Over a hundred J. C. Penney retail outlets were acquired by private equity investors for approximately $950 million.
J.C. Penney Sells 119 Stores to Onyx Partners in $947 Million Deal
In a strategic move to monetize real estate assets and provide liquidity, J.C. Penney has sold 119 of its stores to private equity firm Onyx Partners for approximately $947 million. This deal was facilitated by Copper Property Trust, a trust established during J.C. Penney's 2020 bankruptcy.
The sale of the properties is considered a superior alternative to forming a Real Estate Investment Trust (REIT) due to J.C. Penney's single-tenant profile. Unlike typical diversified REITs, J.C. Penney would contribute only one tenant: itself. This single-tenant concentration is riskier and less attractive than the tenant diversification typically seen in triple-net lease REITs.
Larry Finger, CFO of Copper Property Trust, explained that forming a REIT would not have been as favorable because most REITs benefit from multiple tenants which spread out risk. With only J.C. Penney as the tenant, the REIT model would be riskier and less efficient.
The private equity sale provides immediate substantial proceeds to distribute to creditors and stakeholders of J.C. Penney's prior trust, supporting financial restructuring and operational continuity better than a REIT setup would.
The average price per property in the Onyx deal is $8 million, at least $2 million lower than previous sales facilitated by Copper. The sale does not involve the creation of a real estate investment trust.
The sale was announced in May 2021, with the sales period being extended more than once since then. The deal is expected to close by September 8, 2021.
J.C. Penney, previously owned by landlords Simon Property Group and Brookfield, is the sole tenant of these stores and other properties, which are under leases that, with extensions, are for up to 40 years.
This move comes at a time when J.C. Penney is experiencing financial challenges. The company's total net sales (excluding credit cards) declined 8.6% to $6.3 billion in 2023, swinging from a $30 million net income in 2023 to a $177 million loss in 2024. Its consolidated adjusted EBITDA fell by more than 45% to $172 million in 2023.
Prior to the Onyx deal, Copper had sold over 40 parcels to various buyers. Neither Simon nor Brookfield were a party to the sale.
Larry Finger, who has extensive experience as a public REIT CFO for 14 years and served on the board of directors of another REIT for 11 years, defended the selling price of the J.C. Penney stores, stating that it was the result of a months-long process of collecting bids from several interested parties. The executives stressed that the price was competitive and fair.
The January deadline for the sale of J.C. Penney stores may be extended if a majority of the certificate holders approve. This extension would allow more time for potential buyers to submit their offers and for J.C. Penney to secure the best possible deal.
In summary, given J.C. Penney’s weak financial position and single-tenant profile, selling store properties outright to a private equity firm is a more effective and financially advantageous strategy than setting up a REIT that would carry higher risk due to tenant concentration and likely less immediate financial benefit.
- The financial restructuring of J.C. Penney was supported by the sale of 119 stores to Onyx Partners, a private equity firm, which provided immediate substantial proceeds.
- The company's choice to sell properties to a private equity firm rather than forming a Real Estate Investment Trust (REIT) was favored due to J.C. Penney's single-tenant profile, as a REIT model with only one tenant would be riskier and less efficient.
- AI algorithms and finance experts evaluated multiple bids during the months-long process leading up to the Onyx deal, determining the price to be competitive and fair.
- J.C. Penney's tax policy and investment strategy were significantly impacted by this deal, as the proceeds were used to provide liquidity and support operational continuity.
