Property Dispositions

12 Months Ended

Dec. 31, 2023

Discontinued Operations and Disposal Groups [Abstract]

NLOP Spin-Off

Spin-Off

On November 1, 2023, we completed the Spin-Off of 59 office properties into NLOP (Note 1). The Spin-Off was accomplished via a pro rata dividend of one NLOP common share for every 15 shares of WPC common stock outstanding. Following the closing of the Spin-Off, NLOP operates as a separate publicly-traded REIT, for which we serve as advisor pursuant to the NLOP Advisory Agreements executed in connection with the Spin-Off, as described below in further detail.

On the date of the Spin-Off, NLOP’s portfolio of 59 office properties totaled approximately 9.3 million leasable square feet (including 0.6 million of operating square footage for a parking garage at a domestic property) (unaudited) primarily leased to 62 corporate tenants on a single-tenant net lease basis. The vast majority of the office properties owned by NLOP are located in the United States, with the balance in Europe. NLOP’s portfolio generated ABR totaling approximately $145 million as of September 30, 2023. We also derecognized non-recourse mortgages encumbering ten properties totaling $164.7 million.

The following table summarizes assets, liabilities, and equity derecognized in connection with the Spin-Off (in thousands):


Assets
Investments in real estate:
Land, buildings and improvements — net lease and other	$	1,299,400
In-place lease and other intangible assets	373,631
Above-market rent intangible assets	58,426
Investments in real estate	1,731,457
Accumulated depreciation and amortization	(454,768)
Net investments in real estate	1,276,689
Cash and cash equivalents and restricted cash	9,141
Other assets, net (excluding restricted cash)	70,472
Goodwill (Note 8)	61,737
Less: impairment charges (Note 10)	(47,282)
Total assets	$	1,370,757
Liabilities and Equity
Non-recourse mortgages, net	$	164,743
Accounts payable, accrued expenses and other liabilities	54,199
Below-market rent and other intangible liabilities	11,799
Deferred income taxes	9,718
Total liabilities	240,459

Distributions in excess of accumulated earnings	229,712
Accumulated other comprehensive loss	(35,664)
Noncontrolling interests	4,406
Total equity	198,454
Total liabilities and equity	$	438,913

The following table summarizes the impact to the components of Total equity in connection with the Spin-Off (in thousands):


Impact to Total Equity
Total assets derecognized (excluding cash and cash equivalents and restricted cash)	$	(1,361,616)
Total liabilities derecognized	240,459
Net assets derecognized	(1,121,157)
Less: Proceeds in connection with the Spin-Off, reflecting cash and cash equivalents and restricted cash derecognized (described below under “Debt Facility”)	343,885
Impact to Total equity	$	(777,272)

Impact to Components of Total Equity
Distributions in excess of accumulated earnings derecognized	$	(229,712)
Accumulated other comprehensive income derecognized	35,664
Noncontrolling interests derecognized	(4,406)
Reduction to Additional paid-in capital	(578,818)
Impact to Total equity	$	(777,272)

NLOP Agreements

Pursuant to the NLOP Advisory Agreements, which we entered into on November 1, 2023, we provide NLOP with strategic management services, including asset management, property disposition support, and various related services. NLOP will pay us an asset management fee of approximately $7.5 million annually, which will be proportionately reduced following the disposition of a portfolio property. Such fees are included in Asset management revenue on our consolidated statements of income. In addition, NLOP will reimburse us 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. Such amounts are included in Other advisory income and reimbursements on our consolidated statements of income.

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 NLOP.

On October 31, 2023, we also entered into a Tax Matters Agreement, which governs the respective rights, responsibilities, and obligations of us and NLOP after the Distribution, with respect to tax liabilities and benefits, the preparation and filing of tax returns, the control of audits and other tax proceedings, tax covenants, tax indemnification, cooperation, and information sharing.

Debt Facility

In September 2023, NLOP entered into a new $455 million debt facility, which was executed by NLOP and funded upon the closing of the Spin-Off on November 1, 2023 (the “NLOP Financing Arrangements”). Approximately $343.9 million of this amount (net of (i) transaction expenses and (ii) cash and cash equivalents and restricted cash derecognized) was retained by us in connection with the Spin-Off.

Spin-Off Costs

In connection with the Spin-Off, we have incurred approximately $61.6 million in total costs, comprised of (i) $10.0 million of advisory fees, which is included in Merger and other expenses on our consolidated statements of income ($4.9 million of such fees were recognized during 2022 and $5.1 million were recognized during the year ended December 31, 2023); and (ii) $51.6 million of additional Spin-Off related costs (including $14.4 million of financing costs incurred in connection with the NLOP Financing Arrangements), which were reimbursed to us by NLOP in connection with the Spin-Off.

Property Dispositions

We have an active capital recycling program, with a goal of extending the average lease term through reinvestment, improving portfolio credit quality through dispositions and acquisitions of assets, increasing the asset criticality factor in our portfolio, and/or executing strategic dispositions of assets. We may decide to dispose of a property when it is vacant as a result of tenants vacating space, tenants electing not to renew their leases, tenant insolvency, or lease rejection in the bankruptcy process. In such cases, we assess whether we can obtain the highest value from the property by selling it, as opposed to re-leasing it. We may also sell a property when we receive an unsolicited offer or negotiate a price for an investment that is consistent with our strategy for that investment or, in certain instances, when we sell a property back to the tenant. When it is appropriate to do so, we classify the property as an asset held for sale on our consolidated balance sheet.

In addition, we implemented the Office Sale Program in September 2023, which is targeted to be completed in the first half of 2024 (Note 1).

All property dispositions are recorded within our Real Estate segment and are also discussed in Note 6. These dispositions exclude properties contributed to NLOP in the Spin-Off (Note 3).

2023 — During the year ended December 31, 2023, we sold 31 properties for total proceeds, net of selling costs, of $446.4 million, and recognized a net gain on these sales totaling $80.7 million (inclusive of income taxes totaling $1.6 million recognized upon sale). Eight of the properties sold during 2023 were hotel operating properties.

This disposition activity includes the sale of eight properties under the Office Sale Program for total proceeds, net of selling costs, of $216.9 million, resulting in a net gain on these sales totaling $3.6 million.

2022 — During the year ended December 31, 2022, we sold 23 properties for total proceeds, net of selling costs, of $234.7 million, and recognized a net gain on these sales totaling $43.5 million (inclusive of income taxes totaling $5.3 million recognized upon sale). This disposition activity included two properties acquired in the CPA:18 Merger, one of which was classified as assets held for sale and sold in August 2022 (Note 4).

2021 — During the year ended December 31, 2021, we sold 24 properties for total proceeds, net of selling costs, of $163.6 million, and recognized a net gain on these sales totaling $40.4 million (inclusive of income taxes totaling $4.7 million recognized upon sale).