Nexity SA

PAR:NXI

Earnings Call Transcript

[Operator]

Good afternoon, and welcome to the Nexity 2019 Q1 2020 Business Activity and Revenue Conference Call. For your information, this conference is being recorded. At this time, I'd like to turn the call over to Julien Carmona, Deputy CEO. Please go ahead, sir. Your line is open.

[Julien Francois Paul Carmona]

Good afternoon, and thanks for attending this conference call. I'm here today with Eric Lalechère, the CFO; as well as Domitille Vielle from the IR team. We're going to go through the key figures of our Q1 business activity. However, in the current context, we are not going to spend too much time going into all the details, given that the world has changed a lot since mid-March. And instead, we will update you on the current impacts of the crisis on our businesses. The COVID crisis is testing everyone today, and Nexity is not unscathed. The pandemic took a particularly tragic and tangible turn for us as it took the life of our CEO, Jean-Philippe Ruggieri, who passed away on April 23. The Board of Nexity adopted immediate measures to ensure continuity in the corporate governance, and Alain Dinin, formerly Chairman, was reappointed as Chairman and CEO, but Jean-Philippe's passing is a big loss for the company and for his colleagues. Starting on Page 3 with an overview of the key figures of the quarter. In a nutshell, Nexity had a good start until the crisis broke out. The lockdown was effective in France on March 17 and would start to be gradually -- very gradually eased on May 11, next week. The business activity for the first 3 months of the year was almost untouched, whereas the impact on our revenues was more significant. In residential real estate, we booked a total of 3,657 reservations during Q1, showing a limited decrease in volume, minus 6%, and a slight increase in value, plus 2%. Given that the number of sales launches was quite subdued in the context of a run-up to the local elections, it's a good performance. We sold well and we sold fast. In real estate services to individuals, it was a good quarter as well with no attrition and the opening of 4 new senior residences. In commercial real estate, new orders were close to 0 in Q1. However, the market is still open for large and high-quality projects. And we booked a large order in April when we sold the headquarters of the Île-de-France region in Saint-Ouen to BNP Paribas Real Estate Investment Management for more than EUR 200 million. Lastly, our backlog was 2% up at EUR 5.2 billion. Our revenue came to EUR 787 million, 11% below the Q1 numbers, Q1 '19 numbers. As Eric will show you, this is a direct result of the almost complete closure of France in the last 2 weeks of March while the underlying trend had been growing. Without the COVID crisis, the revenue would have been 4% up. As soon as March, we decided to suspend our targets and guidance, given the uncertainties around the duration of the crisis and the shape of the recovery. We'll update you as soon as we can, but there are still too many uncertainties today. On the following slides, we try to summarize the key impacts of the crisis on our different businesses. Starting with real estate development on Page 4, and here, I'm going to spend 2 minutes -- a few minutes on this slide, residential real estate, bookings and sales. The number of reservations since mid-March has logically decreased because clients can no longer visit the sites or the sales offices. But on the flip side, the number of cancellations is limited so far. And we are making a very decent number of online sales. To give you a figure, the total traffic on our websites and portals is now at 80% of its pre-corona levels. In such a crisis, residential real estate is likely to remain a strong proposition for French retail investors. And on top of that, we are seeing a strong level of interest from institutional investors. We should be able to largely compensate. Last week, we signed a major deal with CDC Habitat, which Eric will describe shortly. On construction, we have a bit more than 500 construction sites in residential real estate. On this total, less than 10% were still open at the end of March, 20% on April 15 and we have reached more than 50% today. We expect to be above 90% in early June. The 2 months of lockdown will, of course, have a significant negative impact on our FY '20 financial statements. As long as no technical progress is made, we cannot invoice our clients, and therefore, revenue recognition is slowed down and cash receipts are down as well. But as I said, things have started to improve, and the sites are gradually reopening with some appropriate health and safety measures. Open doesn't mean operating at full capacity. We are fighting with supply chain issues with the lack of critical employees with our subcontractors, particularly foreign workers who are locked in their home countries and some legal difficulties as well as some additional costs. But overall, it's improving. On land sourcing and supply renewal, clearly, there will be less building permits delivered this year, less than last year and less than initially expected. The approval of many building permissions is likely to be deferred until the second round of the municipal election takes place, likely in September or October. So it will be a low year, but we will manage. Probably there will be a strong rebound next year. Key message on development activities. First of all, whatever the crisis, whatever the recession, we still feel very confident about our residential development activities. Housing is a basic need. The demographic trends are here