BRAZILIAN SHOPPING CENTERS DECEMBER 2007
Shopping Around - Initiating Coverage with an Optimistic Stance
Marcello Milman* Gonzalo Fernández*
Brazil: Banco Santander S.A. Mexico: Banco Santander S.A.
(5511) 3012 7530 (5255) 5269 1931
mmilman@santander.com.br gofernandez@santander.com.mx
In this report we are initiating coverage on the three listed Brazilian mall operators, BR Malls, Iguatemi (IESC) and Multiplan,
with Buy ratings on the three names. We provide an overview of the domestic shopping center industry, the consolidation trend,
and examine each company, comparing the investment attractiveness of the stocks. Finally, we include a section on each
company with further details on valuation metrics and earnings forecasts.
• We have taken a bullish stance on the shopping mall industry in Brazil, based on strong organic growth potential driven by
a supportive macro backdrop (inflation under control, lower interest rates and credit expansion), room for substantial gross
leasable area (GLA) expansion (under-penetrated relative to GDP by roughly 30%) and the consolidation of an extremely
fragmented market (with potential synergy and scale gains). In Brazil, shopping centers account for only 20% of retail
sales, compared with an average of more than 40% in European markets and 70% in the U.S.
• In our opinion, there is significant room for consolidation, as the top-five players own only 16% of Brazil’s GLA (or 30% if
we consider the minorities’ interests), which is low compared to the U.S., for instance. In our analysis, we estimated that the
potential market up for grabs is between 2.5 and 4.0 million m2 (roughly 7-10 times the GLA currently owned by any one
player). We studied the pension funds’ participation in this market in particular, which is around 38% of GLA, which could
be a source of non-organic GLA growth for the leading players in the industry, and we believe this process has already
begun.
• We believe both acquisition and greenfield development strategies make sense, but feel more comfortable with the
risk/return ratio of the latter, since strong competition has somewhat inflated asset prices.
• Out top pick is Multiplan, which we believe best combines a strong portfolio (with a high NOI/m2, solid organic SSS
growth, strategic network synergies and high degree of ownership control) and attractive valuation (13 times P/FFO 09E),
with a shorter “duration” of cash flows and a lot of value stemming from its current business.
• We are also positive on BR Malls, as a higher-beta play, with the fastest EBITDA growth (47% 07-12E CAGR), despite the
execution risks associated with the turnaround of the acquired portfolio. Since we believe the expected tailwind from
shopping center retail should contribute to make the company’s recent acquisitions more accretive (allowing significant
increases in NOI under the new management), we are positive on BR Malls’ story.
• On Iguatemi, we believe the entry point is still interesting, especially as we believe the company has delivered a positive
news flow over the past months, with acquisitions and attractive pipeline of greenfield projects. In our opinion, Iguatemi
boasts defensive characteristics, and an attractive valuation, albeit we prefer Multiplan, at current levels.

TABLE OF CONTENTS
Brazilian Shopping Centers ..................................................................................................... 1
Investment Opinion.................................................................................................................. 3
Multiples.......................................................................................................................... 5
Net Asset Value Analysis ................................................................................................. 5
Growth Strategies and Opportunities................................................................................ 7
Shopping Center Sector Outlook ........................................................................................... 10
A Growing Industry…....................................................................................................... 10
… But A Still Under-Penetrated One................................................................................. 11
A Very Fragmented Market… ........................................................................................... 13
… But Consolidation Seems to Be Underway ................................................................... 15
So, What Makes a Shopping Center Attractive?................................................................ 19
Multiplan............................................................................................................................... 21
BR Malls............................................................................................................................... 31
Iguatemi ................................................................................................................................ 41
Important Disclosures ............................................................................................................ 50