Ideas Elsewhere: Net Lease Office Properties (NLOP)

Liquidation – 52% Upside

David Waters of Alluvial Capital has recently highlighted Net Lease Office Properties liquidation as the fund’s largest position. NLOP is an office REIT that was recently spun off from the net lease REIT giant W.P. Carey with the goal of pursuing a liquidation through asset sales. NLOP experienced a massive forced selling due to being an obscure and tiny spinco, burdened with expensive debt and a hodgepodge of lower quality office assets amid broader office RE sector headwinds. The share price has already rebounded somewhat (doubled from the lows), yet the company is still trading at a wide discount to its liquidation value. At current prices, NLOP is valued at at $103/square foot of leasable space. This valuation seems to be overly conservative as the company has recently sold several of its properties at an average price of $170/square foot and even properties with expiring leases were sold for $87/square foot. A conservative $130/square foot estimate for NLOP’s portfolio would imply a price target of $38/share (52% upside). With continuing asset sales, the company will reduce its debt, allowing more for cash flow to accrete to the shareholders.

Note: The ‘Ideas Elsewhere’ section is intended to highlight interesting event-driven investment ideas by other authors. These ideas are not my own, and I am simply summarizing them to bring attention of SSI subscribers. I might not actively follow the developments of these ideas, so there might be limited updates or follow-ups in the comments section.

2 Comments

2 thoughts on “Ideas Elsewhere: Net Lease Office Properties (NLOP)”

  1. The $103/sq valuation implied by the current price of $25 is already aggressive for class b offices.

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    • Interesting. After the latest asset sales I think the price / sqft is closer to $90 instead, but that would probably not change your assessment.

      Do you take into account that these properties are net leased with a weighted average lease duration of about five years? The remaining assets have contracts in place that generate >$500m in NOI over the next few years (113m base rent times 4.8 weighted years), which is getting close to the current pro forma enterprise value.

      Don’t know much about US commercial real estate though, happy to hear any counterpoints.

      As a counterpoint, it’s a bit worrying that they are mostly selling their long duration assets while keeping the short duration ones.

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