PHOTO: BROEN SHOPPING, SHOPPING CENTRE, ESBJERG, DENMARK

TK DEVELOPMENT A/S | CVR NO. 24256782 | 29 MARCH 2017
VESTRE HAVNEPROMENADE 7 | 9000 AALBORG | DENMARK

ANNUAL REPORT

2016/17

(1 February 2016 - 31 January 2017)

TK-development

TABLE OF CONTENTS

Page

3 Summary
5 Consolidated financial highlights and key ratios
6 Results for 2016/17 and outlook for 2017/18
11 Strategic focus and strategic goals
12 Market conditions
16 Segment results
17 Property development
21 Asset management
28 Other asset management activities
29 Business concept and knowledge resources
34 Financial targets
35 Risk issues
38 Shareholders
41 Corporate Governance
44 The Board of Directors
47 The Executive Board
48 Statement by the Board of Directors and Executive Board on the Annual Report
49 Independent auditor's report
53 Consolidated financial statements
95 Parent Company financial statements
110 Company information

2/110 | TK DEVELOPMENT A/S | ANNUAL REPORT 2016/17 | TABLE OF CONTENTS

SUMMARY

RESULTS FOR 2016/17

The results before tax amounted to DKK 13.8 million for 2016/17 against DKK -191.0 million in 2015/16. The results for the year are in line with expectations.
The results after tax amounted to DKK 7.1 million against DKK -222.3 million in 2015/16.
The balance sheet total amounted to DKK 2,852.9 million against DKK 2,808.8 million at 31 January 2016. Consolidated equity totalled DKK 1,293.7 million, and the solvency ratio stood at 45.3 %.

Breakdown by segment:

DKKm	Property development	Asset management	Unallocated
Profit/loss
Profit/loss before tax	71.4	-47.6	-10.0
Balance sheet
Development projects	927.6	-	-
Completed properties under asset management	-	1,173.2	-
Other asset management projects	-	107.5	-
Other assets	312.5	255.2	76.9
Total assets	1,240.1	1,535.9	76.9
Tied-up equity	704.0	529.5	60.2

OUTLOOK FOR 2017/18

Management expects results for the 2017/18 financial year of DKK 100-120 million before tax, which includes the expectation that the Group's property development activities will contribute with a return on equity of about 15 %.
The results forecast is based on Management's expectations, including time estimates, for several specific projects. Several of the Group's major development projects have been sold in whole or in part and are expected to contribute to next year's results, including Strædet, Køge, Denmark, and the Amerika Have residential project, Copenhagen, Denmark. TK Development is recording good progress on the individual projects.

PROPERTY DEVELOPMENT

The results for this business area amounted to DKK 71.4 million before tax in 2016/17. At 31 January 2017 the balance sheet total came to DKK 1,240.1 million, and the equity tied up represented DKK 704.0 million. These results correspond to a return on equity of 10.6 %.
In the 2016/17 financial year, TK Development completed the sale of a superstore of about 2,150 m² in Rødekro, a 1,200 m² retail property in Holbæk, a small superstore in Dronninglund and several plots of land, and also generated fee income on several projects. Moreover, the results include a significant positive value adjustment of BROEN Shopping, Esbjerg, Denmark, as the joint venture project is classified as an investment property under construction.
In addition, TK Development has handed over almost all of the completed units comprised by the second phase of the Bielany residential project in Warsaw, Poland, to the buyers.

Major development projects:

In Q4 2016/17 TK Development conditionally sold a residential rental project of about 4,900 m² at Østre Havn in Aalborg, Denmark, to a private investor. Construction started at the beginning of 2017, with handover to the buyer scheduled for spring 2018.
TK Development has conditionally sold a 5,300 m² youth housing project in Frederiksberg, Copenhagen, Denmark. Construction started in October 2016, and handover to the buyer is scheduled for January 2018.
Construction of BROEN Shopping, the new shopping centre in Esbjerg, Denmark, has reached the final stage, and the centre opening is scheduled for 10 April 2017. The current occupancy rate is 88 % of the premises (Q3 2016/17: 80 %).
The construction project in Køge, Denmark, is moving ahead. The project will be handed over to the investor in three phases, of which the first phase – scheduled for handover at end-May 2017 – comprises a cinema and restaurants. Most of the project is still expected to be completed and handed over in autumn 2017, while a minor part is not scheduled for completion until 2018. The retail project, of which 86 % has been let (Q3 2016/17: 78 %), has been sold conditionally to the Finnish company Citycon together with the parking facilities. The sale to Citycon is still expected to have a significant positive impact on results in the 2017/18 financial year when the completed part of the project is handed over to the investor.

MANAGEMENT COMMENTARY | SUMMARY | ANNUAL REPORT 2016/17 | TK DEVELOPMENT A/S | 3/110

SUMMARY

Construction of the Amerika Have residential project in Copenhagen, Denmark, is progressing as planned, and 104 of the 121 apartments have been sold (Q3 2016/17: 88).
In June 2016 construction started on the third phase of the Bielany residential project in Warsaw, Poland. The pre-completion sale is progressing satisfactorily, and 45% (Q3 2016/17: 30%) of the residential units have been sold.

The projects in the pipeline are moving ahead at a good pace due to robust tenant and investor interest. The Group is working on a number of major projects, which underpins Management's expectation to meet the strategic goal of generating a return on equity of 15-20% p.a. before tax in the property development business area.

ASSET MANAGEMENT

The results for this business area amounted to DKK -47.6 million before tax in 2016/17. At 31 January 2017 the balance sheet total came to DKK 1,535.9 million, and the equity tied up represented DKK 529.5 million.

The portfolio of completed properties in this business area consists of 156,500 m², amounting to DKK 1,591.5 million at 31 January 2017. This amount includes joint venture projects. The annual net rent from the current leases corresponds to a return on the carrying amount of 4.3% (Q3 2016/17: 4.3%). Based on full occupancy, the return on the carrying amount is expected to reach 6.2% (Q3 2016/17: 6.1%).

Detailed development and operating plans have been drafted for each property, and good progress is being made in their realization in a number of areas.

As previously announced, the aim is to sell the asset management activities within three to five years starting in December 2015, and the tied-up equity thus released is planned to be distributed to TK Development's shareholders.

Management continuously assesses the timing of the sale of assets under asset management to safeguard the best interests of the Company's shareholders. This assessment includes such elements as the risk and potential of the long-term maturing of an asset versus the time of dividend distribution, and the possibility of reducing overheads.

The expectations mentioned in this Annual Report, including earnings expectations, are naturally subject to risks and uncertainties, which may result in deviations from the expected results. Expectations may be impacted by factors generally applicable to the sector as well as the factors referred to under Risk issues and note 2 to the consolidated financial statements, Accounting estimates and judgments, including the valuation of the Group's project portfolio.

TK DEVELOPMENT A/S | ANNUAL REPORT 2016/17 | MANAGEMENT COMMENTARY | SUMMARY

CONSOLIDATED FINANCIAL HIGHLIGHTS AND KEY RATIOS

DKKm	2012/13	2013/14	2014/15	2015/16	2016/17

FINANCIAL HIGHLIGHTS

Net revenue	567.6	330.7	854.7	327.8	401.5
Value adjustment of investment properties, net	-13.5	-9.5	-3.5	-25.0	0.0
Gross profit/loss	-129.7	102.5	93.3	-67.3	83.1
Income from investments in joint ventures	-32.5	37.5	30.1	30.4	48.8
Operating profit/loss (EBIT)	-263.1	48.2	42.4	-152.6	51.8
Financing, etc.	-71.8	-86.9	-57.9	-39.5	-38.5
Profit/loss before tax and writedowns, etc.	-6.8	-36.6	42.1	3.6	25.5
Profit/loss before tax	-332.5	-42.8	-25.2	-191.0	13.8
Profit/loss for the year	-493.3	-49.0	-37.7	-222.3	7.1
Comprehensive income for the year	-487.6	-55.5	-44.4	-223.7	8.0
Balance sheet total	3,509.3	3,347.1	2,845.2	2,808.8	2,852.9
Investment properties	167.3	103.2	78.1	53.3	53.1
Total project portfolio	2,394.7	2,334.6	2,121.7	2,013.6	2,155.2
Equity	1,389.7	1,553.7	1,509.4	1,285.7	1,293.7
Cash flows for the year	-29.7	0.4	17.4	-17.1	4.8
Net interest-bearing debt, end of year	1,659.7	1,435.1	1,000.4	1,099.4	1,196.2

KEY RATIOS

Return on equity (ROE)	-30.2 %	-3.4 %	-2.5 %	-15.9 %	0,6 %
Solvency ratio (based on equity)	39.6 %	46.4 %	53.1 %	45.8 %	45.3 %
Equity value in DKK per share	23.9	15.8	15.4	13.1	13.2
Price/book value (P/BV)	0.4	0.4	0.6	0.5	0.7
Number of shares, end of year	42,065,715	98,153,335	98,153,335	98,153,335	98,153,335
Average numbers of shares, adjusted	42,065,715	74,870,019	98,153,335	98,153,335	98,153,335
Earnings per share (EPS) in DKK	-8.5	-0.7	-0.4	-2.3	0.1
Dividend in DKK per share	0	0	0	0	0
Listed price in DKK per share	9.0	6.7	9.0	7.2	9.7

KEY RATIOS ADJUSTED FOR WARRANTS

Return on equity (ROE)	-30.2 %	-3.4 %	-2.5 %	n/a	n/a
Solvency ratio (based on equity)	39.6 %	46.4 %	53.1 %	n/a	n/a
Equity value in DKK per share	23.9	15.8	15.4	n/a	n/a
Diluted earnings per share (EPS-D) in DKK	-8.5	-0.7	-0.4	n/a	n/a

The calculation of key ratios was based on the 2015 guidelines issued by The Danish Finance Society.

FINANCIAL HIGHLIGHTS, ETC. | MANAGEMENT COMMENTARY | ANNUAL REPORT 2016/17 | TK DEVELOPMENT A/S

RESULTS FOR 2016/17 AND OUTLOOK FOR 2017/18

RESULTS

The results before tax amounted to DKK 13.8 million for 2016/17 against DKK -191.0 million in 2015/16. The results for the year are in line with expectations.

The results after tax amounted to DKK 7.1 million against DKK -222.3 million in 2015/16.

Results before tax amounted to DKK 13.6 million in Q4 2016/17. This amount includes the operation of completed properties; profits on project sales; a significant positive value adjustment of the Group's ownership interest in BROEN Shopping, which is classified in the joint venture as an investment property under construction; and a few impairment losses, including impairment of the investment in the joint venture in which TK Development and Heitman jointly own two Polish shopping centres in operation. The impairment is described in more detail in the section Asset management.

Revenue

The revenue for 2016/17 totalled DKK 401.5 million against DKK 327.8 million in 2015/16. The revenue stems from the sale of projects, rental and fee income, etc. Revenue varies from year to year, depending on which projects have been handed over to investors, as the Group's revenue is essentially not recognized until project handover — and thus risk transfer — to the investor.

Development in revenue
Revenue, DKKm

Gross profit/loss

The gross results amount to DKK 83.1 million against DKK -67.3 million the year before. The gross results primarily include the impact from projects handed over in the property development business area, mainly Danish projects, the operation of the Group's wholly owned completed properties, as well as fee income.

The most significant projects handed over are described in the section Property development.

Income from investments in joint ventures

The results of joint ventures amounted to DKK 48.8 million in 2016/17 against DKK 30.4 million in 2015/16. The contribution from the property development business area includes profits on project sales and a significant positive value adjustment of the Group's ownership interest in BROEN Shopping. The contribution from the asset management business area includes the operation of the Group's partly owned completed properties and impairment of investments; see the description under Asset management.

The most significant projects developed/owned by joint ventures are:

Development projects

BROEN Shopping, shopping centre, Esbjerg, Denmark
Development projects, Østre Havn, Aalborg, Denmark
Residential project, Amerika Have, Copenhagen, Denmark

Asset management projects

Ringsted Outlet, Denmark
Amerika Plads, underground car park, Copenhagen, Denmark
Galeria Nowy Rynek, Jelenia Góra, Poland
Galeria Tarnovia, Tarnów, Poland

The underlying activities in joint ventures thus comprise property development in Denmark and asset management in Denmark and Poland. The individual projects are described in more detail in the two sections entitled Property development and Asset management.

The share of joint venture results breaks down as follows:

DKKm	2016/17	2015/16
Revenue	52.2	156.1
Gross profit/loss	62.3	39.4
Costs	1.2	0.8
Operating profit/loss	61.1	38.6
Financing, net	-13.1	-8.1
Profit/loss before tax	48.0	30.5
Tax on profit/loss for the year	-0.8	0.1
Profit/loss for the year	48.8	30.4

Staff costs and other external expenses

Staff costs and other external expenses amounted to DKK 79.7 million against DKK 82.0 million in 2015/16.

Financing

Net financing expenses amounted to DKK 38.5 million against DKK 39.5 million in 2015/16.

TK DEVELOPMENT A/S | ANNUAL REPORT 2016/17 | FINANCIAL HIGHLIGHTS, ETC. | MANAGEMENT COMMENTARY

RESULTS FOR 2016/17 AND OUTLOOK FOR 2017/18

Development in net financing expenses
Net financing expenses, etc., DKKm

Corporate income tax

Tax on the results for the year amounts to DKK 6.7 million, in part due to the valuation of the Group's foreign tax assets at DKK 0 based on Management's decision to phase out the Group's activities in several countries, and in part due to the low earnings expected from the Polish activities in the years ahead. The effective tax rate for the Group was 48.5% in 2016/17.

BALANCE SHEET

The balance sheet total came to DKK 2,852.9 million against DKK 2,808.8 million at 31 January 2016.

Development in balance sheet total
Balance sheet, DKKm

Investment properties

TK Development's portfolio of investment properties consists of a single German investment property. The carrying amount of the property amounts to DKK 53.1 million, on a par with the carrying amount at 31 January 2016. In addition, TK Development has investment properties in joint ventures.

Investments in and receivables from joint ventures

Net investments in and receivables from joint ventures amounted to DKK 474.1 million against DKK 456.4 million at 31 January 2016. The increase is a combined result of the distribution of dividend by individual joint ventures, additional investments in other joint ventures and the share of the year's results from joint ventures.

Deferred tax assets

Deferred tax assets totalled DKK 75.4 million against DKK 81.6 million at 31 January 2016. The deferred tax assets relate to the Group's Danish activities exclusively, as the Group's foreign tax assets have been written down to DKK 0; see above. The valuation has been based on existing budgets and profit forecasts as well as various time estimates, and consequently the valuation is subject to uncertainty.

Projects in progress or completed

The total project portfolio came to DKK 2,155.2 million against DKK 2,013.6 million at 31 January 2016. The rise derives mainly from a combination of two factors: an increase in the Group's portfolio of projects in progress, including Strædet in Køge; and a decrease resulting from the handover of sold projects, primarily the second phase of the Bielany residential project in Warsaw where the sold units have been handed over to the individual buyers. Total prepayments from customers amounted to DKK 72.5 million at 31 January 2017 versus DKK 75.6 million at 31 January 2016.

With a carrying amount of DKK 2,155.2 million (31 January 2016: DKK 2,013.6 million), projects in progress and completed projects account for a significant share of the Group's balance sheet total. At 31 January 2017 the carrying amount of projects written down to the estimated net realizable value amounted to DKK 1,133.2 million for projects under asset management and DKK 331.2 million for projects under development, a total of DKK 1,464.4 million (31 January 2016: DKK 1,525.9 million) out of the total value of projects in progress and completed projects. Thus, as a large share of the Group's projects has been written down to the estimated net realizable value, the valuation is subject to uncertainty. If the actual course of a project deviates from the expected development, this may necessitate changes to the impairment recognized. This could have a material adverse effect on the Group. Reference is also made to note 2 in the consolidated financial statements, Accounting estimates and judgments.

The development in the total portfolio of completed projects and investment properties, excluding projects and investment properties owned by joint ventures, is shown below together with the development in net interest-bearing debt.

MANAGEMENT COMMENTARY | ANNUAL REPORT 2016/17 | TK DEVELOPMENT A/S

RESULTS FOR 2016/17 AND OUTLOOK FOR 2017/18

Completed projects/investment properties and interest-bearing debt

Portfolio, DKKm
Net interest-bearing debt, DKKm

Portfolio of land

Property development
Other asset management activities

Projects in progress and completed projects also include the Group's portfolio of land. The portfolio of land has been reduced substantially in the past few years, most recently from DKK 561 million at 31 January 2016 to DKK 453 million at 31 January 2017, due mainly to the startup of the third phase of the Bielany residential project in Warsaw. TK Development maintains its strong focus on further reducing the portfolio of land, either by selling plots or initiating projects. When the last phase of the residential project in Bielany, Warsaw, is initiated, the portfolio of land will be reduced by a further DKK 98 million. The development in the portfolio of land appears from below.

Portfolio of land at 31 January 2017 broken down by country (DKK):

Residential Park, Bielany, phase 3, Warsaw, Poland - completion scheduled for spring 2018

8/110 | TK DEVELOPMENT A/S | ANNUAL REPORT 2016/17 | MANAGEMENT COMMENTARY

RESULTS FOR 2016/17 AND OUTLOOK FOR 2017/18

Deposits in custody and escrow accounts

Deposits in escrow accounts totalled DKK 23.4 million against DKK 94.1 million at 31 January 2016. This amount consists largely of prepayments from customers, which are released upon the handover of projects, subject to specific conditions being met.

Cash and cash equivalents

Cash and cash equivalents amounted to DKK 10.5 million against DKK 5.6 million at 31 January 2016. TK Development's total cash resources, see note 27 to the consolidated financial statements, came to DKK 50.5 million against DKK 131.5 million at 31 January 2016.

Equity

The Group's equity came to DKK 1,293.7 million against DKK 1,285.7 million at 31 January 2016. The solvency ratio stood at 45.3% at 31 January 2017 against 45.8% at 31 January 2016. Management attaches great weight to the Group's solvency and aims to maintain a constant minimum solvency ratio of 40%.

In 2016/17 equity was impacted by the results for the year and net positive market-value adjustments after tax of DKK 0.9 million.

Equity and solvency

Liabilities

The Group's total liabilities came to DKK 1,559.2 million against DKK 1,523.1 million at 31 January 2016. The increase is primarily attributable to debt owing to credit institutions. Non-current liabilities declined by DKK 33.9 million, and current liabilities increased by DKK 70.0 million.

CASH FLOWS

The cash flows for the year amounted to DKK 4.8 million against DKK -17.1 million the year before.

Cash flows from operating activities were negative in the amount of DKK 32.5 million (2015/16: negative in the amount of DKK 78.9 million). This amount includes an increased net investment in projects and a decrease in funds tied up in receivables and in custody and escrow accounts, as well as the distribution of dividend from joint ventures.

Cash flows from investing activities were negative in the amount of DKK 1.0 million (2015/16: negative in the amount of DKK 139.1 million).

Cash flows from financing activities are positive in the amount of DKK 38.3 million, a combined result of project loans being raised for ongoing projects and other payables to credit institutions being reduced (2015/16: positive in the amount of DKK 200.9 million).

UNCERTAINTY IN RECOGNITION AND MEASUREMENT

When applying the Group's accounting policies in practice, Management makes a number of significant accounting estimates and judgments that materially affect the Annual Report, particularly as concerns the measurement of various assets. A significant part of the Group's balance sheet consists of ongoing and completed projects on which any indications of impairment are determined based on a specific assessment of each individual project, including existing project budgets and the expected future development potential. For more details, please see note 2 of the consolidated financial statements.

FINANCIAL ISSUES

Net interest-bearing debt amounted to DKK 1,196.2 million at 31 January 2017 against DKK 1,099.4 million at 31 January 2016. At 31 January 2017 project credit facilities of DKK 562.6 million were due to mature prior to the end of January 2018. Most of these facilities have either been prolonged after the reporting date or are expected to be repaid before maturity upon handover of the relevant projects to investors.

After the reporting date, TK Development has extended its agreement about operating and project credits with its main banker until 30 April 2018.

TK Development usually finances its projects by traditional bank credits and loans. One of the Group's partly owned companies in Poland has also floated a mezzanine loan in connection with refinancing the relevant property. Due to the resulting, relatively high loan-to-value ratio, the loan is subject to a number

MANAGEMENT COMMENTARY | ANNUAL REPORT 2016/17 | TK DEVELOPMENT A/S

RESULTS FOR 2016/17 AND OUTLOOK FOR 2017/18

of covenants. This entails a greater need to monitor and follow up on the agreed covenants.

Development in net interest-bearing debt

OUTLOOK FOR 2017/18

Management expects results for the 2017/18 financial year of DKK 100-120 million before tax, which includes the expectation that the Group's property development activities will contribute with a return on equity of about 15 %.

The results forecast is based on Management's expectations, including time estimates, for several specific projects. Several of the Group's major development projects have been sold in whole or in part and are expected to contribute to next year's results, including Strædet, Køge, Denmark, and the Amerika Have residential project, Copenhagen, Denmark. TK Development is recording good progress on the individual projects.

SUBSEQUENT EVENTS

No significant events that may affect the Company's financial position have occurred after the reporting date.

THE BOARD OF DIRECTORS

The Board of Directors is composed of five members. Niels Roth has been elected as the Chairman and Peter Thorsen as the Deputy Chairman. After serving on the Board of Directors for ten years, Niels Roth does not wish to stand for re-election, while the remaining board members are prepared to stand for re-election. Subject to re-election of these members, the Board

of Directors intends to elect Peter Thorsen as Chairman and Henrik Heideby as Deputy Chairman.

The Board of Directors has launched a search process to find up to two new board candidates to be elected at the Annual General Meeting in spring 2018, at the latest. The Board of Directors' aim is for one of these candidates to be a woman.

DIVIDENDS

The Board of Directors recommends that the Annual General Meeting resolve not to distribute dividends for the 2016/17 financial year.

TK DEVELOPMENT A/S | ANNUAL REPORT 2016/17 | MANAGEMENT COMMENTARY

T K

STRATEGIC FOCUS AND STRATEGIC GOALS

In December 2015 TK Development determined a number of strategic goals and initiatives, the aim being for TK Development to become an undiversified developer company and to create attractive shareholder value.

TK Development today

Property development

Activities in Denmark, Sweden and Poland.
Greatest potential in Denmark and Sweden.
Focus on reducing the risk exposure in Poland.
A return of 15-20 % p.a. on equity is expected as from 2017/18.

Asset management

Phasing out the activities in the Czech Republic, Germany, the Baltic States and Russia.
Maturing and optimizing the operation of completed properties with a view to selling them in the period until 2019-2020.

The equity freed up from the sale is to be distributed to the Company's shareholders.

2020 goal

Undiversified developer company

FOLLOW-UP ON STRATEGIC GOALS DETERMINED IN DECEMBER 2015

Strategic goal	Current status
A return of 15-20 % p.a. before tax on equity expected in the property development business area as from the 2017/18 financial year.	TK Development expects results for 2017/18 of DKK 100-120 million before tax. This amount includes results for the property development business area equivalent to a return on equity of about 15%.
A solvency ratio of around 40%.	The solvency ratio stood at 45.3% at 31 January 2017, and thus the goal has been achieved. The solvency ratio is also expected to exceed 40% in the years to come.
Substantial reduction of the portfolio of land.	The portfolio of land has been reduced by DKK 232 million since the strategy was announced in December 2015 and amounted to DKK 453 million at 31 January 2017. The focus remains on substantially reducing the portfolio of land.
Phasing out the Group's activities in the Czech Republic, Germany, the Baltic States and Russia.	Since December 2015 assets of almost DKK 60 million have been sold, and the phase-out continues. The carrying amount of projects totalled DKK 192.6 million at 31 January 2017.
Maturing and optimizing the operation of the asset management activities with a view to selling them in 2019-2020.	Detailed development and operating plans have been drafted for each property, and the realization of these plans is progressing well in a number of areas. The goal is still for the asset management activities to be sold by 2019-2020 at the latest.
Ongoing reduction of costs in step with realizing the defined, future strategic focus.	Overheads came to DKK 79.7 million in 2016/17 against DKK 82.0 million in 2015/16. Costs will be further reduced in step with the divestment of the asset management activities and the phase-out of the activities in the Czech Republic, Germany, the Baltic States and Russia.

MANAGEMENT COMMENTARY | ANNUAL REPORT 2016/17 | TK DEVELOPMENT A/S | 11/110

MARKET CONDITIONS

In Management's opinion, property markets are generally characterized by optimism, reasonable opportunities for financing property acquisitions and a fair amount of investor interest. The continued low interest level and surplus of liquidity have contributed to increasing interest in real property. Management believes that the property development business area will still be able to generate satisfactory earnings.

The Group's markets are characterized by expectations for moderate to respectable economic growth and a moderate rise in private consumption, although varying in strength from country to country. Climbing e-commerce is also expected to intensify competition in the retail trade sector in the years to come.

TK Development focuses on three segments, the retail, office and residential segments. TK Development wishes to exploit the attractive opportunities for developing real property in the residential segment to an even greater extent than before, and has several attractive residential projects in its portfolio. At the same time TK Development strives to achieve a spread in the project portfolio between small and medium-sized 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 – and large, more complex projects which TK Development also has the competencies to execute.

DENMARK

Denmark recorded growth again in 2016. Economic growth is driven in particular by private investments and increasing private consumption. The unemployment rate declined in 2016 and is also expected to decline slightly in the years to come. In the years ahead, growth is expected to remain moderate to low, while private consumption is expected to increase, but at a subdued rate.

In Management's opinion, the Danish property market is generally characterized by optimism, good opportunities for financing property acquisitions and keen investor interest. The historically low interest level and surplus of liquidity in the market – coupled with volatile stock markets – have made property investment attractive for investors in terms of returns and risk spread.

In Denmark TK Development focuses on three segments – retail, office and residential – and wishes to exploit the opportunities for developing real property in the residential segment to an even greater extent than before. TK Development has several attractive residential projects in its portfolio, as well as a good spread of other projects ranging from small to medium-sized and major, more complex projects.

The market has been impacted positively by foreign investors who in the course of 2016 gained an even larger market share of total property investments in Denmark than in the past, pri

Strædet, Køge, Denmark - handover to the investor in three phases from May 2017 to 2018

12/110 | TK DEVELOPMENT A/S | ANNUAL REPORT 2016/17 | MANAGEMENT COMMENTARY

T K

MARKET CONDITIONS

marily in Copenhagen and the Greater Copenhagen area. In recent years foreign investors have shown a particular interest in the retail segment, expanding this interest to both the residential and office segments in 2016. In the year ahead investors are expected to show mounting interest in property investment outside major towns and cities in order to generate higher returns.

Potential investors in the Group's projects in the three segments mentioned above typically consist of high-net-worth individuals, local or major property companies, institutional investors and foreign investors.

The prices of prime-location property have generally increased over the past year, and Management expects that the return requirement for prime locations in Copenhagen and Aarhus will remain stable in the year to come. As investors start setting their sights on property investments in other towns and cities, it must be expected that the return requirement for prime-location property could drop over the next year.

Population growth in major towns and cities creates a demand for new retail establishments and the development of existing shopping areas. National and international chains, including supermarket chains and retail chains, still wish to expand at a controlled pace, although decision-making processes are protracted. Expansion depends on finding the right location, and if the location is right, more tenants tend to show interest in new locations in small towns. The rental level for primary locations is expected to be fairly stable, whereas the rental level for secondary locations will remain under pressure in the years ahead.

Investors are showing a good amount of interest in retail, office and residential projects at attractive locations in major towns and cities, while interest in secondary towns remains low. Location and quality are key determinants of investment decisions. For prime-location properties where the risk of vacancies is relatively limited, the return requirement is relatively low and expected to remain stable or decline slightly in the year to come. Selling prices for properties in secondary locations are under pressure.

Many institutional investors wish to increase the share of property investments in their portfolios, being confident that real property will deliver stable and competitive returns. Management has observed that investors are also showing interest in projects in major towns outside capital cities, and that they are increasingly seeking to play an active role in project development, thus assuming a greater risk against an anticipated higher return. These opportunities fall in line with the Group's business model, according to which TK Development is interested in entering into partnerships regarding development projects and completed properties in order to improve the allocation of the Company's equity, diversify risks and better utilize the Group's development competencies.

In the office market, a respectable amount of interest in projects in major towns and cities has been recorded. Projects in attractive locations appeal to tenants and investors alike, and the demand for office space is increasing in step with declining unemployment rates. The vacancy rates for primary and secondary locations differ vastly. Demand for fairly new premises with a practical layout is expected to remain at a sound level in the years to come. The rental level for primary locations is expected to be relatively stable, but to remain under pressure for secondary locations. Selling prices for prime-location office properties are expected to show a slightly upward trend in the year ahead.

The residential market in Denmark holds wide appeal, particularly in the cities. There is demand for both rental dwellings and owner-occupied dwellings in the towns and cities that are recording substantial population growth. The migration towards major towns and cities is expected to continue in future years.

The rental level for rental housing is currently relatively high and expected to remain stable in the period ahead. Residential rental properties are attracting great investor interest. This interest is focused on locations in the capital, major towns and cities, where substantial population growth is being recorded.

Moreover, the market for developing and selling housing to private owner-occupants remains attractive. There is great interest in buying owner-occupied dwellings. Selling prices have climbed over the past year and have reached a relatively high level, which is expected to remain stable in the period to come. TK Development is currently working on several residential projects and will continue to do so in the years to come.

Denmark - startup in 1989	2015	2016	2017e	2018e
GDP (% yr./yr.)	1.6	1.0	1.5	1.8
Private consumption (% yr./yr.)	1.9	1.8	1.7	2.0
Unemployment (%)	6.2	6.2	5.9	5.7

(Source: The European Commission, Winter 2017, European Economic Forecast – Denmark)

MANAGEMENT COMMENTARY | ANNUAL REPORT 2016/17 | TK DEVELOPMENT A/S | 13/110

T K

MARKET CONDITIONS

SWEDEN

The Swedish market continues to benefit from the strong Swedish economy. Consumption and investments are growing at a respectable rate, and private consumption is also expected to rise in the years ahead. The unemployment rate has dropped in the past year and is expected to remain unchanged in future years.

The property market in Sweden is characterized by optimism, good opportunities for procuring project finance at low interest rates and high investor interest, particularly as concerns major projects.

As in previous years, TK Development will place its main focus on the retail segment in Sweden. Retail chains are interested in attractive rental premises, although tenants' decision-making processes are protracted. Retail chains are still expanding, and new foreign chains are entering the Swedish market.

Project location continues to be tenants' paramount consideration, and the gap between primary and secondary locations continues to widen. The clear trend is for retail chains to expand in cities, particularly Stockholm and Gothenburg, but also in other major towns in Sweden. Stockholm is experiencing high annual population growth, resulting in a demand for new retail establishments and the development of existing shopping areas both in the form of retail parks and shopping centres. Rental levels show a stable to slightly increasing trend for primary locations, while remaining under pressure for secondary locations.

Both local and international investors are showing a high level of interest, particularly in prime locations, and the return requirement, which is fairly low for these projects, is expected to remain stable in the period ahead.

Sweden is still considered to be a transparent and interesting market, and given the continued retail expansion, the Swedish market remains interesting for TK Development. As in previous years, TK Development intends to focus on developing prime-location superstores and shopping centres in major towns and cities, with Stockholm and Gothenburg being the primary areas of interest.

In the years to come TK Development also intends to work on project opportunities in the residential segment.

Sweden - startup in 1997	2015	2016	2017e	2018e
GDP (% yr./yr.)	4.1	3.3	2.4	2.1
Private consumption (% yr./yr.)	2.7	2.3	2.6	2.4
Unemployment (%)	7.4	6.9	6.5	6.4

(Source: The European Commission, Winter 2017, European Economic Forecast – Sweden)

POLAND

The Polish economy recorded growth again in 2016, although at a more subdued level than in recent years. Polish economic growth is driven by increasing private consumption and is being negatively impacted by the current political and regulatory uncertainty in the country. The favourable trend is anticipated to continue in the years ahead. Unemployment is expected to decline further, and private consumption is expected to rise, driven by such factors as real wage increases and lower unemployment, along with an interest rate expected to remain low in the years to come. However, the political situation renders the country's economic development somewhat precarious.

E-commerce rose significantly again in 2016 and is expected to continue accelerating in the years to come, as e-commerce to date has accounted for a minor percentage of retail sales compared to the Group's other markets. Climbing e-commerce is expected to intensify competition in the retail trade sector.

