The Simon Property Group-led partnership now poised to take over Forever 21 intends to keep the ailing retail chain open.
That was Simon Property CEO David Simon, during the mall owner’s fourth quarter earning’s call Tuesday morning.
A venture among Simon, Brookfield Property Partners and Authentic Brands Group was recently named the stalking horse bidder to acquire Forever 21, which filed for bankruptcy in September. The bid has to succeed in an auction, but should it go through, the group would buy most of Forever 21’s assets for $81 million, plus the retailer’s operating liabilities.
Simon’s stake in the investment group is just under 50 percent, the chief executive said. He added that Forever 21 is a well-known brand — with $2 billion in global sales — that the company will keep operating should the offer go through.
“With F21, we do think there’s a business there, but it’s got to be turned around,” said Simon, during the morning call. “And I’m not going to project today what those numbers are but we’ve got our work ahead of us. But if we are successful at turning it around, we will make money at F21 and we will make our rent.”
For the quarter, Simon said its net income was $510.2 million, compared to $712.8 million the same time last year. Its quarterly funds from operations also fell year-over-year, to about $1 billion from about $1.15 billion.
Simon reported net income for 2019 of about $2.1 billion, down from roughly $2.4 billion the year before. Simon’s sales per-square-foot for its U.S. malls and outlets was $693, up 4.8 percent for the year. The Indianapolis-based REIT’s funds from operations came in at about $4.27 billion for the year, a fall from $4.34 billion the year prior.
Simon called the fourth-quarter results “successful,” particularly as the industry deals with headwinds from retail bankruptcies, store downtime from redevelopments and a drop in foot traffic from diminished tourism. Simon said the landlord is in the midst of redeveloping 15 former department stores and building five outlets, three of which are slated to open this year.
“We’ve been doing this for a long time,” he said. “We’ve weathered different storms.”
The proposed purchase of Forever 21 would not be Simon’s first retail investment. Three years ago Simon and ABG — which Simon has a separate 6 percent stake in — bought Aeropostale when that discount teen apparel chain also was in bankruptcy. Simon’s investment in Aeropostale was $25 million. At the time, Aeropostale was producing negative EBITDA of $100 million across 500 stores. Now, the store is expected to produce positive EBITDA of about $80 million, Simon said.
“Our group’s successful turnaround of [Aeropostale]…gives us confidence in our ability to do the same with Forever 21,” he said.
In response to an analyst’s question, Simon added he was not sure if it would take the same amount of time to turn around Forever 21 as it did Aeropostale — Forever 21’s company is larger and more complicated, he noted.
In a bankruptcy court filing last week, Forever 21 said it has shuttered over 100 stores and reduced its annual rent payments by $91 million. But the retailer said it still had liquidity problems, prompting the need for an auction.
In October, Simon announced it was partnering with Rue Gilt Groupe to boost its online shopping presence.
Bloomberg also reported Tuesday, during the earnings call, that Simon and another mall REIT, Taubman Centers, have been holding on-and-off merger talks since late last year. Simon previously had tried to acquire Taubman, and there have been other mall mergers in recent years. Unibail-Rodamco bought Westfield and Brookfield acquired General Growth Properties.
When asked about the story by an analyst, Simon said he had yet to see the story and declined to comment.
Write to Mary Diduch at md@therealdeal.com