Aalborg, Denmark, 2015-09-11 08:48 CEST (GLOBE NEWSWIRE) --
SUMMARY
Results for the first half of 2015/16
During the first six months of 2015/2016, TK Development recorded results of DKK 0.7 million*) before tax, excluding discontinuing activities, against DKK 15.0 million*) in the first six months of 2014/15.
The Group’s total results after tax amounted to DKK -7.2 million against DKK 7.0 million in the first half of 2014/15.
The balance sheet total amounted to DKK 2,835.3 million at 31 July 2015 against DKK 2,845.2 million at 31 January 2015. Consolidated equity totalled DKK 1,510.0 million versus DKK 1,509.4 million at 31 January 2015, corresponding to a solvency ratio of 53.3 % (31 January 2015: 53.1 %).
Cash flows for the period amounted to DKK -14.5 million against DKK 4.3 million in the same period the year before. Net interest-bearing debt amounted to DKK 978.1 million at 31 July 2015 against DKK 1,000.4 million at 31 January 2015.
Property development
The sales completed by TK Development in the first half 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. Following completion of construction, the apartments were ready for occupation in December 2014. 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 is developing a retail project of about 3,700 m² at Marsvej in Randers, Denmark. 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.
TK Development has developed a 6,000 m² office project in Aalborg, Denmark, 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 was completed in April 2015, and the finished project was handed over to the investor in June 2015 as planned. Earnings from the sale were recognized in the second quarter of 2015/16.
TK Development has 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 thus impacted TK Development’s results in the second quarter of 2015/16.
Moreover, TK Development is involved in several ongoing building projects, including major development projects initiated in the first half of 2015/16:
In Esbjerg, Denmark, TK Development is working on the development and construction of a new shopping centre, BROEN, of about 29,800 m². Having attracted keen interest 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 contamination cleanup process and preliminary construction works have been completed in 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.
The sale to CapMan Real Estate of a 65 % stake in the project was completed in May 2015. CapMan Real Estate joined the project at the then current stage and is participating 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 have a major positive impact on results 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. These building rights are expected to be handed over to the municipality at the end of the 2015/16 financial year. Construction of the first phase began in March 2015, while construction work on the next phase is expected to start in autumn 2015.
In Bielany in Warsaw, Poland, TK Development is developing a residential project of about 53,700 m². The first phase of 7,850 m² has been completed and sold to private users. The plan is to initiate construction of the remaining approx. 45,850 m² in three successive phases. The second project phase consists of 297 residential units and service facilities. The residential units are being sold as owner-occupied apartments to private users, and 67 % of the units have been sold in advance. Construction has started, and handover to the buyers is slated for spring 2016.
Overall, TK Development has ongoing construction projects covering more than 100,000 m², of which more than 65,000 m² represents construction projects initiated in Denmark in the first half of 2015/16. Construction of a further 15,000 m² will start in the third quarter of 2015/16, and the Group is recording good progress on a range of other projects in the portfolio.
The Group’s project portfolio in the Property development business area comprised 314,000 m² at 31 July 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 117,200 m² and amounted to DKK 1,382.7 million at 31 July 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 4.1 %. 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 6.2 %. 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 is phasing out its activities in Germany, Finland, the Baltic States and Russia.
The results for the discontinuing activities before tax amounted to DKK -4.1 million in the first six months of 2015/16 against DKK -6.3 million in the first six months of 2014/15. At 31 July 2015 the balance sheet total for the discontinuing activities amounted to DKK 245.7 million against DKK 250.3 million at 31 January 2015.
The Group had the following discontinuing activities at 31 July 2015:
- Germany: an investment property and two minor plots of land, totalling DKK 103.9 million.
- Finland: a minor plot of land, totalling DKK 7.2 million.
- The Baltic States: a retail park project, see below, and two plots of land, totalling DKK 96.2 million.
- Russia: a minor project for letting, totalling DKK 22.6 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 first phase of about 7,500 m² was 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. Construction of this phase started in spring 2015, and the premises will be handed over to the buyer upon completion in 2016.
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
Management’s general assessment of the market conditions in the property sector is unchanged compared to the Group’s most recently published assessment. Generally, property markets are characterized by optimism, reasonable opportunities for financing property acquisitions and a fair amount of investor interest. The historically low interest level and surplus of liquidity have contributed to increasing interest in real property as an asset class, particularly among institutional investors.
Management believes that new projects can be executed at a satisfactory profit in the current market.
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 – in the retail, office, residential and mixed segments – 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.
The activity level is increasing in the Property development business area, and the Group is working on several new project opportunities in the retail and residential segments.
Financial issues
Net interest-bearing debt amounted to DKK 978.1 million at 31 July 2015 against DKK 1,000.4 million at 31 January 2015.
Project credit facilities of DKK 495.9 million 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, on tel. +45 8896 1010.
*) Adjusted for tax withheld from Income from investments in joint ventures.
