Copper Property CTL Pass Through Trust (the “Trust”) is a New York common law trust. The Trust was established to acquire 160 retail properties and 6 warehouse distribution centers (collectively the “Properties”) from J.C. Penney as part of its Chapter 11 plan of reorganization (the “Plan of Reorganization”) and to sell all of its assets. The Trust is intended to be treated, for tax purposes, as a liquidating trust within the meaning of United States Treasury Regulation Section 301.7701-4(d).
The following excerpt is reprinted from Amendment No. 1 to Form 10 (the “Form 10”) filed by Copper Property CTL Pass Through Trust on 02/5/2021. It does not purport to be complete and is qualified in its entirety by reference to the complete Form 10 (including, without limitation, the risk factors described therein) which is available for review here and is incorporated herein by reference.
The Trust is governed by the Amended and Restated Trust Agreement (the “Trust Agreement”, as further described under “—Description of the Trust Documents—Trust Agreement”), dated as of January 30, 2021 (the “Effective Date”), between Copper BidCo LLC and GLAS Trust Company LLC, as trustee (the “Trustee”). The Trust’s operations consist solely of (i) owning the Properties (as defined below), (ii) leasing the Properties under the terms of the Master Leases (as defined below) to one or more newly formed subsidiaries of Copper Retail JV LLC (collectively with its subsidiaries, “New JCP”), as the sole tenants, and (iii) subject to market conditions and the conditions set forth in the Trust Agreement, selling the Properties to third-party purchasers as promptly as practicable with the intent to complete the sale of all Properties within a short period of time, in each case through certain wholly-owned property holding companies (the “PropCos” as described under “—Description of the Trust and the Trustee—Organization”). The Trust retained an affiliate of Hilco Real Estate LLC as its independent third-party manager to perform asset management duties with respect to the Properties (together with any of its affiliates, replacement or successor, the “Manager”).
Highly attractive industrial assets (warehouses) and diverse portfolio of well-located retail assets. Our large, geographically diverse portfolio consists of 160 retail properties (the “Retail Properties”) and six distribution centers (the “Warehouses” and, together with the Retail Properties, the “Properties”) across 37 U.S. states and Puerto Rico with a presence in 42 of the top 50 metropolitan statistical areas nationally. Our tenants are required to continue to maintain the properties in accordance with the maintenance standards set forth in the master leases, which we believe enhances the value of our properties and maintains their competitive market position. J. C. Penney is a 118 year old brand, and due to its long history, the Properties acquired by the Trust tend to be located in attractive suburban and urban locations. The assets are a combination of standalone and anchor properties at malls. Our portfolio consists of select Old Copper assets, chosen for their alignment with our goals as a Trust to maximize value for the holders of the Trust Certificates (the “Certificateholders”).
Straightforward business plan designed to maximize value through sale of assets. The Properties are governed by a triple-net master lease structure. We have no development or acquisition plans and have elected to organize as a pass-through trust. We have selected an experienced third-party manager that is contractually aligned with our goal of maximizing value through the sale of the Warehouses within six months and the Retail Properties within 12 months following (i) the expiration of Lockout Periods (as defined below) applicable to certain of the Properties or (ii) if not subject to a Lockout Period, the Effective Date. See “—Description of the Trust Documents—Master Leases—Lockout Periods.”
Attractive cash flow yield from two separate well-structured master leases for owned warehouses and retail assets. The Trust has a predictable contractual cash flow, with the rents from the Warehouses accounting for 22% of the aggregate rents under the Master Leases. The Master Leases have an initial term of 20 years and are triple-net with, beginning in the third year, (i) a 2% annual escalation for the Warehouses and (ii) an annual escalation (subject to a 2% cap) for the Retail Properties that is tied to the consumer price index. See “— Description of the Trust Documents—Master Leases.” Our dividend policy is to distribute net cash flow on a monthly basis, providing a recurring yield.
Manager with unparalleled experience in maximizing value of real estate assets. We have engaged the Manager as an external manager to execute the business plan and bring extensive experience to the role. The Manager has been involved in the repositioning of over 35,000 leases and the disposition of over 200 million square feet of retail, industrial and office properties over the last 15-plus years. The Manager’s track record speaks to the expertise, capabilities and focus it will bring to optimizing the value of the Trust within the required timeframe.