to stay. The supply-demand imbalance on French housing market will stay as well. And overall, the acquisitions of new homes, whether by homebuyers or home occupiers, should be deferred but not canceled. And by and large, for most of our activities, the crisis should result in pent-up demand and not in destroy demand. Sure, there would be a recession. And of course, the solvency of some clients will cross them out of the market. But as I said, professional landlords should act as a strong support. We're not seeing any evidence so far of a credit crunch, although mortgage rates will likely go up. And on top of that, the French government is very mindful of the crucial role of construction and real estate as a key contributor to the future economic recovery, and they should be ready to help in a variety of ways. There is talk about a recovery plan in the autumn. Risk of unsold inventory for Nexity is, in my view, close to 0. If you take into account the asset-light model, no meaningful land bank, the fact that our cost base is highly variable and adjustable, our business model in real estate development should be highly resilient and able to withstand crisis. A few words on commercial real estate. Here as well, technical progress on the projects was slowed down by the lockdown. But today, 100% of the construction sites are open again. Most of the major sales expected this year are confirmed as of today, with no price renegotiation. The Hôtel de Région, as I said, was sold, and the Engie campus in La Garenne-Colombes should be confirmed before year-end. We don't have a single plot on the balance sheet which we should be in trouble selling. Of course, there will be very likely a commercial property crisis. But again, with the asset-light model and lower sale prices, we should also have low land prices, and therefore, potential opportunities. Moving to our service activities on Page 5. So if we start with the property management for individuals, on condominium and rental management as well as commercial property management, there's no significant impact of a crisis on existing mandates. These businesses are very resilient. On the other hand, brokerage activities are virtually at a standstill. Talking about serviced residences, we have here mixed results. For student residences, Studéa, there is a decrease in occupancy rate, and there will be a gradual impact on the revenue until the students' courses restart very likely in September. For senior housing, senior independent living facilities, Domitys, the occupancy rate is hardly affected by the crisis. The seniors are staying at home in their Domitys residences. The number of new senior people coming in have slowed down a lot. But overall, the occupancy rate is holding up pretty well. New openings are still forecasted for this year, but some of them will be postponed to 2021. And finally, on our Morning Coworking activities, the activity is today virtually at a standstill as well.On governance, Page 6, nothing new. We are just mentioning that to cope with the disappearance of Jean-Philippe Ruggieri, the Board of Directors decided to recombine the functions of Chairman and CEO and to appoint Alain Dinin as Nexity's CEO with immediate effect. So Alain will be leading. He's already leading the management team, composed myself as Deputy CEO and Corporate Officer; as well as Véronique Bédague and Frédéric Verdavaine, Deputy CEOs. On Page 7, operational and financial measures. Quick summary of the key measures that we took, most of them are already known to you. State-sponsored unemployment scheme is used only in a selective and targeted basis for our subsidiaries whose work sites and projects have been forced to shut down. We are not using nor planning to use state support or state-sponsored financing.Cash and liquidity management, that's, of course, a priority. We entered the crisis with a strong cash position, which is still in place today. At the end of April, we had EUR 720 million in cash and EUR 555 million in undrawn credit lines. We renegotiated successfully our bank covenants, and we put in place a strict control of expenditures, all kind of expenditures. So CapEx, land acquisitions, external growth, of course, opening of new residences and, of course, operating costs as well as the dividend reduction, which you are well aware of and which is part of this plan. However, we maintain our engagement committees. Unlike some of our competitors, we are still acquiring land very selectively, only in cases where we can start signing and cashing in this year. We are renegotiating options on many land plots, and we are ready to take some -- to benefit from some selected opportunities. For instance, a plot owned by a competitor, which is no longer capable of developing it and which we may acquire with a discount. We believe this crisis, which is, of course, bad, could give a competitive advantage of -- to Nexity. On Page 8, civic engagement measures. So we are conscious that the role of the private sector is to try to help all stakeholders, particularly in testing times like this. So here, you have a sample of what Nexity is doing for communities: opening at no cost of Studéa student residences for health care staff and vulnerable people; making an exceptional donation of EUR 3 million earmarked for health care personnel in the Seine-Saint-Denis and Grand-Est regions as well as helping some nonprofit organizations; helping homeless persons and vulnerable women; finally, increasing the resources of the Nexity Foundation for emergency food aid and shelter.Eric Lalechère will now give you more details about Q1. And Eric, I hand to you.

