Nexity : 2020 full-year results

• Residential real estate: around 20,000 new home reservations in France, despite a supply shortage
• Commercial real estate: order intake of €400 million excl. VAT
• Revenue at least in line with 2020 on a like-for-like basis
• Current operating profit expected to rise sharply, to at least €350 million, equating to an operating profit margin of over 7% in 2021
• Ægide-Domitys sale process underway, to refocus Nexity on its businesses enabling value creation and delivering organic growth in its services platform
• Proposed dividend of €2 per share in respect of 2020³

CSR

• A certified Great Place to Work and a member of the Bloomberg Gender-Equality Index (GEI)
• France’s leading low-carbon developer for the second year running, topping the 2020 BBCA ranking of project owners

NEXITY ASSERTS ITS CORPORATE PURPOSE: “LIVING TOGETHER”

Alain Dinin, Chairman and CEO of Nexity, commented:

“The public health, economic and social crisis meant 2020 was a very tough year for businesses and their clients. Nexity, hit hard by the crisis, was no exception.

This crisis will continue in varied and changing forms in 2021, and we are not at this stage expecting a rapid return to normal.

Nevertheless, in 2020 Nexity demonstrated its people’s high levels of motivation and commitment, and the Group’s business lines proved highly resilient. This enabled Nexity to post record expected revenue from reservations in residential real estate, an unprecedented level of order intake in commercial real estate and a record backlog. Performance was robust in all business lines. Revenue was up 8%, debt decreased significantly and the decline in operating profit as a result of the crisis was contained (down 19%). Profitability is expected to bounce back strongly in 2021.

The Group’s chosen real estate services platform model demonstrates its strategic relevance on a daily basis; the scope is as it should be and is unlikely to change beyond the disposals already underway (Ægide-Domitys, which needs a new partner to step up its growth in services for senior citizens, together with smaller entities that generate no synergies for Nexity’s clients). Nexity is pursuing an ambitious low-carbon trajectory, boosted by factors including growing demand from institutional investors (who need strong partners to help them build and manage housing portfolios), and in line with the expectations of new municipal governments elected in 2020.

Nexity has thus entered 2021 with vigilance, but above all with confidence, focused on its profitability targets and with its financial structure strengthened, enabling the Group to maintain its dividend policy. The Group now intends to accelerate development of its new offerings and seize opportunities to better meet its clients’ needs. 2021 is also an opportunity for Nexity to formally adopt its corporate purpose: ‘Living Together’. This purpose expresses the Group’s commitment to being useful to society and to the world around us; it gives meaning to our action and will serve as a catalyst in Nexity’s ongoing transformation.”

***

At its meeting on Wednesday, 24 February 2021, chaired by Alain Dinin, Nexity’s Board of Directors reviewed and approved the Group’s consolidated financial statements for the financial year ended 31 December 2020, which can be found in the annexes to this press release. Audit procedures have been performed. The audit report will be issued after the verification of the information presented in the Management Report.

KEY DEVELOPMENTS IN 2020

Amid a public health crisis, Nexity demonstrated its resilience by delivering a strong commercial and financial performance over the full year. After being hit hard by lockdown in the first half of the year, business was very buoyant in the second half despite the second lockdown, which did not affect progress on construction sites, the signing of notarial deeds of sale or the marketing of major projects for Commercial Real Estate Development.