Upside from alternative use on select landlord option retail properties. The Retail Master Lease (as defined below) provides a landlord option on 23 of the Retail Properties (the “Landlord Retail Option Properties”), allowing current or future landlords to opportunistically terminate the Retail Master Lease with respect to a Landlord Retail Option Property and maximize value by selling such Landlord Retail Option Property with the ability for a buyer to utilize the Landlord Retail Option Property for an alternative purpose.
Capital structure of the Trust as well as the Master Leases provide significant flexibility for maximizing value. Capitalization of the Trust and the Master Leases have been carefully structured to facilitate the sale of individual Properties. Upon the sale of an individual Property, the Property is transferred out of the applicable Master Lease and a new individual property lease is created with the same key terms as the applicable Master Lease.
The Trust Agreement creates a series of equity trust certificates designated as “Copper Property CTL Pass Through Certificates” (the “Trust Certificates”), 75 million of which were issued on the Effective Date. Each Trust Certificate represents a fractional undivided beneficial interest in the Trust and represents the Certificateholders’ interests in the Trust. All Trust Certificates shall vote as a single class and shall be in all respects equally and ratably entitled to the benefits of the Trust Agreement without preference, priority or distinction on account of the actual time or times of authentication and delivery, all in accordance with the terms and provisions of the Trust Agreement. The Trust Certificates are the only instruments evidencing a fractional undivided interest in the Trust. The Trust Certificates do not represent indebtedness of the Trust. The Trust Certificates will not be repurchased by the Trust and no additional certificates will be issued by the Trust.
The issuance of the Trust Certificates under the Plan of Reorganization is exempt pursuant to Section 1145 of the Bankruptcy Code. Thus, the Trust Certificates are not “restricted securities,” as defined in Rule 144(a)(3) under the Securities Act, and are freely tradable and transferable by any initial recipient thereof that (i) is not an “affiliate” of the Debtors or the Trust, as defined in Rule 144(a)(1) under the Securities Act, (ii) has not been such an “affiliate” within 90 days of such transfer, and (iii) is not an entity that is an “underwriter,” as defined in subsection (b) of Section 1145 of the Bankruptcy Code.
Certificateholders that actually or constructively own 4.9% or more of the Trust Certificates are required to deliver a certification set forth in the Trust Agreement. See “Item 11. Description of Registrant’s Securities to be Registered” for a detailed description of the ownership limitations relating to the Trust Certificates.
The Trust Certificates are not listed on a national securities exchange; however, the Trust intends to take actions to cause the Trust Certificates to be quoted on a market operated by OTC Markets Group. See “Item 1A. Risk Factors—Risks Relating to the Trust Certificates––There is no currently established trading market for the Trust Certificates, which could limit liquidity, and it may be difficult to establish a price per Trust Certificate.”
The Trust Certificates have an identifying CUSIP number and are evidenced by book-entry form represented by one or more global certificates registered in the name of The Depository Trust Company (“DTC”), as depository, or Cede & Co., its nominee, for so long as DTC is willing to act in that capacity.
Description of the Trust and Trustee
The Trust owns directly or indirectly 100% of the PropCos: (i) CTL Propco I LLC, a Delaware limited liability company, and CTL Propco I L.P., a Delaware limited partnership, will collectively own the fee simple or ground leasehold title (as applicable) to the Retail Properties and (ii) CTL Propco II LLC, a Delaware limited liability company, and CTL Propco II L.P., a Delaware limited partnership, will collectively own the fee simple title to the Warehouses. The Properties are located in 37 U.S. states and Puerto Rico. In the aggregate, the Warehouses and Retail Properties comprise 10.1 million square feet and 21.7 million square feet, respectively, of leasable space, all of which is leased to the tenants under the Master Leases. See “Item 3. Properties” for a detailed description of the Properties.
The following organizational chart describes the organizational structure of the Trust as of the effective date of this registration statement. See Exhibit 21.1 to this registration statement for a list of subsidiaries of the Trust.
The Trust exists for the sole purpose of collecting, holding, administering, distributing and monetizing the Properties for the benefit of Certificateholders.
