Interim report Q1-Q3 2014/15 Aalborg, Denmark, 2014-12-17

Aalborg, Denmark, 2014-12-17 08:52 CET (GLOBE NEWSWIRE) --  

Summary

Results for the first nine months of 2014/15

• In the first nine months of 2014/15 TK Development recorded results of DKK 8.6 million before tax, excluding discontinuing activities, against DKK -21.6 million in the same period of 2013/14.

• Results after tax for the first nine months of 2014/15 totalled DKK -39.3 million against DKK -39.2 million in the corresponding period the year before.

• The balance sheet total amounted to DKK 3,168.7 million at 31 October 2014 against DKK 3,347.1 million at 31 January 2014. Consolidated equity totalled DKK 1,503.6 million versus DKK 1,553.7 million at 31 January 2014, corresponding to a solvency ratio of 47.5 %.

• Cash flows for the period amounted to DKK 2.4 million against DKK 16.8 million in the same period the year before. Net interest-bearing debt amounted to DKK 1,357.5 million at 31 October 2014 against DKK 1,435.1 million at 31 January 2014.

• With effect from 1 February 2014, the Group has implemented IFRS 11, Joint Arrangements, which has resulted in changes to the Group’s accounting policies. The Group’s partly owned enterprises that are jointly controlled with other parties, and which have previously been included in the consolidated financial statements by pro-rata consolidation, must be recognized according to the equity method after the implementation of IFRS 11. The amendment affects a great number of items in the income statement, assets, equity and liabilities, and the overall result is a reduction of the Group’s balance sheet total. The amendment has no impact on either the results or the equity of the Group.

Property development

• In the first quarter of 2014/15 TK Development conditionally sold a 6,000 m² office project in Aalborg, Denmark. The project is being developed for the international Alfa Laval Group, which has entered into a long-term lease for the property. The project has been sold to PensionDanmark at a total price of DKK 126.1 million. Construction began in March 2014, and the project will be handed over to the investor in June 2015. Earnings from the sale will be recognized in 2015/16 upon handover of the project to the investor.

• In the second quarter of 2014/15 TK Development sold and handed over building rights for about 7,200 m² at Østre Teglgade in Copenhagen, Denmark, to a private investor. The profit on this sale was recognized in the second quarter of 2014/15.

• In Poland TK Development sold and handed over a share of the Group’s plot in Bytom to Decathlon in the second quarter of 2014/15. The plot was sold at a loss, but Decathlon contributes to boosting interest and development potential in the area.

• In the third quarter of 2014/15 TK Development entered into a conditional agreement regarding the sale to private investors of a 1,550 m² retail park at Marsvej in Randers, Denmark, let to jem & fix and Petworld. Construction started in September 2014, with the handover and associated impact on results expected in 2015/16.

• Moreover, a conditional agreement has been concluded in the third quarter of 2014/15 regarding the sale to a private property company of the SuperBest premises forming part of the Group’s project at Vasevej in Birkerød, Denmark. The selling price is equal to the carrying amount, and the handover to the investor is expected in spring 2015.

• After the reporting date TK Development has entered into an agreement to sell a building lot of 13,000 m² at Amerika Plads, Copenhagen, Denmark, to A.P. Møller - Mærsk A/S. The selling price amounts to DKK 97.5 million, and TK Development’s ownership interest is 50 %. The handover to A.P. Møller - Mærsk A/S is expected to take place in mid-2015, and the profit on the sale will thus impact TK Development’s results in 2015/16.

• TK Development is working on the second phase of the Bielany residential project in Warsaw, Poland, which consists of 297 residential units and service facilities. The pre-construction sale started in December 2013, and 41 % of the units have been sold in advance. Construction of the residential units, which are being sold as owner-occupied apartments to private users, started in June 2014, and handover to the buyers is slated for spring 2016.

• In Jelenia Góra in Poland, TK Development is developing a shopping centre of about 24,400 m². The project is being executed as a joint venture with Heitman, in which the Group has an ownership interest of 30 %. Lease agreements for about 52 % of the premises have been signed. Construction started in May 2014, and the opening is scheduled for autumn 2015. TK Development receives fee income from the jointly owned company for developing, letting and managing the construction of the project.

• In Esbjerg, Denmark, TK Development owns a plot earmarked for the construction of a new shopping centre, BROEN, of about 29,800 m². A building permit has been granted for the project. Before construction can start, the project must undergo a validation and approval procedure to ensure safe railway operations, etc. The validation process is under way and was expected to be completed in autumn 2014 and to be followed by construction startup immediately afterwards. The validation has been delayed and is now expected to be completed in early 2015. Due to the postponement of the project, it has been necessary to renegotiate a number of lease agreements. The Group has received good support from the future tenants and has now concluded lease agreements for more than 60 % of the premises. This occupancy rate is considered satisfactory in relation to starting up construction once the validation process has been completed. Discussions are still being held with PFA regarding the sale of a share of the project at its current stage. Thus, if a final agreement is reached, PFA will participate in completing the project. This falls in line with the Group’s business model, whose aims include entering into partnerships regarding major development projects.

• The Group’s project portfolio in the property development segment comprised 389,000 m² at 31 October 2014 (31 January 2014: 405,000 m²).

 Asset management

• The total portfolio of properties that are under asset management and thus generate cash flow comprised 112,050 m² and amounted to DKK 1,526.5 million at 31 October 2014, including joint venture projects, compared to DKK 1,934.2 million at 31 January 2014.

• The annual net rent from the current leases corresponds to a return on the carrying amount of 5.5 %, which reflects a large spread in the returns on individual centres. Based on full occupancy, the return on the carrying amount is expected to reach 7.2 %. The current letting situation is affected by vacancies and short-term rent discount agreements with tenants, as local tenants in particular are generally experiencing difficulties.

