J.C. Penney Co. (JCP:US) slid to an almost four-year low after Vornado Realty Trust (VNO:US), once its second- biggest shareholder, sold almost half of its stake in the struggling department-store chain, according to two people familiar with the offering.
Vornado sold a 10-million share block of J.C. Penney stock at $16.40 each through Deutsche Bank AG, said the people, who asked not to be identified citing lack of authorization to speak publicly. J.C. Penney fell 11 percent to $14.96 at the close in New York, the lowest price since March 2009.
The department-store company, led by former Apple Inc. (AAPL:US) retail chief Ron Johnson, last week reported a 25 percent decline in annual revenue to $13 billion, the lowest since at least 1987. Johnson, who joined as CEO in November 2011, has lost customers with a shift to everyday low prices, which he has since backtracked on, and as he tries to transform most of the company’s stores into a collection of 100 boutiques. Vornado chairman Steven Roth is a member of J.C. Penney’s board.
“We think Vornado could be back in the market in the near- term to sell its remaining 8.6 million shares,” Lorraine Hutchinson, an analyst at Bank of America Corp. in New York, wrote in a note today. “Our work indicates that monetizing J.C. Penney’s real estate would be difficult and substantially less lucrative than the market initially thought.”
Hutchinson reiterated her underperform recommendation, the equivalent of a sell, on the Plano, Texas-based retailer’s stock, saying it will remain under pressure “due to deteriorating investor confidence” in the turnaround.
J.C. Penney dropped 24 percent this year after slumping 44 percent in 2012. Vornado rose 3.4 percent to $84.11 today.
Vornado, the owner of more than 100 million square feet of U.S. properties, last week reported a $224.9 million loss on its 10.7 percent stake in J.C. Penney.
Vornado, with 23.4 million shares, was the second-biggest investor in the retailer after hedge fund manager Bill Ackman’s Pershing Square Capital Management LP, which has 17.8 percent of shares. It now ranks third below Dodge & Cox, according to data compiled by Bloomberg.
“I’m a director of J.C. Penney so I can’t talk very much about it, but J.C. Penney is an investment that is in progress now, and it would be inappropriate for me to talk about what our holding period might be, or our plans in terms of sale or not- sale,” Roth said on a conference call on Feb. 27.
It’s a shift from November, when Roth was vocal about his support for Johnson.
“The creation of a unique retailer and what Ron Johnson calls a specialty department store has the prospects of being enormously successful,” Roth said in a Nov. 2 earnings call. “This is a tough period. We understand that, but we remain committed to the investment.”
Joey Thomas, a spokesman for J.C. Penney, said in an e-mail yesterday that the company doesn’t comment on market activity.
“With Vornado selling, the value of J.C. Penney-owned real estate should be questioned,” Rick Snyder, an analyst at Maxim Group in New York, wrote in a note today. Snyder estimates J.C. Penney’s real estate is worth about $50 per square foot, and at that level, it would not be enough to cover the company’s $2.9 billion of long-term debt.
J.C. Penney’s shares declined (JCP:US) 50 percent from June 13, 2011, the day before Johnson was announced as J.C. Penney’s next CEO. The Standard & Poor’s 500 Retailing Index gained 46 percent in that time.
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