Copper Property CTL Pass Through Trust

08/08/2025 | Press release | Distributed by Public on 08/08/2025 15:08

Quarterly Report for Quarter Ending June 30, 2025 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Certain statements in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this Quarterly Report on Form 10-Q may constitute "forward-looking statements" within the meaning of the safe harbor from civil liability provided for such statements by the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act). Forward-looking statements involve numerous risks and uncertainties and you should not rely on them as predictions of future events. Forward-looking statements depend on assumptions, data or methods which may be incorrect or imprecise and we may not be able to realize them. We do not guarantee that the transactions and events described will happen as described or that they will happen at all. You can identify forward-looking statements by the use of forward-looking terminology such as "believes," "expects," "may," "should," "intends," "plans," "estimates" or "anticipates" and variations of such words or similar expressions or the negative of such words. You can also identify forward-looking statements by discussions of strategies, plans or intentions. Risks, uncertainties and changes in the following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements:
•economic, business and financial conditions, and changes in our industry and changes in the real estate markets in particular;
•economic and other developments in markets where we have a high concentration of properties;
•our business strategy;
•our projected operating results;
•rental rates and/or vacancy rates;
•material deterioration in operating performance or credit of Penney Intermediate Holdings LLC;
•frequency and magnitude of defaults on, early terminations of or non-renewal of leases by tenant;
•bankruptcy, insolvency or general downturn in the business of Penney Intermediate Holdings LLC;
•adverse impact of e-commerce developments and shifting consumer retail behavior on our tenant;
•interest rates or operating costs;
•real estate and zoning laws and changes in real property tax rates;
•real estate valuations;
•our ability to generate sufficient cash flows to make distributions to our Certificateholders;
•our ability to obtain necessary outside financing;
•the availability, terms and deployment of capital;
•general volatility of the capital and credit markets and the market price of our Certificates;
•risks generally associated with real estate dispositions, including our ability to identify and pursue disposition opportunities;
•composition of members of our executive officers;
•the ability of the Manager, Trustee or other service providers to attract and retain qualified personnel;
•governmental regulations, tariffs, tax laws and rates and similar matters;
•our compliance with laws, rules and regulations;
•environmental uncertainties and exposure to natural disasters;
•pandemics or other public health crises and the related impact on (i) our ability to manage our properties, finance our operations and perform necessary administrative and reporting functions and (ii) our tenant's ability to operate their businesses, generate sales and meet their financial obligations, including the obligation to pay rent, capital expenditures and other charges as specified in their leases;
•geopolitical events, such as the conflicts in Ukraine and the Middle East, among others, government responses to such events and the related impact on the economy both nationally and internationally;
•insurance coverage; and
•the likelihood or actual occurrence of terrorist attacks in the U.S.
For a further discussion of these and other factors that could impact our future results, performance or transactions, see Part I, Item 1A of our Annual Report on Form 10-K, as amended, for the year ended December 31, 2024. Readers should not place undue reliance on any forward-looking statements, which are based only on information currently available to us (or to third parties making the forward-looking statements). We undertake no obligation to publicly release any revisions to such forward-looking statements to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q, except as required by applicable law.
The following discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes included in this report.
Principal External Factors that Affect our Results of Operations
Inflation Risk, Tariffs and Economic Conditions
While the disruptions caused by the COVID-19 pandemic have largely subsided, the Trust and the broader U.S. economy continue to face risks from persistent inflation, interest rate uncertainty, reduced consumer spending, labor shortages, supply chain disruptions, the imposition of tariffs and volatility in the global capital markets. Ongoing and potential future impacts of global conflicts, such as between Russia and Ukraine and in the Middle East, among others, as well as evolving governmental policies, particularly the imposition of tariffs are also contributing to heightened economic and geopolitical uncertainty. The recent broadening of international tariffs has already led to increased market volatility and may continue to affect economic conditions in the future. Downturns in the global economy and the increased tariffs could cause a decline in the demand for our tenant's products and our properties. Our operations could also be impacted by inflation and changes in interest rates. Inflation did not have a material effect on our business, financial condition or results of operations for the three and six months ended June 30, 2025 and 2024.