In Poland TK Development currently has activities in both the retail and residential segments. The amount of equity tied up in projects remains highest in Poland, and TK Development will therefore continue focusing on reducing the level of tied-up capital in the period ahead.

In the retail market, strong national and international chains are still looking to expand at a controlled pace, with location being the key focus as in the Group's other markets. Generally, prime-location retail premises in major towns and cities are in high demand. Moreover, the Group is recording increasing tenant interest in attractive small town locations.

Property prices have shown a general increasing trend in the past year, and the current price level is expected to be maintained in the period ahead. Investors focus chiefly on major towns and cities, particularly Warsaw, but have also started investing in small towns, which hold potential for generating higher returns. International investors continue to dominate the Polish market.

The exodus to major towns and cities in Poland has pushed up demand for new dwellings and made the residential market in

TK DEVELOPMENT A/S | ANNUAL REPORT 2016/17 | MANAGEMENT COMMENTARY

T K

MARKET CONDITIONS

Poland interesting. The market for developing housing for sale to private owner-occupants is particularly interesting. The owner-occupant residential market in Warsaw is driven by stable to slightly rising prices, a low interest level and confidence in sustained economic growth. The demand for owner-occupied housing is high, and the sale of apartments in the Group's ongoing residential project in Bielany, Warsaw, is proceeding satisfactorily. In the years to come, TK Development will focus on developing and completing the last phases of this residential project and on executing several minor residential projects, also in Warsaw.

The market for rental housing in Poland is becoming an interesting option and is expected to grow significantly in the years to come. TK Development is currently working on the development of rental housing in Warsaw and expects to expand its business volume in this segment over the next few years. The Group has sold its first residential rental project to a property fund, and TK Development is now executing the project on a fee basis. TK Development is working on several, similar project opportunities and expects to be able to execute an increasing number of such projects in the years ahead.

Poland - startup in 1995	2015	2016	2017e	2018e
GDP (% yr./yr.)	3.9	2.8	3.2	3.1
Private consumption (% yr./yr.)	3.2	3.6	3.9	2.9
Unemployment (%)	7.5	6.3	5.6	4.7

(Source: The European Commission, Winter 2017, European Economic Forecast – Poland)

BROEN, shopping centre, Esbjerg, Denmark – opening scheduled for 10 April 2017

MANAGEMENT COMMENTARY | ANNUAL REPORT 2016/17 | TK DEVELOPMENT A/S

SEGMENT RESULTS

TK Development's segments comprise property development and asset management activities.

RESULTS 2016/17 (DKKM)

Profit/loss	2016/17	Property development	Asset management	Unallocated
Revenue	401.5	298.4	103.1	-
Gross profit/loss	83.1	38.2	44.9	-
Income from investments in joint ventures	48.8	75.8	-27.8	0.8
Costs, including depreciation of non-current assets	80.1	44.2	25.1	10.8
Operating profit/loss	51.8	69.8	-8.0	-10.0
Income from investments in associates	0.5	0.7	-0.2	-
Financing, net	-38.5	0.9	-39.4	-
Profit/loss before tax	13.8	71.4	-47.6	-10.0
Tax on profit/loss for the year	6.7
Profit/loss for the year	7.1

BALANCE SHEET STRUCTURE AT 31 JAN 2017 (DKKM)

Balance sheet	31 Jan 2017	Property development	Asset management	Unallocated
Assets
Investment properties	53.1	-	53.1	-
Investments in joint ventures	277.2	170.6	106.6	-
Non-current receivables	194.2	80.3	113.9	-
Other non-current assets	86.6	8.5	1.4	76.7
Projects in progress or completed	2,155.2	927.6	1,227.6	-
Current receivables	48.6	21.3	27.3	-
Cash, cash equivalents, escrow accounts, etc.	38.0	31.8	6.0	0.2
Assets	2,852.9	1,240.1	1,535.9	76.9
Equity and liabilities
Equity	1,293.7	704.0	529.5	60.2
Credit institutions	1,433.3	452.4	980.9	-
Other liabilities	125.9	83.7	25.5	16.7
Equity and liabilities	2,852.9	1,240.1	1,535.9	76.9
Solvency ratio	45.3%	56.8%	34.5%	78.3%

16/110 | TK DEVELOPMENT A/S | ANNUAL REPORT 2016/17 | MANAGEMENT COMMENTARY

T K

PROPERTY DEVELOPMENT

The Group's primary business area is the development of real property, termed property development. The Group's strategic focus is property development in Denmark, Sweden and Poland.

The return on equity from this business area is expected to amount to 15-20 % p.a. before tax as from the 2017/18 financial year.

Property development - Denmark, Sweden and Poland
DKKm	2016/17	2015/16
Revenue	298.4	247.7
Gross profit/loss	38.2	7.6
Results of joint ventures	75.8	27.5
Profit/loss before tax	71.4	-8.0
	31 Jan 2017	31 Jan 2016
Balance sheet total	1,240.1	1,094.1
Tied-up equity	704.0	646.5

The results before tax amounted to DKK 71.4 million against DKK -8.0 million in 2015/16. Results include profits on project sales, see below, fee income and a significant positive value adjustment of the Group's ownership interest in BROEN Shopping, which is classified in the joint venture as an investment property under construction.

These results correspond to a return on equity of 10.6 %.

Handed-over projects

The projects handed over in 2016/17 included the following:

Retail project, Rødekro, Denmark

TK Development has developed a project of 2,150 m² in Rødekro. The project has been let to Harald Nyborg and sold to a private investor. Following the completion of construction, the finished project was handed over to the tenant and investor in Q1 2016/17.

Ahlgade, Holbæk, Denmark

TK Development has sold a retail property of about 1,200 m² in Holbæk. The property was completed in 2014 and has been fully let to the two Bestseller concepts Jack & Jones and Vila, as well as Imerco. The property was handed over to the buyer in Q3 2016/17.

MetroBielany, residential project, Bielany, Warsaw, Poland

In Warsaw TK Development has completed the second phase of a residential project totalling about 52,000 m². Comprising about 14,850 m², the second phase consists of 297 residential units and service facilities. All the residential units have been

sold, and almost all of them have been handed over to the individual buyers.

In addition, TK Development has handed over a small superstore in Dronninglund, Denmark, sold several plots of land and generated fee income on a few projects.

Project portfolio

At 31 January 2017 the development potential of the project portfolio represented sold projects of 38,000 m² and remaining projects of 344,000 m², a total of 382,000 m², as compared to 329,000 m² at 31 January 2016.

Geographical segmentation of the development potential of the project portfolio (m²):

Overall, TK Development has ongoing construction projects covering more than 120,000 m² and is recording good progress on these projects.

The projects in the pipeline are moving ahead at a good pace due to robust tenant and investor interest. The Group is working on a number of major projects, which underpins Management's expectation to meet the strategic goal of generating a return on equity of 15-20 % p.a. before tax in the property development business area.

MANAGEMENT COMMENTARY | ANNUAL REPORT 2016/17 | TK DEVELOPMENT A/S | 17/110

PROPERTY DEVELOPMENT

The development of the Group's project portfolio, including joint venture projects, is outlined below:

DKKm	31 Jan 2015	31 Jan 2016	31 Jan 2017
Sold
Completed	0	0	1
In progress	94	228	486
Not initiated	44	0	4
Total	138	228	491
Remaining
Completed	49	31	5
In progress	183	209	368
Not initiated	651	443	353
Total	883	683	726
Net project portfolio	1,021	911	1,217
Forward funding	5	76	73
Gross project portfolio	1,026	987	1,290
Forward funding in % of gross carrying amount of sold projects	3.5 %	25.0 %	12.9 %

PROJECT OUTLINE

The outline below lists the key projects in the portfolio in the property development business area. The outline includes projects both in wholly owned companies and in joint ventures. In addition, TK Development's activities include a number of small and medium-sized projects in the Group's primary segments – the retail, office and residential segments – as well as mixed segments.

Project	City/town	Country	Segment	TKO's ownership share of area (m²)	TKO's ownership interest	Construction start/expected construction start	Opening/expected opening
In progress
Strædet	Køge	DK	Mixed	25,300	100 %	March 2015	May 2017/autumn 2017/2018
BROEN Shopping	Esbjerg	DK	Retail	10,430	35 %	May 2015	April 2017
Amerika Have	Copenhagen	DK	Residential	3,125	25 %	September 2015	Spring 2017
Domus Vista	Frederiksberg	DK	Residential	5,300	100 %	October 2016	January 2018
Retail park, Oskarshamn	Oskarshamn	SE	Retail	3,200	100 %	May 2016	April 2017
MetroBielany, Bielany, phase 3	Warsaw	PL	Residential/services	15,650	100 %	June 2016	Spring 2018
Not initiated
Vasevej	Birkerød	DK	Residential	1,900	100 %	-	-
Aarhus South, phase 2	Aarhus	DK	Retail	2,800	100 %	2017	2018
Ejby Industrivej	Copenhagen	DK	Office	6,300	100 %	-	-
Østre Havn/Stuhrs Brygge	Aalborg	DK	Mixed	19,250	1) 50 %	Continuously	Continuously
Kulan, shopping district	Gothenburg	SE	Mixed	55,000	100 %	2019	2021
Arninge Entré, commercial di-strict	Stockholm	SE	Mixed	60,000	100 %	2018	2020
Retail park, Södertälje	Södertälje	SE	Retail	8,000	100 %	Mid-2017	Mid-2018
Retail park, Söderhamn	Söderhamn	SE	Retail	10,000	100 %	2017	2018
MetroBielany, Bielany, phase 4	Warsaw	PL	Residential/services	13,650	100 %	Spring 2018	Autumn 2019
Bytom Retail Park	Bytom	PL	Retail	21,400	100 %	Continuously	Continuously
Property development, total floor space				approx. 261,000

1) Share of profit on development amounts to 70 %.

18/110 | TK DEVELOPMENT A/S | ANNUAL REPORT 2016/17 | MANAGEMENT COMMENTARY

PROPERTY DEVELOPMENT

PROJECTS IN PROGRESS

Strædet, development of town centre, Køge, Denmark

This project comprises about 34,300 m², excluding parking facilities, and is being built immediately next to Køge Station and the town centre shopping area. The total project comprises a retail project of about 19,000 m²; public service facilities of almost 9,000 m², including a town hall and rehabilitation centre; and residential premises of about 6,300 m². In addition, the project comprises parking facilities of about 13,000 m². The building rights for a town hall and rehabilitation centre have been sold to Køge Municipality. The retail project of about 19,000 m² has been sold conditionally to the Finnish company Citycon together with parking facilities of about 13,000 m².

The project will be handed over to the investor in three phases, of which the first phase – scheduled for handover at end-May 2017 – comprises a cinema and restaurants. Most of the project is expected to be completed and handed over in autumn 2017, while a minor part is not scheduled for completion until 2018. The sale to Citycon is expected to have a significant positive impact on results in the 2017/18 financial year when the completed part of the project is handed over to the investor.

The current occupancy rate is 86 % for the overall retail project (Q3 2016/17: 78 %). The tenants include Irma, Fakta, H&M, Bones, Kings & Queens, Sportigan, Wagner, Gina Tricot, Deichmann and Nordisk Film Cinemas, which will be opening a six-screen cinema.

TK Development is also working on the development of about 3,000 m² of housing located on Rådhusstrædet. A total of 28 residential units will be constructed, consisting of both owner-occupied apartments and two-storey town houses. TK Development has recently started the pre-completion selling process. Construction will be carried out in connection with the remainder of the project, and the residential units will be ready for handover at the end of 2017.

BROEN Shopping, shopping centre, Esbjerg, Denmark

Together with CapMan Real Estate, TK Development is building a new shopping centre in Esbjerg, BROEN Shopping, of about 29,800 m² at Esbjerg Station. TK Development has a 35 % ownership interest.

88 % of the premises have been let (Q3 2016/17: 80 %). The tenants include Kvickly, H&M, Fitness.dk, Bahne, Kings & Queens, Imerco, Sportmaster, Gina Tricot, Café Vivaldi, Nielsens and Deichmann.

Construction has reached the final stage, and the centre opening is scheduled for 10 April 2017. The centre is to be expanded with a cinema, and a lease agreement has been concluded with Nordisk Film Cinemas regarding the establishment of an eight-screen cinema in connection with the centre. The work on the local plan required for this purpose has been initiated. The cinema is expected to open its doors in autumn 2018.

In the jointly owned company, the project is classified as an investment property under construction, and TK Development recognized a significant positive value adjustment of its ownership interest in the project in the 2016/17 financial year.

Amerika Have, residential project, Copenhagen, Denmark

Kommanditaktieselskabet Danlink Udvikling (DLU), owned 50/50 by Udviklingsselskabet By & Havn I/S and TK Development, is developing a project at Amerika Plads in a 50/50 joint venture with AP Pension. The project – Amerika Have – will comprise housing of about 12,000 m² and ground-floor business premises of about 500 m² targeting the general public. The housing will comprise 121 high-quality apartments for sale to private owners, 104 of which have been sold (Q3 2016/17: 88). The profits on project completion will be recognized when the apartments are handed over to the respective buyers. The process of developing, constructing and selling the project has progressed satisfactorily. Construction will be completed in April 2017, and handover to the buyers will start in May 2017.

Domus Vista, youth housing units, Frederiksberg, Copenhagen, Denmark

In Frederiksberg TK Development has conditionally sold a 5,300 m² youth housing project to Koncenton, which has taken over the letting process as part of the deal. Construction started in October 2016, and the completed project is expected to be handed over to the investor in January 2018.

Retail park, Oskarshamn, Sweden

In Oskarshamn TK Development has conditionally sold a 3,200 m² retail park project and an option to expand the project by a further 4,700 m². The project has been fully let (Q3 2016/17: 100 %), and construction is proceeding according to plan. The completed project is expected to be handed over to the investor in April 2017.

MetroBielany, residential project, Bielany, Warsaw, Poland

In Warsaw TK Development is developing a residential project of owner-occupied apartments totalling about 52,000 m². The project is being built in four phases, and the first two phases of

MANAGEMENT COMMENTARY | ANNUAL REPORT 2016/17 | TK DEVELOPMENT A/S | 19/110

PROPERTY DEVELOPMENT

7,850 m² and 14,850 m², respectively, have been completed. Almost all of the apartments have been sold and handed over to private users.

The third phase will comprise about 15,650 m², consisting of 263 residential units and service facilities. Construction was initiated in June 2016, with completion scheduled for spring 2018. The pre-completion sale is progressing satisfactorily, and 45% (Q3 2016/17: 30%) of the residential units have been sold.

The fourth and last phase is expected to start immediately after completion of the third phase.

A SELECTION OF PROJECTS NOT INITIATED

Østre Havn/Stuhrs Brygge, Aalborg, Denmark

In the area previously occupied by Aalborg Shipyard at Stuhrs Brygge, TK Development is developing a business and residential park through a company owned 50/50 with Frederikshavn Maritime Erhvervspark. Several development projects are currently being planned, including 7,000 m² of youth housing units, 12,000 m² of rental dwellings, 13,000 m² of owner-occupied dwellings and 13,000 m² of offices, as well as parking facilities. A few of the projects are described below.

Work is proceeding on the development of housing for young people of about 7,000 m², and the building rights have been sold to a housing association with a view to starting construction in spring 2017.

Another project planned for this area comprises owner-occupied dwellings of about 7,400 m² with a unique location at Beddingen. The pre-construction sale of these apartments has begun. Construction is scheduled to start in mid-2017, and the apartments are expected to be ready for occupation at end-2018.

The rental housing is to be constructed in three phases, with the first phase to consist of a rental property of about 4,900 m². In Q4 2016/17 this project was conditionally sold to a private investor, who will handle the letting process. The sale will be based on forward funding, which means that the investor will pay for the project in step with project completion. Construction started after the reporting date and is scheduled for completion and handover to the buyer in spring 2018.

Arninge Entré, commercial district, Stockholm, Sweden

In Arninge in Stockholm, the municipality has chosen TK Development as its preferred partner for developing an area that is to serve as the entrance to the town centre of Arninge. TK Development is currently engaged in the planning process together with the municipality. The project is expected to comprise premises of about 60,000 m², primarily retail stores, with a possibility for including office premises. Both tenants and investors have shown a good amount of interest in the project, and work on the planning, letting and sale will proceed during the months to come. Construction is expected to start in 2018, and the completion is scheduled for 2020.

Retail park, Södertälje, Sweden

TK Development is currently developing a retail park of about 8,000 m² in Södertälje. Lease agreements for about 70% of the premises (Q3 2016/17: 70%) have been concluded, including with a supermarket operator, and tenants are showing a good amount of interest in the remaining premises. Construction is expected to start in mid-2017, with the opening scheduled for mid-2018.

Bytom Retail Park, Bytom, Poland

TK Development intends to develop a retail park with total leasable space of about 21,400 m² on its site at the Plejada shopping centre in Bytom. Construction of the project will be phased in step with letting. Letting efforts are ongoing, and construction will start as space is let.

TK DEVELOPMENT A/S | ANNUAL REPORT 2016/17 | MANAGEMENT COMMENTARY

T K

ASSET MANAGEMENT

The Group's asset management activities comprise the operation of the Group's completed properties and investment properties as well as plots of land and development projects on the markets where the Group wishes to discontinue its activities in the longer term.

As announced in December 2015, the aim is to sell the asset management activities within three to five years starting in December 2015, and the tied-up equity thus released is planned to be distributed to TK Development's shareholders.

Asset management
DKKm	2016/17	2015/16
Revenue	103.1	80.1
Gross profit/loss	44.9	-74.9
Results of joint ventures	-27.8	3.0
Profit/loss before tax	-47.6	-139.2
	31 Jan 2017	31 Jan 2016
Balance sheet total	1,535.9	1,632.0
Tied-up equity	529.5	577.2
Number of employees at centres	16	12

The results before tax for the asset management activities amounted to DKK -47.6 million against DKK -139.2 million in 2015/16. The results for 2016/17 include joint venture results of DKK -27.8 million. This is a consequence of a DKK 26.0 million writedown for impairment in Q4 2016/17 of the investment in the joint venture owning the two shopping centres in operation in Poland, Galeria Tarnovia and Galeria Nowy Rynek, in which TK Development has a 30% ownership interest.

One reason for the impairment is that net rent has developed at a slower pace than anticipated, resulting in a shift in the optimum timing for selling the properties, and consequently a substantially higher preferred return for the joint venture partner than previously expected.

The total portfolio of completed properties under asset management, including joint venture properties, amounted to DKK 1,591.5 million at 31 January 2017 against DKK 1,577.9 million at 31 January 2016.

Total portfolio of properties in operation, including joint venture properties, broken down by country (DKK):

Based on the current occupancy rate, the annual net rent from the total portfolio corresponds to a return on the carrying amount of 4.3% (Q3 2016/17: 4.3%), which reflects a certain spread in the returns on individual centres. The current letting situation is still affected by vacancies, short-term rent discount agreements with tenants and improvement initiatives that have not yet materialized in full. Based on full occupancy, the return on the carrying amount is expected to reach 6.2% (Q3 2016/17: 6.1%).

*) Before a preferred return for a joint venture partner in Polish projects.

MANAGEMENT COMMENTARY | ANNUAL REPORT 2016/17 | TK DEVELOPMENT A/S | 21/110

ASSET MANAGEMENT

The Group's completed properties in the asset management business area comprised the following at 31 January 2017:

	Country	Type	TKD's ownership interest	Project area (m²)	Current occupancy rate
Projects in wholly owned companies
Completed projects
Sillebroen Shopping, Frederikssund	Denmark	Shopping centre	100 %	26,400	92 %
Galeria Sandecja, Nowy Sącz	Poland	Shopping centre	100 %	17,300	95 %
Most Retail Park	Czech Republic	Retail park	100 %	6,400	69 %
Aabenraa	Denmark	Retail park	100 %	4,200	81 %
Brønderslev	Denmark	Retail property	100 %	1,200	100 %
Investment properties
Lüdenscheid	Germany	Mixed	100 %	14,000	50 %
Projects in joint ventures
Galeria Nowy Rynek, Jelenia Góra	Poland	Shopping centre	30 %	24,800	93 %
Galeria Tarnovia, Tarnów	Poland	Shopping centre	30 %	17,000	93 %
Ringsted Outlet	Denmark	Outlet centre	50 %	13,200	85 %
Amerika Plads, underground car park	Denmark	Car park	50 %	32,000	n/a
Total				156,500

TK DEVELOPMENT A/S | ANNUAL REPORT 2016/17 | MANAGEMENT COMMENTARY

ASSET MANAGEMENT

SILLEBROEN SHOPPING, SHOPPING CENTRE, FREDERIKSSUND, DENMARK

Opening	March 2010
Leasable area	26,400 m², including about 5,000 m² of supermarket units
Occupancy rate	92 % (Q3 2016/17: 92 %)
Footfall 2016	3.4 million

Planned operational improvements:

To assess the derived effects of opening the cinema and proactively ensuring a good tenant mix on this basis.
To carry on additional marketing and image improvement campaigns after the cinema opening.
To conclude agreements with new tenants that can further strengthen Sillebroen and make it a natural choice to meet daily shopping needs.

The running-in and maturing phase after the opening in 2010 took longer than expected. However, 2015 saw a successful reversal of the centre's operation, with a rebound in footfall and revenue. In 2016 the centre's footfall index was 106 and the revenue index 98 compared to 2015.

As an important step towards increasing customer flow and strengthening revenue in the centre, an agreement was made with Nordisk Film Cinemas about the establishment of a cinema of about 1,400 m² in the centre, and the new cinema opened in August 2016. The positive effect of the cinema opening is an important contribution to the continued optimization of the centre's tenant mix.

Overall, the mix of tenants in the centre improved considerably in 2016, despite the closing of Fona. In addition to Nordisk Film opening a cinema, tenants such as Imerco, Søstrene Grene and Normal have also opened new retail stores in the centre.

After the reporting date, Fakta has closed its supermarket in the centre. Efforts are being made to attract a fitness chain to the centre to raise its appeal – and thus increasingly make Sillebroen Shopping a natural daily choice for the area's consumers.

MANAGEMENT COMMENTARY | ANNUAL REPORT 2016/17 | TK DEVELOPMENT A/S

ASSET MANAGEMENT

GALERIA TARNOVIA, SHOPPING CENTRE, TARNÓW, POLAND

Opening	November 2009
Leasable area	17,000 m², including a supermarket of about 2,000 m²
Occupancy rate	93 % (Q3 2016/17: 91 %)
Footfall 2016	1.8 million

Planned operational improvements:

To move tenants around to create a better customer flow in the centre.
To assess the derived effects of opening the cinema and proactively ensuring a good tenant mix on this basis.
To change temporary leases to ordinary leases on conditions that are satisfactory to the Group.
To carry on additional marketing and image improvement campaigns after the cinema opening.
To boost the occupancy rate – dialogue is ongoing with potential tenants.

Galeria Tarnovia is owned by a joint venture with Heitman, and TK Development has a 30 % ownership interest. Galeria Tarnovia is impacted by a strong competitive environment in Tarnów. From 2014 to 2015 the centre recorded a drop in revenue and footfall, both figures being at index 96 in 2015 compared to 2014.

To enhance the centre and increase its competitiveness, efforts have been made to change the tenant composition, resulting in a better customer flow in the centre. This has involved the relocation of a major electronics store and the opening of concept stores operated by the Polish retail chain LPP and a store operated by SMYK, another Polish retail chain. In addition, the conversion to accommodate a cinema has been completed, allowing the cinema to open on 16 December 2016.

The effects of these initiatives are starting to emerge. In 2016 the centre recorded revenue at index 105 and footfall at index 101 compared to 2015. In December 2016 the centre recorded the highest monthly revenue and footfall figures since its opening.

Overall, the letting situation has improved significantly, with an increase in occupancy rate from last year's 86 % to a current rate of 93 %.

In Q2 2016/17 the joint venture refinanced the centre and floated a mezzanine loan in this connection. The loan agreements contain a number of covenants that are to be met at specific intervals in order for the loan to be upheld. Although the occupancy rate has increased from 89 % 93 % over the past six months, an even higher increase is required for the agreed covenants to be met.

24/110 | TK DEVELOPMENT A/S | ANNUAL REPORT 2016/17 | MANAGEMENT COMMENTARY

T K

ASSET MANAGEMENT

T K

GALERIA SANDECJA, SHOPPING CENTRE, NOWY SĄCZ, POLAND

Opening	October 2009
Leasable area	17,300 m², including a 5,000 m² hypermarket
Occupancy rate	95 % (Q3 2016/17: 97 %)
Footfall 2016	2.1 million

Planned operational improvements:

To retain a high occupancy rate in the centre.
To change temporary leases to ordinary leases on conditions that are satisfactory to the Group.
To ensure a good tenant mix, with traditional tenants on the ground floor.
To upgrade the food court.
To upgrade the first floor with discount stores offering a wide range of low-price products.

The opening of a competing centre in Nowy Sącz in autumn 2013 has strongly impacted Galeria Sandecja's performance for some time. In 2015 the revenue index was 93 and the footfall index 95 compared to 2014.

The change in the competitive situation put the rental level under pressure for a period of time. Management prioritized retaining the centre's high occupancy rate, and several temporary, short-term lease agreements were concluded at a relatively low rent.

The effects of various initiatives taken in 2015, including creating a strong mix of tenants on the ground floor and relaunching the first floor, are starting to emerge, and the negative trend in revenue and footfall was reversed in early 2016. In 2016 the centre recorded revenue at index 114 and footfall at index 101 compared to 2015.

In light of this improved situation, new tenants are showing signs of interest, and tenants with short periods of non-terminability/temporary leases are also becoming interested in entering into more permanent leases with long periods of non-terminability.

Several temporary leases have now been changed to ordinary leases, and a clear letting strategy has been developed for the next year. The initial focus is on converting the remaining short-term leases to ordinary leases with long periods of non-terminability. In this connection, the plan is to move a few tenants around, expand some units and upgrade the food court.

The above initiatives are essential elements of the long-term plan for the centre, the aim being for the centre to return to generating satisfactory operational results within the next few years, thus enabling the centre to be sold at a satisfactory price for the Group.

MANAGEMENT COMMENTARY | ANNUAL REPORT 2016/17 | TK DEVELOPMENT A/S

ASSET MANAGEMENT

RINGSTED OUTLET, RINGSTED, DENMARK

Opening	March 2008
Leasable area	13,200 m²
Occupancy rate	85 % (Q3 2016/17: 85 %)
Footfall 2016	1.6 million

Planned operational improvements:

To ensure a good tenant mix through proactive dialogue with tenants.
To boost the occupancy rate (dialogue is ongoing with several potential tenants).
To make preparations for contemplated expansion of the centre with a second phase.

2016 was another year of progress for Ringsted Outlet. In 2016 the footfall index was 110 and the revenue index 113 compared to 2015.

Work on the letting front has included ensuring a good tenant mix, and centre newcomers such as Golfino, Villeroy & Boch, Gant and Guess opened outlets in 2016, while BOSS and Calvin Klein opened extended outlets. Most recently, agreements have been concluded with Schiesser and Lindt, which will both be opening outlets in the centre in spring 2017. The outlet centre's occupancy rate has reached 85%. A good dialogue is ongoing with several potential tenants, and the outlet centre is expected to emerge as an even stronger centre after the next year.

Ringsted Outlet has been developed in a 50/50 joint venture with Miller Developments, which sold its 50% stake to CapMan Real Estate in June 2016. In the years to come TK Development and CapMan Real Estate will carry on developing the centre and thus proceed working on the contemplated expansion of the centre.

26/110 | TK DEVELOPMENT A/S | ANNUAL REPORT 2016/17 | MANAGEMENT COMMENTARY

ASSET MANAGEMENT

GALERIA NOWY RYNEK, SHOPPING CENTRE, JELENIA GÓRA, POLAND

Opening	October 2015
Leasable area	24,800 m², including a supermarket of about 2,400 m²
Occupancy rate	93 % (Q3 2016/17: 93 %)
Footfall 2016	3.7 million

Planned operational improvements:
- To replace weak tenants.
- To let vacant premises.
- To ensure a good tenant mix.
- To launch a targeted marketing and image improvement campaign.

In Jelenia Góra TK Development has developed and built a shopping centre of about 24,800 m². The project has been executed as a joint venture with Heitman, in which the Group has an ownership interest of 30 %. The shopping centre opened in October 2015 and has a current occupancy rate of 93 %. Since the centre opened, the focus has been on ensuring a good tenant mix and replacing weak tenants with more robust tenants/concepts – key elements for successfully operating a new centre.

In 2017 the focus will be on boosting centre revenue by strengthening the centre's appeal. This can be achieved by launching a targeted marketing and image improvement campaign to raise customer awareness of the centre and by ensuring an even stronger tenant mix and attracting other, new concepts, including a fitness chain that has entered into negotiations for a lease.

The above initiatives are essential elements of the long-term plan for the centre, the aim being for the centre to return to generating satisfactory operational results for the Group within the next few years, thus enabling the centre to be sold at a satisfactory price for the Group.

MANAGEMENT COMMENTARY | ANNUAL REPORT 2016/17 | TK DEVELOPMENT A/S

OTHER ASSET MANAGEMENT ACTIVITIES

In addition to the Group's completed properties and investment properties, the asset management activities comprise plots of land and development projects on the markets where the Group wishes to discontinue its activities in the longer term.

In Q4 2016/17 TK Development sold one of its plots of land in Prague at a price equal to the carrying amount. Accordingly, the Group's other asset management activities amounted to DKK 107.5 million at 31 January 2017, consisting of:

Czech Republic: an outlet project under development and a plot of land in Prague (DKK 38.7 million).
Baltic States: a retail project in Vilnius and two plots of land in Riga (DKK 60.5 million).
Germany: a minor plot of land (DKK 6.7 million).
Russia: a minor project for letting (DKK 1.6 million).

Czech Republic

In December 2015 Management decided to phase out the Group's activities in the Czech Republic.

In connection with phasing out the Czech activities and optimizing their value, the Board of Directors has decided to develop and execute the Outlet Arena Moravia development project in Ostrava. The outlet centre will comprise about 17,000 m², to be built in two phases, with the first phase covering about 11,600 m². Lease agreements have been concluded for 60% of the first-phase premises, and two-thirds of these leases are binding. Negotiations about the sale of the project are currently ongoing with potential investors. Construction is expected to start in 2017 once a conditional agreement regarding the sale of the project has been concluded. TK Development anticipates that the execution and sale of the project will generate an attractive profit for the Group and therefore considers this option a better alternative than merely selling the project at its current stage.

At the same time negotiations about the sale of the completed retail park in Most are ongoing with a potential investor.

Baltic States

In Vilnius, Lithuania, TK Development previously completed and handed over about 6,750 m² of a retail park with total premises of 11,300 m². TK Development is now developing a third phase comprising retail premises of about 850 m² and office premises of about 3,700 m². The third phase has been sold conditionally to a fund managed by Baltic Horizon Fund, which also bought the two first project phases. Construction of the third phase started in autumn 2016, and the completed project is scheduled for handover to the investor at the end of 2017.

A retail project of about 12,000 m² is being developed on the Group's plot of land in Ulmana, Riga. TK Development has entered into an agreement with a real estate agent about handling the letting process. The project layout has now been determined, and discussions have been initiated with several tenants interested in the project. Several investors have shown interest in the project subject to a satisfactory occupancy rate being achieved. The valuation of the plot of land is based on the expectation that the planned project will be executed.

28/110 | TK DEVELOPMENT A/S | ANNUAL REPORT 2016/17 | MANAGEMENT COMMENTARY

BUSINESS CONCEPT AND KNOWLEDGE RESOURCES

The Group's mission

The overall mission of TK Development is to create added value by developing real property.

The Group operates in the property development and services environments, and specializes in being the creative and result-oriented link between tenants and investors.

Fundamental values

TK Development bases its operations on a number of fundamental values that are the Group's hallmarks. They define the framework for the actions of TK Development's employees and the values that TK Development wants to signal.

Good business sense
Being result-oriented
Innovation and creativity
Being trustworthy
Keeping it simple
Commitment

Property development strategy

Developing projects from the conceptual phase through to project completion, based on one of several models:

Sold projects (forward funding/forward purchase).
Projects with partners.
On TK Development's own books based on a high degree of confidence in the letting and sales potential.
Services for third parties.

Asset management strategy

Operating, maturing and optimizing the Group's completed projects for a medium-long operating period.

Divestment of plots of land and projects on the markets where the Group wishes to discontinue its activities in the longer term.

