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Simon Property Group to Acquire Rival Taubman Centers as Forever 21 Deal Looms

Simon Property Group is looking to expand its retail reach with more malls across the U.S.

The company said Monday it has entered into a $3.6 billion deal to take a controlling stake in competitor Taubman Centers. And this deal comes alongside an $81 million consortium bid to acquire Forever 21, which awaits bankruptcy court approval.

Taubman stake

Simon Property Group said it will acquire an 80 percent interest in The Taubman Realty Group Ltd. Partnership. The terms of the agreement will see Simon acquire all of the Taubman common stock for $52.50 per share in a cash deal, with the Taubman family selling one-third of its ownership interest and remaining a 20 percent partner in TRG. Taubman owns, manages or operates 26 super-regional shopping centers in the U.S. and Asia, accounting for roughly 25 million feet of leasable area.

Taubman chairman Robert S. Taubman will continue to manage TRG’s holdings, in partnership with Simon. The acquisition is immediately accretive to Simon’s funds from operations, a measure REITs use to show cash flow from operations. The transaction still requires the approval of shareholders who own stock not held by the Taubman family.

“By joining together, we will enhance the ability of TRG to invest in innovative retail environments that create exciting shopping and entertainment experiences for consumers, immersive opportunities for retailers, and substantial new job prospects for local communities,” Simon Property Group CEO David Simon, said.

Forever 21

The deal to take control of Taubman, along with the consortium bid with Brookfield Properties and brand management firm Authentic Brands Group is the latest in a series of maneuvers from Simon as it rethinks the retail landscape.

A court filing in the Forever 21 bankruptcy case said the planned court auction for Monday has been cancelled. Although the bankrupt retailer could hold the auction on an adjourned date, the current plan–because no other “qualified bids” were received–foresees Forever 21 moving forward with a hearing on Wednesday for the court to approve the consortium’s stalking horse bid. And last year, Simon unveiled its new online outlet marketplace, Shop Premium Outlets, as part of a new multi-platform venture with Rue Gilt Groupe. The move represents Simon’s first foray into e-commerce, and the platform is expected to surpass $1 billion in online sales. Simon’s outlet tenants fulfill orders, while the REIT gets a commission from sales at its online outlet marketplace.

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Simon Investments

The new investments are part of Simon’s strategy to maintain a leadership role in the mall sector, particularly as consumer preference and shopping habits have shifted.

“…We can zig when others are zagging and we can zag when others are zigging,” Simon said last week during a call to analysts after the company reported on its fourth-quarter earnings results. “And then we have our whole additional portfolio of other investments that maybe one day we have a spin-off of that. Maybe one day, we’re not a REIT. Maybe one day, we’re just this diversified, interesting company that people will finally think, ‘hey it’s not a bad company, not too shabby.'”

Simon said the $243.3 million deal that took Aéropostale out of bankruptcy three years ago had Simon Property investing a total of $67 million in ABG, with an initial investment of $33 million at a time when the brand management firm was producing earnings before interest, taxes, depreciation and amortization of $150 million.

“Today, our value is worth $190 million of our $67 million and ABG is expected to produce EBITDA well north of $350 million and the value is growing every day,” Simon said, adding that the consortium’s “successful turnaround of Aéro after climbing out of bankruptcy in 2016 gives us confidence with our ability to do the same with Forever 21.” Simon’s interest in the Forever 21 venture is about 50 percent, and the acquisition price is $81 million plus the assumption of certain ongoing operating liabilities.

Keeping Forever 21 as a continuing operation would keep many stores open and jobs in place for the fast fashion chain’s employees, said Simon, who is also the teen chain’s largest landlord. The REIT is listed in the bankruptcy petition as a creditor owed $8.1 million.

Owning the operation gives Simon direct control over the Forever 21 stores at its malls, as well as first say in determining which doors might need to shutter or relocate. Simon malls house roughly 98 Forever 21 stores, and Taubman centers are home to about another 17 doors. Keeping the Forever 21 locations intact also means Simon wouldn’t have to worry about those doors going dark and then finding new tenants if the retail chain were to liquidate.