While we did not incur any disruptions to our lease income and occupancy during the six months ended June 30, 2025 and 2024 as a result of these adverse political and economic conditions, credit markets or other events, any of these events could materially adversely impact the Trust or Penney Intermediate Holdings LLC's business. The Trust continues to closely monitor economic, financial and social conditions, including the effects of inflation.
Climate Change and ESG Regulations
Our Properties are subject to comprehensive and frequently evolving federal, state and local environmental and occupational health and safety laws. We have made, and will continue to make, capital and other expenditures to comply with environmental requirements. While we do not currently anticipate any material adverse effect on our business, financial condition or competitive position as a result of our efforts to comply with such requirements, new or more stringent laws or regulations regarding environmental and worker health and safety laws could affect our operations and increase our operational and compliance expenditures. It is also possible that liabilities from newly-discovered non-compliance or contamination could have a material adverse effect on our business, financial condition and results of operations.
Executive Summary
Copper Property CTL Pass Through Trust exists for the sole purpose of collecting rent, holding, administering, distributing and monetizing the Properties for the benefit of Certificateholders. As of June 30, 2025, we owned 119 retail operating properties, 20 of which are encumbered by ground leases, across 35 U.S. states and Puerto Rico representing 15.7 million square feet of leasable space. There were two retail operating property dispositions during the six months ended June 30, 2025.
The following table summarizes our portfolio as of June 30, 2025:
Retail Properties
# of Properties
State Fee Owned Ground Lease Total
Square Feet
(Buildings)
Lease income for the six months ended June 30, 2025 Lease income as % of total Lease income for the six months ended June 30, 2024 Lease income as % of total
CA 15 4 19 2,791 9,072 18.7 % 8,889 18.6 %
TX 17 4 21 2,147 6,817 14.0 % 6,669 14.0 %
FL 6 - 6 848 3,120 6.4 % 3,049 6.4 %
NJ 4 - 4 702 2,283 4.7 % 2,251 4.7 %
NY 1 2 3 469 2,234 4.6 % 2,218 4.7 %
IL 5 - 5 846 2,125 4.4 % 2,080 4.4 %
WA 2 1 3 506 1,836 3.8 % 1,800 3.8 %
NV 2 1 3 438 1,789 3.7 % 1,749 3.7 %
MI 6 - 6 863 1,772 3.6 % 1,734 3.6 %
AZ 4 - 4 492 1,770 3.6 % 1,734 3.6 %
OH 5 - 5 645 1,599 3.3 % 1,563 3.3 %
PA 3 - 3 373 1,256 2.6 % 1,229 2.6 %
KY 1 1 2 251 960 2.0 % 941 2.0 %
NM 2 - 2 266 957 2.0 % 936 2.0 %
CO 1 1 2 263 897 1.8 % 885 1.9 %
Other 25 6 31 3,781 10,132 20.8 % 9,937 20.7 %
Total Retail 99 20 119 15,681 $ 48,619 (a) 100 % $ 47,664 (a) 100 %
(a) For the six months ended June 30, 2025 and 2024, lease income recognized from the portfolio as of June 30, 2025 consists of the following:
Six Months Ended June 30,
2025 2024
Base rent $ 49,112 $ 48,149
Straight-line rental income (1,086) (1,086)
Amortization of above and below market lease (1,460) (1,460)
Ground lease reimbursement income 2,053 2,061
Lease income $ 48,619 $ 47,664
Company Highlights - Six Months Ended June 30, 2025
Acquisitions
We had no acquisition activity during the six months ended June 30, 2025 and 2024.
Dispositions
The following table summarizes the disposition activity during the six months ended June 30, 2025:
Sale Date Location Property Type Ownership Square Footage Gross Sales Proceeds Aggregate Proceeds, Net
Gain (Loss)
5/23/25 Miami, FL Retail Ground Leasehold 191 $ 15,576 $ 15,147 $ 6,234
5/23/25 Pittsburgh, PA Retail Fee Simple 182 5,260 5,080 (110)
373 $ 20,836 $ 20,227 $ 6,124
For the six months ended June 30, 2025, net gain on sales of investment properties was $6,124.
