DISTRIBUTION OF INTERIM DIVIDENDS FOR FINANCIAL YEAR

Transcription

1 BENI STABILI S.p.A. SIIQ DISTRIBUTION OF INTERIM DIVIDENDS FOR FINAN NCIAL YEAR 2018 PURSUANT TO ARTICLE 2433-BIS OF THEE ITALIAN CIVIL CODE

2 C O N T E N T S DISTRIBUTION OF INTERIM DIVIDENDS FOR FINANCIAL YEAR 2018 PURSUANT TO ARTICLE 2433-BIS OF THE ITALIAN CIVIL CODE Audit and Corporate Bodies 1 Directors Report on the distribution of an interim dividend for financial year 2018 to shareholders of Beni Stabili S.p.A. SIIQ 3 Financial Statements of Beni Stabili S.p.A. SIIQ as at 31 October 2018: 19 1 Statement of financial position 20 2 Statement of Profit/(Loss) for the period 21 3 Statement of Comprehensive Income 22 4 Statement of Changes in equity 23 5 Cash flow statement 24 Notes to the Financial Statements 25 Annexes 73

3 Beni Stabili S.p.A. SIIQ Audit and Corporate Bodies

4 AUDIT AND CORPORATE BODIES Board of Directors (*) Ariberto Fassati Christophe Joseph Kullmann Angelo Busani Marjolaine Alquier De L'Epine Leonardo Del Vecchio Daniela Percoco Micaela Le Divelec Lemmi Jean Gaston Laurent Adriana Saitta Giovanna Ruda Chairman Independent Chief Executive Officer Director Independent Director Director Director Independent Director Independent Director Director Independent Secretary General Manager Risk and Control Committee Alexei Dal Pas tro Angelo Busani Chairman Independent Adriana Saitta Daniela Percoco Member Independent Member Independent Appointments and Remuneration Committee Related-Party Transactions Committee Supervisory Body pursuant to Legislative Decree 231/01 Micaela Le Divelec Lemmi Chairman Independent Carlo Longari Chairman Ariberto Fassati Member Independent Sabrina Petrucci Member/Internal Audit Adiana Saitta Member Independent Board of Statutory Auditors Giuseppe Cerati Marcellino Bortolomiol Emanuela Rollino Giorgio Mosci Cristiana Trovò Chairman Regular Auditor Regular Auditor Alternate Auditor Alternate Auditor Auditing Firm EY S.p.A. 2

5 Beni Stabili S.p.A. SIIQ Directors Report on the distribution of an interim dividend for financial year 2018 to shareholders of Beni Stabili S.p.A. SIIQ pursuant to Article bis of the Italian Civil Code

6 WHEREAS This document has been prepared for the purpose of distributing an interim dividend relating to financial year 2018 to shareholders of Beni Stabili S.p.A. SIIQ. Article 2433-bis of the Italian Civil Code provides that the distribution of interim dividends is only permitted to companies whose financial statements are subject, by law, to statutory auditing, according to the regime provided for by special laws for public-interest entities and whose Articles of Association expressly provide for the option of distributing interim dividends to Shareholders. Furthermore, the distribution of interim dividends may be resolved upon by the Board of Directors, only in the event of a position opinion from the individual responsible for the statutory auditing of the accounts on the previous financial statements and provided that no losses relating to said previous financial year or to previous financial years are recorded in the latest approved financial statements. Beni Stabili S.p.A. SIIQ meets all of the aforementioned requirements. In fact, as a listed company, its financial statements are subject to audit pursuant to Article 14, paragraph 1, section a) of Legislative Decree no. 39 of 27 January 2010 and the distribution of interim dividends is provided for by Article 22 of the Articles of Association. The statutory audit of the financial statements is entrusted to the auditing firm EY S.p.A., which, on 16 March 2018, issued a report, with no irregularities found, on the financial statements as at 31 December 2017, approved by the Shareholders Meeting of 12 April Finally, these financial statements revealed no losses relating to the financial year in question or to previous financial years. In accordance with the requirements of said Article 2433-bis of the Italian Civil Code, the resolution to distribute the interim dividend shall be made by the Board based on a Financial Statement and a Report, revealing the equity, economic and financial situation of the Company, in order to allow for the distribution of interim dividends. Finally, the same article of the Italian Civil Code states that the amount of the interim dividends cannot exceed the lower sum between the amount of profits earned from the end of the previous financial year, minus the amounts to be set aside as a reserve, as required by law or statute, and the amount of the available reserves. The decision to distribute the interim dividends for financial year 2018 shall be made based on this Report and on the Financial Statements as at 31 October 2018 presented below, showing the Company s equity, economic and financial situation as at that date and revealing that this permit the distribution of interim dividends. The opinion of EY S.p.A., provided for by aforementioned Article 2433-bis of the Italian Civil Code, shall be obtained on these documents. The profit achieved by the Company in the first 10 months of 2018 amounts to 58,429 thousand of Euro, which, net of the non-distributable amount pursuant to law, is available for distribution in the amount of 49,193 thousand of Euro, whilst the reserves available for distribution as at 31 October 2018 amount to 1,225,624 thousand of Euro. The table below summarises the aforementioned data, which is relevant for determining the distributable interim dividends. 4

7 Net profit of Beni Stabili S.p.A. SIIQ as at 31 October ,429 Non distributable share pursuant to law (9,236) Net profit of Beni Stabili S.p.A. SIIQ as at 31 October 2018 available for distribution 49,193 Available reserves as at 31 October Maximum distributable interim dividend (pursuant to Article 2433-bis, paragraph 4 of the Italian Civil Code) 49,193 The Board of Directors, having taken into account (i) that the conditions provided for by paragraphs 1 to 4 of Article 2433-bis of the Italian Civil Code have been met; (ii) the Company s equity, economic and financial situation, as per the Financial Statements as at 31 October 2018 and as per this Report; (iii) what has been described in the paragraph Business Outlook below; (iv) the maximum distributable amount by way of interim dividends on the profit for the financial year, pursuant to Article 2433-bis, paragraph 4, of the Italian Civil Code, amounting to 49,193 thousand of Euro; intends to distribute interim dividends for 2018 amounting to of Euro for each of the ordinary shares outstanding as at the ex-dividend date, net of treasury shares in portfolio. On the basis of outstanding shares (No. 2,269,592,803), net of treasury shares in portfolio (961,000), total interim dividends would amount to 48,478, of Euro. Interim dividends will be paid, against ex-coupon no. 23 dated 17 December 2018, as of 19 December It should be noted that, pursuant to current legislation, the entitlement to payment of interim dividends is determined on the basis of the accounting records relating to the end of the accounting day of the first settlement day following the coupon detachment date (record date: 18 December 2018). For the purpose of shareholders' taxation, the interim dividend will be considered as entirely paid out of profits from the "tax-exempt" (SIIQ) business and, as a result, subject to the relevant tax regime. 5

8 SIGNIFICANT EVENTS IN THE FIRST 10 MONTHS OF 2018 Merger with Covivio On 5 September 2018, the Shareholders Meeting of Beni Stabili S.p.A. SIIQ ( Beni Stabili or the Company ), held in extraordinary session, approved the cross-border merger by incorporation of the Company into Covivio S.A. (formerly Foncière des Régions S.A.), which, in turn, approved it on 6 September The proposed merger represents a significant step towards the simplification of the Group to which Beni Stabili belongs and would increase ties between its different divisions and activities. Specifically, it is expected that the Group may achieve: 1. a unique exposure to European real estate, and to its most growing markets: a. The company resulting from the merger would achieve assets 1 of approximately 23 billion of Euro (15 billion of Euro group share), considering Beni Stabili s current real estate assets amounting to 4.4 billion of Euro (3.6 billion of Euro group share); b. The Covivio Group operates already in the main European metropolitan areas (such as Paris and Berlin, besides Milan), and is present in different market segments such as offices hotel and residential; c. In addition, the Covivio Group offers an exposure to over 5 billion of Euro of property development pipeline projects; 2. A strengthened capital market profile and visibility of the Group, through the growth of market capitalisation to over 7 billion of Euro post-merger, against the 1.7 billion of Euro of Beni Stabili 2, an increase in free float and, more generally, the liquidity of the stock; 3. a stronger credit profile, being Covivio rated BBB, with a positive outlook, by S&P and Beni Stabili BBB-, with a positive outlook, by the same agency, thus benefiting directly from Covivio s wider access to financial resources and to capital markets; 4. a higher return profile: on the basis of the proposed merger terms, the contemplated transaction aims at generating overall positive economic impacts (with respect to 2017, dividend per share higher by approximately 16% than Beni Stabili 2017 dividend) 3. Post completion of the contemplated merger, the combined entity would become even more active in Italy through a dedicated branch, with a view to accelerate the implementation of its portfolio rotation and real estate strategy, focusing on prime offices in Milan. The Group would remain actively involved in the regeneration and development of new tertiary zones in Milan and in providing premium services to its tenants. Upon effectiveness of the Merger, Covivio will in fact establish a Permanent Establishment (PE) in Italy, to which all of Beni Stabili s current assets and liabilities will be assigned, including the stakes in the Company s 1 As at 30/06/ As at the day before the transaction (19 April 2018). 3 Based on 2017 dividends of 4.50 of Euro for Covivio shares and for Beni Stabili shares. 6

