Hi Rich! The supplemental report provided with the Qs details capital expenditures by tenant/location. We used that + the data on which properties were sold or leases extended to come up with this.
Thank you for reading and for your thoughtful questions. I’ll address them one by one.
1.) Five years of no return equals a 40% loss assuming a 10% discount rate?
- Technically, you’re right from an opportunity cost perspective—if we assume a strict 10% discount rate, the implied loss would be around 40%. However, that’s not really the point we’re making here. What’s important is that the principal is very unlikely to be lost. The contracts have built-in rent escalations and CPI-based increases, which offset some of the discounting impact. Additionally, distributions are received throughout the five-year period rather than as a lump sum, which shortens the effective wait period and reduces the impact of discounting further.
2.) Are you applying cap rates on rent instead of NOI?
- All of the leases in the Net Lease Operating Properties (NLOP) portfolio are triple-net leases, meaning nearly all costs fall on the tenant rather than on NLOP itself.
Because of this structure, using cap rates on rent (Annualized Base Rent, or ABR) is a very close proxy for NOI. This is also confirmed by recent NLOP transactions, where the disclosed cap rates were explicitly based on ABR.
3.) In the property-by-property analysis, some cap rates looked as low as 3%?
- I believe you’re referring to the rent increase line rather than cap rates. The lowest cap rate we use is 7%, and for a number of properties, we assume cap rates as high as 75%—which reflects specific distressed situations or unique valuation considerations.
love the article. Great research! Where did you see that 50% of the capex is related to sale activity?
Hi Rich! The supplemental report provided with the Qs details capital expenditures by tenant/location. We used that + the data on which properties were sold or leases extended to come up with this.
Brian, forgive my ignorance, but how are you calculating Cumulative Rent in your 'Full Property Analysis'? Is it ABR * WALT? Thanks!
Yes! ABR x WALT. Not taking into account any of the rent increases
Thanks Brian! Great write-up mate.
What’s the expected timeframe to execute the liquidation?
Sales have been rapid since the spinoff - NLOP has sold $350M+ of properties in 2024 alone.
Our guess is the next 1-2 years we'll see most of these done.
Flat over 5 years is not really an okay result - in present value terms it equates to a c. 40% loss, at a 10% discount rate.
Also, are you applying cap rates on rent instead of NOI?
Also, I may be mistaken as the text is a bit blurry but in property-by-property analysis it looked like some of the cap rates were 3%?
Thank you for reading and for your thoughtful questions. I’ll address them one by one.
1.) Five years of no return equals a 40% loss assuming a 10% discount rate?
- Technically, you’re right from an opportunity cost perspective—if we assume a strict 10% discount rate, the implied loss would be around 40%. However, that’s not really the point we’re making here. What’s important is that the principal is very unlikely to be lost. The contracts have built-in rent escalations and CPI-based increases, which offset some of the discounting impact. Additionally, distributions are received throughout the five-year period rather than as a lump sum, which shortens the effective wait period and reduces the impact of discounting further.
2.) Are you applying cap rates on rent instead of NOI?
- All of the leases in the Net Lease Operating Properties (NLOP) portfolio are triple-net leases, meaning nearly all costs fall on the tenant rather than on NLOP itself.
Because of this structure, using cap rates on rent (Annualized Base Rent, or ABR) is a very close proxy for NOI. This is also confirmed by recent NLOP transactions, where the disclosed cap rates were explicitly based on ABR.
3.) In the property-by-property analysis, some cap rates looked as low as 3%?
- I believe you’re referring to the rent increase line rather than cap rates. The lowest cap rate we use is 7%, and for a number of properties, we assume cap rates as high as 75%—which reflects specific distressed situations or unique valuation considerations.