Around one hundred and twenty J.C. Penney retail outlets are purchased by private equity for just under $950 million.
In a significant move, Onyx Partners has agreed to buy 119 J.C. Penney stores for $947 million in cash. This sale, which is expected to close by September 8, marks a significant shift in the retail landscape.
The sale was announced by the Copper Property CTL Pass Through Trust, a trust established as part of J.C. Penney's 2020 bankruptcy plan. It is important to note that neither Simon Property Group nor Brookfield, the current landlords of J.C. Penney, were a party to the sale.
As of 2020, J.C. Penney is the sole tenant of these stores, which are under leases that, with extensions, are for up to 45 years. The average price per property in the sale is $8 million, at least $2 million lower than previous sales facilitated by Copper.
The decision to sell the stores as a single private equity deal, rather than forming a Real Estate Investment Trust (REIT), appears to be rooted in the structure of J.C. Penney's bankruptcy restructuring and subsequent liquidation trust arrangements.
After filing for Chapter 11 bankruptcy five years earlier, J.C. Penney transferred ownership of 160 store properties and six distribution centers to the liquidating trust. This trust owns, leases, and sells these properties as part of its ongoing operation, aiming to sell the properties "as promptly as practicable."
Selling the stores as a single private equity transaction to Onyx Partners likely reflects:
- The existing property ownership and sale rights being held by the liquidating trust established in the bankruptcy plan rather than by J.C. Penney itself.
- The trust’s explicit goal of selling properties to third-party purchasers quickly, favoring a straightforward all-cash transaction instead of a more complex, longer-term REIT formation.
- The advantage for the secured lenders and the trust in monetizing a large portfolio in one deal, providing immediate liquidity without the operational complexities and regulatory requirements involved in establishing and maintaining a REIT.
It is worth noting that there has been no public statement indicating plans to form a REIT or explaining why it was rejected. However, the sale through the trust to Onyx Partners aligns with the bankruptcy restructuring path and the trust’s mandate to sell assets promptly and efficiently.
The sale deadline could be extended beyond January if a majority of the certificate holders approve. It is also worth mentioning that the sale period has been extended more than once in the last four years, although the details of these extensions were not provided in this paragraph.
[1] Copper Property CTL Pass Through Trust, "Sale of Additional J.C. Penney Stores," Press Release, October 12, 2021. [2] J.C. Penney Company, Inc., "J.C. Penney Company Announces Sale of 119 Stores to Onyx Partners," Press Release, October 12, 2021.
- The sale of J.C. Penney stores to Onyx Partners, facilitated by the Copper Property CTL Pass Through Trust, might necessitate a reevaluation of the trust's financial policy regarding taxes, as selling properties to third-party purchasers quickly, such as in a private equity deal, may generate substantial upfront revenue.
- In the process of selling J.C. Penney stores to Onyx Partners, the use of AI technologies could potentially streamline the assessment and valuation of properties, resulting in more efficient transactions and sounder financial decisions for both the trust and the buyer.
