Copper Property CTL Pass Through Trust SEC 10-K Report

Copper Property CTL Pass Through Trust, formed in December 2020 as part of the reorganization of Old Copper Company, Inc., has released its 2024 10-K report. The Trust primarily focuses on owning, operating, and leasing retail properties and distribution centers, with a strategic goal of monetizing these assets for the benefit of Certificateholders. The report provides a comprehensive overview of the Trust's financial performance, business operations, strategic initiatives, and the challenges it faces.

Financial Highlights

Lease Income: $100.384 million, reflecting a decrease from the previous year due to property dispositions.

Net Income: $73.778 million, an increase from the previous year, attributed to gains on property sales and reduced operating expenses.

Net Income Per Certificate - Basic and Diluted: $0.98, up from $0.92 in the prior year, driven by improved net income.

Operating Expenses: $12.275 million, a decrease from the previous year, primarily due to lower management fees and taxes.

Depreciation and Amortization: $18.482 million, reduced from the previous year due to property dispositions.

Business Highlights

Business Overview: Copper Property CTL Pass Through Trust was formed in December 2020 as part of the reorganization of Old Copper Company, Inc. The Trust's primary operations include owning, operating, and leasing retail properties and distribution centers, with a focus on monetizing these assets for the benefit of Certificateholders.

Property Portfolio: As of December 31, 2024, the Trust owned 121 retail properties across 35 states and Puerto Rico, totaling 16.1 million square feet of leasable space. This represents a decrease from 130 properties at the end of 2023 due to the sale of nine properties during 2024.

Leasing Operations: The Trust leases its properties under Master Leases to Penney Intermediate Holdings LLC. The leases have an initial term of 20 years, with rent adjustments based on the consumer price index. The Trust's operations are primarily focused on collecting rent and managing these leases.

Dispositions: In 2024, the Trust sold nine retail properties, generating net sales proceeds of $75.4 million and a net gain of $9.6 million. This is part of the Trust's strategy to monetize its property assets.

Geographical Performance: The Trust's properties are distributed across various states, with significant lease income contributions from California, Texas, and Florida. California properties alone accounted for 18.4% of total lease income in 2024.

Future Outlook: The Trust is set to terminate on January 30, 2026, unless extended to complete asset liquidation. If full liquidation is not feasible, a plan to convert to a REIT will be developed. The Trust continues to monitor economic conditions, including inflation and geopolitical events, which could impact operations.

Environmental Compliance: The Trust is subject to various environmental regulations and carries environmental liability insurance. The Tenant is responsible for compliance with environmental laws under an indemnity agreement.

Human Capital Resources: The Trust does not have employees and is managed externally by Hilco JCP LLC, which handles asset management duties including rent collection and property sales.

Insurance Requirements: The Master Lease requires the Tenant to maintain comprehensive insurance coverage, including casualty, liability, and environmental insurance, to protect the Trust's interests.

Strategic Initiatives

Strategic Initiatives: The Trust's strategic initiatives include the ongoing disposition of its Retail Properties, with a requirement to dispose of all properties by December 10, 2025. This is part of a broader strategy to monetize assets for the benefit of Certificateholders. During 2024, the Trust successfully disposed of nine Retail Properties, generating net sales proceeds of $75.4 million. The Trust continues to focus on managing its portfolio to maximize returns through strategic sales and efficient property management.

Capital Management: The Trust's capital management activities are centered around distributing net proceeds from lease payments and property sales to Certificateholders. In 2024, the Trust distributed $153.7 million, or $2.05 per certificate, to Certificateholders. The Trust maintains a policy of holding cash equivalents in a government money market fund to ensure liquidity and minimize risk. The Trust has no outstanding debt, which simplifies its capital structure and focuses on equity management through distributions.

Future Outlook: Looking ahead, the Trust anticipates that cash flows from operations, property sales, and existing cash reserves will provide sufficient liquidity to sustain operations and continue distributions to Certificateholders. The Trust plans to continue its property disposition strategy, with a focus on maximizing sales proceeds and efficiently managing its remaining portfolio. The Trust is also monitoring economic conditions, including inflation and interest rates, which could impact future operations and property valuations.

Challenges and Risks

Challenges and Risks: The Trust faces several risks, including:

• Limited Purpose and Recent Formation: The Trust's limited operating history and purpose restrict its ability to generate cash beyond lease payments and property sales, making it vulnerable to market fluctuations.
• Real Estate Asset Risks: The illiquidity of real estate investments and potential disruptions in financial markets could adversely affect property values and the Trust's ability to sell assets.
• Tenant Concentration: The Trust's reliance on a single tenant, Penney Intermediate Holdings LLC, increases its exposure to the retail industry's volatility and economic downturns.
• Regulatory and Environmental Risks: Compliance with evolving environmental laws and potential new regulations on AI and machine learning could increase operational costs and impact the Trust's business model.
• Market Competition: Increased competition from other sellers and advancements in technology by competitors could affect the Trust's ability to sell properties and maintain tenant relationships.
• Insurance and Natural Disasters: The Trust may face challenges in obtaining insurance for natural disasters, which could lead to significant financial losses.

Economic Conditions: Inflation, rising interest rates, and geopolitical tensions, such as the conflicts in Ukraine and the Middle East, contribute to economic uncertainty, potentially affecting the Trust's operations and tenant performance.

Climate Change and ESG Regulations: New or more stringent environmental regulations could increase compliance costs and impact the Trust's financial condition.

Operational Performance: The Trust's ability to generate sufficient cash flows for distributions is uncertain due to the dependency on property sales and lease payments.

Market Risks: The Trust is exposed to market risks, including:

• Interest Rate Fluctuations: Rising interest rates could increase borrowing costs for the Trust and its tenant, impacting their financial stability.
• Market Volatility: The limited trading market for Trust Certificates may lead to price volatility, affecting investor confidence and the Trust's ability to raise capital.

SEC Filing: Copper Property CTL Pass Through Trust [ CPPTL ] - 10-K - Mar. 07, 2025