nlop-20250331

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2025

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from__________ to __________

Commission File Number: 001-41812

Net Lease Office Properties

(Exact name of registrant as specified in its charter)


Maryland		92-0887849
(State or other jurisdiction of incorporation)		(I.R.S. Employer Identification No.)

One Manhattan West, 395 9th Avenue, 58th Floor
New York,	New York	10001
(Address of principal executive offices)		(Zip Code)

Investor Relations (212) 492-1140

(844) 656-7348

(Registrant’s telephone numbers, including area code)

(Former name or former address, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Shares of Beneficial Interest, par value $0.001 per share

NLOP

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☑

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☑

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

Registrant has 14,814,075 common shares of beneficial interest, $0.001 par value, outstanding at May 2, 2025.

INDEX


		Page No.
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
	Consolidated Balance Sheets as of March 3 1 , 202 5 and December 31, 20 24	3
	Consolidated Statements of Operations for the Three Months Ended March 3 1 , 202 5 and 20 24	4
	Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March 3 1 , 202 5 and 202 4	5
	Consolidated Statements of Equity for the Three Months Ended March 3 1 , 202 5 and 202 4	6
	Consolidated Statements of Cash Flows for the Three Months Ended March 31 , 202 5 and 202 4	7
	Notes to Consolidated Financial Statements	8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		20
Item 3. Quantitative and Qualitative Disclosures About Market Risk		29
Item 4. Controls and Procedures		31

PART II — OTHER INFORMATION
Item 6. Exhibits		32
Signatures		33

Net Lease Office Properties 3/31/2025 10-Q – 1

Forward-Looking Statements

This Quarterly Report on Form 10-Q (this “Report”), including Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 2 of Part I of this Report, contains forward-looking statements within the meaning of the federal securities laws. These forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. These forward-looking statements include, but are not limited to, statements regarding: our corporate strategy and estimated or future economic performance and results, including our expectations surrounding the impact of the broader macroeconomic environment and the ability of tenants to pay rent, financial condition, liquidity, results of operations, and prospects; our future capital expenditure and leverage levels, debt service obligations, and plans to fund our liquidity needs, including our ability to sell or dispose of properties; prospective statements regarding our access to the capital markets; statements that we make regarding our ability to remain qualified for taxation as a real estate investment trust (“REIT”); and the impact of recently issued accounting pronouncements and regulatory activity.

These statements are based on the current expectations of our management. It is important to note that our actual results could be materially different from those projected in such forward-looking statements. There are a number of risks and uncertainties that could cause actual results to differ materially from these forward-looking statements. Other unknown or unpredictable risks or uncertainties, like the risks related to fluctuating interest rates, the impact of inflation and tariffs on our tenants and us, the effects of pandemics and global outbreaks of contagious diseases, and domestic or geopolitical crises, such as terrorism, military conflict, war or the perception that hostilities may be imminent, political instability or civil unrest, or other conflict, could also have material adverse effects on our business, financial condition, liquidity, results of operations, and prospects. You should exercise caution in relying on forward-looking statements as they involve known and unknown risks, uncertainties, and other factors that may materially affect our future results, performance, achievements, or transactions. Information on factors that could impact actual results and cause them to differ from what is anticipated in the forward-looking statements contained herein is included in this Report, as well as in our other filings with the Securities and Exchange Commission (“SEC”), including but not limited to those described in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2024, as filed with the SEC on February 27, 2025 (the “2024 Annual Report”). Moreover, because we operate in a very competitive and rapidly changing environment, new risks are likely to emerge from time to time. Given these risks and uncertainties, potential investors are cautioned not to place undue reliance on these forward-looking statements as a prediction of future results, which speak only as of the date of this Report, unless noted otherwise. Except as required by federal securities laws and the rules and regulations of the SEC, we do not undertake to revise or update any forward-looking statements.

All references to “Notes” throughout the document refer to the footnotes to the consolidated financial statements of the registrant in Part I, Item 1. Financial Statements (Unaudited).