The Trust’s operations consist solely of (i) owning the Properties, (ii) leasing the Properties to New JCP (who will operate the premises pursuant to the Master Leases, including for warehousing, distribution and retail operations), and (iii) subject to market conditions and the conditions set forth in the Trust Agreement (as further described under “—Description of the Trust Documents—Trust Agreement”), selling the Properties from time to time to third-party purchasers as promptly as practicable, in each case through the PropCos. Except for rental proceeds from leasing the Properties and sales proceeds from selling the Properties, the Trust has no other source of revenue or cash flow. Pursuant to the Trust Agreement, the Trust shall endeavor to complete the disposition of the Warehouses within six months following the Effective Date and the Retail Properties within 12 months following (i) the expiration of any applicable Lockout Periods or (ii) if not subject to such Lockout Period, the Effective Date, or in each case such longer period approved by the Certificateholders representing a majority of the Trust Certificates (the “Majority Certificateholders”). See “—Description of the Trust Documents—Master Leases—Lockout Periods.”
The Retail Properties are leased pursuant to a single retail master lease (as amended, modified or supplemented from time to time, the “Retail Master Lease”) to Penney Tenant I LLC (“Retail Tenant”), and the Warehouses are leased pursuant to the warehouse and distribution center master lease (as amended, modified or supplemented from time to time, the “DC Master Lease”; together with the Retail Master Lease, the “Master Leases” and individually, each a “Master Lease”) to Penney Tenant II LLC (“Warehouse Tenant”; together with Retail Tenant, the “Tenants” and individually, each a “Tenant”). Each of the Master Leases is a triple-net lease pursuant to which the Tenants are responsible for the payment of all taxes, insurance, maintenance, capital expenditures, operational costs, and other costs and expenses associated with the ownership, management, maintenance and operation of the Properties. The Tenants will pay all rent absolutely net to the Trust, without abatement, and unaffected by any circumstance (except in certain cases of major casualty or major condemnation where the applicable Tenant will have the right to terminate the applicable Master Lease with respect to the affected Property under certain circumstances or except in other limited situations expressly permitted under the Master Leases). The payment obligations of the Tenants under the Master Leases are unconditionally guaranteed by certain subsidiaries of New JCP (collectively, the “Lease Guarantors”), which are jointly controlled, as of the effective date hereof, by Simon Property Group, L.P. (“Simon”) and Brookfield Asset Management Inc. (“Brookfield”), and the obligations of Retail Tenant are further secured by a pledge of 100% of the equity interests in Retail Tenant.
Following the sale of all of the Properties and the subsequent distribution of all net sale proceeds and all net assets pursuant to the Trust Agreement, the existence of the Trust will terminate 90 days after the final tax returns and the final reports required to be filed with the Securities and Exchange Commission (the “SEC”) have been filed. To the extent that all of the Properties are not sold within a year after the Effective Date (or such longer period approved by the Majority Certificateholders), the Properties may be transferred into a newly-formed real estate investment trust (“REIT”), contributed to an existing REIT or transferred into other investment vehicles, each of which would be beneficially owned by the Certificateholders. Any such transfer will require approval from the Majority Certificateholders including at least three (3) Certificateholders who are not Affiliates of one another.
Description of the Trust Documents
The summaries presented below of the Trust Agreement, the Master Leases and the Management Agreement (collectively, the “Trust Documents”) are not complete and are qualified in their entirety by reference to the full text of the applicable agreements, which are included as exhibits to this registration statement.
The Trust is governed by the Trust Agreement. The following is a description of the material terms of the Trust Agreement.
Governance and Approval Rights. The Trust Agreement establishes the roles, rights and duties of the Trustee. The Trustee will have no objective or authority to continue or engage in the conduct of a trade or business, except to the extent reasonably necessary to carry out, and consistent with, the purpose of the Trust. In particular, the Trustee will not engage in activities other than (i) collecting and distributing rental payments and sales proceeds to the Certificateholders; (ii) facilitating the sales of the Properties; (iii) facilitating Strategic Disposition Transactions (iv) cooperating with the Manager with respect to the marketing and sale of the Properties and causing the Trust to enter into such other documents and take such other actions reasonably directed by the Manager in connection therewith; (v) causing the Trust to enter into any purchase and sale agreement pursuant to which one or more Retail Properties or Warehouses are to be sold; (vi) incurring certain de minimis permitted indebtedness in the ordinary course of business of the Trust (or its subsidiaries); (vii) complying with the requirements of the Trust Agreement and the Management Agreement; and (viii) entering into all contracts and engaging in all related activities incidental, complementary or ancillary to the foregoing. The Trustee will not act other than as required pursuant to the Trust Agreement. In addition, the Trustee is required to use commercially reasonable efforts to assist the Manager in causing the Tenants to comply with their obligations under the Master Leases. The Trustee is permitted to retain professionals to assist in performing duties under the Trust Agreement. Notwithstanding the foregoing, the Trustee will have no obligation to supervise, nor will it be liable for, the acts or omissions of the Manager or any other person.
