J.C. Penney is in trouble on Wall Street and pretty much any street where it does business. It's understood that the company has had a series of missteps since Ron Johnson took over as CEO of the company, and whether it's him or (as many have suggested) someone else in charge of getting the company turned around, it will take some time. That brings us to recent suggestions that the company buy some time by, for example, being taken private by Bill Ackman's Pershing Square Capital Management and other equity firms or that it spin off its most valuable properties into an REIT (real estate investment trust).
According to a Bloomberg News report, Mr. Ackman, the largest shareholder in the department store chain, has seen the company's stock price drop 48 percent in the more than two years since his firm made the purchase. The other major investor in Penney, Vornado Realty Trust, recently sold off more than 40 percent of its shares in the company.
"If the business keeps going in the direction that it has been going, the major investors will have to find an exit strategy," Bernard Sosnick, an analyst for Gilford Securities, told Bloomberg. "Vornado has already taken the first step."
There is real concern in Wall Street circles that Penney is bleeding cash. Recently, Dow Jones Newswires reported that CIT Group would begin adding a one percent surcharge on all invoices to Penney over concerns about its financial status. Penney reported it had $930 million in cash at the end of February rather than the $1 billion it had projected it would have in November.
In another Bloomberg report, Omar Saad, an analyst at ISI Group, said Penney should take its 300 top stores and spin them off into an REIT. Mr. Saad said a separate company managing those locations could be valued at about $40 share.
"JCP's most valuable asset is its low-cost real estate, and we believe there are many premium brands that would potentially be interested in subleasing space within the best locations," Mr. Saad wrote in a note to investors.