PROSPECTS AND REALITIES

Transcription

1 LOCAL AUTHORITIES INVESTMENT RESIDENTIAL COMMERCIAL DISTRIBUTION SERVICES LOCAL AUTHORITIES INVESTMENT RESIDENTIAL COMMERCIAL DISTRIBUTION SERVICES PROSPECTS AND REALITIES DETERMINATION AND SERENITY IN 2009 A FLEXIBLE, RESILIENT BUSINESS MODEL SOLUTIONS FOR OUR CLIENTS

2 HISTORY OF AN INTEGRATED PLAYER From the outset, Nexity has grown by diversifying its business activities. Nexity operates across the entire spectrum of real estate activities providing solutions for each client ALLIANCE WITH GROUPE CAISSE D EPARGNE INTEGRATION OF LAMY AND KEOPS 2008 NEXITY HOLDS FIRM IN THE ECONOMIC CRISIS Operating margin of 9.2%. 307 million in cash from operating activities. Sale of holding in Crédit Foncier de France for million (February 2009) NEXITY FLOATED ON THE STOCK MARKET ACQUISITION OF SAGGEL 2006 ACQUISITION OF CENTURY 21 FRANCE AND GUY HOQUET L IMMOBILIER FOUNDATION OF GROUPE GEORGE V Férinel diversifies into residential real estate and transfers its headquarters to Paris, changing its name to Groupe George V CREATION OF NEXITY-VILLES & PROJETS ACQUISITION OF GEPRIM (logistics specialist) GEORGE V BECOMES PART OF VIVENDI Groupe George V is acquired by Compagnie Générale d Immobilier et de Services, the real estate division of Vivendi FERRET SAVINEL BECOMES FÉRINEL Bernard Arnault gives a new name (Férinel) and a new positioning in the leisure real estate industry to the property development company Ferret Savinel NEXITY IS FOUNDED Vivendi sells its equity interest in a leveraged buyout. Nexity is formed in June.

3 CONTENTS ANNUAL REPORT 2008 P. 4 STRATEGY Determination and serenity in 2009 Our strategic choices have proven their worth. P. 6 INSIGHT A flexible and resilient business model Nexity s diversified business model makes it resilient to cyclical fluctuations. P. 8 KEY FIGURES 2008: financial solidity and visibility A sound financial structure. The capacity to finance our ongoing development. P. 10 ANALYSIS Solutions for clients Nexity provides companies and individuals with assistance through each stage of their transactions and helps local authorities address urban development challenges. P. 11 ANALYSIS Why is France an exception? The French real-estate sector has sound fundamentals. P. 12 THE REAL ESTATE SECTOR HITS THE HEADLINES Key developments A hard landing for the real estate market. State recovery plan. VILLAGE BACALAN BORDEAUX (GIRONDE) TRADING FLOOR BUILDING PARIS-LA DÉFENSE ZAC SEGUIN RIVES DE SEINE BOULOGNE-BILLANCOURT (HAUTS-DE-SEINE) P. 14 INDIVIDUAL CLIENTS Residential Rethinking our products and our production system. Services Accelerating change. Distribution Sharpening our competitive edge. P. 26 CORPORATE CLIENTS Commercial Taking advantage of greater selectiveness. Investment Co-investing and developing synergies. Services Rolling out a comprehensive offer, from marketing to property management. P. 36 LOCAL AUTHORITIES Nexity-Villes & Projets Acting as a bridge between the public and private sectors. P. 40 NEXITY AND GROUPE CAISSE D EPARGNE Partnership and synergies The first tangible synergies emerge on the ground. P. 42 SHAREHOLDERS Key information Nexity share. Consolidated data. Nexity s equity interests. Governance Who does what? Press review The markets get to know Nexity better. 3

4 STRATEGY / ALAIN DININ CHAIRMAN AND CHIEF EXECUTIVE OFFICER DETERMINATION ALAIN DININ, CHAIRMAN AND CHIEF EXECUTIVE OFFICER Over the past four years, Nexity has been through decisive stages in its development. We have broadened and consolidated our shareholder base since our flotation on the stock market in In 2008, we experienced some of history s most severe economic turbulence. No one can deny the reality of the situation, neither can they claim to have anticipated or prepared for it. This is as true of the developed world s political leaders as it is of corporate leaders. While we may not be able to change the course of events, we are obliged to respond to changes as they occur, to take decisive action to adapt and lay the groundwork for future growth. Realism, rather than optimism or pessimism, must dictate how we are to function in this extraordinary period. While the analysis of recent events inspires caution, we must also maintain the agility we need to take advantage of the many opportunities that lie ahead. Thanks to its solid foundations, sound business model and numerous strengths, Nexity faces into 2009 with equanimity. Overall, the real estate market in France has weathered the storm better than the rest of Europe as well as the United States. Furthermore, across the profession, both commercial and residential players took immediate steps as sales volumes began to contract. Stocks are low and the French market is sound, as are the banks that finance it. In the year under review, Nexity s business lines demonstrated their resilience, turning in performances that exceeded the averages in our markets. Our order backlog, which provides us with visibility for the next seventeen months, is further evidence of our strength. Our finances are sound and our financing is on firm footing. Our debt is low. We have shown our responsiveness by reacting promptly to the deteriorating economic environment. Our strategic choices have proven their worth in this new context, particularly where services are OPERATING PROFIT (AS A % OF REVENUES) (AT 31 DECEMBER 2008) 9.2% concerned. There is recognition for the importance of the real estate industry for the economy and for society. Political leaders have fully realised this and have taken appropriate action. We know that the coming year will be a challenging one. However, once again, our markets are sound and promising and are buoyed both by government measures and interest rate cuts. We have the financial resources to seize opportunities and we will assess each situation prudently and with equanimity. We are a strong, cohesive Group. We employ careful analysis and take decisive action to increase market share. We will continue to grow by acting with foresight and initiative while staying on the course we have set as an integrated real estate development and services player. 4 NEXITY Annual report 2008

5 STRATEGY AND SERENITY IN 2009 We have diversified into services, where we have become a key player, and we target a broad client base in our areas of expertise. Each of our fully-complementary business lines contributes to our overall profitability. BUILDING FUTURE SUCCESSES WE EMPLOY CAREFUL ANALYSIS AND TAKE DECISIVE ACTION TO WIN MARKET SHARE. ALAIN DININ, CHAIRMAN AND CHIEF EXECUTIVE OFFICER SECURE MEDIUM-TERM FINANCING Of our 636 million of medium-term gross corporate debt at end-2008, 90% will mature in or after At end-2008, Nexity had medium-term corporate credit lines totalling 816 million. At 31 December 2008, the medium-term corporate debt amortisation profile was as follows: (in millions) AMORTISATION % OF OUT - STANDING DEBT TOTAL > % 3% 5% 43% 46% Short-term market conditions will remain difficult, but market fundamentals are sound and promising. A more favourable environment (government incentives and interest rate cuts). A sound business model. Financial flexibility enabling us to seize market opportunities. PROSPECTS 2009 OUTLOOK Residential: achieve a 10% share of the estimated residential real estate development market of between 65,000 and 70,000 units (versus 79,400 units in 2008). Commercial: the expected reduction in orders will be offset by the sizeable backlog at end-2008 ( 970 million). Consolidated revenues are expected to decline by less than 10% relative to Operating margin in excess of 7%. A minimum payout ratio of 35% of the Group share of net profit. MEDIUM-TERM OUTLOOK We expect the real estate market to recover in 2010 after reaching bottoming out in

6 INSIGHT / HERVÉ DENIZE VICE-PRESIDENT A FLEXIBLE, RESIL MODEL HERVÉ DENIZE, VICE-PRESIDENT FIRST FRUITS FROM THE CRISIS MANAGEMENT PLAN INITIATED IN SECOND-HALF HOW DID YOU RESPOND TO THE CRISIS? HERVÉ DENIZE: We had been expecting a contraction in real estate markets, but had no idea the downturn would be so sudden or so deep. In June, we took decisive action to adjust our offering and reduce operating resources. We also initiated a job saving plan for 190 people, some 160 of whom were transferred to our services operations. ARE THESE STEPS ENOUGH? HERVÉ DENIZE: I think our timing was right. In hindsight, we feel that we did what was necessary and that no major adjustments will be needed in Our responsiveness enabled us to control working capital requirements, which were reduced by 189 million (23%) over a six-month period to 633 million at 31 December We have also maintained operating margin and therefore our profitability in the six business lines, across which our risk profile is spread. This makes us more resilient to cyclical fluctuations. Our financial position is stable, with gearing of 28% and we demonstrated our ability to finance our external growth with the Group s cash flow. ADAPTING TO A CHANGED ENVIRONMENT Adjustments to the product offering and sales plan for residential real estate operations to take account of conditions in each market. A reduction in the Group s workforce during the year through a variety of mechanisms (non-replacement, departure at end of trial period, non-recourse to temporary employment, use of fixed-term contracts, etc.), with the introduction of a workforce restructuring plan for 190 people involved in real estate development. A substantial reduction in the number of new residential real estate developments (down by around 50% on 2007 to 90). Reductions in the average number of units in each phase of residential developments. Termination of 110 developments for which sales were proving too slow (cancellation of 247 reservations in the fourth quarter). Proposed developments for 23 land parcels were discontinued and the lands were put into reserve. Land and development costs are systematically renegotiated wherever possible. Closure or regional consolidation of agencies for residential and subdivision activities. Closure of two local offices outside France (Portugal and Czech Republic). 6 NEXITY Annual report 2008