The aim is to sell the assets within a three- to five-year period starting in December 2015 and to distribute the freed-up equity to the Company's shareholders.

BUSINESS CONCEPT

The Group's primary business area is the development of real property, termed property development, and the Group's future strategic focus is property development in Denmark, Sweden and Poland.

Moreover, the Group's activities comprise asset management; see below.

PROPERTY DEVELOPMENT

The Group has a large, strong network forged on the basis of long-standing, close business relationships with tenants and investors, and regularly enters into contracts with these business partners. The Group is predominantly a knowledge-based service provider and has specialized in being the productive and

creative liaison between tenants, investors, architects, construction companies and other business partners.

TK Development wants to be the preferred property development partner in the retail segment, as well as an attractive business partner within the development of office and residential property projects, with the interaction with customers, tenants and investors being based on know-how and mutual respect.

In collaboration with tenants and investors, TK Development plans and arranges the construction of new buildings, and the expansion and conversion of real property based on tenant needs and investor requirements. The Group develops the projects, which involves obtaining regulatory approvals, letting the premises, managing construction and concluding contracts with construction companies and subcontractors for the execution of the building works, etc.

TK Development has the competencies to execute large and complex development projects and will continue to prioritize such projects. At the same time Management wishes to maintain a spread in the project portfolio and also prioritizes the execution of more small and medium-sized 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.

In terms of segments, the Group focuses on the development of shopping centres, superstores, office buildings and corporate headquarters and related mixed and multifunctional projects, as well as housing in Denmark and Poland. In light of the continued population growth in major towns and cities, and thus the long-term ongoing need for new dwellings, Management has for some time attached greater priority to developing and executing residential projects in major towns and cities, particularly Warsaw and Copenhagen. Management will continue to attach great weight to such projects in future.

MANAGEMENT COMMENTARY | ANNUAL REPORT 2016/17 | TK DEVELOPMENT A/S

BUSINESS CONCEPT AND KNOWLEDGE RESOURCES

In Denmark TK Development's focus in the years to come will therefore be on the retail segment as well as the office and residential segments, based on the wish to exploit the opportunities for developing real property in the office and residential segments to an even greater extent than before. In its foreign markets, the Group will continue basing its activities on the retail segment as the primary segment. Moreover, in Poland TK Development will focus on developing housing in Warsaw. On the Swedish market TK Development is also working on several project opportunities in the residential segment.

	Denmark	Sweden	Poland
Shopping centres	☑	☑	☑
Stores/superstores	☑	☑	☑
Shopping-street properties	☑	☐	☑
Offices	☑	☐	☑
Mixed	☑	☑	☑
Residential	☑	☑	☑

TK Development uses various models for its property development projects:

For the Group's own account, with or without advance project sales, where the Group can either finance the projects on its own books or procure staged financing from the buyer in step with project completion, also termed forward funding.
Together with business partners during the construction period.
Services for third parties.

In relation to new projects, the Group can choose to initiate projects with a view to construction and subsequent startup and maturing over a short span of years. Such projects will typically be classified as investment properties.

This is a natural consequence of the fact that the development process for some projects is not optimally finalized until they have been matured and run in. The portfolio of investment properties generated by this element will ensure both a positive operating margin and a positive cash flow, viewed in isolation. After the maturing process, the project returns can be even better documented and higher prices obtained.

Investment properties can be developed either for the Group's own account or in project development joint ventures with co-investors that wish to participate in both the construction and maturing phases. By entering into joint ventures, the Group achieves more effective placement of its equity financing of projects under development, better risk spread, and more efficient use of the Group's staff resources and competencies.

Customer relations

The Group's principal customers consist of tenants and investors. TK Development continuously strives to create new, improved services to make the Group an even more attractive business partner.

Tenants

Over time TK Development has built close partnership relations with a large number of companies, including in particular retail chains looking to set up new stores.

The Group has gained in-depth knowledge of tenant needs and requirements. From this platform TK Development can develop retail solutions that meet tenants' requirements for design and location. In addition, the numerous close relations with a wide range of retail chains mean that the Group is able to put together an attractive retail mix that boosts individual tenants' revenue.

Over the years TK Development has developed and executed a number of office projects, primarily corporate headquarters. Thus, the Group has wide experience in developing attractive office projects that match the requirements of tenants and investors alike.

Investors

TK Development has also built close relations with a number of Danish and foreign property investors.

The Group has in-depth knowledge of investor needs and requirements. Among other things, TK Development offers standardized, international contracts and a smooth process from initiation to delivery.

For a number of years the Group has sold projects to a range of Danish and foreign banks, investment funds, pension funds and private companies.

Project and risk management

New projects are initiated based on a careful assessment of their earnings potential viewed in light of project complexity, completion time, tied-up capital, including balance sheet and cash flow impact, and other use of resources. The assessment includes deliberations about project location, regulatory matters, pre-letting, construction matters and market conditions.

30/110 | TK DEVELOPMENT A/S | ANNUAL REPORT 2016/17 | MANAGEMENT COMMENTARY

BUSINESS CONCEPT AND KNOWLEDGE RESOURCES

Limiting risks

A number of management tools contribute to ensuring a satisfactory project process. Construction is typically not initiated until satisfactory pre-construction letting has been achieved for at least 60 % of the project. If the project is sold, construction will not be initiated until the Group anticipates being able to meet such investor requirements as would allow final completion of the project sale. Meeting these requirements typically falls within the Group's sphere of competencies.

Forward funding

TK Development aims to secure the sale of projects at an early stage, and the Group considers it important to expand investor commitment by having the investors fund the project during the construction process (forward funding) where possible. Forward-funding agreements with investors are usually concluded before construction startup, thus ensuring that the funds tied up in the Group's projects are kept at an absolute minimum, which also reduces the balance sheet total and minimizes the risk.

Green building

The Group is experiencing increasing demand for green buildings from both tenants and investors. TK Development offers to construct green buildings as and when requested by the Group's customers. Several of the Group's projects have been constructed as green buildings and certified according to the BREEAM standards or equivalent.

Environment

TK Development is keenly aware that the public eye is sharply focused on environmental optimization throughout the construction process. Public concerns include the reduction of CO₂ emissions and the sustainability of building projects.

When the Group acquires sites for its projects, the land is examined to determine any contamination. If a plot of land is contaminated, the Group will clean up the land for its intended use before starting construction or refrain from buying the relevant plot.

When developing projects, the Group strives to achieve an optimum balance between environmental and social concerns while also generating revenue for the Group. The choice of materials, design, energy consumption and environmental impact all form part of such considerations.

The Group aims to complete projects without causing unnecessary environmental impact. TK Development cooperates with tenants and investors to establish appropriate environmental solutions when developing and implementing new projects. For instance, the Group seeks to create finished projects with low energy consumption and a good indoor climate that will provide a comfortable working environment for future employees.

ASSET MANAGEMENT

The Group's asset management activities comprise operating, running in, maturing and optimizing the Group's completed projects as well as plots of land and development projects on the markets where the Group wishes to discontinue its activities in the longer term.

Asset management activities comprise the Group's completed properties and investment properties operating in Denmark, Poland, the Czech Republic, Germany and Russia, as well as plots of land and development projects in the Czech Republic, the

The diagram below illustrates the Group's funds tied up in projects, in scenarios both with and without forward funding.

MANAGEMENT COMMENTARY | ANNUAL REPORT 2016/17 | TK DEVELOPMENT A/S

BUSINESS CONCEPT AND KNOWLEDGE RESOURCES

Baltic States and Germany.

The aim is to sell the assets within a three- to five-year period starting in December 2015 and to distribute the freed-up capital to the Company's shareholders.

KNOWLEDGE RESOURCES

TK Development develops projects of a high standard. Together with the employees' knowledge and qualifications, the Group's close relations with tenants and investors play an essential role in minimizing the risks of individual projects. This combination is the prerequisite for developing projects that generate satisfaction for tenants and investors alike, as well as satisfactory earnings for the Group on individual projects.

Employees

The employees' knowledge and competencies are essential to TK Development's value creation, and TK Development continuously strives to secure the best match between employees' competencies and the specific job requirements of the property development business. The Group's employees work within individual, specialized areas: project developers, letting managers, legal and financial project controllers and engineers.

Education

To raise the employees' level of expertise to an even higher level and thus reinforce TK Development's value creation, the Group has continuous focus on training and education. The aim is to strengthen the Group in the development phases that are critical to maximizing the value of each individual project.

In addition to improving the Group's knowledge resources, education helps cement TK Development's position as an attractive workplace for both existing and future employees.

Project organization

TK Development believes it is important to give employees an inspiring workplace where individual projects afford them the opportunity to accumulate knowledge and experience that can be passed on throughout the organization and thus continuously improve the Group's collective know-how and skills.

In order to ensure a high degree of quality in all services provided by the Group to tenants and investors – as well as efficient progress and quick decisions in the development of individual projects – the Group's staff is anchored in a matrix organization as follows:

The matrix organization means that all the Group's peak competencies, covering the progress of a project from blueprint to completion, exist in the project group that carries through the individual project from A to Z.

Organization, management and employees

TK Development's organization and management structure are based on branch offices managed by divisional managers (senior vice presidents). The Group's international management team consists of the above-mentioned group of persons as well as functional managers in the individual countries.

The Group's management structure is shown below:

Organizational focus on segments

To underpin the segmentation chosen, the business activities are organized so as to best ensure management focus on both property development and asset management activities. The members of the Executive Board attempt as far as possible to focus primarily on their own individual business areas, while taking into account that the Executive Board members are jointly responsible for the day-to-day management of the overall business activities. TK Development has several years' experience in asset management and increasingly focuses on this area, including utilization of the Group's competencies and employee know-how to ensure continued progress in maturing the completed projects.

32/110 | TK DEVELOPMENT A/S | ANNUAL REPORT 2016/17 | MANAGEMENT COMMENTARY

BUSINESS CONCEPT AND KNOWLEDGE RESOURCES

Breakdown of the Group's employees

At 31 January 2017 the Group employed a total of 84 persons, broken down as follows:

Other countries 3
Czech Republic 6
Group/services 9
Shopping centre management 13
Poland 21
Denmark 22
Sverige 7

Group functions and related services include management, accounting and finance, and other staff functions.

Residential units, Beddingen, Østre Havn, Aalborg, Denmark - construction scheduled to start in mid-2017

MANAGEMENT COMMENTARY | ANNUAL REPORT 2016/17 | TK DEVELOPMENT A/S

FINANCIAL TARGETS

To provide for sufficient future financial resources, both solvency and liquidity targets have been formulated for the whole Group.

The Group has given its main banker an undertaking to comply with a solvency ratio covenant of minimum 30 % at group level, measured in connection with the presentation of interim and annual reports. Moreover, Management has adopted a target solvency ratio of about 40 % at group level, calculated as the ratio of equity to total assets.

The Group has used liquidity covenants for quite some years. In short, the liquidity covenant expresses that the Group's cash resources – to enable the Group to cover liabilities requiring substantial liquidity - must at any time correspond to the fixed costs for the next six-month period, excluding funds received as proceeds from projects sold, but including project liabilities materializing within the next six months. The covenant represents a liquidity target for the whole Group and a commitment to the Group's main banker. The covenant must be calculated and met before projects requiring liquidity can be acquired and initiated.

The Group's solvency and liquidity covenants were both met during the year under review.

Average Entrib, commercial district, Stockholm, Sweden - construction expected to start in 2018

TK DEVELOPMENT A/S | ANNUAL REPORT 2016/17 | MANAGEMENT COMMENTARY

RISK ISSUES

RISK MANAGEMENT

In connection with determining TK Development's strategy and overall goals, the Board of Directors and Executive Board have identified the most significant business risks and seek continuously to ensure efficient risk management. A focal point of the Group's risk management policy is a keen awareness on only initiating projects whose expected earnings will match the project's complexity, completion time, tied-up capital and other use of resources.

Management has a consistently strong focus on the Group's financial management and on strengthening the financial platform, including managing and optimizing TK Development's loan-taking. As mentioned above, another core element of the Group's risk management is the solvency and liquidity targets adopted for the Group.

The Board of Directors regularly considers issues relating to the project portfolio, properties, market conditions, financing, IT and staffing as part of its broader assessment of potential risks and scarcity factors.

Reports to the Board of Directors are submitted on an ongoing basis with respect to the Group's risk issues, which also constitute an important element in the decision-making basis for all major projects.

The most important risks for the Group, apart from general risks, are described below.

RISKS RELATED TO THE PRESENTATION OF FINANCIAL STATEMENTS

When applying the Group's accounting policies in practice, Management makes a number of significant accounting estimates and judgments that materially affect the Annual Report, particularly as concerns the measurement of various assets. A significant part of the Group's balance sheet consists of ongoing and completed projects on which any indications of impairment are determined based on a specific assessment of each individual project, including existing project budgets and the expected future development potential. For more details regarding the extension, please see note 2 of the consolidated financial statements.

BUSINESS RISKS

TK Development's most significant business risks are the risks generally applicable to companies in the property sector.

In relation to the Group's development activities, the most significant business risks other than those generally applicable to the sector are:

As a developer, the Group depends for its future earnings on the inflow of new projects and thus on the future availability of new building sites and regulatory approvals (planning legislation, local development plans, planning permission, etc.) concerning the location, size and use of a property.
The Group bases its individual projects on overall and detailed time schedules. Time is a crucial factor in complying with agreements concluded with tenants and investors and a significant factor in ensuring that the individual projects progress according to plan and, accordingly, that the Group generates the earnings expected. Postponing an individual project may, for instance, mean that lease agreements lapse, tenants become entitled to compensation and, ultimately, that an investor is no longer under an obligation to buy the project.
In cases where a sales agreement is concluded before all lease agreements in the project have been finalized, the Group undertakes a calculated risk that the remaining premises cannot be let on terms and conditions that ensure a satisfactory return.
For such sold projects, construction will not be initiated until the Group expects to be able to meet the requirements from the investor which make it possible to complete the project sale. These requirements usually fall within the Group's spheres of competence. However, if the sale is not completed, the Group may ultimately have to keep the relevant property on its own books and thus have funds unexpectedly tied up in the project.
Where agreements with investors and contractors, for example, have not been brought into alignment, the Group assumes an extra project development risk in that that it may have to rectify defects or other matters that the contractor is either not obliged or not able to address.

In relation to the Group's asset management activities, the most significant business risks other than those generally applicable to the sector are:

TK Development's activities pivot on a well-functioning retail sector. Negative developments in the retail sector, for

MANAGEMENT COMMENTARY | ANNUAL REPORT 2016/17 | TK DEVELOPMENT A/S

RISK ISSUES

example due to economic trends or increased e-commerce, may result in lower demand for retail rental premises, and thus lower rental income and property prices.

It is essential that the completed – and operating – shopping centres can all attract a satisfactory number of customers and achieve satisfactory revenue, as this determines the individual tenant's ability to pay rent to the Group and the letting status as such, including the potential for reletting premises.
The risks on the Group's completed projects include a letting risk attaching to those of the Group's lease agreements that expire while the Group owns the relevant properties. If the Group fails to renew these agreements, fails to enter into new leases, or if the agreements can be entered into only on less favourable terms and conditions, it could have a material adverse effect on the Group.
Part of the Group's rental income includes a revenue-based share. The Group's total rental income under these lease agreements depends partly on the tenant's ability to maintain a certain amount of revenue in the relevant premises. The share of such revenue-based rent may vary considerably depending on the nature of the brand, the store and the products. Failure by the tenant to generate sufficient revenue to trigger the revenue-based share of the overall rental income could have a material adverse effect on the Group.

FINANCIAL RISKS

Financing and liquidity risks

It is essential for TK Development to have sufficient cash resources as well as access to project financing. Management is of the opinion that project finance options are available to the Group. However, the options for procuring financing vary from project to project, depending on the type, location and status of the properties concerned, including letting and sales.

The Group's short-term debt to credit institutions consists of operating and project credits. TK Development has a general agreement with the Group's main banker about operating and project credits. The agreement, which is usually renegotiated once a year, was most recently extended after the reporting date and now runs until 30 April 2018.

In addition, the Group has entered into project-financing agreements with various banks in Denmark and abroad and will continue to rely on being able to conclude such financing agreements. Project credits are usually granted with different terms to maturity, depending on the specific project.

A number of loan agreements contain provisions on cross default, which means that a lender may consider default on a loan under a loan agreement as default of a number of other loan agreements. Other loan agreements contain certain project-related conditions (covenants), which the Group is under an obligation to observe. Moreover, the Group has undertaken towards its main banker to comply with certain conditions (liquidity and solvency covenants). In case the conditions in loan agreements are not complied with, the operating and/or project credit facilities may be terminated.

Many of the Group's loan agreements contain provisions giving the banks a discretionary option to terminate the agreement. Therefore, in such cases, maintaining financing depends on the bank's subjective assessment of the quality and profitability of the facility in question, as well as the value of the security provided by the Group. If the Group fails to meet its commitments under such agreements with its banks, the agreements risk being terminated. There is a risk that TK Development will not have adequate capital resources to meet substantial repayment demands.

Credit risks

The credit risks associated with financial assets are equal to the values recognized in the balance sheet. TK Development has no significant credit risks related to individual customers, as the title to a sold project does not pass to the buyer until payment has been effected.

Interest-rate risks

A substantial share of the Group's interest-bearing debt consists of floating-rate loans. Accordingly, increasing interest rates will push up the Group's interest expenses. An interest-rate fluctuation of 1 percentage point on the floating-rate loans, including loans in joint ventures, will have a direct post-tax impact of about DKK 9 million on TK Development. The Group continuously assesses whether to hedge interest-rate risks by entering into interest-rate swap agreements or the like. In addition, rising interest rates would, all other things being equal, affect investor return requirements and by extension real property prices.

Currency risks

TK Development's Danish subsidiaries operate almost exclusively in DKK, while the foreign subsidiaries generally operate

36/110 | TK DEVELOPMENT A/S | ANNUAL REPORT 2016/17 | MANAGEMENT COMMENTARY

RISK ISSUES

in their local currency or alternatively EUR. As far as possible, the Group attempts to minimize the currency risk by concluding related agreements in the same currency. For instance, it aims to conclude purchase and sales agreements, construction contracts and financing agreements regarding a single project in the same currency. The most important currency risks are assessed to relate mainly to foreign subsidiaries' net results, intercompany balances and foreign-exchange adjustments of the Group's investments in foreign subsidiaries. Reference is also made to note 27 to the consolidated financial statements.

LEGAL RISKS

TK Development constantly enters into agreements with a range of contracting parties, such as investors, contractors, tenants, etc. These agreements involve opportunities and risks that are assessed and identified prior to contract conclusion. From time to time, the Group is involved in disputes and lawsuits. The Group is not a party to any lawsuits that, either individually or collectively, are expected to materially affect the Group's earnings.

In 2006 the Senior Vice President in charge of the Group's Polish branch office was charged, and subsequently indicted, on account of irregularities related to obtaining regulatory approval of a Polish shopping centre project. Throughout the process TK Development's Management has been unable to find any irregularities in connection with the project. Legal proceedings have been ongoing for a prolonged period, and in May 2015 a first-instance court acquitted the Senior Vice President. The Prosecution chose to appeal the decision, and the appeal was decided in June 2016 by a second-instance court, which also acquitted the Senior Vice President. The Prosecution has subsequently chosen to submit a cassation case (for reversal of the decision) to the Polish Supreme Court.

Residential units, Amerika Have, Copenhagen, Denmark – construction will be completed in April 2017

MANAGEMENT COMMENTARY | ANNUAL REPORT 2016/17 | TK DEVELOPMENT A/S

T K

SHAREHOLDERS

SHARE INFORMATION

Stock exchange	Nasdaq Copenhagen
Index	SmallCap
Share capital	DKK 98,153,335
Share denomination	DKK 1
Number of shares	98,153,335
Share classes	One
Number of votes per share	One
Voting right restrictions	No
Share transfer restrictions	No
ISIN code	DK0010258995

Shareholders and their holdings

The number of registered shareholders decreased from 6,475 at the beginning of the year to 6,232 at the end of the year. The registered shareholders represented 92.81 % of the share capital at 31 January 2017 (31 January 2016: 89.86 %).

The following table shows the ownership structure of TK Development A/S as of today, as reported to Nasdaq Copenhagen pursuant to section 29 of the Danish Securities Trading Act.

Shareholders holding more than 5 %	Ownership and voting interest in %
Strategic Capital ApS and Strategic Investments A/S (Kim Mikkelsen)	12.80 %
Copenhagen, Denmark
Kurt Daell and Dava 1 ApS	10.02 %
Charlottenlund, Denmark
Kirk & Thorsen Invest A/S and EBP Holding A/S (Peter Thorsen)	8.40 %
Vejle, Denmark

The table below shows a breakdown of shares held by the Board of Directors and Executive Board.

	Number of shares*)	Ownership and voting interest in %	Change for the year in number of shares
Board of Directors:
Niels Roth	3,407,194	3.47 %	832,067
Peter Thorsen	8,244,553	8.40 %	2,377,333
Arne Gerlyng-Hansen	254,533	0.26 %	150,000
Kim Mikkelsen	12,565,095	12.80 %	2,165,095
Henrik Heideby	150,000	0.15 %	150,000
Executive Board:
Frede Clausen	718,023	0.73 %	150,000
Robert Andersen	476,667	0.49 %	150,000
Total	25,816,065	26.30 %	5,974,495

*) The holdings include all shares held by all members of the entire household as well as companies controlled by the above-named persons.

Share price development

On 31 January 2017 TK Development A/S' shares were listed at a price of DKK 9.7 per share with a nominal value of DKK 1, equal to a market value of DKK 952 million.

The price of TK Development A/S shares developed as follows during the year under review:

Volume of trading

During the year under review, the share was traded on 254 days, with a total trading volume of DKK 248 million against DKK 357 million the year before. 14,062 trades were completed (2015/16: 15,461 trades), covering a total of 31,188,423 shares (2015/16: 39,930,346 shares).

CAPITAL AND SHARE STRUCTURE

TK Development A/S' shares are not divided into several share classes, and no shares are subject to special rights or restrictions. Each share confers one vote on the holder. TK Development's Articles of Association contain no restrictions governing share ownership, the number of shares that a shareholder may hold or share transferability. As all shareholders thus have equal rights, the Board of Directors believes that the share structure chosen is the most appropriate one.

The Company's Management reviews the Group's capital structure on a regular basis, as well as the need for any adjustments. Management's overall aim is to provide a capital structure that supports the Group's earnings potential, while at the same time ensuring the best possible relation between equity and loan capital and thus maximizing the return for the Company's shareholders. In Management's opinion, the present capital and share structure fulfils this aim.

SHAREHOLDERS' AGREEMENTS

Management is not aware of any shareholders' agreements

TK DEVELOPMENT A/S | ANNUAL REPORT 2016/17 | MANAGEMENT COMMENTARY

SHAREHOLDERS

that have been concluded between TK Development A/S' shareholders.

RULES REGARDING ALTERATIONS TO THE COMPANY'S ARTICLES OF ASSOCIATION

The Articles of Association of TK Development A/S can only be altered following a resolution adopted at a General Meeting in compliance with the Danish Companies Act. Requests for the inclusion of a specific proposal in the agenda of the Annual General Meeting shall be submitted in writing by shareholders to the Board of Directors. If the request is submitted no later than six weeks before the date of the General Meeting, the shareholder is entitled to have the proposal included in the agenda. If the Board of Directors receives the request later than six weeks before the Annual General Meeting, the Board of Directors will determine whether the request has been made sufficiently early to permit its inclusion in the agenda.

At a General Meeting, resolutions can only be adopted in respect of business included in the agenda and any proposed amendments. If proposals to alter the Articles of Association are to be considered at a General Meeting, the essentials of such proposals must be stated in the convening notice. A proposed resolution to alter the Company's Articles of Association is subject to the proposal being adopted by at least two-thirds of the votes cast as well as of the voting stock represented at the General Meeting.

SHARE-BASED INCENTIVE SCHEMES

TK Development has no share-based incentive schemes.

DIVIDENDS AND DIVIDEND POLICY

TK Development's long-term policy is to distribute a portion of the year's profit as dividends or alternatively via a share repurchase programme. This will always be done with due regard for the Group's capital structure, solvency, cash resources and investment plans. Moreover, Management aims to sell the Group's asset management activities within a three- to five-year period, starting in December 2015, and to distribute the freed-up equity to the Company's shareholders.

ANNUAL GENERAL MEETING

The General Meeting of shareholders is the supreme authority in all corporate matters of TK Development A/S, subject to the limitations provided by Danish law and TK Development A/S' Articles of Association. The Annual General Meeting must be held in the municipality where TK Development A/S' registered office is located sufficiently early to permit compliance with

the Company's applicable time limits for the holding of General Meetings and the filing of Annual Reports. General Meetings are convened by the Board of Directors. The Annual General Meeting will be held at 5 p.m. on 27 April 2017 at Aalborg Kongres & Kultur Center, Radiosalen, Aalborg.

Extraordinary General Meetings are held following a resolution by the shareholders in General Meeting or the Board of Directors or at the request of the auditors of TK Development A/S or at the written request of shareholders collectively holding not less than 5% of the total share capital.

All business transacted at General Meetings, with the exception of alterations to the Articles of Association or a resolution to dissolve the Company, is decided by a simple majority of votes unless otherwise provided by current legislation; see Article 6 of the Company's Articles of Association.

REGISTERED SHARES

The Company's Register of Shareholders shall be kept by VP Investor Services A/S, Weidekampsgade 14, P. O. Box 4040, DK-2300 Copenhagen S. All shares are registered in book-entry form in accounts maintained in the computer system of VP Securities A/S, Weidekampsgade 14, P.O. Box 4040, 2300 Copenhagen S, Denmark, and must be held and managed through a Danish bank or other institution authorized to be registered as the custodian of the shares. The shares must be issued to named holders and may not be transferred to bearer.

THE BOARD OF DIRECTORS' POWERS

Powers to issue new shares

The Board of Directors is authorized to increase the share capital by issuing new shares having a total nominal value of DKK 7,010,953 with a pre-emptive right for the Company's existing shareholders. The increase of the share capital can be implemented against cash payment only.

In addition, the Board of Directors is authorized to increase the Company's share capital by up to nominally DKK 9,815,333, equal to 10% of the share capital, without any pre-emptive rights for the Company's existing shareholders. The Board of Directors has this authorization in order to be able to optimize the Group's financing and capital structure.

The authorization for the Board of Directors to subscribe for capital amounts to 17.1% of the Company's share capital.

MANAGEMENT COMMENTARY | ANNUAL REPORT 2016/17 | TK DEVELOPMENT A/S | 39/110

SHAREHOLDERS

Treasury shares

At the Annual General Meeting in April 2015, the Board of Directors was once more authorized, on behalf of the Company, to acquire treasury shares having a nominal value of not more than 10% of the share capital in order to optimize the Group's capital structure. The authorization is valid for a period of five years from the adoption of the resolution at the Annual General Meeting.

RULES ON INSIDER TRADING

TK Development's Management and employees are only allowed to trade in the Company's shares during the six-week period after the publication of annual and interim reports and any other comprehensive announcements of financial results. If Management or employees are in possession of inside information that may influence the pricing of TK Development's shares, they may not trade in the shares even during the six-week period.

INVESTOR RELATIONS

TK Development aims to keep its shareholders and investors up-to-date on all relevant matters. Therefore, Management has adopted a communication strategy and IR policy to help underpin open and clear communication with all stakeholders, including the disclosure of information based on the principle of equal treatment of investors.

The Company's website, www.tk-development.com, includes all company announcements issued for the past several years, updated share prices and information about the Group's projects. When investor presentations are published in connection with the announcement of annual and half-year financial results, they are also made available at the Company's website. All investor information is published in both Danish and English.

During the three-week lead-up to the quarterly presentation of financial statements, the Company does not issue statements pertaining to market-related and financial matters or to the Company's current development and position. In these silent periods in terms of IR communications, the Company's Management strives wherever possible to refrain from holding meetings for investors and similar activities.

Moreover, there is a direct link from TK Development A/S' website to the Nasdaq Copenhagen website (www.nasdaqomx-nordic.com), which contains further information about the TK Development A/S share. Reference is also made to the description of corporate governance at the Company's website, www.

tk-development.com.

SIGNIFICANT AGREEMENTS TO BE AMENDED OR TERMINATED IN THE EVENT OF CHANGE OF CONTROL OF THE COMPANY

TK Development has not entered into any agreements that are to be terminated or renegotiated in the event of change of control of the Group.

FINANCIAL CALENDAR

Financial calendar
Annual Report 2016/17	29 March 2017
Annual General Meeting	27 April 2017
Interim Report Q1 2017/18	16 June 2017
Interim Report H1 2017/18	15 September 2017
Interim Report Q1-Q3 2017/18	12 December 2017

40/110 | TK DEVELOPMENT A/S | ANNUAL REPORT 2016/17 | MANAGEMENT COMMENTARY

CORPORATE GOVERNANCE

TK Development's Board of Directors and Executive Board continue to focus on the recommendations for corporate governance, and the Board of Directors reassesses its policies for compliance with the recommendations at least once a year. In a few areas, the Company does not comply with the recommendations, but instead provides an explanation of its reasons for not complying with a specific recommendation. The Board of Directors is of the opinion that TK Development A/S lives up to the existing Recommendations on Corporate Governance.

A detailed review of the Board of Directors' policies for compliance with the recommendations issued by the Committee on Corporate Governance is available at www.tk-development.com/cgs_16_17.

The Committee recommendations not followed are listed below:

Corporate social responsibility

In light of the Company's size and activities and the Group's operating markets, the Board of Directors has decided not to adopt policies for corporate social responsibility. The Board of Directors will regularly assess the need for policies in this area.

Retirement age

TK Development attaches greater weight to competencies than to age and therefore has not fixed a retirement age limit for the members of the Board of Directors.

Content of remuneration policy

So far, the Board of Directors has decided not to set limits for how high a portion of the total remuneration may be constituted of variable components, as the amount of bonus will only be paid if a minimum 8% return on equity is achieved. Until further notice, the amount of bonus is expected to account for a minor portion only relative to the fixed pay elements.

As bonus is only paid if a minimum 8% return on equity is achieved for an individual financial year, the Board of Directors assesses that the remuneration policy ensures constant alignment between the interests of the Executive Board and the shareholders. It has therefore been found unnecessary to establish criteria ensuring that the vesting period for variable pay elements, wholly or in part, is longer than one financial year.

THE BOARD OF DIRECTORS

Composition and rules regarding appointments and replacements

According to the Articles of Association, the Board of Directors must be composed of not less than four nor more than seven members. The Board of Directors is composed of five members elected by the General Meeting. Management considers the composition of the Board of Directors to be appropriate relative to the Company's current activities and requirements. In Management's opinion, the current members of the Board of Directors have the financial, strategic and commercial expertise required by an international business such as TK Development. The members of the Board of Directors are elected at the General Meeting of shareholders to serve for a term of one year at a time. Retiring board members are eligible for re-election.

The Board of Directors' competencies cover a wide spectrum, including strategic management, international relations, capital structure, the property sector, the retail trade, risk assessment and control, investor relations, business development as well as accounting and financial expertise.

The professional qualifications of the members of the Board of Directors are listed individually under the heading The Board of Directors. The Board of Directors considers all its members to be independent of the Company.

Self-evaluation

Once a year the Board of Directors systematically evaluates its work and competencies with a view to continuously improving and streamlining its work.

Management considers the composition of the Board of Directors to be appropriate relative to the Company's current activities and requirements. The current members of the Board of Directors are also considered to have the financial, strategic and commercial expertise required by an international business such as TK Development, and the number of board members is considered appropriate, given the Company's needs.

In order to improve the efficiency of board meetings and free up more time for strategic discussions, in the 2016/17 financial year the Board of Directors decided to set up two additional board committees, including a formal audit committee.

REMUNERATION OF THE BOARD OF DIRECTORS

The members of the Board of Directors are paid a fixed fee and are not covered by the Company's bonus and incentive

MANAGEMENT COMMENTARY | ANNUAL REPORT 2016/17 | TK DEVELOPMENT A/S

CORPORATE GOVERNANCE

schemes. Members of the Board of Directors are paid a basic fee. The Chairman is paid three times the basic fee, while the Deputy Chairman is paid twice the basic fee. The basic fee for 2016/17 amounted to DKK 160,000. The Board of Directors will recommend to the Annual General Meeting that the basic fee remain unchanged at the current level of DKK 160,000 for 2017/18.

