As Brazilian Shoppers Stay Home, One Mall Operator Goes Shopping

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  • Gazit Brasil is seeking acquisitions in Sao Paulo area
  • Company has already spent more than 1 billion reais in Brazil

Mall operator Gazit-Globe Ltd., undeterred by the decline in Brazil’s consumer demand, is going shopping.

The Brazilian unit of the Israeli real-estate company said Tuesday it bought a 4.3 percent stake in Shopping Eldorado, a mall about two miles from Sao Paulo’s Itaim Bibi, an upper-class residential neighborhood that’s also home to the main financial district. The 74 million-real ($19 million) deal is Gazit’s third Sao Paulo mall stake purchase since August 2014 and adds to more than 1 billion reais in acquisitions made by the company in Brazil since 2013.

The same forces prompting Brazilians to stay home are driving the acquisition spree. A recession in Latin America’s biggest economy is forecast to drag into next year, sending unemployment to a five-year high and pushing down asset prices. In dollar terms, valuations look even lower after Brazil’s real posted the biggest drop among major currencies this year.

“We’ve found that Sao Paulo is one of the alpha cities in the world,” Gazit Brasil Chief Executive Officer Mia Stark said. “And Brazil is cheap now. Dollar-wise, prices have depreciated a lot, and you have good assets here.”

Retail sales in Brazil tumbled 7.4 percent this year through September. Economists in a central bank survey published Monday forecast gross domestic product would shrink 3.2 percent in 2015 and 2 percent next year. Brazil’s real advanced 0.2 percent to 3.8597 per U.S. dollar on Tuesday.

Gazit, which manages about $20 billion in assets globally and has operations in more than 20 countries, is taking the opportunity to expand in the city of 12 million people -- 1.5 times the entire population of Israel. The currency drop is also making it cheaper to renovate two properties it already owns.

Since August 2014, Gazit bought two assets from General Shopping Brasil SA, the Brazilian mall operator that had to restructure part of its dollar debt. It has also built up a 5.16 percent stake in BR Malls Participacoes SA through share purchases in the local stock exchange, Gazit announced in October. BR Mall’s valuations were “attractive” after the stock tumbled 36 percent in the first nine months of the year, Stark said.

That move “was unexpected and raised some eyebrows,” said Daniel Gasparete, an analyst at Bank of America Merrill Lynch in Sao Paulo, adding that BR Malls’s assets are about 10 times bigger than Gazit’s. It wouldn’t be surprising if Gazit followed the same strategy it has implemented in other parts of the world, in which “stakes are gradually increased until reaching a relevant share of the company,” the analyst wrote in an Oct. 27 report.

Gazit hasn’t borrowed any money locally to fund its acquisitions and didn’t hire financial advisers for the purchases, preferring instead to hold talks “personally,” Stark said.

"We are at a stage where we have to decide if we want to get really big here,” she said. "Nowadays, many things are for sale. And we will be able to buy."