AEDES SIIQ OUTPERFORM. Simpler, Healthier, And Ready to Grow. Italian Research New Coverage Milan, May 24, Price (Eu): Target Price (Eu):

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1 Italian Research New Coverage Milan, May 24, 2016 AEDES SIIQ Price (Eu): Target Price (Eu): OUTPERFORM SECTOR: Real Estate Federico Pezzetti Simpler, Healthier, And Ready to Grow A Historic real estate company with a revamped look. Aedes was founded in 1905 and became the first real estate company to float on the Milan Stock Exchange in In 2008, when the real estate market was hit by the economic crisis, the company found itself in increasing financial difficulties and was forced to take extraordinary measures, including several operations to raise new capital in The group is now run by a completely new board representing a mostly new controlling shareholders and is pursuing a simpler investment strategy than in the past. Moving towards a simpler REIT business model. Thanks in part to its new status as a SIIQ (the Italian version of REIT), Aedes s strategy is now focused on the creation and medium to long term retention of an income-bearing portfolio of commercial property, predominantly in the retail arena. The group is building for the future by investing in two portfolios, one income-bearing and the other a development portfolio which it already owns. Development portfolio: the key source of organic growth. The development property portfolio is composed chiefly of projects for commercial use and the company expects some of these initiatives to turn into income-generating assets. Some initiatives centre around the Serravalle Scrivia Designer Outlet, although the key one is represented by a Eu300mn capex retail and entertainment project in Caselle (Turin). Real estate funds: a market for opportunistic acquisitions. Another pillar of the group s strategy is the intention to look for acquisition opportunities among real estate funds, (usually trading at a deep discount to face values) with the subsequent goal of assimilating them into the group s real estate portfolio (a clear example of this strategy is the recent acquisition of the Redwood fund). This also comes on the back of some new options introduced by the Renzi government with the Unblock Italy decree. Knowledgeable management boasting a major success story in retail real estate. CEO Giuseppe Roveda, through the Praga group, was responsible for the development of the Serravalle Designer Outlet in the early 2000 s. This innovative intervention involved the construction of the biggest outlet centre in Europe, and was a major success that radically enhanced the local area s profile and economic status. We initiate with an Outperform recommendation and a Eu0.60 target price. Despite the huge progress made over the last couple of years, Aedes SIIQ remains a work-in-progress with still a number of weaknesses/risks including low cashflow generation, sub-par dividend distribution and uncertainty around the Caselle development project. Still, we believe that a committed management, an opportunistic approach on income bearing assets, and interesting development opportunities represent an appealing mix at current valuations. The stock is currently trading at a 60% discount to 2016E NAV which represents a significant gap vs the 30% average discount at which trade its main Italian peers Beni Stabili and IGD. Key Figures 2014A 2015A 2016E 2017E 2018E EBIT (Eu mn) (4) Net profit (Eu mn) EPS - New (Eu) EPS - Old (Eu) DPS (Eu) NAVPS (Eu) Ratios & Multiples 2014A 2015A 2016E 2017E 2018E P/E nm nm nm nm nm Div. Yield 0.0% 0.0% 0.0% 0.0% 2.4% P/NAVPS ROCE -1.6% 3.0% 6.7% 1.5% 4.6% AEDES SIIQ - 12m Performance m-15 l-15 s-15 n-15 g-16 m-16 AEDES SIIQ RATING: New Coverage AEDES SIIQ Rel. to BCI Index (Reb.) TARGET PRICE (Eu): New Coverage Change in EPS est: 2016E 2017E STOCK DATA Reuters code: Bloomberg code: AEDI.MI AE IM Performance 1m 3m 12m Absolute -8.4% 4.0% -49.5% Relative -3.1% 2.6% -28.3% 12 months H/L: 1.03/0.32 SHAREHOLDER DATA No. of Ord. shares (mn): 320 Total No. of shares (mn): 320 Mkt Cap Ord (Eu mn): 126 Total Mkt Cap (Eu mn): 126 Mkt Float - ord (Eu mn): 46 Mkt Float (in %): 36.2% Main shareholder: Augusto 51.2% BALANCE SHEET DATA 2016 Book value (Eu mn): 286 BVPS (Eu): 0.89 P/BV: 0.4 Net Debt (#BadKeyword mn): -161 NAV (Eu mn) 313 Please see important disclaimer on the last page of this report The reproduction of the information, recommendations and research produced by Intermonte SIM contained herein, and of any of its parts, is strictly prohibited. None of the contents of this document may be shared with third parties without Company authorization. Intermonte SIM S.p.A. Milan (Italy) Galleria de Cristoforis, 7/8 - phone: fax: New York - (USA) - Sales contacts: JPP Eurosecurities, 595 Madison Avenue, phone: +1 (212)

2 AEDES SIIQ - KEY FIGURES 2014A 2015A 2016E 2017E 2018E Fiscal year end 31/12/ /12/ /12/ /12/ /12/2018 PROFIT & LOSS (Eu mn) Sales EBITDA (1) EBIT (4) Financial income (charges) (5) (4) (5) (7) (10) Associates & Others (2) (1) (1) 1 1 Pre-tax profit (loss) (13) Taxes 6 (1) (0) (0) (0) Tax rate (%) 32.0% 32.0% 32.0% 32.0% 32.0% Minorities & discontinue activities (1) Net profit Total extraordinary items Ebitda excl. extraordinary items (1) Ebit excl. extraordinary items (4) Net profit restated (10) (14) (5) (4) (3) PER SHARE DATA (Eu) Total shares out (mn) - average fd EPS stated fd EPS restated fd BVPS fd NAVPS fd Dividend per share (ord) Dividend pay out ratio (%) 0.0% 0.0% 0.0% 0.0% 16.1% CASH FLOW (Eu mn) Change in NWC Capital expenditure Other cash items Free cash flow (FCF) (17) (10) (11) (99) (97) Acquisitions, divestments & other (54) (15) (10) Dividend Change in Net Financial Position 0 28 (65) (114) (110) BALANCE SHEET (Eu mn) Total fixed assets Net working capital Long term liabilities (110) (95) (96) (97) (98) Net capital employed Net financial position (124) (96) (161) (275) (385) Group equity Minorities Net equity NAV DATA (Eu mn) Properties and other assets - Book value Properties and other assets - Market value NAV RATIOS(%) EBITDA margin* nm 19.9% 44.5% 9.4% 23.3% EBIT margin* nm 26.1% 59.5% 31.7% 106.4% Gearing - Debt/equity 52.0% 34.8% 55.2% 94.0% 125.3% Interest cover on EBIT nm Debt/Ebitda nm Capex as % sales 7.8% 5.6% 19.4% 444.5% 386.0% ROCE* -1.6% 3.0% 6.7% 1.5% 4.6% ROE* -5.4% 0.0% 6.0% 0.5% 6.3% GROWTH RATES (%) Sales nm 44.2% 20.1% -43.6% 14.3% EBITDA* nm nm 168.6% -88.1% 182.2% EBIT* nm nm 174.1% -70.0% 283.8% Net profit nm nm % -90.8% % EPS restated nm nm nm nm nm * Excluding extraordinary items Source: Intermonte SIM estimates 2