7 INSIGHT IENT BUSINESS WITH A SOUND FINANCIAL POSITION AND A 3.1 BILLION ORDER BOOK, NEXITY HAS STRONG VISIBILITY INTO FUTURE REVENUES. OUR STRENGTHS RESIDENTIAL An order book representing 14 months of revenues. A diverse offering, configured to meet the requirements of government recovery packages (entry-level and mid-market segments). A broad client base: in 2008, first-time buyers represented 32%, individual investors 33% and institutional investors (including public housing bodies) 35%. COMMERCIAL Revenues and margins protected by the order book ( 970 million at 31 December 2008). A limited risk profile in France and elsewhere. SERVICES AND DISTRIBUTION Services: recurring cash flow (annual churn of less than 5% in the portfolio of property management contracts) and a satisfactory profitability enhancement programme. Iselection: a dedicated buy-to-let sales force, operating through the Caisse d Epargne network. Franchises: limited overheads (franchisor). CAPITAL STRUCTURE No significant debt maturity before Well within bank covenant requirements. Low gearing (28%), prior to the cash proceeds from the sale of our stake in Crédit Foncier de France. AN INTEGRATED PLAYER Three clients Local authorities Corporate and institutional clients Individual clients Six complementary business lines Integrated urban development Commercial real estate Investment Services Residential real estate Distribution Services 7

8 ANALYSIS / LAURENT DIOT CHIEF FINANCIAL OFFICER 2008: FINANCIAL LAURENT DIOT, CHIEF FINANCIAL OFFICER With a 2008 operating margin of 9.2%, the Group demonstrated its ability to weather a real estate downturn. Our operating margin broke down as follows: 9.8% for the Residential division, 11.6% for Commercial real estate and 5.8% for Services and Distribution. Despite the market reversal in 2008 and a sharply deteriorating economic environment, our objective for 2009 is to achieve an operating margin of over 7%. By its prompt and forceful response, the Group proved that it was capable of containing the increase in its working capital requirements (WCR). The reduction in WCR recorded in fiscal year 2008 contributed almost half of the 307 million OWNERSHIP STRUCTURE (at 31 December 2008) 52,981,543 shares 5.1% 5.6% 11.6% 38.2% 39.5% Generali France Assurances Caisse des Dépôts et Consignations Management and employees Free float CNCE ORDER BACKLOG (in million) OPERATING PROFIT (in million) 3,000 3,400 3, The order backlog represents 17 months development revenues. Within this total, residential orders represent 14 months revenues and commercial orders represent 2.8 years commercial real estate revenues Operating profit totalled 246 million, down 26% on The operating margin was 9.2% REVENUES: NEXITY GROUP recorded revenues of 2,683 million in 2008, representing a 4% increase on 2007 pro forma revenues, which included the asset contributions of Groupe Caisse d Epargne as from 1 January 2007 (1). Compared with 2007 reported revenues, which included contributions as from 1 July 2007, revenues were up 12%. (1) 2007 pro forma revenues are calculated by simulating as of 1 January 2007 the impact of the business assets contributed in July 2007 by Groupe Caisse d Epargne. 8 NEXITY Annual report 2008

9 KEY FIGURES SOLIDITY AND VISIBILITY in net cash generated by operating activities over the year. Lastly, the consolidated balance sheet at 31 December 2008 clearly shows that the Group did not need to dispose of its stake in Crédit Foncier de France (CFF) either to achieve a healthy capital structure, with a debt ratio of less than 30%, or to satisfy comfortably its banking covenants. In addition to its cash resources, which were reinforced in February 2009 by some 540 million in proceeds from the sale of its equity stake in CFF, the Group has secure medium-term debt: almost 90% of its 636 million in medium-term corporate debt matures in or after BREAKDOWN OF CONSOLIDATED REVENUES NET DEBT (in million) SHAREHOLDERS EQUITY 609 2,109 2,024 13% Commercial 21% Services and Distribution 66% Residential NET DEBT NET DEBT/ SHAREHOLDERS EQUITY % 27% 28% After including the proceeds on the disposal of the Group s equity stake in CFF, consolidated net debt would have been 1% at 31 December The Group intends to allocate 25% of the million received from this sale to pay down corporate debt, while the balance will be used to finance its development and operations. GROUP SHARE OF NET PROFIT (in million) DIVIDEND PER SHARE (in ) * (1) 2008 (2) Pro forma The Group share of net profit excluding Eurosic write-down and the divestment of CFF totalled 177 million. (1) Excluding Eurosic write-down. (2) Excluding Eurosic write-down and the divestment of CFF * The dividend distribution submitted for approval to the general shareholders meeting of 13 May 2009 represents approximately 45% of Group share of net profit excluding Eurosic write-down and the divestment of CFF. 2,683 (in million) 2007 REVENUES: 2, REVENUES: 1,

10 BUSINESS LINES SOLUTIONS FOR OUR CLIENTS NEXITY S COMPLEMENTARY BUSINESS LINES ASSIST COMPANIES AND INDIVIDUALS THROUGH EACH STAGE OF THEIR REAL ESTATE OPERATIONS AND HELP LOCAL AUTHORITIES ADDRESS URBAN DEVELOPMENT CHALLENGES. NEEDS LEASE PROPERTY OR FIND PROPERTY TO LET NEXITY S OFFERING Real estate owned by individual or institutional owners PRIVATE INDIVIDUALS PURCHASE A HOME INVEST OBTAIN FINANCE OBTAIN PROPERTY MANAGEMENT SERVICES OBTAIN ASSISTANCE New and second-hand apartments, detached houses, townhouses, building plots, and residences for seniors New apartment buildings (Scellier-Carrez, Robien, Borloo and LMNP schemes), serviced residences, residences for seniors, etc. Negotiation of financing with banking partners (interest rates, insurance, loan term, guarantees, repayment instalments, etc.) Management of co-owned properties: ensuring that shared building facilities remain in good working order, managing upkeep of shared building areas and assisting owners with their development projects Management of rented property, including guaranteed payment of rent and service charges Insurance, personal services and services for homebuyers SELL PROPERTY Real estate agency networks NEEDS DEVELOPMENT NEXITY S OFFERING High-rise buildings, new offices, warehouses, business parks and hotels COMPANIES AND INVESTORS RENOVATE A BUILDING REAL ESTATE FINANCING OFFICE PROPERTY ADMINISTRATION SALES / LETTINGS INVEST Property refurbishment and redevelopment Specialist finance and leasing (partnership with Groupe Caisse d Epargne) Property management solutions for commercial, light industrial, warehouse and retail real estate Business expertise: regulations, environment, techniques, purchasing, insurance, marketing and e-solutions Marketing and commercial strategy consulting Investor financing rounds, self-owned and third party property management, sale-and-leaseback, SCPIs (sociétés civiles de placement immobilier unlisted property funds), OPCIs (organismes de placement collectif immobilier open-ended property investment funds) and listed property companies LOCAL AUTHORITIES NEEDS URBAN PLANNING DEVELOPMENT FINANCING NEXITY S OFFERING Mixed-use developments combining office and residential space along with public amenities Combines expertise in design, coordination, integration and production Specialist financing, public-private partnership with Groupe Caisse d Epargne 10 NEXITY Annual report 2008

11 ANALYSIS REAL ESTATE WHY FRANCE IS AN EXCEPTION? FRENCH REAL ESTATE MARKETS HAVE SOUND FUNDAMENTALS AND THE REBOUND MAY WELL OCCUR EARLIER THAN IN OTHER COUNTRIES. 1. NO COLLAPSE IN PROPERTY VALUES (Q baseline value of 100) Average prices of new apartments France (source Meedat Per sq.m. Q baseline value of 100) United Kingdom (source Halifax Q baseline value of 100) In 2008, France saw a correction, rather than a collapse in property values, particularly as regards second-hand properties, where a further drop of 6% to 10% is likely in Prices of new homes have stabilised. In France, a home costs, on average, 3.6 years salary, compared with 5 years salary in the United Kingdom. (Source Century 21) 2. NO HOUSING STOCK GLUT Completed new-build homes unsold ( ) in number 1,000, , , , ,000 1,405 1,534 1,327 2, France (source Meedat) Spain (source BBVA) 5,191 > 1 million 2008 At the first sign of a slowdown in sales, all French property developers immediately cut production in order to avoid a situation of oversupply. In December 2008, unsold completed residential units represented 5% of available stock, i.e. 5,191 units. In France, pre-financing (i.e. off-plan acquisitions) means that developers manage order backlogs rather than housing stocks. 3. FINANCING RESTRAINT in GBP million 16,000 12,000 8,000 4,000 0 France (source Banque de France) United Kingdom (source Bank of England) Monthly change in residential mortgage lending 20,000 16, in million 12,000 8,000 4,000 In France, lending institutions provide loans on the basis of borrowers ability to repay, rather than property values. This prudent approach has limited the number of delinquent loans, thereby keeping repossessions under control. In France, delinquency on property loans represented 1.1% of outstanding receivables at 30 June 2008 and there are some 15,000 repossessions annually. By comparison, there were 40,000 repossessions in the UK (up 50% on 2007) and 750,000 in the USA. 11

