Good morning, ladies and gentlemen. Thank you for waiting. This is Multiplan's Q1 of 2018 Earnings Conference Call. Today with us we have Mr. José Isaac Peres, CEO; Mr. Armando d'Almeida Neto, CFO and CRO; Mr. Marcello Barnes, CIO; Mr. Hans Melchers, IR and Planning Director; and Mr. Franco Carrion, IR Manager.
We would like to inform you that the presentation that will be made may be accessed at irmultiplan.com.br. We would like to inform you that participants will be in listen-only mode during the company's presentation. After Multiplan's remarks are over, there will be a question-and-answer session when further instructions will be given. Should any participant need assistance during the call, please press star zero two to reach the operator.
Before proceeding, let me mention that forward-looking statements that might be made during this call related to Multiplan's business perspectives, operating and financial projections, and targets are based on the assumptions of the company's management, as well as information currently available to the company. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties, and assumptions because they relate to future events, and therefore, they depend on circumstances that may or may not occur.
Investors should understand that economic conditions, industry conditions, and other operating factors could affect the results of the company and could lead to results that differ materially from those expressed in such forward-looking statements. Now, I will turn the conference over to Mr. José Isaac Peres, CEO of the company. Mr. Peres, good morning, and you have the floor.
Welcome to the Q1 conference call of the company, and the company celebrates 44 years and probably next year. I am very honored for having participated in almost all the conferences with you. I would like to start my dialogue with you with a certain optimism and my conviction that crises are always just temporary, and that Brazil, from my viewpoint, in a short while, will be another country. I think it will be a country that will be more knowledgeable about its deficiencies and vulnerabilities.
As I have been saying repeatedly, in this country, if you just wait for a crisis to be over, you will not accomplish anything. Over our life, we have been finding hurdles, sometimes institutional, sometimes economic. W e have been able to overcome these stumbling blocks with resolve and creativity, innovation.
This has been a very marked characteristic of the company in all these years. I remember that when I started to invest in shopping centers about 50 years ago. Well, I am not that old, but 50 years ago, I started to have my first shopping center in another company that I had.
At the time, the major entrepreneurs of the world, of course, Americans, and with some exceptions, some Europeans. We had the opportunity to visit some developed countries to see how shopping centers could be, because we didn't really have a complete experience in this regard. At the time, some things impressed me quite a lot. The first one was that in shopping centers, the movie theaters were in the parking area.
I asked the developers, "Why?" They said, "Well, those who go to a movie theater don't go to a shopping center." I found it very strange. Our projects have always been very much focused on seeking pleasure and entertainment, and we do things differently from them. Our shopping centers, since their inception, have had this specific design, which is a lot of investment in entertainment and leisure, and very much focused on families, on children.
T oday, I see that the crisis that hit the U.S. was a consequence of their having a model that was very much consumption-based and also pleasure-based. We believe that in this life, people have as their main drive, this search for pleasure, and people are like that, and human nature is like that.
Of course, if we don't take this into account, we will be very much mercantilistic. We have to look at the consumer and giving customers pleasure, and of course, we want to sell. Many people say, "Well, why are you spending so much money in movie theaters?" Some years ago, things were like that. They said, "Well, movie theaters are not very profitable." It was as if the shopping center was just a cold thing, only profit-oriented. We are Latin American, and we are much more emotional than that.
For this reason, we try to do things that can be attractive and pleasurable. We combined this recently when we inaugurated the ParkShopping Canoas. ParkShopping Canoas is a totally different model of a shopping center, and it really works very well.
We inaugurated it in full crisis, that is to say, last year. Late November last year, in fact. It is proving to be a very attractive model with results higher than our expectations. It was not difficult to inaugurate it with about 90% of the stores already open, right in the middle of the crisis. Of course, we had to make a few concessions, but it was a very big hit. The financial part, you can recover in the medium run.
However, when you start a project and looking only at the bottom line and forgetting about people, then you might create an illusion that the cash flow, it's more flow than cash, in fact. Anyway, this never comes to fruition, and it doesn't really go through. We have always had attractive shopping centers. Of course, we had more conservative estimates, but we give the consumer what the consumer wants. We really have to take people by surprise. We have to be more and more creative. This is the reason why our shopping center model, our most recent shopping, is always the best ever.
It doesn't matter whether the area where it is built is a poor area or a wealthy area, but it's very important for you to go beyond what you did last time and always focusing on the consumer. We place a very big bet because our sector still has a long way to go, a lot of room for growth, and our ratio of gross usable area per square meter is very low.
Brazil has over 5,000 municipalities, and many people in many small cities in Brazil do not really know what a shopping center is still. Let me go back a little bit to speak about our recent retrospective, so to say. Just to keep in mind that in April last year, we already had strong growth in our shopping centers. I am going to give you information about April last year. 14% increase in sales on a year-on-year basis in our shopping centers.
