Gilford Analyst: JC Penney REIT Wouldn't Solve Profit Problems

J C Penney Co Inc. JCP prospects for spinning off its properties into a real estate investment trust would do little to solve its underlying difficulties, an analyst said Wednesday.

Market chatter about JC Penney potential interest in the action caused its shares to spike briefly on Wednesday. The company changed hands recently at $8.24, up 1.3 percent.

Gilford Securities analyst Bernard Sosnick told Benzinga that JC Penney currently benefits from inordinately low occupancy costs for what he described as its largely "vintage properties."

"If you can't make a profit on yesterday's rent, you're not going to be able to do it on today's rent," Sosnick said.

Sosnick noted that a REIT would require JC Penney "to pay current market values for rentals."

The notion of JC Penney creating a REIT with its 1,000-plus U.S. stores has been floating around at least since November, when Sears Holdings Corp SHLD said it was contemplating the action for between 200 and 300 of its stores in order to "enhance liquidity."

JC Penney, which hasn't said its contemplating a REIT, might meet a stumbling block in setting up such a deal.

The company's $2.25 billion five-year term loan obtained in 2013 is secured by mortgages on its headquarters, distribution centers and "certain real state" including its headquarters, distribution centers and many of its stores.

Jake Mann and Brianna Valleskey contributed to this report.