• New home reservations were equivalent to 2019 levels (21,077 units in 2020, compared with 21,837 in 2019) in a French market expected to have declined by around 25%, with Nexity’s marked shift towards bulk sales, and in particular reservations by institutional investors (up 38%).
• It was a record year for order intake in Commercial Real Estate Development, at €1.5 billion excluding VAT.
• The backlog stood at €6.8 billion, up 34% from year-end 2019 and up 53% over the past two years. 
• Revenue grew to €4,855 million (up 8%), driven by order intake in Commercial Real Estate.
• Operating profit came in at €285 million (down 19%), giving a current operating margin of 5.9%. Strong business in the second half, with a current operating margin of 7.5%, made up for the weak contribution in the first half.
• Group share of net profit: €118 million at year-end 2020, compared with €161 million in 2019 (down 27%).
• Net debt (before lease liabilities) decreased significantly to €655 million⁴ at year-end 2020, down from €918 million at year-end 2019, after peaking at €1,381 million at 30 June 2020, thanks to strict control over working capital (high volumes of notarial deeds of sale signed in the run-up to the year-end; down payments on commercial real estate contracts).

Governance

§  The Group suffered the loss of its Chief Executive Officer, Jean-Philippe Ruggieri, at the beginning of the Covid‑19 crisis. Alain Dinin resumed his position as Chairman and CEO. An expanded 13-member Executive Committee was put in place. 46% of its members are women.

International

§  Operations were launched in Germany with the acquisition of a controlling stake in pantera AG.

Update to Nexity’s strategic plan and business review⁵

• Confirmation of the Group’s real estate services platform model combining development and services business lines, focusing on the drivers of Nexity’s responsible, profitable growth for 2023, capitalising on its key strengths and accelerating initiatives connected to the major transformations underway in its main markets and business lines.
• Ægide-Domitys: sale process underway, which will include entering into a strategic partnership with the buyer in real estate development.
• Nexity’s new development model driven by: partnerships with institutional investors; the creation of a competitive advantage based on the Group’s CSR credentials; the strategy of operationally turning around services driven by a new management team; and the gradual development of international business.

In April 2020, the Group suspended all targets and guidance issued to the market as a result of the public health crisis. 2020 guidance was reissued on 28 October and clarified in a press release dated 4 January 2021. These forecasts were exceeded as business picked up in the run-up to the year-end:

* Before applying IFRS 5 to allow for comparison with guidance. Due to the sale process underway, the assets and liabilities of Ægide-Domitys are presented separately on a specific line in the balance sheet

The Group has opted to show its business lines by separating out capital-intensive businesses (development) from those mostly relying on human capital (services). All information detailed below is shown using this new segmentation. Furthermore, with the same goal of providing greater clarity, current operating profit has been readopted as the key indicator of Nexity’s financial performance, instead of EBITDA. In addition, free cash flow is presented after repayment of lease liabilities (previously presented within “Net cash from/(used in) financing activities”).

Due to the process underway for the sale of Ægide-Domitys and the likelihood that it will be carried out within the next 12 months, the Group is applying IFRS 5 (on assets held for sale), which requires the assets and liabilities of Ægide-Domitys to be presented separately from other continuing operations in the balance sheet. The income statement has not been restated, but the contribution of Ægide-Domitys is presented in Annex 3.

2020 BUSINESS ACTIVITY

DEVELOPMENT

The “Development” division encompasses Residential Real Estate Development and Commercial Real Estate Development.

Residential Real Estate Development

In the first nine months of 2020, the French market for new homes (or MALONE⁶) totalled 89,211 reservations, down 23% with respect to end-September 2019. Beyond the impact of the public health crisis and economic uncertainties, market trends were mainly held back by a supply deficit aggravated by the review of local urban planning policies following the shift in power that took place after the second round of local elections in France, which resulted in building permits taking longer to be obtained. This extension exacerbates the shortage of supply and price increases for new homes. In this context, Nexity demonstrated its resilience and its market share at end-September 2020 surged to 15.3%, 3.2 points higher than at 30 September 2019 (12.1%).

For full-year 2020, Nexity expects a sharp downturn in the market (around 125,000 units, down around 25% compared to 2019), with a sharp decline in the retail sales sector due to the lockdown period and the ongoing public health crisis, while bulk sales are expected to continue to grow, spurred on by institutional investors’ appetite for residential property.