The macroeconomic conditions were already defined, and there was a proposal on the part of the government that was what I believe is what Brazil believes, a proposal to carry out a reform of the Social Security. However, unfortunately, it has not materialized.
Exactly because, well, in May last year, we were surprised with an accusation by the attorney general against the government, a very bombastic accusation, in fact, and unprecedented thing. I have never seen the institution of the presidency attacked in the way it was, regardless of the president, but in respect to the chair that is occupied. We believe that attorney general should not offend the dignity of the position. Anyway, time will tell. We have to think about Brazil.
What happened was that this economy of Brazil came to a halt, and then after that, it just resumed growth very slowly, and now it is growing a little bit faster. I understand that this year, most probably Brazil will close the year with 3% growth. I am more bullish, and I have always been more bullish, and I think I was correct.
There is a saying that optimists may make a mistake, but pessimists always make mistakes. I really fit into this first group of the bullish people. I think that the conditions are given. We have low inflation, 3% a year. An interest rate that I have never seen in my lifetime, 6.5%. It seems to me that it will go down to 6.25%, but it does not really make a big difference, 6.5% or 6.25%. You in the financial markets have very sophisticated mathematics. I am an economist as well, but I do not do exponential calculations in order to see what it will be in 10 years' time, because it is really an exercise in futurology.
Our future is based on principles. We have our principles, and our principle is to make top-quality projects, be it in crisis or in an underprivileged region, the presence of Multiplan means renovation to that region. This was the case in all our shopping centers.
The first five shopping centers that we built, BarraShopping, which is a deserted region. It was a deserted region, and now you have a city around it, and it really improved the quality of life of inhabitants. The Barra that has 40,000 inhabitants, and it is the fastest-growing region in Rio. We are building another shopping center in ParkJacarepaguá. We want to be the masters in this area in the west zone of Rio that has the biggest population, and it is the fastest-growing region in Rio de Janeiro.
Rio de Janeiro is squeezed between the ridge of mountains and the sea. Those who do not know Rio might find it strange, but we still have very positive results coming from our shopping in Rio. When you analyze a region or a state, you have to look at the micro-region where the shopping center is located.
For instance, nobody is building anything in Rio, but we are building in Jacarepaguá, and people say, "You are crazy. The crisis is very bad, and you need to keep your cash and sit on your cash." If I do that, I will not do anything. I started my career in 1963 and in 1964, there was a revolution and there were so many economic plans. I think they have cut about 15 zeros in all these economic plans. It is really crazy.
The truth is that after a very deep crisis, the country had to rearrange the economy. Then we had President Itamar Franco, who had a good economic team, and that implemented the Plano Real. Then we started to live with a more stable currency. W e had moments of 1,000% inflation rate. Can you imagine what an inflation rate of 1,000% means? W e always say, "Well, we have to continue our path." During the Sarney administration, there were so many plans and freezing of assets.
Then we decided to go to Portugal, and there was a French bank, Paribas, one of the minority shareholders of the company. Then we said, "Well, let us do something in Portugal." They said, "Peres, after all, are you crazy to do this in Portugal because inflation is 12% there, interest rates are 19% a year.
That is like the Far West." Today in Brazil, it is 1,000%. Of course, if we think about Portugal, this is great vis-à-vis Brazil. W e carried out this project in Cascais. We had a local partner that had never worked with shopping centers, and it was a very good partnership. They love the business, and they are one of the most successful developers in Europe.
Azevedo was an excellent partner that I had, and Azevedo has always recognized our work. When he came here, when the shopping center in Campinas was inaugurated in Parque D. Pedro Shopping, he said, "Everything that we do, we have learned from Multiplan." I t was a recognition.
When I left Portugal, he said, "It was the best ever business relationship that our company has ever had." There are so many Brazilians going to Portugal now, and I think, well, maybe the time has come for me to go back to Portugal because when I left, he said, "Peres, there is one condition. I will buy your stake in the shopping center, but you have to leave this with us."
I said, "Well, I am not coming back here." W e can never say never. We can never say never again. Sometimes we have to go back. Leaving aside this romantic issue, I would like to say that the company is extremely mobile and a very big possibility of expanding abroad, and the knowledge and the projects are internationally recognized.
I am sure that Brazil, with the next president, whomever he may be, will not be able to escape the need for a fiscal adjustment, mainly the issue of social security. We'll not be able to forget that we have to work now with low interest rates and low inflation rates. I think that the economic conditions bring about a moment of opportunity.
I remember that in 2008, we were in New York City with a major investment fund, in 2009, and they said, "Well, we could have made an investment with you, but we like to buy in the crisis." That is to say, when the assets are cheap, and we said, "We have no cheap things to sell you. Nothing inexpensive." The important thing is that the company grew a lot and strongly.
