The Board of Directors of TK Development has decided that going forward, property development activities will be confined to the Danish and Swedish markets, and the activities in Poland will be divested.
According to the company’s announcement business opportunities are found in the Polish market as well, but, compared against requirements for capital tie-up and the risk profile, the anticipated return is no longer considered attractive. Management believes it would be more appropriate to allocate the capital to the less risky markets of Denmark and Sweden, and the goal is to divest the Polish activities within the next two years.
The group’s focus going forward will be on urban development, housing, retail and business projects and often a combination of these segments. As a general rule, projects will only be initiated if they have been fully or partially presold to investors, and that a minimum of capital is tied up.
Impairment losses on Polish assets
The Polish property development assets have been written down by €8 million (DKK 60 million), distributed on three plots of land in Poznan, Sosnowiec and Bytom which the group has owned for a number of years. Due to their size and to regulatory issues, the short-term development of these plots of land is difficult, and given the plans to divest the Polish activities within two years, there is no longer a viable basis for maintaining the previous valuations. The plots of land have been written down to net realisable value. In addition to these plots, TK Development owns a housing project in progress in Bielany, of which the fourth and final phase has just been initiated and is expected to be completed and sold in 2019.
The Polish asset management activities have been written down by €22.2 million (DKK 165 million). Impairment losses have been recognised on the Group’s wholly-owned shopping centre, Galeria Sandecja in Nowy Sącz, and the 30%-owned shopping centres, Galeria Tarnovia in Tarnów and Galeria Nowy Rynek in Jelenia Góra.
The centre in Nowy Sącz has been severely challenged by competition from a rival centre for a number of years. Maturing and optimisation efforts during the past few years have improved the asset, but its full and previously anticipated potential is no longer expected to be realised within the 2-year period during which the Polish activities are expected to be sold off. Management has decided to attempt to sell the centre as soon as possible, as a result of which it has been written down by €13.4 million (DKK 100 million).
The two 30%-owned shopping centres in Tarnów and Jelenia Góra, respectively, have also been challenged by severe competition. The situation facing the centres is improving but at a slower pace than expected. Due to a postponement of a sale of the centres, TK Development will have to pay a larger than expected advance return to the joint venture partner. TK Development recognised an impairment loss of €3.5 million (DKK 26 million) on the investment in financial year 2016/17 and has now decided to write down its value by an additional €8.7 million (DKK 65 million).