[Eric Lalechère, Group Chief Financial Officer]

Thank you, Julien. Moving on Page 9 to Nexity new home reservation. The Q1 used to be the smallest quarter of the year, and no conclusion can be extrapolated from at least 3 months, especially this year with COVID-19 crisis. But so far, the year began well. The health crisis has a moderate impact on Q1 2020 reservations. The first 3 months of the year, we booked 3,657 net new home reservations in France, down 6% by volume and up 2% by value relative to Q1 '19. The drop in volume was mainly due to very few commercial launches before scheduled local elections in March. Subdivision reservations totaled 360 units, up 40%, and international sales reached 165 reservations, 4.6x more than Q1 '19. Nexity's new home reservation for the first quarter of the year reached 4,182 units, stable with Q1 '19 and total revenue from reservations totaled EUR 847 million, up 6%. Moving on Page 10, client mix. Looking at the results from our different client groups, first-time buyers are stable and represents 23% of the sales. Individual investors are down by 10%, mainly from lack of new products. Bulk sales are up 5%, and this trend will accelerate with massive purchase program of French institutional investors. In this context, we are very happy to announce that we reached at end April an agreement with CDC Habibat for the sale of 7,450 units. These units are social, intermediate and conventional new homes and are located all over France. The global sale represents EUR 1.234 billion, excluding VAT, and half of these flats are expected to be sold before end December 2020.Page 11, new rooms: supply for sale. Nexity's supply of homes for sale fell 12% relative to end December '19, totaling 7,799 units at end March 2020, and our average take-up period decreased to a record low of 4.3 months compared to 4.9 months in Q1 '19. And so completed stock is marginal and only 27% of the supply is under construction. We didn't launch many projects due to the electoral context in Q1 '20, and maybe it is a good news to have a limited supply as economic conditions may change after lockdown. Page 12, business potential. At end March '20, the business potential for new homes rose 2% from end '19 to 56,251 units. That is 2.6 years of potential revenue. This is potential revenue of EUR 10.9 billion, excluding VAT. And the strong potential means that the group has a capacity to recover quickly when economic conditions improve.Moving on to real estate services to individuals, Page 13. In the property management for individuals, businesses, the portfolio of units under management totaled almost 885,000 units at the end of March '20, stable relative to end of '19. Distribution activities under iSelection and PERL post growth in Q1, up 3%, with 1,022 reservation in the first quarter of '20, which more than half is distributed on behalf of third-party real estate developers. Serviced residence, Page 14. The performance of our serviced residence continued to be strong, starting with student housing. Studéa maintained its number of units under management. The occupancy rate remained stable at 95% on a rolling 12 months' basis compared with end December. Domitys, our senior independent living facility business, still post growth. Four new facilities were opened during the period, bringing our portfolio to 104 properties, corresponding to over 12,200 housing units. At end March '19, the total occupancy rate on rolling 12 months' basis was 84.4%, stable relative end December '19. This takes into account all the young residents which are active in the ramp-up phase. Residences open more than 2 years, 72 out of a total of 104, continued to show a high occupancy rate, 95%. Moving now to commercial clients, Page 15. There is not much to report with respect to Nexity's commercial real estate development performance in Q1 '19 with only EUR 3 million orders booked during the first 3 months. The sale of the Saint-Ouen Hôtel de Région, regional council premise, Seine-Saint-Denis represent more than EUR 200 million and was done on 16 April within the timetable set before the crisis. Business potential in commercial real estate totaled EUR 3 billion at end March '20, remaining stable since end '19 and include Engie eco-business park in La Garenne-Colombes. Page 16 on real estate services for commercial clients. The volume of floor area under management totaled 19.4 million square meters at end March '20, stable with end '19. Morning Coworking is now operating 21 coworking spaces, totaling more than 50,000 square meters and corresponding to around 6,000 workstations. During the first quarter, the lease was signed for the repurposing of the Hôtel de la Marine on Place de la Concorde in Paris, 645 workstations. Page 17, we comment for the Q1 revenue. In the first quarter of 2020, Nexity recorded revenue of EUR 787 million, down 11% from Q1 '19. The negative impact related to the slowdown of activities observed since 16 March is estimated at nearly EUR 130 million, representing the equivalent of 14% of the revenue recorded for the previous year, most of which will be carried forward to the following quarters. Excluding the negative impact of the COVID-19 crisis, revenue would have risen by 4%. The residential real estate division recorded a decrease in revenue of EUR 62 million, representing a decrease of 11% relative to Q1 '19. But excluding the negative impact of the public health crisis, approximately EUR 110 million of business activity carried over for the last 15 days of March 2020 to the following quarters. Residential real estate revenue would have risen by 8%.Real estate services to individuals post revenue of EUR 211 million for the quarter end 31st March '20. Revenue from property management for individuals and franchise was down 6% relative to Q1 '19. And this change mainly results from the sale of Guy Hoquet l'immobilier in Q2 '19 and from the impact of the public health crisis. Revenue for serviced residence grew by 17% in Q1 '20. This reflects the growth in managed residence. Revenue from distribution activities was down 9% relative to Q1 '19. But excluding the negative impact of the public health crisis, approximately EUR 14 million, revenue would have risen by 20%.The decrease in revenue from commercial real estate, down 42%, is the result of high comparison base and volatility effects that are standard in this business, given the advanced stage of the various projects. The negative impact of the public health crisis totaled around EUR 6 million.Revenue from real estate services to companies amount to EUR 27 million, up EUR 6.5 million, mainly driven by the increase in revenue from Morning Coworking, up EUR 5 million. That is double the revenue recorded in Q1 2019.On Page 18, we give you some trends and the sensitivity of the income statement. The impact of the lockdown mainly results in revenue being pushed back to subsequent periods. Given the cost structure of the group business activities, this revenue postponement has a differentiated impact on the group EBITDA. In development, distribution activities, lockdown has a strong effect on revenue because revenue depends on the activity on construction sites, the number of notarial deed of sale, but the impact of EBITDA is more limited because of the high proportion of variable costs. An additional impact will come from losses and overheads that will not be accounted as inventories during the lockdown period and from an increase in construction costs linked to construction start condition.As for property management for individuals, serviced residence and shared office space activities, negative impact on revenue is more limited. Around 70% of the property management for individual business is unaffected by the lockdown. But these activities have higher fixed cost and the negative impact on EBITDA is more important. Moreover, measures taken to furlough staff and plans to cut operating expenses should also help limit the impact by more effectively controlling fixed costs. Page 19 for the backlog, development business potential. Nexity's total backlog at March 31 is slightly increasing by 2% at EUR 5.194 billion compared with December '19 at EUR 5.095 billion. Furthermore, the development business potential at end March '20 totaled over EUR 15 billion in revenue: EUR 12 billion for residential real estate and EUR 3 billion for commercial real estate. The group is confident in the resilience of its main business lines.And now Julien will make a conclusion for this presentation.