9 subsidiaries and in Central SICAF S.p.A. The PE, which will apply the special tax regime provided under the Italian SIIQ law, will continue to carry out, without any interruption and through the current Beni Stabili s employees, the same activities that the Company carried out prior to the Merger being effective. The Merger will be completed on the basis of an exchange amounting to ordinary Covivio shares for every 1,000 ordinary Beni Stabili (respect to the originary 8.5 ordinary Covivio shares for every 1,000 ordinary Beni Stabili shares) shares, which will be adjusted automatically following the resolution to distribute the interim dividends for financial year 2018 pursuant to Article 2433-bis of the Italian Civil Code by Beni Stabili before the merger becomes effective, from a legal, tax and accounting standpoint (scheduled for 23:59 on 31 December 2018). Transfer of 9% of the capital of Central SICAF S.p.A. In February 2018, Beni Stabili S.p.A. SIIQ sold a further 9% of the shareholding in Central Sicaf to companies belonging to the reference Groups of minority shareholders, for a sale price of 71.3 million of Euro, in line with the company s NAV. Beni Stabili, holding 51% of the company s shareholding, shall maintain control of Central and shall provide real estate services thereto. Real estate leasing activities During the first ten months of 2018, 21 new leases were signed, covering approximately 18,250 m 2 and corresponding to 9,205 thousand of Euro in new annual rents. Of these contracts, 6 will come into effect after 31 October 2018, relating to a surface area of approximately 10,500 m 2 and 7,109 thousand of Euro in new annual rents. In addition to the foregoing, a further 3 leases were signed on properties currently under development, for a surface area of approximately 3,300 m 2 and 443 thousand of Euro of new annual rents In addition to the new leases, 16 contractual renewals were signed for a surface area of 16,700 m 2 and 3,813 thousand of Euro in annual rents. Furthermore, throughout October, 3 lease agreements signed in previous financial years for a surface area of approximately 625 m 2, corresponding to 221 thousand of Euro in total annual rents were implemented. 4 contractual renewals signed in previous financial years for a surface area of 12,411 m 2 and 1,627 thousand of Euro in annual rents were also implemented. The above figures include the new lease agreement signed with Hexagon for a commercial surface area of 4,781 m 2 of the property located in Milan, Galleria del corso (approximately 98% of the building), replacing the current COIN Excelsior lease. Hexagon is wholly owned by the Percassi Group and is a company dedicated to the development of the Victoria's Secret franchise network. The property will accommodate the Italy s largest Victoria's Secret flagship store. 7

10 The lease agreement provides for an annual rent of 5.85 million of Euro, has a term of 14 years as of 1 February 2019 and does not provide for early withdrawal options (extendable for 9+9 years, according to the choice of the tenant). The property shall also be subject to redevelopment works, for a total investment of 16.5 million of Euro. Real estate purchase and sale activities During the first 10 months of 2018, the Company purchased 3 properties. Specifically: from Fondo Pensione per il persnale delle Aziende del Gruppo Unicredit, 2 properties were purchased in Milan, located at Piazza Duca d Aosta no. 8 and Piazza San Pietro in gessate no. 2, respectively. The total purchase price amounted to 24,930 thousand of Euro, plus transfer taxes and accessory charges of 2,270 thousand of Euro; from the real estate fund called RE Fund, managed by InvestiRe SGR, the property in Milan at via dell Innovazione no. 3 was purchased. The purchase price amounted to 77,000 thousand of Euro, plus transfer taxes and accessory charges of 1,598 thousand of Euro. On the other hand, the sale activity concerned two properties, in addition to certain real estate portions of a property located in Bologna, of a property located in Milan and of a property located in Padua. Sales were made at a total price of 13,252 thousand of Euro, against a book value of properties on the date of sale of 13,188 thousand of Euro and marketing costs and other expenses (directly or indirectly) related to sales for 726 thousand of Euro. Lastly, it must be noted that, as at 31 October 2018, a preliminary sale agreement existed for a property with a book value equal to 6,940 thousand of Euro. The sale of this property shall take place at a price of 7,000 thousand of Euro (gross of marketing expenses), already collected as a deposit or down payment for 150 thousand of Euro. Financing and refinancing activities during 2018 On 22 January 2018, Beni Stabili S.p.A. SIIQ repaid the maturing Bond EUR ,125% senior unsecured, issued in 2014 and listed on the official list of the Luxembourg Stock Exchange. The outstanding bonds were repaid at their nominal value, for a total amount of 350,000 thousand of Euro, through the use of the financial resources already owned by the Company and collected with new long-term loans signed during 2017 (drawn-down in 2018 for 98,551 thousand of Euro). On 20 February 2018, the Company issued senior unsecured bonds totalling 300,000 thousand of Euro, with a fixed-rate annual interest coupon of 2.375% per annum and expiring in The bonds were issued below the par value (99.063%) and have a minimum nominal value of 100 thousand of Euro per unit (and integer multiples of 1 thousand of Euro, up to a maximum of 199 thousand of Euro). 8

11 The bonds were admitted to trading on the regulated market of the Luxembourg Stock Exchange and received a rating of BBB-, in line with the rating assigned to the issuing company. The loan was placed by Morgan Stanley & Co. International PLC and Natixis, which acted as Joint Lead Managers. During the following month of March, the liquidity resulting from the issuance of the aforementioned Bond was substantially allocated to the early repayment of the Bond 250,000 thousand of Euro, 3.50 per cent. Notes due The total repayment price was 259,835 thousand of Euro (103.9 thousand of Euro per bond), against a book value of the repaid debt of 249,271 thousand of Euro and consequent recognition in the Income Statement for the half year as early repayment charges for 10,564 thousand of Euro. In addition to the foregoing: in March, Beni Stabili S.p.A. SIIQ partially repaid a mortgage loan expiring in June 2025, for a nominal amount of 50,549 thousand of Euro. The early repayment costs (0.50%) amounted to 253 thousand of Euro; in addition, a charge for 526 thousand of Euro was recognised for the corresponding issuance costs of the loan not yet amortised. in September, following the sale of a portion of a property located in Milan, the Company provided for the mandatory repayment of the underlying loan for a nominal value of 530 thousand of Euro. The early repayment costs amounted to 5 thousand of Euro; in addition, a charge for 6 thousand of Euro was recognised for the corresponding amount of the issuance costs of the settled loan not yet amortised. Lastly, in order to optimise its hedging strategy from interest rate risk, during the half year, Beni Stabili S.p.A. SIIQ early terminated certain IRS (Interest Rate Swap) hedging instruments, with an early termination cost of 365 thousand of Euro. It should also be noted that, during the first half of 2018, the renewal and extension process of the duration of the committed short-term credit line was completed. As a result, the committed lines available to the Group for a total amount of 240,000 thousand of Euro, were used for 49,000 thousand of Euro and have an average maturity (as at 31 October 2018) of 24.3 months. As at 31 October 2018, hot money credit lines were also used, for 60,000 thousand of Euro, against a total availability of 85,000 thousand of Euro. Litigation with the COMIT Pension Fund in liquidation The arbitration procedure initiated by the Comit Pension Fund against Beni Stabili in April 2017 with which the Fund demanded the repayment of the amount (55.2 million of Euro) from the same amount paid to the Italian Revenue Agency following the settlement agreement reached in December 2016 ended successfully with the Arbitration Panel s rejection, on 24 September 2018, of all mutual claims made and with the decision that nothing is owed by either party to the other. 9

12 INFORMATION ON ECONOMIC RESULTS AND FINANCES (in thousands of Euro) (**) Net rental income 66,847 77,449 Profit/(loss) from property sales (662) 3,230 Net revenues for services 1,694 1,556 Staff costs (5,244) (4,822) Overheads (9,962) (11,375) Total operating costs (15,206) (16,197) Other revenues and income / other costs and charges 1,181 (2,812) Operating income before revaluations/ (write-downs) of properties 53,854 63,226 Revaluations/(write-downs) of properties in the portfolio (6,800) 34,657 Operating income 47,054 97,883 Net financial income/ (charges) (26,073) (35,713) Valuation of the conversion options for bonds 6,738 (26,067) Costs for early repayment of loans and related derivative instruments closed during the period (11,719) (17,199) Financial charges related to property sales - - Total net financial income/ (charges) (31,054) (78,979) Income/ (expenses) from investments in associated companies and other companies 42,354 14,002 Earning before taxes 58,354 32,906 Taxes Net income for the period 58,429 33,368 Basic earnings per share (*) Diluted earnings per share (*) (*) For more details on how to determine profit per share, please refer to the notes to the financial statements in section (**) Please refer to what is stated in the Notes to the Financial Statements as regards the methods for determining the figures as at Net profit as at 31 October 2018 was positive for 58,429 thousand of Euro, compared with a positive result as at 31 October 2017 of 33,368 thousand of Euro. These results include the effect of the appraisal of the properties at their fair value, which led to the recognition, as at 31 October 2018, of net write-downs for 6,800 thousand of Euro, against net revaluations equal to 34,657 thousand of Euro in The results of the two periods compared, as well as the effect of the aforementioned real estate appraisals, also include the effects: of the transfer (completed in the first few months of 2017) of the real estate portfolio leased to Telecom Italia to Central Sicaf S.p.A. and of the subsequent partial sale of the investment. Net profit recorded in 2017, in terms of this portfolio (including the positive sales margins of the investment) amounted, in fact, to approximately 18,140 thousand of Euro, versus a profit of 40,019 thousand of Euro in 2018 (represented by dividends collected by the investee and by the positive margin of a further partial sale of the investment); of the change in the fair value of conversion options of Equity Linked convertible bonds (positive for 6,738 thousand of Euro and negative for 26,067 thousand of Euro, respectively, for 2018 and 2017, gross of tax); of the costs for early repayment of loans and derivatives, other than those related to property sales (11,719 thousand of Euro in 2018 and 17,199 thousand of Euro in 2017). 10

