Annual Report 2012/13

PHOTO: SILLEBROEN, shopping centre Frederikssund, Denmark

TK Development A/S | CVR n0. 24256782

ANNUAL REPORT 2012/13

| Annual report 2012/13 | Tk Development A/S | 1 /127 Table of contents

Page

3 Summary

6 Consolidated financial highlights and key ratios

7 Adjusted strategy and market focus

9 Results for 2012/13 and outlook for 2013/14

19 Market conditions

22 Business concept and knowledge resources

26 Property development

31 Asset management

37 Discontinuing activities

38 Financial targets

39 Risk issues

45 Shareholders

49 Corporate governance

52 Statutory annual corporate social responsibility statement

53 The Supervisory Board

57 The Executive Board

58 Statement by the Supervisory and Executive Boards on the Annual Report

59 Independent auditor’s report

60 Consolidated financial statements

108 Parent company financial statements

127 Company information

2 /127 | Tk Development A/S | Annual report 2012/13 | Table of contents Summary

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

the impairment itself does not impact the cash flow position. progress in new projects to be executed on the land in the Group’s portfolio. In order to harness the long-term, sub- excluding value adjustments/impairment, the results before stantial development potential believed by Management to tax amount to DKK -0.3 million. Based exclusively on the ac- be inherent in several of the Group’s projects, it was decided tivities targeted by the Group’s future strategy and market to revise the sales strategy with a view to realizing faster focus, the results before tax and value adjustments/impair- sales. The changed sales strategy consists of the following ment amount to DKK 9.2 million. elements:

• Completing the sale of selected, completed projects In the 2012/13 financial year, deferred tax assets were writ- and investment properties, even at reduced prices. ten down by an amount of DKK 200.5 million, a substantial • Downsizing the portfolio of land by selling selected portion of which is attributable to the Group’s Danish tax plots that are not essential to TK Development’s future asset. In June 2012, a Bill proposing changes to the rules strategy. for tax loss carryforwards was passed. For TK Development, • Making several writedowns for impairment of the this has considerably lengthened the time horizon for utiliz- Group’s projects, distributed as shown below, which led ing tax losses, and thus significantly increased the uncer- to substantially negative results in the 2012/13 finan- tainty relating to utilization of the tax asset. On the basis of cial year. the changed rules, TK Development identified a need to im- • Freeing up cash resources through sales, enabling the pair the Group’s Danish tax asset by DKK 150.0 million, which Group to strengthen its financial platform. was already recognized in Q1 2012/13 and thus forms part • Procuring financial resources through sales to regene- of the total writedown for impairment. rate momentum and to realize the substantial development potential inherent in several of the Group’s pro- The results after tax amounted to DKK -493.3 million, jects. against DKK 27.0 million in 2011/12.

the changed sales strategy involves writedowns for the im- Consolidated equity totalled DKK 1,389.7 million at 31 Janu- pairment of projects, investment properties and the portfo- ary 2013, corresponding to a solvency ratio of 34.7 %. lio of land totalling DKK 341.3 million, distributed among the following main groups: management considers the results for the year to be highly unsatisfactory. • Impairment of the project portfolio as a consequence of the decision to realize project sales as described Review of sales strategy above, a total of DKK 123.0 million. In December 2012, Management decided to review the • Impairment of the project portfolio, including the deci- Group’s sales strategy. TK Development had long expe- sion to sell land, due in part to the difficult market con- rienced an unsatisfactory market response to its efforts ditions in the residential segment in Poland, a total of to sell completed projects and investment properties due DKK 151.3 million. to sluggish demand. The lack of completed project sales • Other impairment based on market conditions and a means a substantial portion of the Group’s financial re- longer time horizon for developing and maturing indi- sources is tied up in completed projects. This in turn causes vidual projects than previously anticipated, a total of difficulties in allocating the capital necessary for securing DKK 67.0 million.

Summary | Annual report 2012/13 | Tk Development A/S | 3 /127 SUMMARY

regardless of the difficult market conditions, Management 2012, the retail park was handed over to the Swedish prop- finds it highly unsatisfactory having to make the writedowns erty company Nordika Fastigheter AB for a price of SEK 110 for impairment described above. million.

Adjusted strategy and market focus In July 2012, TK Development entered into a conditional Concurrently with the decision to change the sales strategy, agreement with Heitman regarding the sale of two Polish Management initiated a review of the Group’s business are- projects amounting to a total project value of EUR 95 mil- as for the purpose of assessing its future market platform, lion. The sale comprises a 70 % stake in the Group’s Galeria including the countries in which the Group will continue to Tarnovia shopping centre in Tarnów and a new development operate, and the possibility of trimming costs further. project in Jelenia Góra. TK Development realized a minor profit on the completion of this sale and freed up cash re- As described in company announcement no. 6/2013 of 11 sources. In addition, future profits will be generated in the March 2013, Management has now completed this review form of fee income from the jointly owned company estab- and adopted a changed strategy consisting of the following lished for developing, letting and managing the construction elements: of the development project. This sale was completed at the • In addition to its primary business area, Property Devel- end of 2012. The Group’s ownership interests in the projects opment, TK Development will have a secondary busi- have been reclassified as “Investment properties” and “In- ness area, Asset Management, to consist of owning, vestment properties under construction”, respectively. operating, running in, maturing and optimizing completed projects for a medium-long operating period. Asset the first phase of the Group’s project in Bielany, Poland, has management will be performed on TK Development’s been completed. The total project area comprises about own books or for third parties. 56,200 m², primarily housing consisting of 900-1,000 units, • TK Development has chosen a market focus that tar- with 136 being built in the first phase. The sluggishness of gets the countries expected to contribute with long- the Polish residential market has affected the sales process, term, profitable operations in future: Denmark, Sweden, with sales agreements having been signed for about 69 % of Poland and the Czech Republic. the units in the first phase. • TK Development will phase out its activities in Finland, Germany, the Baltic States and Russia. the Group’s project portfolio in the property development • The Group’s portfolio of projects not initiated (plots of area comprised 452,000 m² at 31 January 2013 (31 January land) will be reduced over a two-year period to about 2012: 635,000 m²). DKK 0.5 billion. • Over a two-year period, the balance sheet will be ad- Asset management justed so as to ensure a solvency ratio of about 40 %. the total portfolio of own properties under asset manage- • Overheads will be reduced by around 20 %, with half of ment, which thus generates cash flow, comprised 138,250 the reduction deriving from the discontinuation of ac- m² and amounted to DKK 1,932.1 million at 31 January 2013, tivities in several countries. of which investment properties accounted for DKK 312.1 • Internal and external reporting will be changed to cre- million. The annual net rent from the current leases corre- ate a better overview and highlight values and value sponds to a return on the carrying amount of 6.7 %. Based generation in the Group’s business areas. on full occupancy, the return on the carrying amount is expected to reach 7.9 %. It is Management’s belief that once implemented, these measures will enable the Group to generate satisfactory re- the operation of these properties is generally proceeding turns for its shareholders in future. satisfactorily, and overall the footfall and revenue in the centres are developing positively. Property development In the Swedish town of Gävle, TK Development has devel- Market conditions oped a retail park of about 8,300 m². Construction of the the main challenge currently facing the property sector is retail park was completed in October 2012. In November the difficult access to financing. Uncertainty on the inter-

4 /127 | Tk Development A/S | Annual report 2012/13 | Summary SUMMARY

national financial markets continues to adversely affect the to credit institutions, including project finance loans granted property sector, leading to consistently long decision-mak- by a number of the Company’s major shareholders and mem- ing processes among financing sources, tenants and inves- bers of Management. tors alike. Outlook for 2013/14 the Group will make the startup of major new projects con- Management anticipates positive results before tax for the tingent on obtaining either full or partial financing for them continuing activities for the 2013/14 financial year.T he and on freeing up cash resources from the sale of several timing and progress of the phase-out of the discontinuing major completed projects. activities are subject to major uncertainty, and the results of these activities are therefore not included in the outlook Financial issues for next year. At the forthcoming Annual General Meeting, the Supervi- sory Board will request authorization to carry out a capital As mentioned above, Management has revised the sales increase with gross proceeds of about DKK 210-231 million. strategy for the Group’s projects and chosen to accept re- The capital increase will help generate the cash resources duced prices for selected project sales. Thus, Management required to underpin future operations and project flow, and considers it important for the Group to sell some of its com- thus long-term earnings. The capital increase has been dis- pleted projects and plots of land in the 2013/14 financial cussed with the Group’s major shareholders, who, together year. with a few major private and institutional investors, have given conditional subscription and underwriting commitments The expectations mentioned in this annual report, including for the total capital increase. earnings expectations, are naturally subject to risks and uncertainties, which may result in deviations from the expected re- The Group’s main banker has indicated its preparedness to sults. Various factors may impact on expectations, as outlined prolong TK Development’s credit facilities subject to specific in the section “Risk issues”, particularly the valuation of the conditions being met, which includes reducing the operating Group’s project portfolio. credit limit by DKK 50 million. The prolongation is expected to be formally accepted immediately after publication of TK Development’s Annual Report 2012/13.

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

Summary | Annual report 2012/13 | Tk Development A/S | 5 /127 Consolidated financial highlights and key ratios

DKKm 2008/09 2009/10 2010/11 2011/12 2012/13

FINANCIAL HIGHLIGHTS:

Net revenue 1,073.2 1,384.9 602.4 359.8 632.3 Value adjustment of investment properties, net 57.7 -10.9 30.0 36.7 -37.8 Gross profit/loss 375.0 200.5 256.0 195.8 -139.5 Operating profit/loss (EBIT) 201.7 57.5 127.2 65.5 -241.1 Financing, etc. -33.4 -17.9 -53.2 -83.6 -87.4 Profit/loss before tax and writedowns, etc. 98,7 53,8 48,2 -1,2 -0,3 Profit/loss before tax 168.0 39.4 74.2 14.3 -326.0 Profit/loss for the year 155.2 25.4 73.6 27.0 -493.3

Balance sheet total 3,816.1 4,377.3 4,622.0 4,639.5 4,009.3 Property, plant and equipment 380.8 364.3 394.2 445.2 498.8 of which investment properties/investment properties under construction 366.5 355.1 387.4 440.5 496.3 Total project portfolio 2,541.3 3,249.5 3,424.7 3,498.1 3,030.9 Contract work in progress 3.7 17.8 12.2 18.2 0.0 Equity 1,506.0 1,593.4 1,866.0 1,876.4 1,389.7

Cash flows from operating activities -331.7 -582.8 -182.7 -78.8 45.6 Net interest-bearing debt, end of year 1,509.5 2,178.9 2,170.2 2,244.9 2,206.1

KEY RATIOS:

Return on equity (ROE) 10.5 % 1.6 % 4.3 % 1.4 % -30.2 % EBIT margin 18.8 % 4.2 % 21.1 % 18.2 % -38.1 % Solvency ratio (based on equity) 39.5 % 36.4 % 40.4 % 40.4 % 34.7 % Equity value in DKK per share 50.5 53.4 44.4 44.6 33.0 Price/book value (P/BV) 0.4 0.5 0.5 0.3 0.4 Number of shares, end of year 28,043,810 28,043,810 42,065,715 42,065,715 45,065,715 Average numbers of shares, adjusted 28,043,810 28,043,810 35,095,222 42,065,715 45,065,715 Earnings per share (EPS) in DKK 5.2 0.9 2.1 0.6 -11.7 Dividend in DKK per share 0 0 0 0 0 Listed price in DKK per share 21 27 23 14 13

KEY RATIOS ADJUSTED for warrants:

Return on equity (ROE) 10.5 % 1.6 % 4.3 % 1.4 % -30.2 % Solvency ratio (based on equity) 39.5 % 36.4 % 40.4 % 40.4 % 34.7 % Equity value in DKK per share 50.5 53.4 44.4 44.6 33.0 Diluted earnings per share (EPS-D) in DKK 5.2 0.9 2.1 0.6 -11.7

The calculation of key ratios was based on the 2010 guidelines issued by the Danish Society of Financial Analysts.

66/127 /127 || TTkk DevelopmentDevelopment A/SA/S || F iAnnunanciaall report statement 2012/13s 2012/13 | Consolida | Consolidated financialted financial highligh highlights andts key and ra keytios ra tios Adjusted strategy and market focus

In connection with presenting its Interim Report for Q1-Q3 Initiatives to restore a viable business 2012/13 in December 2012, TK Development announced that model the Company’s Management would initiate a review of the In Management’s opinion, attractive earnings can be generat- Group’s business areas for the purpose of assessing its future ed by implementing development projects when taking into market platform, including the countries in which the Group will account the new levels of determining variables in property continue to operate, and the possibility of trimming costs fur- development: Land prices, construction costs, occupancy level ther. and investors’ return requirements.

As described in company announcement no. 6/2013 of 11 Management is also of the opinion that asset management ac- March 2013, this review has now been completed, and at a tivities can yield attractive earnings in future, with the matur- board meeting on 11 March 2013, i.e. after the reporting date, ing of own projects playing a particularly vital role for obtaining the Supervisory Board adopted the revised strategy and busi- optimum selling prices. ness model outlined below. However, the current challenging market conditions, combined The Group’s mission will be the same with the Group’s own circumstances, require calibrating a number of factors with a view to enhancing the Group’s ability to The Group’s mission create value and thus to restore a viable business model as well The overall mission of TK Development is to create added as an attractive investment case for the Group’s shareholders. value by developing real property. The Group operates in the property development and services environments, Management has decided to implement the following adapta- and specializes in being the creative and result-oriented tions: link between tenants and investors.

1. Focusing on the countries that are expected to contribute Adjusted strategy with long-term, profitable operations in future: Denmark, In addition to its primary business area, property development, Sweden, Poland and the Czech Republic. the Group will have a constant portfolio of completed projects 2. Phasing out the activities in Finland, Germany, the Baltic that it will run in/mature to optimize the project value. At times, States and Russia. The phase-out with the resulting clo- this secondary business area may represent a vast balance sure of offices and dismissal of employees will be carried sheet total and significantly affect the Group’s results. The two out as soon as possible, but while taking into account that business areas comprise: all the countries in question have projects that need to be handled optimally so as to avoid an unnecessary erosion Property development of values. Developing projects from the conceptual phase through to pro- 3. Reducing the portfolio of projects not initiated (plots of ject completion, based on one of several models: land) over a two-year period from the current level of DKK a) Sold projects 1.1 billion to a level of DKK 0.5 billion. • Forward funding 4. Reducing overheads by about 20 %, with half of the re- • Forward purchase duction deriving from the discontinuation of activities in b) projects with partners Germany, the Baltic States and Finland. c) on TK Development’s own books based on a high degree of confidence in the letting and sales potential The aim is to increase the solvency ratio to a level of about 40 d) Services for third parties. %. As part of fulfilling this target, TK Development will strive to secure cheaper financing for the Group. At the forthcoming Asset management Annual General Meeting, the Supervisory Board will request au- Owning, operating, maturing and optimizing completed projects thorization to carry out a capital increase with gross proceeds for a medium-long operating period whose length matches the of about DKK 210-231 million. potential for generating sufficient added value. Asset management will be performed on TK Development’s own books and also for third parties.

Management Commentary | Annual report 2012/13 | Tk Development A/S | 7 /127 ADJUSTED STRATEGY AND MARKET FOCUS

Changes to internal and external Where will the Group be in two years? reporting

Management has decided to change the Group’s internal and The transformation process to implement the resolved external reporting to create a better overview and highlight val- initiatives is expected to take two years, after which the ues and value generation in the Group’s business areas. Group is assumed to be in the following position:

• The remaining activities will be limited to Denmark, The business segments will be structured as follows: Sweden, Poland and the Czech Republic. • Property development activities • The portfolio of projects not initiated (plots of land) • Asset management activities will have been reduced from about DKK 1.1 billion to • Discontinuing activities. about DKK 500 million. • The balance sheet will have been adjusted, with a solvency ratio of about 40 %. The reporting will be based on property development and asset • Financing costs will have been normalized as a re- management activities, which will be the two main future busi- sult of the initiatives implemented. ness segments. The activities being phased out will be termed • A platform for normalized earnings will have been established. discontinuing activities, and will be considered a separate seg- • The changes to reporting will have provided a bet- ment for reporting purposes. ter overview of the Group’s activities, values, value creation and expected development. The management commentary in this annual report uses this segmentation.

Organizational focus on segments and risks To underpin the segmentation chosen, it has been decided to organize the business activities so as to best ensure management focus on both property development and asset management activities.

The Group will strengthen its risk management by striving only to initiate projects based on a strict awareness that the expected earnings will match the project’s complexity, completion time, tied-up capital and other use of resources. The portfolio composition and the size of individual projects relative to the balance sheet total and the Company’s equity are other significant elements in the Group’s risk management system.

8 /127 | Tk Development A/S | Annual report 2012/13 | Management Commentary Results for 2012/13 and outlook for 2013/14

TK Development recorded results of DKK -326.0 million before The results for 2012/13 and the balance sheet total at 31 Jan- tax, which reflects the recent results estimate of about DKK uary 2013 broken down by the new segments adopted by the -300 million before tax. Results after tax amounted to DKK Supervisory Board appear from the tables below. -493.3 million. In the 2011/12 financial year, TK Development recorded a profit of DKK 14.3 million before tax and DKK 27.0 The results and balance sheet total for each segment, includ- million after tax. ing a more detailed account of the elements of the individual business areas/segments, are described on pages 26-37. At the beginning of the financial year, TK Development anticipated positive results before tax for 2012/13, and Manage- the Property Development segment is described on pages ment considers the realized results highly unsatisfactory. 26-30. The description includes information about the development potential of TK Development’s project portfo- Results were negatively affected by value adjustments of in- lio, including an outline of the individual development pro- vestment properties and the impairment of projects, totalling jects. DKK 341.3 million. The value adjustments and impairment losses themselves do not impact the cash flow position. The Asset Management segment is described on pages 31-36. The description contains information about TK Excluding value adjustments/impairment, the results before Development’s own properties under asset management, tax amount to DKK -0.3 million. Based exclusively on the ac- including an outline of the operation and customer influx for tivities targeted by the Group’s future strategy and market fo- the individual projects. cus, the results before tax and value adjustments/impairment amount to DKK 9.2 million. The Discontinuing activities are described on page 37, which provide more details about TK Development’s prop- The balance sheet total amounted to DKK 4,009.3 million at 31 erties and projects in the countries where Management has January 2013 against DKK 4,639.5 million at 31 January 2012. decided to phase out activities. Consolidated equity totalled DKK 1,389.7 million, and the solvency ratio stood at 34.7 %. Therefore, the financial review below contains a description of the results and balance sheet total at group level only.

RESUlTS 2012/13 (DKKm) Property Asset Discontinuing Profit/loss 2012/13 Development Management Activities Unallocated Revenue 632.3 183.4 434.5 14.4 - Gross profit/loss -139.5 -81.8 -21.0 -36.7 - Costs 99.4 - - 9.6 89.8 Operating profit/loss -241.1 -81.8 -21.0 -46.4 -91.9 Financing, net -87.4 -2.8 -63.4 -8.2 -13.0 Profit/loss before tax and writedowns, etc. -0,3 44,1 70,0 -9,5 -104,9 Profit/loss before tax -326.0 -83.0 -84.4 -53.7 -104.9 Tax on profit/loss for the year 167.3 167.3 Profit/loss for the year -493.3 -272.2

The balance sheet structure appears from the next page.

Management Commentary | Annual report 2012/13 | Tk Development A/S | 9 /127 RESULTS FOR 2012/13 AND OUTLOOK FOR 2013/14

Balance sheet structure at 31 January 2013 (DKKm)

Property Asset Discontinuing Balance sheet 31 Jan 2013 Development Management Activities Unallocated Assets Investment properties 479.4 - 312.1 167.3 - Investment properties under construction 16.9 16.9 - - - Other non-current assets 169.9 3.2 3.2 0.1 163.4 Projects in progress or completed 3,030.9 1,175.3 1,620.0 235.6 - Receivables 241.0 70.6 144.4 22.0 4.0 Deposits in blocked and escrow accounts, etc. 40.0 18.5 21.0 0.4 0,1 Cash and cash equivalents 31.2 - - - 31.2 Assets 4,009.3 1,284.5 2,100.7 425.4 198.7

Equity and liabilities Equity 1,389.7 566.5 712.6 234.3 -123.7 Credit institutions 2,291.3 567.2 1,258.9 186.6 278.6 Other liabilities 328.3 150.8 129.2 4.5 43.8 Equity and liabilities 4,009.3 1,284.5 2,100.7 425.4 198.7

Solvency ratio 34.7 % 44.1 % 33.9 % 55.1 % -62.3 %

Accounting policies ties and the functional currency of the Parent Company. The consolidated financial statements and parent financial statements for 2012/13 for the Group and TK Development Income statement A/S, respectively, are presented in compliance with the Interna- Revenue tional Financial Reporting Standards (IFRS), as adopted by the The revenue for 2012/13 totalled DKK 632.3 million against EU, and in accordance with Danish disclosure requirements for DKK 359.8 million in 2011/12. annual reports of listed companies. The revenue stems from the sale of projects, rental and fee in- The consolidated financial statements and parent financial come, etc. statements for 2012/13 have been presented in accordance with the financial reporting standards (IFRS/IAS) and IFRIC inter- Overview of handed-over projects pretations applicable for financial years beginning at 1 February Q1 2012/13 2012. • Handover of a minor project in Aarhus, Denmark, which included a supermarket for Rema1000. The implementation of amended financial reporting standards and interpretations entering into force in 2012/13 has not im- Q2 2012/13 pacted recognition and measurement in the consolidated fi- • Handover of the final and second phase of a retail park in nancial statements and thus has no effect on the earnings per Kristianstad, Sweden. In addition to an existing building of share and the diluted earnings per share. about 4,500 m², which was handed over to the investor in April 2011, the total project comprises an extension of The accounting policies have been consistently applied com- about 1,700 m², sold to the same investor. The fully-let ex- pared to the 2011/12 financial year. tension was completed and handed over to the investor in May 2012. The consolidated financial statements and parent financial statements are presented in DKK million, unless otherwise • Completion of a 9,950 m² extension to the Futurum Hra- stated. DKK is the presentation currency for the Group’s activi- dec Králové shopping centre in the Czech Republic, owned

10 /127 | Tk Development A/S | Annual report 2012/13 | Management Commentary RESULTS FOR 2012/13 AND OUTLOOK FOR 2013/14

by a joint venture between GE Capital, Heitman and TK De- faster sales. The Group had long experienced an unsatisfactory velopment in which TK Development has a 20 % ownership market response to its efforts to sell completed projects and interest. The newly built premises opened as scheduled on investment properties due to sluggish demand. 10 May 2012. TK Development has received fees from the jointly owned company for letting and construction man- The lack of completed project sales means a substantial por- agement. tion of the Group’s financial resources is tied up in completed projects. This in turn causes difficulties in allocating the capital Q3 2012/13 necessary for securing progress in new projects to be execut- • Completion and handover of a minor retail project in Viborg, ed on the land in the Group’s portfolio. In order to harness the Denmark, tenanted by Harald Nyborg. The project has been long-term, substantial development potential believed by Man- sold to private investors. agement to be inherent in several of the Group’s projects, it was decided in December 2012 to revise the sales strategy with a Q4 2012/13 view to realizing faster sales. The changed sales strategy con- • Sale and handover of an 8,300 m2 retail park in the Swed- sists of the following elements: ish town of Gävle. Following completion of construction in October 2012, the retail park was handed over in No- Completing the sale of selected, completed projects and in- vember 2012 to the Swedish property company Nordika vestment properties, even at reduced prices. Fastigheter AB for a price of SEK 110 million. The current Downsizing the portfolio of land by selling selected plots occupancy rate is 94 % (Q1-Q3 2012/13: 94 %), and lease that are not essential to TK Development’s future strategy. agreements have been concluded with Rusta, Jysk, Sta- making several writedowns for impairment of the Group’s pro- dium Outlet and Ö&B. Moreover, TK Development has an jects, distributed as shown below, which led to substantially option to buy a plot of land for developing additional retail negative results in the 2012/13 financial year. park premises of about 15,800 m². Freeing up cash resources through sales, enabling the Group to strengthen its financial platform. • Completion of conditional agreement with Heitman re- procuring financial resources through sales to regenerate garding the sale of two Polish projects: the Group’s Galeria momentum and to realize the substantial development po- Tarnovia shopping centre in Tarnów and a new develop- tential inherent in several of the Group’s projects. ment project in Jelenia Góra. The agreement means that Heitman has acquired a 70 % shareholding in the two Pol- The changed sales strategy involves writedowns for the impair- ish projects. Reference is made to the following page for a ment of projects, investment properties and plots of land to- further description of the agreement. talling DKK 341.3 million, distributed among the following main groups: Gross margin The gross margin for the 2012/13 financial year amounted to Impairment of the project portfolio as a consequence of the DKK -139.5 million against DKK 195.8 million in 2011/12. The decision to realize project sales as described above, a total gross margin derives from the operation of the Group’s com- of DKK 123.0 million, of which DKK 37.8 million is attributa- pleted projects, the operation and value adjustment of the ble to investment properties. Group’s investment properties, profits on handed-over projects Impairment of the project portfolio, including the decision to and impairment of the project portfolio. sell land, due in part to the difficult market conditions in the residential segment in Poland, a total of DKK 151.3 million. The gross margin was negatively affected by value adjust- other impairment based on market conditions and a longer ments of investment properties and writedowns for the impair- time horizon for developing and maturing individual projects ment of projects totalling DKK 341.3 million, of which DKK 16.6 than previously anticipated, a total of DKK 67.0 million. million relates to Q4 2012/13. Impairment in Q4 2012/13 relates mainly to discontinuing activi- At the end of December 2012, as announced in TK Develop- ties, including the Group’s German investment properties. ment’s Interim Report for Q1-Q3 2012/13, Management decided to revise the Group’s sales strategy with a view to realizing Impairment of the project portfolio as a consequence of the deci-

Management Commentary | Annual report 2012/13 | Tk Development A/S | 11 /127 RESULTS FOR 2012/13 AND OUTLOOK FOR 2013/14

agreement with Heitman regarding the The agreement means that Heitman has acquired a 70 % shareholding sale of two Polish projects in the two Polish projects. TK Development realized a minor profit on In July 2012, TK Development entered into a conditional agreement with the completion of this sale and freed up cash resources. In addition, fu- Heitman regarding the sale of two Polish projects amounting to a total ture profits will be generated in the form of fee income from the jointly project value of EUR 95 million. The sale comprises the Group’s Galeria owned company established for developing, letting and managing the Tarnovia shopping centre in Tarnów and a new development project in construction of the development project. Jelenia Góra. The agreement was finally completed in December 2012.

Galeria Tarnovia, shopping centre, Tarnów, Poland

The selling price for the Galeria Tarnovia shopping centre is in the EUR 40 million range. The current debt financing of the project will be maintained, and Heitman will make equity financing available to the company in proportion to its ownership interest. As a result of the sale, TK Development will generate a mi- nor profit on the project and free up cash resources.

Shopping centre, Jelenia Góra, Poland

TK Development has bought a plot of land in Jelenia Góra and has an option on additional land for the development of a shopping centre of about 24,000 m². The project will comprise a supermarket of about 2,200 m² and retail, restaurant and service premises totalling about 21,800 m². The local plan for the area is in place and the letting of premises has started. Construction is expected to commence in 2013, and the shopping centre is scheduled to open in 2015.

Heitman has taken over a 70% stake in the project at its current stage proceeds on the resale of the projects. In addition, TK Development will of development, and in future the project, including construction, will generate fee income from the jointly owned company established for be developed in cooperation with Heitman. The total project value is ex- developing, letting and managing the construction of the development pected to be in the EUR 55 million range. The partnership will allow more project. efficient use of the Group’s resources and improve its equity allocation, in that Heitman - upon the fulfilment of the conditions - will make equity The overall agreement with Heitman falls in line with the Group’s busi- financing available in proportion to its ownership interest. ness model, according to which TK Development wishes to enter into partnerships regarding completed properties and new development The agreement involves further maturing Galeria Tarnovia as well as projects, and thus to improve the allocation of the Company’s equity, di- running in and maturing the shopping centre in Jelenia Góra following its versify risks and better utilize the Group’s development competencies. opening, scheduled for 2015. The intention is to subsequently resell the projects. According to the parties’ agreement, a resale may take place TK Development’s ownership interests in the projects will be reclassi- after a three-year period following conclusion of the agreement. fied as “Investment properties” and “Investment properties under construction”, respectively. The agreement will give Heitman a preferential return, while TK Devel- opment will be entitled to a performance-based share of any additional

12 /127 | Tk Development A/S | Annual report 2012/13 | Management Commentary RESULTS FOR 2012/13 AND OUTLOOK FOR 2013/14

sion on project sales amounts to DKK 123.0 million, of which DKK cesses among tenants – have delayed the running-in and matur- 37.8 million is attributable to investment properties; see below. ing of the outlet centre. The remaining portion of writedowns for impairment relates in part to the Group’s Czech Fashion Arena Outlet Center project Regardless of the difficult market conditions,M anagement finds in Prague. In order to secure future operations, project flow and it highly unsatisfactory having to make the writedowns for im- earnings, Management has attached great importance to real- pairment described above. izing projects and simultaneously freeing up cash resources to strengthen the Group’s financial platform. Management has Concurrently with the decision to change the sales strategy, therefore revised the Group’s sales strategy with a view to re- Management initiated a review of the Group’s business areas for alizing faster sales and consequently accepting project sales at the purpose of assessing its future market platform, including reduced prices. The writedowns for impairment have been made the countries in which the Group will continue to operate, and on this basis. the possibility of trimming costs further. Management has now completed this review, and at a board meeting on 11 March 2013, Impairment of the project portfolio, including the decision to sell i.e. after the reporting date, the Supervisory Board adopted a re- land, due in part to the difficult market conditions in the residen- vised strategy and business model, which is outlined above. tial segment in Poland, amounts to DKK 151.3 million. This impairment is primarily a consequence of Management’s decision It is Management’s belief that once implemented, these meas- to attempt reducing the portfolio of land by means of selling se- ures will enable the Group to generate satisfactory returns for lected plots. Management wishes to reduce the Group’s risk at- its shareholders in future. taching to the Polish residential project in Bielany, Warsaw, which is expected to have an unsatisfactorily long time horizon in the The value adjustment of the Group’s investment properties current challenging market. Thus, Management has decided to amounted to DKK -37.8 million against DKK 36.7 million in attempt selling some of this land. It is assessed that the sale of 2011/12. DKK -24.3 million of this value adjustment relates land without project execution will entail a loss relative to the to the Czech investment property Futurum Hradec Králové, in- carrying amount, and this loss has been included in the valua- cluding the extension of the same property completed in May tion of the impairment made. A minor part of the writedowns for 2012. Futurum Hradec Králové is owned in a joint venture with GE impairment relates to the lower selling prices of residential units Capital and Heitman. The joint venture has decided to attempt than anticipated in the first phase of the project and is a conse- selling the property. Based on the ongoing sales process, Man- quence of the sluggish market as well as the price adjustments agement has chosen to change the valuation of the property, resulting from the large supply of new housing for sale, among recognizing the negative value adjustment in the second quarter other factors. of 2012/13.

The scope of housing projects launched in Warsaw is now di- The value adjustment of the German investment properties minishing, and over time the supply of housing is expected to amounts to DKK -13.5 million, which relates mainly to ongoing stabilize. It remains difficult for individual buyers to obtain sat- sales negotiations, as Management considers it essential to isfactory home purchase loans because the banks require high downscale the German activities with particular reference to the borrower equity. Therefore, buyers are showing a preference for adjusted strategy and market focus. lower-priced areas to obtain more floor space. For this reason, Management has chosen to prioritize another of the Group’s res- Staff costs and other external expenses idential projects in a lower-priced area of Warsaw. The startup of Staff costs and other external expenses amounted to DKK 99.4 the remaining part of the Bielany project will be postponed until million for the year under review against DKK 127.5 million in market conditions have improved. 2011/12, a reduction of about 22 %.

Other impairment based on market conditions and a longer de- Staff costs amounted to DKK 69.2 million against DKK 92.9 mil- velopment and maturing horizon for individual projects than pre- lion the year before, a decline of about 25 %. The number of em- viously anticipated amounts to DKK 67 million and is partly attrib- ployees totalled 112 at 31 January 2013, including employees utable to the Group’s stake in Ringsted Outlet. Despite steadily working at operational shopping centres. increasing revenue and footfall at Ringsted Outlet, Management has had to acknowledge that the continued difficult market Other external expenses amounted to DKK 30.2 million, a 13 % conditions – partly due to consistently long decision-making pro- reduction compared to 2011/12.

Management Commentary | Annual report 2012/13 | Tk Development A/S | 13 /127 RESULTS FOR 2012/13 AND OUTLOOK FOR 2013/14

In connection with the adjustment of the Group’s strategy and on the impairment test made, Management has found no indi- market focus, see above, Management has trimmed costs so cations of impairment of goodwill. as to reduce overheads by a further 20%, half of which will de- rive from the discontinuation of the Group’s activities in Germa- Investment properties and investment properties under ny, Finland and the Baltic States. construction TK Development’s investment properties consist of: Development in costs: • Futurum Hradec Králové, shopping centre, the Czech 180 Republic (a 20 % interest). 150 • Galeria Tarnovia, shopping centre, Tarnów, Poland (a 30 % 120 100 interest). 90 • German investment properties. 60 50

30 The total value of the Group’s investment properties amounted 0 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 to DKK 479.4 million against DKK 366.9 million at 31 January (E) (E) Costs, DKKm Costs (2008/09 = Index 100) 2012. DKK 167.3 million of the value at 31 January 2013 is attributable to the Group’s German investment properties, which Financing are described in more detail in the section “Discontinuing activ- TK Development realized net financing expenses of DKK 87.4 ities” below. The two remaining investment properties belong million against DKK 83.6 million in 2011/12. to the asset management segment and are described in more detail under that heading. Tax on profit/loss for the year Tax on the results for the year amounts to DKK 167.3 million, The Czech investment property, the Futurum Hradec Králové which includes impairment of the Group’s deferred tax assets shopping centre, is owned in a joint venture with GE Capital and totalling DKK 200.5 million. A substantial portion of this impair- Heitman. TK Development has access to a performance-based ment is attributable to the Group’s Danish tax asset as a result share of the value adjustments on the property, which has been of changed tax rules; see under ”Deferred tax assets” below. included in the carrying amount. The joint venture has decided to attempt selling the property and has initiated the sales pro- Development in results cess. As in the previous quarters, the valuation as at 31 January

1,500 2013 has been made on the basis of the ongoing sales process. The valuation at 31 January 2013 resulted in a negative value 1,000 adjustment of DKK 24.3 million, which was recognized in the

500 second quarter of 2012/13.

0 An extension of the Futurum Hradec Králové shopping centre,

-500 comprising about 9,950 m², has been built. Construction pro- 2008/09 2009/10 2010/11 2011/12 2012/13 gressed according to plan, and the extension opened as sched- Revevue, DKKm Operating proﬁt/loss, DKKm uled on 10 May 2012. At the beginning of the financial year, the extension was classified under “Investment properties under Balance sheet construction”, but was transferred to “Investment properties” The Group’s balance sheet total amounts to DKK 4,009.3 mil- in the second quarter of 2012/13 following the completion of lion, which is a decline of DKK 630.2 million compared to 31 Jan- construction and the opening of the extension. Thus, the ex- uary 2012, equal to 13.6 %. tension is included in the above-mentioned carrying amount.

