A N N UA L R E P O R T 16feelestate.de EMOTIONAL Do you read between the lines? NO YES OR EMOTIONAL RATIONAL? WHAT KIND OF PERSON ARE YOU? Is A2+B2=C2 pure poetry for you? Does bambi always make you cry? AWWW... YES NO NO YES Do you still have some old love letters? NO YES O K, YOU ARE ALM O S T T E F L O N! But you like Christmas? Do you read your horoscope in bed in the morning? Do you know the words to Celine Dion songs? NO YES NO YES YES NO NO YES Please go to page R1! Please continue reading here! H, HOW COSY! O Is the autumn your favourite season? YES NO Would you be able to spend a week on a deserted island? Meow NO YES Do have photos of cats on your mobile phone? NO YES Is your house number a prime number?
OUR VALUES We are the only public company in Germany that invests solely in shopping centers in prime locations. We invest only in carefully chosen properties. High quality standards and a high degree of flexibility are just as important to us as sustained earnings growth from index and turnover-linked rental contracts. In addition, we boast a higher than average occupancy rate of around 99% and professional center management. These are the pillars of our success. OUR GOALS Deutsche EuroShop does not seek short-term success, but rather the stable increase in the value of our portfolio. Our objective is to generate a sustainably high surplus liquidity from the longterm leasing of our shopping centers to distribute an attractive dividend to our shareholders every year. In order to achieve this, we shallacquire further prime properties and hence establish ourselves as one of the largest companies in Europe focusing on retail properties.
C o n t e n t s Introduction Editorial Interview with the Executive Board Report of the Supervisory Board Shopping How do diferent people do their shopping? Book recommendation What I bought in 2016 What goes trough your mind before shopping? Exhibition recommendation Consumption in 2017 The Centers Our portfolio Activities in the centers in 2016 And ZiNG was made Environment Reporting on our enviromental performance Portfolio news Saarpark-Center Neunkirchen Olympia Center Brno The centers Center overview Investor Relations The Shopping Center Share Annual General Meeting Conferences and Roadshows Marketing Corporate Governance EPRA Reporting E3 E4 E10 E16 E21 E22 E24 E29 E30 E34 E42 E45 E46 E48 E52 E53 E54 E56 E68 E80 E81 E82 E86 E94 The Management Report and the Financial StatementS are in the back section. Please continue reading on page R1.
DEUTSCHE EUROSHOP Overview in € million Revenue EBIT Net finance costs Measurement gains / losses EBT Consolidated profit FFO per share in € Earnings per share in € * EPRA Earnings per share in € * Equity ** Liabilities Total assets Equity ratio in % ** LTV-ratio in % Cash and cash equivalents Net asset value (EPRA) Net asset value per share in € (EPRA) Dividend per share in € * undiluted ** incl. non controlling interests *** proposal REVENUE in € million EBIT in € million EBT * in € million 2016 205.1 178.6 -13.9 116.8 281.5 221.8 2.41 4.11 2.29 2,240.7 1,873.8 4,114.5 54.5 34.2 64.0 2,332.6 43.24 1.40 *** 2015 202.9 176.3 -2.1 220.6 394.7 309.3 2.29 5.73 2.18 2,061.0 1,790.6 3,851.6 53.5 35.5 70.7 2,135.2 39.58 1.35 Difference 1% 1% -548% -47% -29% -28% 5% -28% 5% 9% 5% 7% -9% 9% 9% 4% FFO Result in € million 129.9 Goal 143 Goal 148 140 145 Goal 220 – 224 Goal 216 – 220 Result 205.1 Goal 200 – 204 Result 178.6 Goal 175 – 179 Goal 193 – 197 Goal 187 – 191 Result 134.5 Goal 127 – 130 per share in € 2.42 – 2.46 Goal 154 – 157 Goal 145 – 148 2.41 2.35 – 2.39 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 Number of shares in million 53.9 58.0 ** 61.8 ** * excluding measurement gains / losses ** after conversion of the convertible bond, time-weighted at the balance sheet date
21 SHOPPING CENTERS in 5 countries Germany 17 centers Austria 1 center Czech Republic 1 center Hungary 1 center Poland 1 center POLAND 1 center GERMANY 17 centers CZECH REPUBLIC 1 center AUSTRIA 1 center HUNGARY 1 center 178.2 Visitors in 2016 (in million) 2,703 Retail shops 99 % Occupancy rate 5.7 Weighted maturity of rental contracts Die Deutsche EEuroShop ist ein transparentesUnternehmen, dessen Handeln auf einen la ngfristgen Er Erfolg ausgerichShoppingcenter
E2 OVERVIEW E M O T I O N A L R A T I O N A L W H A T K I N D O F P E R S O N A R E Y O U ? ? O R f.l.t.r.: Birgit Schäfer, Nicolas Lissner, Patrick Kiss, Ralph Borghaus, Wilhelm Wellner, Olaf Borkers, Britta Behrmann
EDITORIAL 2016 E3 EDITORIAL DEAR READERS, Are you more of an emotional or a rational person? Perhaps while you were reading the title page, your feelings intuitively led you to this half of the annual report first - the “emotional” part. Or maybe you very “rationally” started with the facts and figures, which you will find by simply turning this report over. In our Annual Report, we aim to highlight the difference between the many emotional and rational decisions that each of us make, often unconsciously, throughout the day. And then there are those we make deliberately – be it deciding to invest in a share, acquiring some real estate or just going to buy a new pair of jeans. Regardless of how sensible and well thought-out we think our decisions are – especially when it comes to shopping – we are still happy to let our feelings guide us. In the truest sense of the word. We really want to “touch” that beautiful fabric and to “smell” the leather of a luxury hand- bag. Or “see” from every angle how well our child’s new summer shoes match their outfit. Our 21 shopping centers in Germany and four additional European countries are the best place to indulge this emotional side of ours. Our tenant partners offer a vast and readily available selection of products and brand names as well as tailored and personalised advice. Every time you visit you can look forward to the thrill and entertainment of vibrant and constantly changing special offers. And whenever you need a break, just sit down to some freshly brewed coffee or piping-hot pizza with your friends and family. This is the kind of fun and inspiring shopping experience that appeals to everyone. Shopping by mouse click or when you are out and about by yourself does not even come close. I hope you enjoy reading our report, and I would like to take this opportunity to extend a per- sonal thank you for the trust you place in us. Best regards Wilhelm Wellner CEO
E4 INTERVIEW “WHEN IT COMES TO MAKING IMPORTANT DECISIONS, THE HEAD AND GUT ARE GENERALLY QUITE CLOSELY IN SYNC.” In this Executive Board interview, Wilhelm Wellner and Olaf Borkers answer questions on current topics. The interview also focuses on rationality and emotions. Read on to discover what the members of the Executive Board have to say on the results of the last financial year, acquisitions, online retail, the interest rate trend and the future of Deutsche EuroShop. PLEASE TELL US A LITTLE MORE ABOUT THESE NEW ACQUISITIONS. HAS THAT DEUTSCHE EUROSHOP NOW ALSO INVESTED IN THE SAARLAND? Wilhelm Wellner: Yes, that is right. On 1 October 2016, we acquired a 50 percent share in the Saarpark-Center in Neunkirchen in the Saarland for a total of €113 million. The center in the heart of town was originally opened in 1989, expanded in 1999, restructured in 2009 and is now the largest shopping center in the Saarland with more than 130 specialist shops and 33,500 m2 of retail space. Around 595,000 people live in the catchment area, with up to 24,000 visiting the center every day. Last year, the total number of customers totalled more than seven million. MR WELLNER, HOW WAS THE FIRST FULL FINANCIAL YEAR UNDER YOUR LEADERSHIP? Wilhelm Wellner: We are very pleased. We have achieved our financial targets and expanded our portfolio again for the first time since 2012. It took a long time to find shopping centers that fit in with our portfolio and strategy; it was certainly not easy and this will continue to be the case in future. As you know, we pursue a long-term approach and focus on high-quality shopping centers in first-class locations. WAS THIS A RATIONAL OR EMOTIONAL DECISION? Wilhelm Wellner: The established and successful shopping center won us over rationally with facts: with its previous and projected long-term profitability, which is based on the very good location and mix of tenants, the attractive catchment area and functional floor plan.
Deutsche EuroShop Annual Report 2016 E5 “The price and prospects were right.” f.l.: Wilhelm Wellner, Olaf Borkers IN 2017, YOU REPORTED ANOTHER TRANSACTION WITH THE PURCHASE OF THE OLYMPIA CENTER IN BRNO IN THE CZECH REPUBLIC. Wilhelm Wellner: Good things come to those who wait. After all, this acquisition took us almost one year. At around €382 million, it is also the biggest investment that Deutsche EuroShop has made to date. As with every acquisition, we go into great detail – this was also a special situ- ation as it is the first time that we are operating in the Czech Republic. the country’s biggest shopping centers. It is also very well connected in terms of both road links and public transport. Around 1.2 million people live in the catchment area, for whom the center is open seven days a week. More than 23,000 visitors pass through its doors every day, with over eight million customers in total visiting last year. We are expecting rental income of €20.1 million and net operating income (NOI) of €19.1 million per year. ALLOW ME TO ASK IN THIS REGARD, TOO: WAS THIS A RATIONAL OR EMOTIONAL DECISION? Wilhelm Wellner: When it comes to making important decisions, the head and gut are generally quite closely in sync. This motivated us to stay on the ball time and time again when moods changed through- out the unusually long evaluation and negotiation processes that were involved in acquiring the Olympia Center for our portfolio. WHAT ARE THE FACTS? Olaf Borkers: The Olympia Center in the second-largest city of the Czech Republic, Brno, originally opened in 1999 and has since stead- ily expanded. Following a reorganisation between 2014 and 2016, the center now houses more than 200 specialist stores across 85,000 m2 of rental space. The center also features a cinema and entertainment park, as well as more than 4,000 parking spaces. This makes it one of HOW DOES GUT FEELING COME INTO THE EQUATION? Wilhelm Wellner: Gut instinct cannot really be explained. There are not only measurable factors, which include sales growth of 15 percent for tenants in the Olympia Center since 2014, for example, but also other soft factors. For instance, the center’s positive image with customers and tenants or a stable positive economic and political environment, which is currently attracting many international retailers to the coun- try. After a trip to Brno to get my own impression of the country and people, of the beautiful Brno city center as well as of the competition, everything came together to form the overall picture. Our gut feeling then also told us that we should decide to acquire the center. The price and prospects were right.
E6 INTERVIEW COULD YOU BRIEFLY EXPLAIN WHY NO SUBSCRIPTION RIGHTS WERE ASSIGNED WITH THE CAPITAL INCREASE IN RELATION TO THE ACQUISITION OF THE OLYMPIA CENTER? Olaf Borkers: As I said, this transaction kept us busy for almost a year. However, everything was still quite tight at the end, as the purchase contract had to be signed, the necessary loan agreements concluded and the equity raised through a capital increase. To coordinate this with all of the parties involved under the strictest confidentiality demanded great precision, but also meant that a subscription rights issue was not possible, as we had to offer a guarantee for the transaction within just a few days. LET’S RETURN TO THE FINANCIAL YEAR JUST ENDED. PLEASE COULD YOU SUMMARISE THE RESULTS FOR US. Olaf Borkers: Of course. Rental revenue of between €200 million and €204 million had been forecast, but we in fact generated €205.1 mil- lion. This represents an increase of 1.1 percent on the previous year, but incorporated one-off effects that we cannot expect to recur on a regular basis. Earnings before interest and taxes (EBIT) amounted to €178.6 mil- lion and was therefore within our forecast range of €175 million to €179 million. For all of the remaining indicators, we have slightly exceeded our targets. We had planned for earnings before taxes (EBT) of €127 million to €130 million, but ultimately generated €134.5 million, which is a year-on-year rise of almost 6 percent. Even without the acquisition of the Saarpark-Center, we would still have exceeded the forecast slightly at €133 million. Overall, these positive effects resulted in funds from operations (FFO) per share being up on the forecast, at €2.41. MEASUREMENT GAINS / LOSSES WERE HIGH IN THE PREVIOUS YEAR. WHAT WAS THE SITUATION IN 2016? Olaf Borkers: In 2016, we once again achieved positive measurement effects. The appreciation of our portfolio approximately corresponds to the decline in yields that could be seen on the German market as a whole. On average, this yield compression of between 15 bp and 25 bp led to the appreciation of the value of our center, rising by 4.6 percent or a total of €145.5 million. To round off the performance indicators, it should also be mentioned that EBT amounted to €281.5 million, consolidated profit totalled €221.8 million and earnings per share were €4.11. Wilhelm Wellner: While we are on the subject of the results, I would like to point out that it will abe even easier for our investors to assess our financial figures in future. In Annual Report 2016, we have signifi- cantly expanded the scope of the reported European Public Real Estate Association (EPRA) performance indicators, which are a benchmark in the industry, and dedicated a chapter to these figures for the first time. In this way, we want to live up to our aspiration for transparency and at the same time continue to meet the ever-greater demands of international capital market players. Wilhelm Wellner “The online and offline worlds will continue to converge.”
Deutsche EuroShop Annual Report 2016 E7 „this trans action kept us busy for almost a year.“ Olaf Borkers COULD YOU TELL US ABOUT A FEW OF THESE EPRA PERFORMANCE INDICATORS? Wilhelm Wellner: The previously published EPRA earnings increased by 5 percent in 2016 to €2.29 per share and the undiluted EPRA net asset value (NAV) amounted to €43.24 per share at year-end. New additions are the net initial yield, which averages at 5.0 percent in our portfolio, the cost ratio of 13.1 percent and the vacancy rate of 1.2 percent. MR BORKERS, IN THE LAST ANNUAL REPORT, YOU HAD MENTIONED THE REDUCTION POTENTIAL OF OUR INTEREST COSTS. WHAT CAN YOU TELL US ABOUT THIS Olaf Borkers: The significantly lower interest expense is undoubtedly a major contributing factor to our improved result. In our refinancing and new financing agreements, we continue to benefit from low interest rates for our loans. However, we do not understand nor agree with the degree of scepticism which many investors have displayed towards real estate companies since October last year because they expect an interest rate turnaround. We continue to be in a position where we can considerably reduce our average interest rate level. Although the average interest rate in the consolidated loan portfolio still amounted to 3.67 percent at the end of 2016, we have since managed to reduce this considerably to 2.98 percent at the end of the first quarter of 2017. Given the current interest rate levels, we predict there will be further potential for improvement through the imminent refinancing. IT IS GREAT TO HEAR THAT FURTHER OPTIMISATION IS POSSIBLE ON THE EXPENSES SIDE, BUT WHAT ABOUT INCOME? Wilhelm Wellner: Our centers are still almost entirely let. However, the environment in the German bricks-and-mortar retail market continues to be extremely challenging at present and online retail is the predom- inant growth driver. Most recently, there have also been an increasing number of insolvencies among retailers and an overall slight downward trend in visitor numbers. The negotiations with tenants have in part also become more time-consuming and complex. The rate of inflation remains low, meaning that rental income growth is also only low. In light of this, our forecasts assume stable total income development at present, not taking into account the Olympia Center project. WHAT DO YOU IDENTIFY AS THE REASON FOR THE DE- CLINING VISITOR NUMBERS? Wilhelm Wellner: There are some very individual reasons, such as major construction sites in close proximity to the centers, and there are also political influences, in Dresden for example. Since 2014, there have been regular demonstrations held directly in front of our Altmarkt-Galerie on Monday evenings, which have reduced the number of visitors in the center of town overall and are unfortunately also to some extent scaring away tourists. However, special weather-related effects also put a spanner in the works in 2016, with a particu- lar impact on the planning of our tenants in the fashion and clothing segment. There wasn’t really a summer to speak of in large parts of Europe and also Germany, but then temperatures soared in September and surprised us all. To be honest, people then prefer to be out in nature rather than in a shopping center.
E8 INTERVIEW In this respect, it is also worth mentioning that the rapidly growing online retail segment continues to gain a greater market share. Given that the overall pie to be divided is only growing slowly, there are con- sequences for quite a few high street shops. Major retailers steeped in tradition, and especially fashion retailers at the moment, are affected and must ensure they move with the times. At this point, I would like to add that the sales of our tenants did remain stable overall in 2016, despite a 0.9 percent decline in visitor numbers. The conclusion to be drawn from this is that while customers might be going to the shopping center less often, they are spending more when they do. WHAT DEVELOPMENTS ARE YOU EXPECTING IN RELATION TO THE ONLINE AND OFFLINE WORLDS? Wilhelm Wellner: Overall, bricks-and-mortar retail will change signif- icantly to optimally serve customers via integrated online and offline market platforms. The crossovers will be increasingly fluid. It is less relevant in this regard whether a customer discovers, orders, pays for, receives, tries on or exchanges a product at home, in the shop or via an app. Customers want to have all options open to them and be able to easily use them according to their particular situation. To attract customers and gain their loyalty, retailers must offer the best of both worlds. The solutions that are effective will certainly differ depend- ing on the market segment and it will be interesting to see how this develops in the future. Online retailers have already recognised this trend and are opening an increasing number of shops. In the high street segment, we will see a great many individual developments. From showrooms in which products are not so much sold, but principally presented and staged, to leased areas specially dedicated to service, be it exchange or collection of products, so Click & Collect. Together with the expanding range of services being offered by retailers and shopping centers, customers will in future also be offered a higher standard – one which they should come to expect. The online and offline worlds will therefore continue to converge at an ever-greater pace, which will certainly represent a challenge for some retailers and can be expected to lead to further structural changes on the market in the coming years. When it comes to the offline world, our centers are still in prime locations and offer retailers the best-possible conditions for making the retail area a true experience arena. Here, customers can touch, try and compare products, while experiencing the brand world at its most intense. On the reverse side, retailers are well-placed to develop, nurture and intensify the all- important personal contact with their customers. LET US TAKE A LOOK AT THE FUTURE. WHAT IS PLANNED FOR 2017? Wilhelm Wellner: We expect that inflation will remain at a relatively low level and, taking into account the Olympia Center in Brno, our sales fore- cast for 2017 is between €216 million and €220 million. We anticipate an increase in EBIT to between €187 million and €191 million and EBT excluding measurement gains / losses in a bandwidth of €145 million to €148 million. Finally, FFO is projected to rise by around 9 percent to between €140 million and €143 million. With regard to potential further acquisitions, we would of course like to follow our gut, but the head will make the decisions: we constantly monitor what is available on the transaction market in a very rational way. If everything is right, we are ready to strike. CAN DEUTSCHE EUROSHOP SHAREHOLDERS EXPECT THEIR DIVIDEND TO CONTINUE TO IMPROVE? Olaf Borkers: Yes, they can. We not only plan to increase the dividend for the last financial year by five cents to €1.40 per share, but as has already been announced, anticipate a further five-cent increase in 2017. Thank you for talking to us and sharing your emotional and rational insights. The interview was conducted by Patrick Kiss.
Deutsche EuroShop Annual Report 2016 E9 THE EXECUTIVE BOARD WILHELM WELLNER Spokesman of the Executive Board Mr Wellner is a trained banker who earned a degree in business management from the University of Erlangen-Nuremberg and a Master of Arts (economics) degree from Wayne State University Detroit. He started his professional career at Siemens AG in 1996 as a specialist for international project and export finance. In 1999 Mr Wellner took a position as a senior offi cer in the area of corporate finance at Deutsche Lufthansa AG, where he was responsible for a variety of capital market transactions and supervised numerous M&A projects. In 2003 Mr Wellner switched to ECE Projektmanagement G.m.b.H. & Co. KG in Ham- OLAF BORKERS Member of the Executive Board After serving as a ships officer with the German Federal Navy, Mr Borkers qualified as a bank clerk with Deutsche Bank AG in 1990. He then studied business administration in Frankfurt / Main. From 1995, Mr Borkers worked as a credit analyst for Deutsche Bank AG in Frank furt and Hamburg. In 1998, he joined RSE Grundbesitz und Beteili- gungs-AG, Hamburg, as assistant to the Executive Board. In 1999, Mr Borkers was appointed to the Executive Board of TAG Tegernsee Immobilien und Beteili- gungs-AG, Tegernsee and Hamburg, where he was burg, Europe’s market leader in the area of inner-city shopping centers. As the international holding company’s Chief Financial Officer, he helped shape the expansion of this shopping center developer and was appointed Chief Investment Officer of the ECE Group in 2009. responsible for finances and investor relations until Septem- ber 2005. In addition, Mr Borkers held various Supervisory Board and management positions within the TAG Group. Olaf Borkers joined the Executive Board of Deutsche EuroShop AG in October 2005. He is married and has two children. From 2012 to 2014 Mr Wellner served as Chief Financial Officer of the finance, human resources, legal affairs and organisation departments at Railpool GmbH, a Munich-based leasing com- pany for rail vehicles. Mr Wellner joined the Executive Board of Deutsche EuroShop AG at the start of 2015. He is married and has two children.
E10 REPORT OF THE SUPERVISORY BOARD REPORT OF THE SUPERVISORY BOARD DEAR SHAREHOLDERS, During financial year 2016, the Supervisory Board performed the duties incumbent on it according to the law and the Articles of Association and closely oversaw the performance of Deutsche EuroShop AG. The strategic orientation of the Company was coor- dinated with the Supervisory Board, and the status of the strategy implementation was discussed at regular intervals. The Super- visory Board monitored and advised the Executive Board on its management of the business, and the Executive Board informed us regularly, promptly and in detail of business developments. Reiner Strecker, Chairman Report of the Super- visory Board FOCUS OF ADVISORY ACTIVITIES We conducted detailed examinations of the Company’s net assets, financial position, results of operations, and risk management at our regular meetings. In this context, we also checked that the formal con- ditions for implementing an efficient system of monitoring our Com- pany 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, specifically their sales and frequency trends, the accounts receivable and occupancy rates, and the Company’s liquidity position. At meetings held over the course of the year, in-depth discussions took place repeatedly regarding both the Company’s strategy as well as the question of how the Company should operate in an environment of con- tinuing low interest rates and ongoing, extremely high demand for retail property. Regular discussions were conducted with the Executive Board regarding 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 examined various investment and refinancing options. We received regular reports detailing the turnover trends and payment patterns of our tenants and banks’ lending policies. The Exec- utive Board and Supervisory board also held regular discussions on the how the company was valued by the stock markets and its participants and made peer group comparisons.
Deutsche EuroShop Annual Report 2016 E11 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. Trans- actions requiring the approval of the Supervisory Board were discussed and resolved upon at the scheduled meet- ings. Where required, circular resolutions were passed in writing by the Supervisory Board for transactions of the Executive Board requiring approval. All resolutions in the reporting period were passed unanimously. Some meet- ings were held without the board present. MEETINGS Four scheduled Supervisory Board meetings took place during financial year 2016. In instances in which members of the Supervisory Board did not attend individual meet- ings, they had excused themselves in good and provided good reason. The meeting on 23 September 2016 was not attended by Ms Better, Dr Kreke and Dr Otto. The meeting on 29 November 2016 was not attended by Ms Dohm. At the first scheduled meeting, on 26 April 2016, the Supervisory Board’s annual review of efficiency was com- pleted and the agenda for the Annual General Meeting was approved. We selected the auditor, who was proposed to the shareholders for election at the Annual General Meet- ing held on 15 June 2016. In addition, the Executive Board presented the financial, accounting and tax aspects of the 2015 annual financial statements. The auditor also pro- vided an explanation of the results of the audit of the 2015 annual financial statements. In the subsequent discussion of the 2015 annual financial statements, we attached great important to the explanations of the Executive Board and those of the auditor on the real estate appraisals, which were performed for the first time by Jones Lang LaSalle. The Executive Board additionally presented and subse- quently discussed the long-term plan for the company, which ended with the determination of a dividend strategy for the years up to 2018. In this meeting, we also held dis- cussions with the Executive Board about the consolidation activities being undertaken at listed real estate companies. Lastly, we informed the Executive Board about the cur- rent acquisition opportunities and negotiations, particu- larly about the negotiations to acquire a 50% stake in the Saarpark-Center Neunkirchen. In the meeting held on 15 June 2016, we approved the renewal of the €150 million acquisition credit line negoti- ated by the Executive Board. The Executive Board provided an update on the status of the negotiations for the acquisi- tion of a 50% stake in the Saarpark-Center Neunkirchen, on the basis of which we granted the Executive Board with a negotiating mandate. We also granted the Executive Board a negotiating mandate for another investment opportu- nity – the Olympia shopping center in Brno, Czech Republic. Mr Armbrust, Mr Otto and Mr Striebich did not participate in the passing of this resolution in order to avoid a poten- tial conflict of interests. In addition, we gave the Executive Board a report on the ongoing refinancing for the shopping centers in Hamburg-Harburg, Klagenfurt, Danzig and Pécs. The Chairman of the Audit Committee gave us a report on the current situation regarding the selection procedure for the annual financial statements 2017. In the third meeting on 23 September 2016, the Exec- utive Board informed us about the level of progress made on the planned expansion of the Galeria Baltycka, as well as the about the status of the negotiations relating to the Olympia shopping center in Brno. During this meeting, we unanimously approved the Executive Board’s proposal to acquire a 50% stake in the Saarpark-Center in Neunkirchen. Furthermore, we carried out an in-depth examination of the company strategy, with particular regard to the current developments on the investment, rental and retail markets as well as on the capital markets. The Chairman of the Audit Committee reported on the progress that had been made on the selection procedure for the annual financial statements 2017. In the final meeting on 29 November 2016, we once again carried out an in-depth examination of the latest findings from the acquisitions audit as well as the status of the negotiations vis-a-vis the acquisition of the Olym- pia shopping center and unanimously granted the Execu- tive Board a mandate to conclude the deal. Mr Armbrust, Mr Otto and Mr Striebich once again abstained from this vote for the reasons already mentioned. We also gave the Executive Board our unanimous approval for the intended raising of a €130 million loan for the long-term exter- nal financing of the investment in the Saarpark-Center Neunkirchen as well as for the Herold-Center in Norder- stedt, which was acquired in 2012. We also held extensive discussions on the projections for the past financial year and the Company’s medium-term performance planning as presented by the Executive Board. In this meeting, we also provided an explanation of the process carried out by the Chairman of the Audit Committee for selecting the auditor for 2017. In the end, the Audit Committee proposed to the Supervisory Board two auditors on the basis of an in-depth assessment and a table of rankings. After part- ners from the two proposed auditors had delivered pres- entations in the meeting and a frank discussion was held in which all arguments were weighed up, we followed the proposal put forward by the Audit Committee and intend to once again recommend that shareholders vote for BDO AG Wirtschaftsprüfungsgesellschaft to be named as the auditor for 2017 in the Annual General Meeting to be held in June 2017. The Executive Board ended the meet- ing by reporting on the implementation status vis-a-vis the Compliance organisation within the company owing to new legal regulations.