12 Grand Paris : the Greater Paris urban regeneration plan In January, the French President launched a consultation process aimed at defining the future of the Paris region for the next three decades and developing a 21st-century agglomeration (Greater Paris). Ten teams of architects and urban planning consultancies were selected to work on the project. Attali commission report Recommendation no. 295: encourage involvement by private operators in the construction and management of socially-mixed residential real estate. (January 2008) June 2008: Nexity joins architect Roland Castro s team. Clos de l Église development Toulouse (Haute-Garonne) Since 2006, Nexity has sold 4,416 housing units to public housing bodies. In 2008, the proportion of reservations accounted for by such entities was up 35%. KEY FIGURE 5.11 % This was the average interest rate paid on property loans by private individuals in Q (excl. insurance and security costs) Sources: Banque de France, Crédit Logement and Observatoire du financement des marchés résidentiels. In March 2008, the market was paralysed by price and financing factors: A drop in the price of new housing is practically impossible, given high land prices and labour costs, rocketing raw materials prices, increased standards constraints and for us, of course the need to maintain our margins. In addition, there is very little stock available. We may see a slowdown, or even a decline, in the prices of second-hand homes. If there is a fall, it will not exceed 10% and will be triggered by tighter lending conditions. An increase of 50 in repayment costs would be enough to see 2.5 million households turned away, rather than being able to get a loan and buy a property. Alain Dinin Challenges (13 March 2008) Belved air Villemomble (Seine-Saint-Denis) A hard landing for the real estate sector According to a statement issued on 24 February 2009 by the Ministry for Ecology, Energy, Sustainable Development and Town and Country Planning, developers sold a total of 79,400 housing units in 2008, down 37.6% from the previous year. October 2008: The crisis has prompted Nexity to take radical action to adapt to the new situation. In 2007, 128,000 new housing units were sold. This year, that figure is expected to drop to 75,000. Housing starts will be 90,000 units lower than in 2007 and we have discontinued 129 development programmes in France, representing one third of our activity. Alain Dinin Le Monde (10 October 2008) 12 NEXITY Annual report 2008

13 THE REAL ESTATE INDUSTRY IN THE NEWS Draft legislation to redress housing shortages and promote social inclusion Housing Minister Christine Boutin unveiled an action plan aimed at making housing easier to obtain. The plan notably involved facilitating the purchase by public housing bodies of pre-financed (i.e. off-plan purchases) housing units from private developers. In October, the bill was followed by a range of measures: the launch of an exceptional programme for the pre-financed acquisition of 30,000 housing units, the increase from 20,000 to 30,000 in the number of Pass-Foncier (aided-acquisition scheme) beneficiaries, the raising of the revenue ceiling for the special PAS (prêt à l accession sociale) subsidisedacquisition loans and the provision of land held by the State and public entities. November 2005: Nexity drew up a charter of ten commitments designed to make housing easier to obtain. The first commitment involves meeting the social-mix objectives set out by local authorities. Nexity Charter STATE RECOVERY PLAN FOR THE HOUSING AND CONSTRUCTION SECTORS In December, President Sarkozy announced a plan to help the housing sector following the slowdown in the construction of residential real estate in France. The plan notably concerns the acquisition of 70,000 units earmarked for aided acquisition schemes and social housing (40,000 units and 30,000 units, respectively). December 2008: SNI (Société nationale immobilière) pre-reserves 422 residential units from Nexity. February 2009: Nexity enters partnership with SNI (a subsidiary of the state-owned financial institution Caisse des Dépôts et Consignations) for the development and property management of grant-aided housing via a real estate company. The partnership will involve the production and property management of at least 800 grant-aided lettable residential units annually over the next three years. Domaine des Prés-Hauts Monéteau (Yonne) Launch of the 15-per-day house The 15-per-day (i.e. some 450 per month) house was officially launched on 15 April 2008 by Housing Minister Christine Boutin. Le Hameau de Mathilde Dax (Gironde) June 2008: Nexity was the first real estate developer to implement the scheme, with its programme in Monéteau, in the Yonne département. Nexity has since developed real estate programmes designed for the Pass-Foncier aided-acquisition scheme, in Méru and Saint-Crépin-Ibouvilliers (Oise), Ceyzériat (Ain), Saint-Priest (Rhône) and Mers-les-Bains (Somme). 13

14 RESIDENTIAL RESIDENTIAL P. 14 SERVICES P. 18 DISTRIBUTION P. 22 INDIVIDUAL CLIENTS A SHARP FALL IN VOLUMES 120, ,000 80,000 60,000 40,000 20, e Reservations for new residential units in France Sources: Meedat; Nexity for 2009 estimates. CONSUMER SOLVENCY RECOVERS 260,000 6% 250, ,000 4% 230, ,000 2% 210, ,000 0% June Dec.June Dec.June Dec.June Dec. June e Sensitivity of consumer purchasing power to interest rates Source: Crédit Logement. Consumer purchasing power ( ) Interest rate 14 NEXITY Annual report 2008

15 MARKET ANALYSIS RETHINKING OUR PRODUCTS AND OUR PRODUCTION SYSTEM Although the economy went into recession in 2008, this did not have a marked impact on our business in the first half of the year. Despite a 19% drop in business in value terms over the first six months of the year, we continued to record double-digit growth (16%) in revenues. At the end of July, it seemed reasonable to assume that we were seeing the results of tighter lending conditions and higher interest rates. By September, however, doubt was replaced by fear while the market had become paralysed, resulting in a 40% reduction in the volume of reservations over the year as a whole. This crisis of confidence deepened and half of those who reserved units with Nexity during the year finally cancelled. Nevertheless, most clients still intend to go ahead with their purchases and are merely waiting for conditions to improve. A study of French people s purchasing intentions conducted in January 2009 shows that 38% of those cancelling housing unit reservations with Nexity plan to purchase a home MARKET SHARE 9.2% Nexity s market share in within six months. This has prompted us to adapt our offering to the new market conditions. We also intensified block sales, notably to public housing bodies, a policy initiated in November 2005 with clear commitments concerning the development of sales of new housing units to the grant-aided rental sector. Along the same lines, we also entered a partnership with SNI, a Caisse des Dépôts et Consignations subsidiary, for the production of at least 800 housing units annually. In addition, one of our key challenges is to reduce the impact of construction costs, which are still too high, despite the fact that we have increased our productivity. It should also be noted that construction lead times have increased from fourteen to eighteen months over the past ten years, without any benefit in terms of quality for our clients. We are faced with three challenges build more quickly (and therefore less expensively, given that construction accounts for a considerable proportion of our costs), produce more efficient housing and enhance the quality of finishings (and therefore customer relations). Unfortunately, the sharp slowdown in the production of residential units, combined with the failure of the most vulnerable property developers, is likely to impact our ability to produce enough units to meet demand and reduce the current housing shortfall. BRUNO CORINTI CHAIRMAN OF NEXITY-LOGEMENT MARKET FUNDAMENTALS Robust demand Demand remains strong and is unlikely to slacken in the foreseeable future, since demographic trends (high birth rate, smaller average household sizes, changing lifestyles and greater life expectancy) will continue to drive housing requirements. A structural housing shortage Not enough residential units have been built in France in recent decades and at least 500,000 homes a year would need to be built over ten years in order to meet demand and absorb the current shortage. The situation will be further exacerbated by the 2008 construction slowdown (368,609 units source: Meedat) which is expected to continue in As a result, there could be a shortfall of as many as 900,000 units by the end of France continues to lag behind France still has one of Europe s lowest rates of home ownership (57%). This compares to 88% in Spain, 71% in the United Kingdom and 70% in the United States. Furthermore, 80% of French people report difficulties in finding housing*. President Sarkozy and his government are keenly aware of the need to address these concerns. * TNS-Sofres poll for Nexity January

16 INDIVIDUAL CLIENTS / RESIDENTIAL 7,307 NEW RESIDENTIAL UNITS AND 1,754 PLOTS OF LAND RESERVED Cœur de Seine Gennevilliers (Hauts-de-Seine) Le Nouveau Monde Saint-Priest (Rhône) 1,782 million in revenues (up 2% on 2007) 2008 HIGHLIGHTS RAPID READJUSTMENT The second half of 2008 saw a sharp slowdown in the residential real estate market, caused by the general economic downturn, with ongoing interest rate rises, flagging household confidence and tighter lending conditions. In this challenging environment, Nexity took reservations for 9,061 new residential units and plots of land, representing a reduction in volume terms of 38% compared with the previous year. Reservations for new residential units stood at 7,307, down 33% on This marked reduction was accounted for by a drop of 24% in overall reservations and a 29% increase in cancellations. In value terms, reservations of residential units were worth 1,361 million, down 38%. The average price of unit sales of residential properties (excluding block sales to institutional investors) was 200,000, down 4% on Sales to home buyers and individual investors represented 32% and 33% of 16 total sales, respectively. Reservations by institutional investors essentially public housing bodies rose by 5% to 2,519 units. In 2008, these represented 35% of total sales, compared with 22% in Faced with the severe market downturn, the Group put in place an adaptation plan during the year and discontinued 35 developments that had already been launched commercially. In 2008, a total of 90 programmes were put on the market, almost one half the total marketed in Pre-completion sales (sales upon commencement of construction) accounted for 59% of overall residential sales in 2008 and just 173 completed units remained unsold at 31 December Espace Galilée Franqueville-Saint- Pierre (Seine-Maritime) Le Parc de la Tèse La Ciotat (Bouches-du-Rhône) NEXITY Annual report 2008

