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Beni Stabili, Telecom Italia and Lehman Brothers: new real estate company launched

11/23/2000 - 12:00 PM

Beni Stabili, Telecom Italia and Lehman Brothers announce that they have formed a partnership with the aim of managing and enhancing the value of part of Telecom Italia´s real estate assets.

Under the agreement Telecom Italia has sold to Beni Stabili and Lehman Brothers 60% of IM.SER, the company (the "Company")which has recently acquired a Telecom Italia business unit that includes some of the latter´s most valuable real estate properties, the related assets and liabilities and personnel (88 units). IM.SER was valued at 2.9 billion euros (5,615 billion lire) by the three shareholders. The Company will boast an efficient financial structure, with a recourse to debt equal to 80% of invested capital while equity will account for the remaining 20%. Telecom Italia will maintain 40% of IM.SER´s equity, while Beni Stabili and Lehman Brothers will hold respectively 45% and 15%.

Thanks to the transaction Telecom Italia will be able to reduce its indebtedness by approximately 2.69 billion euros (5,200 billion lire). At the same time, by maintaining a participation in the company, Telecom Italia will be able to benefit from the positive effects resulting from the future development of the real estate market. Telecom Italia S.p.A. will realize through this transaction an after tax capital gain on the order of 387 million euros (750 billion lire).

Beni Stabili will act as strategic and industrial partner in the new Company and, thanks to the contribution of its qualified partners, will operate to maximize shareholder value through a professional and dedicated management in the real estate sector. Through the operation Beni Stabili will acquire a high quality real estate portfolio which will permit it to realize significant growth both in terms of assets and income. In addition, considering the structure of the operation and the associated leasing contracts, Beni Stabili expects to finance its own immediate contribution to the operation (circa 258 million euros or 500 billion lire) by using its existing liquidity, expected near-term cash flows and a recourse to increased indebtedness (for not more than 50% of the contribution); at present no capital increase is foreseen.

It is foreseen, in addition, the distribution of excess capital of IM.SER to its shareholders on a pro-quota basis which is not necessary to implement the business plan of the Company. The capital to be distributed will be equal to the corresponding portion of the share premium reserve created upon the conferral of the assets into the Company by Telecom Italia and will be financed by the aforementioned indebtedness relating to invested capital.

Lehman Brothers will participate in the company as financial investor, contributing its own considerable knowledge of the international real estate markets, as well as its financial know-how. In addition, through the acquisition Lehman Brothers will continue its investment program in the European real estate sector.

The new company´s real estate portfolio consists of 581 properties, totalling 3.7 million square metres, divided into:
· 386 properties, totalling approximately 2.4 million square metres, located throughout Italy, mainly in Lombardia (20%), Lazio (14%) and Piemonte (11%). All the properties, among which are also buildings that contain telecommunications equipment, will be rented to Telecom Italia with a long term lease (21 years) at the best market conditions;
· 195 properties, totalling approximately 1.3 million square metres, located throughout Italy, mainly in Lazio (19%), Lombardia (16%), Campania (8%) and Piemonte (8%). Of these properties the majority will be rented to Telecom Italia utilizing standard contracts at the best market conditions; 48 properties are currently not rented.

The partners have also agreed upon significant developments in the structure of IM.SER. In particular, those properties "not rented or characterized by standard rental contracts" are expected to be conferred to a separate company. Considering their particular nature, the shareholders´ common objective is to enhance the value of such investment properties within 5 years.

On the other hand, Lehman Brothers will be able to sell and/or Beni Stabili will be able to buy Lehman Brother´s participation in the company which owns those properties held as an "investment", that is to say the properties rented to Telecom Italia with a long lease contract (21 years), through a mechanism of sale and acquisition options. Finally, the aforementioned company is expected to be wholly consolidated into Beni Stabili within 2 years through mergers or through a capital increase reserved for Telecom Italia; this latter transaction will be completely subordinated to an explicit request on the part of Telecom Italia and subject to the approval of a shareholders´ meeting of Beni Stabili.

The transaction represents the second largest real estate operation ever carried out in Europe and the third worldwide, and will allow Beni Stabili, one of the principal real estate listed companies in Italy, to become a major European operator.

The operation is subject to the approval of the Italian Antitrust Authority as well as the perfection of the financial structure, for which negotiations with a consortium of banks are at an advanced stage.

During the transaction, Telecom Italia used Schroder Salomon Smith Barney as financial advisor and was assisted by JP Morgan, while Beni Stabili was assisted by Lehman Brothers.