E12 REPORT OF THE SUPERVISORY BOARD COMMITTEES The Supervisory Board has established three committees: the Executive Committee, the Audit Committee and the Cap- ital Market Committee. Each of the committees is made up of three members. The Executive Committee of the Super- visory 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 committee members to be appropriate. During the reporting period, the Executive Committee and the Audit Committee met on 15 April 2016 for a reg- ular meeting. Furthermore, the Audit Committee met for a meeting on 28 November 2016 to discuss the auditor selection process for 2017. The Audit Committee also discussed the quarterly financial reports with the Executive Board in conference calls on 10 May, 11 August and 11 November 2016. In the conference call held on 11 November 2016, the Audit Com- mittee provided information about the current situation vis- a-vis the auditor selection process for 2017. In addition, the Audit Committee held a conference call with the Executive Board on 7 June 2016 to provide advice on issues relating to the balance sheet. In a conference call held on 11 August 2016, the Exec- utive Committee provided information and advice to the Executive Board on the current progress of the ongoing acquisition negotiations. There was no meeting of the Cap- ital Market Committee in 2016. CORPORATE GOVERNANCE In November 2016, together with the Executive Board, we issued an updated declaration of conformity in relation to the recommendations of the Government Commission pur- suant to section 161 of the Aktiengesetz (German Public Companies Act – AktG) and made this permanently avail- able 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 2017 that no con- flicts of interest had arisen during the financial year 2016. FINANCIAL STATEMENTS OF DEUTSCHE EUROSHOP AG AND THE GROUP FOR THE PERIOD ENDING 31 DECEMBER 2016 At the Audit Committee meeting on 12 April 2017 and the Supervisory Board meeting on 26 April 2017, the Audit Committee and the Supervisory Board respectively exam- ined 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 2016, as well as the manage- ment report and group management report for financial year 2016. The documents relating to the financial statements, the auditor’s reports and the Executive Board’s proposal for the utilisation of the unappropriated surplus were presented to us in good time. The auditor appointed by the Annual General Meeting on 15 June 2016 – 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 meth- ods of consolidation in the consolidated financial state- ments complied with the relevant accounting provisions. In addition, the auditor determined in the course of its assess- ment 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 discus- sion of the annual financial statements and the consoli- dated financial statements on the occasions of the Audit Committee meeting on 12 April 2017 and the Supervisory Board meeting on 26 April 2017 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. It 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 utilisation of the unappropriated surplus and distribution of a dividend of €1.40 per share. The Company’s success in financial year 2016 was the result of its sustainable, long-term strategy and the dedi- cation shown by the Executive Board and our employees, for which the Supervisory Board would like to express its particular gratitude. Hamburg, 26 April 2017 Reiner Strecker Chairman of the Supervisory Board
Deutsche EuroShop Annual Report 2016 E13 THE SUPERVISORY BOARD MEMBERS OF THE SUPERVISORY BOARD Reiner Strecker (Chairman) Karin Dohm (Deputy Chairwoman) Thomas Armbrust Born 1961 Place of residence Wuppertal German 1972 Kronberg im Taunus German 1952 Reinbek German Nationality End of appointment Committee activities Membership of other legally required supervisory boards and memberships in comparable domestic and foreign super- visory bodies for busi- ness enterprises Profession 2017 Annual General Meeting 2017 Annual General Meeting 2019 Annual General Meeting Chairman of the Executive Committee, Deputy Chairman of the Capital Market Committee, Member of the Audit Committee Member of the Executive Committee, Chair of the Audit Committee, Financial Expert Member of the Executive Committee, Deputy Chairman of the Capital Market Committee, Member of the Audit Committee akf Bank GmbH & Co. KG, Wuppertal • Deutsche Bank Europe GmbH, Frankfurt • ECE Projektmanagement G.m.b.H. & (Chair, since 14 November 2016) • Deutsche Bank Luxembourg S.A., Luxembourg (since 1 September 2016) • Deutsche Holdings (Luxembourg) S.a.r.l., Luxembourg (since 1 July 2016) • METRO AG, Dusseldorf (since 19 February 2016) Co. KG, Hamburg (Chair) • TransConnect Unternehmensberatungs- und Beteiligungs AG, Munich (Chair) • Platinum AG, Hamburg (Chair) • Paramount Group Inc., New York, USA • Verwaltungsgesellschaft Otto mbH, Hamburg Personally liable partner, Vorwerk & Co. KG, Wuppertal Global Head of Regulatory Affairs, Deutsche Bank AG, Frankfurt Member of Management, CURA Vermö- gensverwaltung G.m.b.H. & Co., Hamburg Key positions held • 1981 – 1985: Degree in business • 1991 – 1997: Studied business and administration, Eberhard Karls University, Tübingen economics in Münster, Zaragoza, Spain, and Berlin • 1986 – 1990: Commerzbank AG, Frankfurt • 1991 – 1997: STG-Coopers & Lybrand • 2002: Steuerberaterexamen (German tax advisor exam) Consulting AG, Zurich, Switzerland • 2005: Wirtschaftsprüferexamen • 1998 – 2002: British-American Tobacco Group, Hamburg, London, UK, Auckland, New Zealand • 2002 – 2009: British-American Tobacco (Industrie) GmbH, Hamburg, Member of the Executive Board for Finance and IT • 2009 to present day: Vorwerk & Co. KG, Wuppertal • since 2010: Personally liable partner Relationship to major- ity/major shareholders none Deutsche EuroShop securities portfolio as at 31.12.2016 3,975 (German auditor exam) • 1997 – 2010: Deloitte & Touche GmbH, Berlin, London, UK, Paris, France • 2010 – 2011: Deloitte & Touche GmbH, Berlin, Partner Financial Services • 2011 to present day: Deutsche Bank AG, Frankfurt of which 2011 – 2014: - Head of Group External Reporting - 2015: Chief Financial Officer, Global Transaction Banking - 2016: Global Head of Group Structuring - since 2017: Global Head of Regulatory Affairs none 0 • until 1985: Auditor and Tax Advisor • 1985 – 1992: Gruner + Jahr AG & Co KG, Hamburg, Director of Finance • since 1992: Member of Management, CURA Vermögensverwaltung G.m.b.H., Hamburg (Family Office of the Otto family) Shareholder representative of the Otto family
E14 SUPERVISORY BOARD MEMBERS OF THE SUPERVISORY BOARD Born Place of residence Nationality End of appointment Beate Bell 1967 Cologne German, Polish Manuela Better 1960 Munich German 2019 Annual General Meeting 2019 Annual General Meeting Committee activities – – Hochtief AG, Essen Membership of other legally required supervisory boards and memberships in compara- ble domestic and foreign super visory bodies for business enterprises • Deka Investment GmbH, Frankfurt (Deputy Chair) • Deka Immobilien GmbH, Frankfurt (Deputy Chair) • Deka Immobilien GmbH, Frankfurt (Deputy Chair) • Landesbank Berlin Investment GmbH, Berlin (Deputy Chair) • S Broker AG & Co. KG, Wiesbaden (since 15 August 2016, Deputy Chair since 11 August 2016) • S Broker Management AG, Wiesbaden (since 15 August 2016, Deputy Chair since 22 August 2016) • WestInvest Gesellschaft für Investmentfonds mbH, Dusseldorf (Deputy Chair) • DekaBank Deutsche Girozentrale Luxembourg S.A., Luxembourg Profession Managing Director, immoADVICE GmbH, Cologne Member of the Board of Management, DekaBank Deutsche Girozentrale, Frankfurt and Berlin Key positions held • 1993 – 1997: Studied supply engineering at • Studied business at Ludwig Maximilian University of Munich, Cologne University of Applied Sciences, certified engineer • 2000 – 2003: Studied industrial engineering at Cologne University of Applied Sciences, certified industrial engineer • 1997 – 2002: Anton Ludwig GmbH, Cologne, Project Manager • 2002 – 2004: Recticel Automobilsysteme GmbH, Rheinbreitbach, Project Controller certified business economist • 1998 – 2003: HVB Group, Munich, various positions • 2004 – 2007: Hypo Real Estate Bank AG, Munich, Member of the Management Board, Chief Risk Officer • 2007 – 2008: Hypo Real Estate Bank International AG, Stuttgart / Hong Kong, Member of the Management Board, Head of Commercial Real Estate, Origination Asia • 2009 – 2010: Deutsche Pfandbriefbank AG, Munich, Member of the Board of Management (formerly Hypo Real Estate Bank AG) • 2011 – 2013: DEPFA Bank plc, Dublin, Ireland, Chairwoman of the Board of Directors, • 2004 bis 2015: METRO GROUP, Dusseldorf, Chief Risk Officer various management functions; most recently METRO AG, Dusseldorf, Head of Group Compliance • 2010 – 2014: Hypo Real Estate AG Holding AG, Munich, Chairwoman of the Management Board, and Deutsche Pfandbriefbank AG, Munich, Chairwoman of the Management Board • since July 2015: immoADVICE GmbH, • since 2009: Dr. Ingrid Better Vermögensverwaltung GmbH & Co KG, Managing Dusseldorf, Managing Director Director and Better GmbH, Munich, Managing Director • since June 2015: DekaBank Deutsche Girozentrale, Frankfurt, Member of the Board Relationship to majority / major shareholders none Deutsche EuroShop securities portfolio as at 31.12.2016 0 of Management none 0
Deutsche EuroShop Annual Report 2016 E15 Dr. Henning Kreke Alexander Otto Klaus Striebich Roland Werner 1965 Hagen / Westphalia German 1967 Hamburg German 1967 Besigheim German 1969 Hamburg German 2018 Annual General Meeting 2018 Annual General Meeting 2017 Annual General Meeting 2020 Annual General Meeting Member of the Capital Market Committee – – – • Douglas GmbH, Dusseldorf (Chair, since 19 August 2016) • Douglas Holding AG, Hagen / West- phalia (Chair since 27 January 2016) • Thalia Bücher GmbH, Hagen / West- • DDR Corp., Beachwood, USA • Peek & Cloppenburg KG, Dusseldorf • Sonae Sierra Brasil S.A., São Paulo, • MEC Metro-ECE Centermanagement – GmbH & Co. KG, Dusseldorf (Chair) • Unternehmensgruppe Dr. Eckert Brazil GmbH, Berlin • Verwaltungsgesellschaft Otto mbH, phalia (since 26 January 2017) Hamburg Chairman of the Board of Management, Douglas Holding AG, Hagen / West- phalia (until 27 January 2016) Managing partner, Jörn Kreke Holding KG und Kreke Immobilien KG, Hagen / Westphalia CEO, Verwaltung ECE Projekt- management G.m.b.H., Hamburg Managing Director Leasing, Verwaltung ECE Projektmanagement G.m.b.H., Hamburg Chairman of the Board of Management, Bijou Brigitte modische Accessoires AG, Hamburg • Studied business (BBA and MBA) at the University of Texas at Austin, Austin, USA • Studied at Harvard University and Harvard Business School, Cambridge, USA • Studied business in Mosbach • 1990: Kriegbaum Gruppe, Böblingen, • Studied business to EBC University, Hamburg Assistant to the Management Board • 2001 to present day: Bijou • Doctorate (Political Science) from • 1994 to present day: Verwaltung • 1992 to present day: Verwaltung ECE Projektmanagement G.m.b.H., Hamburg ECE Projektmanagement G.m.b.H., Hamburg Brigitte modische Accessoires AG, Hamburg • of which 2004 – 2009: Member of • since 2000: Chief Executive Officer • since 2003: Managing Director the Board of Management Leasing • since 2009: Chairman of the Board of Management the University of Kiel, Kiel • 1993 to present day: DOUGLAS HOLDING AG, Hagen / Westphalia • of which 1993–1997: Assistant to the Executive Board • 1997 – 2001: Member of the Board of Management • 2001 – 2016: Chairman of the Board of Management • since 2016: Chairman of the Super visory Board • since 2016: Jörn Kreke Holding KG and Kreke Immobilien KG, Hagen / Westphalia, Managing partner none 0 Major shareholder Member of the Management Board of Verwaltung ECE Projektmanagement G.m.b.H., Hamburg (Alexander Otto (major shareholder) is the Chairman of the Management Board) 9,349,125 24,000 none 525
E16 SHOPPING WHO SHOPS, AND HOW? GERMANY'S LARGEST ANALYSIS OF SHOPPER TYPES HAS THE ANSWERS by Dr. Philipp Sepehr, Director of Marketing, Research & Innovation, ECE as service-oriented, customer-friendly "worlds of experience", and to suitably align their product range, mix of tenants and facilities to the respective local customer requirements. This is a central factor par- ticularly when competing against online trade. The findings from the analysis form an integral part of the shopping center's strategy, and they also have an indirect effect on areas such as leasing, design and architecture. The results of the shopping types analysis provide the basis for this approach. A total of eight shopper types are defined, and pre- cisely typified by applying criteria such as shopping behaviour, per- sonal intention and preference when shopping, as well as age, size of household, gender and income. The eight types of shopper defined in detail are: the brand-oriented Status Shopper and the rather restrained Light Shopper, the experience-oriented Experience Shopper and the efficient Mobile Shopper, the advice-seeking Golden Shopper and the group-dynamic Fun Shopper, and then there is the habitual Pragmatic Shopper and the relaxation-seeking Feel-Good Shopper. Do the Shopper Type self-assessment test! You will find it at: www.ece.de/shoppertypen-selbsttest E CE has for the first time produced a major, nation- wide, representative analysis of the different types of shopper in Germany, using a precise segmentation by various customer groupings, each with their own specific characteristics. It is the first and also the largest analysis of this kind in Germany. It covers a particularly broad range of shopping criteria, and produces results that are more exact and informative than ear- lier definitions of shopper types which merely took account of factors such as age and income, and therefore often led to imprecise results. The aim of the analysis is to obtain a better understanding of the customer groups with their individual preferences and shopping behav- iours, by means of segmentation. Based on this information, ECE can develop product selections that are an ideal match for the customers at the shopping centers that it manages, and work with its investors and tenants to make well-informed strategic decisions. For example, the marketing, design and positioning can be optimised in the long term for individual centers based on the prevailing shopper types at each loca- tion. Likewise, certain services can be expanded, or specific customer groups can be addressed, which had until now been under-represented at a particular location. The results of the analysis are particularly useful as an aid to positioning the shopping centers more strongly
STATUS SHOPPER THE BRAND LOVER "I love brand names and I always want to have the newest and latest models.“ SHOPPER THE EXPERIENCE-ORIENTED Deutsche EuroShop Annual Report 2016 E17 EXPERI- ENCE "For me, shopping is a total package.“ The result the shoppin types anal provide the basis for t approach. A total of eight shopper ty are define “For me, shopping is a total package. That's why I like to go with my family and friends. In the shopping centers, we like to enjoy the complete experience of shopping, eating, drinking and entertainment, and we specially like to have a large selection to choose from, also for electronics.” • enthusiastic all-round shopper • special offers are gladly accepted • tends to be offline • food and beverage outlets are an SHOPPING AS A TOTAL PACKAGE FAMILY-ORIENTED QUALITY-CONSCIOUS AGE 20-39 AGE 40-54 important part of it • with family or partner • the fun factor is very important Gender Income Education BRAND-CRAZY CONSUMERIST EXTROVERTED • brands help in image cultivation • special offers are very much appreciated • online and offline • food and beverage outlets are appreciated • alone, without a companion • the fun-factor is very important, likes to be spontaneous “I love brand names and I always want to have the newest and latest models – espe- cially when it comes to electronics and fashion! This is how I express part of my personality and I also like to put it online immediately on social networks. To see and be seen is simply important to me when shopping.” Gender Income Education
E18 SHOPPING How do different people do their shopping? FEEl- GOOD SHOPPER THE ONE WHO TAKES TIME-OUT "To me, shopping is really a reward! ” SHOPPING AS A REWARD VERY ENJOYABLE RELAXED AGE 45-59 • interested in fashion • special offers are not so important • tends to be offline • not very interested in food and beverage outlets • alone, without a companion • the fun factor is very important “To me, shopping is really a reward! I enjoy the pleasant times while shopping. It's my personal time-out from the stressful daily routine. I simply like to roam about alone and relaxed through the fashion shops. Brands / labels are not so important to me, but the quality has to be good.” Gender Income Education FUN SHOPPER THE ONE WITH GROUP DYNAMICS "It's just cool to meet up with my friends in the after- noon at the shopping center.” FUN-ORIENTED YOUTHFUL PRICE-CONSCIOUS AGE 16-24 • favourite hobby • special offers are rather secondary • tends to be offline • interesting, likes fast food • likes to be with friends • the fun factor is very important “It's just cool to meet up with my friends in the afternoon at the shopping center. You can pick up the latest fashions there, do lots of different activities, and have fun together. I also go there with my parents – then they are welcome to settle the bill. Otherwise, I do carefully check the prices of clothes.” Gender Income Education
SHOPPER THE EFFICIENCY EXPERTS Deutsche EuroShop Annual Report 2016 E19 MOBILE "For me, it is not the shopping but the product and the price that take priority.” shopping t provide the b for this ap total of eight s types are d precisely t applying cri as shopping behaviour “For me, it is not the shopping but the prod- uct and the price that take priority. I take a very rational approach here! Therefore, I also usually go shopping alone. The main thing is that everything goes quickly and easily and the price-performance ratio is right! It is important that I have a big selection to choose from, particularly for electronics. I am simply the efficient type.” • easy, fast and inexpensive • hardly any interest at all in special offers • prefers offline • not very interested in food and beverage AGE 30-54 ONLINE FOCUSSING ON PRODUCTS EFFICIENT • likes to go alone, unaccompanied • the fun factor is extremely low priority Gender Income Education 25-44 AGE outlets WILFUL RISK-AVERSE CRITICAL • convenience shopper • special offers do not play a central role • prefers offline • not very interested in food and beverage outlets • likes to go with partner when shopping • the fun factor is rather a low priority “When it comes to shopping, I tend to be the risk-averse type, so for me online is not really an option; the risk of buying an unsuit- able item would simply be too high for me. I have to feel the item in my hands. Then if there's something I like, the price is of sec- ondary importance.” LIGHT SHOPPER THE ONES WHO EXERCISE RESTRAINT "I have to feel the item in my hands.” Gender Income Education
E20 SHOPPING esults of hopping s analysis PRAG- MATIC MASTER OF THE ROUTINE SHOPPER e the "Shopping is more of a necessary routine for me, which is a part of life.” AGE GOLDEN SHOPPER LOOKS FOR ADVICE "I like rou- tines and I don't run after every new trend that comes along.” CONSERVATIVE OFFLINE ROUTINE AGE 55-69 • requires advice • not very interested in special offers • almost entirely offline • not very interested in food and beverage outlets • with the partner • the fun factor is rather a low priority “I am rather the conventional type when it comes to shopping. I have my usual stores where I get good advice and find precisely the products that meet my needs. I like rou- tines and I don't run after every new trend that comes along.” Gender Income Education is for this SHOPPING AS DAILY ROUTINE COMFORTABLE FUNCTIONAL 45-59 • convenience shopping, ach. A • hardly any interest at all in special offers • online and offline • not very interested in food and beverage quick and easy outlets • with family or partner • the fun factor is of average importance “Shopping is more of a necessary routine for me, which is a part of life. I like to do my shopping locally. I do not consider brands to be very important. Likewise when it comes to food and beverage outlets. Online or offline, whatever is more convenient at the moment, and leaves me more time for the really important things besides career and family.” al of eight er types efined Gender Education Income
Deutsche EuroShop Annual Report 2016 21 BOOK RECOM - MENDATION WORLD OF MALLS ARCHITECTURES OF CONSUMPTION The book World of Malls. Architectures of Consumption has been pub- lished following an exhibition of the same name that was on display at Munich's Pinakothek der Moderne museum from July to October 2016. The work explores a type of building that was invented in the United States nearly 60 years ago and quickly became popular throughout the world. Because of urban planners' increasing focus on car transport, the mall become a substitute for lost urban life. But where next for the shopping mall? On the one hand, spectacular new malls are still opening across the US, Asia, the UAE and Europe. At the same time, however, many malls are lying derelict, with some being converted and redeveloped for alternative purposes. No other type of building is discussed with such controversy: Do shopping malls kill or revitalise life in towns and cities? In their contributions to this book, urban planners, economists and architectural historians such as Anette Baldauf, Bob Bruegmann, Dietrich Erben, Richard Longstreth, Alain Thierstein, June Williamson and Sophie Wolfrum examine the transformation processes of the shopping mall from the 20th to the 21st century. Hatje Cantz Verlag, 2016, bound, 256 pages, 200 images, price: EUR 49.80, ISBN 978-3-7757-4139-2
E22 SHOPPING WHAT I BOUGHT IN 2016 Our old dishwasher was faulty despite being only six years old. We received an estimate of €250 for the repair costs. We decided to buy a new Miele dishwasher, which has a significantly lower power consumption and is slightly more expen- sive, but will ideally last longer. It was interesting that the dishwasher was offered as a full-service package at a much better price by an electrical store in a shopping center than from online retailers. The rational purchases that I can best remember are lightbulbs and LED lamps. If I hadn't bought these, I'd be enveloped in darkness and I'm always astonished by the variety of lamps on offer. I bought these from Clas Ohlson not long ago and am thoroughly enjoying them. To provide more space for guests visiting my home, I bought a large dining table with chairs and a bench. It's both functional and beautiful at the same time, and also makes the company of family and friends even more congenial. The new carrier attached to the tow bar on our car; three bicycles fit into it. It's a space-saving and brilliant invention for fam- ily holidays! WILHELM WELLNER Spokesman of the Executive Board, Deutsche EuroShop A brilliant music box with a disco light, Bluetooth and karaoke function. When I found it, I knew right away that it was the perfect Christmas gift for my daughter ... I O NAL - T - EM O OLAF BORKERS Member of the Executive Board, Deutsche EuroShop BIRGIT SCHÄFER Secretary to the Executive Board, Deutsche EuroShop PATRICK KISS Head of Investor & Public Relations, Deutsche EuroShop Two tickets for a trip in a hot-air balloon close to Hamburg with Jochen Schweizer. I'm getting emotional about it even before we take to the skies. As I had the urge to buy new glasses, I sponta- neously stopped by the optician and bought a pair of glasses that I liked from the very first time I saw them. Technically speaking, this was not “my” pur- chase, but “our”purchase of the year – a cello for my wife. She is over the moon with the instru- ment, practices diligently and has already played in a concert. ... DECIDE USING YOUR GUT FEELING
... ALL FACTS CHECKED ATIO N Deutsche EuroShop Annual Report 2016 E23 A L - Without making any mod- ifications to it, my gas grill can be lit only using gas cartridges that are similar to those used on camping trips, and that's neither sustainable nor cost-effective. Thanks to a small retrofitting set, I can now also connect “real” gas cylinders to the grill. This means that I can now look forward to grilling in the summer with less stress. R - When I wear my neon- yellow windstopper shoe covers, some people can't help but grin. However, they help me to ride to work on my bike in the winter without getting cold feet and they always make sure that I'm visible to other road users. Our old washing machine was almost 20 years old, didn't really wash the clothes very well and also consumed too much power. We had to buy a new one! I took out travel cancel- lation insurance for my holiday – it's actually the first time I've done this. Previously, I always thought that buying this insurance was uncool. I am a passionate skier and finally decided to buy myself a back protector. This does not make my outfit look any cooler, but I am better protected when I hit the piste. BRITTA BEHRMANN Senior Finance Manager, Deutsche EuroShop RALPH BORGHAUS Head of Accounting, Deutsche EuroShop Wonderful earrings that I bought for myself from a German hippie in a silversmith's in a small town in Spain. It was an excellent souvenir of my holidays! As I was full of the Christmas spirit, I spon- taneously bought a Märk lin model steam tender locomotive. The train will definitely be busy doing laps of the tracks for the next few Christmases. DR. PHILIPP SEPEHR Director of Marketing, Research & Innovation, ECE I bought a photograph shot by a Chinese artist from the Affordable Art Fair in Hamburg, where I realised that “affordable” is a very relative term. DR.TANJA-MARIA LACHHAMMER Consultant and Lecturer in Marketing, Sales and Customer Management When I was travelling to the south of France for my holiday, I spontaneously bought a handbag and spent all of my holiday money before the holiday had even begun. Despite this, I have never regret- ted buying it. NICOLAS LISSNER Manager Investor & Public Relations, Deutsche EuroShop A small Buddha statue from a seller of devo- tional objects close to the town hall in Bangkok. The export of religious objects in Thailand is heavily regulated; however, the talisman's journey from Thailand to our living room in Hamburg fortunately proved to be no problem at all in the end.
E24 SHOPPING WHAT GOES THROUGH YOUR MIND BEFORE SHOPPING ... OMNICHANNEL MARKETING AND BRAIN RESEARCH – A PROMISING APPROACH FOR WINNING NEW CUSTOMERS AND BUILDING CUSTOMER LOYALTY IN THE RETAIL SEGMENT by Dr. Tanja-Maria Lachhammer, adviser and lecturer on sales, marketing and customer management O ur world has undergone rapid change since the arrival of the Internet. We live in an information and knowledge-based society and make great use of the new digital offerings. This trend towards digitalisation has also been adopted by the retail segment, which – with annual revenues of more than €450 bil- lion – is one of the key economic factors in our country. The combination of technological progress and the use of new technologies is resulting in a change in customer requirements for the retail segment. As the link between manufacturers and consumers, the traditional position of retailers – who generally offer their products and services from fixed locations – has changed in the era of digitalisation. Falling visitor numbers, empty shop windows and deserted shopping streets – par- ticularly in small and medium-sized towns and cities – show that the retail segment has only anticipated these challenges to a limited extent. Experts have named four main factors as being the catalyst for this development, which is driving the current momentum of the situation in the retail segment; market-related factors, sales-related develop- ments, demand-related parameters and new digital technologies. Of the various solutions on offer for dealing with the current prob- lems in the retail segment, two stand out in particular: 1. The omnichannel sales concept as a technology-based option for adopting and implementing new forms of digitalisation in the retail segment 2. The latest findings from research into the brain used as the basis to establish what customers’ basic needs are – both now and, more importantly, in the future.
