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

Good morning, ladies and gentlemen, and welcome to the Copper Property CTL Pass Through Trust Conference Call. [Operator Instructions] Please note that today's conference call is being recorded with an online replay available one 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, announcing a binding purchase and sale agreement for the sale of the portfolio. On the call today, Neil Aaronson, the Trust's Principal Executive Officer; and Larry Finger, its Principal Financial Officer, will discuss this filing 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 facts 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 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'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 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, Monday, July 28, 2025. [Operator Instructions] I will now turn the call over to our Principal Executive Officer, Neil Aaronson.

Thank you, Jessica. As we announced on Friday, the Trust entered into an amendment that made its purchase and sale agreement with an affiliate of Onyx Partners Ltd. for the sale of our 119 property portfolio binding. The purchase price for the properties is $947 million in an all-cash transaction. As Onyx has now completed its due diligence and its deposit under the agreement is nonrefundable, we felt this was the appropriate time to announce the transaction. The sale is scheduled to close on or before September 8, 2025, but is, of course, subject to standard real estate closing conditions. A financing contingency is not a standard real estate closing condition. The net proceeds of the sale will be distributed to certificate holders in accordance with the terms of the Trust agreement. Following my remarks, our Principal Financial Officer, Larry Finger, will provide additional commentary on the details of our expected net distributions and -- amount and timing of our net distributions. This agreement is the result of an exhaustive marketing and sale process run by Newmark under Hilco's direction. Newmark received a substantial number of individual property offers, sub-portfolio offers in addition to many portfolio offers. After a very thorough vetting of buyer capabilities and evaluation of their offers, Onyx clearly stood out as our preferred buyer, based on their capability to close their business strategy and the offered purchase terms. Considering all factors, we believe we have achieved a very fair price for the portfolio. With that, I will turn it over to Larry Finger.

Thanks, Neil. We anticipate that the distribution will be $947 million less closing costs, which are estimated to be between 1.5% and 2%. Therefore, we're looking at the distribution of $928 million to $932 million. The distribution of the net proceeds will be made with the monthly report on the 10th day of the month following the closing. The funds will be held in an interest-bearing account until distributed. The distribution will be supplemented by pro-rated rent less operating expenses. In addition, as you know, the Trust has been required to hold $25 million in cash reserves. The Trust agreement also requires that we retained a $10 million reserve for potential claims for 12 months after the final property sale. The $25 million reserve will be reduced to $10 million, 60 days after the sale of distribution and distributed with that month's monthly reports. With that, we'll open up the call to questions.

[Operator Instructions] Our first question comes from the line of Linda Tsai with Jefferies.

After the sale closes, do Simon or Brookfield receive any kind of benefits or, yes, any financial benefits?

The sale is just between ourselves and Onyx. The tenant and their parents are not a party to the sale. So there is no benefit that they receive. So the lease will be assigned to Onyx. And so it will simply be they have a new landlord.

Our next question comes from the line of Richard Fels with Odeon.

Neil and Larry, and thank you for having this call. I know that your approach to this liquidation has always been thoughtful and practical, but I thought it was somewhat uncanny that the takeout rate was almost exactly equal to the closing stock price of the other day. Since the letter of intent was signed back in May, could you walk us through what you view as the expected recovery and the cap rate and maybe elaborate on what Neil touched on as far as possible other candidates? And why Onyx was the chosen one?

Well, let me deal with the first part first. I understand that it appears to be the case that the purchase price totally aligns with the stock price that we closed at last Friday. But in fact, it's not exactly apples-to-apples. Let me walk you through that, and you might want to write this down because there's a few numbers involved. The purchase price is $947 million. But as we were renegotiating the letter of intent, there were two properties removed from the portfolio pursuant to Simon and Brookfield ROFO Rights. And that -- those sales generated $21 million. Those sales occurred in May and that $21 million was distributed in June. In addition, as we suggested, there will be closing costs and we estimate those at $14 million to $16 million. But using $15 million, that gets us to $954 million. And finally, we have $25 million in cash reserves. So the anticipated total liquidation proceeds are $978 million. If you assume that the stock price is basically an estimate of the total liquidation proceeds, the stock closed at $11.80 on the day we signed the letter of intent, which was May 15, 2025. That represents $885 million. $978 million versus $885 million is 10.5% above where the stock price was on that day as opposed to 3.4% above Friday's close. So I hope you see that, in fact, it's really not apples-to-apples by comparing it to Friday's stock price. We signed the letter of intent when the stock price was $11.80.