3 3 Index Executive Summary page 4 Company Overview page 6 Portfolio Description and Statistics page 12 Italian Market Fundamentals page 19 Group Financials & Estimates page 23 Valuation page 29 Appendix I page 32 Appendix II page 33 Appendix III page 35

4 Executive Summary A Historic real estate company with a revamped look. Aedes was founded in 1905 and became the first real estate company to float on the Milan Stock Exchange in In 2008, when the real estate market was hit by the economic crisis, the company found itself in increasing financial difficulties and was forced to take extraordinary measures, including several operations to raise new capital in The group is now run by a completely new board representing a mostly new controlling shareholders and is pursuing a simpler investment strategy than in the past. Moving towards a simpler REIT business model. Thanks in part to its new status as a SIIQ (the Italian version of REIT), Aedes s strategy is now focused on the creation and medium to long term retention of an income-bearing portfolio of commercial property, predominantly in the retail arena. The group is building for the future by investing in two portfolios, one income-bearing and the other a development portfolio which it already owns. On the one hand it will purchase new rented properties to compete with the performance of European REITs, while on the other it will develop a new generation of shopping and leisure centres through a development pipeline, with the aim of eventually transferring them to the income-bearing portfolio controlled by Aedes SIIQ. A real estate portfolio focused on retail properties... At the end of 2015 Aedes SIIQ had a real estate portfolio with a pro-quota GAV (i.e. including its stakes in real estate funds and joint ventures) of Eu412mn. Around 47% of this was represented by the rented portfolio with another 30% coming from development assets (the develop to be rented part of the portfolio) and the remaining 23% being represented by the trading portfolio. Retail represents the largest category, accounting for some 50% of the total, while office properties represent some 24% of the total pro-quota portfolio. and concentrated in northern Italy. From a geographical standpoint the portfolio is heavily concentrated in the richest regions of northern Italy. In particular, Piedmont and Lombardy are the two key regions where over 80% of Aedes s total pro-forma assets are located. The city that stands out most in the company s portfolio is Milan, where almost 30% of the total asset value is concentrated. Other key locations are Serravalle and Caselle (near Turin), both in the north-west region of Piedmont. Income-bearing portfolio: room to work on vacancy rates but limited reversionary potential. Within the rented portfolio there is potential to improve vacancy rates, which currently stand at 13% for the fully consolidated portfolio. On the other hand reversionary potential is limited: when looking at the entire pro-quota portfolio the market yield of 7.7% compares to a passing yield at full occupancy of 7.3%, suggesting 5% reversionary potential on average. Development portfolio: the key source of organic growth. The development property portfolio is composed chiefly of projects for commercial use. The company expects some of these initiatives to turn into income-generating assets and financial leverage is on the whole much lower than in the rest of the portfolio, at 20%. A number of the development initiatives centre around the Serravalle Scrivia Designer Outlet, although the key initiative is represented by a Eu300mn capex retail and entertainment project in Caselle (next to Turin airport). Real estate funds: a market for opportunistic acquisitions. Another pillar of the group s strategy is the intention to look for acquisition opportunities among real estate funds (usually trading at a deep discount to face values) with the subsequent goal of assimilating them into the group s real estate portfolio (a clear example of this strategy is the recent acquisition of the Redwood fund). This also comes on the back of some new options introduced by the Renzi government with the Unblock Italy decree, which addressed the situation of numerous real estate funds approaching maturity by trying to create new exit strategies for funds shareholders. Knowledgeable management boasting a major success story in retail real estate. CEO Giuseppe Roveda, through the Praga group, was responsible for the development of the Serravalle Designer Outlet in the early 2000 s. This innovative intervention involved the construction of the biggest outlet centre in Europe, and was a major success that radically enhanced the local area s profile and economic status. Valuation at deep discount to Net Asset Value. Aedes SIIQ stock is currently trading at a 60% discount to 2016E NAV. Despite part of this discount could be related to the uncertainties over the group s development projects (particularly the one in Caselle which is at a much earlier stage) as well as its sub-optimal cost base (which can be leveraged with a much larger portfolio), this still represents a significant gap vs the 30% average discount at which its main Italian peers Beni Stabili and IGD are trading, especially considering the lower LTV of Aedes SIIQ. 4