I think our capital was like BRL 1 million at the beginning. When I see it reaching almost BRL 5 billion market cap, I say, well, those who placed the bets on this company and stayed are very lucky. I have been with the company since its inception, and this is very much because of an affectionate thing than because of me, because the people who are in Multiplan, they can do everything very well. The company had maybe the lowest turnover in their headcount and in the executive board.
I have colleagues who have been with me in the company for 40 years, and for some reason or other, I'm very sorry when things happen. I attribute a lot of value to the people who work for the company because they bring about a lot of know-how, experience, and knowledge, and this is very important.
Not everything that the company has is in writing. I would say that the company doesn't have anything in writing. The company has people, because without people, we are nothing. I would like to thank you and say a few things about a few things that you would like to hear. Seasonally speaking, this is always the worst quarter of the year. I think we surprised you a lot in this quarter because the net income of the company grew by 80.8% on a year-on-year basis. Did I say eight? Well, he apologizes. There was a zero missing here. 80.8%. Mr. Peres apologizes.
EBITDA grew 24.2%, and the FFO, 6.8% in this quarter. This year seems to be a very promising year in spite of the elections, insecurity, the political issues, and the situation that we see, unfortunately, in the Supreme Federal Court.
I think they should be careful not to destabilize the juridical security because everybody has to respect the laws and not carry out some dealings in order to protect whomever is being brought to court. As I believe in Brazil, and I have always believed in Brazil, we have already made endeavors outside. That is to say, abroad. We grew in Brazil. Something that is also very important is the fact that next year we will celebrate 45 years of uninterrupted activity. Real estate has always been in my DNA.
I have made more real estate development than shopping centers in my life. We are concentrating more activity in developing shopping centers and multi-use projects because what they do, they bring about a lot of appreciation in the surrounding areas. We have just built a very strong undertaking now.
I think next year we should tap into the synergy even more. I think the real estate market was very much hit because of termination of contracts, but as far as we are concerned, we had very few terminations, and our projects have the philosophy of, which is the following: We want the buyer to earn something. When we were developers of real estate projects, our philosophy has always been: It is only good for those who sell if it is very good for those who buy.
This preoccupation on our part for people to really make a good deal, and that is also very important in terms of our shareholders. We want to deliver the best possible results to our shareholders. This year, the company is building the ParkShopping Jacarepaguá, and it will be the 20th built by the company itself.
The 21st built by the company itself, because CascaiShopping was built by us as well. In my previous company, Devasa, we built the BarraPoa Park, so that would be 22 as my experience in this sector. The company has this in its DNA. We are developers. We are not essentially buyers because people believe that, well, you should buy a company in order to grow, but we are growing consistently and soundly.
The company has a low indebtness if you consider the value of our projects, and this is much higher than the accounting value. Jacarepaguá has 500,000 inhabitants, a little bit more in the West Zone of Rio. It has the fastest development in Rio de Janeiro.
There is no more room for the city to develop because it's squeezed between the ridge or the mountain and the sea, which means that expansion has to be towards the sides, that is to say, sideways. I believe as we have so many square meters of gross usable area, I would like to reach in two years at least to one million square meters of gross usable area. Other undertakings will happen around the shopping center. Some already have 10, 20 years with a huge appreciation in the region.
The real estate area or segment was very much impacted, mainly because of the termination of contracts, and the courts ignored the laws in existence in the country in terms of these terminations. I'm very much concerned with civil construction because no country can grow when you have this bad situation in civil construction.
I have never seen a country say, "Well, the country is growing a lot, but there are no cranes and no construction." Because civil construction is a big driver of development. Okay, I think I have already exceeded my time. I have ignored a little bit what we had in writing. We have agendas here in the company. I really left this aside in order to speak about the things that I wanted to speak with you.
We migrated from the real estate sector that bought and sold, bought and sold, and built and sold, aiming at profits only, and the profits were not enough to buy another land. It's important to have projects that really appreciate over time. This is why we are much more focused today on shopping centers.
Of course, we are aware of the fact that the world is changing, and this year we expect to present to you a technological platform with the objective of making the shopping centers more accessible to our clients. At the same time, creating a new channel for our tenants. As an e-commerce company, for instance, they do a platform, and they earn a commission from the tenants, from the sellers. The objective of our platform has a different objective.
Our objective is to make our tenants sell more. We are not going to be an e-commerce company. We will continue to be a company that has a philosophy, and I deeply believe that the virtual world now is buying. You know retail companies, and they even want to buy shopping centers.
We started with the real world, and there is a virtual world, and our reality is not going to change. It will become better and better. As I said, in spite of the crisis. I would like to finalize saying that last year we went through a crisis, and we inaugurated this commercial project that was fantastic, and we continue to place our trust in Brazil.
We believe that this country will become more open, mainly because of the greater transparency and the fight against corruption. Very soon I believe that Brazil will have to forget its fiscal barriers in order to become a really open country. The wish on the part of society is this one, people who are aware, entrepreneurs, everybody knows that it is no longer possible to continue to protect the Brazilian industry to the detriment of consumers.