That's helpful. [indiscernible] What do you think the cap rate is that is assigned to the sale price?

The cap rate was 10.37%.

I'm satisfied for now.

Our next question comes from the line of Alex Arnold with Odeon.

I guess -- well, two parts. One, like have you had discussions with your largest shareholders through this process to see how they feel about selling at this price? And how do you rationalize -- I think I know how you're going to answer this. It was a process, but how do you rationalize basically a 600 basis point spread to the 10-year and 500 to your peers?

Larry, I'll take the first part. Throughout the life of the trust, there has been an information wall in place in the Trust and that information wall was obviously been respected by us and our management team as well as all of our shareholders. And now that being said, on a regular basis, we would seek counsel and advice from shareholders on what their goals and objectives were. And we believe that the goal of the vast majority of our certificate holders was to one, maximize the price and value of our portfolio, while at the same time, trying to get the portfolio sold within the time frame of the life of the trust. And so therefore, we believe that we are achieving the goals and results of our certificate holders.

Okay. And then just the -- so I mean the relative value of this to other net lease REITs, obviously, not IG tenant, but it's super wide.

Yes. So I think the -- yes, I apologize. I forgot about the second part of the question. I think obviously, our portfolio is different and distinguished from most other what I'll call REITs in the marketplace. And again, overall, I would just tell you that we believe we've achieved a very fair price for the sale of the portfolio.

I mean, the yield that this was kicking off just from rent flows, it would justify just rolling it into a REIT as opposed to punting just do this within a time frame. Don't you think?

Well, Alex, this is Larry. I have -- I was a public REIT CFO for 14 years, and on the Board of Directors of another REIT for 11 years. I think that -- I think the decision we made was definitely superior to rolling this into a REIT. When you're comparing us to triple net REITs, you're looking at REITs that have extraordinary tenant diversification. We have one tenant and one tenant was a department store. So I think they're both triple net, but they're very, very different animals.

Our next question comes from the line of Patrick Robb with Brigade Capital Management.

I had a couple of mine answered already. But can you just talk about in the -- I think you used the figure the $978 million, Larry, of total liquidation proceeds. Does that include an estimate for the monthly rent through closing? Or would that amount that you would distribute, you kind of mentioned, I guess, sort of the month-to-date rent for whenever the closing occurs, let's just assume it's September less operating expenses. Would that be -- is that part of the $978 million? Or would that be on top of it?

In addition to.

That would be in addition.

Can you just remind me like what the -- on a monthly basis or however you think about like is that a few million bucks or just round numbers what that will be?

Well, if we had a full month rent, we were typically distributing around $7 million to $7.5 million. But if we have a partial month rent, obviously, the rent is significantly reduced, and our management fee is proportionately reduced. But the other expenses would typically not be reduced. So I wouldn't be looking for substantial additional rent coming in addition to the $978 million. It will be a function of how late in the month the sale occurs. If it's later in the month then it'll be close to $7 million. If it's earlier in the month, it will be substantially less.

Understood. Understood. And then just -- I don't think we've seen like a merger -- or sorry, a purchase and sale agreement sort of posted or reported. But can you just talk about some of the details there? Is there a break fee? Is there a go-shop period? Is there -- like if somebody calls you up this afternoon and said, "Hey, we pay substantially more." Is that a possibility? Or just any kind of salient M&A details or unique, I guess, items you think would be worth hitting given we haven't seen that document?