The Trustee shall not be authorized at any time on behalf of the Trust or the Certificateholders (and shall not permit the PropCos) to reinvest the Properties or take any action, in each case, that would preclude the Trust from being treated as a “grantor trust” for U.S. federal income tax purposes or would cause the Trust to be treated as a corporation or publicly traded partnership taxable as a corporation for U.S. federal income tax purposes.
The Manager, which will initially be Hilco, is an independent third-party manager engaged to perform certain asset management duties and other services with respect to the Properties. In particular, the Manager is responsible for arranging for the sale or other disposition of the Properties (including through Strategic Disposition Transactions).
Under the Trust Agreement, the approval rights of the Certificateholders are limited to (i) approval of the incurrence of indebtedness in excess of $5,000,000, (ii) approval of sales of the Properties at prices below certain thresholds, (iii) approval of sales of the Properties beyond the targeted sales period, (iv) approval of a Strategic Disposition Transaction (v) approval of the engagement of any Financial Advisor or Leasing Agent (each as defined in the Trust Agreement), (vi) approval to increase the size of, or the duration for holding, Post-Closing Reserves (as defined in the Trust Agreement), (vii) approval to increase the Reserve Amount (as defined in the Trust Agreement), (viii) the engagement of a new Trustee or Manager, (ix) the conversion of one or more subsidiaries of the Trust to a REIT, (x) any material amendment, modification, supplement or waiver of the Master Leases and (xi) any amendment, modification, supplement or waiver of the Management Agreement or the Trust Agreement.
Distributions of Proceeds from Lease Payments. Commencing on March 10, 2021, the Trust will distribute on a monthly basis the cash proceeds from lease payments under the Master Leases (until such time as all of the Properties have been sold), pro rata, to the Certificateholders as of the record date immediately preceding the applicable distribution date. Such distributions shall be net of tax payments to be made by the Trust, fees and expenses of the Trustee, the Manager and any other professional advisors in connection with operating or providing services to the Trust, and funds to be set aside for the Trustee’s and Manager’s reserve accounts, including for future costs and expenses. Distributions will be made only from assets of the Trust and only to the extent that the Trust has sufficient assets (over reserves for contingent liabilities and future costs and expenses, among other things) to make such payments in accordance with the Plan of Reorganization and the Trust Agreement.
Distributions of Proceeds from Disposition of Properties. The Trust will distribute proceeds from the disposition of any Properties and related payments received by the Trust prior to the related distribution date with the same frequency and in the same order of priority as the distributions of proceeds from the lease payments, net of any fees (including brokers fees), commissions or other amounts payable to the Manager in connection with such disposition.
The 160 Retail Properties have been leased pursuant to the Retail Master Lease to Retail Tenant and the six Warehouses have been leased pursuant to the DC Master Lease to Warehouse Tenant. Subsidiaries of the Trust are the landlord (the “Landlords”) to the Tenants under each of the Master Leases. As of the Effective Date, the Trust will own, directly or indirectly, 100% of the equity interests in the Landlords under each of the Master Leases. Subject to Landlords’ right to sever each Master Lease as described below, each Master Lease is a single, unitary lease of all of the applicable Properties, such that in the event of a bankruptcy proceeding, the Tenant shall only be entitled to assume, reject or assign the entire Master Lease and not merely a portion thereof.
Guaranties. The payment obligations of the Tenants under each of the Master Leases are unconditionally guaranteed by the Lease Guarantors pursuant to two separate guaranties (each, a “Lease Guaranty”), and the obligations of Retail Tenant is further secured by a pledge of 100% of the equity interests in Retail Tenant.