• In the first quarter of 2014/15 TK Development completed the sale of its 75 % stake in the Fashion Arena Outlet Center in Prague, the Czech Republic. The outlet centre has been sold to Meyer Bergman, and the selling price for the whole centre amounts to EUR 71.5 million. This sale has generated a profit compared to the carrying amount, reduced the balance sheet total and made a substantial contribution to the Group’s free cash resources.

• A share of the Group’s completed retail property in Brønderslev, Denmark, was sold to a private investor in the second quarter of 2014/15 and handed over to the buyer in the third quarter of 2014/15. In this connection Management has revalued the total property, and a writedown of the property value was recognized in the second quarter of 2014/15.

• After the reporting date TK Development has sold its 20 % stake in the Futurum Hradec Králové shopping centre in the Czech Republic to Meyer Bergman. The selling price for the entire centre, including the hypermarket section, which TK Development has acquired together with the other owners, GE Capital and Heitman, for about EUR 12 million as part of the deal, amounts to EUR 87.6 million, which is on a par with the carrying amount. This sale is a step towards realizing Management’s objective to sell one or more major completed projects, and has made a significant contribution to the Group’s free cash resources.

Discontinuing activities

• For the first nine months of 2014/15 results before tax of the discontinuing activities amounted to DKK -47.7 million against DKK -13.5 million in the same period the year before. Of the results, DKK -15.6 million derives from current operations, DKK -13.8 million from losses recognized on completed sales, including sales after the reporting date, and DKK -18.3 million from impairment losses on the remaining assets.

• Management accords strict priority to phasing out those of the Group’s activities that are categorized as discontinuing activities, and has chosen to implement sales at a price below the carrying amount. In order to speed up the phase-out, particularly of the Finnish activities, Management has moreover chosen to write down the remaining assets by an amount of DKK 18.3 million.

• At 31 October 2014 the balance sheet total for the discontinuing activities amounted to DKK 274.7 million against DKK 367.7 million at 31 January 2014, a decline of about 25 %. The reduction relates mainly to the handover of the first phase of the DomusPro Retail Park project, which has been sold in advance to the investor.

• An agreement regarding the sale of another of the Group’s German investment properties, a residential rental property on the outskirts of Berlin, was concluded in the third quarter of 2014/15. The property has been sold to a private investor at a price equal to the carrying amount.

• TK Development’s DomusPro Retail Park project in Vilnius, Lithuania, has been conditionally sold to BPT Baltic Opportunity Fund, which is managed by BPT Asset Management. The selling price is based on a return requirement of 8.5 %. The retail park will be built in two phases. The first phase of about 7,500 m² was completed in March 2014 and handed over to the investor in the first quarter of 2014/15. The second phase of the project of about 3,800 m² has been fully let, and construction is expected to start in spring 2015.

• The timing and phase-out of the discontinuing activities are subject to major uncertainty. The phase-out is progressing, and the risk exists that these activities may be phased out at a value lower than their carrying amount.

Market conditions

• Management’s general assessment of the market conditions for the Group remains unchanged compared to its assessment in the Group’s Annual Report, published in early April 2014. However, in Management’s opinion, there is an increased risk of faltering economic growth, for one thing due to the geopolitical uncertainty in Ukraine, which may result in more difficult market conditions in Finland and Poland in particular.

• The Group’s markets are characterized by expectations for subdued financial growth and rising consumer confidence, although varying in strength from country to country. An increase in private consumption is still anticipated.

• Management has recorded diminishing uncertainty in the property markets, but the decision-making process of tenants, investors and financing sources remains lengthy and carefully considered. However, Management has observed that the historically low interest level has contributed to increasing interest in real property as an asset class, particularly among institutional investors.

• The Group is experiencing an easing in finance restraints. The options for procuring financing vary from project to project, depending on the type, location and status of the properties concerned, including letting and sales. Generally, lenders continue to require relatively high equity financing for new projects, but there also appears to be some relaxation of these requirements.

Financial issues

• In the first quarter of 2014/15 TK Development completed the sale of its 75 % stake in the Fashion Arena Outlet Center in Prague, the Czech Republic. After the reporting date TK Development has sold its 20 % stake in the Futurum Hradec Králové shopping centre in the Czech Republic to Meyer Bergman. These sales have substantially strengthened the Group’s financial platform.

• At 31 January 2014 project credit facilities of DKK 0.1 billion were due to expire prior to the end of January 2015. The credits have all been repaid in connection with the sale of projects, or refinanced.

• TK Development has a general agreement with the Group’s main banker about operating and project credits. When last reviewed, the agreement was extended until mid-2015.

Outlook for 2014/15

• Management maintains the previously announced profit estimate for 2014/15. Thus, Management anticipates positive results of about DKK 40 million before tax, excluding discontinuing activities, for the 2014/15 financial year.

• The timing and phase-out of the discontinuing activities are subject to major uncertainty. The activities are in the process of being discontinued, and the Group risks incurring further losses before the phase-out is complete. Therefore, the results before tax of the discontinuing activities have not been included in the outlook for 2014/15.

The expectations mentioned in this Interim Report, including earnings expectations, are naturally subject to risks and uncertainties, which may result in deviations from the expected results. Various factors may impact on expectations, as outlined in the section "Risk issues" in the Group’s 2013/14 Annual Report, particularly the valuation of the Group’s project portfolio, as described under “Business risks” and “Risks related to the presentation of financial statements”.

         TK Development A/S, Frede Clausen, President and CEO, tel. +45 8896 1010