13 By eliminating the two results of the aforementioned effects, the change in profit as at 31 October 2018, compared to that of 31 October 2017, corresponds to an increase of 6,354 thousand of Euro. The aforementioned change is attributable to the reduction in net financial charges (7,410 thousand of Euro) and to the improvement in operating profit (3,605 thousand of Euro), net of the decrease in net income from investments (4,274 thousand of Euro) and from the negative change in tax items (387 thousand of Euro). Below is a detailed analysis of the individual items in the Statement of Profit/(loss) for the period. Net rental income Thousands of Euro Description Rental income and guaranteed annuities 82,158 96,696 Intragroup leases 5,028 5,634 Revenue from tenants for early termination of leases (Write-down/loss) and releases in depreciations on receivables from tenants and receivables recovery costs (1,761) (1,020) Net property costs (18,650) (23,909) Net rental income 66,847 77,449 Gross rental income as at 31 October 2018 amounted to 87,258 thousand of Euro (of which leases to subsidiaries for 5,028 thousand of Euro), compared with 102,378 thousand of Euro as at 31 October 2017 (of which leases to subsidiaries for 5,634 thousand of Euro). The above change is due to the contribution (in 2017) to Central SICAF S.p.A. of the real estate portfolio leased to Telecom Italia, which, for 2017, had recognised rental revenues for thousand of Euro (rents accrued as at the date of the said contribution) and to the effects of sales and acquisitions of properties, from turnover of lease contracts and to the indexation of rents (in total, + 2,206 thousand of Euro). The impact of the net rental margin (net rental income) on (gross) rental income (including income from penalties to tenants) increased from 75.7% in 2017 to 76.6% in The change is mainly due to the transfer to Central Sicaf S.p.A. of the real estate portfolio leased to Telecom Italia, whose maintenance costs have a lower impact on gross rental income, compared with the average of the remaining real estate portfolio and are, however, entirely borne by the tenant. Profit / (loss) from property sales The sales activity concerned two properties, plus three real estate portions. Sales were made at a total price of 13,252 thousand of Euro, against a book value of properties on the date of sale of 13,188 thousand of Euro and marketing costs and other expenses (directly or indirectly) related to sales for 726 thousand of Euro. However, as at 31 October 2017, the sales activity concerned 6 properties, plus certain real estate portions. These sales took place at a total price of 186,328 thousand of Euro, against a book value for the properties, as at the date of sale, of 182,591 thousand of Euro and marketing costs and other sales-related costs for 507 thousand of Euro. 11

14 Net revenues for services These amount to 1,694 thousand of Euro (1,556 thousand of Euro in 2017) and refer to revenues for real estate, legal, administrative and financial services mainly carried out in favour of companies that are directly or indirectly controlled or otherwise invested in. The increase, compared with the same period of the previous year, refers mainly to the administrative and property management services provided by the Company to Central Sicaf S.p.A. (established during 2017). Operating costs These include staff costs for 5,244 thousand of Euro and overheads for 9,962 thousand of Euro. Staff costs increased from 4,822 thousand of Euro in 2017 to 5,244 thousand of Euro in 2018, mainly as a result of the average workforce and higher costs associated with staff leaving. On the other hand, overheads decreased from 11,375 thousand of Euro in 2017 to 9,962 thousand of Euro in 2018, mainly as a result of the reduction in consultancy costs, lease costs and costs associated with the corporate and control bodies. Other revenues and income and other costs and charges The item other revenues and income and other costs and charges mainly includes amortisation and depreciation, provisions (and related releases) for risks and charges and other taxes (including nondeductible VAT) and went from a negative balance of 2,812 thousand of Euro in 2017 to a positive balance of 1,181 thousand of Euro in The change recorded between the 2018 balance and the 2017 balance is mainly attributable to the decrease in a provision for risks that had been recorded in previous financial years and which exceeded actual needs. Revaluations / Write-downs of properties in the portfolio This item includes the effects of the adjustment in the real estate portfolio values at fair value. The net change in the value of the real estate portfolio, based on preliminary sales and above all on the valuations as at 31 October 2018 made by independent experts on total assets under IAS values of 2,413,969 thousand of Euro, amounts to -6,800 of Euro (+34,657 thousand of Euro for the first 10 months of 2017). The reduction in values is mainly due to the retail asset class market trend in secondary locations. 12

15 Net financial income/(charges) Thousands of Euro Description Financial income on bank current accounts and deposits Other financial income Total financial income Financial charges for medium-long term debts - monetary position Financial charges for short-term debts - monetary portion Medium-long term financial charges - non monetary portion Charges for non-use (on medium - long and short-term debts) Ineffective portion of the change in the fair value of hedging instruments Other financial charges Capitalisation of financial charges (20,455) (31,708) (322) (608) (6,622) (6,551) (1,446) (1,064) (467) (1,128) (35) (37) 3,173 5,273 Total financial expenses (26,174) (35,823) Financial charges linked to early repayment of loans and derivative instruments (11,719) (17,199) Change in the fair value of the bond conversion option 6,738 (26,067) Total (31,054) (78,979) The net financial charges as at 31 October 2018, determined in accordance with the reference accounting standards and excluding the measurement effect of the conversion options of the convertible bonds and the costs related to the early repayment of loans and derivative instruments, totalled 26,073 thousand of Euro, compared with a balance of 35,713 thousand of Euro as at 31 October Specifically: the monetary portion of the financial charges (both short- and medium-/long-term) decreased by 11,539 thousand of Euro, due to the reduction in the average cost of short, medium and long-term debt, which decreased from 2.26% as at October 2017 to 1.71% in The decrease in the average cost of the debt is mainly due to the reduction in the spread, due to the refinancing transaction carried out in the last year; charges for non-use of credit lines increased by 382 thousand of Euro, mainly for medium/long-term revolving credit lines that were contracted after 31 October 2017, partially in relation to the repayment of maturing loans, but not used by the end of October 2018; other financial charges increased by 2 thousand of Euro; the non-monetary portion of financial charges shows an increase of 71 thousand of Euro in charges for depreciation of upfront costs of loans in application of the amortised cost method, while non-cash items related to changes in the fair value of hedging instruments show an improvement of 661 thousand of Euro; financial income amounted to 101 thousand of Euro in 2018, compared with 110 thousand of Euro in 2017; lastly, the capitalisation of financial charges on requalification and development projects of properties went from 5,273 thousand of Euro in 2017 to 3,173 thousand of Euro in The reduction is attributable to both the decrease in the aforementioned financial charges and the completion of certain development initiatives. 13

16 Charges related to early repayments amounted to 11,719 thousand of Euro, compared with charges, amounting to 17,199 thousand of Euro, in Finally, as regards the conversion options included in convertible bonds, the positive change of 6,738 thousand of Euro (compared with a negative change of 26,067 thousand of Euro in October 2017) is due to the change in the Beni Stabili share price over the period (from 0.77 thousand of Euro as at 31 December 2017 to 0.76 thousand of Euro as at 31 October 2018) and to the effect of the volatility of the underlying security, with a corresponding decrease in the option value. Income and expenses from investments The balance as at 31 October 2017 is positive for 42,354 thousand of Euro and includes: (i) 37,063 thousand of Euro in dividend income; (ii) investment sales margins (mainly 9% of Central Sicaf) for 5,226 thousand of Euro, (iii) net income from financial transactions with subsidiaries for 278 thousand of Euro; (iv) net investment write-downs for 213 thousand of Euro. The balance of the item for 2017 was positive for 14,002 thousand of Euro. The change in the item between the two compared periods amounts to 28,352 thousand of Euro and is mainly attributable to dividends received in 2018 from investee companies (Central SICAF S.p.A. in particular), net of the reduction in net income from financial transactions with subsidiaries. Taxes In accordance with the provisions of SIIQ regulations, taxes for the period payable by the company refer essentially to the results of activities other than those exempt. In fact, current and deferred taxes only include the taxation of services and activities associated with trading properties. Taxes for the period are detailed as follows: Thousands of Euro Current taxes (18) 530 Deferred tax liabilities (36) 139 Deferred tax assets 114 (235) Total taxes for the year (current and deferred) Recalculation of current taxes for previous years Recalculation of deferred taxes (assets and liabilities) of previous years - - Total income and expenses from recalculation of the tax burden of previous years Total taxes Current taxes as at 31 October 2018 are negative for 18 thousand of Euro and include the accrued IRAP of 117 thousand of Euro, show net of IRES income of 99 thousand of Euro, resulting from the Group's tax consolidation. 14

