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Annual Report 2016/17

Illustration: Amerika Have, residential units Copenhagen, Denmark

TK Development – Annual Report 2016/17 – 29 March 2017

Contents

1. Group results for 2016/17

• Financial highlights and key ratios
• Segment results
• Handed-over projects
• High activity within property development
• Portfolio of land

2. Strategic focus and strategic goals 3. Market conditions 4. Asset management 5. Property development 6. Outlook

2

TK Development – Annual Report 2016/17 – 29 March 2017

Strædet, Køge, Denmark 34,300 m2

• 1. Group results for 2016/17

3

TK Development – Annual Report 2016/17 – 29 March 2017

Financial highlights and key ratios

4 (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 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 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

• 493.3
• 49.0
• 37.7
• 222.3

7.1 Balance sheet total 3.509.3 3,347.1 2,845.2 2,808.8 2,852.9 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 % Price / book value (P/BV) 0.4 0.4 0.6 0.5 0.7

TK Development – Annual Report 2016/17 – 29 March 2017

Results broken down by business segment

5

Property development Asset management Strategic focus area of the Group ROE of 10,6 % realized in 2016/17 The aim is to sell the assets within three to five years from December 2015

Revenue 298.4 Gross profit/loss 38.2 Income from investments in JV 75.8 Costs 44.2 Operating profit/loss 69.8 Income from inv. in assoc. 0.7 Financing, net 0.9 Profit/loss before tax 71.4 Total projects 927.6 Balance sheet total 1,240.1 Tied-up equity 704.0 Revenue 103.1 Gross profit/loss 44.9 Income from investments in JV

• 27.8

Costs 25.1 Operating profit/loss

• 8.0

Income from inv. in assoc.

• 0.2

Financing, net

• 39.4

Profit/loss before tax

• 47.6

Total projects 1,280.7 Balance sheet total 1,535.9 Tied-up equity 529.5

DKKm DKKm

TK Development – Annual Report 2016/17 – 29 March 2017

Sale of a retail project of 2,150 m² in Rødekro to a private

• investor. The project has been let to Harald Nyborg.

Sale of a retail property of 1,200 m² in Holbæk to a private investor. Sale of a minor retail project in Dronninglund to private

• investors. The project has been let to jem & fix.

Handover of almost 300 apartments, etc. in the second phase of a residential project in Bielany, Warsaw, Poland. Sale of a number of plots of land. Significant positive value adjustment of the Group’s 35 %

• wnership interest in BROEN Shopping, which is

classified in the joint venture as an investment property under construction.

6 2.150 m2 retail project, Rødekro, Denmark 1.200 m2 retail property, Holbæk, Denmark

Projects handed-over and other income

• Property development

TK Development – Annual Report 2016/17 – 29 March 2017

Operation of completed properties; see subsequent description. Sale of plots of land in Germany and the Czech Republic. DKK 26 million writedown of TK Development’s investment in the joint venture owning two shopping centres in operation in Poland.

• TK Development has a 30 % ownership interest.
• The 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.

7 Galeria Tarnovia, Tarnów, Poland Galeria Nowy Rynek, Jelenia Góra, Poland

Projects handed-over and other income

• Asset management

TK Development – Annual Report 2016/17 – 29 March 2017

High activity within property development

• a selection of projects in progress

BROEN Shopping, Esbjerg, Denmark – shopping centre Strædet, Køge, Denmark – mixed segments Amerika Have, Copenhagen, Denmark – residential units Residential Park, Bielany, Warsaw, Poland, phase 3 Domus Vista, Frederiksberg, Denmark – youth housing units Østre Havn, Aalborg, Denmark – rental housing

8

29,800 m² 34,300 m² 12,500 m² 15,650 m² 5,300 m² 4,900 m²

TK Development – Annual Report 2016/17 – 29 March 2017

Portfolio of land

The carrying amount of the portfolio of land has been reduced by DKK 108 million in 2016/17 and amounts to DKK 453 million at 31 January 2017.

• The reduction is primarily a result of the startup of the third phase of the residential project in

Bielany, Warsaw, Poland. The portfolio of land remains significant, especially in Poland, and will be reduced by a further DKK 98 million when the last phase of the residential project in Bielany is initiated. Focus on further reducing the portfolio of land.

