Copper Property Trust (CPPTL) is a Hidden Gem

An asymmetric liquidation play

CPPTL offers an interesting set up whereby it appears the entire portfolio is going to liquidate soon. This has been a fantastic find for my fund for the last almost-year of ownership and I believe there is still some meat on the bone.

Below is my original writeup followed by a couple real-time updates.

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Original writeup from July 2024

CPPTL is a liquidating trust formed in connection with JC Penney’s Chapter 11 bk reorganization. On the trust’s effective date of 1/30/21 they had purchased and owned 160 retail properties and 6 distribution centers. Here is what the purpose of the trust is, according to the Trust Agreement:

Trust was established for the purpose of collecting, holding, administering, distributing, and liquidating the trust assets for the benefit of the certificateholders in accordance with the Trust Agreement.

Certificateholder and shareholder will be used interchangeably. After my analysis it appears very likely that current share/certificate prices are undervalued in a big way. I’ll explain why below.

Background

JC Penney filed for bankruptcy protection and shortly after this they were acquired by Brookfield Property Partners and Simon Property Group for $300MM cash and the assumption of $500MM debt.

CPPTL was then formed and 160 retail properties and 6 distribution centers were sold to this trust, which is publicly traded. It appears this was a way to separate the properties from the operating business (JC Penney retail) and maximize value.

All assets of the operating business are owned by Penney Intermediate Holdings LLC, which leased the properties on 2 master leases established on 12/7/20. The 160 retail properties were on one master lease, and the 6 distribution centers were on the other master lease. The distribution centers have all been sold, so moving forward my discussion will only entail the retail spaces, however.

The master lease for the retail properties is an absolute NNN lease with a 20-year term, with extensions that can go to a total of 45 years. Starting 12/7/23 there was a CPI adjustment and will happen every year moving forward where the lease payment is raised based on the CPI increase, not to exceed 2% per year.

Why I believe there is value

I believe the best way to value this is based on a cap rate value, as that is how commercial real estate will be valued by potential purchasers. However, when I look at this based on book value, it is also signaling that this is cheap.

Based on book value from their most recent quarterly filing (ending 3/31/24) they have $.66/share of cash and $11.81/share of real estate, totaling $12.47/share in book value. Currently, it is trading for $9.28/share. There is no debt either, which I’ll get to later and explain why I think that is so magnificent.

Book value tells us the inputs and what was paid for all the assets currently owned, but doesn’t tell us the market value. In this instance, should I buy a share at current prices I would be getting these assets for roughly 75% of what the initial shareholders paid. However, if the assets are worth 50% of book value then even though I’m getting them for less than what the initial shareholders paid, I’m still overpaying. While paying below book value for something can be a signal that it is cheap, it isn’t definitive.

Cap rate value should give us a more accurate view of whether these are trading below their intrinsic value. Since this is a liquidating trust with the intent to sell the assets, cap rate value seems the most logical as this is how a buyer would analyze these retail properties. Currently, there are 127 retail properties remaining in the trust (109 are owned and the balance are long ground leases) generating $101,618,061 in rent for 2024. The weighted rent per sf is $5.99 and all of this info is available on the trust’s website in an Excel doc.

On a weighted average basis, from 2021-2024 Q1 there have been 33 retail properties sold. The average sale cap rate, which is calculated by taking the annual lease amount for that property and dividing by the sale price, was 6.28%.

Now, only 6 properties were sold in 2023 and 2024 Q1. My belief is that these properties sold easier in 2021/2022 when rates were lower and they capitalized on this low-rate environment. 2023 was a strange year in real estate for sales as rates were increasing and it seemed as if people were trying to catch a falling knife. Now that rates have stabilized (albeit high) there will likely be more sales activity, and when they likely come down in the future, there will be even more. As a sidenote, it gives me peace knowing they are not just looking to fire sale these properties and are being smart about what the market is doing.

If we take the 2024 annual rent of $101,618,061 and apply a 7% cap, that gives us a portfolio value for the remaining 127 properties of $19.36/share. 8% cap rate is $16.94/share. 9% is $15.05/share. This doesn’t include cash held either, it is just real estate.

My opinion is that an average cap rate of 9% is very conservative, and still provides a lot of upside to the current share price. For context, the recent 6 sales that occurred in 2023 and through Q1 of 2024 were at an average cap rate of 7.96%. And this was in an extremely high-rate environment, which obviously affects real estate values in a big way since it is heavily debt-driven.

