• Amazon Reportedly Looks at J.C. Penney

     

    Amazon Reportedly Looks at Deal for JC Penney Assets

    JC Penney Might Create Real Estate Spinoff, Plans to Close 29% of its Stores

    J.C. Penney filed for Chapter 11 bankruptcy protection from creditors after months of temporary store closings. (iStock)
    J.C. Penney filed for Chapter 11 bankruptcy protection from creditors after months of temporary store closings. (iStock)

    Department store retailer J.C. Penney, which has filed for Chapter 11 bankruptcy protection, could be the acquisition target of e-commerce giant Amazon in a deal that would boost the online retailer's apparel business.

    Seattle-based Amazon is reportedly a contender for either all or parts of J.C. Penney's business, according to fashion industry publication WWD, with an undisclosed source saying there "is an Amazon team in Plano [Texas] as we speak," referencing the city where J.C. Penney is based. "There is a dialogue and I'm told it has a lot to do with Amazon eager to expand its apparel business."

    An Amazon spokeswoman said in an email to CoStar News that the company doesn't comment on speculation. J.C. Penney declined to comment on the report about Amazon's interest through an email from a spokeswoman.

    Several retailers that were struggling to be profitable before the coronavirus hit and forced store closings have filed for Chapter 11 bankruptcy protection in recent weeks.

    J.C. Penney filed plans Monday with the U.S. Bankruptcy Court for the Southern District of Texas in Corpus Christi to close about 29% of its brick-and-mortar retail stores, or about 242 locations. The company, which a spokeswoman said has yet to identify the stores to be closed, is expected to shut nearly 200 outlets this year, followed by another 50 locations next year.

    To emerge from bankruptcy, J.C. Penney plans to create two new public businesses, including a real estate investment trust it would spin off. In the plan filed with the bankruptcy court, the company would reorganize into a new retailer with a REIT to collect lease payments from the retail arm of the business. As much as a 35% stake of the newly created REIT could be sold to a third-party investor to help fund it, according to a filing with the Securities and Exchange Commission.

    The move by J.C. Penney echoes a similar strategy made five years ago by Sears in which the retailer spun off about 250 properties to form Seritage Growth Properties, which has been in the process of marketing a high-profile site in Dallas. This could be a profitable side of J.C. Penney's business with leases already in place with the retailer.

    As part of J.C. Penney's debtor-in-possession financing commitment with its existing lenders, the retailer plans to also explore other opportunities to maximize value, including the possibility of a third-party sale process. Before filing for Chapter 11 bankruptcy, J.C. Penney had about $500 million in cash on hand, as well as financial commitments of $900 million in debtor-in-possession financing from its first lien lenders.

    The financing, along with cash flow generated by the retailer's operations, are expected to meet J.C. Penney's operational and restructuring needs.

    The permanent store closings come as J.C. Penney works to reopen its retail stores throughout 49 states and Puerto Rico after temporary closings in March because of government mandates to help mitigate the spread of the coronavirus. As of Monday, 41 retail locations were open to customers in Arizona, Arkansas, Colorado, Florida, Georgia, Idaho, Kansas, Mississippi, Nebraska, Oklahoma, Tennessee, Texas, and Utah, with another 13 stores in the United States open for curbside service.

    During the pandemic-induced shutdown, the retailer also furloughed the majority of its roughly 90,000 employees, including hourly workers, corporate employees in Plano and employees in J.C. Penney offices in Salt Lake City and Soho in New York City. On Saturday, the bankruptcy court gave J.C. Penney the ability to pay vendors and wages to non-furloughed staff.

    "We are pleased to have received approval of these motions, which will enable us to continue implementing our plan for renewal and operating our business to serve the needs of our loyal customers," J.C. Penney CEO Jill Soltau said in a statement. "By entering this restructuring support agreement with our lenders, we expect to reduce several billion dollars of indebtedness, provide increased financial flexibility to help navigate through the coronavirus pandemic, and better position J.C. Penney for the long term."