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DBJ: J.C. Penney Plans to Create a REIT as Part of Bankruptcy

May 18, 2020 Rebecca Ayers of the Dallas Business Journal

J.C. Penney Co. Inc.’s Chapter 11 bankruptcy restructuring proposal includes plans to create a real estate investment trust, court documents show. 

Court filings also show that it will establish a financially sustainable operating company called “New JCP.”

The stores in the REIT would be leased to “New JCP” pursuant to a market-rate master lease, and up to 35 percent of the REIT interests may be sold to a strategic third-party investor. The proceeds of the sale may either be used to provide funding for the REIT or allow for distribution of cash in lieu of equity under the plan. 

On Friday, Plano-based J.C. Penney entered into a restructuring support agreement with lenders holding about 70 percent of the company’s first lien debt to reduce its indebtedness and strengthen its financial position. J.C. Penney had about $500 million in cash on hand as of the Chapter 11 filing date, and received commitments of $900 million in debtor-in-possession financing from its existing first lien lenders, which includes $450 million of new money.

The 118-year-old department store retailer operates 846 stores, 387 of which it owns including 110 stores operating on ground leases, a court filing shows. 

However in a separate filing, the retailer said it plans to eventually permanently close about 242 stores, Reuters reported. The company’s remaining 604 stores represent about 82 percent of its fiscal 2019 sales, the report said. 

In March, the company had to temporarily shutter its stores due to the COVID-19 pandemic, but as of the petition date, the company had 41 stores fully open and another seven operating at curbside-only service, the court filing shows.

The company wants to list the “New JCP” Common Stock and REIT Interests on a national securities exchange “as soon as reasonably practicable following the plan effective date,” according to the filing. 

The company will also pursue a full or partial sale/leaseback of its distribution centers property, and use the proceeds to fund its plan, according to court documents. 

The company and its required consenting first lien lenders have to come to an agreed upon business plan by mid-July, and by mid-August the retailer has to obtain binding commitments for all third-party financing necessary to finance the business plan. If the company fails on either condition, it immediately will stop pursuing the plan, and pursue a 363 sale of all of its assets, unless otherwise instructed by the first lien lenders.

For more DFW business news, please visit the Dallas Business Journal.

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