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Penn Traffic Mulls Selling, Then Leasing Stores

SYRACUSE, N.Y. - The Penn Traffic Co. is looking into selling, then leasing back, 21 company-owned supermarkets and five warehouse distribution centers.

The company, which has been in Chapter 11 bankruptcy since May 2003, has requested the federal bankruptcy court in White Plains, N.Y. to let it expand its relationship with Keen, Realty LLC to investigate the value of the supermarket chain’s company-owned properties.

"One of the alternatives we want to explore to see if it gives us a better capital structure coming out [of bankruptcy protection] is a sale-leaseback option for our own properties," William B. Murphy, Penn Traffic's interim c.f.o., said in press reports. "We're working with three different bank proposals for your typical exit financing. As an alternative, we've asked Keen to look at whether or not there's excess value in our owned real estate that we should use to enhance our balance sheet when we come out of Chapter 11 as part of reorganization."

A Penn Traffic spokesman told Progressive Grocer that the strategy could "unlock capital that's currently tied up in real estate," allowing Penn to "potentially realize a lot of money." The money generated, he continued, could subsequently be invested in other areas, such as store equipment and upgrades. If such a strategy were to go through, "basically all corporate stores would be on the same footing," he said, noting that the rest of Penn's 111 supermarkets are leased, a common practice in the industry. Leasing all of its stores would let Penn concentrate on its "core business" as a supermarket operator, the spokesman added.
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