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DES - Online Annual Report 2008



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The world economy is undergoing rapid decline, which is increasingly affecting Germany as an exporting nation. Thus it can currently be assumed that the supportive measures taken by governments and central banks to date will not be sufficient to steer the economy back into growth.

The forecasts published by the German government and economic research institutes to date, which assume that GDP will decrease moderately in 2009 and that growth will resume as soon as 2010, increasingly appear to display pure calculated optimism. Economists now concede that it is not possible to produce accurate forecasts at present as the economic reality can no longer be mapped in existing macroeconomic models. Similarly, many companies no longer consider it possible to provide an outlook for the 2009 financial year owing to the difficult economic environment.

Crisis cannot be measured as yet

As yet, there are no indications that the Deutsche EuroShop Group’s economic situation will be significantly impaired in 2009. All the figures available so far indicate that buying patterns will remain stable. However, if the economic environment continues to deteriorate significantly, it cannot be ruled out that retailers in our shopping centers may also experience financial difficulties due to falling revenue 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.

Well-positioned portfolio

With the exception of a small amount of office space, our shopping centers are currently fully let. The average residual term of our leases is just over seven years. For the most part, the leases due to expire in 2009 have been prolonged or new tenants have been found. Currently, no shopping centers are under construction, with the result that no rental risks arise in this respect. Outstanding rents and necessary valuation allowances remain at a low level.

Situation on the financial markets impacts growth potential

Further shopping center acquisitions will depend on the possibility of obtaining new equity from the stock exchange under reasonable terms. As this cannot be foreseen at present, we assume that no further acquisitions will take place in 2009.

Restructuring measures in Kassel and Hamm

Our shopping center in Kassel, in which we increased our investment from 40% to 90% in January 2009 through acquiring shares from Arcandor AG, and the Allee-Center in Hamm are undergoing restructuring.

In Kassel, the department store space formerly occupied by Hertie is being divided up and leased to several small and medium-sized retailers. The investment required for this measure, including estimated rent losses and ancillary costs during construction, amounts to around €5.1 million. The spaces are leased on a long-term basis as far as possible.

In the Allee-Center Hamm, the lease with a hypermarket operator was terminated early. Following the renovation (investment costs: €1.8 million), a supermarket and a large textiles operation will open in this space in autumn 2009.

Altmarkt-Galerie Dresden to be expanded

We expect to be able to commence expansion of the Altmarkt-Galerie in Dresden this year. The required property has already been acquired, the demolition of existing buildings has begun and archaeological excavations are currently underway. The Altmarkt-Galerie is to be expanded by around 30,000 m². Of this area, approximately 25,000 m² will be allocated to retailers, service providers and service areas and around 5,000 m² to office space. In total, the investment volume amounts to some €150 million, of which €75 million is attributable to Deutsche EuroShop. 50% of the investment is to be debt-financed over the long term. The financing has already been secured.

Agreed transactions are the foundation for revenue and earnings planning

The Deutsche EuroShop Group’s revenue and earnings planning for 2009 and 2010 does not include the purchase or sale of any properties. The results of the annual appraisal of our shopping centers and exchange rate factors are similarly not included in our planning, since they are not foreseeable. However, we must assume that we will report measurement losses for the first time in the current year if the economic circumstances deteriorate further.

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, in which case a number of retailers would no longer be able to meet the obligations under their existing leases.

Revenue climbs by 10% in 2009; increase of 2% expected in 2010

For the 2009 financial year, we are anticipating revenue of between €125 million and €128 million. The openings of the Stadt-Galerie shopping centers in Hameln and Passau, which will contribute to revenue for a full financial year for the first time, will have an effect in this regard, as will the first-time consolidation of the City-Point in Kassel, in which we increased our investment from 40% to 90% in January 2009. In the 2010 financial year, revenue should increase to between €128 million and €131 million.

Slight growth in earnings over the next two financial years

Earnings before interest and taxes (EBIT) amounted to €98.1 million in 2008. According to our forecast, EBIT will amount to between €105 million and €108 million in the current financial year. This is expected to increase to between €109 million and €112 million in 2010.

Earnings before tax (EBT) excluding measurement gains and losses amounted to €49.9 million during the period under review. We expect the corresponding figure to be between €50 million and €52 million for financial year 2009 and between €53 million and €55 million for financial year 2010.

FFO climbing steadily

Funds from operations (FFO) amounted to €1.45 per share in the period under review. We expect this figure to be between €1.45 and €1.50 in 2009 and between €1.55 and €1.60 in the 2010 financial year.

Dividend policy

We intend to maintain our long-term dividend policy geared towards continuity and to distribute a dividend of €1.05 per share to our shareholders again in 2009 and 2010.

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