The Macy's store at the Cascade Mall in Burlington, Wash.

Canaccord Genuity REIT analyst Paul Morgan said in a research note today that Macy’s recently revealed store closings will not have a disastrous impact on mall REITs.

“We view the details of Macy’s 2017 round of store closings — announced yesterday — as benign for the mall REITs, removing one near-term overhang for the out-of-favor sector to kick off the year,” Morgan said. “Despite foreshadowing 100 closings in August, Macy’s will shutter only 65 locations in 2017, with other opportunistic closures to occur ‘over the next few years.'”

Morgan said his research shows that despite controlling over half of Macy’s stores, “mall REITs own just 17 of the 65 affected malls, as the sector’s market share of Macy’s remaining malls is set to rise 500 basis points to 60 percent by [the year’s end].”

Morgan went on to note that consolidation of “weak department stores remains an underappreciated positive for the sector.” And as a result, he reiterated a “buy” rating on shares of Simon Property Group, which he described as “our favorite stock in the group.” Shares of Simon were down 1.4 percent to $181.45 in the morning trading session.

The analyst said in his report that Macy’s closings “strengthen mall REIT market dominance.”

“In the two-year window, only 6 percent of mall REIT Macy’s locations are being shuttered, in contrast to fully 26 percent of the non-REIT assets; in our view, this represents a material improvement in REIT market position, given Macy’s disproportionate focus on higher-quality malls,” Morgan explained.

He also noted that the closings are focused on second-tier malls as well as downtown locations. “We characterize the Macy’s closings program as following the same trajectory that the mall REITs began last decade, namely culling weak major market locations [e.g., the fourth and fifth best malls in a five-mall metro area],” Morgan said adding that markets “plagued by an oversupply of malls — such as Chicago, Dallas, Detroit and Houston — are notable in this round of closings, with many impacted centers having been divested by the REITs already.”

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