Yes. Patrick, I think as per the terms of our contract, we are prohibited from disclosing anything further than what is required by the SEC in our 8-K and what we call typical. So I don't think there's really much -- I don't think we can answer that question in any more -- with any more detail than that. But as we said, it's subject to what I would call standard real estate closing conditions.

Okay. Got it. And then I'm just -- sorry, I'll ask one more follow-up. But just you kind of mentioned that you determined Onyx was the best buyer. I think another caller, maybe asked a similar question, but -- can you talk at all without getting into names, what sort of -- maybe some of the issues were with other bidders? Was it just the number of properties? Was it more around kind of their ability to obtain financing and close? Or just understanding a little bit more about why Onyx was a preferred party would be helpful? That's it.

Yes. Larry, I'll take this one as well. I think, obviously, conducting sales as we do for a living, you're always looking at a tap, what I call a tapestry of factors, right, from execution capability to lining up financing to rationale for acquisition to probability of flows to ultimately -- and ultimately, the most important factor is -- or it's certainly a very, very meaningful factor is quantity of purchase price. And while as we've said on our quarterly update calls and as we said earlier in this call, we had multiple bidders under every scenario that we ask for them. And it was sort of our job in coordination with Newmark to really parse through all those bids, do a lot of due diligence on the bids, the bidders and the various sort of contingencies that went along with their various bids and the position that the -- if we had gone with any one of those bidders that would have left the company in. And ultimately, when you put that -- there was not one specific factor that said -- that led us to our conclusion. But we were absolutely led to the conclusion that the group that we went with was the best bid for our circumstances.

Our next question comes from the line of Amer Tiwana with Imperial Capital.

Just -- I know you went through a number of calculations here. I just wanted to make sure I understood this correctly. So the first distribution is going to be $930-ish million. There's another $21 million that you anticipate to distribute prior to that for the two properties? And then the $25 million reserve that you have ultimately based on whatever claims come through whatever the residual is will get distributed as well. So if the entire $25 million gets distributed, you get $978 million ultimately. Is that the math?

No. The $21 million was distributed in June, so it was previously distributed. But it's -- I included it in my walk-through when I was comparing to the stock price because it was effectively part of the portfolio sale.

Got you. So I just subtract that $21 million to get to the ultimate distribution plus whatever rent is going. And can you remind me what -- you said you could have a partial month. We're talking about the month of August?

So the sale is scheduled to close on September 8. Assuming it closes actually on September 8, we would be entitled to rent for September 1 through September 7, and the buyer would be entitled to rent from September 8 through the end of the month. So we would only have 7 days of rent in September. And that rent, along with the sales proceeds would be distributed approximately on the 10th of October.

Got it. But we still have operating...

Rent -- I'm sorry, less operating expenses. We still have August full month's rent. So typically, we're looking at about $7 million to $7.5 million.

Our next question comes from the line of Maury Apple with H/2 Capital Partners.

Can you please provide an estimate in aggregate of the gross to net distribution to certificate holders from the Trust from now until I don't know what you call it lights out or the wind down is complete? I think it's the -- I think what I'm trying to figure out is there's $25 million in reserve? I think you talked about a $15 million of that being distributed shortly. And then of the remaining $10 million, do you have an estimate as to how much will ultimately be distributed after whatever expenses are associated with the lights out or wind down period?

So everything you said is correct. The $10 million, we would expect the vast majority of it to be distributed. The only anticipated costs we would have would be the accounting fees related and legal fees related to our final SEC filings and tax returns. So the vast majority of the $10 million we would anticipate to be distributed to the shareholders, unless a claim arises that needs to be dealt with.

Maury, I think -- yes, Maury, just to add a little color to that. But I think what's potentially behind that question is just a simple answer, we expect the vast majority of the full $25 million to be returned. Obviously, we don't know of any claims that would come up, and we don't anticipate any. But as Larry said, of the $10 million, it would just be some small fees to wrap up accounting and things like that. And then obviously, it's there and reserve there in the event there are any claims that we do not, as of today, anticipate any.

And I should note that in addition, there is the July operations, which will be distributed on August 10 and the August operations, which will be distributed around September 10. And between those two, you're looking at somewhere in the neighborhood of $14 million to $15 million.

