TK Development has conditionally sold its 50 % stake in the Field’s project in Copenhagen to its partner, Steen & Strøm, the owner of the remaining 50 % of the project.
The sale replaces the sales agreement previously made between TK Development and Commerz Grundbesitz Investmentgesellschaft mbH (CGI) regarding phase 1 of the Field’s project, which comprises the completed shopping centre.
The sale to CGI was subject to a number of conditions being met, including the conclusion of a shareholders’ agreement, etc. between the future owners of the shopping centre. It has not been possible to establish sufficient accord between the parties regarding their future interaction.
The parties have now entered into an agreement to the effect that the Steen & Strøm Group will buy TK Development’s stake in the entire Field’s project. In addition to the shopping centre section, this includes about 40,000 sq.m. development rights for phase 2 of the Field’s project and the right to implement a possible phase 3 of the same project.
As in the previous agreement with CGI, the sales structure involves a pricing of phase 1 according to which TK Development will be paid an amount on account and the final price will be fixed primarily on the basis of the development in shopping centre revenue during the year preceding the date of final payment, 1 March 2007.
Unlike in the sales agreement made with CGI, the value of the parking section in the centre has been finally negotiated with Steen & Strøm. In the agreement with CGI, this element had been capitalized on the basis of a net rent, the value of which TK Development was to guarantee for the next 15 years. A commercial reduction has been made in respect of this element, which, combined with costs relating to the change of contracting party, totals about DKK 75 million. This writedown of the cost of the centre will be made now. At the same time, the sales structure is considered to result in fewer commercial risks in future than the agreement with CGI.
Phases 2 and 3 have been sold at book value, with payment to be effected in step with the implementation of the projects. Steen & Strøm and TK Development will also enter into an agreement regarding their joint development of phases 2 and 3, under which Steen & Strøm, as the owner, will assume the investment and financing risks and TK Development will receive a profit share to be paid in step with completion.
The transfer will take place on 1 December 2004 for all three phases, and the sale is subject to a final financing commitment, expected to be received on 17 December 2004, such that the deal can be completed on 20 December 2004. The preliminary valuation of the Field’s project less withholding payments means that TK Development will receive an amount of DKK 1.1 billion on 20 December 2004, a sum that will be used to reduce the Group’s bank debt.
In stock exchange announcement no. 16/2004, the Group stated that the sale of its stake in the shopping centre could generate a price increase of about DKK 50 million relative to the booked cost price, and that there was also a risk of a price decrease, which Management assessed could be about DKK 150 million below the cost price.
With the agreement concluded and the resulting writedown of DKK 75 million, Management estimates that there is a risk that the final price payable at 1 March 2007 may be up to DKK 100 million lower than the new valuation.
TK Development still anticipates a result of about DKK 0 after tax for the 2004/05 financial year. After making due allowance for the writedown of its stake in the Field’s project, the Group has made this profit estimate in the expectation that its other markets will contribute higher profits than previously assumed, particularly in Central Europe, where projects are expected to be sold before the end of the financial year.
Source: TK Development