Premium Mall Densification And Tenant Mix Shifts Will Support Long Term Earnings Potential

Catalysts

About Iguatemi

Iguatemi is a leading Brazilian shopping mall owner and operator focused on high income urban and regional assets with strong international and domestic brand mixes.

What are the underlying business or industry changes driving this perspective?

• Ongoing densification and real estate development around key malls in São Paulo and the hinterland, including new residential and office towers and boulevard projects, is expected to structurally lift tenant sales and drive higher rent per square meter and occupancy over the next several years. This would support sustained revenue growth.
• Expansion and strengthening of partnerships with global fashion and lifestyle brands such as H&M, Moncler, Zara, Chanel and other premium labels, together with Iguatemi’s role as a primary entry platform for international retailers in Brazil, is shifting the tenant mix toward higher productivity concepts. This is boosting sales per square meter and rental spreads and improving EBITDA margins.
• Disciplined portfolio recycling, including the sale of weaker assets and reinvestment into flagship and higher growth malls, alongside low leverage and extended debt maturities, positions the company to accelerate value accretive CapEx and M&A. This approach is intended to enhance net operating income and earnings through both higher yields and better balance sheet efficiency.
• A pipeline of expansions and retrofits at Iguatemi Brasília, Iguatemi São Paulo, Market Place and other flagship properties, already showing pre-leasing at above-plan rent levels, is expected to add high quality gross leasable area at attractive returns. This would support medium term revenue and EBITDA growth once these projects stabilize.
• Improving operating efficiency from higher occupancy, shared services and tighter cost control, together with growing high margin streams such as parking, resale of points and higher take rates on variable rents, is likely to help translate strong top line growth into expanding net margins and rising free cash flow over time.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Iguatemi's revenue will grow by 6.7% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 40.6% today to 39.9% in 3 years time.
• Analysts expect earnings to reach R$691.7 million (and earnings per share of R$2.43) by about December 2028, up from R$578.6 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting R$835.8 million in earnings, and the most bearish expecting R$503.8 million.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 24.2x on those 2028 earnings, up from 13.9x today. This future PE is greater than the current PE for the BR Real Estate industry at 7.5x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 23.25%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• A prolonged downturn in Brazil's macroeconomic environment, especially one that weakens high income consumers after several years of outperformance, could erode the spending power that underpins Iguatemi's premium positioning and lead to slower tenant sales growth and softer rental increases, pressuring revenue and earnings growth.
• Execution risk around the enlarged CapEx pipeline, including repeated licensing delays, construction complexity in projects such as Iguatemi Brasília, Casa Figueira and Market Place, and the BRL 550 million guidance for 2026, could lead to cost overruns, later than planned openings and lower than expected returns, which would weigh on EBITDA margins and free cash flow.
• The strategy of continuously lifting rents per square meter and resale of points in already highly occupied flagships, while also increasing parking and valet prices, may face a natural limit as occupancy costs for tenants and total visit costs for shoppers rise. This increases the risk of retailer churn in weaker categories and puts future rental spreads and revenue growth at risk.
• Growing reliance on international and luxury brands, as evidenced by the rapid expansion of H&M, Moncler, Loewe and other foreign labels, exposes Iguatemi to fashion cycle shifts, brand strategy changes or global demand shocks that could reduce store productivity and bargaining power over time, negatively affecting net operating income and EBITDA margins.
• Portfolio recycling that concentrates value in fewer, larger flagship assets and disposes of tier 3 malls may reduce geographic and segment diversification over the long term. This could leave cash flows more exposed to localized shocks in São Paulo and a smaller set of dominant centers, which in turn could increase earnings volatility and potentially raise leverage if acquisition led growth outpaces rental and sales performance.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of R$30.12 for Iguatemi based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of R$34.5, and the most bearish reporting a price target of just R$25.0.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be R$1.7 billion, earnings will come to R$691.7 million, and it would be trading on a PE ratio of 24.2x, assuming you use a discount rate of 23.2%.
  
• Given the current share price of R$27.05, the analyst price target of R$30.12 is 10.2% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.