At year-end 2020, Nexity’s net new home reservations in France totalled 21,077 units for €4,515 million including VAT, down 3% by volume and up 4% by value with respect to year-end 2019. In the fourth quarter alone, reservations were down 5% by volume and up 2% by value at 7,442 units and €1,566 million including VAT.

Bulk sales were 38% higher than in 2019, for the first time accounting for over half (51%) of Nexity’s new home reservations. This was due to an increase in sales to institutional investors (which doubled relative to 2019), reflecting Nexity’s ability to adapt its offering in response to this demand. Demand for social housing remained strong, but there was a limited decline in reservations placed by social housing operators (down 15%) due to fewer building permits being issued.

CDC Habitat is the Group’s main institutional client and in 2020 it extended its investments to the entire range of products (social, intermediate and free housing), with around 5,000 reservations, the vast majority of which for intermediate and free housing. In 2021, firm commitments entered into with CDC will also represent a significant volume. The Group also entered into a partnership with Gecina in early October 2020⁷ to develop 4,000 new homes in supply-constrained areas over a four-year period.

Nexity believes that demand for new homes expressed by institutional investors constitutes not just a circumstantial but a structural factor, and intends to leverage that demand (currently mainly directed towards France’s main developers) for competitive advantage, both in real estate development and in its services business.

Conversely, retail sales were 27% lower than in 2019 against the backdrop of the public health crisis, economic uncertainty and a supply shortage:

• First-time buyers (down 26%) were affected by stricter mortgage approval conditions in 2020, despite attractive financing terms (with interest rates averaging 1.17% in December 2020). France’s High Council for Financial Stability (HCSF) eased these lending conditions towards the end of 2020 (allowing mortgage terms of up to 27 years and raising the maximum affordability ratio to 35%); this should support demand from first-time buyers in 2021.
• Individual investors (down 27%) showed a certain wait-and-see attitude in view of the current economic situation. The extension of the Pinel scheme in its current form until the end of 2022 (passed as part of the 2021 budget bill) nevertheless provides these investors with a degree of stability and visibility.

Retail sales in the fourth quarter of 2020 were only 22% lower than in Q4 2019.

After including subdivisions (1,561 units, down 25% compared to 2019, in line with the change observed in the individual client market) and international sales (935 reservations, up 46% from 2019, with strong growth in Poland), business activity in Residential Real Estate Development at year-end 2020 came to 23,573 units reserved and €4,802 million including VAT, down 4% by volume and up 4% by value relative to 2019.

The average price including VAT of new homes reserved by Nexity’s individual clients at end-December 2020 was €239 thousand, up 3% compared to end-December 2019, due to the increase in both the average floor area per home (up 1%) and the average price per square metre (up 2%), amid a context of lower volumes and supply shortage.

The average level of pre-selling booked at the start of construction work was very high (74% at end-December 2020). The supply of homes for sale dropped back 18% from its level at end-December 2019 to stand at 7,242 units at year‑end 2020, due to a particularly swift absorption rate of 4.1 months⁸ (compared with 4.9 months at year-end 2019), and to a lower level of renewed offerings. Unsold completed stock (95 units) as a proportion of the total supply of homes for sale remained very low. The Paris region accounted for 35% of the supply of new homes for sale, with the other 65% outside the Paris region, consistent with the breakdown of reservations (32% and 68% respectively), and reflecting Nexity’s strong positions in regional markets.

At end-December 2020, the business potential⁹ for new homes in France was down 3% from year-end 2019 and came to 53,434 units. This represented potential revenue of €10.5 billion excluding VAT. This change reflected the impact of the spring 2020 lockdown and changes in political leadership at the local government level with respect to project structuring. Given this shortage of buildable land, the fact that reservations remained nearly stable in 2020 compared to 2019 constitutes a very strong performance. In light of this market situation, which is likely to continue for much of 2021, Nexity is expecting modest growth in its supply for sale and is working on new products (office-to-residential conversion, renovation, “coliving”, managed build-up of its land bank, etc.) to leverage land usage.

