Simon Property Group and Brookfield Property Partners LP have apparently made a deal to purchase J.C. Penney out of bankruptcy for $800 million, which includes debt. The agreement seems like a logical move for these two shopping mall giants to make given that it protects rents that the newly restructured company will be able to continue paying them. The acquisition also averts hundreds of locations being closed across the country in the face of increasing vacancies, closures, bankruptcies and government ordered shutdowns in malls nationwide due to the COVID-19 pandemic.
A group of lenders have agreed to go along with this deal betting on the fact that a restructured J.C. Penney can eventually make money and return to robustness. Simon and Brookfield will own 490 of 650 stores outright according to The Wall Street Journal. The rest will be leased along with distribution centers from the group of lenders for a portion of the $5 billion in debt that the retailer owes. Approximately 200 stores have closed permanently since the Chapter 11 filing and will remain closed.
“We have determined that an agreement with Brookfield and Simon, as well as the formation of separate real estate investment trusts owned by our First Lien Lenders, is the best path forward to maximize value for our stakeholders, ensure we keep the most stores open and associates employed, and position J.C. Penney to build on our over 100-year history,” said J.C. Penney CEO Jill Soltau said in a statement. “The interest in our operations reflects our company’s strength and our loyal customer base. It is a testament to the hard work and dedication of our talented associates and the progress we have made in implementing our plan for renewal to offer compelling merchandise, drive traffic, deliver an engaging experience, fuel growth, and build a results-minded culture.”
New lease on life for J.C. Penney
Simon Property Group and Brookfield Property Partners’ acquisition of J.C. Penney is somewhat unconventional given shopping calls’ current state of affairs. J.C. Penney itself has seen its revenue and market value drop over the last four years. The retailer reported net sales of $10.7 billion last year, down from $12.6 billion 2015, according to CNBC. Less in-person shopping has been one of the main causes for Penney’s drop in revenue.
The acquisition wouldn’t be as much of a surprise if other mall retailers were flourishing. However, Neiman Marcus and Lord & Taylor filed for bankruptcy protection during the COVID-19 pandemic. Meanwhile home goods chain Pier 1 Imports, along with Lord & Taylor, are currently liquidating.
Simon is no stranger to rescuing retailers from the brink during these uncertain times, however. The property owner recently partnered with apparel licensing firm Authentic Brands Group (ABG) to reach agreements to save suit maker Brooks Brothers and Denim retailer Lucky Brand from bankruptcy. It also teamed with Brookfield and ABG to save Forever 21. Additionally, Brookfield pledged $5 billion to save retailers hurt by the COVID-19 pandemic.
Analysts have noted that Simon and Brookfield’s motivation to save J.C. Penney from bankruptcy is to avoid having several empty department stores at their properties, CNBC reports. Minimizing vacancies also keeps co-tenancy clauses from going into effect, which would allow neighboring mall retailers to renegotiate their own leases or vacate. Also, if Simon and Brookfield own J.C. Penney, the companies could repurpose their own real estate more easily in the event that any Penney stores in their malls close.
J.C. Penney is hopeful that closures aren’t in the retailer’s future, however. Wells Fargo has agreed to provide the retailer with $2 billion in exit financing to help it get out of Chapter 11.
“As we continue to move through the sale process, our focus will remain on serving our customers and working seamlessly with our vendor partners,” Soltau said. “We have been a trusted partner to all of our stakeholders since 1902, and we expect to continue that track record for decades to come under the J.C. Penney banner.”