Market rents of $20 per square foot;
•Cash flow discount rate of 8.0%;
•Future sale value discount rate of 11.0%; and
•Terminal capitalization rate of 8.5%.
Furthermore, during the year ended December 31, 2025, we recognized impairment charges totaling $30.8 million on six properties, in order to reduce their carrying values to their estimated fair values, which approximated their estimated selling prices, less costs to sell. Five of these properties were sold in 2025 and one was sold in February 2026 (Note 17).
2024 — During the year ended December 31, 2024, we recognized impairment charges totaling $47.7 million on nine properties in order to reduce their carrying values to their estimated fair values, which approximated their estimated selling prices, less costs to sell. Five of these properties were sold during 2024 and four were sold during 2025.
Additionally, during the year ended December 31, 2024, we recognized impairment charges totaling $30.6 million on three properties due to changes in expected cash flows related to the existing tenants’ lease expirations in 2025, in order to reduce their carrying values to their estimated fair values. The fair value measurement for these properties were determined by using the following unobservable inputs:
First property (impairment charge of $17.1 million; this property was sold in 2025):
•Market rents of 200 Norwegian krone per square foot;
•Terminal capitalization rate of 10.0%;
•Residual discount rate of 10.0%; and
•Cash flow discount rate of 8.0%.
Second property (impairment charge of $12.2 million; this property was sold in 2025):
•Market rents ranging from $7 per square foot to $15 per square foot;
•Terminal capitalization rate of 9.0%; and
•Cash flow discount rate of 14.0%.
Third property (impairment charge of $1.2 million):
•Estimated base rent collection of $0.6 million through the end of the lease term;
•Comparable vacant sale prices ranging from $0.3 million per acre to $0.7 million per acre; and
•Cash flow discount rate of 9.0%.
2023 — During the year ended December 31, 2023, we recognized impairment charges totaling $32.7 million on three properties leased to the same tenant due to the tenant’s lease expiration in 2024, in order to reduce their carrying values to their estimated fair values, which approximated their estimated selling prices, less costs to sell. One of the properties was sold in 2024.
Additionally, we recognized an impairment charge of $29.3 million on a property due to the tenant’s lease expiration in 2024, in order to reduce its carrying value to its estimated fair value. The fair value measurement for this property was determined by using the following unobservable inputs (this property was sold in 2025):
•Market rents ranging from $23 per square foot to $31 per square foot;
•Terminal capitalization rate of 8.3%; and
•Cash flow discount rate of 9.3%.
We also recognized an impairment charge of $1.1 million on a property due to the tenant’s lease expiration in 2024, in order to reduce its carrying value to its estimated fair value, which approximated its estimated selling price, less costs to sell. This property was disposed of in 2024.
Goodwill
The impairment charges described below are reflected within Impairment charges — goodwill in our consolidated statements of operations.
During the year ended December 31, 2023, we recognized an impairment charge of $62.5 million on goodwill in order to reduce its carrying value to zero, since the Company’s trading value as a public company subsequent to the completion of the Spin-Off resulted in a market capitalization that was significantly below the carrying value of our net assets (Note 7).
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 25, 2026 | Showing above |
| 2024 | Feb 27, 2025 | |
| 2023 | Mar 6, 2024 | |
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.