Nicole Kidman Touts Mall as Multiplan Expands: Corporate Brazil

Multiplan Empreendimentos Imobiliarios SA, the Brazilian mall developer that lured Gucci and Prada to Rio de Janeiro, will expand its luxury segment after revenue from its first high-end project topped expectations.

Multiplan is evaluating projects in Rio and elsewhere to mimic the success of VillageMall in Barra da Tijuca, the beach neighborhood that will be the main stage for the 2016 Olympic Games, said Chief Financial Officer Armando d’Almeida Neto. VillageMall’s first-quarter sales beat company forecasts by 30 percent, said Gabriel Palumbo, the mall’s superintendent, in an interview last month.

“Luxury brands or international brands are coming to Brazil, some for the very first time -- it was important in this sense,” d’Almeida Neto said in a telephone interview about VillageMall. “We’re looking at opportunities” for new luxury malls, he said.

The Rio-based developer is joining Iguatemi Empresa de Shopping Centers SA in targeting Brazil’s upper class as rising prices and the slowest two-year expansion in over a decade hurt retail sales. The strategy is helping to limit the drop in Multiplan shares as an industry selloff wipes out $1.69 billion in the market value of Brazil’s top five mall builders this year.

Rio’s Potential

While brands from Tiffany & Co. to Louis Vuitton flocked to Sao Paulo several years ago, Rio’s potential as a destination for high-end stores is a recent phenomenon fueled by investments pouring into the city ahead of the Olympics and amid a ramp-up in oil production, according to Carlos Ferreirinha, director of luxury consultants MCF, who has worked with Multiplan and several competitors.

“Everybody was searching for land in Barra da Tijuca to do something to satisfy those customers who are hungry for new levels of grandeur,” he said in a telephone interview from New York. “Multiplan was faster.”

In 2012, 62 percent of luxury retail brands in Brazil invested in Rio, up from 30 percent in 2011, the biggest jump for any city, MCF estimates.

VillageMall is “the mall Rio was waiting for,” actress Nicole Kidman says in a television spot for the shopping center after she disembarks a jet and her limo slides past better-known Ipanema beach en route to Barra da Tijuca.

Leapfrogging BR Malls

Multiplan leapfrogged BR Malls this month to become Brazil’s biggest mall developer by market value after raising 626 million reais ($312 million) in an additional share offering. Itau BBA Securities reinstated its coverage of the stock with a buy rating this week after the company said it aims to expand the area available to lease by 72 percent through 2017.

The stock’s 3 percent drop this year before today is the smallest among peers and compares with an 8.4 percent decline for Brazil’s benchmark Ibovespa index. JHSF Participacoes SA, Brazil’s fifth-biggest mall developer by market value, posted the steepest decline at 16 percent, followed by BR Malls Participacoes SA, which fell 13 percent.

Multiplan rose 0.7 percent to 58.82 reais at 2:19 p.m. in Sao Paulo trading. BR Malls rose 3.6 percent to 24.33 reais, while Iguatemi rose 2.1 percent to 26.05 reais.

Inflation topped the high end of the central bank’s target range at 6.59 percent in March before dipping back down to 6.49 percent in April. Retail sales declined 0.4 percent in February, surprising analysts who had forecast an increase. The national statistics agency is set to report March retail sales on May 15.

Rising Rates

Increased borrowing costs “is the main reason for the fall of the shopping mall stocks, because interest rates are always considered the cost of opportunity,” Eduardo Silveira, analyst at BES Securities Brazil, said by phone from Sao Paulo. “It’s uncertain by when and how much interest rates will rise, and how the economy will be, and how the sector will respond.”

Brazil’s central bank last month raised its benchmark rate for the first time since July 2011 to 7.50 percent from a record low 7.25 percent.

Multiplan is also the most expensive mall developer, trading at 31 times its trailing 12-month earnings, compared with a ratio of 6.3 for BR Malls and 14 for Iguatemi.

“If you take all the malls in Brazil, the better locations will always be Multiplan,” Marcelo Motta, a Latin America real-estate analyst at JPMorgan who rates the stock neutral, said in a telephone interview from Sao Paulo. “Multiplan has this DNA of developing greenfields and expansion, so investors feel a little more comfortable giving them the benefit of the doubt.”

Proceeds from the recent share sale will help finance new projects yet to be announced, Chief Executive Officer Jose Peres said on a May 7 conference call. Among projects being considered is an expansion of VillageMall, d’Almeida Neto said.

“When you have a large mall that generates sales, rentals, very high metrics on a per-square meter basis, you create a fortress,” d’Almeida Neto said. “That’s a concept we like.”