5 5 We initiate coverage with an Outperform recommendation and set a target price of Eu0.60ps (52% upside to current prices). As Aedes SIIQ is only now starting to build up its real estate portfolio (especially with reference to the income-bearing part), the current and short term cashflow picture is still burdened by a cost base that is compatible with a much larger portfolio. For this reason, when assessing the valuation of the company we have tended to exclude methodologies based on cashflow as we feel these would be overly penalising. We believe that the most appropriate methodology is one based on a sum-of-the-parts approach and we set a target price of Eu0.60 while also running a bear and a bull case scenario (with fair values, respectively, of Eu0.41 and Eu0.85). We start our coverage with an Outperform recommendation on the stock. Main weaknesses/risks. Despite the huge progress made by the company over the last couple of years, we highlight a number of key weaknesses and risks: Low WALT of the portfolio. The rented portfolio (included Redwood) has a weighted average lease term (WALT) of just 2.6 years exposing it to potential further vacancy; Trading portfolio mostly vacant. Around 20% of GAV is represented by the trading portfolio, a fairly diverse mix of mostly vacant assets which might be difficult to sell on the market; Low cashflow generation. Due to the fact that the rented portfolio represents less than 50% of total pro-quota GAV and that the cost base is consistent with that of a much larger asset base, cashflow generation currently remains negative, and will only show significant improvements in the next few years. The Caselle project is not without risks: while there is very high visibility on execution of the company s development projects around the Serravalle Designer Outlet, the Caselle project represents a more uncertain bet, with a much higher risk/reward profile; Sub-par dividend distribution: the low cashflow generation means that the group is not currently distributing any dividends; it will probably take a few years for dividend yields to come close to sector averages; Capital structure: despite the low initial LTV at the group level (35% at the pro-quota level in 2015), the development of even the first phase of a large project such as Caselle might force the company to raise fresh resources.

6 Company Overview Company Snapshot Aedes was founded in 1905 and became the first real estate company to float on the Milan Stock Exchange in Ever since it was established, it has been known as both a construction company and a financial real estate company. As at the end of 2015, the group had a total pro-quota GAV of Eu412mn (Eu453mn at the end of 1Q16 when including the Redwood portfolio) and a NAV of Eu279mn. Most of its investments are in the retail and office segments, while a substantial 30% of its investments are in development projects, in various phases. The company s property portfolio is composed as shown in the pie chart below. Aedes SIIQ Key figures (Eu mn) FY15 1Q16* Consolidated GAV Consolidated PFN Consolidated LTV 30% 35% NAV 279 na Pro-quota GAV Pro-quota PFN LTV 35% 38% Pro-quota GLA (k Sqm) Source: Company Data, Intermonte SIM elaboration * It includes Redwood acqiuisition Aedes SIIQ Real Estate Portfolio breakdown*(ye15) Asset to be sold 23% Rented Assets 47% Development to built rented 30% Source: Company Dat a *Including JV/ Funds Company History Aedes was founded in Genoa in 1905 and was listed on the Milan Stock Exchange in Starting in 1999 it has undergone a first restructuring process aimed at rearranging the investment portfolio to gain more exposure to Italy s major urban areas, especially Rome and Milan. In 2008, when the real estate market was hit by the crisis, the company found itself in increasing financial trouble and was forced to take extraordinary measures, including several operations to raise new capital. Then in December 2014, the company approved a new five-year business plan. Aedes subsequently merged with Praga Holding Real Estate, a full subsidiary following a rights issue carried out in Following the restructuring process, Aedes obtained the status of SIIQ (listed real estate investment company the Italian equivalent of a REIT), effective 1 st January 2016, and changed its registered name accordingly. Aedes SIIQ Key milestones Establishment Listing in Milan Group Reorganization Debt restructuring and Investment agreements Conv ersion to SIIQ Regime eeeee 1999 sssssssss Source: Company Data 6

7 7 The restructuring process In 2013, in the wake of the financial crisis, Aedes found itself in an extremely critical financial condition, with equity of just Eu28mn against a net debt of Eu430mn. In the the group embarked upon a long, in-depth restructuring process involving an investment agreement that encompassed various share issues and a debt restructuring agreement. Below is a brief summary of this process, which led to the creation of the current capital and corporate governance structures. Debt restructuring agreement. Aedes signed an agreement that restructured its debt exposure to creditor banks. Specifically, the agreement stipulated. 1. The sale of property and investments in companies owning property to one of the creditor banks in exchange for a Eu167mn reduction in the bank debt. 2. Assumption by Aedes of all of the group s unsecured credit, comprised of two mortgages and Eu92mn of debt relating to group companies. 3. Transfer to a real estate fund (fondo Leopardi), managed by Aedes SGR, of property and stakes in real estate companies that do not fit in with the new real estate strategy. The assets transferred have a NAV of Eu54.6mn. The majority of the stakes in these property funds were transferred to creditor banks, in exchange for the cancellation of Eu41mn in debt. 4. Eu47.5mn cash rights issue, without option rights, reserved for Aedes s creditor banks to be paid through the conversion of the outstanding loans receivable from the group. 5. Aedes released from the guarantees it provided. Investment agreement. In conjunction with the restructuring agreement, Aedes signed a further agreement in order to grant the group the necessary resources to complete its restructuring. Specifically, this agreement involved: 1. Eu40mn share issue (at Eu0.46ps), without option rights, reserved for a NewCo (Augusto SpA) owned by Tiepolo, Prarosa, Agarpa and SATOR. Augusto subscribed to this rights issue using the proceeds from its own rights issue, which in turn was subscribed by Sator and Tiepolo for Eu20mn each. 2. Eu92mn share issue (at Eu0.805ps) with payment in kind, without option rights, reserved for Augusto to be paid through the transfer of the entire capital of Praga Holding Real Estate. This share issue was subscribed by Augusto through the transfer by Tiepolo, Prarosa, Agarp, Praviola and Itinera of the entire share capital of Praga Holding Real Estate. 3. Eu49mn share issue (Eu2.30ps) with payment in kind, without option rights, reserved to the group s banking creditors, paid through the conversion of the outstanding loans issued to Aedes. 4. Eu40mn cash rights issue (Eu0.46ps) with options for Aedes shareholders, who were awarded Warrants. Eu20mn of this issue was underwritten by Augusto shareholders and ViBa, an Aedes shareholder. 5. Eu20mn share issue (strike Eu0.69ps, maturity 07/07/2020) to serve the Warrants, with a ratio of 1 newly issued share for every 3 Warrants (max 28,985,512 shares). and the new ownership structure Ownership. Following the restructuring that was launched in 2014, Aedes now has a solid majority owner in Augusto SpA with over 51.2% of the share capital; Augusto is followed by ViBa with 7.3% and Itinera with 5.6%. The remaining 36% or so of the share capital is free float. Along with the rights issues, the company also issued about 87mn warrants that expire in 2020; if all of these are exercised (at one new share for every three warrants), then about 29mn new shares would be issued (ca. 9% of the NOSH). The warrants may be exercised at any time, at a strike price of Eu0.69. Aedes SIIQ Shareholders Structure Aedes ownership Market 36.02% Itinera 5.30% ViBa 7.31% Source: Company data August o 51.20% Agarp 2% Arepo AD 30% Prarosa 31% Augusto ownership Tiepolo 37%

