Focus of advisory activities

We examined the Company’s net assets, financial position and results of operations, as well as its risk management, regularly and in detail. In this context, we checked that the formal conditions for implementing an efficient system of monitoring our Company were met and that the means of supervision at our disposal were effective. We were informed on an ongoing basis of all significant factors affecting the business. We considered the development of the portfolio properties, their turnover trends, the accounts receivable and occupancy rates, the Company’s liquidity position and the progress of the expansion projects.

Intensive and repeated discussions were conducted with the Executive Board on trends on the capital, credit, real estate and retail markets and the effects of these on the Company’s strategy. The Executive Board and Supervisory Board also examined various investment options. We received regular reports detailing the turnover trends and payment patterns of our tenants and the credit policies of the banks.

The Chairman of the Supervisory Board and the Executive Committee of the Supervisory Board also discussed other topical issues with the Executive Board as required. Transactions requiring the approval of the Supervisory Board were discussed and resolved upon at the scheduled meetings. In addition, for transactions of the Executive Board requiring approval, circular resolutions were passed in writing by the Supervisory Board. In the event of decisions that could potentially have led to conflicts of interest, the Supervisory Board members in question abstained from voting. All resolutions in the reporting period were passed unanimously.

Meetings

Four scheduled Supervisory Board meetings took place during financial year 2011. In one of those meetings only, one member of the Supervisory Board was excused from attending.

At the first scheduled meeting, on 27 April 2011, the Supervisory Board’s annual review of efficiency was completed and the agenda for the Annual General Meeting was approved. We selected the auditor, who was proposed to the shareholders for election. In relation to the audit of the annual financial statements, we once again attached great importance to the explanations of the Executive Board and those of the auditor on the real estate appraisals. In addition, the Executive Board explained the documentation relating to the internal risk control system (IRCS) and the review of transactions with related parties. In addition, the Executive Board reported to us in particular on the expansion of the Altmarkt-Galerie in Dresden, the Main-Taunus- Zentrum near Frankfurt and the A10 Center in Wildau, near Berlin, and the acquisition of the Billstedt-Center in Hamburg. The explanations on the occupancy situation focused on the City-Arkaden center in Wuppertal and the City-Galerie in Wolfsburg. In both of these centers, which are now in their tenth year, significant numbers of leases were renewed. For the first time, the Executive Board presented the possibility of acquiring a stake in the Allee-Center in Magdeburg.

At the meeting on 16 June 2011, the Executive Board informed us of the leasing activities in the extension to the Main-Taunus-Zentrum and in the City-Galerie in Wolfsburg and City-Arkaden in Wuppertal. The Executive Board also presented the possibility of acquiring an 11% participating interest in the City-Galerie in Wolfsburg, an acquisition which we approved. It was also decided to amend the German name of the Audit Committee from “Bilanzausschuss” to “Prüfungsausschuss” in line with the Bilanzrechtsmodernisierungsgesetz (German Accounting Law Modernisation Act – BilMoG). Furthermore, the rules of procedure of the Executive Board were amended in accordance with the provisions of current regulations. As the mandate periods of several members of the Supervisory Board expire in 2013 and 2014 and given the diversity requirements of supervisory boards, we held extensive discussions on the future composition of our body.

At the third meeting on 22 September 2011, the Executive Board reported on progress in the acquisition of a 50% stake in the Allee-Center Magdeburg, after we had unanimously approved this investment in writing by means of a circular resolution in July 2011. The Executive Board also reported on various other investment possibilities that were being examined. An extensive discussion also ensued on the effects on our company of the latest court decision on the expanded trade tax deduction, after the Executive Board drew our attention to an associated ruling, and possible courses of action open to Deutsche EuroShop AG. We also determined the desired future composition of our company’s Supervisory Committee with regard to its powers and gender balance and set out how this would be achieved.

The last meeting, on 17 November 2011, was held in the Main-Taunus- Zentrum on the same day as the official opening of the extension there, which enabled us to see for ourselves that it was fully let. The Executive Board also reported on the further acquisition possibilities and the conclusion of important refinancing agreements for our portfolio properties, including the Altmarkt-Galerie in Dresden. The Executive Board also discussed the status of investigations into the possibility of a restructuring for trade tax purposes. With this in mind, the Executive Board was keen to acquire sole ownership of further property companies and was currently seeking to achieve this shortly at three companies. We also held extensive discussions on the Company’s projections and medium-term performance planning as presented by the Executive Board, and on the Company’s and Group’s internal control system based on the documentation presented.

Committees

The Supervisory Board has established three committees: the Executive Committee of the Supervisory Board, the Audit Committee and the Capital Market Committee. Each of these is made up of three members. The Executive Committee of the Supervisory Board functions simultaneously as a nomination committee. Given the size of the Company and the number of Supervisory Board members, we consider the number of committees and members to be appropriate. During the reporting period, the Executive Committee of the Supervisory Board and the Audit Committee met on 14 April 2011. The Audit Committee also discussed the quarterly financial reports with the Executive Board in conference calls on 10 May, 9 August and 4 November 2011.

Corporate Governance

In November 2011, together with the Executive Board, we issued an updated declaration of conformity in relation to the recommendations of the government commission pursuant to section 161 of the Aktiengesetz (German Public Companies Act – AktG) and made this permanently available on the Deutsche EuroShop AG website. A separate report on the implementation of the German Corporate Governance Code is included in this Annual Report. The members of the Supervisory Board and the Executive Board declared in writing at the beginning of 2012 that no conflicts of interest had arisen.

Financial stat ements of Deutsche EuroShop AG and the Group for the period ending 31 December 2011

At the Audit Committee meeting on 18 April 2012 and the Supervisory Board meeting on 26 April 2012, the Audit Committee and the Supervisory Board examined in detail the annual financial statements of Deutsche EuroShop AG in accordance with German commercial law, and the consolidated financial statements in accordance with International Financial Reporting Standards (IFRS), each as at 31 December 2011, as well as the management report and group management report for financial year 2011.

The documents relating to the financial statements, the auditor’s reports and the Executive Board’s proposal for the appropriation of the unappropriated surplus were presented to us in good time. The auditor appointed by the Annual General Meeting on 16 June 2011 – BDO AG Wirtschaftsprüfungsgesellschaft, Hamburg – had already audited the financial statements and issued an unqualified audit opinion in each case. The auditor also confirmed that the accounting policies, measurement methods and methods of consolidation in the consolidated financial statements complied with the relevant accounting provisions. In addition, the auditor determined in the course of its assessment of the risk management system that the Executive Board had undertaken all required measures pursuant to section 91 (2) AktG to promptly identify risks that could jeopardise the continued existence of the Company.

The auditor’s representatives took part in the discussion of the annual financial statements and the consolidated financial statements on the occasions of the Audit Committee meeting on 18 April 2012 and the Supervisory Board meeting on 26 April 2012 and explained the main findings.

Following its own examination of the annual financial statements of Deutsche EuroShop AG, the consolidated financial statements and the corresponding management reports, the Supervisory Board did not raise any objections, agreed with the findings of the auditor’s examination and approved the annual financial statements of Deutsche EuroShop AG and the consolidated financial statements. The annual financial statements have thus been adopted. The Supervisory Board endorses the Executive Board’s proposal for the appropriation of the unappropriated surplus and distribution of a dividend of €1.10 per share.

The Company’s success in financial year 2011 was the result of its conservative strategy and the dedication shown by the Executive Board and our employees, for which the Supervisory Board would like to express its particular gratitude.

Hamburg, 26. April 2012

Manfred Zaß, Chairman