More than a hundred J.C. Penney retail stores have been purchased by private equity firms for approximately $950 million.
In a significant move, American department store chain J.C. Penney has agreed to sell 119 of its stores to private equity and real estate firm Onyx Partners for $947 million in cash. The sale was announced by the Copper Property CTL Pass Through Trust, an entity established as part of J.C. Penney's 2020 bankruptcy plan.
The decision to sell the stores as a single portfolio deal rather than forming a Real Estate Investment Trust (REIT) was driven by the trust's liquidation mandate post-bankruptcy. The trust, which was tasked with managing the leases of 160 stores and six distribution centers, aimed to sell those properties to third-party buyers as soon as possible.
The exhaustive marketing process led by brokers Newmark and Hilco received over 700 inquiries, but ultimately, the highest and best offer came from Onyx Partners. The simplicity and certainty of an all-cash transaction, as well as the non-refundable deposit and operational continuity via a master lease, were key factors in the decision.
Despite some analysts questioning why the stores weren't sold individually or why a REIT wasn't considered, the trust's deadline and the certainty and speed of closing under an all-cash portfolio sale outweighed these options.
Before the deal with Onyx, Copper had sold 40-plus of the parcels to various buyers. The sale to Onyx is expected to close by September 8.
The properties in question are under triple-net leases, meaning the tenant (J.C. Penney) is responsible for all taxes, insurance, maintenance, capital expenditures, operational costs, and other costs associated with the properties. This arrangement provides a level of operational continuity without impacting store operations, which was likely attractive to all parties.
In 2020, J.C. Penney's total net sales, excluding credit cards, fell by 8.6% to $6.3 billion. The company swung to a $177 million loss, compared to $30 million in net income in 2019, which had an extra week. Consolidated adjusted EBITDA for J.C. Penney fell more than 45% to $172 million in the same year.
The sale of these stores does not involve current landlords Simon Property Group or Brookfield. The average price per property in the sale to Onyx is $8 million, at least $2 million lower than previous sales facilitated by Copper.
Former REIT executive Finger, who served as a CFO for 14 years and a board member for 11 years, believes the current deal is superior to forming a REIT for these properties. Finger suggests that when comparing the current deal to triple-net REITs, one should consider the extraordinary tenant diversification typically found in those REITs, contrasted with the single tenant (J.C. Penney) in the current deal.
The deadline to sell off the properties can be extended if a majority of the certificate holders approve. The executives of Copper Property CTL Pass Through Trust cited a level of urgency due to a January deadline to sell off the properties.
[1] "J.C. Penney Sells 119 Stores to Onyx Partners for $947 Million." GlobeSt.com. 2021. [2] "J.C. Penney Sells Stores to Onyx Partners for $947 Million." Retail Dive. 2021. [3] "J.C. Penney Sells 119 Stores to Onyx Partners for $947 Million." NREIOnline. 2021.
- The trust, previously unable to form a Real Estate Investment Trust (REIT) due to its liquidation mandate, opted for an all-cash portfolio sale to Onyx Partners, a move driven by the higher certainty and speed of closing.
- In contrast to the potential formation of a triple-net REIT with typical tenant diversification, the current sale to Onyx Partners provides the advantage of a single tenant (J.C. Penney) incurring all property-associated costs through a triple-net lease arrangement.
- The sale of J.C. Penney's stores to Onyx Partners triggered the need for evaluating the finance implications of real-estate investments by market analysts while sparking debates over the merits of selling multiple properties versus a single portfolio deal within the context of corporate tax policies and investing strategies in the business sector.
