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

Greetings, and welcome to the Copper Property CTL Pass Through Trust Quarterly Conference Call. [Operator Instructions] As a reminder, this call is being recorded. I would now like to turn the call over to Jessica Cummins, Investor Relations. Thank you, Jessica. You may begin.

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 July 2024 monthly reporting package and its quarterly report on Form 10-Q for the period ended June 30, 2024, each of which are available online at ctltrust.net. On the call today, Neil Aaronson, the Trust 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. Trust has based these forward-looking statements on its current expectations, assumptions, estimates and projections. 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 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, August 13, 2024. [Operator Instructions] I will now turn the call over to our Principal Executive Officer, Neil Aaronson.

Thank you, Jessica. Welcome, everyone, and thank you for joining our second quarter call. For roughly 2 years, we have been watching the interest rate pendulum swing away from us. As the real estate investment community now has interest rate reductions more squarely in its sites, we have seen a noticeable movement of the pendulum back in our favor. This has resulted in an increase in activity and interest. We have been anticipating and more importantly, preparing for this directional improvement. We are now ready to begin more aggressively pursuing sales of our properties individually in groups or as a portfolio as the market continues to improve. In the second quarter, we sold a property in Roseville, California for $13.4 million, representing a 7.7% cap rate and a gain of $1 million over book value. Since the Trust formation, we've sold the 6 distribution centers and 34 retail properties for a total of $1.025 billion and a net gain on sale of $136 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 4.8% or 6.1% excluding the San Bruno sale. We've sold 21 of the original 29 option properties and 13 CTL properties to date. We remain confident that the combination of the quality of the real estate portfolio and the meaningful advantages of the master lease will allow us to achieve maximum value for the certificate holders. With that, I'll turn the call over to Larry Finger.

Thanks, Neil, and welcome, everyone. Including the distribution we made yesterday, to date, we've distributed $1.3 billion. That represents sales distributions of just over $1 billion and rental income distributions of just over $300 million. In terms of guidance, subject to the impact of sales, monthly distributions from operations are expected to continue between $7.5 million and $8 million or between $0.10 and $0.105 per certificate, supplemented by net sales proceeds of sales occur. With that, we'll open the call to questions.

[Operator Instructions] Our first question is from Alex Arnold with Odeon Capital.

I was wondering if you could just explain the marketing process and how that's going to change now that you see the market opening up and are beginning to pivot?

Sure. Well, I think as I said, strategically, we have been obviously always in -- as we are liquidating Trust always in an attempt to sell our properties, but we've been understanding the dynamics of the market. We've been a little bit more passive in that regard and waiting for strategic sales to take place. I think what we are doing now is we're pivoting to a moment in time where we expect over the coming quarters, the -- and we're starting to see already, as I said, as the pendulum has swung in our favor to more actively start marketing our properties as meaning we are now going to start strategically thinking about putting properties on the sale, of properties up for sale more strategically and looking to more aggressively move towards selling properties, again, either individually or in sort of carved off buckets or -- and I'd say, most advantageously potentially as a portfolio as a whole.

Alex, you may remember that early on, we made the decision to put all of the option properties on the market and not the CTLs and we did that because the yield on the CTLs was so high. And over time, as the market shifted away from us, and it was not a really more favorable market. We never put the CTLs on the market. So when we're talking about becoming more aggressive that specifically means putting the CTLs on the market.

Got it. And just as a follow-up to that, is the -- when you talk about the market dynamic changing, is there any way you can quantify or give some sort of texture around what's changed in the past 3 months in terms of the amount of negotiations you're having or activity or pipeline.

Sure. Yes. Well, one, I would just say there has been a movement back towards the retail sector of real estate in general. So there was, in addition to interest rates moving against us, there was a period of time where -- just in terms of as you classify various real estate sectors, retail had sort of generally fallen out of favor. I think there was probably an overcorrection. And if you look nationally, which obviously our portfolio spans the nation, there was an overcorrection in that regard, and there has been a movement back towards retail throughout the country and certainly and in particular, in certain sectors. And as that -- and also kind of a movement away from some of the other real estate categories. And with that in mind, we have started to see more -- a combination of more inbound calls. We're more actively involved in more negotiations and in all the conversations we're having, both with all of the parties that are sort of what I would call involved in opportunities for us to sell, whether it be the other mall landlords, 1031 buyers, strategic investors, the company itself, just general activity has picked up. And so we're -- the activity level on all of those fronts has noticeably increased and is continuing to do so.

Is the financing backdrop changing at all, do you sense?

It is absolutely changing, and we expect it to continue to improve and has already started to improve.

[Operator Instructions] Our next question is from Alex Arnold with Odeon Capital.

All right. So one last question. Just in thinking about the -- unless you get a big portfolio dealer, a series of portfolio deals done, the deadline of July '25 is sort of looming and probably just unrealistic. But I'm wondering how you're thinking about -- are there discussions already happening with stakeholders? And how are you thinking about managing that process?

Yes. If you recall, the July 31 is subject to an automatic 6-month extension. So it's really January of 2026.

Yes. So that's one. And two, obviously, that's -- these are dates that we have been firmly focused on, and we've got a number of strategies that we are prepared for in the event we do not have the entire portfolio sold by that time. But our goal is to continue and more aggressively sell properties and put ourselves in a good position to hopefully not have to worry about that. But in the event we have to, we believe we have a number of alternatives that we can turn to, to maximize value of the portfolio.

Got it. And so just back to the other part of that question, are there any sort of stakeholder discussions that are happening around that direct or indirect? Or is it just not -- is it a moot point at this time.

It's premature.

Yes. No, it's premature at this point. And no, there are no direct conversations happening at that point -- at this point.

Thank you. There are no further questions at this time. I would like to hand the call back over to Neil Aaronson for any closing comments.

Once again, I just want to say thank you to everybody for their continued interest in Copper Property Trust. We look forward to continuing to deliver for you, and we look forward to speaking to you all on the next quarterly conference call.

This concludes today's conference. You may now disconnect your lines. Thank you for your participation.