Goodwill TK Development’s 30 % ownership interest in Galeria Tarnovia Goodwill is unchanged compared to 31 January 2012, amount- has been valued at fair value based on completion of the sale to ing to DKK 33.3 million at the reporting date. The goodwill re- Heitman of 70 % of the property in December 2012; see above. lates to the Group’s activities in Poland and the Czech Republic TK Development’s investment properties under construction in Euro Mall Holding A/S, a subgroup of TK Development. Based consist of the Group’s ownership interest in the Jelenia Góra

14 /127 | Tk Development A/S | Annual report 2012/13 | Management Commentary RESULTS FOR 2012/13 AND OUTLOOK FOR 2013/14

development project in Poland. are postponed or not implemented and the risk that project profits fall below expectations. A change in the conditions and TK Development has bought a plot of land in Jelenia Góra and assumptions for budgets and profit forecasts, including time has an option on additional land for the development of a shop- estimates, could result in the value of the tax assets being low- ping centre of about 24,000 m². The project will comprise a su- er than that computed at 31 January 2013, which could have permarket of about 2,200 m² and retail, restaurant and service an adverse effect on the Group’s results of operations and fi- premises totalling about 21,800 m². The local plan for the area nancial position. is in place and the letting of premises has started. Construc- tion is expected to commence in 2013, and the shopping cen- Project portfolio tre is scheduled to open in 2015. In December 2012, 70 % of The total project portfolio came to DKK 3,030.9 million against the project was handed over to Heitman, see above, and in this DKK 3,498.1 million at 31 January 2012. The decline amounts connection the Group’s 30 % ownership interest was classified to DKK 467.2 million and derives from an increase in the project as an “Investment property under construction”. No value ad- portfolio related to the Group’s projects in progress and com- justment of the investment property was made at 31 January pleted during the period coupled with a decline resulting from 2013, as the parties are awaiting final permits for the project the sale of projects and writedowns for impairment made; see and further clarification of the building phase, including the tim- above. ing of construction startup, construction period, etc. Total prepayments based on forward-funding agreements were Deferred tax assets DKK 369.6 million at 31 January 2013, compared to DKK 293.3 Deferred tax assets were recorded at DKK 127.0 million in the million at 31 January 2012. Forward funding increased mainly balance sheet against DKK 291.7 million at 31 January 2012. In due to the accumulated forward funding and prepayments on the 2012/13 financial year, deferred tax assets were written projects in progress. At 31 January 2013, forward funding re- down by DKK 200.5 million. A substantial portion of this amount presented 91.1 % of the gross carrying amount of sold projects. is attributable to the reduction of the Group’s Danish tax asset resulting from changed rules for tax loss carryforwards. The Group’s total portfolio of completed projects and investment properties amounted to DKK 2,132 million at 31 January In June 2012, a Danish Bill proposing changes to the rules for 2013 (31 January 2012: DKK 2,394 million), and the Group’s net tax loss carryforwards was passed. This means that only 60 % interest-bearing debt amounted to DKK 2,206 million (31 Janu- of losses from previous income tax years in excess of DKK 7.5 ary 2012: DKK 2,245 million). million are deductible from the year’s taxable income. For TK 2,500 Development, this has considerably lengthened the time hori- 162 % 1,875 zon for utilizing tax losses and significantly increased the un- 128 % certainty relating to utilization of the tax asset. On the basis of 1,250 103 % 88 % 94 % the changed rules, TK Development identified a need to impair 625 the Group’s Danish tax asset by DKK 150.0 million, which was 0 already recognized in Q1 2012/13 and thus forms part of the 31.1.09 31.1.10 31.1.11 31.1.12 31.1.13 total impairment of the Group’s deferred tax assets. Net interest-bearing debt, DKKm Debt relative to projects Investment properties and completed projects, DKKm

The valuation of the tax assets is based on existing budgets Receivables and profit forecasts for a five-year period. For the first three Total receivables amounted to DKK 241.0 million, a decline of years, budgets are based on an evaluation of specific projects DKK 21.3 million from 31 January 2012 that relates mainly to in the Group’s project portfolio. The valuation for the next two contract work in progress and other receivables. years is based on specific projects in the project portfolio with a longer time horizon than three years as well as various project Cash and cash equivalents opportunities. Cash and cash equivalents amounted to DKK 31.2 million against DKK 55.1 million at 31 January 2012. The Group’s total Due to the substantial uncertainties attaching to these val- cash resources, see note 35, came to DKK 70,1 million against uations, provisions have been made for the risk that projects DKK 134.8 million at 31 January 2012.

Management Commentary | Annual report 2012/13 | Tk Development A/S | 15 /127 RESULTS FOR 2012/13 AND OUTLOOK FOR 2013/14

Equity million). The negative cash flows result from a reduction of pay- The Group’s equity came to DKK 1,389.7 million against DKK ables to credit institutions coupled with the financing raised for 1,876.4 million at 31 January 2012. project investments.

Since 31 January 2012, equity has partly been affected by the Financial issues results for the period and positive market-value adjustments At the forthcoming Annual General Meeting, the Supervisory after tax of DKK 5.7 million related to foreign subsidiaries and Board will request authorization to carry out a capital increase hedging instruments. with gross proceeds of about DKK 210-231 million. The capital increase will help generate the cash resources required to un- The solvency ratio amounts to 34.7 %. derpin future operations and project flow, and thus long-term earnings. The capital increase has been discussed with the Equity and solvency ratio Group’s major shareholders, who, together with a few major private and institutional investors, have given conditional sub- 2,000 scription and underwriting commitments for the total capital

1,500 increase. The more specific terms and conditions governing the capital increase have not yet been determined. The terms and 1,000

40.4 % 40.4 % conditions will be described in detail in the prospectus to be 39.5 % 59 %

500 36.4 % published in connection with the capital increase. 34.7 %

0 31 Jan 09 31 Jan 10 31 Jan 11 31 Jan 12 31 Jan 13 The Group’s short-term debt to credit institutions consists of

Equity, DKKm Solvency ratio operating and project credits. TK Development has entered into a general agreement with the Group’s main banker about both Non-current liabilities types of credit. The agreement and the associated conditions The Group’s non-current liabilities represented DKK 141.0 mil- are renegotiated once a year, and Management expects the lion against DKK 195.7 million at 31 January 2012. The decline agreement to continue; see below. is primarily attributable to debt owing to credit institutions. The Group’s main banker has indicated its preparedness to Current liabilities prolong TK Development’s credit facilities subject to specific The Group’s current liabilities represented DKK 2,478.6 million conditions being met, which includes reducing the operating against DKK 2,567.4 million at 31 January 2012. The decline credit limit by DKK 50 million. The prolongation is expected to is primarily attributable to payables to credit institutions and be formally accepted immediately after publication of TK De- trade payables. velopment’s Annual Report 2012/13.

Cash flow statement In addition, the Group has entered into project-financing agree- The Group’s cash flows from operating activities were positive ments with various banks in Denmark and abroad. Project cred- in the amount of DKK 45.6 million (2011/12: DKK -78.8 million). its are usually granted with different terms to maturity, de- This amount is a combined result of a reduction of funds tied pending on the specific project. up in projects due to project sales, new project investments, interest and tax paid, as well as other operating items. During the year under review, the Group was in continuous dialogue with a few credit institutions regarding the postpone- The Group’s cash flows from investing activities were positive in ment of repayment obligations on project credits until one or the amount of DKK 6.4 million (2011/12: DKK 9.8 million), which more of the major completed projects have been sold, and is primarily a combined result of additional investments in the agreements regarding the postponement of such repayments extension of the Group’s Czech investment property complet- have now fallen into place. ed in May 2012 and the sale of a minor investment property in Germany. Of the total project credits outstanding at 31 January 2013, credits worth DKK 1.5 billion are due to mature in the 2013/14 The cash flows from financing activities for the year were neg- financial year, including continuing repayment obligations on ative in the amount of DKK 76.2 million (2011/12: DKK 32.3 individual project credits of about DKK 80 million. After the re-

16 /127 | Tk Development A/S | Annual report 2012/13 | Management Commentary RESULTS FOR 2012/13 AND OUTLOOK FOR 2013/14

porting date, agreements regarding the refinancing of DKK 0.2 investments in group enterprises amounted to DKK 870.2 mil- billion have been made. Moreover, the Group’s main banker and lion at 31 January 2013 (31 January 2012: DKK 460.2 million). other credit institutions have indicated their preparedness to prolong existing credit facilities. When final commitments in this At 31 January 2013, the balance sheet total amounted to DKK respect have been received, credit facilities of DKK 1.1 billion 2,058.6 million, a decline of DKK 332.6 million over the year be- will have been prolonged, and credit facilities of DKK 0.3 billion fore. Equity totalled DKK 1,868.6 million at 31 January 2013, a will be due to mature in 2013/14. The Group depends on being decline of DKK 332.9 million relative to 31 January 2012. This able to continue obtaining either a prolongation or alternative decline is mainly attributable to the profit recorded for the year. financing of the project credits not expected to be repaid upon project sales. The Group is in ongoing dialogue with the relevant Outlook for 2013/14 credit institutions, and Management anticipates being able to Management anticipates positive results before tax for the either prolong or refinance these project credits. Some of the continuing activities for the 2013/14 financial year. The timing proceeds from the capital increase or the cash freed up on the and progress of the discontinuation of activities are subject to sale of major completed projects will help reduce the debt to major uncertainty, and the results of the discontinuation are credit institutions, including project finance loans of DKK 68.5 therefore not included in the outlook for next year. million granted by a number of the Company’s major shareholders and members of Management. As mentioned above, Management has revised the sales strategy for the Group’s projects and chosen to accept reduced pric- Transactions with related parties es for selected project sales. Thus, Management considers it No major or unusual transactions were made with related par- important for the Group to sell some of its completed projects ties in the first six months of the 2012/13 financial year. In the and plots of land in the 2013/14 financial year. third quarter of 2012/13 related parties granted the Group a loan of DKK 10 million for project financing. The expectations mentioned in this annual report, including earnings expectations, are naturally subject to risks and uncer- In the fourth quarter of 2012/13, TK Development entered into tainties, which may result in deviations from the expected re- an agreement regarding partial financing of the Group’s shop- sults. Various factors may impact on expectations, as outlined ping centre project in Esbjerg, BROEN, via an overall financing in the section “Risk issues”, particularly the valuation of the package to be provided by a number of major shareholders in Group’s project portfolio. the Company, including members of Management and other related parties; see NASDAQ OMX Copenhagen A/S’ definition of Subsequent events this term. For disclosures about transactions with related par- After the reporting date, TK Development has sold one of the ties according to IFRS, please see note 36. Group’s minor German investment properties to a German investor. Other than those mentioned in the management com- Parent Company, TK Development A/S mentary, no major events of relevance to the Company have In 2012/13, TK Development A/S, the Parent Company, realized occurred after the reporting date. results before tax of DKK -285.6 million against DKK 114.1 million in 2011/12. The results after tax amounted to DKK -333.8 The Supervisory Board million against DKK 105.4 million the year before. Tax on the The Supervisory Board is currently composed of six members. results for 2012/13 was materially affected by the impairment The Supervisory Board members have elected Niels Roth as of the Company’s deferred tax assets due to the changed rules Chairman and Torsten Erik Rasmussen as Deputy Chairman. At for tax loss carryforwards adopted in June 2012. the Annual General Meeting, the Supervisory Board will propose that the Supervisory Board should remain composed of six The results include income from investments in group enter- members. Torsten Erik Rasmussen, Jens Erik Christensen and prises in the amount of DKK -336.1 million against DKK 73.9 Jesper Jarlbæk will not stand for re-election at the forthcom- million the year before. In addition, earnings consist mainly of ing Annual General Meeting. The remaining Supervisory Board net financing income from loans to subsidiaries. In 2012/13, members are prepared to stand for re-election, and moreover TK Development made writedowns for impairment of invest- the Supervisory Board proposes that Arne Gerlyng-Hansen, ments in group enterprises in the amount of DKK 410.0 million CEO of Harald Nyborg A/S, Morten Astrup, founding partner (2011/12: DKK 0.0 million). Accumulated impairment relating to and CIO of Storm Capital Management Ltd., London, and Kim

Management Commentary | Annual report 2012/13 | Tk Development A/S | 17 /127 RESULTS FOR 2012/13 AND OUTLOOK FOR 2013/14

Mikkelsen, CEO of Strategic Capital ApS, be elected to take the vacant seats on the Supervisory Board. The new members rec- ommended for approval at the Annual General Meeting represent major shareholders of TK Development.

Arne Gerlyng-Hansen is a member of the legal profession and has been the CEO of Harald Nyborg A/S since 2004. He is also on the supervisory board of Dava 1 ApS, a major shareholder of TK Development. Arne Gerlyng-Hansen has core competencies in retail trade, legal affairs, management and business development, qualifications considered particularly important by the Supervisory Board when nominating him as a candidate. Arne Gerlyng-Hansen will be considered an independent member of the Supervisory Board.

Morten Astrup is the founding partner and CIO of Storm Cap- ital Management Ltd. and deputy chairman of the supervisory board of Storm Real Estate ASA, a major shareholder of TK Development. Morten Astrup has core competencies in real estate investment, financing and business development, qualifications considered particularly important by the Superviso- ry Board when nominating him as a candidate. Morten Astrup will be considered an independent member of the Supervisory Board.

Kim Mikkelsen has a financial background and is the CEO of Strategic Capital ApS, a major shareholder of TK Development. Kim Mikkelsen has core competencies in financial affairs, investment and management, qualifications considered particularly important by the Supervisory Board when nominating him as a candidate. Kim Mikkelsen will be considered an independent member of the Supervisory Board.

Dividends The Supervisory Board recommends to the Annual General Meeting that no dividends be distributed for the 2012/13 financial year.

18 /127 | Tk Development A/S | Annual report 2012/13 | Management Commentary Market conditions

The Group has operated under difficult market conditions in re- In the letting market for retail property, tenants continue to fo- cent years, resulting in protracted decision-making processes cus on location. TK Development is experiencing a good amount among financing sources, tenants and investors alike. The Dan- of interest in prime-location projects, and several strong na- ish market in particular has been affected by prolonged uncer- tional and international retail chains are expanding, although tainty, and continues to be so, partly because of a weakened decision-making processes are protracted in light of the unrest financial sector. In Management’s opinion, there are no indica- on international financial markets. tions of a significant improvement during the period to come. The rental level is expected to remain fairly stable in the period The market conditions in TK Development’s markets and the ahead. However, the rental level for secondary locations is ex- impact of the financial crisis on land prices, construction costs, pected to be under pressure. rental levels, prices for completed properties and access to financing, have not changed significantly during the past months. In the residential segment in Warsaw, Poland, demand is slug- The above-mentioned variables have stabilized at a new price gish and prices have realigned due to the large supply of new level, and new projects are expected to be sold at the profits housing for sale, among other factors. The scope of housing realized before the crisis, thus generating a gross margin of 15- projects launched in Warsaw is now diminishing, and over time 20 % measured on the basis of project cost. However, a low the supply of housing is expected to stabilize. Therefore, in the profit is expected to be realized on projects already completed. opinion of Management, housing development in Poland will become attractive again, particularly in the Warsaw area. The access to project financing remains difficult and is currently the greatest challenge facing the property sector. The financial The macroeconomic indicators in the form of GDP, private con- sector is weakened and has sharpened its focus on credit risks, sumption and unemployment are showing moderate growth and at the same time new rules have imposed stricter capital expectations in all the Group’s markets. requirements on banks. This means that credit institutions remain reluctant to provide loans to finance real property, with a The Group has a strong platform in its continuing markets and resulting negative effect for the property sector, and thus TK focuses on exploiting the unrealized potential on all markets Development as well. TK Development is dependent on its abil- through existing retailer and investor networks. With special ity to continue obtaining either full or partial project financing, emphasis on the retail segment, the Group consistently strives either from credit institutions or from investors in the form of to strengthen the project portfolio in each of its markets and forward funding, and on freeing up substantial cash resources to ensure satisfactory progress of its existing projects and new from the sale of several major completed projects. project opportunities.

The Management of TK Development has long experienced an DEnmark unsatisfactory market response to the Group’s efforts to sell completed projects and investment properties due to sluggish Economic growth in Denmark remains low, and a high growth demand. Despite this trend, 2012 saw cautious investor opti- rate is not foreseen in the near future. In recent years, the mism and increased interest in investing in selected segments unemployment rate has been fairly stable and is expected to of retail projects, with quality and location being key factors remain at an unchanged level in the years to come. The Dan- in the investment decision. However, the decision-making pro- ish market has been affected by prolonged uncertainty, and cesses continue to be lengthy, in part because of the inves- continues to be so, partly because of the weakened financial tors’ requirement for lower project risk. Institutional investors sector. Thus, access to project financing remains difficult and is need options for placing their funds, and this paves the way the greatest challenge facing the property sector. for setting up partnerships with such investors for the purpose of cooperating on the execution of new projects. These oppor- In Denmark, TK Development focuses on the retail segment, tunities fall in line with the Group’s business model, according which is also expected to remain the primary segment in the to which TK Development wishes to enter into partnerships re- years ahead. The main emphasis will be on establishing district garding completed properties and new development projects, and shopping centres in cities and medium-sized towns, and TK and thus to improve the allocation of the Company’s equity, Development is working on several project opportunities within diversify risks and better utilize the Group’s development com- this area. Another interest area will be the office market in ma- petencies. jor towns and cities.

Management Commentary | Annual report 2012/13 | Tk Development A/S | 19 /127 MARKET CONDITIONS

Investors continue to show reasonable interest in the Group’s for retail chains to expand in cities, particularly Stockholm and retail, office and residential projects at attractive locations in Gothenburg, but also in other major towns in Sweden. Stock- major towns and cities. At the same time, investor interest in holm continues to record high annual population growth. This secondary towns is waning. Location and quality are the two results in a demand for new retail establishments and retail key determinants of investment decisions. The Group can ob- store extensions, as concerns both retail parks and shopping tain satisfactory selling prices for prime-location properties centres. where the risk of vacancies is relatively limited, while selling prices for properties in secondary locations are under pressure. Both local and international investors are showing mounting in- Institutional investors and other professional investors need terest, particularly in prime locations, and the selling prices for options for placing their funds. This paves the way for setting such projects are on the rise. up new project partnerships with these investors with a view to cooperation on project execution. Sweden is considered to be the most transparent and interesting market in the Nordic region, and given the continued In the retail letting market, tenants also focus on the right loca- retail expansion, the Swedish market is highly interesting for tion. Both supermarket chains and retail chains are still willing TK Development. TK Development intends to focus on develop- to expand if the location is right, although their decision-making prime-location superstores and shopping centres in major ing processes are protracted. The rental level for primary loca- towns and cities, with Stockholm and Gothenburg being the tions is expected to be fairly stable, whereas the rental level for primary areas of interest. secondary locations is under pressure.

Denmark Sweden – startup in 1989 2011 2012 2013e 2014e – startup in 1997 2011 2012 2013e 2014e GDP (% yr./yr.) 1.1 -0.6 0.5 1.5 GDP (% yr./yr.) 3.7 0.8 1.3 2.6 Private consumption (% yr./yr.) -0.5 0.5 0.4 1.8 Private consumption (% yr./yr.) 2.1 1.5 2.2 2.4 Unemployment (%) 6.1 6.2 6.2 6.1 Unemployment (%) 7.8 8.0 8.3 8.2 (Source: Nordea, March 2013) (Source: Nordea, March 2013)

After a period of low activity, the office market is picking up, with projects in major towns and cities attracting greater in- Poland terest. Projects in prime locations, such as those in the Group’s waterfront areas, appeal to tenants and investors alike, and The Group has a well-developed network of contacts with many the Group expects to create interesting projects in the years to local and international retail chains looking to expand into Cen- come. Examples of such projects include the Group’s locations tral Europe. In addition, the Group works closely with investors, at Amerika Plads in Copenhagen and Stuhrs Brygge in Aalborg. including international investment funds, looking to invest in Central European property projects.

Sweden The outlook for the Polish market remains positive, even though The Swedish market is characterized by the strong Swedish the macroeconomic indicators show a weaker growth trend economy and high purchasing power, although the growth rate than in previous years. Strong national and international retail in 2012 was lower than the year before. Real earnings have chains still wish to expand, with location being the key focus risen sharply in the past few years, and increased growth and as in the Group’s other markets. Generally, prime-location retail higher private consumption are forecast for the years ahead. premises in major towns and cities are in high demand, while tenants want to vacate their secondary-location premises. Al- As in previous years, TK Development will focus on the retail though it is still possible to pre-let planned shopping centres segment in Sweden. Retail chains are interested in attractive in attractive locations, the letting process is longer due to ten- rental premises, although tenants’ decision-making processes ants’ protracted decision-making. As the market for shopping are also protracted in the Swedish market. New foreign retail centres matures, new development options are expected to chains continue to expand. Project location continues to be the arise, also making projects to extend and/or revitalize existing paramount consideration for tenants, and the trend is clearly centres attractive.

20 /127 | Tk Development A/S | Annual report 2012/13 | Management Commentary MARKET CONDITIONS

Investors focus chiefly on major towns and cities in Poland and Czech Republic continue to show reasonable interest in prime-location projects - startup 1997 2011 2012 2013e 2014e or in projects with development potential. GDP (% yr./yr.) 1.9 -1.1 0.0 1.9 Private consumption (% yr./yr.) 0.7 -3.0 -0.5 1.5

Poland Unemployment (%) 6.7 7.0 7.6 7.3 - startup 1995 2011 2012 2013e 2014e (Source: The European Commission, European Economic Forecasts, GDP (% yr./yr.) 4.3 2.0 1.8 2.8 Winter 2013) Private consumption (% yr./yr.) 2.5 0.5 0.3 1.8 Unemployment (%) 12.5 13.4 13.8 13.4 (Source: Nordea, March 2013)

The Group’s business platform also includes the residential market in Poland.

There are still opportunities for developing and selling attractive housing, particularly in the Warsaw area. Warsaw continues to develop and bolster its position as Poland’s commercial hub, resulting in a constant demand for more and newer dwellings. Numerous opportunities exist for executing projects in attractive locations. The market remains challenging as a large number of new residential buildings are still being constructed in Poland, including in Warsaw, and the supply of housing for sale, whether already constructed or under construction, is high. The price level has been declining slightly over a period, but is expected to remain fairly stable for small residential units in Warsaw in the time ahead, as the scope of residential projects launched in Warsaw is now diminishing. Thus, the supply of housing is expected to stabilize over time. Buyers are showing a preference for lower-priced areas to obtain more floor space.

Czech Republic

The economic situation in the Czech Republic is characterized by low growth and declining private consumption. A slight re- covery is foreseen in the near future, and investors are once more showing interest in real property investments. Interna- tional funds focus on major projects, while local investors are showing interest in minor projects. TK Development focuses on the retail segment and still experiences reasonable demand for leases in attractive projects. The continuing trend is for the establishment of retail projects in town centres or close to traffic hubs. The expectation for the years to come is for more new shopping centres to be established and for existing centres to be revitalized/and or extended. Supermarket chains are also expected to continue expanding. TK Development will concen- trate on projects in medium-sized towns and in cities.

Management Commentary | Annual report 2012/13 | Tk Development A/S | 21 /127 Business concept and knowledge resources

The Group’s mission Business concept

The overall mission of TK Development is to create added The Group’s primary business area is the development of real value by developing real property. The Group operates in property, termed property development, and the Group’s sec- the property development and services environments, and ondary business area is asset management. specializes in being the creative and result-oriented link between tenants and investors. Property development The Group has strong networks forged on the basis of Fundamental values long-standing, close business relationships with tenants and TK Development bases its operations on a number of funda- investors, and regularly enters into contracts with these busi- mental values that are the Group’s hallmarks. They define the ness partners. The Group is predominantly a knowledge-based framework for the actions of TK Development’s employees service provider and has specialized in being the productive and and the values that TK Development wants to signal. creative liaison between tenants, investors, architects, con- • Good business sense • Being result-oriented struction companies and other business partners. • Innovation and creativity • Being trustworthy TK Development wants to be the preferred property develop- • Keeping it simple ment partner in the retail segment, with the interaction with • Commitment customers, tenants and investors being based on know-how and mutual confidence. Strategy for business unit – Property development

Developing projects from the conceptual phase through to In collaboration with tenants and investors, TK Development project completion, based on one of several models: plans and arranges the construction of new buildings, and the • Sold projects (forward funding / forward purchase) expansion and conversion of real property based on tenant • projects with partners • on TK Development’s own books based on a high degree needs and investor requirements. The Group develops the pro- of confidence in the letting and sales potential jects, which involves letting the premises, managing construc- • Services for third parties. tion and concluding contracts with construction companies and subcontractors for the execution of the building works. Strategy for business unit - Asset management In terms of segments, the Group focuses on the development of Owning, operating, maturing and optimizing completed projects for a medium-long operating period that matches the shopping centres, superstores and corporate headquarters and potential for adding value both for the Group and for third related mixed and multifunctional projects as well as housing parties. in Poland.

The retail segment will continue to be the Group’s most important segment in the years ahead based on continued expansion of its already extensive network of contacts. Engineers Architects DK SE PL CZ Option/purchase Finished project of site Investors Shopping centres

Tenant Stores/superstores requirements Tenants High-street properties Investor Offices requirements Project management Letting Mixed Sales

Public authorities Residential

Contractors Subcontractors

22 /127 | Tk Development A/S | Annual report 2012/13 | Management Commentary BUSINESS CONCEPT AND KNOWLEDGE RESOURCES

The Group’s primary focus is real property development, which Danish and foreign property investors. may be based on several models: The Group has in-depth knowledge of investor needs and re- • For the Group’s own account, with or without advance pro- quirements. Among other things, TK Development offers ject sales, where the Group can either finance the projects standardized, international contracts and a problem-free pro- on its own books or procure staged financing from the cess from initiation to delivery. buyer in step with project completion, also termed forward funding. Over the years, the Group has sold projects to a range of Danish • Together with business partners during the construction and foreign banks, investment funds, pension funds and private period. companies. • Services for third parties. Project and risk management Customer relations New projects are initiated based on a careful assessment of The Group’s principal customers consist of tenants and in- their earnings potential viewed in light of project complexity, vestors. TK Development continuously strives to create new, completion time, tied-up capital, including balance sheet and improved services to make the Group an even more attractive cash flow impact, and other use of resources. The assessment business partner. includes deliberations about project location, regulatory matters, pre-letting, construction matters and market conditions. Tenants Over the years, TK Development has built close partnership re- Limiting risks lations with a large number of companies, including in particular A number of management tools contribute to ensuring a satis- retail chains looking to set up new stores. factory project process. Construction is typically not initiated until satisfactory pre-construction letting has been achieved The Group has gained in-depth knowledge of tenant needs and for at least 60 % of the project. If the project is sold, construc- requirements. From this platform, TK Development can develop tion will not be initiated until the Group anticipates being able retail solutions that meet tenants’ requirements for design and to meet such investor requirements as would allow final com- location. In addition, the numerous close relations with a wide pletion of the project sale. Meeting these requirements typical- range of retail chains mean that the Group is always able to put ly falls within the Group’s sphere of competencies. together an attractive retail mix that boosts individual tenants’ revenue. Forward funding TK Development aims to secure the sale of projects at an early Investors stage, and the Group considers it important to expand investor TK Development has also built close relations with a number of commitment by having the investors fund the project during

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

project implementation without forward funding

project implementation based on forward funding Funds tied up (D KK ) Funds Project progress

Development phase Construction period Site purchase Handing-over Construction start

Management Commentary | Annual report 2012/13 | Tk Development A/S | 23 /127 Forretnings- koncept

BUSINESS CONCEPT AND KNOWLEDGE RESOURCES

the construction process (forward funding) where possible. For- Knowledge resources ward-funding agreements with investors are usually concluded TK Development develops projects of a high standard. Together before construction startup, thus ensuring that the funds tied with the employees’ knowledge and qualifications, the Group’s up in the Group’s projects are kept at an absolute minimum, close relations with tenants and investors play an essential role which also reduces the balance sheet total and minimizes the in minimizing the risks of individual projects. This combination risk. is the prerequisite for developing projects that generate satisfaction for tenants and investors alike, as well as satisfactory Green building earnings for the Group on individual projects. The Group is experiencing increasing demand for green buildings from both tenants and investors. TK Development offers Employees to construct green buildings as and when requested by the The employees’ knowledge and competencies are essential to Group’s customers. Several of the Group’s projects have been TK Development’s value creation, and TK Development contin- constructed as green buildings and certified according to the uously strives to secure the best match between employees’ BREEAM standards or equivalent. competencies and the specific job requirements of the property development business. The Group’s employees work within Asset Management individual, specialized areas: project developers, letting manag- Asset management is TK Development’s secondary business ers, legal and financial project controllers, and engineers. area. This business area consists of owning, operating, running in, maturing and optimizing completed projects for a medi- Education um-long operating period whose length matches the potential To raise the employees’ level of expertise to an even higher for adding value for both the Group and third parties. level and thus reinforce TK Development’s value creation, the Group has continuous focus on training and education. The aim In relation to new projects, the Group can choose to initiate pro- is to strengthen the Group in the development phases that are jects with a view to construction and subsequent startup and critical to maximizing the value of each individual project. maturing over a short span of years, with such projects typically being classified as investment properties. In addition to improving the Group’s knowledge resources, education helps cement TK Development’s position as an attrac- This is a natural consequence of the changed risk picture, in- tive workplace for both existing and future employees. cluding in particular the change in investor behaviour, which means that the development process for some projects is not Project organization optimally finalized until they have been matured and run in. The TK Development believes it is important to give employees an portfolio of investment properties generated by this element inspiring workplace where individual projects afford them the will ensure both a positive operating margin and a positive cash opportunity to accumulate knowledge and experience that can flow, viewed in isolation. After the maturing process, the pro- be passed on throughout the organization and thus continu- ject returns can be even better documented and higher prices ously improve the Group’s collective know-how and skills. obtained. In order to ensure a high degree of quality in all services provid- Investment properties can be developed either for the Group’s ed by the Group to tenants and investors - as well as efficient own account or in project development joint ventures with progress and quick decisions in the development of individual co-investors that wish to participate in both the construction projects - the Group’s staff is anchored in a matrix organization

and maturing phases. By entering into joint ventures, the Group as follows: Project groups

will achieve more effective placement of its equity financing 1 2 3 4 of projects under development, better risk spread, and more Sale and rental efficient use of the Group’s staff resources and competencies. Controlling

The Group owns a few investment properties and a number of Project management/ Construction management competencies

completed projects. These properties and projects fall into the Interdisciplinary Finance and accounting Group’s asset management segment.

24 /127 | Tk Development A/S | Annual report 2012/13 | Management Commentary BUSINESS CONCEPT AND KNOWLEDGE RESOURCES

The matrix organization means that all the Group’s peak com- Organizational focus on segments petencies, covering the progress of a project from blueprint to To underpin the segmentation chosen, it has been decided to completion, exist in the project group that carries through the organize the business activities so as to best ensure manage- individual project from A to Z. ment focus on both property development and asset management activities. The members of the Executive Board attempt Organization, management and employees as far as possible to focus primarily on their own individual TK Development’s organization and management structure are business areas, while taking into account that the Executive based on branch offices managed by divisional managers (sen- Board members are jointly responsible for the day-to-day man- ior vice presidents). agement of the overall business activities. TK Development has several years’ experience in asset management and performs The Group’s international management team consists of the asset management services for third parties. The Company will above-mentioned group of persons, as well as functional man- increase its focus on asset management, including utilization agers in the individual countries. of the Group’s competencies and employee know-how to ensure continued progress in maturing the completed projects. The Group’s management structure (excluding discontinuing activities) is shown below: Breakdown of the Group’s employees At 31 January 2013, the Group employed a total of 112 per- Frede Clausen sons, broken down as follows: President and CEO

Robert Andersen Executive Vice President Other countries 11 Group/services 10

Accounting, Finances Czech Republic 14 and Controlling Sweden 15 Poland 25

Shopping centre Denmark Sweden Poland Czech Republic management 16 Denmark 21 Erik Dan Zygmunt Rostislav Godtfredsen Fæster Chyla Novák

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

8,300 m2 retail park, Gävle, Sweden The retail park was completed in October 2012 and was handed over to Nordika Fastigheter AB in November 2012. The selling price amounted to SEK 110 million.

MManagemenanagementt C Commenommentarytary | | AnnuANNUaAlL reportREPORT 2012/132012/13 || TTkk DevelopmentDevelopment A/SA/S || 2525/127 /127 Property development

The Group’s primary business area is the development of real 452,000 m² at 31 January 2013, of which sold projects account- property, termed property development. ed for 7,000 m² and remaining projects for 445,000 m². The project portfolio had a total development potential of 635,000 m² Strategy for business unit – Property development at 31 January 2012.

Developing projects from the conceptual phase through to project The development in the Group’s project portfolio is outlined completion, based on one of several models: • Sold projects (forward funding / forward purchase) below: • projects with partners • on TK Development’s own books based on a high degree of confi- (DKKm) 31 Jan 2011 31 Jan 2012 31 Jan 2013 dence in the letting and sales potential • Services for third parties. Sold Completed 0 0 15 In progress 12 17 17 Property development Not initiated 14 10 6 • Countries: DK, SE, PL, CZ Total 26 27 38 • revenue 2012/13: DKK 183.4 million

• Gross profit/loss 2012/13: DKK -81.8 million Remaining • profit/loss before tax and impairment, etc.: DKK 44.1 million Completed 0 0 38 • Balance sheet total, 31 Jan 2013: DKK 1,284.5 million In progress 149 286 198 Not initiated 915 938 901 In its property development segment, TK Development focuses Total 1,064 1,224 1,137 on executing existing projects in the portfolio, as well as on securing satisfactory pre-construction letting or sales. In addition, Net project portfolio 1,090 1,251 1,175 the Group is continuing its work on new project opportunities. Forward funding 284 293 370 Gross project portfolio 1,374 1,544 1,545 The Group will make the startup of major new projects contingent Forward funding in % of on obtaining either full or partial financing for them and on free- gross carrying amount of sold projects 91.6 % 91.6 % 91.1 % ing up cash resources from the sale of one or more major complet- Table 1 ed projects. The Group uses forward funding to reduce the funds tied up in In 2012/13, the gross margin for property development the portfolio of sold projects. The rise in forward funding since amounted to DKK -81.8 million, of which DKK 127.1 million rep- 31 January 2012 results mainly from an accumulation of for- resents impairment losses on projects; see the description un- ward funding and prepayments relating to projects in progress. der “Results for 2012/13 and outlook for 2013/14” above. The decline in the carrying amount of remaining projects is pri- The Group’s retail projects on which construction is already on- marily attributable to the writedowns for impairment of the going or about to start are still attracting a good amount of in- Group’s project portfolio made during the period under review; terest from tenants. During the period under review, the Group see above. also concluded lease agreements for several of these projects.

Uncertainty on the international financial markets continues to affect the property sector negatively, leading to consistently long decision-making processes among financing sources, tenants and investors alike; see under “Market conditions”. Against this background, the Group has postponed the expected construction start dates for several projects relative to the most recent estimates in the Interim Report for Q1-Q3 2012/13, and has decided against initiating certain projects.

The development potential of the project portfolio represented

26 /127 | Tk Development A/S | Annual report 2012/13 | Management Commentary Property development

The development potential is shown below in square metres: Completed projects Residential park, Bielany, Warsaw, Poland m² (’000) 31 Jan 2011 31 Jan 2012 31 Jan 2013 TK Development owns a tract of land in Warsaw allowing for the construction of about 56,200 m², distributed on 900-1,000 Sold residential units. The plan is to build the project in four phases. Completed 0 0 4 Construction of the first phase, consisting of 136 units, started In progress 4 7 3 in mid-2011 and was completed in January 2013. The pre-com- Not initiated 79 29 0 pletion sale of the units started in spring 2011, but sluggish Total 83 36 7 demand in the Polish residential market has affected the sales

Remaining process. So far, sales agreements for about 69 % of the units in Completed 0 0 3 the first phase have been signed (Q1-Q3 2012/13: 52 %).T he In progress 22 39 20 residential units are being sold as owner-occupied apartments Not initiated 543 560 422 to private users, and Management expects the remaining units Total 565 599 445 to be sold in the course of the 2013/14 financial year. The market remains challenging as a large number of new residential Total project portfolio 648 635 452 buildings are still being constructed in Poland, including in War- Number of projects 53 50 37 saw, and the supply of housing for sale, whether already con- Table 2 structed or under construction, is high. The price level has been declining slightly over a period, but is expected to remain fairly As appears from above, the development potential of the stable for small residential units in Warsaw in the time ahead, Group’s project portfolio in square metres has declined as the scope of residential projects launched in Warsaw is now substantially since 31 January 2012. This decline should diminishing. Thus, the supply of housing is expected to stabi- be viewed in light of the Group’s market focus, including the lize over time. Buyers are showing a preference for lower-priced high priority attached to projects on the continuing markets. areas to obtain more floor space. Management has therefore In the 2012/13 financial year,M anagement chose not to chosen to prioritize another of the Group’s residential projects launch a number of projects that it did not expect to generate in a lower-priced area of Warsaw. Management has decided to satisfactory earnings in relation to use of resources, capital attempt selling some of the land for the Bielany residential pro- tied up, etc. Moreover, as mentioned above, Management ject, and the startup of the remaining part of the project will be aims to reduce the portfolio of projects not initiated (plots of postponed until market conditions have improved. land) over a two-year period. Several of these projects will be discontinued through land sales and will therefore no longer Projects in progress be included in the development potential in terms of square Amerika Plads, underground car park, Copenhagen, Denmark metres. Kommanditaktieselskabet Danlink Udvikling (DLU), which is owned 50/50 by Udviklingsselskabet By og Havn I/S and TK Geographical segmentation of the development potential in Development, owns three projects at Amerika Plads: lot A, lot C square metres: and an underground car park. Part of the underground car park in the Amerika Plads area has been built. The Group expects to Denmark sell the total parking facility upon final completion.

