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UPDATE 2-Aliansce eyes Brazil mall purchases, says prices too high

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SAO PAULO Nov 25 Aliansce Shopping Centers SA is eyeing acquisitions across Brazil's mall industry as a way to fuel growth in the near term, although prices seem too stretched at this point, Chief Executive Officer Renato Rique said on Friday.

As part of that strategy, Aliansce could seek partners to jointly bid for the 35 percent stake General Growth Properties Inc has in upscale mall Shopping Leblon in Rio de Janeiro, he said.

Aliansce has already held talks with investment firms including Canada Pension Plan Investment Board and Singapore's GIC Pte Ltd for a potential deal, he said at an investor meeting, without elaborating.

The Rio de Janeiro-based mall landlord could also sell non-essential assets such as land plots, buildings or malls that cannot be expanded to help fund new purchases, he and other executives said. Based on cash holding and future cash flow estimates, Aliansce has 300 million reais ($87.6 million) at hand to spend on acquisitions, Rique said.

"The involvement of other partners in potential acquisitions would help us write a smaller check," Rique said.

His remarks underscored how mall M&A has gained momentum in Latin America's largest economy this year, when gross leasable area for the industry rose after last year's decline. Growth happened almost entirely due to acquisitions, as a two-year recession and high interest rates have discouraged the start of new projects.

Still, the weak economic backdrop has failed to weigh down asset prices. This year, the disconnect between mall valuations for listed players and M&A transactions has widened, prompting some players to dispose of some assets to fetch a high price.

Bankers and analysts typically measure valuations in the sector using the so-called capitalization rates. A lower implied capitalization rate for M&A means investors are paying more to tap a property's ability to throw off future income.

Analysts at Itaú BBA estimate that average compounded growth in leasable mall area might have amounted to 1 percent between 2014 and 2016, compared with an average 21 percent expansion between 2007 and 2014.

Aside from the potential divestments, Aliansce would consider another capital increase, Rique said, alluding to a recently concluded 600 million reais equity offering that enabled it to buy a 25.01 percent stake in Shopping Leblon.

Alliansce shares fell 1.6 percent to 14.36 reais on Friday, paring the stock's year-to-date gain to 35 percent. (Reporting by Ana Mano; Additional reporting by Tatiana Bautzer; Editing by Guillermo Parra-Bernal, Chizu Nomiyama and Meredith Mazzilli)

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