The Nexity Q1 2021 business activity and revenue conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Julien Carmona, Deputy CEO. Please go ahead, sir.
Thank you. Good afternoon, and thanks for attending this conference call. I'm here today with the CFO of Nexity, Eric Laleychère, and with Véronique Bédague, Deputy CEO, who will be formally appointed as CEO of Nexity immediately after the AGM on May 19. We suggest to walk you briefly through the slideshow, we will be pleased to field your questions afterwards. Let me start on page three with a summary of the quarter's key figures and major events. Q1 2021 was a very dynamic quarter. Business activity was very strong. Our turnover has really jumped, we announced two significant disposals, Ægide-Domitys and Century 21 France. 14 months after the start of the health crisis, Nexity is showing a very good performance. Starting with our key business indicator, reservations of new homes in France.
The first quarter of 2021 was in line with the second half of 2020, running at full speed. The strong business activity resulted in approximately 3,900 units booked by Nexity in France, 7% higher than the first quarter of 2020, representing €882 million, + 11% in value. In a challenging market, challenging in terms of supply and not of demand, Véronique will elaborate on that shortly, Nexity once again managed to outperform. On commercial real estate, we booked €300 million of new orders. That's largely due to the final sale of Reiwa, our large off-plan project in Saint-Ouen, very close to Paris, which is set to be Nexity's future headquarters. It was pre-signed last year, but we naturally waited until we had the certainty that no appeal would be lodged against the building permit before booking this sale.
Within one quarter, we actually achieved 75% of this year's goal, EUR 400 million of new orders. We don't expect to go much above that goal given the current situation in the office market. The total development backlog is stable at EUR 6.8 billion, a very high level, representing about two years of future secured revenue. The pipeline is slightly down, but not alarming. It's partly a consequence of the health crisis, but it's also a sign of the difficulty of our market environment in terms of setting up new projects and obtaining building permits. This is the main caveat we want to add to our otherwise excellent results. The revenue for the first quarter of 2021 reached EUR 1.132 billion, up EUR 345 million from first quarter 2020, + 44%, due to favorable base effects and therefore not completely representative of the growth projected for 2021.
Eric will explain it to you in detail. The 28% growth in turnover over the last two years is probably more representative of the underlying trend. Nevertheless, this very good start to the year obviously gives us confidence in our ability to achieve our turnover and profit targets for this year. Moving on to the strategic review. Concerning the sale of Ægide, we issued a press release three weeks ago, and we have a detailed slide later in the presentation. The key takeaways here are, first, the confirmation of the price, enterprise value of EUR 375 million for 100%, firm price, and also the fact that we expect to close this deal by June 30, thus effectively deconsolidating Ægide-Domitys from this date. Century 21, which is the second and last disposal, follows another logic.
It's a small, profitable, high-quality business based on managing a network of franchise real estate agents. We had no pressure to sell it, but the connection between this company and the rest of Nexity, of the service platform of Nexity, the connections were very limited, and we couldn't extract meaningful synergies given the fact that these agents are independent entrepreneurs and not Nexity employees. When we received a good offer from Arche, the company owning Citya, valuing Century 21 at EUR 84 million, which is roughly 20x the EBIT of 2020, we took the opportunity. Likewise, we expect to close the deal before June 30. Overall, these two sales allow us to close our strategic review and asset sales program, which we had announced in December 2020. We are pleased with the result, pleased with the speed of execution, and pleased with the quality of the partners.
At this stage, I will hand it over to Véronique.
Thanks, Julien, for your introduction. Now please, let's move to page four, which concerns itself with our environmental targets. As we want to keep our leading position and sustain our value creation strategy over the long term, we are very much engaged in managing our carbon footprint. As I mentioned last time, this is core business for Nexity. Two years ago, we took a major step in deciding to join the Science-Based Targets initiative, SBTi, to demonstrate our willingness to engage further on the climate transition issue on very solid ground. As you might know, SBTi is the most renowned independent body which validates carbon intensity of reduction targets. Back in January this year, we submitted our new targets concerning Scopes 1, 2, and 3.