Czech Republic Vasevej, Birkerød, Denmark TK Development owns a property of about 3,000 m² at Vasevej Sweden in Birkerød, rented by SuperBest. The project consists of a re- furbishment of the existing property and a minor extension Poland comprising a few stores and dwellings. The combined project is expected to comprise about 3,400 m².

Retail park, Enebyängen, Danderyd, Sweden In the municipality of Danderyd near Stockholm, TK Develop-

Management Commentary | Annual report 2012/13 | Tk Development A/S | 27 /127 PROPERTY Development

Project outline The outline below lists the key projects in the portfolio in the property development segment.

TKD’s Construction Opening/ TKD’s share ownership start/expected expected Project City/town Country Segment of area (m2) interest construction start opening

Completed Residential park, Bielany, phase I Warsaw PL Residential/services 7,850 100 % Mid-2011 Early 2013

In progress Amerika Plads, underground car park Copenhagen DK Car park 16,000 50 % 2004 Continuously Vasevej Birkerød DK Mixed 3,400 100 % - - Retail park, Enebyängen, phase II Danderyd SE Retail 1,800 100 % Autumn 2012 March 2013

Not initiated BROEN, shopping centre Esbjerg DK Retail 29,800 100 % Mid-2013 2015 Østre Teglgade Copenhagen DK Office/residential 32,700 1) 100 % Continuously Continuously Amerika Plads, lot C Copenhagen DK Mixed 6,500 50 % 2014 2016 Amerika Plads, lot A Copenhagen DK Office 5,900 50 % 2014 2016 Aarhus South, phase II Aarhus DK Retail 2,800 100 % 2013 2014 Ejby Industrivej Copenhagen DK Office 12,900 100 % - - Østre Havn/Stuhrs Brygge Aalborg DK Mixed 36,000 1) 50 % Continuously Continuously Retail park, Marsvej Randers DK Retail 10,000 100 % 2013 2014 Development of town centre Køge DK Mixed 27,500 100 % 2013 Continuously Farum Bytorv, extension Farum DK Retail 8,000 100 % 2013 2015 The Kulan commercial district Gothenburg SE Mixed 45,000 100 % 2013 2015 Retail park, Barkarby Gate Stockholm SE Retail 20,000 100 % End-2013 End-2014 Retail park, Söderhamn Söderhamn SE Retail 10,000 100 % 2013 2014 Retail park, Gävle, phase II Gävle SE Retail 15,800 100 % Continuously Continuously Shopping centre, Jelenia Góra Jelenia Góra PL Retail 7,200 30 % 2013 2015 Residential park, Bielany, remaining phases Warsaw PL Residential/services 31,000 100 % Continuously Continuously Bytom Retail Park Bytom PL Retail 25,800 100 % Continuously Continuously Shopping centre, Frýdek Místek Frýdek Místek CZ Retail 14,800 100 % 2013 2014 Most Retail Park, phase II Most CZ Retail 2,000 100 % - - Property development, total floor space approx. 373,000 1) Share of profit on development amounts to 70 %.

28 /127 | Tk Development A/S | Annual report 2012/13 | Management Commentary PROPERTY DEVELOPMENT

ment handed over the first 13,000 m² phase of the retail park A new local plan comprising 31,000 m² of housing, offices and to an investor in 2010/11. Construction of the second phase of parking facilities has been launched. about 1,800 m², which is fully let (Q1-Q3 2012/13: 100 %) and tenanted by Plantagen, was completed in march 2013, and the Retail park, Marsvej, Randers, Denmark retail park was handed over to the investor after the reporting In October 2010, the Group took over a plot of land on Marsvej date. The total project has been sold to the German investment in Randers, intended for a retail development project of 10,000 fund Commerz Real on the basis of forward funding. m². Letting has been initiated, and there is a satisfactory level of interest among potential tenants. Projects not initiated BROEN, shopping centre, Esbjerg, Denmark Development of town centre, Køge, Denmark In Esbjerg, Denmark, TK Development has bought a plot ear- TK Development is working on a potential project in Køge. In marked for a shopping centre project, BROEN, of about 29,800 February 2012, Køge Kyst and TK Development entered into a m², to be built on the railway land at Esbjerg station. The conditional agreement under which TK Development is to buy shopping centre is expected to comprise about 70 stores. land for constructing a project of about 27,500 m². The project, The current occupancy rate is 75 % (Q1-Q3 2012/13: 75 %), to be built immediately next to Køge Station and the town cen- with tenants including H&M, Kvickly, Aldi, Imerco, Skoringen, tre shopping area, comprises retail stores of about 12,000 m2, Sport-Master, Bahne, Panduro Hobby, Kong Kaffe and Gina Tri- public service facilities of about 8,500 m2 including a town hall cot. The fitness facilities have been let to Fitness World. The and rehabilitation centre, residential premises of about 3,600 startup of construction has been postponed and is now sched- m² and office/fitness facilities of about 3,400 m² as well as a uled for mid-2013, rather than early 2013 as most recently an- 14,000 m² underground car park. The local plan for the area is nounced. The opening is scheduled for 2015. TK Development to be changed, and a new one expected to be finally adopted in is currently working on the planning, design, startup and sale mid-2013. TK Development expects to enter into an agreement of the project. with Køge Municipality regarding its takeover of both town hall and rehabilitation centre. Letting of the retail premises has Østre Teglgade, Copenhagen, Denmark started, and potential tenants are showing a good amount of TK Development owns an attractively located project area at interest in the project. Teglholmen of about 32,700 m². Current plans involve establishing a church and possibly a residential care facility. Discus- Farum Bytorv, extension, Farum, Denmark sions are also being held with several interested parties regard- In Farum, TK Development has made a winning bid for an exten- ing the construction of residential property in the project area. sion of Farum Bytorv by about 20-30 stores, a total of about 8,000 m². Furesø Municipality and TK Development have en- Amerika Plads, lots A and C, Copenhagen, Denmark tered into a conditional purchase agreement about this exten- Kommanditaktieselskabet Danlink Udvikling (DLU), which is sion. A new local plan for the area is to be drawn up. This pro- owned 50/50 by Udviklingsselskabet By og Havn I/S and TK cess is under way, and the local plan is expected to be adopted Development, owns three projects at Amerika Plads: lot A, lot in mid-2013. C and an underground car park. A building complex with about 11,800 m² of office space is to be built on lot A, and a building The Kulan commercial district, shopping centre and service/ complex with about 13,000 m² of commercial and residential commercial space, Gothenburg, Sweden space on lot C. Construction will take place as the space is let. TK Development and the Swedish housing developer JM AB have entered into a cooperation agreement with SKF Sverige Østre Havn/Stuhrs Brygge, Aalborg, Denmark AB to develop SKF’s former factory area in the old part of Goth- In the area previously occupied by Aalborg Shipyard at Stuhrs enburg. The contemplated project comprises a total floor space Brygge, TK Development is developing a business and residen- of about 75,000 m²: 30,000 m² for a shopping centre, 15,000 tial park of about 72,000 m² through a company jointly owned m² for services/commercial use and 30,000 m² for housing. TK with Frederikshavn Maritime Erhvervspark on a 50/50 basis. Development will be in charge of developing the 45,000 m² for The area was acquired by the jointly owned company, with pay- a shopping centre, services and commercial facilities, while JM ment being effected for the development rights acquired in AB will have responsibility for the 30,000 m² of housing. The step with the development and execution of specific projects. local plan is being drawn up and is expected to be approved

Management Commentary | Annual report 2012/13 | Tk Development A/S | 29 /127 PROPERTY DEVELOPMENT

in 2013. The project is being discussed with potential tenants, Shopping centre, Frýdek Místek, Czech Republic and several lease agreements have been concluded. In the Czech town of Frýdek Místek, TK Development has an option to buy a plot of land for building a 14,800 m² shopping Retail park, Barkarby Gate, Stockholm, Sweden centre, consisting of about 60 stores. The current occupancy In Barkarby in the northwestern part of Stockholm, TK Develop- rate is 75 % (Q1-Q3 2012/13: 68 %). Lease agreements have ment has an option on an area for the development of a 20,000 been concluded with such tenants as Billa, Intersport, H&M, m² retail park. The retail park is expected to consist of 12-14 NewYorker and Euronics. Construction is expected to start in units, of which 9-10 units will be retail stores. The current occu- the course of 2013, with the opening scheduled for 2014. pancy rate is 70 %, and lease agreements have been concluded with major tenants such as XXL, Clas Ohlson, Blomsterlandet and a fitness chain.T he local plan is in place, and the project is currently being discussed with potential investors. Construction is expected to start in late 2013, with the opening scheduled for late 2014.

Retail park, phase II, Gävle, Sweden In 2012/13, TK Development sold and handed over an 8,300 m² retail park in the Swedish town of Gävle to the Swedish property company Nordika Fastigheter AB. Moreover, TK Development has an option to buy a plot of land for developing additional retail park premises of about 15,800 m².

Shopping centre, Jelenia Góra, Poland TK Development has bought a plot of land in Jelenia Góra and has an option on additional land for the development of a shopping centre of about 24,000 m². The project comprises a supermarket of about 2,200 m² and retail, restaurant and service premises totalling about 21,800 m². The local plan for the area is in place and the letting of premises has started. Construction is expected to commence in 2013, and the shopping centre is scheduled to open in 2015. As mentioned above, an agreement has been made with Heitman regarding its takeover of 70 % of the project. The sale was finally completed in December 2012. TK Development will receive fee income from the jointly owned company established for developing, letting and managing the construction of the project.

Residential park, Bielany, Warsaw, Poland Reference is made to “Completed projects” above.

Bytom Retail Park, Bytom, Poland TK Development intends to develop a retail park with total leasable space of about 25,800 m² on its site at the Plejada shopping centre in Bytom, which is centrally located in the Katowice region. Construction of the project will be phased in step with letting. Letting efforts are ongoing, and construction will be started as space is let.

30 /127 | Tk Development A/S | Annual report 2012/13 | Management Commentary Asset management

The Group’s secondary business area is asset management, Strategy for business unit - Asset management which consists of owning, operating, running in, maturing and optimizing completed projects for a medium-long operating pe- Owning, operating, maturing and optimizing completed projects for a medium-long operating period that matches the poten- riod whose length matches the potential for adding value both tial for adding value both for the Group and for third parties. for the Group and for third parties.

The Group’s own properties under asset management comprise the following nine properties:

Ownership Country Type interest Floor space m2 Investment properties Futurum Hradec Králové CZ Shopping centre 20 % 28,250 Galeria Tarnovia, Tarnów PL Shopping centre 30 % 16,500

Other completed projects Sillebroen, Frederikssund DK Shopping centre 100 % 25,000 Fashion Arena Outlet Center, Prague CZ Outlet centre 75 % 25,000 Galeria Sandecja, Nowy Sącz PL Shopping centre 100 % 17,300 Ringsted Outlet DK Outlet centre 50 % 13,200 Most Retail Park CZ Retail park 100 % 6,400 Aabenraa DK Retail park 100 % 4,200 Brønderslev DK Shopping-street property 100 % 2,400 Total 138,250

In 2012/13, the gross margin for asset management amounted Asset management to DKK -21.0 million, of which DKK 154.4 million represents impairment losses on projects; see the description under “Results • Countries: DK, SE, PL, CZ • revenue 2012/13: DKK 434.5 million for 2012/13 and outlook for 2013/14” above. • Gross profit/loss 2012/13: DKK -21.0 million • profit/loss before tax and impairment, etc.: DKK 70.0 million Although these properties have been classified under asset • number of employees at centres, 31 Jan 2013: 12 management, TK Development will focus on selling them in • Balance sheet total, 31 Jan 2013: DKK 2,100.7 million whole or in part, as their sale will substantially strengthen the Group’s financial platform. Therefore, the process of selling a number of the Group’s completed projects continues. Manage- Breakdown of own properties under asset management by ment anticipates being able to conclude final sales agreements country (carrying amount): for one or more of these properties within a short period of time.

Denmark The total portfolio of properties under asset management amounted to DKK 1,932.1 million at 31 January 2013, of which investment properties accounted for DKK 312.1 million. The op- Poland eration of these properties, which largely consist of shopping centres, is generally proceeding satisfactorily. The annual net Czech Republic rent from the current leases corresponds to a return on the carrying amount of 6.7 %. Based on full occupancy, the return on the carrying amount is expected to reach 7.9 %.

Management Commentary | Annual report 2012/13 | Tk Development A/S | 31 /127 Asset Management

On balance, the Group’s shopping and outlet centres recorded The development of the individual centres appears from pages growth in footfall and revenue. In 2012, the Group’s six centres 33-36. had close to 16 million visitors. Generally, TK Development’s properties have a satisfactory let- Development in footfall (2010=index 100): ting status, and the current occupancy rates are: 115

Futurum Hradec Králové 110 Galeria Tarnovia, Tarnów 105 Sillebroen, Frederikssund 100 Fashion Arena Outlet Center, Prague 95 Galeria Sandecja, Nowy Sącz

90 2010 2011 2012 Ringsted Outlet

Most Retail Park

Aabenraa, retail park Development in occupancy rates:

100 % Brønderslev, shopping-street property

40 % 50 % 60 % 70 % 80 % 90 % 100 % 80 %

60 %

40 % Dec 2011 April 2012 July 2012 Dec 2012 April 2013

Futurum Hradec Králové Ringsted Outlet Galeria Tarnovia, Tarnów Most Retail Park Fashion Arena Outlet Center, Prague Aabenraa, retail park Sillebroen, Frederikssund Brønderslev, shopping- street property

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Futurum Hradec Králové, shopping centre, Czech Republic

ization of the existing centre caused revenue to drop, followed by a period of increased revenue when the extension opened in May 2012.

Major tenants: Cinestar, Tommy Hilfiger, H&M, New Yorker, Adidas, Reserved, Intersport, Takko Fashion, Foot Locker, Gant, C & A, Lindex, Datart.

Opening November 2000/May 2012 Leasable area 28,250 m² Occupancy rate 100 % (Q1-Q3 2012/13: 100 %) Footfall 2012 5.6 million 2010 2011 2012 (2010=index 100) The extension of the shopping centre, now comprising 110 stores, 140 opened on 10 May 2012. The existing shopping centre was modernized 120 concurrently with the construction of the extension. The shopping cen- 100 tre is fully let and recorded a satisfactory occupancy rate, operating profit and customer influx throughout the year. The shopping centre 80 had a footfall of more than 5.6 million in 2012, and revenue increased 60 by 24 % relative to 2011. This increase covers a period when modern- 40 Revenue Footfall

Galeria Tarnovia, shopping centre, Tarnów, Poland

After the conditional agreement with Heitman was signed in December 2012, the Group’s ownership interest of the shopping centre is 30 %.

Major tenants: H&M, New Yorker, Euro RTV AGD, Reserved, Deichmann, Douglas, Rossman, Stradivarius, Takko Fashion, Simply Market.

Opening November 2009 Leasable area 16,500 m², including a 2,000 m² supermarket Occupancy rate 96 % (Q1-Q3 2012/13: 96 %) Footfall 2012 1.8 million 2010 2011 2012 (2010=index 100) The shopping centre continues to have a satisfactory influx of cus- 140 tomers and to perform well. In December 2011, Simply Market re- 120 placed the previous supermarket operator. This replacement has 100 contributed to the progress recorded by the shopping centre in the 80 course of 2012. The number of visitors slightly exceeded 1.8 million in 2012, compared to just over 1.7 million in 2011. The revenue for the 60

shopping centre increased by 4 % relative to 2011. 40 Revenue Footfall

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Sillebroen, shopping centre, Frederikssund, Denmark

March 2013, Gina Tricot opened an outlet in the shopping centre, and Sig- nal has signed a lease agreement for an outlet due to open in May 2013. Negotiations with tenants for several of the remaining rental units are ongoing. The centre is still being run in and matured, and continued efforts are being made to position the centre on the market. TK Development’s focus is on strengthening occupancy and boosting revenue in the centre.

Major tenants: Kvickly, Fakta, H&M, Fona, Gina Tricot, Matas, Sport- Master, Frederikssund Isenkram, Deichmann, Vero Moda, Vila, Wagner. Opening March 2010 Leasable area 25,000 m², including 5,000 m² supermarket units Occupancy rate 91 % (Q1-Q3 2012/13: 90 %) Footfall 2012 3.0 million 2010 2011 2012 (2010=index 100) 140 Sillebroen continues to perform well with a satisfactory influx 120 of customers. In the continuing difficult economic climate with 100 subdued private consumption, in 2012 the shopping centre managed to maintain both annual footfall and revenue on a par with 80

2011. More than 3 million customers visited the shopping cen- 60 tre in 2012. A number of tenants were replaced during the year. In 40 Revenue Footfall

Fashion Arena Outlet Center, Prague, Czech Republic

revenue. The footfall slightly exceeded 2.2 million in 2012 compared to just over 1.9 million in 2011, and the outlet centre’s revenue increased by 24 % relative to 2011.

Major tenants: Tommy Hilfiger, Nike, Adidas, Benetton, Tom Tailor, Ecco, Gant, Lacoste, Levi Strauss & Co., Esprit.

Opening November 2007/October 2010 Leasable area 25,000 m² Occupancy rate 96 % (Q1-Q3 2012/13: 94 %) Footfall 2012 2.2 million 2010 2011 2012 (2010=index 100) In Prague, the Group has developed a 25,000 m² factory outlet centre 180 in a joint venture with an international collaboration partner. The first 160 phase opened in 2007, and the second and last phase opened in Oc- 140 tober 2010. In recent years, the Fashion Arena Outlet Center has truly 120 distinguished itself as one of the outlet centres with the highest attrac- tion value in Central Europe. Since the opening of the second phase, the 100

outlet centre has recorded a highly positive development in footfall and 80 Revenue Footfall

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Galeria Sandecja, shopping centre, Nowy Sącz, Poland

cluding attractive bargains for customers, has also contributed to the increased revenue.

TK Development continues its efforts to optimize the centre and is exploring various initiatives to help improve operations, footfall and occupancy.

Major tenants: Carrefour, H&M, New Yorker, Reserved, Deichmann, Douglas, Camaieu, Carry, Euro RTV AGD.

Opening October 2009 Leasable area 17,300 m², including a 5,000 m² hypermarket Occupancy rate 96 % (Q1-Q3 2012/13: 96 %)

Footfall 2012 2.4 million 2010 2011 2012 (2010=index 100) 140 The operation of Galeria Sandecja is still proceeding satisfactorily. The 120 shopping centre had a footfall of almost 2.4 million in 2012, slightly below last year’s figure. Nevertheless, the shopping centre’s revenue 100 rose by about 14 % in 2012 compared to 2011. Generally, revenue has 80 improved month by month over the year compared to the year before. 60 The revenue generated by electronics and footwear has shown a par- 40 ticularly positive trend. Moreover, the focus on marketing activities, in- Revenue Footfall

Ringsted Outlet, Ringsted, Denmark

recorded the highest number of visitors and the highest revenue since its opening – more than 1.1 million visitors and a 25 % growth in revenue. However, this should be viewed in light of the centre’s relatively low revenue the year before.

Several tenants were replaced during the year under review. Mango and Reebok made a strategic decision to discontinue their Scandinavian outlet activities and thus moved out of Ringsted Outlet. At the same time, agreements have been made with new tenants, and with four new retail stores opening in spring 2013 – Sparkz, Jackpot, Saint Tropez and Superdry – the shopping centre is Opening March 2008 anticipated to continue its progress in 2013. Leasable area 13,200 m²

Occupancy rate 61 % (Q1-Q3 2012/13: 59 %) Major tenants: Hugo Boss, Nike, Puma, Diesel, G-Star Raw, Redgreen, Ticket to Footfall 2012 1.1 million Heaven, McDonald’s, Superdry, Le Creuset, Levi’s, Sparkz, Jackpot. 2010 2011 2012 Ringsted Outlet has been developed in a 50/50 joint venture with Mill- (2010=index 100) 180 er Developments, a Scottish factory outlet developer, and consists of a factory outlet centre and restaurant facilities, with a total floor space 160 of 13,200 m² and about 1,000 parking spaces. Ringsted Outlet is Den- 140 mark’s only genuine outlet village, true to the original outlet concept. 120 After a long running-in period, Ringsted Outlet is now beginning to show 100 its real potential. Despite the difficult letting situation and intensified 80 competition in the Danish retail trade sector, in 2012 Ringsted Outlet Revenue Footfall

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Most Retail Park, Czech Republic

TK Development is developing an 8,400 m² retail park in the Czech town of Most, to be built in phases. The first phase of 6,400 m² opened in April 2009. Occupancy in the retail park has improved, and the current occupancy rate for the first phase has increased from 84 % at the beginning of the year to the current figure of 91 % (Q1-Q3 2012/13: 91 %). One vacant rental unit remains, and efforts are being made to let this unit. Manage- ment believes the vacant rental unit should be let before the project can be sold.

Retail park, Aabenraa, Denmark

TK Development has built a retail park of approx. 4,200 m² in Aaben- raa. The retail park opened in September 2009 and is fully let (Q1-Q3 2012/13: 100 %), and the tenants include jem & fix, Biva, T. Hansen and Sport24.

Shopping-street property, Brønderslev, Denmark

After handing over the Føtex supermarket to Dansk Super- marked in the Group’s project at Østergade, Brønderslev, in a previous financial year, the Group has taken over the previous 2,400 m² Føtex property. Following the conclusion of lease agreements with Deichmann and Intersport, these retailers opened for business at the beginning of 2011. In addition, a lease agreement for about 1,200 m² has been signed with Fit- ness World, which opened in November 2012. The current occupancy rate is 93 % (Q1-Q3 2012/13: 93 %).

36 /127 | Tk Development A/S | Annual report 2012/13 | Management Commentary Discontinuing activities

As described above, Management has chosen a market focus In addition to these investment properties, the Group owns a that targets the countries expected to contribute with long- share of a minor shopping centre and a few plots of land. term, profitable operations in future: Denmark, Sweden,P oland and the Czech Republic. Finland The Group’s activities in Finland are fairly limited and, apart from Consequently, Management has also decided to phase out the a few project opportunities, comprise the projects listed below. Group’s activities in Finland, Germany, the Baltic States and Russia. The phase-out, which will result in office closures and City/ employee dismissals, will be carried out as soon as possible, Project town Segment Area (m²) while taking into account that all the countries in question have Pirkkala Retail Park, phase II Tammerfors Retail 5,400 projects that need to be handled so as to retain as much of the Kaarina Retail Park Turku Retail 6,600 value of the existing portfolio as possible. Efforts will be made to phase out the activities in the course of Discontinuing activities the current financial year, and the branch office is expected to

• Countries: DE, FI, LT, LV, RUS close in 2013/14. • Revenue 2012/13: DKK 14.4 million • Gross profit/loss 2012/13: DKK -36.7 million BaltiC STATES • Profit/loss before tax and impairment, etc.: DKK -9.5 million The Group’s Baltic activities comprise the following projects: • No. of employees, 31 Jan 2013: 11 • Balance sheet total, 31 Jan 2013: DKK 425.4 million City/ The results of the discontinuing activities before tax amounted Project country Segment Area (m²) to DKK -53.7 million in 2012/13 and have been impacted by val- DomusPro Retail Park Vilnius (LT) Retail 11,300 ue adjustments of DKK -13.5 million on the German investment Milgravja Street Riga (LV) Residential 10,400 properties, primarily related to ongoing sales negotiations Ulmana Retail Park Riga (LV) Retail 12,500 where Management considers it essential to downscale the German activities. Moreover, the results have been affected by DomusPro Retail Park, Vilnius, Lithuania the impairment of a few projects. TK Development owns a plot of land in Vilnius reserved for building an 11,300 m² retail park. Constructive dialogue has Germany been established with potential tenants, and binding lease Following the sale of an investment property in December agreements have been signed for about 53 % of the premises 2012, the Group now has four investment properties left in Ger- (Q1-Q3 2012/13: about 50 %). TK Development intends to ex- many, a combined commercial and residential rental property ecute this project to best harness its inherent values. Startup in Lüdenscheid in western Germany and three residential rental of the construction project, possibly in phases, is scheduled for properties on the outskirts of Berlin. After the reporting date, spring 2013. Negotiations with potential investors for the pro- yet another residential rental property has been sold, and the ject are ongoing. Group is negotiating with investors about the sale of one of the remaining properties. Efforts will be made to phase out the remaining activities in the course of the current financial year. The Group has generally recorded higher rent levels for the German residential rental properties as tenants have been re- Russia placed. The Group owns a minor project in Moscow, consisting of Scan- dinavian-style dwellings that are used for rental, mainly to in- The value of these properties totalled DKK 167.3 million at 31 ternational company employees stationed in Moscow. Efforts January 2013. The valuation of the properties is based on (i) a will be made to sell the project as soon as possible. return requirement of 6.5 % p.a. calculated on the basis of a discounted cash-flow model over a ten-year period and (ii) recognition of the terminal value in year ten. In the cases where sales negotiations are ongoing with potential investors, these negotiations form the basis for the valuation.

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To provide for sufficient future financial resources, Manage- The covenant is expressed as follows: ment has adopted a liquidity target for the whole Group; see L + K > E + O + R, below. In addition, Management has adopted a solvency target where: for the whole Group corresponding to a solvency ratio of minimum 30 %, calculated as the ratio of equity to total assets. L = the TK Development Group’s free cash resources in the form of deposits with banks and the value of listed Danish Covenants related to credit facilities government and mortgage bonds with a term to maturity The Group has given its main banker an undertaking to comply of less than five years. with a solvency ratio covenant of minimum 30 % at group level, K = the TK Development Group’s amounts available on com- measured in connection with the presentation of interim and mitted operating credit facilities from time to time. annual reports. E = the planned impact on cash resources from the projects Liquidity covenant which the TK Development Group is obliged to complete The Group has used covenants for quite some years. In short, within six months, including the new/expanded project, the liquidity covenant expresses that the Group’s cash resourc- taking into account committed project credit facilities es – to enable the Group to cover liabilities requiring substantial from financial institutions and forward funding. liquidity - must at any time correspond to the fixed costs for the O = The TK Development Group’s cash non-project-related next six-month period, excluding funds received as proceeds capacity costs for the following six months less manage- from projects sold, but including project liabilities materializing ment fees falling due within six months. In addition, pre- within the next six months. agreed project fees from final and binding agreements with project investors falling due within six months are to The covenant represents a liquidity target for the whole Group be set off against the amount. and a commitment to the Group’s main banker. R = Interest accruing on the TK Development Group’s operat- The covenant must be calculated and met before projects re- ing credit facilities for the following six months. quiring liquidity can be acquired and initiated. The Group’s solvency and liquidity covenants were both met during the year under review.

Residential Park, Bielany, Warsaw, Poland First phase consisting of 136 apartments was completed in January 2013. 94 of the apartments have been sold.

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RISK MANAGEMENT Management’s opinion, there are no indications of a significant In connection with determining TK Development’s strategy improvement during the period to come. and overall goals, the Supervisory and Executive Boards have identified the most significant business risks and seek con- The financial and economic crisis has resulted in a prolonged tinuously to ensure efficient risk management. In connection period of lower demand for real property and development pro- with its strategy adjustment, see above, the Group has further jects. The prices of essential property development variables – strengthened its risk management by striving only to initiate land prices, construction costs, occupancy level and investors’ projects based on a strict awareness that the expected earn- return requirements – have stabilized at a new level, and Man- ings will match the project’s complexity, completion time, tied- agement believes that attractive earnings can be generated up capital and other use of resources. in future by implementing development projects, when taking into account the new price levels. The situation on the financial markets means that the Group has a consistently strong focus on financial management, with Economic and financial trends on the individual markets will particular emphasis on managing and optimizing loans and materially affect TK Development’s ability to realize its strat- strengthening the financial platform. egy, and a worsening of these trends may have a material adverse effect on the Group’s future development, results of op- The fact that a number of completed projects have not been erations, cash flows and financial position. sold means a substantial portion of the Group’s financial resources is tied up in these projects. This has made it difficult to The most important risks for the Group, apart from general allocate the necessary capital to securing the progress of new risks, are described below. projects. Therefore, in December 2012 Management decided to revise the Group’s sales strategy with a view to realizing faster Financial risks sales. The sale of several completed projects will free up the Financing and liquidity risks cash resources that are essential for strengthening the Group’s The access to project financing remains difficult and is current- financial platform. Moreover, financial resources will be secured ly the greatest challenge facing the property sector. The vola- to regenerate momentum and thus to realize the substantial tility on the international financial markets and the weakened development potential inherent in several of the Group’s pro- financial sector still make credit institutions reluctant to projects. vide loans to finance real property.T his has a negative impact on the property sector, and thus on TK Development. Another core element of the Group’s risk management is the solvency and liquidity targets adopted for the Group. TK Development is dependent on its ability to continue obtaining either full or partial financing for existing and new projects, The Supervisory Board regularly considers issues relating to either from credit institutions or from investors in the form of the project portfolio, properties, market conditions, financing, forward funding, and on freeing up substantial cash resources IT and staffing as part of its broader assessment of potential from the sale of a few major completed projects. Having suf- risks and scarcity factors. ficient cash resources is essential for the Group. In order to complete the development of its planned projects and there- Reports to the Supervisory Board are submitted on an ongoing by achieve the expected results, the Group must have or must basis with respect to the Group’s risk issues, which also consti- be able to procure sufficient cash resources to cover the costs tute an important element in the decision-making basis for all and deposits required for the projects, the capacity costs and major projects. other obligations.

Risk issues in general At the forthcoming Annual General Meeting, the Supervisory Property market conditions in the countries in which the Group Board will request authorization to carry out a capital increase operates have in recent years been affected by the financial with gross proceeds of about DKK 210-231 million. The capital and economic crisis, which has resulted in lower prices on prop- increase will help generate the cash resources required to un- erty and reduced access to financing. The Danish market in par- derpin future operations and project flow, and thus long-term ticular has been affected by prolonged uncertainty, and contin- earnings. The capital increase has been discussed with the ues to be so, partly because of a weakened financial sector. In Group’s major shareholders, who, together with a few major

Management Commentary | Annual report 2012/13 | Tk Development A/S | 39 /127 RISK ISSUES

private and institutional investors, have given conditional sub- alogue with a few credit institutions regarding the postpone- scription and underwriting commitments for the total capital ment of repayment obligations on project credits until one or increase. The more specific terms and conditions governing the more of the major completed projects have been sold, and capital increase have not yet been determined. The terms and agreements regarding the postponement of such repayments conditions will be described in detail in the prospectus to be have now fallen into place. Moreover, agreements to prolong published in connection with the capital increase. major project credits were concluded during the past year.

The Group’s short-term debt to credit institutions consists of Of the total project credits outstanding at 31 January 2013, operating and project credits. TK Development has entered into credits worth DKK 1.5 billion are due to mature in the 2013/14 a general agreement with the Group’s main banker about both financial year, including continuing repayment obligations on types of credit. The agreement and conditions are renegotiated individual project credits of about DKK 80 million. After the re- on an annual basis. TK Development depends on this coopera- porting date, agreements regarding the refinancing of DKK 0.2 tion continuing, and Management believes that the agreement billion have been made. Moreover, the Group’s main banker and will fall into place. other credit institutions have indicated their preparedness to prolong existing credit facilities. When final commitments in this The Group’s main banker has indicated its preparedness to respect have been received, credit facilities of DKK 1.1 billion prolong TK Development’s credit facilities subject to specific will have been prolonged, and credit facilities of DKK 0.3 billion conditions being met, which includes reducing the operating will be due to mature in 2013/14. The Group depends on being credit limit by DKK 50 million. The prolongation is expected to able to continue obtaining either a prolongation or alternative be formally accepted immediately after publication of TK De- financing of the project credits not expected to be repaid upon velopment’s Annual Report 2012/13. project sales. The Group is in ongoing dialogue with the relevant credit institutions, and Management anticipates being able to The Group has undertaken towards its main banker to comply either prolong or refinance these project credits. Some of the with certain conditions (liquidity and solvency covenants). The proceeds from the capital increase or the cash freed up on the conditions may, among other things, restrict opportunities to sale of major completed projects will help reduce the debt to launch new business activities and in case the conditions are credit institutions, including project finance loans of DKK 68.5 not complied with, the credit facilities may be terminated. million granted by a number of the Company’s major shareholders and members of Management. In addition, the Group has entered into project-financing agreements with various banks in Denmark and abroad. Project cred- A number of loan agreements contain provisions on cross de- its are usually granted with different terms to maturity, default, which means that default on a loan under a loan agree- pending on the specific project. ment may be considered default of a number of other loan agreements. During the year under review, the Group was in continuous di-

Sillebroen, shopping centre, Frederikssund, Denmark A number of tenants were replaced during the year. Here the opening of Gina Tricot in March 2013.

Ihitatatem fugit mo to ea nisquissero corem volupta conest, aut qui audanda am eum ellab id.