17 Our levers ADAPTING our offering in line with Government incentives and new partnerships REDUCING construction costs CONTINUING to develop business with public housing bodies Management Committee of the Residential real estate division Bruno CORINTI, Chairman and Chief Executive Officer, Nexity-Logement Jean-Philippe RUGGIERI, Acting Managing Director, Nexity-Logement Jean-Paul BELOT, Corporate Secretary, Nexity-Logement François BONNET, Deputy Managing Director, Nexity-Logement Philippe CHRISTEL, Regional Director Philippe LIEFFROY, Regional Director Frédérique MONICHON, Regional Director, Île-de-France Jean-Luc POIDEVIN, Acting Managing Director, Local authorities division 17

18 SERVICES RESIDENTIAL P. 14 SERVICES P. 18 DISTRIBUTION P. 22 INDIVIDUAL CLIENTS MARKET FUNDAMENTALS An increasingly essential service Co-owners are faced today with an increasingly complex environment, resulting from obligations such as standards compliance, new diagnoses and regulations, etc. Management of their real estate assets therefore requires a wide range of technical and legal expertise. A little over 25% of French residential units are in co-owned buildings Co-owned buildings now account for some 7.6 million* residential units, occupied by 22 million people. These numbers are increasing constantly. This is due to both the construction of new co-owned buildings and the fact that buildings that once had a single owner, such as an institutional investor or a public housing body, are being sold and converted to co-ownership. By contrast, increases in the stock of individually owned houses are solely due to new-build developments. * Survey conducted by ANIL (Agence Nationale d Information sur le Logement) in MILLION WORTH OF WORK UNDERTAKEN IN 2008 Increasing asset value Whether for the purpose of maintaining or improving a property or ensuring compliance with applicable law and regulations, work on shared building areas is often essential and can increase the safety, value and useful life of the property concerned. More than half of French residential units are now over 40 years old. HOUSEHOLD CONFIDENCE Balance of responses (%) Financial position (future changes) Source: Insee. QUARTERLY SERVICES DIVISION REVENUES (in million) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q Services division revenues are not impacted by fluctuations in household confidence. 18 NEXITY Annual report 2008

19 MARKET ANALYSIS ACCELERATING CHANGE The property mana - gement sector is im - mune to the effects of economic cycles. For Nexity s Services division, 2008 was characterised by stability in terms of volume, with recurring revenues and a 96% contract renewal rate. FORGING AHEAD WITH REORGANISATION EFFORTS Extensive challenges lie ahead in the areas of professional standards and defining appropriate service levels. As a sector, property management still has image problems, both because clients are often unfamiliar with what the service entails and are therefore particularly sensitive as regards its cost and quality. Furthermore, a plethora of small operators has resulted in widespread unevenness in terms of service quality. The challenge, therefore, is to increase profitability while enhancing the quality of the service provided. It is against this backdrop that the Services division has undertaken a programme of change to adapt its organisation and become the market leader in property management for individual clients. Our entire management team has been replaced and seven regional divisions have been created, leaving a leaner management structure and a more network-centric organisation. This new governance has enhanced our efficiency. In parallel, the Services division has further reorganised its activities by client type, centring them on the core brands Lamy, Saggel and Richardière. BECOMING THE STANDARD- SETTER FOR SERVICE QUALITY The standardisation of our services offering requires the use of a common IT system, ensuring uniform reporting for clients across the entire agency network. We are also seeking to optimise our workforce, both through training and by promoting increased knowledge of our business lines. Providing the best service quality also entails reducing staff turnover. Our long-term objective is to gradually standardise business processes across our networks to ensure identical service regardless of location. Everything is being done to combine exemplary service quality with enhanced profitability. We aim to increase average profitability from operations to at least 10% over the coming years and to eventually become France s benchmark property management player. ARNAUD BAZIRE ACTING MANAGING DIRECTOR, SERVICES DIVISION 437 million 4,200 in revenues in 2008 employees ACQUISITION OF PELLISSIER & RONZINO On 26 September 2008, Lamy acquired a 100% stake in Pellissier & Ronzino. This transaction, which serves the company s aim of becoming France s benchmark property management player, provided Lamy with a presence in Grenoble, one of the country s ten largest property management markets. Lamy is now the leader in the Grenoble rental management market, with 4,900 units under management and, with 7,000 units, the second-largest player in co-owned property management. 19

20 INDIVIDUAL CLIENTS / SERVICES Lamy agency in Vence (Alpes-Maritimes) 63 LAMY AGENCIES IN THE PARIS REGION 197 LAMY AGENCIES IN THE FRENCH REGIONS 1 million residential units managed (co-owned buildings and rental management) Building managed by Saggel, rue du Laos Paris, 15th arrondissement 2008 HIGHLIGHTS STABLE, RECURRING BUSINESS In 2008, activity remained extremely stable for the Services division. The number of residential units under management at 31 December 2008 was the same as a year earlier (over one million, including 84,000 outside France essentially in Germany, Belgium and Poland). Nexity operates in the property management market through its subsidiary Lamy, which offers a complete range of property services (management of co-owned buildings, sale, rental and rental management) for individual clients (owner-occupiers, investors and tenants) throughout France and elsewhere in Europe through Lamy International. Together, Lamy s contracts for the management of co-owned buildings and rental management contracts concern almost 850,000 residential units. In addition, 20 4,400 residential units were sold through Lamy in 2008 and 25,700 were let. Richardière rounds out the service offering in the management of family-owned real estate assets. In 2008, the company provided rental management services for 8,000 units and managed co-owned buildings comprising 16,000 units. Lamy subsidiary Lamy Résidences is the leader in private sector student accommodation, with a nationwide network of over 142 residences comprising 15,000 units. In partnership with Pierre & Vacances, Lamy Résidences is also active in the development of the Citea network of serviced residences, of which there are currently 40 in France. Together, Lamy, Lamy International, Lamy Résidences and Richardière are backed by a network of 63 agencies in the Paris region and a further 197 in the French regions. Lamy offers on display A student residence managed by Lamy Résidences in Limoges (Haute-Vienne) NEXITY Annual report 2008

21 Our levers BECOMING the leader in property management for individual clients (volume, profitability and quality) LAMY: Management of co-owned buildings, rental management and transactions for private individuals RICHARDIÈRE: management of family-owned real estate assets Management Committee of the Services division Arnaud BAZIRE, Acting Managing Director, Services division Philippe CALMON, Corporate Secretary Christophe MULLER, CEO, Lamy International Valérie RAMOS-LE FOLL, Human resources Director Hervé TAHON, IT Director 21

22 DISTRIBUTION RESIDENTIAL P. 14 SERVICES P. 18 DISTRIBUTION P. 22 INDIVIDUAL CLIENTS MARKET FUNDAMENTALS Greater resilience Faced with a highly competitive market and an economic downturn, agency networks have a better chance of doing well. In 2008, agencies belonging to Nexity s franchise network saw a 15% reduction in transactions versus a 20% decline for the market as a whole. Shorter time on the market In deteriorating market conditions, properties not only sell more quickly through an agency than through private sales, but the additional time required to sell due to market conditions is also lower. According to a Century 21 study, in 2008, the average time on the market for agency sales increased by 9 days to 88 days. Over the same period, average time on the market for private transactions increased by 21 days to 93 days. (Source: entreparticuliers.com) CENTURY 21, GUY HOQUET AND KEOPS RÉSIDENTIEL AGENCIES ARE ACTIVE IN 990 TOWNS AND CITIES Assisting clients at every stage of the process A real estate professional s work does not end when the lease, reservation, contract or undertaking to sell is signed. The professionals involved must also help the client to negotiate all of the remaining stages successfully. The ability to offer additional services is essential for real estate agencies in today s market. CHANGES IN TRANSACTION VOLUMES (%) PRICE CHANGES (apartments, in per sq.m.) 3,200 3,100 3,000 2,900 2,800 T4 08 vs T4 07 : 8,4% 15 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q ,700 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q Sources: FNAIM, public notaries and Century 21. Forecast price drop for second-hand properties in 2009: 6% to 10% Source: Century NEXITY Annual report 2008

