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Share price: volatile times

Trend of share

Deutsche EuroShop shares began the year at a price of €24.30. Just a few days later, on 6 January, they reached an annual high of €26.00 on the basis of the Xetra closing price. The price of our shares then followed a downward trend, in line with the global stock markets, posting a low of €18.66 on 6 March 2009, exactly two months after the annual high. A steady recovery then began, which was only interrupted briefly by the distribution of the dividend. Our shares therefore managed to recover from their low by 27%, closing the year at €23.67. Deutsche EuroShop’s market capitalisation increased by around €60 million in 2009 from €835 million to €895 million mainly as a result of the capital increase that took place in July.

STOCK-MARKET PERFORMANCE 2009 2008
DAX +23.8% -40.4%
MDAX +34.0% -43.2%
TecDAX +60.8% -47.8%
EURO STOXX 50 (Europe) +21.0% -44.3%
Dow Jones (USA) +18.8% -33.8%
Nikkei (Japan) +19.0% -42.1%

Last year’s losers come out on top in 2009

Taking into account the dividend paid of €1.05 per share, the performance of Deutsche EuroShop shares amounted to 2.1% year-on-year (2008: +7.9 %). The share price fell by 2.6%. In 2009 our shares were outperformed by the European benchmark, the EPRA index (+35.1%, previous year: -48.6%), and European peers* by a substantial margin – precisely the opposite of what happened last year.

German open-ended property funds – our competitors for investor capital alongside other property management companies – achieved an average performance of 2.5% in the past year (2008: 4.7%) and had cash inflows of around €3.2 billion (2008: €0.6 billion).

* Corio, Eurocommercial Properties, Klepierre, Liberty International, Mercialys and Unibail-Rodamco

Stable attendance at Annual General Meeting

Trend of share (indexed)

The Annual General Meeting was held on 30 June 2009 in Hamburg. Approximately 300 shareholders were in attendance at the “Alte Dressurhalle” at the Hagenbeck Zoo in Hamburg, representing 56.5% of the capital(previous year: 56.1%), and approved all the items on the agenda.

Successful capital increases in July 2009 and January 2010

On 7 July 2009 we further improved the Company’s equity base by means of a capital increase, raising its share capital to €37,812,496. The 3,437,498 new shares were subscribed by institutional investors at a price of €19.50 per share via an accelerated bookbuilding process. This issue was oversubscribed roughly three times. Our Company’s gross proceeds from this capital increase were approximately €67 million.

At the beginning of January 2010 Deutsche EuroShop acquired the A10 Center in Wildau near Berlin. To refinance the equity portion of the investment amounting to €115 million, in January 2010 we carried out a rights issue with a one-for-six subscription ratio. The new shares were acquired in full by existing shareholders through the exercising of their subscription right and an oversubscription right granted by the Company. A total of 6,302,082 new shares were issued at a subscription price of €19.50 per share, raising around €123 million for Deutsche EuroShop. Investors expressed a willingness to acquire shares with a total value of more than €600 million, meaning that the issue was oversubscribed five times.

DEUTSCHE EUROSHOP SHARES-KEYFIGURES WKN / ISIN 748 020 / DE 000 748 020 4
Ticker-Symbol DEQ
Share capital in € 44,114,578.00
Number of share (non-par value registered shares) 44,114,578
Logo <span lang=Deutsche B\xF6rse" />
Logo MDAX
Indices MDAX, EPRA, GPR 250, HDAX, DAX International Mid 100, MSCI Small Cap, Dow Jones EURO STOXX TMI, EPIX 30, HASPAX
Official market Prime Standard
Frankfurt Stock Exchange and Xetra
OTC markets Berlin-Bremen, Dusseldorf, Hamburg, Hanover, Munich and Stuttgart

Rights issue without publication of a sales prospectus

by Dr Benedikt Gillessen

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In January 2010 Deutsche EuroShop carried out a rights issue without the publication of a sales prospectus. The transaction model was based on a combination of two exemptions from the obligation that applies in principle, in accordance with the Wertpapierprospektgesetz (WpPG – German Securities Prospectus Act), to public offerings of securities and their subsequent admission for stock-exchange trading in the regulated market, requiring issuers to draw up a sales prospectus and have it approved by the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin – German Federal Financial Supervisory Authority): firstly, on the basis of BaFin’s administrative practice over many years, offers to subscribe that are addressed exclusively to existing shareholders and for which the company does not organise any stock-market trading of subscription rights are not regarded in Germany as a “public” offering and consequently as an offering for which a sales prospectus must be issued. Secondly, the Frankfurt Stock Exchange interprets section 4 (2) (7) WpPG in such a way, for the benefit of issuers, that shares, including those from rights issues, can be admitted for stock-exchange trading without a sales prospectus. BaFin and Germany’s stock-exchange supervisory authorities share this interpretation. Although this transaction model has been discussed between market participants on a number of occasions in the past, to date it has only been implemented in a small number of cases.