Term. Each Master Lease has an initial term of 20 years, followed by five extension option periods of five years each, for a fully-extended term of 45 years. Each five-year extension period may be exercised by the Tenant provided that (i) with respect to the DC Master Lease, no event of default then exists and (ii) with respect to the Retail Master Lease, no Major Event of Default (as defined in the Retail Master Lease) or other Disabling Event (as defined in the Retail Master Lease) with respect to a particular Property then exists. A Major Event of Default includes, in addition to the Tenant’s failure to pay rent, breaches of the permitted use or subletting covenants under the Retail Master Lease for Properties comprising 15% or more of the aggregate base rent allocation amounts for the first lease year of the Properties then subject to the Retail Master Lease. Other than upon mutual agreement, or in limited circumstances in the case of certain casualty or condemnation events or with respect to Tenant Option Properties (as defined in the Retail Master Lease), the Tenants do not have a right to terminate the Master Leases. The Trust only has the right to terminate the Master Leases (a) upon the occurrence of an event of default under the DC Master Lease, (b) upon the occurrence of a Major Event of Default under the Retail Master Lease (or upon the occurrence of an event of default with respect to a particular Property (a “Defaulted Property”), but only with respect to such Defaulted Property), or (c) with respect to Landlord Option Properties (as defined in the Master Leases).
Rent—Retail Master Lease. The base rent from the commencement of the Retail Master Lease (December 7, 2020) through December 31, 2021 is $129.5 million, 50% of which ($64.8 million) is subject to a rental abatement. The first year rent abatement is the only material concession provided to the Tenant. During each subsequent lease year, commencing with the third lease year, the base rent shall be subject to a consumer price index adjustment, provided that such adjustment shall not (i) result in an increase that exceeds 2% of the then- applicable base rent or (ii) decrease the then-applicable base rent. Such adjustment is described more fully in “Item 2. Financial Information— Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Revenue.” During each lease year during any renewal term, the base rent shall be an annual amount equal to the greater of (a) the base rent for the immediately preceding lease year (as adjusted by subtracting the base rent allocation amounts allocable to any terminated properties) and (b) the fair market rent for such renewal term, as determined in accordance with a valuation procedure set forth in the Retail Master Lease. In addition to base rent, the rent under the Retail Master Lease includes the payment by Retail Tenant of all triple-net costs and expenses attributable to the Retail Properties as additional rent.
Rent—DC Master Lease. The initial base rent for the DC Master Lease is $35.4 million per year. During each subsequent lease year commencing with the third lease year, the base rent shall be subject to a 2% escalation. During each lease year during any renewal term, the base rent shall be an annual amount equal to the greater of (i) the base rent for the immediately preceding lease year (as adjusted by subtracting the base rent allocation amounts allocable to any terminated properties) and (ii) the fair market rent for such renewal term, as determined in accordance with a valuation procedure set forth in the DC Master Lease. In addition to base rent, the rent under the DC Master Lease includes the payment by Warehouse Tenant of all triple-net costs and expenses attributable to the Warehouses as additional rent.
Triple-Net Lease; Alterations. Each Master Lease is structured as a triple-net lease, with each Tenant responsible for the payment of all taxes, insurance, maintenance, capital expenditures, operational costs, and other costs and expenses associated with the ownership, management, maintenance and operation of the Properties (subject to exceptions in certain limited scenarios as set forth in the Master Leases). In addition, each Tenant is required to indemnify, defend and hold the Landlord harmless from and against various claims, litigation and liabilities arising in connection therewith. The Tenant will pay all rent absolutely net to the Landlord, without abatement, and unaffected by any circumstance (except in certain cases of major casualty and major condemnation events or otherwise upon certain limited events expressly permitted under the Master Leases).
Landlord Option Properties. The Retail Master Lease provides the landlord thereunder (the “Retail Landlord”) with several independent options, exercisable from time to time in the Retail Landlord’s sole discretion and upon 24 months’ prior written notice to Retail Tenant, to terminate the Retail Master Lease as to any one or more of the 23 Landlord Retail Option Properties in accordance with the terms and conditions of the Retail Master Lease; provided, that landlord may only exercise such option with respect to up to eight Landlord Option Properties in any individual lease year. The DC Master Lease provides the landlord thereunder (the “Warehouse Landlord”) with several independent options, exercisable from time to time in Warehouse Landlord’s sole discretion and upon 24 months’ prior written notice to Warehouse Tenant, to terminate the DC Master Lease as to any Landlord Option Properties (as defined in the DC Master Lease) in accordance with the terms and conditions of the DC Master Lease.
Tenant Option Properties. The Retail Master Lease provides Retail Tenant with several independent options, exercisable from time to time in Retail Tenant’s sole discretion and upon 24 months’ prior written notice to Landlord, to terminate the Retail Master Lease as to all or a portion of any one or more of the six Tenant Option Properties in accordance with the terms and conditions of the Retail Master Lease; provided, that Retail Tenant may only exercise such option with respect to up to five Tenant Option Properties in any individual lease year.
