5. Net Lease Office Properties (NYSE:NLOP)
Average Analysts Upside Potential as of October 25: 52.72%
Year-to-date gains: 66.13%
Number of Hedge Fund Holders: 15
Net Lease Office Properties (NYSE:NLOP) is an unstoppable stock that could make you richer while investing in the real estate sector. It operates as a real estate investment trust (REIT) with a portfolio of quality office properties. After being split off from a larger REIT, the company wants to sell its properties to pay off high-interest debt and eventually give shareholders their money back.
Even as Net Lease Office Properties (NYSE:NLOP) continues to divest some of its assets, it generates significant amounts of adjusted funds from operations from existing leases. As of the end of the second quarter, it owned 47 office properties that generated $102.5 million in annualized base rent with an occupancy rate of 82.7%. The fact that some of the top tenants include JPMorgan, CVS Health and KBR underlines a stable revenue base that allows it to support its dividend yield of 4.48%.
While the Net Lease Office Properties (NYSE:NLOP) sold six office assets in the quarter for $192.2 million, most funds were used to refinance debt as the company sought to strengthen its financial position. Given that the company’s combined assets are worth more than its financial obligations, it remains an attractive investment for investment in the US office sector.
Likewise, analysts on Wall Street maintain a buy rating on Net Lease Office Properties (NYSE:NLOP) with an average price target of $46, implying a 52.72% upside potential as of October 25 2024.
According to Insider Monkey’s database, 15 hedge fund portfolios held Net Lease Office Properties at the end of the second quarter, down from 19 in the previous quarter.
Alluvial Capital Management stated the following regarding Net Lease Office Properties (NYSE:NLOP) in its Q2 2024 investor letter:
“Our portfolio is largely unchanged from last quarter, with Net Lease Office Properties (NYSE:NLOP) still at the top. “NLOP” has been very active, selling five properties and surrendering two more to lenders in May and June. NLOP used its sales proceeds to reduce its term loan by $138 million and its mezzanine debt by $22 million. Since going public by spin-off last November, Net Lease Office Properties has reduced its term loan and mezzanine debt by 47% to $243 million, leaving it modestly levered and highly cash-generating as it continues to wind down
Excluding a few properties likely to be surrendered to lenders, Net Lease Office Properties now produces annualized base rents of $105 million. The market is valuing NLOP at $587 million for a cap rate (net property operating income/enterprise value) of 17.9% and $90 per square foot. It’s just plain dirt cheap, and the continuing liquidation of the Net Lease Office Properties portfolio will cause this discount to close sooner rather than later. At a still conservative 12% cap rate or $135 per square foot, NLOP would be worth $46 per share.”