[Julien Francois Paul Carmona]

Thank you, Eric. I'd just like to say a few words about the incoming AGM that will take place, unfortunately, behind closed doors on May 19. But despite this, we are, of course, taking the time for dialogue with our shareholders and we'll answer all questions. I know that it's a bit unusual, but I want to take advantage of this conference call to ask the shareholders among you to support our resolution. We believe that none of them is contentious. And in the current period, I would like to stress that the corporate officers have asked to take significant pay cuts compared to their previous packages. Alain Dinin, in particular, asked for his Executive Chairman package to be reduced by 25% and not to receive any compensation for his new CEO role.Why am I mentioning that? Clearly, because a significant and influent proxy adviser, namely ISS, has just issued a report advising investors to vote against a large number of our resolutions, which is normal, but it goes beyond the simple divergence in policies. It's really full of what we consider to be factual errors and misrepresentation. So I can give you some details if you have questions, but we are going to publish in a few minutes on our website a rebuttal of these many errors. And what I would like to ask you, for the shareholders on this call, it's important to vote. And of course, it's up to you to decide about the resolutions. But what we are really asking you, kindly asking you, is to make up your minds yourselves and not to follow third-party advisers when their recommendations are really, really dubious. Thank you.This concludes our presentation, and we are now ready to answer your questions.

[Operator]

[Operator Instructions] We'll go first to Nicolas Tabor with MainFirst Bank.

[Nicolas Tabor, Analyst]

First of all, I would just like to extend my sincere condolences for the tragic event that happened to the whole Nexity family. I'm very sorry about this. I was deeply moved. So for that, thank you, Alain Dinin, for taking over so swiftly and rapidly, ensuring the continuity of the business.My first question would be on the waiver and the discussions you're having with the Euro PP holder. What's the likelihood of being one? And can you give us some color on where you are on these discussions? And what are the risks if it's not obtained? And what is the level of amount -- what's the amount of debt which is at risk? And maybe I can ask the second question after your answer, it's going to be easier.

