What’s a big box worth?
That is, in some ways, the defining question for the brick-and-mortar crowd, which is finding omnichannel life, with its shipping fees and returns, expensive, just as investors push them to reap the value hidden in their real estate.
J.C. Penney Co. Inc., which is refinancing its term loan, appraised the “dark” value of 285 of its stores and decided the boxes by themselves, with no business inside, were worth $1.56 billion, or $5.5 million each, according to a recent regulatory filing.
The company also appraised nine distribution centers and gave them a “dark” value of $272 million.
Combined, the appraised value of these buildings stood at $1.83 billion — compared with the firm’s market capitalization of $2.6 billion and debt load of $4.76 billion, according to S&P Capital IQ.
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Penney is working to this month refinance and extend the maturity of its $2.25 billion senior secured term loan facility, which currently comes due in May 2018.
While the value of those stores will likely be used to secure that debt, the appraisal offers a look behind the curtain of retail finances. Penney’s has about 1,021 stores, 300 of which are owned outright and 118 of which are owned but built on leased ground.
Real estate makes up a relatively small part of Penney’s portfolio. Other companies have found that the perceived value of their real estate outweighs or rivals the credit they get from investors for their retail businesses.
At the time, Richard Baker, chairman and chief executive officer of Hudson’s Bay, boasted to WWD: “There’s been lots of estimates and guesses about the Fifth Avenue flagship, but no one had a proper independent appraisal on this property. This valuation, done as part of our financing, seems to indicate that it’s the single most-valuable retail building in the world that we know of.”
Not everybody can make such boasts, but the retail/real estate nexus also has Macy’s Inc. fending off Starboard Value’s Jeffrey Smith and led Sears Holdings Corp. to spin off stores into the Seritage Growth Properties real estate investment trust.