Substitution Options and Go Dark Rights. The Retail Master Lease provides Retail Tenant with several independent options to terminate the Retail Master Lease with respect to one or more sub-performing properties upon replacement of such sub-performing properties with a qualified replacement property in accordance with the terms and conditions of the Retail Master Lease. Notwithstanding the foregoing, Retail Tenant shall only be entitled to exercise a substitution option (i) between the third and 15th anniversary of the commencement date of the Retail Master Lease and (ii) if the aggregate allocated base rent amounts for all Go Dark/Substitution Properties (as defined in the Retail Master Lease) during the applicable period (as described in the Retail Master Lease) is less than or equal to 15% of the aggregate first year’s base rent. The Retail Master Lease also provides Retail Tenant with the limited right to “go dark” (i.e., cease operations) at one or more Retail Properties in certain limited circumstances as set forth in the Retail Master Lease; provided that such right does not relieve Retail Tenant of its obligation to make any rent payments that are due and owing.
Tenant Offer Rights. The Master Leases contain preferential offer rights in favor of the Tenant with respect to certain Properties, which enable the Tenant, in connection with a potential sale of such Properties, to acquire such Properties for a price determined in accordance with the procedures set forth in the Master Leases.
Lockout Periods. The Landlord has agreed not to deliver notice to the Tenant formally commencing the sales process at those Properties subject to the “Tenant Offer Rights” described above prior to the dates specified in the applicable Master Lease for such Properties (the “Lockout Periods”), the latest of which is in the second quarter of 2021. Approximately 70 of the Retail Properties, and each of the Warehouses, are subject to a Lockout Period.
Lease Severance. The Landlords may at any time and from time to time, upon notice to a Tenant, in conjunction with a sale or otherwise, sell one or more Properties and sever such Properties from the Master Leases, and such severed Properties shall (upon such severance) be subject to a separate severed lease, which shall be effective as of the date of severance. The effect of severance is more fully described in the Master Leases.
Assignment and Subletting. Under the Master Leases, subject to certain affiliate transactions and other limited exceptions (which include a change of control of the Tenant or a Lease Guarantor if, following such transaction, the transferee or the Lease Guarantor has a tangible net worth of $500,000,000 or more), the Tenant does not have the right to assign any portion of the Master Leases. The Tenant has the right to sublet, without the Landlord’s consent, up to (i) 15% of the aggregate gross leasable square footage of the Retail Properties and (ii) 25% of the aggregate gross leasable square footage of the Warehouses. In connection with any proposed sublease, the Landlord does not have a right to recapture the subleased portion of the premises or to share in the profits received by the Tenant in connection with such sublease (subject to the Warehouse Landlord’s limited right to share in such profits in relation to two Warehouses, as described in the DC Master Lease); provided, however that such sublease does not relieve the Tenant or the Lease Guarantors from the obligation to make any rent payments that are due and owing if the sublessee fails to do so.
Excess Development Parcels. Under the DC Master Lease, the Warehouse Landlord is permitted to subdivide certain of the Warehouses to create excess development parcels so long as such parcels do not contain any existing improvements or materially interfere with Warehouse Tenant’s access to or other rights to use and enjoy such Warehouses, and to thereafter sell such subdivided parcels to third-party buyers.
Insurance. The Master Leases require the Tenants to maintain, with financially sound insurance companies, insurance (subject to New JCP’s deductibles in effect as of the effective date) in such amounts and against such risks as are customarily maintained by similarly situated companies engaged in the same or similar businesses operating in the same or similar locations. The Master Leases provide that the amount and type of insurance that the Tenants had in effect as of the date upon which the Master Leases became effective satisfies for all purposes the requirements to insure the Properties. However, such insurance coverage does not currently contain rental interruption coverage and only requires that the insurance companies providing such coverage maintain ratings with A.M. Best Company. The Master Leases require each Tenant to obtain, upon the request of the Landlord, quotations from insurers to enhance the Tenant’s then-existing coverage by adding both rental interruption coverage and by requiring that the other insurance coverage being maintained by the Tenant be provided by insurance companies that maintain ratings with Standard & Poor’s Ratings Services in addition to A.M. Best Company, and also permits the Landlord to obtain independent quotes to provide such enhanced coverage pursuant to a separate policy or policies obtained by the Landlord at the Landlord’s expense; provided that the Tenant has agreed to contribute up to $300,000 per year for the additional premium cost to obtain rental interruption coverage. In addition to the foregoing, the Master Leases require each Tenant to obtain, upon the request of the Landlord, quotations from insurers to reduce the Tenant’s then-existing deductibles, and also permits the Landlord to obtain independent quotes to reduce such deductibles pursuant to a separate policy or policies obtained by the Landlord at the Landlord’s expense. The foregoing insurance coverage may not be sufficient to fully cover all losses.
