Aalborg, Denmark, 2015-06-17 08:41 CEST (GLOBE NEWSWIRE) --
SUMMARY
RESULTS FOR THE FIRST QUARTER OF 2015/16
In the first quarter of 2015/16, TK Development recorded results of DKK -3.8 million*) before tax, excluding discontinuing activities, against DKK 12.7 million*) in the first quarter of 2014/15.
The Group’s total results after tax amounted to DKK -6.7 million against DKK 7.3 million in the first quarter of 2014/15.
The balance sheet total amounted to DKK 2,863.3 million at 30 April 2015 against DKK 2,845.2 million at 31 January 2015. Consolidated equity totalled DKK 1,513.8 million versus DKK 1,509.4 million at 31 January 2015, corresponding to a solvency ratio of 52.9 % (31 January 2015: 53.1 %).
Cash flows for the period amounted to DKK -18.8 million against DKK 1.6 million in the same period the year before. Net interest-bearing debt amounted to DKK 997.4 million at 30 April 2015 against DKK 1,000.4 million at 31 January 2015.
PROPERTY DEVELOPMENT
The sales completed by TK Development in the first quarter of 2015/16 included the following:
In a joint venture with a contractor and other partners, TK Development has developed apartments for young people totalling about 1,500 m² at Smallegade, Frederiksberg, Denmark. Construction has been completed, and the apartments were ready for occupation in December 2014. The premises have been fully let. In the first quarter of 2015/16, TK Development sold its share of the joint venture at a profit to one of the other owners.
The Group owns a plot of land on Marsvej in Randers, Denmark, intended for a retail development project of about 3,700 m². The first phase of about 1,550 m² has been completed and let to jem & fix and Petworld. The Petworld premises were handed over to a private investor in the first quarter of 2015/16. The selling price corresponds to the carrying amount.
After the reporting date, TK Development has handed over the following sold projects to the investors:
In the 2014/15 financial year, TK Development conditionally sold a 6,000 m² office project in Aalborg, Denmark. The project has been 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 for a total price of DKK 126.1 million. Construction was completed in April 2015, and the completed project was handed over to the investor in June 2015, as planned. Thus, earnings from the sale will be recognized in the second quarter of 2015/16.
In the 2014/15 financial year, TK Development sold a lot of about 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 lot was handed over to A.P. Møller - Mærsk A/S in June 2015, and the profit on the sale will thus impact TK Development’s results in the second quarter of 2015/16.
Moreover, TK Development has initiated the following major development projects:
In Esbjerg, Denmark, TK Development owns a plot earmarked for the construction of a new shopping centre, BROEN, of about 29,800 m². Having received good backing from future tenants, the Group has concluded lease agreements for more than 60 % of the premises. The anchor tenants include Kvickly, H&M, Bahne, Fona, Imerco, Sportmaster and Gina Tricot.
A building permit has been granted for the project. Before construction could start, the project had to undergo a validation and approval procedure to ensure safe railway operations, etc. (CSM approval). This CSM approval was obtained in May 2015. A contamination cleanup process and preliminary construction works have been ongoing during the past months, and the first turf was cut at the end of May 2015. The shopping centre is scheduled for completion in spring 2017.
In the first quarter of 2015/16, TK Development concluded a conditional agreement with CapMan Real Estate, which was finally completed in May 2015. Thus, CapMan Real Estate has joined the project at its current stage, with a 65 % ownership interest, and will participate in completing its development. The sale will have no immediate impact on the Group’s results. The project earnings relate to the earnings potential on the remaining 35 % ownership interest, to which must be added continuous fee income from letting and project development.
TK Development is developing the Strædet project in Køge, Denmark, of about 34,300 m², excluding parking facilities. The project is being built immediately next to Køge Station and the town centre shopping area. The total project, to be executed in three phases, will comprise a retail project of about 19,000 m²; public service facilities of about 9,000 m², including a town hall and rehabilitation centre; and residential premises of about 6,300 m². In addition, the project will comprise parking facilities of about 13,000 m². The retail project, complete with the parking facilities of about 13,000 m², has been sold conditionally to the Finnish company Citycon based on a 6.25 % return. This sale is expected to impact results positively in the 2017/18 financial year upon handover of the completed project to Citycon. In addition, an agreement has been made with Køge Municipality regarding its takeover of building rights for both the town hall and rehabilitation centre. Construction of the first phase was initiated in March 2015.
