Interim Report Q1 2014/15

Company announcement no. 15/2014

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| Source: TK Development A/S
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Aalborg, Denmark, 2014-06-13 08:46 CEST (GLOBE NEWSWIRE) --  

 

 RESULTS FOR THE FIRST QUARTER OF 2014/15

  • In the first quarter of 2014/15, TK Development recorded results of DKK 12.7 million before tax, excluding discontinuing activities, against DKK -15.2 million in the first quarter of 2013/14.

 

  • The results after tax amounted to DKK 7.3 million in the first quarter of 2014/15 against DKK -16.2 million in the same period of 2013/14.

 

  • The balance sheet total amounted to DKK 3,147.5 million at 30 April 2014 against DKK 3,347.1 million at 31 January 2014. Consolidated equity totalled DKK 1,555.1 million versus DKK 1,553.7 million at 31 January 2014, corresponding to a solvency ratio of 49.4 % (31 January 2014: 46.4 %).

 

  • Cash flows for the period amounted to DKK 1.6 million against DKK -0.2 million in the same period the year before. Net interest-bearing debt amounted to DKK 1,515.5 million at 30 April 2014 against DKK 1,890.9 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. Following the implementation of IFRS 11, 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. The change 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 change has no impact on either the results or the equity of the Group.

 

PROPERTY DEVELOPMENT

  • In February 2014 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.

 

  • TK Development is working on the second phase of the Bielany residential project in Warsaw, Poland, which consists of about 300 residential units and service facilities. The pre-construction sale started in December 2013 and has progressed better than expected. Pre-reservations have been received for 32 % of the units. Construction of the residential units, which are being sold as owner-occupied apartments to private users, started in June 2014 after the reporting date, 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 as a joint venture with Heitman, in which the Group has an ownership interest of 30 %. To date lease agreements for about 51 % of the premises have been signed. Construction started in May 2014 after the reporting date, and the opening is scheduled for the end of 2015. TK Development will receive fee income from the jointly owned company for developing, letting and managing the construction of the project.

 

  • In Esbjerg 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 expected to be completed in autumn 2014, thus allowing construction to start up immediately afterwards. Discussions are 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.

 

  • Since the reporting date TK Development has entered into an agreement regarding the sale of building rights for about 7,200 m² at Østre Teglgade in Copenhagen to a private investor. The profit on the sale will be recognized in the second quarter of 2014/15.

 

  • The Group’s project portfolio in the property development segment comprised 403,000 m² at 30 April 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 113,250 m² and amounted to DKK 1,539.2 million at 30 April 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 5.8 %. Based on full occupancy, the return on the carrying amount is expected to reach 7.3 %.

 

  • These properties are performing at an acceptable level. Chain stores are managing satisfactorily, while local tenants are generally recording difficulties, and the current letting situation is affected by vacancies and short-term rent discount agreements with tenants.

 

  • In February 2014 TK Development conditionally sold its 75 % stake in the Fashion Arena Outlet Center in Prague, the Czech Republic. The sale was finally completed in April 2014. 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 minor profit compared to the carrying amount, reduced the balance sheet total and made a substantial contribution to the Group’s free cash resources.

 

DISCONTINUING ACTIVITIES

  • The results of the discontinuing activities before tax amounted to DKK -4.5 million in the first quarter of 2014/15 against DKK -3.8 million in the first quarter of 2013/14.

 

  • At 30 April 2014 the balance sheet total for the discontinuing activities amounted to DKK 307.3 million against DKK 367.7 million at 31 January 2014, a decline of 16.4 %. The reduction essentially relates to the handover of the first phase of the DomusPro Retail Park, which has been sold in advance to the investor.

 

  • 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. Construction of the first phase of about 7,500 m² was completed in March 2014. Construction of the second project phase will start once a satisfactory occupancy level has been reached.

 

  • 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 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. It is Management’s general assessment that the Group’s markets are showing signs of recovery.

 

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

 

  • In this phase of the business cycle, where economic growth is on the rise, some uncertainty, although diminishing, persists in the property markets, and the decision-making process of tenants, investors and financing sources remains lengthy and carefully considered.

 

  • Access to project financing, which has remained difficult for a prolonged period, poses the greatest challenge to the property sector. The Group is now experiencing an easing in project 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. When granting project finance credits, the banks continue to require relatively high borrower equity, but there also appears to be some relaxation of these requirements.

 

FINANCIAL ISSUES

  • In April 2014 TK Development completed the sale of its 75 % stake in the Fashion Arena Outlet Center in Prague, the Czech Republic. This sale has 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. About half of these credits have been repaid in connection with project sales, and the remaining credits are expected to be refinanced before maturity or to be repaid when projects are sold.

 

  • 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”.

 

Contact information:

TK Development A/S

Frede Clausen, President and CEO

Tel. +45 8896 1010