Nexity: 9M 2017 business activity and revenue

Residential real estate

In the first half of 2017, the French retail market for new homes held steady at a high level (more than 62,000 units^[5], down just 0.5% compared with the first half of 2016), still supported by very low interest rates as well as an overall improvement in economic conditions.

Despite a lingering wait-and-see attitude due to political and regulatory uncertainties, the market remained buoyant. It is for these reasons that Nexity now anticipates slight growth in the French housing market in 2017, to 130,000 reservations (compared with holding firm at 127,000 units as previously estimated), with a probable acceleration in areas that will soon no longer benefit from stimulus measures.

After bottoming out in November 2016 (at an average of 1.31%), mortgage rates have been stable since June 2017, at 1.56% on average in September 2017.^[6]

New homes

At end-September 2017, net new home reservations in France totalled 12,615 units, up 18% by volume and 23% by value on the same period in 2016. Expected revenue from reservations rose more sharply than reservation volumes, particularly as a result of an increase in average prices (for both retail sales - see table below - and bulk sales), together with a better geographic and product mix for bulk sales.

With respect to their geographic distribution, 88% of the reservations recorded over the first nine months of 2017 were located in supply-constrained areas (the A, A bis and B1 zones under the current Pinel scheme). Reservations were strong in both the Paris region (up 20%) and the rest of France (up 17%).

Excluding external growth transactions, a total of 11,165 units were reserved in the first nine months of 2017, up 7% compared with the same period a year earlier. Expected revenue from reservations came to €2,134 million including VAT, an increase of 11% compared with the first nine months of 2016.

In the third quarter of 2017, net new home reservations in France were up 33% by volume and 37% by value year-on-year (26% by volume and value on a like-for-like basis). This acceleration reflects a corrective bounce following the slowdown in reservations noted in the second quarter, against the backdrop of elections in France, postponed bulk sales and sustained underlying demand.

Steady progress continued to be made on integrating the businesses acquired through external growth transactions in 2016. Edouard Denis is expected to book at least 2,000 reservations in 2017 (as against some 1,450 units in 2016). Nexity has increased its market share growth target to at least 1 percentage point relative to 2016 (i.e. to more than 13.5% market share).

Reservations by first-time buyers held steady in the first nine months of 2017 compared with the year-earlier period (up 1%) and 59% of these buyers were granted PTZ interest-free loans (including 97% in supply-constrained areas).

Reservations by individual investors rose in the first nine months of 2017 (up 6% compared with the year-earlier period) with 56% of these reservations qualifying for the Pinel scheme (including 93% in supply-constrained areas).

Reservations by professional landlords were up 15% compared with the first nine months of 2016 and accounted for 31% of all new business (versus 29% at end-September 2016), with a decrease in the share of reservations made by social housing operators (78% at end-September 2017, compared with 84% at end-September 2016) and an increase in the share of reservations for intermediate housing (14% at end-September 2017, versus 8% at end-September 2016).

The average price including VAT of new homes reserved by Nexity's individual clients in the first nine months of 2017 was up 3% compared with the same period in 2016, reflecting among other factors a slight increase in the average price per square metre.

On a like-for-like basis, the average level of pre-sales booked at the start of construction work came to 79% in the first nine months of 2017 (versus 72% in the year-earlier period), an exceptionally high level.

Nexity launched a total of 15,839 units in the first nine months of 2017 (48% more than in the first nine months of 2016). Unsold completed stock (148 units) as a proportion of the total supply for sale (8,561 units) remained very low.
At end-September 2017, the business potential for new homes^[7]  was up 22% from end-September 2016 and came to 44,332 units, the equivalent of 2.5 years of development operations (on a like-for-like basis, 37,513 units, equating to 2.4 years' business).
Subdivisions

Subdivision reservations totalled 1,681 units, 13% higher than in the first nine months of 2016, matching the momentum of the single-family home market. Of this total, 22% were in supply-constrained areas, and it should be noted that the business activity in the remaining areas may be affected by changes in the French government's housing policy. The average price of net reservations made by individuals rose 3% to €77k, accompanied by increases in average subdivision size (up 1%) and the average price per square metre (up 2%). 
                          
International

Nexity recorded 212 international new home reservations in the first nine months of 2017, mainly in Poland (37% lower than in the year-earlier period, which also includes reservations in Italy).

Commercial real estate^[8]

At end-September 2017, commercial real estate investments in the French market amounted to €12.7 billion, down 21% relative to end-September 2016. Office assets accounted for 75% of these investments, with prime yields still at record lows. Investment volumes are expected to remain at a high level in 2017 as a whole.

