0G9T Tk Development A/s

Interim Report Q1-Q3 2017/18, Strategic focus changed, Asset sales to be accelerated, Profit guidance lowered, Change of management

Company announcement no. 9/2017

Summary

STRATEGIC FOCUS CHANGED, ASSET SALES TO BE ACCELERATED AND PROFIT GUIDANCE LOWERED

The Board of Directors has today resolved that TK Development will change its strategic focus. Going forward, focus will be on the Danish and Swedish property development business, while efforts will be made to divest the Group’s Polish activities within a period of two years.

The Group’s previous asset management activities will be divested sooner than originally planned.

Due to these strategic measures, impairment losses of a total of DKK 405 million, primarily on the Group’s asset management activities, have been recognised.

The consolidated result for 2017/18 is expected to be a loss of DKK 355 million before tax, compared with the previous estimate of a profit before tax of DKK 50-60 million. Excluding the above-mentioned impairment losses, the consolidated profit is expected to be about DKK 50 million before tax for 2017/18.

For 2018/19, TK Development expects a consolidated pre-tax profit of DKK 80-90 million. The target remains to achieve a return on allocated equity in the property development segment of 15-20% p.a. before tax, but now as from financial year 2018/19.

As previously announced, the Group's net proceeds from the divestment of asset management activities will be distributed to its shareholders.

As a result of the above, the Polish activities will as from 31 October 2017 be included under asset management for reporting purposes. At the same time, the Group’s ownership interest in BROEN Shopping in Esbjerg will be transferred to the asset management business, and previously non-allocated balance sheet items will be allocated to the property development segment.

The Board of Directors has allocated equity of DKK 500 million to the property development segment as at 31 October 2017. This is considered an appropriate amount of equity for the Group's future property development activities, and the goal is to achieve an annual return on equity of 15-20% before tax.

CHANGE OF MANAGEMENTThe Board of Directors wishes to complete a generational change at CEO level and has launched a search for a new group CEO.

In that connection, it has been agreed that the current CEO, Frede Clausen, will step down when a new CEO has been found at the latest. Until such time, the Group’s activities will be managed by Frede Clausen and Executive Vice President Robert Andersen.

Frede Clausen has been a member of the Executive Board since 1992 and has served as CEO since 2002. 

FINANCIAL PERFORMANCE IN Q1-Q3 2017/18

The result before tax for the first nine months of 2017/18 was a loss of DKK 397.8 million against a profit of DKK 0.2 million in the first nine months of 2016/17. The result after tax was a loss of DKK 395.9 million against a loss of DKK 4.1 million in the same period of 2016/17.

Total assets amounted to DKK 2,541.9 million at 31 October 2017 against DKK 2,852.9 million at 31 January 2017. Consolidated equity stood at DKK 902.5 million compared with DKK 1,293.7 million at 31 January 2017, for a solvency ratio of 35.5%.

Breakdown by segment:

DKKm	Property development	Asset management	Unallocated
Profit/loss
Profit/loss before tax	-33.5	-355.4	-8.9
Balance sheet
Development projects	707.3	-	-
Completed properties	-	898.0	-
Other projects	-	346.3	-
Other assets	341.8	248.5	-
Total assets	1,049.1	1,492.8	-
Tied-up equity	500.0	402.5	-

PROPERTY DEVELOPMENT

Due to impairment losses totalling DKK 60 million on Polish plots of land which the Group has owned for a number of years, the result before tax for the first nine months of 2017/18 was a loss of DKK 33.5 million.

The level of activity in the property development business is generally high, and an additional number of projects were sold or initiated after the balance sheet date, see below.

In the first nine months of 2017/18, TK Development handed over a 3,200 sqm retail park in Oskarshamn, Sweden, to the investor, handed over the apartments sold in the Amerika Have project in Copenhagen to the buyers and handed over the initial phase of the Strædet retail project in Køge to the investor.

Major development projects:

• Construction of BROEN Shopping, the new shopping centre in Esbjerg, Denmark, has been completed, and the centre opened in April 2017. The current occupancy rate is 93% (Q2 2017/18: 93%).
• Construction of Strædet, Køge, Denmark, was affected by the bankruptcy of a contractor in August 2017, which caused a delay of the principal second phase of the project. The second phase has now been completed, and the shops opened at the end of September 2017. The 19,000 sqm retail project is being handed over to the investor in three phases, and handover of the second phase to the Finnish-based investor, Citycon, was agreed after the balance sheet date.
• Construction of the Amerika Have residential project in Copenhagen, Denmark, was completed in spring 2017, and the apartments sold were handed over to the buyers in Q2 2017/18. A total of 119 of the 121 apartments have been sold (Q2 2017/18: 119).
• Construction of the third phase of the Bielany residential project in Warsaw, Poland, is progressing according to plan, as is the pre-completion sale. 81% (Q2 2017/18: 68%) of the residential units have been sold.

INITIATION OF NEW PROJECTS AFTER THE BALANCE SHEET DATE

TK Development has sold and initiated a number of projects after the balance sheet date. In total, construction projects of some 27,000 sqm have been initiated after the balance sheet date. These projects are:

MetroBielany, residential project, Bielany, Warsaw, Poland

In December 2017, TK Development began construction of the fourth and final phase of the Bielany residential project in Warsaw. The project comprises about 12,500 sqm and will consist of 227 residential units and service facilities. 20% of the units have been reserved in advance.

SporbyenScandia, Randers, Denmark

TK Development has concluded conditional agreements for the sale of 12,000 sqm of residential building rights to private investors and a conditional agreement for the sale of 5,500 sqm of residential buildings rights to a housing association.

BROEN Shopping, Esbjerg, Denmark

Plans are afoot to add a cinema to BROEN Shopping, which opened in April 2017, and a lease agreement has been concluded with Nordisk Film Cinemas for the establishment of an eight-screen cinema in connection with the centre. Construction commenced in November 2017 after the building permit for the cinema had been obtained. The cinema is expected to open its doors in spring 2019.

Outlet Arena Moravia, Ostrava, Czech Republic

As part of the termination of the Group’s Czech activities and in order to optimise values, the Board of Directors has, as previously announced, decided to develop and complete the Outlet Arena Moravia development project in Ostrava. In November 2017, TK Development sold the outlet centre under development to CPI Property Group, a major international property group with properties in 11 countries, under a conditional sale agreement. The outlet centre comprises some 17,000 sqm, of which the initial phase accounts for 11,700 sqm. Construction of the initial phase commenced in December 2017, and handover to the investor is scheduled for end-2018.

ASSET MANAGEMENT

Impacted by impairment losses on the Group’s asset management activities totalling DKK 345 million, the result before tax for the first nine months of 2017/18 was a loss of DKK 355.4 million.

In spite of favourable developments in a number of areas, the traditional centres are not yet generating satisfactory operating results, and maturing and optimising these centres is taking longer than expected. The economy is expanding, but the effects have failed to filter through to consumer spending in physical shops. This has resulted in cutthroat competition among rival shopping centres, and the competitive landscape is further affected by the growing volume of online purchases.

As a consequence, many traditional centres are reporting relatively flat revenue growth, which is putting rent levels under pressure. Previous assumptions regarding the maturing and optimisation of some centres have turned out to be overly optimistic. There is still a maturing potential, but it will likely take longer than previously assumed to realise selling prices in line with original expectations.

The Board of Directors has today decided to divest the asset management business as soon as possible in order to free up capital and focus on property development activities in Denmark and Sweden, which are still assessed to generate satisfactory earnings for shareholders.

Any questions regarding this interim report may be directed to Peter Thorsen, Chairman, tel. +45 4070 0676.

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