On the income side of things, the operating earnings, which excludes any gains from dispositions and adds back depreciation was $1.63/share in 2021, $1.14/share in 2022, $1.12/share in 2023, and $1.11/share in 2024 when annualized (although they have one-time expenses at beginning of the year so $1.20/share seems more normal). The reason for the drop from 2021 to 2022 was because the 6 distribution centers were sold in 2021 and generated substantial income. I also normally include depreciation as an expense or figure maintenance capex, but since these are absolute NNN lease where the tenant is responsible for all building maintenance and must keep the asset in good condition, there is no landlord responsibility here for capex dollars, maintenance, etc.

So, while the properties are strategically sold, they are generating $1.20/share in earnings or 13% based on what it is currently trading for.

Downside protection

I believe valuing the remaining portfolio at a 9 cap is very conservative, and the fact that it is generating double digit cash returns is pretty incredible. In essence, I get to clip a 13% coupon while waiting for the value to be unlocked through these sales. And since earnings must be distributed based on the rules of a liquidating trust, there isn’t any worry that management would destroy value by a silly acquisition or anything like that.

I put even greater emphasis on the fact that there is zero debt here though. That is largely unheard of in real estate and the fact that these assets are generating double digit returns unlevered is amazing, in my opinion. If rates drop and the capital markets really open up I would expect a lot of these to start trading well below the 9% cap rate figure I estimated here, which would provide a lot of value based on current share prices.

CPPTL also releases monthly/quarterly info regarding Penney Intermediate Holdings LLC (tenant) and they appear to be solvent with no indication they will default on the lease any time soon.

Overall, I think the market has written this off due to ignorance based on it being connected to physical retail (which is depressed before and since covid) and the high interest rates which is impacted real estate values. But a debt-free portfolio of real estate generating double digit returns just based on operating earnings, with a lot more upside value on the horizon is what I think the market is missing. Over time I expect the price and value to converge, either from assets liquidated and cash returned, or from a rise in share prices.

If we take the most conservative view of a 9 cap value on the real estate + $.66/share of cash that equals $15.71/share plus another $1.11/share in annual net earnings. Obviously, the income will reduce as assets are sold, but that is currently what the portfolio is yielding. All this can be bought for $9.28/share currently. Sign me up.

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Update 12/3/24

Since I started building a position in early July 2024 through my fund at an average cost basis of $10.13/share, they’ve returned a total of $1.0798/share from 5 monthly distributions (July-Nov).

It is currently trading around $12/share, which I still believe is undervalued, but doesn’t have a wide enough spread for me to keep buying comfortably. Whenever a property is sold, the value of the trust declines, therefore I update my numbers whenever this occurs. Here is an update based on their 123 properties owned (my writeup was originally 127 and 4 have sold) --- If we take the 2024 annualized rent of $98,353,218 and apply a 7% cap, that gives us a portfolio value for the remaining 127 properties of $19.36/share. 8% cap rate is $16.94/share. 9% is $15.05/share. This doesn’t include cash held either, it is just real estate. Cash is currently ~$.63/share and there is no debt.

Another thing to note is that the implied cap rates for their 4 sales in 2024 were between 7.5% and 7.70%. That is toward the upper end of my estimate, and would be tremendous if that continued.

Overall, this thesis is still intact.

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Update 6/27/25

From when I began buying this in early July 2024 until early June 2025 there have been $2.22/share in distributions made and about the same amount in price appreciation above my fund’s $10.13 average cost basis. That is a cash-on-cash return north of 20% in less than 12 months on an unlevered portfolio of properties. That is unheard of and any efficient market folks should try explaining that to me!

Prior to June of this year, the last monthly distribution which included proceeds from sales occurred in January. Distributions lag by a month, meaning these sales occurred in May 2025 and December 2024. My understanding is that the May sales were to Simon Property Group as they had been under contract to purchase these for a while. Prior to Simon buying 2 properties this was actively marketed for sale as a 121-property portfolio since around January 2025. Here is a news article about this. And here is some of the material from the listing brochure:

They now own 119 properties and have mentioned they are open to receiving offers on the entire portfolio, sub-portfolios, or individual properties. The original bid deadline was late February 2025 and shortly after this they advertised a best-and-final deadline of late March 2025. Since then there hasn’t been much to glean info from regarding this, although on the 2 conference calls following their quarterly reporting they mentioned there has been a lot of interest from buyers.

