Trust the Process: JCPenney's Real Estate Rundown
Navigating JCPenney's Liquidating Trust: Opportunities, Challenges, and the Path Ahead
The Copper Property CTL Pass Through Trust (“CPPTL”) was formed in the wake of JCPenney's (“JCP”) Chapter 11 bankruptcy filing in 2020. Initially, the trust acquired 160 retail and 6 distribution centers from JCP with its primary objective being the liquidation of these assets. These properties were owned free-and-clear (i.e., no JCP interest) in predominantly malls and shopping centers. While several were on ground leases, they were long-term in nature with a weighted average remaining lease term of approximately 44 years. Currently, the trust is overseen by third-party manager, Hilco Global. The chart below outlines the trust’s org chart as well as involved parties.
Concurrently with the transfer of the JCP properties, CPPTL entered into a triple net lease with the restructured JCP under a Master Lease Agreement (“MLA”). The initial lease term was set for 20 years starting on December 7, 2020. Beginning in the third year, the rent would adjust based on CPI (capped at 2%). All expenses, including operating costs, real estate taxes, ground lease payments, capital expenditures, and common area maintenance, are directly covered by JCP, but there are provisions for reimbursements to CPPTL.
JCP is currently owned by a joint venture between Simon Property Group and Brookfield Asset Management. The company emerged out of bankruptcy with considerably less debt at <$500mm, a material reduction vs. the nearly $5bn pre-petition debt balance.
As of June 2023, JCP successfully sold all its distribution centers and 28 retail centers, the proceeds of which have been distributed to CPPTL certificate holders. The remaining retail centers continue to be leased to JCP under a triple net lease. After an amendment in 2021, CPPTL is now set to liquidate these assets by July 2025. If sales aren't finalized by then, certificate holders have the option to convert the trust into a REIT.
The trust is currently traded OTC and offers a monthly distribution. In the next section, I delve into the merits, risks, and key considerations of investing in these certificates. It’s very important to highlight that investing in CPPTL will necessitate tax preparation by a tax professional. Please assess/invest at your own risk.
Disclosure: The information provided is for informational purposes only and should not be considered as investment advice. Any investment decisions made based on the information provided are at your own risk. It is essential to conduct your own research and consult a qualified financial advisor before making any investment decisions. Investing involves risks, and past performance is not indicative of future results. By using this information, you acknowledge that you are responsible for your own decisions and release me from any liability. Seek professional advice tailored to your financial situation and objectives.