You have to keep in mind that on a service platform such as Nexity, more than 99% of the emissions are on Scope 3. Primarily real estate development emission. That's why I told you earlier that it's three core business for us. Our target between 2019 and 2030 are twofold, as you can read on the slide. On Scope 1 and 2, we aim to reduce our carbon emissions in absolute term by 28%, and on Scope 3, which is really our main target, we are targeting to reduce our carbon emission per square meter developed by 22%. Last month, we were pleased to receive the SBTi validation of our targets, which is an important step in the carrying out of our strategy. Please go to page five, which focuses on the French market supply.
On the left-hand side, we can see the gradual decrease in building permits, which is, of course, one of our main concerns. Indeed, a 17% drop in permits granted is intensifying the supply shortage and limiting our own supply for sale. This drop, which is regularly seen in the context of local political election cycles, is now approximately 50% lower than the usual drop, probably due to the sanitary crisis and new council persons. On the right-hand side, we can see the housing starts, which are consequently impacted by the building permit decline. The situation should improve in the upcoming months, we hope, or quarters. The sooner, the better, because this trend would lead to more inequality and exclusion, with rising prices and lower housing stock renewal.
Against this lackluster backdrop, Nexity is outperforming the market, as we see on page six, where we show a good level of activity on new home reservation as Julien described earlier. During the first quarter, the demand continued to be solid. Thus, we have sold around 3,900 new homes, up 7% compared to the first quarter of last year. In value terms, this reservation reached around EUR 880 million, up 11%. The activity abroad was dynamic, with international new homes reservation rising by 51%, continuing the ramp-up. Now please turn to page seven on the client mix. On this chart, we see how individual investors reservation have increased by 15%. The Pinel fiscal scheme remains very attractive for people who were able last year to accumulate savings. On the other end, and despite the easing recommendation of the HCSF, which is the French banking body council.
With longer debt and higher affordability rate, we have fewer first-time buyers, probably because of the global economic uncertainty. Regarding institutional investors, the low 5% share doesn't reflect the pattern over the course of the year, and should increase over the coming quarters because basically the bulk sales are not linear. Would you please go to page eight, presenting Nexity supply for sale. Here you can see the supply we provide remains low, around 7,000 apartments, relatively steady over the quarter. This situation is a direct effect of the decline of building permits. We are continuing to fill building permits, twice as many in the first semester this year than last year, which is a lot, with projects adapted to the local authority's needs. Thus, we are well-positioned to benefit from the recovery of the building permit trend when it happens.
To finish on the residential development section, please go to page nine regarding the pipeline. As you see, our backlog is stable. Our business potential is punctually affected by the building permit bottleneck and has been contracting by 7% over the quarter. Let's go on to commercial real estate development on page 10, starting with our such future headquarters named Reiwa. This is the project Julien talked about earlier. We closed this project deal with Aviva earlier this year. It will be delivered late 2033, and is another example of how Nexity is able to perform to provide the highest standards available on the market. It's a really great project. Now to conclude this component concerning commercial property development, please turn to page 11 presenting the pipeline. The commercial real estate pipeline totals about EUR 2.8 billion and is barely unchanged over the quarter.
The backlog is rising 10% at the expense of the business potential, -11%. It is mainly due to the Reiwa project, moving from business potential to the backlog. Even in the 2021 target looks easily attainable, it is important, I think, to keep in mind that we are not expecting any other large project for 2021 to arise, and that, as you know, the office market continues to struggle due to the current sanitary measures. I will now give the floor to Eric to discuss the services activities.
Thank you, Véronique. Moving on to services, page 12. In the condominium management, the portfolio totaled almost 871,000 units under management at the end of March 2021. Which is stable compared to end December 2020. Regarding the property management, the volume of the floor area under management has also remained stable at 20.1 million sq m at end March 2021. The performance of our student housing, Studéa, is still strong. The occupancy rate of residences remained at a high level, 92.3% at end of March, despite the retention of distant courses for students. For our shared office space activity, the occupancy rate remains stable around 70%, at the same level at the end of December 2020, which is encouraging in the resilience of this market despite the strengthening of working at home for more than one year due to the sanitary measures.