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Many of the Group’s loan agreements contain provisions giving Business risks the banks a discretionary option to terminate the agreement. In Property prices and rental income such cases, maintaining financing depends on the bank’s sub- The Group is affected by price fluctuations in the various prop- jective assessment of the quality and profitability of the facility erty markets in which it operates, as well as by general eco- in question, as well as the value of the security provided by the nomic trends. Part of the Group’s project portfolio and some Group. If the Group fails to meet its commitments under such of its investment properties have thus been under earnings agreements with its banks, the agreements risk being termi- pressure during the financial and economic crisis. Rent levels nated. In all probability, TK Development will not have adequate for part of the project portfolio have also been under pressure. capital resources to meet substantial repayment demands. Such fluctuations particularly affect the value of the Group’s portfolio of land, ongoing and completed projects, investment If the Group is unable to obtain sufficient funding in future, or if properties, and the potential for developing new projects. Fall- such funding cannot be obtained on viable terms, it could have ing prices on land and property and falling rent levels may have a material adverse effect on the Group’s future performance, an adverse effect on the Group. results of operations, cash flows and financial position. Investment properties and completed projects Interest-rate risks The Group’s investment properties and completed projects are The main part of the Group’s interest-bearing debt consists of essentially subject to the same risks, primarily risks related to floating-rate loans. Accordingly, increasing interest rates will rental conditions and property prices, and their value may de- push up the Group’s interest expenses. An interest-rate fluc- cline substantially relative to the carrying amount in the bal- tuation of 1 % will have a direct impact of about DKK 15 million ance sheet. on TK Development. In addition, rising interest rates would, all other things being equal, affect investor return requirements Portfolio of land and by extension real property prices. After the reporting date, the Group adopted a strategy aimed at reducing the portfolio of projects not initiated (plots of land) Currency risks over a two-year period from the current level of DKK 1.1 billion TK Development’s Danish subsidiaries operate almost exclu- to a level of DKK 0.5 billion. The portfolio can be reduced by sively in DKK, while the foreign subsidiaries generally operate initiating development projects or selling plots of land. The risk in their local currency or alternatively EUR. As far as possible, exists that land will be sold at a value lower than its carrying the Group attempts to minimize the currency risk by conclud- amount. If planned projects cannot be executed on acquired ing related agreements in the same currency. For instance, it sites, it may be necessary to make writedowns for impairment, aims to conclude purchase and sales agreements, construction which could have a material adverse effect on the Group. contracts and financing agreements regarding a single project in the same currency. Currency fluctuations may materially Discontinuing activities affect the Group’s future development, results of operations, After the reporting date, the Group has decided to phase out cash flows and financial position. The most important currency its activities in Finland, Germany, the Baltic States and Russia. risks are assessed to relate mainly to foreign subsidiaries’ net The phase-out, with resulting office closures and employee dis- results, intercompany balances and foreign-exchange adjust- missals, will be carried out as soon as possible and will take into ments of the Group’s investments in foreign subsidiaries. account that all the countries in question have projects that need to be handled so as to retain as much of the value of the Credit risks existing portfolio as possible. The risk exists that these activ- TK Development is primarily exposed to credit risks in relation ities may be phased out at a value lower than their carrying to the risk of losses on receivables from customers. TK De- amount. velopment aims to reduce credit risks as much as possible, in part by obtaining security, primarily from tenants, and in part Agreements with tenants by postponing the handover of projects to investors until they Moreover, there is a letting risk attaching to those of the have paid the purchase price. Generally, TK Development does Group’s leases that expire while the Group owns the underlying not experience losses on receivables related to the sale of pro- investment properties/completed projects. If the Group fails jects. to renew these agreements, fails to enter into new leases, or if the agreements can be entered into only on less favourable

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terms and conditions, it could have a material adverse effect to an agreement on a well-defined project. The investor has a on the Group. liquidity commitment throughout the construction period and is consulted on major decisions. These principles ensure that Part of the Group’s rental income from tenants includes a reve- the Group’s risks from construction startup are largely limited nue-based share. The Group’s total rental income under these to the letting risk attaching to any remaining unlet premises lease agreements depends partly on the tenant’s ability to and the risk of construction budget overruns. maintain a certain amount of revenue in the relevant premises. The share of such revenue-based rent may vary consider- In agreements with institutional investors, the overriding risk re- ably depending on the nature of the brand, the store and the lates to the Group’s ability to deliver on time and in accordance products. Failure by the tenant to generate sufficient revenue with specifications. Even though a sales agreement regarding a to trigger the revenue-based share of the overall rental income project has been concluded, a number of major risks may still could have a material adverse effect on the Group. be attached to the project, which could lead to termination of a sales agreement on account of breach by one of the parties. Development activities TK Development’s primary business area is property develop- In cases where a sales agreement is concluded before all lease ment, and the Group functions as the creative liaison between agreements in the project have been finalized, the Group under- tenants, investors, architects, construction companies and takes a calculated risk that the remaining premises cannot be other business partners in connection with development of let on terms and conditions that ensure a satisfactory return. property projects. The Group also assumes a counterparty risk, including with respect to, but not limited to, tenants and investors. Projects are only initiated after a careful assessment of their earnings potential viewed in light of project complexity, com- For such sold projects, construction will not be initiated until pletion time, tied-up capital, and other use of resources. the Group expects to be able to meet the requirements from the investor which finalize the project sale. Meeting these re- Where agreements with investors and contractors, for exam- quirements typically falls within the Group’s sphere of compe- ple, have not been brought into alignment, the Group assumes tencies. If the sale nevertheless cannot be completed, it could an extra project development risk in that that it may have to have a material adverse effect on the Group’s future perfor- rectify defects or other matters that the contractor is either mance, results of operations, cash flows and financial position. not obliged or not able to address. Regulatory approvals Several years back, TK Development adopted a strategy of ex- The Group’s future earnings depend on the inflow of new pro- ecuting a number of projects for its own account with a view to jects and consequently on the future availability of new build- changing the Group’s project portfolio from projects requiring ing sites and authority approvals (planning legislation, local cash flow to projects generating cash flow. Not all of these pro- development plans, planning permission, etc.) concerning the jects, now completed, have been sold. This means the Group location, size and use of a property. Changes in local plans or has a substantial portion of its financial resources tied up in other factors that make obtaining planning permission difficult completed projects. The Group depends on selling several of or restrict the supply of building sites may have a material ad- its major completed projects to free up the capital required to verse effect on the Group. secure progress in its new projects. Compliance with time schedules Agreements with investors The Group bases its individual projects on overall and detailed The Group’s customers on the investment side are private indi- time schedules. Time is a crucial factor in complying with agree- viduals, property companies and institutional investors. To the ments concluded with tenants and investors and a significant extent possible, the Group seeks to reduce its working capital factor in ensuring that the individual projects progress accord- and risks relating to ongoing projects by applying forward funding to plan and, accordingly, that the Group generates the ing from investors, which means that one or more investors un- earnings expected. Postponing an individual project may, for dertake to provide funding as project construction progresses. instance, mean that lease agreements lapse, tenants become entitled to compensation and, ultimately, that an investor is no Before construction starts, the investor and the Group come longer under an obligation to buy the project.

42 /127 | Tk Development A/S | Annual report 2012/13 | Management Commentary RISK ISSUES

Staff matters Insurance risks The knowledge, experience and network of key employees The Group reviews its overall insurance plan at least once a constitute some of the Group’s greatest competencies, and year, and Management believes the Group has necessary and are thus key prerequisites for the Group’s ability to carry on adequate insurance against all relevant and usual risks. The a profitable business. Accordingly, ensuring these employees’ Group is not insured against loss, damage or injury caused by long-term commitment is a vital parameter for the Group. TK natural disasters (including floods, earthquakes, etc.), wars, Development constantly aims to ensure the satisfaction of its terrorist attacks, etc. employees and wants to be an appealing employer that can retain and attract new well-qualified staff. Tax matters for the Group Deferred tax assets Environmental conditions A deferred tax asset of DKK 127.0 million is recognized in the TK Development is keenly aware that the public eye is sharply balance sheet at 31 January 2013. The tax asset relates mainly focused on environmental optimization throughout the con- to tax loss carryforwards in the various subsidiaries. Valuation struction process. Public concerns include the reduction of CO2 is based on the existing rules for carrying forward losses and emissions and the sustainability of building projects. joint taxation or group contributions and the assumption that each subsidiary is a going concern. A change in the conditions When the Group acquires sites for its projects, the land is ex- and assumptions for carrying forward losses and joint taxation/ amined to determine any contamination. If a plot of land is con- group contributions could result in the value of the tax assets taminated, the Group will clean up the land for its intended use being lower than that computed at 31 January 2013. before starting construction or refrain from buying the relevant plot. Management has performed the valuation of the tax asset on the basis of available budgets and profit forecasts for a five- When developing projects, the Group strives to achieve an op- year period. For the first three years, budgets are based on an timum balance between environmental and social concerns evaluation of specific projects in the Group’s project portfolio. while also generating revenue for the Group. The choice of ma- For the following two years, the profit forecasts are based on terials, design, energy consumption and environmental impact specific projects in the project portfolio with a longer time ho- all form part of such considerations. rizon than three years as well as various project opportunities. This includes making provision for the risk that projects are not The Group aims to complete projects without causing unneces- implemented and the risk that project profits fall below expec- sary environmental impact. TK Development cooperates with tations. tenants and investors to establish appropriate environmental solutions when developing and implementing new projects. For A change in the conditions and assumptions for budgets and instance, the Group seeks to create finished projects with low profit forecasts, including time estimates, could result in the energy consumption and a good indoor climate that will provide value of the tax assets being lower than that computed at 31 a comfortable working environment for future employees. January 2013, which could have a material adverse effect on the Group’s results of operations and financial position. Third-party agreements A major portion of the Group’s business consists of conclud- Joint taxation ing agreements with development partners, investors, tenants The Group has been jointly taxed with its German subsidiaries and contractors for property development projects. for a number of years. The retaxation balance in respect of the jointly taxed German companies amounted to DKK 389.4 million In addition, several cooperation agreements with business at 31 January 2013. Full retaxation would trigger a tax charge partners contain provisions stipulating that the Group has an of DKK 97.4 million at 31 January 2013. Tax has not been pro- obligation to inject capital into jointly owned companies or oth- vided on the retaxation balance, because Management does erwise contribute to their financing. If the Group fails to meet not plan to make changes in the Group that would result in full such obligations, including due to a lack of liquidity, the Group or partial retaxation. If Management takes a different view, this may be bought out by the relevant company at a reduced price could have a significant adverse effect on the Group’s future or the Group’s ownership interest may be diluted. performance, results of operations, cash flows and financial position.

Management Commentary | Annual report 2012/13 | Tk Development A/S | 43 /127 RISK ISSUES

Legal risks Litigation TK Development constantly enters into agreements with a TK Development is currently party to the following lawsuit/ar- range of contracting parties, such as investors, contractors, bitration case that is of relevance due to its scope: tenants, etc. These agreements involve opportunities and risks that are assessed and identified prior to contract conclusion. In the summer of 2002, De Samvirkende Købmænd, a trade as- From time to time, the Group is involved in disputes and law- sociation of grocery retailers, filed a complaint with the Nature suits. The Group is not a party to any lawsuits that, either in- Protection Board of Appeal (Naturklagenævnet) in respect of dividually or collectively, are expected to materially affect the the City of Copenhagen’s approval of the layout of the Field’s Group’s earnings. department store. In particular, the claim asserted that the Field’s department store is not one department store, but that Senior Vice President indicted by the Polish police it consists of several individual stores. The Nature Protection In June 2006, the Senior Vice President in charge of the Group’s Board of Appeal made its decision in the matter on 19 Decem- Polish branch office was detained, taken into custody and ber 2003, after which the department store layout was ap- charged by the Polish police with irregularities related to ob- proved. De Samvirkende Købmænd subsequently took out a taining regulatory approval (zoning permission) for the Polish writ against the Nature Protection Board of Appeal before the Galeria Biala shopping centre project in Bialystok. In November Danish High Court. At the beginning of 2011, the High Court 2006, the Senior Vice President was released on bail. The Polish gave judgment in favour of De Samvirkende Købmænd. Neither prosecution service has indicted the Senior Vice President, and the owner of the centre nor any company in the TK Develop- the case is currently being tried. ment Group is a direct party to the case, but the High Court’s judgment may have the effect that the Field’s department During the entire process, Group Management has been unable store will have to be redesigned following negotiations with to find any irregularities in connection with the project, and still the relevant municipalities, and in that connection it cannot be fails to comprehend that the Senior Vice President could be in- ruled out that a claim may be made against the Group. As a volved in the alleged practices. result of the judgment, the owner of Field’s may have to incur the financial burden of causing the necessary changes to the If, contrary to Management’s expectations, the Senior Vice building layout. Regardless of the judgment, Management still President is convicted, this might damage the Group’s reputa- believes the risk of this case to be negligible. tion and thus adversely affect its activities and earnings.

Futurum Hradec Králové, shopping centre, Czech Republic In May 2013 the extension of the centre opened. The centre now comprises 110 stores and is fully let.

44 /127 | Tk Development A/S | AAnnuNNUAaLl REPORTreport2012/13 2012/13 | | M Managemenanagement tC Commenommentarytary Shareholders

Share information The table below shows a breakdown of shares held by the Su- Stock exchange NASDAQ OMX Copenhagen pervisory Board and Executive Board. Index SmallCap Share capital DKK 630,985,725 Change for Share denomination DKK 15 Ownership the year in Number of shares 42,065,715 Number of and voting number of Share classes One Direct and indirect ownership shares *) interest in % shares Number of votes per share One Supervisory Board: Bearer security Yes Niels Roth 703,626 1.67 % 0 Voting right restrictions No Torsten Erik Rasmussen 89,140 0.21 % 0 Share transfer restrictions No Per Søndergaard Pedersen 279,508 0.66 % 0 ISIN code DK0010258995 Jesper Jarlbæk 56,900 0.14 % 0 Jens Erik Christensen 37,448 0.09 % 0 Shareholders and their holdings Peter Thorsen 415,190 0.99 % 415,190 The number of registered shareholders decreased from 7,928 at the beginning of the year to 7,396 at the end of the year. Executive Board: The registered shareholders represented 91.62 % of the share Frede Clausen 243,439 0.58 % 0 capital at 31 January 2013 (31 January 2012: 92.36 %). Robert Andersen 115,000 0.27 % 0 Total 1,940,251 4.61 % 415,190

Shareholder composition at 31 January 2013: *) The holdings include all shares held by all members of the entire household as well as companies controlled by the above-named persons.

Other registered Pension funds 9.00 % shareholders 34.87 % Share price development Supervisory and Executive Boards 4.61 % On 31 January 2013, TK Development A/S’ shares were listed at a price of DKK 12.5 per share with a nominal value of DKK 15, Other major Non-registered equal to a market value of DKK 526 million. shareholders 26.68 % shareholders 8.38 %

Foreign Banks, insurance companies shareholders 9.29 % and unit trusts 7.17 % The price of TK Development A/S shares developed as follows during the year under review:

140 40 The table below shows the ownership structure of TK Develop- 120 35 100 30 ment A/S as of today, as reported to NASDAQ OMX Copenha- 25 80 gen A/S pursuant to section 29 of the Danish Securities Trading 20 60 15 Act. 40 10 20 5 0 0 Ownership July May April June March

Shareholders holding more than 5 % and voting August October November December of the total share capital interest in % September January 2013 February 2012 February

Storm Real Estate ASA, 100 New Bond Street, Share price development (1.2.2012 = Index 100) London W1S 1SP, United Kingdom 10.47 % Volume of trading, DKKm Dava 1 ApS, c/o Kurt Daell, Lysagervej 25, Volume of trading 2920 Charlottenlund, Denmark 10.01 % Strategic Capital ApS, Islands Brygge 79 C, During the year under review, the share was traded on 249 2300 Copenhagen S, Denmark 9.52 % days, with a total trading volume of DKK 154 million against DKK 181 million the year before. 4,628 trades were completed (2011/12: 7,660 trades), covering a total of 11,382,365 shares (2011/12: 10,343,972 shares).

Management Commentary | Annual report 2012/13 | Tk Development A/S | 45 /127 SHAREHOLDERS

Capital and share structure votes cast as well as of the voting stock represented at the TK Development A/S’ shares are not divided into several share General Meeting. classes, and no shares are subject to special rights or restrictions. Each share confers one vote on the holder. TK Develop- Share-based incentive schemes ment’s Articles of Association contain no restrictions govern- 2010 scheme ing share ownership, the number of shares that a shareholder In June 2010, the Supervisory Board granted 100,000 warrants may hold or share transferability. As all shareholders thus have to the Executive Board and 294,000 warrants to other exec- equal rights, the Supervisory Board believes that the share utive staff members, a total of 394,000 warrants. As a con- structure chosen is the most appropriate one. sequence of the capital reduction and capital increase implemented in August 2010, where the subscription price for the The Company’s Management reviews the Group’s capital struc- newly issued shares was lower than the market value of the ture on a regular basis, as well as the need for any adjustments. shares, the Supervisory Board resolved to adjust the number Management’s overall aim is to provide a capital structure that of warrants allocated and the subscription price for exercising supports the Group’s earnings potential, while at the same the warrants. There was a total of 446,315 active warrants at time ensuring the best possible relation between equity and the reporting date. loan capital and thus maximizing the return for the Company’s shareholders. In order to strengthen the Group’s financial plat- Under the three-year warrant scheme, warrants can be exer- form, the Supervisory Board will request authorization at the cised at the earliest two years after the grant date, and any forthcoming Annual General Meeting to carry out a capital in- shares subscribed for are subject to an additional lock-up pe- crease with gross proceeds of about DKK 210-231 million. riod of up to two years. Warrants comprised by the incentive scheme may be exercised within three six-week windows, of Shareholders’ agreements which only one window remains, viz. the six weeks following Management is not aware of any shareholders’ agreements publication of the preliminary announcement of financial state- that have been concluded between TK Development A/S’ ments for the 2012/13 financial year. shareholders. The subscription price per share of nominally DKK 15, before Rules regarding alterations to the any deduction for dividends, has been fixed at DKK 26.3 in the Company’s Articles of Association last exercise window. The Articles of Association of TK Development A/S can only be altered following a resolution adopted at a General Meeting in The Group’s total expenses for the incentive scheme amount to compliance with the Danish Companies Act. Requests for the DKK 1.9 million, being charged to the income statement over a inclusion of a specific proposal in the agenda of the Annual period of 22 months. General Meeting shall be submitted in writing by shareholders to the Supervisory Board. If the request is submitted no later 2011 scheme than six weeks before the date of the General Meeting, the In June 2011, the Supervisory Board granted 125,000 warrants shareholder is entitled to have the proposal included in the to the Executive Board and 375,000 warrants to other execu- agenda. If the Supervisory Board receives the request later tive staff members, a total of 500,000 warrants. There was a than six weeks before the Annual General Meeting, the Supervi- total of 484,000 active warrants at the reporting date. sory Board will determine whether the request has been made sufficiently early to permit its inclusion in the agenda. Under the four-year warrant scheme, warrants can be exercised at the earliest three years after the grant date, and any shares At a General Meeting, resolutions can only be adopted in re- subscribed for are subject to an additional lock-up period of up spect of business included in the agenda and any proposed to two years. Warrants comprised by the incentive scheme may amendments. If proposals to alter the Articles of Association be exercised during three six-week windows. These six-week are to be considered at a General Meeting, the essentials of windows are placed thus: such proposals must be stated in the convening notice. A resolution to alter the Company’s Articles of Association is sub- • following publication of the preliminary announcement of ject to the proposal being adopted by at least two-thirds of the financial statements for the 2013/14 financial year (from

46 /127 | Tk Development A/S | Annual report 2012/13 | Management Commentary Shareholders

around 30 April 2014); Extraordinary General Meetings are held following a resolution • following publication of the interim report for the six- by the shareholders in General Meeting or the Supervisory month period ending 31 July 2014 (from around 30 Sep- Board or at the request of the auditors of TK Development A/S tember 2014); and or at the written request of shareholders holding not less than • following publication of the preliminary announcement of 5 % of the total share capital. financial statements for the 2014/15 financial year (from around 30 April 2015). All business transacted at General Meetings, with the exception of alterations to the Articles of Association or a resolu- The subscription price per share of nominally DKK 15, before tion to dissolve the Company, is decided by a simple majority any deduction for dividends, has been fixed at DKK 28.0 in the of votes unless otherwise provided by current legislation; see first exercise window, DKK 28.9 in the second window and DKK Article 6 of the Company’s Articles of Association. 30.2 in the third window. Registered shares The Group’s total expenses for the incentive scheme amount to All shares are registered in book-entry form in accounts main- DKK 2.0 million, being charged to the income statement over a tained in the computer system of VP Securities A/S, Weideka- period of 35 months. mpsgade 14, PO Box 4040, 2300 Copenhagen S, Denmark, and must be held and managed through a Danish bank or other in- Number of Number of stitution authorized to be registered as the custodian of the warrants warrants shares. The shares must be issued to named holders and may 2010 scheme 2011 scheme not be transferred to bearer.

Supervisory Board 0 0 The Supervisory Board’s powers Powers to issue new shares Executive Board: The Supervisory Board is authorized to increase the Company’s Frede Clausen 57,515 62,500 share capital by one or more issues during the period ending on Robert Andersen 57,515 62,500 30 June 2014 by up to nominally DKK 8,000,000, without any Other executive staff 331,285 359,000 pre-emptive rights for the Company’s existing shareholders. Total 446,315 484,000 Moreover, the Supervisory Board is authorized to increase the Company’s share capital by one or more issues during the peri- Dividends and dividend policy od ending on 30 June 2015 by up to nominally DKK 7,500,000, TK’ Development’s long-term policy is to distribute a portion without any pre-emptive rights for the Company’s existing of the year’s profit as dividends or alternatively via a share re- shareholders. This authorization is to be used for implementing purchase programme. This will always be done with due regard the capital increases resulting from the exercise of warrants for the Group’s capital structure, solvency, cash resources and under the existing incentive schemes. Accordingly, the overall investment plans. authorization for the Supervisory Board to subscribe for capital will amount to 2.4 % of the Company’s share capital. The out- Annual General Meeting standing warrants following the adjustment as a result of the The General Meeting of shareholders is the supreme authority capital reduction and capital increase implemented in August in all corporate matters of TK Development A/S, subject to the 2010 amount to nominally DKK 6,694,725 and nominally DKK limitations provided by Danish law and TK Development A/S’ 7,260,000, respectively. Articles of Association. The Annual General Meeting must be held in the municipality where TK Development A/S’ registered Treasury shares office is located sufficiently early to permit compliance with At the Annual General Meeting on 25 May 2010, the Superviso- the Company’s applicable time limits for the holding of General ry Board was authorized, on behalf of the Company, to acquire Meetings and the filing of Annual Reports. General Meetings are treasury shares having a nominal value of not more than 10 convened by the Supervisory Board. The Annual General Meet- % of the share capital in order to optimize the Group’s capital ing will be held at 3 p.m. on 22 May 2013 at Aalborg Kongres & structure. The authorization is valid for a period of five years Kultur Center, Radiosalen, Aalborg. from the adoption of the resolution at the Annual General Meeting.

Management Commentary | Annual report 2012/13 | Tk Development A/S | 47 /127 Shareholders

Rules on insider trading Moreover, there is a direct link from TK Development A/S’ web- TK Development’s Management and employees are only al- site to the NASDAQ OMX Copenhagen A/S website (www.nas- lowed to trade in the Company’s shares during the six-week daqomxnordic.com), which contains further information about period after the publication of annual and quarterly reports the TK Development A/S share. Reference is also made to the and any other comprehensive announcements of financial re- description of “Corporate Governance” at the Company’s web- sults. If Management or employees are in possession of inside site, www.tk-development.com information that may influence the pricing ofTK Development’s shares, they may not trade in the shares even during the six- week period. The Company keeps a register of the shares held by insiders, including any changes in their portfolios, and dis- closes this information in accordance with existing legislation. FINANCIAL CALENDAR

Annual Report 2012/13 30 April 2013 Investor relations Annual General Meeting 22 May 2013 TK Development aims to keep its shareholders and investors Interim Report Q1 2013/14 25 June 2013 up-to-date on all relevant matters. Interim Report Q1-Q2 2013/14 26 September 2013 Interim Report Q1-Q3 2013/14 18 December 2013 The Company’s website, www.tk-development.com, includes Preliminary announcement of financial all company announcements issued for the past five years, statements 2013/14 24 April 2014 updated share prices and information about the Group’s pro- Annual Report 2013/14 1 May 2014 jects in progress. When investor presentations are published Annual General Meeting 26 May 2014 in connection with the announcement of annual and half-year financial results, they are also made available at the Company’s website.

Company announcements

No. Date

3 2 Feb 2012 Information about the leading employees’ and their closely related parties’ transactions with TK Development A/S shares and related securities 4 26 Apr 2012 Preliminary announcement of financial statements 2011/12 5 1 May 2012 Notice convening the Annual General Meeting of TK Development A/S 6 23 May 2012 Proposal for TK Development’s Supervisory Board to have seven members in future 7 24 May 2012 Annual General Meeting of TK Development A/S on 24 May 2012 8 1 Jun 2012 Information about the leading employees’ and their closely related parties’ transactions with TK Development A/S shares and related securities 9 6 Jun 2012 Information about the leading employees’ and their closely related parties’ transactions with TK Development A/S shares and related securities 10 6 Jun 2012 Information about the leading employees’ and their closely related parties’ transactions with TK Development A/S shares and related securities 11 25 Jun 2012 Interim Report Q1 2012/13 12 17 Jul 2012 TK development concludes a conditional agreement with Heitman concerning the sale of two Polish projects at a total project value of EUR 95 million. 13 18 Jul 2012 Information about the leading employees’ and their closely related parties’ transactions with TK Development A/S shares and related securities 14 23 Jul 2012 Major shareholder announcement 15 25 Sep 2012 Interim Report Q1-Q2 2012/13 16 30 Oct 2012 TK Development sells retail park in Gävle, Sweden 17 19 Dec 2012 Interim Report Q1-Q3 2012/13 1 8 Jan 2013 Information about the leading employees’ and their closely related parties’ transactions with TK Development A/S shares and related securities 2 9 Jan 2013 Information about the leading employees’ and their closely related parties’ transactions with TK Development A/S shares and related securities 3 21 Jan 2013 Information about the leading employees’ and their closely related parties’ transactions with TK Development A/S shares and related securities 4 24 Jan 2013 Financial calendar

48 /127 | Tk Development A/S | Annual report 2012/13 | Management Commentary Corporate governance

TK Development’s Supervisory and Executive Boards continue Audit committee to focus on the recommendations for corporate governance, The Supervisory Board believes that auditing is an issue that and the Supervisory Board reassesses its policies for compli- concerns all board members. For this reason, and given the ance with the recommendations at least once a year. In a few complexity of the accounting procedures and the size of the areas, the Company does not comply with the recommenda- Supervisory Board, it has been considered appropriate not to tions, but instead provides an explanation of its reasons for not set up an actual audit committee, but to let all board members complying with a specific recommendation. The Supervisory function jointly as the audit committee. Board is of the opinion that TK Development A/S lives up to the existing Recommendations on Corporate Governance. Nomination committee The Supervisory Board has decided not to establish a nomina- A detailed review of the Supervisory Board’s policies for com- tion committee because, given its size, the Supervisory Board pliance with the recommendations issued by the Committee finds that these tasks are best handled by the Board as a whole. on Corporate Governance is available at www.tk-development. com/cg_2012_13 Content of remuneration policy So far, the Supervisory Board has decided not to set limits for The Committee recommendations not followed are listed be- how high a portion of the total remuneration may be constitut- low: ed of variable components, as the amount of bonus will only be paid if a minimum 8 % return on equity is achieved. Until further Corporate social responsibility notice, the amount of bonus is expected to account for a minor In light of the Company’s size and activities and the Group’s portion only relative to the fixed pay elements. operating markets, the Supervisory Board has decided not to adopt policies for corporate social responsibility. The Board will As bonus is only paid if a minimum 8 % return on equity is regularly assess the need for policies in this area. achieved for an individual financial year, the Supervisory board assesses that the remuneration policy ensures constant align- Diversity ment between the interests of the Executive Board and the The limited size of the organization and its division into units shareholders. It has therefore been found unnecessary to es- operating in different countries with relatively few employees tablish criteria ensuring that the vesting period for variable pay in each country mean that the Group is largely compelled to elements, wholly or in part, is longer than one financial year. focus on knowledge, competencies and experience when re- cruiting and promoting employees. The Supervisory Board ac- The Supervisory Board knowledges the importance of the diversity of the Company’s Composition and rules regarding appointments and replace- Management and staff and is naturally alert to providing equal ments opportunities to both genders. For the reasons set out above, According to the Articles of Association, the Supervisory Board TK Development has so far chosen not to establish specific must be composed of not less than four nor more than seven guidelines and objectives for diversity, but after the reporting members. The Supervisory Board is currently composed of six date the Company has adopted a policy to ensure the diversity members elected by the General Meeting. Management consid- of its Management and staff, including a policy to increase the ers the composition of the Supervisory Board to be appropriate share of women at other managerial levels in the Group. relative to the Company’s current activities and requirements. In Management’s opinion, the current Supervisory Board mem- Age limit bers have the financial, strategic and commercial expertise re- Setting an age limit for the members of the Supervisory Board quired by an international business such as TK Development. has so far not been considered appropriate by TK Development, The members of the Supervisory Board are elected at the Gen- as talents, expertise and experience are weighted higher than eral Meeting of shareholders to serve for a term of one year an age criterion. However, to comply with the existing recom- at a time. Retiring Supervisory Board members are eligible for mendations, Management has decided to recommend for adop- re-election. tion at the Annual General Meeting on 22 May 2013 that the Company’s Articles of Association should introduce an age limit The Supervisory Board’s competencies cover a wide spectrum, of 70 for Supervisory Board members. including strategic management, international relations, capital structure, the property sector, the retail trade, risk assess-

Management Commentary | Annual report 2012/13 | Tk Development A/S | 49 /127 corporate governance

ment and control, investor relations, business development as as all Supervisory Board members sit on this committee. The well as accounting and financial expertise. remuneration payable to Supervisory Board members consists of a basic fee. The Chairman is paid three times the basic fee, The professional qualifications of the Supervisory Board mem- while the Deputy Chairman is paid twice the basic fee. As part bers are listed individually under the heading “The Supervisory of the cost cuts implemented by the Group in January 2012, Board”. the Supervisory Board accepted a 20 % fee reduction, with the basic fee amounting to DKK 200,000 in 2012/13. Together with The Supervisory Board considers all its members, with two ex- its proposal for adoption of the Annual Report for 2012/13, the ceptions, to be independent of the Company. Torsten Erik Ras- Supervisory Board will recommend that the Annual General mussen is not considered independent as he has held a seat on Meeting adopt a further extraordinary 20 % reduction of the the Supervisory Board for more than 12 years, and Per Sønder- basic fee, which will thus be fixed at DKK 160,000 for 2013/14. gaard Pedersen is not considered independent because he was previously a member of the Company’s Executive Board. Remuneration of the Executive Board Remuneration policy Self-evaluation Every year the Supervisory Board assesses and determines the Once a year the Supervisory Board systematically evaluates its remuneration payable to the Executive Board members, based work and competencies with a view to continuously improving on the recommendation of the Chairman and Deputy Chairman. and streamlining its work. The overall pay package and its composition are determined by the results achieved, the Executive Board’s competencies and The Chairman is in charge of this internal evaluation of the Su- the Supervisory Board’s wish to ensure that the Company can pervisory Board. To date, the Supervisory Board has chosen to continue to attract, retain and motivate qualified executives. conduct a qualitative evaluation in the form of interviews and In this connection, the Supervisory Board takes the Company’s open, constructive dialogue with all members present at the situation and general development into account. Every year, same time. The evaluation is based on a predetermined list of the Supervisory Board reviews the remuneration payable to the subjects, including communication and collaboration, results Executive Board by comparing it to that payable to executive achieved compared to targets set, short- and long-term com- boards of other comparable companies with international ac- position of the Supervisory Board, and the competencies of its tivities. members as well as any need for knowledge and skills development. Other relevant issues are considered on an ad-hoc basis. The Executive Board’s remuneration consists of a fixed and a The mutual confidence of the members in each other automat- variable portion. The variable remuneration consists of a short- ically leads to a free exchange of opinions, and each member is term and a long-term incentive scheme. The overall pay pack- encouraged to take an active part in discussions. If desired by age consists of a fixed salary, bonus, defined-contribution pen- any member or the Chairman, the members can be interviewed sion of 2 % of the basic salary and other benefits, including a individually on any specific subject. company-provided car, telephone, IT solution and newspaper, as well as health insurance and warrants. The self-evaluation has promoted the further development of the Group’s strategy, including sharper focus on risk manage- The remuneration policy appears from the Company’s website, ment and on improving communication with the market. After www.tk-development.com the reporting date, this has for instance translated into a decision to change the Group’s internal and external reporting. Remuneration The remuneration of the Executive Board in 2012/13 was based Number of Supervisory Board meetings on the guidelines adopted at the General Meeting in 2011. As The Supervisory Board held seven board meetings in the part of the cost cuts implemented by the Group in January 2012/13 financial year. 2012, the remuneration of the Executive Board was reduced by 20 % for a 24-month period starting on 1 February 2012. Remuneration of the Supervisory Board Warrants were not granted to the Executive Board in 2012. The members of the Supervisory Board are paid a fixed fee The remuneration of each individual member of the Executive and are not covered by the Company’s bonus and incentive Board appears from the Group’s Annual Report. The remunera- schemes. No separate fee is paid for audit committee work tion for 2013/14 will also be based on the guidelines adopted

50 /127 | Tk Development A/S | Annual report 2012/13 | Management Commentary corporate governance

at the General Meeting in 2011, as no changes have been made sessed that internal audits have been unnecessary. to these guidelines. However, a new two-year agreement has been made with the Executive Board, according to which a fur- Audit committee ther 20 % of the Executive Board’s fixed annual remuneration The Supervisory Board believes that auditing is an issue that will not be paid on an ongoing basis, which will equal a 36 % concerns all board members. For this reason, and given the reduction compared to the remuneration paid in the 2011/12 complexity of the accounting procedures, it has been consid- financial year, which will apply to the period from 1 May 2013 ered appropriate not to set up an actual audit committee, but to 30 April 2015. During that period, the reduced fixed annual to let all board members function jointly as the audit commit- salary will amount to DKK 2.7 million for Frede Clausen and DKK tee. The terms of reference of the audit committee have been 2.1 million for Robert Andersen. Up to two-thirds of the remu- laid down, and, basically, four meetings are held each year. neration withheld during the two-year period will nevertheless be paid when the Group meets specific operational targets, The Company website contains information about the most fixed as part of the previously described two-year transforma- important activities during the year, the number of audit com- tion process that consists of realizing the initiatives adopted mittee meetings held and the terms of reference of the audit under the revised strategy. Warrants will not be granted to the committee. Executive Board in 2013 either. Statutory Annual Corporate Governan- Retention and severance programmes ce Statement Under the Executive Board’s service agreements, the individual TK Development has chosen to present its Statutory Annual Executive Board member may give notice of termination no lat- Corporate Governance Statement on its website instead of in er than three months after the occurrence of an extraordinary the management commentary. event (change of control), such termination to take effect 12 months after notice has been given. The Executive Board mem- The Corporate Governance Statement is available at www. ber may demand to be released from his or her duties during tk-development.com/cgs_12_13 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 Supervisory Board may decide, on the basis of a specific assessment, to pay a retention bonus whereby Exec- utive 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.

Internal audit At least once a year, the Supervisory Board takes a position on the adequacy of internal control and risk management sys- tems. Based on the company’s size, complexity and accounting department organization, the Supervisory Board has so far as-

Management Commentary | Annual report 2012/13 | Tk Development A/S | 51 /127 Statutory annual corporate social responsibility statement

In addition to carrying on profitable business activities, TK De- velopment 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. The Group only carries on activities in countries that have already incorporated human rights, labour standards and anti-corruption principles into their national legislation.

The Supervisory Board has not introduced any policies that integrate corporate social responsibility into the Company’s strategy and activities.

Reference is also made to www.tk-development.com/ CSR_2012_13

Barkarby Gate, Stockholm, Sweden Development of a 20,000 m2 retail park. The current occupancy rate is 70 %. Opening is scheduled for late 2014.

5252/127 /127 || TTkk DevelopmentDevelopment A/SA/S || a Annunnuaal lreport report 2012/13 2012/13 | | M Managemenanagementt C Commenommentarytary Statutory annual corporate social responsibility statement The Supervisory Board

TOOK END NAME OFFICE OF TERM BIRTHDAY INDEPENDENCE 1)

Niels Roth (Chairman) 2007 May 2013 July 1957 Independent Torsten Erik Rasmussen (Deputy Chairman) 1998 May 2013 June 1944 Not independent 2) Per Søndergaard Pedersen 2002 May 2013 March 1954 Not independent 3) Jesper Jarlbæk 2006 May 2013 March 1956 Independent Jens Erik Christensen 2010 May 2013 February 1950 Independent Peter Thorsen 2012 May 2013 March 1966 Independent

1) See section 5.4.1 in the ”Recommendations on Corporate Governance” prepared by NASDAQ OMX Copenhagen A/S. 2) Has held a seat on the Supervisory Board for more than 12 years. 3) Was previously a member of the Company’s Executive Board.

Management Commentary | Annual report 2012/13 | Tk Development A/S | 53 /127 THE SUPERVISORY BOARD

Niels Roth Torsten Erik Rasmussen

Chairman of the Supervisory Board Deputy Chairman

Born July 1957 Born June 1944 Joined the supervisory board 2007 Joined the supervisory board 1998 End of term May 2013 End of term May 2013

Education Education 1983 MSc (Economics). 1961-1964 Commercial education, Dalhoff Larsen & Horneman A/S, Denmark. Employment 1964-1966 National service with the Royal Life Guards, dischar- 1989-2004 CEO of Carnegie Bank, and Group Head of Investment ged from military service as first lieutenant (R) in Banking in the Carnegie Group (2001-2002). 1967. 1997-2004 Member of the Danish Securities Council. 1972 MBA, IMEDE, Lausanne, Switzerland. 2001-2004 Chairman of the Danish Securities Dealers’ Associati- 1985 International Senior Managers’ Program, Harvard Busi- on. ness School, USA.

Special competencies Employment Financial markets, capital structure, investment, accounting, inve- 1967-1971 Head of department and later director of Northern stor relations. Soft- & Hardwood Co. Ltd., Congo. 1973 Executive secretary, LEGO System A/S, Denmark. Executive board member 1973-1975 Finance manager, LEGOLAND A/S, Denmark. Zira Invest II ApS; Zira Invest III ApS. 1975-1977 Logistics manager, LEGO System A/S, Denmark. 1977-1978 Assistant manager (logistics), LEGO System A/S, Den- Supervisory board chairman mark. 1978-1980 President and CEO, LEGO Overseas A/S, Denmark. Fast Ejendom Holding A/S; Foreningen Fast Ejendom Dansk Ejen- 1981-1997 Manager and member of Group Management, LEGO domsportefølje f.m.b.a.; Friheden Invest A/S; NPC A/S. A/S, Denmark.

