By Esther Fung 

Mall anchors such as Macy's Inc., Sears Holding Corp. and J.C. Penney Co. have announced closures of as many as 390 store locations since August. But investors in real-estate investment trusts that own shopping centers should avoid most of the pain, analysts said.

Despite a selloff last week in mall-focused REITs following J.C. Penney's announcement that it would shutter up to 140 stores, analysts said only a handful of closures are expected to affect those portfolios.

Landlords CBL & Associates Properties Inc., Pennsylvania Real-estate investment Trust and Washington Prime Group Inc., which operate class B and C malls, figure to suffer just one closure in each of their respective portfolios, according to real-estate research firm Green Street Advisors. Mall giants Simon Property Group and Taubman Centers, which deal mainly in class A properties, shouldn't see any of their J.C. Penney locations closed.

"There have been limited closures at REIT-owned malls, with little to no existing anchor vacancies, as mall REITs have diligently backfilled vacated space," said Green Street Advisors analysts DJ Busch and Spenser Allaway in a recent report. In most cases, this could also contribute to increased earnings as mall REITs reload with more relevant, higher-paying tenants.

The best-performing, highest-quality shopping centers in the U.S. are concentrated in the hands of publicly traded REITs, suggesting they will attract other tenants should space become vacant.

Pennsylvania REIT said it expects the J.C. Penney store at its Willow Grove Park mall in Philadelphia to close but added the mall does a strong business, with roughly $650 in sales a square foot. U.S. malls typically average about $450 a square foot.

"We see great opportunity to bring in tenants to repurpose that space," said Chief Executive Joseph Coradino in the company's recent earnings call.

REIT-owned malls have been able to sign new tenants such as Dicks Sporting Goods Inc. to replace department store closures.

"Well positioned retail REITs, when faced with the prospect of taking back space from weak tenants that are shrinking their physical store footprint, will manage repositioning successfully, partly because they have the financial resources to do so," said Robert Schulz, a credit analyst at Standard & Poor's.

That said, malls in weaker locations that face more competition could suffer from department store closures if the departures trigger a domino effect, allowing tenants to demand lower rents or vacate entirely.

Write to Esther Fung at esther.fung@wsj.com

 

(END) Dow Jones Newswires

March 01, 2017 17:38 ET (22:38 GMT)

Copyright (c) 2017 Dow Jones & Company, Inc.
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