9

200 400 600 800 1,000 1,200 31.1.13 31.1.14 31.1.15 31.1.16 31.1.17

Portfolio of land

Development Asset management

Portfolio of land broken down by country

Denmark Poland Czech Rep. Baltic States Development costs Other

TK Development – Annual Report 2016/17 – 29 March 2017

NAV per share

at 31 January 2017

• 5.0

10.0 15.0 20.0 25.0 30.0 35.0

(0.6)

DKK per share

NAV Assets Liabilities

Receivables Tax assets Other liabilities Other assets Balance sheet total Total assets NAV Completed Under construction Investment prop. Plots of land

(29.1) (0.8) (28.3)

Credit institutions

(2.5) (2.8) (4.4) (6.0) (0.5) (11.5) (-14.6) (-1.3) (13.2) 1,129 53 593 433 277 243 2,778 75 2,853 1,433 1,294

10 Investments in JV

50 126

TK Development – Annual Report 2016/17 – 29 March 2017

Financial issues

11

Credit facilities with main banker

• Renegotiated once a year.
• Extended until 30 April 2018 after the reporting date.

Project credit facilities

• Project credit facilities of DKK 563 million are due to expire 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.

TK Development – Annual Report 2016/17 – 29 March 2017

Arninge, Stockholm, Sweden 60,000 m2

• 2. Strategic focus and strategic goals

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TK Development – Annual Report 2016/17 – 29 March 2017

Strategic focus

13

Development Asset management Undiversified developer company The equity freed up from the sale

• f asset management activities is

to be distributed to the Company’s shareholders.

• 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.

2020 goal

• 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.

TK Development today

13

TK Development – Annual Report 2016/17 – 29 March 2017

• 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 %.

Follow-up on strategic goals

14

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 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

announcement in December 2015 and amounted to DKK 453 million at 31 January 2017. The focus remains on substantially reducing the portfolio of land.

TK Development – Annual Report 2016/17 – 29 March 2017

• 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.

Follow-up on strategic goals

15

Phasing out the Group’s activities in the Czech Republic, Germany, the Baltic States and Russia. 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

• f 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.

TK Development – Annual Report 2016/17 – 29 March 2017

Owner-occupied dwellings, Beddingen 7A, Aalborg, Denmark 7,000 m2

• 3. Market conditions

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TK Development – Annual Report 2016/17 – 29 March 2017

Market conditions

17

Satisfactory profit on new projects. Continued low interest level and surplus of liquidity in the market increase the investment interest in real property. Significant interest from investors. Generally, property markets are characterized by optimism. Several new project

• pportunities in the

retail and residential segments. Good project finance possibilities. Climbing e-commerce intensify competition in the retail trade sector. Especially the residential segment is interesting in major towns and cities in Denmark and in Warsaw in Poland. Project pipeline moving ahead at a good pace due to robust tenant and investor interest. Relatively low return requirements for prime- location property is expected to continue.

TK Development – Annual Report 2016/17 – 29 March 2017

Ringsted Outlet, Denmark 13,200 m2

• 4. Asset management

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TK Development – Annual Report 2016/17 – 29 March 2017

Total value of the portfolio (incl. projects in joint ventures) amounts to DKK 1,699 million. Focus on maturing and optimizing the individual properties. The aim is to sell the assets within a three to five-year period starting at the end of 2015. The equity freed up is to be distributed to the Company’s shareholders.

Asset management

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Carrying amount broken down by country

Denmark Poland Germany Czech Rep. Baltic States/Russia

TK Development – Annual Report 2016/17 – 29 March 2017

20

Asset management

Return on the carrying amount of 4.3 %. Spread in the returns on the individual centres. Current letting situation affected by vacancies and short-term rent discount agreements with tenants. Based on full

• ccupancy, the return
• n the carrying

amount is expected to reach 6.2 %.

Operation and development plans are prepared for each property

The timing of the sale of assets is assessed continuously 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.