What are the advantages of this transaction model? As a sales prospectus is required to inform investors in detail about, in particular, the offer, the issuer, its business activities and the risks associated with an investment in the shares, it has to be drawn up carefully by lawyers with capital-market experience and with the assistance of investment banks, auditors and, if necessary, other experts and is extremely time-consuming and, therefore, cost-intensive to produce. Due to the period of four to five months typically required to draw up a sales prospectus, placements for which a sales prospectus is required are also not a suitable way to take advantage of a temporarily favourable capital-market climate in the short term. In the past this was reserved for capital increases (with a volume restricted to less than 10% of the share capital already admitted) that excluded the subscription rights of existing shareholders.

A number of restrictions also apply to the transaction model, however, which – in addition to other legal aspects – include the following: shares that are not subscribed for within the framework of the offer to subscribe may only be placed with existing shareholders; the otherwise usual step of allowing new investors to participate via a so-called rump placement is not possible. In addition, investment banks that are assisting with the capital increase can only monitor demand for the company’s shares to a limited extent before the expiry of the subscription period and consequently can also only intervene to a limited extent in a controlling capacity (e.g. by addressing major shareholders in a targeted way). If no major shareholder has undertaken in advance to acquire any shares that are not subscribed for, this essentially means that there is uncertainty about the amount of the issue proceeds that can be realised and, consequently, about the success of the transaction. Under certain circumstances the company may not only realise lower issue proceeds than it had planned, but it may also attract the negative publicity associated with a failed placement.

Due to the lack of a sales prospectus, the company and the banks assisting it also have only very limited options when it comes to emphasising the strengths of the issuer – and, conversely, can only shed limited light on risks. This transaction model is therefore only suitable for issuers that follow a simple and easily comprehensible business model, generally have a high level of transparency and about which there is also no lack of information on the market at the time of the transaction.

On the basis of the currently valid version of the EU Prospectus Directive, the transaction model of a rights issue with no sales prospectus or volume restriction can currently only be applied in Germany and Austria. This situation could soon change, however: the current discussions concerning the revision of the EU Prospectus Directive (at present planned to take place in the summer of 2010) could either result in rights issues being permitted throughout Europe without a sales prospectus or no longer being possible in Germany either. This form of transaction will, however, remain possible for the coming months at least.

IR work once again “award-winning”

Logo Capital

In June, for the fourth time in a row, Deutsche EuroShop received the Capital Investor Relations Prize for first place in the MDAX category for its investor relations activities. No other company in the competition has achieved such a run of success. Each year the financial magazine Capital awards this prestigious prize for the best communication with the financial markets, judging companies on their target group focus, transparency, track record and extra financial reporting.

www.capital.de

Logo B.I.R.D.

Deutsche EuroShop came third in “BIRD 2009” (Beste Investor Relations Deutschland – Germany’s Best Investor Relations), having previously finished top for three years in succession. For the seventh time the investor magazine Börse Online honoured those companies whose capital market communication is regarded as particularly open, honest and fair by private investors. In the overall evaluation of 160 companies from the DAX, the MDAX, the SDAX and the TecDAX, our investor relations earned us fourth place.

http://www.boerse-online.de

Logo Vision Awards Logo LACP Award

The 2008 annual report with its motto “The Third Place” achieved 33rd position out of over 3,000 entries in the “LACP 2009 Vision Awards Annual Competition”. The LACP is the League of American Communications Professionals. With 98 out of a possible 100 points, the Deutsche EuroShop annual report was awarded platinum in the “Real Estate/REIT” category.

www.lacp.com

Share performance and market capitalisation since the ipo
Logo Institutional Investors Logo IR