[Julien Francois Paul Carmona]

Yes. About our discussion with the Euro PP holder, we have about EUR 550 million in Euro PP debt, and we make a right-hand consultation to have examination, to have the calculation of leverage ratio for the next 3x of calculation, June 30 -- June '20, December '20 and June '21. We do the same with the bank, and we had unanimous agreement from the bank. And the return from the Euro PP is scheduled on May 13, so next week, so that we will see if the Euro PP holders are on the same basis as the bank. And we think that there is no reason that there is a different result from this proposal.

[Nicolas Tabor, Analyst]

Great. And then I was just coming back on the -- want to come back on the 50,000 housings which the CDC and in'li will acquire. So it's great that you've given us the figure that it's going to be allocated to you. I was just trying to think about the size of the market itself for this year and next year. Looking at what you have in Q1, looking at this amount that is allocated to you from CDC, what -- is it that number that you factor in as a slow level for this year? Or can you give us more color on what you would expect as a minimum level of reservations in a recessionary environment? That is this year and next year because we don't know if CDC can have the same level of investment next year to compensate for maybe a recession level of demand?

[Julien Francois Paul Carmona]

Okay. I will try to answer that. And by the way, thank you for your message concerning Jean-Philippe and Alain. We will, of course, pass your kind message. CDC Habitat was really the first mover, announcing 40,000 new home acquisitions and in'li 10,000, which makes 50,000. So they are big buyers, big animals, but they are not the only ones. And we are really sensing interest also from purely private sector buyers. I'm not going to give any names, but insurance companies, in particular, asset managers and so on and so forth. To give you a bit more color, and maybe we had the discussion in the previous quarters, already last year, there was a big potential interest from insurers and asset managers for investing in residential as an asset class. But at that time, given that the private client demand was very strong, we didn't really have the possibility to tell them, yes, this is what we're going to sell to you. However, we maintained a good relationship and good discussions in case there would be a crisis. We didn't expect this particular crisis. Honestly, we are surprised, but we are thinking that in case there's a recession or a big increase in interest rates or whatever, we'll be happy to discuss with those buyers. So my message is, in CDC Habitat, once they are on board, there are other buyers in line behind them and we'll open a real new course of discussion. For this year, it's very difficult to give you an expected number of reservation. And keep in mind that we're just sustaining our guidance. So it's not to reinstate the guidance. Except for one fact, when we said that we -- you remember, in February, we said that we expected that we would outperform the French market. And yes, this particular guidance is still valid. We should be able to outperform the French market. Why? Particularly because we have a larger market share. Nexity has a larger market share for bulk sales compared with retail sales. So just because of that, and you see on 40,000 homes both reserved by CDC Habitat, we have close to 7,500. So that's more or less our natural market share for bulk sales. If you translate that with other buyers, I think we should be able to outperform. So this may sound a bit like a paradox, but for this year, purely on the demand side because private demand -- private client demand will be down, but it will still be there. It's not going to disappear, not at all. And as I said, we are still making positive net reservations, including during the lockdown.On the demand side, we should be able theoretically to do maybe as much or close to the number of reservations we made last year. The problem here will be about the building permits, where I said it's a big unknown because when we don't have clean building permits, we are not able to sign real reservation contracts. So this is the unknown. It gives you -- there are several scenarios where in the best case, reservation could be relatively close to last year. And in a worst case, they could be down. But again, the building permits, they won't be locked forever. As soon as we have municipal teams, local account sales really up and running in all the cities, there's no reason why we shouldn't be able to restart this flow of reservations rather quickly. Is that clear?

[Nicolas Tabor, Analyst]

Yes, very clear. Really helps me. And then maybe a third question, and then I can leave the floor to other questions. Can you give us an indication of the amount of revenue consolidated from Pantera in Q1? I think you closed the deal early in March, so maybe you had a few weeks of revenue, just to have an idea.

[Julien Francois Paul Carmona]

Yes. There was nothing in Q1 overall because the period was very short. On the full year, we'll try to update you probably in July when we have a good vision of the year. What I can say is that so far, we are pleased with the acquisition. It's not easy to really control and pilot a subsidiary when you cannot actually go there. But there's a good team, a professional team. And what we are seeing so far from our small window is that Germany seems to be really less affected than France, at least by the health crisis. In terms of economic recession, we'll see. But in Germany, there was no closure of the construction site. There was still business being transacted. So in a way, it's giving us hope that at least in some small parts of the Nexity family, there's still brief business going on.