TK Development – Annual Report 2016/17 – 29 March 2017

21

Asset management

Galeria Tarnovia

Tarnów, Poland 17,000 m², 30 % ownership share

93 %

• Affected by strong

competition in the city

• Tenant composition

has been changed

• A cinema opened in

December 2016

• Occupancy rate

increased to 93 %

• Focus in increasing

the occupancy rate

• Opened in October

2015

• Replacement of

weak tenants

• Optimization of

tenant mix

• Attract new

concepts Galeria Nowy Rynek

Jelenia Góra, Poland 24,800 m², 30 % ownership share

93 %

• Massive marketing

and image improvement campaigns to increase customer awareness of the centre

• Efforts are made to

change temporary leases to permanent leases with long periods

• f non-terminability
• Carry on additional

marketing and image improvement campaigns after the

• pening of the cinema

Footfall Revenue

TK Development – Annual Report 2016/17 – 29 March 2017

22

Asset management

Galeria Sandecja

Nowy Sącz, Poland 17,300 m², 100 % ownership share

95 %

• Strong competition
• Strong mix of

tenants on the ground floor

• Improved mix of

tenants on the first floor

• Revenue and footfall

are increasing again

• Interest from

potential tenants

• Upgrade the food court
• Temporary leases are

being changed to permanent leases with long periods of non- terminability

Footfall Revenue

Sillebroen

Frederikssund, Denmark 26,400 m², 100 % ownership share

92 %

• Increased footfall
• Slight decline in

revenue due to the closing of Fona, among other things

• Improved mix of

tentants

• New tenants such

as Imerco, Normal and Søstrene Grene

• 4-screen Nordisk

Film cinema

• pened in August

2016

• Continue

marketing and image improvement campaigns

• Expand with a

fitness concept to make the centre more attractive

Footfall Revenue

TK Development – Annual Report 2016/17 – 29 March 2017

23

Asset management

• Another year of progress
• Continued increase in

revenue and footfall

• New and larger BOSS
• utlet has opened
• The premises let to Calvin

Klein have been expanded

• New tenants in 2016:

Golfino, Villeroy & Boch, Gant and Guess Ringsted Outlet

Ringsted, Denmark 13,200 m², 50 % ownership share

85 %

• New tenants, will open

in spring 2017: Lindt og Schiesser

• Continue focus on

increasing the

• ccupancy rate
• Good amount of

interest from potential tenants

• To make preparations

for contemplated expansion of the centre with a second phase

Footfall Revenue

TK Development – Annual Report 2016/17 – 29 March 2017

Other asset management activities

• carrying amount of DKK 107.5 million at 31 January 2017

Comprise plots of land and development projects in the Czech Republic, Germany, the Baltic States and Russia. TK Development wishes to discontinue its activities on these markets. At 31 January 2017 the projects comprise the following:

• Czech Republic: One development project and one plot of land
• Germany:

One plot of land

• Baltic States:

One project in progress and two plots of land

• Russia:

One rental project The phase-out of activities is expected to be carried out by developing and completing projects and by selling a few plots of land.

24

TK Development – Annual Report 2016/17 – 29 March 2017

• 5. Property development

25

Residential units, phase 3, Bielany, Warsaw, Poland 15,650 m²

TK Development – Annual Report 2016/17 – 29 March 2017

Property development

26

• Activities in Denmark, Sweden and Poland.
• Property development potential of 382,000 m².
• Project pipeline is moving ahead at a good pace

due to robust tenant and investor interest.

• Project pipeline underpins Management’s

expectation of generating a return on equity of 15-20 % p.a. before tax in the property development business area.

• Several new project possibilities within both the

retail and the residential segments.

• Total carrying amount of the project portfolio

(incl. projects in joint ventures) amounts to DKK 1,217 million. Property development potential in m²

Denmark Sweden Poland

TK Development – Annual Report 2016/17 – 29 March 2017

27

Property development

• Breakdown of the project portfolio

DKKm (incl. joint ventures) 31.1.2016 31.1.2017 Completed projects 31 6 Projects in progress 437 854 Projects not initiated 443 357 Project portfolio 911 1.217

TK Development – Annual Report 2016/17 – 29 March 2017

Strædet, Køge, Denmark

Comprises about 34,300 m² retail stores, public service facilities and residential premises as well as parking facilities of about 13,000 m². The retail project of 19,000 m² has been conditionally sold to the Finnish company Citycon together with the parking facilities of 13,000 m². The retail project will be handed over to Citycon in three phases:

• First phase (cinema and restaurants) end-May 2017.
• Second phase (major part of the project) is expected to be

handed over in autumn 2017.

• Third phase is expected to be handed over in 2018.