Supervisory board member Special competencies A/S Rådhusparken; A/S Sadolinparken; Arvid Nilssons Fond; FFH Strategic management, international relations, accounting and Invest A/S; Investeringsforeningen SmallCap Danmark (Deputy finances. Chairman); Porteføljeselskab A/S (Deputy Chairman); Realdania; SmallCap Danmark A/S (Deputy Chairman). Executive board member Board committees and other posts Morgan Management ApS. None. Supervisory board chairman Acadia Pharmaceuticals A/S; Ball ApS; Ball Holding ApS; Ball Invest ApS; CPD Invest ApS; Oase Outdoors ApS.

Supervisory board member Acadia Pharmaceuticals Inc., USA; Morgan Invest ApS; Schur Inter- national Holding A/S; Vola A/S; Vola Ejendomme ApS; Vola Holding A/S.

Board committees and other posts Chairman of the Acadia Pharmaceuticals Inc.’s Corporate Gover- nance Committee, USA; Member of the Acadia Pharmaceuticals Inc.’s Compensation Committee, USA.

54 /127 | Tk Development A/S | Annual report 2012/13 | Management Commentary THE SUPERVISORY BOARD

Per Søndergaard Pedersen Jesper Jarlbæk

Born March 1956 Born March 1954 Joined the supervisory board 2006 Joined the supervisory board 2002 End of term May 2013 End of term May 2013 Education Education 1981 Trained as a state-authorized public accountant. Trained with Sparekassen Nordjylland (Spar Nord Bank). 2006 Licence placed in inactive status.

Employment Employment 1983-1986 Head of the business department at Sparekassen 1974-2002 Served with Arthur Andersen (most recently as ma- Nordjylland headquarters, Østeraa branch. naging partner). 1986-1989 Regional manager, Sparekassen Nordjylland, Hasseris 2002-2006 Deloitte (executive vice president). branch. 1989-2002 CEO, TK Development A/S. Special competencies International management, risk assessment and control, accoun- Special competencies ting and finance. Retail trade, property sector, financial markets, business development, investor relations. Executive board member Earlbrook Holdings Ltd. A/S; SCSK 2272 ApS; Timpco ApS. Executive board member A.S.P. Ejendom ApS; J.A. Plastindustri Holding A/S; PSP Holding Supervisory board chairman ApS; PSPSH Holding ApS; Radioanalyzer ApS. Advis A/S; Altius Invest A/S; Basico Consulting A/S; Basico Consul- ting International ApS; Catacap Management ApS; Groupcare A/S; Supervisory board chairman Groupcare Holding A/S; Jaws A/S; Julie Sandlau China ApS; San- AG I A/S; Arne Andersen A/S; Athene Group A/S; Bjørk & Maigård derman Pte. Ltd., Singapore; Spoing A/S; Valuemaker A/S . Holding ApS; Business Institute A/S; Conscensia A/S; Conscensia Holding A/S; dansk boligstål a/s; EIPE Holding A/S; Exportakade- Supervisory board member miet Holding ApS; GLC Management Invest ApS; Global Car Leasing a-solutions a/s; Bang & Olufsen a/s; Earlbrook Holdings Ltd. A/S; A/S; Ib Andersen A/S; Ib Andersen A/S Øst; Ib Andersen Ventilation Københavns Privathospital A/S; Polaris III Invest Fonden; ShowMe A/S; J.A. Plastindustri A/S; JMI Ejendomme A/S; JMI Gruppen A/S; A/S; Økonomiforum ApS. K/S Asschenfeldt, Dietrich-Bonhoeffer-Strasse, Waren; Lindgaard A/S – Rådgivende Ingeniører F.R.I.; Nowaco A/S; Nybolig Jan Mil- Board committees and other posts vertz A/S; Restaurant Fusion A/S. Business Angels Copenhagen (Chairman); DVCA, Danish Venture Capital and Private Equity Association (Deputy Chairman); Sailing Supervisory board member Denmark (member); Chairman of the audit committee, Bang & Arkitekterne Bjørk & Maigård ApS; Ejendomsmægleraktieselska- Olufsen a/s. bet Thorkild Kristensen; Ejendomsmægleraktieselskabet Thorkild Kristensen Bolig; Ejendomsmægleraktieselskabet Thorkild Kristen- sen, Blokhus; Ejendomsmægleraktieselskabet Thorkild Kristensen Erhverv; Emidan A/S; Fan Milk International A/S; Fonden Musikkens Hus i Nordjylland; Investeringsforeningen SmallCap Danmark; J.A. Plastindustri Holding A/S; JMI Investering A/S; JMI Projekt A/S; K/S Danske Dagligvarebutikker; Ladegaard A/S; Marius A/S; PL Holding Aalborg A/S; P L Invest, Aalborg ApS; Porteføljeselskab A/S; Sjæl- landske Ejendomme A/S; Skandia Kalk International Trading A/S; SmallCap Danmark A/S; Wahlberg VVS A/S.

Board committees and other posts None.

Management Commentary | Annual report 2012/13 | Tk Development A/S | 55 /127 THE SUPERVISORY BOARD

Jens Erik Christensen PETER Thorsen

Born Febuary 1950 Born March 1966 Joined the supervisory board 2010 Joined the supervisory board 2012 End of term May 2013 End of term May 2013

Education Education 1975 MSc (Actuarial Science). 1992 MSc (Business Administration and Auditing).

Employment Employment 1978-1989 Baltica Forsikring. 1992-1994 Accountant, More Stevens. 1990-1993 Chief Operating Officer of Danica Liv & Pension. 1994-1997 Marketing Manager, Group CFO & International Con- 1992-1998 CEO of Codan Forsikring A/S. troller, KEW Industri A/S. 1998-2003 Managing Director of EMEA, the RS&A Group. 1997-1997 Finance Manager, Electrolux Hvidevarer A/S. 1999-2006 CEO of Codan. 1997-1998 Finance Manager, Marwi International A/S (Incentive A/S). Special competencies 1998-2000 CEO, Basta Group A/S. Property sector, financial markets, international relations, business 2001-2005 CEO, Bison A/S. development. 2005-2008 CEO, Louis Poulsen Lighting A/S. 2007-2008 Group Chief Executive, Targetti Poulsen. 2008- CEO, EBP Ejendomme A/S, EBP Holding A/S, Kirk & Executive board member Thorsen A/S, Kirk & Thorsen Invest A/S and Modulex Sapere Aude ApS. Holding ApS.

Supervisory board chairman Special competencies Alpha Holding A/S; ApS Harbro Komplementar-48; Behandlings- Strategic management, accounting and finances, business devel- vejviseren A/S; Core Strategy Consultants A/S; Dansk Merchant opment. Capital A/S; Ecsact A/S; K/S Habro-Reading, Travelodge; Mediaxes A/S; Scandinavian Private Equity A/S; Skandia A/S; Skandia Link Livsforsikring A/S; Skandia Liv A/S; Skandia Liv A A/S; TA Manage- Executive board member ment A/S; Vördur tryggingar hf. EBP Holding A/S; EBP Ejendomme A/S; Kirk & Thorsen A/S; Kirk & Thorsen Invest A/S; Modulex Holding ApS.

Supervisory board member Supervisory board chairman Alpha Insurance A/S; Andersen & Martini A/S; BankNordik A/S (De- Biblioteksmedier A/S; Ejendomsselskabet Smedetoften 12 A/S; puty Chairman); Hugin Expert A/S (Deputy Chairman); Mbox A/S; Invest Marts A/S; Megatherm Energi Invest A/S; Modulex A/S; Nemi Forsikring AS; Nordic Corporate Investments A/S; P/F Trygd; PFP A/S; Procom A/S; Ravn Arkitektur A/S; Scan Auto & Dybbroe Skandia Asset Management Fondsmæglerselskab A/S; Your Pensi- Group A/S; SD Group A/S; VT1 Holding A/S. on Management A/S.

Supervisory board member Board committees and other posts Careitec A/S; Careitec Holding A/S; Claus Heede Holding A/S; EBP Chairman of Dansk Vejforening (Danish Road Association); Chair- Holding A/S; Kirk & Thorsen A/S; Kirk & Thorsen Invest A/S; Ny man of the audit committee, Andersen & Martini A/S; Member Droob ApS; Rotation A/S; Starco Europe A/S; Viborg Storcenter of the audit committee, Skandia Liv A/S; Member of the Danish A/S. Government’s infrastructure commission.

Board committees and other posts Member of the Executive Committee, Sct. Maria Hospice.

56 /127 | Tk Development A/S | Annual report 2012/13 | Management Commentary The Executive Board

Frede Clausen Robert Andersen

President and CEO Executive Vice President

Born July 1959 Born April 1965 Member of the Executive Board since 1992 Member of the Executive Board since 2002

Executive board member Executive board member Frede Clausen Holding ApS. Ringsted Outlet Center P/S*; Palma Ejendomme A/S; Hotel den Gamle Skibssmedie ApS. Supervisory board chairman Ahlgade 34-36 A/S*; Ringsted Outlet Center P/S*; SPV Ringsted Supervisory board chairman ApS*; Udviklingsselskabet Nordkranen A/S* None.

Supervisory board member Supervisory board member Euro Mall Luxembourg JV s.à.r.l.*; Euro Mall Ventures s.à r.l.*; Kom- Ahlgade 34-36 A/S*; Kommanditaktieselskabet Danlink-Udvik- manditaktieselskabet Danlink-Udvikling*; Komplementarselskabet ling*; Kommanditaktieselskabet Østre Havn*; Komplementarsel- DLU ApS*; K/S Købmagergade 59, st.; Palma Ejendomme A/S; Ho- skabet DLU ApS*; Ringsted Outlet Center P/S*; SPV Ringsted ApS*; tel den Gamle Skibssmedie ApS. Udviklingsselskabet Nordkranen A/S*; Østre Havn Aalborg ApS*; Palma Ejendomme A/S; Hotel den Gamle Skibssmedie ApS. Board committees and other posts None. 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 2012/13 | Tk Development A/S | 57 /127 Statement by the Supervisory and Executive Boards on the Annual Report

The Supervisory and Executive Boards have today considered Moreover, we consider the Management Commentary to give a and adopted the 2012/13 Annual Report of TK Development fair presentation of the development in the Group’s and Compa- A/S. ny’s activities and financial affairs, the results for the year and the Group’s and Company’s financial position, as well as a true The Annual Report is presented in accordance with the Interna- and fair description of the most significant risks and elements tional Financial Reporting Standards (IFRS), as adopted by the of uncertainty faced by the Group and the Company. EU, and in accordance with Danish disclosure requirements for annual reports prepared by listed companies. We recommend that the 2012/13 Annual Report be adopted by the Annual General Meeting of shareholders. 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 2013 and of the results of the Group’s and Company’s operations and cash flows for the financial year from 1 February 2012 to 31 January 2013.

Aalborg, 25 April 2013

Executive board

Frede Clausen Robert Andersen President and CEO Excecutive Vice President

Supervisory board

Niels Roth Torsten Erik Rasmussen Chairman Deputy Chairman

Per Søndergaard Pedersen Jesper Jarlbæk

Jens Erik Christensen Peter Thorsen

58 /127 | Tk Development A/S | Annual report 2012/13 | Statement by the Supervisory and Executive Boards Independent auditor’s report

To the shareholders of TK Development A/S terial misstatements of the consolidated financial statements and par- Report on the consolidated financial statements and ent financial statements, whether due to fraud or error. In making those parent financial statements risk assessments, the auditor considers internal control relevant to the We have audited the consolidated financial statements and parent finan- entity’s preparation of consolidated financial statements and parent fi- cial statements of TK Development A/S for the financial year 1 February nancial statements that give a true and fair view in order to design audit 2012 - 31 January 2013, which comprise the income statement, state- procedures that are appropriate in the circumstances, but not for the ment of comprehensive income, balance sheet, statement of changes purpose of expressing an opinion on the effectiveness of the entity’s in equity, cash flow statement and notes, including the accounting pol- internal control. An audit also includes evaluating the appropriateness icies, for the Group as well as for the Parent. The consolidated financial of accounting policies used and the reasonableness of accounting esti- statements and parent financial statements are prepared in accordance mates made by Management, as well as the overall presentation of the with International Financial Reporting Standards as adopted by the EU consolidated financial statements and parent financial statements. and Danish disclosure requirements for listed companies. We believe that the audit evidence we have obtained is sufficient and Management’s responsibility for the consolidated financial statements appropriate to provide a basis for our audit opinion. and parent financial statements Management is responsible for the preparation of consolidated financial Our audit has not resulted in any qualification. statements and parent financial statements that give a true and fair view in accordance with International Financial Reporting Standards as Opinion adopted by the EU and Danish disclosure requirements for listed com- In our opinion, the consolidated financial statements and parent finan- panies and for such internal control as Management determines is nec- cial statements give a true and fair view of the Group’s and the Parent’s essary to enable the preparation and fair presentation of consolidated financial position at 31 January 2013, and of the results of their opera- financial statements and parent financial statements that are free from tions and cash flows for the financial year 1 February 2012 - 31 January material misstatement, whether due to fraud or error. 2013 in accordance with International Financial Reporting Standards as adopted by the EU and Danish disclosure requirements for listed com- Auditor’s responsibility panies. Our responsibility is to express an opinion on the consolidated financial statements and parent financial statements based on our audit. We Statement on the management commentary conducted our audit in accordance with International Standards on Au- Pursuant to the Danish Financial Statements Act, we have read the man- diting and additional requirements under Danish audit regulation. This agement commentary. We have not performed any further procedures in requires that we comply with ethical requirements and plan and perform addition to the audit of the consolidated financial statements and par- the audit to obtain reasonable assurance about whether the consolidat- ent financial statements. ed financial statements and parent financial statements are free from material misstatement. On this basis, it is our opinion that the information provided in the management commentary is consistent with the consolidated financial An audit involves performing procedures to obtain audit evidence about statements and parent financial statements. the amounts and disclosures in the consolidated financial statements and parent financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of ma-

Aalborg, 25 April 2013 Copenhagen, 25 April 2013

NIELSEN & CHRISTENSEN DELOITTE Statsautoriseret Revisionspartnerselskab Statsautoriseret Revisionspartnerselskab

Johny Jensen Jørgen Jensen Lars Andersen Jan Bo Hansen State-authorized State-authorized State-authorized State-authorized public accountant public accountant public accountant public accountant

Independent auditor’s report | Annual report 2012/13 | Tk Development A/S | 59 /127 Consolidated financial statements

INCOME STATEMENT

DKKm Note 2012/13 2011/12

Net revenue 4 632.3 359.8 External direct project costs 5 -734.0 -200.7 Value adjustment of investment properties. net -37.8 36.7 Gross profit/loss -139.5 195.8

Other external expenses 6 30.2 34.6 Staff costs 7 69.2 92.9 Total 99.4 127.5

Profit/loss before financing and depreciation -238.9 68.3 Depreciation and impairment of non-current assets 2.2 2.8 Operating profit/loss -241.1 65.5

Income from investments in associates 10 2.5 32.4 Financial income 12 5.6 9.2 Financial expenses 13 -93.0 -92.8 Total -84.9 -51.2

Profit/loss before tax -326.0 14.3 Tax on profit/loss for the year 14 167.3 -12.7 Profit/loss for the year -493.3 27.0

EARNINGS PER SHARE IN DKK

Earnings per share (EPS) of nom. DKK 15 15 -11.7 0.6 Diluted earnings per share (EPS-D) of nom. DKK 15 15 -11.7 0.6

COMPREHENSIVE INCOME STATEMENT

Profit/loss for the year -493.3 27.0

Foreign-exchange adjustments. foreign operations 6.1 -30.0 Tax on foreign-exchange adjustments. foreign operations -2.9 11.0 Value adjustments of hedging instruments 3.1 -1.6 Tax on value adjustments of hedging instruments -0.6 0.3 Other comprehensive income for the year 5.7 -20.3

Comprehensive income statement for the year -487.6 6.7

60 /127 | Tk Development A/S | Annual report 2012/13 | Consolidated financial statements CONSOLIDATED FINANCIAL STATEMENTS

BALANCE SHEET

DKKm Note 31 Jan 2013 31 Jan 2012

ASSETS

Non-current assets

Goodwill 17 33.3 33.3 Intangible assets 33.3 33.3

Investment properties 18 479.4 366.9 Investment properties under construction 18 16.9 73.6 Other fixtures and fittings, tools and equipment 19 2.5 4.7 Property, plant and equipment 498.8 445.2

Investments in associates 10 1.7 0.2 Receivables from associates 4.6 2.5 Other securities and investments 20 0.8 1.9 Deferred tax assets 21 127.0 291.7 Other non-current assets 134.1 296.3

Total non-current assets 666.2 774.8

Current assets

Projects in progress or completed 22 3,030.9 3.498.1

Trade receivables 23 73.2 68.4 Receivables from associates 19.0 17.9 Contract work in progress 24 0.0 18.2 Corporate income tax receivable 4.0 3.1 Other receivables 122.4 131.4 Prepayments 22.4 23.3 Total receivables 241.0 262.3

Securities 25 4.3 4.0 Deposits in blocked and escrow accounts 26 35.7 45.2 Cash and cash equivalents 31.2 55.1

Total current assets 3,343.1 3,864.7

ASSETS 4,009.3 4,639.5

Consolidated financial statements | Annual report 2012/13 | Tk Development A/S | 61 /127 CONSOLIDATED FINANCIAL STATEMENTS

BALANCE SHEET

DKKm Note 31 Jan 2013 31 Jan 2012

EQUITY AND LIABILITIES

Equity

Share capital 27 631.0 631.0 Other reserves 28 5.3 139.8 Retained earnings 753.4 1,105.6 Total equity 1,389.7 1,876.4

Liabilities

Credit institutions 29 102.2 156.9 Provisions 30 2.3 3.0 Deferred tax liabilities 32 35.0 32.0 Other debt 33 1.5 3.8 Total non-current liabilities 141.0 195.7

Credit institutions 29 2,189.1 2,204.3 Trade payables 106.3 159.8 Corporate income tax 5.0 22.4 Provisions 30 13.1 11.6 Other debt 33 150.2 153.4 Deferred income 14.9 15.9 Total current liabilities 2,478.6 2,567.4

Total liabilities 2,619.6 2,763.1

TOTAL EQUITY AND LIABILITIES 4,009.3 4,639.5

62 /127 | Tk Development A/S | Annual report 2012/13 | Consolidated financial statements CONSOLIDATED FINANCIAL STATEMENTS

statement of changes in equity

Other Retained DKKm Share capital reserves earnings Total equity

Equity at 1 February 2011 631.0 160.1 1.074.9 1.866.0

Profit/loss for the year 0.0 0.0 27.0 27.0 Other comprehensive income for the year 0.0 -20.3 0.0 -20.3 Total comprehensive income for the year 0.0 -20.3 27.0 6.7 Share-based payment 0.0 0.0 3.7 3.7 Equity at 31 January 2012 631.0 139.8 1.105.6 1.876.4

Profit/loss for the year 0.0 0.0 -493.3 -493.3 Other comprehensive income for the year 0.0 5.7 0.0 5.7 Total comprehensive income for the year 0.0 5.7 -493.3 -487.6 Special reserves transferred to distributable reserves 0.0 -140.2 140.2 0.0 Share-based payment 0.0 0.0 0.9 0.9 Equity at 31 January 2013 631.0 5.3 753.4 1.389.7

Consolidated financial statements | Annual report 2012/13 | Tk Development A/S | 63 /127 CONSOLIDATED FINANCIAL STATEMENTS

cash flow statement

DKKm 2012/13 2011/12

Operating profit/loss -241.1 65.5 Adjustments for non-cash items: Value adjustment of investment properties, net 37.8 -36.7 Depreciation and impairment 290.1 2.6 Share-based payment 0.9 3.7 Provisions 0.4 -2.5 Foreign-exchange adjustment 7.5 1.9 Increase/decrease in investments in projects, etc. 139.9 -70.9 Increase/decrease in receivables 22.4 57.2 Changes in deposits on blocked and escrow accounts 9.5 18.5 Increase/decrease in payables and other debt -61.1 21.0 Cash flows from operating activities before net financials and tax 206.3 60.3

Interest paid, etc. -142.9 -139.1 Interest received, etc. 4.3 6.4 Corporate income tax paid -22.1 -6.4 Cash flows from operating activities 45.6 -78.8

Investments in equipment, fixtures and fittings -0.2 -0.6 Sale of equipment, fixtures and fittings 0.4 0.1 Investments in investment properties -11.3 -17.4 Sale of investment properties 17.3 0.0 Purchase of securities and investments -0.7 0.0 Sale of securities and investments 0.9 27.7 Cash flows from investing activities 6.4 9.8

Repayment, long-term financing -0.7 -24.8 Raising of long-term financing 13.0 35.7 Raising of project financing 149.5 76.4 Reduction of project financing/repayments, credit institutions -238.0 -55.0 Cash flows from financing activities -76.2 32.3

Cash flows for the year -24.2 -36.7

Cash and cash equivalents, beginning of year 55.1 96.3 Foreign-exchange adjustment of cash and cash equivalents 0.3 -4.5

Cash and cash equivalents at year-end 31.2 55.1

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

64 /127 | Tk Development A/S | Annual report 2012/13 | Consolidated financial statements Table of contents, nOTES, CONSOLIDATED FINANCIAL STATEMENTS

Page 66 Note 1. Accounting policies 75 Note 2. Accounting estimates and assessments 76 Note 3. Segment information 78 Note 4. Net revenue 79 Note 5. External direct project costs 79 Note 6. Other external expenses 79 Note 7. Staff costs 80 Note 8. Share-based payment 82 Note 9. Fees payable to the auditors elected at the General Meeting 82 Note 10. Investments in associates 83 Note 11. Investments in joint ventures 83 Note 12. Financial income 84 Note 13. Financial expenses 85 Note 14. Corporate income tax 86 Note 15. Earnings per share in DKK 86 Note 16. Dividends 86 Note 17. Goodwill 87 Note 18. Investment properties and investment properties under construction 89 Note 19. Other fixtures and fittings, tools and equipment 89 Note 20. Other securities and investments 90 Note 21. Deferred tax assets 92 Note 22. Projects in progress or completed 92 Note 23. Trade receivables 93 Note 24. Contract work in progress 93 Note 25. Securities 94 Note 26. Deposits in custody and escrow accounts 94 Note 27. Share capital 95 Note 28. Other reserves 96 Note 29. Credit institutions 97 Note 30. Provisions 97 Note 31. Operating leases 98 Note 32. Deferred tax liabilities 98 Note 33. Other debt 99 Note 34. Contingent assets and liabilities as well as security furnished 100 Note 35. Financial risks and financial instruments 105 Note 36. Transactions with related parties 106 Note 37. Post-balance sheet events 106 Note 38. Approval of Annual Report for publication 107 Note 39. Overview of group companies

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Note 1. Accounting policies of the additional disclosure requirements following from the relevant standards and interpretations. The consolidated financial statements for 2012/13 for TK De- velopment A/S are presented in compliance with the Interna- IFRS 10, Consolidated Financial Statements (May 2011), replac- tional Financial Reporting Standards, as adopted by the EU, and es the section about consolidation and consolidated financial in accordance with Danish disclosure requirements for annual statements in the present IAS 27, Consolidated and Separate reports of listed companies; see the Executive Order on IFRS Financial Statements, and SIC 12, Consolidation – Special Pur- issued in pursuance of the Danish Financial Statements Act. pose Entities. In some respects, IFRS 10 contains considerably TK Development A/S is a public limited company with its regis- more guidance for determining whether control over another tered office in Denmark. enterprise exists. The standard will become effective for TK De- velopment A/S for financial years beginning at 1 February 2014 The consolidated financial statements also comply with the In- or later. For TK Development A/S, the amendment will mean ternational Financial Reporting Standards (IFRS) issued by the that a few enterprises previously consolidated on a pro-rata International Accounting Standards Board (IASB). basis are to be fully consolidated. The amendment will have effect on several items in the income statement, assets, equity All figures in the consolidated financial statements are pre- and liabilities, and will overall result in an increase of the consol- sented in DKK million, unless otherwise stated. DKK is the pres- idated balance sheet total and of the minority interests’ shares entation currency for the Group’s activities and the functional of consolidated results and equity. The effect has not yet been currency of the Parent Company. finally calculated, as this would require further analysis.

The consolidated financial statements are presented on the IFRS 11, Joint Arrangements (May 2011), supersedes IAS 31, basis of historical cost, with the exception of investment prop- Joint Ventures. Following the withdrawal of IAS 31, the option of erties, derivative financial instruments and financial assets consolidating joint ventures on a pro-rata basis no longer exists, classified as available for sale, which are measured at fair value. and they will subsequently have to be recognized according to the equity method in compliance with IAS 28, Investments in IMPLEMENTATION OF NEW AND AMENDED Associates and Joint Ventures. The standard will become ef- FINANCIAL REPORTING STANDARDS AND IN- fective for TK Development A/S for financial years beginning TERPRETATIONS ISSUED BY IFRIC at 1 February 2014 or later. For TK Development A/S, IFRS 11 The consolidated financial statements for 2012/13 have been means that a number of the Company’s partly-owned enterpris- presented in accordance with the financial reporting stand- es jointly controlled with other parties can no longer be consol- ards (IFRS/IAS) and IFRIC interpretations applicable for financial idated on a pro-rata basis, but must be recognized according to years beginning at 1 February 2012. the equity method instead. The amendment will affect a great number of items in the income statement, assets, equity and The implementation of new or amended financial reporting liabilities, and will overall result in a reduction of the Group’s bal- standards and interpretations that entered into force in the ance sheet total. The amendment will not impact consolidated 2012/13 financial year has not resulted in any changes to the results or equity. The effect has not yet been finally calculated, accounting policies. as this would require further analysis.

The accounting policies have been consistently applied com- CONSOLIDATED FINANCIAL STATEMENTS pared to last year and are set out below. The consolidated financial statements comprise the Parent Company, TK Development A/S, and the enterprises controlled FINANCIAL REPORTING STANDARDS AND by the Parent Company. The Parent Company is considered to IFRIC INTERPRETATIONS NOT YET IN FORCE exercise control when it holds more than 50 % of the voting At the date of publication of this Annual Report, a number of rights, whether directly or indirectly, or otherwise may exercise new or amended financial reporting standards and IFRIC inter- or actually exercises control. pretations had not yet entered into force or been adopted by the EU. Thus, they have not been incorporated into the Annual Enterprises in which the Group holds between 20 % and 50 % Report. Other than those stated below, none of these stand- of the voting rights, whether directly or indirectly, and thus has ards and interpretations are expected to materially affect the significant influence, but not a controlling interest, are consid- annual reports for the next financial years, with the exception ered associates. Enterprises jointly controlled with other inves-

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tors are considered joint ventures. the fair value of the assets, liabilities and contingent liabilities acquired are recognized as goodwill in the balance sheet under Consolidated financial statements are prepared on the basis intangible assets, and the goodwill amount is subjected to im- of the financial statements of the Parent Company and its pairment tests at least once a year. If the carrying amount of subsidiaries by adding together items of a uniform nature. The the asset exceeds the recoverable amount, it is written down financial statements on which the consolidated financial state- to the recoverable amount. Any negative balances are recog- ments are based are prepared in accordance with the account- nized as income in the income statement. ing policies applied by the Group. The items in the subsidiaries’ financial statements are fully recognized in the consolidated For business combinations effected before 1 February 2004, financial statements. the accounting classification according to the previous accounting policies has been retained. Thus, goodwill from such On consolidation, intercompany income and expenses, share- business combinations is recognized on the basis of the cost holdings, balances and dividends as well as gains on transac- recognized according to the previous accounting policies, net tions between consolidated enterprises are eliminated. Losses of amortization and impairment until 31 January 2004. As of 31 are eliminated to the extent that no impairment has occurred. January 2013, the carrying amount of goodwill relating to business combinations effected before 1 February 2004 totalled The consolidated financial statements include subsidiaries and DKK 29.1 million. associates throughout the period of ownership. Gains or losses on the sale or winding-up of subsidiaries and as- BUSINESS COMBINATIONS sociates that result in the cessation of control and significant Newly acquired or newly established enterprises are recognized influence, respectively, are determined as the difference be- in the consolidated financial statements as from the date of tween (i) the fair value of the sales proceeds or winding-up pro- acquisition or establishment. The date of acquisition is the date ceeds plus the fair value of any remaining equity investments on which control of the enterprise is effectively transferred to and (ii) the carrying amount of net assets at the date of sale or the acquirer. Sold or wound-up enterprises are recognized in winding-up, including goodwill, less any minority interests. The the consolidated income statement until the date of sale or gain or loss thus calculated is recognized in the income state- winding-up. Comparative figures are not adjusted for newly ac- ment together with accumulated foreign-exchange adjust- quired, sold or wound-up enterprises. ments previously recognized in other comprehensive income.

Upon the acquisition of new enterprises in which the Group ASSOCIATES/JOINT VENTURES IN THE CON- gains a controlling interest in the acquired enterprise, the pur- SOLIDATED FINANCIAL STATEMENTS chase method is used, which means that the identifiable as- In the consolidated financial statements, investments in asso- sets, liabilities and contingent liabilities of the newly acquired ciates are recognized and measured according to the equity enterprises are measured at fair value at the acquisition date. method, which means that investments are measured at the Restructuring provisions are only recognized in the transfer proportionate share of the associates’ carrying amount, deter- balance sheet if they constitute a liability for the enterprise mined according to the Group’s accounting policies, with the acquired. The tax effect of revaluations made is taken into ac- addition of goodwill and plus or less any proportionate inter- count. company profits or losses.

The purchase consideration for an enterprise consists of the The proportionate share of the associate’s results after tax fair value of the consideration paid for the enterprise acquired. and the proportionate elimination of unrealized intercompany If the final determination of the consideration depends on one profits and losses are recognized in the income statement, or more future events, the effect of such events is recognized less any impairment of goodwill. The proportionate share of at fair value at the acquisition date. Costs directly attributable all transactions and events recognized in the associate’s oth- to the acquisition are recognized directly in the income state- er comprehensive income is recognized in consolidated other ment upon being incurred. comprehensive income.

Positive balances between (i) the purchase consideration, the Investments in associates with a negative equity value are value of any minority interests in the acquired enterprise plus measured at DKK 0. Receivables and other non-current finan- the fair value of previously acquired equity investments, and (ii) cial assets considered to be part of the overall investment in

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the associate are written down by any remaining negative eq- exchange rates ruling at the reporting date. If the average ex- uity value. Trade receivables and other receivables are written change rates for the period under review deviate significantly down to the extent that they are considered uncollectible. A from the actual exchange rates at the transaction dates, the provision for the remaining negative equity value is only recog- actual exchange rates are used instead. nized if the Group has a legal or constructive obligation to meet the relevant associate’s liabilities. Exchange differences arising on translating foreign enterprises’ beginning-of-year balance sheet items at the exchange Associates whose activities comprise projects within the rate ruling at the reporting date and on translating the income Group’s primary sphere of activity (development and contract statement items from the average exchange rate for the period work), and which are managed together with other investors in under review to the exchange rate at the reporting date are accordance with shareholders’ or similar agreements (joint ven- recognized in other comprehensive income. Exchange differ- tures), are included in the consolidated financial statements ences arising as a result of changes recognized directly in the by pro-rata consolidation of the associates’ accounting items, equity of the foreign reporting enterprise are also recognized in so that a proportionate share, equal to the participation in the other comprehensive income. associates, is included in the corresponding items in the consolidated financial statements. Foreign-exchange adjustments of intercompany accounts with foreign subsidiaries that are considered part of the Par- TRANSLATION OF FOREIGN-CURRENCY ITEMS ent Company’s total investment in the relevant subsidiary are A functional currency is determined for each of the reporting recognized in other comprehensive income in the consolidated enterprises in the Group. The functional currency is the curren- financial statements. cy used in the primary economic environment in which the individual reporting enterprise operates. Transactions in currencies When associates/joint ventures that present financial state- other than the individual enterprise’s functional currency are ments in a functional currency other than DKK are recognized considered foreign-currency transactions and are translated in the consolidated financial statements, income statement into the functional currency on initial recognition, based on items are translated on the basis of the average exchange the exchange rates ruling at the dates of the transactions. Ex- rates for the period under review, and balance sheet items change differences arising between the exchange rate on the are translated on the basis of the exchange rates ruling at the transaction date and the exchange rate on the payment date reporting date. Exchange differences arising on translating are recognized in the income statement under financial items. foreign enterprises’ beginning-of-year balance sheet items at the exchange rate ruling at the reporting date and on trans- Receivables, payables and other monetary items in foreign lating the income statement items from the average exchange currencies that have not been settled by the reporting date rate for the period under review to the exchange rate at the are translated into the functional currency according to the reporting date are recognized in other comprehensive income. exchange rates ruling at the reporting date. Realized and un- Exchange differences arising as a result of changes recognized realized exchange gains and losses are recognized as financial directly in the equity of the foreign reporting enterprise are also items in the income statement. Property, plant and equipment, recognized in other comprehensive income. intangible assets, projects in progress or completed and other non-monetary assets that have been bought in foreign cur- DERIVATIVE FINANCIAL INSTRUMENTS rencies and are measured on the basis of historical cost are On initial recognition, derivative financial instruments are meas- translated at the exchange rate ruling on the transaction date. ured at fair value at the settlement date. Costs that are directly Non-monetary items that are revalued at fair value are translat- attributable to the purchase or issuance of the individual finan- ed at the exchange rate ruling on the date of revaluation. cial instrument (transaction costs) are added to the fair value on initial recognition, unless the financial asset or liability is When enterprises that present financial statements in a func- measured at fair value with fair-value adjustments recognized tional currency other than Danish kroner (DKK) are recognized in the income statement. in the consolidated financial statements, items in the income statement are translated on the basis of the average exchange After initial recognition, the derivative financial instruments are rates for the period under review, and items in the balance measured at fair value at the reporting date. Positive and neg- sheet (including goodwill) are translated on the basis of the ative fair values of derivative financial instruments are recog-

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nized under other receivables and other debt. INCOME STATEMENT Net revenue Changes in the fair value of derivative financial instruments The sales method is used to recognize income on projects sold; that are classified as and meet the conditions for the fair-value see IAS 18, Revenue. Thus, profits are recognized once the pro- hedging of a recognized asset or liability are recognized in the ject has been sold, construction completed and all essential el- income statement together with changes in the value of the ements of the sales agreement fulfilled, including delivery and hedged asset or liability. transfer of risk to the buyer.

Changes in the fair value of derivative financial instruments The percentage of completion method is used for projects that are classified as and meet the conditions for effective meeting the definition of a construction contract; see IAS 11. hedging of future transactions are recognized in other compre- Thus, the revenue for the year on these projects corresponds hensive income. Any ineffective portion is recognized immedi- to the selling price of the work performed during the year. The ately in the income statement. When the hedged transactions recognized profit is the estimated profit on the project, calcu- are realized, the accumulated changes are recognized as part lated on the basis of its stage of completion. Reference is made of the cost of the relevant transactions. to the section “Construction contracts” below.