23 MARKET ANALYSIS SHARPENING OUR COMPETITIVE EDGE At the start of the year, we decided to give priority to four areas sale of new properties in real estate agencies, buil - ding land sourcing, development of property management and resale. However, the slump in transactions forced us to review these priorities in order to adapt to the new situation. DEVELOPING CUSTOMER SERVICE In a downturn, it is important to help the agency network to consolidate its market position by being more responsive to clients needs while ensuring that agencies are better equipped to take on competitors. This is the purpose of the financing services and services for homebuyers that we have rolled out throughout France and which are particularly relevant in the current climate. In a context where tighter lending conditions are liable to slow or impede certain sales, financing assistance is essential for real estate agencies. Similarly, while the provision of exclusive price bundles and promotional offers for homebuyers may not trigger a purchase, it does provide an incentive for customers who have seen their purchasing power decline in recent years. At a time when resale problems are dampening demand from buyers acquiring a home for the second time, the ability to enlist the services of an agency network gives an integrated real estate group such as Nexity a competitive edge. In-depth knowledge of individual catchment areas and probable price trends for second-hand properties, combined with the capacity to provide a reliable valuation enabling a quick sale are distinct advantages in the current environment. HARNESSING SYNERGIES We also consolidated our interest in Iselection, in which Nexity now has an 80% stake. This network enjoys exclusive agreements with Groupe Caisse d Epargne s regional banks for the distribution of buy-to-let investment products to branch customers. While the current downturn will obviously affect real estate agency networks, they will be less severely impacted than independent agencies, which lack critical mass and financial solidity and are less well placed to offer one-stop services to assist clients throughout the acquisition and letting processes. In view of this, Nexity stands to benefit greatly from its local contacts with real estate agents, who provide high-quality, professional services and can inform potential clients about new units available for sale. ANNE LALOU ACTING MANAGING DIRECTOR, DISTRIBUTION DIVISION 115 million 1,599 in revenues in 2008 franchised agencies in France ACQUISITION OF A CONTROLLING STAKE IN ISELECTION In early 2008, Nexity acquired a controlling equity interest in Iselection after having gained a 34% stake by way of the assets contribution made by Groupe Caisse d Epargne in July Iselection, which selects and markets residential property to let, has exclusive agreements with Groupe Caisse d Epargne for the marketing of letting services to the bank s customers. The agreements are valid until 2012 and over 60 advisors are currently working in key regional bank branches. Iselection represents a new distribution channel for new residential units produced by Nexity. 23

24 INDIVIDUAL CLIENTS / DISTRIBUTION 917 CENTURY 21 FRANCE AGENCIES 632 GUY HOQUET L IMMOBILIER AGENCIES 50 KEOPS RÉSIDENTIEL AGENCIES Guy Hoquet l Immobilier agency, Paris, 20th arrondissement More than 55,000 transactions A Century 21 agency banner 2008 HIGHLIGHTS THE DISTRIBUTION NETWORK STANDS FIRM Nexity s Distribution division comprises the Century 21 France, Guy Hoquet l Immobilier and Keops Résidentiel networks, which had 917, 632 and 50 franchised agencies, respectively, at 31 December 2008, i.e. a total of 1,599 agencies, slightly down on the previous year s total of 1,642. In 2008, these agencies completed over 55,000 transactions. The network s business is holding up better than the underlying market, with a 15% decline in transactions (excl. Keops Résidentiel), compared with a national decrease of 20%. Iselection, which is also attached to the Distribution division, sold 1,089 units during the year on behalf of third-party developers, through its real estate investment products business. The year under review also saw the rollout of a unique services offering for homebuyers, with the distribution of the Guides Solutions Clés Nexity. This system enables the agency network to provide clients with optimal support at every stage in their home ownership projects. The Guides Solutions Clés Nexity, which cover four solutions moving house, the home environment (household appliances, home improvements, etc.), home help and insurance are available in two versions, entitled Réussir votre déménagement et emménagement ( Successful home moving ) and Bien vivre à domicile ( Quality of life at home ). A total of 44,200 July 2008 guides were distributed free of charge. A Keops Résidentiel agency Inside a Century 21 France agency 24 NEXITY Annual report 2008

25 Our levers FACILITATING the sale of new residential units through the Caisse d Epargne network (Iselection) DEVELOPING the sale of new residential units through real estate agencies (sale and resale) PROVIDING one-stop services for homebuyers with assistance in all aspects of the purchasing and ownership processes Management Committee of the Distribution division Anne LALOU, Acting Managing Director, Distribution division Frédéric AUGIER, Acting Managing Director, Distribution division Philippe RAMET, Managing Director, Solutions Crédit Laurent VIMONT, Chairman and CEO, Century 21 France Hervé BLÉRY, Advisor to the Chairman, Century 21 France Guy HOQUET, Chairman and CEO, Guy Hoquet l Immobilier Hubert KOCH, Acting Managing Director, Guy Hoquet l Immobilier 25

26 COMMERCIAL COMMERCIAL P. 26 INVESTMENT P. 30 SERVICES P. 34 CORPORATE CLIENTS Société Générale s Tour Granite building (66,000 sq.m.), Paris-La Défense INVESTMENT MARKET AT A STANDSTILL 30 7% 25 6% 20 5% 15 4% 3% 10 2% 5 1% 0 0% Total investment in France (in billion) 10-year French treasury bonds (CNO Tec 10) French commercial real estate investment market Sources: CBRE, Immostat. ANNUAL CHANGE IN OFFICE TAKE-UP 3,000 2,500 2,000 1,500 1, In thousands of sq.m. Source: Keops. 26 NEXITY Annual report 2008

27 MARKET ANALYSIS TAKING ADVANTAGE OF GREATER SELECTIVENESS If 2008 commenced in a climate of uncertainty, it ended in an atmosphere of unmitigated gloom. By year-end, the total investment volume stood at half the level of 2007 and a number of schemes in the pipeline had to be shelved. The credit crunch and the subsequent economic downturn had a severe impact on commercial real estate markets. Nonetheless, the large corporate occupiers continued to drive demand while more than 2.3 million sq.m. of space was let in Rationalisation is on the march and investors are once again looking to commercial real estate as a safe haven. Interest rates cuts have greatly reduced the appeal of cash deposits while new office buildings continue to attract interest insofar as a significant portion of second-hand stock is no longer fit for purpose. The downturn has placed a renewed emphasis on quality and on new office space to the detriment of second-hand space while pushing the lower quality products further into the background. Tighter lending conditions for investors have partially frozen demand, with many investors unable to provide the necessary equity input for investment, while bank margins have increased and syndication REVENUES 344 million in 2008 difficulties have arisen for large-scale transactions. Demand is now significantly more selective, although as far as occupiers are concerned this is essentially due to strategic considerations rather than the economic situation. The crisis has not cast doubt on the relevancy of owner-occupied real estate choices, which is why we continue to focus our development on this client base. Given that the average size of deals has diminished, we will henceforth leverage the nationwide presence of Nexity s business lines to drive growth in the French regions. This collaborative approach has enabled us to complete developments in the Bouches-du-Rhône département, for example. The Paris region office lettings market held up well in The vacancy rate stood at a low of 5% while rents edged back by 1%. During the year, we focused on a small number of developments which accounted for 71% of total revenues. These included the Tour Granite building which was commissioned by Société Générale in La Défense, Saint-Ouen C1 (Generali) and Saint-Ouen C3 (Hines) buildings, the trading floor building for Société Générale in La Défense, and Clichy 4 (Kanam). Shorter production cycles for warehouses are allowing investors to play a waiting game, which is impacting business in logistics markets. Internationally, our revenues are growing, thanks to the progress achieved in two developments in Spain and Italy. The Commercial real estate division reported a marginal decline in revenues for France s commercial property inventory is ageing, a factor which works in our favour, while our excellent technical performance in terms of HQE-certified products places us in a position of strength in an uncertain economic climate, as do the synergies generated by our integrated urban development business. DANIEL VALOATTO ACTING MANAGING DIRECTOR, COMMERCIAL REAL ESTATE DIVISION MARKET FUNDAMENTALS Supply of office space remains tight Unlike in the 1990s, there is currently no excess production of new offices and local markets are perfectly capable of absorbing available space. In the most sought-after locations, such as the Paris central business district (CBD) and La Défense, demand is strong, particularly for new and redeveloped office buildings. Supply of office space is relatively tight in Paris where the vacancy rate currently stands at 5.5%, versus 7.2% in London, 8.4% in Munich and 8.9% in Madrid. The prospect of an acute shortage of new office space as from end-2011 cannot be ruled out. (Source: Keops, CBRE, Atisreal and Immostat). Strong demand for new office space Large corporate occupiers are continuing to rationalise their real estate needs, with a strong focus on new, latest generation buildings, which allow higher occupancy ratios and are more economical to manage and occupy. In 2008, new office buildings accounted for 31% of the total investment volume, compared with 21% in 2007 (Source: CBRE). New opportunities The ramifications of the Grenelle Environment Round Table process for construction and refurbishment activities will greatly accelerate the renewal of commercial real estate, particularly given that almost one-half of the office space in the Paris region is obsolete*, according to the Paris region commercial real estate observatory ORIE. New regulations due to come into force in 2010 will lead to the generalisation of energy efficient buildings in the commercial sector. * i.e. has lost value and outlived its usefulness as a result of technical change, rather than through wear and tear (Source: ORIE). 27