The Group’s project portfolio in the property development segment comprised 349,000 m² at 30 April 2015 (31 January 2015: 351,000 m²).
ASSET MANAGEMENT
The total portfolio of properties that are under asset management and thus generate cash flow comprised 85,200 m² and amounted to DKK 1,258.3 million at 30 April 2015, including joint venture projects, compared to DKK 1,256.1 million at 31 January 2015.
The annual net rent from the current leases in the total portfolio corresponds to a return on the carrying amount of 4.4 %. This figure reflects a large spread in the returns on individual properties. Based on full occupancy, the return on the carrying amount is expected to reach 6.5 %. The current letting situation is affected by vacancies, short-term rent discount agreements and improvement initiatives that have not yet materialized.
DISCONTINUING ACTIVITIES
TK Development’s activities in Germany, Finland, the Baltic States and Russia are being phased out.
The results of the discontinuing activities before tax amounted to DKK -2.4 million in the first quarter of 2015/16 against DKK -4.5 million in the first quarter of 2014/15. At 30 April 2015 the balance sheet total for the discontinuing activities amounted to DKK 247.1 million against DKK 250.3 million at 31 January 2015.
The Group had the following discontinuing activities at 30 April 2015:
- In Germany: an investment property and two minor plots of land; a total of DKK 103.9 million.
- In Finland: a minor plot of land; a total of DKK 7.2 million.
- In the Baltic States: a retail park project, see below, and two plots of land; a total of DKK 96.2 million.
- In Russia: a minor project for letting; a total of DKK 23.6 million.
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 is being built in phases. The first phase of about 7,500 m² was completed in March 2014 and handed over to the investor in the 2014/15 financial year. The second phase of the project of about 3,800 m² has been fully let, and construction started at the beginning of 2015.
The timing and phase-out of the discontinuing activities are subject to 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
Generally, property markets are characterized by optimism, better opportunities than before for financing property acquisitions and a fair amount of investor interest. The historically low interest level has contributed to increasing interest in real property as an asset class, particularly among institutional investors.
In Management’s opinion, the determining variables in property development – land prices, construction costs, rental rates and selling prices – are at a level that enables new projects to be executed at a satisfactory profit.
The Group’s markets are characterized by expectations for moderate to respectable growth and a moderate rise in private consumption, although varying in strength from country to country. Climbing Internet sales are expected to intensify competition in the retail trade sector in the years to come.
TK Development has the competencies to execute large and complex development projects – retail, office, residential and mixed – and will continue to prioritize such projects. At the same time, TK Development will focus on executing more small-scale projects with a fairly short completion time on which the Group can generate reasonable earnings without tying up a large amount of capital for a prolonged period. Such projects will typically be combined residential and retail projects. Management expects a larger share of the Group’s portfolio to consist of residential projects in future because the Group wishes to exploit the attractive project opportunities within the residential segment.
FINANCIAL ISSUES
Net interest-bearing debt amounted to DKK 997.4 million at 30 April 2015 against DKK 1,000.4 million at 31 January 2015.
Project credit facilities of DKK 0.5 billion at 31 January 2015 that were due to expire prior to end-January 2016 were prolonged in the first quarter of 2015/16.
TK Development has a general agreement with the Group’s main banker about operating and project credits. In the first quarter of 2015/16, the agreement, which is usually renegotiated once a year, was extended until 1 May 2016.
OUTLOOK FOR 2015/16
Management still anticipates positive results of about DKK 40 million before tax, excluding discontinuing activities, for the 2015/16 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 2015/16.
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 2014/15 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”.
Further information is available from Frede Clausen, President and CEO, tel. +45 8896 1010.
*) Adjusted for tax withheld from “Income from investments in joint ventures”.