Our next question comes from the line of Steve Rifkin with Rifkin CPA.

I have 2 questions, but the first one you've answered, but I don't quite get it. Pretend you were buying the stock now or from this point forward, this is what I think I'm hearing. You're going to get $0.18 from the August and September or the July and August distributions, which would come in August and September, and that's about $0.18. And then I'm not clear about the numbers because -- could you just go over the how much cash we will get in September?

Sure. Sure. But I'm not talking in cents, I'm talking in dollars. So the July and August operations is $14 million to $15 million between the two. And then the sales proceeds will be $947 million, less $15 million of closing costs. So it's around $932 million, okay? In addition, the Trust has $25 million in cash reserves, $15 million of that will be distributed 60 days following the sale of distribution. So -- and then the remaining $10 million less whatever costs there are between then -- between now and then will be distributed approximately 12 months after the closing of the sale.

The $947 million, which is $932 million plus $15 million, there's no further diminution to that for other expenses? Is there?

No. The answer is no.

Okay. So we will get $947 million plus, I said, $0.18, which should be another $14 million from those two distributions. Is that correct, approximately?

Less $15 million of closing costs.

Okay. But that -- the $947 million minus $15 million gets you to $932 million, correct?

Correct. Yes, correct.

So the number I should focus on is $932 million plus another, say, $14 million in the August and September distributions. And then later on $10 million a year from now.

No. You're correct so far. But 60 days after that, $15 million. And 12 months after that $10 million.

Okay. So it's $932 million, 60 days later $15 million and then a year later, $10 million, minus cost. Okay. Then I had another question.

No not minus any cost that occur between now and then plus the operating results that you mentioned, the $14 million.

The $14 million, right, that we'll get on top of the $932 million, right? We get $932 million and $14 million. Okay. That's great. That's real clear now. The next question is, you had talked about having a rating agency come up with something so a buyer could be in a position where they could make an informed bid knowing what where financing would be. I have double question here. One, did you ever actually do that? And how much was it? And if it was a huge amount, let's say, 70% of what NAV might have appeared to be, wouldn't it have been almost the same amount as you got?

We did do the rating agency process and the result...

You did or didn't do?

It was not very attractive. We did. We got indicative ratings from the rating agencies and the buyer consider those as well as other financing alternatives.

Okay. So I guess what you're saying is you could not have, let's say, borrowed numbers that I would have thought more reasonable like say 66.67% of say, $15, you couldn't have borrowed $10 and then they kept the thing within a REIT. That level of borrowing was impossible. Is that the case?

Well, we need to back up. We need to remember that we are liquidating trust and the purpose of our entity was to liquidate the trust. The REIT option was there only in the event that we were unable to fully liquidate the trust. We were required to consider that and submit that to shareholder consideration. It was never a situation where we were supposed to compare, do we think liquidating versus forming a REIT is a better option until the end, unless we were not able to sell at what we consider to be at a reasonable price. And we believe we had sold at a very reasonable price.

Okay. I mean I guess my thought is that if you could have gotten 85% of the same proceeds and then we would have had vehicle that would have been paying a reasonable dividend, it might have been better, but that's just one person's thought. And I kind of heard what you said, and I appreciate all your answers.

Our next question comes from the line of Usman Tahir with Sculptor Capital.

So I just want to confirm like there are like 75 million Trust certificates outstanding. So I mean, if you are converting these amounts into per share amount, it's -- the denominator is 75 million?

Exactly. Exactly, 75 million.

Our next question comes from the line of Floris Van Dijkum with Ladenburg Thalmann.

So it looks like you sold these assets around $8, say, a parcel. And obviously, the two previous assets you sold. Could you just remind us, I think it was Fashion Valley in San Diego and Park Meadows in Lone Tree, those were traded closer to $10 million of parcel? In fact, I think Fashion Valley might have gone for $14 million. How compelling were the offers that you looked at when splitting up and trying to sell individual assets? And how deep was that pool in your view? Or would it have reduced the attraction of the remaining pool had you sold, say, 5 or 6 more assets to another potential strategic bidder?

