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DES - Online Annual Report 2009


An overview

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In January last year we increased our share in City-Point Kassel from 50% to 90%. We were also able to lay the foundations for our expansions of the Altmarkt-Galerie in Dresden and the Main-Taunus-Zentrum in Sulzbach near Frankfurt. The A10 Center in Wildau near Berlin became the 17th shopping center in our portfolio in January 2010.

Taking into account the expansions, which will open in 2011, our 13 shopping centers in Germany, two in Poland and one each in Austria and Hungary offer a total of around 2,075 shops in a leasable space of more than 804,000 m². With 83% the focus of our investments clearly lies in Germany. Even in times such as these, which are certainly not always easy for the retail sector, our occupancy rate – at over 99% – remains at the consistently high level of previous years.

Individual personalities

There is one particular criterion that links all our 17 shopping centers to a certain extent: the prime location. We concentrate on city centres – the majority of our centers are situated directly adjacent to pedestrian zones – as well as on established out-of-town locations. These are properties which, over many years, have acquired a reputation of offering an attractive alternative to shopping in the surrounding urban centres.

Perfect transport connections are one of the success factors here: our inner-city centers are mostly located in close proximity to local public-transport hubs, such as central bus stations. Affordable parking spaces also ensure good accessibility by car. Our out-of-town locations are situated directly next to major motorways and offer visitors completely free parking.

  Germany Abroad Total
* including new development (Wildau) and expansions (Sulzbach and Dresden)
** including office space
Leasable space in m²* 660,800 143,400 804,200
No. of shops* 1,485 550 2,035
Occupancy rate** 99% 99% 99%
Inhabitants in catchment area in millions 10.95 3.2 14.15
No. of centers 13 4 17

Each of our 17 centers is, however, unique. At each shopping center the tenant structure has been hand-picked and specifically complements the offering of the city centre in question. This also clearly illustrates that our properties do not in any way see themselves as being in competition with local retailers. Each center therefore participates actively in the marketing of its respective city with the aim of promoting and strengthening the retail location as a whole.

We pay particular attention to the architecture of our centers and they are all specifically designed to meet the demands of the location in question. This means tailoring the architecture individually and, in so doing, fully satisfying all the requirements relating to functionality. We have worked together in the past with well-known architecture firms on the development of our new properties.

The high demands we place on quality – which goes for every one of our centers – also apply to the interior: our aim is to achieve an impression of quality and a simple, timeless architecture that makes use of fine materials to make our visitors’ shopping experience a pleasant one. Combine this with innovative lighting as well as strategically placed accents, such as sophisticated water features, and a flawless climate control system and our shopping centers become places where visitors feel good and to which they are always happy to return.

Visitors of all ages should feel that they are in good hands here. Wide malls, escalators and lifts ensure that every shop in the center can be reached without much effort, even with children’s pushchairs or wheelchairs. For our youngest visitors play areas have been installed in some centers, offering a welcome diversion during a shopping trip. Massage chairs are available for customers to use in the mall for a small fee and invite visitors to relax.

Active environmental awareness

A particular matter of concern for us is environmental protection. Almost all our German shopping centers are supplied with certified green energy and our aim for the future is for all the properties in our portfolio, in Germany and abroad, to be supplied with this renewable energy. The plan is not only for CO2 emissions, but energy consumption as a whole, to be steadily reduced, with heat exchangers making a significant contribution to this as well as ultramodern and efficient lighting systems. In order to achieve this objective, we are conducting a dialogue with our tenants, together with whom we aim to reduce the energy consumed in the individual shops.

Flexibility as a driving force for the future

We are observing a growing demand in the retail sector for larger retail spaces. These bigger areas allow shops to offer their customers a greater diversity of products. The way that perfumeries and bookshops have developed over the past few years can be taken as an example. Besides the product itself, the experience around making a purchase is coming increasingly to the fore: offers, for example, where the customer can have make-up applied professionally in the shop or small cafés that are integrated into bookshops in which customers can take a look at the books on offer at their leisure.

Particularly in comparison with individual business premises in city centres, our shopping centers offer the advantage that they can provide traders with precisely the spaces that they need. By shifting the internal walls, it is, in principle, possible to adapt the retail space to the new requirements of our tenants over the course of time without much additional expense. Reducing the space is also a possibility and this can simultaneously create the opportunity for an additional new shop to be integrated into the center, for example.

This flexibility is very much in demand amongst our tenants. For many of them, this is the decisive factor for entering the market in a city that otherwise, due to its property structure in the premier locations, e.g. in a pedestrian zone characterised by mediaeval architecture, is unable to offer any suitable spaces at all. The whole of the retail sector in the city centre can therefore benefit through this addition to the city’s offering.

Valuable locations

Altogether, almost 14 million people live in the catchment areas around our centers. Just under 11 million of these people live in the vicinity of our German shopping centers alone.

These individual catchment areas are a key criterion for us when it comes to selecting our locations. They are ascertained individually for each property and illustrate the number of potential visitors to the location in question. One of the considerations taken into account here is what journey times customers would be willing to accept and whether this appears realistic in view of the competitive situation.

In rural regions, our customers will accept a journey of up to 45 minutes or more in order to enjoy the wide selection of goods that the center has to offer. Customer surveys, which are conducted regularly in all our shopping centers, emphasise our particular expertise in the area of fashion time and again. Experience shows that customers are prepared to travel a long distance for this range of products.

