According to a statement from Pirelli & C Real Estate SpA, it has acquired a 75% stake in Pekao Development (previously a 100% subsidiary of Bank Pekao) for EUR 20m (PLN 75.9m). The acquisition (that is now subject to approval by the Polish competition authorities) is expected to close by the end of March. The sale is expected to provide a capital gain but we do not expect a significant trading impact from the announcement.
Pekao Development had a net profit of PLN 7.64m and equity of PLN 54.9m in 2004. The company is among the main real estate operators active on the Polish market, employing about 40 people. Pekao Development manages a 120,000 square metre residential development in Warsaw.
It has been speculated that the developer was for sale for the past 1.5 years and Orco has been previously mentioned among the possible bidders. The sale would therefore appear to fulfill a strategic objective and provide a modest capital gain. However, we take a positive view of the property development sector and do not view the valuation of the company, at a historical price to book of 1.85x, as particularly favourable for the bank.