8 Here is a brief description of the group s main shareholders: Augusto. Aedes s leading stakeholder with 51.2%, Augusto is governed by a shareholders agreement between its four stakeholders, Arepo AD (Arpe s Sator Fund), Tiepolo (Amenduni family, noted for its steel manufacturing business), Prarosa and Agarp (both controlled by Aedes CEO Mr. Roveda). Augusto has three classes of shares (A, B and C), assigned to Prarosa, Tiepolo and Arepo AD, respectively. Arepo AD is in turn owned by Luxembourg-based fund Sator, owned by notable Italian businessman Matteo Arpe. Major corporate decisions concerning Augusto or Aedes must be approved by a majority of every share class, effectively giving each of the leading stakeholders veto power. Furthermore, the stakeholders partaking in the agreement cannot sell Augusto shares before In that year, each stakeholder will be allowed to remove its stake from the agreement and/or sell shares. Because of this setup, no single stakeholder has control of either Augusto or, consequently, of Aedes. ViBa. A company belonging to the Amenduni family s industrial group. The Amenduni family is noted for its steel manufacturing business. Itinera. A company of the ASTM motorway/construction group, Itinera is indirectly controlled by the Gavio family and does construction business in major works projects. Aedes SIIQ Ownership Chain Sator Amenduni Family Mr. Roveda 100%* Arepo AD Tiepolo Prarosa Agarp 30.1% 37.5% 30.6% 1.86% Shareholder agreement ViBa (Amenduni Augusto Itinera (Gavio Family) 7.31% 51.2% 5.3% AEDES Source: Company Data Management and governance Management Team The current management team oversaw the restructuring and is now committed to turning the company around. Here are brief profiles of the top executives: Carlo Puri Negri, Chairman. Mr. Puri Negri has been Chairman of both Aedes and its top stakeholder Augusto since December He has held upper management positions in various Italian manufacturing and financial companies over the course of his career since 2002, and held various roles in the Pirelli group for 21 years starting in He is also a member of Harvard University s International Real Estate Advisory Board. Giuseppe Roveda, CEO. Roveda has been Aedes s chief executive since April He is also CEO of both Augusto and its leading stakeholder Prarosa. From 2000 to 2014, Roveda was CEO of Praga Holding Real Estate SpA, which was controlling stakeholder in 12 different real estate investment companies, two construction services management companies and two agriculture companies. 8

9 9 Gabriele Cerminara, CFO. Chief financial officer Cerminara also manages the group s equity interests. He is on the boards of several companies within the group and on the advisory committees of real estate funds in which Aedes SIIQ owns stakes. In the past, he gained experience in the telecommunications sector, in the corporate finance department of banks and in auditing for financial companies. Conflicts of interest. The Aedes group has adopted a procedure for carrying out transactions with associated parties. The key point of the procedure is that prior approval must be given by the Board of Directors for any transactions with associated parties. The definition of associated parties includes all members of the Board of Directors, as well as members of the Board of Statutory Auditors and executives with strategic roles. It also includes all controlling shareholders, both on an individual and combined basis, and those with a stake large enough to allow them to exercise significant influence on the company. Transactions that are relevant for this procedure are broken down into those of lesser and greater magnitude. Normal procedures are applied for smaller transactions that fall under the former case, whereas for the latter case special procedures are used to guarantee that they comply with rules governing transactions with associated parties. According to the rules set by Italian authorities, significant transactions with associated parties are those for which any of the following indices exceeds 5%: Countervalue index; the ratio between the countervalue of the transaction and the overall shareholders equity booked in the most recently filed financial statements. Asset index; the ratio between the total assets of the object of the transaction and the total assets of the company on the most recently published balance sheet; Liability index; the ratio between the total liabilities of the object of the acquired entity and the total liabilities of the company on the most recently published balance sheet. Other transactions that fall under this definition are those with a listed holding company or with associated parties for which any of these indices exceeds 2.5%. The company also plans to introduce an internal audit committee to monitor transactions with associated parties, to be populated by independent Directors. No committee members can have any connection to the transactions scrutinised. If any connection exists, the member in question must be replaced by other independent members without a connection to the transaction Group Strategy Aedes SIIQ Real estate portfolio*: breakdown by use Towards a traditional REIT business model in the medium term. Aedes s strategy is focused on the creation and medium to long term retention of an income-bearing portfolio of commercial property, predominantly in the retail arena, with limited recourse to debt. The portfolio should allow the generation of significant cashflow under the SIIQ model. Aedes is building for the future by further investing in two portfolios, one income-bearing and the other a development portfolio which it already owns. On the one hand it will purchase new rented properties to compete with the performance of European REITs, while on the other it will develop a new generation of shopping and leisure centres through a development pipeline, with the aim of eventually transferring them to the incomebearing portfolio controlled by Aedes SIIQ (hence benefiting from the corporate tax exemption of the SIIQ regime, see Appendix for details). YE'15 YE'19 Assets to be sold 23% Assets to be sold 5% Rented Assets 47% Dev elopment Assets 30% Rented Assets 70% Dev elopment Assets 25% Source: Company Data *Including JV/Funds Please note that at the EGM, the shareholders of Aedes SIIQ approved through a majority vote to change Article 21 of the company s articles of association by creating a statutory reserve to which a portion of annual net earnings (about 3%) will be allocated; the goal