The Group is continuing with its CSR efforts, adapting its products to meet clients’ expectations by offering more sustainable solutions: making more use of outside living spaces (balconies, loggias and terraces) to ensure that everyone has access to nature and including green spaces in all its residential developments so all occupants have access to private or communal planted areas right where they live.

Including subdivisions and international operations, the business potential of Residential Real Estate Development represented €12.8 billion in potential revenue excluding VAT. International housing potential totalled €1.1 billion (double the amount in 2019), including €0.3 billion for pantera AG in Germany, which was acquired in 2020 and is growing satisfactorily.

Commercial Real Estate Development¹⁰

Take-up of office space in the Paris region and the overall amount of investment in commercial real estate in France in the period to end-December 2020 decreased sharply as a result of the public health crisis (down 45% and 32%, respectively, relative to 2019). Given the economic crisis, which is affecting employment and thus user demand for space, current thinking on remote working and a wait-and-see attitude on the part of investors, this reduced level of activity is likely to continue for at least another year.

Conscious of changes affecting the office real estate market (a huge increase in working from home, renegotiation of leases/reduction in space requirements, etc.), from the onset of the crisis Nexity introduced a comprehensive, tailored office use offering supported by its investments in coworking companies Morning and Hiptown. Offerings were also put together to help clients organise workspaces in accordance with public health requirements, reorganise zoning and space, and provide real estate strategy advice. Nexity thus intends to position itself as a key player in transforming real estate and working arrangements.

To go even further with its CSR commitments, Nexity has shifted its product range towards exclusively low-carbon, flexible and reversible office space. The Group now offers four major product lines: wood-frame office buildings (of which Nexity is France’s leading operator), renovated office buildings, reversible office buildings and energy-efficient office buildings to more effectively combat climate change.

Thanks to a high level of business potential¹¹ at the beginning of 2020, with nearly €3 billion in commercial real estate, Nexity was able to convert these projects into confirmed new orders thanks to the quality of its locations, lessees and investors. Business potential remained high at the end of 2020, representing €1.9 billion in revenue.

Business was very buoyant toward the end of 2020, boosted by the market launch of major developments – including the sale to Swiss Life Asset Managers France of the Engie green business park in La Garenne-Colombes (Hauts-de-Seine) for around €1 billion, and the sale of Network II in Bagneux (Hauts-de-Seine) – enabling the Group to achieve its highest-ever volume of order intake, at €1,472 million (of which €1,244 million was booked in the fourth quarter alone).

Last year’s unprecedented crisis has prompted businesses to rethink their working arrangements and their space needs. For example, Engie’s planned green business park – located near Greater Paris’ new Nanterre-La Folie rail station, extending outward from Paris’ La Défense business district – was downsized to 94,000 sq.m (compared with 135,000 sq.m as originally planned). Nexity also acquired full control over project companies originally set up in partnership with Engie, which was keen to refocus on its role as a lessee. Nexity will continue to develop the remaining 5.5 hectares, for commercial use and housing.

The sale to Aviva Investors of the Reiwa project in Saint-Ouen (Seine-Saint-Denis) is not included in 2020 order intake, given that the resolutory condition had not been lifted at 31 December (the deadline for meeting objections to the building permit), but will be included in 2021.

Nexity delivered 15 developments in 2020, representing a total of 166,400 sq.m, including in particular the Palazzo Meridia development – the head office for Nexity staff in Nice – delivered in February 2020. This development – France’s tallest timber-frame office building at 35 metres over nine stories, with a total floor area of 7,860 sq.m – has already won a number of awards (France’s first commercial building to achieve E3C2 certification, and the Fibois regional award for timber-frame construction in the “Work and Welcome” category, with a distinction for its height).

