Agat Ejendomme

Earnings Release • Apr 25, 2013

Company announcement no. 9/2013

Aalborg, Denmark, 2013-04-25 08:50 CEST (GLOBE NEWSWIRE) -- SUMMARY

Results for 2012/13

TK Development recorded results of DKK -326.0 million before tax for the
2012/13 financial year, compared to DKK 14.3 million for the year before.
Results were negatively affected by value adjustments of investment properties
and the impairment of projects, totalling DKK 341.3 million. This performance
reflects the recent results estimate of about DKK -300 million.

The impairment itself does not impact the cash flow position.

Excluding value adjustments/impairment, the results before tax amount to DKK
-0.3 million. Based exclusively on the activities targeted by the Group’s
future strategy and market focus, the results before tax and value
adjustments/impairment amount to DKK 9.2 million.

In the 2012/13 financial year, deferred tax assets were written down by an
amount of DKK 200.5 million, a substantial portion of which is attributable to
the Group’s Danish tax asset. 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. On the basis of the changed rules, TK Development identified a need to
impair the Group’s Danish tax asset by DKK 150.0 million, which was already
recognized in Q1 2012/13 and thus forms part of the total writedown for
impairment.

The results after tax amounted to DKK -493.3 million, against DKK 27.0 million
in 2011/12.

Consolidated equity totalled DKK 1,389.7 million at 31 January 2013,
corresponding to a solvency ratio of 34.7 %.

Management considers the results for the year to be highly unsatisfactory.

Review of sales strategy

In December 2012, Management decided to review the Group’s sales strategy. TK
Development had long experienced an unsatisfactory market response to its
efforts to sell completed projects and investment properties due to 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 believed by
Management to be inherent in several of the Group’s projects, it was decided to
revise the sales strategy with a view to realizing faster sales. The changed
sales strategy consists of the following elements:

Completing the sale of selected, completed projects and investment properties,
even at reduced prices.

Downsizing the portfolio of land by selling selected plots that are not
essential to TK Development’s future strategy.

Making several writedowns for impairment of the Group’s projects, distributed
as shown below, which led to substantially negative results in the 2012/13
financial year.

Freeing up cash resources through sales, enabling the Group to strengthen its
financial platform.

Procuring financial resources through sales 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 341.3 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 123.0 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 151.3 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 67.0 million.

Regardless of the difficult market conditions, Management finds it highly
unsatisfactory having to make the writedowns for impairment described above.

Adjusted strategy and market focus

Concurrently with the decision to change the sales strategy, Management
initiated a review of the Group’s business areas for the purpose of assessing
its future market platform, including the countries in which the Group will
continue to operate, and the possibility of trimming costs further.

As described in company announcement no. 6/2013 of 11 March 2013, Management
has now completed this review and adopted a changed strategy consisting of the
following elements:

In addition to its primary business area, Property Development, TK Development
will have a secondary business area, Asset Management, to consist of owning,
operating, running in, maturing and optimizing completed projects for a
medium-long operating period. Asset management will be performed on TK
Development’s own books or for third parties.

TK Development has chosen a market focus that targets the countries expected to
contribute with long-term, profitable operations in future: Denmark, Sweden,
Poland and the Czech Republic.

TK Development will phase out its activities in Finland, Germany, the Baltic
States and Russia.

The Group’s portfolio of projects not initiated (plots of land) will be reduced
over a two-year period to about DKK 0.5 billion.

Over a two-year period, the balance sheet will be adjusted so as to ensure a
solvency ratio of about 40 %.

Overheads will be reduced by around 20 %, with half of the reduction deriving
from the discontinuation of activities in several countries.

Internal and external reporting will be changed to create a better overview and
highlight values and value generation in the Group’s business areas.

It is Management’s belief that once implemented, these measures will enable the
Group to generate satisfactory returns for its shareholders in future.

Property development

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.
In November 2012, the retail park was handed over to the Swedish property
company Nordika Fastigheter AB for a price of SEK 110 million.

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 realized a minor profit on the completion of this sale and freed up
cash resources. In addition, future profits will 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. This sale was
completed at the end of 2012. The Group’s ownership interests in the projects
have been reclassified as “Investment properties” and “Investment properties
under construction”, respectively.

The first phase of the Group’s project in Bielany, Poland, has been completed.
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 about 69 % of the units in the first phase.

The Group’s project portfolio in the property development area comprised
452,000 m² at 31 January 2013 (31 January 2012: 635,000 m²).

Asset management

The total portfolio of own properties under asset management, which thus
generates cash flow, comprised 138,250 m² and amounted to DKK 1,932.1 million
at 31 January 2013, of which investment properties accounted for DKK 312.1
million. 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 %.

The operation of these properties is generally proceeding satisfactorily, and
overall the footfall and revenue in the centres are developing positively.

Market conditions

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 several major completed projects.

Financial issues

At the forthcoming Annual General Meeting, the Supervisory Board will request
authorization to carry out a capital increase with gross proceeds of about DKK
210-231 million. The capital increase will help generate the cash resources
required to underpin future operations and project flow, and thus long-term
earnings. The capital increase has been discussed with the Group’s major
shareholders, who, together with a few major private and institutional
investors, have given conditional subscription and underwriting commitments for
the total capital increase.

The Group’s main banker has indicated its preparedness to prolong TK
Development’s credit facilities subject to specific conditions being met, which
includes reducing the operating credit limit by DKK 50 million. The
prolongation is expected to be formally accepted immediately after publication
of TK Development’s Annual Report 2012/13.

Of the total project credits outstanding at 31 January 2013, credits worth DKK
1.5 billion are due to mature in the 2013/14 financial year, including
continuing repayment obligations on individual project credits of about DKK 80
million. After the reporting date, agreements regarding the refinancing of DKK
0.2 billion have been made. Moreover, the Group’s main banker and other credit
institutions have indicated their preparedness to prolong existing credit
facilities. When final commitments in this respect have been received, credit
facilities of DKK 1.1 billion will have been prolonged, and credit facilities
of DKK 0.3 billion will be due to mature in 2013/14. The Group depends on being
able to continue obtaining either a prolongation or alternative financing of
the project credits not expected to be repaid upon project sales. The Group is
in ongoing dialogue with the relevant credit institutions, and Management
anticipates being able to either prolong or refinance these project credits.
Some of the proceeds from the capital increase or the cash freed up on the sale
of major completed projects will help reduce the debt to credit institutions,
including project finance loans granted by a number of the Company’s major
shareholders and members of Management.

Outlook for 2013/14

Management anticipates positive results before tax for the continuing
activities for the 2013/14 financial year. The timing and progress of the
phase-out of the discontinuing activities are subject to major uncertainty, and
the results of these activities are therefore not included in the outlook for
next year.

As mentioned above, Management has revised the sales strategy for the Group’s
projects and chosen to accept reduced prices for selected project sales. Thus,
Management considers it important for the Group to sell some of its completed
projects and plots of land in the 2013/14 financial year.

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.

Further information is available from Frede Clausen, President and CEO, on tel.
+45 8896 1010.