These barriers have to come down, such as was the case of the Berlin Wall. The customs barriers have to be removed so that this country may become a good competitor. It's very important to do away with these barriers, because besides hindering us, they collect a lot of taxes. We are going towards a new order, a new country, maybe the first country in Latin America that has effectively fought corruption and continues to fight corruption such as we are doing. This is not easy, but thank God this company has no businesses with the government, does not depend on government and the BNDES.
We have just a very small funding from the BNDES, and I would like to thank you for your trust. I would like again to thank all my colleagues who work with me, thank them for delivering a company that always improves the quality of life of our people. This is our motto, Multiplan makes your life better. Thank you very much.
Thank you, Mr. Peres, for your brief remarks, and I'm very happy for the fact that we delivered a strong performance in the Q1.
Even more so when we have in mind the strong operating results delivered in the previous year. We are growing on top of a very strong base as the shopping center sales went up by 7.2% this quarter as a result of the successful opening of new areas. In the same-area, sales grew 3.3%, occupancy rate stable, 97.3%, and the change of stores slightly lower than last year, 0.5% of the gross leasable area. We are constantly seeking a better store mix, and over the year, we will have the opportunity to change a larger amount of area in our shopping centers. We are working with new mixes, new opportunities, and with the combination of higher sales, expense control, and low inflation, the occupancy cost was also lower, 13.6% or 39 basis points lower on a year-on-year comparison.
Net delinquency dropped slightly more, now at 2.4%. Gross revenue went up by 3.8%, mainly due to the effect of the 5.3% increase in rental revenue and of 9.8% in parking revenue. Same-store rent was 3.6% higher, with real growth of 2.5% being the highlight. This is the Q1 in a row of increases above inflation.
The fourth in a row with real positive growth. Expenses reduction played an important role in this quarter. Headquarters expenses dropped by 4%. Expenses with share-based compensation had a reversal vis-à-vis the same quarter last year, and shopping center expenses dropped by 9.7%, in spite of the increase by almost 49,000 sq ms in our owned area.
The net financial results also brought about a major contribution to our results, 46.8% lower or about BRL 27.1 million lower in interest due to the drop in the base interest rate and a higher exposure to the CDI that brought a more accelerated reduction and a slightly lower leverage than we had in the Q1 of 2016. The combination of higher revenues and lower expenses could only lead to strong results and better margins.
Talking about a few of the results, the net operating income, NOI, went up by 7.9% with the highest margin that we delivered in the last five years, 90.3%, in the first five quarters, and not in the last five years, exceeding 90%. EBITDA went up 24.2%, margin 1,242 basis points, reaching 79.6%. FFO, funds from operations, went up 58.6% with a 50.3% margin, also up by 1,505 basis points than last year, 1,705 basis points higher.
Lastly, net income was 80.8% higher, reaching almost BRL 100 million in one single quarter, BRL 98 million. In summary, this quarter, we were able to exceed the high comparison base, as I mentioned at the beginning, with the Q1 of 2017. Our sales went up 7.2% once again, but on top of the 6.1% of sales increase delivered before. Same-store rent went up by 3.6% over th e 8.7% of last year.
Shopping center expenses plummeted almost 10% over a drop of almost 4%, 3.6% in the Q1 of last year, among many other highlights. Of course, it was a successful quarter, but I wouldn't like to minimize the challenge that we will be facing over 2018. First, a strong comparison base that Mr. Peres said, especially in the first, but also in the Q2 and the Q3s, that the company delivered a very relevant result.
Growing on top of the result is a challenge in itself. We have the World Cup that also has an impact on retail and the uncertainties brought about by the election, as well as the slow economic recovery. These are some of the stumbling blocks that we have this year.
You may be sure that we will continue to seek innovations, store mix improvements, the electronic platform, and so many other things that we want to offer our consumers. The store mix improvements, efficiency in condominium costs, and we will continue to invest and to upgrade our projects, tapping into the opportunities that arise from crisis, which is the flip side of this coin. Thank you very much for your trust, dedication, and interest in Multiplan. Now we would like to open for questions.
Thank you. Now we will start the question and answer period for investors and analysts. In case you have a question, please press star nine. In case your question has already been answered, you can remove yourself from the queue by pressing star nine. Questions will be answered in the order that they are received. Please do not use the speakerphone when you ask a question so that we may receive the best possible sound quality. Please stand by while we wait for questions. Alex Ferraz from Itaú BBA. Mr. Ferraz.
Good morning, Peres, Armando. Thank you for the presentation. I have two questions. The first one has to do with the CapEx for the quarter. You showed there was an extension of CapEx and BRL 114 million. Could you break it down a little bit further. Is most of this CapEx concentrated in Jacarepaguá?
The second question has to do with same-store sales of the anchor stores focused on services. Year-on-year, there was a drop of 6.5% and there is an impact from results coming from movie theaters, et cetera. C an you identify any other impact that may justify this drop.t
Alex, good morning. This is Armando. First about CapEx.