The following table summarizes the disposition activity during the six months ended June 30, 2024:
Sale Date Location Property Type Ownership Square Footage Gross Sales Proceeds Aggregate Proceeds, Net
Gain
3/15/24 Transnational Portfolio (1) Retail Fee Simple 302 $ 16,459 $ 16,096 $ 1,497
6/10/24 Roseville, CA Retail Fee Simple 167 13,364 13,113 1,029
469 $ 29,823 $ 29,209 $ 2,526
(1) Portfolio comprised of three Retail Properties located in Newnan, GA, Aurora, CO and Kissimmee, FL.
During the six months ended June 30, 2024, net gain on sales of investment properties was $2,450, which includes (i) $154 of selling expenses from prior period dispositions, (ii) a gain of $78 in proceeds released from escrow due to a disposition that occurred in December 2022 and (iii) a gain of $2,526 from the disposition of Retail Properties as noted in the table above.
Leasing Activity
There was no leasing activity during the six months ended June 30, 2025 and 2024.
Capital Markets
There was no capital markets activity during the six months ended June 30, 2025 and 2024.
Distributions
We paid distributions to the Certificateholders of $78,647 or $1.05 per certificate during the six months ended June 30, 2025 and $65,518 or $0.87 per certificate during the six months ended June 30, 2024. Subsequent to June 30, 2025, on July 10, 2025, we paid monthly distributions to Certificateholders of $6,889 or $0.09 per certificate. Subsequent to June 30, 2025, on August 7, 2025, we announced a distribution of $7,054 or $0.09 per certificate to be paid on August 11, 2025 to Certificateholders.
Results of Operations
Comparison of three and six months ended June 30, 2025 to the three and six months ended June 30, 2024
For the three months ended June 30, 2025, net income attributable to Certificateholders was $22,216 or $0.30 per Certificate, as compared to $17,883 or $0.24 per Certificate for the corresponding period in 2024.
For the six months ended June 30, 2025, net income attributable to Certificateholders was $38,267 or $0.51 per Certificate, as compared to $35,651 or $0.48 per Certificate for the corresponding period in 2024.
The following describes the changes on the Trust's consolidated statements of operations that affected net income attributable to Certificateholders during the three and six months ended June 30, 2025, as compared to the corresponding periods in 2024:
Lease income - The net decrease in lease income of $696 and $1,587 for the three and six months ended June 30, 2025, respectively, as compared to the corresponding periods in 2024, is due to the disposition of eleven Retail Properties between January 1, 2024 and June 30, 2025, partially offset by the CPI adjustment of base rent as of December 7, 2024.
Operating expenses - The net decrease in operating expenses of $14 and $93 for the three and six months ended June 30, 2025, respectively, as compared to the corresponding periods in 2024, is primarily due to decreases in: (i) management fees paid to the Manager and (ii) ground lease rent expense resulting from the disposition of one Retail Property with a ground lease in May 2025.
Depreciation and amortization - The decrease in depreciation and amortization of $318 and $646 for the three and six months ended June 30, 2025, respectively, as compared to the corresponding periods in 2024, is due to the disposition of eleven Retail Properties between January 1, 2024 and June 30, 2025.
General and administrative expenses - The increase in general and administrative expenses of $220 and $48 for the three and six months ended June 30, 2025, as compared to the corresponding periods in 2024, is primarily due to increases in legal fees related to various Trust Amendments, partially offset by decreases in other professional fees.
Gain on sales of investment properties, net - During the six months ended June 30, 2025, there were two dispositions of Retail Properties, resulting in a net gain of $6,124. During the six months ended June 30, 2024, there were four dispositions of Retail Properties which resulted in a net gain of $2,450, which included net losses of $76 related to prior period sales.
Other income - Other income consists of interest income earned on investments in money market instruments. For the three and six months ended June 30, 2025, the decrease in other income of $105 and $162, respectively, as compared to the corresponding periods in 2024, is due to a decrease in interest income earned by the Trust.
