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DES - Online Annual Report 2009

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Economic conditions in the industry

Retail sector

According to provisional figures from the Federal Statistical Office, German retail sales fell by 2.4% in nominal terms in 2009 while declining by 1.8% in real terms (after adjustment for prices). At €392.1 billion, sales in the retail sector in the narrower sense (excluding vehicle sales, service stations, fuels and pharmacies) were slightly down (-1.6%) on the previous year (€398.6 billion). In terms of revenue growth, therefore, the retail sector was unable to completely avoid the crisis sentiment in 2009 but was not affected as heavily as other industries.

Breaking the retail sector down into individual segments, it is evident that, compared to the previous year, food retailers (-1.6% in real terms) fared better than the non-food segment (-1.9% in real terms). One reason for this is undoubtedly the sharp fall in prices for food and luxury foodstuffs. On the non-food side, only “cosmetic, pharmaceutical and medical products” posted positive growth (+1.2% in real terms), while “textiles, clothing, footwear and leather goods” (-2.1% in real terms), “furnishings, household appliances and building materials” (-0.7% in real terms), “other retail (such as books and jewellery)” (-2.0% in real terms) and “other retail involving goods of various types (such as department stores)” (-6.7% in real terms) all recorded a fall in revenue. The sharpest drop in revenue was experienced in online and mail order business, which were down 5.6% in real terms.

According to the EHI Retail Institute, shopping centers continued to be one of the most popular shopping outlets among the German public. 14 new centers, mostly in inner cities, were opened in Germany in 2009. This resulted in an increase of 474,000 m² in retail space, meaning that as of the reporting date of 1 January 2010 there were a total of 428 centers (10,000 m² of rental space and above) in Germany spanning a total area of over 13.5 million m².

According to a survey by Kemper’s Jones Lang LaSalle, a consultancy firm specialising in retail property, the highest proportion of floor space in leases in 2009 was attributable to textile retail (over 50%), catering/food (10%, incl. fast-food chains, coffee houses, bakeries, food stores and confectionery shops), footwear/leather goods (7%) and the increasingly important sports/outdoor segment (6%). Other important sectors in prime locations were opticians, hairdressers, chemists and perfumeries in the health/beauty segment (5%).

Retail spaces in the 100 m² to 250 m² size category were the most sought after (approx. 40%), as in previous years. The 250 m² to 500 m² size category came in second at almost 20%. Larger spaces were also in demand: every tenth lease was for over 1,000 m².

Real estate market

According to a survey by Jones Lang LaSalle, the transaction volume for investments in retail property on the European continent (shopping centers, retail parks and factory outlets; excluding the UK and Ireland) fell again to €7.3 billion in 2009, a decline of 40% compared with the previous year (€12.4 billion, which was already 56% down on the year before). One significant reason for this development is certainly the ongoing wait-and-see attitude of investors, who are having to accept less favourable financing terms owing to the global financial crisis.

With a 66% (2008: 55%) share of the transaction volume, shopping centers remained the focus of investors in mainland Europe in 2009 as they continued to seek defensive investment opportunities. They prefer stable market segments and favour prime locations, secure, long-term leases and high-quality tenants.

The German market maintained its leading position with respect to retail property investments in continental Europe. At €1.5 billion, the volume in Germany represented a share of 21% (2008: 20%).

The yields from retail property increased further over the course of the year. Nevertheless, the lower number of transactions made pricing in line with market rates more difficult. In addition, in individual cases investors were prepared to continue to pay high prices and thus to accept lower yields. At the end of 2009, the yield for German shopping centers in prime locations, according to the real estate services company CB Richard Ellis, was stable in comparison to the previous year at 5.75%, albeit on a downward trend.

Share price performance

Deutsche EuroShop shares began 2009 with a price of €24.30. Just a few days later, on 6 January, they reached their high for the year of €26.00 on the basis of the Xetra closing price. After that the share price fell in line with the international capital markets until 6 March 2009, when it posted its lowest price of €18.66, precisely two months after the year’s high. A continuous recovery process then began, which was only interrupted temporarily by the dividend distribution. The shares recovered by 27% from the low, but still closed the year on a slightly negative note at a price of €23.67 (-2.6%, not taking the dividend into account).

Evaluation of the financial year

The Executive Board of Deutsche EuroShop is satisfied with the past financial year. Thanks to the good development of the business, we again lived up to our forecasts. The centers in Hameln and Passau, which opened in 2008, played a significant role and contributed to earnings over the entire year for the first time, as did City-Point Kassel, which was fully consolidated for the first time following the increase in our stake.

Revenue was planned at between €125 million and €128 million and totalled €127.6 million (2008: €115.3 million) as of the reporting date, corresponding to an increase of just under 11%. Earnings before interest and taxes (EBIT) of between €105 million and €108 million were planned; ultimately these increased by almost 13%, amounting to €110.7 million (2008: €98.1 million). We expected earnings before taxes (EBT) excluding measurement gains/losses of between €50 million and €52 million. They rose by 13%, totalling €54.9 million (2008: €48.7 million).

Just as in the previous year, we exceeded our earnings forecast. Deutsche EuroShop has proven once again that it has an outstanding shopping center portfolio and is well positioned, even in these difficult times for the economy and the real estate markets.

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