Our top 10 tenants

The ten largest tenants

With a share of 4.6% each in our overall rental volume, the Metro Group and the Douglas Group are our biggest tenants. The Metro Group is one of the most important international retailers and is represented in a large number of our centers by its selling brands Media Markt and Saturn (consumer electronics), Real-SB-Warenhaus and Kaufhof-Warenhaus. The Douglas Group, a decentralised retail organisation with a strong family tradition, is a tenant of our centers with its divisions Douglas perfumeries, Thalia bookshops, Christ jewellery shops, AppelrathCüpper fashion stores and Hussel confectioners.

In total our top 10 tenants are responsible for less than a quarter of our rental income. This clearly demonstrates that there are absolutely no dependencies on individual tenants and also shows the broad diversification of our rental agreement portfolio.

Long-term rental agreements

Long-term rental agreements

The rental agreements that we sign with our tenants usually have a standard term of ten years. As at 31 December 2009 the weighted residual term of the rental agreements in our portfolio was 6.7 years, with 62.7% of our rental agreements being secured until at least 2015.

External center management

Our partner ECE Projektmanagement has been commissioned to manage our 17 shopping centers. In addition, ECE will implement the expansions of the Main-Taunus-Zentrum and the Altmarkt-Galerie, as well as the development of the Triangle at the A10 Center on our behalf.

ECE has been developing, planning, implementing, renting out and managing shopping centers since 1965. With 114 facilities currently under its management, the company is Europe’s leader for shopping centers.

Deutsche EuroShop benefits from this experience both inside Germany and abroad. Thanks to our streamlined structure, we are therefore able to focus on our core business and competence, portfolio management.

Optimum mix of tenants

Regional tenant mix

A fundamental success factor for a shopping center is finding the right combination of shops. This is therefore also one of the core tasks of center management. The specific mix of tenants and sectors is tailored perfectly in each case to the location in question and is the result of a precise analysis of the local retail offerings.

The particular wishes and needs of customers are also taken into account here. This means that retailers from sectors which, on account of the constantly rising rents in prime locations, can scarcely be found any more in pedestrian zones are also actively introduced into our centers. Examples of this include specialist shops for glass, porcelain and ceramics, as well as toy shops.

For us as long-term investors, the first commandment when it comes to renting retail space is permanent rent optimisation rather than short-term maximisation. It is a question here of offering the visitors to the shopping center an attractive mix of retailers. Each shop space is rented out on a long-term basis in accordance with a special system. When calculating the rents it is not about maximising earnings for us as the landlord, but instead about ensuring that each shop owner pays a rent per m² that is appropriate for the sales potential of the relevant sector and the position of the shop within the center.

The intention is that all sides will benefit from this system: us as the landlord, by building a future-oriented and trusting relationship with our tenants; our tenants, all of whom will benefit from the high volume of visitors achieved; and finally, of course, the customers, who can expect a very wide range of retailers in our centers, from young fashion and pharmacies through to health and beauty retailers and services such as post office branches and dry cleaner’s. Nourishment and refreshment whilst shopping are also provided for, with cafés, fast-food restaurants and ice-cream parlours inviting visitors to stop and take a break.

Retail mix

Retail mix

The individual retail mix provides each of our shopping centers with a character all of its own. While chain stores dominate the main shopping streets in Germany, occupying over 90% of the retail space in some cases according to studies, in our centers we make sure that there is a healthy mixture of regional and local traders, as well as national and international chain stores.

Prestigious tenants

Our tenants are a decisive success factor. They include: Aldi, Bench, Bijou Brigitte, Breuninger, Burger King, C&A, Commerzbank, dm-drogerie markt, Deutsche Post, Deutsche Telekom, Douglas, Esprit, Fielmann, Gerry Weber, Görtz, H&M, Jack&Jones, Media Markt, Marc O’Polo, New Yorker, Nordsee, Peek & Cloppenburg, REWE, Saturn, s.Oliver, Subway, Thalia, Timberland, Tom Tailor, Tommy Hilfiger, Vero Moda, WMF and Zara.

Shopping experience

When visiting our centers, our customers can rely on standard opening hours. This represents a distinct advantage over the traditional city centre where each individual retailer decides for itself when it will open. At our centers this means that no one will be disappointed to find the shops closed on a Saturday afternoon, for example: whether it’s an optician’s or a travel agency, the offering of every tenant will be available for the center’s full opening hours.

Every one of our tenants automatically becomes a member of the marketing association of the center in question when their rental agreement comes into force. In a committee, this association develops marketing campaigns which are coordinated and organised together with the center management. These take the form of exhibitions and events on different themes. Examples may include anniversary events for the center, job fairs for Germany’s employment agency, scientific exhibitions or fashion shows at which the tenants of the center present the trends for the coming season, not to mention the lavish decorations for the Easter and Christmas period, which represent a highlight for visitors each year.

The main tasks of the marketing association include coordinating a coherent advertising presence for the center as a whole and editing a center newsletter, which is distributed on a regular basis as an insert in regional daily newspapers in the catchment area, as well as placing radio ads and illuminated advertising posters. The marketing associations are given professional support in these tasks by advertising agencies.

Investment guidelines

Deutsche EuroShop’s key investment guidelines can be summarised as follows:

  • Deutsche EuroShop invests exclusively in shopping centers
  • The minimum property size is 15,000 m² of which no more than 15% may be office space or other non-commercial usage.
  • The locations must feature a catchment area of at least 300,000 inhabitants.
  • Shopping center projects are only purchased when an executable construction authorization can be produced and 40% of the leasable space is secured by long-term legally binding lease contracts.
  • Project developments without the right to build or that cannot facilitate pre-letting can be taken over as a joint venture. Project development costs may not exceed 5% in individual cases or 10% in total of the Deutsche EuroShop equity.
  • The main country of investment is Germany. In the long-term, investments in the rest of Europe may not exceed 25% of the total investment volume.

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