17 NET FINANCIAL POSITION The net financial position is as follows: NET FINANCIAL POSITION Thousands of Euro 31 October December 2017 Payables to banks and financial institutions 485, ,815 of w hich: - short-term portions 63,947 2,420 - medium/long term borrow ings 421, ,395 Bonds 724,116 1,042,622 of w hich: - short-term portions 6, ,123 - long/medium-term portions 717, ,499 Convertible bonds 191, ,375 of w hich: - short-term portions long/medium-term portions 190, ,641 Total financial debt 1,400,824 1,563,812 Cash an cash equivalent (16,682) (281,635) Net financial debt 1,384,142 1,282,178 It should be noted that the net financial position does not include payables and receivables from subsidiaries. The net financial position as at 31 October 2018 shows a negative balance of 1,384,142 thousand of Euro, compared with the negative balance of 1,282,178 thousand of Euro as at 31 December 2017, with a negative change of 101,964 thousand of Euro. More specifically, financial debts at book values decreased by 162,988 thousand of Euro amounting to 1,400,824 thousand of Euro (compared with 1,563,812 thousand of Euro as at 31 December 2017), whilst nominal values decreased by 162,469 thousand pf Euro, amounting to 1,422,978 thousand of Euro (compared with 1,585,447 thousand of Euro as at 31 December 2017). Changes are shown in the following table: Thousands of Euro Book value Nominal value Total Financial debts as at 31 December ,563,812 1,585,447 New loans 233, ,050 Repayment of maturing payables and repayment of ordinary instalments (including changes of accruals) (30,766) (29,700) Early repayment of loans (50,547) (51,079) Change in debt to banks and financial institutions (including short-term lines) 152, ,271 Interest accrued during the period at the effective interest rate (net of coupons paid) (15,454) (16,448) Issuance of bonds 296, ,000 Repayment of bonds (599,270) (600,000) Change in bonds (318,506) (316,448) Interest accrued during the period at the effective interest rate (net of coupons paid) 2,929 (292) Changes in convertible bonds 2,929 (292) Total Financial debt as at 31 October ,400,824 1,422,978 15

18 Payables to banks and financial institutions at book values rose from 332,815 thousand of Euro as at 31 December 2017 to 485,404 thousand of Euro as at 31 October 2018, with an increase of 152,589 thousand of Euro. The above increase is attributable to: o new loans (233,902 thousand of Euro); o the payment of the instalments falling due on medium-/long-term loans in accordance with the repayment plans, net of nominal interest accrued in the period and not yet paid and of the amortisation of up-front costs according to the amortised cost method (30,766 thousand of Euro); o early repayments (50,547 thousand of Euro). The effective cost of payables to banks for 2018, calculated using the amortised cost method and without taking into account interest rate swaps, amounted to 1.43% (1.38% for 2017). Payables for bonds decreased from 1,042,622 thousand of Euro as at 31 December 2017 to 724,116 thousand of Euro as at 31 October The decrease of 318,506 thousand of Euro is attributable to the repayment of two bonds (599,270 thousand of Euro) and to interest accrued at the effective interest rate and not paid (15,414 thousand of Euro), net of the issuance of a new bond (296,218 thousand of Euro). The annual effective interest rate of the three existing bonds amounts to 2.31% (2.125% annual nominal rate) for the bond maturing in 2022; 1.82% (1.625% annual nominal rate) for the bond maturing in 2024 and 2.52% (2.375% annual nominal rate) for the bond maturing in Payables for convertible bonds increased from 188,375 thousand of Euro as at 31 December 2017 to 190,304 thousand of Euro as at 31 October The change of 2,929 thousand of Euro is attributable to interest accrued during the year at the effective interest rate, net of any coupons paid. The effective annual interest rate for the outstanding convertible bond maturing in 2021 is 3.01% (0.875% annual nominal interest rate). Cash and cash equivalents as at 31 October 2018 totalled 16,682 thousand of Euro (compared with 281,635 thousand of Euro as at 31 December 2017). Changes in cash and cash equivalents recorded in 2018 are detailed below. Thousands of Euro FY Cash flow from operations net of tax 59,875 48,625 Changes in payables and receivables (13,715) (30,519) Investing/disinvesting activities (63,515) 275,543 Financing activity (172,733) 38,233 Distribution of dividends (74,865) (74,865) Changes in cash and cash equivalents (264,953) 257,017 For more information on changes in cash and cash equivalents, please refer to the Cash Flow Statement. 16

19 RESEARCH ACTIVITIES Beni Stabili S.p.A. SIIQ does not perform research activities. TREASURY SHARES AND SHARES OR SHARES OF CONTROLLING COMPANIES On 31 October 2018, Beni Stabili S.p.A. SIIQ holds 961,000 treasury shares for a countervalue equal to the purchase cost of 655 thousand of Euro. SUBSEQUENT EVENTS On 22 November 2018, the public deed of merger was stipulated pursuant to Art of the Italian Civil Code and Art. 12 of the Italian Legislative Decree no. 108/2008. Following the issue, on 30 October and 22 November 2018 respectively, of the pre-merger certificates by the competent French and Italian authorities, the effectiveness of the merger, at 11:59 pm on 31 December 2018, from a legal, tax and accounting standpoint, remains subject to fulfilment (or the joint waiver by Covivio and Beni Stabili, to the extent permitted under applicable laws) of the following conditions precedent: (i) the delivery by a French competent authority of a legality certificate concerning completion of the merger (4) ; and (ii) the approval for listing on Euronext Paris of the Covivio shares to be issued and allotted to the holders of Beni Stabili shares. The abovementioned conditions precedent are expected to occur during the first half of December. Further information will be made available in accordance with the applicable laws and regulations. Finally, Covivio announces that a request for admission to listing on the Italian Mercato Telematico Azionario - MTA was filed with Borsa Italiana S.p.A. on 15 November 2018 in accordance with the provisions of the Merger Plan. Subject to Borsa Italiana s admission, the shares of Covivio are expected to be traded on the MTA from 2 January BUSINESS OUTLOOK FOR THE COMPANY AND GROUP Despite the volatile macro-economic context in both Europe and, especially, Italy, overall, all the factors required to maintain the current expansion cycle that the Milan market is experiencing, especially in the real estate sector, currently appear to continue to exist. Major signs, in this sense, are the volumes of transactions, which, albeit down compared with 2017, remain above the average of the last ten years, and the low returns required by investors in recent transactions involving high-quality properties for office and commercial in favourable locations. Specifically, the business sector in Milan continues to prove to be the most significant and dynamic sector on a national level, with a volume of investments, to date, amounting to 1.3 billion of Euro, corresponding to 52% of the Italian office market. In the third quarter of 2018, the volume of investments stood at approximately 520 million of Euro. Furthermore, in terms of leases, during the third quarter of 2018, absorption amounted to approximately 116,000 m 2, up 3.9% compared with the previous quarter, enabling us to predict the possibility of beating record value of the 2017 take-up. In the first 10 months of 2018, the Beni Stabili Group also continued to speed up the achievement of its 17

20 strategic objectives. The asset management business was particularly active, with major property purchases (approximately 100 million of Euro) and with a sustained development activity in the reference market, such as, for example the Symbiosis and The Sign area in Milan. In terms of divestments, the first 10 months of the year saw the conclusion of a binding agreement with Telecom Italia, which, among other things, provides for the repurchase (which took place in October), by Telecom Italia, of approximately 158 million of Euro worth of properties in non-core locations for the SICAF controlled by Beni Stabili. The leasing business also continued with the signing of important agreements on both areas under development (AON for The Sign and Ludum International School for Symbiosis ) and on stabilised properties, but still with potential for enhancement, such as the Excelsior in Milan (Percassi Group/Victoria s Secret). Furthermore, on 5 and 6 September, the extraordinary shareholders meetings of Beni Stabili and the parent company Fonciere des Regions (which, during said meeting, changed its name to Covivio, confirming its intention for European integration), respectively, were held, approving the merger by incorporation of the Company into FdR. The proposed merger represents an important milestone for the Beni Stabili Group and Fonciere des Regions, which will become more proactive in Italy through the establishment of a dedicated branch, in order to accelerate the implementation of its property strategy and portfolio rotation. The branch will continue to focus on the prime offices sector in Milan, remaining actively involved in the development and redevelopment of properties and areas in the Municipality of Milan and continuing, at the same time, to offer quality services to its customers. The result as at 31 October 2018 considers the current values of the real estate portfolio, as well as the current values of derivative transactions estimate as at that date by independent experts, based on the most up-to-date reference scenarios. Furthermore, no non-recurring transactions are planned to date that are capable of significantly influencing the result for the financial year; the property sales negotiations currently in progress, which could be completed by the end of the financial year, are being discussed for prices that are, overall, in line with the financial statement values or give a capital gains. Essentially, therefore, the expected end-of-year result is consistent with the company s forecasts. In this context and based on the information available to date, also in consideration of the proximity of the end of the financial year, which reduces the uncertainty necessarily associated with all future forecasts, Beni Stabili s expected result for the 12 months of financial year 2018 is expected to be consistent and adequate for the purpose of distributing interim dividends, as resolved upon by the Board of Directors for Pursuant to Art. 128 of the Directive (EU) 2017/1132 and Art. L of the French Commercial Code 18