Changes in the fair value of derivative financial instruments Where the Group is in charge of development, letting and con- that are used to hedge net investments in foreign subsidiaries struction management, etc. on behalf of investors and receives are recognized in the consolidated financial statements under fee income for such services, the fee income is recognized as other comprehensive income in the event of hedge effective- income on a continuous basis in step with the provision of ser- ness. Any ineffective portion is recognized immediately in the vices. income statement. When the relevant foreign enterprise is sold, the accumulated changes in value are transferred to the Where a sold project consists of several instalment deliveries income statement. that can be segregated and the financial effect can be assessed separately and measured reliably for each delivery, the Derivative financial instruments that do not meet the condi- profit on the individual instalment delivery is recognized when tions for treatment as hedging instruments are considered all essential elements of the agreement have been fulfilled. trading portfolios and are measured at fair value, with fair-value adjustments being recognized under financial items in the Rental income on completed projects and investment proper- income statement on a continuing basis. ties is accrued and recognized in accordance with the lease agreements concluded. SHARE-BASED INCENTIVE SCHEMES The Group’s incentive schemes are equity-based warrant For other income, the sales method is used. schemes. The equity-based incentive schemes are measured at the fair value of the options at the time of allocation and Net revenue is measured at the fair value of the consideration are recognized in the income statement under staff costs over received or receivable. If a sale is based on interest-free credit the vesting period. The offsetting amount is taken directly to with a term extending beyond the usual credit period, the fair equity. value of the consideration receivable is calculated by discount- ing future payments. The difference between the fair value and In connection with initial recognition of the share options, an nominal value of the consideration is recognized as financial in- estimate is made of the number of options to which the em- come in the income statement over the extended credit period ployees are expected to become entitled. Subsequently, ad- by using the effective interest method. justments are made to reflect changes in the estimated number of vested options, such that the overall recognition is based Construction contracts on the actual number of vested options. When the outcome of a construction contract can be estimated reliably, net revenue and construction costs are recognized The fair value of the options allocated is estimated by using in the income statement by reference to the stage of comple- the Black-Scholes formula, based on the parameters indicated tion of the project at the reporting date (the percentage of in note 8. completion method).

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When the outcome of the construction contract cannot be rency transactions, debt and securities as well as the amortiza- measured with a sufficient degree of reliability, the net reve- tion of financial liabilities. nue corresponding to the construction costs incurred during the period is recognized if it is probable that such costs will be Interest income and interest expenses are accrued, based on recoverable. the principal and the effective interest rate. The effective interest rate is the discount rate used to discount the expected External direct project costs future payments associated with the financial asset or finan- This item consists of all costs relating to projects incurred to cial liability to ensure that the present value of such asset or generate the year’s revenue and includes direct project costs, liability is equal to its carrying amount. as well as interest during the construction period, plus a share of the relevant indirect project costs, determined as a per- Borrowing costs that are directly associated with the acqui- centage of staff costs, project materials, cost of premises and sition, construction or production of assets are capitalized as maintenance and depreciation resulting from the project devel- part of the cost of the relevant asset. Other borrowing costs opment activity and proportionately attributable to the project are recognized in the income statement. development capacity utilized. Tax on profit/loss for the year Moreover, this item includes any impairment losses on projects The tax for the year, which consists of the year’s current tax in progress or completed and the expensing of project devel- and changes in deferred tax, is recognized in the income state- opment costs to the extent that the relevant projects are not ment as follows: the portion attributable to the profit or loss for expected to be realized. the year is recognized in profit or loss, and the portion attributable to items under equity or other comprehensive income is Value adjustment of investment properties, etc. posted directly to equity or other comprehensive income. Changes in the fair values of investment properties are recognized in the income statement under the item “Value adjust- Current tax payable and receivable is recognized in the balance ment of investment properties, net”. sheet as tax computed on the taxable income for the year, adjusted for tax paid on account. The calculation of the year’s Realized gains and losses on the sale of investment properties current tax is based on the tax rates and tax rules applicable at are determined as the difference between the carrying amount the reporting date. and the selling price and are also recognized in the income statement under the item ”Value adjustment of investment Deferred tax is recognized according to the balance-sheet lia- properties, net”. bility method on the basis of all temporary differences between the carrying amount and the tax base of assets and liabilities, Other external expenses except deferred tax on temporary differences arising on the in- The item “Other external expenses” includes costs for adminis- itial recognition of either goodwill or a transaction that is not tration, cost of premises and operating expenses for cars. a business combination and that does not affect the profit or loss or taxable income upon initial recognition. Income from investments in associates in the consolidated financial statements Deferred tax is calculated on the basis of the planned use of The proportionate share of the associates’ results after tax the individual asset and settlement of the individual liability. and the proportionate elimination of unrealized intercompany Deferred tax assets, including the tax base of tax losses al- profits and losses, less any impairment of goodwill, are recog- lowed for carryforward, are recognized in the balance sheet at nized in consolidated profit or loss. The proportionate share of the value at which the asset is expected to be realized, either all transactions recognized in the associate’s other comprehen- by setoff against deferred tax liabilities or as net tax assets for sive income is recognized in the Group’s other comprehensive setoff against future positive taxable income within the same income. entity subject to joint taxation. At each reporting date, it is re- considered whether it is likely that sufficient future taxable in- Financial income and expenses come will be generated to utilize the deferred tax asset, based Financial income and expenses include interest income and ex- on an individual and specific assessment. If it is considered that penses, realized and unrealized gains and losses on foreign-cur- an individual tax asset cannot be utilized, it is written down in

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the income statement. exceeds the recoverable amount. The recoverable amount is determined as the higher of the fair value less selling costs and Deferred tax on temporary differences related to equity invest- the present value of estimated future net cash flows from the ments in subsidiaries and associates is recognized, unless the cash-flow-generating unit to which the goodwill relates. Impair- Parent Company is able to control when the deferred tax will ment of goodwill is recognized in a separate line in the income crystallize and the deferred tax is not likely to crystallize as cur- statement. Impairment of goodwill is not reversed. rent tax in the foreseeable future. Investment properties and investment properties under Deferred tax is measured by using the tax rules and rates that construction will be applicable in the respective countries at the time when Properties are classified as investment properties when they the deferred tax is expected to crystallize as current tax, based are held to obtain rental income and/or capital gains. On ini- on the legislation in force at the reporting date. Any changes in tial recognition, investment properties are measured at cost, deferred tax resulting from changed tax rates and tax rules are consisting of the acquisition cost of the property and directly recognized in the income statement, unless the deferred tax associated costs. The costs incurred in connection with the is attributable to items previously recognized directly in equity construction of investment properties are added to the value or in other comprehensive income. In such cases, the change of the property. in deferred tax is also recognized directly in equity or in other comprehensive income. Subsequently, investment properties are measured at fair value. Generally, the valuation is made on the basis of a discount- The Parent Company is jointly taxed with all Danish subsidiaries. ed cash-flow model, where future cash flows are discounted The Parent Company administers the joint taxation. The total to net present value on the basis of a given rate of return. The income taxes payable by the jointly taxed companies are dis- rate of return is fixed for each individual property. Where a sales tributed between the Danish jointly taxed companies in propor- process has been started, the valuation will be based on the tion to their taxable income. selling price discussed if it is found to correctly reflect the fair value. Balances arising under the interest deduction limitation rules laid down in the Danish Corporation Tax Act have been distribut- The valuation of the Group’s investment properties under con- ed between the jointly taxed companies according to the joint struction is also based on a specific assessment of project taxation agreement concluded. progress at the reporting date, including the risks attaching to project completion. BALANCE SHEET Goodwill Changes in the fair value are recognized in the income state- On initial recognition, goodwill is recognized and measured as ment under “Value adjustment of investment properties, net” in the difference between (i) the purchase consideration for the the financial year in which the change occurs. acquired enterprise, the value of any minority interests in the acquired enterprise plus the fair value of previously acquired Other fixtures and fittings, tools and equipment equity investments, and (ii) the fair value of the assets, liabili- Other fixtures and fittings, tools and equipment are measured ties and contingent liabilities acquired; see the description un- at cost less accumulated depreciation and impairment. The der “Consolidated financial statements”. cost consists of the acquisition cost and costs directly associated with the acquisition until the date when the asset is The carrying amount of goodwill is allocated to the Group’s ready for use. The carrying amounts of other fixtures and fit- cash-flow-generating units at the date of acquisition. tings, tools and equipment are reviewed at the reporting date Cash-flow-generating units are defined on the basis of the to identify any indications of impairment. If such indications are management structure and internal financial control and re- identified, the recoverable amount of the asset is calculated porting in the Group. to assess the need for any impairment and the extent of such impairment. Goodwill is not amortized. The amount of goodwill is subjected to impairment tests at least once a year to ensure that the The cost of these assets is depreciated according to the asset is written down to the extent that the carrying amount straight-line method over their expected useful lives, viz. a peri-

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od of 5-10 years. Leasehold improvements are depreciated ac- sheet if the Company has a right of setoff and at the same time cording to the straight-line method over the term of the lease. intends or is under a contractual obligation to realize assets and liabilities simultaneously. Other non-current assets Other securities and investments consist of mortgage deeds Prepayments, recognized under assets, consist of paid expens- and instruments of indebtedness created in connection with es relating to subsequent financial years. Prepayments are project sales, which are measured at amortized cost, as well as measured at cost in the balance sheet. unlisted shares, which are measured at fair value. Construction contracts Projects in progress or completed When the outcome of a construction contract can be estimat- Projects in progress or completed consist of real property pro- ed reliably, the construction contract is measured at the sell- jects. ing price of the work performed as of the reporting date (the percentage of completion method) less any amounts invoiced The project portfolio is recognized on the basis of the direct on account and writedowns for impairment. The selling price is costs attributable to the projects, including interest during measured on the basis of the stage of completion as of the re- the project period, plus a share of the relevant indirect project porting date and the total revenue expected from the individual costs. Where considered necessary, the projects have been construction contract. written down to a lower value, and the capitalized amounts are subjected to impairment tests on a continuous basis to ensure The stage of completion of each individual project is normally that the assets are written down to the extent that the carry- calculated as the proportion between the resources used by ing amount exceeds the recoverable amount. the Group and the total budgeted use of resources.

Additions for indirect project costs are calculated as a percent- When the outcome of the construction contract cannot be age of staff costs, project materials, the cost and maintenance measured reliably, the construction contract is measured at of premises and depreciation resulting from project develop- the construction costs incurred if it is probable that they will be ment and proportionately attributable to the project develop- recoverable. If it is probable that the total construction costs ment capacity utilized. will exceed total contract revenue, the estimated loss is recognized as a cost immediately. Prepayments from customers on sold projects in progress (forward funding) are deducted from the carrying amount of the The individual construction contract in progress is recognized in project portfolio, and any negative net amount, determined for the balance sheet under receivables or liabilities, depending on each individual project, is included in the item “Prepayments re- whether its net value is a receivable or a liability. ceived from customers”. Securities Receivables Securities under current assets consist of listed and unlisted Receivables consist of trade receivables, receivables from con- equity investments. tract work in progress, receivables from associates and other receivables. Receivables are classified as loans and receivables, Securities are classified either as financial assets available for which are financial assets with fixed or determinable payments sale or as held-to-maturity financial assets. that are not quoted in an active market and are not derivative financial instruments. Available-for-sale securities are measured at fair value on the reporting date. Fair-value adjustments are recognized in other Receivables are measured at fair value on initial recognition and comprehensive income and are recognized in profit or loss on subsequently at amortized cost, which usually corresponds to the sale or settlement of the securities. nominal value less impairment provisions to meet estimated losses. Impairment losses on receivables are calculated on the Listed securities are measured at their official listed price, and basis of an assessment of the individual receivables. unlisted securities are measured at their fair value, based on the calculated value in use. Financial assets and liabilities are charged against the balance

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Equity interests that are not traded in an active market, and Lease payments relating to operational leases are recognized where the fair value cannot be determined with a sufficient de- in the income statement according to the straight-line method, gree of reliability, are measured at cost. over the term of the lease.

Equity Financial liabilities, which comprise payables to credit institu- Dividend is recognized as a liability at the time of its adoption at tions, trade payables and other debt, are classified as “Financial the Annual General Meeting. liabilities measured at amortized cost”.

The consideration paid and received on the purchase and sale Deferred income, recognized under liabilities, consists of in- of treasury shares and dividends on such shares is recognized come received that relates to subsequent financial years. De- directly in equity under retained earnings. ferred income is measured at cost in the balance sheet.

Pension obligations and the like CASH FLOW STATEMENT The Group’s pension obligations consist of defined contribution The cash flow statement is presented according to the indirect plans on which fixed contributions are paid regularly to inde- method, based on the operating profit or loss, and shows cash pendent pension companies and the like. The contributions flows generated from operating, investing and financing activi- are recognized in the income statement over the period during ties, as well as cash and cash equivalents at the beginning and which the employees have performed the work entitling them end of the financial year. to the pension contribution. Contributions payable are recognized as a liability in the balance sheet. Cash flows relating to operating activities are calculated as the operating profit or loss, adjusted for non-cash operating items, Provisions changes in working capital and paid financial income, financial Provisions are recognized when a legal or constructive obliga- expenses and corporate income tax. tion is incurred due to events before or at the reporting date, and meeting the obligation is likely to result in an outflow of Cash flows relating to investing activities comprise payments resources from the Group. made in connection with the purchase and sale of enterprises, property, plant and equipment and other non-current assets. This item includes provisions for rent guarantees, with the provision being based on experience with rent guarantees and on Cash flows relating to financing activities consist of changes an individual assessment of the individual leases. in the Parent Company’s share capital and associated costs, the raising and repayment of loans, other repayments on inter- Provisions are measured as the best estimate of the costs re- est-bearing debt as well as the payment of dividend. quired to settle the relevant liabilities at the reporting date. Provisions for liabilities with an expected maturity of more than Cash flows in currencies other than the functional currency are one year are classified as non-current liabilities and measured recognized in the cash flow statement by using average ex- at present value. change rates for the period under review, unless they deviate significantly from the actual exchange rates at the transaction Liabilities other than provisions dates. Non-current financial liabilities are measured at cost at the time the relevant loans are raised, equivalent to the proceeds In preparing the consolidated cash flow statement, opening received after transaction costs. Subsequently, financial liabil- balance sheets and cash flows in foreign currencies are trans- ities are measured at amortized cost, such that the difference lated on the basis of the foreign-exchange rates prevailing at between the proceeds and nominal value is recognized in the the reporting date. This eliminates the effect of exchange dif- income statement as a financial expense over the term of the ferences on the period’s movements and cash flows. Interest loan. paid is shown separately. Consequently, project interest for the period is not included in liquidity movements resulting from the Other financial liabilities are recognized at amortized cost, project portfolio. Thus, the figures in the cash flow statement which usually corresponds to the nominal value. cannot be inferred directly from the financial statements.

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Cash and cash equivalents comprise free cash resources. including projects in progress or completed, trade receivables, other receivables, prepayments and cash and cash equivalents. SEGMENT INFORMATION The segment information is prepared in accordance with the Liabilities attributable to the segments comprise the liabilities Group’s accounting policies, based on the Group’s internal man- deriving from the operating activities in the segment, including agement reporting as applied during the financial year. trade payables, payables to credit institutions, provisions, other debt and the like. 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, liabilities, income and expenses associated with the Group’s administrative functions, corporate income tax, and the like.

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 associates. Current assets in the segments comprise the assets directly allocable to the operating activities in the segment,

RATIO DEFINITIONS

Profit/loss attributable to the Parent Company’s shareholders x 100 Return on equity: Average equity excluding minority shares

Operating profit/loss x 100 EBIT-margin: Net revenue

Equity including minority interests x 100 Solvency ratio (based on equity): Total equity and liabilities

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

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

Profit/loss attributable to the Parent Company’s shareholders Earnings in DKK per share: Average number of shares in circulation

Diluted profit/loss attributable to the Parent Company’s shareholders Diluted earnings in DKK per share: Diluted average number of diluted shares

Dividend in DKK per share: The Parent Company’s dividend per share

74 /127 | Tk Development A/S | Annual report 2012/13 | Consolidated financial statements NOTES

Note 2. Accounting estimates and assess- either prolong or refinance these project credits. Some of the ments proceeds from the capital increase or the cash freed up on the sale of major completed projects will help reduce the debt to Many account items cannot be measured with certainty, but credit institutions, including project finance loans of DKK 68.5 only estimated. Such estimates consist of assessments based million granted by a number of the Company’s major sharehold- on the most recent information available at the time of present- ers and members of Management. ing the financial statements. It may be necessary to change previous estimates based on changes in the assumptions un- Management believes that the above issues will be resolved derlying the estimate or based on supplementary information, and that the Group will consequently have secured the cash additional experience or subsequent events. resources for its future operations and project flow, and thus long-term earnings. In connection with the practical application of the accounting policies described, Management has made a number of signifi- Recognition of revenue cant accounting estimates and judgments that have materially Revenue on projects that can be classified as construction con- affected this Annual Report. tracts is recognized according to IAS 11. For sold projects consisting of several instalment deliveries that can be segregated, Financial issues where the financial effect can be assessed separately, the prof- At the forthcoming Annual General Meeting, the Supervisory it on the individual instalment delivery is recognized when all Board will request authorization to carry out a capital increase essential elements of the agreement have been fulfilled, thus with gross proceeds of about DKK 210-231 million. The capital meeting the recognition criteria of IAS 18. Thus, Management increase will help generate the cash resources required to un- specifically assesses each individual project for the purpose of derpin future operations and project flow, and thus long-term determining recognition principle and method. earnings. The capital increase has been discussed with the Group’s major shareholders, who, together with a few major Deferred tax assets private and institutional investors, have given conditional sub- A deferred tax asset of DKK 127.0 million has been recognized scription and underwriting commitments for the total capital in the balance sheet at 31 January 2013. The tax asset relates increase. mainly to tax loss carryforwards in the various subsidiaries. Val- uation is based on the existing rules for carrying forward losses The Group’s main banker has indicated its preparedness to and joint taxation or group contributions and the assumption prolong TK Development’s credit facilities subject to specific that each subsidiary is a going concern. A change in the condi- conditions being met, which includes reducing the operating tions and assumptions for carrying forward losses and joint tax- credit limit by DKK 50 million. The prolongation is expected to ation/ group contributions could result in the value of the tax be formally accepted after the publication of TK Development’s assets being lower than that computed at 31 January 2013. In Annual Report for 2012/13. the 2012/13 financial year, deferred tax assets were written down by DKK 200.5 million. A substantial portion of this amount Of the total project credits outstanding at 31 January 2013, is attributable to the reduction of the Group’s Danish tax asset credits worth DKK 1.5 billion are due to mature in the 2013/14 resulting from changed rules for tax loss carryforwards. financial year, including continuing repayment obligations on individual project credits of about DKK 80 million. After the re- The valuation of the tax assets is based on existing budgets porting date, agreements regarding the refinancing of DKK 0.2 and profit forecasts for a five-year period. For the first three billion have been made. Moreover, the Group’s main banker and years, budgets are based on an evaluation of specific projects other credit institutions have indicated their preparedness to in the Group’s project portfolio. The valuation for the next two prolong existing credit facilities. When final commitments in this years is based on specific projects in the project portfolio with respect have been received, credit facilities of DKK 1.1 billion a longer time horizon than three years as well as various project will have been prolonged, and credit facilities of DKK 0.3 billion opportunities. will be due to mature in 2013/14. The Group depends on being able to continue obtaining either a prolongation or alternative Due to the substantial uncertainties attaching to these valua- financing of the project credits not expected to be repaid upon tions, provisions have been made for the risk that projects are project sales. The Group is in ongoing dialogue with the relevant postponed or not implemented and the risk that project profits credit institutions, and Management anticipates being able to fall below expectations. If the conditions and assumptions for

Consolidated financial statements | Annual report 2012/13 | Tk Development A/S | 75 /127 NOTES

budgets and profit forecasts change, including time estimates, talled DKK 3,030.9 million at 31 January 2013. or if the expectations do not materialize, this could result in the value of the tax assets being significantly lower than that com- Receivables puted at 31 January 2013, which would have an adverse effect Indications of impairment of receivables are determined based on the Group’s results of operations and financial position. on a specific assessment of each individual receivable. If any changes occur in the assumptions used, the value may deviate Joint taxation from the value determined at 31 January 2013. The carrying The Group has been jointly taxed with its German subsidiaries amount of receivables totalled DKK 241.0 million at 31 January for a number of years. The retaxation balance in respect of the 2013. jointly taxed German companies amounted to DKK 389.4 million at 31 January 2013. Full retaxation would trigger a tax charge Goodwill of DKK 97.4 million at 31 January 2013. Tax has not been pro- To identify any indication of impairment of the goodwill amounts vided on the retaxation balance, because Management does recognized, the values in use of the cash-flow-generating units not plan to make changes in the Group that would result in full to which the goodwill amount is attributable must be calculat- or partial retaxation. If Management takes a different view, this ed. Calculating the value in use assumes that an estimate of could have a significant adverse effect on the Group’s future future expected cash flows in the individual cash-flow-gener- performance, results of operations, cash flows and financial ating unit has been made and that a reasonable discount rate position. has been determined. The goodwill amount recognized in the balance sheet has not been written down for impairment. The Investment properties and investment properties under carrying amount of goodwill totalled DKK 33.3 million at 31 Jan- construction uary 2013. The Group’s investment properties and investment properties

under construction are measured at fair value in the balance Note 3. Segment information sheet. The valuation is made on the basis of a discounted cash- flow model, where expected future cash flows are discounted The Group’s internal reporting to the Parent Company’s Super- to net present value on the basis of a given rate of return, or visory Board in 2012/13 is split into two business units, viz. TKD on the basis of an ongoing sales process where applicable. Nordeuropa and Euro Mall Holding, and the remaining business The valuation of the Group’s investment properties under con- activities, referred to as TKD. struction is also based on a specific assessment of project progress at the reporting date, including the risks attaching to TKD Nordeuropa operates on the Group’s markets in Denmark, project completion. If any changes occur in the assumptions Sweden, Finland, Latvia and Lithuania, and primarily in the retail used, the value may deviate from the value determined at 31 property segment (shopping centres and retail parks), the of- January 2013. In the 2012/13 financial year, a negative value fice segment and the mixed segment. adjustment of the Group’s investment properties was made, amounting to DKK 37.8 million. The carrying amount of invest- Euro Mall Holding operates on the Group’s Central European ment properties and investment properties under construction markets in Poland, the Czech Republic and Slovakia, and primar- amounted to DKK 496.3 million at 31 January 2013. ily in the retail property segment (shopping centres and retail parks) and the mixed segment, and in Poland also in the resi- Projects in progress or completed dential segment. Indications of impairment of projects in progress and completed projects are determined based on a specific assessment The remaining activities, referred to as TKD, make up the rest of each individual project, including existing project budgets of the Group. In addition to the holding function for TKD Nor- and the expected future development potential. If the actual deuropa and Euro Mall Holding, TKD comprises the group’s Ger- course of a project deviates from the expected development, man investment properties, the remaining projects in Germany this may necessitate adjustments to the impairment recog- and a minor project in Russia. nized. The changed indication of impairment of projects in progress and completed projects has had a negative impact of DKK 287.9 million on the results for the year. Accumulated impairment amounted to DKK 489.9 million at 31 January 2013. The carrying amount of projects in progress or completed to-

76 /127 | Tk Development A/S | Annual report 2012/13 | Consolidated financial statements NOTES

Note 3. Segment information, continued The business areas will be structured as follows:

The segment information has been disclosed accordingly. • Property development activities • Asset management activities The accounting policies used in compiling the segment infor- • Discontinuing activities. mation are the same as those used by the Group; see the description above. As of 1 February 2013 the segment information will follow this segmentation. Management has decided to change the Group’s internal and external reporting to create a better overview and highlight values and value generation in the Group’s business areas.

TKD Euro Mall 31.1.2013 Nordeuropa Holding TKD Elimination Total Net revenue, external customers 214.8 404.4 13.1 0.0 632.3 Impairment losses on projects in progress or completed 74.2 203.4 25.9 0.0 303.5 Value adjustment of investment properties, net 0.0 -24.3 -13.5 0.0 -37.8 Financial income 3.5 6.0 22.8 -26.7 5.6 Financial expenses -71.8 -38.4 -9.5 26.7 -93.0 Depreciation and impairment 0.2 0.5 1.5 0.0 2.2 Shares of profit or loss in associates 0.5 1.1 0.9 0.0 2.5 Tax on profit/loss for the year -6.4 23.0 150.7 0.0 167.3 Profit/loss after tax -124.0 -195.4 -173.9 0.0 -493.3 Segment assets 1,763.5 1,839.5 1,562.9 -1,156.6 4,009.3 Investments in associates 0.7 1.0 0.0 0.0 1.7 Capital expenditure *) 0.0 11.3 0.2 0.0 11.5 Segment liabilities 1,539.0 1,210.4 173.2 -303.0 2,619.6

TKD Euro Mall 31.1.2012 Nordeuropa Holding TKD Elimination Total Net revenue, external customers 144.4 202.1 13.3 0.0 359.8 Impairment losses on projects in progress or completed 4.5 10.0 6.7 0.0 21.2 Value adjustment of investment properties, net 0.0 36.2 0.5 0.0 36.7 Financial income 3.4 5.2 19.5 -18.9 9.2 Financial expenses -59.6 -39.3 -12.8 18.9 -92.8 Depreciation and impairment 0.2 0.8 1.8 0.0 2.8 Shares of profit or loss in associates 0.1 30.9 1.4 0.0 32.4 Tax on profit/loss for the year 15.9 -7.4 4.2 0.0 12.7 Profit/loss after tax -73.5 99.7 0.8 0.0 27.0 Segment assets 1,881.9 2,144.4 2,066.6 -1,453.4 4,639.5 Investments in associates 0.2 0.0 0.0 0.0 0.2 Capital expenditure *) 0.1 17.4 0.5 0.0 18.0 Segment liabilities 1,673.5 1,235.4 190.2 -336.0 2,763.1 *) Capital expenditure comprises additions to intangible assets and property, plant and equipment.

Consolidated financial statements | Annual report 2012/13 | Tk Development A/S | 77 /127 NOTES

Note 3. Segment information, continued

Geografical information TK Development operates primarily on the markets in Denmark. Sweden. Poland and the Czech Republic. 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 Non-current 2012/13 customers assets *) Denmark 95.0 34.7 Sweden 118.5 0.1 Poland 340.6 102.1 Czech Republic 63.8 227.8 Germany 11.1 167.4 Other countries **) 3.2 0.0 Total 632.3 532.1

Net revenue, external Non-current 2011/12 customers assets *) Denmark 96.6 36.0 Sweden 45.9 0.1 Poland 152.9 0.8 Czech Republic 49.2 243.9 Germany 11.7 197.7 Other countries **) 3.5 0.0 Total 359.8 478.5 *) Non-current assets comprise intangible assets and property, plant and equipment. **) 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 properties in the Czech Republic, Poland and Germany; see note 18.

Revenue from individual customers exceeding 10 % of total revenue In 2012/13, The Group sold two projects to two different customers where the revenue on each project exceeded 10 % of the Group’s total revenue. The revenue on these projects amounted to DKK 282.7 million and DKK 95.6 million, respectively. In the 2011/12 financial year, the revenue deriving from two different customers on two different projects amounted to DKK 42.5 million and DKK 39.5 million respectively.

Note 4. Net revenue

2012/13 2011/12 Sale of projects and properties 409.9 126.2 Income from construction contracts (recognized according to the percentage of completion method) 20.0 45.8 Rental income 171.2 160.8 Sale of services 31.2 27.0 Total net revenue 632.3 359.8

78 /127 | Tk Development A/S | Annual report 2012/13 | Consolidated financial statements NOTES

Note 5. External direct project costs

2012/13 2011/12 Project costs 446.1 179.5 Impairment losses on projects in progress or completed 303.5 21.2 Reversal of impairment losses on projects in progress or completed -15.6 0.0 External direct project costs, total 734.0 200.7

Impairment losses previously recognized have been reversed due to the significantly improved progress of the relevant projects.

Note 6. Other external expenses

2012/13 2011/12 Administrative expenses 14.8 17.8 Cost of premises 9.8 11.0 Cars, operating expenses 5.6 5.8 Other external expenses, total 30.2 34.6

Note 7. Staff costs

2012/13 2011/12 Fees for Supervisory Board 1.8 2.1 Salaries, etc. for the Parent Company’s Executive Board; see below 6.2 8.4 Other salaries 50.4 67.6 Defined contribution pension plans 1.0 1.1 Other social security costs 7.3 8.3 Share-based payment, other employees 0.7 2.7 Other staff costs 1.8 2.7 Total staff costs 69.2 92.9

Average number of employees 115 130 Number of employees at year-end 112 119

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

Share-based 2012/13 Salary Pension payment Total Frede Clausen 3.3 0.1 0.1 3.5 Robert Andersen 2.5 0.1 0.1 2.7 Salaries, etc., total 5.8 0.2 0.2 6.2

2011/12 Frede Clausen 4.1 0.1 0.5 4.7 Robert Andersen 3.1 0.1 0.5 3.7 Salaries, etc., total 7.2 0.2 1.0 8.4

In addition, the Executive Board has the usual free benefits, including free company car. The value of these benefits amounted to DKK 0.16 million per Executive Board member in 2012/13 (2011/12: DKK 0.11 million per Executive Board member).

Consolidated financial statements | Annual report 2012/13 | Tk Development A/S | 79 /127 NOTES

Note 7. Staff costs, continued

The Supervisory Board is composed of the Chairman, Deputy Chairman and four other members. In 2012/13, the Supervisory Board members were paid a basic fee of DKK 200,000. 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.

As part of the cost cuts implemented by the Group, a further extraordinary 20 % reduction of the Supervisory Board’s basic fee for 2013/14 is planned, after which the basic fee will be fixed at DKK 160,000 for 2013/14.

The remuneration of the Executive Board will also be reduced in 2013/14. A new two-year agreement has been made with the Execu- tive Board, according to which a further 20 % of the Executive Board’s fixed annual remuneration will not be paid on an ongoing basis, which will equal a 36 % reduction compared to the remuneration paid in the 2011/12 financial year, which will apply to the period from 1 May to 30 April 2015. Up to two-thirds of the remuneration withheld during the two-year period will nevertheless be paid when the Group meets specific operational targets.

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 1.2 million was expensed for defined contribution plans in the 2012/13 financial year (2011/12: DKK 1.3 million).

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

Note 8. Share-based payment

For several years, TK Development has used incentive schemes for the Executive Board and other executive staff members. The aim of using incentive schemes is to forge a link between the individual staff member’s efforts and long-term value creation in the Group.

2010 scheme In 2010, TK Development allocated warrants to the Executive Board and other excecutive staff members. 394,000 warrants were allocated, broken down by 50,000 warrants to each Executive Board member and a total of 294,000 warrants to other executive staff members. As a consequence of the capital reduction and capital increase implemented in August 2010, where the subscription price for the newly issued shares was lower than the market value of the shares, the Supervisory Board resolved to adjust the number of warrants allocated and the subscription price for exercising the warrants. There was a total of 446,315 outstanding warrants at the reporting date. The above-mentioned warrants may be exercised within three six-week windows, of which only one remains, viz. the six weeks following publication of the preliminary announcement of financial statements for the 2012/13 financial year.

2011 scheme

In June 2011, the Supervisory Board allocated another 500,000 warrants to the Executive Board and other executive staff members, broken down by 62,500 warrants to each Executive Board member and a total of 375,000 warrants to other executive staff members. The above-mentioned 500,000 warrants correspond to 1.2 % of the share capital and can be exercised in three six-week windows, as follows:

following publication of the preliminary announcement of financial statements for 2013/14 (from around 30 April 2014); following publication of the interim report for the six-month period ending 31 July 2014 (from around 30 September 2014); and following publication of the preliminary announcement of financial statements for 2014/15 (from around 30 April 2015).

80 /127 | Tk Development A/S | Annual report 2012/13 | Consolidated financial statements notes

Note 8. Share-based payment. continued

The fair value of the warrants allocated has been calculated using the Black-Scholes pricing formula and amounts to DKK 2.1 million, which will be expensed over the term of the incentive scheme. The valuation is based on the following assumptions:

2012/13 2011/12 *) Weighted average share price (DKK per share) - 28,9 Expected volatility (%) - 35 % Risk-free interest rate (%) - 2,5 % Expected dividend rate (%) - 0 % Term to expiry (months) - 40

*) The comparative figures for 2011/12 concern the warrants allocated in June 2011.

Volatility has been determined on the basis of historical volatility of the price of the Parent Company’s shares over the past 12 months and the expected future volatility. The term to expiry has been determined on the assumption that the warrants are exercised in the intermediate exercise period.

The main condition for exercising these warrants in both schemes is that the employee has not given notice to terminate his or her employment before having exercised the warrants allocated.

The development in outstanding warrants is shown below:

Weighted average Number of warrants exercise prices 31 Jan 2013 31 Jan 2012 31 Jan 2013 31 Jan 2012 Outstanding warrants, beginning of year 1,707,812 1,207,812 41.54 56.53 Allocated during the financial year 0 500,000 - 28.90 Lapsed due to termination of employment -16,000 0 28.90 - Expired in the financial year -761,497 0 78.40 - Outstanding warrants, end of year 930,315 1,707,812 27.65 41.54

Number of warrants exercisable at the reporting date 446,315 761,497 - - Share-based payment recognized in the profit or loss - - (DKK million) 0.9 3.7

For the outstanding warrants at 31 January 2013. the exercise prices range from DKK 26.3 to DKK 30.2 per warrant (2011/12: DKK 24.3 to DKK 78.4 per warrant). The weighted average term to expiry has been calculated at 15 months (2011/12: 17 months).

Outstanding warrants is specified as below:

Fair value at the Number of Exercise price time of allocation warrants Expiry date (last period) (DKKm) Allocated May 2010 446,315 June 2013 26.3 1.9 Allocated June 2011 484,000 June 2015 30.3 2.1

Consolidated financial statements | Annual report 2012/13 | Tk Development A/S | 81 /127 notes

Note 9. Fees payable to the auditors elected at the General Meeting

2012/13 2011/12 Total fees, Deloitte 1.7 2.1 Total fees, Nielsen & Christensen 0.8 1.0 Total fees 2.5 3.1

Fees break down as follows: Deloitte: Statutory audit 1.5 1.9 Tax consultancy 0.1 0.2 Other services 0.1 0.0 Total 1.7 2.1

Nielsen & Christensen: Statutory audit 0.7 0.9 Tax consultancy 0.1 0.0 Other services 0.0 0.1 Total 0.8 1.0

Note 10. Investments in associates

2012/13 2011/12 Cost at 1 February 0.6 0.7 Additions on the purchase of equity investments 0.7 2.2 Disposals on the sale of equity investments 0.0 -2.3 Cost at 31 January 1.3 0.6

Revaluations and impairment at 1 February -6.3 -4.3 Share of profit/loss for the year after tax 1.7 1.8 Reversal on the sale of equity investments 0.0 -3.8 Revaluations and impairment at 31 January -4.6 -6.3 Transferred for setoff against receivables 5.0 5.9

Carrying amount at 31 January 1.7 0.2

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 39.

Income from investments in associates is shown below: 2012/13 2011/12 Profit on sale*) 0.8 30.6 Other income from associates 1.7 1.8 Total income from investments in associates 2.5 32.4 *) In June 2011, the Group sold its stake in Euro Mall Centre Management to the US Group CB Richard Ellis. The gain on the sale is included in Segment information, see note 3 under Euro Mall Holding.

82 /127 | Tk Development A/S | Annual report 2012/13 | Consolidated financial statements notes

Note 10. Investments in associates, continued

Financial disclosures for associates: 2012/13 2011/12 Income 4.8 34.8 Profit/loss for the year 5.5 5.5 Assets 301.3 291.4 Liabilities 309.9 307.1 The Group’s share of profit/loss for the year 1.7 1.8 The Group’s share of equity -3.3 -5.7

Note 11. Investments in joint ventures

For an overview of the Group’s investments in joint ventures. please see the overview of group companies in note 39, which also shows the accounting treatment of each individual company in the consolidated financial statements. The figures below represent the Group’s share.

2012/13 2011/12 Income 66.4 85.9 Expenses 123.2 30.7 Current assets 723.9 745.4 Non-current assets 330.4 243.0 Current liabilities 561.2 588.0 Non-current liabilities 115.0 35.0

Note 12. Financial income 2012/13 2011/12 Interest, cash and cash equivalents, etc. 0.9 1.5 Interest income from joint ventures 2.5 2.7 Interest income from associates 0.4 0.3 Other interest income 0.7 1.8 Financial income from loans and receivables 4.5 6.3

Interest from securities (held-to-maturity) 0.1 0.1 Foreign-exchange gains from other comprehensive income 1.0 2.8 Total financial income 5.6 9.2

Which breaks down as follows: Interest income from financial assets not measured at fair value through profit and loss 4.6 6.4 Other financial income 1.0 2.8 Total financial income 5.6 9.2

Consolidated financial statements | Annual report 2012/13 | Tk Development A/S | 83 /127 notes

Note 13. Financial expenses

2012/13 2011/12 Interest expenses, credit institutions 136.4 130.7 Interest expenses, joint ventures 1.3 2.8 Other interest expenses 3.6 4.3 Foreign-exchange losses and capital losses on securities 0.9 3.5 Other financial expenses 3.0 3.6 Of which capitalized financial expenses -52.2 -52.1 Total financial expenses 93.0 92.8

Which breaks down as follows: Interest expenses on financial liabilities not measured at fair value through profit and loss 92.1 89.3 Other financial expenses 0.9 3.5 Total financial expenses 93.0 92.8

An interest rate of 3.0 – 10.0 % is used to capitalize interest on projects in progress, depending on the interest rate applicable to the individual project loans (2011/12: 3.0 – 9.5 %).