10 of this reserve is to cover annual debt repayments/amortisations and to support the group s development and growth. This change gives rise to withdrawal rights for shareholders that did not vote in favour of it. Those exercising their rights will have their shares repurchased at a price equivalent to the average for the previous six months, which currently stands at Eu0.43 per share. The new reserve will be created if and only if the amount of withdrawals exercised does not exceed Eu2mn. The company s property portfolio target beyond the 2019 business plan horizon is for around 80% of its properties to be income-bearing. The latest indications from the company (which are expected to be updated soon) suggest that the group aims to reach a total value for its portfolio of around Eu1.0bn. Aedes plans to do this through: 1) an investment of about Eu200mn in new development projects, which should add about Eu100mn to the portfolio value; 2) the turnover of around Eu150mn worth of assets currently in its portfolio; 3) further re-leverage, bringing LTV to 60%, and thus raising the value of its managed real estate assets to about Eu1bn. The company has nevertheless announced that it intends to provide a business plan update by the end of 3Q16, so the chart below only represents a broad indication of the potential development of the portfolio. Aedes SIIQ Expected asset portfolio value trend (Eu mn) 1,200 1, LTV 40% 300 LTV 60% Portfolio YE'15 Capex Sales Purchase Fv Adjusted Portfolio YE'19E Releverage Portfolio target Source: Company Data The table below also shows the key targets from the latest business plan. Once again, it is important to stress that management is working on an update to the plan and some of the targets could therefore be amended (especially EBIT), partly due to the revised timing of development projects (the potential gains from the Caselle project, for example, may well shift by a couple of years). Aedes SIIQ Latest business plan targets (to be updated) 2015A 2016E 2017E 2018E 2019E (Eu mn) BP Actual BP Intermonte BP Intermonte BP Intermonte BP Intermonte Ebit Equity Source: Company data. Internally managed group, services only internally focused. Aedes also provides asset management, administration and financing services to companies within the group. Still, it s important to stress that going forward Aedes SIIQ only wants to focus on property investments, and that services will purely be a tool used to enhance the value of its own real estate portfolio. The companies it offers these services to are: Praga Real Estate: a property services company that is mainly involved in organising and developing master plans and project management. It also draws up and monitors subsidised building projects, coordinates and implements building permits, oversees commercial authorisation processes and environmental impact assessments, and carries out technical and facilities management. Praga Construction. This subsidiary predominantly carries out general contracting services, almost exclusively for other group companies. Aedes Real Estate SGR. The company specialises in the foundation, development and management of closed-end mutual real estate investment funds, both for the retail market and reserved for qualified investors. As at YE15 the SGR managed four real estate funds (Investietico, Dante Retail, Petrarca and Leopardi), whose combined net asset value was Eu451mn, down Eu41mn from the end of 2014 due to reduced market values of some properties held by those funds. On 11 th May, Aedes SIIQ announced that it has signed a contract with Sator Immobiliare SGR for the sale of all the shares held by the former in Aedes Real Estate SGR (95% of the capital). The sale of the fund management business, foreseen in the business plan, is a further 10

11 11 step towards the property company model that the Aedes Group adopted when it signed up to the SIIQ regime, which allows the direct management of proprietary assets but not fund management on behalf of third parties. The company should bring in around Eu7.0mn for 95% of the SGR, net of value of the units in the Investietico fund owned by the SGR itself. The contract also stipulates that Aedes receive a preliminary distribution of items of the SGR s shareholders equity amounting to Eu5.5mn, therefore bringing the price of the deal to Eu1.5mn. Moreover, Aedes will receive all of the proceeds from the liquidation of the Investietico fund for an estimated pro-quota value of around Eu2.5mn (Eu2.6mn for all of the units owned by the SGR). Please note that the asset management firm closed 2015 with net income of Eu1.3mn. Real estate funds: taking advantage of the Unblock Italy decree. The acquisition of real estate funds subsequently to be incorporated in the group s real estate portfolio - is part of the Aedes group s SIIQ strategy. It comes on the back of some new options introduced by the Renzi government with the Unblock Italy decree, which addressed the issue of real estate funds coming to maturity by trying to create new exit strategies for funds shareholders. In summary, the government introduced the two following options: Listed funds. For listed funds it is possible to transfer units in exchange for shares in the SIIQ, with exemption from stamp duty / land registry tax at the time of transfer. Moreover, the transfer is not considered to be an act that realises the potential capital gains encapsulated in the fund. Institutional funds. For these type of funds there is also the possibility to liquidate the shares of the funds in kind, i.e. by keeping hold of the real estate assets (this is what Aedes is doing with the recently acquired Redwood fund).