Deutsche EuroShop Annual Report 2016 E25 Less is sometimes more Too much choice is stressful. Clients who in an experiment were allowed to try 24 kinds THE OMNICHANNEL MODEL AS A TECHNOLOGY-BASED CONCEPT FOR SALES IN THE RETAIL SEGMENT The proliferation of the Internet has resulted in the end of exclusive single-channel sales; however, this also marks the birth of multi- channel retail. Often, bricks and mortar businesses, online shopping, social media and mobile apps are not linked together, but exist in parallel. The omnichannel concept is the first to link the various sales chan- nels together. Thanks to this approach, customers are able to switch between shopping in bricks and mortar stores, online stores and via mobile apps at any time. This concept not only allows them to discover new products, but also carry out research to gain additional information about products and services before making purchases at retail stores or via shopping apps. The ultimate goal of omnichannel retail is to provide a seamless experience in which the consumer deals with the brand and not the sales channel. One example of a business using the omnichannel model is the British supermarket chain Tesco. As part of of jam bought less than those who tasted only its model, Tesco customers can use the time they spend waiting at train stations, bus stops and in public places to do their shopping in virtual stores by means of a QR code. At Douglas, customers can order goods online and then decide whether they want to have them delivered to their home or collect them from the store of their choice. six kinds. CUSTOMER FOCUS – CONSEQUENCES OF DIGITALISATION IN THE RETAIL SEGMENT An almost expected consequence of the implementation of new dig- ital technologies in omnichannel retail marketing is that the focus is placed on the customer (customer-centric retailing). This is because the digitalisation of marketing materials allows customers to gain a level of information that is frequently more comprehensive and in-depth than the information that sales staff are able to provide.
E26 SHOPPING Thanks to this imbalance of information, customers hold a new posi- tion in the shopping experience. This means that customers’ expec- tations and demands vis-a-vis the price, quality and service offered by sales people increase at the same time. This not only generates a bargain-hunting mentality, but can also have a boomerang effect if customer expectations are not fulfilled in terms of their demands and needs. In order to find a solution to this set of problems, the retail segment is attempting to evaluate the transaction data and purchase history recorded in the various channels, for example. Quantitative procedures are used primarily to analyse this historical information. This, how- ever, means that the findings obtained from these procedures will be extremely situation-dependent and will not provide an answer to the crucial question of what will the customers needs be in the future? Another question resulting from this is how will the instruments and information to be used in omnichannel marketing be designed and structured? In other words: What basic needs will the customers of the future use to make their decisions and how can these basic needs be factored into omnichannel marketing? To answer this question, the latest findings from brain research and their implementation should be incorporated into a qualitative opinion and market research approach. THE LATEST FINDINGS FROM BRAIN RESEARCH 1 The depicted findings from brain research relate to the processing of external information in the brain and the associated decision-making process. This is because customers use the information transmitted externally to them via omnichannel marketing activities to ulti- mately make their decisions. If the cause of decision-making activities in the human brain triggered by external information can be traced, omnichannel marketing can link and structure the use of its instruments and the infor- mation presented in the brain to such an extent that the customer makes a positive decision about a product and the retailer. Modern brain research shows that decision-making processes take place to a large extent unconsciously. The drive behind our actions and the decisions we make is the satisfaction of basic biological and sociobiological needs, as the aim of an organism is to survive. This raises the question of who judges whether our basis needs have been satisfied? The receiving of information or a stimulus is required for our brains to initiate a decision-making process. When our senses receive a stimulus, the question arises as to whether the associated information helps to satisfy our basic needs. In order to answer this question, three biological assessment systems are mobilised in the following order in our brains – the fear system, the reward system and the personality / social system (social I). The decision-making process Heart or gut Decisions that people say come from the gut or the heart actually come from the limbic system in the brain, where our emotions are located. kicks off with the initiation of these three systems. Due to their evolu- tionary biological preprogramming, the three assessment systems in our brains specialise both in identifying and assessing opportunities to satisfy our basic needs, as well as steering our focus towards aspects that may affect or endanger our lives. Once the three assessment systems have “decided” that the incom- ing information poses no risk (fear system), is rewarding (reward sys- tem) and does not breach any of our standards and / or values (social I), information-processing takes place on two additional levels. Without factoring in the right-hand biographical image-processing hemisphere of the brain and the left-hand language-processing hemi- sphere of the brain with the so called “fact memory”, the biological assessment would come to nothing. Therefore, the right hemisphere of the brain in particular is needed in the decision-making process, as this is where memories of the person's past are stored. In the collabora- tion between the three assessment systems and the right and left brain hemispheres, strategies are developed on the basis of the incoming information and forwarded to the premotor cortex. In a manner of speaking, the premotor cortex maps the future actions as pro- jected actions in a simulation. No decisions, how- ever, have been made at this point in time. The result of the simulation generated in the right hemisphere of the brain still has to be translated consciously into an action. For this pur- pose, the result of the future simulation is forwarded to the body via the hypothalamus – in an information loop, effectively. This is how the so-called gut feeling (bodily perception) is developed. An action is only initiated after the working memory / consciousness has provided a pos- itive assessment of the situation. If we are able to successfully reproduce how the brain processes information in a qualitative market research model, and thus obtain information about the way in which customers develop strategies for the future as well as the associated decisions, omnichannel marketing can overcome the complex set of problems facing the retail segment and answer the questions raised in a constructive manner. 1 The following information and diagrams have been taken from various publications released by the Infos-Instituts für Organisationsforschung und Systementwicklung (information institute for organisational research and system development), Munich, with the institute's approval. In agreement with the institute, the author did not have to properly reference each citation taken from publications from the institute.
E28 SHOPPING The entire decision-making process in the human brain can be sim- plified into four fundamental aspects – the subject matter of the infor- mation (the information stimulus), the satisfaction of basic needs via the three assessment systems, the pictorial depiction in the right bio- graphical memory as well as the initiation of an action, which can also take place via speech. Basic human needs can be split into three categories / levels: bio- logical evolutionary needs (e.g. communication, nutrition, freedom of action), culturally moulded needs taking the form of symbols for exam- ple (e. g. the cross, a Ferrari as a status symbol, etc.) and basic needs that are the result of an individual person's life history (e. g. the sense of self-worth). Should we be able to utilise a method that filters out the individ- ual basic needs from the decision-making process, then all that will generally remain are the biological evolutionary basic needs and the culturally moulded basic needs. These must then be examined to see whether they have been satisfied by the processed information pro- vided by the omnichannel marketing or whether there are needs that haven't been satisfied. This analysis is then used as the basis for draw- ing up recommended actions and strategies. Over the course of approximately ten years, a large number of pro- jects have been carried out using deeply symbolic opinion and market research. One such project involved a study carried out at a German airport to establish what changes customers would make to the existing shops in the shopping center so that all their wants and needs were satisfied. The interesting thing about this project was the comparison of the results of the two research studies held at different points in time in 2005 and 2013, and the evolving changes in the needs of the shopping center customers. One of the main findings of the analysis was the differences in the satisfaction of basic needs between men and women, young people and old people, as well as introverts and extroverts. The results were not only factored into the redesign of the shops to create a shopping experience concept, but also into the setting up of omnichannel marketing. These changes brought about increased revenue, new customers and a large number of return customers.
E30 SHOPPING CONSUMPTION IN 2017 A RELIABLE SOURCE OF SUPPORT IN UNCERTAIN TIMES? by Rolf Bürkl, GfK
Deutsche EuroShop Annual Report 2016 E31 Bright light! Did you know? Bright light intensifies our emotions, while more rational decisions tend to be made in darkness. P rivate consumption remains an important source of sup- port for the German and European economy, as GfK fore- casts suggest that private household spending in Germany is set to increase by 1.5% in real terms in 2017. It expects an increase of between 1% and 1.5% for the European Union. This will ensure that private consumption continues to contribute to positive economic growth. The retail trade, too, will benefit from rising consumer spending. GfK also expects a 2% increase in food retail and a 0.8% increase in spending on items other than food. CRAFTY THIEVES Whether its perfumes, spirits or electrical appliances – in the retail business, the things that tend to get stolen are those with a certain value. In over half of all thefts, this value exceeds the so-called “petty crime” threshold of €15. According to the EHI Retail Insti- tute, the average value stolen in a straightforward shoplifting incident is around €86. EUROPE: CONTINUING POSITIVE ECONOMIC GROWTH With a view to economic growth in Europe, 2016 was a positive year. All EU countries, with the exception of Greece, enjoyed an increase in GDP. A European Commission estimate in November calculated the average growth as 1.8% versus 2015. As part of this, Eastern European countries in particular, such as Poland, Slovakia and Bul- garia, continued with their dynamic development. Leading the pack was Romania with GDP growth of 5.2%, followed by Ireland, which was able to build on its strong growth in previous years and generate an increase of 4.1% in 2016. For 2017, the European Commission anticipates a somewhat moderate 1.6% increase in the average GDP for the EU. UNEMPLOYMENT DECLINES BY 7% Unemployment in the EU fell on average by 7% in 2016, with Croatia, Hungary, Slovakia and the Netherlands recording large drops. The only countries to experience an increase in the rate of unemployment were Estonia, Norway, Denmark and Italy.
E32 SHOPPING once again Greece, which experienced a 0.5% decline as private con- sumption continues to suffer the consequences of the financial and economic crisis. The sharpest increases were once more recorded in Eastern Europe – particularly in Romania, which benefited from another VAT cut – as well as in the Baltic States. GERMANY: RETAIL CONTINUES TO GROW Positive economic conditions and persistently good consumer sentiment in Germany will precipitate further growth in retail sales in 2017 too. Food retail is expected to grow by 2% to €179.5 billion. The main drivers of this positive growth are the increasing number of households in Germany, which is the result of constant population growth and the posi- tive migration balance, in addition to improving consumer sentiment. While hypermarket chains only grew very moderately in 2016, chemists’ stores and full-range retailers in particular enjoyed an increase in revenue. In 2016, discounters halted the declining trend from previous years and defended their market share. CONTINUED HUGE DIFFERENCES IN THE WILLINGNESS TO SPEND The willingness of European consumers to spend has in 2016 devel- oped at different rates once again and has only benefited in part from declining unemployment figures. While Greece continues to have the lowest rating of all EU countries, Portugal enjoyed a considerable recovery with its willingness to spend increasing by 21 indicator points. In abso- lute terms, however, Portugal is bringing up the rear in comparison with other European coun- tries, along with Greece, Lithuania, Spain and Estonia. Over the past year, gains were able to be made in line with the decline in unem- ployment in Bulgaria, France and Poland in particular. 70 % We largely make our shopping decisions unconsciously. And the 30 per cent of people who do think about their shopping are not always immune to external influences. 2.1% INCREASE IN PRIVATE CONSUMPTION As in the previous year, private consumption in Europe recorded a solid real growth of 2.1% and made a significant con- tribution towards economic growth in the EU. The only exception was CONSUMER CLIMATE IN GERMANY in points 2011 2012 2013 2014 2015 2016 17.9 20 15 10 5 0 -5 -10 -15 -20 Source: GfK consumer survey on behalf of the EU Commission | 12 / 16
Deutsche EuroShop Annual Report 2016 E33 +16 +9 +23 +5 +16 +2 +48 -5 +13 +4 +21 +9 +16 +2 +22 -6 +13 -5 +7 -2 +12 +5 -2 -4 +30 +9 -36 +7 -6 -1 -10 +7 In the non-food segment, GfK anticipates a moderate 0.8% increase to €170.6 billion, which can be attributed to saturation trends in the textiles and electronics markets, among other things. In light of this, the non-food retail segment profited less from the generally good con- sumer sentiment in 2016 than the food retail segment. In 2016, online retail grew by a further 8% – a trend that will also continue in 2017. Consumers are also continuing to focus on capital expenditure for longer-term benefits, which was reflected, among other things, in the sharp increase in the number of house-building projects being completed in the past year. RISKS FOR THE CONSUMPTION FORECAST FOR 2017 The GfK forecasts for consumption growth in Europe and Germany are conservative in view of potential renewed consumer uncertainty in 2017. The factors generating uncertainty in this respect include the cur- rent strong resurgence in inflation, the upcoming Brexit negotiations, elections in key European countries such as France, the Netherlands, Germany and probably Italy, as well as the future orientation of the new US government. ECONOMIC EXPECTATIONS IN EUROPE December 2016 Indicator > +20 Indicator 0 to +20 Indicator 0 to -20 Indicator < -20 EU as a whole: +18,5 Change in indicator: September to December > +5 1 to 5 -1 to +1 -5 to -1 < -5 Source: GfK | EU-Commission
34 CENTER OUR PORTFOLIO The success of our company lies in our shopping centers. After purchasing the Saarpark-Center in Neunkirchen in October 2016 and the Olympia Center in Brno (Czech Republic) in March 2017, our company owns 21 shopping centers, each one unique. Of these, 17 are located in Germany, with one each in Austria, Poland the Czech Republic and Hungary. Together, they contain 2,703 shops on an area covering 1,086,600 m². O ne particular highlight is our retail occupancy rate of on average 99%. This figure provides a simple and concise insight into the quality of our portfolio. We are particularly proud of the fact that we have been able to maintain this fig- ure at a consistently high level since our company came into being. Our investments are squarely focused on Germany, which accounts for 82%. ALWAYS IN THE BEST LOCATIONS The concepts of property and location are impossible to disentangle from one another. And when you add retail into the equation, location is more than an attribute; it is quite simply the basis for success. Our tenants naturally want to be where their customers expect them to be. They and their shoppers can be sure that each of our 21 shopping centers is in a prime location for them. Most of our properties are situated in city centers: places where people have been coming together for hundreds of years to meet and sell their wares. In many cases, our centers are immediately adjacent to local pedestrian zones. Stadt-Galerie Passau Our portfolio also includes shopping centers in established out-of- town locations. These centers with their excellent transport links have offered visitors and customers a welcome change for many years, in some cases even replace city shopping expeditions altogether and fre- quently have a strong pull beyond the immediate region. places where pcoming togethehundreds of yto meet and selIn many cases, ouimmediately adpedestrian zonOur portfolio al
Deutsche EuroShop Annual Report 2016 35 OUR CENTERS No. of centers Domestic Inter- national 17 4 Total 21 Leasable space in m² 880,600 206,000 1,086,600 No. of shops Occupancy rate * Inhabitants in catchment area in million * including office space 2,060 99% 643 99% 2,703 99% 16.7 3.4 20.1 ALWAYS CONVENIENTLY ACCESSIBLE Whether in the city center or outside the city gates: we give particular priority to transport links for each of our properties. In cities, we like to be close to public transport hubs. In Hameln und Passau for example, our centers are right next to the main bus stations. Our properties in Norderstedt und Hamburg-Billstedt are directly above or adjacent to metro stations. All of our shopping centers also have their own parking facilities, offer- ing visitors and customers convenient and affordable parking, even in city centers. This ensures optimum accessibility by car, too. Our out- of-town properties offer a large number of free parking spaces. These particular locations are alongside motorways, making them very easy to reach, such as the A10 Center in Wildau on the A10 (Berlin ring road) or the Main-Taunus-Zentrum in Sulzbach on the A66. Parking spaces reserved for women and people with disabilities are offered as part of our service at all our shopping centers. e people have beeher for f years d sell their wares, our centres ary adjacent to local ones.io also includes
E36 CENTER Cues Most of us don’t know it, but there are a lot of subtle messages, such as body posture, odours or language style of the salesperson that reach our brain and influence our decision. SUCCESSFUL MIX Each of our 21 shopping centers has a unique tenant structure result- ing from a long, intensive and ongoing process. This process focuses on meeting the needs of customers and supplementing the range of shops in each city center. Our goal is always to work with retailers in the neighbourhood to make the entire location more attractive so that everyone can benefit from the increased appeal of the city center as a whole. Our centers often play an active role in the marketing and manage- ment of each city, both financially and in terms of personnel and crea- tive input. We attach great value to fair collaboration and partnerships. ARCHITECTURE WITH SOMETHING SPECIAL When we design our locations, architecture always has a special impact: specific plot requirements are just as important as the func- tional specifications of our tenants. We also always have a responsi- bility towards the city and its residents, and it is important to us that we fulfil this. This includes the best-possible integration into the urban landscape, combined with an exterior that meets modern architectural standards. To this end, we work very closely with the local authorities. The results are clear: the outcome is often an architectural gem, where even unique historical buildings can be lovingly integrated into the center when possible, as is the case, for example, with the listed former Intecta department store, which is now structurally part of the Altmarkt-Galerie Dresden. What is inside counts too, however: the interiors of our shopping centers also need to be impressive, as the most important thing is that visitors and customers enjoy shopping there and experience the space in a special way. To achieve this, we opt for simple and timeless architecture, making use of premium materials that often have their origins in the region. Quiet rest areas, lovingly placed plants and foun- tains invite people to take a moment out to relax, innovative lighting concepts create the right atmosphere to suit the time of day, and state- of-the-art climate control technology provides a pleasant “shopping climate” all year round. Everything is designed to make each visitor enjoy being in the center and want to keep coming back. Ongoing modernisation and optimisa- tion ensure that our centers retain their value and remain competitive. Visitors should feel happy and comfortable with us – whatever their age. It goes without saying that our centers are designed for
Deutsche EuroShop Annual Report 2016 E37 Altmarkt-Galerie, Dresden – inside and out Some tenants significantly expand their retail spaces so they can con- vert the shop from purely a retail area into a true experience arena. The idea is to give customers more opportunities to take the time to try out and experience the product on site. Ever more intensive consultation is also part of this. The role all of these factors play is growing steadily, particularly in the age of increasing online shopping. We provide customised solutions to meet the demand for ever more varied spaces. We can offer all tenants the exact floor plan they need to make their concepts a reality in our centers and are also able to respond if a tenant wants to make changes to an existing retail space later on. Moving the internal walls makes it possible to adapt virtually any retail space – to make it bigger or smaller – without major effort or expense. If a tenant wants to make a space smaller, this can, for example, create an opportunity to bring a new concept to the center at this site. It is precisely this factor that distinguishes our shopping centers from the traditional shopping street which, even today, generally offers only rigid floor plans that have to be accepted the way they are. In some cases, certain retailers wait to enter the market in a city until they are offered the right space in a shopping center because their search in the traditional pedestrian zone has proven unsuccessful. The whole of the retail sector in the city center ultimately benefits from the resulting increased diversity. 178 MILLION VISITORS IN ONE YEAR More than 20 million people live in the catchment areas of our shopping centers, with over 16 million of them in Germany. Theoretically, this gives us access to more than 20% of the German population. A loca- tion’s catchment area is a major factor for us when it comes to select- ing an investment: this is ascertained at regular intervals according to standardised rules for all shopping centers and represents the total number of potential customers for the location in question. In 2015, we welcomed a total of around 178 million visitors to our 21 properties. visitors in 2016178 million multi-generational use. Wide malls, escalators and lifts make it possi- ble to easily explore every corner of the center, even with pushchairs or wheelchairs. Play areas are provided for our smallest visitors. Mas- sage chairs are available for a small fee, providing a relaxing break from shopping. SUSTAINABLE BUSINESS All of our German centers have been operating on certified green elec- tricity since 2011. Our foreign properties are in the process of being switched to energy from renewable sources. We also want to continu- ously reduce the overall energy consumption of our properties and in so doing cut CO2 emissions. To achieve this aim, we use ultramodern technologies, such as heat exchangers and LED lighting systems. We constantly seek dialogue with our rental partners with the aim of work- ing together to reduce energy consumption in the individual shops. FLEXIBILITY IS THE GUARANTEE OF TOMORROW’S SUCCESS Retail is driven by constant change. One particular challenge we face as the lessor is to be able to meet the frequently changing requirements and needs of our tenants.
E38 CENTER THE TEN LARGEST TENANTS (share of rental income in %) As at: 31 December 2016 23.2% Total of the top 10 tenants 4.7% Metro Group 3.6% H&M 2.4% New Yorker 2.2% Peek & Cloppenburg 2.0% Deichmann 2.0% Douglas 1.9% C&A 1.7% REWE 1.4% dm-drogerie markt 1.3% Thalia 76.8% Other tenants OUR TOP 10 TENANTS With a share of 4.7%, the Metro Group is our biggest tenant. It is one of the biggest international retailers and is represented in a large number of our centers by its retail brands Media Markt and Saturn (consumer electronics) and Real-SB-Warenhaus. In second place is the Swedish fashion group H&M, which is one of the world’s leading retailers. It accounts for 3.6% of our total rental volume. Our rental contract portfolio is highly diversified: our top 10 tenants are responsible for just under a quarter of our rental income, which shows that there is no dependency on individual tenants. LONG-TERM RENTAL CONTRACTS The rental contracts that we sign with our tenants predominantly have a standard term of ten years. As at 31 December 2016, the weighted residual term of the rental agreements in our portfolio was 5.7 years, with 72% of our rental agreements being secured until at least 2020. OUR PARTNER FOR CENTER MANAGEMENT Management of our 21 shopping centers has been outsourced to our partner ECE Projektmanagement. ECE has been designing, planning, building, letting and managing shopping centers since 1965. With around 200 facilities in 16 countries currently under its management and more than 3,500 employees, the company is Europe’s leader in the area of shopping malls.
Deutsche EuroShop Annual Report 2016 E39 RESIDUAL TERM OF RENTAL AGREEMENTS IN PLACE (Long-term rental agreements, share in %) As at: 31 December 2016 1% 2017 2% 2018 3% 2019 4% 2020 18% 2021 72% 2022 ff Deutsche EuroShop benefits from its more than 50 years of experience both within Germany and abroad. Thanks to our streamlined structure, we are therefore able to focus on our core business and competence, portfolio management. www.ece.com RENT OPTIMISATION RATHER THAN MAXIMISATION One of the core tasks of center management is putting together the right combination of shops to suit the property and the local area. This mix of tenants and sectors is tailored exactly to each location and is constantly refined. It is the result of a careful analysis of each local retail market. Center management is also about identifying the wishes and needs of customers. We are happy to create space in our centers for retailers from sectors that, due to current rental costs in prime locations, are rarely to be found in city centers any more, such as toy and porcelain shops. We set ourselves apart from the majority of building owners in the pedestrian zone in a key respect here: as long-term investors, it is our goal to achieve permanent optimisation rather than short-term maximi- sation of rents. We want to offer our customers and visitors an attrac- tive mix. Rather than focus on each shop space in isolation, we look at the property as a whole. The rent in each case is calculated primarily on the basis of the sales potential of the sector to which the tenant belongs as well as of its location within the shopping center. This also enables us to give new businesses and niche concepts an opportunity. All sides benefit from this system: as the landlord, we are able to build a relationship of trust with our tenants for the long term; our tenants benefit from high visitor numbers achieved due to the varied mix; and our customers appreciate the very wide choice of shops. These range from different fashion concepts, accessories and health and beauty retailers, right through to professional services such as bank and post office branches.
E40 CENTER SOMETHING FOR ALL TASTES Surveys show that the food and drink offering is an increasingly impor- tant consideration for customers when choosing whether to visit a center. This is just one of the reasons why we want to offer our visi- tors something special on the gastronomic front: cafés, fast-food res- taurants, ice-cream parlours, etc. offer a chance for refreshment and revitalisation while shopping. The Phoenix-Center in Hamburg-Harburg, the City-Point in Kassel and the Galeria Bałtycka in Gdansk have their own food courts, offering seating and a wide variety of cuisines to a large number of diners. Friends and families can choose to eat from different outlets while still sitting together. FOCUS ON FASHION The fashion industry dominates our retail mix with over 50%. The strength in fashion of our centers is confirmed time and again in cus- tomer surveys. It is one reason why customers are willing to travel sometimes long distances from the surrounding area to enjoy the wide selection and quality of the service. The individual tenant mix provides each of our centers with a char- acter all of its own. In our shopping centers, we always make sure that there is a healthy blend of regional and local traders as well as national and international chain stores. This contrasts starkly with the main shopping streets, where, according to studies in Germany, chain RETAIL MIX (in % of space) As at: 31 December 2016 51.8% Clothing 18.8% Hardware / electronics 10.5% Department stores 6.8% Groceries 6.1% Health products sector 4.4% Food and restaurants 1.6% Service providers
Deutsche EuroShop Annual Report 2016 E41 SUCCESSFUL TENANT PARTNERS Our tenants are one of the key drivers of our success. They include Aldi, Apple, Bijou Brigitte, Birkenstock, Breuninger, C&A, Christ, Deichmann, dm-drogerie markt, Deutsche Post, Deutsche Telekom, Douglas, Fiel- mann, H&M, Hollister, Jack & Jones, Kiehl’s, Media Markt, Marc O’Polo, New Yorker, Nordsee, Peek & Cloppenburg, Reserved, REWE, Rituals, Saturn, Stadium, s.Oliver, Subway, Superdry, Thalia, Timberland, TK Maxx, Tommy Hilfiger, Vero Moda, Villeroy & Boch, Vodafone and Zara. UNIFORM BUSINESS HOURS At our centers, visitors can always rely on standard opening hours, unlike in the traditional city center where each individual retailer decides for itself how long to be open. Whether it is a hair salon, an opti- cian or a travel agency, every tenant is open to visitors for the center’s full opening hours. This too is a strategic advantage, and one that is appreciated in particular by customers who have to come a long way. THE SHOPPING CENTER AS A COMMUNITY In the center itself, the focus is always on service. There are Service Points manned by friendly staff who are on hand to answer questions about the center. Gift vouchers can be purchased here, for example. Often, there is also the opportunity to hire pushchairs. Customers can feel safe at all times thanks to the deployment of discreet secu- rity personnel. Baby changing rooms, customer toilets and cash machines complete the services. It goes with- out saying that the centers are always clean. Brands give us security and make our decisions easier. “If they were no good, you would have heard something about it.” stores occupy over 90% of the retail space in some cases. The small-scale structure of our centers offers visitors something different each time and the opportunity to satisfy a vast range of consumer needs. BENEFITING OFFLINE FROM THE INTERNET Retail has always involved change. And the Internet has without doubt accelerated the pace of this process in recent years. We want to bring together the best of both worlds in our centers, offline and online, and showcase the strengths of our tenants: atmosphere, services, fitting rooms, immediate availability of merchandise. It is not for nothing that more and more online-only retailers are learning that pure branding mostly takes place offline and that direct and personal contact with customers is often a prerequisite for subsequent online purchases. Multichannel marketing also has its influence: Our tenants combine the various communication and sales channels: For example, products that are out of stock in a store in the required size or colour can be deliv- ered directly to customers at home. Alternatively, customers can order their goods online from home and collect them from our tenant’s store. We want to respond to the challenges of online retail by integrat- ing various digital services into our centers. These include apps and a social media offering for each individual center. Every one of our tenants is automatically also a mem- ber of the marketing association of the center in question. This means that each tenant pays a share of the center’s marketing costs and can play an active role in the marketing strat- egy committee. The marketing association plans events together with the center management, thus transforming the shopping center into a lively marketplace: fashion shows, art exhibitions, country-themed weeks and information events dealing with a whole range of topics offer visitors new and fresh experiences time and time again. Local associations and municipal authorities are also involved in the plans and are given the opportunity to represent themselves in the center. The lavish center decorations for the Easter and Christmas periods are among the projects handled by the marketing associations. Another important area of the work is coordinating coherent adver- tising activities for the center as a whole as well as editing a center newspaper, which is distributed as an insert in regional daily news- papers in the catchment area and provides readers with regular and professional updates on events and news relating to the center. Radio ads, adverts on and inside local public transport, and illuminated adver- tising posters also ensure that the advertising measures reach a large audience.
