High-Yield REITs Look To Be Big Winners In J.C. Penney Bankruptcy


By Tim Plaehn, Investors Alley, Friday, September 25

Is brick-and-mortar retail dead? I’m not so sure. My research points to a different paradigm for retail sales. I believe you will see more coordination and integration between traditional brick-and-mortar retail outlets and the large online sellers.

Instead of competing for market share, the smart retailers from both sides of the digital divide will combine forces, growing the whole retail pie. The acquisition out of bankruptcy of J.C. Penney by two premium shopping mall operators will be a catalyst.

According to a September 9 CNBC article, Simon Property Group (SPG) and Brookfield Property Partners (BPY)have offered a deal in bankruptcy court totaling $1.75 billion to acquire the business operations and owned real estate of J.C. Penney. The two companies will each contribute $500 million of equity, with the balance coming from new and assumed debt. About $5 billion of Penney debt and any common stock equity will be wiped out if the court accepts the offer.

Currently, J.C. Penny operates 650 stores with 70,000 employees. The company-owned Penney real estate is valued at $1.4 billion with the stores open, and $700 million with the stores shut down. If the Simon and Brookfield offer is accepted, the two pick up some valuable assets at a great price.

Even though the two mall operators will pick up assets at great prices, the real money will be made when the determine and start a plan to integrate the Penney assets into the new world of blended in-store and online shopping.

Last month, the Wall Street Journal revealed a big clue about the future of retailing. The article reported that Simon Property Group was in talks with Amazon.com (AMZN). The two companies discussed (and continue to work on, I suspect) the potential to turn some of Simon’s anchor department stores into Amazon distribution hubs.

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Both the Brookfield and Simon management teams have outstanding long-term track records of building shareholder values. These recent moves show how the two companies are at the forefront of the changes in retail selling.

Simon Property Group (SPG) is a large-cap real estate investment trust (REIT) with over 200 malls, premium outlets, international shopping centers, and lifestyle centers.

With the retail shutdown in the early days of the pandemic, Simon reduced its dividend to pay $6.00 per share in 2010. So far, $3.40 in dividends has been paid.

The recent $1.30 per share dividend rate should increase significantly as we go into 2021.

Brookfield Property Partners (BPY) is a diversified global real estate company that owns, operates, and develops one of the largest portfolios of office, retail, multifamily, industrial, hospitality, triple net lease, self-storage, student housing, and manufactured housing assets.

The company has sustained its dividend through the pandemic and currently yields over 11%.

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