21 Financial Statements of Beni Stabili S.p.A. SIIQ as at 31 October 2018: Statement of financial position Statement of Profit/(Loss) for the period Statement of Comprehensive Income Statement of changes in equity Cash Flows Statement

22 1 STATEMENT OF FINANCIAL POSITION (in Euro) Notes ASSETS Investment properties ,190,829,599 2,081,121,795 Properties under development ,700, ,200,000 Operating properties and other assets ,787,594 10,116,178 Intangible assets ,505 80,779 Investments - in subsidiaries ,449, ,449,264 - in associated companies ,000 3,000 - in other companies , ,276 Securities ,663,453 5,923,986 Trade receivables and other receivables ,761,704 31,582,317 Receivables from subsidiaries and associated companies ,423,121 2,408,769 Derivates - assets , ,497 Deferred tax assets ,265,232 1,151,416 Total non-current assets 3,242,323,522 2,854,847,277 Trading properties ,736,708 22,559,772 Trade receivables and other receivables ,313,598 20,210,467 Receivables from subsidiaries and associated companies ,184, ,012,776 Cash and cash equivalents ,681, ,634,945 Total current assets 62,916, ,417,960 Assets available for sale ,940,000 74,143,506 Total assets 3,312,180,084 3,489,408,743 EQUITY Share capital 226,959, ,959,280 Share premium reserve 279,041, ,041,460 Other reserves 1,236,617,756 1,277,328,202 Retained earnings 80,796,132 54,389,716 Total Shareholders' equity 6.3 1,823,414,628 1,837,718,658 LIABILITIES Borrowings ,329,714,752 1,187,535,418 Derivatives - Liabilities ,706,451 22,691,259 Severance indemnity , ,857 Deferred tax liabilities , ,000 Total non-current liabilities 1,343,214,427 1,211,003,534 Borrowings ,109, ,277,057 Payables from subsidiaries and affiliate companies ,488,252 6,776,497 Trade payables and other payables ,481,681 49,252,961 Provisions for risks and charges ,471,964 8,380,036 Total current liabilities 145,551, ,686,551 Total liabilities 1,488,765,456 1,651,690,085 Total shareholders' equity and total liabilities 3,312,180,084 3,489,408,743 With reference to the provisions of Consob Resolution no dated 27/07/06 concerning transactions with related parties and non-recurring cases reference must be made to paragraph 9 of the Notes to the financial statements and to the information provided in the Management Report in the section "Information on Equity and Finances" 20

23 2 STATEMENT OF PROFIT/(LOSS) FOR THE PERIOD (in Euro) Notes Rent revenues Costs pertaining to real estate assets Net rental income Net revenues for services Staff costs Overhead Total operating costs Other revenues and income Other costs and charges Total other revenues and income/other costs and charges Revenues from the sale of trading properties Cost of sales Profit / (Loss) from the sale of trading properties Revenues from the sale of investment properties, properties under development and investments Cost of sales Profit (Loss) from the sale of investment properties, properties under development and investments Revenues from the sale of properties held for sale Cost of sales Profit / (loss) of sale of properties held for sale 87,257, ,377,911 (20,410,966) (24,928,475) ,846,966 77,449, ,693,549 1,555,952 (5,243,578) (4,822,411) (9,962,421) (11,374,777) (15,205,999) (16,197,188) ,443, , (2,262,393) (3,330,915) 1,181,170 (2,812,322) 4,500,000 2,000 (4,557,480) (2,000) (57,480) - 7,610,000 - (8,196,800) (586,800) - 1,141, ,326,000 (1,159,620) (183,095,805) (18,020) 3,230,195 Revaluation of property Write-downs of property Revaluations / (Write-downs) of property Operating income 6.1.1/ / ,228,372 51,935,380 (44,028,464) (17,278,296) (6,800,092) 34,657,084 47,053,294 97,883,157 Net financial income / (charges) Income (charges) from subsidiaries and associated companies Income / (charges) from other companies Profit before taxes Taxes (31,053,600) (78,979,133) ,542,940 14,138, (188,423) (136,398) 58,354,211 32,905, , ,419 NET PROFIT OF THE PERIOD 58,429,146 33,368,215 Earnings per share in Euros - Basic Diluted With reference to the provisions of Consob Resolution no dated 27/07/06 concerning transactions with related parties and non-recurring cases reference must be made to paragraph 9 of the Notes to the Financial Statements and to the information provided in the Management Report in the section "Information on Equity and Finances" 21

24 3 STATEMENT OF COMPREHENSIVE INCOME (in Euro) Net profit for the period 58,429,146 33,368,215 Other components of comprehensive income (which will subsequently be reclassified to the Statement of profit/(loss)) Gross changes in the cash flow hedge reserve 2,131,674 7,543,044 Income tax relating to the change described above - - Total other components of the Statement of Comprehensive Income (that will be subsequently reclassified to the Statement of profit/(loss)) 2,131,674 7,543,044 Total other components of the statement of comprehensive income (that will not be subsequently reclassified to the Statement of profit/(loss)) Comprehensive income ,560,820 40,911,259 22

25 4 STATEMENT OF CHANGES IN EQUITY (in Euro) Share capital Share premium reserve Other reserves Retained earnings Total Shareholders' equity Balance as at ,959, ,041,461 1,198,448, ,553,593 1,869,003,077 Distribution of dividends and reserves (74,864,849) (74,864,849) Internal changes of Net Equity for reallocation of reserves 79,667,375 (79,667,375) - Comprehensive income for 2017 (787,916) 44,368,346 43,580,430 Balance at ,959, ,041,461 1,277,328,201 54,389,716 1,837,718,658 Distribution of dividends and reserves (74,864,850) (74,864,850) Internal changes of Equity for reallocation of reserves (42,842,120) 42,842,120 - Comprehensive income from 01 January 2018 to 31 October ,131,674 58,429,146 60,560,820 Balance at ,959, ,041,461 1,236,617,755 80,796,132 1,823,414,628 23

26 5 CASH FLOW STATEMENT (in Euro) 31 October December 2017 Results of the period before taxes 58,354,211 43,226,350 Depreciation and write-downs of intangible assets 30,488 73,224 Depreciation of operating properties and other assets 369,001 2,047,677 Property (revaluations)/write-downs 6,800,092 (47,324,762) (Write-ups) / write-downs of investments and securities 210,022 (1,685) Positive margin from the sale of shares in Central SICAF S.p.A. (5,204,075) (7,337,228) Non-monetary financial charges/ (income) for derivative instruments and amortised cost 1,976,307 46,469,561 Provisions for doubtful debts and risks and charges 37,600 4,202,133 Release of provisions for doubtful debts and risks and charges (2,695,725) (213,151) Cash flow from operating activities 59,877,921 41,142,119 Current taxes (2,881) 7,482,612 Cash flow from operating activities after taxes 59,875,040 48,624,731 Chages in net working capital Other assets/other liabilities (including the change in receivables and p (12,715,113) (34,169,423) Receivables / payables for sale / purchase of properties and equity inv (1,000,000) 3,650,000 Cash flow before investment and financing activities 46,159,927 18,105,308 Investment and disinvestment activities Increase of intangible assets (281,214) (14,460) Increase in operating assets (41,244) (112,545) Increase in properties (148,329,976) (123,150,234) Purchase/ increase in investments and securities - (115,065,000) Sale of property 13,188, ,550,045 Sale of other assets and investments and redemption of shares 666,283 12,713 Sale of shares in Central Sicaf S.p.A. 71,283, ,022,370 Contribution to Central Sicaf S.p.A. - (700,000) Financing activities Dividends distribution (74,864,850) (74,864,850) Early closing of derivative instruments (3,629,787) (24,134,313) Increase / (decrease) in financial debt (169,103,855) 62,367,472 Cash and cash equivalents generated during the year (264,953,227) 257,016,506 Initial cash and cash equivalents 281,634,945 24,618,439 Final cash and cash equivalents 16,681, ,634,945 24