SERVICES

The Services division is made up of three segments:

• Property Management: includes property management for individuals and companies, management of student residences (Studéa) and shared office space (Morning)
• Personal services through Domitys: senior independent living facilities
• Distribution: includes marketing of new homes on behalf of other developers (iSelection) and with divided property ownership (PERL)

Property Management

Property Management

For individual clients, the portfolio of units under management amounted to over 876,000 units at 31 December 2020 (down 0.9% from end-December 2019). Brokerage activities (lettings and sales by Nexity agencies and Century 21 franchises) gradually returned to a satisfactory level of business activity, continuing the strong recovery observed starting in June 2020.

Property management has a major part to play in responding to current challenges, notably in terms of energy efficiency upgrades, sustainable management and neighbourhood development, and is at the heart of the Group’s services platform strategy. A new management team has been appointed to accelerate growth, boost customer satisfaction and strengthen local relationships focused on quality of service, offering solutions tailored to each client profile, leveraging our digital tools and maximising internal synergies.

For commercial clients, floor area under management totalled 19.7 million sq.m at end-December 2020, slightly higher than at year-end 2019 (up 1%). At the beginning of 2021, Perial Asset Management selected Nexity Property Management to manage a portfolio totalling nearly 300,000 sq.m for the next three years.

Studéa student residences

Nexity Studéa had 125 student residences under management at 31 December 2020, totalling more than 15,500 units. Despite the public health crisis, occupancy rates remained very satisfactory. The marketing campaign for the 2020/2021 university year yielded the usual occupancy rates: 94% at end-December 2020 (compared with 94.7% at year-end 2019).

Shared office space

At end-December 2020, Morning – a leading player in the Paris coworking space market – operated 25 coworking spaces totalling more than 56,000 sq.m and corresponding to around 6,500 workstations. Given the length of lease terms, and in line with the Group’s expectations, the occupancy rate came in at 69% (stable relative to September 2020), a satisfactory level in view of public health conditions and the widespread adoption of remote working.

Personal services – Domitys

Domitys opened 13 new residences in 2020, bringing its portfolio to 113 serviced residences, totalling over 13,000 residential units. At end-December 2020, the rolling 12-month occupancy rate was 85%, representing a slight increase relative to end-December 2019 (84%). Domitys will continue to implement its development plan in 2021. Six new residences opened in January, with more than 20 set to open over the course of the year.

In its press release of 17 December 2020, the Group confirmed its desire to keep growing in the serviced residences market and to consolidate Ægide-Domitys’ position as a leading operator of senior residences. To this end, Nexity has begun the process of seeking a partner better positioned to support the growth of Ægide-Domitys in France and abroad, and to ensure the operational excellence of its residences offering personal services. When this subsidiary is sold, which is planned for 2021, Nexity will enter into a strategic real estate development partnership with the buyer.

Distribution

The public health crisis had a major impact on distribution activities, with very low reservation volumes during the lockdown period due to closures of banks, the leading distribution channel in this sector.

In the period to end-December 2020, iSelection and PERL recorded 3,869 reservations (down 17% compared to 2019). This decrease, which was less pronounced than in the overall market for sales to individual clients, reflected the relatively strong performance of these distribution networks.

DEVELOPMENT PIPELINE AT 31 DECEMBER 2020

The development pipeline reached €21 billion in revenue at year-end 2020 (up 5% compared with year-end 2019), corresponding to around six years of business activity, providing the Group with good visibility on its future business levels.

This pipeline includes:

• Backlog: €6.8 billion (up 34% compared to 2019), mainly due to the good level of order intake in both residential and commercial real estate; and
• Business potential: €14.6 billion, the stabilisation of which at a high level illustrated the Group’s capacity to move forward with its expansion despite the public health crisis.

NEXITY’S CORPORATE SOCIAL RESPONSIBILITY (CSR) AND CORPORATE PURPOSE

Nexity has disclosed its new corporate purpose – “Living Together” – illustrating its desire to design ideal working and living environments that reflect the aspirations and lifestyles of their users, and connect them with their neighbourhood, their city or their company.