12 Portfolio description and statistics RE portfolio: concentrated in northern Italy yet well diversified Aedes s real estate portfolio at the end of As at the end of 2015, following the comprehensive restructuring implemented over the last couple of years, Aedes SIIQ boosts a real estate portfolio concentrated in northern Italy, mostly in the regions of Lombardy and Piedmont. In terms of use classes, the portfolio is well diversified. When sizing up how big this portfolio is, it is important to stress that the group reports three different types of figures: 1) the value of the consolidated portfolio, which is the number reported on the balance sheet), 2) the pro-quota value of the consolidated portfolio, or the balance sheet number minus the portion pertaining to minorities, and 3) the total pro-quota portfolio value, or the pro-quota consolidated value plus the value of Aedes s stakes in other funds and joint ventures. Key data for the company s portfolio are as follows: Consolidated portfolio. At the end of 2015 Aedes SIIQ had a consolidated portfolio GAV of Eu321mn and a NAV of Eu169mn (47.4% LTV). This represents the balance sheet figure and includes all proprietary assets as well as the real estate fund in which Aedes has a controlling stake (the Petrarca fund, in which Aedes owns 65%). When excluding minorities, GAV comes to Eu298mn and NAV Eu162mn, for an LTV ratio of 45.6%. Total portfolio including JVs and stakes in funds. The group also has a number of equity interests of 50% or less in other real estate funds and joint ventures. Overall, at the end of 2015 these funds and JVs had a pro-quota GAV of Eu114mn and a NAV of Eu51mn (45% LTV). When adding these to the consolidated assets, Aedes s total proquota portfolio reaches a GAV of Eu412mn and a NAV of Eu214mn (48.2% LTV). The funds are Dante (33% stake, focused on the retail segment in north-central Italy), Leopardi (24.4% stake, retail and office segments in northern and southern Italy), and Investietico (1.9% stake, care homes and office properties). The JV holds assets relating to phase 6 of the Serravalle Outlet project. Three main clusters. The company divides its portfolio into three clusters, as follows: Rented assets. at the end of 2015 this portion consisted of 9 consolidated properties with a GAV of Eu131.5mn and a NAV of Eu54.6mn, although when including funds and JVs the total respective values came to Eu193.5mn (47% of the total) and Eu78.2mn (37% of the total). This is the cash-generating part of the portfolio, and according to the business plan, the company is aiming to increase the weight of this cluster to 80%. Development assets. Most of these are consolidated assets and represent the company s internal growth driver. These assets are fully concentrated in the Piedmont region and as at the end of 2015 the total pro-quota GAV was Eu126mn (30% of the total portfolio value) and NAV was Eu100mn (47% of the total). Aedes SIIQ Portfolio (YE15): breakdown by cluster Consolidated (pro-quota) Total Trading 19% Total Develop ment Assets 37% Total Rented Portfolio 44% Total Develop ment Assets 30% Total Trading 23% Total (pro-quota) Total Rented Portfolio 47% Source: Aedes SIIQ, Intermonte SIM elaboration Aedes SIIQ Portfolio (YE15): breakdown by use Total Other 20% Total Office 33% Consolidated (pro-quota) Total Retail 47% Total Other 24% Total Office 24% Total (pro-quota) Total Retail 52% Source: Aedes SIIQ, Intermonte SIM elaboration 12

13 13 Aedes SIIQ: Consolidated portfolio (FY2015) (Eu mn) GAV NAV GAV % of Total LTV GLA (sqm) Value (Eu/sqm) Passing Yield Market Yield Rent Rent/sqm Occup. Retail Rented % 45.0% 17,048 1, % 7.1% 2, Office Rented % 62.6% 50,934 1, % 6.3% 5, Other Rented % 66.7% 1, % 9.2% Total Rented Portfolio % 58.5% 69,488 1, % 6.5% 7, % Retail development % 23.3% Office development % 0.0% Other development na na Total Development Assets % 23.1% Trading Rented % 57.9% Trading Land % 60.9% Total Trading % 59.3% Total (pro-quota) % 45.6% Total Retail % 28.1% Total Office % 62.2% Total Other % 59.4% Minorities Total (including minorities) % Source: Company data, Intermonte SIM elaboration Aedes SIIQ: Total portfolio "pro-quota" including funds & JV (FY2015) (Eu mn) Funds & JV GAV as % of funds & JV as % of total GAV Funds & JV NAV Total GAV Pro-quota % of total Total NAV Pro-quota % of total Total LTV GLA (sqm) Value (Eu/sqm) Passing Yield Market Yield Rent Rent/sqm Occupancy Retail Rented % 14% % 56,481 1, % 7.8% 6, Office Rented 1.6 1% 0% % 52,313 1, % 7.6% 6, Other Rented 3.9 3% 1% % 4,303 1, % 8.0% Total Rented Portfolio % 15% % % 59.6% 113,097 1, % 7.7% 12, % Retail development % 4% % Office development 0.0 0% 0% % Other development 0.0 0% 0% na Total Development Assets % 4% % % 20.2% 288, Trading Rented % 4% % 33,731 1,376 Trading Land % 5% % 218, Total Trading % 9% % % 62.4% 252, Total % 28% % 654, Total Retail % % 344, Total Office % % 52,313 1,937 Total Other % % 257, Source: Company data, Intermonte SIM elaboration

14 Trading assets. This is the smallest cluster, composed of properties that the company intends to sell in the near term. The YE 2015 GAV (total pro-quota) of this cluster was Eu93mn (23% of the total) and its NAV was Eu35mn (16% of the total). Property classes by use. To analyse the portfolio s assets based on their use, we can categorise them as follows: Retail properties. This is the largest category, accounting for some 50% of the total both on a consolidated basis and also when adding in funds and joint ventures. The retail assets included in the rented portfolio are scattered throughout Italy and are mostly shops and medium-sized shopping centers. Among the largest assets are a building in Catania and one near Alba (Piedmont). However, the biggest retail assets are actually in the development portfolio: the Serravalle Outlet extension project and land in Caselle. Office properties. This category represents some 33% of consolidated assets and 24% of the total pro-quota portfolio. Virtually all of these assets are included in the rented portfolio and all of the major ones are located in or around Milan. Other assets. These are all the properties in the company s trading portfolio plus those that cannot be categorised as either retail or office (mainly residential and healthcare properties). Among the largest assets in this class are: 1) a residential property in Milan; 2) a development area in Via Rubattino, Milan; 3) a retail property in Serravalle Scrivia; 4) a property in Cannes (France) that is in the process of being sold. Geographical breakdown. From a geographical standpoint the portfolio is heavily concentrated in the richest regions of norther Italy. In particular, Piedmont and Lombardy are the two key regions where over 80% of Aedes s total pro-forma assets are located. The city that stands out most in the company s portfolio is Milan, with almost 30% of the total asset value concentrated there. Other key locations are Serravalle and Caselle, both in the northwest region of Piedmont. Aedes SIIQ (YE15): Geographical portfolio breakdown (pro-forma including JVs and funds) Sicily 5% Other 13% Piedmont 44% Lombardi a 38% Other 37% Caselle (Turin) 15% Milano 28% Serravalle (Alessand ria) 20% Source: Aedes SIIQ, Intermonte SIM elaboration Main tenants. The portfolio is also relatively well diversified in terms of tenants, with the largest (information provider and rating agency Cerved) accounting for 22% of total rents and the top five tenants accounting for about 73% of total rents. Besides Cerved, other key tenants include companies such as COIN/Oviesse, NCTM Lawers, BP Property Management, and GS/Esselunga. Aedes SIIQ: Weight of main tenants (YE15), excluding development projects) 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Cerved COIN/Oviesse NCTM Lawyers BP Property Mgmt GS/Esselunga Other Source: Company data, Intermonte SIM elaboration Lease expiry profile. The lease expiry profile is relatively short as the weighted average lease term (WALT) stands at just 2.6 years (this includes the Redwood portfolio acquired in 1Q16 which has a WALT of about 3 years). Around 50% of total rents are potentially expiring within 14

