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DES - Online Annual Report 2009



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Despite the continuing turbulence on the international capital markets and the major reduction in economic output, there are no indications that the Deutsche EuroShop Group’s economic situation will be significantly impaired in 2010. While all the figures available so far do point to a downturn in buying patterns, the slump in consumer spending feared by many experts has yet to materialise. The extremely robust labour market has undoubtedly helped in this regard. If the economic environment continues to deteriorate over the course of the year, however, it cannot be ruled out that retailers in our shopping centers may also experience financial difficulties and may no longer be able to fulfil the obligations under their leases or may not be able to fulfil them in full. Overall, however, we assume that the Deutsche EuroShop Group would only incur comparatively moderate losses in such a case.

Centers still almost fully let

Our shopping centers are almost fully let. At the end of the year, the occupancy rate stood at 99.9% for retail space and 99.3% for all space types. Some of the leases due to expire in 2010 (around 3% of rental income) have already been extended or new tenants have been found. Outstanding rents and necessary valuation allowances remain at a low level. We see no sign of a significant change in this satisfactory situation.

Transaction market picks up again

The transaction market for shopping centers contracted sharply last year. However, it has been evident since the end of the year that there will be an increasing number of shopping centers offered for sale in 2010, meaning that a much greater transaction volume can be expected this year. On the demand side we are in competition with open-ended property funds, which have high equity, and with insurance companies. But even foreign investors with a background in private equity are already looking at the market again. It remains to be seen, however, whether investors with high external financing needs are yet capable of once again surviving in competition, since an acquirer’s financial strength and credit standing are now hugely important. With the acquisition and financing of the A10 center we have shown that we are a reliable partner with the ability to realise even larger transactions quickly and expertly. We are therefore confident that we will be able to invest in at least one other shopping center during the current financial year.

A10 center

The acquisition of the A10 center at the start of January 2010 marked our first purchase of a new shopping center for three years. The A10 center has 120 rental areas and by spring 2011 will have been expanded to include another 60, giving 120,000 m² of leasable space. The existing center will also be partially restructured and modernised. We will invest around €265 million in the acquisition and the expansion and modernisation measures. Of this amount, €150 million will come from a long-term bank loan. The equity of €115 million was raised through a capital increase conducted via a subscription rights offering in February 2010.

Altmarkt-Galerie Dresden

Expansion of the Altmarkt-Galerie in Dresden began in summer 2009. By spring 2011, the Altmarkt-Galerie will have some 32,500 m² of additional rental space. Of this, approximately 24,300 m² will be allocated to retailers, service providers and service areas, around 2,900 m² to office space and some 5,300 m² to a hotel. At present, around 70% of the planned income from tenants has already been hedged through long-term leases. The total investment volume amounts to some €165 million, of which €82.5 million is attributable to Deutsche EuroShop. Around 46% of the investment is being financed via a long-term bank loan that has already been secured, with 54% financed through equity. Deutsche EuroShop plans to invest a total of €47.3 million for this measure in this financial year and the next. We expect this investment to deliver an initial net yield, after completion, of 5.6% p.a.


Work on expanding the Main-Taunus-Zentrum finally began in October 2010 following a lengthy legal dispute with the neighbouring municipality. The center is to be expanded by late autumn next year to include some 14,000 m² of additional space for retailers, service providers and service areas. There are already long-term leases in place for over 30% of the planned income from tenants. At the present time, the investment volume amounts to around €72 million, of which 43.1% is attributable to Deutsche EuroShop. €61 million of this investment is being financed via a long-term bank loan that has already been secured, and €11 million through equity. Further investment of €28.6 million is planned by Deutsche EuroShop in 2010 and 2011 for the ongoing expansion of the Main-Taunus-Zentrum. Following completion in late autumn 2011, we expect the expansion to generate an initial net yield of 8.9% p.a.

Agreed transactions are the foundation for revenue and earnings planning

The Deutsche EuroShop Group’s revenue and earnings planning for 2010 and 2011 does not include the purchase or sale of any properties with the exception of the A10 center acquired in January 2010. The results of the annual valuation of our shopping centers and exchange rate factors are similarly not included in our planning since they are not foreseeable.

Forecasts about the future revenue and earnings situation of our Group are based on

  1. the development of revenue and earnings of the existing shopping centers,
  2. the assumption that there will be no substantial reduction in revenue in the retail sector that would cause a large number of retailers to no longer be able to meet their obligations under existing leases.

Revenue climbs by 10% in 2010; increase of 7% expected in 2011

We are anticipating revenue of between €139 million and €142 million for the 2010 financial year. The revenue contribution of the A10 center (from 1 February 2010) will have a particularly positive effect in this regard, given that only a small increase in earnings is anticipated from the other portfolio properties. Revenue should increase to between €149 million and €152 million in the 2011 financial year.

Growth in earnings over the next two financial years

Earnings before interest and taxes (EBIT) amounted to €110.7 million in 2009. According to our forecast, EBIT will amount to between €118 million and €121 million in the current financial year. This is expected to increase to between €127 million and €130 million in 2011.

Earnings before tax (EBT) excluding measurement gains and losses amounted to €54.9 million during the year under review. We expect the corresponding figure to be between €58 million and €60 million for the 2010 financial year and between €64 and €66 million for the 2011 financial year.

FFO trend influenced by capital increases

Funds from operations (FFO, undiluted) amounted to €1.49 per share in the year under review. We expect this figure to be between €1.33 and €1.38 in 2010 and between €1.45 and €1.50 in 2011.

Dividend policy

We intend to maintain our long-term dividend policy geared towards continuity and to distribute a dividend of at least €1.05 per share to our shareholders again in 2010 and 2011.

Forward-looking statements

This Management Report contains forward-looking statements based on estimates of future developments by the Executive Board. The statements and forecasts represent estimates based on all of the information available at the current time. If the assumptions on which these statements and forecasts are based do not materialise, the actual results may differ from those currently being forecast.

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