28 CORPORATE CLIENTS / COMMERCIAL 2008 HIGHLIGHTS BALANCED DEVELOPMENT In 2008, the Commercial real estate division completed nine developments in France, representing some 227,800 sq.m. of gross internal floor area. This comprised 171,300 sq.m. of office space and 56,500 sq.m. of warehouse and light industrial space. Five office developments were located in the Paris region, among them the Tour Granite building at Paris La Défense (70,000 sq.m. gross internal floor area) and the Le Delage in Gennevilliers (51,300 sq.m. gross internal floor area). In addition, four logistics and light industrial premises were delivered during the year, mainly in the French regions. These included Building B in the Actilogis industrial park in Montélimar (36,100 sq.m. gross internal floor area). Despite the lacklustre economic situation, business remained brisk in the commercial real estate sector during 2008, with Nexity taking orders for a total of over 87,000 sq.m., representing revenues for the Group of million excl. taxes (up 13.5% on 2007). At 31 December 2008, the backlog represented million excluding tax, i.e. almost three years revenue. These orders notably included Société Générale s trading floor building at Paris-La Défense (43,200 sq.m.), on which construction work got underway during the summer. Warehouses and light industrial premises represented 38,800 sq.m. (44% of total take-up). Though the bulk of the Group s commercial real estate developments are located in the Paris region, it is also present in the southeast of France, (in Lyon and Aix-Marseille). The Group also has operations in major urban areas elsewhere in Europe where institutional and international investors are active (e.g. Madrid, Barcelona, Brussels, Milan and, more recently, Warsaw). Le Parc de Sénart Savigny-le-Temple (Seine-et-Marne) 970 million backlog FRANCE (Paris, Lyon, Marseille), BELGIUM (Brussels), SPAIN (Madrid and Barcelona), ITALY (Milan), POLAND (Warsaw) Waterloo 16 Brussels (Belgium) 28 Edison Business Centre Sesto San Giovanni (Italy) Valsolana Garden Business Park San Cugat (Spain) NEXITY Annual report 2008

29 Our levers CONSOLIDATING activity with corporate occupiers and end users INTENSIFYING our expansion in the French regions Trading floor building under construction for Société Générale (43,000 sq.m.), La Défense Management Committee of the Commercial real estate division Daniel VALOATTO, Acting Managing Director, Commercial real estate division Alexis PERRET, Deputy Managing Director, Commercial real estate division Laurent BIZEUR, Deputy Managing Director, Commercial real estate division Bertrand JASSON, CEO, Nexity-Entreprises Frédéric CHABROL, Chairman of the Management Board of Nexity-Geprim Nicolas WALLACH, Director of Hotel real estate operations Bernard PINOTEAU, Managing Director, International commercial real estate division Laurent CASTELLANI, Chairman of Keops 29

30 INVESTMENT COMMERCIAL P. 26 INVESTMENT P. 30 SERVICES P. 34 CORPORATE CLIENTS MARKET FUNDAMENTALS Real estate: a safe haven Because it provides secure, indexed revenues over the medium to long term, real estate is less volatile and offers greater liquidity and security than other asset classes. Extensive outsourcing potential A very high proportion of French companies still own their premises, which leaves considerable scope for the development of real estate outsourcing. THE INVESTMENT DIVISION HAS INTERESTS IN 5 PROPERTY COMPLEXES IN PARIS AND THE INNER SUBURBS, REPRESENTING ALMOST SQ.M OF USABLE, FLOOR SPACE AND A VALUE IN EXCESS OF 315 MILLION A changing environment In 2008, US and UK investment funds were less prominent, as were SIICs. By contrast, funds with substantial liquidities notably life insurance and pension funds and unlisted vehicles such as SCPIs and OPCIs remained active, which explains why 54% of investment last year (up from 42%) came from within France. Redevelopment of the Aviso building at 49-51, quai de Dion-Bouton Puteaux (Hauts-de-Seine) 20 TRANSACTIONS IN FRANCE BY SELLER TYPE (in million) INVESTOR USER DEVELOPER INVESTMENT IN FRENCH CORPORATE REAL ESTATE (in million) Services Warehouses Retail Light industrial Offices Source: Keops. Source: Immostat. 30 NEXITY Annual report 2008

31 MARKET ANALYSIS CO-INVESTING AND DEVELOPING SYNERGIES 2008 was marked by a significant decline in commercial real estate investment, with the freezing up of lending markets and fall in real estate values. Amounts invested in 2008 represented barely half of those invested in Certain factors are nevertheless supporting the market, not least of which demand for investment in long-term assets geared toward pension funding. The Parisian market retains a strong level of attraction. Market fundamentals remain sound, with lower vacancy rates than other large European cities, high take-up and effective supply management by the parties involved. CREATING VALUE Within this context, Nexity s Investment business has pursued its strategy with two objectives in mind: to generate real estate value while at the same time exploiting synergies with other Nexity subsidiaries. Nexity-Reim, Nexity s real estate investment vehicle, has the following principal roles: to implement club deals in which we acquire a minority stake (between 10% and 40%) and to manage real estate assets (which may include both acquisition and assignment missions) on behalf of third parties within the context of asset management contracts entrusted by property investment vehicles (club deals or outside investors). In addition, Nexity owns a stake in two companies that provide added value in terms of investment vehicles: Eurosic, a listed real estate investment company (32%) and Ciloger, an SCPI-OPCI fund manager (45%). EXPLOITING GROUP SYNERGIES Nexity-Reim s activities perfectly complement the Group s other lines of work. Thus, Nexity-Entreprises is responsible for the development, Saggel the property management and Keops the marketing of the various developments in which we are involved. Investment constitutes a complementary link in the chain of creating real estate value for our clients as well as for the Group. LAURENT DIOT CHIEF FINANCIAL OFFICER OF NEXITY 315 million in investments in which Nexity Group has a financial interest WHAT IF REAL ESTATE BECAME A SOURCE OF FINANCING? Specialised in enhancing the value of real estate assets through outsourcing operations in France and Belgium for the purpose of acquiring, refurbishing and developing real estate, CAPNEXI, a dedicated real estate acquisition and management platform, enables its clients to outsource their real estate assets, thereby generating cash and increasing their flexibility. The value is added by creating special purpose vehicles such as OPCI open-ended property investment funds, thus making it possible to provide the seller with advantageous financial and tax solutions. CAPNEXI is a full service operator and advisor, providing the seller flexibility and adaptability by fulfilling the roles of purchaser, developer, manager and landlord. 31

32 CORPORATE CLIENTS / INVESTMENT 23 Italie Paris (13th arrondissement) 2008 HIGHLIGHTS ENGAGING IN OPPORTUNISTIC INVESTMENT 32 At 31 December 2008, the Invest - ment division held interests in assets with an estimated acquisition cost of over 315 million. These were spread across five office real estate developments located in and near Paris and involved the outlay by Nexity of 17 million of its own funds. A number of buildings were acquired jointly with Nexity- Reim. One of these an 16,700 sq.m. office building in the Paris suburb of Alfortville, developed by Nexity-Entreprises was bought from plan in collaboration with Lexin Capital for a total of 56 million. Elsewhere, the 18,200 sq.m. C1 office building on the former Alstom site in Saint- Ouen was jointly acquired with Generali and a leaseback arrangement was concluded with Alstom ahead of completion. Throughout the year, the Investment division also continued to initiate sale-andleaseback transactions, whereby companies existing real estate assets are sold and partially leased back to them. In partnership with Captiva, Nexity-Reim created CAPNEXI, the first OPCI dedicated to partial sale-and-leaseback transactions. Nexity owns a 40% stake in CAPNEXI, which is managed by Ciloger. The first operation involved the acquisition, for 99 million, of a set of three office buildings belonging to Bayer in Puteaux, near Paris, totalling almost 20,000 sq.m. of floor space. The buildings will be redeveloped by Nexity, with Bayer staying on as a tenant occupying 40% of the floor space. C1 Saint-Ouen (Seine-Saint-Denis) ZAC des bords de Marne trading estate in Alfortville (Val-de-Marne) NEXITY Annual report 2008

33 Our levers ENGAGING in opportunistic investment creating value in the non-residential real estate sector EXPLOITING synergies within the Group: Nexity Entreprises (development), Saggel (rental management), Keops (marketing), etc. BEING a recognised player in French commercial real estate asset management Management Committee of the Investment division Laurent DIOT, Group Chief Financial Officer Jean SZPYT, CEO Élisabeth GIRARD, Corporate Secretary Carole DE MATHAREL, Acquisitions Director Florence HABIB-DELONCLE, Financial Engineering Director Laurent DE COLIGNY, Operational asset management Director 33

34 SERVICES COMMERCIAL P. 26 INVESTMENT P. 30 SERVICES P. 34 CORPORATE CLIENTS MARKET FUNDAMENTALS A changing market In recent years, the market in real estate services for professionals has been rendered more complex by the increase in laws and regulations in connection with sustainable development. These changes require know-how and multiple skills that only large groups with specialised subsidiaries can offer. Our levers Management in real time With the creation of open-ended property investment funds (OPCI), property management departments must put in place dedicated finance and accounting teams to deal with the particularities of the management and reporting obligations proper to such funds. In particular, the challenge lies in obtaining information flows in real time in order to calculate the net asset value per share of real estate funds. BEING a leading player in the marketing and sale of commercial real estate REINFORCING our leadership position in commercial real estate management France is more resilient Corporate real estate transactions whether lettings or sales by end-users held up better in France than in large metropolitan areas elsewhere in Europe. In 2008, year-on-year take-up fell by 12% in France, whereas London saw a decrease of 30% and Madrid 48% NUMBER OF TRANSACTIONS INVOLVING UNITS OVER 3,000 SQ.M. SINCE Source: Keops. SUPPLY OF NEW OFFICE SPACE BY DELIVERY DATE (in sq.m.) 2,000,000 1,800,000 1,600,000 1,400,000 1,200,000 1,000, , , , , Immediate supply Projected schemes likely to be constructed 2011 Average annual rate of take-up of new office space 2012 No prospect of overproduction Source: Keops. Definite supply Projected schemes unlikely to be constructed 34 NEXITY Annual report 2008

