XP Malls Sells Cidade Jardim Stake at a Discount to Ease Debt Burden
The cost of maintaining an ultra-luxury shopping destination helped drive XP Malls’ (XPML11) decision to sell its 16.99% stake in Shopping Cidade Jardim in São Paulo. The R$456.3 million transaction closed Friday, October 16, with JHSF Capital SCJ Fundo de Investimento Imobiliário, a Brazilian real estate investment fund, acquiring the stake.
Although the sale price was 4.4% below the property’s year-end appraisal, the opportunity to reduce debt was a key factor in the fund’s decision.
According to a securities filing by XP Malls’ manager, the spending required to sustain the property’s positioning consumes an estimated 35% of its net operating income (NOI) annually, on average. That includes construction and improvement projects, contributions to the mall’s marketing and advertising fund, investments in common areas, and incentives to attract and retain international brands.
Management concluded that the capital needed to maintain the mall, the funding required for its next expansion phase, and its expected recurring cash flow made the property a less suitable fit for the fund’s investment objectives.
According to XP, the sale allows the fund to realize an estimated capital gain of R$133.3 million, reduce debt, and gain greater flexibility for new investments. SiiLA’s analysis puts the transaction’s stabilized cap rate at 8.21%.
Ricardo Figueiredo, head of real estate funds at Finclass, said XP Malls’ decision to sell its Cidade Jardim stake was reasonable, even though the price was 4.4% below the property’s year-end 2025 appraisal.
“That gap could be partially offset by adjustments to the installment payments tied to Brazil’s IPCA consumer price index. Still, the sale price is below the property’s appraised carrying value in XPML11’s portfolio. For a trophy asset, investors expect a sale at least at appraised value, especially since the latest appraisal already incorporated a discount rate 175 basis points higher and an exit cap rate 150 basis points higher, both of which lowered the property’s valuation,” he said.
Figueiredo estimates that a sale at appraised value would have implied a 7% cap rate, below the interest rate on the debt. He noted, however, that the completed transaction eliminates the fund’s debt tied to the property because the buyer assumed the real estate receivables certificates, known in Brazil as CRIs, which carry an annual interest rate of 7.30% plus IPCA inflation.
“I’d call it an ‘OK’ deal. It wasn’t spectacular. The debt burden was substantial, and accepting roughly 4% below appraised value was a reasonable price to pay to get that CRI debt off the fund’s balance sheet,” Figueiredo said.
The Cost of Maintaining a Luxury Positioning
Opened in 2008, Cidade Jardim has undergone several expansions and changes to its tenant mix. In March 2023, it opened Home & Design, a roughly 10,000-square-meter section dedicated to architecture, home furnishings, and design.
The property is now undergoing another expansion and renovation that is expected to add approximately 3,400 square meters of gross leasable area (GLA). The new space will accommodate incoming international brands and allow existing tenants to expand their presence.
XP Malls says the property’s market positioning requires ongoing investment in architecture, services, the shopping experience, and updates to its tenant mix. Compared with other properties in the portfolio, Cidade Jardim requires a higher level of recurring reinvestment.
From a real estate investment perspective, the transaction highlights the need to weigh a property’s appreciation potential against the capital required to sustain it. In Cidade Jardim’s case, management determined that the balance between those expenditures and available cash flow justified selling the stake.
Deal Values the Mall at R$2.7 Billion
The stake’s sale price implies a valuation of approximately R$2.7 billion for Shopping Cidade Jardim as a whole. According to management, that is roughly 57.5% above the value implied by a benchmark transaction in 2023, which valued the property at approximately R$1.7 billion.
As REsource reported at the time, the 2023 sale of Gazit’s 33% stake totaled R$560 million, with JHSF Capital helping structure the investment vehicles that acquired it.
The comparison illustrates the difference in the valuations implied by the two transactions. It does not, however, represent XP Malls’ total investment return, which also depends on factors such as the acquisition price, subsequent capital contributions, and income received during the holding period.
The fund acquired its 16.99% stake in October 2018 as part of a broader transaction with JHSF that included other shopping mall assets.
Buyer Assumes Debt as Part of the Purchase Price
The sale agreement was announced in September at a base price of R$454 million. An adjustment for IPCA inflation brought the total to R$456.3 million at closing.
Of that amount, R$273.8 million was settled at closing, comprising R$121.9 million in cash and R$151.9 million in CRI debt assumed by the buyer.
The remaining balance will be paid in two installments of approximately R$91.3 million each, due no later than six and 12 months after the initial payment, respectively. Both installments will be adjusted for IPCA inflation through their payment dates.
According to XP Malls, the transfer of the CRIs reduces the fund’s debt by approximately R$151.9 million, equivalent to roughly 30% of its total outstanding CRI debt. Management estimates that the fund’s debt-to-equity ratio will decline from 15.6% to 13.1%, using its June 2026 equity base.
Following the transaction, XP Malls says it holds direct stakes in 25 operating shopping malls, representing approximately 265,000 square meters of GLA attributable to its ownership interests.