Net Operating Income ("NOI")
We define NOI as all revenues other than (i) straight-line rental income (non-cash), (ii) amortization of above and below market lease intangibles, (iii) interest income and (iv) non-cash ground lease reimbursement income, less all operating expenses other than non-cash ground rent expense, which is comprised of amortization of right-of-use lease assets and amortization of lease liabilities, depreciation and amortization, and formation expenses. We use NOI internally to evaluate our financial and operating performance. We believe that NOI, which is a supplemental non-GAAP financial measure, also provides an additional and useful operating perspective to investors not immediately apparent from "Net income" in accordance with accounting principles generally accepted in the United States ("GAAP"). We do not, nor do we suggest that investors should, consider such non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Comparison of our presentation of NOI to similarly titled measures for other entities may not necessarily be meaningful due to possible differences in definition and application by such entities. For reference and as an aid in understanding our computation of NOI, a reconciliation of net income as computed in accordance with GAAP to NOI for the Reporting Periods is as follows:
Three Months Ended June 30, Six Months Ended June 30,
2025 2024 2025 2024
Net income $ 22,216 $ 17,883 $ 38,267 $ 35,651
Adjustments to reconcile to NOI:
Depreciation and amortization of real estate 4,365 4,683 8,794 9,440
Gain on sales of investment properties, net (6,124) (1,102) (6,124) (2,450)
Straight-line rental income, net 548 572 1,100 1,151
Amortization of above and below market lease intangibles, net 731 582 1,463 1,143
Interest income (260) (365) (523) (685)
Non-cash ground rent expense, net 1,448 1,495 2,938 2,991
Non-cash ground lease reimbursement income (1,027) (1,027) (2,054) (2,062)
NOI $ 21,897 $ 22,721 $ 43,861 $ 45,179
The decrease in NOI of $1,318 for the six months ended June 30, 2025, as compared to the six months ended June 30, 2024, is due to (i) a decrease in lease income of $2,240 resulting from the disposition of eleven Retail Properties between January 1, 2024 and June 30, 2025 and (ii) an increase in general and administrative expenses of $48; partially offset by (iii) an increase in lease income of $930 due to the CPI adjustment of base rent in December 2024 and (iv) a net decrease in operating expenses of $40.
Funds from Operations
The National Association of Real Estate Investment Trusts, or NAREIT, an industry trade group, has promulgated a financial measure known as funds from operations ("FFO"). As defined by NAREIT, FFO means net income computed in accordance with GAAP, excluding (i) depreciation and amortization related to real estate, (ii) gains from sales of real estate assets, (iii) gains and losses from change in control and (iv) provisions for impairment of investment properties. We have adopted the NAREIT definition in our computation of FFO attributable to Certificateholders. Management believes that, subject to the following limitations, FFO attributable to Certificateholders provides a basis for comparing our performance and operations to REITs.
We define Operating FFO attributable to Certificateholders as FFO attributable to Certificateholders excluding the impact of discrete non-operating transactions and other events which we do not consider representative of the comparable operating results of our real estate operating portfolio, which is our core business platform. Specific examples of discrete non-operating transactions and other events include, but are not limited to, the impact on earnings, which are not otherwise adjusted in our calculation of FFO attributable to Certificateholders.
We believe that FFO and Operating FFO, which are supplemental non-GAAP financial measures, provide an additional and useful means to assess our operating performance compared to REITs. FFO and Operating FFO do not represent alternatives to (i) "Net income" or "Net income attributable to Certificateholders" as indicators of our financial performance, or (ii) "Cash flows from operating activities" which is prepared in accordance with GAAP as measures of our capacity to fund cash needs, including the payment of distributions. Comparison of our presentation of Operating FFO to similarly titled measures for REITs may not necessarily be meaningful due to possible differences in definition and application by such REITs.
