Private consumption is a major support for the German economy

As German economic growth remained strong and exceeded the forecasts in 2011, the outlook for 2012 and 2013 is also generally positive, provided the euro debt crisis can be prevented from spinning out of control. However, economists are predicting that economic growth will become more moderate. Following a weak start, 2012 is expected to bring a slight economic pickup, with real annual GDP grow of less than 1%, following on from 3% in 2011. Germany is expected to achieve growth of between 1% and 2% in 2013. The forecasters are banking on a continuing positive trend in the domestic economy, particularly with regard to private consumption, amid expectations of a perceptible boost to salaries in real terms across Germany. The robust labour market in Germany has also been a cause of some surprise. The rise in employment in recent months and the fall in unemployment to levels which have not been seen for decades are underpinning the positive outlook.

Sound outlook for our shopping centers

We expect this positive trend to be echoed in our shopping centers. The expansion and modernisation measures at the A10 Center, the Altmarkt-Galerie Dresden and the Main-Taunus-Zentrum were completed in the year under review and retailers’ revenues have developed positively. Ten years after they first opened, lease renewals were successfully concluded in the City-Arkaden Wuppertal and the City-Galerie Wolfsburg Many rental agreements are due to expire in 2012 and 2013 in City-Point Kassel, the Altmarkt-Galerie Dresden (old portfolio) and the Rhein-Neckar-Zentrum, the majority of which have already been extended At the present time, the occupancy rate across all our shopping centers continues to exceed 99%. At the end of 2011, the level was 98.5%, slightly below the previous year’s level (99.3%). Retail space also witnessed a slight decline from 99.9% to 99.6%. The main effect of these declines was around 4,000 m2 of vacant office space in the Altmarkt-Gallerie Dresden, built as part of the extension, and of around 2,500 m2 in Árkád Pécs, which can be put down to the difficult economic environment in Hungary. However, outstanding rents and necessary valuation allowances remain stable at a low level. We see no sign of a significant change in this satisfactory situation.

Transaction market remains strong

Against a background of ongoing uncertainty on the financial markets and fears that inflation may rise sharply, the global demand for capital investments that retain value remains strong, particularly in financially well-positioned countries such as Germany. This is driving demand for properties for which there is insufficient supply. Retail property in particular is a focus of interest among many institutional investors, leading to very high transaction prices and correspondingly low anticipated returns for core properties. We will therefore continue to monitor developments on the real estate market intensively. As in the past, we will only make new investments if the return that is achievable over the long term bears a reasonable relation to the investment risks.

Agreed transactions are the foundation for revenue and earnings planning

The Deutsche EuroShop Group’s revenue and earnings planning for 2012 and 2013 does not include the purchase or sale of any properties. The results of the annual valuation of our shopping centers and exchange rate factors are not included in our planning since they are not foreseeable.

Forecasts about the future revenue and earnings situation of our Group are based on

  • a) the development of revenue and earnings of the existing shopping centers,
  • b) the assumption that there will be no substantial reduction in revenue in the retail sector that would cause a large number of retailers to no longer be able to meet their obligations under existing leases and
  • c) the switching of proportionally consolidated companies to equity accounting from the 2013 financial year.

Switch to equity method accounting from 1 January 2013

Changes to the International Accounting Standards mean that the proportional consolidation of our joint ventures will probably no longer be permitted after 2013. The share in the revenue and costs of these companies will no longer be included in the consolidated financial statements. Instead, only the share in the results of these shopping centers will be reported under net finance costs.

Revenue to rise by 10% in 2012

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We anticipate an increase in revenue of around 10% to between € 207 million and € 211 million in the 2012 financial year. In particular, the revenue contribution of the Allee-Center Magdeburg and the additional revenues from the expansion completed in 2011 are expected to make a positive impact. If we were to switch to equity method accounting in the 2012 financial year, the expected revenue would be between € 174 million and € 178 million. Revenues are expected to increase again slightly in 2013 and, after the change to equity accounting, reach a level of between € 178 million and € 182 million.

Further growth in earnings in the next two years

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Earnings before interest and taxes (EBIT) amounted to € 165.7 million in 2011. According to our forecast, EBIT will amount to between € 177 million and € 181 million in the current financial year (+8%), or if equity method accounting were to be applied in 2012, between € 147 million and € 151 million. Taking into account the change in accounting method, EBIT should increase to between € 151 million and € 155 million in 2013 (+3%).

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Earnings before tax (EBT) excluding measurement gains and losses amounted to € 86.6 million during the year under review. We expect the corresponding figure to be between € 90 million and € 93 million for the 2012 financial year (+6%) and between € 94 and € 97 million for the 2013 financial year (+4%). As equity accounting means that the results of the companies concerned are recognised in net finance costs, earnings before taxes excluding measurement gains or losses are not affected by the switch to equity accounting.

Positive FFO trend

FFO je Aktie
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Funds from operations (FFO) amounted to € 1.61 per share in the year under review. We expect this figure to be between € 1.64 and € 1.68 in 2012 (+3%) and between € 1.70 and € 1.74 in 2013 (+4%).

Dividend policy

We intend to maintain our long-term dividend policy geared towards continuity. We therefore aim to distribute a dividend of € 1.10 per share to our shareholders again in 2012 and 2013.

Forward-looking statements

This Management Report contains forward-looking statements based on estimates of future developments by the Executive Board. The statements and forecasts represent estimates based on all of the information available at the current time. If the assumptions on which these statements and forecasts are based do not materialise, the actual results may differ from those currently being forecast.

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