Over a hundred J.C. Penney retail stores secured by private equity firms for approximately $950 million dollars.
Onyx Partners Acquire 119 J.C. Penney Stores in All-Cash Deal
In a significant move, private equity and real estate firm Onyx Partners has agreed to purchase 119 J.C. Penney stores for $947 million in cash. The deal, which is set to close by September 8, marks a strategic acquisition for Onyx, as they chose to buy the stores as a single all-cash portfolio rather than forming a Real Estate Investment Trust (REIT).
The decision to opt for a direct buyout was primarily due to the assets being offered as a consolidated portfolio under a long-term triple-net master lease. This structure facilitated an outright acquisition with certainty and speed, avoiding the complexities and time-consuming processes associated with REIT formation.
The 119 stores, totalling nearly 16 million square feet, are leased under a single master lease to J.C. Penney. This arrangement offers a stable cash flow, as the tenant is responsible for property expenses, maintenance, taxes, insurance, and other operational costs.
The seller, Copper Property CTL Pass Through Trust, was undergoing a liquidation process to monetize J.C. Penney’s real estate assets post-bankruptcy. The trust preferred a buyer who could consummate an all-cash, bulk portfolio sale for swift resolution. Onyx Partners' ability to close the deal swiftly and their alignment with the seller’s goals made a single large transaction preferable to fragmentation or a REIT formation.
Onyx Partners conducted thorough due diligence and made a non-refundable deposit, demonstrating their commitment and reducing the seller's risk linked with multi-party REIT structuring or incremental sales. Unlike forming a REIT, which involves registration, regulatory complexities, and capital raising from multiple investors, the direct private equity buyout offered a faster, more straightforward transaction structure better suited to the seller's timeline and objectives.
Former public REIT CFO and REIT board member, Finger, believes the current deal is superior to rolling the properties into a REIT due to the single tenant and department store nature of the business. The sale of these properties follows a competitive marketing process where some bidders offered for portions or individual properties, but Onyx was selected for its strong ability to close the deal and alignment with the seller’s goals.
J.C. Penney, currently 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. The sale period has been extended more than once in the last four years. The average price per property in the sale is $8 million, at least $2 million lower than previous sales facilitated by Copper.
The sale deadline was originally January, but it could be extended if a majority of the certificate holders approve. The executives of Copper faced questions about the sale, including why it was sold all at once, its selling price, and whether it could have been turned into a real estate investment trust. However, the swift resolution and certainty offered by the direct buyout seem to have outweighed the potential benefits of a REIT formation for all parties involved.
- The strategic acquisition of 119 J.C. Penney stores by Onyx Partners was not made as a Real Estate Investment Trust (REIT), opting instead for a direct all-cash buyout due to the assets being offered as a consolidated portfolio.
- In choosing to purchase the stores as a single all-cash portfolio, Onyx Partners avoided the complexities and time-consuming processes associated with REIT formation, which involves registration, regulatory complexities, and capital raising from multiple investors.
- The current deal, which is a non-REIT selling of J.C. Penney's real estate assets, is believed to be superior by former REIT CFO and board member, Finger, due to the single tenant and department store nature of the business.