Net Lease Office Properties 3/31/2025 10-Q – 2

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

NET LEASE OFFICE PROPERTIES

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in thousands, except share and per share amounts)


	March 31, 2025		December 31, 2024
Assets
Investments in real estate:
Land, buildings and improvements	$	721,448	$	730,345
In-place lease intangible assets and other	208,933		209,968
Above-market rent intangible assets	30,508		30,512
Investments in real estate	960,889		970,825
Accumulated depreciation and amortization	(297,845)		(292,679)
Assets held for sale, net	29,297		29,297
Net investments in real estate	692,341		707,443
Restricted cash	37,597		43,305
Cash and cash equivalents	28,153		25,121
Other assets, net	26,014		29,200
Total assets (a)	$	784,105	$	805,069
Liabilities and Equity
Debt:
Non-recourse mortgages, net	$	115,327	$	111,259
NLOP Mezzanine Loan, net	33,171		57,957
Debt, net	148,498		169,216
Accounts payable, accrued expenses and other liabilities	43,576		44,145
Below-market rent intangible liabilities, net	5,802		6,305
Total liabilities (a)	197,876		219,666
Commitments and contingencies (Note 9)

Preferred stock, $0.001 par value, 5,000,000 shares authorized; none issued	—		—
Common stock, $0.001 par value, 45,000,000 shares authorized; 14,814,075 and 14,814,075 shares, respectively, issued and outstanding	15		15
Additional paid-in capital	855,813		855,813
Distributions in excess of accumulated earnings	(233,951)		(234,443)
Accumulated other comprehensive loss	(39,754)		(40,157)
Total shareholders’ equity	582,123		581,228
Noncontrolling interests	4,106		4,175
Total equity	586,229		585,403
Total liabilities and equity	$	784,105	$	805,069

__________

(a)See Note 2 for details related to variable interest entities (“VIEs”).

See Notes to Consolidated Financial Statements.

Net Lease Office Properties 3/31/2025 10-Q – 3

NET LEASE OFFICE PROPERTIES

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(in thousands, except share and per share amounts)


	Three Months Ended March 31,
	2025		2024
Revenues
Lease revenues	$	27,392	$	38,314
Income from finance leases	—		89
Other lease-related income	1,821		5,604
	29,213		44,007
Operating Expenses
Depreciation and amortization	9,725		17,970
Reimbursable tenant costs	6,140		6,200
Property expenses, excluding reimbursable tenant costs	2,455		2,251
General and administrative	1,807		1,901
Asset management fees	1,260		1,804
Impairment charges — real estate	920		4,065
Other expenses	—		16
	22,307		34,207
Other Income and Expenses
Interest expense	(5,746)		(20,800)
Loss on sale of real estate, net	(1,008)		(15,776)
Other gains and (losses)	443		(821)
	(6,311)		(37,397)
Income (loss) before income taxes	595		(27,597)
Provision for income taxes	(82)		(224)
Net Income (Loss)	513		(27,821)
Net income attributable to noncontrolling interests	(21)		(21)
Net Income (Loss) Attributable to NLOP	$	492	$	(27,842)

Basic and Diluted Earnings (Loss) Per Share	$	0.03	$	(1.88)

Weighted-Average Shares Outstanding
Basic and Diluted	14,814,075		14,785,118

See Notes to Consolidated Financial Statements.

Net Lease Office Properties 3/31/2025 10-Q – 4

NET LEASE OFFICE PROPERTIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

(in thousands)


	Three Months Ended March 31,
	2025		2024
Net Income (Loss)	$	513	$	(27,821)
Other Comprehensive Income (Loss)
Foreign currency translation adjustments	403		(2,230)
Unrealized gain on derivative instruments	—		212
	403		(2,018)
Comprehensive Income (Loss)	916		(29,839)

Amounts Attributable to Noncontrolling Interests
Net income	(21)		(21)
Comprehensive income attributable to noncontrolling interests	(21)		(21)
Comprehensive Income (Loss) Attributable to NLOP	$	895	$	(29,860)

See Notes to Consolidated Financial Statements.