In addition, the Board of Directors will recommend to the Annual General Meeting that the members of the Board of Directors are to receive the following fees for participating in the individual board committees:

Audit committee: DKK 50,000 per member, but DKK 100,000 for the chairman.
Nomination committee: DKK 25,000 per member, including the chairman.
Remuneration committee: DKK 25,000 per member, including the chairman.
Asset management committee: DKK 50,000 per member, but DKK 100,000 for the chairman.

REMUNERATION OF THE EXECUTIVE BOARD

Remuneration policy

Every year the Board of Directors assesses and determines the remuneration payable to the Executive Board members, based on the recommendation of the remuneration committee. The overall pay package and its composition are determined by the results achieved, the Executive Board's competencies and the Board of Directors' wish to ensure that the Company can continue to attract, retain and motivate qualified executives. In this connection, the Board of Directors takes the Company's situation and general development into account. Every year the Board of Directors reviews the remuneration payable to the Executive Board by comparing it to that payable to executive boards of other comparable companies with international activities.

The Executive Board's remuneration consists of a fixed and a variable portion. The variable remuneration consists of a short-term and a long-term incentive scheme. The overall pay package consists of a fixed salary, bonus, defined contribution pension of 2% of the basic salary and other benefits, including a company-provided car, telephone, IT solution and newspaper, as well as health insurance and warrants.

The remuneration policy appears from the Company's website, www.tk-development.com.

Remuneration

The remuneration of each individual member of the Executive Board appears from note 7 to the consolidated financial statements. The remuneration for 2016/17 was also based on the guidelines adopted at the General Meeting in 2011, as no changes have been made to these guidelines. At present there are no share-based incentive schemes for the Executive Board.

Retention and severance programmes

Under the Executive Board's service agreements, the individual Executive Board member may give notice of termination no later than three months after the occurrence of an extraordinary event (change of control), such termination to take effect 12 months after notice has been given. The Executive Board member may demand to be released from his or her duties during the period of notice, with the usual remuneration being payable during such period.

The Executive Board members are not subject to any other special severance terms. The term of notice for Executive Board members is 12 months on the part of the Company and six months on the part of the member.

It is company policy to ensure that Executive Board members have an incentive to work dedicatedly in the interests of the Company and its shareholders in the event of a merger, takeover bid or other extraordinary situations. Against this background, the Board of Directors may decide, on the basis of a specific assessment, to pay a retention bonus whereby Executive Board members receive a special consideration, however, not exceeding 12 months' fixed salary, for example in the event that the Company merges with another company or if another company takes over all the Company's activities, subject to the General Meeting's approval.

BOARD COMMITTEES

The Board of Directors has decided to set up a formal audit committee and a nomination committee, thus complying with the Recommendations on Corporate Governance on these points as well. In addition, the Board of Directors has set up an asset management committee whose overarching objects are to contribute to accelerating the phase-out of the asset management activities.

Accordingly, the board committees consist of an audit committee, a nomination committee, a remuneration committee and an asset management committee. The composition and terms of reference of each committee, as well as information about

42/110 | TK DEVELOPMENT A/S | ANNUAL REPORT 2016/17 | MANAGEMENT COMMENTARY

CORPORATE GOVERNANCE

which members have special qualifications, appear from TK Development's website. In addition, the website contains information about important activities during the year and the number of meetings held by each committee.

None of the committees have independent decision-making powers, and their task is merely to prepare proposals to be considered and decided by the Board of Directors. Thus, the Board of Directors is fully responsible for decisions made on the committees' recommendations.

STATUTORY ANNUAL STATEMENT ON DIVERSITY; SEE SECTION 99B OF THE DANISH FINANCIAL STATEMENTS ACT

TK Development has chosen to present its Statutory Annual Statement on Diversity on its website instead of in the Management Commentary. The Statement on Diversity is available at www.tk-development.com/diversity_2016_17.

STATUTORY ANNUAL CORPORATE GOVERNANCE STATEMENT; SEE SECTION 107B OF THE DANISH FINANCIAL STATEMENTS ACT

TK Development has chosen to present its Statutory Annual Corporate Governance Statement on its website instead of in the Management Commentary. The Corporate Governance Statement is available at www.tk-development.com/cgs_107B_16_17.

STATUTORY ANNUAL CORPORATE SOCIAL RESPONSIBILITY STATEMENT; SEE SECTION 99A OF THE DANISH FINANCIAL STATEMENTS ACT

In addition to carrying on profitable business activities, TK Development intends to adhere to and expand the Group's ethical, social and environmental responsibilities as a business corporation.

TK Development fundamentally endorses the UN's ten social responsibility principles, but has not acceded to the UN Global Compact.

In light of the Company's size and activities and the Group's operating markets, the Board of Directors has decided not to adopt policies for the voluntary integration of corporate social responsibility or human rights and climate policies. The Board of Directors will regularly assess the need for policies in this area.

MANAGEMENT COMMENTARY | ANNUAL REPORT 2016/17 | TK DEVELOPMENT A/S | 43/110

T K

THE BOARD OF DIRECTORS

Name	Born	Took office	Term of office ends	Independence 1)	Audit committee 2)	Nominati-on committee 3)	Remuneration committee 4)	Asset management committee 5)
Niels Roth (Chairman)	July 1957	2007	April 2017	Independent	M	C	M	C
Peter Thorsen (Deputy Chairman)	March 1966	2012	April 2017	Independent	C			M
Arne Gerlyng-Hansen	March 1956	2013	April 2017	Independent		M	M
Kim Mikkelsen	October 1968	2013	April 2017	Independent		M		M
Henrik Heideby	May 1949	2015	April 2017	Independent	M		C

1) See section 3.2.1 in the Recommendations on Corporate Governance prepared by Nasdaq Copenhagen. 2) C = Chairman of the committee. . M = Member of the committee.

Chairman of the Board of Directors

Born July 1957

Joined the Board of Directors 2007

Term of office ends April 2017

Board committees Chairman of the nomination committee and asset management committee and member of the audit committee and remuneration committee.

Education

1983 MSc (Economics).

Employment

1989-2004 CEO, Carnegie Bank; Group Head of Investment Banking in the Carnegie Group (2001-2002).

1997-2004 Member of the Danish Securities Council.

2001-2004 Chairman of the Danish Securities Dealers' Association.

Special competencies

Financial markets, capital structure, investment, accounting and investor relations.

Executive Board member

Zira Invest II ApS; Zira Invest III ApS.

Chairman of the Board of Directors

Fast Ejendom Danmark A/S; Friheden Invest A/S; Investeringsforeningen SmallCap Danmark; Porteføljeselskab A/S; SmallCap Danmark A/S.

Member of the Board of Directors

Arvid Nilssons Fond; A/S Rådhusparken; A/S Sadolinparken; Realdania.

Board committees and other posts

None.

Deputy Chairman of the Board of Directors

Born March 1966

Joined the Board of Directors 2012

Term of office ends April 2017

Board committees Chairman of the audit committee and member of the asset management committee.

Education

1992 MSc (Business Administration and Auditing).

Employment

1992-1994 Accountant, More Stevens.

1994-1997 Marketing Manager, Group CFO & International Controller, KEW Industri A/S.

1997-1997 Finance Manager, Electrolux Hvidevarer A/S.

1997-1998 Finance Manager, Marwi International A/S (Incentive A/S).

1998-2000 CEO, Basta Group A/S.

2001-2005 CEO, Bison A/S.

2005-2008 CEO, Louis Poulsen Lighting A/S.

2007-2008 Group Chief Executive, Targetti Poulsen.

2008- CEO, Kirk & Thorsen Invest A/S.

Special competencies

Strategic management, accounting and finances and business development.

Executive Board member

EBP Holding A/S (and a subsidiary); IC Group A/S; Kirk & Thorsen A/S (and two subsidiaries).

Chairman of the Board of Directors

Genan Holding A/S; Investeringsselskabet af 24. februar 2015 A/S.

Member of the Board of Directors

Droob ApS; EBP Holding A/S (and a subsidiary); IC Group A/S; Kirk & Thorsen A/S (and a subsidiary).

Board committees and other posts

Chairman of the Executive Committee of Sct. Maria Hospice.

44/110 | TK DEVELOPMENT A/S | ANNUAL REPORT 2016/17 | MANAGEMENT COMMENTARY

THE BOARD OF DIRECTORS

Born March 1956

Joined the Board of Directors 2013

Term of office ends April 2017

Board committees Member of the nomination committee and the remuneration committee.

Education

1981 Law graduate from the University of Copenhagen.

1984 Attorney-at-law.

Employment

1981-1983 The law office of Advokaterne Amaliegade 4, Copenhagen K.

1983-2004 The law office of Nielsen Nørager, Frederiksberggade 16, Copenhagen K.

1985-1992 Tutor and associate professor in the law of obligations at the University of Copenhagen.

2004- CEO, Harald Nyborg A/S.

Special competencies

Retail trade, law, management and business development.

Executive Board member

Arpema ApS; Arpema Holding ApS; Harald Nyborg A/S (and 13 subsidiaries); Skerris Holding A/S.

Chairman of the Board of Directors

Two subsidiaries of Harald Nyborg A/S; Habro Holding ApS (and four subsidiaries).

Member of the Board of Directors

32 subsidiaries of Harald Nyborg A/S; Skerris Holding A/S.

Board committees and other posts

Member of Sydbank's Committee of Representatives and of Community Council Funen; member of the Retail Trade Committee under the Confederation of Danish Enterprise.

Born October 1968

Joined the Board of Directors 2013

Term of office ends April 2017

Board committees Member of the nomination committee and the asset management committee.

Education

1989 Savings bank school 1.

1991 Savings bank school 2.

1991-1994 Graduate Diploma studies (Financing).

Employment

1994-1997 Swiss Bank Corp. - Head of Nordic Fixed Income Trading.

1997-1999 RBS Greenwich Capital - Director, Proprietary Trading.

1999-2002 SEB MERCHANT BANKING - Head of Mortgage Risk & Trading.

2003-2009 Nordic Asset Management A/S - CIO and majority owner.

Special competencies

Financial affairs, investment and management.

Executive Board member

København Håndbold A/S; Nordic Sports Management ApS; Nordic Wine Invest ApS; Proinvestor ApS; Strategic Capital ApS; Strategic Investments A/S; Strategic Venture Capital ApS.

Chairman of the Board of Directors

Hjemmehjælpen A/S.

Member of the Board of Directors

Innogie ApS; NTR Holding A/S; Proinvestor ApS; Strategic Investments A/S.

Board committees and other posts

None.

MANAGEMENT COMMENTARY | ANNUAL REPORT 2016/17 | TK DEVELOPMENT A/S

T K

THE BOARD OF DIRECTORS

Born
May 1949
Joined the Board of Directors
2015
Term of office ends
April 2017
Board committees
Chairman of the remuneration committee and member of the audit committee.

Education

1974 Diploma in Business Administration (Management Accounting and Business Finance).
1996 Executive Programme, Stanford University.

Employment

1984-1988 CEO, Dansk Kapitalanlæg A/S.
1988-1990 Manager, FIH.
1990-1992 Deputy CEO, FIH.
1992-1998 CEO, FIH.
1998-2001 CEO, Alfred Berg Bank A/S.
2001-2014 Group CEO and President, PFA.

Special competencies

Management, strategy, accounting and financial expertise, risk management, retail trade and M&A competencies.

Executive Board member

None.

Chairman of the Board of Directors

Blue Equity Management A/S; Carlsberg Byen P/S (and 32 subsidiaries); Greystone Capital Partners A/S; IC Group A/S; Kirk & Thorsen Invest A/S.

Member of the Board of Directors

Ahpla ApS; FIH A/S (deputy chairman).

Board committees and other posts

None.

46/110 | TK DEVELOPMENT A/S | ANNUAL REPORT 2016/17 | MANAGEMENT COMMENTARY

THE EXECUTIVE BOARD

President and CEO

Born July 1959

Member of the Executive Board of TK Development A/S since 1992

Executive Board member

Sporbyen Komplementarselskab ApS*, Frede Clausen Holding ApS.

Chairman of the Board of Directors

Ahlgade 34-36 A/S*; Komplementarselskabet Beddingen ApS*; Ringsted Outlet Center P/S*; SPV Ringsted ApS*; Step Re CSP Invest I A/S*; The Yard, Beddingen P/S*.

Member of the Board of Directors

BROEN Shopping A/S*; Euro Mall Luxembourg JV S.à r.l.*; Euro Mall Ventures S.à r.l.*; Kommanditaktieselskabet Danlink-Udvikling*; Komplementarselskabet DLU ApS*; SporbyenScandia P/S*; K/S Købmagergade 59, st.; Palma Ejendomme A/S; PE Skagen ApS.

Board committees and other posts

None.

Executive Vice President

Born April 1965

Member of the Executive Board of TK Development A/S since 2002

Executive Board member

Amerika Plads C P/S*; BROEN Shopping A/S*; Komplementarselskabet Amerika Plads C ApS*; Ringsted Outlet Center P/S*; Ringsted Retail Company ApS*; SPV Ringsted ApS*; Palma Ejendomme A/S; PE Skagen ApS.

Chairman of the Board of Directors

None.

Member of the Board of Directors

Ahlgade 34-36 A/S*; Kommanditaktieselskabet Danlink-Udvikling*; Kommanditaktieselskabet Østre Havn*; Komplementarselskabet Beddingen ApS*; Komplementarselskabet DLU ApS*; Ringsted Outlet Center P/S*; SporbyenScandia P/S*; SPV Ringsted ApS*; The Yard, Beddingen P/S*; Østre Havn Aalborg ApS*; Palma Ejendomme A/S; PE Skagen ApS.

Board committees and other posts

None.

* The companies form part of the TK Development Group and are partly owned, directly or indirectly, by TK Development A/S.

MANAGEMENT COMMENTARY | ANNUAL REPORT 2016/17 | TK DEVELOPMENT A/S

T K

STATEMENT BY THE BOARD OF DIRECTORS AND EXECUTIVE BOARD ON THE ANNUAL REPORT

The Board of Directors and Executive Board have today considered and adopted the Annual Report of TK Development A/S for the period from 1 February 2016 to 31 January 2017.

The Annual Report is presented in accordance with the International Financial Reporting Standards (IFRS), as adopted by the EU, and in accordance with Danish disclosure requirements for annual reports prepared by listed companies.

In our opinion, the consolidated financial statements and parent financial statements give a true and fair view of the Group's and Company's financial position at 31 January 2017 and of the results of the Group's and Company's operations and cash flows for the financial year from 1 February 2016 to 31 January 2017.

Moreover, we consider the Management Commentary to give a fair presentation of the development in the Group's and Company's activities and financial affairs, the results for the year and the Company's and Group's overall financial position, as well as a true and fair description of the most significant risks and elements of uncertainty faced by the Company and the Group.

We recommend that the 2016/17 Annual Report be adopted by the Annual General Meeting of shareholders.

Aalborg, 29 March 2017

EXECUTIVE BOARD

Frede Clausen
President and CEO

Robert Andersen
Executive Vice President

BOARD OF DIRECTORS

Niels Henrik Roth
Chairman

Peter Thorsen
Deputy Chairman

Arne Gerlyng-Hansen

Kim Haugstrup Mikkelsen

Henrik Tonsgaard Heideby

48/110 | TK DEVELOPMENT A/S | ANNUAL REPORT 2016/17 | STATEMENT BY THE BOARD OF DIRECTORS AND EXECUTIVE BOARD

INDEPENDENT AUDITOR'S REPORT

T K

To the shareholders of TK Development A/S

Opinion

We have audited the consolidated financial statements and the parent financial statements of TK Development A/S for the financial year 1 February 2016 - 31 January 2017, which comprise the income statement, statement of comprehensive income, balance sheet, statement of changes in equity, cash flow statement and notes, including a summary of accounting policies, for the Group as well as for the Parent. The consolidated financial statements and the parent financial statements are prepared in accordance with International Financial Reporting Standards as adopted by the EU and additional requirements of the Danish Financial Statements Act.

In our opinion, the consolidated financial statements and the parent financial statements give a true and fair view of the Group's and the Parent's financial position at 31 January 2017, and of the results of their operations and cash flows for the financial year 1 February 2016 - 31 January 2017 in accordance with International Financial Reporting Standards as adopted by the EU and additional requirements of the Danish Financial Statements Act.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs) and the additional requirements applicable in Denmark. Our responsibilities under those standards and requirements are further described in the Auditor's responsibilities for the audit of the consolidated financial statements and the parent financial statements section of this auditor's report. We are independent of the Group in accordance with the International Ethics Standards Board of Accountants' Code of Ethics for Professional Accountants (IESBA Code) and the additional requirements applicable in Denmark, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements and the parent financial statements for the financial year 1 February 2016 - 31 January 2017. These matters were addressed in the context of our audit of the consolidated financial statements and the parent financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Valuation of projects in progress and completed projects

The carrying amount of the Group's projects in progress and completed projects amounted to DKK 2,155.2 million at 31 January 2017, see note 18, equal to 76% of the Group's balance sheet total. Management performs impairment tests of the capitalized amounts on a continuous basis to ensure that the portfolios of projects are written down to the lower of carrying amount and estimated net realizable value.

The carrying amount of projects in progress and completed projects written down to the estimated net realizable value totalled DKK 1,464.4 million at 31 January 2017, and the Group's profit before tax for the 2016/17 financial year has been impacted by total impairment losses of DKK 11.7 million for plots of land and projects.

When reviewing the portion of the Group's projects in progress and completed projects written down to the estimated net realizable value for impairment, Management makes a number of significant accounting estimates and judgments that materially affect the Annual Report. The valuation of projects in progress and completed projects is therefore considered a key audit matter.

The most significant inputs and estimates forming part of Management's estimate of the net realizable value and the associated uncertainties are described in note 2 to the consolidated financial statements.

How our audit addressed the matter

Based on our risk assessment, we have obtained an understanding of Management's process for and control of the valuation of the individual plots of land and projects.

We have challenged Management's valuations of all significant projects in progress and completed projects, in which connection we have checked that the methods and principles used have remained unchanged compared to the previous year.

Development projects in progress and plots of land:

We have analyzed and tested the most significant factors forming part of Management's impairment tests of development projects in progress and plots of land, particularly as concerns the following elements:

Testing Management's expected time frames for initiating and completing the development projects, including an assessment based on previous expectations and underlying

INDEPENDENT AUDITOR'S REPORT | ANNUAL REPORT 2016/17 | TK DEVELOPMENT A/S

T K

INDEPENDENT AUDITOR'S REPORT

documentation

Evaluating the costs budgeted for completion of the projects, comprising Management's comparison of budgeted costs with realized project costs as well as explanations of variations, agreements with external parties and historical data for corresponding development projects
Evaluating estimated selling prices of the completed development project based on investors' yield requirements by checking them against sales agreements already concluded, current selling prices of corresponding development projects or by comparing them with external valuations or market reports

Completed properties in operation

We have analyzed and tested Management's estimate of the net realizable value of completed properties under asset management, particularly as concerns the following elements:

Evaluating the future letting situation, including the rental level and opportunities for letting vacant premises etc., comprising a comparison of budgeted rental income for the next year with realized rental income for the current year, as well as testing whether the assumptions related to the vacancy rent are supported by market data
Evaluating the expected operating and maintenance costs
Testing Management's expectations for investors' yield requirements by comparing them with the previous year's expectations, evaluating them in relation to location and property type, and comparing them with external valuations and market reports

We believe that the assumptions and estimates used for yield requirements and the expected future rental levels are optimistic in some cases. However, we find that the method and assumptions used by Management for measuring the Group's portfolios of projects in progress and completed projects are reasonable.

We find that Management's description of the uncertainties associated with these estimates, as set out in note 2 to the consolidated financial statements, is reasonable and adequate.

Valuation of investments in joint ventures

TK Development's share of equity in joint ventures amounted to DKK 277.2 million at 31 January 2017; see note 10.

The key audit matters related to our audit of the Group's investments in joint ventures essentially consist of the same

elements as described above regarding the valuation of the Group's projects in progress and completed projects, as the most significant assets in the Group's joint ventures consist of similar projects in progress and completed projects.

In addition, the Group's joint ventures hold investment properties and investment properties under construction that have been measured at fair value. These investment properties were measured using a discounted cash-flow model, under which future cash flows are discounted to net present value on the basis of Management's estimate of the yield requirements.

The valuation of investments in joint ventures is considered a key audit matter, as changes to assumptions and estimates may materially affect the Annual Report.

The most significant uncertainties associated with such valuation are described in note 2 to the consolidated financial statements.

How our audit addressed the matter

Based on our risk assessment, our audit of the valuation of the Group's investments in joint ventures at 31 January 2017 comprised audit procedures corresponding to those described under the valuation of projects in progress and completed projects.

With respect to the valuation of the Group's share of the carrying amount of investment properties and investment properties under construction, we have also reviewed the valuation models used and compared the current yield requirements to valuation reports and external market analyses.

We believe that the assumptions and estimates used for return requirements and the expected future rental levels for the two Polish shopping centres in joint ventures are optimistic. However, we find that the method and assumptions used by Management for measuring the Group's investments in joint ventures, particularly the valuation of the underlying investment properties and investment properties under construction and the portfolios of projects in progress and projects completed, are reasonable.

We find that Management's description of the uncertainties associated with these estimates, as set out in note 2 to the consolidated financial statements, is reasonable and adequate.

50/110 | TK DEVELOPMENT A/S | ANNUAL REPORT 2016/17 | INDEPENDENT AUDITOR'S REPORT

INDEPENDENT AUDITOR'S REPORT

Deferred tax assets

Deferred tax assets amounted to DKK 75.4 million at 31 January 2017; see note 17. The deferred tax assets relate to the Group's Danish activities exclusively, as the tax assets relating to the Czech and Polish activities have been written down to DKK 0; see Management's description in note 2 to the consolidated financial statements.

Deferred tax assets are considered a key audit matter, as changes to assumptions and estimates regarding the future utilization of tax assets may materially affect the Annual Report.

How our audit addressed the matter

Based on our risk assessment, we tested the basis of the budgets underlying Management's estimates and compared the budget assumptions used with our test of project budgets for specific projects covered by our audit, as referred to above.

We have involved our in-house tax specialists in our assessment of the Group's opportunities for utilizing the existing rules for loss carryforwards and joint taxation.

We find that Management's description of the uncertainties associated with the valuation, as set out in note 2 to the consolidated financial statements, is reasonable and adequate.

Statement on the management commentary

Management is responsible for the management commentary.

Our opinion on the consolidated financial statements and the parent financial statements does not cover the management commentary, and we do not express any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements and the parent financial statements, our responsibility is to read the management commentary and, in doing so, consider whether the management commentary is materially inconsistent with the consolidated financial statements and the parent financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.

Moreover, it is our responsibility to consider whether the management commentary provides the information required under the Danish Financial Statements Act.

Based on the work we have performed, we conclude that the management commentary is in accordance with the consolidated financial statements and the parent financial statements and has been prepared in accordance with the requirements of the Danish Financial Statements Act. We did not identify any material misstatement of the management commentary.

Management's responsibilities for the consolidated financial statements and the parent financial statements

Management is responsible for the preparation of consolidated financial statements and parent financial statements that give a true and fair view in accordance with International Financial Reporting Standards as adopted by the EU and additional requirements of the Danish Financial Statements Act, and for such internal control as Management determines is necessary to enable the preparation of consolidated financial statements and parent financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements and the parent financial statements, Management is responsible for assessing the Group's and the Parent's ability to continue as a going concern, for disclosing, as applicable, matters related to going concern, and for using the going concern basis of accounting in preparing the consolidated financial statements and the parent financial statements unless Management either intends to liquidate the Group or the Entity or to cease operations, or has no realistic alternative but to do so.

Auditor's responsibilities for the audit of the consolidated financial statements and the parent financial statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements and the parent financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs and the additional requirements applicable in Denmark will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements and the parent financial statements.

As part of an audit conducted in accordance with ISAs and the

INDEPENDENT AUDITOR'S REPORT | ANNUAL REPORT 2016/17 | TK DEVELOPMENT A/S | 51/110

INDEPENDENT AUDITOR'S REPORT

additional requirements applicable in Denmark, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:

Identify and assess the risks of material misstatement of the consolidated financial statements and the parent financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group's and the Parent's internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by Management.
Conclude on the appropriateness of Management's use of the going concern basis of accounting in preparing the consolidated financial statements and the parent financial statements, and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group's and the Parent's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated financial statements and the parent financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Group and the Entity to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the consolidated financial statements and the parent financial statements, including the disclosures in the notes, and whether the consolidated financial statements and the parent financial statements represent the underlying transactions and events in a manner that gives a true and fair view.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements and the parent financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Copenhagen, 29 March 2017

Deloitte
Statsautoriseret Revisionspartnerselskab
Business Registration No 33 96 35 56

Jan Bo Hansen
State-Authorised
Public Accountant

Lars Andersen
State-Authorised
Public Accountant

52/110 | TK DEVELOPMENT A/S | ANNUAL REPORT 2016/17 | INDEPENDENT AUDITOR'S REPORT

CONSOLIDATED FINANCIAL STATEMENTS

INCOME STATEMENT

DKKm	Note	2016/17	2015/16
Net revenue	4	401.5	327.8
Project costs	5	-318.4	-370.1
Value adjustment of investment properties, net		0.0	-25.0
Gross profit/loss		83.1	-67.3
Income from investments in joint ventures	10	48.8	30.4
Gross profit/loss including income from investments in joint ventures		131.9	-36.9
Other external expenses	6	21.2	23.1
Staff costs	7	58.5	58.9
Total		79.7	82.0
Profit/loss before financing and depreciation		52.2	-118.9
Depreciation and impairment of non-current assets		0.4	33.7
Operating profit/loss		51.8	-152.6
Income from investments in associates	9	0.5	1.1
Financial income	11	9.9	11.3
Financial expenses	12	-48.4	-50.8
Total		-38.0	-38.4
Profit/loss before tax		13.8	-191.0
Tax on profit/loss for the year	13	6.7	31.3
Profit/loss for the year		7.1	-222.3

EARNINGS PER SHARE IN DKK

Earnings per share (EPS)	14	0.1	-2.3

COMPREHENSIVE INCOME STATEMENT

Profit/loss for the year	7.1	-222.3
Items that may be re-classified to profit/loss:
Foreign-exchange adjustments, foreign operations	3.4	-9.4
Value adjustment of available-for-sale financial assets	0.1	0.0
Value adjustments of hedging instruments	-0.3	1.2
Tax on other comprehensive income, see note 21	-1.4	4.4
Other comprehensive income after tax from joint ventures	-0.9	2.4
Other comprehensive income for the year	0.9	-1.4
Comprehensive income for the year	8.0	-223.7

CONSOLIDATED FINANCIAL STATEMENTS | ANNUAL REPORT 2016/17 | TK DEVELOPMENT A/S | 53/110

CONSOLIDATED FINANCIAL STATEMENTS

BALANCE SHEET

DKKm	Note	31 Jan 2017	31 Jan 2016
ASSETS
Non-current assets
Other fixtures and fittings, tools and equipment		1.3	0.9
Property, plant and equipment		1.3	0.9
Investment properties	16	53.1	53.3
Investment properties		53.1	53.3
Investments in joint ventures	10	277.2	260.7
Investments in associates	9	4.9	4.4
Receivables from joint ventures		185.3	195.7
Receivables from associates		8.9	4.6
Other securities and investments		5.0	13.4
Financial assets		481.3	478.8
Deferred tax assets	17	75.4	81.6
Other non-current assets		75.4	81.6
Non-current assets		611.1	614.6
Current assets
Projects in progress or completed	18	2,155.2	2,013.6
Trade receivables	19	10.7	54.1
Receivables from joint ventures		11.6	0.0
Other receivables		13.4	10.6
Prepayments		12.9	12.1
Receivables		48.6	76.8
Other securities and investments		4.1	4.1
Deposits in blocked and escrow accounts		23.4	94.1
Cash and cash equivalents		10.5	5.6
Current assets		2,241.8	2,194.2
ASSETS		2,852.9	2,808.8

54/110 | TK DEVELOPMENT A/S | ANNUAL REPORT 2016/17 | CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS

BALANCE SHEET

DKKm	Note	31 Jan 2017	31 Jan 2016
EQUITY AND LIABILITIES
Equity
Share capital	20	98.2	98.2
Other reserves	21	-8.4	-9.3
Retained earnings		1,203.9	1,196.8
Equity		1,293.7	1,285.7
Liabilities
Credit institutions	22	0.0	34.1
Provisions	23	0.9	0.4
Deferred tax liabilities	17	13.8	14.1
Non-current liabilities		14.7	48.6
Credit institutions	22	1,433.3	1,358.7
Trade payables		72.7	70.4
Corporate income tax		2.9	6.6
Provisions	23	1.9	5.7
Other debt	25	28.4	27.6
Deferred income		5.3	5.5
Current liabilities		1,544.5	1,474.5
Liabilities		1,559.2	1,523.1
EQUITY AND LIABILITIES		2,852.9	2,808.8

CONSOLIDATED FINANCIAL STATEMENTS | ANNUAL REPORT 2016/17 | TK DEVELOPMENT A/S | 55/110

CONSOLIDATED FINANCIAL STATEMENTS

STATEMENT OF CHANGES IN EQUITY

DKKm	Share capital	Other reserves	Retained earnings	Total equity
Equity at 1 February 2015	98.2	-7.9	1,419.1	1,509.4
Profit/loss for the year	0.0	0.0	-222.3	-222.3
Other comprehensive income for the year	0.0	-1.4	0.0	-1.4
Total comprehensive income for the year	0.0	-1.4	-222.3	-223.7
Equity at 31 January 2016	98.2	-9.3	1,196.8	1,285.7
Profit/loss for the year	0.0	0.0	7.1	7.1
Other comprehensive income for the year	0.0	0.9	0.0	0.9
Total comprehensive income for the year	0.0	0.9	7.1	8.0
Equity at 31 January 2017	98.2	-8.4	1,203.9	1,293.7

56/110 | TK DEVELOPMENT A/S | ANNUAL REPORT 2016/17 | CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS

CASH FLOW STATEMENT

DKKm	2016/17	2015/16
Operating profit/loss	51.8	-152.6
Adjustments for non-cash items:
Income from investments in joint ventures	-48.8	-30.4
Value adjustment of investment properties, net	0.0	25.0
Depreciation and impairment	12.6	170.0
Provisions	-3.3	-9.3
Foreign-exchange adjustment	-1.9	-4.8
Increase/decrease in investments in projects, etc.	-130.8	-22.6
Increase/decrease in receivables	35.6	27.5
Dividend from joint ventures	40.3	7.0
Increase/decrease in receivables from joint ventures	-1.6	2.3
Sale of joint ventures	4.6	10.8
Investments in joint ventures	-5.4	-4.2
Changes in deposits on blocked and escrow accounts	72.8	-48.3
Increase/decrease in payables and other debt	2.2	5.5
Cash flows from operations	28.1	-24.1
Interest paid, etc.	-63.4	-61.9
Interest received, etc.	8.6	7.1
Corporate income tax paid	-5.8	0.0
Cash flows from operating activities	-32.5	-78.9
Investments in equipment, fixtures and fittings	-0.8	-0.2
Sale of equipment, fixtures and fittings	0.1	0.1
Increase/decrease in receivables from joint ventures	-1.0	-73.8
Investments in joint ventures	-6.6	-69.5
Purchase of securities and investments	-5.9	0.0
Sale of securities and investments	13.2	4.3
Cash flows from investing activities	-1.0	-139.1
Raising of project financing	210.9	256.4
Reduction of project financing/repayments, credit institutions	-172.6	-55.5
Cash flows from financing activities	38.3	200.9
Cash flows for the year	4.8	-17.1
Cash and cash equivalents, beginning of year	5.6	23.6
Foreign-exchange adjustment of cash and cash equivalents	0.1	-0.9
Cash and cash equivalents at year-end	10.5	5.6

The figures in the cash flow statement cannot be inferred from the consolidated financial statements alone.