[Operator]

[Operator Instructions] We'll go next to Pierre Clouard with Kepler Cheuvreux.

[Pierre-Emmanuel Clouard]

I'm also very sorry for the loss of Jean-Philippe. Of course he will be missed. He was a very nice guy and very competent CEO. And thank you for setting this call. It's very useful as well. So I have several questions for you. So maybe on the potential impact that you saw at the end of March. So maybe can you give us an idea if we can extrapolate the impact of the end of March to maybe April and maybe May and what could be the sensitivity of this figure? Also maybe can you give us your view on prices in construction cost for this year, what is your best guess now? I think you were expecting an increase of [ 3% ] before the crisis. Maybe you can give us more details about that? Can you also give us more color on your expectation of the working cap? Are you expecting an improvement of the working cap this year or not at all, given the fact that a lot of building sites have been completely stopped? And maybe last question on -- maybe you don't have the answer, but I'm trying, maybe do you expect a potential impairment of the goodwill in 2020? And if yes, what could be the magnitude today?

[Julien Francois Paul Carmona]

Okay. I will answer on sale prices and construction costs and Eric will take the other one. Sale prices, we had no expectation of increases. We are on a trend of price increases. They also increased relatively significantly in Q1. And it's clear that this tenancy is not going to remain. First of all, we are going to move. We already started moving part of our production from private clients to institutional investors. And naturally, we are going to sell at lower prices because there's always a discount. There's always a rebate, which is -- which makes sense. It's a question of bargaining power. And it's also because we don't have to carry the sales and distribution costs. So basically, when we published our reservation at the end of this year, there will be a decrease in prices just because of the mix, institutional versus private clients. There will be -- you didn't ask the question, but there will be an impact on the margins. Not huge but there will be an impact because the normative margins, which we are using in our bulk sales as compared to our sales to individual clients, are not the same, 2 to 3 points difference. And then it depends on the detailed negotiating conditions. Now I don't have a crystal ball in terms of the private clients. It's likely to believe that there could be a negative impact on prices. However, we don't believe that it will be huge. First of all, well, I'm mentioning again this huge imbalance between supply and demand. And again, this year, the market volume will be down also because supply will be down because of the lack of building permits. But for the clients who are still keen to buy, there won't be a lot of supply in the market, particularly for Nexity's products. So here, I do not really anticipate a big decrease in the prices. So we're going to see it will really boil down to how much our -- did our clients suffer from the crisis and how are they going to be financed. As I said, no credit crunch today, gradual increase in the mortgage rates, with the base rates being very low. But the banks [Technical Difficulty]I hope nobody was hurt. As I was saying, so financing conditions today, okay, with mortgage rates likely to go up because also the banks would probably expect higher loan losses and increasing their rates because of that. But we're not seeing really, at least for our products, huge potential price decreases. Final point. We never include potential inflation when we launch a project. Some of our competitors do that, and they will be badly hurt. But in Nexity's case, even if we have really long projects with a large number of tranches, we never put in our business calculation the idea that in 2022 or '23, prices would naturally be higher than in 2019. So there should be an impact, but we feel relatively safe at the moment. Construction costs, it's a more difficult question because I don't know what you believe on the other side of the call. My personal view is that this crisis should be a deflationary crisis with prices going down in many sectors of the economy. So long term, probably construction cost could go down. However, short term, and this is why we are going to see an impact on our margin this year, on the short term, as I said, it's really complicated to get the right subcontractors, to get the right companies working on the site. And there are additional costs just to restart and finish a project. And because of that, this year, we should have a sort of double whammy with maybe lower sale prices and higher construction costs. I think that the medium-term regime is more like a kind of slight decrease in sale prices and slight decrease in construction costs. But at this stage, it's more guesstimates rather than a really hard scenario. We'll see what happens in the coming weeks and months and we will update you. Eric, on the other financial questions?