35 MARKET ANALYSIS DEVELOPING A COMPREHENSIVE OFFERING, FROM LETTING TO PROPERTY MANAGEMENT Nexity s Services division serves private indi viduals market as well as corporate clients. The division s support functions have been pooled to give it the critical mass needed to cover all of the real estate needs of companies and institutions. Via Saggel and Keops, the Services division is active across the entire property cycle, from the provision of advisory services for investors through to property management services. WORKING WITH COMPANIES AS THEY GROW The Keops brand comprises the marketing and corporate property advisory services business lines, which work with users and owners seeking to let, invest, sell, value or optimise their real estate assets. With 19 agencies in France, Keops handles all categories of real estate transactions, including offices, light industrial premises, warehouses, logistics platforms, retail outlets, hotels and land. In 2008, the deal flow was broadly in line with the 2007 level, with almost 600 lettings completed, representing nearly 450,000 sq.m. of space. In the investment market, Keops also helped to market 430 million of assets. In keeping with the targeted acquisition policy Nexity has adopted for its real estate services businesses, Keops integrated the advisory firm Espace Consultant in MANAGING THE REAL ESTATE ASSETS OF COMPANIES AND INVESTORS ON AN ONGOING BASIS In order to respond to the needs of both occupiers and investors, the Services division has developed, in collaboration with Saggel, a comprehensive offer for the management of commercial real estate properties. With an established presence in Paris and the major regional metropolitan areas, Saggel implements property management solutions tailored to the short or long-term strategies of national and international investment funds, OPCI funds and listed companies. In parallel, building management teams are organised around the four business lines geared towards users and investors: facility management, consulting, coordination of works and sales, and e-solutions. In 2008, commercial floor area under management grew 19% to 8.8 million sq.m., thanks to new mandates and portfolio acquisitions. Saggel was entrusted with the following new property management assi - gnments in early 2008: the T1 Tower in La Défense (over 80,000 sq.m.) on behalf of CDP Management/SITQ, the Balthazar property (approximately 33,000 sq.m.) in Saint-Denis (93), owned by GCI and a diversified portfolio for LFPI (13 hotels, 20 warehouses, 26 offices and businesses located throughout France). In addition, Saggel was awar ded the lease management of Bull s 28 esta blishments in France. ARNAUD BAZIRE ACTING MANAGING DIRECTOR, SERVICES DIVISION increase in commercial 8.8 million 19% units managed sq.m. of managed commercial real estate in 2008 An increase in the number of sq.m. of commercial real estate managed thanks to new mandates and portfolio acquisitions 450,000 sq.m. developed in 2008 Executive Committee of Keops and Saggel Laurent CASTELLANI, Chairman of Keops Philippe BRESTEAU, Deputy Chairman, Keops Alain BRUNSCHWEILER, CEO, Keops Alain ROY, Deputy Managing Director, Keops Roger-Marc GAUDIOT, Acting Managing Director, Saggel Michel CARTIER, Director of Property Management operations, Saggel François GUISNEL, Director of the Commercial property and Regions departments, Saggel 35

36 LOCAL AUTHORITIES PLANNING PERMISSION (number of residential housing units) 540, , , , , LOCAL AUTHORITY CLIENTS Source: SITADEL. Private individuals Groups of individuals Collective 36 NEXITY Annual report 2008

37 MARKET ANALYSIS A BRIDGE BETWEEN THE PUBLIC AND PRIVATE SECTORS In France, housing and urban planning represent key poli - tical, economic and social challenges. The challenges posed by the housing shortage and the need to reintegrate underprivileged or neglected neigh - bourhoods are such that it requires a combined effort by all players in the real estate chain. Many local authorities lack the necessary engineering expertise to conduct complex urban planning developments alone and thus need to team up with private operators. This is why we created Nexity-Villes & Projets. Our aim is to offer integrated urban development expertise and serve as a bridge between the public and private sectors. No one has a monopoly on urban development, which requires input from all stakeholders. The only way to meet today s challenges successfully is by working together. Working together starts within the Group, whose various business lines coordinate mixed-use schemes encompassing housing, office space, light industrial premises, retail outlets and public amenities a combination that, by necessity, involves a large number of different players. As an integrated urban developer, we coordinate these long-term operations, which are, by definition, spread over long periods and high value large-scale land parcels. Nexity-Villes & Projets enlists the services of Nexity s various development subsidiaries and provides local authorities with a range of tools and expertise. For large-scale schemes, we span the divide between residential and office developments, both of which require very different financial engineering approaches. Working together extends beyond the Group for concerns such as sustainable development where site decontamination is a major issue. Our work also involves designing neighbourhoods that will come on stream five or more years from now, while certain schemes are scheduled for completion as far ahead as 2020, which means that constant anticipation is required. In 2008, Nexity-Villes & Projets was, more than ever, a key player, being increasingly asked to intervene on behalf of local authorities who have realised that many of our competitors lack the capacity to manage large-scale development schemes. Nexity s cohesiveness and its ability to acquire land as necessary are clear medium-term strengths for urban development. 890,000 sq.m. in the development pipeline at end-2008 (61% in the Paris region and 39% in the French regions) JEAN-LUC POIDEVIN ACTING MANAGING DIRECTOR, LOCAL AUTHORITIES DIVISION MARKET FUNDAMENTALS Urban regeneration The ongoing process of industrial decline opens up considerable opportunities for the development of brownfield industrial sites. Such urban renewal projects require specialist expertise, notably in the areas of site decontamination and planning. Public-private partnerships Urban renewal projects are major undertakings requiring public and private input. Local authorities do not necessarily have the financial and technical expertise required for such complex challenges, and this is why they choose to work in partnership with integrated urban developers. Strong development potential As part of its economic recovery plan, the French government has initiated a massive construction programme to build 100,000 residential units and allocated an additional 200 million in funding to ANRU (the French national urban renewal agency) to accelerate urban renewal. To help ensure completion within the planned two-year period, the government is making publicly-owned land available for projects. 716 housing units sold by Nexity in or within 500 metres of ANRU urban renewal and redevelopment areas in

38 LOCAL AUTHORITY CLIENTS / NEXITY VILLES & PROJETS 2008 HIGHLIGHTS COMPLEMENTARY UPSTREAM ACTIVITY At end-2008, Nexity-Villes & Projets development pipeline represented 890,000 sq.m., including 540,000 sq.m. in the Paris region, comprising residential (55%), office and light industrial (35%) and retail (10%) units. In the Paris region, Nexity-Villes & Projets signed a delegated project management contract with Goldman Sachs, the owner of a significant property portfolio in Charenton-le-Pont (Val-de-Marne). The contract covers a feasibility study for a public-private urban planning project. Elsewhere, preliminary work on a mixeduse development in Ermont-Eaubonne (Val-d Oise) has been completed and zoning ordinances for two towns have been amended, making project rollout possible. In the French regions, Nexity-Villes & Projets acquired the 90-hectare Renault Trucks site in Saint-Priest (Rhône) in July The site will be used for a 230,000 sq.m. development. Lastly, Nexity-Villes & Projets represented Nexity in the Castro-Denisoff-Casti team for the Greater Paris consultative process. C3 Saint-Ouen (Seine-Saint-Denis) 88 million in revenues generated by the Residential division 124 million in revenues generated by the Commercial real estate division in ,000 SQ.M. MARKETED IN 2008 Le Nouveau Monde Saint-Priest (Rhône) Aerial view of the ZAC Seguin Rives de Seine project Boulogne-Billancourt (Hauts-de-Seine) 38 Le Tripode Île de Nantes (Loire-Atlantique) NEXITY Annual report 2008

39 Our levers ENABLING the realisation of large-scale projects benefiting municipalities, urban planners and Nexity s development subsidiaries Management Committee of the Local authorities division Jean-Luc POIDEVIN, Chairman of Nexity-Villes & Projets Vincent HEUZÉ, CEO, Nexity-Villes & Projets Bénédicte CROZON, Acting Managing Director, Nexity-Villes & Projets Carine ROBERT, Development Director, Nexity-Villes & Projets 39