E42 CENTER ACTIVITIES IN THE CENTERS DANZIG: “LET THE DOGS IN” The Galeria Bałtycka launched a quite special campaign in summer 2016. Previously, many visitors to the shopping center were not aware that they were allowed to bring their dogs in and did not have to leave them alone in their cars on the parking deck – this can be an ordeal for the animals, and not just on warm days. A video was shot specially for the campaign and quickly went viral over social media, racking up over one million views in no time at all. The feedback for the video was positive without exception, and not only from animal welfare activists. The star of the film is an Alsatian, who clearly had lots of fun on set. Video: youtu.be / joHP5g5E044 www.galeriabaltycka.pl GONE TO THE DOGS A peak behind the scenes: the video script
Deutsche EuroShop Annual Report 2016 E43 POS – point of sale The place of decision light, music, odours and the the presentation of the goods have a direct impact on our buying behaviour. EXPERIENCE THE FOREST IN PASSAU FIRST-HAND The wilderness, mystery and adventure: forests draw us in magically, fire our imagination and teach us respect. In the interactive exhibition “Fascination of Woodland – Discover- ing Nature”, visitors can experience the forest in various sce- narios at the Stadt-Galerie Passau from 2 to 14 May 2016. The exhibition space was split into different topic areas: Alongside the forest plantation, woodland glade, predators and voices of the forest, the topics also included tree evo- lution and forestry. Another exhibition space addressed the eco-system of the forest. A forest school invited people to explore, educate themselves and take on a great many expe- riences. All of the exhibition areas featured a genuine forest floor with real plants and trees. Stuffed animals, wall charts and touchscreen displays drew the visitors in to observe and learn. Professionally guided tours proved particularly popular with school classes and nursery groups. www.stadtgalerie-passau.de Left A forest school invited people to explore and learn Below Hunting horns sounded in the mall for the opening
E44 CENTER MASCOTS MEET UP FROM ALL AROUND THE WORLD IN HAMBURG-BILLSTEDT On 3 July 2017, mascots took center stage at the Billstedt Center in Hamburg. This venue plays host to the global meet-up that takes place once a year. The event is attended by Benjamin Blümchen, Maya the Bee, Heidi and many more, meaning that it was not just our young visitors who were excited to see all their heroes. Dino Herrmann, the mascot for the German football team was just one of the cuddly guests. The mascots did a short, humorous routine on the stage and then also made themselves available for a truly epic selfie marathon. The highlight of the event was a large race, as part of which visitors of all ages could compete against their favourite mascots and win a wide range of prizes. www.billstedt-center.de DIFFERENT FILMS EVERY DAY, BANDS, DJS, STREET FOOD AND DRINKS SUMMER AND WINTER OPEN AIRS IN VIERNHEIM At the end of July, the Rhein-Neckar Zentrum invited the public to a cinematic outdoor event of spectacular proportions, with different films every day, bands, DJs, street food and drinks providing top-notch sum- mer entertainment every single day, along with a genuine beach club set up on a bed of actual sand on the town square outside the shopping center. As luck would have it, the weather largely went along with all this, as blockbusters like “Fack Ju Göhte” and “Star Wars 7” were huge hits with the crowd. And from December to the start of January, the town square was buzzing with activity once again: the center’s Winter Village welcomed visitors with daily delights such as a pyrotechnics show, a fireworks display and an afternoon event specially for children featuring face-painting and the German equivalent of a Punch & Judy show. But far and away the biggest hit was the merry-go-round, tire- lessly making the rounds to the bright-eyed amazement of the kids. www.rhein-neckar-zentrum-viernheim.de The mascots turned up to meet everyone at the Billstedt-Center. Open-air cinema in the Rhein-Neckar-Zentrum The Winter Village in the town square at the Rhein- Neckar-Zentrum
Deutsche EuroShop Annual Report 2016 45 AND ZING WAS MADE In March 2016, the world’s largest retail store chain for PC and console games GameStop launched a pilot project and opened the first independent ZiNG Pop Culture store in Phoenix Center in Hamburg. Customers can visit the 100 m2 store and browse through the merchandise of their favourite heroes from the big screen, well-known TV series and, of course, the world of video games. F or a long time, superheroes and characters from films and TV series, such as Batman, Darth Vader from Star Wars and Jon Snow from the hit TV series Game of Thrones, have been much more just film stars to their fans; They have attained cult status and are now part of everyday life for many people. Whether they are printed on their coffee cup in the morning, appear as key rings or feature on t-shirts worn at home, fan merchandise has embedded itself in the mainstream of society and are worn mainly by people who simply want to add a bit of fun to their lives. By opening the ZiNG Pop Culture stores, GameStop has responded to the increasing popularity of fan merchandise among its customers and set up a real paradise of different merchandise in large stores. ZiNG Pop Culture-Store, Phoenix-Center In addition to the store in Hamburg, Ger- many also currently boasts three further inde- pendent ZiNG Pop Culturestores in Cologne, Essen and Dortmund. The ZiNG Pop Culture products are not just available in the standalone stores mentioned above. Fan merchandise is now being sold in the long term in GameStop stores in Germany, Austria and Switzerland and has its own shelf space. Using this shop-in-shop concept, customers can browse through a wide range of fan merchandise in all GameStop stores in addition to the selection of well- known video games, consoles and accessories on offer. If you cannot make it to one of our stores, you can also visit our website and immerse yourself in ZiNG Pop Culture’s world of fan merchandise. www.zingpopculture.de www.facebook.com/ZiNGPopCultureDACH
46 CENTER ENVIRON- MENT Climate protection is a top priority for Deutsche EuroShop. We firmly believe that sustainability and profitability are not mutually exclusive. Neither are shopping experience and environmental awareness. Long-term thinking is part of our strategy, and that includes a commitment to environmental protection. 62.5 The German centers used a total of around 62.5 million kWh of green electricity in 2016. I n 2016, all our German shopping centers had contracts with suppliers that use renewable energy sources, such as hydro- electric power, for their electricity needs. The “EnergieVision” organ- isation certified the green electricity for our centers in Germany with the renowned “ok-power” accreditation in 2015. We also plan to switch our centers in other countries over to green electricity wherever possible within the next few years. The German centers used a total of around 62.5 million kWh of green electricity in 2016. This represented 100% of the electricity requirements in these shopping centers, Based on conservative calculations, this meant a reduction of around 22,445 tonnes in carbon dioxide emissions, which equates to the annual CO2 emissions of more than 1,000 two-person house- holds. The use of heat exchangers and energy-saving light bulbs allows us to further reduce energy consumption in our shopping centers. Deutsche EuroShop also supports a diverse range of local and regional activities that take place in our shopping centers in the areas of the envi- ronment, society and the economy.
Deutsche EuroShop Annual Report 2016 47 GREEN ELECTRICITY The “EnergieVision” organisation certified the green electricity for our centers in Germany with the renowned “ok-power” accreditation in 2015. Stand up It’s well known that persons who stand up and work standing up more often have 24 per cent more ideas and make better decisions 25 per cent of the time than people who sit too much. REDUCTION OF CO2 EMISSIONS AND ELECTRICITY CONSUMPTION centers included 8 12 12 15 16 16 16 16 16 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 CO2 reduction in t Total electricity consumption in mwh
48 CENTER REPORTING ON OUR ENVIRONMENTAL PERFORMANCE INTRODUCTION We report on our energy, GHG emissions, water and waste impacts in 1.7 Analysis – Segmental analysis (by property type, geography) We have not carried out segmental analysis as we do not find this very accordance with the EPRA Sustainability Best Practice Recommenda- informative for our portfolio, given that our assets are all shopping tions (sBPR). Our reporting response has been split into 2 sections: centers, located almost exclusively in Germany, and the majority have 1. Overarching recommendations 2. Sustainability performance measures 1.8 Disclosure on own office similar EPC ratings. Our own occupied office is reported separately to our portfolio. Please 1. OVERARCHING RECOMMENDATIONS see table 2.2 on page E50. 1.1 Organisational boundaries We use an operational control approach for our data boundary, which 1.9 Narrative on performance includes 14 assets. 1 1.2 Coverage Elec-Abs and Elec-LFL have decreased by 5% in 2016. This was attrib- utable to the measures taken to increase ventilation and lighting effi- ciency (a switch to using more natural ventilation than electrical ven- Please see our EPRA performance table for individual coverage of each tilation, as well as a switch to a new type of LED lamp) which have performance measure. reduced energy requirements. Furthermore, the on-site technicians were trained how to prevent peak loads in the centers.8% and 9% 1.3 Estimation of landlord-obtained utility consumption increases in district heating and cooling and fuels respectively were None of our data is estimated. observed across the portfolio. This corresponded to an 8% rise in direct 1.4 Third Party Assurance We do not have third party assurance. GHG emissions. Although the 2016/17 winter was mild compared to the previous year, there was on average a greater demand for heating. The increase in total consumption of gas / district heating is approxi- mately similar. The percentage increase in greenhouse gas emissions is 1.5 Boundaries – reporting on landlord and tenant consumption plausible by the greenhouse gas intensity of gas versus district heating. The consumption reported includes only energy which we purchase Water consumption at the shopping centers remained relatively as landlords and refers to common areas. In the case of water, district constant with an increase of only 1%. The tenants’ consumption is heating and cooling, we receive bills for the common and tenant areas included in the total water consumption. From 2015 to 2016 the visitor and it is not possible to separate these consumptions. Tenant-obtained footfall decreased slightly in most of the examined centers, resulting in data is excluded. the difference in intensity, but only 1% in the total consumption. Sensitization around waste and a succesful re-tendering of the 1.6 Analysis – Normalisation waste disposal companies as well as a planned individual method to Energy and GHG intensity indicators are calculated using floor area be able to quantify waste generated by each individual tenant led to a (m2) for whole buildings and water intensity is calculated using number reduction in the waste volume. We plan to introduce the use of identifi- of visitors / FTE for our assets and offices respectively. We are aware cation cards to activate access to the automatic waste weighing facility, of a mismatch between nominator and denominator, as our consump- so that waste can be separated not only by weight, but by fractions tion for electricity and fuels relates to common areas only, whereas and originator. we receive district heating and cooling bills for the entire building and The strong increase in recycling was caused, among other things, cannot separate common area from tenant area consumption. For our by the first-time separation of paper from residual waste in Poland. own offices we report energy and GHG intensity performance meas- In addition, there was an exchange of small electrical appliances and ures using the floor area we occupy within the building. large electrical goods in two centers in 2016, which led to an increased waste of electrical recycling. Sensitization aand a succesful rof the waste disposal companies as well as planned individual method to be a
Deutsche EuroShop Annual Report 2016 49 1.10 Location of EPRA sustainability performance measures in companies’ reports EPRA sustainability performance measures for our portfolio and own offices can be found in the tables 2.1 and 2.2 on page E49 and E50 of this report. 2. SUSTAINABILITY PERFORMANCE MEASURES (EPRA TABLES) 2.1 EPRA portfolio table Indicator EPRA Unit of measure 2015 Coverage 2016 Coverage Change Elec-Abs Elec-LFL DH & C-Abs kWh kWh kWh 62.477.549 100% 59.372.937 62.477.549 100% 59.372.937 22.445.055 100% 24.473.264 100% 100% 100% DH & C-LFL kWh 22.445.055 100% 24.473.264 100% Weight of waste by disposal route (like-for-like) Waste-LFL tonnes 6.711 Type and number of assets certifies Cert-Tot % recycled %composted % sent to incineration % of portfolio certi- fied OR number of certified assets 44 4 53 13 GHG emissions: We calculate our emissions using the GHG Protocol methodology 1 A10 Center, Allee-Center Hamm, Altmarkt-Galerie Dresden, Billstedt-Center Hamburg, City-Arkaden Wuppertal, City-Galerie Wolfsburg, City-Point Kassel, Forum Wetzlar, Galeria Bałtycka Gdansk, Herold-Center Norderstedt, Main-Taunus-Zentrum, Rathaus-Center Dessau, Rhein-Neckar-Zentrum and Stadt-Galerie Hameln Total electricity consumption Like-for-like electricity consumption Total energy consumption from district heating and cooling Like-for-like consumption from district heating and cooling Total energy consumption from fuel Like-for-like consumption from fuel Fuels-Abs Fuels-LFL kWh kWh Building energy intensity Energy-Int kWh / m2 Direct GHG emission (total) Scope 1 Direct GHG emission (like-for-like) Scope 1 Indirect GHG emission (total) Scope 2 Indirect GHG emission (like-for-like) Scope 2 Building GHG emissions intensity Total water consumption GHG-Dir-Abs GHG-Dir-LFL GHG-Indir-Abs GHG-Indir-LFL tCO2 tCO2 tCO2 tCO2 GHG-Int Water-Abs tCO2 / m2 m3 Like-for-like water consumption Water-LFL m3 Building water consumption intensity Water-Int m3 / visitor Weight of waste by disposal route (total) Waste-Abs tonnes % recycled % composted % sent to incineration -5% -5% 8% 8% 9% 9% 1% 8% 8% 5% 5% 6% 1% 1% 10% -8% 16% 0% -19% -8% 16% 0% -19% 0% 18.759.883 100% 20.631.903 18.759.883 100% 20.631.903 98 3.789 100% 100% 98 4.117 100% 100% 100% 100% 3.789 100% 4.117 100% 11.378 100% 11.982 100% 11.378 100% 11.982 100% 0,014 364.791 364.791 0,003 6.711 44 4 53 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 0,015 367.205 367.205 0,003 6.187 52 4 44 6.187 52 4 44 13 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% ion around waste ful re-tendering te a e able to quantif
50 CENTER 2.2 EPRA own office table Indicator Total electricity consumption Like-for-like electricity consumption Total energy consumption from district heating and cooling Like-for-like consumption from district heating and cooling EPRA Elec-Abs Elec-LFL DH & C-Abs Unit of measure 2015 Coverage 2016 Coverage Change kWh kWh kWh 8,398 8,398 53,952 100% 100% 100% 8,988 8,988 54,565 100% 100% 100% DH & C-LFL kWh 188 100% 190 100% Total energy consumption from fuel Like-for-like consumption from fuel Fuels-Abs Fuels-LFL kWh kWh na na na na na na na na Energy-Int kWh / m2 196 100% 198 100% Building energy intensity Direct GHG emission (total) Scope 1 Direct GHG emission (like-for-like) Scope 1 Indirect GHG emission (total) Scope 2 Indirect GHG emission (like-for-like) Scope 2 Building GHG emissions intensity Total water consumption Like-for-like water consumption Building water consumption intensity GHG-Dir-Abs GHG-Dir-LFL GHG-Indir-Abs GHG-Indir-LFL tCO2 tCO2 tCO2 tCO2 GHG-Int Water-Abs Water-LFL Water-Int tCO2 / m2 m3 m3 m3 / employee Weight of waste by disposal route (total) Waste-Abs tonnes Weight of waste by disposal route (like-for-like) Type and number of assets certifies Cert-Tot % recycled % sent to incineration Waste-LFL tonnes % recycled % sent to incineration % of portfolio certified OR number of certified assets na na 11 11 0 640 640 107 3 11 89 3 11 89 – na na 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% na na 11 11 0 564 564 81 2 12 88 2 12 88 – na na 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 7% 7% 1% 1% na na 1% na na -1% -1% -1% -13% -13% -32% -47% 8% -1% -47% 8% -1% 0% Fuel: No fuels are used at our office building Water, heating and waste are calculated using actual consumption figures for the whole building, and the m² percentage the DES office occupies (DES has an office of 275m² in a building of 6088m²) Electricity consumption is reported for the two following fiscal years, as we have not received the invoice for our April 2015-April 2016 consumption GHG emissions: We calculate our emissions using the GHG Protocol methodology Energy water die wir als Vermieter beziehen und betrifft allgemein genutzte Bereiche. denominator
Deutsche EuroShop Annual Report 2016 51 Saarpark Center in Neunkirchen, Saarland PORTFOLIO GROWTH r ft
E52 CENTER IN THE SAARLAND On 1 October 2016, we acquired a 50% stake in the the market square. The Hüttenareal is particularly attractive at night, Saarpark Center in Neunkirchen, the Saarland, from a pension fund and are now represented for the first when it is impressively lit up. The centerpiece of the monuments is the blasting hall of the ironworks, which offers a great deal of space and modern technology for major events for people of all ages. time in Germany’s smallest federal state by area. The Saarpark Center is easily accessible by public transport via the ume amounted to around €113 million; the net acqui- I ncluding net financial liabilities, the investment vol- sition price of around €79 million was financed by means of loans. The Saarpark-Center was originally opened in 1989. After undergoing an expansion in 1999 and restructuring in 2009, the largest shopping center in the Saarland now boasts over 130 specialist retailers across 33,500 m2 of retail space split between two floors. The center’s key ten- ants are C&A, H&M, Müller Drogerie, Peek & Cloppenburg, REWE and TK Maxx. In addition, the center boasts 600 m2 of office space as well as over 1,600 parking spaces. Neunkirchen is the second-largest town in the Saarland, located about 20 km north-east of Saarbrücken. Today, the town is regarded as a textbook example of a structural urban conversion into a shopping and services destination in a mountain region. The ironworks, formerly the heart of the town, was partially torn down in the early 1980’s and the city center was expanded, with the construction of the Saarpark Center being part of these efforts. The center now connects the Altes Hüttenareal industrial monuments with adjacent bus station as well as by car via the nearby motorway link. Some 595,000 people live in the catchment area. The Saarpark-Center receives approximately 24,000 customers every day and more than seven million every year. www.saarpark-center.de Saarpark Center in Neunkirchen, Saarland
Deutsche EuroShop Annual Report 2016 53 Entrance to the Olympia Center in Brno IN THE CZECH REPUBLIC The Olympia Center in Brno that we acquired on 31 March 2017 is our first center in the Czech Republic. The acquisition increased Deutsche EuroShop’s portfolio to 21 shopping centers, with a market value of some €5.1 billion (100% perspective). I ncluding financial liabilities, the investment volume amounted to €382 million. The net acquisition price of around €207 million was financed with a long-term loan and the proceeds from a capital increase. The Olympia Center initially opened its doors in 1999 and is now one of the country’s biggest shopping centers. Fol- lowing restructuring works between 2014 and 2016, it houses more than 200 specialist stores across 85,000 m2 split over two floors. Anchor tenants include hypermarket Albert, H&M, Intersport and Peek & Cloppenburg. The center also features a cinema and entertainment park, as well as more than 4,000 parking spaces. It is very well connected in terms of both road links and public trans- port. Around 1.2 million people live in the catchment area. The Olympia Center welcomes more than 23,000 custom- ers every day and over 8 million every year. After Prague, Brno is the second-largest city in the Czech Republic and has been the historical center of Moravia since the 17th century; today, it is a university and industrial town as well as a key trade fair location. Among its tourist attractions are the historical center and its monuments which date back to the 11th century, along with a variety of baroque and renaissance buildings. The Villa Tugendhat, built in 1930 according to plans by Ludwig Mies van der Rohe, is considered a milestone in European architecture and was declared a World Heritage site by UNESCO in 2001. www.olympia-centrum.cz
E54 CENTER GERMANY 1 Main-Taunus-Zentrum, Sulzbach / Frankfurt 2 A10 Center, Wildau / Berlin 3 Altmarkt-Galerie, Dresden 4 Rhein-Neckar-Zentrum, Viernheim / Mannheim Herold-Center, Norderstedt 5 6 Rathaus-Center, Dessau 7 Allee-Center, Magdeburg 8 Phoenix-Center, Hamburg 9 Billstedt-Center, Hamburg 10 Saarpark-Center, Neunkirchen 11 Forum, Wetzlar 12 Allee-Center, Hamm 13 City-Galerie, Wolfsburg 14 City-Arkaden, Wuppertal 15 City-Point, Kassel 16 Stadt-Galerie, Passau 17 Stadt-Galerie, Hameln OUR CENTERS IN GERMANY 21 AUSTRIA 5.8 million visitors in 2016, 1 center 21 City Arkaden, Klagenfurt
Deutsche EuroShop Annual Report 2016 E55 POLAND 9.8 million visitors in 2016, 1 center 19 Galeria Bałtycka, Gdansk Number of visitors in Germany in 2016 in million 141.7 8.3 Average number of visitors per center in Germany in 2016 in million Floor space of all centers in Germany in 2016 in m2 880,600 Number of stores in shopping centers in Germany 2,060 CZECH REPUBLIC 8.4 million visitors in 2016, 1 center 18 Olympia, Brno HUNGARY 12.5 million visitors in 2016, 1 center 20 Árkád, Pécs
E56 CENTER 1 6 Visitors 2 0 8.1million MAIN-TAUNUS- ZENTRUM Sulzbach / Frankfurt 1 6 Visitors 2 0 6.9 million A10 CENTER Wildau / Berlin INVESTMENTS: 52% LEASABLE SPACE: 124,000 m2 OF WHICH RETAIL SPACE: 91,000 m2 (plus C&A) PARKING: 4,500 NO. OF SHOPS: 170 OCCUPANCY RATE: 100% CATCHMENT AREA: 3.1 million residents PURCHASED BY DES: September 2000 GRAND OPENING: 1964 RESTRUCTURING / MODERNISATION: 2004 EXPANSION: 2011 ANCHOR TENANTS: Apple, Breuninger, Galeria Kaufhof, H&M, Hollister, Karstadt, Media Markt, REWE, Anson’s, Appelrath Cüpper, Zara, Intersport y c n a p e u t 1 0 o 0 % c c a r INVESTMENTS: 100% LEASABLE SPACE: 121,000 m2 OF WHICH RETAIL SPACE: 66,000 m2 PARKING: 4,000 NO. OF SHOPS: 200 OCCUPANCY RATE: 100% CATCHMENT AREA: 1.1 million residents PURCHASED BY DES: January 2010 GRAND OPENING: 1996 RESTRUCTURING / MODERNISATION: 2010 – 2011 ANCHOR TENANTS: Bauhaus, C&A, H&M, Karstadt Sports, MediMax, Peek & Cloppenburg, real, Bambooland, Hammer Address Am Main-Taunus-Zentrum 65843 Sulzbach (Taunus) www.main-taunus-zentrum.de Address Chausseestraße 1 15754 Wildau www.a10center.de