Take-up of office space in the Paris region increased slightly, with nearly 1,800,000 sq.m marketed in the first nine months of 2017, up 2% year-on-year. Prime headline rents were very slightly higher than the previous quarter.

Nexity booked orders totalling €143 million at end-September 2017 (including €66 million in the third quarter of 2017), 60% of which were for properties in the Paris region, with the remainder in the rest of France.

Nexity entered into an agreement with Unofi Gestion d'Actifs, acting on behalf of SCPI Notapierre, for the off-plan sale of the Pegase office building in the Bordeaux suburb of Le Haillan. The three-storey property, with a total floor area of 6,700 sq.m, is scheduled for delivery in the second quarter of 2018 and is to be certified to both Passeport HQE and BREEAM Excellent. It will house the offices of the authorities for the western division of Bordeaux Métropole. This project, which results from the takeover of Thalium Promotion's land portfolio, strengthens Nexity's geographic presence in a new region, following a number of orders for wood-frame office complexes in the city of Lille and its environs.

Satisfactory progress was made on projects currently in the set-up phase, which are expected to be marketed in coming quarters.

Services

In Real estate services to individuals, the portfolio of units under management totalled 885,000 units at 30 September 2017, representing a slight decrease over the period (down 0.8% on a like-for-like basis^[9]) and an improvement compared with the first nine months of 2016 (down 2.4%). The brokerage business continued to grow, with the number of provisional sale agreements signed up 3% relative to end-September 2016. The proportion of exclusive agency contracts is very satisfactory, rising to 58% at 30 September 2017 (from 54% a year earlier), reflecting success at building client loyalty. Nexity Studéa, which specialises in managing student residences, saw its occupancy rate increase to 89.9% in the first nine months of 2017, compared with 87.6% in the year-earlier period.

In Franchise operations, Century 21 and Guy Hoquet l'Immobilier signed 9% more provisional sale agreements in the first nine months of 2017 than during the same period the previous year, in a French market for existing properties having reached an all-time high.^[10] There were 1,270 franchised agencies at end-September 2017, up from 1,217 at end-December 2016.

In Real estate services to companies, total floor area under management came to 11.6 million sq.m at end-September 2017, down 6% from end-December 2016, following the end of a management contract for more than 530,000 sq.m. New management contracts are currently being negotiated and are expected to be finalised in the coming quarters.

Urban regeneration (Villes & Projets)

During the third quarter of 2017, Nexity added to its portfolio a new major development programme in the vicinity of the future Bry-Villiers-Champigny station on the southern section of the new Line 15, part of the Grand Paris project. This mixed-use development will comprise 140,000 sq.m of space, divided between residential units and business premises. At end-September 2017, Nexity's urban regeneration business (Villes & Projets) had a land development potential of 641,000 sq.m^[11].

Digital and Innovation

Nexity continues to invest around €20 million a year in digital technology and innovation, split between in-house digital transformation projects and investment in new services through direct investments (Blue Office, Bien'ici, E-gérance, etc.), partnerships with start-ups (Cowork.io, Lucibel, etc.) and investments with venture capital funds.

Nexity's initiatives during the third quarter of 2017 included:

• opening a new smart agency in Strasbourg, offering existing as well as new-build properties and an enriching experience for Nexity clients;
• taking part in the financing of Realiz3D, a start-up specialising in the creation of interactive 3D models of homes accessible via the internet and across all digital devices; and
• engaging with its entire ecosystem through a hackathon to generate ideas for new services to address the challenges raised by an ageing population and meet the expectations of seniors as well as caregivers.

In addition, Bien'ici - a next-generation property listings website in which Nexity has a 48% stake alongside a consortium of real estate professionals (Consortium des Professionnels de l'Immobilier) - continued to receive a growing number of membership requests from professionals wishing to place paid listings (with more than 7,000 member agencies at 30 September 2017).

Success of the capital increase reserved for Nexity employees

On 28 July 2017, Nexity completed a leveraged capital increase, with a capital guarantee, reserved for employees known by the name "aXion 2017-2022". A total of 550,000 new shares (0.99% of the share capital at 30 June 2017) were issued at a price of €41.36, representing a 20% discount against the reference price calculated for the issue.
Nearly 3,300 employees (over 50% of the eligible salaried workforce), subscribed to the issue, which was oversubscribed three times.
The level of interest and the subscription rate, both the highest ever reached by Nexity for a capital increase reserved for employees, demonstrate their strong attachment to Nexity's strategy and vision, but also Nexity's own commitment, since its initial public offering, to expand direct and indirect employee ownership. At 30 September 2017, Nexity's managers and employees held 16.2% of its share capital.