15 15 three years, based on the first potential break-off point, with another 28% in 2019 and the remaining 24% after that. Aedes SIIQ: Average WAULT: 2.6 years* (first expiry) 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% after Source: Company data, Intermonte SIM elaboration * Inc. Redwood Income-bearing portfolio: room to work on vacancy rates. While on the one hand rents have largely stabilised, on the other hand there is potential to improve vacancy rates, which stand at 13% for the fully consolidated portfolio. These vacancies are mostly concentrated in two assets that form part of the Petrarca fund: 1) an office building in Cinisello Balsamo (Milan) with a 92% vacancy rate and a fair value of Eu14.5mn (100%) or just Eu550/m 2 (which should make it relatively easy to find new tenants); 2) an office building (the Colleoni office centre) in Agrate Brianza (Monza) with a vacancy rate of 48% and a fair value of Eu18.5mn (100%). although reversionary potential is limited. There is limited reversionary potential in Aedes s SIIQ portfolio. Specifically, when looking at the fully consolidated part of the income-bearing portfolio there is slight negative reversionary potential as the 6.5% market yield is lower than the passing yield at full occupancy (6.8%, considering that the vacancy rate stands at 13%). The situation improves slightly when looking at the entire pro-quota portfolio: here the market yield of 7.7% compares to a passing yield at full occupancy of 7.3% suggesting an average 5% reversionary potential. Real estate funds and joint ventures. As mentioned earlier, Aedes s real estate portfolio contains not just directly owned properties, but also numerous properties held indirectly through stakes in real estate funds. As at 31 st December 2015, the company was manager of four different real estate funds, one created for public sector savings and three reserved for qualified institutional investors. Petrarca (fully consolidated): founded in November 2006, this fund specialises in the office segment and has five residual properties and Eu61.3mn in total assets. Aedes s stake in Petrarca is 65%, so its pro-quota GAV was Eu38mn at the end of 2015 and its pro-quota NAV was Eu10mn. The other two investors in the fund are IVG Logistic Holding and IMF Italy Office Fund (both German). Aedes SIIQ: Non-consolidated funds and joint ventures (Eu mn) Funds & JV GAV as % of funds & JV as % of total GAV Funds & JV NAV LTV Total GAV Pro-quota Retail Rented % 14% % 87.7 Office Rented 1.6 1% 0% % Other Rented 3.9 3% 1% % 5.1 Total Rented Portfolio % 15% % Retail development % 4% % Office development 0.0 0% 0% Other development 0.0 0% 0% Total Development Assets % 4% % Trading Rented % 4% % 46.4 Trading Land % 5% % 46.7 Total Trading % 9% % 93.1 Total % 28% % Total Retail Total Office Total Other Source: Company data, Intermonte SIM elaboration Dante Retail (equity participation): established in July 2005, this fund focuses on the retail segment. Its tenants include supermarket chains Carrefour (ex Billa) and Esselunga. The

16 residual portfolio contains 22 properties (full occupancy) with a total asset value of about Eu140.5mn. Aedes owns 33.33% of this fund through the vehicle Efir S.à r.l. At the end of 2015, the pro-quota GAV was Eu43.5mn while the pro-quota NAV was Eu18.5mn. Two French institutional investors, Caisse Depots et Consignations and the pension fund UMR, own equal stakes to Aedes (also invested through Efir S.à r.l.), while the fund, which matures in 2022, is managed by Aedes SGR. Leopardi (equity participation): this fund is effectively the distressed assets fund carved out of Aedes s old portfolio in the debt restructuring and recapitalisation process (please note that assets were transferred to the fund only after their fair values were adjusted to market prices). This fund has diversified investments in the residential, tertiary, hotel, industrial and commercial segments of the real estate market, as well as in land earmarked for development. As at 31 st December 2015, Leopardi owned 20 buildings or portions of buildings plus majority stakes in companies that owned real estate. The fund s total asset value was about Eu73.9mn, while the total value of all properties held directly or indirectly was Eu172.8mn. Aedes owns 24.4% of the fund s quotas, so its pro-quota GAV was Eu15.6mn at the end of 2015 and its pro-quota NAV was Eu3mn (or Eu10.7mn including non-consolidated equity stakes). Leopardi s other stakeholders are A, B and C. The fund is managed by Aedes SGR and it matures in Investietico (equity participation): this is a fund listed on the Italian Stock Exchange that invests mainly in healthcare facilities and offices. Its residual portfolio consisted in 11 buildings and a total asset value of Eu174.8mn. Aedes owns 2% of the fund through Aedes Real Estate SGR. At the end of 2015, the pro-quota GAV was Eu2.9mn and proquota NAV was Eu2.2mn. The fund is managed by Aedes SGR and it matures in acquisitions: the Redwood portfolio. In March 2016 Aedes SIIQ purchased 100% of the Redwood real estate fund. The acquisition went through in two stages: 1) the purchase of 70% of the fund at a price of Eu16.4mn; 2) the acquisition of financial receivables which had the remaining 30% of the fund as collateral for Eu13.6mn. The upshot of these two deals was that Aedes SIIQ took ownership of 100% of the units in the fund for a total price of Eu30mn, of which Eu25mn for the real estate and trading licences and Eu5mn for the cash position. Based on existing rental contracts (Eu3.6mn), the overall price corresponded to a gross entry yield of 15%. The fund owns 18 retail properties located in various parts of Italy (Unieuro, Metro, etc.) and 9 trading licences held through Redwood S.r.l., a vehicle company controlled in its entirety by the fund itself. The portfolio has a weighted average lease term of three years or slightly higher than the rest of the portfolio. Redwood portfolio: Key data City Region GLA (sqm) Avg. Purchase FV/Sqm Rent Rent/Sqm Occupancy Price (Eu mn) (Eu) (Eu mn) (Eu) * Yield Lamezia Terme (CZ) Calabria 2,814 La Spezia Liguria 3,514 Brescia Lombardia 1,869 Brescia Lombardia 3,460 Rosà (VI) Veneto 2,870 Roma Lazio 4,075 Tavagnacco (UD) Friuli-Venezia G. 4,200 Trezzano S.N. (MI) Lombardia 10,380 S. Giovanni Teatino (CH) Abruzzo 3,015 Castagnito (Cn) Piemonte 3,000 Genola (CN) Piemonte 3,100 Genola (CN) Piemonte 2,202 Saluzzo (CN) Piemonte 1,914 Castagnito (Cn) Piemonte 1,075 Caleppio di Settala (MI) Lombardia 1,950 Bra (CN) Piemonte 1,637 Acqui Terme (AL) Piemonte 790 Bassano del Grappa Veneto 4,464 Total 56, % % Source: Company data, Intermonte SIM elabotation * Rent/sqm calculated on rented space 16