Distribution activities saw 32% growth in the first quarter of 2021, with 1,344 reservations, relate to the rise of individual investors, not in our client mix. On page 13, you can see Nexity first quarter 2021 revenue. In the third quarter of 2021, Nexity recorded revenue of EUR 1,132 million, plus EUR 345 million for the third quarter in 2020. This is a very good performance, but it will not be extended throughout the full year. The first quarter of 2020 was impacted by the health crisis, suspension of construction sites, no notarial deeds , and thus, no more revenue. The slowdown of activities observed since March 16, 2020 was estimated at nearly EUR 130 million from Nexity for first quarter in 2020.
Revenue for the residential real estate development amount to EUR 686 million at end of March 2021, an increase of EUR 194 million compared to the first quarter of 2020. The increase takes into account the base effect with the shutdown of construction sites in 2020 for one half, and the other half, from the increase in the volume of activity that comes from the higher backlog and the brisk space of the signing of notary debt in the first quarter of 2021. Revenue for the commercial real estate development amount to EUR 195 million at the end of March 2021, a very strong increase, up EUR 139 million, compared to the weak first quarter of 2020, pulled this year by the high contribution made by taking the sale of Reiwa in Saint-Ouen.
Revenues from the services activities amount to EUR 350 million, an increase of EUR 11 million, thanks to the growth of the distribution activities, high level of transaction, and Domitys, increase of the portfolio of services residences. For the whole year, revenue from the development activities is expected to be at least equivalent to 2020. At first, revenue from the residential real estate development is expected to continue to grow in the coming quarters of 2021, driving by the flow of high backlog to represent growth of more than 10% compared to 2020. Remember that revenue in 2020 was at EUR 2,900 million.
On the other hand, revenue of commercial real estate are expected to return to a level around EUR 500 million, about minus EUR 400 million compared to 2020, taking into account the construction planning of the current operation, while 2020 had benefited from the historic order intake of Eco Campus at the La Garenne-Colombes. I will now give the floor back to Julien, who will describe our confidence for the future with the pro pipeline and the 2021 guidance.
Thank you, Eric. Just before that, a couple of other points about the Ægide-Domitys disposal process. I'm on page 14. As we said back in early April, the press release, we currently own 63% of the capital. We're going to sell 45% to the acquirer, AG2R La Mondiale. We'll keep 18% of the capital with a long-term put option. Keeping a minority stake is positive for us. It gives us an exposure to the potentially increasing value of this silver economy firm, it also secured the real estate development strategic partnership, which we signed together with the sale agreement. What are the key points of this partnership agreement? First of all, it has a long duration, six years and a 1/2 up until the end of 2027. Nexity is going to be the preferred, non-exclusive, but preferred real estate development partner.
In essence, we are going to grant each other priority rights. We show all our suitable plots to Ægide, they show us all their projects. Based on certain criteria, Nexity will target to develop about two-thirds of the total Domitys senior housing pipeline. AG2R La Mondiale is really the right partner. It's very long-term oriented. It has a strong focus on the senior clients. It's a life insurer, health insurer, pension fund, they want to use Domitys to provide more services to their client base. They intend to keep a strong pace of development, at least 20 new residencies per year, which is, of course, good for us as a preferred developer, they are not impacted or very little impact by IFRS 16. Actually, it's not just an asset sale, it's a strategic partnership that Nexity and La Mondiale have concluded together.
In real estate development, Ægide, of course, but possibly other asset classes. La Mondiale, as it said, is going to invest about 5% of Nexity's capital with a long-term commitment, and they already bought off market 2.14% of Nexity's capital by buying a block directly from Newport, Nexity's ManCo, which basically solved NewPort debt problem. Moving on to the guidance and concluding the presentation, we confirm the guidance given to the market with the annual results in February. Clearly, having such a strong start in Q1 gives us a good level of confidence, but the year is far from over. We can, however, be more precise now that we have indication of the prices and of the timelines concerning our disposals.