Net Lease Office Properties 3/31/2025 10-Q – 5

NET LEASE OFFICE PROPERTIES

CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)

(in thousands, except share amounts)


	Common Stock			Additional Paid-In Capital		Distributions in Excess of Accumulated Earnings		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity		Noncontrolling Interests		Total Equity
	$0.001 Par Value
	Shares	Amount
Balance at January 1, 2025	14,814,075	$	15	$	855,813	$	(234,443)	$	(40,157)	$	581,228	$	4,175	$	585,403
Net income						492				492		21		513
Distributions to noncontrolling interests										—		(90)		(90)
Other comprehensive income:
Foreign currency translation adjustments								403		403				403
Balance at March 31, 2025	14,814,075	$	15	$	855,813	$	(233,951)	$	(39,754)	$	582,123	$	4,106	$	586,229


	Common Stock			Additional Paid-In Capital		Distributions in Excess of Accumulated Earnings		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity		Noncontrolling Interests		Total Equity
	$0.001 Par Value
	Shares	Amount
Balance at January 1, 2024	14,620,919	$	15	$	855,554	$	(142,960)	$	(35,600)	$	677,009	$	4,421	$	681,430
Net income						(27,842)				(27,842)		21		(27,821)
Shares issued	164,199	—		12		(11)				1				1
Amortization of stock-based compensation expense				75						75				75
Distributions to noncontrolling interests										—		(60)		(60)
Other comprehensive loss:
Foreign currency translation adjustments								(2,230)		(2,230)				(2,230)
Unrealized gain on derivative instruments								212		212				212
Balance at March 31, 2024	14,785,118	$	15	$	855,641	$	(170,813)	$	(37,618)	$	647,225	$	4,382	$	651,607

See Notes to Consolidated Financial Statements.

Net Lease Office Properties 3/31/2025 10-Q – 6

NET LEASE OFFICE PROPERTIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)


	Three Months Ended March 31,
	2025		2024
Cash Flows — Operating Activities
Net income (loss)	$	513	$	(27,821)
Adjustments to net income (loss):
Depreciation and amortization, including intangible assets and deferred financing costs	10,760		24,388
Loss on sale of real estate, net	1,008		15,776
Net realized and unrealized losses on extinguishment of debt, foreign currency exchange rate movements, and other	989		1,342
Impairment charges — real estate	920		4,065
Amortization of rent-related intangibles and deferred rental revenue	(609)		(3,637)
Straight-line rent adjustments	513		777
Deferred income tax benefit	—		(123)
Stock-based compensation expense	—		75
Net changes in other operating assets and liabilities	28		1,159
Proceeds from sales of net investments in sales-type leases	—		10,392
Net Cash Provided by Operating Activities	14,122		26,393
Cash Flows — Investing Activities
Proceeds from sales of real estate	9,224		32,423
Funding for real estate construction, redevelopments, and other capital expenditures on real estate	(1,795)		(5,666)
Value added taxes received in connection with sale of real estate	1,227		—
Net Cash Provided by Investing Activities	8,656		26,757
Cash Flows — Financing Activities
Payments of mortgage principal and other debt instruments	(25,672)		(30,916)
Distributions to noncontrolling interests	(90)		(60)
Other financing activities, net	(7)		10
Dividends paid	—		(1,071)
Net Cash Used in Financing Activities	(25,769)		(32,037)
Change in Cash and Cash Equivalents and Restricted Cash During the Period
Effect of exchange rate changes on cash and cash equivalents and restricted cash	315		(596)
Net (decrease) increase in cash and cash equivalents and restricted cash	(2,676)		20,517
Cash and cash equivalents and restricted cash, beginning of period	68,426		67,829
Cash and cash equivalents and restricted cash, end of period	$	65,750	$	88,346

See Notes to Consolidated Financial Statements.

Net Lease Office Properties 3/31/2025 10-Q – 7

NET LEASE OFFICE PROPERTIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1. Business and Organization

Net Lease Office Properties (“NLOP” or the “Company”) is a publicly-traded REIT that owns a diversified portfolio of office properties that are primarily leased to corporate tenants on a single-tenant, net-lease basis. Our net leases generally specify a base rent with rent increases and require the tenant to pay substantially all costs associated with operating and maintaining the property. Certain wholly-owned affiliates of W. P. Carey Inc. (“WPC”) (our “Advisor”) externally manage NLOP pursuant to certain advisory agreements (the “NLOP Advisory Agreements”).

Our common shares are listed on the New York Stock Exchange under the ticker symbol “NLOP.”