CONSOLIDATED FINANCIAL STATEMENTS | ANNUAL REPORT 2016/17 | TK DEVELOPMENT A/S | 57/110

TABLE OF CONTENTS, NOTES, CONSOLIDATED FINANCIAL STATEMENTS

Page

59 Note 1. Accounting policies
68 Note 2. Accounting estimates and judgments
71 Note 3. Segment information
73 Note 4. Net revenue
73 Note 5. Project costs
73 Note 6. Other external expenses
73 Note 7. Staff costs
74 Note 8. Fees payable to the auditors elected at the General Meeting
74 Note 9. Investments in associates
75 Note 10. Investment in joint ventures
78 Note 11. Financial income
78 Note 12. Financial expenses
79 Note 13. Tax on profit/loss for the year
79 Note 14. Earnings per share in DKK
79 Note 15. Dividends
80 Note 16. Investment properties
81 Note 17. Deferred tax
83 Note 18. Projects in progress or completed
83 Note 19. Trade receivables
84 Note 20. Share capital
84 Note 21. Other reserves
85 Note 22. Credit institutions
85 Note 23. Provisions
86 Note 24. Operating leases
86 Note 25. Other debt
86 Note 26. Contingent assets and liabilities as well as security furnished
88 Note 27. Financial risks and financial instruments
92 Note 28. Transactions with related parties
93 Note 29. Post-balance sheet events
93 Note 30. Approval of Annual Report for publication
94 Note 31. Overview of group companies

58/110 | TK DEVELOPMENT A/S | ANNUAL REPORT 2016/17 | NOTES, CONSOLIDATED FINANCIAL STATEMENTS

NOTES, CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. ACCOUNTING POLICIES

The consolidated financial statements for 2016/17 for TK Development A/S are presented in compliance with the International Financial Reporting Standards, as adopted by the EU, and in accordance with Danish disclosure requirements for annual reports of listed companies; see the Executive Order on IFRS issued in pursuance of the Danish Financial Statements Act. TK Development A/S is a public limited company with its registered office in Denmark.

All figures in the consolidated financial statements are presented in DKK million, unless otherwise stated. DKK is the presentation currency for the Group's activities and the functional currency of the Parent Company.

The consolidated financial statements are presented on the basis of historical cost, with the exception of investment properties, derivative financial instruments and financial assets classified as available for sale, which are measured at fair value.

IMPLEMENTATION OF NEW AND AMENDED FINANCIAL REPORTING STANDARDS AND INTERPRETATIONS ISSUED BY IFRIC

The implementation of new and amended financial reporting standards and interpretations applicable as from 1 February 2016 has not given rise to any changes to the accounting policies. Thus, the implementation of such standards and interpretations does not impact the earnings per share.

Management has chosen to move the item Income from investments in joint ventures to another line in the income statement. All activities in joint ventures relate to the Group's property development and asset management activities, and Management has therefore considered it more relevant to include Income from investments in joint ventures under Operating profit/loss. The comparative figures have been restated accordingly.

The accounting policies have been consistently applied compared to last year and are set out below.

FINANCIAL REPORTING STANDARDS AND IFRIC INTERPRETATIONS NOT YET IN FORCE

At the date of publication of this Annual Report, a number of new or amended financial reporting standards and interpretations had not yet entered into force or been adopted by the EU. Thus, they have not been incorporated into the Annual Report. Other than those stated below, none of these standards and interpretations are expected to materially affect the annual reports for the next financial years, with the exception of the additional disclosure requirements following from the relevant standards and interpretations.

IFRS 15, Revenue from Contracts with Customers

IFRS 15 replaces IAS 18, Revenue, and IAS 11, Construction Contracts, and the related IFRIC interpretations. IFRS 15 provides a single, but comprehensive model to be applied to revenue recognition and contains much more guidance on interpretation of the standard than IAS 18 and IAS 11.

TK Development intends to implement IFRS 15 in the 2018/19 financial year by applying the more lenient transition provisions, according to which comparative figures need not be restated and the impact of implementation is to be recognized in the opening retained earnings as of 1 February 2018. IFRS 15 will not be applied to contracts completed by 1 February 2018.

The core principle of IFRS 15 is that an entity will recognize revenue to depict the transfer of control of the goods or services sold to customers. Moreover, IFRS 15 contains special rules about the recognition of costs related to obtaining or fulfilling contracts with customers as well as more disclosure requirements.

Preliminary analyses indicate that the implementation may result in changes to the time of recognition for parts of the Group's revenue. The full monetary impact cannot be disclosed as yet, as it will depend on the volume of contracts as of 1 February 2018, among other factors.

IFRS 16, Leases

IFRS 16 replaces the previous Leases Standard, IAS 17. Under IFRS 16 virtually all leases must be recognized in the balance sheet forming part of the lessee's financial statements as a lease liability and as an asset representing the lessee's right to use the underlying asset. The distinction between operating and finance leases will not be retained.

TK Development intends to implement IFRS 16 in the 2019/20 financial year by applying the more lenient transition provisions, according to which comparative figures need not be restated and the impact of implementation is to be recognized in the opening retained earnings as of 1 February 2019. Moreover, the Group will apply the remaining transition relief provisions to the widest extent possible, including as concerns low-value asset leases and leases with a remaining term at 1 February 2019 of

NOTES, CONSOLIDATED FINANCIAL STATEMENTS | ANNUAL REPORT 2016/17 | TK DEVELOPMENT A/S | 59/110

T K

NOTES, CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. ACCOUNTING POLICIES, CONTINUED

less than 12 months.

At 31 January 2017 TK Development had concluded leases classified as operating leases according to IAS 17, with total future minimum lease payments under non-terminable leases of DKK 16.1 million not recognized in the balance sheet. Preliminary analyses indicate that these leases will also meet the definition of leases under IFRS 16, and at 1 February 2019 the Group will therefore recognize an asset and an associated liability regarding these leases, unless they meet the criteria for identification as low-value assets or leases with a remaining term of less than 12 months.

The volume of leases can change in the period until 1 February 2019, and it has not yet been determined how large a share of the above-mentioned future minimum lease payments contain lease elements that, according to IFRS 16, are not to be recognized in the lease liability or the right-of-use asset.

Following the implementation of IFRS 16, the costs of leases will generally be recognized as depreciation of the recognized asset and as interest on the lease liability, respectively, as opposed to the current practice of recognizing lease costs as operating costs.

CONSOLIDATED FINANCIAL STATEMENTS

The consolidated financial statements comprise the Parent Company, TK Development A/S, and the enterprises controlled by the Parent Company. The Parent Company is considered to exercise control when it holds more than 50% of the voting rights, whether directly or indirectly, or otherwise may exercise or actually exercises control.

Enterprises in which the Group holds between 20% and 50% of the voting rights, whether directly or indirectly, and thus has significant influence, but not a controlling interest, are considered associates.

Enterprises jointly controlled with other investors are considered joint ventures.

Consolidated financial statements are prepared on the basis of the financial statements of the Parent Company and its subsidiaries by adding together items of a uniform nature. The financial statements on which the consolidated financial statements are based are prepared in accordance with the accounting policies applied by the Group. The items in the subsidiaries' financial statements are fully recognized in the consolidated financial statements.

On consolidation, intercompany income and expenses, shareholdings, balances and dividends as well as gains on transactions between consolidated enterprises are eliminated. Losses are eliminated to the extent that no impairment has occurred.

The consolidated financial statements include subsidiaries, joint ventures and associates throughout the period of ownership.

BUSINESS COMBINATIONS

Newly acquired or newly established enterprises are recognized in the consolidated financial statements as from the date of acquisition or establishment. The date of acquisition is the date on which control of the enterprise is effectively transferred to the acquirer. Sold or wound-up enterprises are recognized in the consolidated income statement until the date of sale or winding-up. Comparative figures are not adjusted for newly acquired, sold or wound-up enterprises.

Upon the acquisition of new enterprises in which the Group gains a controlling interest in the acquired enterprise, the purchase method is used, which means that the identifiable assets, liabilities and contingent liabilities of the newly acquired enterprises are measured at fair value at the acquisition date. Restructuring provisions are only recognized in the transfer balance sheet if they constitute a liability for the enterprise acquired. The tax effect of revaluations made is taken into account.

The purchase consideration for an enterprise consists of the fair value of the consideration paid for the enterprise acquired. If the final determination of the consideration depends on one or more future events, the effect of such events is recognized at fair value at the acquisition date. Costs directly attributable to the acquisition are recognized directly in profit or loss upon being incurred.

Positive balances between (i) the purchase consideration, the value of any minority interests in the acquired enterprise plus the fair value of previously acquired equity investments, and (ii) the fair value of the assets, liabilities and contingent liabilities acquired are recognized as goodwill in the balance sheet under

60/110 | TK DEVELOPMENT A/S | ANNUAL REPORT 2016/17 | NOTES, CONSOLIDATED FINANCIAL STATEMENTS

NOTES, CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. ACCOUNTING POLICIES, CONTINUED

intangible assets, and the goodwill amount is subjected to impairment tests at least once a year. If the carrying amount of the asset exceeds the recoverable amount, it is written down to the recoverable amount. Any negative balances are recognized as income in profit or loss.

Gains or losses on the sale or winding-up of subsidiaries, joint ventures and associates that result in the cessation of control, joint control and significant influence, respectively, are determined as the difference between (i) the fair value of the sales proceeds or winding-up proceeds plus the fair value of any remaining equity investments and (ii) the carrying amount of net assets at the date of sale or winding-up, including goodwill, less any minority interests. The gain or loss thus calculated is recognized in profit or loss together with accumulated foreign-exchange adjustments previously recognized in other comprehensive income.

ASSOCIATES/JOINT VENTURES IN THE CONSOLIDATED FINANCIAL STATEMENTS

In the consolidated financial statements, investments in joint ventures and associates are recognized and measured according to the equity method, which means that investments are measured at the proportionate share of the joint ventures' associates' carrying amount, determined according to the Group's accounting policies, with the addition of goodwill and plus or less any proportionate intercompany profits or losses.

The proportionate share of the joint venture's/associate's results after tax and the proportionate elimination of unrealized intercompany profits and losses are recognized in profit or loss, less any impairment of goodwill. The proportionate share of all transactions and events recognized in the joint venture's/associate's other comprehensive income is recognized in consolidated other comprehensive income.

Investments in joint ventures and associates with a negative equity value are measured at DKK 0. Receivables and other non-current financial assets considered to be part of the overall investment are written down by any remaining negative equity value. Trade receivables and other receivables are written down to the extent that they are considered uncollectible. A provision for the remaining negative equity value is only recognized if the Group has a legal or constructive obligation to meet the relevant joint venture's or associate's liabilities, and the obligation is expected to result in an outflow of resources from the Group.

TRANSLATION OF FOREIGN-CURRENCY ITEMS

A functional currency is determined for each of the reporting enterprises in the Group. The functional currency is the currency used in the primary economic environment in which the individual reporting enterprise operates. Transactions in currencies other than the individual enterprise's functional currency are considered foreign-currency transactions and are translated into the functional currency on initial recognition, based on the exchange rates ruling at the dates of the transactions. Exchange differences arising between the exchange rate on the transaction date and the exchange rate on the payment date are recognized in profit or loss under financial items.

Receivables, payables and other monetary items in foreign currencies that have not been settled by the reporting date are translated into the functional currency according to the exchange rates ruling at the reporting date. Realized and unrealized exchange gains and losses are recognized in profit or loss as financial items. Property, plant and equipment, intangible assets, projects in progress or completed and other non-monetary assets that have been bought in foreign currencies and are measured on the basis of historical cost are translated at the exchange rate ruling on the transaction date. Non-monetary items that are revalued at fair value are translated at the exchange rate ruling on the date of revaluation.

When enterprises that present financial statements in a functional currency other than Danish kroner (DKK) are recognized in the consolidated financial statements, items in the income statement are translated on the basis of the average exchange rates for the period under review, and items in the balance sheet are translated on the basis of the exchange rates ruling at the reporting date. If the average exchange rates for the period under review deviate significantly from the actual exchange rates at the transaction dates, the actual exchange rates are used instead.

Exchange differences arising on translating foreign enterprises' beginning-of-year balance sheet items at the exchange rate ruling at the reporting date and on translating the income statement items from the average exchange rate for the period under review to the exchange rate at the reporting date are recognized in other comprehensive income. Exchange differences arising as a result of changes recognized directly in the equity of the foreign reporting enterprise are also recognized in other comprehensive income.

NOTES, CONSOLIDATED FINANCIAL STATEMENTS | ANNUAL REPORT 2016/17 | TK DEVELOPMENT A/S | 61/110

'1K

NOTES, CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. ACCOUNTING POLICIES, CONTINUED

Foreign-exchange adjustments of intercompany accounts with foreign subsidiaries that are considered part of the Parent Company's total investment in the relevant subsidiary are recognized in other comprehensive income in the consolidated financial statements.

When associates/joint ventures that present financial statements in a functional currency other than DKK are recognized in the consolidated financial statements, income statement items are translated on the basis of the average exchange rates for the period under review, and balance sheet items are translated on the basis of the exchange rates ruling at the reporting date. Exchange differences arising on translating foreign enterprises' beginning-of-year balance sheet items at the exchange rate ruling at the reporting date and on translating the income statement items from the average exchange rate for the period under review to the exchange rate at the reporting date are recognized in other comprehensive income. Exchange differences arising as a result of changes recognized directly in the equity of the foreign reporting enterprise are also recognized in other comprehensive income.

DERIVATIVE FINANCIAL INSTRUMENTS

On initial recognition, derivative financial instruments are measured at fair value at the settlement date.

After initial recognition, the derivative financial instruments are measured at fair value at the reporting date. Positive and negative fair values of derivative financial instruments are recognized under other receivables and other debt.

Changes in the fair value of derivative financial instruments that are classified as and meet the conditions for the fair-value hedging of a recognized asset or liability are recognized in profit or loss together with changes in the value of the hedged asset or liability.

Changes in the fair value of derivative financial instruments that are classified as and meet the conditions for effective hedging of future transactions are recognized in other comprehensive income. Any ineffective portion is recognized immediately in profit or loss. When the hedged transactions are realized, the accumulated changes are recognized as part of the cost of the relevant transactions.

Changes in the fair value of derivative financial instruments that are used to hedge net investments in foreign subsidiaries are recognized in the consolidated financial statements under other comprehensive income in the event of hedge effectiveness. Any ineffective portion is recognized immediately in profit or loss. When the relevant foreign enterprise is sold, the accumulated changes in value are transferred to profit or loss.

Derivative financial instruments that do not meet the conditions for treatment as hedging instruments are considered trading portfolios and are measured at fair value, with fair-value adjustments being recognized under financial items in profit or loss on a continuing basis.

INCOME STATEMENT

Net revenue

The sales method is used to recognize income on projects sold; see IAS 18, Revenue. Thus, profits are recognized once the project has been sold, construction completed and all essential elements of the sales agreement fulfilled, including delivery and transfer of risk to the buyer.

The percentage of completion method is used for projects meeting the definition of a construction contract; see IAS 11. Thus, the revenue for the year on these projects corresponds to the selling price of the work performed during the year. The recognized profit is the estimated profit on the project, calculated on the basis of its stage of completion. Reference is made to the section Construction contracts below.

Where the Group is in charge of development, letting and construction management, etc. on behalf of investors and receives fee income for such services, the fee income is recognized as income on a continuous basis in step with the provision of services.

Where a sold project consists of several instalment deliveries that can be segregated and the financial effect can be assessed separately and measured reliably for each delivery, the profit on the individual instalment delivery is recognized when all essential elements of the agreement have been fulfilled.

Rental income on completed projects and investment properties is accrued and recognized in accordance with the lease agreements concluded.

For other income, the sales method is used.

Net revenue is measured at the fair value of the consideration

62/110 | TK DEVELOPMENT A/S | ANNUAL REPORT 2016/17 | NOTES, CONSOLIDATED FINANCIAL STATEMENTS

NOTES, CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. ACCOUNTING POLICIES, CONTINUED

received or receivable. If a sale is based on interest-free credit with a term extending beyond the usual credit period, the fair value of the consideration receivable is calculated by discounting future payments. The difference between the fair value and nominal value of the consideration is recognized in profit or loss as financial income over the extended credit period by using the effective interest method.

Construction contracts

When the outcome of a construction contract can be estimated reliably, net revenue and construction costs are recognized in profit or loss by reference to the stage of completion of the project at the reporting date (the percentage of completion method).

When the outcome of the construction contract cannot be measured with a sufficient degree of reliability, the net revenue corresponding to the construction costs incurred during the period is recognized if it is probable that such costs will be recoverable.

Project costs

This item consists of all costs relating to projects incurred to generate the year's revenue and includes direct project costs, as well as interest during the construction period, plus a share of the relevant indirect project costs, determined as a percentage of staff costs, project materials, cost of premises and maintenance and depreciation resulting from the project development activity and proportionately attributable to the project development capacity utilized.

Moreover, this item includes any impairment losses on projects in progress or completed and the expensing of project development costs to the extent that the relevant projects are not expected to be realized.

Value adjustment of investment properties, etc.

Changes in the fair values of investment properties are recognized in profit or loss under the item Value adjustment of investment properties, net.

Realized gains and losses on the sale of investment properties are determined as the difference between the carrying amount and the selling price and are also recognized in profit or loss under the item Value adjustment of investment properties, net.

Other external expenses

The item Other external expenses includes costs for administration, cost of premises and operating expenses for cars.

Income from investments in joint ventures and associates in the consolidated financial statements

The proportionate shares of the joint ventures' and associates' results after tax, adjusted for the proportionate elimination of unrealized intercompany profits and losses, less any impairment of goodwill, are recognized in consolidated profit or loss. The proportionate share of all transactions recognized in the joint venture's/associate's other comprehensive income is recognized in consolidated other comprehensive income.

Financial income and expenses

Financial income and expenses include interest income and expenses, realized and unrealized gains and losses on foreign-currency transactions, debt and securities as well as the amortization of financial liabilities.

Interest income and interest expenses are accrued, based on the principal and the effective interest rate. The effective interest rate is the discount rate used to discount the expected future payments associated with the financial asset or financial liability to ensure that the present value of such asset or liability is equal to its carrying amount.

Borrowing costs that are directly associated with the acquisition, construction or production of assets are capitalized as part of the cost of the relevant asset. Other borrowing costs are recognized in the income statement.

Tax on profit/loss for the year

The tax for the year, which consists of the year's current tax and changes in deferred tax, is recognized in profit or loss as follows: the portion attributable to the profit or loss for the year is recognized in profit or loss, and the portion attributable to items under equity or other comprehensive income is posted directly to equity or other comprehensive income.

Current tax payable and receivable is recognized in the balance sheet as tax computed on the taxable income for the year, adjusted for tax paid on account. The calculation of the year's current tax is based on the tax rates and tax rules applicable at the reporting date.

Deferred tax is recognized according to the balance-sheet lia-

NOTES, CONSOLIDATED FINANCIAL STATEMENTS | ANNUAL REPORT 2016/17 | TK DEVELOPMENT A/S | 63/110

NOTES, CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. ACCOUNTING POLICIES, CONTINUED

bility method on the basis of all temporary differences between the carrying amount and the tax base of assets and liabilities, except deferred tax on temporary differences arising on the initial recognition of either goodwill or a transaction that is not a business combination and that does not affect the profit or loss or taxable income upon initial recognition.

Deferred tax is calculated on the basis of the planned use of the individual asset and settlement of the individual liability. Deferred tax assets, including the tax base of tax losses allowed for carryforward, are recognized in the balance sheet at the value at which the asset is expected to be realized, either by setoff against deferred tax liabilities or as net tax assets for setoff against future positive taxable income within the same entity subject to joint taxation. At each reporting date, it is reconsidered whether it is likely that sufficient future taxable income will be generated to utilize the deferred tax asset, based on an individual and specific assessment. If it is considered that an individual tax asset cannot be utilized, it is written down against profit or loss.

Deferred tax on temporary differences related to equity investments in subsidiaries, joint ventures and associates is recognized, unless the Parent Company is able to control when the deferred tax will crystallize and the deferred tax is not likely to crystallize as current tax in the foreseeable future. There is no deferred tax on investments in subsidiaries, joint ventures and associates, as any dividends distributed and any gains earned on the sale of such entities are tax-free for the Group. Deferred tax relating to the retaxation of previously deducted losses in foreign subsidiaries is recognized based on a specific assessment of the purpose of the individual subsidiaries.

Deferred tax is measured by using the tax rules and rates that will be applicable in the respective countries at the time when the deferred tax is expected to crystallize as current tax, based on the legislation in force at the reporting date. Any changes in deferred tax resulting from changed tax rates and tax rules are recognized in profit or loss, unless the deferred tax is attributable to items previously recognized directly in equity or in other comprehensive income. In such cases, the change in deferred tax is also recognized directly in equity or in other comprehensive income.

The Parent Company is jointly taxed with all Danish subsidiaries. The Parent Company administers the joint taxation. The total income taxes payable by the jointly taxed companies are distributed between the Danish jointly taxed companies in proportion to their taxable income.

Balances arising under the interest deduction limitation rules laid down in the Danish Corporation Tax Act have been distributed between the jointly taxed companies according to the joint taxation agreement concluded.

BALANCE SHEET

Investment properties and investment properties under construction

Properties are classified as investment properties when they are held to obtain rental income and/or capital gains. On initial recognition, investment properties are measured at cost, consisting of the acquisition cost of the property and directly associated costs.

Subsequently, investment properties are measured at fair value, which represents the selling price estimated to be obtainable at the reporting date in an arm's length transaction. Generally, the valuation is made on the basis of a discounted cash-flow model, where future cash flows are discounted to net present value on the basis of a given rate of return. The rate of return is fixed for each individual property. Where a sales process has been started, the selling price discussed will be used as a basis for the valuation, if the price is found to correctly reflect the fair value.

The valuation of the Group's investment properties under construction is also based on a specific assessment of project progress at the reporting date, including the risks attaching to project completion. The costs incurred in connection with construction are added to the value of the property.

Changes in the fair value are recognized in profit or loss under Value adjustment of investment properties, net, in the financial year in which the change occurs.

Projects in progress or completed

Projects in progress or completed consist of real property projects.

The project portfolio is recognized on the basis of the direct costs attributable to the projects, including interest during the project period, plus a share of the relevant indirect project costs. Where considered necessary, the projects have been written down to a lower value, and the capitalized amounts are

64/110 | TK DEVELOPMENT A/S | ANNUAL REPORT 2016/17 | NOTES, CONSOLIDATED FINANCIAL STATEMENTS

NOTES, CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. ACCOUNTING POLICIES, CONTINUED

subjected to impairment tests on a continuous basis to ensure that the assets are written down to the extent that the carrying amount exceeds the estimated net realizable value.

Additions for indirect project costs are calculated as a percentage of staff costs, project materials, the cost and maintenance of premises and depreciation resulting from project development and proportionately attributable to the project development capacity utilized.

Prepayments from customers on sold projects in progress (forward funding) are deducted from the carrying amount of the project portfolio, and any negative net amount, determined for each individual project, is included in the item Prepayments received from customers.

Receivables

Receivables consist of trade receivables, receivables from joint ventures and associates and other receivables. Receivables are classified as loans and receivables, which are financial assets with fixed or determinable payments that are not quoted in an active market and are not derivative financial instruments.

Receivables are measured at fair value on initial recognition and subsequently at amortized cost, which usually corresponds to nominal value less impairment provisions to meet estimated losses. Impairment losses on receivables are calculated on the basis of an assessment of the individual receivables.

Financial assets and liabilities are charged against the balance sheet if the Company has a right of setoff and at the same time intends or is under a contractual obligation to realize assets and liabilities simultaneously.

Prepayments, recognized under assets, consist of paid expenses relating to subsequent financial years. Prepayments are measured at cost in the balance sheet.

Construction contracts

When the outcome of a construction contract can be estimated reliably, the construction contract is measured at the selling price of the work performed as of the reporting date (the percentage of completion method) less any amounts invoiced on account and writedowns for impairment. The selling price is measured on the basis of the stage of completion as of the reporting date and the total revenue expected from the individual construction contract.

The stage of completion of each individual project is normally calculated as the proportion between the resources used by the Group and the total budgeted use of resources.

When the outcome of the construction contract cannot be measured reliably, the construction contract is measured at the construction costs incurred if it is probable that they will be recoverable. If it is probable that the total construction costs will exceed total contract revenue, the estimated loss is recognized as a cost immediately.

The individual construction contract in progress is recognized in the balance sheet under receivables or liabilities, depending on whether its net value is a receivable or a liability.

Equity

Dividend is recognized as a liability at the time of its adoption at the Annual General Meeting.

Pension obligations and the like

The Group's pension obligations consist of defined contribution plans on which fixed contributions are paid regularly to independent pension companies and the like. The contributions are recognized in profit or loss over the period during which the employees have performed the work entitling them to the pension contribution. Contributions payable are recognized as a liability in the balance sheet.

Provisions

Provisions are recognized when a legal or constructive obligation is incurred due to events before or at the reporting date, and meeting the obligation is likely to result in an outflow of resources from the Group.

This item includes provisions for rent guarantees, with the provision being based on experience with rent guarantees and on an individual assessment of the individual leases.

Provisions are measured as the best estimate of the costs required to settle the relevant liabilities at the reporting date. Provisions for liabilities with an expected maturity of more than one year are classified as non-current liabilities and measured at present value.

Liabilities other than provisions

Non-current financial liabilities are measured at cost at the time the relevant loans are raised, equivalent to the proceeds

NOTES, CONSOLIDATED FINANCIAL STATEMENTS | ANNUAL REPORT 2016/17 | TK DEVELOPMENT A/S | 65/110

NOTES, CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. ACCOUNTING POLICIES, CONTINUED

received after transaction costs. Subsequently, financial liabilities are measured at amortized cost, such that the difference between the proceeds and nominal value is recognized in profit or loss as a financial expense over the term of the loan.

Other financial liabilities are recognized at amortized cost, which usually corresponds to the nominal value.

Lease payments relating to operational leases are recognized in profit or loss according to the straight-line method, over the term of the lease.

Financial liabilities, which comprise payables to credit institutions, trade payables and other debt, are classified as Financial liabilities measured at amortized cost.

Deferred income, recognized under liabilities, consists of income received that relates to subsequent financial years. Deferred income is measured at cost in the balance sheet.

CONSOLIDATED CASH FLOW STATEMENT

The cash flow statement is presented according to the indirect method, based on the operating profit or loss, and shows cash flows generated from operating, investing and financing activities, as well as cash and cash equivalents at the beginning and end of the financial year.

Cash flows relating to operating activities are calculated as the operating profit or loss, adjusted for non-cash operating items, changes in working capital and paid financial income, financial expenses and corporate income tax.

Cash flows relating to investing activities comprise payments made in connection with the purchase and sale of enterprises, property, plant and equipment and other non-current assets.

Cash flows relating to financing activities consist of changes in the Parent Company's share capital and associated costs, the raising and repayment of loans, other repayments on interest-bearing debt as well as the payment of dividend.

As appears from above, Management has chosen to move the item Income from investments in joint ventures to another line in the income statement, now including it under Operating profit/loss. Consequently, the presentation of cash flows for joint ventures has been changed. Based on an individual assessment, these cash flows are now recognized under cash flows from operating activities or under cash flows relating to investing activities, depending on the actual conditions in each individual joint venture. The comparative figures have been restated accordingly.

Cash flows in currencies other than the functional currency are recognized in the cash flow statement by using average exchange rates for the period under review, unless they deviate significantly from the actual exchange rates at the transaction dates.

In preparing the consolidated cash flow statement, opening balance sheets and cash flows in foreign currencies are translated on the basis of the foreign-exchange rates prevailing at the reporting date. This eliminates the effect of exchange differences on the period's movements and cash flows. Interest paid is shown separately. Consequently, project interest for the period is not included in liquidity movements resulting from the project portfolio. Thus, the figures in the cash flow statement cannot be inferred directly from the financial statements.

Cash and cash equivalents comprise free cash resources.

SEGMENT SPECIFICATIONS

The segment information is prepared in accordance with the Group's accounting policies, based on the Group's internal management reporting.

The segments comprise:
- Property development activities
- Asset management activities

The segment information in note 3 has been disclosed accordingly.

Property development activities comprise the development of real property in Denmark, Sweden and Poland. Asset management activities comprise the Group's completed, operating properties, investment properties, as well as plots of land and development projects on the markets where the Group wishes to discontinue its activities in the longer term.

With effect from 1 February 2016, Management has chosen to allocate a share of the fixed costs to the individual business areas. The comparative figures have been restated accordingly.

66/110 | TK DEVELOPMENT A/S | ANNUAL REPORT 2016/17 | NOTES, CONSOLIDATED FINANCIAL STATEMENTS

NOTES, CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. ACCOUNTING POLICIES, CONTINUED

Segment income and expenses and segment assets and liabilities comprise the items directly allocable to the individual segment and the items that can be allocated to the individual segments on a reliable basis. The unallocated items relate mainly to assets and liabilities pertaining to tax, as well as a share of the Group's fixed costs.

Non-current assets in the segments comprise the assets used directly in the operation of the segments, including intangible assets, property, plant and equipment and investments in joint ventures and associates. Current assets in the segments comprise the assets directly allocable to the operating activities in the segment, including projects in progress or completed, trade receivables, other receivables, prepayments and deposits in escrow accounts, etc.

Liabilities attributable to the segments comprise the liabilities deriving from the operating activities in the segment, including trade payables, payables to credit institutions, provisions, other debt and the like.

RATIO DEFINITIONS

Return on equity:
| Profit/loss excluding minority interests x 100 |
| --- |
| Average equity excluding minority interests |

Solvency ratio (based on equity):
| Equity excluding minority interests x 100 |
| --- |
| Total assets |

Book value in DKK per share:
| Equity excluding minority interests x 100 |
| --- |
| Number of shares |

Price/book value (P/BV):
| Listed price |
| --- |
| Book value per share (DKK) |

Earnings in DKK per share:
| Profit/loss excluding minority interests |
| --- |
| Average number of shares in circulation |

Diluted earnings in DKK per share:
| Diluted profit/loss excluding minority interests |
| --- |
| Average number of diluted shares |

Dividend in DKK per share:
| The Parent Company's dividend per share |
| --- |

NOTES, CONSOLIDATED FINANCIAL STATEMENTS | ANNUAL REPORT 2016/17 | TK DEVELOPMENT A/S | 67/110

T K

NOTES, CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2. ACCOUNTING ESTIMATES AND JUDGMENTS

Many account items cannot be measured with certainty, but only estimated. Such estimates include judgments based on the information available at the time of presenting the financial statements, including assumptions and expectations regarding future events, particularly in relation to the Group's projects in progress and completed projects.

The Group continuously assesses the estimates made and the underlying assumptions. If the assumptions and expectations regarding future events are not met, this could have an adverse effect on the Group and result in a need to make adjustments in subsequent financial years. Changes to accounting estimates are recognized in the accounting period during which the individual change occurred.

In connection with the practical application of the accounting policies described, Management has made a number of significant accounting estimates and judgments that have materially affected this Annual Report.

PROJECTS IN PROGRESS OR COMPLETED

The Group's project portfolio can generally be categorized as follows:

Development projects, including plots of land (property development).
Completed properties in operation (asset management).
Plots of land and development projects on markets where the Group wishes to discontinue its activities in the longer term (asset management).

All three project categories are affected by general economic trends and price fluctuations in the various property markets in which the Group operates. Declining rental levels and lower prices for land and property may have a material adverse effect on the Group. If the return required by investors on real property investments changes, this could also have a material adverse effect on the Group.

Each category in the Group's project portfolio is subject to a number of risks which may negatively impact the valuation. Other than those mentioned above, the most significant risks relate to the following areas:

Development projects, including plots of land - property development

In addition to rental rates and property prices, as described above, regulatory approvals and compliance with time schedules are two crucial elements affecting the Group's development projects.

Regulatory approvals

As a developer, the Group and its future earnings depend on the inflow of new projects and consequently on the future availability of new building sites and regulatory approvals (planning legislation, local development plans, planning permission, etc.) concerning the location, size and use of a property. Changes in local plans or other factors that make obtaining planning permission difficult or restrict the supply of building sites may have an adverse effect on the Group.

Compliance with time schedules

The Group bases its individual projects on overall and detailed time schedules. Time is a crucial factor in complying with agreements concluded with tenants and investors and a significant factor in ensuring that the individual projects progress according to plan and, accordingly, that the Group generates the earnings expected. Postponing an individual project may, for instance, mean that lease agreements lapse, tenants become entitled to compensation and, ultimately, that an investor is no longer under an obligation to buy the project.

Any indications of impairment are determined based on a specific assessment of each individual project, including existing project budgets and the expected future development potential. In the 2016/17 financial year, plots of land were written down by DKK 5.0 million. The carrying amount of development projects and land under development amounted to DKK 927.6 million at 31 January 2017.

Completed properties in operation - asset management

Based on the current occupancy level, the annual return on the total portfolio of completed properties in operation corresponds to a return on the carrying amount of 4.3 %, which reflects a certain spread in the returns on individual centres.

