Financial position

Principles and objectives of financial management

For the purposes of financing its investments, Deutsche EuroShop uses the stock exchange to raise equity, as well as the credit markets to borrow funds. Within the Group, both the individual property companies and Deutsche EuroShop AG borrow from banks. Deutsche EuroShop’s credit standing has been shown to be advantageous when negotiating loan terms. The Group can also arrange its financing independently and flexibly.

Loans are taken out in euros for all Group companies. In general, the use of equity and loans for investments should be equally weighted and the equity ratio in the Group (including third-party interests) should not fall below 45%.

We finance our real estate projects on a long-term basis and also use derivative financial instruments to hedge against rising capital market rates. An available credit line enables Deutsche EuroShop to react quickly to investment opportunities. Until used for investment, any cash not needed is invested short-term as time deposits to finance ongoing costs or pay dividends.

Financing analysis: Improved interest rate conditions

As of 31 December 2011, the Deutsche EuroShop Group reported the following key financial data:

€ thousand 2011 2010 Change
Total assets 3,225.1 2,963.6 +261.5
Equity (incl. third-party interests) 1,473.1 1,441.5 +31.6
Equity ratio (%) 45.7 48.6 -2.9
Bank loans and overdrafts 1,472.1 1,288.2 + 183.9
Loan to value ratio (%) 47 47 0

At € 1,473.1 million, the Group’s economic equity capital, which comprises the equity of the Group shareholders (€ 1,193.0 million) and the equity of the third-party shareholders (€ 280.1 million), was € 31.6 million higher than in the previous year. The equity ratio declined by 2.9 percentage points to 45.7%, but continues to be above the target we set ourselves of at least 45%.

Bank loans and overdrafts

€ thousand 2011 2010
Non-current 1,335,986 1,227,096
Current 136,163 61,060
Total 1,472,149 1,288,156

Current and non-current bank loans and overdrafts rose from € 1,288.2 million to € 1,472.1 million in the year under review, an increase of € 183.9 million. Of this amount, € 80.1 million was used for the long-term financing of the Billstedt-Center, which was acquired in the previous year, and € 67.3 million for the financing of the expansion measures in the Main-Taunus-Zentrum, the A10 Center and the Altmarkt-Galerie Dresden. Drawdowns on the credit line increased by € 53.6 million and were used for the partial interim financing of the stake acquired in the Allee-Center Magdeburg. Meanwhile, loans amounting to € 15.3 million were repaid in accordance with the schedule.

In addition, seven existing loans with a residual volume of € 304.7 were prematurely extended or replaced by new loans in the year under review. While the average residual maturity of these loans was 2.4 years, with an average rate of interest of 5.42%, the new loans have an average residual maturity of 8.6 years and an average rate of interest of 4.07%. As a result, we have significantly improved the maturity and interest rate structure of these bank loans.

The bank loans and overdrafts in place at the end of the year are used exclusively to finance non-current assets. As a result, 47% of non-current assets continued to be financed by loans in the year under review.

The Group has access to a credit line in the sum of € 150 million until 2014. Of this, € 78.7 had been drawn down as at the balance sheet date.

Overall, the debt finance terms as of 31 December 2011 remained fixed at 4.59% (2010: 5.03%) for an average period of 6.6 years (2010: 6.5 years). Deutsche EuroShop maintains credit facilities with 24 banks which – with the exception of one in Austria – are all German banks.

Of 31 loans across the Group, credit terms were agreed with the financing banks on 11 of these. There are a total of 15 different covenants on debt service cover ratios (DSCRs), interest cover ratios (ICRs), changes in rental income and the loan-to-value ratio (LTV). All these covenants were met. Based on the budgeted figures, compliance with the covenants may also be assumed in the year under review.

Darlehensstruktur per 31. Dezember 2011
Enlarge picture

At the beginning of April 2012, a loan to finance the Altmarkt-Galerie Dresden of € 36.9 million is to be repaid ahead of schedule and replaced by a new loan. Scheduled repayments amounting to € 22.1 million will be made from current cash flow during the 2012 financial year. Over the period from 2013 to 2016, average repayments will be around € 17.4 million per year. No loans are due to expire in 2012. In 2013, loans amounting to € 176.6 million will come up for renewal. For 2014 this figure is € 93.6 million, for 2015 € 78.6 million and for 2016 € 171.5 million.

Short and long-term bank loans and overdrafts totalling € 1,472.1 million were recognised in the balance sheet as of the reporting date. The difference compared with the amounts stated here of € 5.1 million relates to deferred interest and repayment obligations that were settled at the beginning of 2012.

Investment analysis: Investments remain at a high level

In the 2011 financial year, investments totalled € 352 million. The Billstedt-Center was acquired on 1 January 2011 and the Allee-Center Magdeburg on 1 October 2011, together amounting to investments with a fair value of € 274.8 million. In addition, the expansion and modernisation measures in the Altmarkt-Galerie Dresden, the A10 Center and the Main-Taunus-Zentrum required an investment of € 77.1 million. Ongoing investments in portfolio properties amounted to € 6.8 million.

Liquidity analysis: Cash flow significantly higher

The Group’s operating cash flow of € 98.7 million (2010: € 70.0 million) is the amount that the Group generated for shareholders following the deduction of all costs from the leasing of the shopping center floor space. It primarily serves to finance the dividends of Deutsche EuroShop AG and payments to third-party shareholders.

Cash flow from operating activities amounted to € 249.4 million (2010: €-94.2 million) and, in addition to operating cash flow, contains changes in receivables and other assets as well as other liabilities and provisions. The outflow of the purchase price (€ 156.7 million) for the Billstedt-Center Hamburg, which was paid at the end of 2010, is recognised under other assets. This is, however, merely a reallocation from investment activities to cash flow as the Center was recognised for the first time in the reporting year, at fair value, and is contained in investment properties (as-if presentation). Meanwhile, advance payments on the purchase prices for the increase in our shareholdings in the Allee-Center Hamm and the Rhein-Neckar-Zentrum amounted to € 9.1 million as of 1 January 2012.

Cash flow from financing activities declined from € 363.9 million to € 101.9 million. Cash inflows from non-current financial liabilities, amounting to € 184.0 million, resulted primarily from the raising of a new loan in connection with the acquisition of the Billstedt-Center and the financing of the expansion measures in the A10 Center and the Main-Taunus-Zentrum. Furthermore, the purchase price paid for the Allee-Center Magdeburg was financed by utilising a short-term credit line from Deutsche EuroShop AG. Dividends paid to shareholders totalled € 56.8 million. Payments to third-party shareholders comprise the purchase prices of the shareholdings in the two centers in Hameln and Wolfsburg and distributions paid out during the year under review.

Cash and cash equivalents declined slightly in the year under review to € 64.4 million (2010: € 65.8 million).

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