84 /127 | Tk Development A/S | Annual report 2012/13 | Consolidated financial statements notes

Note 14. Corporate income tax

2012/13 2011/12 Current corporate income tax 4.9 1.8 Adjustment regarding tax relating to prior year(s) -2.7 1.3 Change in deferred tax 165.8 -16.3 Deferred tax transferred from other comprehensive income -0.7 0.5 Tax on profit/loss for the year 167.3 -12.7

The tax on the profit/loss for the year results as follows: Tax calculated based on the Danish tax rate -81.5 3.6 Difference in tax rate, foreign subsidiaries 5.5 4.9 Adjustment relating to prior year(s) -2.7 1.3 Tax effect of: Non-taxable income/expenses 39.5 -38.3 Forfeiture of losses written down in prior years 0.3 5.1 Change in impairment of tax assets, incl. reversal of prior years’ impairment regarding the forfeiture of this year’s losses 200.5 19.2 Change of tax rate -1.1 1.7 Difference, tax on foreign-exchange adjustments transferred from other comprehensive income -0.5 0.7 Other 7.3 -10.9 Tax on profit/loss for the year 167.3 -12.7 Effective tax rate -51.3 % -88.4 %

Deferred tax asset at 1 February 291.7 287.2 Deferred tax liabilities at 1 February -32.0 -55.1 Deferred tax asset/tax liability at 1 February, net 259.7 232.1 Foreign-exchange adjustment, beginning of year -0.3 -0.3 Deferred tax for the year recognized in profit or loss for the year -165.8 16.3 Adjustment relating to prior year(s) recognized in profit or loss for the year 0.4 0.0 Deferred tax for the year recognized in other comprehensive income -2.8 10.8 Other additions, net 0.8 0.8 Deferred tax asset/tax liability at 31 January, net 92.0 259.7

Recognized in the balance sheet as follows: Deferred tax asset at 31 January; see note 21 127.0 291.7 Deferred tax liabilities at 31 January; see note 32 -35.0 -32.0 Deferred tax asset/tax liability at 31 January, net 92.0 259.7

Consolidated financial statements | Annual report 2012/13 | Tk Development A/S | 85 /127 notes

Note 15. Earnings per share in DKK

2012/13 2011/12 Earnings in DKK per share (EPS) -11.7 0.6 Diluted earnings in DKK per share (EPS-D) -11.7 0.6

Profit/loss for the year -493.3 27.0 Shareholders’ share of profit/loss for the year -493.3 27.0

Average number of shares of nom. DKK 15 42,065,715 42,065,715 Average number of shares in circulation of nom. DKK 15 42,065,715 42,065,715

The outstanding warrants do not have a dilutive effect, as the average market price of ordinary shares in the financial year or the comparative year did not exceed the subscription price in the first window. This means that the outstanding warrants are ”out-of- the-money” and therefore not included in the diluted average number of shares in circulation. In the longer term, the outstanding warrants may have an effect on earnings per share.

Note 16. Dividends

In the 2012/13 financial year, no dividends were distributed to the Company’s shareholders for the 2011/12 financial year. At the Annual General Meeting on 22 May 2013, the Supervisory Board will propose that no dividends be distributed to the Company’s shareholders for the 2012/13 financial year.

Note 17. Goodwill

31 Jan 2013 31 Jan 2012 Cost at 1 February 47.8 47.8 Additions 0.0 0.0 Cost at 31 January 47.8 47.8

Amortization and impairment at 1 February 14.5 14.5 Impairment for the year 0.0 0.0 Amortization and impairment at 31 January 14.5 14.5

Carrying amount at 31 January 33.3 33.3

The total goodwill relates to the cash-flow-generating unit, Euro Mall Holding A/S; see note 3.

At 31 January 2013, Management performed an impairment test of the carrying amount of goodwill. The recoverable amount is based on the value in use, which has been determined using the expected cash flows on the basis of budgets for the next three financial years and forecasts for another two financial years approved by the Supervisory Board and recognition of the terminal value in year five.T he calculation of the recoverable amount included a discount rate of 15 % before tax. The impairment test did not give rise to any recognition of impairment.

Management assesses that significant changes to the basic assumptions would not result in the carrying amount of goodwill exceeding the recoverable amount.

86 /127 | Tk Development A/S | Annual report 2012/13 | Consolidated financial statements notes

Note 18. Investment properties and investment properties under construction

Completed investment properties and invest- Ownership Year ment properties under construction: Location in % acquired m² Futurm Hradec Kralové Czech Republic 20 % 2000/2012 28,250 Galeria Tarnovia Poland 30 % 2009 16,500 Lüdenscheid/Berlin Germany 100 % 1994-1998 23,800 Jelenia Góra Poland 30 % Under construction 24,000

31 Jan 2013 31 Jan 2012 Investment Investment Completed properties Completed properties investment under investment under properties construction properties construction Cost at 1 February 333.5 18.9 334.2 1.7 Foreign-exchange adjustments, beginning of year 1.6 0.0 -0.9 0.0 Costs of improvements 1.2 0.0 0.2 0.0 Transfered from investment properties under construction 25.9 -25.9 0.0 0.0 Other additions 84.4 23.9 0.0 17.2 Disposals for the year -33.1 0.0 0.0 0.0 Cost at 31 January 413.5 16.9 333.5 18.9

Revaluations at 1 February 130.0 54.7 121.8 27.1 Foreign-exchange adjustments, beginning of year 0.2 0.1 -0.3 -0.1 Revaluations for the year 0.0 0.0 8.5 27.7 Revaluations reversed -23.3 -1.0 0.0 0.0 Transfered from investment properties under construction 53.8 -53.8 0.0 0.0 Revaluations at 31 January 160.7 0.0 130.0 54.7

Impairment at 1 February 96.6 0.0 97.4 0.0 Foreign-exchange adjustments, beginning of year 0.5 0.0 -0.3 0.0 Impairment for the year 14.2 0.0 2.5 0.0 Impairment reversed -16.5 0.0 -3.0 0.0 Impairment at 31 January 94.8 0.0 96.6 0.0

Revaluations and impairment at 31 January 65.9 0.0 33.4 54.7

Carrying amount at 31 January 479.4 16.9 366.9 73.6

Which breaks down as follows: Central European investment properties 312.1 16.9 169.3 73.6 German investment properties 167.3 0.0 197.6 0.0 Total 479.4 16.9 366.9 73.6

Rental income, investment properties 32.2 - 25.6 - Direct operating expenses, premises let -2.3 - -2.6 - Direct operating expenses, unlet premises -1.1 - -0.9 - Net income from investment properties 28.8 - 22.1 - A large number of 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.

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Note 18. Investment properties and investment properties under construction, continued

Future minimum rent on irrevocable lease contracts (Total for the properties, not taking ownership share into consideration): 31 Jan 2013 31 Jan 2012 Investment Investment Completed properties Completed properties investment under investment under properties construction properties construction Within 1 year from reporting date 67.7 - 3.1 - Within 1 - 5 years from reporting date 171.0 - 77.9 - After 5 years from reporting date 50.4 - 50.3 - Total 289.1 - 131.3 -

The Czech investment property, the Futurum Hradec Králové shopping centre, is owned in a joint venture with GE Capital and Heitman. TK Development has access to a performance-based share of the value adjustments on the property, which has been included in the carrying amount. The joint venture has decided to attempt selling the property and has initiated the sales process. As in the previous quarters, the valuation as at 31 January 2013 has been made on the basis of the ongoing sales process. The valuation at 31 January 2013 resulted in a negative value adjustment of DKK 24.3 million, recognizing the negative value adjustment in the second quarter of 2012/13.

An extension of the Futurum Hradec Králové shopping centre, comprising about 9,950 m², has been built. Construction progressed according to plan, and the extension opened as scheduled on 10 May 2012. At the beginning of the financial year, the extension was classified under “Investment properties under construction”, but was transferred to “Investment properties” in the second quarter of 2012/13 following the completion of construction and the opening of the extension. Thus, the extension is included in the above-mentioned carrying amount.

TK Development’s 30 % ownership interest in Galeria Tarnovia in Poland has been valued at fair value based on completion of the sale to Heitman of 70 % of the property in December 2012.

Following the sale of one investment property in December 2012, the Group now has four investment properties left in Germany. The value of these properties totalled DKK 167.3 million at 31 January 2013. The valuation of the properties is based on a return requirement of 6.5 % p.a. calculated on the basis of a discounted cash-flow model over a ten-year period and recognition of the terminal value in year ten. In the cases where sales negotiations are ongoing with potential investors, these negotiations form the basis for the valuation. After the reporting date, yet another residential rental property has been sold, and the Group is negotiating with investors about the sale of one of the remaining properties.

TK Development’s investment properties under construction consist of the Group’s ownership interest in the Jelenia Góra development project in Poland. TK Development has bought a plot of land in Jelenia Góra and has an option on additional land for the development of a shopping centre of about 24,000 m². The project will comprise a supermarket of about 2,200 m² and retail, restaurant and service premises totalling about 21,800 m². The local plan for the area is in place and the letting of premises has started. Construction is expected to commence in 2013, and the shopping centre is scheduled to open in 2015. In December 2012, 70 % of the project was handed over to Heitman, and in this connection the Group’s 30 % ownership interest was classified as an investment property under construction. No value adjustment of the investment property was made at 31 January 2013, as the parties are awaiting final permits for the project and further clarification of the building phase, including the timing of construction startup, construction period, etc.

The services of an external valuer have not been used to value the Group’s investment properties.

88 /127 | Tk Development A/S | Annual report 2012/13 | Consolidated financial statements noteS

Note 19. Other fixtures and fittings, tools and equipment

31 Jan 2013 31 Jan 2012 Cost at 1 February 51.0 53.7 Foreign-exchange adjustments, beginning of year 0.1 -0.4 Additions 0.2 0.6 Disposals -3.7 -2.9 Cost at 31 January 47.6 51.0

Depreciation and impairment at 1 February 46.3 46.9 Foreign-exchange adjustments, beginning of year -0.1 -0.4 Depreciation for the year 2.3 2.6 Depreciation and impairment, assets disposed of -3.4 -2.8 Depreciation and impairment at 31 January 45.1 46.3

Carrying amount at 31 January 2.5 4.7

Other fixtures and fittings, tools and equipment are depreciated over a term of five years. Leasehold improvements included in the above amounts are depreciated according to the straight-line method over the term of the lease. The carrying amount of leasehold improvements is considered insignificant, for which reason other fixtures and fittings, tools and equipment are not divided into different classifications.

Note 20. Other securities and investments

31 Jan 2013 31 Jan 2012 Cost at 1 February 16.9 16.9 Additions for the year 0.0 0.0 Disposals for the year -1.1 0.0 Cost at 31 January 15.8 16.9

Revaluations and impairment at 1 February -15.0 -15.0 Revaluations and impairment for the year 0.0 0.0 Revaluations and impairment at 31 January -15.0 -15.0

Carrying amount at 31 January 0.8 1.9

Other securities and investments consist mainly of mortgage deeds on real property and unlisted shares. Instruments of indebtedness are measured at amortized cost. Unlisted shares are measured at fair value (Fair value hierarchy: Level 3).

The carrying amount of instruments of indebtedness corresponds to fair value. The fair value has been determined at the present value of future principal repayments and interest payments by using the effective interest method.

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Note 21. Deferred tax assets

31 Jan 2013 31 Jan 2012 Deferred tax assets at 1 February 340.4 316.7 Change of tax rate 0.0 -1.7 Additions for the year 40.2 22.5 Disposals for the year -8.2 -8.3 Tax on other comprehensive income 3.6 14.4 Foreign-exchange adjustments 0.2 -3.2 Deferred tax assets at 31 January 376.2 340.4

Value adjustment at 1 February -48.7 -29.5 Value adjustment for the year -200.5 -19.2 Value adjustments at 31 January -249.2 -48.7

Carrying amount at 31 January 127.0 291.7

Deferred tax assets relate to: Investments 1.5 1.5 Property, plant and equipment 0.5 0.4 Other non-current assets 12.4 20.3 Current assets 6.3 -26.5 Provisions 13.7 7.8 Value of tax loss(es) 341.8 336.9 Impairment of tax assets -249.2 -48.7 Total 127.0 291.7

Deferred tax assets at 31 January; see above 127.0 291.7 Deferred tax liabilities at 31 January; see note 32 -35.0 -32.0 Deferred tax assets/tax liabilities at 31 January, net 92.0 259.7

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Note 21. Deferred tax assets, continued

Deferred Foreign Deferred tax tax assets/ Recognized exchange assets/ tax liabilities Recognized in other adjustments, tax liabilities at in profit/ comprehensive beginning of at 31 Jan 2013 1 February, net loss income year 31 January, net Investments 1.5 0.0 0.0 0.0 1.5 Property, plant and equipment 0.4 0.0 0.0 0.0 0.4 Other non-current assets 20.3 -7.9 0.0 0.0 12.4 Current assets -47.1 26.2 -1.6 0.4 -22.1 Untaxed reserve relating to Sweden -16.1 7.0 0.0 -0.4 -9.5 Provisions 7.8 5.9 0.0 0.0 13.7 Value of tax losses 341.6 3.3 0.0 -0.1 344.8 Impairment of tax assets -48.7 -200.3 0.0 -0.2 -249.2 Total 259.7 -165.8 -1.6 -0.3 92.0

Deferred Foreign Deferred tax tax assets/ Recognized exchange assets/ tax liabilities Recognized in other adjustments, tax liabilities at in profit/ comprehensive beginning of at 31 Jan 2012 1 February, net loss income year 31 January, net Investments 1.5 0.0 0.0 0.0 1.5 Property, plant and equipment 0.4 0.0 0.0 0.0 0.4 Other non-current assets 18.4 1.9 0.0 0.0 20.3 Current assets -68.7 9.9 11.6 0.1 -47.1 Untaxed reserve relating to Sweden -21.6 5.5 0.0 0.0 -16.1 Provisions 3.4 4.5 0.0 -0.1 7.8 Value of tax losses 328.2 14.2 0.0 -0.8 341.6 Impairment of tax assets -29.5 -19.7 0.0 0.5 -48.7 Total 232.1 16.3 11.6 -0.3 259.7

A significant share of the total tax asset relates to the Danish share of joint taxation, as the tax loss carryforwards have no expiry date.

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.O n this basis, Management assessed the total impairment loss on the tax asset to be DKK 249.2 million at 31 January 2013. At 31 January 2012, total impairment of the tax asset amounted to DKK 48.7 million.

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 that expire within one to five years.

Reference is made to note 2, accounting estimates and assessments.

Consolidated financial statements | Annual report 2012/13 | Tk Development A/S | 91 /127 notes

Note 22. Projects in progress or completed

31 Jan 2013 31 Jan 2012 Projects in progress or completed excl. interest, etc. 3,300.5 3,464.9 Capitalized interest, etc. 589.9 529.8 Payments received on account -369.6 -293.3 Impairment -489.9 -203.3 Total projects in progress or completed 3,030.9 3,498.1

The carrying amount of the portion of the project portfolio on which impairment losses have been recognized is DKK 1,531.7 million (2011/12: DKK 838.5 million).

Note 23. Trade receivables

31 Jan 2013 31 Jan 2012 Receivables from tenants 21.6 20.0 Other trade receivables 69.1 48.4 Setoff in credit institutions -17.5 0.0 Total trade receivables 73.2 68.4

Impairment for the year recognized in the income statement -4.9 -5.2

31 Jan 2013 31 Jan 2012 Impairment at 1 February 19.2 16.7 Correction of opening balance 0.2 2.3 Disposals on sale (provisions at beginning of year) -2.6 0.0 Foreign-exchange adjustments, beginning of year 0.1 -0.8 Applied for the year -7.6 -4.2 Provisions for the year 8.7 7.0 Disposals on sale (provisions for the year) -3.7 0.0 Reversed provisions 0.2 -1.8 Impairment at 31 January 14.1 19.2

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 is DKK 14.6 million. The corresponding amount at 31 January 2012 was DKK 16.1 million. The majority of the written-down receivables are past due. There are no major overdue receivables that have not been written down for impairment.

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.

The carrying amount of the receivables corresponds to the fair value. No interest income on impaired receivables was recognized as revenue in the 2012/13 financial year or in the comparative year.

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Note 24. Contract work in progress

31 Jan 2013 31 Jan 2012 Cost of work performed at the reporting date 0.0 14.4 Profit on account 0.0 3.8 Total contract work in progress 0.0 18.2

Included in financial statement as: Contract work in progress (assets) 0.0 18.2

Withheld payment for work performed 0.0 0.0

Note 25. Securities 31 Jan 2013 31 Jan 2012 Listed securities 0.1 0.1 Unlisted securities 3.9 3.9 Financial assets available for sale 4.0 4.0 Other unlisted securities 0.3 0.0 Total securities 4.3 4.0

The securities consist of listed shares and unlisted equity interests. Listed securities consist of listed shares and are measured at fair value (Fair value hierarchy: Level 1). Unlisted equity interests available for sale are not traded in an active market. As the fair value of these equity interests cannot be determined with a sufficient degree of reliability, they are measured at cost. Other unlisted securities consist of mortage deeds on real property and are measured at fair value.

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Note 26. Deposits in custody and escrow accounts

31 Jan 2013 31 Jan 2012 Custody accounts and other accounts that the Group cannot fully dispose of 35.7 48.0 Setoff of financial liabilities 0.0 -2.8 Total deposits in custody and escrow accounts 35.7 45.2

Note 27. Share capital

The share capital consists of 42,065,715 shares of DKK 15 each (nom. DKK 630,985,725). 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 or restrictions, including restrictions with regard to the payment of dividend and repayment of capital.

Changes in the share capital over the past five years:

Number in thousands Nominel value Changes Year-end Changes Year-end 2008/09 0.0 28,043.8 0.0 560.9 2009/10 0.0 28,043.8 0.0 560.9 2010/11: Capital reduction on change of share denomination from nom. 20 to nom. 15 - 28,043.8 -140.2 420.7 Capital increase against cash payment 14,021.9 42,065.7 210.3 631.0 2011/12 0.0 42,065.7 0.0 631.0 2012/13 0.0 42,065.7 0.0 631.0

The Group did not hold treasury shares in the 2012/13 financial year or in the comparative year.

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Note 28. Other reserves

Reserve for value Reserve for adjustment value Reserve for of available-for- adjustment of foreign- Special sale financial hedging exchange reserve assets instruments adjustments Total Other reserves at 1 February 2011 140.2 -0.1 -1.9 21.9 160.1 Exchange-rate adjustment, foreign operations*) 0.0 0.0 0.0 -30.0 -30.0 Value adjustment of hedging instruments 0.0 0.0 -1.6 0.0 -1.6 Value adjustment of financial assets available for sale 0.0 0.0 0.0 0.0 0.0 Deferred tax on other comprehensive income 0.0 0.0 0.3 11.0 11.3 Other reserves at 31 January 2012 140.2 -0.1 -3.2 2.9 139.8 Special reserve transferred to distributable reserves -140.2 0.0 0.0 0.0 -140.2 Exchange-rate adjustment, foreign operations*) 0.0 0.0 0.0 6.1 6.1 Value adjustment of hedging instruments 0.0 0.0 3.1 0.0 3.1 Value adjustment of financial assets available for sale 0.0 0.0 0.0 0.0 0.0 Deferred tax on other comprehensive income 0.0 0.0 -0.6 -2.9 -3.5 Other reserves at 31 January 2013 0.0 -0.1 -0.7 6.1 5.3 *) Of which DKK 1.0 million is transferred to the income statement in respect of the sale/liquidation of companies (2011/12: DKK -2.8 million).

Other reserves amounted to DKK 140.2 million at 31 January 2012 and concerned a special fund that arose in connection with the capital reduction implemented in August 2010, when the denomination of the Group’s shares was changed from DKK 20 to DKK 15. This reserve can be used only following a resolution passed at the General Meeting. At the Company’s Annual General Meeting on 24 May 2012, it was resolved to transfer the special reserve of DKK 140.2 million to distributable reserves. The transfer was made in Q2 2012/13.

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 unrealized losses on forward-exchange transactions and interest-rate hedging transactions 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.

Consolidated financial statements | Annual report 2012/13 | Tk Development A/S | 95 /127 notes

Note 29. Credit institutions

31 Jan 2013 31 Jan 2012 Payables to credit institutions are recognized as follows in the balance sheet: Non-current liabilities 102.2 156.9 Current liabilities before setoffs 2,206.6 2,207.1 Total payables to credit institutions 2,308.8 2,364.0

Assets set off against current liabilities: Cash and cash equivalents 0.0 -2.8 Trade receivables -17.5 0.0 Payables to credit institutions after setoff against assets 2,291.3 2,361.2

Fair value 2,294.8 2,366.5 Carrying amount 2,291.3 2,361.2

The fair value has been determined at the present value of future principal repayments and interest payments by using the effective interest method.

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

Effective rate Carrying amount Fair value Fixed/ Loans Maturity variable 2012/13 2011/12 2012/13 2011/12 2012/13 2011/12 Mortgage credit DKK 2027-2040 variable 1.75 - 5.25 % 2 - 5.2 % 71.1 67.7 74.6 73.0 Bank DKK 2013 variable 2.75 - 10 % 3 - 5.5 % 1,158.4 1,073.4 1,158.4 1,073.4 Bank SEK 2013 variable 5 - 5.6 % 5 - 5.5 % 43.7 43.4 43.7 43.4 Bank PLN 2014 variable 7 - 8.5 % 8 - 9.5 % 173.6 171.6 173.6 171.6 Bank CZK 2013-2017 variable 2.5 - 4.25 % 2.75 - 3.75 % 44.4 39.6 44.4 39.6 Bank EUR 2013-2027 variable 1.75 - 6 % 2.75 - 6 % 800.1 965.5 800.1 965.5 Total 2,291.3 2,361.2 2,294.8 2,366.5

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Note 30. Provisions

31 Jan 2013 31 Jan 2012 Rent guarantees for properties sold at 1 February 14.6 17.3 Foreign-exchange adjustments, beginning of year 0.4 -0.1 Applied during the year -11.3 -11.4 Reversed rent guarantees -0.1 -0.2 Provisions for the year 11.8 9.0 Rent guarantees for properties sold at 31 January 15.4 14.6

Provisions at 31 January 15.4 14.6

31 Jan 2013 31 Jan 2012 Expected maturity dates of the liabilities provided for: 0-1 year 13.1 11.6 1-5 years 2.2 3.0 > 5 years 0.1 0.0 Provisions at 31 January 15.4 14.6

Rent guarantee liabilities for sold properties 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.

Note 31. Operating leases

For the years 2013-2018, operating leases for the rental of office premises, office machines and operating equipment have been concluded. The leases have 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:

2012/13 2011/12 Within 1 year 10.3 9.7 Within 1-5 years 18.6 10.2 After 5 years 0.9 0.1 Total 29.8 20.0

Minimum lease payments for the year recognized in the income statement 11.4 12.2

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Note 32. Deferred tax liabilities

31 Jan 2013 31 Jan 2012 Deferred tax liability at 1 February 32.0 55.1 Change of tax rate -1.1 0.0 Additions for the year 5.6 3.8 Disposals for the year -2.9 -27.6 Tax on other comprehensive income 0.9 3.6 Foreign-exchange adjustments 0.5 -2.9 Deferred tax liabilities at 31 January 35.0 32.0

Deferred tax liabilities relate to: Current assets 28.5 20.6 Untaxed reserve relating to Sweden 9.5 16.1 Provisions 0.0 0.0 Value of tax losses -3.0 -4.7 Total 35.0 32.0

The Group has no deferred tax liabilities relating to investments in subsidiaries, associates or joint ventures that have not been recognized in the balance sheet. The contingent retaxation liability attaching to German subsidiaries regarding which no provisions for deferred tax have been made amounted to DKK 97.4 million (2011/12: DKK 97.4 million). The Company controls whether such tax liability will be triggered, which is considered unlikely.

Note 33. Other debt

31 Jan 2013 31 Jan 2012 Employee-related payables 6.8 10.3 Holiday pay obligations 7.7 8.1 Derivative financial instruments 0.9 4.0 Other debt 136.3 134.8 Other debt, total 151.7 157.2

Broken down as follows under liabilities: Non-current liabilities (employee bonds) 1.5 3.8 Current liabilities 150.2 153.4 Other debt, total 151.7 157.2

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).

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Note 34. 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 21.

Contingent liabilities and security furnished

31 Jan 2013 31 Jan 2012 Share of surety and guarantee commitments in associates 65.8 43.4 Surety and guarantee commitments on behalf of associates 16.6 17.8 Surety and guarantee commitments on behalf of joint ventures 3.0 0.0 Share of surety and guarantee commitments in joint ventures 0.0 0.0 Other surety and guarantee commitments 100.0 79.2 Carrying amount of projects in progress or completed and contract work in progress furnished as security to credit institutions, including project finance loans granted by a number of the Company’s major shareholders and members of Management. 2,842.8 3,258.5 Carrying amount of escrow account deposits, etc., investments, receivables and property, plant and equipment furnished as security to credit institutions 532.0 485.7 The below figures in brackets are comparative figures for 2011/12.

The amounts stated for surety and guarantee commitments on behalf of associates and joint ventures are the upper limits.

The Group’s other surety and guarantee commitments consist primarily of the Group’s total rent guarantee commitments for which no provisions have been made in the financial statements. The provisions made in the financial statements relate to the rent guarantees that are likely to be called up.

The Group’s project portfolio amounts to DKK 3,030.9 million (DKK 3,498.1 million), of which DKK 2,842.8 million (DKK 3,258.5 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 non–current assets totalling DKK 532.0 million (DKK 485.7 million), consists of security furnished in the form of escrow accounts, securities, etc., DKK 35.7 million (DKK 45.2 million), and investment properties, DKK 496.3 million (DKK 440.5 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 is in some cases 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.

TK Development is currently 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 Pro- tection 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

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Note 34. Contingent assets and liabilities as well as security furnished, continued

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.

In addition, the Group is involved in a few disputes, none of which is deemed to have a scope that, either individually or collectively, may affect the Group’s performance to any appreciable extent.

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 such tax liability will be triggered, which is considered unlikely.

Note 35. Financial risks and financial instruments

Capital management The Group’s capital structure consists of equity, cash and cash equivalents and payables to credit institutions.

The Company’s Management reviews the Group’s capital structure on a regular basis, as well as the need for any adjustments. Man- agement’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 order to strengthen the Group’s financial platform, the Supervisory Board will request authorization at the forthcoming Annual General Meeting to carry out a capital increase with gross proceeds of about DKK 210-231 million.

Financial targets The Group has adopted a solvency target corresponding to a solvency ratio of around 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.T he solvency ratio was 34.7 % at 31 January 2013 (31 January 2012: 40.4 %).

Liquidity covenant 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 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.

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Note 35. Financial risks and financial instruments, continued

The Group’s solvency and liquidity covenant were both met during the year under review.

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.

Breach of loan agreements During the year under review, the Group was in continuous dialogue with a few credit institutions regarding the postponement of repayment obligations on project credits until one or more of the major completed projects have been sold, and agreements regarding the postponement of such repayments have now fallen into place.

Categories of financial instruments 31 Jan 2013 31 Jan 2012 Other securities and investments, non-current 0.8 1.9 Securities, current 0.3 0.0 Financial assets held to maturity 1.1 1.9

Trade receivables 73.2 68.4 Receivables from associates 23.6 20.4 Other receivables 122.4 131.4 Cash, cash equivalents, including custody and escrow accounts 66.9 100.3 Loans and receivables 286.1 320.5

Securities 4.0 4.0 Financial assets available for sale 4.0 4.0

Credit institutions 2,291.3 2,361.2 Trade payables 106.3 159.8 Other debt 150.8 153.2 Financial liabilities measured at amortized cost 2,548.4 2,674.2

Derivative financial instruments entered into to hedge interest rates 0.9 4.0 Hedging instruments 0.9 4.0

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 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 2012/13 financial year, the group did not enter into any forward agreements or other financial instruments. In the 2011/12 financial year, the Group entered into a few forward agreements that had all been settled by the end of the 2011/12 financial year.

Consolidated financial statements | Annual report 2012/13 | Tk Development A/S | 101 /127 noteS

Note 35. Financial risks and financial instruments, continued

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 loans should be hedged by financial instruments. The Group did not enter into any interest swaps to hedge interest-rate risks in the 2012/13 financial year. The Group has one interest swap hedging a completed project in Poland. The swap agreement expires in 2013.

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 un- foreseen 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 custody and escrow accounts correspond to their carrying amounts. The impairment losses for the year relating to trade receivables appear from note 23.

No impairment losses on other financial assets were recognized in the 2012/13 or in the comparative year. The carrying amount of other receivables written down to net realizable value amounts to DKK 0.0 million (2011/12: DKK 0.0 million).

Foreign-exchange risks relating to recognized assets and liabilities:

Cash, cash equivalents, custody accounts and securi- Unsecured 2012/13 ties Receivables Credit institutions Liabilities net position EUR 13.0 85.8 -800.1 -30.9 -732.2 SEK 0.8 9.6 -43.7 -18.5 -51.8 PLN 25.9 16.8 -173.6 -34.3 -165.2 CZK 15.1 6.6 -44.4 -25.9 -48.6 31 Jan 2013 54.8 118.8 -1,061.8 -109.6 -997.8

2011/12 EUR 2.8 27.6 -965.5 -20.9 -956.0 SEK 16.6 15.2 -43.4 -12.2 -23.8 PLN 41.4 15.9 -171.6 -20.3 -134.6 CZK 20.0 6.1 -39.6 -26.5 -40.0 31 Jan 2012 80.8 64.8 -1,220.1 -79.9 -1,154.4

102 /127 | Tk Development A/S | Annual report 2012/13 | Consolidated financial statements notes

Note 35. Financial risks and financial instruments, continued

Sensitivity of equity to foreign-exchange fluctuations 2012/13 2011/12 Effect if the EUR rate were 10 % lower than the actual rate 54.9 71.7 Effect if the SEK rate were 10 % lower than the actual rate 3.9 1.8 Effect if the PLN rate were 10 % lower than the actual rate 12.4 10.1 Effect if the CZK rate were 10 % lower than the actual rate 3.6 3.0

Sensitivity of profit/loss to foreign-exchange fluctuations 2012/13 2011/12 Effect if the EUR rate were 10 % lower than the actual rate 5.9 14.8 Effect if the SEK rate were 10 % lower than the actual rate 3.9 1.8 Effect if the PLN rate were 10 % lower than the actual rate 12.4 10.1 Effect if the CZK rate were 10 % lower than the actual rate 3.6 3.0

The Group’s major foreign-exchange exposures relate to EUR, SEK, PLN and CZK. 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 negative impact on profit or loss and equity.

Interest-rate risks and the dates of revaluation or maturity regarding financial assets and liabilities:

Date of revaluation/maturity Effective rate 2012/13 0 - 1 year 1 - 5 years > 5 years Total in % Other securities and investments 0.0 0.8 0.0 0.8 0 % Securities 4.3 0.0 0.0 4.3 0 - 7.75 % Trade receivables 73.2 0.0 0.0 73.2 0 % Other receivables 122.4 0.0 0.0 122.4 0 - 9 % Deposits with credit institutions (cash, cash equivalents and custody and escrow accounts) 66.9 0.0 0.0 66.9 0.5 - 4.5 % Receivables from associates 19.0 4.6 0.0 23.6 0 - 6 % Trade payables -106.3 0.0 0.0 -106.3 0 % Other debt -150.2 -1.5 0.0 -151.7 0 - 7.5 % Payables to credit institutions -1,857.2 -109.3 -324.8 -2,291.3 1.75 - 10 % Interest payments on loans -50.3 -38.9 -76.5 -165.7 Total at 31 January 2013 -1,878.2 -144.3 -401.3 -2,423.8

Consolidated financial statements | Annual report 2012/13 | Tk Development A/S | 103 /127 noteS

Note 35. Financial risks and financial instruments, continued

Date of revaluation/maturity Effective rate 2011/12 0 - 1 year 1 - 5 years > 5 years Total in % Other securities and investments 0.1 1.0 0.8 1.9 0 - 7.75 % Securities 4.0 0.0 0.0 4.0 0 % Trade receivables 68.4 0.0 0.0 68.4 0 % Other receivables 131.4 0.0 0.0 131.4 0 - 9 % Deposits with credit institutions (cash, cash equivalents and custody and escrow accounts) 100.3 0.0 0.0 100.3 0.5 - 4.5 % Receivables from associates 17.9 2.5 0.0 20.4 0 - 6 % Trade payables -159.8 0.0 0.0 -159.8 0 % Other debt -153.4 -3.8 0.0 -157.2 0 - 7.5 % Payables to credit institutions -2,204.3 -156.9 0.0 -2,361.2 2 - 9.5 % Total at 31 January 2012 -2,195.4 -157.2 0.8 -2,351.8

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 15.2 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 2011/12 financial year, the interest-rate sensitivity in case of a change in the interest level of 1 % p.a. would have a DKK 17.5 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 TKD Group’s liquidity reserve consists of cash and cash equivalents as well as unutilized operating credit facilities.

2012/13 2011/12 The liquidity reserve breaks down as follows: Cash and cash equivalents 31.2 55.1 Unutilized operating credit facilities 3.2 34.5 Total 34.4 89.6 Deposited funds for later release 35.7 45.2 Total liquidity reserve 70.1 134.8

104 /127 | Tk Development A/S | Annual report 2012/13 | Consolidated financial statements noteS

Note 36. Transactions with related parties

The Company has no related parties with a controlling interest.

The Company has the following related parties: Supervisory Board and Executive Board (and their related parties) Joint ventures and associates; see the overview of group companies, note 39.

2012/13 2011/12

Supervisory Board and Executive Board (and their related parties) Holding of shares, in terms of number 1,940.251 1,355.435 Obligation towards Executive Board, employee bonds 1.5 1.5 Remuneration, Supervisory Board 1.8 2.1 Remuneration, Executive Board, see note 7 6.2 8.4 Interest expenses, Project financing from Supervisory and Executive Board 0.4 0.0 Project financing from Supervisory and Executive Board 21.7 0.0 Accrued interests, project financing from Supervisory and Executive Board 0.3 0.0

Joint ventures Fees from joint ventures 1.5 1.7 Interest income from joint ventures 2.5 2.7 Interest expenses, joint ventures -1.3 -2.8 Receivables from joint ventures 46.2 74.5 Payables to joint ventures 88.4 88.2

Associates Interest income from associates 0.4 0.3 Receivables from associates 23.6 20.4

Suretyships and guarantees have been issued on behalf of joint ventures and associates; see note 34.

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.

The Group has taken out second mortgages on two projects of DKK 5 million each as security for project finance loans granted by the Supervisory Board and the Executive Board. Moreover, as security for the total project finance loans granted by a group of the Company’s major shareholders, of which the share granted by the Supervisory Board and the Executive Board amounts to DKK 21.7 million, the Group has granted a mortgage of DKK 70 million on the land for the project to be financed by the loans.

Receivables and payables are settled by payment in cash. No losses were realized on receivables from related parties. In 2012/13 no impairment was made to provide for any probable losses (2011/12: DKK 0.0 million).

Consolidated financial statements | Annual report 2012/13 | Tk Development A/S | 105 /127 noteS

Note 37. Post-balance sheet events

After the reporting date, agreements regarding the prolongation of project credits of about DKK 0.2 billion have been made. The Su- pervisory Board has decided to request authorization at the forthcoming Annual General Meeting to carry out a capital increase with gross proceeds of about DKK 210-231 million. The capital increase has been discussed with the Group’s major shareholders, who, together with a few major private and institutional investors, have given conditional subscription and underwriting commitments for the total capital increase. For more details, see note 2, “Accounting estimates and assessments”. Moreover, after the reporting date, TK Development has sold one of the Group’s minor German investment properties to a German investor. Apart from this, no major events affecting the Company other than those mentioned in the management commentary have occurred after the reporting date.

