Pirelli & C. Real Estate

Pirelli & C. Real Estate is the leader in the real estate market in Italy and one of the most important operators in Europe thanks to an innovative business model, high professional standards and a flexible and dynamic organization.

Pirelli RE is an alternative asset manager specialized in the real estate sector. It manages real estate investment funds and companies that own real estate and non-performing loans in which it invests by acquiring minority stakes, aligning its own interests to those of the investors to which it supplies, as it does to other third-party clients, all types of specialist real estate services.

Its mission is to innovate new investment opportunities that positively impact business as well as the industry of reference with a sustainable ramification on the community and the environment, thus creating value for all the stakeholders.

The strategic objectives encompassed in its mission can be summarized as follows:

  • to affirm itself as the benchmark of the Italian real estate market and to export its business model to Central and Eastern European countries;
  • to create value for the assets managed and align the interests of both investors and manager;
  • to innovate real estate products and services through a quality
    response that meets the needs of final users and investors alike;
  • to create and disseminate a state-of-the-art culture in the real estate sector;
  • to base its corporate governance system on national and international best practices;
  • to orient corporate behavior towards sustainability and corporate awareness.

The main activities of the Group are:

  • to identify investment opportunities according to the type of real estate product (residential, commercial and Non-Performing Loans - NPL) and geographical market (Italy, Central and Eastern
    Europe);
  • to conduct professional management activities;
  • to supply quality specialist services (integrated facility management, property management, credit servicing and agency services).

During the course of 2007, the company consolidated its leadership in Italy and gained a prominent position on the European market; the operating profit including the earnings from investment holdings recorded a growth of 10 percent.

The strategic drivers behind this growth were the international expansion into Central and Eastern Europe, the increase in assets managed particularly through real estate investment funds, the excellent performance in an important segment with towering obstacles for entry such as that as NPL, the growth and organizational revision of specialist service areas and the further qualification of development activities in Italy and Eastern Europe.

Pirelli RE Dusseldorf2.jpg

A Pirelli RE building in Düsseldorf.

As for the internationalization process, Pirelli Real Estate concluded important deals in 2007: in Germany, with a joint investment in prominent companies such as DGAG and BauBecon, which brought the total of assets managed to more than Euros 3 billion, positioning the company among the top Italian players; and in the New Europe, the signing of two new joint ventures with the UniCredit Group in Romania and Bulgaria, which join Pirelli Pekao Real Estate in Poland. Two worlds capable of replicating the success achieved on the Polish market where growth and results were so quick as to reduce the development times estimated for the business.

At the end of the year about 29 percent of the real estate assets managed by the company was outside Italy, in Germany and Poland in particular. This is a sharp increase from last year (14 percent) and very much ahead of the targets set in the three-year plan, even for 2008 (20-25 percent).

Partly as a result of these transactions, the total assets managed by the Group reached Euros 15 million against Euros 14.5 billion in 2006: this is a figure which places Pirelli Real Estate among the top continental operators. The average share managed on behalf of third parties is also significant and equal to Euros 10.8 billion (equivalent to 72 percent), the umpteenth acknowledgement of the Group’s specialist operating capabilities.

With regard to the services area, the year just ended registered important nonrecurring transactions and investments for the rationalization of the entire structure in order to render it more streamline, efficient and qualified from a European competitive standpoint. As for technical services, after the purchase of Ingest Facility, Pirelli RE Integrated Facility Management was set up together with Intesa Sanpaolo, giving existence to the Italian leader in the sector. In reference to commercial services, integration of the franchising network in Pirelli RE Agency continued, with effect from January 1, 2008.

Economic review

In reading the income statement presented below, it should be noted that the operating profit including earnings from investments, because of the type of business conducted by the group, is the most important indicator and expresses the trend of earnings.

economic review (in millions of Euros)

2007

2006

Share of aggregate revenues 1

1,543.1

1,560.0

Consolidated revenues 2

853.1

702.0

Operating profit 3

50.4

103.7

Earnings (losses) from investments

186.2

110.7

Operating profit including earnings from investments 4

236.5

214.4

Income attributable to the equity holders of the company

151.1

159.5

1 Aggregate revenues express total business volumes of the Group and include consolidated revenues in addition to the pro-rata share of revenues of the associates, joint ventures and funds in which the Group has holdings. The amount for 2007 is presented net of sales at cost, regarding the sale of the interests, of the properties of the company DGAG to the joint ventures with RREEF and MSREF for Euros 1,295.6 million.

2 The amount for 2007 is presented net of sales at cost, regarding the sale of the interests, of the properties of the company DGAG to the joint ventures with RREEF and MSREF for Euros 1,295.6 million.