Deutsche EuroShop Annual Report 2016 E57 1 6 million Visitors 2 0 7.8 RHEIN-NECKAR- ZENTRUM Viernheim / Mannheim Excellent cafés in which to meet friends INVESTMENTS: 100% LEASABLE SPACE: 69,500 m2 OF WHICH RETAIL SPACE: 60,000 m2 (plus Karstadt und C&A) PARKING: 3,800 NO. OF SHOPS: 110 OCCUPANCY RATE: 100% CATCHMENT AREA: 1.5 million residents PURCHASED BY DES: September 2000 GRAND OPENING: 1972 RESTRUCTURING / EXPANSION: 2002 ANCHOR TENANTS: Engelhorn Active Town, Peek & Cloppenburg, H&M, TK Maxx, Zara, Müller Drogerie, Hugendubel, Aldi, Bauhaus 1 6 Visitors 2 0 14.4 million Dresden ALTMARKT- GALERIE INVESTMENTS: 100% LEASABLE SPACE: 77,000 m2 OF WHICH RETAIL SPACE: 44,000 m2 PARKING: 500 NO. OF SHOPS: 200 OCCUPANCY RATE: 100% CATCHMENT AREA: 2.1 million residents PURCHASED BY DES: September 2000 GRAND OPENING: 2002 EXPANSION: 2011 ANCHOR TENANTS: Apple, Hollister, H&M, Saturn, SinnLeffers, SportScheck, New Yorker, REWE p u u p e l r a S o r p Address Webergasse 1 01067 Dresden www.altmarkt-galerie.de Address Robert-Schumann-Straße 8a 68519 Viernheim www.rhein-neckar-zentrum-viernheim.de
E58 CENTER 1 6 Visitors 2 0 10.7 million HEROLD- CENTER Norderstedt Metro station directly underneath the center 1 6 Visitors 2 0 5.5 million RATHAUS- CENTER Dessau INVESTMENTS: 100% LEASABLE SPACE: 54,300 m2 OF WHICH RETAIL SPACE: 26,000 m2 (plus Karstadt and Saturn) PARKING: 850 NO. OF SHOPS: 140 OCCUPANCY RATE: 96% CATCHMENT AREA: 0.5 million residents PURCHASED BY DES: January 2013 GRAND OPENING: 1971 RESTRUCTURING / EXPANSION: 1995 and 2003 ANCHOR TENANTS: C&A, H&M, Peek & Cloppenburg, REWE INVESTMENTS: 100% LEASABLE SPACE: 52,500 m2 OF WHICH RETAIL SPACE: 32,900 m2 (incl. Karstadt) PARKING: 850 NO. OF SHOPS: 90 OCCUPANCY RATE: 100% CATCHMENT AREA: 0.5 million residents PURCHASED BY DES: November 2005 GRAND OPENING: 1995 ANCHOR TENANTS: H&M, Modehaus Fischer, Thalia, TK Maxx Address Berliner Allee 38 – 44 22850 Norderstedt www.heroldcenter.de Address Kavalierstraße 49 06844 Dessau-Roßlau www.rathauscenter-dessau.de
1 6 Visitors 2 0 9.5 million ALLEE- CENTER Magdeburg Deutsche EuroShop Annual Report 2016 E59 1 6 Visitors 2 0 9.4 million PHOENIX- CENTER Hamburg INVESTMENTS: 50% LEASABLE SPACE: 51,300 m2 OF WHICH RETAIL SPACE: 35,000 m2 PARKING: 1,300 NO. OF SHOPS: 150 OCCUPANCY RATE: 98% CATCHMENT AREA: 0.8 million residents PURCHASED BY DES: October 2011 GRAND OPENING: 1998 EXPANSION: 2006 ANCHOR TENANTS: H&M, Saturn, SinnLeffers, SportScheck, REWE INVESTMENTS: 50% LEASABLE SPACE: 43,400 m2 OF WHICH RETAIL SPACE: 29,000 m2 PARKING: 1,400 NO. OF SHOPS: 130 OCCUPANCY RATE: 97% CATCHMENT AREA: 0.6 million residents PURCHASED BY DES: August 2003 GRAND OPENING: 2004 ERWEITERUNG / RESTRUCTURING: 2016 ANCHOR TENANTS: C&A, H&M, Karstadt Sports, Media Markt, New Yorker, REWE, SinnLeffers, Stadium Address Ernst-Reuter-Allee 11 39104 Magdeburg Address Hannoversche Straße 86 21079 Hamburg www.allee-center-magdeburg.de www.phoenix-center-harburg.de
E60 CENTER 1 6 million Visitors 2 0 10.1 BILLSTEDT- CENTER Hamburg 1 6 Visitors 2 0 6.9 million SAARPARK- CENTER Neunkirchen P o p u l a r a t t r a c t i o n e a s t e i n t h H a m b u r g o f INVESTMENTS: 100% LEASABLE SPACE: 42,500 m2 OF WHICH RETAIL SPACE: 29,500 m2 (plus Primark) PARKING: 1,500 NO. OF SHOPS: 110 OCCUPANCY RATE: 95% CATCHMENT AREA: 1.0 million residents PURCHASED BY DES: January 2011 GRAND OPENING: 1969 / 1977 RESTRUCTURING: 1996 ANCHOR TENANTS: C&A, H&M, Media Markt, TK Maxx, REWE INVESTMENTS: 50% LEASABLE SPACE: 35,600 m2 OF WHICH RETAIL SPACE: 33,500 m2 PARKING: 1,600 NO. OF SHOPS: 130 OCCUPANCY RATE: 96% CATCHMENT AREA: 0.6 million residents PURCHASED BY DES: October 2016 GRAND OPENING: 1989 RESTRUCTURING: 1999 und 2009 ANCHOR TENANTS: C&A, Müller Drogerie, H&M, Peek & Cloppenburg, REWE, TK Maxx Address Möllner Landstraße 3 22111 Hamburg www.billstedt-center.de Address Stummplatz1 66538 Neunkirchen www.saarpark-center-neunkirchen.de
1 6 Visitors 2 0 7.6 FORUM million Wetzlar 23,500 m2 of retail space Deutsche EuroShop Annual Report 2016 E61 1 6 Visitors 2 0 6.5 million ALLEE- CENTER Hamm In the heart of Hamm INVESTMENTS: 65% LEASABLE SPACE: 34,500 m2 OF WHICH RETAIL SPACE: 23,500 m2 PARKING: 1,700 NO. OF SHOPS: 110 OCCUPANCY RATE: 98% CATCHMENT AREA: 0.5 million residents PURCHASED BY DES: October 2003 GRAND OPENING: 2005 ANCHOR TENANTS: Kaufland, Media Markt, Sporthaus Kaps, Thalia INVESTMENTS: 100% LEASABLE SPACE: 34,000 m2 OF WHICH RETAIL SPACE: 21,000 m2 PARKING: 1,300 NO. OF SHOPS: 90 OCCUPANCY RATE: 99% CATCHMENT AREA: 0.7 million residents PURCHASED BY DES: April 2002 GRAND OPENING: 1992 UMBAU / RESTRUCTURING: 2003, 2009 ANCHOR TENANTS: C&A, H&M, Peek & Cloppenburg, REWE, Saturn Address Am Forum 1 35576 Wetzlar www.forum-wetzlar.de Address Richard-Matthaei-Platz 1 59065 Hamm www.allee-center-hamm.de
s r g o l: v i s i t o l t e v a r v i a a il w d r t n e a e h y a t h i n a u s n t e c e v h o r e r E62 CENTER 1 6 Visitors 2 0 7.5 CITY-GALERIE Wolfsburg million 1 6 Visitors 2 0 8.4 million CITY- ARKADEN Wuppertal S o u m n c e u a t INVESTMENTS: 100% LEASABLE SPACE: 30,800 m2 OF WHICH RETAIL SPACE: 20,000 m2 PARKING: 800 NO. OF SHOPS: 100 OCCUPANCY RATE: 98% CATCHMENT AREA: 0.5 million residents PURCHASED BY DES: September 2000 GRAND OPENING: 2001 RESTRUCTURING: 2011 ANCHOR TENANTS: Hempel, New Yorker, REWE, Saturn INVESTMENTS: 100% LEASABLE SPACE: 28,700 m2 OF WHICH RETAIL SPACE: 20,000 m2 PARKING: 650 NO. OF SHOPS: 80 OCCUPANCY RATE: 99% CATCHMENT AREA: 0.8 million residents PURCHASED BY DES: September 2000 GRAND OPENING: 2001 RESTRUCTURING: 2011 ANCHOR TENANTS: Akzenta, H&M, Reserved, Thalia Address Porschestraße 45 38440 Wolfsburg Address Alte Freiheit 9 42103 Wuppertal www.city-galerie-wolfsburg.de www.city-arkaden-wuppertal.de
1 6 Visitors 2 0 8.6 million CITY-POINT Kassel Deutsche EuroShop Annual Report 2016 E63 1 6 Visitors 2 0 8.0 million STADT-GALERIE Passau O u r c e n t e r i n e t h r e ci t y o f e t h L o w e r r i v e r s i n B a v a r i a INVESTMENTS: 100% LEASABLE SPACE: 27,800 m2 OF WHICH RETAIL SPACE: 20,000 m2 PARKING: 220 NO. OF SHOPS: 60 OCCUPANCY RATE: 100% CATCHMENT AREA: 0.8 million residents PURCHASED BY DES: September 2000 GRAND OPENING: 2002 RESTRUCTURING: 2009, 2015 ANCHOR TENANTS: H&M, New Yorker, Saturn, tegut INVESTMENTS: 75% LEASABLE SPACE: 27,700 m2 OF WHICH RETAIL SPACE: 21,000 m2 PARKING: 500 NO. OF SHOPS: 90 OCCUPANCY RATE: 100% CATCHMENT AREA: 1.2 million residents PURCHASED BY DES: December 2006 GRAND OPENING: 2008 ANCHOR TENANTS: C&A, Esprit, Saturn, Thalia Address Königsplatz 61 34117 Kassel Address Bahnhofstraße 1 94032 Passau www.city-point-kassel.de www.stadtgalerie-passau.de
E64 CENTER 1 6 Visitors 2 0 5.8 million STADT- GALERIE Hameln OUR CENTERS ABROAD INVESTMENTS: 100% LEASABLE SPACE: 26,000 m2 OF WHICH RETAIL SPACE: 19,000 m2 PARKING: 500 NO. OF SHOPS: 100 OCCUPANCY RATE: 97% CATCHMENT AREA: 0.4 million residents PURCHASED BY DES: November 2005 GRAND OPENING: 2008 ANCHOR TENANTS: Müller Drogerie, New Yorker, real, Thalia Address Pferdemarkt 1 31785 Hameln www.stadt-galerie-hameln.de Number of visitors abroad in 2016 in million 36.5 Average number of visitors per center abroad in 2016 in million 9.1 Total floor space of all centers abroad in 2016 in m2 206,000 Number of stores in shopping centers abroad 643
Deutsche EuroShop Annual Report 2016 E65 POLAND 9.8 million visitors 2016, 1 center 19 Galeria Bałtycka, Gdansk CZECH REPUBLIC 8.4 million visitors 2016, 1 center 18 Olympia, Brno 21 AUSTRIA 5.8 million visitors 2016, 1 center 21 City Arkaden, Klagenfurt HUNGARY 12.5 million visitors 2016, 1 center 20 Árkád, Pécs
E66 CENTER 1 6 Visitors 2 0 8.4 million OLYMPIA Brno, Czech Republic 1 6 Visitors 2 0 9.8 million GALERIA- BALTYCKA Gdansk, Poland - P a p INVESTMENTS: 100% LEASABLE SPACE: 85,000 m2 OF WHICH RETAIL SPACE: 71,000 m2 PARKING: 4,000 NO. OF SHOPS: 200 OCCUPANCY RATE: 99% CATCHMENT AREA: 1.2 million residents PURCHASED BY DES: March 2017 GRAND OPENING: 1999 RESTRUCTURING: 2014 – 2016 ANCHOR TENANTS: Albert, H&M, Intersport, Peek & Cloppenburg t o r t r o s i n M a c r f u f o li o o 1 e 3 h 2 c r 7 1 0 INVESTMENTS: 74% LEASABLE SPACE: 48,700 m2 OF WHICH RETAIL SPACE: 39,500 m2 PARKING: 1,050 NO. OF SHOPS: 193 OCCUPANCY RATE: 100% CATCHMENT AREA: 1.1 million residents PURCHASED BY DES: August 2006 GRAND OPENING: 2007 ANCHOR TENANTS: Carrefour, H&M, Peek & Cloppenburg, Reserved, Saturn, Zara Address U Dálnice 777 664 42 Brno, Czech Republic www.olympia-centrum.cz / en Address al. Grunwaldzka 141 80-264 Gdańk, Poland www.galeriabaltycka.pl
Deutsche EuroShop Annual Report 2016 E67 1 6 million Visitors 2 0 5.8 CITY- ARKADEN Klagenfurt, Austria 1 6 Visitors 2 0 12.5 áRKáD million Pécs, Hungary T h e C a r i n t h i a n s tat e c a p i ta l – a l s o k n o w n a s " r e n a i s s a n c e t h e j e w e l o n L a k e W ö rt h e r s e e " INVESTMENTS: 50% LEASABLE SPACE: 35,400 m2 OF WHICH RETAIL SPACE: 33,500 m2 PARKING: 850 NO. OF SHOPS: 130 OCCUPANCY RATE: 99% CATCHMENT AREA: 0.7 million residents PURCHASED BY DES: November 2002 GRAND OPENING: 2004 ANCHOR TENANTS: C&A, H&M, Interspar, Media Markt INVESTMENTS: 50% LEASABLE SPACE: 36,900 m2 OF WHICH RETAIL SPACE: 30,000 m2 PARKING: 880 NO. OF SHOPS: 120 OCCUPANCY RATE: 98% CATCHMENT AREA: 0.4 million residents PURCHASED BY DES: August 2004 GRAND OPENING: 2006 ANCHOR TENANTS: C&A, Peek & Cloppenburg, Saturn, Zara, H&M, Billa, Müller Drogeriemarkt Address Heuplatz 5 9020 Klagenfurt, Austria www.city-arkaden-klagenfurt.at Address Bajcsy Zs. U. 11 / 1 7622 Pécs, Hungary www.arkadpecs.hu
E68 INVESTOR RELATIONS INVESTOR RELATIONS 2016
Deutsche EuroShop Annual Report 2016 E69 Annual high 2016 €42,52 THE SHOPPING CENTER SHARES SHARE PRICE REACHES PEAK FOR YEAR JUST BEFORE THE AGM Deutsche EuroShop shares began the 2016 trading year at €40.46. In the first weeks of trading, a fall in the share price was reported. On 11 February 2016, the lowest figure of the year was posted at €35.86. This was followed by a friendlier market environment in the middle of March, which helped the share move back above the 40-euro mark, after which it hovered between €39.46 and €42.52 until the end of September. This price was also its high for the year, which it reached on 9 June 2016. The global performance of real estate shares was negatively affected by rising interest rates, and the DES share was no exception. The share price came very close to touching the February low again, but then shifted to an upward trend at the start of December. It closed the year at €38.67, a fall of -1.2% including dividends. The market capitalisation of Deutsche EuroShop fell by almost €97 million to €2.09 billion in 2016. ABOVE-AVERAGE IN EUROPE The price of Deutsche EuroShop shares fell by 4.4%. Taking into account the dividend paid of €1.35 per share, the performance of Deutsche EuroShop shares was -1.2% year on year (2015: 15.3%). As such, our share price performance in 2016 was still above that of the European benchmark for listed real estate companies, the EPRA index (-5.0%), and was in the upper third of its European peer group 1. The benchmark index for medium-sized companies, the MDAX, gained 6.8% in the year under review. Stock market performance in % 2016 2015 DES share DAX MDAX TecDAX EURO STOXX 50 (Europe) Dow Jones (USA) Nikkei (Japan) -1.2 6.9 6.8 -1.0 0.4 13.7 0.4 15.3 9.6 22.7 33.5 4.8 -0.6 9.1 Over the past year, German open-ended property funds achieved an average performance of +2.8% (2015: +3.3%), and had cash inflows of around €4.2 billion (2015: €3.3 billion). 1 Atrium European Real Estate, Citycon, Eurocommercial Properties, IGD, Intu Properties, Klepierre, Mercialys, Unibail-Rodamco, Vastned Retail, and Wereldhave.
70 INVESTOR RELATIONS Detailing from the gallery floor in the Deutsche Börse AG visitor center
Deutsche EuroShop Annual Report 2016 E71 FIGURES FOR THE DEUTSCHE EUROSHOP SHARE German securities no. / ISIN 748 020 / DE 000 748 020 4 Ticker symbol DEQ Share capital in € * 58,404,996.00 Number of shares * (no-par-value registered shares) Indices Official market OTC markets * as of 31 March 2017 58,404,996 MDAX, EPRA, GPR 250, MSCI Small Cap, EPIX 30, HASPAX, F. A.Z.-Index, DivMSDAX, EURO STOXX, STOXX Europe 600 Prime Standard Frankfurter Wertpapierbörse and Xetra Berlin-Bremen, Dusseldorf, Hamburg, Hanover, Munich and Stuttgart Volume 800 700 600 500 400 300 200 100 0 TREND OF SHARE Share price 45 40 35 Jan Feb Mar Apr May June July Aug Sep Oct Nov Dec Jan Feb Mar Apr 2016 2017 in € Number of shares in thousand
E72 INVESTOR RELATIONS TREND OF SHARE indexed – since January 2016 120 110 100 90 80 Jan Feb Mar Apr May June July Aug Sep Oct Nov Dec Jan Feb Mar Apr MDAX EPRA Deutsche EuroShop 2016 2017 Increase in market capitalisation since 2007 in € million1,278 2010 1,496 MARKET CAPITALISATION in € million 2007 808 2008 835 2009 895 2011 1,280
Deutsche EuroShop Annual Report 11.1 % 2016 E73 Average yearly growth of market capitalisation 2015 2,183 2014 1,953 2016 2,086 THE MARKET CAPITALISATION OF DEUTSCHE EUROSHOP HAS MORE THAN DOUBLED OVER THE LAST TEN YEARS. 2012 1,707 2013 1,717 TREND OF SHARE indexed – 5 year overview 300 250 200 150 100 50 Jan 12 June 12 Jan 13 June 13 Jan 14 June 14 Jan 15 June 15 Jan 16 June 16 Jan 17 MDAX EPRA Deutsche EuroShop
E74 INVESTOR RELATIONS AWARDS FOR THE INVESTOR RELATIONS ACTIVITIES OF DEUTSCHE EUROSHOP IN 2016 IR Magazine award iF Design Award „IR-Benchmark 2016“ „Best European Investor Relations“ „IR Magazine Award“
Deutsche EuroShop Annual Report 2016 E75 ATTENDANCE UP AT ANNUAL GENERAL MEETING The Annual General Meeting was held in Hamburg on 15 June 2016. Around 220 shareholders were in attendance at the Handwerks- kammer, representing 68.0% (previous year: 61.2%) of the capital, and approved all of the items on the agenda. After several shortlist nominations, the IR team succeeded for the first time in 2016 in winning one of the European “IR Magazine Awards”, in the category “Best use of multimedia for IR”. Further awards for our capital market communications can be found on our website at BROAD COVERAGE OF THE SHARES Our shares are now regularly followed by 22 analysts (as at 12 April 2017) from respected German and international institutions 2, and their recommendations introduce us to new groups of investors. Deutsche EuroShop is one of the best-covered real estate companies in Europe. Information on the recommendations can be found at www.deutsche-euroshop.de/analysen The analysts are mainly positive on the prospects for the DES share (as at 12 April 2017). AWARDS FOR THE IR WORK Our “Feel Estate” business report won the prestigious international iF Design Award in 2016. The international specialist journal Institutional Investor awarded the DES-IR managers 3rd prize for “Best European Investor Relations”. As in previous years, the Deutsche EuroShop website did very well in Netfederation’s “IR-Benchmark 2016” (coming first in the “Real Estate” sector and second in MDAX). www.deutsche-euroshop.de/irkommunikation 30% INCREASE IN SHAREHOLDERS The number of investors rose again in 2016: Deutsche EuroShop now has around 14,500 shareholders (as at 12 April 2017, previous year: 11,175, +30%). Alexander Otto holds a 17.6% stake in Deutsche EuroShop AG, Johannes Schorr 3.5% and BlackRock 5.9%. State Street is another investor we were able to bring on board with a stake of over three percent. Other institutional investors hold approx. 50.7% (previ- ous year: 55.5%) of the shares, and private investors 19.3% (previous year: 19.5%). In a shareholder identification process, we regularly analyse the international distribution of our shares. While German investors con- tinue to hold a clear majority of the Deutsche EuroShop shares at around 68% (previous year: 59%), the shareholder structure is also dominated by European investors overall at approx. 90%, with British, French and Dutch investors leading the way. US investors hold around 9% of the DES shares. DIVERSITY OF ANALYST’S OPINION OF THE LAST 10 YEARS in % 100 90 80 70 60 50 40 30 20 10 0 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2007 2008 2009 2010 2019 2012 2013 2014 2015 2016 2017 negative neutral positive 2 ABN Amro, Baader Bank, Bankhaus Lampe, Berenberg Bank, BHF Bank, Bank of America Merrill Lynch, Commerzbank, Deutsche Bank, DZ Bank, equinet, Green Street Advisors, GSC Research, HSBC, Independent Research, J.P. Morgan Cazenove, Kempen & Co., Kepler Cheuvreux, Metzler, M.M. Warburg & Co, Natixis, NORD/LB, Oddo BHF and Societe Generale.
E76 INVESTOR RELATIONS SHAREHOLDER‘S STRUCTURE in % 50.7 Institutional investors 19.3 Private investors 17.6 Alexander Otto 5.9 BlackRock 3.5 Johannes Schorr 3.0 State Street 1 . 1 2 . 5 2 . 5 2 . 3 2 . 9 9 . 1 6 7 . 7 2 . 7 9 . 2 3 . 0 3 . 5 1 7 . 6 5 0 . 7 5 . 9 1 9 . 3 SHAREHOLDER‘S STRUCTURE regional in % 67.7 Germany 9.2 USA 9.1 United Kingdom 2.9 Rest of Europe 2.7 France 2.5 Netherlands 2.5 Switzerland 2.3 Norway 1.1 Rest of the world
Deutsche EuroShop Annual Report 2016 E77 €1.40 Dividend proposal for the FY 2016 DIVIDEND RISING YEAR-BY-YEAR The Executive and Supervisory Boards will once again propose a €0.05 increase in the dividend payment (€1.40 per share) for financial year 2016 to the Annual General Meeting on 28 June 2017 in Hamburg. With our long-term strategy of a dividend policy based on conti- nuity and a yield of 3.6 % (based on the 2016 year-end closing price of €38.67), we hope to further cement the confidence of our existing shareholders and attract new investors. Further increasing the divi- dend by €0.05 per share each year, as is intended, should also help to achieve this. As a result, €1.45 per share is to be paid out in 2018 for financial year 2017. TAX SITUATION REGARDING THE DIVIDEND Dividends that are paid to shareholders domiciled in Germany are subject to German income or corporation tax. Since 2009, the uniform flat-rate tax rate for private investors has been 25% plus a solidarity surcharge. Exceptions can be made under cer- tain conditions for dividend payments that are considered equity repayments for tax purposes (distribution from EK04, or from the tax contribution account since 2001). The Deutsche EuroShop dividend meets some of these conditions. Pursuant to Art. 20, para. 1 (1) (3) of the Income Tax Act, the dividend payment rep- resents partially non-taxable (i.e. not subject to taxation) income for shareholders. However, following the revised legislation, distributions have been taxable since 2009 as profits from the sale of shares acquired after 31 December 2008 are taxable. In this case, the dividend distributions reduce the acquisition costs of the stake in Deutsche EuroShop and therefore result in higher sales pro- ceeds at the time of the sale. SHARE PRICE AND DIVIDEND SINCE IPO in € Dividend 1.50 1.25 15.50 16.88 28.08 23.73 24.30 28.98 31.64 19.26 23.50 23.67 24.80 0.96 0.96 0,96 0.96 1.00 1.05 1.05 1.05 1.05 1.10 1.10 1.00 0.75 Share price 36.20 36.20 38.84** 38.67 31.83 1.20 1.40* 1.35 1.30 1.25 40 30 20 10 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 * proposal ** Price on 07.04.2017
Deutsche EuroShop Annual Report 2016 E79 KEY DATA OF THE CONVERTIBLE BOND 1.75%, 2012 – 2017 Amount Principal amount Issue date Maturity date Coupon Price (30 December 2016) Interest payment date Conversion price Dividend protection ISIN Listing €100 million €100,000.00 per Bond 20 November 2012 20 November 2017 1.75% 127.25% Payable semi-annually in arrear on 21 May and 21 November in each year €30.62 * Conversion Price adjustment for any dividends paid (full dividend protection) Open Market (Freiverkehr) segment of the Frankfurt Stock Exchange DE000A1R0W05 * originally €35.10, adjusted on 21 June 2013, 19 June 2014,19 June 2015 and 16 June 2016 WOULD YOU LIKE MORE INFORMATION? Please visit our website or call us: Patrick Kiss and Nicolas Lissner Tel.: +49 (0)40 - 41 35 79 20 / -22 Fax: +49 (0)40 - 41 35 79 29 E-Mail: email@example.com www.deutsche-euroshop.com/ir Nicolas Lissner
E80 INVESTOR RELATIONS ANNUAL GENERAL MEETING The Annual General Meeting of Deutsche EuroShop was held on 15 June 2016. The venue was once again the rooms of the Handwerks kammer Hamburg. S ome 220 shareholders were in attendance to hear CEO Wilhelm Wellner talk about the events and results of the previous financial year. In his speech, Mr Wellner also discussed the current economic environment, the current situation on the shop- ping center transaction market as well as the business outlook. The shareholders were also provided with detailed information on the portfolio as well as on the current devel- opments in the retail segment. The speech and accompanying presentation were made available at the web address given below shortly after the event. Shareholders as well as those interested will also find here a large archive of agendas and other information relating to our past Annual General Meetings. The agenda for the Annual General Meeting 2016 included an amendment to the Articles of Association about the vot- ing majority for resolutions being passed at the Annual General Meeting. The attendance at the time of the vote was 68.0%. All of the points on the agenda were approved, with large majorities following the suggestions made by management. Shareholders made use of the opportunity to talk with the members of the Supervisory Board, the Executive Board and employees before the Annual General Meeting and at the lunch that followed it. The Annual General Meeting for financial year 2016 will be held on 28 June 2017 at the Handwerkskammer Hamburg. The invitation and all the documents needed for ordering entry tickets and for online voting will be posted out to our shareholders in good time. www.deutsche-euroshop.de/agm the hamburg chamber of crafts on holstenwall, built between 1912 and 1915
Deutsche EuroShop Annual Report 2016 E81 CONFERENCES AND ROADSHOWS 2016 In order to discuss Deutsche EuroShop’s strategy with its current investors and to present the Company to potential new investors, the Executive Board and the Investor Relations team again participated in various conferences and held numerous roadshows in 2016. D irect contact with our investors is very impor- tant to us: by engaging in frank discussions with analysts as well as fund and portfolio managers, we seek to understand the require- ments of the capital market and to learn which issues are seen as most important. Conversely, investment by fund management companies is often contingent on the ability to hold regular meetings with the Executive Board members of companies in which they invest. In 2016, we held 16 roadshows in Frankfurt, Düsseldorf, Cologne, Munich, Stuttgart, Amsterdam, Brussels, Chicago, Geneva, Helsinki, London, Madrid, Paris, New York, War- saw and Zurich. We also attended 15 conferences in Berlin, Frankfurt, Munich, Amsterdam, Cape Town, London, Lyons, New York and Paris. Across all these events, we had over 250 one-to- one discussions. We also held conference calls with live webcasts once again, for example in connection with the release of the annual and quarterly results. Nicolas Lissner and Patrick Kiss In addition, investors visited us at the Deutsche EuroShop head offices in Hamburg-Poppenbüttel, often in combina- tion with visits to our properties in and around Hamburg. We are once again planning a diverse range of investor relations activities for 2017, in order to cultivate contacts with our existing investors and tap new investor groups. You can find an overview in our financial calendar in the inside cover of the financial report. A constantly updated version can also be found on our website, at www.deutsche-euroshop.de/ir. ROADSHOWS A roadshow involves a team, usually consisting of an Exec- utive Board member and an Investor Relations manager of Deutsche EuroShop, travelling together with representa- tives of the organising bank (such as analysts and client advisors) to a financial center to visit existing or interested, potential investors in person and inform them about the company’s current development and/or strategy. Investors have the opportunity to meet the management personally and put questions to them. This allows up to 10 meetings to be held in one city on a single day. CAPITAL MARKET CONFERENCES Generally organised by banks, these are conferences at which both investors and companies are given the oppor- tunity to hold as many meetings as possible in a day. This makes it possible to address questions in detail during one-to-one and group discussions. Company presentations enable the Company to present itself to a wider specialist audience.
