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Results of operations

Although German retail sales rose by 2.1% in nominal terms in 2008, the tenants of our shopping centers achieved only a 0.6% increase in revenue on a like-for-like basis. If our international properties are included in this comparison, then our tenants generated like-for-like revenue growth of 0.4%.

Revenue development

Consolidated revenue up 20.4%

Consolidated revenue was up 20.4% from €95.8 million to €115.3 million in the financial year. The Stadt-Galerie in Hameln (nine months), the Stadt-Galerie in Passau (four months) and the Galeria Baltycka in Gdansk, which opened in October 2007, made a significant contribution to this growth in revenue.

Revenue (Bar Chart)

Higher rental income for almost all portfolio properties

For the most part, rental income for the portfolio properties developed positively. Only two properties posted slight revenue decreases due to lower settlement payments by former tenants. Total revenue rose by 2.0% on a like-for-like basis.

€ thousand 2008 2007 2006
Rhein-Neckar-Zentrum, Viernheim 16,686 16,307 16,014
Main-Taunus-Zentrum, Sulzbach* 10,378 10,011 9,781
Allee-Center, Hamm 9,591 9,398 9,209
City-Arkaden, Wuppertal 8,559 8,233 7,925
City-Galerie, Wolfsburg 8,323 8,326 7,704
Forum, Wetzlar 8,265 8,137 7,982
Rathaus-Center, Dessau 8,149 8,207 7,941
Altmarkt-Galerie, Dresden* 6,548 6,386 6,214
Phoenix-Center, Hamburg* 5,634 5,538 5,270
Stadt-Galerie, Hameln 5,484 0 0
City-Point, Kassel* 3,057 3,031 2,980
Stadt-Galerie, Passau 2,925 0 0
Total Germany 93,599 83,574 81,020
Galeria Baltycka, Gdansk 12,794 3,439 0
City Arkaden, Klagenfurt* 5,256 5,159 4,024
Árkád, Pécs* 3,694 3,590 3,527
Centro Commerciale Tuscia, Viterbo 0 0 2,848
Shopping Etrembières, Annemasse 0 0 1,022
Total abroad 21,744 12,188 11,421
Other revenue 0 0 413
Total 115,343 95,762 92,854
* = proportionately consolidated

Vacancy rate stable at under 1%
As in the previous year, the vacancy rate was under 1%. At €0.3 million (2007: €0.2 million) or 0.2% (2007: 0.2%), the need for writedowns for rent losses remained at a very low level.

Earnings development

Operating and administrative costs for property down slightly

Property operating costs declined by €2.0 million from €8.0 million to €6.0 million, which was attributable to lower maintenance costs and initial costs for new openings in particular. Property management costs climbed by €1.1 million from €6.1 million to €7.2 million due to the increase in revenue.

Other operating expenses up by €0.8 million

At €5.0 million, other operating expenses were €0.8 million higher than in the previous year, which was chiefly attributable to higher personnel expenses, an increase in the compensation of the Supervisory Board and higher consulting costs.

Net finance costs rise

Net finance costs were up €8.6 million to €48.2 million, after €39.6 million in the previous year. This rise is attributable firstly to higher interest expense (€+5.9 million compared with the previous year) and secondly to a higher share of operating profit attributable to minority shareholders, which was €2.6 million above the level of the previous year (€3.6 million) at €6.2 million.

In the period under review, for the first time only minority shareholders’ share of operating profit was recognised in net finance costs. The pro rata share of measurement gains attributable to minority shareholders is now recognised in Measurement gains. The previous year’s figures were adjusted accordingly.

Both the higher interest expense and the higher share of profit attributable to minority shareholders were due mainly to the new shopping centers in Gdansk, Hameln and Passau. At €2.4 million, interest income was down €0.3 million on the previous year, while income from investments was €0.2 million above the level of the previous year at €1.7 million and contained the dividend distributions of our Polish property company in Wroclaw.

Measurement gains less than in the previous year

Measurement gains fell year-on-year by €1.9 million from €39.0 million to €37.1 million. Initial measurement of the shopping centers in Hameln and Passau resulted in net measurement gains of €12.0 million. Measurement of the portfolio properties led to net measurement gains of €54.3 million. This contains exchange gains of €38.1 million resulting from the translation of euro-based market values into Polish zloty or Hungarian forint, which led to a decline in non-current assets. Based on the euro values, the market values of the portfolio properties increased by €16.2 million. This corresponds to an average increase in market value of around 1%. This rise in value is mainly attributable to the Galeria Baltycka in Poland, whose earnings to date far exceed original planning, resulting in a market value around 19% higher than the level of the previous year. In addition, the value of four further portfolio properties appreciated by between 0.1% and 2.7%. The market value of nine properties was between 0.4% and 3.3% below that of the previous year.

We also posted unrealised exchange losses (net) amounting to €16.3 million from the exchange measurement of monetary items and bank loans of our Polish and Hungarian property companies as at the reporting date in the Measurement gains item. At €11.7 million, the share of measurement gains attributable to minority shareholders was €1.2 million above that of the previous year (€10.5 million). This was chiefly due to the high measurement gains attributable to Galeria Baltycka.

Tax item almost exclusively comprises deferred income taxes

Following net tax income of €16.3 million in the previous year due to a reversal of deferred tax provisions that was recognised in income as a result of the German business tax reform, the tax burden in the period under review amounted to €18.1 million. Of this amount, €18.0 million was attributable to deferred income tax and €0.1 million to German and foreign income tax paid.

Consolidated profit totals €68.9 million

Earnings before interest and taxes (EBIT) climbed 25% from €78.5 million to €98.1 million in the reporting year. At €87.0 million, pre-tax profit (EBT) was 12% higher than in the previous year (€77.8 million). Consolidated profit fell by 27% from €94.2 million to €68.9 million.

EBIT (Bar Chart)

Earnings per share

Earnings per share (basic) amounted to €2.00 compared with €2.74 in the previous year. Of this amount, €1.13 (2007: €0.94) was attributable to operations (+20%) and €0.87 (2007: €0.94) to measurement gains (-8%). Furthermore, in the previous year additional profit of €0.86 per share was generated from the reversal of deferred tax provisions.

Earings per share (Bar Chart)

Funds from operations (FFO)

In the last few years, the funds from operations (FFO) ratio has gained increasing importance. For this reason, we have incorporated it into the Group’s reporting. FFO is defined as the cash flows from operating activities and is calculated by adjusting net income for the period for measurement gains/losses and deferred income tax expense. FFO is used to finance ongoing investments in portfolio properties, scheduled payments on our long-term bank loans and the distribution of dividends. In the period under review, an FFO of €49.8 million or €1.45 per share was posted, up from €38.5 million or €1.12 per share in the previous year.

in T€ 2008 2007
Net income for the period 68,872 94,177
plus deferred taxes 18,010 -16,719
less measurement gains/losses -37,071 -38,956
FFO 49,811 38,502
FFO per share (€) 1.45 1.12

Dividend proposal: €1.05 per share

Due to the successful financial year, the Executive Board and Supervisory Board will propose to the shareholders at the Annual General Meeting on 30 June 2009 in Hamburg that an unchanged dividend of €1.05 per share be distributed for the 2008 financial year.

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