We have two major expenses this quarter. The first one, or the bigger one, was Jacarepaguá. Because construction is going very quickly and some other small investments that we have in other project expansion processes that start, and of course, you have expenses with these projects. There was a change in an aircraft of the company that was old enough to recommend an exchange, and other projects in innovation, IT. That added up to this amount that was spent in the Q1.
In relation to services and same-store sales, the major impacts were the movie theaters. Yes, there was nothing relevant besides that. If you were to exclude movie theaters, we did this drill, this figure would grow, I don't remember whether 1% or 2% in same-store sales for services. This is just to give you the dimension of the weight of movie theaters in same-store sales in the services segment.
Thank you.
Luis Maglito from Bradesco.
Good morning, everybody. Thank you for the question. I have two questions. The gradual rebound in spite of the challenges for the year that you mentioned, the World Cup, elections, et cetera. It has already started giving a removal of discounts, and I think this brings a little bit of pressure on gross delinquency, but it seems to be under control.
Regarding this scenario, I would like to know what do you see in terms of this removal of discounts, and could we expect any change in same-store rents. Will it be stronger, continue to be stronger. Also stronger same-store rents going up in the malls.
A bout going abroad, as Mr. Peres said, a few years ago, there was an interview given by Peres, and I think you mentioned that at the time, looking around Latin America more specifically. I would like to know whether this matter has been re-included in the agenda of the company, and would you be considering other countries besides Latin America? Do you have something concrete in this regard?
Luis, this is Isaac Peres. We have been talking a lot with people from abroad, from Latin America namely, and we have not found yet a way to grow in Latin America, and that really makes us feel safe in terms of continuing with our philosophy. Because there's a major international player in Latin America, and they intend to maybe carry out a merger and becoming much bigger.
Our concern is not having full control over what we believe has to be done. I believe that the whole of Latin America, and we are pioneers, everybody comes here to learn from us. Going abroad just for the sake of it, we don't see a reason for that. The possibility would be buying somebody in a country that has a good estimate for development. As you can see, for instance, Argentina now is a country that is going back on track with the administration making the necessary adjustments. Argentina has suffered for many, many years because of administrative problems. W hat I can say is that undoubtedly, among our objectives, we have this, of going beyond our borders. With a more civilized interest rate here in Brazil already, allows us to maybe take off and fly somewhere.
I remember when we were carrying out the project in Portugal, the owner of the Sonae group, Mr. Xavier, said, "Peres, let's build more shopping centers in Portugal." I said, "Well, unfortunately, I cannot do that for one reason, because my backyard is really on fire in Brazil, so I have to go back." Brazil has never given support to investments made by entrepreneurs abroad. Interest rates have always been exceedingly high and with a lot of red tape involved. Now the situation is better, but with a lot of room for improvement. However, this doesn't mean that we cannot go abroad. I think we have the necessary knowledge and experience in construction and in retail. We have this in our radar screen.
On the discount side, because of the crisis that we're going through, of course, we have to adapt ourselves to the crisis. W e are not here to hinder any of the tenants and the retailers, and we sometimes have to renegotiate past dues, and we renegotiate. I think this is what we have to do. N ormally, banks work buying and selling money. Our currency is rent. We buy and sell space. We buy and rent spaces. Sometimes you are able to work with a lower interest rate and have a higher profitability. I believe that structurally speaking, what banks usually say is that it is better to work in a more stable economy. Our sector has to grow. I don't know whether it's going to grow exactly according to the same metrics that we had in the past, but it will surely grow.
This is why I see that we have to carry out some important innovations and increase our gross usable area, which is our currency. It is a real currency, in fact. GLA has been appreciating much more than any currency in the world. When I built the BH Shopping, the whole shopping cost $12 million. If you were to think about how much it is worth today, it is about $450 million- $500 million. In these almost 40 years, what it has already given back to investors was something really amazing. What you have to know, besides what you have already received, what you will continue to receive from these projects. G iven the size of the company, it would be great to start carrying out projects abroad. I don't know whether I have answered.
This is Armando.
The same-store rent increase, a more robust one that you asked about. I would like to make one remark. You all ask about same-store rent, but it doesn't really make a lot of sense as far as I'm concerned. I look at the company, the profit of the company, whether the company is growing or not. If the company is growing with lower same-store rent, this is not relevant. What is important is to grow. Of course, we could not imagine that we could charge the same amount that we charged when we arrived in Brazil, and they asked, "How can you receive so much?" Because there were no shopping centers in Brazil. Now, the situation is different because we have perfected our system. There is a lot that you can do in shopping centers. The shopping centers are similar to capital.
