In the four years since J.C. Penney emerged from bankruptcy, a lot of its property has been sold off piecemeal, but as of last week there’s a deal to unload 119 stores in one fell swoop.
Private equity and real estate firm Onyx Partners has agreed to buy the locations for $947 million in cash.
Copper Property CTL Pass Through Trust made the announcement Friday. The trust was established as part of the department store’s 2020 bankruptcy plan and tasked with managing the leases of 160 stores and six distribution centers. Ultimately, though, the trust’s mandate was to sell those properties to third-party buyers as soon as possible.
Before the companies announced their deal on Friday, Copper had sold 40-plus of the parcels to various buyers. The sale to Onyx is expected to close by Sept. 8. That's just a few months ahead of a January deadline to sell off the properties.
J.C. Penney, as of 2020 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 45 years. Neither Simon nor Brookfield were a party to the sale, Neil Aaronson, the trust’s principal executive officer, and Larry Finger, its principal financial officer, said on a conference call following the announcement of the deal.
On the call Monday, Aaronson and Finger faced several questions regarding the sale — including about why all this real estate was sold at once, its selling price and whether it could instead have been turned into a real estate investment trust. Under the terms of the deal, the average price per property is $8 million, at least $2 million lower than previous sales facilitated by Copper, per the call.
The executives cited a level of urgency, given the January deadline. In the last four years, the sales period has been extended more than once: In May 2021, for example, its end point was moved to July of this year, per financial filings. A spokesperson for Copper confirmed by email that the trust could again move its deadline beyond January if a majority of the certificate holders approve.
Aaronson and Finger defended the selling price, describing a months-long process of collecting bids from several interested parties.
The question regarding formation of a REIT is based in part on the fact that these properties are under lengthy triple-net leases, meaning that the tenant is responsible not just for rent, but also “all taxes, insurance, maintenance, capital expenditures, operational costs, and other costs and expenses associated with the ownership, management, maintenance and operation of the Properties,” per filings. REIT investors would collect on those steady outlays.
But Finger said the current deal is nevertheless superior, in part because these are all J.C. Penney leases. Last year the retailer’s total net sales, not including credit cards, fell 8.6% to $6.3 billion. The company swung to a $177 million loss, from $30 million in net income in 2023, which had an extra week. Consolidated adjusted EBITDA fell more than 45% to $172 million.
“I was a public REIT CFO for 14 years and on the board of directors of another REIT for 11 years. I think the decision we made was definitely superior to rolling this into a REIT,” Finger said. “When you're comparing us to triple-net REITs, you're looking at REITs that have extraordinary tenant diversification. We have one tenant and the one tenant is a department store.”