Note 38. Approval of Annual Report for publication

At the board meeting on 25 April 2013, the Supervisory Board 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 22 May 2013.

106 /127 | Tk Development A/S | Annual report 2012/13 | Consolidated financial statements noteS

Note 39. Overview of group companies

No parent companies other than the listed company TK Development A/S prepare consolidated financial statements.

The TKD Group’s subsidiaries Ownership Ownership Name Reg. office interest Name Reg. office interest TK Bygge-Holding A/S Aalborg 100 % Euro Mall Polska III Sp. z o.o. in liquidation Warsaw 100 % TKD Nordeuropa A/S Aalborg 100 % TK Polska Development II Sp. z o.o. Warsaw 100 % TK Bygge-Holding Russia A/S Aalborg 100 % Euro Mall Polska XXII Sp. z o.o. Warsaw 100 % TK Development Danmark A/S Aalborg 100 % TK Development Sp. z o.o. in liquidation Warsaw 100 % TKD Projekt A/S Aalborg 100 % D & V Properties II Sp. z o.o. Warsaw 100 % TK POC P/S Aalborg 100 % Euro Mall Polska XXI Sp. z o.o. in liquidation Warsaw 100 % Komplementarselskabet POC ApS Aalborg 100 % TK Czech Operations s.r.o. Prague 100 % Kommanditaktieselskabet Frederikssund Shoppingcenter Aalborg 100 % Euro Mall Czech VI s.r.o. Prague 100 % Komplementarselskabet Frederikssund Shoppingcenter ApS Aalborg 100 % Euro Mall Brno South Retail Park s.r.o. Prague 100 % Driftsselskabet Frederikssund ApS Aalborg 100 % Euro Mall Ceske Budejovice s.r.o. Prague 100 % Kommanditaktieselskabet Marsvej Aalborg 100 % TK Czech Development III s.r.o. Prague 100 % Komplementarselskabet Marsvej ApS Aalborg 100 % Euro Mall Project s.r.o. Prague 100 % Kommanditaktieselskabet Østre Teglgade 7 Aalborg 100 % Euro Mall Bohemia s.r.o. Prague 100 % Komplementarselskabet Østre Teglgade ApS Aalborg 100 % Euro Mall City s.r.o. Prague 100 % Kommanditaktieselskabet Esbjerg Shoppingcenter Aalborg 100 % Euro Mall Delta s.r.o. Prague 100 % Komplementarselskabet Esbjerg Shoppingcenter ApS Aalborg 100 % Euro Mall Event s.r.o. Prague 100 % Euro Mall Holding A/S Aalborg 100 % Euro Mall Praha a.s. Prague 100 % Euro Mall Poland Holding A/S Aalborg 100 % TK Development Slovakia s.r.o. Bratislava 100 % K/S Tampere IV, Finland in liquidation Copenhagen 100 % Saprex s.r.o. Bratislava 100 % ApS Komplementarselskabet Tampere retail IV, Finland in liquidation Copenhagen 100 % Targest s.r.o. Bratislava 100 % Euro Mall Sweden AB Stockholm 100 % UAB TK Development Lietuva Vilnius 100 % TK Development Sweden Holding AB Stockholm 100 % UAB ”Profista” 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 Poland Invest B.V. Amsterdam 100 % Barkaby Gate Fastighets AB Stockholm 100 % Euro Mall Czech & Slovakia Invest B.V. Amsterdam 100 % Enebyängen Fastighets AB Stockholm Stockholm 100 % Euro Mall Sterboholy Holding B.V. Amsterdam 100 % TKD Suomi OY Helsinki 100 % TK Development Bau GmbH Berlin 100 % OY TKD Construction Finland Helsinki 100 % TK Development GmbH Berlin 100 % Kaarinan Kauppakuutonen OY Helsinki 100 % TKH Datzeberg Grundstücksgesellschaft mbH Berlin 100 % TK Polska Operations S.A. Warsaw 100 % TKH Projektbeteiligungsgesellschaft mbH in liquidation Berlin 100 % Euro Mall Polska X Sp. z o.o. Warsaw 100 % TKH Oranienburg Grundstücksgesellschaft mbH Berlin 100 % Euro Mall Targówek III Sp. z o.o. Warsaw 100 % TKH Mahlow Wohnungsbaugesellschaft mbH Berlin 100 % Euro Mall Targówek Sp. z o.o. Warsaw 100 % TKH Ferienwohnungsgesellschaft mbH Berlin 100 % Euro Mall Polska XV Sp. z o.o. Warsaw 100 % EKZ Datzeberg Scan-Car GmbH Berlin 100 % Nowa Wilda Sp. z o.o. Warsaw 100 % EKZ Datzeberg Scan-Car GmbH & Co. KG Berlin 100 % The companies are included in the consolidated financial statements by full consolidation.

The TKD Group’s joint ventures Kommanditaktieselskabet Østre Havn P/S Aalborg 50 % Euro Mall Polska XX Sp. z o.o. Warsaw 76 % Østre Havn ApS Aalborg 50 % Euro Mall Polska XIV Sp. z o.o. Warsaw 30 % Ringsted Outlet Center P/S Aalborg 50 % Euro Mall Polska XXIII Sp. z o.o. Warsaw 30 % SPV Ringsted ApS Aalborg 50 % Euro Mall Hradec Kralove Real Estate s.r.o. Prague 20 % Udviklingsselskabet Nordkranen A/S Copenhagen 50 % Euro Mall FM a.s. Prague 90 % Kommanditaktieselskabet Danlink - Udvikling Copenhagen 50 % Euro Mall Sterboholy SC a.s. Prague 75 % Komplementarselskabet DLU ApS Copenhagen 50 % Fashion Arena Center Management s.r.o. Prague 75 % Ahlgade 34 - 36 A/S Holbæk 50 % Euro Mall Ventures S.á r.l. Luxembourg 20 % Euro Mall Polska XVI Sp. z o.o. Warsaw 76 % Euro Mall Luxembourg JV S.á r.l. Luxembourg 30% Euro Mall Polska XIX Sp. z o.o. Warsaw 76 % The companies are included in the consolidated financial statements by pro-rata consolidation.

Associates Step Re CSP Invest I A/S Herning 50 % Pedersen Fritscheshof Neubrandenburg KG Hamburg 35 % Trøjborg ApS Ikast-Brande 20 % Camacuri s.r.o. Prague 45 % The companies are recognized in the consolidated financial statements according to the equity method.

Consolidated financial statements | Annual report 2012/13 | Tk Development A/S | 107 /127 Parent company financial statements

INCOME STATEMENT

DKKm Note 2012/13 2011/12

Net revenue 0.0 0.0 External direct project costs 3 0.1 0.3 Gross profit/loss 0.1 0.3

Other external expenses 4 3.3 4.0 Staff costs 5 1.6 2.9 Total 4.9 6.9

Operating profit/loss -4.8 -6.6

Income from investments in associates 8 -336.1 73.9 Financial income 9 64.4 55.9 Financial expenses 10 -9.1 -9.1 Total -280.8 120.7

Profit/loss before tax -285.6 114.1 Tax on profit/loss for the year 11 48.2 8.7 Profit/loss for the year -333.8 105.4

comprehensive income statement

Profit/loss for the year -333.8 105.4 Comprehensive income statement for the year -333.8 105.4

108 /127 | Tk Development A/S | Annual report 2012/13 | Parent company financial statements PARENT COMPANY FINANCIAL STATEMENTS

BALANCE sheet

DKKm Note 31 Jan 2013 31 Jan 2012

ASSETS

Non-current assets

Goodwill 12 5.1 5.1 Intangible assets 5.1 5.1

Investments in associates 8 867.6 1,171.0 Receivables from associates 1,159.1 1,151.8 Deferred tax assets 13 21.3 57.2 Other non-current assets 2,048.0 2,380.0

Total non-current assets 2,053.1 2,385.1

Current assets

Prepayments 1.4 1.0 Total receivables 1.4 1.0

Securities 14 4.0 4.0 Deposits in blocked and escrow accounts 15 0.0 0.3 Cash and cash equivalents 0.1 0.8

Total current assets 5.5 6.1

ASSETS 2,058.6 2,391.2

Parent company financial statements | Annual report 2012/13 | Tk Development A/S | 109 /127 PARENT COMPANY FINANCIAL STATEMENTS

BALANCE sheet

DKKm Note 31 Jan 2013 31 Jan 2012

EQUITY AND LIABILITIES

Equity

Share capital 16 631.0 631.0 Other reserves 16 0.0 140.2 Retained earnings 1,237.6 1,430.3 Total equity 1,868.6 2,201.5

Liabilities

Credit institutions 17 0 121.9 Provisions 18 19.2 19.2 Other debt 20 1.5 3.8 Total non-current liabilities 20.7 144.9

Credit institutions 17 153.0 29.2 Trade payables 0.6 0.5 Corporate income tax 12.4 13.1 Other debt 20 3.3 2.0 Total current liabilities 169.3 44.8

Total liabilities 190.0 189.7

TOTAL EQUITY AND LIABILITIES 2,058.6 2,391.2

110 /127 | Tk Development A/S | Annual report 2012/13 | Parent company financial statements PARENT COMPANY FINANCIAL STATEMENTS

statement of changes in equity

DKKm Share capital Other reserves Retained earnings Total equity

Equity at 1 February 2011 631.0 140.2 1.321.2 2.092.4

Profit for the year 0.0 0.0 105.4 105.4 Other comprehensive income for the year 0.0 0.0 0.0 0.0 Total comprehensive income for the year 0.0 0.0 105.4 105.4 Share-based payment 0.0 0.0 3.7 3.7 Equity at 31 January 2012 631.0 140.2 1,430.3 2,201.5

Profit for the year 0.0 0.0 -333.8 -333.8 Other comprehensive income for the year 0.0 0.0 0.0 0.0 Total comprehensive income for the year 0.0 0.0 -333.8 -333.8 Special reserves transferred to distributable reserves 0.0 -140.2 140.2 0.0 Share-based payment 0.0 0.0 0.9 0.9 Equity at 31 January 2013 631.0 0.0 1,237.6 1,868.6

Parent company financial statements | Annual report 2012/13 | Tk Development A/S | 111 /127 PARENT COMPANY FINANCIAL STATEMENTS

cash flow statement

DKKm 2012/13 2011/12

Operating profit/loss -4.8 -6.6 Adjustments for non-cash items: Share-based payment 0.0 0.1 Exchange-rate adjustments 0.7 -0.6 Increase/decrease in receivables -17.6 -107.2 Increase/decrease in payables and other debt -1.0 0.4 Changes in deposits on blocked and escrow accounts 0.3 -0.1 Cash flows from operating activities before net financials and tax -22.4 -114.0

Interest paid, etc. -8.5 -8.2 Interest received, etc. 64.1 55.9 Corporate income tax paid -13.0 -20.1 Cash flows from operating activities 20.2 -86.4

Purchase of securities and investments -95.7 0.0 Dividend received 73.9 73.9 Cashflow from investment activities -21.8 73.9

Raising of short-term financing 0.9 12.6 Cash flows from financing activities 0.9 12.6

Cash flows for the year -0.7 0.1

Cash and cash equivalents, beginning of year 0.8 0.7

Cash and cash equivalents at year-end 0.1 0.8 The figures in the cash flow statement cannot be inferred from the consolidated financial statements alone.

112 /127 | Tk Development A/S | Annual report 2012/13 | Parent company financial statements table of contents, Notes, Parent company financial statements

Page 114 Note 1. Accounting policies 115 Note 2. Accounting estimates and assess ments 115 Note 3. External direct project costs 115 Note 4. Other external expenses 116 Note 5. Staff costs 117 Note 6. Share-based payment 117 Note 7. Fees payable to the auditors elected at the General Meeting 118 Note 8. Investments in group enterprises 119 Note 9. Financial income 119 Note 10. Financial expenses 119 Note 11. Corporate income tax 120 Note 12. Goodwill 120 Note 13. Deferred tax assets 121 Note 14. Securities 121 Note 15. Deposits in custody and escrow accounts 121 Note 16. Share capital and other reserves 121 Note 17. Credit institutions 122 Note 18. Provisions 122 Note 19. Operating leases 123 Note 20. Other debt 123 Note 21. Contingent assets and liabilities as well as security furnished 124 Note 22. Financial risks and financial instruments 126 Note 23. Transactions with related parties 126 Note 24. Post-balance sheet events 126 Note 25. Approval of Annual Report for publication

Parent company financial statements | Annual report 2012/13 | Tk Development A/S | 113 /127 NOTES, PARENT COMPANY FINANCIAL STATEMENTS

Note 1. Accounting policies Cases where the Parent Company’s accounting policies deviate from those The financial statements of the Parent Company for 2012/13 of the Group are presented in compliance with the International Financial Reporting Standards, as adopted by the EU, and in accordance Translation of foreign-currency items with Danish disclosure requirements for annual reports pre- Foreign-exchange adjustments of receivables from or payables pared by listed companies; see the Executive Order on IFRS is- to subsidiaries that are considered part of the Parent Compa- sued in pursuance of the Danish Financial Statements Act. ny’s total investment in the relevant subsidiary are recognized in the income statement under financial items. Such foreign-ex- The parent financial statements also comply with the Interna- change adjustments are recognized in other comprehensive in- tional Financial Reporting Standards (IFRS) issued by the Inter- come in the consolidated financial statements. national Accounting Standards Board (IASB). Share-based incentive schemes The parent financial statements are presented in DKK million, No intercompany settlement takes place between the Parent which is the Company’s functional currency. Company and subsidiaries in respect of the Parent Company’s share-based payments to employees in subsidiaries. In the par- The parent financial statements are presented on the basis of ent financial statements, the value of incentive schemes allo- historical cost. cated to subsidiaries’ employees is recognized under “Invest- ments in subsidiaries”, with a corresponding amount recorded Generally, the Parent Company applies the same accounting directly in equity. policies regarding recognition and measurement as the Group. The cases where the Parent Company’s accounting policies de- Dividends on investments in subsidiaries and associates viate from those of the Group are described below. For a de- Dividends on investments in subsidiaries and associates are tailed overall description of accounting policies, reference is recognized in the Parent Company’s income statement under made to note 1 to the consolidated financial statements. financial income in the financial year in which the right to dividend vests. Usually, this will be the date on which the General Implementation of new and amended Meeting of shareholders adopts the distribution of dividend financial reporting standards and from the relevant company. interpretations issued by IFRIC The parent financial statements for 2012/13 have been pre- Investments in subsidiaries and associates sented in accordance with the financial reporting standards The Parent Company’s investments in subsidiaries and asso- (IFRS/IAS) and IFRIC interpretations applicable for financial ciates are measured at cost. The carrying amounts of invest- years beginning at 1 February 2012. ments in subsidiaries and associates are reviewed at the reporting date to identify any indications of impairment. If such The implementation of new or amended financial reporting stand- indications are identified, the recoverable amount of the asset ards and interpretations that entered into force in the 2012/13 is calculated to assess the need for any impairment and the financial year has not resulted in any changes to the account- extent of such impairment. If the cost exceeds the recoverable ing policies. The accounting policies have been consistently ap- amount, it is written down to the recoverable amount. If the div- plied with those of the previous financial year. idend distributed exceeds the comprehensive income recorded by the enterprise for the relevant year, this is considered an Financial reporting standards and indication of impairment. IFRIC interpretations not yet in force At the date of publication of this Annual Report, a number of Impairment losses are recognized in the income statement. new or amended financial reporting standards and IFRIC interpretations had not yet entered into force or been adopted by Upon the sale of equity investments in subsidiaries and associ- the EU. Thus, they have not been incorporated into the Annual ates, gains or losses are determined as the difference between Report. None of these standards and interpretations are ex- (i) the carrying amount of the sold equity investments and (ii) pected to materially affect the parent financial statements for the fair value of the sales proceeds and the fair value of any the next financial years, with the exception of the additional remaining equity investments. disclosure requirements following from the relevant standards and interpretations.

114 /127 | Tk Development A/S | Annual report 2012/13 | Parent company financial statements NOTES, PARENT COMPANY FINANCIAL STATEMENTS

Note 2. Accounting estimates and assess- fall below expectations. If the conditions and assumptions for ments budgets and profit forecasts change, including time estimates, or if the expectations do not materialize, this could result in the Many account items cannot be measured with certainty, but value of the tax assets being significantly lower than that com- only estimated. Such estimates consist of assessments based puted at 31 January 2013, which would have an adverse effect on the most recent information available at the time of present- on the Group’s results of operations and financial position. The ing the financial statements. It may be necessary to change carrying amount of deferred tax assets totalled DKK 21.3 mil- previous estimates based on changes in the assumptions un- lion at 31 January 2013. derlying the estimate or based on supplementary information, additional experience or subsequent events. Investments in and receivables from group enterprises To assess the need for impairment of investments in and re- In connection with the practical application of the accounting pol- ceivables from group enterprises in the Parent Company Fi- icies described, Management has made a number of significant nancial Statements, the values in use of the cash-flow-gen- accounting estimates and assessments that have materially erating units to which the investment and receivable relate affected this Annual Report: must be calculated. Calculating the value in use assumes that an estimate of future expected cash flows in the individual Deferred tax assets cash-flow-generating unit has been made and that a reasona- The valuation has been based on the existing possibilities for ble discount rate has been determined. If the actual course of carrying forward losses and for joint taxation. A change in the an investment deviates from the expected development, this conditions for carrying forward losses and joint taxation could may necessitate adjustments to the impairment recognized. In result in the value of the tax assets being either higher or lower the 2012/13 financial year, a DKK 410.0 million writedown for than the carrying amount computed at 31 January 2013. The impairment of investments was made. The impairment totalled valuation of the tax asset has been based on existing budgets DKK 870.2 million at 31 January 2013. The carrying amount of and profit forecasts for a five-year period. For the first three investments in group enterprises totalled DKK 867.6 million at years, budgets are based on an evaluation of specific projects 31 January 2013. 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.

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

Note 3. External direct project costs

2012/13 2011/12 External direct project costs -0.1 -0.3 External direct project costs, total -0.1 -0.3

Note 4. Other external expenses

2012/13 2011/12 Administrative expenses 3.0 3.6 Cars, operating expenses 0.3 0.4 Other external expenses, total 3.3 4.0

Parent company financial statements | Annual report 2012/13 | Tk Development A/S | 115 /127 NOTES, PARENT COMPANY FINANCIAL STATEMENTS

Note 5. Staff costs

2012/13 2011/12 Fees for Supervisory Board 1.8 2.1 Salaries, etc. for the Parent Company’s Executive Board; see below 6.2 8.4 Other social security costs 0.0 0.1 Other salaries and staff costs 0.1 0.2 Reinvoiced via service agreements -6.5 -7.9 Total staff costs 1.6 2.9

Average number of employees 2 2 Number of employees at year-end 2 2

Salaries, etc. for the Parent Company’s Executive Board: Share-based 2012/13 Salary Pension payment Total Frede Clausen 3.3 0.1 0.1 3.5 Robert Andersen 2.5 0.1 0.1 2.7 Salaries, etc., total 5.8 0.2 0.2 6.2

2011/12 Frede Clausen 4.1 0.1 0.5 4.7 Robert Andersen 3.1 0.1 0.5 3.7 Salaries, etc., total 7.2 0.2 1.0 8.4

The Supervisory Board is composed of the Chairman, Deputy Chairman and four other members. In 2012/13, Supervisory Board members were paid a basic fee of DKK 200,000. 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 Company has entered into defined contribution plans with the employees in the Company. According to these plans, the Compa- ny 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 2012/13 financial year (2011/12: DKK 0.2 million).

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

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Note 6. Share-based payment

For a more detailed description. please see note 8 in the consolidated financial statements.

2012/13 2011/12 Share-based payment recognized in the profit or loss 0.2 1.0

Note 7. Fees payable to the auditors elected at the General Meeting

2012/13 2011/12 Total fees, Deloitte 0.2 0.3 Total fees, Nielsen & Christensen 0.2 0.2 Total fees 0.4 0.5

Fees break down as follows:

Deloitte: Statutory audit 0.2 0.3 Total 0.2 0.3

Nielsen & Christensen: Statutory audit 0.2 0.1 Other services 0.0 0.1 Total 0.2 0.2

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Note 8. Investments in group enterprises

2012/13 2011/12 Cost at 1 February 1,361.0 1,357.4 Additions for the year 96.6 3.6 Cost at 31 January 1,457.6 1,361.0

Impairment at 1 February -460.2 -460.2 Impairment for the year -410.0 0.0 Impairment at 31 January -870.2 -460.2

Setoffs at 1 February 270.2 270.2 Impairment set off against receivables/provisions 10.0 0.0 Setoffs at 31 January 280.2 270.2

Carrying amount at 31 January 867.6 1,171.0

Investments in group enterprises are recognized at cost. Investments and receivables were subjected to an impairment test at 31 January 2013. In the cases where the cost exceeds the recoverable amount, it is written down to such lower value.

The recoverable amount is based on the value in use, which has been determined using the expected cash flows on the basis of budgets for the next three financial years and forecasts for another two financial years approved by the Supervisory Board and recognition of the terminal value in year five. The calculation of the recoverable amount included a discount rate of 15 % before tax.

Impairment is recognized in the line ”Income from investments in group enterprises”.

2012/13 2011/12 Income from investments in group enterprises: Impairment for the year; see above -410.0 0.0 Dividends 73.9 73.9 Total income from investments -336.1 73.9

Overview of investments in group enterprises: Ownership Name Reg. office interest TK Bygge-Holding A/S Aalborg 100 % TK Development Bau GmbH Berlin 100 % TK Development GmbH Berlin 100 % TKD Nordeuropa A/S *) Aalborg 48 %

*) The company is considered a group enterprise as it is wholly owned, directly and indirectly, by TK Development A/S.

The ownership interests shown above are the Company’s direct holdings.

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Note 9. Financial income

2012/13 2011/12 Interest income from group enterprises 62.2 54.8 Financial income from loans and receivables 62.2 54.8 Other financial income 2.2 1.1 Total financial income 64.4 55.9

Which breaks down as follows: Interest income from financial assets not measured at fair value through profit and loss 62.2 54.8 Other financial income 2.2 1.1 Total financial income 64.4 55.9

Note 10. Financial expenses

2012/13 2011/12 Interest expenses, credit institutions 6.1 7.9 Miscellaneous interest expenses 3.0 0.9 Foreign-exchange losses and capital losses on securities 0.0 0.3 Total financial expenses 9.1 9.1

Which break down as follows: Interest expenses on financial liabilities not measured at fair value through profit and loss 9.1 8.8 Other financial expenses 0.0 0.3 Total financial expenses 9.1 9.1

Note 11. Corporate income tax

2012/13 2011/12 Current corporate income tax 12.3 13.1 Adjustment regarding current tax relating to prior year(s) 0.0 0.5 Change in deferred tax 35.9 -4.9 Tax on profit/loss for the year 48.2 8.7

The tax on the profit/loss for the year results as follows: Danish tax rate -71.4 28.5 Adjustment relating to prior year(s) 0.0 0.5

Tax effect of: Non-deductible expenses/non-taxable income 84.0 -18.4 Other 0.9 -1.9 Change in value adjustment 34.7 0.0 Tax on profit/loss for the year 48.2 8.7

Deferred tax assets at 1 February 57.2 52.3 Deferred tax for the year recognized in profit or loss for the year -35.9 4.9 Deferred tax assets at 31 January 21.3 57.2

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Note 12. Goodwill

31 Jan 2013 31 Jan 2012 Cost at 1 February 7.7 7.7 Additions 0.0 0.0 Cost at 31 January 7.7 7.7

Amortization and impairment at 1 February 2.6 2.6 Impairment for the year 0.0 0.0 Amortization and impairment at 31 January 2.6 2.6

Carrying amount at 31 January 5.1 5.1

The total goodwill relates to the cash-flow-generating unit, Euro Mall Holding A/S; see note 3 in the consolidated financial statements.

At 31 January 2013, Management performed an impairment test of the carrying amount of goodwill. The recoverable amount is based on the value in use, which has been determined using the expected cash flows on the basis of budgets for the next three financial years and forecasts for another two financial years approved by the Supervisory Board and recognition of the terminal value in year five. The calculation of the recoverable amount included a discount rate of 15 % before tax. The impairment test did not give rise to any recognition of impairment.

Management assesses that significant changes to the basic assumptions would not result in the carrying amount of goodwill exceeding the recoverable amount.

Note 13. Deferred tax assets

31 Jan 2013 31 Jan 2012 Deferred tax assets at 1 February 60.1 55.1 Correction of opening balance 0.0 0.1 Additions for the year 0.0 4.9 Disposals for the year -1.2 0.0 Deferred tax assets at 31 January 58.9 60.1

Value adjustment at 1 February -2.9 -2.8 Correction of opening balance 0.0 -0.1 Value adjustment for the year -34.7 0.0 Value adjustments at 31 January -37.6 -2.9

Carrying amount at 31 January 21.3 57.2

Deferred tax assets relate to: Investments 1.5 1.5 Current assets -1.7 -1.5 Provisions 0.0 0.0 Value of tax losses 59.1 60.1 Impairment of tax assets -37.6 -2.9 Total 21.3 57.2

The change in deferred tax assets for the year has been recognized in the income statement.

The contingent retaxation liability attaching to German subsidiaries regarding which no provisions for deferred tax have been made amounted to DKK 97.4 million (2011/12: DKK 97.4 million). The Company controls whether such tax liability will be triggered, which is considered unlikely.

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Note 14. Securities

31 Jan 2013 31 Jan 2012 Listed securities 0.1 0.1 Unlisted securities 3.9 3.9 Total securities 4.0 4.0

The securities consist of listed shares and unlisted equity interests. Listed securities consist of listed shares and are measured at fair value (Fair value hierarchy: Level 1). Unlisted equity interests are not traded in an active market. As the fair value of these equity interests cannot be determined with a sufficient degree of reliability, they are measured at cost. The securities are financial assets available for sale.

Note 15. Deposits in custody and escrow accounts

31 Jan 2013 31 Jan 2012 Custody accounts and other accounts that the Company cannot fully dispose of 0.0 0.3 Total deposits in custody and escrow accounts 0.0 0.3

Note 16. Share capital and other reserves

Share capital Reference is made to note 27 in the consolidated financial statement.

Other reserves Other reserves amounted to DKK 140.2 million at 31 January 2012 and concerned a special fund that arose in connection with the capital reduction implemented in August 2010, when the denomination of the Group’s shares was changed from DKK 20 to DKK 15. This reserve can be used only following a resolution passed at the General Meeting. At the Company’s Annual General Meeting on 24 May 2012, it was resolved to transfer the special reserve of DKK 140.2 million to distributable reserves. The transfer was made in Q2 2012/13.

Note 17. Credit institutions

31 Jan 2013 31 Jan 2012 Payables to credit institutions are recognized as follows in the balance sheet: Non-current liabilities 0.0 121.9 Current liabilities 153.0 29.2 Total payables to credit institutions 153.0 151.1

Fair value 153.0 151.1 Carrying amount 153.0 151.1

At 31 January, the Parent Company had the following loans and credits:

Effective rate Carrying amount Fair value Loans Maturity Fixed/variable 2012/13 2011/12 2012/13 2011/12 2012/13 2011/12 Bank DKK 2013 variabel 4 - 5 % 4 - 5 % 30.0 29.2 30.0 29.2 Bank EUR 2013 variabel 3.30 - 4.10 % 4 - 5 % 123.0 121.9 123.0 121.9

Parent company financial statements | Annual report 2012/13 | Tk Development A/S | 121 /127 NOTES, PARENT COMPANY FINANCIAL STATEMENTS

Note 18. Provisions

31 Jan 2013 31 Jan 2012 Provisions at 1 February 19.2 19.2 Provisions for the year 0.0 0.0 Provisions at 31 January 19.2 19.2

Provisions at 31 January 19.2 19.2

Expected maturity dates of the liabilities provided for: 0 - 1 year 0.0 0.0 1 - 5 year 19.2 19.2 Provisions at 31 January 19.2 19.2

Provisions relate to provisions for negative equity in a subsidiary.

Note 19. Operating leases

For the years 2013-2016, operating leases for the rental of operating equipment have been concluded. The leases have been concluded for a five-year period with fixed lease payments. The leases are non-terminable for the period mentioned, after which it is expected that the majority can be renewed for one year.

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

31 Jan 2013 31 Jan 2012 Within 1 year 0.3 0.3 Within 1-5 years 0.7 1.0 After 5 years 0.0 0.0 Total 1.0 1.3

Minimum lease payments for the year recognized in the income statement 0.3 0.2

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Note 20. Other debt

31 Jan 2013 31 Jan 2012 Employee-related payables 3.8 3.8 Holiday pay obligations 0.9 1.0 Other debt 0.1 1.0 Other debt, total 4.8 5.8

Broken down as follows under liabilities: Non-current liabilities (employee bonds) 1.5 3.8 Current liabilities 3.3 2.0 Other debt, total 4.8 5.8

The carrying amount of employee-related payables consisting of salaries, A-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 Compa- ny’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).

Note 21. Contingent assets and liabilities as well as security furnished

Contingent assets Contingent assets in the form of tax assets not recognized appear from note 13.

Contingent liabilities and security furnished

31 Jan 2013 31 Jan 2012 Surety and guarantee commitments on behalf of group enterprises 1,649.7 1,605.8 Surety and guarantee commitments on behalf of joint ventures 3.0 0.0 Other surety and guarantee commitments 7.6 7.6 Carrying amount of equity investments furnished as security to credit institutions 251.4 155.2

The below figures in brackets are comparative figures for 2011/12.

The amounts stated for surety and guarantee commitments on behalf of group enterprises are the upper limits. At 31 January 2013, the subsidiaries had drawn an amount of DKK 1,646.1 million (DKK 1,565.5 million) on their credit facilities.

In addition, the Company has guaranteed the liabilities of a few group enterprises in relation to construction contracts, and a few other project related contracts.

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Note 22. Financial risks and financial instruments

Categories of financial instruments 31 Jan 2013 31 Jan 2012 Receivables from group enterprises 1,159.1 1,151.8 Cash, cash equivalents and custody and escrow accounts 0.1 1.1 Loans and receivables 1,159.2 1,152.9

Securities 4.0 4.0 Financial assets available for sale 4.0 4.0

Credit institutions 153.0 151.1 Trade payables 0.6 0.5 Other debt 4.8 5.8 Financial liabilities measured at amortized cost 158.4 157.4

For a description of the Company’s capital management, risk management policy, foreign-exchange risks, interest-rate risks, liquidity risks and credit risks, please see note 35 in the consolidated financial statements.

Foreign-exchange risks relating to recognized assets and liabilities In the 2012/13 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.

Cash. cash 2012/13 equivalents Credit Unsecured and securities Receivables institutions net position EUR at 31 January 2013 0.1 212.3 -123.0 89.4 PLN at 31 January 2013 0.0 2.6 0.0 2.6 CZK at 31 January 2013 0.0 0.3 0.0 0.3

2011/12 EUR at 31 January 2012 0.9 215.0 -121.9 94.0 PLN at 31 January 2012 0.0 1.7 0.0 1.7 CZK at 31 January 2012 0.0 0.2 0.0 0.2

Sensitivity of profit/loss and equity to foreign-exchange fluctuations 2012/13 2011/12 Effect if the EUR rate were 10 % lower than the actual rate -6.7 -7.1

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.

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Note 22. Financial risks and financial instruments, continued

Interest-rate risks and the dates of revaluation or maturity regarding financial assets and liabilities:

Date of revaluation/maturity Effective rate 0 - 1 year 1 - 5 years > 5 years Total in % 2012/13 Securities 4.0 0.0 0.0 4.0 0 % Receivables from group enterprises 0.0 1,159.1 0.0 1,159.1 0 - 8 % Deposits with credit institutions 0.1 0.0 0.0 0.1 0.25 - 2 % Payables to credit institutions -153.0 0.0 0.0 -153.0 3 - 5 % Interest payments on loans -1.1 0.0 0.0 -1.1 Trade payables -0.6 0.0 0.0 -0.6 0 % Other debt -3.3 -1.5 0.0 -4.8 0 - 5% Total at 31 January 2013 -153.9 1,157.6 0.0 1,003.7

2011/12 Securities 4.0 0.0 0.0 4.0 0 % Receivables from group enterprises 0.0 1,151.8 0.0 1,151.8 0 - 8 % Deposits with credit institutions 1.1 0.0 0.0 1.1 0.25 - 2 % Payables to credit institutions -29.2 -121.9 0.0 -151.1 4 - 5 % Trade payables -0.5 0.0 0.0 -0.5 0 % Other debt -2.0 -3.8 0.0 -5.8 0 - 5 % Total at 31 January 2012 -26.6 1,026.1 0.0 999.5

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 1.1 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 2011/12 financial year, the interest-rate sensitivity in case of a change in the interest level of 1 % p.a. would have a DKK 1.1 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 Company’s liquidity reserve consists of cash and cash equivalents as well as unutilized credit facilities. Reference is also made to note 35 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.

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Note 23. Transactions with related parties

The Company has no related parties with a controlling interest. The Company has the following related parties: Supervisory Board and Executive Board (and their related parties) Associates, joint ventures and group enterprises; see the overview of group companies, note 39 in the consolidated financial statements.

2012/13 2011/12 Supervisory Board and Executive Board (and their related parties) Holding of shares, in terms of number 1,940.251 1,355.435 Obligation towards Executive Board, employee bonds 1.5 1.5 Remuneration, Supervisory Board 1.8 2.1 Remuneration, Executive Board, see note 5 6.2 8.4

Joint ventures and group enterprises Management fee to group enterprises 1.0 1.1 Interest income from group enterprises 62.1 54.8 Receivables from group enterprises 1,159.1 1,151.8 Impairment for the year of investments in group enterprises -410.0 0.0 Total impairment of investments in group enterprises 870.2 460.2 Costs allocated to group enterprises according to service agreements concluded 6.5 7.9 Guarantee commission to group enterprises 2.0 1.1 Dividends from subsidiaries 73.9 73.9 Capital increase in group enterprises 95.7 0.0

Surety and other security furnished for subsidiaries appear from note 21. Suretyships and guarantees have been issued on behalf of joint ventures and associates; see note 34 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. The impairment made to provide for any probable losses on investments in group enterprises amounted to DKK 410.0 million in 2012/13 (2011/12: DKK 0.0 million).

Apart from the above, there were no transactions with related parties in the year under review.

Note 24. Post-balance sheet events

Reference is made to note 37 in the consolidated financial statements.

Note 25. Approval of Annual Report for publication

Reference is made to note 38 in the consolidated financial statements.

126 /127 | Tk Development A/S | Annual report 2012/13 | Parent company financial statements Company information

TK Development A/S

The Annual General Meeting will be held at 3 p.m. on 22 may CVR no. 2013 at Aalborg Kongres & Kultur Center, Radiosalen, Europa 24256782 Plads 4, DK-9000 Aalborg.

ISIN Code: DK0010258995 (TKDV)

Municipality of registered office: Aalborg, Danmark

Website: www.tk-development.dk e-mail: [email protected]

Executive Board: Frede Clausen og Robert Andersen

Supervisory Board: Niels Roth, Torsten Erik Rasmussen, Per Søndergaard Pedersen, Jesper Jarlbæk, Jens Erik Christensen and Peter Thorsen. Helsinki Uudenmaankatu 7, 4. FIN-00 120 Helsinki T: (+358) 103 213 110

Aalborg Vestre Havnepromenade 7 Stockholm DK-9000 Aalborg Gamla Brogatan 36-38 T: (+45) 8896 1010 S-101 27 Stockholm T: (+46) 8 751 37 30

Copenhagen Vilnius Islands Brygge 43 Gynėjų str. 16 DK-2300 Copenhagen S LT-01109 Vilnius T: (+45) 3336 0170 T: (+370) 5231 2222

Berlin Warsaw Ahornstraße 16 ul. Mszczonowska 2 D-14163 Berlin PL-02-337 Warsaw T: (+49) 30 802 10 21 T: (+48) 22 572 2910

Prague Karolinská 650/1 CZ-186 00 Prague 8 T: (+420) 2 8401 1010

Company information | Annual report 2012/13 | Tk Development A/S | 127 /127