In addition, the international specialist magazine Institutional Investor awarded Deutsche EuroShop and its IR managers first prizes in three categories for “Best European Investor Relations”. We also again received the “Deutscher Investor Relations Preis 2009” in the MDAX and IR Managers categories, as awarded by DIRK (Deutscher Investor Relations Verband – German Investor Relations Association).

www.iimagazine.com
www.dirk.org

Logo ExtelSurveys

In the pan-European “Extel Survey”, we are pleased to announce that the capital market team was consistently placed among the top ten in the industry in the relevant categories.

www.extelsurveys.com

Further awards for our capital market communication can be found on our website at:

http://www.deutsche-euroshop.de/irkommunikation

Share price under the spotlight

Our shares are now regularly followed by 29 analysts (as at 16 March 2010, compared with 24 a year earlier) from well-known German and international financial institutions and their recommendations introduce us to new groups of investors. This puts Deutsche EuroShop among those property companies in Europe with the best coverage, and it also does not need to shy away from comparison within the MDAX (average of 23 analysts). Particularly good news is that other financial institutions intend to begin covering Deutsche EuroShop shares in 2010. Information on the recommendations is available at: www.deutsche-euroshop.com/research.

Recommendations: Negativ 0, Neutral 12, Positive 17

The majority of analysts give positive recommendations for Deutsche EuroShop shares (as at 16 March 2010).

* Aurel, Bankhaus Lampe, Bank of America Merrill Lynch, Berenberg Bank, CA Cheuvreux, Close Brothers Seydler, Commerzbank, Credit Suisse, Deutsche Bank, DZ Bank, equinet, GBC Investment Research, GSC Research, Hamburger Sparkasse, HSBC, HSH Nordbank, Kempen & Co., Kepler Capital Markets, Macquarie, Metzler, M.M. Warburg & Co, Petercam Bank, Rabobank, Sal. Oppenheim, Silvia Quandt Bank, Societe Generale, UBS, Unicredit and WestLB.

Slight shifts in the shareholder st st ruct ure

Shareholder‘s structure

In 2009 the number of shareholders rose significantly to around 9,450 (as at 16 March 2010, previous year: 7,800, +21%). The structural distribution has shifted slightly towards private investors: institutional investors hold around 53% (previous year: 56%) of the shares and private investors around 29% (previous year: 25%). The Otto family’s stake is 18%. South-Africa-based Attfund Ltd. reports that it currently holds a stake of almost 5%.

Shareholder‘s structure regional

The share of foreign investors has risen by one percentage point. Slight shifts can be seen in the country distribution, particularly with regard to the shares of US and Belgian investors, which have risen markedly (by 1.5 and 1.1 percentage points respectively).

Dividend continuity

Dividend

The Executive and Supervisory Boards will once again propose payment of a dividend of €1.05 per share for the 2009 financial year to the Annual General Meeting of 17 June 2010 in Hamburg. As two capital increases have taken place since the last dividend payment, the absolute amount of the dividend is rising from €36.1 million to €46.3 million (+28%). With our long-term strategy of a dividend policy based on continuity, and a comparatively high yield of 4.4% (based on the 2009 year-end closing price of €23.67), we hope to cement further the confidence of our existing shareholders and attract new investors. In future, we also intend to distribute a dividend of at least €1.05 per share.

Tax-free Dividend

Dividends paid to shareholders domiciled in Germany are generally subject to income or corporation tax. Private investors are charged with the definitive withholding tax at a flat rate of 25% plus the solidarity surcharge as from 2009. Exceptions may be made under certain circumstances for dividend payments that are regarded as equity repayments for tax purposes (distributions from EK04 – equity class 04 – or, since 2001, from the tax-recognised contribution account). Deutsche EuroShop’s dividend fulfils this requirement. The dividend payment constitutes untaxable (i.e. tax-free) income for shareholders in accordance with section 20 (1) clause 1 sentence 3 of the Einkommensteuergesetz (German Income Tax Act).

However since 2009 these distributions are taxable due to the new legal status, as capital gains from securities are subject to tax if they are bought after 31 December 2008. In this case the acquisition costs are reduced by the dividends and lead to higher capital gains at the time of the disposal.

Would you like further informations?
Then please visit our website or call us:

Patrick Kiss and Nicolas Lissner
Tel.: +49 (0)40 - 41 35 79 20 / -22
Fax: +49 (0)40 - 41 35 79 29
E-Mail: ir@deutsche-euroshop.de
Web: www.deutsche-euroshop.de/ir

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