La Défense is going through a transition period. With large-scale redevelopment and reconstruction under way, the satellite business district to the west of the French capital has been likened by Parisians to a building site. The area, is, therefore, an appropriate location for listed French developer Nexity to have its headquarters: the company has also conducted a large-scale transition over the past 12 months.
Last July, Nexity, after five months of deliberation, agreed to merge with French bank Caisse d’Epargne, which would take 38.2% of Nexity. The bank now has 39.8% (see chart below). A new investment division and a push towards more asset management and services have been announced since the merger.
The developer, which is also active in Belgium, the Czech Republic, Germany, Italy, Portugal and Spain, has increased its market capitalisation to €3.3bn. As part of the merger agreement, Nexity took all of GCE Immobilier and a 25% stake in Caisse d’Epargne’s Crédit Foncier.
A pair of subsidiaries
The merger also meant that brokerage firm Keops became a subsidiary, as did French REIT Eurosic, in which Nexity took a 30% stake. Eurosic management hope to turn it into one of France’s top 10 property companies by 2011.
Eurosic, in which Nexity has a 31.88% stake, is in talks with French developer Vectrane for a merger. The two companies are due to meet again this month before seeking approval from France’s financial regulator AMF. Shareholders will be asked to approve a share deal in which one Vectrane share will be worth 0.45 Eurosic shares.
Although its strength is in residential construction, Nexity is also active in offices and logistics. Most of the company’s office development is done through its Nexity-Entreprises subsidiary, with the Commerces and Geprim vehicles dedicated to retail and logistics respectively.
Total revenues for the group last year were €2.395bn, an increase of 29% on 2006. Nexity’s commercial real estate division accounted for €355.7m of that total. The company now has plans to increase its commercial development, particularly in the regions and the retail sector. Net commercial orders in the first half of this year totalled €570m, compared to €242m in the same period last year.
Most of the company’s gains come from its residential operation, which in the first half of this year accounted for 82% (€118.7m) of a total operating profit of €144.4m. The figure was up on the same period last year, but by only 2%.
Nexity’s chairman, Alain Dinin, has long bemoaned the fact that VAT in France is 19.6%, and is thus a barrier to residential growth. The company’s residential operation has therefore targeted land for construction in zones where future homebuyers are entitled to a VAT discount, paying 5.5%. In France, homebuyers buy off-plan, with residential sales preceding construction. That tactic may have safeguarded Nexity from damage caused by the credit crunch. The company has announced that it will trim its residential pipeline for this year and 2009 in a precautionary measure.
The company’s outlook for the residential sector this year is one of caution – it is aiming to build 90,000 units compared to 127,400 in 2007. The company will focus its activity on undersupplied areas. Within the Paris region, there is still demand for new housing.
Stable prices predicted
Dinin is confident that the lack of stock and sustained demand will keep prices stable in France. “Between now and the end of the year, the group will continue to apply measures designed to cut costs,” says Dinin. Nexity is aiming for revenue growth of 11% by the end of this year.
Asset management could also prove to be a big earner for the company. Nexity’s vehicle, Saggel, recently won two management contracts for AEW Europe assets. The company will manage 141,000m2 of French retail property. The Saggel subsidiary has around 225,000m2 of assets under management.
In May, Nexity also won contracts to manage Stam Europe and Union Investment assets, and has also bought an office property in Alfortville near Paris jointly with Lexin Capital. The Nexity-REIM subsidiary will manage the 18,000 m2 asset.
Despite its 12-month-old link with a bank, Nexity will be able to do little about the lack of credit for buyers, whether they are residential or commercial. Things may get worse before they get better – Nexity is hoping for a real estate recovery by mid-2010.
