In the "location, location, location" world of real estate, BR Malls' (OTCPK:BRMSY) leverage to middle class (and "middle-high") consumers hasn't worked as well of late, as the Brazilian consumer continues to experience challenging times. While conditions seem to be past the worst in Brazil, the economy isn't roaring back, and BR Malls is seeing weak same-store sales and rising delinquencies.
I'm encouraged by the company's efforts to target operating costs during the downturn, and BR Malls has done well on this metric relative to Multiplan and Iguatemi, despite worse declines in same-store sales. Looking ahead, the company continues to have a sizable operating footprint that gives its leverage to a consumer recovery, not to mention a substantial land bank that can be developed into revenue-generating leased space. In addition, I expect improving sentiment to reignite interest in the Brazilian real estate sector, allowing BR Malls to get back to its preferred strategy of turning over its portfolio and monetizing more mature assets where it has less opportunity to create value.
While I do believe BR Malls shares are undervalued, the liquidity on the ADRs is sub-optimal, so these shares aren't appropriate for all investors. Additionally, while considering the Brazil-listed shares is certainly an option for some readers, trading in Brazil is still inconvenient for most American individual investors.
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Having Lagged Its Peers, BR Malls Should Have Self-Driven Upside As Brazil Recovers