Monday, January 09, 2017

J.C. Penney Plano home office sold for $353 million and eases debt outlook

While J.C. Penney is trying to make its 1,014 stores profitable, the retailer also has been working on its finances.
J.C. Penney said Tuesday that it's 1.8 million-square-foot headquarters and 45 acres around it sold for $353 million. 
The Dallas Morning News reported Monday that the sale was completed last week, according to deed records filed in Collin County. A partnership headed by investor Sam Ware's Dreien Opportunity Partners took out a $388.7 million mortgage from Beal Bank, the firm owned by Dallas billionaire Andy Beal. A second $50 million note and cash were also listed in the terms of the purchase.
Penney said it won't receive the entire $353 million, which is before closing and transaction costs. The company didn't disclose a net amount on Tuesday.
The sale represents "a significant financial milestone for the company, as proceeds from the sale give us the opportunity to reduce outstanding debt," said Penney CEO Marvin Ellison. 
Ellison also said the sale will allow Penney to "make improvements to our workspace, creating a modern and efficient environment that fosters productivity and seamless collaboration."
Penney had "numerous offers" for the property, Ellison said, but decided on Dreien Opportunity Partners, "whose leadership recognizes the building's long-term potential and has demonstrated tremendous support of the company as we maintain our home office operations within the booming Legacy corridor."The sale includes 45 acres surrounding the building located just west of the Dallas North Tollway on Legacy Drive. CBRE Capital Markets represented the Company in this transaction.
Penney said in February that it planned to cut costs through a sale leaseback of its home office while raising a significant amount of cash in the hot Plano real estate market.
Chief financial officer Ed Record has told analysts during earnings conference calls last year that the company planned to use the proceeds of the Plano property to pay down debt. He hasn't given details. 
In the past year, Penney has taken out a big chunk out of its long-term debt, which ballooned during 2012 and 2013 when it stumbled badly during a failed attempt to transform the department store. At the end of the third quarter, it had lowered debt to $4.51 billion from $5.15 billion a year earlier.In June, Penney refinanced its $2.2 billion five-year term loan, cutting its annual interest expense by $24 million and moving the maturity out to 2023.
Location, location, location
JAs real estate deals go, Penney made a wise investment back in the 1980s.  Penney announced its move from New York in April 1987 and purchased 429 acres from EDS for $25 million.Penney paid for its move to Texas with money it received after selling its former headquarters building in Manhattan. The New York building sold for for $350 million and netted $139 million after taxes. Published articles at the time listed the cost of the new home office at $200 million.
A slide presented by J.C. Penney to Wall Street analysts in August 2016.
A slide presented by J.C. Penney to Wall Street analysts in August 2016.
Maria Halkias/Dallas Morning News