The following table presents a reconciliation of net income to FFO and Operating FFO:
Three Months Ended June 30, Six Months Ended June 30,
2025 2024 2025 2024
Net income $ 22,216 $ 17,883 $ 38,267 $ 35,651
Depreciation and amortization of real estate 4,365 4,683 8,794 9,440
Gain on sales of investment properties, net (6,124) (1,102) (6,124) (2,450)
FFO $ 20,457 $ 21,464 $ 40,937 $ 42,641
FFO per certificate outstanding - basic and diluted $ 0.27 $ 0.29 $ 0.55 $ 0.57
FFO $ 20,457 $ 21,464 $ 40,937 $ 42,641
Dead deal costs - 137 6 140
Operating FFO $ 20,457 $ 21,601 $ 40,943 $ 42,781
Operating FFO per certificate outstanding - basic and diluted $ 0.27 $ 0.29 $ 0.55 $ 0.57
The decrease in FFO of $1,704 for the six months ended June 30, 2025, as compared to the six months ended June 30, 2024, is primarily due to:
•a net decrease in lease related income of $2,517 resulting from the disposition of eleven Retail Properties;
•a decrease in interest income of $162; and
•a net increase in general and administrative expenses of $48; partially offset by
•an increase in lease income of $930 due to the CPI adjustment of base rent in December 2024; and
•a net decrease of operating expenses of $93.
The decrease in Operating FFO of $1,838 for the six months ended June 30, 2025, as compared to six months ended June 30, 2024 is primarily due to:
•a net decrease in lease related income of $2,517 resulting from the disposition of eleven Retail Properties;
•a decrease in interest income of $162; partially offset by
•an increase in lease income of $930 due to the CPI adjustment of base rent in December 2024; and
•net decreases of general and administrative expenses and operating expenses of $182 and $93, respectively.
Liquidity and Capital Resources
We anticipate that cash flows from the below-listed sources will provide adequate capital for the next 12 months and beyond for all Certificateholder distributions.
Our primary expected sources and uses of liquidity are as follows:
SOURCES USES
▪ Rental revenues ▪ Operating and general and administrative expenses
▪ Cash and cash equivalents ▪ Sales expenses
▪ Net proceeds from the sale of real estate ▪ Distribution payments
▪
Interest income
As of June 30, 2025 and December 31, 2024, we had $34,986 and $51,886, respectively, of cash and cash equivalents. The Trust has adopted a policy to maintain its cash equivalents in a government money market fund administered by a major bulge bracket investment banking firm which invests its assets only in (i) cash and (ii) securities issued or guaranteed by the United States or certain U.S. government agencies and having a weighted average life and weighted average maturity of no more than 120 days and 60 days, respectively.Each of these government money market funds is managed to maintain a stable net asset value, thereby eliminating principal risk.
Debt Maturities
We have no scheduled maturities and principal amortization of our indebtedness, since we had no indebtedness as of June 30, 2025 and December 31, 2024.
Distributions
The Trust is required to distribute on a monthly basis, the net proceeds from lease payments under the Master Leases (until such time as all of the Properties have been sold) and all net sales proceeds from the disposition of Properties, in each case pro rata, to Certificateholders as of the record date immediately preceding the applicable distribution date. Such distributions shall be net of (i) tax payments to be made by the Trust, (ii) fees and expenses of the Trust, the Trustee, the Manager and any other professional advisors, and (iii) funds to be set aside for the Trustee's and Manager's reserve accounts.
We paid distributions to the Certificateholders of $78,647 or $1.05 per certificate during the six months ended June 30, 2025, and $65,518 or $0.87 per certificate during the six months ended June 30, 2024. Subsequent to June 30, 2025, in July 2025, we paid monthly distributions to Certificateholders of $6,889 or $0.09 per certificate. On August 7, 2025, we announced a distribution of $7,054 or $0.09 per certificate to be paid on August 11, 2025 to Certificateholders.
Dispositions
Net sales proceeds from the disposition of Properties were included in the distributions to Certificateholders. During the six months ended June 30, 2025 and 2024, included in the amount we paid to Certificateholders was $34,706 and $20,064, respectively, of aggregate net sales proceeds.
Capital Expenditures
We anticipate that obligations related to capital improvements will not be significant as these are generally the responsibility of the tenant under the Master Leases and should otherwise be met with cash flows from operations.
