An idle parking lot is shown at a closed JC Penney store in Roseville, Mich., May 8, 2020.
Paul Sancya | AP
A piece of J.C. Penney’s proposal to appear from bankruptcy includes spinning its real estate into a publicly traded real estate investment trustworthiness.
As part of a plan filed with the bankruptcy court, Penney would reorganize into a new retailer (“JCP”), along with a REIT that would rally rent checks from the retail business. Court documents say as much as a 35% stake in the newly created REIT could be merchandised to a third-party investor to raise cash, or to provide additional funding for the REIT.
Weighed down by a heavy debt millstone of more than $4 billion and hit hard by the coronavirus pandemic, Penney filed for Chapter 11 bankruptcy screen Friday evening. Some are now questioning if the department store chain, which has been around for more than a century, should but 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 child shifting their spending away from the mall. When Penney filed, it still operated roughly 850 turning ups at malls across the country.
This would not be the first time a struggling department store operator has relied on its actual estate value to come up with liquidity. Sears in 2015 spun off roughly 250 properties to form the REIT Seritage Excrescence Properties.
“As soon as reasonably practicable,” Penney will list common stock of the new JCP and the REIT on a national securities quarrel, court documents say.
Penney is also planning to do sale-leaseback deals for its distribution centers, according to the documents, which would alleviate it raise more cash. Such a transaction entails selling real estate and leasing it back. Many retailers, take ining Macy’s, Big Lots and Bed Bath & Beyond, have deployed this strategy in the past to come up with liquidity in a predicament.
“JC Penney now finds itself facing another monumental challenge to its business: emerging from the disruption caused by the novelette Coronavirus pandemic,” CFO Bill Wafford said in his court declaration.
Because of the Covid-19 crisis, Penney’s year-over-year net tradings tanked by roughly 88%, and bricks-and-mortar sales dropped to almost $0, Wafford said.
Penney’s unencumbered unfeigned estate is valued at $1.4 billion when the lights are on, and $704 million when they’re shut, Kirkland & Ellis attorney Joshua Sussberg suggested Saturday during a virtual court hearing.
As of the bankruptcy filing, seven Penney stores were operating curbside pickup and 41 were fully publish for business again, Sussberg said. All of Penney’s shops had been temporarily shut to try to help curb the spread of the Covid-19 virus since Procession 18.
Penney now has until July 15 to strike a business plan and hit certain milestones to receive the full bankruptcy invest in package it has struck, or else it must pursue a sale.
CNBC’s Lauren Hirsch contributed to this reporting.