27 Beni Stabili S.p.A. SIIQ Notes to the Financial Statements

28 1 GENERAL INFORMATION Beni Stabili S.p.A. SIIQ (hereinafter also the "Company") is one of the leading Italian investment and property management companies. The Company invests directly and through subsidiaries in properties mainly for office use and generally located in Italy, leased to leading industrial and financial operators with medium and long-term rental contracts. It also performs, albeit not predominantly, service activities mainly for Group companies and real estate redevelopment, as well as development activities, including through subsidiaries. The Company is a public limited company incorporated and domiciled in Italy, with registered office in Rome, Via Piemonte n. 38 and a secondary office in Milan, via Carlo Ottavio Cornaggia n. 10 and is listed on the Italian Stock Exchange and on the Euronext market in Paris. As of 2011, the Company has adhered to the special regime of listed real estate investment companies - SIIQ and holds: i) 100% of B.S. Immobiliare 9 S.p.A. SIINQ which joined the special regime of Non-listed Real Estate Investment Companies - SIINQ (from its Italian initials) in 2013 and ii) 100% of the share capital of Beni Stabili Development S.p.A. SIINQ, which joined the regime of Non-Listed Real Estate Investment Companies SIINQ (for its acronym in Italian) as of 1 January 2018; iii) 51% of Central SICAF S.p.A. which benefits from the special regime reserved for SICAFs. 2 DRAFTING CRITERIA AND ACCOUNTING PRINCIPLES 2.1 Drafting criteria This Accounting Prospectus (hereinafter also referred to as the Financial Statements ) has been prepared in accordance with IAS 34 Interim Financial Statements. Cost represents the general criterion adopted for all assets and liabilities, except for investment properties, properties held for sale, properties under development and certain financial assets and liabilities for which the fair value was recognised to the Income Statement and/or in Equity. The drafting criteria followed to prepare the Financial Statements comply with those used to prepare the Financial Statements as at 31 December 2017 (to which reference is made for details on the criteria used), except for the adoption of the new standards and amendments in force as of 1 January In fact, the Company, for the first time, has applied IFRS 15 Revenues from Contracts with Customers and IFRS 9 Financial Instruments, which require the restatement of previous Financial Statements. Please refer to the Notes to the Half-Year Financial Report as at 30 June 2018 of the Beni Stabili Group as regards the effects of the application of said new standards, given that the conclusions stated therein also apply to the individual company Beni Stabili S.p.A. SIIQ. It should be noted that, following the completion of the merger by incorporation of the Company into Covivio, described in detail in the Directors Report, it is expected that the latter shall have a permanent establishment 26

29 in Italy, to which all assets and liabilities currently owned by Beni Stabili shall be assigned, including the latter s holdings in the capital of the subsidiaries and of Central SICAF S.p.A. The permanent establishment, which will benefit from the special regime provided for by the SIIQ regulations for the branches that are mainly engaged in the real estate leasing business, shall continue, without interruption and using the staff currently employed by Beni Stabili, to carry out the same activities performed by the latter as at the date of effect of the Merger. The recognition of deferred taes as at 31 October 2018 considers the tax rules applicable to Beni Stabili S.p.A. SIIQ as at that date, given that the effects of the change of tax regime that may result from the modified corporate structure resulting from the Merger shall be reported in the period in which said Merger shall become effective, according to the accounting and tax rules that will apply as a result thereof. The drafting of these financial statements requires the use of estimates and assumptions that are reflected in the value of assets and liabilities. The estimates and assumptions made and the most significant accounting principles are indicated in Note 4. The classification adopted for the statement of financial position divides assets and liabilities between "current" and "non-current", while that adopted for the statement of profit / (loss) for the period classifies costs and revenues by their nature. In fact, it is considered that the above classifications, compared to that for the degree of liquidity with reference to the statement of financial position and by allocation in relation to the Profit / (loss) for the period, allow a better representation of the financial position, results of operations and cash flows of the Company. The statement of cash flows adopted shows a separate disclosure of cash flows generated by operations, from those generated by investment activities and financial assets. Note that, as permitted under paragraph 18(b) of IAS 7 "Statement of Cash Flows", the Statement of Cash Flows is prepared according to the "indirect method. The financial statements and the notes to the financial statements include, where applicable, also the additional disclosures envisaged in relation to financial statements and disclosures by Consob Resolution no of 27 July 2006 and the Consob Notice no of 28 July,2006. All figures shown in these Financial Statements are expressed, unless otherwise stated, in thousands of Euro. The Statement of financial position, the Profit and Loss Account, the Statement of Comprehensive Income, the Statement of Changes in Shareholders' Equity and the Statement of Cash Flows are instead expressed in units of Euro. 2.2 Functional and presentation currency The financial statements are presented in Euro units, while the relevant notes are prepared in thousands of Euro. Indeed, the Euro represents the functional and presentation currency of the Company. 27

30 3. FINANCIAL RISK MANAGEMENT 3.1 Financial risk factors The activities carried out by the Company expose it to a series of financial risks: market risks, credit risks and liquidity risks. The Company's operating and financial policies are aimed, among other things, at minimising the negative impact of these risks on the Company's financial performance. As a hedge against exposure to certain risks, the Company uses derivative financial instruments. (a) Market risks (i) Property value risk The Company uses the fair value criterion in the valuation subsequent to the purchase of investment properties and properties under development. The valuation at fair value process is entrusted to independent experts, with changes therein reported in the income statement. The estimate of the fair value involves the application of the expert selection process and valuation models described in paragraph 4.1, which imply a forecast estimate of costs and revenues associated with each vesting and the formulation of assumptions that depend on building occupancy rate forecasts, the performance of the real estate and financial markets, as well as the general economic conditions that affect rent levels and the reliability of tenants. The above estimates and assumptions, in consideration of the uncertainty connected to the occurrence of any future event, both with regards to the materialisation of the event itself, and with regard to the extent and timing of its manifestation, are able to determine changes, even significant in the short term, of the conclusions of the experts and therefore of the results of the financial statements, albeit in constant evaluation models. The fluctuations of the real estate market, therefore, can also significantly affect the Company's economic results. A part of the Group's economic results is also generated, albeit marginally, by the sale and purchase of properties, which is also significantly influenced by the trend in real estate values and the volume of possible transactions over time. The property market is affected by the cyclical nature of rents and property prices; the duration of cycles is variable, but is generally long-term. The different national markets are characterised by different cyclical trends and often not in sync with each other, depending on the specific economic situations and the sector. Within each national market, moreover, price trends track the cycle in differing ways and with different degrees of intensity, depending on the location and features of the properties. The macroeconomic factors that have most influence on property values and therefore determine the various cyclical trends are the following: - interest rate trend; - liquidity on the market and presence of alternative profitable investments; - economic growth. 28

31 Low interest rates, high market liquidity and a lack of profitable alternative investments generally accompany an increase in property values. Economic growth, especially in the office sector in which the Company mainly operates, has a positive effect on the demand for leased space and on the level of rents and, consequently, has a positive effect on the price of the properties. It is necessary to observe, however, that in the medium term, economic growth normally generates an increase in inflation and therefore in interest rates, also favouring the identification of profitable investment alternatives; factors that contribute to reducing the price listings of properties. The Company's investment policy is aimed at minimising the effects of the various phases of the cycle, selecting investments, also through subsidiaries or jointly controlled companies: with long-term contracts entered into with high-standing tenants, which mitigate the effects of a reduction in market rents and the consequent reduction in property prices; mainly located in the centres of the main Italian cities (in particular Rome and Milan) characterised by a structural lack of supply of good quality offices; with a low vacancy rate, in order to avoid the risk of re-renting during periods of limited demand for lease space. (ii) Interest rate risk Loans signed by the Company are mainly settled at a variable rate increased by a spread. The Company's economic results are therefore significantly influenced by the trend in interest rates. Beni Stabili S.p.A. SIIQ's policy is to minimise the risk linked to interest rates as much as possible, so as to remain substantially exposed only to risks associated with real estate activities. In any case, it must be noted that the Company does not carry out purely speculative transactions or transactions that are not directly linked to its debt exposure. Beni Stabili S.p.A. SIIQ manages the risk related to interest rates using derivative contracts: swaps and cap. Interest rate swaps have the effect of converting the floating rate into a fixed rate for a period or for the entire duration of the loan, for a portion or for all the amount financed. Cap contracts have the effect of fixing a maximum ceiling to the fluctuations of the interest rates of the various loans, for a period or for the entire duration of the same. The Company constantly monitors the interest rate risk, through the quarterly drawing up of tests to assess the effectiveness of derivative hedging instruments, combining them with the drafting of a summary document. Considering fixed rate loans and hedging transactions in place on floating rate loans, the Company's nominal long, medium and short term financial exposure is settled at a fixed rate for 95.21% (95.44% as at 31 December 2017). The table below shows the effects on nominal flows of interest, net of the corresponding effects on the relevant hedges, connected to financial liabilities outstanding as at 31 October 2018 and referred to the next 29

32 12 months, as resulting from a sensitivity analysis, conducted assuming a possible change in interest rates, of more or less 50 basis points, compared to those recorded at 31 October bp - 50 bp 31 October 2018 Change in nominal interest on loans (1,326) 1,326 Change in spreads connected to derivatives 950 (950) Tax effect related to the aforementioned changes - - Total net income effect (376) bp - 50 bp 31 October 2017 Change in nominal interest on loans (1,057) 1,057 Change in spreads connected to derivatives - - Tax effect related to the aforementioned changes - - Total net income effect (1,057) 1,057 The table below summarises the overall effects that would have been produced on the fair values of existing derivative financial instruments, if the interest rates as at 31 October 2018 were higher or lower than the effective rates of 50 basis points. The same table also shows the share of these effects, net of the related tax burden, which would have been charged directly to equity. 31 October bp - 50 bp + 50 bp - 50 bp Derivatives - assets and liabilities 9,936 (10,118) 9,936 (10,118) Total 9,936 (10,118) 9,936 (10,118) Change in fair value Effect in equity of fair value changes 31 October bp - 50 bp + 50 bp - 50 bp Derivatives - assets and liabilities 9,844 (21,396) 9,844 (21,396) Total 9,844 (21,396) 9,844 (21,396) (iii) Foreign exchange risk As at 31 October 2018, the Company operates exclusively in the Euro area and is therefore not exposed to exchange rate risk. (b) Concentration risks of rental income on a limited number of tenants 43.4% of the Company's annual rental income is concentrated on the first four tenants. The Company constantly monitors the creditworthiness of the main tenants. However, a prolonged period of economic recession could result in a substantial breach of the lease agreement by one or more of the latter, or by other tenants, or a deterioration in their creditworthiness or their ability to fulfil their lease obligations. This could have a negative effect on the Company's financial conditions and operating results. 30

