Copper Property CTL Pass Through Trust (CPPTL) Earnings Call Transcript & Summary

Welcome to the Copper Property CTL Pass Through Trust Conference Call. [Operator Instructions] Please note that today's conference is being recorded with an online replay available 1 hour after the conclusion of this call. Additional information can be found on the Investors section of the company's website at ctltrust.net. [Operator Instructions] I'll now turn the conference over to the Trust's Investor Relations representative, Jessica Cummins.

Thank you, operator. Good morning, everyone. Welcome to the Copper Property CTL Pass Through Trust conference call. Over the past few days, the Trust filed with the SEC an 8-K containing its October 2023 monthly reporting package and its quarterly report on Form 10-Q for the quarter ended September 30, 2023, each of which are available online at ctltrust.net. On the call today, Neil Aaronson, the Trust's Principal Executive Officer; and Larry Finger, its Principal Financial Officer, will discuss these filings as well as other Trust activities. In addition, a representative from GLAS, our trustee, will be available to answer questions. Please note that during this conference call, some of the comments will be forward-looking statements. All statements other than statements of historical fact are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements may be identified by the use of forward-looking terminology such as anticipate, believe, continue, could, estimate, expect, intend, may, might, our vision, plan, potential, preliminary, predict, should, will or would or the negative thereof or other variations thereof or comparable terminology and include, but are not limited to, the Trust's expectations or beliefs concerning future events and stock price performance. The Trust has based these forward-looking statements on its current beliefs these expectations, assumptions. While the Trust believes these expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond its control. These factors, including those discussed in the Trust's registration statement on Form 10 filed with the Securities and Exchange Commission, the SEC, may cause its actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. For a further list and description of such risks and uncertainties, please refer to the Trust's filings with the SEC that are available at www.sec.gov and on our website. As such, it is important to note that management's comments include time-sensitive information that may only be accurate as of today's date, Tuesday, November 7, 2023. [Operator Instructions] I will now turn the call over to our Principal Executive Officer, Neil Aaronson.

Thank you, Jessica, and welcome, everyone, to our quarterly call. While the softer market has continued to impact our sales, we were able to close on the sale of one property in the third quarter. The property is located in Katy, Texas and was sold for $11.3 million. This represented a 7.9% cap rate and a gain on sale of $2.7 million. Since the Trust formation, we've sold the 6 distribution centers and 29 retail properties for a total of $990 million and a gain on sale of $135 million. The distribution centers were sold at a cap rate of 6.3% and the retail properties have been sold at an average cap rate of 4.6% or 5.9% excluding the San Bruno sale. We've sold 21 of the original 29 option properties and 8 CTL properties. As you know, we are continually monitoring market conditions with the objective of achieving maximum value for our certificate holders. Unfortunately, the market is not favorable today for either a bulk sale of the portfolio or an accelerated individual dispositions. This is primarily due to two factors. Number one is the cost of debt; and number two is the availability of debt. Buyers are not just facing significantly increased interest rates, they're also facing a smaller pool of lenders and lower loan-to-value requirements. Having said that, we remain supremely confident that when the overall market conditions improve, the combination of the quality of our real estate and the strength of the master lease will allow us to achieve maximum value and a significant premium for the certificate holders. In short, a little bit of patience will yield significant results. With that, I'll turn the call over to Larry.

Thank you, Neil, and welcome, everyone. For your planning, I want to make you aware that effective December 7, the JCPenney rent will increase by 2% in accordance with the CPI provisions of the master lease. Including the distribution we'll be making on Friday of this week, to date, we'll let distribute it just over $1.2 billion to the certificate holders. That represents $236 million of rental income distributions and $968 million of sales distributions. Subject to the impact of sales, we anticipate monthly distributions from operations are expected to continue to be between $7.5 million and $8.5 million or between $0.10 and $0.11 per certificate. That, of course, would be supplemented by net sales proceeds as sales occurred. With that, we'll open the call to questions.

[Operator Instructions] Our first question comes from the line of Alex Arnold with Odeon Capital.

I know we're in a holding pattern, but I'm just trying to get a sense of what is the status of the assets? Are they on the market? Are they -- has anyone have a mandate to show them or have them for sale? Or are they just sort of in hibernation right now with regard to M&A?

Well, Alex, you might recall that the original plan was to market the option properties first and defer the sale of the CTL properties, except to the extent that we've got compelling offers. And the reason for that was because the feeling was that we would generate far better proceeds from the option properties doing it that way and that the CTLs were generating a much higher yield. At this point, the option properties remain on the market. But given the comments Neil made earlier, it's not accomplishing a lot because of the debt markets. So we are receiving unsolicited offers on infrequent basis. But when we do, we certainly consider every offer. And in fact, the Katy, Texas offer -- sale was the result of unsolicited offer we received. And to the extent we find the offer compelling and appropriate given what we consider to be the long-term value of the property, we'll sell it. And that's what's occurred over the last couple of quarters.

And what's -- has anything changed sort of in the backdrop just because you guys have a different vantage point than we do in the past couple of months? Or is it just sort of moving sideways?

In terms of the market?

Yes.

I would say it's been moving sideways to down.

[Operator Instructions] Our next question comes from the line of Andrew [indiscernible] with Hallmark Investment Corp.

What is the negative net sales proceeds comprised of when there's no sale?

You need to recognize that -- I assume you're looking at the monthly report? When we do sales, prior to a sale occurring, there are a lot of costs that are incurred prior to closing. Legal negotiations over a letter of intent or legal negotiations over a contract and a sale may not yet have occurred in that month. But nonetheless, we have legal bills we have to pay related to a sale. Similarly, we may get bills related to a sale after sale has occurred and therefore, it's reflected in the following month. So the reason we can have negative sales-related proceeds is because we don't have a sale in that month, but we did incur sales-related costs.

And in addition, would it be fair to assume that when you reflect as an expense, taxes to be recovered from tenant in trying to figure out what sort of normalized earning power is that that's really [ a nullity? ]

Yes, it's an in and out. It's -- the monthly report is a cash statement. It's not a financial statement, it's not a GAAP statement. It's a cash statement. And it's reflective of cash that is going in and cash that is going out and what -- where that is attributable to. And the master lease requires that the tenant pay these taxes, but the actual states do not allow the tenant to pay the taxes directly. The states require that we pay the taxes and then it's up to us to get reimbursed by the tenant, which they have been doing, as you see, if you look on the left side of the statement, you'll see the recovery coming in also.

Our next question comes from the line of Mike Terwilliger with BC Partners.

So Larry, just for pure curiosity. You'd mentioned that you have received some inbound and the most recent Texas transaction was a result of that inbound. Have you received any solicited -- unsolicited portfolio offers? And if so, is it -- is there any sort of ZIP code or price that you guys would be able to provide?

Not really comfortable answering that either question.

Ladies and gentlemen, I see no other questions at this time. I'll turn the floor back to Mr. Aaronson for any final comments.

Thank you, Larry and Jessica, and thank you all for joining our quarterly conference call. We look forward to our next quarterly conference call at the beginning of 2024. And as always, we thank you for your continued interest in Copper Property Trust.

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.