By Alexander Gladstone and Andrew Scurria 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (August 13, 2020).

Two of J.C. Penney Co.'s largest landlords have emerged as the leading contenders to acquire the department-store chain's retail business out of bankruptcy, according to people familiar with the matter.

Simon Property Group Inc., the biggest mall owner in the U.S. by number of malls, and Brookfield Property Partners LP, another big shopping center owner, have joined together and are in advanced talks to purchase Penney's retail operations, people familiar with the matter said. In recent days, the pair have eclipsed other interested bidders, according to the people.

Penney reviewed a competing offer from private-equity firm Sycamore Partners that carried a slightly higher price tag, some of the people said. But Simon and Brookfield offered certain concessions over lease agreements that Penney and its lenders viewed as delivering better value, the same people said.

Simon didn't respond to requests for comment. Representatives for Penney, Brookfield and Sycamore declined to comment.

The negotiations are fluid, the people said, and aren't certain to produce an agreement acceptable to Penney and its top lenders. Other bidders would have the opportunity to top the lead offer, which also requires approval from the judge presiding over Penney's chapter 11 case in the U.S. Bankruptcy Court in Corpus Christi, Texas.

Penney is one of Simon's top anchor tenants, second only to Macy's Inc. If a deal comes together, it would save Penney from a possible liquidation and mark another acquisition by Simon of a bankrupt tenant. The company was part of a group that bought Forever 21 Inc. out of chapter 11 in February and Aéropostale Inc. in 2016. Simon also has agreed to buy Brooks Brothers out of bankruptcy for $325 million in a joint bid with apparel-licensing firm Authentic Brands Group LLC.

Years of changing shopping habits and growing e-commerce competition have pressured many bricks-and-mortar retailers. More recently, the coronavirus pandemic has choked off rent collections for retail landlords.

Simon has been exploring with Amazon.com Inc. the possibility of turning over space left by ailing department stores like Penney into Amazon distribution hubs, reflecting both the decline of malls as shopping destinations and the boom in online buying.

During a court hearing Wednesday, Penney bankruptcy lawyer Joshua Sussberg said the company was "in the red zone" regarding a sale but didn't offer specifics. Top lenders including H/2 Capital Partners LLC, Sixth Street Partners and Sculptor Capital Management have bid for Penney's real-estate assets, which would be spun off into an investment trust.

The coronavirus pandemic accelerated Penney's long decline when malls and stores around the country were forced to close temporarily. As state and local governments relaxed restrictions on nonessential shopping in recent weeks, all of the company's stores have reopened. It has said 150 locations out of the roughly 850 it brought into bankruptcy will close for good.

Esther Fung contributed to this article.

Write to Alexander Gladstone at alexander.gladstone@wsj.com and Andrew Scurria at Andrew.Scurria@wsj.com

(END) Dow Jones Newswires

August 13, 2020 02:47 ET (06:47 GMT)

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