Pirelli & C.

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Pirelli & C. Real Estate

Pirelli Real Estate, which has been listed on the Milan Stock Exchange since 2002, is one of the leading operators in the real estate sector in Italy and at the European level; it does business in Italy, Germany and Poland.

In the pursuance of its objectives, at the end of 2009 Pirelli Real Estate can count on approximately 1,100 human resources, of which 600 in Italy: an extremely well-qualified structure, with profound sectoral and interdisciplinary skills and a track record of excellence accumulated in the international competitive context.

Pirelli Real Estate is a fund & asset manager which manages real estate portfolios on behalf of third-party investors, enhances their value, through a distinctive model based on the integration of specialist services (Agency, Property and Facility Management) functional to the management activity (Fund & Asset Management).

Under its new business model Pirelli Real Estate will no longer make significant equity investments in the real estate sector: in the past, it took qualified minority equity interests in managed investment initiatives, with the aim of seizing their opportunities for revaluation; from 2009 onwards, the Pirelli Real Estate Group has opted for a less risky business model which defines it as a “pure manager”, continuing to carry on the work of identification and management of investment opportunities for third parties and setting itself the aim of gradually reducing the equity investments still in its portfolio.

For the Pirelli Real Estate Group 2009 was a year in which, with a view to regaining the confidence of the market and achieving an expectation of sustainable growth, it continued the cost-cutting and internal reorganization process begun last year to take account of changing market conditions. Combined with this, there were the aims of focusing on core activities and in particular on fund management by Pirelli & C. Real Estate SGR S.p.A. and on reducing indebtedness and the net invested capital.

With regard to the first of these objectives, as described in more detail in the section on significant events, the sale of 10% of Pirelli & C. Real Estate SGR S.p.A. to Intesa Sanpaolo completed in the second half of the year was aimed at supporting the growth of the assets managed by the Pirelli & C. Real Estate SGR S.p.A. and therefore the development of the fund management business, both central features of the development strategy announced in the 2009-2011 Business Plan, with the goal of increasing the recurrent profits deriving from the property management business, and the aggregation of other operators in the industry.

Instead as regards the reinforcement of the financial and capital structure of the Pirelli Real Estate Group, it is important to note on the one hand the success of the share capital increase evident from full subscription by the market of the portion attributed and, on the other hand, the obtainment from eight leading financial institutions of a committed credit facility more adequate for the company’s new business needs of 320 million euro with expiry July 2012.

Although the year was significantly affected by the context of international economic recession, in 2009 the main economic and financial indicators showed a clear improvement, confirming the validity of the actions taken up to now. The net loss was almost halved compared with the past year, as was the operating loss, which recorded a downward trend for the third consecutive quarter in 2009.

At December 31, 2009 assets managed amounted to 16.0 billion euro (17.3 billion euro at December 31, 2008) with a portion attributable to Pirelli RE of 4.2 billion euro (4.4 billion euro at December 31, 2008). The assets managed are made up of properties of 14.4 billion euro (15.4 billion euro at December 31, 2008) and non-performing loans of 1.6 billion euro (1.9 billion euro at December 31, 2008). As regards the asset allocation, of the 14.4 billion euro of real estate assets, 50% are managed in Italy, 49% in Germany and 1% in Poland, percentages in line with those of December 31, 2008.

The change in the period in managed real estate assets expressed at the market value of 1.0 billion euro is attributable to the combined effect of an increase of 0.4 billion euro relating to acquisitions and capitalizations in the period (mostly attributable to the purchase of the former head office building of the Istituto Poligrafico dello Stato) and a decrease of 1.4 billion euro resulting both from sales of properties in the period, and from the aforementioned property devaluations.