Bankrupt Forever 21 Owes $20M in Rent to Mall Owners
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Forever 21 has its work cut out for it.
The newly bankrupt teen mall staple, which filed for Chapter 11 late Sunday night, is beginning the arduous process of attempting to restructure its business after a series of missteps.
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As part of this effort, Forever 21 plans to close 178 of its 500-plus outposts across the United States, as well as exit most of its locations in Asia and Europe. (It will continue operations in Mexico and Latin America.) The debt-saddled retailer, which said in its bankruptcy filing this week that its assets were roughly on par with liabilities in the range of $1 billion to $10 billion, has a hefty list of unsecured creditors that are owed millions.
High on that list are real estate firms and mall developers such as Simon Property Group, which is estimated to be owed around $8.1 million in rent by Forever 21.
Not far behind is real estate investment trust Brookfield Properties Retail Group, which counts the Fashion Show Mall in Las Vegas and Tysons Galleria in Washington, D.C. among its retail investments, and has an unsecured claim of $5.3 million for rent.
Per court documents, REIT Macerich — with mall properties in California, New York, Arizona among other states — is estimated to be owed about $2.7 million in rent by Forever 21. Meanwhile, popular mall operator Westfield has an unsecured claim of $2.5 million for rent.
Vernado Realty Trust, which has a real estate portfolio mostly concentrated on office and high street properties in New York City, is also owed $2.3 million in rent. (In the court filings, these rental debts — totaling close to $21 million — are listed as “unliquidated,” suggesting the final amounts are unconfirmed or that the exact amount of the debt has not yet been determined.)
As it wades through the Chapter 11 process, Forever 21 said it expects to continue business as usual — honoring gift cards, returns, exchanges and sale purchases — making use of the $350 million in financing it secured to aid its restructuring efforts.
“This does not mean that we are going out of business; on the contrary, filing for bankruptcy protection is a deliberate and decisive step to put us on a successful track for the future,” Forever 21 wrote in a letter to customers addressing its bankruptcy this week. “We are confident this is the right path for the long-term health of our business. Once we complete a reorganization, Forever 21 will be a stronger, more viable company that is better positioned to prosper for years to come.”
Still, after several years of over expansion — marked by the mostly unsuccessful roll out of its super-sized stores — and losing favor among teens and young adults with the rise of e-commerce, the company’s future remains uncertain.
What’s more, its exit of certain malls is bad news for developers, which have been scrambling to fill vacancies with other non-fashion plays like fitness centers and restaurants in recent months.
According to advisory firm Coresight Research, U.S. retailers have already announced 8,567 store closures so far this year, compared with 5,844 closings in all of 2018.
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