9M 2017 revenue

In the first nine months of 2017, Nexity's revenue was up 11% over the year-earlier period to €2,250 million, with increases across all the Group's divisions. On a like-for-like basis, excluding Edouard Denis and Primosud, the Group's revenue for the first nine months of 2017 came to €2,207 million, up 9% compared with the same period in 2016.

* Revenue generated by the Residential and Commercial divisions from VEFA off-plan sales and CPI development contracts is recognised using the percentage-of-completion method, i.e. on the basis of notarised sales and pro-rated to reflect the progress of incurred construction costs.

Residential real estate revenue totalled €1,627 million, up 12% year on year. This growth reflects the increase in the division's backlog observed over the previous quarters.
On a like-for-like basis, the division's revenue for the first nine months of 2017 came to €1,585 million. Revenue generated in the first nine months of 2017 by Edouard Denis and Primosud (€152 million) is only recognised in the amount of €43 million as part of consolidated revenue due to the adjustment for the effects of PPA (purchase price allocation), which involves the elimination of the portion of revenue relating to business activity prior to the acquisitions. 

Revenue for the Commercial real estate division was substantially higher than in the first nine months of 2016 (up 30%), at €246 million, reflecting the ramp-up of projects signed in 2015 and 2016.
  
The Services division generated revenue of €373 million, up very slightly year on year. Higher revenue from property management for individuals and franchise networks offset lower revenue from real estate services to companies.

As in the first nine months of 2016, revenue from Other activities was not significant.

In IFRS terms, revenue for the first nine months of 2017 was €2,145 million, up 10% compared to consolidated revenue of €1,954 million for the nine-month period ended 30 September 2016. This figure excludes revenue from joint ventures, in accordance with IFRS 11, which requires joint ventures to be accounted for via the equity method instead of proportionately consolidated as they were previously.

Backlog at 30 September 2017

The Group's backlog at end-September 2017 stood at €4,459 million, up 11% relative to year-end 2016 and equivalent to 19 months' revenue from Nexity's development activities (revenue on a rolling 12-month basis).

Order book in the Residential real estate division totalled €4,007 million, up 16% compared to 31 December 2016. This backlog amounts to 20 months of revenue (Residential real estate division revenue on a rolling 12-month basis).

The Commercial real estate division's backlog dropped to €452 million at 30 September 2017 (compared with €544 million at year-end 2016), as the new orders received did not offset the revenue generated during the first nine months of 2017. This backlog amounts to 15 months of revenue (Commercial real estate division revenue on a rolling 12-month basis).

Financial calendar and practical information

2017 annual results                                                      Tuesday, 20 February 2018 (after market close)

Q1 2018 business activity and revenue                         Wednesday, 25 April 2018 (after market close)

Shareholders' Meeting                                                 Thursday, 31 May 2018

2018 interim results                                                      Wednesday, 25 July 2018 (after market close)

A conference call on 9M 2017 revenue and business activity will be held in English at 6:30 p.m. CET on Wednesday, 25 October 2017 and may be accessed using code 2604488 by calling one of the following numbers:

The presentation accompanying this conference will be available on the Group's website from 6:15 p.m. CET and may be viewed at the following address: https://edge.media-server.com/m6/p/ghv3cm75

The conference call will be available on replay at  http://www.nexity.fr/immobilier/groupe/finance from the following day.

Disclaimer

Information, assumptions and estimates that the Company could reasonably use to determine its targets are subject to change or modification, notably due to economic, financial and competitive uncertainties. Furthermore, it is possible that some of the risks described in Section 2 of the Registration Document (Document de référence) filed with the AMF under number D.17-0335 on 6 April 2017 could have an impact on the Group's operations and the Company's ability to achieve its targets. Accordingly, the Company cannot give any assurance as to whether it will achieve its stated targets, and makes no commitment or undertaking to update or otherwise revise this information. This press release is considered to be a quarterly financial report as defined in the Transparency Directive transposed by the AMF.

ANNEX

QUARTERLY FIGURES
OPERATIONAL REPORTING (In accordance with IFRS but with joint ventures proportionately consolidated)

Reservations: Residential real estate division

Revenue by division

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