E82 INVESTOR RELATIONS MARKETING 50 %more site views VISITORS AND SITE VIEWS WEBSITE GETS 50% MORE SITE VIEWS The Internet is gaining increasing importance as a source of information, with the corporate website very often the first jumping-off point for investors. Our website has been very popular for years, and is always ranked among the best in the MDAX and European property sector for the information it provides and its user friendliness. In 2016, the number of site views rose by 50%. Our website can be found at www.deutsche-euroshop.de 200 150 100 50 0 15 10 5 0 3,000 2,500 2,000 1,500 1,000 500 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Visitors in thousand (left scale) Pages in thousand (right scale) INCREASED MEDIA ATTENTION Deutsche EuroShop continued to be well covered by the media. Busi- ness and financial journalists in particular regularly wrote about our company. In addition, a number of television channels, radio stations and online publications all devoted reports and interviews to Deutsche EuroShop. Although the print circulation of these media fell by around 28% from 15.7 million in the previous year to 11.3 million copies, the equivalent advertising value through reports in newspapers and mag- azines rose from around €1.69 million to almost €2.78 million (+64%). PUBLISHED CIRCULATION in million. Q4 Q3 Q2 Q1 2012 2013 2014 2015 2016
SOCIAL MEDIA ON AN UPWARD TREND Social media has become established as a channel of communication – including for cap- ital market participants. For many years, we have shown ourselves to be open to technical innovations and use social media actively to provide our investors and interested parties with news and supplementary information about Deutsche EuroShop. Perhaps we can establish contact with you through one or more of these platforms too – we would be happy to see you there: Deutsche EuroShop Annual Report 2016 E83 FOLLOW US ON FOLLOWING PLATFORMS www.twitter.com/DES_AG www.facebook.com/euroshop www.google.com/+deutscheeuroshop www.flickr.com/desag www.ir-mall.com www.slideshare.net/desag www.youtube.com/Deutsche EuroShop
E84 INVESTOR RELATIONS Shopping erleben. fühlen sehen schmecken riechen hören fühlen sehen schmecken riechen hören fühlen sehen schmecken riechen hören fühlen sehen schmecken riechen hören fühlen sehen schmecken riechen hören Advertisements for Deutsche EuroShop shares www.feelestate.de Shopping erleben. “SHOPPING EXPERIENCE” In 2016, we placed advertisements in the trade press designed for highly specific target groups that were per- fectly timed to coincide with the publication of our latest financial figures and in which we focused on how we expe- rience bricks-and-mortar retail through our five senses. We experience and enjoy the world by seeing, hearing, touching, tasting and smelling. www.feelestate.de Shopping erleben. www.feelestate.de Shopping erleben. www.feelestate.de Shopping erleben. www.feelestate.de THE BRAND In addition to share marketing, we concen- trate on further developing and maintaining the Deutsche EuroShop brand. Our goal is to boost the awareness and recognition of the brand. The intention of Deutsche EuroShop is to establish itself as the brand for investments in shopping centers.
Deutsche EuroShop Annual Report 2016 E85 10 REASONS TO INVEST IN DEUTSCHE EUROSHOP shopping centers1 The only public company in Germany to invest solely in locations2 First-rate 5 Shareholder- friendly dividend policy SHARES 4 Stable cash flow with high levels of certainty for the long term PROVEN, CONSERVATIVE STRATEGY 3 TEAM6 EXPERIENCED MANAGEMENT Excellent performance record 7 8 Centers almost fully let 9 INFLATION- 10 Solidity combined with growth potential PROTECTED RENTAL AGREEMENTS DES w e l d e h I n 2 0 1 6 , 1 6 r o a d s h o w s
E86 INVESTOR RELATIONS CORPORATE GOVERNANCE 2016 DECLARATION ON CORPORATE GOVERNANCE
o n h e S r p t r p u s o a D c s t u e i s a t p m o c e E a n y n r h a Deutsche EuroShop Annual Report 2016 E87 New investments should be financed from a balanced mix of sources, and borrowing may not account for more than 55% of financing across the Group over the long term. As a general rule, long-term interest rates are fixed when loans are taken out or renewed, with the goal of keeping the duration (average fixed interest period) at over five years. PROFITABLE PORTFOLIO WITH STABLE VALUE Deutsche EuroShop AG holds a balanced, diversified portfolio of shopping centers in Germany and other parts of Europe. We focus our investment activities on prime locations in cities with a catch- ment area of at least 300,000 residents in order to guarantee a sustained high level of investment security. SEIZING OPPORTUNITIES AND MAXIMISING VALUE In line with our buy and hold strategy, we consistently place greater importance on the quality and yield of our shopping centers than on our portfolio’s rate of growth. We monitor the market continuously and act as buyers when an opportunity arises. Rapid decision-mak- ing chains and considerable flexibility regarding potential invest- ments and financing structures allow Deutsche EuroShop to react to very wide-ranging competitive situations. At the same time, the Group’s management focuses on optimising the value of the existing portfolio of properties. DEUTSCHE EUROSHOP AG HOLDS A BALANCED, DIVERSIFIED PORTFOLIO Deutsche EuroShop is a transparent company that operates in accordance with a strategy geared towards long-term success. This focus on constancy is a key aspect of our corporate culture. Based on the legal and company-specific conditions governing the management of a listed company, we strive to promote the trust of investors, creditors, employees, business partners and the public in our management and supervision of our Company. This goal is consistent with the requirements of a demanding corporate governance system. In conformity with section 3.10 of the Deutscher Corporate Governance Kodex (German Corporate Governance Code) as well as section 289a (1) of the Handelsgesetzbuch (HGB – German Com- mercial Code), this declaration contains a report by the Executive Board, also on behalf of the Supervisory Board, on corporate governance. OBJECTIVES AND STRATEGY The management focuses on investments in high-quality shopping centers in city centers and established locations offering stable long-term value growth. Another key investment target is the gen- eration of high surplus liquidity from long-term leases in shopping centers, which is paid out to shareholders in the form of an annual dividend. In order to achieve these targets, the Company invests its capital in shopping centers in different European regions in accord- ance with the principle of risk diversification. Germany is the main focus for investment. Indexed and turnover-linked commercial rents ensure that the high earnings targets are achieved. The Company may invest up to 10% of equity in joint ventures in shopping center projects in the early stages of development. Deutsche EuroSis a transparencompany that oerates in accorance with a strgy geared towalong-term succThis focus on constancy is a key a
E88 INVESTOR RELATIONS TAILORED RENT STRUCTURE One key component of our leasing concept is a differentiated rental system. While individual owners in city centers are often concerned with achieving the highest possible rents for their property (which results in a monostructured retail offering), we ensure an attractive sector mix and long-term optimisation of our rental income through combined costing. Rental partners pay sector-specific and turn over- linked rent. Minimum rents linked to the consumer price index provide a guaranteed minimum level of income for Deutsche EuroShop AG during periods of economic weakness. THE SHOPPING EXPERIENCE CONCEPT We have outsourced center management to an experienced external partner, Hamburg-based ECE Projektmanagement GmbH & Co. KG (ECE). ECE has been designing, planning, building, letting and man- aging shopping centers since 1965. The company is currently the European market leader, with almost 200 shopping centers under management. We consider professional center management to be the key to the success of a shopping center. In addition to guaranteeing standard opening hours and a consistently friendly, bright, safe and clean shopping environment, the center management can employ unusual displays, promotions and exhibitions to make shopping an experience. The 500,000 to 600,000 people who visit our 21 centers on average every day are fascinated by not only the variety of sec- tors represented but also by our wide range of thematic exhibitions, casting shows, fashion shows and attractions for children. As a result, the shopping centers become market places where there is always something new and spectacular on offer. WORKING METHODS OF THE EXECUTIVE AND SUPERVISORY BOARDS The strategic orientation of the Company is coordinated between the Executive Board and the Supervisory Board, and the progress of strat- egy implementation is discussed at regular intervals. The Executive Board is required to inform the Supervisory Board regularly, promptly and in detail of business developments. The Executive and Super- visory Boards examine the Company’s net assets, financial position and results of operations, as well as its risk management, regularly and in detail. In this context, the formal conditions for implementing an efficient system of managing and monitoring the Company are checked, as is whether the means of supervision are effective. The significant factors affecting the business are determined by the Exec- utive Board, which notifies the Supervisory Board. The committees advise on the development of the portfolio properties, their turnover trends, accounts receivable, occupancy rates, construction measures and liquidity, as well as investment cost trends for our new devel- opment projects. The sales trends and payment patterns of tenants are observed in detail so that consequences can be drawn from these wherever required. New investment opportunities are examined by the Executive Board and, if necessary, presented to the Supervisory Board at regular Supervisory Board meetings. Investment decisions are made by the Executive Board and then submitted to the Supervisory Board for approval within the framework of a decision paper. Moreover, the Executive and Supervisory Boards discuss devel- opments on the capital and credit markets as well as the effects of these not only on the Company’s strategy but also in terms of raising equity and obtaining borrowed capital. The Supervisory Board and its committees also discuss other topical issues with the Executive Board as required. Transactions requiring the approval of the Supervisory Board are discussed and resolved upon at the scheduled meetings. For transactions requiring approval, teleconferences are also con- ducted with the Supervisory Board or its committees and circular resolutions are passed in writing. THE STRATEGIC ORIENTATION OF THE COMPANY IS COORDINATED BETWEEN THE EXECUTIVE BOARD AND THE SUPERVISORY BOARD Die strategis-che Ausrichtung des Unterne-hmens wird zwischen Vor-stand und Auf-sichtsrat abge-timmt und der
Deutsche EuroShop Annual Report 2016 E89 takes the view that professional qualifications and skills should be the key criteria for its members. For that reason, no rule as to the length of time for which members may serve on it has been adopted. Based on its own assessment, the Supervisory Board has an ade- quate number of independent members. Five of the nine Supervisory Board members are independent. These independent members are Reiner Strecker, Karin Dohm, Beate Bell, Manuela Better and Roland Werner. Executive Board The Executive Board of Deutsche EuroShop AG manages the Company in accordance with the provisions of German company law and with its rules of procedure. The Executive Board’s duties, responsibilities and business procedures are laid down in its rules of procedure and in its schedule of responsibilities. The chief management duties of the Executive Board are the management of the Group and the deter- mination of its strategic orientation, planning, and the establishment and implementation and monitoring of risk management. As of 31 December 2016, the Executive Board of Deutsche Euro- Shop AG comprised two members. Wilhelm Wellner Born 8 March 1967 First appointment: 1 February 2015 Appointed until: 30 June 2018 Wilhelm Wellner joined Deutsche EuroShop on 1 February 2015, ini- tially as a member of the Executive Board, and took on his present position as CEO on 1 July 2015. He is also a managing director and director at various companies in the Deutsche EuroShop Group. Olaf Borkers Born 10 December 1964 First appointment: 2005 Appointed until: 30 September 2019 Olaf Borkers joined Deutsche EuroShop AG in 2005 as a member of the Executive Board. He is also a managing director and director at various companies in the Deutsche EuroShop Group. CORPORATE GOVERNANCE 2016 The Government Commission on the German Corporate Governance Code published the German Corporate Governance Code on 26 Feb- ruary 2002 and approved amendments and additions to individual recommendations and suggestions, most recently on 5 May 2015. Going forward, the Government Commission will continue to mon- itor the development of corporate governance in legislation and in practice, and will adapt the Code as needed. THE EXECUTIVE BOARD AND THE SUPERVISORY BOARD The Supervisory and Executive Boards performed their statutory duties in financial year 2016 in accordance with the applicable laws and the Articles of Association. The strategic orientation of the Com- pany was coordinated between the Executive Board and the Super- visory Board, and the progress of strategy implementation was dis- cussed at regular intervals. The Supervisory Board was regularly, promptly and in detail informed of business developments and the risk situation by the Executive Board. Detailed information on the main areas of focus of its activities in the 2016 financial year can be found in its report in the 2016 Annual Report of Deutsche EuroShop AG. In financial year 2016, there were no advisory or other contracts for work or services in existence between members of the Super- visory Board and the Company. COMPOSITION AND DIVERSITY Supervisory Board The Supervisory Board has formulated specific goals for its com- position and geared itself towards the needs of a listed company with a small staff base which makes long-term investments with high capital requirements. In view of this, the intention is that the Supervisory Board be primarily composed of independent members of both genders who have special knowledge and experience of the retail trade, the letting of retail space, the management of shopping centers, the equity and debt financing of listed real estate companies, of accounting principles and internal control processes in accordance with German and/or international regulations, and of corporate gov- ernance and business management. It is intended that the proportion of women on the Supervisory Board be 30%. The upper age limit for members of the Supervisory Board is 70. The Supervisory Board also -g -d ---r
E90 INVESTOR RELATIONS Supervisory Board The Supervisory Board supervises and advises the Executive Board in its management activities in accordance with the provisions of Ger- man company law and its rules of procedure. It appoints members of the Executive Board, and significant business transacted by the Executive Board is subject to its approval. The Supervisory Board is composed of nine members, who are elected by the Annual General Meeting. The Supervisory Board has established the notification and reporting duties to be met by the Executive Board. In addition to a three-member Supervisory Board Executive Committee (which also functions as a nomination committee), an Audit Committee and a Capital Market Committee were established (each also consisting of three members). The members of the Supervisory Board are: • Reiner Strecker, Chairman • Karin Dohm, Deputy Chairwoman • Thomas Armbrust • Beate Bell • Manuela Better • Dr Henning Kreke • Alexander Otto • Klaus Striebich • Roland Werner Mr Strecker, Ms Dohm and Mr Armbrust are members of the Super- visory Board Executive Committee. The Executive Committee is chaired by the Chairman of the Supervisory Board. The Committee discusses urgent business matters and passes relevant resolutions. Moreover, it is responsible for human resources issues concern- ing the Executive Board and for reviewing the Company’s corporate governance principles. The Executive Committee of the Supervisory Board also fulfils the role of a nomination committee. The Audit Committee consists of Ms Dohm as Financial Expert and Chairwoman as well as Mr Armbrust and Mr Strecker. It is responsible for issues relating to financial reporting, auditing and the prepara- tion of the annual and consolidated financial statements. In addition, this committee supervises the audit as well as the effectiveness of internal control and risk management systems. Former members of the Company’s Executive Board and the Chairman of the Supervisory Board generally do not chair the Audit Committee, to avoid conflicts of interest. Mr Armbrust, Dr Kreke and Mr Strecker are members of the Capital Market Committee. During the past year, it was chaired by Mr Arm- brust. The position of Deputy Chairman was held by Mr Strecker. The Supervisory Board’s powers relating to the utilisation of approved capital and conditional capital were transferred to the Committee for decision-making and processing. QUOTA OF WOMEN The Supervisory Board and the Executive Board took into considera- tion the Act on the Equal Participation of Women and Men in Executive Positions in the Private and Public Sector that entered into force in 2015, and defined corresponding quotas on 24 April 2015. A quota of women of at least 30% was set for the Supervisory Board and the Executive Board, which is to be achieved by 30 June 2017. In 2015, the Executive Board also set the same target for the same time period for the management levels below the Executive Board. Given that there are five employees in total, there is only a first management level. Since the quota was established in 2015 and as of 31 December 2016, the nine-member Supervisory Board has been composed of three female members. The quota of women on the two-member Executive Board as of the reporting date was 0%. The contracts of the two current Execu- tive Board members end on 30 June 2018 and 30 September 2019 respectively. The expansion of the Executive Board to three mem- bers is neither appropriate nor reasonable due to the low number of employees and to the specifics of a holding company. It is therefore unlikely that the target for the quota of women on the Executive Board will be achieved by 30 June 2017. The quota of women in the first management level below the Exec- utive Board was also at 0% on 31 December 2016. The first manage- ment level also consists of two people. The quota of women defined in 2015 was met until the leading female member left the Company at her own request on 31 March 2016. Her responsibilities were taken over by a new male employee whose professional training and expe- rience made him the best choice. SHAREHOLDINGS Executive Board As at 31 December 2016, the Executive Board held no shares, and hence less than 1% of Deutsche EuroShop AG’s share capital. Supervisory Board As at 31 December 2016, the Supervisory Board held a total of 9,683,163 shares, and hence more than 1% of Deutsche EuroShop’s share capital. In addition to the general statutory provisions requiring public disclosure, the rules of procedure of the Executive Board and of the Supervisory Board govern the reporting duties of Executive and Supervisory Board members in the event of dealings involving shares in the Company or related rights of purchase or sale, as well as rights directly dependent on the Company’s share price. The strate-gic orientation of the Company was coordinat-d between the xecutive Board and the Super-visory Board,
Deutsche EuroShop Annual Report 2016 E91 DIRECTORS’ DEALINGS The following securities transactions by members of the Executive Board and of the Supervisory Board or by certain persons related to members of the executive bodies were notified to Deutsche Euro- Shop AG during financial year 2016 in accordance with section 15a of the Wertpapierhandelsgesetz (WpHG – German Securities Trading Act): 10-10-10 Help in making decisions: for people who find it hard to make decisions, it might help to ask what impact the decision will have in 10 minutes, in 10 months and in 10 years. DIRECTORS’ DEALINGS Name / Company name Name of the financial instrument Transaction type Date Price (€) Number Total volume (€) Place Klaus Striebich Share * Purchase 18.01.2016 37.65 1,000 37,650.00 Stuttgart DESAG Vermögens- verwaltung G.m.b.H. DESAG Vermögens- verwaltung G.m.b.H. DESAG Vermögens- verwaltung G.m.b.H. DESAG Vermögens- verwaltung G.m.b.H. DESAG Vermögens- verwaltung G.m.b.H. DESAG Vermögens- verwaltung G.m.b.H. DESAG Vermögens- verwaltung G.m.b.H. DESAG Vermögens- verwaltung G.m.b.H. DESAG Vermögens- verwaltung G.m.b.H. DESAG Vermögens- verwaltung G.m.b.H. DESAG Vermögens- verwaltung G.m.b.H. DESAG Vermögens- verwaltung G.m.b.H. * ISIN: DE0007480204 Share * Purchase 13.04.2016 41.62 51,332 2,136,181.18 Share * Purchase 24.06.2016 39.06 46,127 1,801,849.78 Share * Purchase 16.08.2016 40.72 18,500 753,242.30 Share * Purchase 17.08.2016 40.69 89041 3,623,398.84 Over the counter Xetra Xetra Xetra Derivative ** Sale 01.09.2016 Derivative ** Sale 09.09.2016 Derivative ** Sale 14.09.2016 3.08 3.03 3.19 616 189,728.00 Eurex 884 267,852.00 Eurex 1,000 319,000.00 Eurex Share * Purchase 06.10.2016 38.70 15,198 588,193.00 Share * Purchase 07.10.2016 Share * Purchase 10.10.2016 Share * Purchase 11.10.2016 38.72 38.75 38.75 6,346 245,747.58 170 6,587.50 2,322 98,977.50 Share * Purchase 12.10.2016 38.73 25,964 1,005,653.23 Xetra Xetra Xetra Xetra Xetra ** Put option on Deutsche EuroShop AG (DE0007480204), Multiplier: 100 shares
E92 INVESTOR RELATIONS RELATIONSHIPS WITH SHAREHOLDERS Shareholders exercise their rights in matters concerning the Com- pany at the Annual General Meeting. The Annual General Meeting elects the members of the Supervisory Board and passes resolutions approving the actions of the Executive and Supervisory Boards. It decides on the utilisation of the unappropriated surplus and amend- ments to the Company’s Articles of Association. The Annual Gen- eral Meeting, at which the Executive and Supervisory Boards give an account of the past financial year, takes place once a year. When reso- lutions are adopted at the Annual General Meeting, each share confers entitlement to one vote in line with the principle of “one share, one vote”. All shareholders are entitled to attend the Annual General Meet- ing and to speak and submit questions about items on the agenda. Deutsche EuroShop reports to its shareholders and to the pub- lic on the Company’s business performance, financial position and results of operations four times a year in line with a financial calen- dar. Press releases also inform the public and the media of Company activities. Information that may materially influence the Company’s share price is published in the form of ad hoc disclosures in accord- ance with the statutory requirements. The Executive Board gives regular presentations to analysts and at investor events as part of the Company’s investor relations activi- ties. Analyst conferences on the release of the annual and quarterly financial statements are broadcast over the Internet, where they are available to anyone interested in the Company. In addition, Deutsche EuroShop AG provides financial information and other information about the Deutsche EuroShop Group on its website. ACCOUNTING AND AUDITS The Deutsche EuroShop Group prepares its financial statements according to International Financial Reporting Standards (IFRSs) on the basis of section 315a of the Handelsgesetzbuch (HGB – German Commercial Code). The annual financial statements of Deutsche EuroShop AG will continue to be prepared in line with the account- ing provisions of the HGB. The Executive Board is responsible for the preparation of the financial statements. The Chairman of the Audit Committee commissions the auditor of the annual financial state- ments, as elected by the Annual General Meeting. The stricter require- ments for auditor independence are met in this process. At the Annual General Meeting on 15 June 2016, BDO AG Wirt- schafts prüfungsgesellschaft was elected as the statutory auditor for the consolidated financial statements for financial year 2016. BDO AG Wirtschaftsprüfungsgesellschaft has audited the annual and consol- idated financial statements of Deutsche EuroShop AG from 2005 to 2016 without interruption. The responsible auditors within the audit company have changed several times during the above-mentioned period. The current auditor audited the annual financial statements for the first time in 2016, while the ancillary auditor audited the annual financial statements for the second time in this function. BDO also provided other consultancy services for our Company in financial year 2016 in the amount of €4 thousand. OUTLOOK The composition of the Supervisory Board has changed significantly over the past three years in view of the change of generations and new requirements as to its membership. Its adequate composition is assured and it is also ensured that the specifications of the Ger- man Corporate Governance Code will be complied with in a balanced manner. O U T L O O K The adequate composition of the Supervisory Board is assured The Deutsche EuroShop Group prepares its ancial statew-ents according o International ancial Report-ing Standards
Deutsche EuroShop Annual Report 2016 E93 DECLARATION OF CONFORMITY In November 2016, the Executive and Supervisory Boards of the Com- pany jointly submitted their updated declaration of conformity with the recommendations of the Government Commission on the German Corporate Governance Code for financial year 2016 in accordance with section 161 of the Aktiengesetz (AktG – German Public Companies Act). The declaration was made permanently available to the public on the Company’s website at www.deutsche-euroshop.de. Joint declaration by the Executive and Supervisory Boards of Deutsche EuroShop AG relating to the recommendations of the Government Commission on the German Corporate Governance Code in accordance with section 161 AktG The Executive Board and the Supervisory Board of Deutsche EuroShop AG declare that the Company has complied with, and will continue to comply with, the recommendations of the Government Commission on the German Corporate Governance Code (as published by the German Federal Ministry of Justice in the official section of the electronic German Federal Gazette (Bundesanzeiger) on 4 July 2003, and as amended on 5 May 2015), subject to a limited number of exceptions as indicated below: • The existing D&O insurance policy taken out for the Supervisory Board does not provide for any deductible (Section 3.8). In accordance with the statutory provisions of Article 93 (2) sentence 3 AktG, a deductible was agreed upon for the Executive Board. No deductible is foreseen for the Supervisory Board in the future. In the Executive Board and Super- visory Board’s view, a deductible has no effect on the sense of responsibility and loyalty with which the members of these bodies perform the duties and functions assigned to them. • The Supervisory Board did not select a senior management team for a comparison of compensation (Section 4.2.2). Since the staff of Deutsche EuroShop AG consists of just five people, a differentiation between these and a senior management team would not be meaningful. In this respect, only the relationship between the compensation paid to the Executive Board and that paid to the overall staff can be considered by the Supervisory Board. • No limit has been set for the terms of office of members of the Supervisory Board (Section 5.4.1). The Supervisory Board believes that professional qualifications and skills represent the key criteria for members of the Supervisory Board. Limiting the term of office could force the retirement of a qualified and successful Super- visory Board member. • The consolidated financial statements are published within 120 days of the end of the financial year (Section 7.1.2). It is important to the Company to publish audited financial statements that have been approved by the Supervisory Board. An earlier publication date is not feasible due to the schedules for the preparation, auditing and adoption of the financial statements. Unaudited data of relevance to the capital market is published in advance. Hamburg, 27 November 2016 The Executive Board and the Supervisory Board Deutsche EuroShop AG