NLOP was initially formed when, pursuant to the terms of a separation and distribution agreement, 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, NLOP, on October 21, 2022, to own the 59 office assets. On November 1, 2023, WPC completed the Spin-Off, contributing 59 office properties to NLOP. The Spin-Off was accomplished via a pro rata dividend of 1 NLOP common share for every 15 shares of WPC common stock outstanding.

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

As of March 31, 2025, NLOP’s portfolio was comprised of full or partial ownership interests in 37 properties, net leased to 41 corporate tenants, totaling approximately 6.1 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 4.1 years. Information with respect to number of properties and square footage is unaudited.

NLOP operates as one segment, and through its subsidiaries, owns, operates, and finances office buildings. Our business is characterized as owning a diversified portfolio of office properties that are primarily leased to corporate tenants on a single-tenant, net-lease basis. These economic characteristics are similar across various geographic locations and industries in which our tenants operate and therefore considered one operating segment. Our consolidated operating results, including net income, are regularly reviewed, in the aggregate, by our chief operating decision maker (“CODM”) to evaluate performance and allocate resources, which can be found on our consolidated financial statements.

Our revenues are largely derived from the long-term leases that we execute with tenants. These revenues are classified as either Lease revenues (Note 4) or Income from finance leases (Note 4) in accordance with Accounting Standards Codification (“ASC”) 842, Leases.

Our operating expenses are regularly reviewed by our CODM. All expenses are reviewed, but our CODM is regularly provided with the following significant expenses, which are included in our consolidated financial statements and require no additional disaggregation: Property expenses, excluding reimbursable tenant costs, General and administrative expenses, Asset management fees, Interest expense, and Provision for income taxes.

Note 2. Basis of Presentation

Basis of Presentation

Our interim consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not necessarily include all information and footnotes necessary for a complete statement of our consolidated financial position, results of operations, and cash flows in accordance with generally accepted accounting principles in the United States (“GAAP”). In the opinion of management, the unaudited financial information for the interim 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. Our interim consolidated financial statements should be read in conjunction with our audited consolidated financial statements and accompanying notes for the year ended December 31, 2024, which are included in the 2024 Annual Report, as certain disclosures that would substantially duplicate those contained in the audited consolidated financial statements have not been included in this Report. Operating results for interim periods are not necessarily indicative of operating results for an entire year.

Net Lease Office Properties 3/31/2025 10-Q – 8

Notes to Consolidated Financial Statements (Unaudited)

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts and the disclosure of contingent amounts in our consolidated financial statements and the accompanying notes. Actual results could differ from those estimates.

Basis of Consolidation

Our consolidated financial statements reflect all of our accounts, including those of our controlled subsidiaries. The portions of equity in consolidated subsidiaries that are not attributable, directly or indirectly, to us are presented as noncontrolling interests. All significant intercompany accounts and transactions have been eliminated.

When we obtain an economic interest in an entity, we evaluate the entity to determine if it should be deemed a VIE and, if so, whether we are the primary beneficiary and are therefore required to consolidate the entity. There have been no significant changes in our VIE policies from what was disclosed in the 2024 Annual Report.

At both March 31, 2025 and December 31, 2024, 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):


	March 31, 2025		December 31, 2024
Land, buildings and improvements	$	37,917	$	37,917
In-place lease intangible assets and other	9,685		9,685
Above-market rent intangible assets	4,338		4,338
Accumulated depreciation and amortization	(6,919)		(6,271)
Total assets	46,553		47,197

Total liabilities	$	308	$	304

Cash and Cash Equivalents and Restricted Cash

The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the consolidated balance sheets to the consolidated statements of cash flows (in thousands):


	March 31, 2025		December 31, 2024
Cash and cash equivalents	$	28,153	$	25,121
Restricted cash (a)	37,597		43,305
Total cash and cash equivalents and restricted cash	$	65,750	$	68,426

__________

(a)Amounts as of March 31, 2025 and December 31, 2024 include approximately $35.8 million and $41.7 million, respectively, related to certain reserve requirements pursuant to the NLOP Financing Arrangements (Note 8). In April 2025, we fully repaid the NLOP Mezzanine Loan (Note 13).

