I guess we don't feel the love for Brazil any more.
DDR Corp. is the latest U.S. retail REIT to announce that it will exit its investments in the country, signing a letter of intent to sell its 50 percent ownership in Sonae Sierra Brazil BV Sarl to Alexander Otto and his affiliates for $346 million.
That's a healthy premium over DDR's original 2006 investment of $147.6 million and subsequent $52.6 million investment in 2009.
“Our decision to exit Brazil at the negotiated price is consistent with our intense focus on capital allocation and our strategy to create value for shareholders by reducing our risk profile, simplifying our structure, and generating outsized investment returns as we remain focused on investing in high quality domestic power centers," said Daniel B. Hurwitz, CEO, in the announcement.
The company will use the funds to pursue domestic redevelopment, a growing trend. Earlier this year, Kimco, too, sold the last of its investments in Brazil. General Growth Properties sold its stakes in Brazil's Aliansce Shopping Centers SA to two buyers for about $690 million. Simon Property Group's joint venture with BR Malls Participacoes has not yet built any projects.
Why, given the much-trumpeted growth of the middle class there and the prospects afforded by the upcoming World Cup and 2016 Olympic Games? Currency issues are certainly a factor, as is a stagnant total population growth. But there also is evidence that this new middle class is stretched financially, and will be slowing its spending, the Wall Street Journal noted in October. Much as U.S. consumers did in the decade before the Great Recession, Brazilians ran up credit card debt that now must be paid.
With redevelopment prospects now able to be financed again in the United States, DDR, Kimco and GGP may be wise to concentrate on projects at home.
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