33 (c) Credit risk A table summarising the company's maximum exposure to credit risk is presented below. Description Balance as at Balance as at Trade and other receivables (current and non-current) 49,075 51,792 Receivables from subsidiaries and associates (current and non-current) 7, ,422 Derivative assets Cash and cash equivalent (net of cash on hand) 16, ,634 Total 74, ,815 The financial assets listed above are all related to relations held at national level. The balance sheet values of these financial assets coincide with their fair values. With reference to trade receivables and other receivables, both current and non-current, information is provided below which shows the gross amount, the portion overdue, the relative write-downs and the portion not expired, with indication of the due date within or beyond twelve months. Description Gross receivables as at Gross receivables past due Depreciations of receivables past due Receivables not yet due Receivables due within 12 months beyond 12 months Customers for property sales and investment disposals 1,607 1,607 (1,607) Receivables from tenants 43,094 26,390 (19,897) 16,704 6,512 10,192 Customers for services provided Receivable from the Municipality of Rome 8,887 8,887 (2,222) Guarantee deposits (17) Tax receivables 14, (18) 14,229 3,538 10,691 Other receivables (including accrued income and prepaid expense) 5, (867) 4,668 4,668 - Total 73,703 37,915 (24,628) 35,788 14,849 20,939 Below is a table showing the breakdown of gross receivables due by maturity bands. Description Gross outstanding receivables as at less than 6 months Past due from 6 months to a year by more than a year Total Customers for property sales and investment disposals 1, ,607 1,607 Receivables from tenants 26,390 8, ,525 26,390 Receivables from the Municipality of Rome 8, ,887 8,887 Guarantee deposits Tax receivables Other receivables Total 37,915 8, ,050 37,915 31

34 The recovery prospects of any amounts owed are assessed on a case by case basis, taking into account recovery practices. All receivables on which a loss is probable as at the balance sheet date are written down. With reference to changes in the provision for doubtful debts, please refer to sections and below. As shown in the tables above, receivables as at 31 October 2018 (gross) mainly include: - "Receivables from tenants", "customers from services" and "various receivables": these categories of receivables are constantly monitored. In particular, with reference to receivables due from tenants, the Company believes that it is not subject to significant credit risks, as tenants are selected on the basis of their creditworthiness and the economic prospects linked to their activity. The economic and financial situation of the main tenants is also constantly monitored. Investments in properties rented to tenants, whose creditworthiness may be subject to risks or high variability, are only carried out if the quality of the properties offers adequate guarantees of being able to lease the property again to third parties in a short time, in the event of a tenant's insolvency. Furthermore, as at 31 October 2018, the Company holds guarantees, consisting of bank guarantees and guarantee deposits, which cover more than one quarter of the total annual instalments on that date. It must be noted that gross receivables from tenants expired as of 31 October 2018 include an amount totalling 10,024 thousand of Euro, relating to the position with the former tenant of the "Darsena City" shopping centre in Ferrara, whose recoverability was assessed when calculating the provision for doubtful accounts. - "Receivables from the sale of properties and investments": refers to other receivables in respect of which reference is made to the following section "Receivables from the Municipality of Rome": these are positions that were the subject of legal proceedings that were completed in previous years, with the recognition in favour of Beni Stabili S.p.A. SIIQ of the gross balances recorded in the balance sheet. Appropriate actions are in place for the collection of the above mentioned receivables. - "Tax receivables": relating mainly to: i) payments made pending rulings (plus interest accrued), relating to existing tax disputes; ii) VAT and IRES receivables requested as reimbursements in previous years and inclusive of interest income accrued at 31 October 2018 (shown in the table above as non-expired receivables); iii) VAT, IRES and IRAP credits, arising during the financial year, to be used for offsetting in the coming months. With reference to bank deposits and assets for derivative instruments, it must be noted that the Company operates on a continuous and lasting basis with counterparties of primary standing, with an acceptable credit rating, thereby limiting the relevant credit risk. 32

35 (d) Liquidity risk Borrowings used to finance the purchase of investment properties are structured on the basis of cash flows generated by the lease contracts, taking account of the operating costs to be borne by the owner under the terms of the contract. The Company's objective is not to expand the use of financial leverage, at Group level, over 60% of the consolidated real estate portfolio. Liquidity risk is thus considered to be low. The tables below show the breakdown by maturity of the nominal value - including interest accrued - of financial liabilities other than hedging instruments. Balance as at 31 October 2018 from 1 to 2 Book value Valore nominale minal amount years from 2 to 5 years more than 5 years Borrowings other than hedging instruments (current and non-current portions) Short-term loans and other financial debts 60,011 60,011 60, Mortgage loans 376, ,805 4,373 3,742 13, ,488 Other bank loans (committed lines) 49,000 49, ,000 - Bonds 724, ,720 6, , ,000 Convertible bonds 191, , ,000 - Total 1,400,824 1,422,978 71,546 3, , ,488 Balance as at 31 December 2017 from 1 to 2 Book value Nominal amount within 1 year years from 2 to 5 years more than 5 years Borrowings other than hedging instruments (current and non-current portions) Short-term loans and other financial debts Mortgage loans 332, ,545 2,793 2,757 8, ,507 Other bank loans (committed lines) Bonds 1,042,622 1,048, , , , ,000 Convertible bonds 188, , ,000 - Total 1,563,812 1,585, , , , ,507 The tables below report the breakdown of the fair value of financial assets and liabilities for derivatives by the periods when the hedged cash flows are expected to affect the Profit and Loss Account. Valore equo (*) Within 1 year from 1 to 2 yearsi from 2 to 5 years More than 5 years Derivatives - Liabilities IRS 1,391 4,976 2,113 1,537 1,955 2,052 1,330 2,719 (4,007) (1,332) Total 1,391 4,976 2,113 1,537 1,955 2,052 1,330 2,719 (4,007) (1,332) (*) Since this concerns the time-scale of expected cash flows, the fair value presented here does not include the positive effect (+ 326 thousand of Euro as at 31 October 2018 and + 14 thousand of Euro as at 31 December 2017) deriving from the inclusion in the valuation of the variable "credit rating" as required by IFRS 13. Fair value (*) Within 1 year from 1 to 2 years from 2 to 5 years More than 5 years Derivatives - Assets IRS (644) - (1,037) - (669) - 2,821 Swaption Cap Total 967 1,137 9 (643) 33 (1,009) 435 (407) 490 3,196 (*) Since this concerns the time-scale of expected cash flows,, the fair value presented here does not include the negative effect (- 85 thousand of Euro as at 31 October 2018 and thousand of Euro as at 31 December 2017) deriving from the inclusion in the valuation of the variable "credit rating" as required by IFRS

36 Instead, a table is presented below that shows the breakdown by maturity of non-discounted cash flows of derivative instruments as at 31 October Balance at (*) Total undiscounte d cash flows within 1 year from 1 year up to 2 years from 3 years up to 5 years after 5 years Assets and Liabilities from financial derivatives IRS + CAP 34,099 2,836 3,701 13,752 13,810 Total 34,099 2,836 3,701 13,752 13,810 (*) Does not include the positive effect of "creditworthiness. As at 31 October 2018, the average financial maturity of borrowings, other than hedging instruments, is equal to 6.42 years (3.94 years as at 31 December 2017), while as at 31 October 2018 the average financial maturity of interest rate hedges is equal to 6.13 years (4.40 years as at 31 December 2017). As at 31 October 2018, there are 85,000 thousand of Euro of short-term hot-money lines used, amounting to 60,000 thousand of Euro. In addition, a total commitment amounting to 240,000 thousand of Euro of medium-term committed credit lines used as at 31 October 2018 for 49,000 thousand of Euro. All of the medium-term committed credit lines as at 31 October 2018 have a residual average life of months (19.41 months at the end of 2017). The average cost of the short-term debt as at 31 October 2018 was equal to 0.09% (0.40% for 2017) (e) Risks related to disputes As at the date of these Financial Statements, the Company is involved in certain legal and tax disputes resulting from the ordinary scope of its business. The Company monitors the development of said proceedings with the support of external consultants and, when necessary, has recognised provisions for risks and charges, in view of the circumstances and following a prudent analysis of each dispute and the associated risk. However, the risk assessment is subjective and necessarily involves estimates of the potential liabilities. There is no guarantee that the end result of these disputes shall not have a negative impact on the Company s financial conditions and operating results and there can be no guarantee that further, currently unknown disputes shall not be launched in the future. 34

