Aalborg, Denmark, 2012-12-19 16:09 CET (GLOBE NEWSWIRE) --
Summary
During the first nine months of the 2012/13 financial year, TK Development recorded results before tax of DKK -326.4 million against DKK 38.8 million in the same period the year before. Results were negatively affected by value adjustments of investment properties and the impairment of projects, totalling DKK 324.7 million.
For a prolonged period of time, the Management of TK Development has experienced an unsatisfactory market response, in that the Group’s efforts to sell completed projects and investments properties have met with sluggish demand. The lack of completed project sales means a substantial portion of the Group’s financial resources is tied up in completed projects. This in turn causes difficulties in allocating the capital necessary for securing progress in new projects to be executed on the land in the Group’s portfolio. In order to harness the long-term, substantial development potential that, in Management’s opinion, is inherent in several of the Group’s projects, Management has decided to review the Group’s sales strategy with a view to realizing faster sales. The consequences of the changed sales strategy are that:
Management intends to complete the sale of selected, completed projects and investment properties, even at reduced prices.
Management will downsize the portfolio of land by selling selected plots not essential to TK Development’s future strategy.
Management will make several writedowns for impairment of the Group’s projects, distributed as shown below, which will lead to substantially negative results in the current financial year.
Cash resources will thus be freed up, enabling the Group to strengthen its financial platform.
Financial resources will then be secured to regenerate momentum and to realize the substantial development potential inherent in several of the Group’s projects.
The changed sales strategy involves writedowns for the impairment of projects, investment properties and the portfolio of land totalling DKK 324.7 million, distributed among the following main groups:
Impairment of the project portfolio as a consequence of the decision to realize project sales as described above, a total of DKK 117.0 million.
Impairment of the project portfolio, including the decision to sell land, due in part to the difficult market conditions in the residential segment in Poland, a total of DKK 142.7 million.
Other impairment based on market conditions and a longer time horizon for developing and maturing individual projects than previously anticipated, a total of DKK 65.0 million.
Regardless of the difficult market conditions, Management finds it unsatisfactory having to make the writedowns for impairment described above.
Concurrently with the decision to change the sales strategy, Management has initiated a review of the Group’s business areas for the purpose of assessing the Group’s future market platform, including the countries in which the Group will continue to operate, and the possibility of trimming costs further.
It is Management’s belief that once implemented, these measures will enable the Group to generate satisfactory returns for its shareholders in future.
The Group’s Czech investment property, the Futurum Hradec Králové shopping centre, is owned in a joint venture with GE Capital and Heitman. The joint venture has decided to attempt selling the property. Based on the ongoing sales process, Management has chosen to change the valuation of the property, thus recognizing a negative value adjustment of DKK 24.3 million. This amount has been recognized in the Interim Report under Q2 2012/13.
In June 2012, a Bill proposing changes to the rules for tax loss carryforwards was passed. For TK Development, this has considerably lengthened the time horizon for utilizing tax losses, and thus significantly increased the uncertainty relating to utilization of the tax asset. TK Development has calculated that the changed rules entail a need to impair the Group’s tax asset by DKK 150.0 million. This amount has been recognized in the Interim Report under Q1 2012/13.
The results after tax amounted to DKK -473.4 million, against DKK 44.3 million in the first nine months of 2011/12.
Consolidated equity totalled DKK 1,414.1 million at 31 October 2012, corresponding to a solvency ratio of 32.6 %.
In the Swedish town of Gävle, TK Development has developed a retail park of about 8,300 m². Construction of the retail park was completed in October 2012. TK Development has entered into an agreement regarding the sale of the retail park to the Swedish property company Nordika Fastigheter AB, and the selling price amounts to SEK 110 million. The retail park was handed over to the investor in November 2012.
In July 2012, TK Development entered into a conditional agreement with Heitman regarding the sale of two Polish projects amounting to a total project value of EUR 95 million. The sale comprises a 70 % stake in the Group’s Galeria Tarnovia shopping centre in Tarnów and a new development project in Jelenia Góra. TK Development will realize a minor profit on the completion of this sale as well as free up cash resources. Future profits will also be generated in the form of fee income from the jointly owned company established for developing, letting and managing the construction of the development project. The transaction is expected to be finally completed in early 2013.
Construction of the first phase of the Group’s project in Bielany, Poland, is progressing as planned. The total project area comprises about 56,200 m², primarily housing, consisting of 900-1,000 units, with 136 being built in the first phase. The sluggishness of the Polish residential market has affected the sales process, with sales agreements having been signed for only about 52 % of the units in the first phase.
The Group’s total project portfolio amounted to DKK 3,396 million at 31 October 2012, of which DKK 1,904 million is attributable to projects that have been completed and thus generate cash flow. The annual net rent from the current leases corresponds to a return on the carrying amount of 6.7 %. Based on full occupancy, the return on the carrying amount is expected to reach 7.9 %. Negotiations for the sale of several of these projects are ongoing.
In total, the Group’s completed, cashflow-generating projects and its investment properties amount to DKK 2,321 million. The Group’s net interest-bearing debt amounts to DKK 2,354 million.
At 31 October 2012, the Group’s project portfolio comprised 732,000 m² (31 January 2012: 776,000 m²).
The main challenge currently facing the property sector is the difficult access to financing. Uncertainty on the international financial markets continues to adversely affect the property sector, leading to consistently long decision-making processes among financing sources, tenants and investors alike.
The Group will make the startup of major new projects contingent on obtaining either full or partial financing for them and on freeing up cash resources from the sale of a few completed major projects.
Management expects to generate results before tax of about DKK -300 million for the 2012/13 financial year against a previous forecast of positive results before tax. This is a consequence of the decision made by Management to make writedowns for impairment, due in part to the changed sales strategy, which includes accepting the sale of selected projects at reduced prices and downsizing the portfolio of land by selling selected plots not essential to TK Development’s future strategy. Management believes that the changed sales strategy will be able to generate the cash resources required to underpin future operations and project flow, and thus long-term earnings.
Further information is available from Frede Clausen, President and CEO, on tel. +45 8896 1010.
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. Expectations may be affected by various factors, as mentioned in the section “Risk issues” in the Group’s 2011/12 Annual Report.