[Eric Lalechère, Group Chief Financial Officer]

Yes. About working capital requirement, in fact, during the COVID crisis, we have a very symmetrical effect between expenses and income. As far as there is no more activity on the construction site, we have no more expenses with the company, and this is new. But on the other side, we cannot have some income from the clients because we are not more -- make progress in our construction site. There is a strict control on working capital requirement, and we don't expect a very big increase in working capital during the COVID crisis because we also make very -- stronger control about our expenses, and we make some reduction about CapEx or other expenses. In fact, what is the most important for a working capital requirement will be the land acquisition. And so if you are in a recession scenario, so of course, we will -- we won't buy some land acquisition, and we have some decrease in working capital requirement. But I don't think this is the favorite scenario because, as Julien said before, we still have some reservation activity with the institutional and also as our client. So we think that there will still be a higher level of reservation. If we make reservations, then we have to make construction after. So the evolution of our working capital requirement will strictly depend on our land acquisition purchase program. And of course, if new municipality come fast in power and give us new authorization, and if the commercialization is still good, then we will have more acquisition and maybe increase in working capital requirement. And on the side, there will be control if it's not so good with reservation. As for impairment test, for the month, we don't see any sign to be have a decrease in -- by the impairment test. If you are looking at the mechanism of impairment tests, we have, of course, the discount rate. So maybe there will be an increase in this contract rate. But after, you have also the amount of EBITDA of every year. Of course, we don't have very good visibility for the next 12 months because of COVID-19 crisis, but that's the crisis. About the fundamentals of our business, we don't see any change. So we are able to have the same flow for the next year so that we don't see there will be any impairment test as we have a large capacity to avoid the test at end of December. We now have only 2 cash-generating unit: 1 with individuals and 1 with commercial. So that help us to have a large amount to avoid the impairment test.

[Operator]

We'll go next to Marie Fort with SG.

[Marie-Line Fort]

Of course, I associate myself to the condolences of my colleagues. I just want to come back on Domitys. Could you tell us if the report -- the postpone of the opening of residences from 2020 to 2021 will allow us to also delay the rent payments to institutionals? What is the number of openings you were planning at the beginning of the year and what is the number that you will postpone at the end of the -- beginning of next year? And also just to be sure, do your clients -- have your clients have a special condition to cancel the order like cutoff measure because either for individuals and for institutionals that could represent a risk on your backlog?

[Julien Francois Paul Carmona]

Okay. Thank you, Marie-Line. Maybe to the last question. No, when -- well, when a reservation contract has been signed, it's always possible to move away from that, leaving a little bit of money on the table, the guarantee deposit. But when a notarial deed has been signed, no, there is no way the clients can walk away. It's always possible to try to renegotiate, but we are not seeing any sign of that. Particularly, as I said, on the large commercial real estate orders, including the -- before the order, there is promissory agreement. We are not seeing any signs of renegotiations. But from a legal point of view, you're right. The force majeure question is everywhere today between creditors and debtors and so on. But in terms of our clients, we are not seeing any signs of that, and we are not seeing a big threat.For Domitys, first of all, what I didn't mention is that Domitys and their teams did really a great job in managing the health crisis. We're not communicating on the number of deaths from the COVID, but unfortunately, there were some deaths, but very, very limited, around 10, actually. It's always too much. It's always appalling. But if you compare that with the care homes, the nursing homes, I think they really did a good job, and I hope it's going to continue, of course. So that's the first point.Secondly, we were planning around 15 openings this year, between 15 and 20. So we had 4 openings in Q1, and the rest, we'll see. The worst case is we postpone everything to 2021. And my guess is that we will have some openings, but it really depends on what we will see in the coming months in terms of the easing of the lockdown and all that. We still have some client interest for those openings. But clearly, as I said, the major residences are still full and there's no sign that it's going to change. The new residences in the ramp-up phase is going to take longer. So maybe it can make sense to postpone until we have a good visibility and until the senior people can safely come and visit their apartments. As a matter of fact, the fact that if we open less new residences from a purely P&L point of view, that's not necessarily bad because you know that during the ramp-up phase, we do have some ramp-up losses, whereas the major residences are actually making money, making a positive operating margin. So we'll see. Your last question is about the rents. It's a very good question for -- not only for Domitys, but also Studéa and Morning Coworking, the coworking spaces. We don't have Nexity policy, which is to -- which would be to aggressively renegotiate the rents. We want to -- we think there will be an exit to this crisis. And at the end of the crisis, we want to protect our reputation and to be seen as really reliable operator of residences. So on a case-by-case basis, we are entering into some renegotiations. For instance, working on the duration of the lease, working on the payment profile, the payment schedule, but we are not, unlike some of our competitors, aggressive like saying we're not going to pay anything and so on. Clearly, for senior residence which is full, there is absolutely no reason why we would lower our guaranteed rent. For a residence which was just open and which we actually cannot feel, there, we are renegotiating. So as I said, it's really a case-by-case basis. And of course, it will depend on the duration and severity of the crisis.