The valuation of completed properties under asset management is based on a number of assumptions and expectations regarding future letting, including rental level, opportunities for letting vacant premises and expectations regarding investors' return requirements, etc.

It is essential that the completed shopping centres in operation can attract a satisfactory number of customers and generate satisfactory revenue, as this determines the individual tenant's

TK DEVELOPMENT A/S | ANNUAL REPORT 2016/17 | NOTES, CONSOLIDATED FINANCIAL STATEMENTS

NOTES, CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2. ACCOUNTING ESTIMATES AND JUDGMENTS, CONTINUED

ability to pay rent to the Group and the letting status as such, including the potential for achieving a higher revenue-based rent, for reletting any vacant premises and for renegotiating leases at a higher rent.

In the 2016/17 financial year, completed properties were written down by DKK 6.7 million. The carrying amount of completed properties in operation under asset management amounted to DKK 1,120.1 million at 31 January 2017.

Plots of land and development projects - asset management

Plots of land and development projects under asset management comprise land and projects on the markets where the Group wishes to discontinue its activities in the longer term. The assets under management are situated in the following countries: the Czech Republic, Germany, the Baltic States and Russia.

The carrying amount of plots of land and development projects under asset management amounted to DKK 107.5 million at 31 January 2017.

Valuation at 31 January 2017

With a carrying amount of DKK 2,155.2 million at 31 January 2017, projects in progress and completed projects account for a significant share of the Group's balance sheet total. The changed indications of impairment of projects in progress and completed projects have had a negative impact of DKK 11.7 million on the results for the year. Accumulated impairment amounted to DKK 299.9 million at 31 January 2017. The carrying amount of projects in progress and completed projects written down to their estimated net realizable value totalled DKK 1,464.4 million at 31 January 2017, of which DKK 1,133.2 million relates to assets under asset management. Thus, as a large share of the Group's ongoing and completed projects has been written down to the estimated net realizable value, the valuation is subject to uncertainty. If the actual course of an individual project deviates from the expected development, this may necessitate changes to the impairment recognized, which could have a material adverse effect on the Group.

INVESTMENTS IN AND RECEIVABLES FROM JOINT VENTURES

The activities in joint ventures comprise development projects in the property development business area as well as completed properties in operation (asset management). Investments are measured according to the equity method and are written down to a lower value where considered necessary. Any indications of impairment of investments in and receivables from joint ventures are determined based on a specific assessment of each individual joint venture, including the underlying projects and investment properties. The associated risks are largely identical to those referred to above under Projects in progress or completed. If the applied assumptions change or if the actual course of events deviates from the expected development, the value may deviate from the value determined at 31 January 2017. In the 2016/17 financial year, investments in joint ventures were written down by DKK 26.0 million, as earnings from the underlying investment properties developed at a slower pace than anticipated. This has resulted in a shift in the optimum timing for selling the properties, and consequently a substantially higher preferred return for the joint-venture partner than previously expected. The carrying amount of investments in and receivables from joint ventures totalled DKK 474.1 million at 31 January 2017.

INVESTMENT PROPERTIES

The Group's investment properties are measured at fair value in the balance sheet. The valuation is made on the basis of a discounted cash-flow model, where expected future cash flows are discounted to net present value on the basis of a given rate of return. If the applied assumptions change, the value may deviate from the value determined at 31 January 2017. The value adjustment in the 2016/17 financial year amounted to DKK 0. The carrying amount of investment properties totalled DKK 53.1 million at 31 January 2017.

DEFERRED TAX ASSETS

A deferred tax asset of DKK 75.4 million was recognized in the balance sheet at 31 January 2017. The tax asset relates mainly to tax loss carryforwards in Danish jointly taxed companies. Valuation is based on the existing rules for carrying forward losses and joint taxation and the assumption that each subsidiary is a going concern. A change in the conditions and assumptions for carrying forward losses and joint taxation could result in the value of the tax asset being substantially lower than that computed at 31 January 2017. Impairment of deferred tax assets in the amount of DKK 3.5 million was reversed in the 2016/17 financial year. Accumulated impairment amounted to DKK 275.6 million at 31 January 2017.

The valuation of the tax assets is based on existing budgets

NOTES, CONSOLIDATED FINANCIAL STATEMENTS | ANNUAL REPORT 2016/17 | TK DEVELOPMENT A/S | 69/110

NOTES, CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2. ACCOUNTING ESTIMATES AND JUDGMENTS, CONTINUED

and profit forecasts for a five-year period. For the first three years, budgets are based on an evaluation of specific projects in the Group's project portfolio. The valuation for the next two years is based on specific projects in the project portfolio with a longer time horizon than three years as well as various project opportunities.

Due to the substantial uncertainties attaching to these valuations, provisions have been made for the risk that projects are postponed or not implemented and the risk that project profits fall below expectations. A change in the conditions and assumptions for budgets and profit forecasts, including time estimates, could result in the value of the tax assets being substantially lower than that computed at 31 January 2017, which could have an adverse effect on the Group's results of operations and financial position.

Joint taxation

The Group was previously jointly taxed with its German subsidiaries for a number of years. The retaxation balance in respect of the jointly taxed German companies amounted to DKK 347.7 million at 31 January 2017. Full retaxation would trigger a tax charge of DKK 97.4 million at 31 January 2017. Tax has not been provided on the retaxation balance, because Management does not plan to make changes in the Group that would result in full or partial retaxation. If Management takes a different view, this could have an adverse effect on the Group's results of operations and cash flows.

RECEIVABLES

Indications of impairment of receivables are determined based on a specific assessment of each individual receivable. If the applied assumptions change, the value may deviate from the value determined at 31 January 2017. The carrying amount of receivables totalled DKK 45.9 million at 31 January 2017.

CLASSIFICATION OF PROJECTS

In connection with the practical application of the accounting policies described, Management has made a number of significant accounting estimates and judgments in relation to the classification of the Group's projects. Basically, the Group's projects are classified as projects in progress or completed under current assets. A few projects with a longer time horizon are classified as investment properties when they are constructed/acquired for the purpose of generating rental income and/

or capital gains. The measurement of the individual projects depends on their classification, and the estimates made by Management in connection with classifying projects may therefore impact the Group's results and equity.

RECOGNITION OF REVENUE

The sales method is used to recognize income on projects sold; see IAS 18, Revenue. Revenue on projects that can be classified as construction contracts is recognized according to IAS 11. At 31 January 2017, no projects were recognized according to IAS 11. For sold projects consisting of several instalment deliveries that can be segregated, where the financial effect can be assessed separately, the profit on the individual instalment delivery is recognized when all essential elements of the agreement have been fulfilled, thus meeting the recognition criteria of IAS 18. Thus, Management specifically assesses each individual project for the purpose of determining recognition principle and method.

70/110 | TK DEVELOPMENT A/S | ANNUAL REPORT 2016/17 | NOTES, CONSOLIDATED FINANCIAL STATEMENTS

NOTES, CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3. SEGMENT INFORMATION

The Group's internal reporting to the Parent Company's Board of Directors is organized into two business areas:

Property development activities
Asset management activities

These business areas represent the Group's operating segments, as defined by IFRS 8.

Internal reporting in TK Development is based on the business areas property development and asset management. Development activities comprise the development of real property in Denmark, Sweden and Poland. Asset management activities comprise the Group's completed, operating properties and investment properties in all the Group's markets, as well as plots of land and development projects in the markets where the Group wishes to discontinue its activities in the longer term, viz. the Czech Republic, Germany, Finland, the Baltic States and Russia.

With effect from 1 February 2016 Management has chosen to allocate a share of the fixed costs to the individual business areas. Segment information has been disclosed accordingly, and the comparative figures for 2015/16 have also been restated accordingly.

The unallocated items in the income statement primarily comprise staff costs and other external expenses that cannot be allocated to the two business areas property development and asset management, as well as tax. The unallocated items in the balance sheet primarily comprise deferred tax assets and deferred tax liabilities that are not directly allocable to an individual segment.

The accounting policies used in compiling the segment information are identical to the Group's accounting policies; see the description above.

31 Jan 2017	Property development	Asset management	Unallocated	Total
Net revenue, external customers	298.4	103.1	0.0	401.5
Impairment losses on projects in progress or completed	5.0	6.7	0.0	11.7
Gross profit/loss	38.2	44.9	0.0	83.1
Income from joint ventures	75.8	-27.8	0.8	48.8
Financial income	4.2	5.7	0.0	9.9
Financial expenses	-3.3	-45.1	0.0	-48.4
Depreciation and impairment	0.0	0.0	0.4	0.4
Shares of profit or loss in associates	0.7	-0.2	0.0	0.5
Profit/loss before tax	71.4	-47.6	-10.0	13.8
Segment assets	1,240.1	1,535.9	76.9	2,852.9
Investments in joint ventures	170.6	106.6	0.0	277.2
Investments in associates	3.5	1.4	0.0	4.9
Capital expenditure *1	0.0	0.0	0.8	0.8
Segment liabilities	536.1	1,006.4	16.7	1,559.2

NOTES, CONSOLIDATED FINANCIAL STATEMENTS | ANNUAL REPORT 2016/17 | TK DEVELOPMENT A/S | 71/110

T K

NOTES, CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3. SEGMENT INFORMATION, CONTINUED

31 Jan 2016	Property development	Asset management	Unallocated	Total
Net revenue, external customers	247.7	80.1	0.0	327.8
Impairment losses on projects in progress or completed	45.3	91.0	0.0	136.3
Value adjustment of investment properties, net	0.0	-25.0	0.0	-25.0
Gross profit/loss	7.6	-74.9	0.0	-67.3
Income from joint ventures	27.5	3.0	-0.1	30.4
Financial income	7.9	3.4	0.0	11.3
Financial expenses	-2.7	-48.1	0.0	-50.8
Depreciation and impairment	0.0	0.0	33.7	33.7
Shares of profit or loss in associates	1.1	0.0	0.0	1.1
Profit/loss before tax	-8.0	-139.2	-43.8	-191.0
Segment assets	1,094.1	1,632.0	82.7	2,808.8
Investments in joint ventures	110.8	149.9	0.0	260.7
Investments in associates	2.9	1.5	0.0	4.4
Capital expenditure *1	0.0	0.0	0.2	0.2
Segment liabilities	447.6	1,054.8	20.7	1,523.1

*1 Capital expenditure comprises additions to intangible assets and property, plant and equipment.

Geographical information

TK Development operates primarily on the markets in Denmark, Sweden and Poland. Because of the Group's accounting policies for recognizing sold projects, revenue in the individual countries may vary substantially from one year to another.

For the purpose of presenting information about geographical areas, the information about the distribution of revenue on geographical segments was prepared on the basis of project location.

	Net revenue, external customers		Non-current assets *1
	2016/17	2015/16	2016/17	2015/16
Denmark	138.7	252.4	0.4	0.0
Sweden	6.7	12.9	0.0	0.0
Poland	209.3	34.3	0.6	0.5
Czech Republic	24.6	9.0	0.3	0.4
Germany	12.4	7.3	53.1	53.3
Lithuania	8.8	2.2	0.0	0.0
Other countries **2	1.0	9.7	0.0	0.0
Total	401.5	327.8	54.4	54.2

1 Non-current assets comprise intangible assets and property, plant and equipment.
*2 Net revenue for other countries comprises the remaining revenue, including revenue in the countries for which no specific amount is indicated for the individual year.

Non-current assets relate primarily to the Group's investment property in Germany; see note 16.

Information about major customers

In 2016/17, The Group did not sell any projects to single customers where the revenue on the project exceeded 10% of the Group's total revenue. In the 2015/16 financial year, two projects were sold to single customers where the revenue on the project exceeded 10% of the Group's total revenue. The revenue on these projects amounted to DKK 100.6 million and DKK 45.9 million respectively.

72/110 | TK DEVELOPMENT A/S | ANNUAL REPORT 2016/17 | NOTES, CONSOLIDATED FINANCIAL STATEMENTS

NOTES, CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4. NET REVENUE

	2016/17	2015/16
Sale of projects and properties	311.6	234.6
Rental income	60.6	59.8
Sale of services	29.3	33.4
Total net revenue	401.5	327.8

NOTE 5. PROJECT COSTS

	2016/17	2015/16
Project costs	306.7	233.8
Impairment losses on projects in progress or completed	11.7	136.3
Project costs, total	318.4	370.1

NOTE 6. OTHER EXTERNAL EXPENSES

	2016/17	2015/16
Administrative expenses	11.1	11.5
Cost of premises	6.4	7.5
Cars, operating expenses	3.7	4.1
Other external expenses, total	21.2	23.1

NOTE 7. STAFF COSTS

	2016/17	2015/16
Fees for Board of Directors	1.3	1.4
Salaries, etc. for the Parent Company's Executive Board; see below	7.4	6.8
Other salaries	43.3	43.8
Defined contribution pension plans	0.7	0.9
Other social security costs	4.5	4.8
Other staff costs	1.3	1.2
Total staff costs	58.5	58.9
Average number of employees	84	86
Number of employees at year-end	84	84

Salaries, etc. for the Parent Company's Executive Board:

2016/17	Salary	Pension	Total
Frede Clausen	4.1	0.1	4.2
Robert Andersen	3.1	0.1	3.2
Salaries, etc., total	7.2	0.2	7.4
2015/16
Frede Clausen	3.8	0.1	3.9
Robert Andersen	2.8	0.1	2.9
Salaries, etc., total	6.6	0.2	6.8

In addition, the Executive Board has the usual free benefits, including free company car. The value of this amounted to DKK 0.17 million per Executive Board member in 2016/17 (2015/16: DKK 0.17 million per Executive Board member).

NOTES, CONSOLIDATED FINANCIAL STATEMENTS | ANNUAL REPORT 2016/17 | TK DEVELOPMENT A/S | 73/110

T K

NOTES, CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7. STAFF COSTS, CONTINUED

The Board of Directors is composed of the Chairman, Deputy Chairman and three other members. In 2016/17, the Board of Directors members were paid a basic fee of DKK 160,000. The Chairman is paid three times the basic fee and the Deputy Chairman twice the basic fee, while the remaining members are paid the basic fee.

Defined contribution plans

The Group has entered into defined contribution plans with the majority of the employees in Danish group companies. According to these plans, the group companies pay a monthly amount of 2% of the relevant employees' basic salaries to independent pension companies.

An amount of DKK 0.9 million was expensed for defined contribution plans in the 2016/17 financial year (2015/16: DKK 1.1 million).

No employees in the Group are comprised by defined benefit plans.

NOTE 8. FEES PAYABLE TO THE AUDITORS ELECTED AT THE GENERAL MEETING

	2016/17	2015/16
Statutory audit	1.2	1.4
Tax consultancy	0.3	0.1
Other services	0.0	0.1
Total	1.5	1.6

NOTE 9. INVESTMENTS IN ASSOCIATES

	2016/17	2015/16
Cost at 1 February	23.7	1.3
Additions	0.0	22.4
Cost at 31 January	23.7	23.7
Revaluations and impairment at 1 February	-19.3	-20.4
Share of profit/loss for the year after tax	0.5	1.1
Revaluations and impairment at 31 January	-18.8	-19.3
Carrying amount at 31 January	4.9	4.4

In the consolidated balance sheet, investments in associates are measured according to the equity method after deduction of any impairment. The Group's associates appear from the Overview of group companies, note 31.

TK Development has no associates that are individually material to the Group.

Income from investments in not individually material associates is shown below:

	2016/17	2015/16
Other income from associates	0.5	1.1
Total income from investments in associates	0.5	1.1

Financial disclosures for not individually material associates:

	2016/17	2015/16
The Group's share of profit/loss for the year	0.5	1.1
The Group's share of equity	4.9	4.4

74/110 | TK DEVELOPMENT A/S | ANNUAL REPORT 2016/17 | NOTES, CONSOLIDATED FINANCIAL STATEMENTS

NOTES, CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10. INVESTMENT IN JOINT VENTURES

In the consolidated balance sheet, investments in joint ventures are measured according to the equity method, equal to the proportionate share of the individual joint ventures' carrying amount, determined according to the Group's accounting policies, with the addition of goodwill and less any proportionate intercompany profits or losses, etc.

The Group's joint ventures comprise projects within the Group's primary and secondary business areas that - regardless of the ownership interest - are jointly controlled with other parties in accordance with shareholders' or similar agreements. These joint ventures are organized as separate legal entities, and, based on the agreements concluded, the parties have rights to the net assets only.

Joint ventures appear from the overview of group companies in note 31.

The Group's material joint ventures are the following:

	Ownership interest/voting rights
	Reg. office	31 Jan 2017	31 Jan 2016	Activity
Euro Mall Luxembourg JV S.à r.l.	Luxembourg	30%	30%	Property development/asset management
Ringsted Outlet Center P/S	Denmark	50%	50%	Asset management
Kommanditaktieselskabet Danlink Udvikling	Denmark	50%	50%	Property development/asset management
Kommanditaktieselskabet Østre Havn	Denmark	50%	50%	Property development
BROEN Shopping A/S	Denmark	35%	35%	Property development

NOTES, CONSOLIDATED FINANCIAL STATEMENTS | ANNUAL REPORT 2016/17 | TK DEVELOPMENT A/S | 75/110

NOTES, CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10. INVESTMENTS IN JOINT VENTURES, CONTINUED

In a few cases, the Group's joint ventures are subject to restrictions as concerns the transfer of funds in the form of dividends or the repayment of loans to the Group.

The Group has no unrecognized shares of losses in joint ventures, neither for the 2016/17 financial year nor on an accumulated basis.

2016/17	Euro Mall Luxembourg JV S.à r.l. (incl. subsidiaries)	Ringsted Outlet Center P/S	Komman-ditaktie-selskabet Dan-link Udvikling	Kommandit-aktieselska-bet Østre Havn	BROEN Shop-ping A/S	Immaterial joint ventures	Total
Ownership share	30 %	50 %	50 %	50 %	35 %
Comprehensive income statement
Net revenue	34.4	13.5	13.0	57.2	0.0
Financial income	0.1	0.1	0.4	0.0	0.0
Financial expenses	36.0	2.4	2.6	0.1	0.0
Tax on profit/loss for the year	3.0	0.0	0.0	0.0	0.1
Profit/loss for the year	-13.0	1.3	5.4	32.8	161.4	0.2
Other comprehensive income	-3.3	0.0	0.0	0.0	0.0	0.0
Total comprehensive income	-16.3	1.3	5.4	32.8	161.4	0.2

The Group's share of profit/loss for the year	-3.9	0.7	2.6	16.4	56.5	0.0	72.3
Group adjustments (gains/losses, etc. on the sale of joint ventures)	-26.0	-0.1	-0.3	3.0	0.0	-0.1	-23.5
Income from investments in joint ventures	-29.9	0.6	2.3	19.4	56.5	-0.1	48.8

The Group's share of total comprehensive income for the year	-30.8	0.6	2.3	19.4	56.5	-0.1	47.9

Dividend received	0.0	0.0	25.0	10.5	0.0	4.8
31 Jan 2017	Euro Mall Luxembourg JV S.à r.l. (incl. subsidiaries)	Ringsted Outlet Center P/S	Komman-ditaktie-selskabet Dan-link Udvikling	Kommandit-aktieselska-bet Østre Havn	BROEN Shop-ping A/S	Immaterial joint ventures	Total
---	---	---	---	---	---	---	---
Balance sheet
Non-current assets	714.7	0.6	75.3	0.0	730.7	0.0
Current assets	36.0	201.9	234.8	81.8	8.7	26.3
Non-current liabilities except trade payables and provisions	446.6	0.0	0.0	0.0	0.0	0.0
Current liabilities except trade payables and provisions	217.3	95.4	134.9	34.5	401.6	2.2
Non-current liabilities	446.6	0.0	0.0	0.0	0.0	0.0
Current liabilities	229.3	100.9	139.7	56.6	439.4	17.1
Cash and cash equivalents	27.4	12.6	0.0	0.3	0.1	4.2
Equity	74.8	101.6	170.4	25.2	300.0	9.2

TK Development's share of equity	22.5	50.8	85.2	12.6	105.0	4.0	280.1
Group adjustments, etc.	-24.1	0.0	-0.2	5.9	13.3	0.6	-4.5
Investments in joint ventures	-1.6	50.8	85.0	18.5	118.3	4.6	275.6
Trabsferred to off set in receivables							1.6
Investments in joint ventures, total							277.2

76/110 | TK DEVELOPMENT A/S | ANNUAL REPORT 2016/17 | NOTES, CONSOLIDATED FINANCIAL STATEMENTS

NOTES, CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10. INVESTMENTS IN JOINT VENTURES, CONTINUED

2015/16	Euro Mall Luxembourg JV S.à r.l. (incl. subsidiaries)	Ringsted Outlet Center P/S	Komman-ditaktie-selskabet Dan-link Udvikling	Kommandit-aktieselska-bet Østre Havn	BROEN Shop-ping A/S	Immaterial joint ventures	Total
Ownership share	30 %	50 %	50 %	50 %	35 %
Comprehensive income statement
Net revenue	22.1	11.5	109.8	123.9	0.0
Financial income	0.2	0.0	0.7	0.0	0.0
Financial expenses	20.5	2.0	1.9	0.5	0.0
Tax on profit/loss for the year	0.8	0.0	0.0	0.0	0.1
Profit/loss for the year	-1.4	2.4	25.4	18.6	-0.1	1.3
Other comprehensive income	8.1	0.0	0.0	0.0	0.0	0.0
Total comprehensive income	6.7	2.4	25.4	18.6	-0.1	1.3
The Group's share of profit/loss for the year	-0.4	1.2	12.7	9.2	0.0	0.7	23.4
Group adjustments (gains/losses, etc. on the sale of joint ventures)	-1.2	0.0	-1.4	1.9	0.0	7.7	7.0
Income from investments in joint ventures	-1.6	1.2	11.3	11.1	0.0	8.4	30.4
The Group's share of total comprehensive income for the year	0.7	1.2	11.3	11.2	0.0	8.4	32.8
Dividend received	0.0	0.0	0.0	7.0	0.0	0.0
31 Jan 2016	Euro Mall Luxembourg JV S.à r.l. (incl. subsidiaries)	Ringsted Outlet Center P/S	Komman-ditaktie-selskabet Dan-link Udvikling	Kommandit-aktieselska-bet Østre Havn	BROEN Shop-ping A/S	Immaterial joint ventures	Total
---	---	---	---	---	---	---	---
Balance sheet
Non-current assets	687.8	0.0	40.5	0.0	359.5	0.5
Current assets	50.8	196.2	264.7	35.7	8.1	35.8
Non-current liabilities except trade payables and provisions	389.6	0.0	0.0	0.0	0.0	0.0
Current liabilities except trade payables and provisions	234.8	89.3	85.1	16.6	190.0	4.7
Non-current liabilities	389.6	0.0	0.0	0.0	0.0	0.0
Current liabilities	263.2	96.1	90.1	24.0	229.0	19.3
Cash and cash equivalents	38.0	9.4	33.9	5.3	0.1	11.4
Equity	85.8	100.1	215.1	11.7	138.6	17.0
TK Development's share of equity	25.8	50.1	107.6	5.9	48.5	5.5	243.4
Group adjustments, etc.	1.9	0.0	0.0	3.1	8.4	3.9	17.3
Investments in joint ventures, total	27.7	50.1	107.6	9.0	56.9	9.4	260.7

NOTES, CONSOLIDATED FINANCIAL STATEMENTS | ANNUAL REPORT 2016/17 | TK DEVELOPMENT A/S | 77/110

T K

NOTES, CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11. FINANCIAL INCOME

	2016/17	2015/16
Interest, cash and cash equivalents, etc.	0.1	0.0
Interest income from joint ventures	7.5	6.6
Interest income from associates	0.1	0.2
Other interest income	0.2	0.5
Financial income from loans and receivables	7.9	7.3
Interest from securities (held-to-maturity)	0.0	0.1
Dividend from financial assets	0.0	0.5
Profit from sale of other securities and investments	2.0	3.4
Total financial income	9.9	11.3

Which breaks down as follows:

Interest income, etc. from financial assets not measured at fair value through profit and loss	7.9	7.8
Other financial income	2.0	3.5
Total financial income	9.9	11.3

NOTE 12. FINANCIAL EXPENSES

	2016/17	2015/16
Interest expenses, credit institutions	62.4	58.2
Other interest expenses	0.9	0.0
Foreign-exchange losses and capital losses on securities	0.0	2.6
Other financial expenses	1.5	2.7
Of which capitalized financial expenses	-18.1	-16.2
Loss on financial assets	1.7	3.5
Total financial expenses	48.4	50.8

Which breaks down as follows:

Interest expenses on financial liabilities not measured at fair value through profit and loss	46.7	44.7
Other financial expenses	1.7	6.1
Total financial expenses	48.4	50.8

An interest rate of 1.0 – 6.0 % is used to capitalize interest on projects in progress, depending on the interest rate applicable to the individual project loans (2015/16: 1.0 – 6.0 %).

78/110 | TK DEVELOPMENT A/S | ANNUAL REPORT 2016/17 | NOTES, CONSOLIDATED FINANCIAL STATEMENTS

NOTES, CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13. TAX ON PROFIT/LOSS FOR THE YEAR

	2016/17	2015/16
Current corporate income tax	1.1	0.4
Adjustment regarding tax relating to prior year(s)	0.4	-0.9
Change in deferred tax	5.2	31.8
Tax on profit/loss for the year	6.7	31.3
The tax on the profit/loss for the year results as follows:
Tax calculated based on the Danish tax rate 22 % (2015/16: 23,5 %)	3.0	-44.9
Difference in tax rate, foreign subsidiaries	-0.4	5.1
Adjustment relating to prior year(s)	0.4	-0.9
Tax effect of:
Non-taxable income/expenses	0.3	24.3
Forfeiture of losses written down in prior years	9.5	3.5
Change in impairment of tax assets, incl. reversal of prior years' impairment regarding the forfeiture of this year's losses	-6.2	55.1
Change of tax rate	0.0	-11.1
Other	0.1	0.2
Tax on profit/loss for the year	6.7	31.3
Effective tax rate	48.5 %	-16.4%

NOTE 14. EARNINGS PER SHARE IN DKK

	2016/17	2015/16
Earnings in DKK per share (EPS)	0.1	-2.3
Profit/loss for the year	7.1	-222.3
Shareholders' share of profit/loss for the year	7.1	-222.3
Average number of shares in circulation of nom. DKK 1	98,153,335	98,153,335

NOTE 15. DIVIDENDS

In the 2016/17 financial year, no dividends were distributed to the Company's shareholders for the 2015/16 financial year. At the Annual General Meeting on 27 April 2017, the Board of Directors will propose that no dividends will be distributed to the Company's shareholders for the 2016/17 financial year.

NOTES, CONSOLIDATED FINANCIAL STATEMENTS | ANNUAL REPORT 2016/17 | TK DEVELOPMENT A/S | 79/110

T K

NOTES, CONSOLIDATED FINANCIAL STATEMENTS

NOTE 16. INVESTMENT PROPERTIES

	31 Jan 2017	31 Jan 2016
Cost at 1 February	107.2	106.9
Foreign-exchange adjustments, beginning of year	-0.4	0.3
Cost at 31 January	106.8	107.2
Revaluations at 1 February	53.9	28.8
Foreign-exchange adjustments, beginning of year	-0.2	0.1
Revaluations for the year	0.0	25.0
Revaluations at 31 January	53.7	53.9
Carrying amount at 31 January	53.1	53.3
Rental income, investment properties	1.6	1.7
Direct operating expenses, premises let	-0.3	-0.4
Direct operating expenses, vacant premises	-1.6	-1.3
Net income from investment properties before financing and tax	-0.3	0.0

Investment properties:

	Location	Ownership in %	Year acquired	m²
Lüdenscheid	Germany	100 %	1994-1998	16,500

The Group's investment property is measured at fair value (Fair-value hierarchy: Level 3). The valuation of the property is based on a discounted cash-flow model over a ten-year period and a return requirement of 6.25 % p.a. (2015/16: 6.5 %). The fair-value measurement is based on expected rental income and operating expenses. Part of the property has not been let, and work is proceeding on a development plan aimed at optimizing and subsequently selling the whole property. There have been no changes to the methods used for calculating fair values in the current financial year. No transfers between the different levels of the fair-value hierarchy have been made in the current financial year, and the services of external appraisers have not been used for the valuation.

Otherwise, the most significant non-observable input data is an average rent per square metre of DKK 497 (31 January 2016 DKK 520) based on full occupancy.

An increase in the return requirement will result in a decline in the property's fair value, while an increase in the occupancy rate and/or the average rent per square metre will cause the fair value of the property to rise. In Management's opinion, there is not necessarily a direct relationship between changes to the rent per square metre and changes to the return requirement.

Future minimum rent on non-terminable lease contracts:

	31 Jan 2017	31 Jan 2016
Within 1 year from reporting date	0.1	1.1
Within 1 - 5 years from reporting date	0.2	3.1
After 5 years from reporting date	0.0	4.3
Total	0.3	8.5

A few lease agreements concluded for completed investment properties stipulate a period during which the agreement is non-terminable by the tenant. Generally, the term of the lease agreements can be extended.

80/110 | TK DEVELOPMENT A/S | ANNUAL REPORT 2016/17 | NOTES, CONSOLIDATED FINANCIAL STATEMENTS

NOTES, CONSOLIDATED FINANCIAL STATEMENTS

NOTE 17. DEFERRED TAX

	31 Jan 2017	31 Jan 2016
Deferred tax assets/tax liabilities at 1 February, net	67.5	95.4
Foreign-exchange adjustment, beginning of year	-0.1	-0.5
Deferred tax for the year recognized in profit or loss for the year	-5.2	-31.8
Deferred tax for the year recognized in other comprehensive income	-0.3	4.4
Other additions, net	-0.3	0.0
Deferred tax assets/tax liabilities at 31 January, net	61.6	67.5
Deferred tax relates to:
Property, plant and equipment	0.2	0.3
Other non-current assets	13.8	10.5
Current assets	7.4	22.6
Untaxed reserve relating to Sweden	-2.0	-2.8
Provisions	7.9	7.7
Temporary differences	27.3	38.3
Value of tax loss(es)	309.9	310.9
Impairment of tax assets	-275.6	-281.7
Total	61.6	67.5
Deferred tax recognized in balance sheet breaks down as follows:
Deferred tax assets	75.4	81.6
Deferred tax liabilities	-13.8	-14.1
Deferred tax assets/tax liabilities at 31 January, net	61.6	67.5
Deferred tax assets not recognized in balance sheet:
Value of tax losses	221.6	219.7
Other non-current assets	26.4	22.4
Current assets	20.0	32.0
Provisions	7.6	7.6
Total	275.6	281.7
Deferred tax liabilities not recognized in balance sheet:
Contingent retaxation liabilities attaching to German subsidiaries	97.4	97.4

The Company controls whether the retaxation liability will be triggered. It is not the Company's intention for such taxation to be triggered.

NOTES, CONSOLIDATED FINANCIAL STATEMENTS | ANNUAL REPORT 2016/17 | TK DEVELOPMENT A/S | 81/110

T K

NOTES, CONSOLIDATED FINANCIAL STATEMENTS

NOTE 17. DEFERRED TAX, CONTINUED

31 Jan 2017	Deferred tax assets/tax liabilities at 1 February, net	Recognized in profit/loss	Recognized in other comprehensive income	Other additions, net	Foreign exchange adjustments, beginning of year	Deferred tax assets/tax liabilities at 31 January, net
Property, plant and equipment	0.3	-0.1	0.0	0.0	0.0	0.2
Other non-current assets	10.5	3.0	0.0	0.0	0.3	13.8
Current assets	22.6	-15.0	-0.3	-0.3	0.4	7.4
Untaxed reserve relating to Sweden	-2.8	0.8	0.0	0.0	0.0	-2.0
Provisions	7.7	0.1	0.0	0.0	0.1	7.9
Temporary differences	38.3	-11.2	-0.3	-0.3	0.8	27.3
Value of tax losses	310.9	-1.7	0.0	0.0	0.7	309.9
Impairment of tax assets	-281.7	7.7	0.0	0.0	-1.6	-275.6
Total	67.5	-5.2	-0.3	-0.3	-0.1	61.6

Deferred tax recognized in other comprehensive income:
Tax on foreign-exchange adjustments, foreign operations -0.3
Total -0.3

31 Jan 2016	Deferred tax assets/tax liabilities at 1 February, net	Recognized in profit/loss	Recognized in other comprehensive income	Foreign exchange adjustments, beginning of year	Deferred tax assets/tax liabilities at 31 January, net
Investments	1.5	-1.5	0.0	0.0	0.0
Property, plant and equipment	0.5	-0.2	0.0	0.0	0.3
Other non-current assets	8.2	2.4	0.0	-0.1	10.5
Current assets	-4.7	24.0	4.4	-1.1	22.6
Untaxed reserve relating to Sweden	-6.9	4.1	0.0	0.0	-2.8
Provisions	11.3	-3.1	0.0	-0.5	7.7
Temporary differences	9.9	25.7	4.4	-1.7	38.3
Value of tax losses	311.4	1.1	0.0	-1.6	310.9
Impairment of tax assets	-225.9	-58.6	0.0	2.8	-281.7
Total	95.4	-31.8	4.4	-0.5	67.5

Deferred tax recognized in other comprehensive income:
Tax on foreign-exchange adjustments, foreign operations 4.6
Tax on value adjustments of hedging instruments -0.2
Total 4.4

The total tax asset comes from the Danish part of the joint taxation. In the Danish joint taxation the tax losses can be carried forward perpetually. In the most recent financial years, TK Development has realized positive accounting results within the Danish joint taxation.