We only sell the Salon or the C&A, for instance, first. I'm not going to get into details. I n a company that today has over 180 million people coming to the shopping centers, we have a huge potential to tap into areas that were not explored before. It is important to keep a low indebtedness, it's important to have a good profitability. Now, if you talk about same-store area, same-store rent, I would say that this is all very beautiful, but it doesn't work in practice because I can have same-store rent going up a lot, but having one single shopping center. A s a company, I will not grow. W e need to grow our profit, and we have to pay more and more dividends. We have been paying our dividends to all of you. As a shareholder, I expect to receive more dividends.
Adding to something that he asked. You're asking about rent in the same shopping centers, and I like to look the NOI, Luis, because we are creating efficiency. Because sometimes you cannot have the same speed that you would like to have because of market reasons, but you can be more efficient and reduce expenses. If you look at the same shopping NOI, you will see that we have a strong growth. Regarding the mix, because sometimes you change a store and it starts with a lower rent, and then it has to establish itself, and then the rent goes up, and we have to live with this difference. As you have to change the mix more and more, and this is what we have been seeing the last few years, this could mean a bigger difference.
I do agree, of course, with Mr. Peres, because you have to look at the macro, because macro seeking, we have been delivering a strong and healthy growth. It is not just having, you have to have a high occupancy and low delinquency, and we are being able to deliver this. Growth, high occupancy, and low delinquency. This is a major challenge that you have. You have to reach a balance there. Thank you. Luiz
Tachini from Credit Suisse.
Thank you for the question. I have two questions. The first has to do with Canoas. Could you talk about the shopping center? I would like to understand what we could expect in terms of increase in revenues during the first year. You started with a lower rent base to have a healthy occupancy rate, but I believe you will become more aggressive as your contracts develop.
What could we expect in terms of revenue increase during the second and third years? Could you talk about the maturation curve? The second question has to do with your strategy about energy generation for your own consumption. You talked about that a few months ago. What kind of benefits are you going to derive from that regarding the drop in condominium costs? That would be great as well.
Just a moment. This is Isaac Peres . Canoas, in the overall company represents still a very small part in terms of participation in the company's cash flow. Canoas has a very conservative projection. I do not have the figures in front of me, but it is not so relevant. What I can say is relevant is that sales are higher than what we expected, and this makes it evident that our model is right.
We have that tripod: nature, entertainment, and shopping. This is a highly interactive project. Recently in Morumbi, at the MorumbiShopping, which is older and very strong, during the Dória administration in the city, we adopted something that was forgotten for many years, and we did something that was so good that the mayor of São Paulo, I was there with him, and he was charmed because we did this kind of a square. He said that it is the most beautiful in São Paulo, and he is known for having very good taste. If we do these things, it is because our businesses have to offer consumers something different, and people love nature. When you say, well, Canoas. Canoas had a huge investment made in the outskirts and nature, leisure, and in terms of the company's overall revenue, it is very small.
Its sales are higher than expected. I repeat, this thing of same-store rent and the questions that you ask, I apologize, but I have to tell you something. It seems as if you were always ready to criticize something, but the figures are here at your disposal. Regarding energy, we made a small investment in energy production. We are getting a little bit more into this area of the company's cost in order to give more efficiency to our shopping centers. The same as shopping centers, there are other things that can be explored. When people ask, well, why do not you have a consumer finance company, for instance? We say, well, we are not bankers. We buy shares of Itaú, Bradesco, Santander, Banco do Brasil, and the banks that are only a handful here in Brazil nowadays.
I do not know whether I have answered your question or not. We already have solar energy in two shopping centers, 20,000 sq m in ParkShopping Canoas. I think it is the only shopping center that has 20,000 sq m. In the ParkShopping São Caetano, an additional 15,000 sq m. The company has been trying to look for efficiency, and one of the points of efficiency is energy production. Thank you.
Thank you very much. Have a good day.
This is Robiolo Morgan Stanley.
Mr. Robiolo? I think your telephone is mute.
Yes. I am sorry. Thank you for clarifying about same-store rent. I still have a question about trends. Year-on-year growth of same-store rent was 3.6%, but the growth of same area rent was 0.5% lower than inflation. The spread between these two indicators was 300 basis points.
If I make the same comparison between same-store rent and same area rent for the Q1 of 2017, the difference was 140 basis points. The spread doubled year- on- year, and also for the full year of 2017, the difference between same-store rent and same area rent was 130 basis points. I would like to know why was there this increase in the spread between same-store rent and same area rent? Second, what do you see for same-store rent performance in 2018? Do you think it is going to go up? Will it increase more than inflation or lower than inflation?
This is José Isaac Peres. I will answer part of your question, and then Armando d'Almeida Neto will answer all the details about same-store rent. I always look at the forest and never an individual tree. I go back to what I said before.
The company is growing and delivering results. The day you see our indebtedness going up and profits going down or giving mediocre results, I would say that these are the fundamental points that should be analyzed. That company will be out of the market, and let us say the projects have a very low quality and they are unattractive. I repeat myself. I see the company as a business overall, but not going into the nitty-gritty, because it is only natural that over the years, with a higher competitiveness, the value of rental per area tends to go down, such as was the case in many countries. We are very far from being what you see in the United States. The U.S. is already overbooked in terms of shopping centers. The problem that they have there is that they have too many shopping centers.