If I had to read the tea leaves here, it seems like this is on its way to an entire portfolio sale, or at least large sub-portfolio sales. Aside from the 2 sales in May to Simon (which appeared to be under contract right around when they listed the entire portfolio for sale) there hasn’t been any sales activity since December 2024. This could be because they are under contract with a buyer looking to purchase the entire portfolio.

Current portfolio valuation

NOI for the entire remaining 119-property portfolio as of 5/31/25 is $98,224,427 or $1.31/share. If we value this NOI at an 8 cap the portfolio is worth $16.37/share. At a 7 cap it is $18.71/share. They also hold about $.50/share in cash so add this to that figure for the liquidation value.

My view is that this conservatively ends up trading somewhere between a 7 and 8% cap rate. Here are all the property sales and implied cap rates since 2023 when values began stabilizing in a higher-rate environment:

In the meantime, the yield from operations alone is about $1.20/share, or around 10% based on today’s price in the mid-$12 range. This is also unlike most other real estate deals because it is unlevered, posing no debt risk. A 10% yield on an unlevered portfolio is unheard of unless it is in a warzone.

Tax status

The last thing I’ll touch on is the way this is treated from a tax standpoint. But first, as the disclaimer goes, I’m not a CPA and it is always best to consult with one for tax advice.

My understanding is that income derived from this is not taxed federally due to its status as a liquidating trust. There is some information about this on their website. With that said, if you ask 10 CPAs how this should be treated, you will likely get 10 different answers. Believe me, I have learned this from experience here. It is very atypical and most have never heard of something like this.

If this is correct though, then the returns here are even more attractive as they come with zero federal taxes.

Bottom line

Overall, I think this is an asymmetric bet as there is a long master lease in place with recurring income tied to it with annual escalators. Even though this is a weird situation where it is a liquidating trust that trades OTC, I still believe this is not priced well by the market. Especially as it appears a liquidation of the entire portfolio is imminent.

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Update 7/28/25

The announcement of the portfolio sale came on 7/25/25 and to say it was underwhelming/surprising would be an understatement.

They announced that they are through the diligence period and under contract to sell the remaining 119 properties for $947 million or $12.62/certificate. This implies a cap rate of about 10.3%, which seems very high considering they have a long (15+ year) remaining master lease and a well-capitalized tenant. I expected a sale in the 7-8% cap rate range given their sales over the past couple years, which would have been around $16-18/share. Clearly, they were cherry-picking the best properties and selling them individually, which I failed to recognize.

We had a great outcome here given our entry point in the low $10’s and the high yield earned throughout our ownership from lease income and liquidations, although this does feel like a bit of a letdown based on what I expected.

This is a great lesson on why margin of safety is so important. I felt that around $12 this was still a discount, but didn’t think there was a big enough discount to justify purchasing more. Turns out there was pretty much no discount here.

When the dust settles, I’d imagine certificateholders will net somewhere in the high-$12’s/low-$13’s based on cash, receivables, and remaining lease income until settlement occurs on 9/8/25.

On any similar liquidations moving forward that I get involved with, I will remember this and do all I can to ensure that they are not cherry-picking good properties and waiting to sell the less desirable ones. Below are the implied cap rates for sales from 2023 onwards (when rates were higher than 2021/2022):

7.32% 3/22/2023

7.94% 8/9/2023

7.78% 12/6/2023

8.30% 3/15/2024

8.26% 3/15/2024

8.20% 3/15/2024

7.65% 6/10/2024

7.50% 9/30/2024

7.70% 10/24/2024

7.60% 10/24/2024

2.06% 12/17/2024

7.84% 12/18/2024

7.20% 5/23/2025

7.65% 5/23/2025

My thinking was that this was a good enough sample size and tight enough grouping (aside from the ~2% cap rate that was likely a redevelopment) to assume that the rest of the properties would fall somewhere in this range as well. Clearly this assumption was bad and is something I’ll certainly learn from.

When all is said and done, our fund will net somewhere around 40-50% annualized from this one, so it is hard to get too upset. I was just hoping and thinking it was going to be higher!

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Important: This information is for general purposes only and is not financial advice. Always seek professional guidance for investment decisions.

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