Assuming that both Ægide and Century 21 are sold by June 30, our 2021 turnover should be around EUR 4.6 billion, at least equivalent to 2020 on a comparable basis. The current operating income is expected to reach at least EUR 350 million before, as well as after, the disposals, and at least 23% up compared with 2020. This means basically that the deconsolidation of Ægide and Century in H2 will cost us a loss of turnover, but no loss of profit and will be accretive to the operating margin. The proposed dividend is unchanged at EUR 2 per share. Before answering your questions, please allow me a more personal note.
This is the last time I host this conference call in my capacity as Deputy CEO of Nexity, as I decided to take the opportunity to join Crédit Mutuel Arkéa, a mid-size but very successful and innovative French bank, which is also one of the large shareholders of Nexity. For the past seven years, I really enjoyed being Nexity CFO and then Deputy CEO, because it's simply a great company. I think that Nexity's market recognition improved during those years, and I know that I'm leaving the finance function and the company as a whole in good hands. Let me just thank all of you, investors and analysts, for all these great exchanges that we had over those years and the quality of your market insights. Now, Véronique, Eric, and myself will be ready to field your questions. Operator?
Thank you. Ladies and gentlemen, if you would like to ask a question at this time, please press star and then one on your phone. If you are using a speakerphone today, it might be necessary for you to pick up your handset or depress the mute function so the signal can reach our equipment. Again, that is star and then one if you would like to ask a question today. We'll pause for just a moment to give everyone a chance to signal. Okay, we'll take our first question from Emmanuel Parot from Gilbert Dupont.
Good evening. Can you hear me?
Yes, we can.
Yes. Okay. Good evening. I would have two questions, please. The first one concerning your reservation. In Q1, you disclosed the + 7% in volume. That's quite a good performance. Your guidance is 20,000, if I remember well. It's a flat guidance. Could we consider that you are cautious on this point, or is it because the level of commercial offer is quite low? That would be my first question. Maybe the second one, concerning the building permits in France. Quite a low level. You flagged this point. Could you give us more reasons about this low level in France, and maybe, when do you expect an inflection in the coming quarters? Thank you.
Maybe I will take the first question, and Véronique will take the second one. Are we cautious? Yes, we are, as usual, as always. Q1 is always the smallest quarter in the year. That's based on the seasonal pattern on our French real estate market, where a lot of business gets transacted around year-end. Just because of that, there's no reason to extrapolate. It's a good start. The retail clients and buy-to-let investors in particular are back. We have a low level of bulk sales, but as Véronique said, there's no reason to give too much interpretation on that. It's a good start, but it's just a small quarter as usual, and it's too early to draw consequences. You're right, you can see the level of supply diminishing. We're doing our best, and the teams are putting a lot of effort into replenishing the supply.
In this context, it wouldn't be prudent to just change or increase the guidance. On your second question about the building permits?
As I told you on the market, there was a very strong drop in permits by 17% between February 2020 and February 2021. It was a lot less for Nexity because we got - 3, so we definitely outperformed this drop in building permits. I think it's a question of political cycle. As you know, in France, where you have these local elections, you have less permits two years before the elections and probably usually six months after the election. As I told you, I looked at yesterday, the drop was 50% lower than a usual political cycle. I think, of course, we have this sanitary crisis, and as you know, some urban departments, even in big city, were closed for almost two months last year and probably not at cruising speed even now.
As you know, we had elections, and the council person were changed in a lot of cities. They are reviewing, and we are testing all the projects, so it takes time. Honestly, I expect the permits to come back, honestly, we hope in the second quarter.
Okay. Thank you. Special thanks to Julien. I wish you the best for the future. Thanks.
Thank you.
We have a question from Nicolas Tabor from Stifel.
Good evening. Can you hear me well?
Yeah. Please go ahead.
Great. Thank you. First, congratulations, Véronique, on your upcoming nomination.
Thank you
Julien, for your new nomination, thank you for your great help with Nexity. The first question would be on Century 21. Was the EBIT in 2020 down versus 2019? What, 2019, more or less versus let's say a normal year in 2019? My second question would be, let's say more broad. I'm trying to understand, the strong performance in terms of individual real estate revenue back to 2019 levels, for the reservations is back to 2019 level. I'm trying to understand, we see that there is still a lack of building permits, what helps you to be back so fast while you couldn't before? Is it new building permits you received that increase the supply that you can deliver?