Summary of Cash Flows
The following table summarizes our cash flows:
Six Months Ended June 30,
2025 2024
Net cash provided by operating activities $ 41,520 $ 45,315
Net cash provided by investing activities 20,227 29,209
Net cash used in financing activities (78,647) (65,518)
Change in cash, cash equivalents and restricted cash (16,900) 9,006
Cash, cash equivalents and restricted cash, at beginning of period 51,886 38,026
Cash, cash equivalents and restricted cash, at end of period $ 34,986 $ 47,032
Cash Flows from Operating and Investing Activities
Net cash provided by operating activities for the six months ended June 30, 2025 was $41,520, as compared to $45,315 for the six months ended June 30, 2024. The decrease of $3,795 is primarily due to a decrease in NOI resulting from (i) a decrease in lease income due to the disposition of eleven Retail Properties between January 1, 2024 and June 30, 2025 and (ii) an increase in sale related legal costs.
Investing activities solely consists of proceeds from sales of investment properties. There were two dispositions during the six months ended June 30, 2025, and cash flows from investing activities were $20,227 for this period. There were four dispositions during the six months ended June 30, 2024, and cash flows from investing activities were $29,209 for this period.
During the six months ended June 30, 2025, total net cash provided by operating and investing activities was $61,747, however, $78,647 was distributed to Certificateholders, of which $24,219 were distributions of cash flows from operating and investing activities received during December 2024.
Management believes that cash flows from operations and sales of investment properties and existing cash and cash equivalents will provide sufficient liquidity to sustain future operations; however, we cannot provide any such assurances.
Cash Flows from Financing Activities
Cash flows used in financing activities for the six months ended June 30, 2025 was $78,647, as compared to $65,518 for the six months ended June 30, 2024. Financing activities for both Reporting Periods consisted of distributions paid to Certificateholders.
Contractual Obligations
As of June 30, 2025, we have 20 properties that are subject to long-term non-cancelable ground leases. These leases expire in various years from 2038 to 2096, including any available option periods that are reasonably certain to be exercised.
The following table summarizes the Trust's obligations under non-cancelable operating leases as of June 30, 2025:
Payments due by period
Period from July 1 to December 31, 2025 $ 2,061
2026 4,136
2027 4,195
2028 4,255
2029 4,334
Thereafter 211,543
Less imputed interest (192,716)
Lease liabilities as of June 30, 2025 $ 37,808
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Critical Accounting Policies and Estimates
Our 2024 Annual Report on 10-K, as amended, contains a description of our critical accounting policies, including those relating to the impairment of long-lived assets. For the six months ended June 30, 2025, there were no significant changes to these policies.
Impact of Recently Issued Accounting Pronouncements
None.
Subsequent Events
Subsequent to June 30, 2025, in July 2025, we paid monthly distributions to Certificateholders of $6,889 or $0.09 per certificate. On August 7, 2025, we announced a distribution of $7,054 or $0.09 per certificate to be paid on August 11, 2025 to Certificateholders.
On July 18, 2025, the Trust obtained written consent by holders of a majority of the Trust's total interests, approving an amendment to the Trust's Trust Agreement to extend the Targeted Disposal Period contained in the Trust Agreement to January 30, 2026 and to change a provision relating to the information policy of the Trust. On July 23, 2025, the Trust, through its subsidiaries, entered into an amendment that made its purchase and sale agreement (as amended, the "Agreement") with an unrelated third party ("Buyer") binding for the sale of all remaining Retail Properties for a price of $947 million. As of July 25, 2025, the Buyer had completed its due diligence and paid a non-refundable deposit. The Trust expects the transaction to close during the second half of 2025, subject to customary real estate closing conditions. The Agreement provides certain limited termination rights on a property-by-property basis in connection with purchase rights in favor of ground lessors or purchase rights pursuant to reciprocal easement agreements, certain title defects, casualty events, or condemnation proceedings. Due to the various conditions to closing, the Trust cannot make any assurances that the disposition of the Properties is certain.
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