Iguatemi Bets Demand Backs More Malls: Corporate Brazil

Iguatemi Empresa de Shopping Centers SA, the third-largest mall operator in Brazil, says growing demand from consumers will help it weather a slowdown in retail sales growth to a six-month low.

Chief Executive Officer Carlos Jereissati is moving ahead with investment plans and aims to open or expand eight malls by 2015. Retailers are struggling to meet current demand from consumers in Latin America’s largest economy, justifying the construction even if growth slows in the future, he said.

“We have in mind a Brazil that already grew, already changed,” Jereissati, 40, said in a June 22 interview in Sao Paulo. “The Brazilian consumer is now closer to the world. He travels more, knows more.”

Iguatemi’s 21 percent gain this year has outpaced the Bovespa stock index as retail sales remained robust through the first quarter. The company, whose price-to-earnings ratio makes it the second-most expensive mall operator in Brazil, is little changed since April as retail sales rose 6 percent that month from a year earlier, the slowest pace since October.

“Although economic growth is decelerating, it’s still growing,” Sandra Peres, a Coinvalores Corretora de Valores analyst who has a hold rating on the stock, said in a telephone interview. “The market can still handle more shopping centers.”

New Malls

Iguatemi opened its 322.3 million-real ($154.8 million) JK Iguatemi luxury mall in Sao Paulo on June 22, two months later than expected after it couldn’t get the permits to build access roads capable of handling the expected 20,000 daily shoppers on time.

The Sao Paulo-based company is building malls in Ribeirao Preto, Sorocaba, Jundiai and Sao Jose do Rio Preto and expanding two shopping centers in Porto Alegre, and two others in Campinas. Iguatemi’s investment plan calls for 1.41 billion reais of spending on new malls and 472 million reais for renovations and expansions between 2011 and 2015.

Iguatemi expects net sales to rise 25 percent to 30 percent in 2012, while the margin on earnings before interest, taxes, depreciation and amortization -- a measure of profitability -- will reach about 70 percent by the end of the year, according to its first-quarter earnings report on May 3. Iguatemi is scheduled to release second-quarter results on Aug. 2.

Brazil’s retail sales rose 0.8 percent in April, after a revised 0.3 percent growth in March, the national statistics agency IBGE said on June 14. The gain was less than the 1.4 percent forecast by analysts surveyed by Bloomberg.

Rival Operators

The Brazilian Association of Shopping Centers, known as Abrasce, expects 36 new centers to open this year, up from 22 last year, according to its website. BR Malls Participacoes SA, Brazil’s largest operator by market capitalization, will open three malls and expand two others by the end of the year, while No. 2 operator Multiplan Empreendimentos Imobiliarios SA will build four new malls as part of its 1 billion-real investment plan, according to the companies’ first-quarter earnings statements.

Iguatemi rose 2.9 percent to 41.97 reais in Sao Paulo trading. BR Malls increased 2 percent to 23.47 reais, while Multiplan climbed 2 percent to 49.75 reais. For the year to date, BR Malls and Multiplan are up 30 percent each, compared with a 6.4 percent decline for the Bovespa index.

Iguatemi has a price-to-earnings ratio of 21.11, compared with 24.69 for Multiplan and 20.04 for BR Malls.

Although economic expansion is slowing in the short term, Iguatemi is betting that consumer spending in Brazil will continue to grow in the middle term, Jereissati said.

“Our projects were designed thinking of an economy that will grow in 2014, 2015,” he said.

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