What A Flood Of Store Closings From Macy's And Others Means For Mall REITs

Macy’s Inc M shares are reeling on Thursday, down 13.5 percent following disappointing November-December sales comps and a guidance cut. Macy’s is looking to right the ship with some aggressive cost-cutting initiatives that includes shutting down another 63 stores by the middle of 2017.

Macy’s isn’t the only prominent U.S. retailer that is disappearing from U.S. malls. American Eagle Outfitters AEO, Abercrombie & Fitch Co. ANF, Guess?, Inc. GES, Sears Holdings Corp SHLD, J C Penney Company Inc JCP and others have been closing hundreds of their least-profitable locations for years now. Aeropostale, Pacific Sunwear, American Apparel and Wet Seal all eventually succumbed to bankruptcy.

Not All As It Seems

On the surface, all these mall closings may seem like extremely bad news for mall REITs like Simon Property Group Inc SPG, General Growth Properties Inc GGP and Macerich Co MAC. However, Canaccord Genuity analyst Paul Morgan said the impact of the latest round of Macy’s closings is minimal.

“For the bog five mall REITs, these closings are not simply a non-event, but actually constructive from a market share position,” Morgan explained.

He said retailers are shutting down stores mostly on poorly-performing properties that mall REITs are also intentionally avoiding. Only 22 of Macy’s 100 store closings announced last year are in properties owned by major mall REITs.

Canaccord maintains a Buy rating on Simon Property.