In addition to obtaining the Great Place To Work certification in 2020, Nexity confirmed its position in the 2021 Bloomberg Gender-Equality Index, among the 380 companies worldwide (11 of them French) committed to gender equality and equity. For example, women account for 46% of the members of the Executive Committee.

Employees and managers hold 18% of the Company’s share capital, making them the Group’s leading shareholder.

Nexity has also consolidated its position as France’s leading low-carbon developer for the second year in a row, topping the 2020 BBCA ranking of project owners in three out of four categories: number of projects of this type started since the creation of the BBCA certification in 2016, number of projects started in 2020, and total sq.m of projects started in 2020.

Nexity’s solidarity initiatives

During the year, Nexity demonstrated its solidarity with an exceptional donation of €3 million in aid of non-profit organisations that help the homeless and funds that support healthcare personnel. These actions supplemented those of the Nexity Foundation, which focuses specifically on social inclusion through housing, training, education and employment.

2020 CONSOLIDATED RESULTS – OPERATIONAL REPORTING¹²

The financial highlights presented below take into account the new segmentation applied beginning with the financial statements for the year ended 31 December 2020. Information concerning the previous segmentation is presented in Annex 2 of this press release.

In addition, due to the process underway for the sale of Ægide-Domitys and the likelihood that it will be carried out within the next 12 months, the Group is applying IFRS 5 (on assets held for sale), which requires the assets and liabilities of Ægide-Domitys to be presented separately from other continuing operations in the balance sheet. The income statement has not been restated.
The tables presenting these reclassifications are included in Annex 3 of this press release.

REVENUE

Revenue for 2020 was €4,855 million, up €356 million or 7.9% compared to 2019. This revenue growth resulted from the very strong increase in revenue generated by Commercial Real Estate Development (2.4 times higher than in 2019) and the large number of notarial deeds of sale signed at the end of the year in Residential Real Estate Development. The revenue shortfall during the first lockdown (about €430 million) was not recouped in the second half of the year, instead being postponed. Construction site activity returned to more normal levels beginning in September 2020.

* Revenue generated by development 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 all inventoriable costs.

Overall revenue from Development amounted to €3,810 million in 2020, up 11% from 2019.

Revenue from Residential Real Estate Development was down €140 million or 5% relative to 2019. This change was mainly due to the negative impact of the public health crisis. Revenue generated starting in June (up 5% in H2 2020 compared to H2 2019) offset this trend, with the sharp upturn in activity on construction sites and a highly satisfactory number of deeds signed. Revenue generated outside France rose sharply to €74 million (six times its level in 2019), with business growth in Poland. The contribution of the German subsidiary pantera AG, acquired in March 2020, was not very significant in 2020.

Revenue growth in Commercial Real Estate Development (up €519 million or 2.4 times its level in 2019) mainly arose from the sale of the completed Influence 2.0 building in Saint-Ouen (Seine-Saint-Denis), occupied by the Paris Regional Council, for €210 million (with all of the revenue for this programme recognised upon the sale in April 2020), and the end-of-year signing for Engie’s planned green business park in La Garenne-Colombes (Hauts-de-Seine), whose sale enabled the recognition of revenue on a percentage-of-completion basis (€370 million).

Services posted 2020 revenue of €1,045 million, a limited decrease of 2% compared with 2019. The effects of the public health crisis on the property management and distribution businesses (down €45 million), with the decline in brokerage fees and additional services (renovation work in particular), were slightly offset by growth in the number of serviced senior residences (up €23 million).

Revenue under IFRS

In IFRS terms, revenue in 2020 totalled €4,512 million, up 7% relative to 2019. This figure excludes revenue from joint ventures, in accordance with IFRS 11, which requires joint ventures – proportionately consolidated in the Group’s operational reporting – to be accounted for using the equity method.

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