You've talked about the notarial deeds, but I guess it doesn't explain everything, so I'm trying to get the other part, how that worked and how that backlog could be delivered, but not before, despite the building permits issue. Then, on a third question, what's your mix right now in reservations and backlog that is linked to the Olympics overall? My take here is how much of the reservations and backlog is not really in the hand of individual mayors, but are, let's say, such big project politically that it's more other préfet or some other instance that will have the power, and therefore, you will not be hindered as others would be. Thank you very much.
Maybe I will start. Sorry, I was interrupted. Thank you very much for your kind words. First thing about the backlog. The backlog is essentially secure. It's essentially made either of reservations which were made, notarized, were signed, and we just need to make progress until we technically finish the building. This is absolutely secure. I'm talking about residential real estate. The other part of the backlog is made of reservations, which essentially, I don't have a figure, but over 90%, were made with building permits. Clean building permits, meaning no appeals, no claims. If your question is the backlog secure, or is it vulnerable to a change in the attitude of individual mayors or local councils? The answer is, no, it is secure. We are not like other companies.
I made a smaller hint, which put into their backlog projects without building permit or without clean building permit. In our situation, there's nothing to worry about. The backlog is very strong. Indeed, the conditions of last year created a situation where the progress and technical progress was hindered, was delayed. This year, despite the health crisis, we are really making strong progress, both on the technical side and on the commercial side, and this means good revenue recognition. That's what Eric said. We expect a double-digit growth in the revenue of residential real estate. The question for me, for us, is not the backlog. The backlog will flow into revenue, and you'll see a really good year for Nexity Residential. The question is what happens afterwards? That's the pipeline. This is where we have this current challenging situation on the land market.
As Véronique said, it's a sort of low point in the political cycle, which is set to improve. I don't know if I answered your question.
I'm sorry. That was very clear. It's me. I think I wasn't clear. I just wanted to say, on the new home reservations in France, the reservations, you are back to the 2019 level and those new reservations. As you said, you are only making reservations and backlog out of clean building permits. I guess to make this higher level of new reservations, you had to get new building permits, right? What differentiates you and how were you able to get these very strong and impressive rebound in reservations? The revenue is natural, yes, more on the reservation side, let's say ahead of the curve. Sorry about not being precise.
No, that's clear. Thank you. We actually got more building permit than the market because as Véronique said, and it's an important indicator, when the market was down by 17%, we were down by 3% for Nexity Residential as a whole. We got much more than the market, but not enough and a little bit less than last year. The direct consequence of that is that Supply for sale is slightly diminishing, and we are selling very, very fast, but it cannot go to zero. We need more products to sell. Why do we outperform?
I think it has to do with the very good diversification of Nexity, geographic diversification, both Greater Paris, but everywhere in France, and particularly, the regional metropolis, but also the mid-size cities, which are back in fashion since the COVID crisis, who are everywhere, and with a product range, which is really unrivaled compared to the market. Particularly, managed residencies, serviced residencies, senior, student, co-living, and other formats, were really very popular, and we are really not a specialist, but the specialist of serviced residencies in France. That's an explanation. Of course, we cannot take for granted that we will always be ahead of the curve or ahead of the pack. Véronique and the teams, of course, are putting a lot of efforts into replenishing the pipeline and the supply for sale.
As I told you, we filed building permits twice as many in the first trimester this year than last year. I think we are very active, and as we told you, I think we have a very good track record in terms of obtaining our permits. I think we definitely know how to deal with the municipalities. That's where I come from, by the way. As Julien said, we have a wide range of products, and we are everywhere on the territory, so I think it's a good risk management.
Great. That's very clear. What's your exposure to the Olympics at the moment, and where is it between reservations and backlogs and the Great Paris project, and how does that feed into the rest of the total group reservations?
In terms of backlog, it's zero to my knowledge, but we'll check that. No reservation were signed. It's part of a pipeline, so it's a meaningful project, but it's extremely small compared with the overall size of Nexity.
We are still at the beginning of the project. We just make the acquisition of the land. It will be going in the next month, and it will contribute to the volume of reservation in 2021, but at no size.