Well, let me -- I'll try and take that -- answer that question. And I don't know whether I can answer it directly because there's so much nuance to evaluation of all the various bids, but I'll sum it by saying this. One, Newmark ran a very extensive marketing process. We had -- just by way of example, we had north of 700 NDAs signed. We had as a -- we've discussed many times, we had multiple portfolio bids. We had multiple sub portfolio bids, and we had a very high number of individual property bids. Our goal, and as you know, we were required to sell the entire portfolio by January 30, 2026. And it was our view, as we've said before, that after reviewing all of the offers and all the various scenarios of how things played out, whether if you took a sub-portfolio and then combined it with a bunch of other things, or took a portfolio sale that really the best way for us to achieve our objectives was the portfolio sale was going to get that done. And we believe that the price we achieved for that was a very fair price. And so that's the reason we ultimately went in that direction. Now understanding your question, this is what we have been running scenarios around and running analysis around for quite some time as we did receive so many offers and we were mixing and matching and trying to make sure we were doing the right thing to achieve the objectives of the Trust. And I think as we said a couple of times in the call, and I apologize if for being redundant, we believe we went with the option that was the best option for -- the best execution for the goals of the Trust and the certificate holders of the Trust.

And all the ROFO assets that you had in your portfolio, could you -- they were all exercised? Or are there any ROFOs that were unexercised before the sale of the whole portfolio?

There were 45 not exercised.

Our next question comes from the line of Alex Arnold with Odeon.

Just one more. In terms of just winding this down, there is other stuff on the balance sheet with regard to -- I don't know what's running through there and what's classified as what, but it seems like there's other stuff. Is there any other stuff -- any other money sloshing around that should come out eventually once this is wound down?

No. The other items on the balance sheet are basically intangibles in current assets and current liabilities. I don't think that there's anything material that's going to change the amount that's just remaining.

And the receivables is really just picking up the rent that's coming in?

Right.

Our final question comes from the line of Michael Walk, Private Investor.

My question is about the disclosure of claims against the properties. And due diligence by the buyers and just simple disclosure. There's a pending lawsuit and claim over these properties in federal district court where Copper Property CTL Pass Through Trust is named as a defendant and it's in the Southern District of Texas. You folks know about it, but it's not in the 8-K. It's not in the 8-K, and you've not disclosed it on this call or in press releases. Basically, it's litigation pending. It's basically a major lis pendens. The case number in the Southern District of Texas is 42502752, that's 42.25-02752. The question is about claims. How can you sell this property with a major pending lawsuit? This is in federal district court, the actual procurement of the property by the Copper Property Pass Through Trust. By fraudulent means and by bankruptcy fraud and possibly the largest bankruptcy fraud case in the whole history of the United States. So there's a pending lawsuit. There are also criminal allegations made in the complaint. I want to know how can you sell this property with pending lawsuit? And you know about it. Okay. And have you -- you maybe -- what is the disclosure you've made to the buyers and due diligence as well as to your public shareholders?

I appreciate that you are the plaintiff in the lawsuit. I will say to you that it is our judgment that the suit is without merit and that the potential consequences are not material to our financial statements. And that's why there has been no disclosure about it.

So you just didn't disclose it -- you didn't disclose it because you had personal opinion that it's without merit?

[indiscernible].

Have you disclosed it to the buyer? Onyx, because they're going to be a defendant. They're going to be a defendant and the shareholders, is going to affect your shareholders also. So Onyx is going to be a defendant. What lawyer is going to sign off on this for the buyer? Nobody. There is a -- this is a serious, serious case. There are criminal allegations within the civil complaint.

Operator, can we cut off this caller? Can we please cut off this caller?

Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Mr. Aaronson for any final comments.

Once again, ladies and gentlemen, thank you for your interest in Copper Properties Trust. We hope this call was informative to you all, and we look forward to speaking to you again in August for our regularly scheduled quarterly call. Thank you very much.

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