An Open Letter to Net Lease Office Properties (NLOP)

Written By Michael Cooper

Dear Board Members of Net Lease Office Properties,

I am writing to express my gratitude for your exceptional stewardship in the orderly liquidation of the company’s assets, which has unlocked significant value for shareholders. Despite NLOP’s continued execution, I estimate a significant gap remains between the stock price and the portfolio’s liquidation value. To this end, I request the board consider a share buyback program, prior to initiating dividend distributions, to maximize shareholder returns. Below, I outline my rationale for this recommendation.

I anticipate you ended Q1 with 14.8m shares outstanding, $1.50/share in cash, and no recourse debt. The remaining portfolio of unencumbered properties has approximately $75m of annual base rent, offset by $2m/quarter of ongoing overhead and $2m/quarter of CapEx. I estimate the portfolio is currently generating $1/quarter of operating cash flow, which will decline as the liquidation is completed over the next 6-8 quarters.

I won’t waste your time with my property level analysis of liquidation value. Your internal marks are more credible than my estimates. To summarize:

  • Current Cash: $1.50/share

  • Future Cash Flow: $3 – 5/share

  • Remaining Property Sales: $40 - $49/share

  • Total Estimated Value (rounding): $44.5 - $55.5/share

This estimate leaves me wondering if the most prudent use of shareholder cash is a buyback, until we approach the lower end of estimated value:

  • Buying 20% of outstanding shares at $35/share would reduce the share count to about 12m, costing $100m. The new distribution range would be $46.5 - $60/share.

  • Buying 35% of outstanding shares at $35/share would reduce the share count to about 10m, costing $180m. The new distribution range would be $48 - $64/share.

For each $1 increase in liquidation distributions, the board will profit an additional $100k, sharing in the extra returns with all remaining shareholders. If these estimates mirror your own at the company, I strongly encourage the board to consider a buyback plan prior to initiating distributions, to maximize the value of distributions for all remaining shareholders.

I am happy to discuss this idea with any members of the board at your convenience. Thank you for your stewardship of the company and let us end this on the highest note possible!

Sincerely,

David Bastian, CIO

Kingdom Capital Advisors

Michael Cooper