J.C. Penney said on Friday that it is looking into selling off its sprawling headquarters in the Dallas area in order to lower its enormous debt load.
The mid-tier department store chain said the booming commercial real estate market in Plano, Texas, about 20 miles north of downtown Dallas, as well as excess space in its home office, prompted it to explore the transaction. The retailer plans to remain headquartered there and lease back the space. Penney provided no estimate of how much it thinks such a transaction could raise.
“With the tremendous growth and development currently taking place within Plano and North Texas, there’s no better time to take advantage of this lucrative market by pursuing a sale of our Home Office real estate,” said Penney CEO Marvin Ellison in a written statement. “This presents an ideal opportunity to reduce outstanding debt and create long-term savings.”
Its easy to see why he wants to lower Penney’s debt load: since a failed reinvention four years ago led to a 30% drop in annual sales, Penney has been coping with a severe cash shortfall and carrying $5.2 billion in long term debt. The debt has created annual interest expenses of about $400 million, more than the $300 million Penney spends annually on capital projects like its tech and store improvements. The chain’s cap-ex budget is dwarfed by those of rivals like Macy’s, Kohl’s and Target
, and its debt load is one factor keeping it from boosting that kind of investment.
J.C. Penney headquarters in Plano, Texas. Photograph courtesy of J.C. Penney.
After a few rounds of layoffs, including 300 job cuts last fall, Penney simply has less need for space at headquarters. (Penney has about 113,000 employees in all.) Under former CEO Ron Johnson, the architect of the failed 2012-2013 attempt to radically reinvent Penney, thousands of other jobs at headquarters were eliminated, so there are now about half as many people working at the Plano head office as there were five years ago.
Under Ellison, who became CEO last August, Penney has been clawing back some of that lost business. The chain reported a 3.9% increase over the holiday season, besting Macy’s
and Kohl’s performance.
The company has been improving its e-commerce and is testing selling appliances for the first time in 33 years, among many efforts.
But Ellison has also worked to reduce Penney’s financial burden. In November, Penney refinanced some of its debt and earlier in the autumn, the company reduced the benefit obligation of its qualified pension plan.
Penney said that any future headquarters rent expense would be more than offset by a drop in maintenance costs, property taxes and interest. The company has retained CBRE Capital Markets market the 1.8 million-square-foot, Class A office campus; the prospective buyer would have 650,000 square feet of that. Two years ago, also to bolster its balance sheet, Penney sold off a huge chunk of land around its headquarters, keeping a stake in the resulting development, moves that raised hundreds of millions of dollars.
Penney moved to Plano from New York in 1992, attracted by a massive new development in which land was sold at extremely low prices. Penney’s current neighbors include Dr. Pepper Snapple
, Frito Lay and Ericsson.