COMMITMENTS AND CONTINGENCIES |
12 Months Ended |
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Dec. 31, 2022 | |
| Commitments and Contingencies Disclosure [Abstract] | |
| COMMITMENTS AND CONTINGENCIES | COMMITMENTS AND CONTINGENCIES Master Leases
Landlord Option Properties: The Retail Master Lease provides the Trust an option on 23 of the Retail Properties allowing current or future landlords to terminate the Retail Master Lease as to that property upon 24 months’ prior written notice but such option is (for the Trust, but not for future landlords) limited to eight Retail Properties in any lease year. The DC Master Lease provided the Trust an option on all six of the distribution centers, allowing current or future landlords to terminate the DC Master Lease upon 24 months’ prior written notice if the tenant has ceased operations within the premises. During 2022, the Trust sold nine Retail Properties with a landlord termination option, and during 2021, the Trust sold seven Retail Properties and all six Warehouses with landlord termination options. As of December 31, 2022, there were seven remaining Retail Properties with landlord termination options.
Tenant Option Properties: The Retail Master Lease provides New JCP an option to terminate the Retail Master Lease upon 24 months’ prior written notice as to all or a portion of any one or more of six specified properties but such option is limited to no more than five Properties in any lease year. During 2022, the Trust sold one Retail Property with a tenant termination option and during 2021, the Trust sold four Retail Properties with tenant termination options. As of December 31, 2022, there was one remaining Retail Property with a tenant termination option.
Substitution Options and Go Dark Rights: The Retail Master Lease provides New JCP an option to terminate the Retail Master Lease with respect to selected sub-performing properties upon replacement of such sub-performing properties with a qualified replacement property in accordance with the terms and conditions of the Retail Master Lease. Notwithstanding the foregoing, New JCP shall only be entitled to exercise a substitution option (i) between the third and 15th anniversary of the commencement date of the Retail Master Lease and (ii) if the aggregate allocated base rent amounts for all Go Dark/Substitution Properties (as defined in the Retail Master Lease) during the applicable period (as described in the Retail Master Lease) is less than or equal to 15% of the aggregate first year’s base rent. The Retail Master Lease also provides New JCP with the limited right to “go dark” (i.e., cease operations) at one or more Retail Properties in certain limited circumstances as set forth in the Retail Master Lease; provided that such right does not relieve New JCP of its obligation to make any rent payments that are due and owing.
Tenant Purchase Rights: The Master Leases contain preferential offer rights in favor of New JCP with respect to 70 of the Retail Properties and each of the Warehouses (the “Tenant Purchase Rights”), which enable New JCP, in connection with a potential sale of such Properties, to acquire such Properties for a price determined in accordance with the procedures set forth in the Master Leases. These Tenant Purchase Rights require the Trust to reoffer a property to the tenant in the event it is not sold within a specified period of time at a specified minimum price related to the preferential purchase price. 18 of these Retail Properties, of which three were purchased by an affiliate of the tenant, and all of the Warehouses, of which none were purchased by the tenant, have been sold as of December 31, 2022.
Lockout Periods: The Trust agreed not to deliver notice to New JCP formally commencing the sales process at those Properties subject to the Tenant Purchase Rights prior to the dates specified in the applicable Master Lease for such Properties. All lockout periods with respect to the Tenant Purchase Rights for the 70 Retail Properties have expired.
Environmental Matters
Federal law (and the laws of some states in which we own or may acquire properties) imposes liability on a landowner for the presence on the premises of hazardous substances or wastes (as defined by present and future federal and state laws and regulations). This liability is without regard to fault or knowledge of the presence of such substances and may be imposed jointly and severally upon all succeeding landowners. If such hazardous substance is discovered on a property owned by us, we could incur liability for the removal of the substances and the cleanup of the property.
There can be no assurance that we would have effective remedies against prior owners of the property. In addition, we may be liable to current or future tenants and may find it difficult or impossible to sell the property either prior to or following such a cleanup. There are no environmental matters that are expected to have a material effect on the Trust’s consolidated financial statements.
Risk of Uninsured Property Losses
The Trust maintains property damage, fire loss, environmental, and liability insurance in addition to the insurance required to be maintained by the Tenant pursuant to the Master Leases. However, there are certain types of losses (generally of a catastrophic nature) which may be either uninsurable or not economically insurable. Such excluded risks may include war, earthquakes, tornados, floods and certain other environmental hazards. Should such events occur, (i) we may suffer a loss of capital invested, (ii) tenant may suffer losses and may be unable to pay rent for the spaces, and (iii) we may suffer a loss of profits which might be anticipated from one or more properties.
Impacts of Macroeconomic Factors
Our operating results have been and will continue to be impacted by global and national economic and market conditions generally and by the local economic conditions where our properties are located. Global economic challenges, including the war in Ukraine have contributed to rising interest rates, high inflation, ongoing geopolitical tensions and instability and volatility in the global markets which, in turn, may have adverse effects on the world and U.S. economies and lead to a downturn in consumer confidence and spending. Rising interest rates may also negatively impact the prices that buyers will be willing to pay for our properties. If we or New JCP were to experience adverse economic trends and/or if our or New JCP’s efforts to counteract the impacts of these trends are not sufficiently effective, there could be a negative impact on our financial performance and position in future fiscal periods.
Concentration of Credit Risk
As of December 31, 2022 and 2021, all of the Properties were leased to New JCP, and all of the Trust’s lease income was derived from the Master Leases (see Note 4). The Properties' tenants constitute a significant asset concentration, as all tenants are subsidiaries of New JCP and New JCP provides financial guarantees with respect to the Master Leases. Until the Trust materially diversifies the composition of tenants for its properties, an event that has a material adverse effect on New JCP’s business, financial condition or results of operations could have a material adverse effect on the Trust’s business, financial condition or results of operations.
The Trust's real estate portfolio was reasonably diversified by geographical location and did not contain any other significant concentrations of credit risk. As of December 31, 2022, the Trust's properties are located across 36 U.S. states and Puerto Rico. For the year ended December 31, 2022 , the Trust's lease income was concentrated in two states as follows: California 18.6% and Texas 13.9%. From the Effective Date to December 31, 2021, the Trust's lease income was concentrated in two states as follows: California 14.8% and Texas 14.4%.
Litigation From time to time, the Trust may be subject to various legal proceedings and claims that arise in the ordinary course of business. There are no current matters that are expected to have a material effect on the Trust’s consolidated financial statements.
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