Mall Giants Strike $800M Deal for JCPenney

Simon Property Group Inc. and Brookfield Property Partners reached an agreement in principle to buy the bankrupt department store chain.
J.C. Penney at Dadeland Mall in Miami. Image courtesy of Phillip Pessar via Wikimedia Commons

Concluding months of discussions about a potential buyout, Simon Property Group Inc. and Brookfield Property Partners LP have agreed to a $800 million deal to acquire JCPenney out of bankruptcy, the troubled department store chain confirmed yesterday.

The mall giants, which count JCPenney as one of their biggest tenants, will pay $1.75 billion for the firm’s operating and retail assets, designated as the OpCo, JCPenney said in a statement. A REIT and property holding company will encompass 161 of the chain’s real estate assets and its entire portfolio of owned distribution centers.

JCPenney’s first-lien lenders will own the two new entities, dubbed PropCos. The OpCo and PropCos will enter into a master lease with respect to the properties and distribution centers moved into the PropCos, according to the statement.

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In a statement, JCPenney CEO Jill Saltau described the deal as the best way to keep the most stores open, maximize shareholder value and position the brand for the future. 

Citing a statement by Joshua Sussberg of the Kirkland & Ellis law firm at a Wednesday court hearing, CNBC reported that the chain’s lenders, led by H/2 Capital Partners, will take ownership of the company’s distribution centers and some stores in two different real estate investment trusts. 

According to the news site, Sussberg said that the retail landlords will pay roughly $300 million in cash for JCPenney and will assume $500 million in debt. The transaction could avert a total liquidation and save around 650 stores as well as 70,000 jobs, he noted. Any transaction would still be subject to court approval and competing bids.

Rescued from bankruptcy

JCPenney filed for Chapter 11 bankruptcy protection in May, battered by a heavy debt load and a pandemic response that shuttered nearly all department stores in March. The company followed that up by disclosing plans to shut down 242 unproductive stores, or more than a quarter of its 846 locations.

Bloomberg first reported that Simon and Brookfield were in talks with apparel licensing firm Authentic Brands Group to buy JCPenney in June. The mall duo shouldered aside other contenders for the department store chain’s retail business last month, according to an account in the Wall Street Journal.

Simon, the largest owner and operator of U.S. malls, partnered with Authentic Brands to acquire Brooks Brothers and denim maker Lucky Brand in August. The NYSE-listed REIT has interests in some 235 retail properties spanning 191 million square feet around the world.

Global commercial real estate firm Brookfield has $203 billion in assets under management and more than 500 million square feet of commercial space. Its portfolio includes 170 retail locations, predominantly in the U.S., spanning 148 million square feet.