3 This amount refers to non-performing loans, buildings and services.

4 Operating profit including earnings from investments comprises the operating profit (Euros 50.4 million) in addition to the share of earnings of companies accounted for by the equity method (Euros 117.0 million), dividends from holdings (Euros 2.2 million), income from real estate investment funds (Euros 11.0 million) and the result from the sale of investments (Euros 55.9 million).

The share of aggregate revenues amounts to Euros 1,543.1 million compared to Euros 1,560.0 million in 2006.

Consolidated revenues amount to Euros 2,148.7 million compared to Euros 702.0 million in 2006. Net of the sales at cost, for the sale of the interests, of the properties of the company DGAG to the joints ventures with RREEF and MSREF (equal to Euros 1,295.6 million), consolidated revenues amount to Euros 853.1 million (+22 percent thanks to specialist service activities). The deconsolidation, begun at the end of March and completed during the last quarter of 2007, refers to both commercial and residential properties.

Operating profit including earnings from investments in 2007 is Euros 236.5 million, with an increase of 10 percent compared to Euros 214.4 million in 2006; net of the effects of the temporary consolidation of DGAG, the operating profit including earnings from investments amounts to Euros 215.3 million.

Income attributable to the equity holders of the company is Euros 151.1 million, compared to Euros 159.5 million in 2006 (-5 percent); net of the effects of the temporary consolidation of DGAG, the income attributable to the equity holders of the company is Euros 162.8 million (+2 percent).

Balance sheet and financial review

Balance sheet and financial review (in millions of Euros)

12/31/2007

12/31/2006

Fixed assets

886.1

581.7

- including investments in funds and investment companies 1

601.3

427.2

- of which goodwill

218.4

93.4

Net working capital

190.5

283.3

Net invested capital

1,076.6

865.0

Equity

720.1

708.7

- of which attributable to the equity holders of the company

715.7

700.3

Provisions

66.8

59.9

Net financial (liquidity)/debt position

289.7

96.4

Total net invested capital financed

1,076.6

865.0

Net financial (liquidity)/debt position gross of shareholder loans

816.1

430.5

Net invested capital gross of shareholder loans

1,603.0

1,199.1

1 This item includes investments in associates, joint ventures and other investments (Euros 486.9 million), investments in real estate investments funds (Euros 103.1 million) and junior notes (Euros 11.3 million).

Fixed assets total Euros 886.1 million compared to Euros 581.7 million at December 31, 2006, with an increase of Euros 304.6 million. The change is basically the result of two factors: on the one hand, investments in the services platforms of Ingest Facility
and DGAG (+Euros 126.9 million) and a net increase in the value of the investments in associates, joint ventures and funds (+Euros 257.3 million); on the other hand, the sale, in the area of non-performing loans, of the securities that came from the ex-Banco di Sicilia transaction (Euros 83.1 million) to the Pirelli RE and Calyon joint venture.

Net working capital is equal to Euros 190.5 million compared to Euros 283.3 million at the end of 2006 (-Euros 92.8 million). The change is attributable to the combined effect of a decrease due to extinguishing the advance for the purchase of DGAG paid during the year and the payable referring to the ex-Banco di Sicilia non-performing loans for Euros 58.5 million. The inclusion of Ingest Facility further reduced working capital by about Euro 12 million.

Equity attributable to the equity holders of the company amounts to Euros 715.7 million compared to Euros 700.3 million in December 2006, with an increase of Euros 15.4 million. The change takes into account the income for the year (+Euros 151.1 million), the distribution of dividends (-Euros 87.0 million) and other changes in equity (-Euros 48.7 million), largely connected with the purchase of treasury shares.

The financial position is the following:

financial Position (in millions of Euros)

12/31/2007

12/31/2006

Net financial (liquidity)/debt position

289.7

96.4

of which shareholder loans

526.4

334.1

Net financial (liquidity)/debt position gross of shareholder loans

816.1

430.5

Gearing ratio 1

1.13

0.61

1 The gearing ratio corresponds to the ratio of the net financial (liquidity)/debt position gross of shareholder loans and equity.

The net financial position shows a net debt position of Euros 289.7 million at December 31, 2007 (Euros 96.4 million at December 31, 2006).

The adjusted net financial position (expressed gross of shareholder loans made to minority-owned companies) is a net debt position of Euros 816.1 million at December 31, 2007 (Euros 430.5 million at December 31, 2006).

The gearing ratio is 1.13 at December 31, 2007 (0.61 at December 31, 2006).

The increase in the above amounts and the gearing ratio compared to December 31, 2006 is associated with important investments in Germany, the purchase of shares of funds, the distribution of dividends and the purchase of treasury shares.

Outlook for the current year

Taking into account the current economic and financial scenario,
the company expects the operating profit including earnings from investments for the year 2008 to be in line with the prior year, net of the effects of DGAG.