Aalborg, Denmark, 2015-03-27 08:49 CET (GLOBE NEWSWIRE) --
Summary
RESULTS FOR 2014/15
In 2014/15 TK Development recorded results of DKK 36.7 million *) before tax, excluding discontinuing activities, against DKK 3.9 million *) in 2013/14. The results for the year are in line with expectations.
The Group’s total results after tax amounted to DKK -37.7 million against DKK -49.0 million in 2013/14.
The balance sheet total amounted to DKK 2,845.2 million at 31 January 2015 against DKK 3,347.1 million at 31 January 2014. Consolidated equity totalled DKK 1,509.4 million versus DKK 1,553.7 million at 31 January 2014, corresponding to a solvency ratio of 53.1 % (31 January 2014: 46.4 %).
The cash flows for the year amounted to DKK 17.4 million against DKK 0.4 million the year before. Net interest-bearing debt amounted to DKK 1,000.4 million at 31 January 2015 against DKK 1,435.1 million at 31 January 2014.
With effect from 1 February 2014, the Group implemented IFRS 11, Joint Arrangements, which resulted in changes to the Group’s accounting policies. The Group’s partly owned enterprises that are jointly controlled with other parties, and which were previously 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
The following plots of land were sold in the 2014/15 financial year:
TK Development previously owned an attractively located project area of about 37,000 m² at Teglholmen in Copenhagen. This project area was sold at a profit to private investors in 2014/15.
In 2014/15 TK Development entered into an agreement to sell a building lot of 13,000 m2 at Amerika Plads, Copenhagen, 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.
In addition, the following development projects have been sold and initiated:
In Barkarby in the northwestern part of Stockholm, TK Development has developed a 20,000 m² retail park. The retail park has been sold on a forward-funding basis and handed over to a fund managed by Cordea Savills. The retail park premises have been let to such tenants as XXL (sports store), Clas Ohlson, Intersport, Toys”R”Us, Burger King, Pizza Hut and the fitness chain Nordic Wellness. Construction began in August 2013 and was completed in January 2015. The project was handed over to the investor in January 2015, thus impacting results positively in 2014/15.
TK Development previously owned a property of almost 3,000 m² at Vasevej in Birkerød, rented by SuperBest. This property was sold and handed over to a private property company in 2014/15, and the selling price corresponds to the carrying amount. Moreover, a number of minor projects have been sold, including several superstores in Denmark.
TK Development has entered into cooperation with AP Pension regarding the development of about 12,500 m2 at Amerika Plads, lot C, primarily for residential use. In 2014/15 the building site was handed over to a newly established, jointly owned company, in which AP Pension has a 50 % ownership interest. Udviklingsselskabet By & Havn I/S and TK Development own the remaining 50 % in equal shares. TK Development’s share of profit on the sale of this building site was recognized in 2014/15. The aim is to build about 120 high-quality apartments for sale to private owners. Construction is scheduled to start in mid-2015. The profits anticipated on the development, construction and sale of the project will be recognized upon handover of the apartments to the respective buyers, expected to take place from the beginning of 2017.
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. A building permit has been granted for the project, but before construction can start, the project must undergo a validation and approval procedure to ensure safe railway operations, etc. (CSM approval). Several delays in the validation process have postponed project startup. The validation report is now expected to be available in spring 2015, with construction to start immediately afterwards. After the reporting date, TK Development has concluded a conditional agreement with CapMan Real Estate, which will join the project at its current stage, with a 65 % ownership interest, and thus participate in completing its development. The agreement is subject to the condition that the CSM approval is obtained.
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. 49 % of the units have been sold in advance. Construction is progressing as planned, and handover to the buyers is scheduled for spring 2016. The residential units are being sold as owner-occupied apartments to private users.
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 61 % 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 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.
TK Development is developing a project in Køge, Strædet, 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 351,000 m² at 31 January 2015 (31 January 2014: 405,000 m²).
ASSET MANAGEMENT
Management has previously announced its aim to sell one or more major completed projects, as such sales could contribute significantly to the Group’s free cash resources, reduce its balance sheet total and reinforce solvency.
TK Development has sold 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.
In addition, TK Development has sold its 20 % stake in the Futurum Hradec Králové shopping centre in the Czech Republic, also 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.
In 2014/15 TK Development made a DKK 44.5 million writedown for impairment of the Group’s Sillebroen shopping centre in Frederikssund. The shopping centre was written down because Management has decided to change the letting concept, including to introduce alternative concepts, and thus expects the net rent potential to be lower than previously estimated.
Following these sales, the total portfolio of properties that are under asset management and thus generate cash flow comprised 85,200 m² and amounted to DKK 1,256.1 million at 31 January 2015, including joint venture projects, compared to DKK 1,934.2 million at 31 January 2014. The portfolio reduction of DKK 678.1 million is primarily attributable to the sales completed.
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 centres, as particularly local tenants are recording difficulties. Based on full occupancy, the return on the carrying amount is expected to reach 6.7 %. 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 before tax of the discontinuing activities amounted to DKK -54.1 million in 2014/15 against DKK -38.9 million in 2013/14, of which DKK -17.3 million derives from current operations, DKK -14.6 million from losses recognized on completed sales, and DKK -22.2 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, Management has moreover chosen to write down the remaining assets by an amount of DKK 22.2 million.
Since 31 January 2014 the balance sheet total for the discontinuing activities has been reduced by 32 %, amounting to DKK 250.3 million at 31 January 2015. The reduction relates mainly to the handover of the first phase of the DomusPro Retail Park project in Vilnius, which has been sold in advance to the investor, and the sale of a German investment property.
The Group had the following discontinuing activities at 31 January 2015:
- In Germany: an investment property and two minor plots of land.
- In Finland: a minor plot of land.
- In the Baltic States: a retail park project, see below, and two plots of land.
- In Russia: a minor project for letting.
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 first quarter of 2014/15. 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
It is Management’s general assessment that the Group’s markets are showing signs of recovery. There is a general sense of optimism in the property markets, with better opportunities than before for financing the purchase of real property 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 – have once more reached a level enabling 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 residential projects to account for a larger share of the Group’s portfolio in future because the Group wishes to exploit the attractive project opportunities within the residential segment.
FINANCIAL ISSUES
In 2014/15 TK Development sold its 75 % stake in the Fashion Arena Outlet Center in Prague and its 20 % stake in the Futurum Hradec Králové shopping centre, also in the Czech Republic. In addition, TK Development has completed a number of other sales. Overall, these sales mean that the Group has considerably reduced its interest-bearing debt, while substantially strengthening its financial platform.
Net interest-bearing debt amounted to DKK 1,000.4 million at 31 January 2015 against DKK 1,435.1 million at 31 January 2014.
At 31 January 2015 project credit facilities of DKK 0.5 billion were due to expire prior to the end of January 2016. These credits have largely been extended after the reporting date.
TK Development has a general agreement with the Group’s main banker about operating and project credits. The agreement is usually renegotiated once a year and runs until 1 May 2015. After the reporting date, the agreement was extended until 1 May 2016.
OUTLOOK FOR 2015/16
Management 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 announcement, 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”, particularly the valuation of the Group’s project portfolio, as described under “Business risks” and “Risks related to the presentation of financial statements”.
*) Adjusted for tax withheld from “Income from investments in joint ventures”.
Contact information:
TK Development A/S, Frede Clausen, President and CEO, tel. +45 8896 1010.