17 17 Development for rents assets: Serravalle Outlet and Retail Park Development portfolio: the organic growth option The development property portfolio is composed chiefly of projects for commercial use. The company expects some of these initiatives to turn into income-generating assets. Financial leverage is on the whole much lower than in the rest of the portfolio, at 20.2%. New financing deals are expected to be reached for the key initiatives in order to ensure that the construction costs can be sustained. Serravalle Designer Outlet: a success story. A number of Aedes s development initiatives centre around the Serravalle Scrivia Designer Outlet. The Serravalle Designer Outlet is the largest outlet in Europe. It was opened in 2001 and managed by UK company McArthur Glen, which together with Giuseppe Roveda s Praga group subsequently developed the complex, opening the Serravalle Retail Park and the Serravalle shopping centre. Indeed, the project was the first building block in the major requalification of the local area between Serravalle Scrivia and Novi Ligure, a process that continues to this day with other major construction works in progress. The Designer Outlet now covers a total of 45,000m 2, and hosts more than 180 stores selling over 300 designer brands. It offers a unique shopping experience to over 4mn annual visitors thanks to the modern services connected to the on-site commercial activities. It is located around one hour from Milan and an hour and a half from Genoa, in Serravalle Scrivia (AL), Piedmont, and can be easily reached from both these cities and Turin, as it has its own junction on the A7 Milan- Genoa motorway and is on the Turin-Genoa railway line. Serravalle Outlet Village Phase 6 (Pragasei S.r.l.). On 9 th June 2015, Aedes Group formed a strategic partnership with major global investment company TH Real Estate and McArthur Glen, a company that runs 20 designer outlets in Europe, five of which in Italy, to begin the executive phase of development at Serravalle Outlet Village. On land owned by Pragasei S.r.l. (50.1% owned by Aedes), 10,577m 2 of commercial space will be built. Funding for this project is fully ensured by the cash TH Real Estate is to transfer once works reach an advanced stage, while Aedes s portion of the funding was allocated when the partnership was established. The residual cost will be covered by a mid/long term loan to be disbursed by Credit Agricole. Source: Company data * Of which Praga Business Praga total GLA 4,361 sqm The letting process began in June 2015 and agreements have already been reached to let about 61% of the commercial space, while negotiations are in a final phase for a further 18%. Rents already agreed amount to about Eu630 per square metre plus a variable fee based on revenue. These preliminary agreements will be converted into full leases soon before the shopping centre opens, in accordance with standard market practice. Based on the construction progress made so far, the company estimates that Phase 6 of Serravalle Outlet Village will be inaugurated in late September or early October this year. Serravalle Designer Outlet Phase 5. Parallel to Phase 6, Phase 5 of the Serravalle Designer Outlet also got underway. In this project, about 2,800m2 of commercial space will be built on proprietary land that belongs to the company that owns Serravalle Outlet, a business partner of Aedes in Pragasei S.r.l. The business agreement between Aedes and TH Real

18 Estate to expand the Serravalle shopping centre foresees increasing the total number of stores to 260 and total retail space to 51,500 square metres. Once the investments have been made, Serravalle will solidify its standing as the biggest luxury outlet in Europe and one of the top fashion destinations on the continent. Serravalle Outlet Village Phase 7. This represents an extension of Serravalle outlet village Phase 6 and covers an area of around 10,000 sqm of which 50% owned by a subsidiary of Aedes SIIQ. The development plan has been approved and the environmental screening was completed with favourable outcome. The application for full planning permission has been presented. Serravalle Outlet and Caselle geographical position Source: Intermonte SIM elaboration Caselle Torinese. This project is being put forward by Satac, a SIINQ of Aedes SIIQ. About Eu300mn will be required to build this shopping centre near the Turin airport; it will include a food court, sport facilities (a gym and other establishments), entertainment (a cinema, bowling alley, an adventure land, etc), as well as fashion and design retailers. Road access to the area will be completely overhauled, including a connection between the airport and the shopping village. Management expects to split the project into three phases. Works on phase one are scheduled to start in 2017 (with the site to open at the beginning of 2019) and will relate to around 50k sqm and account for some 40% of the overall investment (i.e. around Eu120mn). JL Lasalle has won the contract for the sale of retail spaces while Aedes is having discussions with two entertainment sector leaders (one of them would run the project s leisure anchor). Development for rents assets: Caselle Desiner Village Source: Company data 18