We came across a bullish thesis on Net Lease Office Properties (NLOP) on Substack by OppCost. In this article, we will summarize the bulls’ thesis on NLOP. Net Lease Office Properties (NLOP) share was trading at $30.65 as of March 21st.
Aerial city skyline highlighting a large modern office building owned by the REIT.
Net Lease Office Properties (NLOP) has emerged as a standout in the distressed office REIT sector, with its stock reaching a 52-week high of $33.08 on February 18, 2025. Despite strong price appreciation, the stock still trades at a 45% discount to the estimated net asset value (NAV) of $60–$65 per share. Management’s asset sales program has strengthened liquidity, with a current ratio of 1.94, and analysts target a $46 price. This presents an opportunity for continued NAV realization and operational improvements, making NLOP an asymmetric risk/reward play.
NLOP’s portfolio has been refined to 42 properties, focusing on Class A assets leased to credit tenants like BAE Systems and FedEx, which account for 21.5% of annual base rent (ABR). Asset sales totaling $850M at a 6.2% cap rate exceeded initial underwriting, highlighting pricing power. Mark-to-market rent adjustments have led to 15% average rent increases, well above the prior 2.1% contractual escalators. Additionally, mortgage paydowns of $325M have reduced loan-to-value (LTV) from 52% to 48%, supporting an NAV estimate of $62.50, an 88% premium to the current price. The discount reflects lingering office sector fears rather than fundamental weakness.
NLOP suspended its dividend in Q1 2024 to prioritize deleveraging, yet the stock has returned 14.6% since, outperforming the FTSE NAREIT Office Index (-3.2%). Management has guided for special dividends of $2.75–$3.25 per share upon completion of asset sales by Q3 2025. Meanwhile, institutional ownership is set to rise as the company nears a $500M market cap, and expected Fed rate cuts could compress cap rates, further boosting NAV. Short interest remains elevated at 18.2%, down from 31.4% in late 2023, signaling potential for a squeeze. With limited lease rollover risk and an increasingly high-quality tenant base, NLOP’s risk/reward profile has improved. Execution risk persists, particularly with 28% of assets in secondary markets, but management’s track record justifies increased conviction. A price target of $40 is supported by asset sales, multiple expansion, and a potential $3.00 per share special dividend (9% yield on cost), with additional upside from takeover potential as firms like Blackstone and Brookfield expand office acquisitions.
Net Lease Office Properties (NLOP) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 18 hedge fund portfolios held NLOP at the end of the fourth quarter which was 17 in the previous quarter. While we acknowledge the risk and potential of NLOP as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than NLOP but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.