NEXITY : 9M 2013 Revenue and Business Activity

• Rise of 2% in value of net new home reservations in France to ?1.3 billion incl. VAT over the first nine months of the year, for a volume of 6,540 units (versus 7,139 units at end_September 2012)
• Annual target exceeded for order intake in Commercial real estate: ?409 million already recorded at end_September
• Backlog up 7% at end-September compared to end-2012 (at ?3.3 billion), equivalent to 16 months' revenue from development activities^{[1]:
  #_ftn1}
• Revenue for the first nine months of the year totalling ?1.9 billion, up 1.9% compared to the same period in 2012

Outlook for 2013 confirmed

• Residential: around 9,000 net new home reservations in an expected market of between 70,000 and 75,000 units
• Commercial: order intake of more than ?400 million (versus an initial target of ?350 million)
• Consolidated revenue for 2013 expected to exceed ?2.6 billion
• Current operating profit targeted for 2013 at over ?180 million
• Based on its outlook, the Company will consider proposing to its shareholders the renewal of a ?2 per share dividend in 2014

"Over the past year or so, France has taken quite a few steps to support the new homes market. These include the Duflot buy_to_let investment scheme, the enhanced 'PTZ+' interest_free loan, and a reduction in the VAT rate for social housing. In terms of urban planning laws and stimulus for new home starts, the latest legislation is definitely a move in the right direction, namely with regard to recent ordinances and certain provisions of the ALUR act. But that will probably not be enough, in the short term, to reverse the downward trend in construction starts. Further confirmation of this trend has just come from the decline in building permit requests (-16% over the twelve months to end_September).

Unfortunately, based on the ongoing debate in France's parliament over such issues as the 2014 budget and ALUR act, it does not look as though any of the upcoming legislation will spur a significant short_term market rebound. The actual attractiveness of the new 'intermediate' social housing status for institutional investors is still hard to measure, and could fail to offset the ALUR act's damaging effects on residential real estate investment. We may have to wait until local elections are over in March 2014 before persistent market weakness drives the government to take more immediately effective action for recovery.

It is no secret that our economy genuinely needs a healthier new homes market to help galvanize GDP growth, employment and tax receipts. Other countries such as the United Kingdom and the United States have shown us that economic recovery and a robust, dynamic real estate market go hand in hand.

Nexity's confirmation of annual targets reflects resilience and a strong business model. We are adapting to changes in the legislation, while also continuing to analyse market opportunities such as buildable land and external growth. Via our process of constant innovation, we are pursuing the development of new offerings, products and market segments."

***

Revenue

Consolidated revenue for the first nine months of the year totalled ?1,887 million (+1.9% compared to the first nine months of 2012)^[2]:
#_ftn2.

* Revenue generated by both the Residential (excluding Italy) and Commercial real estate divisions is calculated using the percentage-of-completion method, i.e. on the basis of notarised sales pro-rated to reflect the progress of committed construction costs.

·         Residential real estate revenue totalled ?1,196 million, holding nearly steady (-0.4%) compared to the same period in 2012. The increase in international revenue (higher delivery volumes in Italy, where revenue is recognized on a completed contract basis) largely offset the decrease in revenue from new homes in France.

·         Commercial real estate revenue (?356 million) benefited from the high order intake recorded in 2011 and was up sharply in comparison with the first nine months of 2012 (+14%). It included substantial contributions from the Solstys (Rocher-Vienne) and T8 projects in Paris. The increased revenue recorded for the first nine months of the year is not representative of the revenue that will be recorded for the whole year. This is because a large number of projects, including the two mentioned above, will be delivered sometime during the fourth quarter of 2013 and will therefore not generate revenue over the entire quarter.

·         Revenue from Real estate services totalled ?308 million, down 1% compared to the first nine months of 2012. Additional revenue from the consolidation of Icade Résidences Services in the first quarter of 2013 (whereas it was only consolidated as from Q2 in 2012) partially offset the absence of revenue from the services businesses in Germany sold in late 2012, as well as the revenue impact of erosion in the condominium management portfolio and a brokerage slowdown.