E94 INVESTOR RELATIONS EPRA REPORTING The Brussels-based European Public Real Estate Association (EPRA) has set itself the goal of improving the transparency and com- parability of reports published by listed com- panies in Europe. To this end, the EPRA has defined key figures in its Best Practice Rec- ommendations. Deutsche EuroShop supports this goal as a member of the EPRA. EPRA key figures have formed part of our regular reports for a number of years. We added further EPRA key figures in financial year 2016 and are presenting these in a sep- arate part of our Annual Report in order to reflect their increasing importance. In this context, we have revised how we determine certain EPRA key figures published in the group management report and have adjusted the prior-year values accordingly. Notes to the amended prior-year values are provided. The currently valid version 1 of the EPRA Best Prac- tice Recommendations was used to determine the key figures. EPRA Summary of key figures 31.12.2016 in € thousand 31.12.2016 per share in € 31.12.2015 in € thousand 31.12.2015 per share in € EPRA Earnings EPRA Earnings (diluted) EPRA NAV EPRA NAV (diluted) EPRA NNNAV EPRA NNNAV (diluted) 123,675 125,827 2,332,574 2,431,254 1,833,905 1,932,585 2.29 2.20 43.24 42.53 34.00 33.81 117,738 119,890 2,135,219 2,232,191 1,693,720 1,790,692 2.18 2.10 39.58 39.12 31.40 31.38 Changes +/- in T€ 5,937 5,937 197,355 199,063 140,185 141,893 Changes in % 5.0 5.0 9.2 8.9 8.3 7.9 31.12.2016 in % 31.12.2015 in % Changes in percentage points EPRA Net Initial Yield (EPRA NIY) EPRA “Topped-up” Net Initial Yield EPRA Cost Ratios (including direct vacancy costs) EPRA Cost Ratios (excluding direct vacancy costs) EPRA Vacancy Rate 5.0 5.0 13.1 12.9 1.2 5.2 5.2 12.8 12.6 1.1 -0.2 -0.2 0.3 0.3 0.1 1 The currently valid version of the EPRA Best Practice Recommendations can be found at http://www.epra.com/regulation-and-reporting/bpr/. The Brussels-baPublic Real Estate A(EPRA) has set itsof improving the tand comparabilitpublished by lisin Europe. To this ehas defined key figuBest Practice RecommDeutsche EuroSho
Deutsche EuroShop Annual Report 2016 E95 EPRA EARNINGS EPRA earnings represent sustained operating earnings and thus lay the foundation for a real estate company’s ability to pay a dividend. To calculate this, the profit / loss for the year is adjusted to reflect any income components that have no sustained, recurring impact on operational performance. EPRA earnings are therefore essentially comparable with the “funds from operations” parameter that we employ (FFO; see page F9). In contrast to EPRA earnings, however, all non-cash deferred taxes and the non-cash expense of convertible bond conversion rights are adjusted for FFO. 2 EPRA EARNINGS Consolidated profit Changes in value of investment properties Changes in value of investment properties (at-equity) Changes in value of investment properties * Changes in fair value of financial instruments Changes in fair value of financial instruments (at-equity) Changes in fair value of financial instruments * Other results from revaluations Acquisition costs Deferred tax in respect of EPRA adjustments *,** EPRA EARNINGS Costs for the convertible bond EPRA Earnings (diluted) Weighted number of shares Weighted number of shares (diluted) 31.12.2016 in € thousand 31.12.2016 per share in € 31.12.2015 in € thousand 31.12.2015 per share in € Changes per share in € Changes in % 221,757 4.11 309,282 5.73 -1.62 -28.3 -117,460 -28,711 -220,556 -47,180 -146,171 -2.71 -267,736 -4.96 2.25 -45.4 -2,629 -281 -2,910 686 1,093 49,220 123,675 2,152 125,827 -2,231 0 -0.05 0.01 0.02 0.91 2.29 2.20 53,945,536 57,163,039 -2,231 0 0 78,423 117,738 2,152 119,890 -0.04 0.00 0.00 1.45 2.18 -0.01 0.01 0.02 -0.54 0.11 30.4 – – -37.2 5.0 2.10 0.10 5.0 53,945,536 57,059,853 * Including the share of joint ventures and associated companies recognized at equity ** affects deferred taxes on investment properties and derivative instruments 2 In last year’s Management Report, EPRA earnings stood at €1.89 per share. In contrast to the previous year, deferred taxes attributable to the change in the tax balance sheet were also included in 2016. In addition, measurement gains / losses from derivative financial instruments were taken into account. The determination of the previous year’s figure was adjusted accordingly.. ased European ate Association t itself the goal he transparency ility of reports isted companies his end, the EPRA y figures in its ecommendationsoShop supports t
E96 INVESTOR RELATIONS EPRA NET ASSET VALUE EPRA NAV measures the net asset value of a company based on a business model with a long-term focus. To do so, Group equity is adjusted for assets and liabilities that are unlikely to be realised if held over the long term. 3 EPRA Net Asset Value 31.12.2016 in € thousand 31.12.2016 per share in € 31.12.2015 in € thousand 31.12.2015 per share in € Changes per share in € Equity 1,916,148 35.52 1,767,859 32.77 2.75 Changes in % 8.4 0.1 8.2 15.5 9.2 0.00 2.75 0.91 3.66 Fair value of financial instruments Fair value of financial instruments (at-equity) Fair value of financial instruments * EQUITY WITHOUT FINANCIAL INSTRUMENTS Deferred taxes on investment properties and financial instruments * EPRA NAV Potential effect from convertible bond EPRA NAV (diluted) Weighted number of shares Weighted number of shares (diluted) 48,659 1,840 50,452 0 50,499 0.94 50,452 0.94 1,966,647 36.46 1,818,311 33.71 365,927 2,332,574 98,680 2,431,254 6.78 43.24 316,908 2,135,219 96,972 5.87 39.58 42.53 2,232,191 39.12 3.41 8.9 53,945,536 57,163,039 53,945,536 57,059,853 * Including the share of joint ventures and associated companies recognized at equity 3 In last year’s Management Report, EPRA NAV stood at €39.12 per share. In 2016, however, financial instruments recognised in income were also accounted for in the determination of EPRA NAV. Furthermore, the deferred taxes on tax loss carryforwards were taken into consideration. The determination of the previous year’s figure was adjusted accordingly. Diluted EPRA NAV was also reported for the first time. Whereas EPRA NAlong-term perspon the assumption oconcern, EPRA NNNAfactors in assets anmeasured at fair vthe reporting dunlikely to be relong-term view. Usas a basis, the f
Deutsche EuroShop Annual Report 2016 E97 EPRA TRIPLE NET ASSET VALUE Whereas EPRA NAV employs a long-term per- spective based on the assumption of a going concern, EPRA NNNAV also factors in assets and liabilities measured at fair value as of the reporting date, which are unlikely to be realised using a long-term view. Using EPRA NAV as a basis, the fair values of derivative financial instruments and financial liabilities as well as the associated deferred taxes are included. EPRA Triple Net Asset Value EPRA NAV Fair value of financial instruments * 31.12.2016 in € thousand 31.12.2016 per share in € 31.12.2015 in € thousand 31.12.2015 per share in € Changes per share in € Changes in % 2,332,574 -50,499 43.24 -0.94 2,135,219 39.58 -50,452 -0.94 3.66 0.00 9.2 0.1 Difference of unrecognized fair value of financial liabilities at their book value -103,671 11,799 -8,421 Thereof attributable to minority shareholders of partnerships Difference of unrecognized fair value of financial liabilities at their book value (at-equity) Difference of unrecognized fair value of financial liabilities at their book value* Deferred taxes on Difference of unrecognized fair value of financial liabilities at their book value * Deferred taxes on investment properties and financial instruments * EPRA NNNAV Potential effect from convertible bond EPRA NNNAV (diluted) Weighted number of shares Weighted number of shares (diluted) -95,231 10,582 -7,604 -100,293 -1.86 -92,253 -1.71 -0.15 8.7 18,050 0.33 18,114 0.34 0.00 -0.4 -365,927 1,833,905 98,680 1,932,585 -6.78 34.00 -316,908 1,693,720 96,972 -5.87 31.40 -0.91 2.60 15.5 8.3 33.81 1,790,692 31.38 53,945,536 57,163,039 53,945,536 57,059,853 Including the share of joint ventures and associated companies recognized at equity * A NAV employs a spective based tion of a going A NNNAV also ts and liabilities ir value as of g date, which are e realised using a w. Using EPRA NAV he fair values of
E98 INVESTOR RELATIONS EPRA NET INITIAL YIELD (EPRA NIY) AND EPRA “TOPPED-UP” NET INITIAL YIELD EPRA net initial yield is calculated on the basis of annualised rental income as at the reporting data less the costs that are not allocable to tenants, calculated in proportion to the market value of the property including ancillary acquisition costs. EPRA “topped-up” net initial yield also takes into account granted rental incentives in the determi- nation of annualised rental income. EPRA Net Initial Yield and EPRA “Topped-up” Net Initial Yield Fair value of investment properties Fair value of investment properties (at-equity) Fair value of investment properties Excluding extension areas * Excluding additional purchase costs * Gross up property portfolio valuation Annualised rental income * Property operating costs that cannot be passed on * ANNUALISED NET RENTS Rent incentives and other lease incentives * “Topped-up” net annualised rent EPRA NET INITIAL YIELD (EPRA NIY) EPRA "TOPPED-UP" NET INITIAL YIELD * Including the share of joint ventures and associated companies recognized at equity 31.12.2016 in € thousand 31.12.2015 in € thousand 3,520,824 669,960 3,356,655 524,870 4,190,784 -11,284 245,605 4,425,105 239,517 -20,290 219,227 871 220,098 5.0 % 5.0 % 3,881,525 -11,098 225,602 4,096,029 234,370 -20,878 213,492 792 214,284 5.2 % 5.2 % EPRA net initial yielted on the basis orental income as adata less the cosallocable to tenin proportion to tvalue of the proancillary acquisi“topped-up” net in
EPRA VACANCY RATE The EPRA vacancy rate is the ratio of the mar- ket value of vacant space to the market rent of the entire portfolio as at the reporting date. EPRA Vacancy Rate Estimated Rental Value of vacant space * Estimated rental value of the whole portfolio * EPRA VACANCY RATE * Including the share of joint ventures and associated companies recognized at equity Deutsche EuroShop Annual Report 2016 E99 31.12.2016 in € thousand 31.12.2015 in € thousand 2,899 237,133 1.2 % 2,636 231,433 1.1 % EPRA COST RATIO The EPRA cost ratio compares the sum of operating and administrative costs with rental income, allowing for an estimation of cost efficiency across comparable real estate companies. Operating and administra- tive costs comprise all expenses that cannot be allocated or passed on from the manage- ment of the property portfolio (excluding depreciation, interest and taxes) as well as Group management costs. EPRA Cost Ratios Property operating and management costs * Other operating expenses excluding financing costs * Other operating income and recharges * EPRA costs (including direct vacancy costs) Direct vacancy costs * EPRA costs (excluding direct vacancy costs) Rental income * EPRA Cost Ratios (including direct vacancy costs) EPRA Cost Ratios (excluding direct vacancy costs) * Including the share of joint ventures and associated companies recognized at equity 31.12.2016 in € thousand 31.12.2015 in € thousand 24,074 7,086 0 31,160 -297 30,863 238,740 13.1 % 12.9 % 22,632 7,268 0 29,900 -280 29,620 234,379 12.8 % 12.6 % al yield is calculasis of annualised e as at the reporthe costs that are nonants, calculateion to the market roperty includinisition costs. EPRt initial income
A N N UA L R E P O R T 16feelestate.de Rational emotional? or WHAT KIND OF PERSON ARE YOU? RATIONAL 2 1 3 5 4 Are you fascinated by numbers? NO YES Is your motto “facts, facts, facts?” NEIN JA Please go to page E1! Please continue reading here!
FINANCIAL CALENDAR 2017 January 05. – 06.01. 17.01. February 15.02. Oddo Forum, Lyon Kepler Cheuvreux German Corporate Conference, Frankfurt Oddo Seydler German Conference, Frankfurt March 23.03. 25.03. 28.03. 30.03. April 03.04. 03.04. 12.04. 26.04. 28.04. May 11.05. 19.05. 19.05. June 01.06. 07.06. 15.06. 16.06. 19.06. 22.06. 28.06. 28.06. August 15.08. September 04. – 05.09. 12. – 13.09. 18.09. 19.09. 28.09. 29.09. October 04. – 06.10. November 15.11. 16.11. 17.11. 17.11. 21.11. 29.11. December 05.12. 11. – 12.12. HSBC Real Estate Conference, Frankfurt Stock Exchange Day, Munich Roadshow London, Metzler Roadshow Amsterdam, Commerzbank Roadshow Munich, Baader Bank Roadshow Zurich, Berenberg Audit Commitee meeting, Hamburg Supervisory Board meeting, Hamburg Publication of the Annual Report 2016 Quarterly Statement 3M 2017 equinet ESN Conference, Frankfurt Warburg Highlights, Hamburg Kepler Cheuvreux German Property Day, Paris Kempen & Co European Property Seminar, Amsterdam Roadshow London, Green Street Advisors Roadshow Edinburgh, JP Morgan Cazenove Roadshow Warsaw, Berenberg Deutsche Bank dbAccess Conference, Berlin Annual General Meeting, Hamburg Supervisory Board meeting, Hamburg Half-year Financial Report 2017 DES Real Estate Summer, Brno BoA Merrill Lynch Global RE Conference, New York Goldman Sachs & Berenberg German Conference., Munich Baader Investment Conference, Munich Supervisory Board meeting, Hamburg Societe Generale Pan European Real Estate Conference, London Expo Real, Munich Quarterly Statement 9M 2017 Natixis European Mid Caps Conference, Paris Roadshow Amsterdam, Societe Generale Roadshow Brussels, Kempen & Co DZ Bank Equity Conference, Frankfurt Supervisory Board meeting, Hamburg Berenberg European Conference, Pennyhill HSBC Global Real Estate Conference, Cape Town Our financial calendar is updated continuously. Please check our website for the latest events: www.deutsche-euroshop.com/ir
C o n t e n t s GROUP MANAGEMENT REPORT BASIC INFORMATION ABOUT THE GROUP ECONOMIC REVIEW REPORT ON EVENTS AFTER THE BALANCE SHEET DATE OUTLOOK RISK AND OPPORTUNITY REPORT OPPORTUNITY REPORT REMUNERATION REPORT ACQUISITION REPORTING DECLARATION ON CORPORATE GOVERNANCE (SECTION 289A HGB) CONSOLIDATED FINANCIAL STATEMENTS 2016 CONSOLIDATED BALANCE SHEET CONSOLIDATED INCOME STATEMENT STATEMENT OF COMPREHENSIVE INCOME CONSOLIDATED CASH FLOW STATEMENT STATEMENT OF CHANGES IN EQUITY NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AUDITOR’S REPORT SERVICE GLOSSARY LEGAL F1 F2 F14 F14 F16 F21 F21 F24 F25 F26 F28 F29 F30 F31 F32 F58 F60 F63
Deutsche EuroShop Annual Report 2016 R1 GROUP MANAGEMENT REPORT BASIC INFORMATION ABOUT THE GROUP GROUP BUSINESS MODEL, TARGETS AND STRATEGY Deutsche EuroShop is an Aktiengesellschaft (public company) under German law. The Company’s registered office is in Hamburg. Deutsche EuroShop is the only public company in Germany to invest solely in shopping centers in prime locations. A total of 20 shopping centers in Germany, Austria, Poland and Hungary are held in the real estate portfolio. The Group generates its reported revenue from rental income on the space it lets in the shopping centers. The shopping centers are held by independent companies, with Deutsche EuroShop holding stakes of 100% in eleven of them and between 50% and 75% in another nine. Further information on the incorporation of these companies into the consolidated annual results is provided in the notes to the consolidated financial statement. The Group managing company is Deutsche EuroShop AG. It is responsi- ble for corporate strategy, portfolio and risk management, financing and communication. The Deutsche EuroShop Group has a central structure and lean personnel organisation. Objectives and strategy The management focuses on investments in high-quality shopping centres in city centres and established locations offering stable long- term value growth. Another key investment target is the generation of high surplus liquidity from long-term leases in shopping centers, which is paid out to shareholders in the form of an annual dividend. To this end, the Company invests its capital in shopping centers in different European regions in accordance with the principle of risk diversification. Germany is the main focus for investment. Indexed and turnover-linked commercial rents ensure that the high earnings tar- gets are achieved. The Company may invest up to 10% of equity in joint ventures in shop- ping centre projects in the early stages of development. New investments should be financed from a balanced mix of sources, and borrowing may not account for more than 55% of financing across the Group over the long term. As a general rule, long-term interest rates are fixed when loans are taken out or renewed, with the goal of keeping the duration (average fixed interest period) at over five years. Profitable portfolio with stable value Deutsche EuroShop has a balanced and diversified portfolio of Ger- man and European shopping centers. The management focuses on investments in prime locations in cities with a catchment area of at least 300,000 residents that bring a high level of investment security. Seizing opportunities and maximising value In line with the buy & hold strategy, the management is increasingly concentrating on shopping center quality and returns rather than rapid portfolio growth. The management constantly monitors the market and takes opportunities to buy when they arise. Rapid decision-making chains and considerable flexibility regard- ing potential investments and financing structures allow Deutsche EuroShop to react to very wide-ranging competitive situations. At the same time, the Group’s management focuses on optimising the value of the existing portfolio of properties. Tailored rent structure One key component of the rental model is a tailored rent structure. While city center property owners often focus on obtaining the high- est possible rents for their properties – creating a monolithic retail offering – Deutsche EuroShop’s management uses a calculation com- bining a range of factors to create an attractive sector mix and opti- mise long-term rental income. Rental partners pay sector-specific and turnover-linked rent. Minimum rents linked to the consumer price index provide a guaranteed minimum level of income for Deutsche EuroShop AG during periods of economic weakness.
R2 GROUP MANAGEMENT REPORT The shopping experience concept Deutsche EuroShop has outsourced center management to an expe- rienced external partner: ECE Projektmanagement G.m.b.H. & Co. KG (ECE), based in Hamburg. ECE has been designing, planning, building, letting and managing shopping centres since 1965. The company is currently the European market leader, with 200 shopping centers under management. Deutsche EuroShop views professional center manage- ment as the key to successful shopping centers. In addition to guaran- teeing standard opening hours and a consistently friendly, bright, safe and clean shopping environment, the center management can employ unusual displays, promotions and exhibitions to make shopping an experience. Each day, an average of 500,000 to 600,000 shoppers visit the 20 DES centers, where they are impressed not only by the range of sectors represented, but also by promotional activities including car, talent and fashion shows as well as a wide variety of attractions for children. As a result, the shopping centers become market places where there is always something new and spectacular on offer. MANAGEMENT SYSTEM The Executive Board of Deutsche EuroShop manages the Company in accordance with the provisions of German company law and with its rules of procedure. The Executive Board’s duties, responsibilities and business procedures are laid down in its rules of procedure and in its schedule of responsibilities. The management indicators are based on the targets of having shopping centers with sustainable and stable value growth and a high liquidity surplus generated by long-term leases. These indicators are revenue, EBIT (earnings before interest and taxes), EBT (earnings before taxes) excluding measurement gains / losses and FFO (funds from operations). Based on three-year medium-term planning for each shopping center, aggregated Group planning is drawn up once a year and the manage- ment indicator targets are established. Throughout the year, current performances are periodically (quarterly) compared against these tar- gets and current projections. The value drivers behind the manage- ment indicators, such as rental income, visitor numbers and reletting statistics, are furthermore monitored in monthly controlling reports, allowing for any urgent measures required to be taken immediately. The Supervisory Board supervises and advises the Executive Board in its management activities in accordance with the provisions of Ger- man company law and its rules of procedure. It appoints the members of the Executive Board, and significant transactions by the Executive Board are subject to its approval. The Supervisory Board comprises nine members, all of whom are elected by the Annual General Meeting. Members of the Executive Board are appointed and dismissed on the basis of sections 84 and 85 of the Aktiengesetz (AktG – German Public Companies Act). Changes to the Articles of Association are made in accordance with sections 179 and 133 of the AktG, and the Supervisory Board is also authorised, without a resolution of the Annual General Meeting, to adapt the Articles of Association to new legal provisions that become binding on the Company, as well as to resolve changes to the Articles of Association that only relate to the wording. More information about the Executive Board and the Supervisory Board can be found in the declaration on corporate governance. ECONOMIC REVIEW MACROECONOMIC AND SECTOR-SPECIFIC CONDITIONS Germany’s gross domestic product (GDP) rose by 1.9% in 2016, accord- ing to the calculations of the German Federal Statistical Office. Positive impetus came mainly from the domestic market, following increased consumer spending and greater investment in construction. In par- ticular, public-sector consumption expenditure rose significantly by 4.0%, in part due to the high levels of refugee immigration and the costs associated with this. Investment in construction rose in 2016 by a price-adjusted 3.1%, which was mainly attributable to higher invest- ment in residential properties. The trade balance, i. e. the difference between exports and imports, led to a slight decline in GDP growth (-0.2 percentage points) on balance. Although price-adjusted exports of goods and services rose again slightly (+2.6%), imports grew at a sharper pace in the same time period (+3.7%). On the labour market, the positive trend of recent years also contin- ued: On average, 2.7 million people were registered as unemployed during the year, putting the unemployment rate at 6.1% (2015: 6.4%). Consumer prices in Germany rose by just 0.5% versus 2015, mainly caused by the fall in energy prices (-5.4%); taking energy prices out of the equation, the annual rate of increase in 2016 was +1.2%. In 2016, real employee pay rose by 1.8% according to the German Fed- eral Statistical Office. In an environment still marked by high employ- ment and very low interest rates, the propensity to consume rose again. The savings rate stabilised in 2016 at 9.7%, which was the same level as in the previous year. Private consumer spending, which accounted for 53.6% of GDP, rose by 2.0% in 2016, adjusted for price changes.
Deutsche EuroShop Annual Report 2016 R3 According to provisional calculations by the German Federal Statisti- cal Office, German retail sales (including online sales) posted nominal growth of 2.2% and real growth of 1.6% year-on-year, with rising online sales in particular contributing to the positive sales growth in retail. According to figures from the German Retail Federation (HDE), online sales increased year-on-year to around €44.0 billion, an increase of approximately 10.6%, and roughly a 9.1% share of retail sales in 2016, which according to the HDE statistics came to €482.2 billion. Bricks- and-mortar retail sales in Germany grew 1.5% in 2016, with the key indicator for the shopping centers of textile retail sales registering a 1.1% decline (according to calculations made by market research institution GfK). The centers’ competitive position in the Deutsche EuroShop portfolio is determined with reference to both the shops in the relevant city centers and other shopping centers in the catchment area. The centers also have to compete with major regional city centers. For example, the city centers of Dortmund, Mannheim and Braunschweig are serious rivals to the Allee-Center in Hamm, the Rhein-Neckar-Zentrum in Viernheim and the City-Galerie in Wolfsburg respectively. There is additional competition for city center retail in the form of grow- ing numbers of factory and designer outlets on greenfield sites outside the city limits and to a certain extent also within them. A factory outlet center in Brehna, in the same area as our center in Dessau, opened up in April 2016, and we continue to monitor further project develop- ments in Hamm and Wuppertal. The German Federal Statistical Office calculates that retail floor space in Germany increased by a further 0.6% in 2016 (2015: +0.4%). What is more, the competitive situation in bricks-and-mortar retailing and in our shopping centers is being intensified by the fast and continual gains being made by online shopping, a channel currently absorbing much of the growth in retail sales. Retail sector Based on the calculations of real estate consultants Jones Lang LaSalle, rental turnover on retail spaces leased in Germany fell 7% to 487,000 m2 in 2016 in connection with increased demand for small-to- medium spaces. The high demand for smaller spaces led to a decline in the average leased area to 456 m² (2015: 490 m²), with 57% of lease agreements concluded concerning spaces smaller than 250 m². With around 33% of rented floor space, textile retailers again consti- tuted the largest demand group, although that demand saw further declines. In second place behind textiles retailers were restaurants and food retailers, accounting for a stable 21%. Health and beauty retail took third place with just under 15%, which amounts to a gain of five per- centage points over the previous year. Besides the large chemist chains, fitness studios in particular rented large spaces all across Germany. Real estate market With a slight 4% decline in the volume of transactions to €52.9 billion (2015: €55.1 billion), the German investment market in commercial real estate consolidated, after expanding for six consecutive years, according to Jones Lang LaSalle. Retail real estate accounted for 23% of the volumes (2015: 31%). Investments in German shopping centers totalled €3.6 billion in full- year 2016 (2015: €5.6 billion), representing a decline of over one-third with respect to the prior year. The transactions involved were gener- ally smaller, with the average volume going down from €73 million to €61 million, indicating that mainly smaller and medium-sized centers changed hands. The share of portfolio transactions remained constant at 30%. In contrast to earlier years, it was among German investors in particular that 56% of sales in the retail real estate market were concentrated in 2016. As demand for shopping centers remained persistently high, yields for these investments fell further in Germany. According to Jones Lang LaSalle, returns on shopping center investments had hit record lows by the end of the year, at around 4.0% on average (2015: 4.25%). Share price performance After closing at €40.46 on the last day of trading in 2015, Deutsche EuroShop share prices started the new year on a downward trend, reaching their low for the year of €35.86 on 11 February 2016. This was followed by a friendlier market environment in the middle of March, which helped the share move back above the 40-euro mark, after which it hovered between €39.46 and €42.52 until the end of September. This price was also its high for the year, which it reached on 9 June 2016. The global performance of real estate shares was negatively affected by ris- ing interest rates, and the DES share was no exception. The share price came very close to touching the February low again, but then shifted to an upward trend at the start of December. The share finished the year at a closing price of €38.67. Taking into account the dividend of €1.35 per share paid on 16 June 2016, this corresponds to a performance of -1.2% (2015: +15.3%). Deutsche EuroShop’s market capitalisation stood at €2.1 billion on 31 December 2016.
R4 GROUP MANAGEMENT REPORT COURSE OF BUSINESS Overall comment by the Executive Board on the economic situation Consolidated key figures in € million Revenue EBIT EBT (excluding measurement gains / losses *) EPRA** earnings per share in € FFO per share (€) Equity ratio (%) *** LTV ratio (%) **** EPRA** NAV per share in € Forecast for 2016 200 – 204 175 – 179 127 – 130 2.26 – 2.30 01.01. – 31.12.2016 01.01. – 31.12.2015 205.1 178.6 134.5 2.29 2.41 54.5 34.2 43.24 202.9 176.3 127.0 2.18 2.29 53.5 35.5 39.58 + / - 1.1% 1.3% 5.9% 5.0% 5.3% 9.2% * Including the share attributable to equity-accounted joint ventures and associates ** European Public Real Estate Association *** incl. third-party interests in equity **** loan-to-value ratio (LTV ratio): Ratio of net financial liabilities (financial liabilities minus cash and cash equivalents) to long-term assets (investment properties and financial assets recorded on the balance sheet according to the at-equity method) The Executive Board looks back with satisfaction at the financial year just ended. Total revenue came to €205.1 million (forecast: €200 – 204 million), which represents a 1.1% increase on the previous year (2015: €202.9 million). Earnings before interest and taxes (EBIT) of €178.6 million were within the guidance range (€175 – 179 million) and €2.3 million or 1.3% higher than in the previous year (2015: €176.3 million). We expected earnings before taxes (EBT) excluding measurement gains / losses of €127 mil- lion to €130 million. At the closing date, EBT of €134.5 million came in 5.9% higher than in the previous year (2015: €127.0 million). In the case of FFO, we were able to slightly beat our guidance of €2.26 – 2.30 per share, closing the year at €2.41 per share (+5.3%). These results once again underscore that Deutsche EuroShop is well placed with its first-rate portfolio of shopping centers, even in an increasingly fierce competitive environment.