Here we have too few shopping centers. Nevertheless, our shopping center model is not focused on retail sales only. They are focused on services, leisure, entertainment, and focusing on the wellbeing of our consumers. We will continue to be an attraction to our public. One thing important in our philosophy is people come to the shopping center. If they buy something, it is just a consequence. If a shopping center is not attractive and only useful in terms of you have to buy something there, of course, it will be losing people flow, and this will make sales go down. Our objective is to maintain a high people flow.
Ever since the beginning, I always place the movie theaters inside the shopping centers because 15 years ago, people said that movie theaters occupy a lot of space, and people go to the movie theaters, and they do not go to the shopping centers. This is exactly the opposite. Many people abroad have changed the model and put the movie theaters inside, following the tracks of what we did here in Brazil. Going back, same-store rent, same area rent, this is not very important. What is really important is to grow our revenues, to grow your profit. Maybe the profitability of stores will not grow, but what is important is for the company to continue to generate more profit and more dividends. Armando will get into more details.
Thank you for the question, Armando.
I am very happy with your question because I love to discuss growth and not drop. If you think about the GDP of the country that dropped over 7% in these last years, and we are talking about growth here, I am really flattered by your question. I would like to continue by explaining that our focus here, as José Isaac Peres has already explained on and on, is not quantity, but quality. Very often, when we replace a tenant that during the difficult period in Brazil, you saw that we had a higher turnover. If you compare, you can see that the turnover grew compared with the previous ones. Of course, our focus was not to fill in the shopping center with any operation whatsoever.
We wanted to have the best operations coming on board, best in class, and this is what we seek, a better quality in our mix and see this as an opportunity. Everything comes at a cost. Bringing a better quality, a better tenant, if you have to waive an initial rent, for instance, that will make a difference between the same-store rent and same area rent. We will do this in order to have another renovation in the future, another rent in the future, percentage-wise. Another point that evidences what I said is that historically, this quarter, and this quarter was not different. You can see that same area sales have been exceeding same-store sales, and this is additional evidence of what I am saying. Another point to be even more technical answering your question is the following.
When you look in this quarter, more specifically, shopping centers that had an increase in their gross leasable area were shopping centers that when we look at our portfolio, have lower rent sales than the average. Parque Shopping Maceió had an increase in the gross usable area. Although the rentals are high, when you look at the portfolio, it is not so high. When you have the same area rent, in these cases, it is a little bit lower. I apologize for being so technical. I am getting into very technical details. It is only natural that all new shopping centers have this situation. Shopping centers that have a higher value per square meter are the five first ones that we built 30 years ago. It is only natural for these shopping centers to grow and to consolidate.
Of course, everything comes in the right time. If we believe that same store rent will go up more than inflation, we had a real increase of 2.5% this quarter in the pre-crisis level. It is still a slow growth of the economy. Our view is constructive. We are not in a hurry. We want to do the right thing with this lower interest rate and with the lower inflation rate. I hope I have answered your question.
Thank you. That is under London.
Once again, we would like to remind you that in order to ask a question, you should press star nine. This is Marcelo Motta from J.P. Morgan.
Good afternoon. I have two questions.
The first one has to do with the multi-use project, which as Peres said in 2019, regarding the recovery of the economy, we should see additional projects, so depending on the recovery. Do you have it, will they be more residential or commercial? What is the outlook for the EBITDA margin in the Q1? There was a very strong EBITDA margin, and you talk about less provisions and you talk about the parking revenue. The EBITDA margin already adjusted by the Centum option, Centum share.
Marcelo, this is José Isaac Peres. I always forget to say Isaac. Okay, so José Isaac Peres. Our potential to have one million sq ms in land. Today we have projects already approved amounting to, I am going to give you one figure, and maybe Marcelo can correct me, about 500,000 sq ms.
Of course, we are not going to do everything in one single year or at the same time, but these are projects with a very high added value. These are very valuable land, and they have the potential of bringing about very major profits to the economy. I have already worked a lot with the real estate metrics that are, "Oh, you have to have 15% over the." If you do that, it will be a risk. If you have any change in the cost of projects or any downturn in the market, you will be posting a loss. You have to think that there is no real estate industry. The real estate business is really a craft. Each project is different. Land is the only scarce resource. I have already worked in the real estate sector, and when we are not losing, you are really stable.
You are not winning anything. The profit margins are very good now, but there is an issue. That is the termination of contracts, because you cannot just sell a whole building and at the end say, "Well, give me half of the buyers." Say, "Well, give me my money back." You will have a big problem if you have taken or if you have borrowed money. The cost of the land is already paid for, so we only have the construction cost. Of course, the company is capitalized enough and does not depend a lot on the financial system. We have a very good potential, and this could generate something around BRL 4 billion- BRL 5 billion in sales. This leaves us a margin of about 20%-25% in the worst case. This will not be done in one year.
