Investors are flocking to Brazilian mall stocks, enjoying a resurgence after overcoming pandemic setbacks, rising e-commerce, and high-interest rates. While the country’s retailers grapple with debt burdens and online competition, Allos SA leads the charge with a remarkable 60% surge this year, poised for its most substantial annual gain since 2019. Peers Multiplan Empreendimentos Imobiliarios SA and Iguatemi SA are not far behind, boasting gains of approximately 30%, outperforming the Ibovespa benchmark stock gauge.
This revival is fueled by a rebound in earnings, expected to continue as economic growth accelerates and interest rates decline. The Brazilian Association of Mall Retailers (Alshop) predicts Christmas sales to reach 70 billion reais ($14.5 billion) in 2023, reflecting a 5.6% increase from the previous year.
This turnaround marks a stark contrast to the challenges faced by major retailers in Brazil, grappling with high rates and increased scrutiny. The dichotomy extends to the fixed-income sector, where investors show more confidence in holding debt from mall operators, benefiting from real estate assets that can serve as collateral. Retailers, lacking substantial physical assets, face a different scenario.
Despite the overall retail struggles, some Brazilian fashion retailers, prominently featured in malls, are outperforming their brick-and-mortar counterparts. Vivara Participacoes and C&A Modas have notably surpassed the Ibovespa index, with the latter experiencing a remarkable 250% surge this year due to its impressive apparel performance.
Allos, the sector’s frontrunner, strategically pursues stake sales to enhance cash reserves for expansions. Having divested approximately 1.8 billion reais since September, the company, born from the Aliansce Sonae and BR Malls Participações SA merger, remains the best-performing stock in the sector.
Looking ahead to 2024, Fitch senior analyst Natália Brandão predicts continued robust earnings for Brazilian malls. With rents adjusted for inflation, high occupancy rates, and minimal defaults, these companies are poised to maintain high margins and strong cash generation.
Beyond retail, Brazilian malls, offering diverse services from beauty salons to gyms, serve as entertainment hubs. This diversified approach differentiates them from their U.S. counterparts, making them adaptable to Brazil’s cyclical economy.
In a landscape where economic adaptability is crucial, Brazilian shopping mall operators continue to evolve their mix and reinvent themselves for sustained success.
