Rodrigo Assam
rector of Financial Planning and Investor Relations
GICSA
/
Insight

Betting on New Horizons Outside of CDMX

Wed, 11/01/2017 - 12:01

Mexico City suffers from a severe lack of space and oversaturation thanks to its estimated population of 9 million, not to mention the millions living in the suburbs. Those that take a gamble outside of the megalopolis benefit from 216 unserved markets. “Many areas in Mexico have a population with high purchasing power but a lack of entertainment and commercial offerings,” says Rodrigo Assam, Director of Financial Planning and Investor Relations for GICSA. “It is a major area of opportunity for us as we are the only ones developing such innovative mixed-use developments outside of Mexico City.”

The company has completed over 60 projects in Mexico and is a pioneer in the industry as the first to develop Class A and LEED-certified buildings in the country. It has a pipeline of 17 projects, two in operation since December 2016: Forum Cuernavaca and Isla Vallarta. GICSA’s portfolio includes the Explanada projects, a new concept for commercial centers that focuses on social interaction and entertainment. GICSA is in the process of developing this concept in five cities and has identified 10 other areas to expand into. Its first Explanada is expected to open in 1Q18.

GICSA’s focus on innovation and expansion has helped the company secure important partnerships with large companies that boost the success of its developments. “They see our projects as opportunities for growth in Mexico,” says Assam. “We have already confirmed a presence for Liverpool in Queretaro and La Isla Merida.” GICSA is also catching the attention of trendy international stores like H&M, which is significant considering that these are becoming just as important as traditional anchor stores like Palacio de Hierro and Liverpool. Commercial centers used to have to chase these anchor stores but Assam says GICSA’s reputation and successful track record is leading to a reverse situation. Now, these brands are approaching the developer. Assam says the company ensures the quality of its developments by using a demanding tendering process to contract companies and by adapting to the unique context of each location. “Companies trust our strategic selection of tenants,” he says. “All our tenants have to prove that they can attract visitors to our commercial centers before they can pay rent. We make sure that our centers do not become oversaturated with the same type of stores.” The company’s strategy motivates tenants to renew their contracts and to pay higher rent in return for the foot traffic. Assam also finds it essential to offer high- quality gastronomical choices and entertainment options because food courts are changing into food halls that offer local options and food trucks.

Along with its careful selection of tenants and high-quality offers, Assam emphasizes the importance of a solid financial model. “We are reasonably conservative when it comes to the amount of debt we use as we mostly rely on private equity,” he says. “Our limit is 40 percent of debt per project, which is quite reasonable in comparison to the rest of the industry.” The company uses a model based on capital, debt, partners and investors that is adapted to the needs of each project. It is also contemplating the use of new tools available in the market such as green bonds and becoming part of the sustainability index. GICSA is listed on the stock exchange and has placed two successful capital raisings.

In the context of an ever-transitioning market impacted by new trends and geopolitical factors, GICSA is not afraid to change its plans to mitigate risk. “We recently suspended a project on Reforma, and that surprised many considering its location,” says Assam. “But our studies show that Reforma is oversaturated.” GICSA is waiting for the current offer in the financial district to be absorbed by the market before reinitiating a project in the area.

Assam expects GICSA’s strategy to triple the company’s size by 2020 in terms of square meters for rent and operating income, with the goal of building 30 new commercial centers by that year. “We are optimistic about our results as we grew 17 percent in terms of EBITA in 1Q17 despite expectations of poor economic conditions,” he says. GICSA’s properties and sales estimates are above the country’s average and its shopping centers not only received 68 million visitors in 2016 but also experienced a 13.4 percent increase in store sales. “This is a significant number for us because it shows tenants that the visitors our commercial centers receive have an increasing amount of purchasing power,” he says.