It will be over quite a few years, I would say five or 10 years. You cannot think about that in the short run. Armando will be answering the other part of your question.
Starting with the multi-use. When you talk about the EBITDA margin and you say that there is a real estate activity for sale that is higher, there will be an impact on the margin because of the different margins that we have. NOI, 90%, 20%, 25% margin we are talking here, and this would bring the EBITDA margin down as we have more projects. This is very easy to exclude. There is another method that is different. In a company, you have to separate the real estate activity that will be developed by another company in order to not mix it up with the shopping center segment.
The pace of the projects, or the more new projects we launch and invest, the more expenses we will have related to projects and related to future growth. You have expenses now, and you will only have an income stream later or revenue stream later. This is part of the development cycle. The more projects, the more expenses in the short run, and this will impact the margin. Another thing that impacted the margin positively was the mark to market of the phantom stock options, because they do not really translate the reality, because there is a hedge for that are the treasury stock. Any devaluation does not affect the result. The mark to market does affect the result. In this quarter, there was a reversal of expenses that occurred last year. There was a positive contribution.
If this year has a strong performance in terms of growth, as a consequence, it will impact the margin. Once again, you can adjust it. Regarding the activity of the core business of the company, shopping centers, the 90 NOI margin, we expect to see the country resuming a more dynamic growth. It reached 3% GDP this year, and this is what we expect to see. This would give the necessary sustainability to our business, and as a consequence, that would impact our EBITDA margin. The 80% margin is extremely high. Of course, we always want to show more and more efficiency and be the most efficient. We have been able to deliver that. 80% and going beyond that is really a major challenge, okay?
Mr. Renan from Santander, good afternoon.
Good afternoon, Armando, Peres. My question is about ParkJacarepaguá.
I understand you will be inaugurating it in 2019. What about the rents for the anchors and the satellite stores? What is the current situation?
Against all our expectations, this time we started to build regardless of rental. You could say, "Well, isn't this a big risk?" No, because we trust completely what we do. On the other hand, the moment that Brazil is living creates uncertainties. Because when you sell your areas, and this has always been a rule for us, if we show that we trust the product that we're making, you can be sure that the performance of ParkJacarepaguá will be excellent because the purchasing power is very good, 500,000 inhabitants. This area, this neighborhood, has no services whatsoever. Once we will do that, we will do something very similar to what we did in ParkShopping Canoas.
This will be a project that will take Rio de Janeiro by surprise such as Porto Alegre with Canoas. In the Vale do Sinos, this region of Porto Alegre where the ParkShopping Canoas is located, this area is all covered. This was the same in Porto Alegre when we launched the ParkShopping. We had a project there for a long time already. If you do not start, the retailer, the tenant start to doubt whether you are going to do this or not. Here, we started to build, and we are receiving many proposals, and this is very recent. It started last week, in fact. Our idea would be to inaugurate it by the end of 2019, and we believe this is what is going to happen.
What is important is that this is on budget and according to our expectations. I have been in this business 50 years already, so am I going to make a mistake now that I am old? No, I am not that old, in fact. Anyway, thank you.
Okay. Thank you. Thank you very much.
Now the question and answer session is closed, and we would like to give the floor back to the CEO of Multiplan, Mr. José Isaac Peres, for his closing remarks. Mr. Peres?
Once again, I would like to thank you very much for your patience. Sometimes I am a little bit irreverent, and maybe this is a trait of Cariocas, and we are not very formal. I speak from my heart. I speak and I say what I am feeling, what I believe in.
I think I should mention to you that today, the major problem of Brazil is not even the economy itself, because inflation is low and the government, in spite of all the stumbling blocks that were placed in their path, was able to deliver something better, lower inflation rates, and a fantastic central bank doing what it has to do. I hope the central bank becomes really independent. It is very important for Brazil and the labor reform, which we did not really believe could happen. Brazil only has one serious problem today, which is the legal insecurity, which is much more because of the Supreme Federal Court than anywhere else. The economy has the potential to grow, and Brazilians want to grow, and they are eager to improve their quality of life. A country with 200 million inhabitants, extremely rich in arable land and minerals.
Everything you could wish for is here. I think that the fundamental point that is happening in this country is a new perception by the Brazilian population that if we do not put an end to corruption will put an end to us. In the past, a lot was said, and I remember when I was a kid, people said that either Brazil does away with a certain type of ant, or this ant will do away with Brazil. I think this kind of ant here, the corruption ant, is a little bit more resistant, but we are really attacking it. This new order will be better, the one that will arise from this old order. We continue to place our trust in Brazil.
The Q1 of 2018 earnings conference call of Multiplan is closed.
We thank you for participating and wish you all a very good day.