The trust that's selling a portfolio of 119 J.C. Penney stores for $947 million explained its choice of a buyer Monday, saying it was the best way to divest the properties after getting over 700 inquiries about them.
Officials at Copper Property CTL Pass Through Trust discussed the pending portfolio sale to Onyx Partners, a Boston-based private equity firm, on a conference call where analysts and investors questioned the transaction. The buyer has agreed to an all-cash deal for the stores.
A least one person on the call noted the price differential in the average price per store, about $8 million, in the portfolio sale compared to prior J.C. Penney store sales at $14 million. Others asked it if might have made more sense to sell off individual stores or pieces of the portfolio.
The Jersey City, New Jersey-based trust was created in the wake of J.C. Penney’s 2020 Chapter 11 filing during the pandemic. It was tasked with selling 160 stores and a half-dozen industrial properties to help reimburse the retailer’s investors. Over the years the trust has sold about three dozen stores, and it has a deadline to sell all of them by January.
The trust retained the brokerage Newmark, assisted by Hilco, to market the stores.
"This agreement is the result of an exhaustive marketing and sale process run by Newmark under Hilco's direction," Neil Aaronson, the trust's principal executive director, said on the call. "Newmark received a substantial number of individual property offers, sub-portfolio offers, in addition to many portfolio offers. After a very thorough vetting of buyer capabilities and evaluation of their offers, Onyx clearly stood out as our preferred buyer based on their capability to close, their business strategy, and the offered purchase terms. Considering all factors, we believe we have achieved a very fair price for the portfolio."
Comparing prices
Newmark declined to comment, and Onyx didn't respond to an email from CoStar News on Monday seeking a comment. But when Newmark announced it was marketing the portfolio, some retail brokers said they expected it to fetch over $1 billion.
Aaronson and Larry Finger, Copper Property's principal financial officer, were asked about prior J.C. Penney store sales, like one at the Fashion Valley mall in San Diego, that were higher than the $8 million average that Onyx was paying. The San Diego store traded for $14.75 million four years ago, according to CoStar data.
"There's so much nuance to the evaluation of all the various bids," Aaronson said. "But I'll summarize it by saying this. One, Newmark ran a very extensive marketing process. We had, just by way of example, north of 700 [non-disclosure agreements] signed. ... We were required to sell the entire portfolio by Jan. 30 of 2026. And it was our view as we've said before that after reviewing all of the offers ... that really the best way for us to achieve our objectives was the portfolio sale was going to get that done."
Alex Arnold, managing director at Odeon Capital Group, asked if Copper Trust had discussions with its largest shareholders about how they felt about selling the portfolio for $947 million.
There’s a “super wide” gap between the value reflected of the J.C. Penney portfolio compared to similar net-lease real estate investment trusts, Arnold said.
Giant mall landlords Simon Property Group and Brookfield Property Group purchased J.C. Penney's retail operating arm out of bankruptcy in late 2020. The chain is now based in Plano, Texas, and has about 650 stores.
J.C. Penney has long-term triple-net master leases for the stores being sold. As net-leased properties, J.C. Penney is responsible for carrying costs for the stores and for the real estate's maintenance.
Proceeds' distribution
The chain's creditors will initially receive between $928 million and $932 million in proceeds from the portfolio sale, which reflects the deduction of closing costs of 1.5% to 2%, or $14 million to $16 million, according to Finger.
In addition, the trust currently has $25 million in cash reserves, and $15 million of that will be returned to creditors 60 days after the sale, he said. The remaining $10 million will be given to creditors 12 months after the deal closes. Creditors will also be paid prorated rent from the portfolio stores for the first week of September, before the sale is completed.
Simon and Brookfield are not parties to the sale and won't receive any proceeds from it, according to Aaronson. Both retail landlords had first rights to acquire 54 J.C. Penney stores. But as of four years ago, they had only picked up three of them, including the one in San Diego.
Newmark was originally slated to market 121 J.C. Penney stores, but two of those were removed from the portfolio pursuant to Simon's and Brookfield's right of first refusal, according to Finger.
"Those sales generated $21 million [in May]," he said.
The overall portfolio sale, with a capitalization rate of 10.37%, is slated to close Sept. 8.
Although Onyx signed a letter intent for its acquisition in May, Copper Property didn't announce the pending deal until Friday, now that the buyer has completed its due diligence and made a nonrefundable deposit.