“Full-scale liquidations are almost exclusively focused on culling locations in weak 'C' malls,” write Morgan and Ng. “Meanwhile, a cohort of healthier chains is poised to capture share through expansion, including H&M, Zara, Francesca's, Skechers and VF Corp, while others including Urban Outfitters, Cheesecake Factory and Starbucks are investing in larger store formats as a rising share of capex is targeting the most productive markets and malls.”

Canaccord rates a new focus on store investment as a positive for REITs. “After years of prioritizing e-commerce infrastructure and international expansion over their legacy US store fleet, we find a growing number of retailers”—including Macy's, Nordstrom, Williams-Sonoma 
and Victoria's Secret—targeting investment in their best-performing stores through refreshes and expansions. Morgan and Ng see this as “a welcome shift that should reward the efforts of the mall REITs who completed (FFO-dilutive) portfolio upgrades over the past decade.”

SAN FRANCISCO—Retailer tenant sentiment is down as of the first quarter, says Canaccord Genuity, yet that's a boon for class A mall landlords. The 25-basis point drop in Cannacord's Tenant Sentiment Index from Q3 2016 reflects “retailers' increasing focus on mall quality over quantity and ongoing market share shifts within the retail landscape,” says San Francisco-based REIT analyst Paul Morgan. “In our view, mall REIT investment strategies have anticipated these trends, positioning their portfolios to consolidate market share as retailers' investment programs.”

The firm's proprietary TSI, which distills comments from public mall retailers, stands at 5.35 on a scale of 1 to 10 as of Q1. Beyond the topline number, the current TSI reflects a mix of growth vs. consolidation.

“Of the 61 retailers we track, the outlook for store growth is positive for 28 (down five) and negative for 19 (up three), with 14 other chains (up two) targeting broadly stable domestic square footage,” according to a Cannaccord report by Morgan and associate Paul Ng. “Despite the negative headlines during Q4 reporting season and our TSI's sequential decline, the rent-weighted 5.4 index reflects modest net growth for mall retailers.”

The report makes the point that department stores such as Sears, Macy's and JC Penney have been in the news recently for their waves of store closings. In particular, Sears last week expressed doubts about its own viability as a going concern. Yet there are also growth stories, such as H&M, which plans to add 430 locations globally this year.

“Full-scale liquidations are almost exclusively focused on culling locations in weak 'C' malls,” write Morgan and Ng. “Meanwhile, a cohort of healthier chains is poised to capture share through expansion, including H&M, Zara, Francesca's, Skechers and VF Corp, while others including Urban Outfitters, Cheesecake Factory and Starbucks are investing in larger store formats as a rising share of capex is targeting the most productive markets and malls.”

Canaccord rates a new focus on store investment as a positive for REITs. “After years of prioritizing e-commerce infrastructure and international expansion over their legacy US store fleet, we find a growing number of retailers”—including Macy's, Nordstrom, Williams-Sonoma and Victoria's Secret—targeting investment in their best-performing stores through refreshes and expansions. Morgan and Ng see this as “a welcome shift that should reward the efforts of the mall REITs who completed (FFO-dilutive) portfolio upgrades over the past decade.”