9M 2013 Business Activity

Residential real estate

In line with its expectations for the financial year as a whole, the Group recorded a 9% decline in net reservations for new homes and subdivisions in France and abroad over the first nine months of 2013, compared to the same period last year, with 7,957 units^[3]:
#_ftn3 reserved. In value terms, net reservations for new homes and subdivision lots in France and abroad were down 2% to ?1,441 million including VAT.

After reaching a historic low in June (2.89% on average excluding insurance), mortgage rates have edged upward since July, reaching an average of 3.00% in September (source: Observatoire Crédit Logement). The increase has been meagre, with rates still particularly low in absolute terms. This is unlikely to change in the short term, based on the ECB's announcements about keeping interest rates low for an extended period of time, which should help the market considerably. But the new home market in France is still feeling the impact of the weakened economic environment (rise in unemployment, economic recession, increased tax burden, etc.) and its toll on consumer morale and purchasing power, as well as the fiscal and regulatory uncertainty (ALUR bill) that has hampered investment decision_making.

In France, net reservations for new homes registered by the Group in the first nine months of the year were down 8% in volume terms but rose in value terms (+2%), essentially due to a sharp drop in the volume of bulk sales to professional landlords (-23%) compared to last year, and to the growing proportion of sales in the areas of tightest supply (45% in zones A and A bis, versus 40% over the first nine months of 2012), which also carried higher average prices.

The first nine months of the year also saw fewer commercial launches (-18% by number of units compared to the same period one year earlier), especially in the first quarter, due to the need to redefine the schedule for certain operations and renegotiate certain land deals to best align with the requirements of the new Duflot buy-to-let investment scheme (published at the very end of 2012). Based on assumed project launch figures for the fourth quarter, the total number of launches over the whole financial year should match initial annual Group forecasts.

The drop in net new home reservations registered over the first nine months of the year was caused solely by a decrease in sales to professional landlords (-23%), while sales to individuals (home buyers and individual investors) remained stable overall (4,438 reservations at end-September 2013 versus 4,404 reservations at end-September 2012). The first half of 2012 had seen especially high sales to professional landlords, but it is possible that some of them have adopted a wait_and_see attitude this year, in anticipation of the new 2014 VAT rate on social housing. 

Excluding bulk sales to professional landlords and Iselection sales, the average price of homes sold in France rose by 4.2%, consistent with an increase in average floor area (+1.2%) and average price per square metre (+2.9%). This uptrend is mainly due to the geographic mix of sales. More sales occurred in the Paris region, where average prices are higher.

                        * excluding bulk sales and Iselection

For new residential developments in France, the average pre-sale rate recorded at the time construction work was launched remained very high (75% on average over the first nine months of the year), and unsold completed stock held by the Group remained very low (79 units versus 60 units at end_September 2012).

The business potential^[4]:
#_ftn4 of the Group's Residential real estate division for new homes in France shrank 5% compared to 30 September 2012, coming in at approximately 23,500 units.

Subdivision reservations totalled 1,339 units, down 3% compared to the first nine months of 2012, while the average price of net reservations by private individuals climbed 3% to ?78.6 thousand. The drop in volume was part of a general contraction affecting the detached houses market, the main driver for this business. According to Union des Maisons Françaises^[5]:
#_ftn5, sales of detached houses were down 16% at end_July compared to the previous 12 month period. The business potential for subdivisions rose 15% compared to end_September 2012, reaching close to 10,600 units.

Commercial real estate

·         Transaction volumes in the French commercial investment market during the first nine months of 2013 reached ?10.7 billion, a 15% year-on-year increase. As investors began expanding to a wider geographic area, the third quarter saw major deals in the area around Paris, such as Nexity's Éco Campus joint development in Châtillon. Over the year, investment volumes should total between ?15 and ?16 billion, as they did in 2011 and 2012 (source: CBRE). Business activity recorded at end_September mainly involved existing and rented properties. The market showed little appetite for unsecured (i.e. not partially or totally pre_let) projects involving either new or refurbished buildings. Over the first nine months of the year only one "speculative" (en blanc) VEFA off_plan project was sold (source: Jones Lang LaSalle). With economic forecasts still gloomy and the market interested only in pre_let projects, which are more complex and time_consuming to put together, new_build volumes are not expected to pick up in 2014.