The valuation of the tax asset is based on existing budgets and profit forecasts for a five-year period. For the first three years, budgets are based on an evaluation of specific projects in the Group's project portfolio. The valuation for the next two years has been based on specific projects in the project portfolio with a longer time horizon than three years as well as various project opportunities. These valuations are subject to substantial uncertainty, for which reason a provision has been made for the risk that projects are postponed or not implemented and the risk that project profits fall below expectations. On this basis, Management assessed the total impairment loss on the tax asset to be DKK 275.6 million at 31 January 2017. At 31 January 2016, total impairment of the tax asset amounted to DKK 281.7 million.

82/110 | TK DEVELOPMENT A/S | ANNUAL REPORT 2016/17 | NOTES, CONSOLIDATED FINANCIAL STATEMENTS

NOTES, CONSOLIDATED FINANCIAL STATEMENTS

NOTE 17. DEFERRED TAX, CONTINUED

The impairment of the tax asset relates mainly to Danish tax losses that can be carried forward perpetually, as well as Polish and Czech losses.

Reference is made to note 2, Accounting estimates and judgments.

NOTE 18. PROJECTS IN PROGRESS OR COMPLETED

	31 Jan 2017	31 Jan 2016
Projects in progress or completed, excl. interest, etc.	2,214.6	2,124.3
Capitalized interest, etc.	313.0	350.2
Payments received on account	-72.5	-75.6
Impairment	-299.9	-385.3
Total projects in progress or completed	2,155.2	2,013.6
Which breaks down as follows:
Development projects and land (development)	927.6	759.2
Completed projects in operation (asset management)	1,120.1	1,116.5
Other land and development projects (asset management)	107.5	137.9
Total projects in progress or completed	2,155.2	2,013.6

The carrying amount of the portion of the project portfolio on which impairment losses have been recognized is DKK 1,464.4 million (2015/16: DKK 1,525.9 million). Of which DKK 1,133.2 million relates to asset management (2015/16: DKK 1,159.5 million).

NOTE 19. TRADE RECEIVABLES

	31 Jan 2017	31 Jan 2016
Receivables from tenants	4.0	4.5
Other trade receivables	6.7	49.6
Total trade receivables	10.7	54.1
Impairment for the year recognized in the income statement	0.1	1.5
	31 Jan 2017	31 Jan 2016
Impairment at 1 February	9.4	13.0
Correction of opening balance	0.1	-0.1
Foreign-exchange adjustments, beginning of year	0.1	-0.1
Applied for the year	-1.2	-1.9
Provisions for the year	0.6	0.6
Reversed provisions	-0.5	-2.1
Impairment at 31 January	8.5	9.4

Any impairment is made to the net realizable value, equal to the sum total of future net cash flows that the receivables are expected to generate. Impairment losses on receivables are calculated on the basis of an assessment of the individual receivables.

The carrying amount of receivables written down to net realizable value based on an individual assessment amounts to DKK 1.3 million. The corresponding amount at 31 January 2016 amounted to DKK 0.3 million. The majority of the written-down receivables are past due. There are no major past due but not impaired receivables.

In by far the most cases, receivables from tenants are secured by deposits or other guarantees, which are included in the basis for any impairments.

No interest income on impaired receivables was recognized as revenue in the 2016/17 financial year or in the comparative year.

NOTES, CONSOLIDATED FINANCIAL STATEMENTS | ANNUAL REPORT 2016/17 | TK DEVELOPMENT A/S | 83/110

NOTES, CONSOLIDATED FINANCIAL STATEMENTS

NOTE 20. SHARE CAPITAL

The sharecapital consist of 98,153,335 shares of each DKK 1. The share capital has been paid up in full. The shares are not divided into several share classes, and no shares are subject to special rights.

	31 Jan 2017	31 Jan 2016
Number of shares at 1 February	98,153,335	98,153,335
Number of shares at 31 January	98,153,335	98,153,335

The Group did not hold treasury shares in the 2016/17 financial year or in the comparative year.

NOTE 21. OTHER RESERVES

	Reserve for value adjustment for available-for-sale financial assets	Reserve for value adjustment of hedging instruments	Reserve for foreign exchange adjustments	Total
Other reserves at 1 February 2015	-0.1	-2.0	-5.8	-7.9
Other comprehensive income:
Other comprehensive income after tax in joint ventures	0.0	-0.5	2.9	2.4
Exchange-rate adjustment, foreign operations	0.0	0.0	-9.4	-9.4
Value adjustment of hedging instruments	0.0	1.2	0.0	1.2
Deferred tax on other comprehensive income	0.0	-0.2	4.6	4.4
Other reserves at 31 January 2016	-0.1	-1.5	-7.7	-9.3
Other comprehensive income:
Other comprehensive income after tax in joint ventures	0.0	0.1	-1.0	-0.9
Exchange-rate adjustment, foreign operations	0.0	0.0	3.4	3.4
Value adjustment of financial assets - available-for-sale	0.1	0.0	0.0	0.1
Value adjustment of hedging instruments	0.0	-0.3	0.0	-0.3
Deferred tax on other comprehensive income	0.0	0.0	-0.3	-0.3
Corporate income tax on other comprehensive income	0.0	0.0	-1.1	-1.1
Other reserves at 31 January 2017	0.0	-1.7	-6.7	-8.4

The reserve for value adjustment of financial assets available for sale comprises the accumulated net change in the fair value of financial assets classified as available for sale. The reserve is dissolved as the relevant financial assets are sold or expire.

The reserve for value adjustment of hedging instruments comprises the accumulated net change in the fair value of interest-rate hedging contracts concluded to hedge future transactions.

The reserve for foreign-exchange adjustments comprises all foreign-exchange adjustments arising on the translation of financial statements for enterprises with a functional currency other than Danish kroner; foreign-exchange adjustments relating to assets and liabilities that are part of the Group's net investment in such enterprises; and foreign-exchange adjustments relating to any hedging transactions that hedge the Group's net investment in such enterprises. On the sale or winding-up of subsidiaries, the accumulated foreign-exchange adjustments recognized in other comprehensive income in respect of the relevant subsidiary are transferred to the profit or loss.

84/110 | TK DEVELOPMENT A/S | ANNUAL REPORT 2016/17 | NOTES, CONSOLIDATED FINANCIAL STATEMENTS

NOTES, CONSOLIDATED FINANCIAL STATEMENTS

NOTE 22. CREDIT INSTITUTIONS

	31 Jan 2017	31 Jan 2016
Payables to credit institutions are recognized as follows in the balance sheet:
Non-current liabilities	0.0	34.1
Current liabilities	1,433.3	1,358.7
Total payables to credit institutions	1,433.3	1,392.8
Fair value	1,423.2	1,377.8
Carrying amount	1,433.3	1,392.8

The fair value has been determined at the present value of future principal repayments and interest payments by using the effective interest method (Fair value hierarchy: Level 2).

At 31 January, the Group had the following loans and credits:

Loans	Maturity	Fixed/variable	Effective rate		Carrying amount		Fair value
			2016/17	2015/16	2016/17	2015/16	2016/17	2015/16
Bank DKK	2017-2018	variable	2.9 - 4.2 %	2 - 4.5 %	572.2	395.6	572.2	395.6
Bank DKK	2020	fixed	5 %	5 %	495.0	500.0	484.9	485.0
Bank SEK	2017	variable	3.4 - 3.8 %	3.65 - 4.25 %	25.1	21.6	25.1	21.6
Bank PLN	2019	variable	4.7 - 5.0 %	4.98 - 5.5 %	59.9	149.6	59.9	149.6
Bank CZK	2017	variable	3.6 - 4.0 %	3.6 - 4.1 %	27.2	29.7	27.2	29.7
Bank EUR	2017-2019	variable	2.4 - 4.5 %	2.5 - 4.7 %	253.9	296.3	253.9	296.3
Total					1,433.3	1,392.8	1,423.2	1,377.8

NOTE 23. PROVISIONS

	31 Jan 2017	31 Jan 2016
Provisions at 1 February	6.1	15.5
Applied during the year	-3.3	-9.3
Reversed rent guarantees	0.0	-0.4
Provisions for the year	0.0	0.3
Provisions at 31 January	2.8	6.1
Expected maturity dates of the liabilities provided for:
0 - 1 year	1.9	5.7
1 - 5 years	0.9	0.4
Provisions at 31 January	2.8	6.1

Provisions consist of rent guarantee liabilities for sold properties and relate to guarantees issued by the Group in a few cases towards the buyers of the properties. Rent guarantee liabilities have been calculated based on experience with rent guarantees and an individual assessment of each lease.

NOTES, CONSOLIDATED FINANCIAL STATEMENTS | ANNUAL REPORT 2016/17 | TK DEVELOPMENT A/S | 85/110

T K

NOTES, CONSOLIDATED FINANCIAL STATEMENTS

NOTE 24. OPERATING LEASES

For the years 2017-2020, operating leases for the rental of office premises, office machines and operating equipment have been concluded. The leases have originally been concluded for a one to five-year period with fixed lease payments that are index-adjusted annually. The leases are non-terminable for the period mentioned, after which it is expected that the majority can be renewed for one to three-year periods.

Future minimum lease payments according to non-terminable lease contracts break down as follows:

	2016/17	2015/16
Within 1 year	7.7	7.5
Within 1 - 5 years	8.4	9.7
After 5 years	0.0	0.0
Total	16.1	17.2
Minimum lease payments for the year recognized in the income statement	7.7	9.1

NOTE 25. OTHER DEBT

	31 Jan 2017	31 Jan 2016
Employee-related payables	3.7	3.6
Holiday pay obligations	7.3	7.1
Derivative financial instruments (hedging instruments)	0.7	0.4
Other debt	16.7	16.5
Other debt, total	28.4	27.6
Broken down as follows under liabilities:
Current liabilities	28.4	27.6
Other debt, total	28.4	27.6

The carrying amount of employee related payables consisting of salaries, personal income tax, social security contributions, holiday pay, etc., project related costs and other costs payable is equal to the fair value of these payables.

Holiday pay obligations represent the Group's liability to pay salary during holiday periods to which the employees had earned entitlement by the reporting date and which are to be taken in the following financial year(s).

Derivative financial instruments concern interest-rate hedging contracts and are classified as financial liabilities used as hedging instruments, measured at fair value.

NOTE 26. CONTINGENT ASSETS AND LIABILITIES AS WELL AS SECURITY FURNISHED

Contingent assets

A contingent asset in the form of deferred tax assets not recognized appears from note 17.

Contingent liabilities and security furnished

	31 Jan 2017	31 Jan 2016
Surety and guarantee commitments on behalf of associates	10.0	10.0
Surety and guarantee commitments on behalf of joint ventures	74.0	95.8
Other surety and guarantee commitments	46.7	45.4
Carrying amount of projects in progress or completed furnished as security to credit institutions	1,966.0	1,850.8
Carrying amount of escrow account deposits, etc., investments, receivables and investment properties as security to credit institutions	259.0	274.0

86/110 | TK DEVELOPMENT A/S | ANNUAL REPORT 2016/17 | NOTES, CONSOLIDATED FINANCIAL STATEMENTS

NOTES, CONSOLIDATED FINANCIAL STATEMENTS

NOTE 26. CONTINGENT ASSETS AND LIABILITIES AS WELL AS SECURITY FURNISHED, CONTINUED

The below figures in brackets are comparative figures for 2015/16.

The amounts stated for surety and guarantee commitments on behalf of associates and joint ventures are the upper limits.

The Group's project portfolio amounts to DKK 2,155.2 million (DKK 2,013.6 million), of which DKK 1,966.0 million (DKK 1,850.8 million) has been furnished as security to the credit institutions that have granted building credits or mortgage credit loans. The carrying amount of escrow account deposits, etc. and other assets, DKK 259.0 million (DKK 274.0) consists of security furnished in the form of escrow accounts, etc. DKK 23.4 million (DKK 94.1 million), investment properties DKK 53.1 million (DKK 53.3 million), investments in joint ventures DKK 136.4 million (DKK 78.5), and receivables DKK 46.1 million (DKK 48.1 million).

TK Development has entered into construction contracts regarding the execution of projects. The total remaining contract sum amounts to DKK 223.7 million (DKK 274.0 million).

Usual performance bonds have been furnished for construction works performed. The performance bonds have been issued via a credit insurance company. To a large extent, any work to be carried out under performance bonds will be attributable to subcontractors.

TK Development can in some cases be required to make the necessary funds available to joint ventures in step with the development and execution of specific projects, or might be required to contribute further capital where this is necessary. In a few cases guarantees have been granted for budget overruns on projects that have been handed over at the design stage.

TK Development is occasionally involved in disputes and lawsuits, but is not currently a party to any lawsuits that, either individually or collectively, are expected to materially affect the Group's earnings. However, TK Development is party to the following lawsuit that is of relevance due to its scope:

In the summer of 2002, De Samvirkende Købmænd, a trade association of grocery retailers, filed a complaint with the Nature Protection Board of Appeal (Naturklagenævnet) in respect of the City of Copenhagen's approval of the layout of the Field's department store. In particular, the claim asserted that the Field's department store is not one department store, but that it consists of several individual stores. The Nature Protection Board of Appeal made its decision in the matter on 19 December 2003, after which the department store layout was approved. De Samvirkende Købmænd subsequently took out a writ against the Nature Protection Board of Appeal before the Danish High Court. At the beginning of 2011, the High Court gave judgment in favour of De Samvirkende Købmænd. Neither the owner of the centre nor any company in the TK Development Group is a direct party to the case, but the High Court's judgment may have the effect that the Field's department store will have to be redesigned following negotiations with the relevant local authorities. As a result of the judgment, the owner of Field's may have to incur the financial burden of causing the necessary changes to the building layout, and in that connection it cannot be ruled out that a claim may be made against the Group. Regardless of the judgment, Management still believes the risk of this case to be negligible.

The contingent retaxation liability attaching to German subsidiaries regarding which no provisions for deferred tax have been made amounts to DKK 97.4 million (DKK 97.4 million). The Company controls whether the retaxation liability will be triggered. It is not the Company's intention for such taxation to be triggered.

NOTES, CONSOLIDATED FINANCIAL STATEMENTS | ANNUAL REPORT 2016/17 | TK DEVELOPMENT A/S | 87/110

T K

NOTES, CONSOLIDATED FINANCIAL STATEMENTS

NOTE 27. FINANCIAL RISKS AND FINANCIAL INSTRUMENTS

Capital management

The Group's capital structure consists of equity, cash and cash equivalents and payables to credit institutions.

Financial targets

The Group has adopted a solvency target corresponding to a solvency ratio of 30 %, and compliance with this target also represents a covenant that commits the Group vis-à-vis its main banker. This target was met throughout the financial year. Furthermore, the Board of Directors has adopted a goal of achieving a solvency ratio of about 40 %, calculated as the ratio of equity to total assets. The solvency ratio was 45.3 % at 31 January 2017 (31 January 2016: 45.8 %).

Liquidity covenant

The covenant represents a liquidity target for the whole Group and a commitment to the Group's main banker. The covenant must be calculated and met before projects requiring liquidity can be acquired and initiated.

The covenant is expressed as follows: $$L + K > E + O + R$$, where:

L = The TK Development Group's free cash resources in the form of deposits with banks and the value of listed Danish government and mortgage bonds with a term to maturity of less than five years.
K = The TK Development Group's amounts available on committed operating credit facilities from time to time.
E = The planned impact on cash resources from the projects which the TK Development Group is obliged to complete within six months, including the new/expanded project, taking into account committed project credit facilities from financial institutions and forward funding.
O = The TK Development Group's cash non-project-related capacity costs for the following six months less management fees falling due within six months. In addition, pre-agreed project fees from final and binding agreements with project investors falling due within six months are to be set off against the amount.
R = Interest accruing on the TK Development Group's operating credit facilities for the following six months.

The Group's liquidity covenant was met during the year under review.

Dividend policy

Moreover, Management has decided that the operation of the Group's asset management activities is to be matured and optimized, with a view to selling the activities within a period of three to five years starting from December 2015, and the plan is to distribute the freed-up equity to the Company's shareholders.

Breach of loan agreements

Neither TK Development nor any group enterprises were in breach of any loan agreements in the 2016/17 financial year.

88/110 | TK DEVELOPMENT A/S | ANNUAL REPORT 2016/17 | NOTES, CONSOLIDATED FINANCIAL STATEMENTS

NOTES, CONSOLIDATED FINANCIAL STATEMENTS

NOTE 27. FINANCIAL RISKS AND FINANCIAL INSTRUMENTS, CONTINUED

Categories of financial instruments

	31 Jan 2017	31 Jan 2016
Other securities and investments, non-current	5.0	13.4
Financial assets held to maturity	5.0	13.4
Trade receivables	10.7	54.1
Receivables from joint ventures	196.9	195.7
Receivables from associates	8.9	4.6
Other receivables	13.4	10.6
Cash, cash equivalents, blocked and escrow accounts	33.9	99.7
Loans and receivables	263.8	364.7
Securities	4.1	4.1
Financial assets available for sale	4.1	4.1
Credit institutions	1,433.3	1,392.8
Trade payables	72.7	70.4
Other debt	27.7	27.2
Financial liabilities measured at amortized cost	1,533.7	1,490.4
Derivative financial instruments entered into to hedge interest rates	0.7	0.4
Hedging instruments	0.7	0.4

The Group's risk management policy

As a consequence of its activities, TK Development is exposed to fluctuations in foreign-exchange and interest rates. The overall objective of the Group's risk policy is to manage risks and exposures and thus minimize the negative effects on earnings and cash flows. To the extent possible, the Parent Company manages the Group's financial risks centrally and coordinates the Group's liquidity management, including the raising of funds and the investment of surplus funds.

Foreign-exchange risks

The Group primarily hedges its foreign-exchange risks by matching the currency of payments received with the currency of payments made. As a main rule, the financing of the individual projects, whether raised with credit institutions or by forward funding, is raised in the same currency as the currency agreed upon in a sale or expected to be used for the project sale. Likewise, the main rule is for construction contracts to be concluded in the project invoicing currency. In the cases where the Company concludes the construction contract in a different currency than the relevant project's invoicing currency, it will be assessed in each case whether the foreign-exchange risk is to be hedged through a forward agreement or other derivative financial instruments. In the 2016/17 financial year and in the comparative year, the Group did not enter into any forward agreements or other financial instruments.

Interest-rate risks

As a main rule, the TK Development Group finances its projects in progress by way of short-term, floating-rate bank loans or by forward funding, generally based on a fixed interest rate. Other interest-bearing debt is largely subject to variable interest (floating-rate debt).

Based on the Group's risk policy, Management regularly assesses whether a portion of its floating-rate loans should be hedged by financial instruments. In the financial year 2016/17 the Group entered into one new interest swap to hedge interest-rate-risks on floating-rate loans in the amount of DKK 133.9 million. This contract will expire in 2019.

NOTES, CONSOLIDATED FINANCIAL STATEMENTS | ANNUAL REPORT 2016/17 | TK DEVELOPMENT A/S | 89/110

NOTES, CONSOLIDATED FINANCIAL STATEMENTS

NOTE 27. FINANCIAL RISKS AND FINANCIAL INSTRUMENTS, CONTINUED

Liquidity risks

The Group manages its liquidity risks by using continuous short-term cash budgets and long-term cash budgets that cover several years. The Group aims to continuously secure an optimum liquidity buffer to make efficient use of its cash resources in case of unforeseen fluctuations in cash withdrawals. The Group aims to optimize its liquidity buffer by the sale of completed projects and plots of land, by raising loans or by entering into forward funding agreements for its projects in progress.

Credit risks

In connection with the sale of the Group's projects the title to a project does not pass to the investor until payment has been effected. Thus, the Group's sale of projects does not generally generate credit risks as such. Each receivable is assessed individually, after which any necessary impairment losses are recognized.

The maximum credit risks associated with securities, equity investments, trade receivables, other receivables, cash and cash equivalents and deposits in blocked and escrow accounts correspond to their carrying amounts. The impairment losses for the year relating to trade receivables appear from note 19.

Impairment losses on other financial assets amount to DKK 0.9 million in the financial year 2016/17 (2015/16: DKK 2.2 million). The carrying amount of other receivables written down to net realizable value amounts to DKK 0 million (2015/16: DKK 0 million).

Foreign-exchange risks relating to recognized assets and liabilities

2016/17	Cash, cash equivalents, blocked accounts and securities	Receivables	Credit institutions	Liabilities	Unsecured net position
EUR	1.3	64.7	-34.0	0.0	32.0
SEK	0.0	0.0	-2.8	0.0	-2.8
PLN	4.6	4.3	-0.2	-5.2	3.5
CZK	0.0	0.4	-0.8	0.0	-0.4
31 Jan 2017	5.9	69.4	-37.8	-5.2	32.3
2015/16
EUR	0.0	66.6	-41.6	0.0	25.0
PLN	2.5	2.9	-0.1	-5.2	0.1
CZK	0.0	0.0	-0.1	0.0	-0.1
31 Jan 2016	2.5	69.5	-41.8	-5.2	25.0

90/110 | TK DEVELOPMENT A/S | ANNUAL REPORT 2016/17 | NOTES, CONSOLIDATED FINANCIAL STATEMENTS

NOTES, CONSOLIDATED FINANCIAL STATEMENTS

NOTE 27. FINANCIAL RISKS AND FINANCIAL INSTRUMENTS, CONTINUED

Sensitivity of equity to foreign-exchange fluctuations	2016/17	2015/16
Effect if the EUR rate were 10 % lower than the actual rate	-2.5	-1.9
Sensitivity of profit/loss to foreign-exchange fluctuations	2015/16	2014/15
Effect if the EUR rate were 10 % lower than the actual rate	-2.5	-1.9

The Group's major foreign-exchange exposure relates to EUR. The above calculations show the effect on equity and profit or loss if the rate of the relevant currency had been 10% lower than the actual rate. A corresponding increase in foreign exchange rates would have a corresponding impact on profit or loss and equity.

Interest-rate risks and the dates of revaluation or maturity regarding financial assets and liabilities

2016/17	Date of revaluation/maturity				Effective rate in %
	0 - 1 year	1 - 5 years	> 5 years	Total
Other securities and investments, non-current	0.6	4.4	0.0	5.0	3%
Other securities and investments, current	4.1	0.0	0.0	4.1	0%
Trade receivables	10.7	0.0	0.0	10.7	0%
Receivables from joint ventures	11.6	185.3	0.0	196.9	0 - 8%
Other receivables	13.4	0.0	0.0	13.4	0%
Deposits with credit institutions (cash, cash equivalents and blocked and escrow accounts)	33.9	0.0	0.0	33.9	0 - 1%
Receivables from associates	0.0	8.9	0.0	8.9	0 - 6%
Trade payables	-72.7	0.0	0.0	-72.7	0%
Other debt	-28.4	0.0	0.0	-28.4	0%
Payables to credit institutions	-736.2	-697.1	0.0	-1,433.3	2.4 - 5%
Interest payments on loans	-52.6	-76.2	0.0	-128.8
Total at 31 January 2017	-815.6	-574.7	0.0	-1,390.3
2015/16	Date of revaluation/maturity				Effective rate in %
---	---	---	---	---	---
	0 - 1 year	1 - 5 years	> 5 years	Total
Other securities and investments, non-current	0.5	11.8	1.1	13.4	0 - 2.5 %
Other securities and investments, current	4.1	0.0	0.0	4.1	0 %
Trade receivables	54.1	0.0	0.0	54.1	0 %
Receivables from joint ventures	0.0	195.7	0.0	195.7	0 - 8 %
Other receivables	10.6	0.0	0.0	10.6	0 %
Deposits with credit institutions (cash, cash equivalents and blocked and escrow accounts)	99.7	0.0	0.0	99.7	0 - 1 %
Receivables from associates	0.0	4.6	0.0	4.6	0 - 6 %
Trade payables	-70.4	0.0	0.0	-70.4	0 %
Other debt	-27.6	0.0	0.0	-27.6	0 %
Payables to credit institutions	-358.3	-1,034.5	0.0	-1,392.8	2 - 5.5 %
Interest payments on loans	-51.2	-103.8	0.0	-155.0
Total at 31 January 2016	-338.5	-926.2	1.1	-1,263.6

NOTES, CONSOLIDATED FINANCIAL STATEMENTS | ANNUAL REPORT 2016/17 | TK DEVELOPMENT A/S | 91/110

T K

NOTES, CONSOLIDATED FINANCIAL STATEMENTS

NOTE 27. FINANCIAL RISKS AND FINANCIAL INSTRUMENTS, CONTINUED

The fair value at 31 January 2017 of outstanding interest swaps entered into to hedge interest-rate risks on floating-rate loans amounts to DKK 0.7 million. The interest swap contract expires in 2019. The income statement was not affected by hedge inefficiency in the 2016/17 financial year or in the year of comparison.

With regard to interest-rate sensitivity, an increase in the interest level of 1 % p.a. compared to the interest level at the reporting date in respect of the Group's variable-interest deposits with and payables to credit institutions would have a negative impact on the profit or loss for the year, and thus on equity, of DKK 7.1 million for a full year. A fall in the interest level of 1 % p.a. would result in a corresponding positive impact on the profit or loss for the year and on equity. For the 2015/16 financial year, the interest-rate sensitivity in case of a change in the interest level of 1 % p.a. would have a DKK 6.1 million impact for a full year.

Liquidity risks

The maturity dates of financial liabilities are specified for the individual categories of liabilities in the notes, with the exception of trade payables and other debt largely falling due for payment within one year. The TK Development Group's liquidity reserve consists of cash and cash equivalents as well as unutilized operating credit facilities.

	31 Jan 2017	31 Jan 2016
The liquidity reserve breaks down as follows:
Cash and cash equivalents	10.5	5.6
Unutilized operating credit facilities	16.6	31.8
Total	27.1	37.4
Deposited funds for later release	23.4	94.1
Total liquidity reserve	50.5	131.5

NOTE 28. TRANSACTIONS WITH RELATED PARTIES

The Company has no related parties with a controlling interest.

The Company has the following related parties:

Board of Directors and Executive Board (and their related parties)
Joint ventures and associates; see the Overview of group companies, note 31.

	2016/17	2015/16
Board of Directors and Executive Board (and their related parties):
Remuneration, Board of Directors	1.3	1.4
Remuneration, Executive Board, see note 7	7.4	6.8
Sale of projects (revenue)	0.0	8.1
Joint ventures:
Fees	2.2	9.4
Interest income	7.5	6.6
Guarantee commission	0.0	0.2
Receivables (balance)	196.9	195.7
Associates:
Fees	0.9	0.0
Interest income	0.1	0.2
Receivables (balance)	8.9	4.6

Suretyships and guarantees have been issued on behalf of joint ventures and associates; see note 26.

Apart from the above, there were no transactions with related parties in the year under review. In accordance with the accounting policies, transactions with subsidiaries are eliminated in the consolidated financial statements.

92/110 | TK DEVELOPMENT A/S | ANNUAL REPORT 2016/17 | NOTES, CONSOLIDATED FINANCIAL STATEMENTS

NOTES, CONSOLIDATED FINANCIAL STATEMENTS

NOTE 28. TRANSACTIONS WITH RELATED PARTIES, CONTINUED

No security or guarantees had been furnished for balances owing to or by related parties at the reporting date.

Receivables and payables are settled by payment in cash. No losses were realized on receivables from related parties. In 2016/17 and the comparative year no impairment was made to provide for any probable losses on receivables from related parties.

NOTE 29. POST-BALANCE SHEET EVENTS

No such post-balance sheet events have occurred as could change the assessment of the Annual Report.

NOTE 30. APPROVAL OF ANNUAL REPORT FOR PUBLICATION

At the board meeting on 29 March 2017, the Board of Directors approved the Annual Report for publication. The Annual Report will be submitted to the Company's shareholders for adoption at the Annual General Meeting on 27 April 2017.

NOTES, CONSOLIDATED FINANCIAL STATEMENTS | ANNUAL REPORT 2016/17 | TK DEVELOPMENT A/S | 93/110

T K

NOTES, CONSOLIDATED FINANCIAL STATEMENTS

NOTE 31. OVERVIEW OF GROUP COMPANIES

No parent companies other than the listed company TK Development A/S prepare consolidated financial statements.

Subsidiaries

Name	Reg. office	Ownership interest	Name	Reg. office	Ownership interest
TK Bygge-Holding A/S	Aalborg	100 %	Euro Mall Polska XV Sp. z o.o.	Warsaw	100 %
TK Bygge-Holding Russia A/S	Aalborg	100 %	Nowa Wilda Sp. z o.o.	Warsaw	100 %
TKD Projekt A/S	Aalborg	100 %	TK Polska Development II Sp. z o.o.	Warsaw	100 %
Kommanditaktieselskabet Frederikssund Shoppingcenter	Aalborg	100 %	Euro Mall Polska XXVII Sp. z o.o.	Warsaw	100 %
Driftsselskabet Frederikssund ApS	Aalborg	100 %	TK Czech Operations s.r.o.	Prague	100 %
Euro Mall Holding A/S	Aalborg	100 %	Euro Mall Ceske Budejovice s.r.o.	Prague	100 %
Projektselskabet Køge Centrum P/S	Aalborg	100 %	TK Czech Development III s.r.o.	Prague	100 %
Komplementarselskabet TK-DK ApS	Aalborg	100 %	Euro Mall Bohemia s.r.o.	Prague	100 %
Domus Vista ApS	Aalborg	100 %	Euro Mall City s.r.o.	Prague	100 %
Euro Mall Sweden AB	Stockholm	100 %	Euro Mall Event s.r.o.	Prague	100 %
TK Development Sweden Holding AB	Stockholm	100 %	UAB TK Development Lietuva	Vilnius	100 %
TK Projekt AB	Stockholm	100 %	SIA TKD Retail Park	Riga	100 %
EMÖ Projekt AB	Stockholm	100 %	SIA "KK"	Riga	100 %
EMÖ Center AB	Stockholm	100 %	Euro Mall Luxembourg S.A.	Luxembourg	100 %
TK Utveckling AB	Stockholm	100 %	Euro Mall Czech & Slovakia Invest B.V.	Amsterdam	100 %
Enebyängen Fastighets AB Stockholm	Stockholm	100 %	TK Development Bau GmbH	Berlin	100 %
Retail Park 2 AB	Stockholm	100 %	TK Development GmbH	Berlin	100 %
Retail Park 3 AB	Stockholm	100 %	TKH Datzeborg Grundstücksgesellschaft mbH	Berlin	100 %
TKD Suomi OY	Helsinki	100 %	TKH Oranienburg Grundstücksgesellschaft mbH	Berlin	100 %
OY TKD Construction Finland	Helsinki	100 %	TKH Mahlow Wohnungsbaugesellschaft mbH in liquidation	Berlin	100 %
TK Polska Operations S.A.	Warsaw	100 %	TKH Ferienwohnungsgesellschaft mbH in liquidation	Berlin	100 %
Euro Mall Polska X Sp. z o.o.	Warsaw	100 %	EKZ Datzeborg Scan-Car GmbH	Berlin	100 %
Euro Mall Targówek III Sp. z o.o.	Warsaw	100 %	EKZ Datzeborg Scan-Car GmbH & Co. KG	Berlin	100 %

The companies are included in the consolidated financial statements by full consolidation.

