Economic conditions in the industry

Retail sector

According to figures from the Federal Statistical Office, retail sales rose by a nominal 2.6% in Germany in 2011 (excluding vehicle sales). In real terms, i.e. adjusted for price differences, they rose by 0.9%. While food sales were up 0.2% on a price-adjusted basis, non-food sales rose by 1.6% in real terms. Almost all branches and sales channels recorded growth, although “textiles, clothing, footwear and leather goods” were an exception (real sales -0.3%).On the other hand, “furnishings, household appliances and building materials” achieved substantial price-adjusted growth of +2.6%, as did “other retail” (such as books and jewellery) at +3.2%. Looking at the sales channels, the trend away from “other retail involving goods of various types” (such as department stores) continued, with a real fall in revenue of 0.5%. On the other hand, sales in “Online and mail-order business” increased by 4.6% in real terms.

According to estimates from the German Trade Association (Handelsverband Deutschland, HDE), the sector continued its recovery from the previous year and is therefore on a stable growth trajectory. The positive development in the labour market, higher incomes, low interest rates and the generally stronger propensity to consume benefited the retail trade in 2011. With around 400,000 companies and 2.9 million employees in the reporting year, the retail trade in a narrow sense (excluding vehicles, petrol stations, pharmacies) saw an increase in revenues of 2.4% to € 414.4 billion (previous year: € 404.7 billion), representing 16.1% of GNP or 57.4% of private consumer spending, according to information provided by HDE.

Based on calculations from Jones Lang LaSalle, retail space let in Germany increased by 88% to a new record of 686,000 m2. Two developments are visible here. Firstly, disproportionate growth of international concepts, which accounted for 59% (previous year: 52%). The trend towards large-scale retail premises continues unabated, with a 37% rise in the average space let to 700 m2. The share of lease agreements over 1,000 m2 increased from 14% to 18%. Of the leased spaces over 1,000 m2, more than half are now over 2,000 m2, compared with around a quarter in the previous year. Nevertheless, demand for smaller retail premises of under 250 m2 remained high, accounting for 49% of all leases.

Textile retailers were the most significant demand group, accounting for 42% of floor space. This group was dominated by the categories young fashion (29.4%), textile discounters (28.8%) and clothing stores (24.8%). In second place after textile retailers was telecommunication / electronics with 12%, followed by food / gastronomy with 11%.

Real estate market

With an 18% growth in transaction volume to € 22.62 billion, the commercial property investment market in Germany continued its expansion course in 2011, according to information from CBRE. The market was dominated by individual transactions, with portfolio transactions representing just under a fifth of the volume.

Retail properties, which are again the dominant usage form, accounted for just under 47% of these transactions and investments in this asset class rose disproportionately by 36% to € 10.55 billion in 2011. CBRE considers this increased interest in retail properties as evidence that real estate investors are continuing to diversify their portfolios into this rather more stable counter-cyclical asset class. Foreign investors, particularly those in the US, Canada and the UK, increased their investment volume in German retail properties by more than 50% to € 4.3 billion, increasing their retail investment volume from 37% to 41%. The most important investor groups in 2011 were asset and fund managers, representing 26%, and open real estate and special funds, representing 25% of investments in retail properties. Unlike investments in office property, a good two thirds or € 7.1 billion of investments in retail property are not concentrated in the top five locations.

Shopping centers continued to dominate the retail property segment, with a 44.6% share of transactions, followed by retail properties in prime locations (28.5%) and specialist retailers and retail parks (24.8%). The transaction volume in shopping centers rose by 32% to € 4.7 billion in 2011 compared with the previous year, which had itself seen strong growth.

Given the ongoing defensive investment strategy pursued by real estate investors, top returns again declined in 2011. Funds with strong equity bases, such as international sovereign and pension funds and various German open-ended property funds, are often prepared to accept lower returns in return for being able to invest cash inflows promptly. According to Cushman & Wakefield, top returns declined for shopping center investments in Germany to 4.8% by the end of 2011 from 5.15% in the previous year. As a result, the current level is at the lower threshold of the ten-year range of 4.8% to 5.75%.

Share price performance

The price of Deutsche EuroShop shares began 2011 at € 28.98. By mid-April the price had fallen to € 26.00, but by 1 June 2011, less than two weeks before the Annual General Meeting, Deutsche Euro- Shop shares reached their highest price of the year at € 29.06 (Xetra closing price). In the summer and autumn, stock markets worldwide experienced significant falls and were extremely volatile. The majority of real estate shares were not spared. Deutsche EuroShop shares recorded their lowest price of the year on 23 November at € 22.94, recovering to € 24.50 by the last trading day of the year. The shares closed the year with a performance of -11.1% (including dividends) (2010: +28.1%).

Evaluation of the financial year

The Executive Board of Deutsche EuroShop is satisfied with the past financial year. The Billstedt-Center and the expansion of the Altmarkt- Galerie and the A10 Center, which were included in our results for the first time, made a significant contribution.

Revenue was planned at between € 184 million and € 188million and totalled € 190.0 million (2010: € 144.2 million) as of the reporting date, corresponding to an increase of 32%. Earnings before interest and taxes (EBIT) were projected between € 157 million and € 161 million; ultimately these increased by 34%, amounting to € 165.7 million (2010: € 124.0 million). We expected earnings before taxes (EBT) excluding measurement gains / losses of between € 75 million and € 78 million. They rose by 35%, totalling € 86.5 million (2010: € 63.9 million).

As in the previous years, we exceeded earnings forecasts. Deutsche EuroShop has proven once again that it has an outstanding shopping center portfolio and is well positioned.

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