Earnings Per Share

Basic earnings per share is calculated by dividing net income available to common shareholders by the weighted-average number of shares of common shares outstanding during the period. Diluted earnings per share reflects potentially dilutive securities using the treasury stock method, except when the effect would be anti-dilutive. For the three months ended March 31, 2025, there were no potentially dilutive securities. Therefore, basic net income per share equals diluted net income per share for the three months ended March 31, 2025. For the three months ended March 31, 2024, 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 three months ended March 31, 2024.

Net Lease Office Properties 3/31/2025 10-Q – 9

Notes to Consolidated Financial Statements (Unaudited)

Foreign Currency Translation and Transaction Gains and Losses

As of March 31, 2025, we owned an international real estate investment in Norway, for which the primary functional currency is the Norwegian krone. We perform the translation from this currency to the U.S. dollar for assets and liabilities using current exchange rates in effect at the balance sheet date and for revenue and expense accounts using the average exchange rate during the month in which the transaction occurs. 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 reclassified out of foreign currency translation adjustments (within Accumulated other comprehensive loss in the consolidated balance sheets) and released to net income (within 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 three months ended March 31, 2025, we exited all investments denominated in euros (Note 10, Note 12).

Recent Accounting Pronouncements

In December 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (“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.

Note 3. Agreements and Transactions with Related Parties

Advisory Agreements

Pursuant to the NLOP Advisory Agreements, which we entered into on November 1, 2023, our Advisor provides us with strategic management services, including asset management, property disposition support, and various related services. We pay our Advisor an asset management fee that was initially set at an annual amount of $7.5 million and is being proportionately reduced 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.

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):


	Three Months Ended March 31,
	2025		2024
Asset management fees (a)	$	1,260	$	1,804
Administrative reimbursements (b)	1,000		1,000
	$	2,260	$	2,804

__________

(a)Included within Asset management fees in the consolidated statements of operations.

(b)Included within General and administrative expenses in the consolidated statements of operations.

The following table presents a summary of amounts due to affiliates, which are included within Accounts payable, accrued expenses and other liabilities in the consolidated financial statements (in thousands):


	March 31, 2025		December 31, 2024
Asset management fees payable	$	417	$	469
Administrative reimbursements payable and other	335		366
	$	752	$	835

Net Lease Office Properties 3/31/2025 10-Q – 10

Notes to Consolidated Financial Statements (Unaudited)

Other Transactions with Related Parties

At March 31, 2025, we owned an interest in one jointly owned investment in real estate, with the remaining interest held by a third party. We consolidate this investment.

Note 4. Land, Buildings and Improvements, Finance Receivables and Assets Held for Sale

Land, Buildings and Improvements

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


	March 31, 2025		December 31, 2024
Land	$	93,011	$	94,123
Buildings and improvements	627,184		635,775
Real estate under construction	1,253		447
Less: Accumulated depreciation	(152,339)		(152,067)
	$	569,109	$	578,278

During the three months ended March 31, 2025, the U.S. dollar weakened against the Norwegian krone and euro. As a result of this fluctuation in foreign currency exchange rates, the carrying value of our Land, buildings and improvements increased by $2.0 million from December 31, 2024 to March 31, 2025.

Depreciation expense, including the effect of foreign currency translation, on our buildings and improvements subject to operating leases was $4.3 million and $7.1 million for the three months ended March 31, 2025 and 2024, respectively.

During the three months ended March 31, 2025, we capitalized accrued costs of $1.0 million within Land, buildings and improvements for capital expenditures.

Dispositions of Properties

During the three months ended March 31, 2025, we disposed of two properties, which were classified as Land, buildings and improvements. As a result, the carrying value of our Land, buildings and improvements decreased by $8.7 million from December 31, 2024 to March 31, 2025 (Note 1 2).

Real Estate Under Construction

During the three months ended March 31, 2025, we capitalized $0.8 million of real estate under construction related to a maintenance project at a property.

Leases

Operating Lease Income

Lease income related to operating leases recognized and included in the consolidated statements of operations is as follows (in thousands):


	Three Months Ended March 31,
	2025	2024
Lease income — fixed	$

SEC Form 10-Q filed by Net Lease Office Properties