bankruptcy filing was widely anticipated after Covid-19 shut its stores. Now, Penney’s fate turns less on retail than on commercial real estate. The company’s proposed reorganization plan would split it in two: Investors would hold an asset-lite retailer, while a real-estate investment trust would own some (or all) of the stores.
The clock is ticking. If Penney doesn’t meet key deadlines, it might have to liquidate, according to filings. The retailer must come up with a lender-approved business plan by July 14 and lock down financing by Aug. 15. Its plans for its real estate are key. Penney must determine how many of its 387 stores will close, and whether it can renegotiate leases on 459 locations and five distribution centers. The bottom line: The more valuable the real estate, the more money Penney can raise for the REIT.
Alas, no one’s sure what retail space is worth. Malls have faded and social distancing has meant mass store closures. And other retail bankruptcies could sink real estate values.
In a March filing, Penney estimated that part of its property was worth $910 million, assuming stores open. Those same stores would be worth $545 million if they were vacated. The total valuation of stores unencumbered by creditor claims is $1.4 billion—if they open. Assuming that they will open might be optimistic, given pandemic uncertainties. And even if Penney succeeds in selling the assets to investors, questions about its viability as a retailer remain.
Then there’s this: CreditSights analysts say part of J.C. Penney’s savings—$127 million to $260 million—from getting rid of debt in bankruptcy would be cancelled out by rent owed to investors.
U.S. equity and bond markets are closed in observance of Memorial Day.
The Conference Board releases its Consumer Confidence Index for May. The consensus estimate is for a 87.3 reading, roughly even with April’s 86.9.
The Census Bureau reports new residential home sales for April. Economists forecast a seasonally adjusted annual rate of 480,000 homes sold, 23.4% below March’s 627,000.
The Federal Housing Finance Agency releases its Home Price Index for March. Expectations are for a 0.6% increase in single-family home prices, roughly even with February’s gain.
The Federal Reserve Bank of Dallas releases its Texas Manufacturing Outlook Survey for May. Wall Street sees the index regaining some ground, to minus 61.5 from April’s minus…