Great. Thank you very much.
We have a question from Christophe Chapuis from Oddo.
Yes. Good evening. Just a quick question on reservation. Bulk sales are up by 4%, and I just wonder if you have booked further units from CDC Habitat or Gecina. For CDC Habitat, could you remind us how many left from the initial agreement you signed last year? Obviously, Véronique and Julien, I would like to congratulate for your new position. Thank you.
At the beginning of the year, we don't make a big deal with CDC Habitat or with Gecina. The studies and project are growing. We still have many things to do with these two big clients, and we think that we'll have a good contribution, in the next step of the year. Of course, it also depend of the time we obtain the new permits to make the sale, so it will take some time, and it will come in the next period. For the global deal with CDC Habitat, we have this deal, but we have also lots of transaction with their many subsidiaries. We make last year about 5,000 reservation with CDC Habitat in all components, and we think that we can do in this trend for next year. Of course, it is done project by project, and we will do that in the next month.
Okay. Thank you very much.
We'll take our next question from Marie-Line Fauré from Société Générale.
Yes, good evening. I've got just a number crunching questions. It's about the split of your Q1 sales between Ægide and Century 21. You mentioned EUR 104 million. If we could have the split, would be great. Second question is about the building permits again. You mentioned a kind of normalization of building permits as soon as Q2, aren't you afraid of any other delay that could occur from the national election in 2022, and that could lead to another wait and see attitude on the building permits. My last question is about raw material inflation. How do you deal with this topic? Have you some room to negotiate on the land price, for example, or better negotiation with your subcontractors? If you could give us some colors on that topics. Many thanks.
First of all, for the split of the revenue contribution of about EUR 100 million for the disposal activities, I can say that it's about 10% for Century 21 and all the rest for Ægide. For the speed of obtaining permits, of course, we have not the permit, so we are waiting for the authorization. Many things can happen. Something can make more time, and something can make we get them, the permit, faster. We have a very big demand of clients. The municipality, they have also to take into account the demand, and they cannot only make their time to give us the authorization. For the election context, of course, it can happen, but the debate of the housing is not the top of the list of the debate.
Of course, we can have some risk, but we are quite confident so that we can have a good rhythm to have the new permits for the next months.
Yeah. Hello, Marie-Line Fauré. In addition to that, really, in our business, it is the local elections that matter. Fortunately, they were last year's, every six years. The national elections, first of all, don't matter a lot. If I look at the last national election year, 2017, the business activity of Nexity was quite good. We were up by 15% in volume and 21% in value. I don't know if it was the Macron effect, but actually, a very good year for Nexity. The current environment is challenging. We didn't talk about normalization in Q2. We're talking about the challenge and our ability, at the end of the day, to obtain the building permits which we are filing, and filing in greater number compared with the previous periods, which is encouraging.
Really, for 2022, the national elections are not a factor in our view.
Okay. Thank you.
About cost of construction, yes, we have inflation in raw material, but if you know, there is not only raw material in the price with the construction company. We have a global discussion with them so that we can have a good equilibrium to meet our price. Yes, of course, you underline that there is also the price of land and also component in our price. We are quite confident that we can have a good level of margin for our next operation despite the inflation of raw material.
Absolutely. The cost of commodities is up, but the cost of human labor is down, and they tend to offset each other. If you look at the slide about housing starts going down, that's more or less true for all the final markets of the construction industry. In this respect, the construction industry is not in a great market. It's not in great shape, which gives us a little bit more leverage to negotiate with them compared with the previous years.
Okay. Many thanks.
Once again, ladies and gentlemen, if you would like to ask a question today, please press star and then one at this time. It appears we have no further questions. I would like to turn the conference back over to our speakers for any concluding remarks.
No, we don't have any other remarks. Our next meeting, our next rendezvous, is at the AGM on May 19 at 10:00 A.M., which will be broadcast. Important meeting point with our shareholders. Unfortunately, distant video, but if you can join, you will be very welcome. Thank you.
Thank you.
Once again, ladies and gentlemen, that concludes today's conference. We appreciate your participation today.