Malls Billionaire Targets Overseas Expansion: Corporate Brazil

Brazilian billionaire Jose Isaac Peres is considering expanding his mall operations overseas as the nation’s trade barriers for consumer goods and rising interest rates limit options to grow locally.

Peres, who owns 31 percent of Multiplan Empreendimentos Imobiliarios SA, the country’s largest mall operator, said he has met with Peter Lowy of Australia’s Westfield Group and executives from Indianapolis-based Simon Property Group Inc. as he seeks opportunities abroad. Chile and Uruguay are attractive markets, Peres said.

“We have the size and the muscle to look abroad and easily compete,” Peres, 73, said in an interview at Bloomberg’s office in Sao Paulo. “The big obstacle of Brazilian companies is that the macroeconomic situation doesn’t help local businesses.”

Brazil, the biggest emerging economy after China, is failing to fulfill its growth potential because the government maintains high import duties, steep interest rates and excessive regulation, Peres said. The economy will expand 2.45 percent in this year and next, less than the Latin American average for a fourth straight year, according to analysts surveyed by Bloomberg.

Brazilian imports represented 14 percent of GDP in 2012, compared with 34 percent for Chile, 32 percent for India and 34 percent for Mexico, according to World Bank data. The U.S. Trade Representative’s office threatened last year to retaliate against what it called a “protectionist” push by Brazil that led to tariff increases on more than 100 goods.

Industry Consolidation

Sydney-based Westfield declined to comment in an e-mailed response to questions from Bloomberg News. A press representative for Simon didn’t respond to phone call and e-mail seeking comment on talks with Multiplan.

President Dilma Rousseff’s office didn’t respond to an e-mail seeking comment sent on a national holiday. The Finance Ministry declined to comment.

While Peres foresees consolidation among Brazilian mall operators, he said he sees no good acquisition or merger opportunities for Multiplan. For example, Peres said local developer WTorre SA is seeking about 800 million reais ($346 million) for its 50 percent stake in luxury mall JK Iguatemi, an asset that probably cost WTorre about 200 million reais.

“If there’s a good mall for sale, we’ll buy it, but we won’t buy a mall just to increase our gross leasable area,” said Peres, who founded Multiplan in 1975 and has helped develop properties in Portugal and Miami.

Share Valuation

Multiplan had surged 112 percent since its initial public offering in 2007 through Nov. 14, valuing the company at 10.1 billion reais. That puts Peres’s stake at $1.4 billion. The Ontario Teachers Pension Plan is the second-biggest shareholder with a 23.1 percent stake, according to data compiled by Bloomberg.

Shares fell 1.1 percent to 52.50 reais at the close of trading in Sao Paulo, extending this year’s drop to 13 percent, compared with an 11 percent decline in Brazil’s benchmark Ibovespa equity gauge. The stock trades at 22 times estimated earnings, compared with 27 times for competitor Aliansce Shopping Centers SA and 18 times for Rio de Janeiro-based BR Malls Participacoes.

Annual increases in Brazilian retail sales have averaged

3.8 percent in the first nine months of this year, down from 8.6 percent in 2012, as the central bank increases interest rates to tame inflation that has exceeded the midpoint of policy makers’ target for the past three years.

Sales Growth

Borrowing costs in dollars for Brazilian companies have surged 1.44 percentage point to 6.6 percent this year, exceeding the average 1.11 percentage point increase to 5.82 percent for emerging-market issuers globally, according to data compiled by JPMorgan Chase & Co.

As Brazil’s consumer spending grows at a slower pace, Rio de Janeiro-based Multiplan is set to post the first annual drop in adjusted net income since 2006, according to the average estimate of analysts surveyed by Bloomberg.

Multiplan’s sales are outperforming general retail demand, with third-quarter same-store revenue growing 8.4 percent, according to a regulatory filing. Its malls tend to attract higher-income consumers, shielding the company from some of the effects of a retail slowdown, according to Tales Paes, an analyst at Fator Corretora SA in Sao Paulo.

“They are still putting up 8 percent growth, which is all but unheard of in the rest of the world,” said Sam Lieber, the chief executive officer of Alpine Woods Capital Investors LLC in Purchase, New York, which has about 950,000 shares of Multiplan. “You’re in a 3 percent world at best in Europe and in the U.S. and in Japan, so I think these are very good numbers.”

New Malls

A record 38 shopping centers will open in Brazil in 2013, according to the country’s mall association, known as Abrasce. Total retail space grew 9 percent this year through November, according to an industry association.

Multiplan is in advanced talks to buy land in Jacarepagua, near the Barra area in Rio de Janeiro, to develop a new mall, Peres said.

Brazil’s sluggish economic growth this year shouldn’t discourage investors in the retail sector, according to Rajesh Gupta, the CEO of SeaCrest Investment Management LLC, which manages about $60 million in emerging-market assets.

“Consumption will definitely be one of the strong engines powering Brazil in the years ahead,” Gupta said in an interview in Sao Paulo. “We’re talking about medium and long term. Because of the country’s young population and the recent emergence of a new middle-income class, retail should give attractive returns for those who invest in it.”