Other Terms. The Master Leases contain various terms and conditions related to indemnification, casualty and condemnation, financial reporting and other customary matters. The Master Leases also include events of default. Among other remedies, the Landlords have the right to terminate the Master Leases during an event of default (as described in “—Term” above, and subject to notice and cure periods (including any extended cure period) in favor of the Tenants and certain Property substitution rights of the Tenants).
The Trust entered into a management agreement with the Manager (the “Management Agreement”) on January 30, 2021, pursuant to which the Manager is the exclusive provider of certain management and other services with respect to the Properties, including (i) arranging for the sale or other disposition of the Properties (including through Strategic Disposition Transactions), (ii) coordinating with the Trustee in connection with the disbursement and collection of the Trust’s funds, (iii) paying the debts and fulfilling the obligations of the Trust (but only to the extent the Trust has working capital to pay and fulfill same on deposit in the Manager’s reserve account and (iv) supervising the performance of professionals engaged by or on behalf of the Trust, in each case upon the terms and subject to the conditions in the Management Agreement.
Pursuant to the Management Agreement, the Manager will provide a management team along with appropriate support personnel, including individuals who shall serve as the principal executive officer (the “Executive Officer”) and the principal financial officer (the “Financial Officer” and, together with the Executive Officer, the “Officers”), of the Trust to provide the management services.
Operations and Management. Pursuant to the terms of the Management Agreement, the Manager is responsible for the sale or other disposition of the Properties (including through Strategic Disposition Transactions). Except as otherwise provided in the Trust Agreement, the Manager, on behalf of the Trust, has full power and authority to sell any and all of the Properties without further approval of the Certificateholders or the Trustee.
In addition, the Manager is responsible for the day-to-day operations of the Trust and its subsidiaries and performs (or causes to be performed) such services and activities relating to the Trust’s subsidiaries’ assets and operations as may be appropriate, which may include the following:
- administer the Master Leases and activities relating to compliance therewith, including (a) enforcement of all and remedies of the Landlords with respect to all Properties then leased thereunder and (b) review of financial information and financial and other reporting received from the Tenants and the Lease Guarantors pursuant to the Master Leases and the preparation of the periodic Reporting Package (as such term is defined in each Master Lease) for the benefit of the Certificateholders;
- property level management, including, without limitation, (a) review and monitoring of lease payments and common area maintenance and real estate tax payments, (b) review capital expenditure plans and activities, and (iii) collection of rent and other income due to the Trust in accordance with the Master Leases or otherwise related to the Properties;
- develop, review and certify all Trust filings required pursuant to the Securities Act or the Exchange Act;
- all required accounting functions;
- investor relations matters, including quarterly earnings calls, attendance and coordination of investor meetings and development and maintenance of the Trust website with relevant investor materials;
- create and distribute property sales and marketing status activity reports;
- review of property condition reports;
- oversight and administration of environmental remediation measures;
- oversight and support of key property counterparties, including, among other parties, ground lessors, reciprocal easement agreement counterparties and municipal counterparties;
- creation of global marketing strategy, structuring plan and sales process, including the direction and management of third-party brokers as appropriate;
- third party broker management and supervision, including the selection of such brokers, development of a marketing plan and coordination of a negotiating strategy; and
- such other services related to the management of the business and affairs of the Trust as may be mutually agreed between the parties to the Management Agreement in writing from time to time.
Term. The Management Agreement has an initial term of 24 months. The Management Agreement shall be automatically extended in successive six-month increments until all of the Properties are sold and the Trust is dissolved or unless otherwise earlier terminated in accordance with its terms. The Trust may terminate the Management Agreement (i) in the event of any action or omission by the Manager that constitutes fraud, willful material misrepresentation, willful misconduct, material breach of the Management Agreement, willful misapplication or misappropriation of funds or gross negligence (ii) in the event of a liquidation or dissolution of the Manager; (iii) upon the occurrence of certain events with respect to the bankruptcy or insolvency of the Manager; or (iv) for any reason or no reason by providing not less than 90 days’ prior written notice thereof to Manager. In conjunction with a termination of the Management Agreement by the Trust, unless the termination is as a result of the Manager’s fraud, willful material misrepresentation, willful misconduct, material breach of the Management Agreement, willful misapplication or misappropriation of funds or gross negligence (in which case the Management Agreement may be terminated immediately and no termination fee shall be due), the Trust will pay the Manager a termination fee. For additional information, refer to the Management Agreement attached as Exhibit 10.4 hereto.