37 4. VALUATIONS, ESTIMATES AND SIGNIFICANT ACCOUNTING PRINCIPLES 4.1 Valuation of the real estate portfolio The Company values properties on a semi-annual basis, on 30 June and 31 December, with the support of independent experts with recognised professionalism and integrity. For the preparation of this Report, a specific valuation was conducted as at 31 October The assignments for the property valuations, in fact, are only conferred to experts who commit to operate independently, with integrity and objectivity. Subject to compliance with such requirement, the selection of the experts is made by weighing the offers for services received also in terms of cost-effectiveness. In October 2018, in particular, Jones Lang LaSalle S.p.A. (hereinafter also referred to as JLL ) and CBRE VALUATION S.p.A. were entrusted with the valuation. Please refer to the Notes to the Financial Statements as at 1 December 2017 for a description of the valuation criteria used. 4.2 Valuation of derivative financial instruments Derivative financial instruments are valued (with the clarifications indicated in the following paragraphs) using the present value method of cash flows (Discounted Cash Flow). According to this method, the fair value of a derivative is calculated by determining the expected cash flows and then discounting them. This measurement is carried out on a quarterly basis. The valuation methods are in compliance with the provisions of IFRS 13 "Fair value measurement. The valuation of derivative financial instruments was updated as at 31 October Derivative financial instruments on interest rates Expected variable flows relating to derivative financial instruments on interest rates without optional components are determined on the basis of the Euribor forward curve. In order to determine the fair value, the above mentioned expected flows are discounted at the spot rates implicit in the Euribor curve, built using Euribor fixing and swap listings on the valuation date. As regards interest rate derivatives with optionals, the fair value is instead determined using the Black standard market model, or by adapting the Black-Scholes model to the interest rates. The Euribor curve used to calculate the forward rates to be included in the model is similar to that used for derivatives without optional components. Volatilities that are used are, however, are the implied volatilities listed at the time of the valuation. 35

38 4.2.2 Conversion options relating to convertible bonds The measurement model used is the one developed by Tsiveriotis and Fernandes (Tsiveriotis - Fernandes - Valuing convertible bonds with credit risk - The Journal of fixed income -1998) which is mainly based on the Black-Scholes model for what concerns the share component and introduces the credit risk in the measurement of the bond component. The input parameters of the model are calibrated so as to align the valuation of the convertible bond at market prices at the measurement date. 36

39 5 INFORMATION ON REAL ESTATE ASSETS AND ON THE COMPANY'S DEBT EXPOSURE 5.1 Information on real estate assets as at 31 October 2018 The following table shows the real estate asset data as at 31 October 2018, with the relevant accounting criteria, compared with the market values at that date. Description Book value at Accounting criteria Market value at Date last appraisal Investment properties 2,190,830 2,190,830 IAS 40 - (fair value) Offices 1,913,000 1,913, Retail 277, ,830 Assets held for sales 6,940 6,940 IFRS5 - (fair value) Offices 6,940 6, Retail - - Properties under development 187, ,700 IAS 40 - Fair value Areas under development Offices subject to development/redevelopment 187, ,700 Trading properties 19,737 19,857 Offices 18,390 IAS 2 - Lower between purchase cost and net realisable value 18, Other 1,347 1,467 Operating properties 8,762 IAS 16 - Purchase cost net of any amortization or impairment 13, Total Real Estate portfolio 2,413,969 2,418,587 The book value of the real estate portfolio at 31 October 2018 amounted to 2,413,969 thousand of Euro, against a market value as at 31 October 2018 of 2,418,587 thousand of Euro. The following table shows the reconciliation between the market value resulting from independent expert appraisals and the market value of the real estate portfolio. Specifically, compared with the values of the real estate portfolio resulting from the appraisals, the accounting data values the Shopping Centre in Ferrara at just 50%, given that it is jointly owned by the IGD Group and considers the value of the properties subject to preliminary sale, which were excluded from the valuations entrusted to the independent experts. Market value at Market value at Jones Lange LaSalle S.p.A. 290, ,665 CBRE Valuation S.p.A. (Yard Valtech S.r.l. for the 2017 financial year) 2,133,817 1,991,208 Total from appraisals by independent experts 2,424,647 2,292,873 Adjustment of the appraisal value of the shopping centre located in Ferrara owned at 50% with third parties (13,000) (15,115) Total from appraisals by independent experts pertaining to the Company 2,411,647 2,277,758 Properties not appraised because subject to preliminary sales agreements 6,940 12,519 Total real estate portfolio at market values 2,418,587 2,290,277 37

40 Changes in the real estate portfolio for the period January-October 2018 are shown in the following table: Real estate portfolio as at ,290,277 Capex 42,442 Purchases 105,798 Sales (13,189) Net revaluations /(write-downs) (6,741) Real estate portfolio as at ,418, Information on the main development projects as at 31 October 2018 The current development projects are as follows: Turin, C.so Ferrucci. The project refers to the redevelopment of an existing building complex with a surface area (Gross Lettable Area) of approximately 46,000 square metres, of which 36,000 square metres are intended primarily for offices and partly for commercial activities. The building, built in 1982 as Fiat's headquarters, was in a good state of preservation: architectural composition, structures and systems were in fact built according to the best quality standards of the time. However, the management complex has required adjustment work to make it easier and cheaper to market it. Therefore, a technical solution was designed to allow the renting of the areas to multiple tenants and to improve the whole air-conditioning system. The works, begun in April 2016 and aimed at the complete reconstruction of the common areas of access to the building, the external layout, the entire ground floor and the sixth floor, have been completed in December In addition, the first areas rented on the ground floor, first floor and basement, were handed over to the tenants in the months of August and December During the first ten months of 2018 other areas from the ground floor to the sixth floor were handed over to the tenants. The restructuring of the remaining areas of the building, which will be the subject of successive blocks of activities, refers to system engineering works and internal finishing works. The timing for the implementation of the above activities will also be planned in line with the trend in the marketing of the spaces, which will be fully occupied by Rental activities as at 31 October 2018 led to the signing of 3 new lease agreements for an area of approximately 3,300 square metres, increasing the financial occupancy of the asset including pre-let to 44%. Milan, Via Principe Amedeo. The property was purchased in March The development strategy involves the complete renovation of the interior spaces, the façade and the construction of a new attic floor resulting from the recovery of the attic. The works, began in April 2017, will be performed according to the highest quality standards and it is expected to be completed by March In February 2018, a lease agreement was signed for a surface area measuring approximately 4,000 m 2 and a financial occupancy of 57%. Milan, via Dante 7. This is a prestigious, historic building built at the end of the 19th century, located in the city centre, between P.zza Cordusio and P.zza Castello. The building is occupied by commercial activities on the ground floor and first floor, which shall remain in operation for the entire duration of the 38

41 works, in addition to premises for office use from the second floor to the sixth floor, subject to full renovation. The building's energy redevelopment will, for a portion of offices with a current surface area of approximately 4,000 m 2, increase the volume by approximately 700 m 2, thus increasing the surface area to 4,700 m 2, with the expected cost of this initiative amounting to 9 million of Euro. The project mainly consists of the full reorganisation of the lift system, with panoramic lifts, the renovation of the courtyard with glazed floor to enhance a large room on the lower ground floor, the expansion of the sixth floor to construct a conference centre connected to a large covered terrace for events, with a panoramic view. The property is expected to be handed over in December It should be noted that, during 2018, the development initiatives for the properties in Milan, Piazza Monte Titano ad via Colonna were completed and handed over. Please refer to the following section 7 in which a table is presented summarising expenditure forecasts for the completion of each initiative, with the distinction between what has been achieved and the commitment to future expenditure. Reference must also be made to the following section for the analysis of changes of the accounting balance relating to properties undergoing upgrading / development Information on investment properties INVESTMENT PROPERTIES M ARKET VALUE CARRYING AM OUNT CURRENT TOP-UP ANNUAL RENTAL FEE % OF GROSS M EDIUM YIELD (calculated on market value) GROSS LEASED SQ.M GROSS LEA SA B LE SQ.M. PHY SICAL OCCUPANC Y RATE 2,190,830 2,190, , % 553, , % As shown in the table above, the properties intended for leasing have a total average annual yield of 5.1% for annual lease payments (calculated on the basis of current rental contracts - top-up) of 110,939 thousand of Euro. Below is information on the concentration level of tenant fees based on standard rental fees: 39

42 TENANTS CURRENT ANNUAL RENTAL % REVENUES Others % Intesa San paolo % Tecnimont % Public administration % Auchan % Coin Group (Attraverso BS Comm. 2 e BS Comm. 1) % Amundi % ITEDI % AVIVA % TOTAL RENTAL REVENUES % Coin Group (Attraverso BS Comm. 2 e BS Comm. 1) Auchan Amundi ITEDI AVIVA Others Public administration Tecnimont Intesa San paolo 5.4 Information on the Company's medium / long-term debt situation Below is a summary table of the main information relating to the medium / long-term debt exposure of Beni Stabili S.p.A.SIIQ (data in thousands of Euro). 40