[Operator]

We'll go next to Laurent Gelebart with Exane.

[Laurent Gelebart, Financial Analyst & Analyst of French Mid Caps]

First of all, condolences. To one point regarding productivity going forward on your construction sites, at which level do you believe it will be in Q3 and then in Q4 because of social distancing? The second point relating to that is that as you are going to deliver products after schedule, do you face potential penalties from your clients as they would get the stuff better than expected? Then on CDC acquiring 7,000 units, do you have the building permits on all those 7,000 units or not?And then on potential fiscal stimulus and lobbying you have with the state, here 2 questions. First one, do you expect kind of [ super ] Pinel to come out shortly and to be basically prolongated versus today, supposed to be phased out end of December 2021. And second, regarding the ability to fill building permits, can you do something to force the government to -- to force municipalities to look at the dossier on it?

[Julien Francois Paul Carmona]

Many questions. First one on construction site productivity, I can answer about the level of production, but not necessarily productivity. What I said is that today, the sites which are open are running on average at 50% of their normal level of activity. So in a way, when we're saying 50% of our sites are open and running at 50% of their capacity, it means that technical progress today is roughly 25% of its normal level. I would say that at the end of June, we -- or in July, we should have reached normal capacity. That doesn't mean perfect productivity, which is a different concept. And when I talked about additional costs to really restart a site, it means probably lower productivity. So again, one-offs, I would say, but lower than usual margin on some projects just to finish them and deliver them in a good shape to our clients. Another way to answer you is that our deliveries should be delayed or postponed by 3 to 4 months on average. It depends on -- it's a site-by-site analysis, which leads me to the next question, penalties. It depends contract by contract. There will be discussions, first of all, between us, the developer and the clients, the investors. And on the other hand, between us and the subcontractors, because they are late as well and it's the case which I mentioned earlier, answering to Marie-Line, where everyone is invoking the force majeure to try to exonerate themselves from their contractual responsibilities. And indeed, it's a real crisis. So there are legal discussions ongoing. No -- today, no specific claims, but there will be discussions, and it's part of the -- a bit of a confusion on how we get out of this crisis. But we'll be, as usual, very, very focused on, first of all, serving the clients; and second, protecting the margins as much as we can. CDC Habitat, we said in the press release we expect to sign roughly 50% of its volume this year. Signing means having the building permits. So either we have the billing permits now, so it means that we are selling immediately some -- not some units which -- on projects, which were already started, or we will -- we should have the building permits before year-end. But roughly 50% on land with existing building permit or with a prospect of getting the billing permit before year-end. Lobbying, it's not clear yet. It's not clear yet. But of course, we are pushing on both sides. On the demand side, [ super ] Pinel or [ super ] PTZ, things like that, we'll see if we will be heard, listened to.And second, on the supply side, on the supply side, we had a lot of proposals, which were very much pushed by Jean-Philippe Ruggieri himself, on density, on accelerating, the granting of building permits, making the whole scheme much simpler for both economic and ecological reasons. So we are, of course, pushing for that. Also pushing for the government to, in some cases, deliver himself some planning or building permissions in some municipalities where things have completely been bogged down because of the confusion about the elections. But however, just to mitigate a little bit what I said, when we said -- well, if you understood we have to wait until the end of the elections to get some building permits, that's not true. In some cities, whether with a new team or with the existing team, in the cities where we have serious and professional people, we still keep getting building permits. And for instance, on the Engie campus, we received building permits during the lockdown a couple of weeks ago. So it means that for some cities, which consider that some urban development projects are really critical to their future, they are still active today. Did I miss something in one of your questions?

[Laurent Gelebart, Financial Analyst & Analyst of French Mid Caps]

No, that's clear, Julien. Maybe just last one on the Engie campus. Does this bit of a turmoil regarding subcontractors, et cetera, may affect the margin you were aiming at these projects or not at all?

[Julien Francois Paul Carmona]

No. Because this year, we had no -- we were not planning to start the work this year, except a bit of demolition and things like that, which won't be affected. So the big construction contracts will be awarded at the end of this year and will really start next year. So in a context, we'll see whether it's inflationary or deflationary, but which we -- which won't be affected normally by the current turmoil regarding the subcontractors.

[Operator]

And at this time, there are no further questions.

[Julien Francois Paul Carmona]

Okay. So if there are no further questions, there are no further answers. And we thank you a lot for your attention and interesting questions, and we hope to see you again in the real life as soon as possible. Thank you.