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Potential Forever 21 buyout involves mall landlords Simon, Brookfield

Mall landlords Brookfield Property Partners LP and Simon Property Group Inc. are reportedly in talks to purchase a stake in distressed teen retailer Forever 21 Inc., echoing a similar play for Aeropostale Inc. in 2016.

Citing anonymous sources, Bloomberg News reported that Forever 21 could sell a significant stake to the pair as part of a bankruptcy restructuring plan that could materialize as early as this month. The deal would allow the retailer's co-founder, Do Won Chang, to retain a stake, according to the report. Chang earlier in the year was said to be opposed to potential plans involving the landlords.

Simon Property Group and GGP Inc. which was absorbed by Brookfield in 2018 bought teen apparel retailer Aeropostale in 2016. Analysts and other observers have since called that acquisition a success, insofar as Aeropostale's sales and store count are up again.

Retailers saddled with debt but with generally healthy operations make attractive acquisition targets, and landlords can be superior owners of those faltering tenants, analysts covering retail and retail estate told S&P Global Market Intelligence. Mall owners bring to the table specialized real estate and store strategy and will prioritize, above all, the long-term health of the center — a benefit that also accrues to the retailer.

Simon Property Group leased 99 stores to Forever 21 as of June 30, aggregating nearly 1.5 million square feet, according to S&P Global data. The leases with Forever 21 equated to about 1.4% of the total base rental income generated from Simon's U.S. mall and premium outlet portfolio.

Leases with Forever 21 constituted 2% of the total base rents of Brookfield Property Partners' core retail portfolio.

Other regional mall landlords that reported Forever 21 as a top tenant include Macerich Co., which had 30 leases with the retailer representing 2.5% of its total rents at 2018 year-end, and Pennsylvania Real Estate Investment Trust and CBL & Associates Properties Inc. which reported exposure of 2% and 1.1%, respectively, as of June 30.

Taubman Centers Inc. does not report its tenant exposure by rental revenue, but the mall landlord reported that it had 17 Forever 21 locations in its lease portfolio as of June 30, totaling 490,310 square feet — roughly 4% of its total leased area.

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