The current occupancy rate is 86 % for the overall retail project. The parking facilities are fully let. The sale is still expected to have a significant positive impact on results in 2017/18 when the completed part of the project is handed over to Citycon. Pre-completion selling process of 3,000 m² owner-occupied dwellings has just started. Construction will be carried out together with the remainder of the project.

28

Sold in advance, excl. residential units

TK Development – Annual Report 2016/17 – 29 March 2017

BROEN Shopping, Esbjerg, Denmark

29

Development of a new shopping center of about 29,800 m². Lease agreements concluded for 88 % of the premises. Construction is progressing well. Opening is scheduled for 10 April 2017. The centre is to be expanded with a cinema. Lease agreement has been concluded with Nordisk Film 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.

65 % partner in development phase

TK Development – Annual Report 2016/17 – 29 March 2017

Amerika Have, Copenhagen, Denmark

• Development of about 12,500 m², primarily housing.
• The project is developed in cooperation with AP

Pension and Udviklingsselskabet By & Havn I/S.

• The residential premises will consist of 121 high-

quality apartments for sale to private owners.

• The process of developing, constructing and selling

the project has progressed satisfactorily.

• 104 of 121 apartments have been sold.
• The profits on project completion and sale will be

recognized when the apartments are handed over to the respective buyers.

• Handover to the buyers will start in May 2017.

30

Development in cooperation with a pension fund

TK Development – Annual Report 2016/17 – 29 March 2017

MetroBielany, residential project, Warsaw, Poland

• Residential Park, Bielany, Warsaw, Poland – phase 2
• Comprises 297 residential units and service facilities.
• The residential units have been sold as owner-
• ccupied apartments to private users.
• Construction has been completed.
• Almost all of the apartments have been handed over

to the individual buyers.

• Residential Park, Bielany, Warsaw, Poland – phase 3
• Comprises 263 residential units and service facilities.
• The residential units will be sold as owner-occupied

apartments to private users.

• The pre-completion sale is progressing satisfactorily,

and 45 % of the units have been sold.

• Construction was initiated in June and is progressing

satisfactorily.

• Completion and handover to the buyers are scheduled

for spring 2018.

31 Phase 2 Phase 3

TK Development – Annual Report 2016/17 – 29 March 2017

Østre Havn, Aalborg, Denmark

• Area previously occupied by Aalborg Shipyard.
• Developed in a joint venture with

Frederikshavn Maritime Erhvervspark.

• Work is proceeding on the development of

about 7,000 m² of youth housing units, about 12,000 m² of rental dwellings, about 13,000 m²

• f owner-occupied dwellings and about 13,000

m² of offices.

• The pre-construction sale of owner-occupied

dwellings of 7,400 m² has begun. Construction is scheduled to start in mid-2017 with completion at end-2018.

• The rental housing is to be constructed in
• phases. The first phase - which has been

conditionally sold to a private investor - comprises about 4,900 m², and construction started at the beginning of 2017.

32 7,400 m² owner-occupied dwellings

TK Development – Annual Report 2016/17 – 29 March 2017

Domus Vista, youth housing units, Frederiksberg, Denmark

33

• Comprises youth housing units of about 5,300 m2.
• Conditionally sold to Koncenton.
• No letting risk.
• Construction started in October 2016.
• Completion and handover scheduled for January

2018.

Sold in advance

TK Development – Annual Report 2016/17 – 29 March 2017

Commercial district, Arninge, Stockholm, Sweden

34

• The municipality has chosen TK Development

as its preferred partner.

• Development of a new commercial district in

Arninge in Stockholm.

• The project comprises about 60,000 m2,

primarily retail stores, with a possibility for including office premises.

• Good amount of interest from tenants.
• Good amount of interest from investors.
• Work on the planning proceeds together

with the municipality.

TK Development – Annual Report 2016/17 – 29 March 2017

BROEN Shopping Shopping centre Esbjerg, Denmark 29,800 m²

• 6. Outlook

35

TK Development – Annual Report 2016/17 – 29 March 2017

Outlook for 2017/18

36

Management expects results for the 2017/18 financial year of DKK 100-120 million before tax. This amount 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. Good progress is recorded on the individual projects.

TK Development – Annual Report 2016/17 – 29 March 2017

Disclaimer

37

The expectations mentioned in this presentation, 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.