Investors buy Brazil mall stocks but shun struggling retailers

Brazilian malls are back in consumers’ good graces, rebounding from years of losses while the country’s retailers struggle to survive high debt loads and fierce online competition.

Shares of Allos SA are up close to 60% this year, on track for their biggest annual jump since 2019. Peers Multiplan Empreendimentos Imobiliarios SA and Iguatemi SA have gained around 30%, outperforming the Ibovespa benchmark stock gauge.

The gains come on the back of a rebound in earnings, which is expected to continue as economic growth accelerates and interest rates come down. The Brazilian Association of Mall Retailers, known as Alshop, says Christmas sales are forecast to have reached 70 billion reais ($14.5 billion) in 2023, up 5.6% from last year. 

Ads

It’s a turnaround for a sector that was hit hard by pandemic shutdowns, rising e-commerce and high rates — factors that are weighing on the performance of some of the country’s biggest retailers. It’s also a different tale from the dynamic seen in the US, where spending habits have shifted to services and experiences like vacations and Taylor Swift concerts, which slowed down foot traffic in malls.  

“There is a dichotomy between the performance of retailers and shopping malls,” said Thiago Lima, a debt fund manager and head of real estate at asset manager JGP SA, which has exposure to both Allos and Multiplan. “A shopping center is a physical market place where an individual retailer’s performance doesn’t matter. What matters is the combination of offerings and services.”

Read more: A $10 Billion Debt Wave Hits Brazilian Retailers at Worst Time

Brazil’s retail giants struggled under high rates and increased scrutiny after the surprise implosion of Americanas SA back in January. Casas Bahia, formerly known as Via and one of the country’s most popular retail chains, had to sell equity at a steep discount in September to help pay down debt. Its shares handed investors the worst returns this year within Brazil’s benchmark index, collapsing 81%. Competitor Magazine Luiza SA’s shares fell 21% year-to-date. 

The split also applies to fixed income, with investors more comfortable holding debt from mall operators, which have real estate that can serve as collateral if the company needs more financing, Lima said. Retailers, for the most part, have relatively few physical assets. 

To be sure, some Brazilian fashion retailers — which can be found in malls — are doing better than their brick-and-mortar counterparts. Vivara Participacoes and C&A Modas have all outperformed the Ibovespa index, with the latter soaring about 250% this year amid “impressive” apparel performance.

Allos, the sector’s best-performing stock, has embarked on a series of stake sales to boost cash that can be used to fund expansions. The company — the result of a merger between Aliansce Sonae and BR Malls Participações SA — has divested around 1.8 billion reais since September. 

Brazilian malls are expected to continue to report strong earnings in 2024, Fitch senior analyst Natália Brandão wrote in early December. With rents adjusted for inflation, high occupancy rates and few defaults, the companies will be able to keep margins high and boost cash generation, the ratings firm said.

Offering not just shops but everything from beauty salons to gyms — also provides a boon to the sector, according to Fanny Oreng, an analyst at Banco Santander. 

“Malls in the US are too focused on retail, so they become a shopping destination rather than an entertainment option” she said. “In a country like Brazil, where the economy is super cyclical, shopping mall operators have always had to adapt their mix and reinvent themselves.“

More stories like this are available on bloomberg.com

©2023 Bloomberg L.P.