JC Penney Considers Spinning off Real Estate

One wonders if owning retail space will be any more profitable than operating in it.

A piece of J.C. Penney’s proposal to emerge from bankruptcy includes spinning its real estate into a publicly traded real estate investment trust.

As part of a plan filed with the bankruptcy court, Penney would reorganize into a new retailer (“JCP”), along with a REIT that would collect rent checks from the retail business. Court documents say as much as a 35% stake in the newly created REIT could be sold to a third-party investor to raise cash, or to provide additional funding for the REIT.

Weighed down by a heavy debt load of more than $4 billion and hit hard by the coronavirus pandemic, Penney filed for Chapter 11 bankruptcy protection Friday evening. Some are now questioning if the department store chain, which has been around for more than a century, should still operate. It has been stuck in a sales slump for years. The department store industry as a whole has also been on the demise, with people shifting their spending away from the mall. When Penney filed, it still operated roughly 850 locations at malls across the country.

4 Responses to JC Penney Considers Spinning off Real Estate

  1. Kevin Scheunemann says:

    If the operations are essentially tanking, the real estate is certainly depressed in market value.

    I don’t get the REIT investment play here, especially if the spaces attempt to continue as J.C. Penny’s.

     

  2. Jason says:

    Veloce made a kick ass electric go-cart track inside the old American in Waukesha…    There’s always a demand for indoor gun ranges too!

  3. Mark Hoefert says:

    Sale leasebacks are not that rare in the corporate world.  This one does seem a bit odd in that the company is off loading it’s real estate portfolio into it’s own REIT, but they may access new capital that way. And if their core business (retail) tanks, the real estate side will not go down with it.

    https://www.nreionline.com/mag/sale-leaseback-king-balance-sheet-financing

    Last year our local Walmart sold their store to a REIT in San Diego, CA.

    Our new Fleet Farm store is owned by a REIT in Scottsdale, AZ.  The Mills family used to do their expansions with current earnings & bank financing – a very slow and tedious process. In order for the business to grow, they needed to sell to a hedge fund that could access capital from other sources.  The REIT ( Store Capital Corporation) that was used to build the new store is a public traded company, and Berkshire Hathaway (Warren Buffett) holds almost 10% of the shares.

     

     

  4. dad29 says:

    Penney’s real-estate biz will be fine as soon as they get a tenant that can pay the rent.

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