40 NEXITY AND GROUPE CAISSE PARTNERSHIP AND SYNERGIES TEAMS HAVE BEEN FORMED, LINKAGES CREATED AND THE FIRST SYNERGIES BETWEEN NEXITY AND GROUPE CAISSE D EPARGNE ARE BEARING FRUIT An organisation has been put in place and key executives have been appointed to spearhead the partnership with Groupe Caisse d Epargne. Each Caisse d Epargne region has an Executive Committee member as a contact person; regional committee meetings are held on a monthly basis. A variety of pilot schemes are being conducted by a number of regional branches of Caisse d Epargne. In concrete terms, synergies will centre on three areas: two-way supply of business and mutual financing assistance (sourcing, joint development, financing and marketing); a centralised residential real estate distribution model (currently being tested by Caisse d Epargne regional banks); and common client offerings, such as the distribution of the Iselection offering and recommendation of financing packages in collaboration with Solutions Clés Nexity. PROVEN SYNERGIES Examples: In south-eastern France During a marketing weekend held in June for the Nexity-George V Provence programme in La Ciotat (Bouches-du-Rhône), Caisse d Epargne offered preferential rates ranging from 4.48% over 15 years to 4.70% over 25 years. Customer advisors in all of the bank s branches in the region were fully briefed ahead of the event and branch customers who might be interested in the programme received details from the La Ciotat branch, which was kitted out in the programme colours for the occasion. At the end of the two-day marketing period, 70% of the residential units had been reserved a conclusive result! Provence-Alpes-Corse Caisse d Epargne concluded a delegated project management arrangement with Nexity-George V Provence for the construction of a 2,700 sq.m. new office building for its own use in Aix-en-Provence (Bouches-du-Rhône). In south-western France Caisse d Epargne played an active role in the launch, in February 2009, of the Hora Nova development in Perpignan, which was developed jointly by Nexity-George V Languedoc-Roussillon and the reference regional player Fondeville. It placed point-of-sale advertising material in Perpignan s nine Caisse d Epargne branches ahead of the event, seconded a member of staff to recommend financing solutions and featured the programme among the real estate assets marketed by its subsidiary Cofinance. By the end of this first weekend event, more than 60% of the apartments on offer (i.e. 46 out of 76) had already been reserved, fifteen of them through Cofinance. Caisse d Epargne Alsace///Caisse d Epargne Aquitaine Poitou-Charentes///Caisse d Epargne d'auvergne et du Limousin///Caisse d Epargne Bourgogne-Franche-Comté///Caisse d Epargne Bretagne-Pays de Loire///Caisse d Epargne Côte d'azur///caisse d Epargne Île-de-France///Caisse d Epargne Languedoc- Roussillon///Caisse d Epargne Loire-Centre///Caisse d Epargne Loire-Drôme-Ardèche///Caisse d Epargne 40 NEXITY Annual report 2008

41 D EPARGNE Hora Nova Perpignan (Pyrénées-Orientales) Le Parc de la Tèse La Ciotat (Bouches-du-Rhône) Lorraine-Champagne-Ardenne///Caisse d Epargne Midi-Pyrénées///Caisse d Epargne Nord-France- Europe///Caisse d Epargne Normandie///Caisse d Epargne Picardie///Caisse d Epargne Provence- Alpes-Corse-Réunion///Caisse d Epargne Rhône-Alpes///Caisse Nationale des Caisses d Epargne///Crédit Foncier de France 41

42 SHAREHOLDERS KEY INFORMATION NEXITY SHARE CONSOLIDATED REVENUES (IN %) CHANGE IN NEXITY SHARE PRICE (IN ) SERVICES AND DISTRIBUTION RESIDENTIAL COMMERCIAL 21% 13% 66% ,10 at 31/12/ (AT 31 DECEMBER 2008) 0 JAN. MARCH MAY JULY SEPT. NOV. DEC (AT 31 DECEMBER 2008) KEY SHARE INDICATORS SHARES OUTSTANDING AT 31 DECEMBER 32,338,567 52,562,213 52,981,543 SHARE PRICE HIGH ( ) SHARE PRICE LOW ( ) SHARE PRICE AT 31 DECEMBER ( ) DIVIDEND PER SHARE ( ) * EARNINGS PER SHARE ( ) CAPITALISATION AT 31 DECEMBER ( MILLION) 1,775 1, * Submitted to the general shareholders meeting of 13 May 2009 for approval. NEXITY S EQUITY INTERESTS Nexity holds a 31.7% stake in Eurosic, a listed real estate investment company which meets the requirements of the SIIC 4 regime. Valued at over 1.4 billion, its portfolio consists mainly of commercial office properties located in Paris and its suburbs, notably including CNCE s headquarters, Avant Seine, in the 13th arrondissement. This portfolio also includes two business parks, as well as high-yield diversification assets in the leisure and logistics sectors. Its main projects under development include the refurbishment of Tour Quai 33 in La Défense, the redevelopment of 52 avenue Hoche in Paris and the Jazz (B2) building in the Le Trapèze urban regeneration area in Boulogne-Billancourt. The Group also divested its 23.40% stake in Crédit Foncier de France to Caisse Nationale des Caisses d Epargne in February NEXITY Annual report 2008

43 CONSOLIDATED DATA (IN MILLION) CONDENSED INCOME STATEMENT REVENUES 1,855 2,395 2,683 OPERATING PROFIT OPERATING MARGIN 14.3% 13.8% 9.2% NET PROFIT GROUP SHARE OF RECURRING NET PROFIT (1) (2) REPORTED GROUP SHARE OF NET PROFIT CONSOLIDATED DATA CONDENSED BALANCE SHEET ASSETS NON-CURRENT ASSETS 513 2,119 1,546 CURRENT FINANCIAL ASSETS 540 WORKING CAPITAL REQUIREMENT LIABILITIES SHAREHOLDERS EQUITY 609 2,109 2,024 PROVISIONS NET DEBT NET DEBT RATIO 44% 27% 28% EARNINGS PER SHARE AVERAGE NUMBER OF SHARES OUTSTANDING 32,172,480 42,353,817 52,691,557 NET EARNINGS PER SHARE FROM ORDINARY ACTIVITIES (1) (2) REPORTED NET EARNINGS PER SHARE (1) 2007: excluding Eurosic write-down. (2) 2008: excluding Eurosic write-down and the divestment of Crédit Foncier de France. 43

44 SHAREHOLDERS GOVERNANCE: WHO DOES WHAT? GOVERNANCE: WHO DOES WHAT? GOVERNANCE STRUCTURE Committees are responsible for examining matters submitted by the Board of Directors or the Chairman, for preparing related work and reporting their findings in formal reports, proposals, memoranda and recommendations. Committees act in an advisory capacity. The Board of Directors has the final decision-making authority with regard to the action taken as a result of committee findings, with each director being free to vote as he or she sees fit. The Audit and Accounting committee is responsible for assisting the Board of Directors and presenting any observations to the Board on the subject of accounting policies, the interim financial statements, the annual individual and consolidated financial statements, reporting and internal control, external audit, financial disclosures and risk control. The Compensation and Appointments committee is responsible for examining and making recommendations regarding the compensation of corporate officers and the overall amount and distribution of directors fees, including with regard to the allocation of share subscription or purchase options. Furthermore, the Group has adopted the AFEP-MEDEF recommendations, which it has applied above and beyond the stated requirements. For details regarding this compliance, see the Financial report (note of the management report on the individual financial statements). The Investment committee is responsible for expressing an opinion on any acquisitions or transfers of equity interests or assets in an amount sufficient to impact the Company s balance sheet structure and notably any transactions of an individual value of 50 million or more. AUDIT AND ACCOUNTING COMMITTEE Pascal Oddo Chairman Alain Lemaire Co-Chairman Miguel Sieler INVESTMENT COMMITTEE Alain Dinin Chairman Guy Cotret Deputy Chairman Anne-Marie de Chalambert Hervé Denize Charles-Henri Filippi Alain Lacroix Xavier Larnaudie-Eiffel COMPENSATION AND APPOINTMENTS COMMITTEE Miguel Sieler Chairman Anne-Marie de Chalambert Guy Cotret BOARD OF DIRECTORS Alain Dinin Chairman and Chief Executive Officer Hervé Denize Chief Operating Officer Bernard Comolet Deputy Chairman Martine Carette Anne-Marie de Chalambert Guy Cotret Representing Caisse Nationale des Caisses d Epargne et de Prévoyance Alain Lacroix Xavier Larnaudie-Eiffel Representing Caisse des Dépôts et Consignations Alain Lemaire Pascal Oddo Miguel Sieler Employee Representatives Stanislas Augem Ida Dael Non-voting member Charles-Henri Filippi 44 NEXITY Annual report 2008

45 EXECUTIVE COMMITTEE The Executive committee meets every two weeks. It comprises the executive managers of the Group s divisions and shared corporate services. It examines issues that cross business line boundaries as well as those relating to areas in which business lines collaborate. It develops and moulds the Group s strategies in accordance with market changes. It coordinates and steers the Group s various organisations, human resources and communications. The Executive committee meets on a monthly basis in its expanded form for the purpose of reviewing the performance of the business lines. Alain DININ Chairman and Chief Executive Officer Hervé DENIZE Chief Operating Officer Arnaud BAZIRE Acting Managing Director, Services division Laurent DIOT Chief Financial Officer Martine CARETTE Human resources Director Anne LALOU Acting Managing Director, Distribution division Bruno CORINTI Acting Managing Director, Residential division Jean-Luc POIDEVIN Vice-President, Local authorities division Catherine STEPHANOFF Corporate Secretary Daniel VALOATTO Acting Managing Director, Commercial real estate division Guy COTRET Acting Managing Director with responsibility for Synergies EXPANDED EXECUTIVE COMMITTEE Frédéric AUGIER Deputy Managing Director, Distribution division Hervé BUFFARD Internal Synergies Director Philippe CALMON Corporate Secretary of the Services division Christine DEMESSE Institutional relations Director <<Alexis PERRET : Directeur général adjoint du pôle Tertiaire Guillaume IDIER Communications Director Jean-Philippe RUGGIERI : François-Xavier Alexis PERRET Directeur général Jean-Philippe RUGGIERI SCHWEITZER François-Xavier : Deputy Managing délégué de Deputy Managing SCHWEITZER Director, Commercial Director, Residential Social housing division Director Hervé TAHON : Directeur des systèmes d information Hervé TAHON Information technology Director 45