·         The weakened economic environment weighed on take-up in the Paris region, which totalled 1.3 million sq.m at end_September 2013, down 30% compared to the same period in 2012, particularly affecting transactions in excess of 5,000 sq.m. Over the year, take-up in the Paris region is expected to be even lower than the levels predicted in July, at around 1.8 million sq.m versus 2.4 million sq.m last year, i.e. a drop of roughly 25% (source: CBRE).

·         The Group has met and exceeded its annual order intake target of ?350 million, with ?409 million in new orders recorded over the first nine months of the year (including the Éco Campus project in Châtillon and the Le Nuovo project in Clichy, both of which were totally or partially pre_let under firm-term leases). Major orders placed in the third quarter included the Éco Campus project and an office_building refurbishment in Paris' 8^th arrondissement on behalf of an institutional investor.

Services and Distribution Networks

In Real estate services, the portfolio of units under management for individuals amounted to 792,700 units at 30 September 2013 (a 2.9% attrition rate compared to end_December 2012). This decrease mainly affected the condominium management business and was driven by the natural attrition rate, insufficiently offset by new appointments entering the portfolio. In real estate services to companies, total floor space under management amounted to 11.2 million sq.m at end_September 2013. The new management team is taking measures to enhance the business model to improve operating profitability. If the ALUR bill passes in its current form, certain provisions directed at the rental and condominium management professions will alter the economic landscape and require further changes to the business model.

In Distribution Networks, the number of promissory sale agreements recorded in the first nine months of the year by Century 21 and Guy Hoquet l'Immobilier was up 2.4% compared to the same period last year, while the market for existing property is expected to decline by 9% over the year, to 645,000 transactions (source: Crédit Foncier Immobilier^[6]:
#_ftn6). The number of franchised agencies totalled 1,281 at end_September 2013, compared to 1,325 at end_December 2012.

 Backlog - Order book at 30 September 2013

* including outside France and Iselection

The Group's order backlog at end-September 2013 amounted to ?3.3 billion, up 7% from year-end 2012 and equivalent to 16 months' revenue from Nexity development activities^[7]:
#_ftn7. Order backlog in Residential real estate was ?2.8 billion at end-September, i.e. a nearly 5% increase over end-December 2012.

Outlook for 2013

• Residential real estate: around 9,000 net new home reservations in an expected market of between 70,000 and 75,000 units
• Commercial real estate: order intake of more than ?400 million (versus an initial target of ?350 million)
• Consolidated revenue for 2013 expected to exceed ?2.6 billion
• Current operating profit targeted for 2013 at over ?180 million
• Based on its outlook, the Company will consider proposing to its shareholders the renewal of a ?2 per share dividend in 2014

***

Financial Calendar & Practical Information

2013 Business activity and results: Tuesday, 18 February 2014

A conference call on 9M 2013 revenue and business activity will be accessible in English at 19:00 CET on Tuesday, 29 October 2013, by dialling the following numbers:

Playback will be available by phone after the conference call by dialling the following number:
+44 (0) 207 959 6720 (Access code: 4626021#)

The presentation accompanying this conference can be accessed at the following address:
http:
http://www.media-server.com/m/p/rjha8q4r://www.media-server.com/m/p/rjha8q4r:
http://www.media-server.com/m/p/rjha8q4r

This presentation will be available on the Group's website starting at 19:00 CET on 29 October 2013.

Disclaimer

The information, assumptions and estimates that the Company could reasonably use to determine its objectives are subject to change or modification due notably to economic, financial and competitive uncertainties. Furthermore, it is possible that some of the risks described in chapter 4 of the Document de Référence, filed with the AMF under number D.13-0342 on 12 April 2013 could have an impact on the Group's activities and the Company's ability to achieve its objectives. Accordingly, the Company cannot give any assurance as to whether it will achieve the objectives described, and makes no commitment or undertaking to update or otherwise revise this information.
This release constitutes quarterly financial reporting within the meaning of the Transparency Directive as transposed by the AMF.

APPENDIX

Revenue by division

residential real estate

commercial real estate

Services and Distribution Networks

Quarterly progression of revenue by division