Landlord Simon Property saves tenant Forever 21

Involved in a fierce expansion strategy including a takeover of rival Taubman Centres for US$3.6 billion, the property landlord Simon Property Group (200 malls and outlet centres in the U.S.) continues to secure occupancy rates by several means. In the U.S., the Forever 21 fashion retailer filed for bankruptcy in September 2019. However, the firm has now been sold to a consortium of U.S. companies. In February 2020, the landlords Simon Property Group, Brookfield and the licensing firm ABG (Authentic Brands Group) finalised the acquisition for US$81 million. However, this agreement is worth close to US$300 million, taking into account the purchase price and liabilities for the buyers, including the February rent for Forever 21. The new owners will have 37.5% of the shares (for Simon and ABG) while Brookfield will control 25% of the intellectual property and operating businesses.

Despite trading difficulties, Forever 21 is one of the most important tenants of U.S. shopping centres. For square footage, it is Simon’s third-largest retailer with 98 stores typically exceeding 900 sq.m. It occupies 5 times more floor space than the specialty stores around it. In Q3 2019, Forever 21 accounted for 1.4% (around 139,400 sq.m) of Simon Property’s retail property portfolio in the U.S.A. In comparison, the 224 units of Foot Locker occupied 92,940 sq.m of Simon’s portfolio and represented 1.2% of rents over the same period. For Simon, or any mall owner, losing Forever 21 would mean ending up with empty square meters, which become increasingly difficult to fill. Without a fresh occupant, other tenants could demand rent reductions or even terminate leases if contracts have clauses tied to vacancy rates. Simon Property is not a beginner in terms of retailer rescue. In 2016, it took over Aeropostale with a consortium of investors, in order to ensure survival within its malls. Simon Property invested US$25 million in Aeropostale, which is now worth US$350 million via more than 500 active stores. An expected E.B.I.T.D.A. is around US$80 million, reflecting an effective turnaround compared to trading at the time of the purchase.