March 25, 2020 / 5:15 PM / 8 days ago

UPDATE 1-Brazilian malls stocks jump amid spat over rental payments during coronavirus lockdowns

(Updates share moves, adds context, law firm comment)

By Gabriela Mello

SAO PAULO, March 25 (Reuters) - Shares in Brazilian mall operators were trading sharply higher, erasing earlier losses on Wednesday, amid a spat with shopkeepers over rental payments during a coronavirus lockdown that has closed 550 out of 577 malls across the country.

Shares in Multiplan were up 12.3% after falling as much as 3.8% in early trading, while rivals Iguatemi and brMalls were trading 14.6% and 9.2% higher, respectively, among the best performances on the Sao Paulo stock exchange.

As county and state decrees ordering closure of non-essential activities weigh on businesses, talks between mall operators and shopkeepers hit a stalemate on Tuesday, with landlords planning to still collect rental payments from tenants, who are seeking a full exemption during the coronavirus lockdowns.

“Each contract is unique, individual, so finding a rule that applies to all contracts is simply impossible, impracticable,” said Glauco Humai, president of the Brazilian mall operators group, known as Abrasce.

But local shopkeepers association, Alshop, argues that paying rent while malls are shut is not a “feasible” option.

According to law firm Weigand and Silva, which specializes in the area, a total or partial reduction in tenants’ revenues could lead to delinquency and ultimately result in a large number of unilateral terminations of leasing contracts.

“The best strategy at this time, especially for landlords, is finding common ground and adopting measures such as grace period for rental payments while activities are halted,” Weigand and Silva lawyers said in a statement.

In a report on Wednesday, investment bank BTG Pactual cut estimates for the sector in 2020 and 2021, noting that coronavirus will hit revenues at least in the short term.

“Although we reckon that it is still too early to make any prognostic on the full impact that Covid-19 may have on Brazilian malls, the fact that most shopping malls have been closed makes us more conservative in pretty much all revenue lines (mostly parking and rents), while delinquency should also increase,” BTG analysts wrote.

They expect “extremely weak” results in the second and third quarters due to the lockdown period, which should weigh on malls’ ability to grow rents in 2021.

“On a positive note,” they added, “we think this impact may be short-lived, while malls’ defensiveness in the long-term may last for longer.” (Reporting by Gabriela Mello Editing by Bill Berkrot)

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