Liability and Indemnification. The Manager assumes no responsibility other than to render the services called for under the Management Agreement. The Trust will provide the Manager with a customary indemnity with respect to the Manager’s liability for any negligence related to, arising out of or in connection with the services to be provided by the Manager under the Management Agreement or related to the Properties or any portion thereof, and the Manager is not responsible for any action of the Trustee in following or declining to follow any advice or recommendation of the Manager, except where any actions or losses arise out of or are based on any action or failure to act by the Manager and are determined , by a final non-appealable judgment by a court of competent jurisdiction, to have resulted or arisen from the Manager’s bad faith, gross negligence or willful misconduct. The Manager will not be indemnified for any actions or losses in respect of or arising from the Manager’s bad faith, willful misconduct or gross negligence or reckless disregard of its duties under the Management Agreement, as determined by a final adjudication.
Compensation and Reimbursement of Expenses. Compensation and Reimbursement of Expenses. As compensation for its services thereunder, the Manager shall receive a monthly base management fee equal to the greater of: (i) 5.75% of the Lease Payments (as defined in the Trust Agreement but excluding the impact of any rent abatements under the Retail Master Lease or the DC Master Lease unless to the extent covered by business interruption or lost profits insurance) of the Properties per month; and (ii) $333,000 per month. In addition, upon the closing of each sale of a Property, the Manager shall receive an asset management fee that will consist, to the extent applicable, of: (a) a closing fee in an amount equal to $50,000 per warehouse sold and (b) a success fee as set forth in the parameters agreed by the Trustee on behalf of the Trust and Manager. In addition, we are required to reimburse the Manager for its reasonable and documented, out-of pocket costs and expenses incurred in performing services for us in connection with the operation of our business, including property management, legal, property accounting, IT and operations.
The Trust is an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As an emerging growth company, we are eligible to take advantage of certain exemptions from various reporting and disclosure requirements that are applicable to public companies that are not emerging growth companies. For as long as the Trust is an emerging growth company, unlike other public companies, it will not be required to, among other things:
- provide an auditor’s attestation report on management’s assessment of the effectiveness of its system of internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002; or
- comply with any new audit rules adopted by the Public Company Accounting Oversight Board after April 5, 2012, unless the SEC determines otherwise.
In addition, Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards that have different effective dates for public and private companies. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.
The Trust will remain an emerging growth company until the earliest to occur of the following: (i) the last date of the fiscal year during which it has $1.07 billion or more in annual gross revenues; (ii) the date on which the Trust becomes a “large accelerated filer,” as defined in Rule 12b-2 of the Exchange Act; (iii) the date on which the Trust has issued more than $1.0 billion of non-convertible debt over the previous three-year period; and (iv) the last day of the fiscal year following the fifth anniversary of the date of the first sale of Trust Certificates pursuant to an effective registration statement.
We do not believe that being an emerging growth company will have a significant impact on the Trust’s business. Even once we are no longer an emerging growth company, for so long as we are not a large accelerated filer or an accelerated filer under Section 12b-2 of the Exchange Act, we will not be subject to auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002. In addition, even once we are no longer an emerging growth company, so long as we are managed by the Manager and we do not directly compensate our executive officers, or reimburse the Manager for the salaries, bonuses, benefits and severance payments for any persons who also serve as one of our executive officers or as an officer of the Manager, we do not expect to include disclosures relating to executive compensation in our periodic reports or proxy statements. As a result, we do not expect to be required to seek the Certificateholders’ approval of executive compensation and golden parachute compensation arrangements pursuant to Section 14A(a) and (b) of the Exchange Act regardless of our emerging growth status.
Our investment objective is to sell the Properties to third-party purchasers as promptly as practicable. The Trust does not expect to acquire new real estate assets to supplement or diversify its portfolio. Neither the Trust, the Trustee nor the Manager shall be permitted to invest or reinvest the Properties except as otherwise provided herein.