Joint ventures

Kommanditaktieselskabet Østre Havn	Aalborg	50 %	Sporbyen Komplementarselskab ApS	Aalborg	50 %
Østre Havn ApS	Aalborg	50 %	The Yard, Beddingen P/S	Aalborg	50 %
Ringsted Outlet Center P/S	Aalborg	50 %	Komplementarselskabet Beddingen ApS	Aalborg	50 %
SPV Ringsted ApS	Aalborg	50 %	BROEN Shopping A/S	Aalborg	35 %
Ringsted Retail Company ApS	Aalborg	50 %	Euro Mall Polska XIV Sp. z o.o.	Warsaw	30 %
Kommanditaktieselskabet Danlink - Udvikling	Copenhagen	50 %	Euro Mall Polska XXIII Sp. z o.o.	Warsaw	30 %
Komplementarselskabet DLU ApS	Copenhagen	50 %	Euro Mall Ventures S.á r.l.	Luxembourg	20 %
Ahlgade 34 - 36 A/S	Aalborg	50 %	Euro Mall Luxembourg JV S.á r.l.	Luxembourg	30 %
SporbyenScandia P/S	Aalborg	50 %

The companies are recognized in the consolidated financial statements according to the equity method.

Associates

Step Re CSP Invest	A/S	Herning	50 %	Trøjborg ApS	Ikast-Brande	20 %
Amerika Plads C P/S	Aalborg	25 %	Pedersen Fritscheshof Neubrandenburg KG	Hamburg	35 %
Komplementarselskabet Amerika Plads C ApS	Aalborg	25 %	Camacuri s.r.o.	Prague	45 %

The companies are recognized in the consolidated financial statements according to the equity method.

94/110 | TK DEVELOPMENT A/S | ANNUAL REPORT 2016/17 | NOTES, CONSOLIDATED FINANCIAL STATEMENTS

'IK

PARENT COMPANY FINANCIAL STATEMENTS

INCOME STATEMENT

DKKm	Note	2016/17	2015/16
Other external expenses		3.6	3.4
Staff costs	3	1.6	0.9
Total		5.2	4.3
Operating profit/loss		-5.2	-4.3
Income from investments in group enterprises	5	-48.6	-294.4
Financial income	6	68.5	81.8
Financial expenses	7	-2.3	-2.2
Total		17.6	-214.8
Profit/loss before tax		12.4	-219.1
Tax on profit/loss for the year	8	5.5	3.1
Profit/loss for the year		6.9	-222.2

COMPREHENSIVE INCOME STATEMENT

Profit/loss for the year	6.9	-222.2
Items that may be re-classified to profit/loss:
Value adjustment of available-for-sale financial assets	0.1	0.0
Other comprehensive income after tax in group enterprises	1.0	-1.5
Other comprehensive income for the year	1.1	-1.5
Comprehensive income for the year	8.0	-223.7

PARENT COMPANY FINANCIAL STATEMENTS | ANNUAL REPORT 2016/17 | TK DEVELOPMENT A/S | 95/110

PARENT COMPANY FINANCIAL STATEMENTS

BALANCE SHEET

DKKm	Note	31 Jan 2017	31 Jan 2016
ASSETS
Non-current assets
Investments in group enterprises	5	384.4	0.0
Receivables from group enterprises		989.2	1,363.9
Financial assets		1,373.6	1,363.9
Deferred tax assets	9	5.3	10.1
Other non-current assets		5.3	10.1
Non-current assets		1,378.9	1,374.0
Current assets
Prepayments		0.5	0.5
Receivables		0.5	0.5
Other securities and investments		4.1	4.1
Cash and cash equivalents		0.2	0.0
Current assets		4.8	4.6
ASSETS		1,383.7	1,378.6

96/110 | TK DEVELOPMENT A/S | ANNUAL REPORT 2016/17 | PARENT COMPANY FINANCIAL STATEMENTS

'IK

PARENT COMPANY FINANCIAL STATEMENTS

BALANCE SHEET

DKKm	Note	31 Jan 2017	31 Jan 2016
EQUITY AND LIABILITIES
Equity
Share capital	10	98.2	98.2
Other reserves	10	-8.0	-9.1
Retained earnings		1,203.5	1,196.6
Equity		1,293.7	1,285.7
Liabilities
Credit institutions	11	0.0	34.1
Provisions	12	23.6	23.6
Non-current liabilities		23.6	57.7
Credit institutions	11	62.1	29.1
Trade payables		1.0	0.4
Corporate income tax		1.6	3.7
Other debt		1.7	2.0
Current liabilities		66.4	35.2
Liabilities		90.0	92.9
EQUITY AND LIABILITIES		1,383.7	1,378.6

PARENT COMPANY FINANCIAL STATEMENTS | ANNUAL REPORT 2016/17 | TK DEVELOPMENT A/S | 97/110

PARENT COMPANY FINANCIAL STATEMENTS

STATEMENT OF CHANGES IN EQUITY

DKKm	Share capital	Other reserves	Retained earnings	Total equity
Equity at 1 February 2015	98.2	-7.6	1,418.8	1,509.4
Profit/loss for the year	0.0	0.0	-222.2	-222.2
Other comprehensive income for the year	0.0	-1.5	0.0	-1.5
Total comprehensive income for the year	0.0	-1.5	-222.2	-223.7
Equity at 31 January 2016	98.2	-9.1	1,196.6	1,285.7
Profit/loss for the year	0.0	0.0	6.9	6.9
Other comprehensive income for the year	0.0	1.1	0.0	1.1
Total comprehensive income for the year	0.0	1.1	6.9	8.0
Equity at 31 January 2017	98.2	-8.0	1,203.5	1,293.7

98/110 | TK DEVELOPMENT A/S | ANNUAL REPORT 2016/17 | PARENT COMPANY FINANCIAL STATEMENTS

PARENT COMPANY FINANCIAL STATEMENTS

CASH FLOW STATEMENT

DKKm	2016/17	2015/16
Operating profit/loss	-5.2	-4.3
Adjustments for non-cash items:
Exchange-rate adjustments	-0.3	0.1
Increase/decrease in receivables	-57.2	-84.0
Increase/decrease in payables and other debt	0.2	-0.4
Cash flows from operations	-62.5	-88.6
Interest paid, etc.	-2.1	-2.2
Interest received, etc.	68.5	81.8
Corporate income tax paid	-2.8	-7.2
Cash flows from operating activities	1.1	-16.2
Repayment, short term credit institutions	-0.9	0.0
Raising of financing, short term credit institutions	0.0	16.1
Cash flows from financing activities	-0.9	16.1
Cash flows for the year	0.2	-0.1
Cash and cash equivalents, beginning of year	0.0	0.1
Cash and cash equivalents at year-end	0.2	0.0

The figures in the cash flow statement cannot be inferred from the parent company financial statements alone.

PARENT COMPANY FINANCIAL STATEMENTS | ANNUAL REPORT 2016/17 | TK DEVELOPMENT A/S | 99/110

TABLE OF CONTENTS, NOTES, PARENT COMPANY FINANCIAL STATEMENTS

Page

101 Note 1. Accounting policies
102 Note 2. Accounting estimates and judgments
102 Note 3. Staff costs
102 Note 4. Fees payable to the auditors elected at the General Meeting
103 Note 5. Investments in group enterprises
103 Note 6. Financial income
103 Note 7. Financial expenses
104 Note 8. Tax on profit/loss for the year
104 Note 9. Deferred tax assets
105 Note 10. Share capital and other reserves
105 Note 11. Credit institutions
105 Note 12. Provisions
106 Note 13. Operating leases
106 Note 14. Contingent assets and liabilities as well as securities furnished
107 Note 15. Financial risks and financial instruments
109 Note 16. Transactions with related parties
109 Note 17. Post-balance sheet events
109 Note 18 Approval of Annual Report for publication

100/110 | TK DEVELOPMENT A/S | ANNUAL REPORT 2016/17 | NOTES, PARENT COMPANY FINANCIAL STATEMENTS

NOTES, PARENT COMPANY FINANCIAL STATEMENTS

NOTE 1. ACCOUNTING POLICIES

The financial statements of the Parent Company for 2016/17 are presented in compliance with the International Financial Reporting Standards, as adopted by the EU, and in accordance with Danish disclosure requirements for annual reports of listed companies; see the Executive Order on IFRS issued in pursuance of the Danish Financial Statements Act.

The parent financial statements are presented in DKK, which is the Company's presentation currency.

The parent financial statements are presented on the basis of historical cost, with the exception of investments in group enterprises, which are measured according to the equity method.

Generally, the Parent Company applies the same accounting policies regarding recognition and measurement as the Group. The cases where the Parent Company's accounting policies deviate from those of the Group are described below. For a detailed overall description of accounting policies, reference is made to note 1 to the consolidated financial statements.

IMPLEMENTATION OF NEW AND AMENDED FINANCIAL REPORTING STANDARDS AND INTERPRETATIONS ISSUED BY IFRIC

The parent financial statements for 2016/17 have been presented in accordance with the financial reporting standards (IFRS/IAS) and IFRIC interpretations applicable for financial years beginning at 1 February 2016.

With effect from 1 February 2016, a number of new and amended financial reporting standards and interpretations have been implemented with no effect on recognition and measurement.

The accounting policies have been consistently applied with those of the previous financial year.

FINANCIAL REPORTING STANDARDS AND IFRIC INTERPRETATIONS NOT YET IN FORCE

At the date of publication of this Annual Report, a number of new or amended financial reporting standards and interpretations had not yet entered into force or been adopted by the EU. Thus, they have not been incorporated into the Annual Report. None of the above-mentioned standards and interpretations are expected to materially affect the financial statements for the next financial years.

CASES WHERE THE PARENT COMPANY'S ACCOUNTING POLICIES DEVIATE FROM THOSE OF THE GROUP

Translation of foreign-currency items

Foreign-exchange adjustments of receivables from or payables to subsidiaries that are considered part of the Parent Company's total investment in the relevant subsidiary are recognized in the income statement under financial items. Such foreign-exchange adjustments are recognized in other comprehensive income in the consolidated financial statements.

Investments in group enterprises

In the parent financial statements, investments in group enterprises are recognized and measured according to the equity method, which means that the investments are measured at the proportionate share of the group enterprises' carrying amount, determined according to the Parent Company's accounting policies, with the addition of goodwill and plus or less any proportionate intercompany profits or losses.

The proportionate share of the group enterprise's results after tax and the proportionate elimination of unrealized intercompany profits and losses are recognized in profit or loss, less any impairment of goodwill. The proportionate share of all transactions and events recognized in the group enterprises' other comprehensive income is recognized in other comprehensive income.

Investments in group enterprises with a negative equity value are measured at DKK 0. Receivables and other non-current financial assets considered to be part of the overall investment are written down by any remaining negative equity value. Trade receivables and other receivables are written down to the extent that they are considered uncollectible. A provision for the remaining negative equity value is only recognized if the Parent Company has a legal or constructive obligation to meet the relevant group enterprise's liabilities, and the obligation is expected to result in an outflow of resources from the Group.

NOTES, PARENT COMPANY FINANCIAL STATEMENTS | ANNUAL REPORT 2016/17 | TK DEVELOPMENT A/S | 101/110

T K

NOTES, PARENT COMPANY FINANCIAL STATEMENTS

NOTE 2. ACCOUNTING ESTIMATES AND JUDGMENTS

Many account items cannot be measured with certainty, but only estimated. Such estimates consist of assessments based on the most recent information available at the time of presenting the financial statements. It may be necessary to change previous estimates based on changes in the assumptions underlying the estimate or based on supplementary information, additional experience or subsequent events.

Investments in and receivables from group enterprises

The need to make provisions for losses on investments in and receivables from group enterprises is based on a specific assessment of each individual group enterprises. If the applied assumptions change or if the actual course of events deviates from the expected development, the value may deviate from the value determined at 31 January 2017. The carrying amount of investments in group enterprises amounted to DKK 384.4 million and receivables from group enterprises to DKK 989.2 million at 31 January 2017.

NOTE 3. STAFF COSTS

	2016/17	2015/16
Fees for Board of Directors	1.3	1.4
Salaries, etc. for the Parent Company's Executive Board; see below	7.4	6.8
Other salaries and staff costs, etc.	0.4	0.0
Reinvoiced via service agreements	-7.5	-7.3
Total staff costs	1.6	0.9
Average number of employees	2	2
Number of employees at year-end	2	2

For salaries, etc. for the Parent Company's Executive Board and fees for the Board of Directors reference is made to note 7 in the consolidated financial statements.

Defined contribution plans

The Company has entered into defined contribution plans with the employees in the Company. According to these plans, the Company pays a monthly amount of 2% of the relevant employees' basic salaries to independent pension companies.

An amount of DKK 0.2 million was expensed for defined contribution plans in the 2016/17 financial year (2015/16: DKK 0.2 million).

No employees in the Company are comprised by defined benefit plans.

NOTE 4. FEES PAYABLE TO THE AUDITORS ELECTED AT THE GENERAL MEETING

	2016/17	2015/16
Statutory audit	0.5	0.5
Tax consultancy	0.3	0.0
Total	0.8	0.5

102/110 | TK DEVELOPMENT A/S | ANNUAL REPORT 2016/17 | NOTES, PARENT COMPANY FINANCIAL STATEMENTS

NOTES, PARENT COMPANY FINANCIAL STATEMENTS

NOTE 5. INVESTMENTS IN GROUP ENTERPRISES

	31 Jan 2017	31 Jan 2016
Cost at 1 February	1,127.3	1,127.3
Additions for the year	500.0	0.0
Cost at 31 January	1,627.3	1,127.3
Impairment at 1 February	-1,552.7	-1,256.8
Foreign-exchange adjustments	1.0	-1.5
Share of profit/loss for the year	-49.2	-294.4
Changes in intercompany profits/losses	0.6	0.0
Impairment at 31 January	-1,600.3	-1,552.7
Carrying amount at 31 January	27.0	-425.4
Investments in group enterprises recognized in balance sheet breaks down as follows:
Financial assets	384.4	0.0
Set off against receivables from group enterprises	-333.8	-401.8
Provisions	-23.6	-23.6
Carrying amount at 31 January	27.0	-425.4

In the Parent Company's balance sheet, investments in group enterprises are measured according to the equity method and are equal to the individual subsidiaries' carrying amount, determined according to the Group's accounting policies, with the addition of goodwill and less any intercompany profits or losses, etc.

Overview of investments in group enterprises:

Name	Reg. office	Ownership interest
TK Bygge-Holding A/S	Aalborg	100 %
TK Development Bau GmbH	Berlin	100 %
TK Development GmbH	Berlin	100 %

The ownership interests shown above are the Company's direct holdings.

NOTE 6. FINANCIAL INCOME

	2016/17	2015/16
Interest income from group enterprises	67.7	80.6
Financial income from loans and receivables	67.7	80.6
Other financial income	0.8	1.2
Total financial income	68.5	81.8

Which breaks down as follows:

Interest income from financial assets not measured at fair value through profit and loss	67.7	80.6
Other financial income	0.8	1.2
Total financial income	68.5	81.8

NOTE 7. FINANCIAL EXPENSES

	2016/17	2015/16
Interest expenses, credit institutions	2.0	2.0
Miscellaneous interest expenses	0.1	0.2
Foreign-exchange losses and capital losses on securities	0.2	0.0
Total financial expenses	2.3	2.2

Which break down as follows:

Interest expenses on financial liabilities not measured at fair value through profit and loss	2.1	2.2
Other financial expenses	0.2	0.0
Total financial expenses	2.3	2.2

NOTES, PARENT COMPANY FINANCIAL STATEMENTS | ANNUAL REPORT 2016/17 | TK DEVELOPMENT A/S | 103/110

T K

NOTES, PARENT COMPANY FINANCIAL STATEMENTS

NOTE 8. TAX ON PROFIT/LOSS FOR THE YEAR

	2016/17	2015/16
Current corporate income tax	0.0	2.1
Adjustment regarding tax relating to prior year(s)	0.7	1.0
Change in deferred tax	4.8	0.0
Tax on profit/loss for the year	5.5	3.1
The tax on the profit/loss for the year results as follows:
Calculated tax based on the Danish tax rate of 22% (2015/16: 23.5%)	2.7	-51.5
Adjustment regarding tax relating to prior year(s)	0.7	1.0
Tax effect of:
Non-deductible expenses/non-taxable income	10.7	69.2
Other	-0.6	-1.0
Change in value adjustment	-8.0	-15.9
Change of tax rate	0.0	1.3
Tax on profit/loss for the year	5.5	3.1

NOTE 9. DEFERRED TAX ASSETS

	31 Jan 2017	31 Jan 2016
Deferred tax assets at 1 February	28.4	44.3
Disposals for the year	-12.8	-15.9
Deferred tax assets at 31 January	15.6	28.4
Value adjustment at 1 February	-18.3	-34.2
Value adjustment for the year	8.0	15.9
Value adjustments at 31 January	-10.3	-18.3
Carrying amount at 31 January	5.3	10.1
Deferred tax assets relate to:
Current assets	-1.7	-1.6
Postponed deduction of interest expenses	0.0	6.1
Temporary differences	-1.7	4.5
Value of tax losses	17.3	23.9
Impairment of tax assets	-10.3	-18.3
Total	5.3	10.1

The change in deferred tax assets for the year has been recognized in the income statement.

Deferred tax assets not recognized in balance sheet:

Deferred tax assets not recognized in balance sheet: 10.3 18.3

Deferred tax liability not recognized in balance sheet:

Contingent retaxation liability attaching to German subsidiaries 97.4 97.4

The Company controls whether the retaxation liability will be triggered. It is not the Company's intention for such taxation to be triggered.

104/110 | TK DEVELOPMENT A/S | ANNUAL REPORT 2016/17 | NOTES, PARENT COMPANY FINANCIAL STATEMENTS

NOTES, PARENT COMPANY FINANCIAL STATEMENTS

NOTE 10. SHARE CAPITAL AND OTHER RESERVES

Share capital

Reference is made to note 20 in the consolidated financial statement.

Other reserves

	Reserve for value adjustment for available-for-sale financial assets	Reserve for foreign exchange adjustments, etc. in group enterprises	Total
Other reserves at 1 February 2015	-0.1	-7.5	-7.6
Other comprehensive income:
Other comprehensive income after tax in group enterprises	0.0	-1.5	-1.5
Other reserves at 31 January 2016	-0.1	-9.0	-9.1
Other comprehensive income:
Value adjustment of available-for-sale financial assets	0.1	0.0	0.1
Other comprehensive income after tax in group enterprises	0.0	1.0	1.0
Other reserves at 31 January 2017	0.0	-8.0	-8.0

NOTE 11. CREDIT INSTITUTIONS

	31 Jan 2017	31 Jan 2016
Payables to credit institutions are recognized as follows in the balance sheet:
Non-current liabilities	0.0	34.1
Current liabilities	62.1	29.1
Total payables to credit institutions	62.1	63.2
Fair value	62.1	63.2
Carrying amount	62.1	63.2

At 31 January, the Parent Company had the following loans and credits:

Loans	Maturity	Fixed/ variable	Effective rate		Carrying amount		Fair value
			2016/17	2015/16	2016/17	2015/16	2016/17	2015/16
Bank DKK	2017	variable	3.8 - 4.2 %	3.8 - 4.0 %	28.1	28.3	28.1	28.3
Bank EUR	2017	variable	2.4 - 2.5 %	2.5 - 3.0 %	34.0	34.9	34.0	34.9

The fair value has been determined at the present value of future principal repayments and interest payments by using the effective interest method (Fair value hierarchy: Level 2).

NOTE 12. PROVISIONS

	31 Jan 2017	31 Jan 2016
Provisions at 1 February	23.6	18.5
Provisions for the year	0.0	5.1
Provisions at 31 January	23.6	23.6
Expected maturity dates of the liabilities provided for:
1 - 5 years	23.6	23.6
Provisions at 31 January	23.6	23.6

Provisions relate to provisions for negative equity in subsidiaries.

NOTES, PARENT COMPANY FINANCIAL STATEMENTS | ANNUAL REPORT 2016/17 | TK DEVELOPMENT A/S | 105/110

T K

NOTES, PARENT COMPANY FINANCIAL STATEMENTS

NOTE 13. OPERATING LEASES

For 2017-2020, operating leases for the rental of operating equipment have been concluded. The leases have been concluded for a four-year period with fixed lease payments. The leases are non-terminable for the period mentioned, and will expire in 2020/21.

Future minimum lease payments according to non-terminable lease contracts break down as follows:

	31 Jan 2017	31 Jan 2016
Within 1 year	0.2	0.2
Within 1 - 5 years	0.5	0.0
Total	0.7	0.2
Minimum lease payments for the year recognized in the income statement	0.3	0.3

NOTE 14. CONTINGENT ASSETS AND LIABILITIES AS WELL AS SECURITIES FURNISHED

Contingent assets

Contingent assets in the form of tax assets not recognized appear from note 9.

Contingent liabilities and securities furnished

	31 Jan 2017	31 Jan 2016
Surety and guarantee commitments on behalf of group enterprises	1,285.4	1,512.4
Surety and guarantee commitments on behalf of joint ventures	69.8	95.5
Surety and guarantee commitments on behalf of associates	10.0	10.0
Other surety and guarantee commitments	7.6	7.6

The below figures in brackets are comparative figures for 2015/16.

The amounts stated for surety and guarantee commitments on behalf of group enterprises are the upper limits. At 31 January 2017, the subsidiaries had drawn an amount of DKK 1,140.8 million (DKK 1,149.4 million) on their credit facilities.

In addition, the Company has guaranteed the liabilities of group enterprises in relation to construction contracts, and other project related contracts.

The Company is the management company for the Group's Danish jointly taxed companies, and as from the 2013/14 financial year it has unlimited, joint and several liability together with the other jointly taxed companies for all corporate income taxes arising under the joint taxation scheme and as from 1 July 2012 the Company has unlimited, joint and several liability for the withholding taxes payable by these companies. Corporate income tax payable for the Danish jointly taxed companies amounted to DKK 1.6 million at 31 January 2017 (DKK 1.6 million).

106/110 | TK DEVELOPMENT A/S | ANNUAL REPORT 2016/17 | NOTES, PARENT COMPANY FINANCIAL STATEMENTS

NOTES, PARENT COMPANY FINANCIAL STATEMENTS

NOTE 15. FINANCIAL RISKS AND FINANCIAL INSTRUMENTS

Categories of financial instruments	31 Jan 2017	31 Jan 2016
Receivables from group enterprises	989.2	1,363.9
Cash and cash equivalents	0.2	0.0
Loans and receivables	989.4	1,363.9
Securities	4.1	4.1
Financial assets available for sale	4.1	4.1
Credit institutions	62.1	63.2
Trade payables	1.0	0.4
Other debt	1.7	2.0
Financial liabilities measured at amortized cost	64.8	65.6

For a description of the Company's capital management, risk management policy, foreign-exchange risks, interest-rate risks, liquidity risks and credit risks, reference is made to note 27 in the consolidated financial statements.

Foreign-exchange risks relating to recognized assets and liabilities

In the 2016/17 financial year and the comparative year, the Company did not enter into any forward agreements or other derivative financial instruments to hedge foreign-exchange risks in the Company.

2016/17	Cash, cash equivalents and securities	Receivables	Credit institutions	Unsecured net position
EUR at 31 January 2017	0.1	115.5	-34.0	81.6
2015/16
EUR at 31 January 2016	0.0	117.7	-34.9	82.8
PLN at 31 January 2016	0.0	4.6	0.0	4.6
CZK at 31 January 2016	0.0	0.6	0.0	0.6
Sensitivity of profit/loss and equity to foreign-exchange fluctuations			2016/17	2015/16
Effect if the EUR rate were 10 % lower than the actual rate			-6.4	-6.3

The Company's major foreign-exchange exposures relate to EUR. The above calculations show the effect on equity and profit or loss if the rate of exchange for EUR had been 10% lower than the actual rate. A corresponding increase in the foreign-exchange rate would have a corresponding positive impact on profit or loss and equity.

As all foreign-exchange adjustments relating to the above-mentioned financial instruments are recognized in the income statement, any exchange-rate fluctuations will have the same effect on profit or loss and equity.

NOTES, PARENT COMPANY FINANCIAL STATEMENTS | ANNUAL REPORT 2016/17 | TK DEVELOPMENT A/S | 107/110

NOTES, PARENT COMPANY FINANCIAL STATEMENTS

NOTE 15. FINANCIAL RISKS AND FINANCIAL INSTRUMENTS, CONTINUED

Interest-rate risks and the dates of revaluation or maturity regarding financial assets and liabilities

	0 - 1 year	1 - 5 years	Total	Effective rate in %
2016/17
Securities	4.1	0.0	4.1	0 %
Receivables from group enterprises	0.0	989.2	989.2	0 - 8 %
Cash and cash equivalents	0.2	0.0	0.2	0 %
Payables to credit institutions	-62.1	0.0	-62.1	2.4 - 4.2 %
Interest payments on loans	-1.3	0.0	-1.3
Trade payables	-1.0	0.0	-1.0	0 %
Other debt	-1.7	0.0	-1.7	0 %
Total at 31 January 2017	-61.8	989.2	927.4
2015/16
Securities	4.1	0.0	4.1	0 %
Receivables from group enterprises	0.0	1,363.9	1,363.9	0 - 8 %
Payables to credit institutions	0.0	-63.2	-63.2	2.5 - 4 %
Interest payments on loans	-2.0	-1.3	-3.3
Trade payables	-0.4	0.0	-0.4	0 %
Other debt	-2.0	0.0	-2.0	0 %
Total at 31 January 2016	-0.3	1,299.4	1,299.1

With regard to interest-rate sensitivity, an increase in the interest level of 1 % p.a. compared to the interest level at the reporting date in respect of the Company's variable-interest deposits with and payables to credit institutions would have a negative impact on the profit or loss for the year, and thus on equity, of DKK 0.5 million for a full year. A fall in the interest level of 1 % p.a. would result in a corresponding positive impact on the profit or loss for the year and on equity. For the 2015/16 financial year, the interest-rate sensitivity in case of a change in the interest level of 1 % p.a. would have an impact of about DKK 0.5 million for a full year.

Liquidity risks

The maturity dates of financial liabilities are specified for the individual categories of liabilities in the notes, with the exception of trade payables and other debt largely falling due for payment within one year. The Company's liquidity reserve consists of cash and cash equivalents as well as unutilized credit facilities. Reference is also made to note 27 in the consolidated financial statements.

Breach of loan agreements

During the financial year and the previous year, the Company was not in breach of any loan agreements.

108/110 | TK DEVELOPMENT A/S | ANNUAL REPORT 2016/17 | NOTES, PARENT COMPANY FINANCIAL STATEMENTS

NOTES, PARENT COMPANY FINANCIAL STATEMENTS

NOTE 16. TRANSACTIONS WITH RELATED PARTIES

The Company has no related parties with a controlling interest. The Company has the following related parties:

Board of Directors and Executive Board (and their related parties)
Associates, joint ventures and group enterprises; see the Overview of group companies, note 31 in the consolidated financial statements.

	2016/17	2015/16
Board of Directors and Executive Board (and their related parties)
Remuneration, Board of Directors	1.3	1.4
Remuneration, Executive Board	7.4	6.8
Joint ventures and group enterprises
Management fee to group enterprises (cost)	1.0	1.0
Interest income from group enterprises	67.7	80.6
Receivables from group enterprises (balance)	989.2	1,363.9
Costs allocated to group enterprises according to service agreements concluded	7.5	7.3
Guarantee commission from group enterprises	0.8	1.2
Capital increase in group enterprises	500.0	0.0

Surety and other security furnished for subsidiaries appear from note 14. Suretyships and guarantees have been issued on behalf of joint ventures and associates; see note 26 in the consolidated financial statements.

Apart from this, no securities or guarantees had been furnished for balances owing to or by related parties at the reporting date. Receivables and payables are expected to be settled by payment in cash. No losses were realized on receivables from related parties.

Apart from the above, there were no transactions with related parties in the year under review.

NOTE 17. POST-BALANCE SHEET EVENTS

Reference is made to note 29 in the consolidated financial statements.

NOTE 18 APPROVAL OF ANNUAL REPORT FOR PUBLICATION

Reference is made to note 30 in the consolidated financial statements.

NOTES, PARENT COMPANY FINANCIAL STATEMENTS | ANNUAL REPORT 2016/17 | TK DEVELOPMENT A/S | 109/110

TK Development A/S

CVR no.:
24256782

ISIN code:
DK0010258995 (TKDV)

Municipality of registered office:
Aalborg, Denmark

Website:
www.tk-development.com

e-mail:
[email protected]

Executive Board:
Frede Clausen and Robert Andersen

Board of Directors:
Niels Roth, Peter Thorsen, Arne Gerlyng-Hansen, Kim Mikkelsen and Henrik Heideby.

Aalborg
Vestre Havnepromenade 7
DK-9000 Aalborg
T: (+45) 8896 1010

Copenhagen
Islands Brygge 43
DK-2300 Copenhagen S
T: (+45) 8896 1010

The Annual General Meeting will be held at 5 p.m. on 27 April 2017 at Aalborg Kongres & Kultur Center, Radiosalen, Europa Plads 4, DK-9000 Aalborg.

Stockholm
Gamla Brogatan 36-38
S-111 20 Stockholm
T: (+46) 8 751 37 30

Vilnius
Gynéju str. 16
LT-01109 Vilnius
T: (+370) 5231 2222

Warsaw
ul. Mszczonowska 2
PL-02-337 Warsaw
T: (+48) 22 572 2910

The Annual Report has been prepared in a Danish and an English version. In case of discrepancy between the Danish-language original text and the English-language translation, the Danish text shall prevail.

Prague
Karolínská 650/1
CZ-186 00 Prague 8
T: (+420) 2 8401 1010

110/110 | TK DEVELOPMENT A/S | ANNUAL REPORT 2016/17 | COMPANY INFORMATION

AI assistant

Agat Ejendomme — Annual Report 2016

3421_rns_2017-03-29_89250725-2cc3-4c86-8f89-c9da9221fe72.pdf

ANNUAL REPORT

RESULTS FOR 2016/17

OUTLOOK FOR 2017/18

PROPERTY DEVELOPMENT

Major development projects:

ASSET MANAGEMENT

CONSOLIDATED FINANCIAL HIGHLIGHTS AND KEY RATIOS

FINANCIAL HIGHLIGHTS

KEY RATIOS

KEY RATIOS ADJUSTED FOR WARRANTS

RESULTS

Revenue

Gross profit/loss

Income from investments in joint ventures

Development projects

Asset management projects

Staff costs and other external expenses

Financing

Corporate income tax

BALANCE SHEET

Investment properties

Investments in and receivables from joint ventures

Deferred tax assets

Projects in progress or completed

Deposits in custody and escrow accounts

Cash and cash equivalents

Equity

Liabilities

CASH FLOWS

UNCERTAINTY IN RECOGNITION AND MEASUREMENT

FINANCIAL ISSUES

OUTLOOK FOR 2017/18

SUBSEQUENT EVENTS

THE BOARD OF DIRECTORS

DIVIDENDS

TK Development today

Property development

Asset management

FOLLOW-UP ON STRATEGIC GOALS DETERMINED IN DECEMBER 2015

DENMARK

SWEDEN

POLAND

MARKET CONDITIONS

RESULTS 2016/17 (DKKM)

BALANCE SHEET STRUCTURE AT 31 JAN 2017 (DKKM)

Handed-over projects

Retail project, Rødekro, Denmark

Ahlgade, Holbæk, Denmark

MetroBielany, residential project, Bielany, Warsaw, Poland

Project portfolio

PROJECT OUTLINE

PROJECTS IN PROGRESS

Strædet, development of town centre, Køge, Denmark

BROEN Shopping, shopping centre, Esbjerg, Denmark

Amerika Have, residential project, Copenhagen, Denmark

Domus Vista, youth housing units, Frederiksberg, Copenhagen, Denmark

Retail park, Oskarshamn, Sweden

MetroBielany, residential project, Bielany, Warsaw, Poland

A SELECTION OF PROJECTS NOT INITIATED

Arninge Entré, commercial district, Stockholm, Sweden

Retail park, Södertälje, Sweden

Bytom Retail Park, Bytom, Poland

GALERIA SANDECJA, SHOPPING CENTRE, NOWY SĄCZ, POLAND

RINGSTED OUTLET, RINGSTED, DENMARK

Czech Republic

Baltic States

The Group's mission

Fundamental values

Property development strategy

Asset management strategy

BUSINESS CONCEPT

PROPERTY DEVELOPMENT

Customer relations

Tenants

Investors

Project and risk management

Limiting risks

Agat Ejendomme Annual Report 2016