Deutsche EuroShop Annual Report 2016 R5 Results of Operations Results of Operations in € thousand Revenue Operating and administrative costs for property NOI Other operating income Other operating expenses EBIT At-equity profit / loss Measurement gains / losses (at-equity) Deferred taxes (at-equity) At-equity (operating) profit / loss Profit / loss attributable to limited partners Interest expense Other finance costs Net finance costs (excl. measurement gains / losses) EBT (excl. measurement gains / losses) Measurement gains / losses Measurement gains / losses (at-equity) Measurement gains / losses (including at-equity profit / loss) Income taxes Deferred Taxes Deferred taxes (at-equity) Deferred taxes (at-equity) CONSOLIDATED PROFIT 01.01. – 31.12.2016 01.01. – 31.12.2015 Change + / - Change in % 54,283 -28,711 -1,507 205,136 -20,398 184,738 1,410 -7,522 178,626 24,065 -17,894 -52,918 2,648 -44,099 134,527 68,355 -47,180 0 116,774 28,711 220,556 47,180 -54,157 1,507 145,485 -5,605 -52,650 221,757 -80,851 0 202,854 -19,383 183,471 800 -7,975 176,296 21,175 -17,020 -55,980 2,503 -49,322 126,974 267,736 -4,577 -80,851 309,282 2,282 -1,015 1,267 610 453 2,330 2,890 -874 3,062 145 5,223 7,553 -122,251 -1,028 28,201 -87,525 1.1% 5.2% 0.7% 76.3% -5.7% 1.3% 13.6% 5.1% -5.5% 5.8% -10.6% 5.9% -45.7% 22.5% -34.9% -28.3% Consolidated revenue up 1.1% Consolidated revenue was up 1.1% for the financial year, from €202.9 million to €205.1 million. The rise in revenue resulted from index-related rental price adjustments, new rental agreements con- cluded and higher revenue and mall rental income. The previous year had also seen the conclusion of restructuring and expansion meas- ures, e. g. at the Forum Wetzlar and the opening of the Food Court in City-Point Kassel in November 2015, which contributed to revenue over a full year for the first time in 2016. In addition, 2016 saw higher early-termination fees on rental contracts than the previous year. REVENUE in € million 202.9 205.1 15.0 14.9 187.9 190.2 International Domestic 2015 2016
R6 GROUP MANAGEMENT REPORT Revenue in € thousand Main-Taunus-Zentrum, Sulzbach Altmarkt-Galerie, Dresden A10 Center, Wildau Rhein-Neckar-Zentrum, Viernheim Herold-Center, Norderstedt Billstedt-Center, Hamburg Allee-Center, Hamm City-Galerie, Wolfsburg Forum, Wetzlar City-Arkaden, Wuppertal City-Point, Kassel Rathaus-Center, Dessau Stadt-Galerie, Hameln DES Verwaltung GmbH Total domestic Galeria Bałtycka, Gdansk Caspia, Danzig Total international TOTAL 01.01. – 31.12.2016 01.01. – 31.12.2015 Change + / - Change in % 35,031 25,469 21,245 18,606 12,992 11,446 10,431 9,992 9,807 9,702 8,740 8,034 7,012 1,704 190,211 14,863 62 14,925 205,136 34,744 25,320 20,755 18,961 13,055 11,287 10,401 9,796 9,304 9,376 8,234 8,308 7,043 1,291 187,875 14,843 136 14,979 202,854 287 149 490 -355 -63 159 30 196 503 326 506 -274 -31 413 2,336 20 -74 -54 2,282 0.8% 0.6% 2.4% -1.9% -0.5% 1.4% 0.3% 2.0% 5.4% 3.5% 6.1% -3.3% -0.4% 32.0% 1.2% 0.1% -54.4% -0.4% 1.1% Operating and administrative costs for property: 9.9% of revenue Center operating costs were up slightly at €20.4 million in the reporting period compared with €19.4 million in the previous year, chiefly as a result of a €0.8 million increase in maintenance expenses. At a cost / rev- enue ratio of 9.9% (2015: 9.6%), costs were in line with the budget. Other operating income and expenses Higher income from released reserves and the partial reimbursement of general planning fees in connection with the final settlement for the City-Point Kassel refurbishments were mainly responsible for the increase in other operating income of €1.4 million (2015: €0.8 mil- lion). Other operating expenses amounted to €7.5 million, €0.5 million lower than in the previous year (€8.0 million). This was due primarily to two contrasting developments. While personnel costs were down by €1.0 million, mainly due to the expiration of the long-term incentive plan in 2015, there was an increase of €0.7 million in consulting costs due to the audit of acquisition projects in the review period. Net finance costs excluding measurement effects significantly higher Net finance costs (excluding measurement gains) rose by €5.2 million from -€49.3 million in the previous year to -€44.1 million. Loan repay- ments and, in particular, the short-term low interest rate agreement on a loan until the conclusion of a refinancing deal led to a €3.1 reduction in interest expenses. Other financial expense, which consisted mainly of a measurement gain on an interest rate swap for the financing of the Altmarkt-Galerie Dresden in the amount of €2.6 million (2015: €2.2 million), hovered at practically the same level as in the previous year at €2.6 million (2015: €2.5 million). At-equity (operating) profit was €2.9 million higher. This was attributa- ble in particular to the acquisition of the Saarpark Center in Neunkirchen on 1 October 2016, which contributed €1.5 million to at-equity profit (excluding measurement gains and losses), as well as to a €0.9 million reduction in interest expenses as a result of refinancing.
Deutsche EuroShop Annual Report 2016 R7 Income statement of the joint ventures in € thousand 01.01. – 31.12.2016 01.01. – 31.12.2015 Change + / - Change in % Allee-Center, Magdeburg Phoenix-Center, Harburg Stadt-Galerie, Passau Saarpark Center, Neunkirchen City-Arkaden, Klagenfurt Árkád, Pécs Other Revenue Operating and administrative costs for property NOI Other operating income Other operating expenses EBIT Interest income Interest expense Other finance costs Net finance costs Current tax expense At-equity profit (excluding measurement gains / losses) Measurement gains / losses Deferred Taxes SHARE OF PROFIT / LOSS Measurement gains / losses Measurement gains and losses of €145.5 million break down into €146.2 million (2015: €267.7 million) on the valuation of the Group’s real estate assets according to IAS 40 and - €0.7 million in Ancillary acquisi- tion costs in relation to the stake in the Saarpark Center in Neunkirchen. Measurement gains and losses on real estate assets, after minority interests, break down into €117.5 million (2015: €220.6 million) in the valuation on the real estate assets reported by the Group and €28.7 mil- lion (2015: €47.2 million) in the valuation on the real estate assets of the joint ventures and associates recorded on the balance sheet according to the at-equity method. 7,945 6,928 7,261 1,607 6,041 3,779 43 33,604 -3,676 29,928 640 -1,178 29,390 2 -5,383 281 -5,100 -225 24,065 28,711 1,507 54,283 8,037 6,187 7,220 0 6,054 3,674 353 31,525 -3,249 28,276 271 -907 27,640 1 -6,331 0 -6,330 -135 21,175 47,180 0 68,355 -92 741 41 1,607 -13 105 -310 2,079 -427 1,652 369 -271 1,750 1 948 281 1,230 -90 2,890 -18,469 1,507 -14,072 -1.1% 12.0% 0.6% – -0.2% 2.9% -87.8% 6.6% 13.1% 5.8% 136.2% 29.9% 6.3% 100.0% -15.0% – -19.4% 66.7% 13.6% -39.1% – -20.6% The average value of Group properties after ongoing investments rose by 4.6%; individual measurement gains / losses ranged between +0.2% and +8.5%. This development is based on the latest rental market fore- casts, which assume slight rises in rents in the medium term, and of a stable cost ratio, but principally on the basis of comparative yields on the German and international transaction markets, which have again contracted substantially. Income taxes Taxes on income and earnings, including the share reported under at-equity profit came to €58.3 million, compared with €85.4 million in the previous year. Deferred tax provisions were increased in the year under review on account of the large gains in value of €52.7 million in particular (2015: €80.8 million). Income tax expenditure amounted to €5.6 million (2015: €4.6 million).
R8 GROUP MANAGEMENT REPORT Higher measurement gains and losses in the previous year led to a decline in consolidated profit While we were able to raise operating profit excluding measurement effects by €7.6 million to €134.5 million, consolidated profit came in €87.5 million below the figure for the previous year due to low net measurement gains of €221.8 million with respect to the prior year (2015: €309.3 million). Earnings per share and EPRA earnings Earnings per share (consolidated net profit per share) came to €4.11 in the year under review, compared with €5.73 in the previous year. Of this amount, €2.29 (2015: €2.18) was attributable to operations (EPRA earnings)1. EARNINGS PER SHARE in €, undiluted 5.73 4.11 1.82 2.29 3.55 2.18 2015 2016 1 In last year’s Management Report, EPRA earnings stood at €1.89 per share. In contrast to the previous year, deferred taxes attributable to the change in the tax balance sheet were also included in 2016. In addition, measurement gains / losses from derivative financial instruments were taken into account. The determination of the previous year’s figure was adjusted accordingly. Further details on the EPRA key figures are provided in the “EPRA report” within the 2016 Annual Report. Valuation gains / losses Operating profit EPRA EARNINGS Consolidated profit Measurement gains / losses investment properties * Measurement gains / losses derivative financial instruments * Other measurement gains / losses Acquisition costs Deferred taxes related to EPRA adjustments *, ** EPRA EARNINGS Expense for convertible bond EPRA EARNINGS (DILUTED) Weighted number of no-par value shares issued Weighted number of no-par value shares issued (diluted) 01.01. – 31.12.2016 in € thousand 01.01. – 31.12.2016 per share in € 01.01. – 31.12.2015 in € thousand 01.01. – 31.12.2015 per share in € 221,757 -146,171 -2,910 686 1,093 49,220 123,675 2,152 125,827 4.11 -2.71 -0.05 0.01 0.02 0.91 2.29 2.20 309,282 -267,736 -2,231 0 0 78,423 117,738 2,152 119,890 53,945,536 57,163,039 5.73 -4.96 -0.04 0.00 0.00 1.45 2.18 2.10 53,945,536 57,059,853 * Including the share attributable to equity-accounted joint ventures and associates ** These concern deferred taxes on investment properties and derivative financial instruments
Deutsche EuroShop Annual Report 2016 R9 Funds from operations (FFO) up 5.3% Funds from operations (FFO) are used to finance our ongoing invest- ments in portfolio properties, scheduled repayments on our long-term bank loans and the distribution of dividends. In the year under review, €129.9 million in FFO was generated – a 5.3% increase versus the €123.4 million recorded in the previous year. FFO per share rose from €2.29 to €2.41. 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 and capital markets to borrow funds. Within the Group, both the individual prop- erty companies and Deutsche EuroShop AG borrow from banks and serve as bond issuers. FFO PER SHARE in € 2.23 2.29 2.41 2.08 1.66 Loans and bonds 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 inter- ests) should not fall significantly below 45%. We finance our real estate projects on a long-term basis and also use derivative financial instruments to hedge against rising capital mar- ket rates. Hedging transactions are used to hedge individual loans. 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. 2012 2013 2014 2015 2016 Funds from Operations Consolidated profit Bond conversion expense Measurement gains / losses investment properties * Other measurement gains / losses Deferred Taxes * FFO PER SHARE 01.01. – 31.12.2016 in € thousand 01.01. – 31.12.2016 per share in € 01.01. – 31.12.2015 in € thousand 01.01. – 31.12.2015 per share in € 221,757 967 -146,171 686 52,650 129,889 4.11 0.02 -2.71 0.01 0.98 2.41 309,282 967 -267,736 0 80,851 123,364 5.73 0.02 -4.96 0.00 1.50 2.29 * Including the share attributable to equity-accounted joint ventures and associates Proposed dividend: €1.40 per share Based on a successful financial year, we are able to maintain our divi- dend policy, which is geared towards the long term and continuity. The Executive Board and Supervisory Board will therefore propose to the shareholders at the Annual General Meeting in Hamburg on 28 June 2017 that a dividend of €1.40 per share, 3.7% or €0.05 higher than the previ- ous year, be distributed for financial year 2016. An estimated €0.60 per share of the dividend is expected to be deducted as capital gains tax.
R10 GROUP MANAGEMENT REPORT Financing analysis As at 31 December 2016, Deutsche EuroShop Group reported the fol- lowing key financial data: Financing analysis in € million Total assets Equity (including third-party interests) Equity ratio (%) Net financial liabilities Loan to value ratio (%) At €2,240.7 million, the Group’s economic equity capital, which com- prises the equity of the Group shareholders (€1,916.1 million) and the equity attributable to third-party shareholders (€324.6 million), was €179.7 million higher than in the previous year. The equity ratio gained one percentage point year-on-year to 54.5%. Financial Liabilities in € thousand Convertible bond Non-current bank loans and overdrafts Current bank loans and overdrafts TOTAL Cash and cash equivalents Net financial liabilities 31.12.2016 31.12.2015 Change 4,114.5 2,240.7 54.5 1,381.5 34.2 3,851.6 2,061.0 53.5 1,336.9 35.5 31.12.2016 31.12.2015 98,680 1,242,754 104,147 1,445,581 -64,046 1,381,535 96,972 1,262,924 47,711 1,407,607 -70,699 1,336,908 262.8 179.7 1.0 44.6 -1.3 Change 1,708 -20,170 56,436 37,974 6,653 44,627 Current and non-current financial liabilities rose €38.0 million in the year under review, from €1,407.6 million to €1,445.6 million, in connec- tion with the debt-capital financing of the Saarpark Center Neunkirchen acquisition. Cash and cash equivalents declined €6.6 million, leading to a €44.6 million increase in net financial liabilities from €1,336.9 million to €1,381.5 million. The net financial liabilities existing at the end of the year are used exclusively to finance non-current assets. This brings the percentage of non-current assets financed with debt capital in the year under review to 34.2% (2015: 35.5%). The financing terms for consolidated borrowing (including a convertible bond) at 31 December 2016 were fixed at 3.67% p.a. (2015: 3.69% p. a.) with an average residual maturity of 5.1 years (2015: 5.9 years). The loans to Deutsche EuroShop are maintained as credit facilities with 21 banks, all of which are German.
Deutsche EuroShop Annual Report 2016 R11 LOAN STRUCTURE as at 31 December 2016 Interest rate lock-in Up to 1 year 1 to 5 years 5 to 10 years 0ver 10 years TOTAL as % of loan in € million Average residual maturity (years) Average interest rate 19.0 40.2 36.4 4.4 100 274.1 578.5 524.8 63.0 1,440.4 3.8 6.9 11.0 5.1 1.26 4.34 3.14 5.25 3.67 Of the 19 loans across the Group, 12 are subject to credit covenants with the financing banks. There are a total of 17 different conditions on different debt service cover ratios (DSCRs), interest cover ratios (ICRs), changes in rental income, the Group’s leverage ratio and its loan to value ratio (LTV). All conditions were met. Based on the budgeted figures, compliance with the covenants may also be assumed in the current financial year. Scheduled repayments totalling €16.5 million will be made from current cash flow during financial year 2017. Over the period from 2017 to 2020, repayments will average €14.8 million per annum. Three loans totalling €157 million are scheduled for refinancing in finan- cial year 2017. The €100 million convertible bond issue matures in 2017, to the extent that the bond holders have not exercised their conver- sion options before that time. No negotiations on obtaining extensions are upcoming in 2018. Other loans totalling €123.1 million are to be extended in 2019, as are others amounting to €129.2 million in 2020. Current and non-current financial liabilities totalling €1,445.6 million were recognised in the balance sheet at the reporting date. The €5.2 mil- lion difference between that amount and the sum of the amounts cited here relates to deferred interest and repayment obligations that were settled at the beginning of 2017. Investment analysis Investment in our centers during financial year 2016 came to €16.8 mil- lion in total, following €11.1 million in the previous year. Around €8.0 million was invested on 1 April 2016 in a Karstadt building adjacent to the Rathaus Center in Dessau, and roughly €8.8 million was invested in ongoing portfolio investments. In addition, our portfolio of shopping centers was expanded through our acquisition of a 50% stake in the Saarpark Center Neunkirchen for an investment volume of €79.6 mil- lion, raising the number of centers from 19 to 20. Liquidity analysis Liquidity analysis in € thousand Net cash flow from operating activities Cash flow from investing activities Cash flow from financing activities Net change in cash and cash equivalents Cash and cash equivalents at beginning of period 01.01. – 31.12.2016 01.01. – 31.12.2015 140,963 -93,718 -53,898 133,750 -11,943 -109,392 -6,653 12,415 70,699 58,284 CASH AND CASH EQUIVALENTS AT END OF PERIOD 64,046 70,699 The Group’s operating cash flow of €141.0 million (2015: €133.8 million) constitutes the amount generated by the Group for shareholders through the leasing of shopping center space after deduction of all costs. It is primarily used to finance the dividends of Deutsche EuroShop AG and payments to third-party shareholders and ongoing loan repayments. Besides the improved results of operations attained by our shopping centers, the rise in cash flow was also the result of €3.0 million less in interest payments as a result of refinancing under more favourable terms. Cash flow from investment activity primarily consists of outflows for the Karstadt building in Dessau, further investment in portfolio prop- erties (combined total €16.8 million), the acquisition of the stake in the Saarpark Center Neunkirchen on 1 October 2016 for €79.6 million and inflows of €2.8 million from the sale of an associate company.
R12 GROUP MANAGEMENT REPORT Negative cash flow of €53.9 million in connection with financing activity consisted of €36.3 million in cash inflows from financial liabilities that were the result of a short-term drawn-down of €80.0 million of the credit line, ongoing repayment of credit liabilities (€43.7million) and a €72.8 million dividend distribution to shareholders plus a €17.4 million pay-out to third-party shareholders. Cash and cash equivalents declined by €6.7 million in the year under review to €64.0 million (2015: €70.7 million). NET ASSETS Balance sheet analysis The Group’s total assets increased by €262.9 million from €3,851.6 mil- lion to €4,114.5 million. 31.12.2016 31.12.2015 Change 77,924 83,496 -5,572 268,415 153,644 Balance sheet analysis in € thousand Current assets Non-current assets 4,036,533 3,768,118 Current liabilities 222,548 68,904 Non-current liabilities Equity 1,975,761 2,014,851 -39,090 1,916,148 1,767,859 148,289 TOTAL ASSETS 4,114,457 3,851,614 262,843 BALANCE SHEET STRUCTURE in € million Slightly lower current assets At the end of the year, current assets stood at €77.9 million, represent- ing a €5.6 million decrease versus the prior year (€83.5 million) and was mainly the result of a €6.7 million decline in cash and cash equivalents on the balance sheet date (€64.0 million; 2015: €70.7 million). Trade receivables advanced €1.0 million to €6.6 million with respect to the previous year (€5.6 million). Other assets were nearly unchanged at €7.3 million (2015: €7.2 million). Non-current assets higher as a result of property appreciation Non-current assets rose from €3,768.1 million to €4,036.6 million in the year under review, representing a €268.5 million increase. Investment properties gained €164.2 million. While additions and the costs of investments in portfolio properties came to €15.8 million, revaluation of our property portfolio resulted in measurement gains of €148.4 million. At-equity investments increased by €104.4 million, from €411.0 million to €515.4 million. Besides the addition of the 50% stake in the Saar- park Center Neunkirchen (€79.6 million), the increase is primarily the result of the difference between the pro-rata earnings and losses in the financial year. Assets Liabilities 3,851.6 83.5 4,114.5 77.9 4,114.5 222.6 3,851.6 68.9 1,975.8 2,014.9 3,768.1 4,036.6 Current assets Non-current assets 2015 2016 2016 2015 1,916.1 1,767.8 Current liabilities Non-current liabilities Equity
Deutsche EuroShop Annual Report 2016 R13 Current liabilities up Current liabilities rose €153.7 million, from €68.9 million to €222.6 mil- lion, which was mainly attributable to the convertible bond issue that matures in 2017 (€98.7 million), which was still being reported under non-current liabilities in the previous year, and a short-term drawn- down of €80.0 million of the credit line. EPRA net asset value up Net asset value (NAV) stood at €2,332.6 million or €43.24 per share as at 31 December 2016, compared with €2,135.2 million or €39.58 per share2 in the previous year, representing an increase of 9.2% or €3.66 per-share year-on-year. Non-current liabilities down Non-current liabilities fell by €39.1 million from €2,014.9 million to €1.975.8 million, mainly as a result of the fact that, unlike in the previ- ous year, the convertible bond was recognised under current liabilities, with scheduled repayments on long-term borrowing (- €117.1 million) also contributing to the decrease. Conversely, deferred tax liabilities rose (+ €49.8 million), in particular as a result of the appreciation of our investment properties. Furthermore, redemption entitlements of third-party shareholders increased by €31.4 million. Equity At €1,916.1 million, Group equity was up €148.3 million against the previous year (€1,767.8 million). The increase in the year under review primarily comprises the dif- ference between the €221.8 million in consolidated profit and the €72.8 million dividend payment in June 2016. The impact of changes in the market values of swaps led to a €0.6 million decline in equity. EPRA NET ASSET VALUE per share in €, undiluted 43.24 39.58 30.59 28.53 33.17 2012 2013 2014 2015 2016 2 In last year’s Management Report, EPRA NAV stood at €39.12 per share. In 2016, however, financial instruments recognised in come were also accounted for in the determination of EPRA NAV. Furthermore, the deferred taxes on tax loss carryforwards were taken into consideration. The determination of the previous year’s figure was adjusted accordingly. For further details, please see our statements on EPRA performance indicators in the “EPRA reporting” section of our Annual Report 2016. EPRA NAV Equity Derivative financial instruments measured at fair value* Equity excluding derivative financial instruments Deferred taxes on investment properties and derivative financial instruments * EPRA NAV Potential effects of bond conversion EPRA NAV (diluted) Weighted number of no-par value shares issued Weighted number of no-par value shares issued (diluted) 31.12.2016 in € thousand 1,916,148 50,499 1,966,647 365,927 2,332,574 98,680 2,431,254 31.12.2016 per share in € 31.12.2015 in € thousand 31.12.2015 per share in € 35.52 0.94 36.46 6.78 43.24 42.53 53,945,536 57,163,039 1,767,859 50,452 1,818,311 316,908 2,135,219 96,972 2,232,191 32.77 0.94 33.71 5.87 39.58 39.12 53,945,536 57,059,853 * Including the share attributable to equity-accounted joint ventures and associates
R14 GROUP MANAGEMENT REPORT REPORT ON EVENTS AFTER THE BALANCE SHEET DATE On 7 March 2017, the Deutsche EuroShop Group signed a purchase agreement to acquire Olympia Brno s.r.o., Prague (Czech Republic). Olympia Brno is the owner of the “Olympia” shopping center located in Brno, Czech Republic. The transfer of benefits and encumbrances took place on 31 March 2017 upon payment of the provisional purchase price to the seller. The investment will be financed through equity from a capital increase (see section “Acquisition-related information”) and long-term loans. The acquisition will have a positive impact on Deutsche EuroShop Group’s key performance indicators right away, with the fol- lowing contributions after transaction costs expected in 2017: • Revenue • EBIT • EBT (excl. measurement gains / losses) • FFO per share + €15.0 million + €13.7 million + €10.4 million + €0.02 No further significant events have occurred between the balance sheet date and the date of preparation of the consolidated annual financial statements. OUTLOOK The buoyancy seen in the employment market is a significant factor for the German economy and will be continuously on the rise again in 2017. The attendant real increases in workers’ income, a positive consump- tion environment and continued strength in exports, should provide positive impetus in Germany again in 2017. In its economic report for 2017, the German federal government is forecasting a positive scenario and expects 1.4% GDP growth. The unemployment rate is meant to go down further from its current low level of 6.1% to 6.0%. The German Retail Federation (HDE) predicts that retail sales will grow by 2.0%, with online sales once again the biggest growth driver. This positive and robust state of the economy in our core market of Germany stands in contrast to risks in the foreign economic environ- ment. The uncertainties in the politico-economic course of the new administration in the US, the consequences of Brexit and the persistent geopolitical crises (Syria, Turkey, Ukraine) all continue to lead us to the assessment that the risks to the economy as a whole remain high. In light of these financial and economic challenges, there is an inten- sifying global need for capital investments that retain their value, par- ticularly in financially solid countries such as Germany. The long-lasting low interest rate phase also means that the likes of life insurance com- panies and similar pension institutions in Germany and abroad are still seeking real estate investment opportunities that will meet the long- term return expectations of policyholders. This is keeping demand for real estate, which is now met with only limited supply, at record levels. Retail property in particular remains attractive to many institutional investors, leading to very high transaction prices and correspondingly low anticipated returns for so-called core properties. We monitor developments on the real estate market closely. We will only make new investments if the return that is achievable over the long term bears a reasonable relation to the investment risks. STABLE OUTLOOK FOR OUR SHOPPING CENTERS IN AN INCREASINGLY COMPETITIVE ENVIRONMENT In light of the considerable increase in online sales and a wider range of retail goods on offer, we are assuming that the performance of our shopping centers will remain stable. Outstanding rents and necessary valuation allowances remain at a low level. We currently see no indica- tions of a significant change in this satisfactory situation. Agreed transactions are the foundation for revenue and earnings planning The Deutsche EuroShop Group’s revenue and earnings planning for 2017 and 2018 takes into account the acquisition of the Olympia Center in Brno in the first quarter of 2017, but does not include any property purchases or sales beyond that. 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 the following factors: a) b) the development of revenue and earnings in the existing shop- ping centers 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.
Deutsche EuroShop Annual Report 2016 R15 Confirmation of 2017 revenue forecast and growth through Olympia acquisition Revenue of €205.1 million in financial year 2016 surpassed forecasts of €200–204 million, due to higher turnover rent and mall rental income along with early repayment fees from tenants. In our 2017 planning, we do not expect these effects to repeat themselves to the same extent and are therefore reconfirming our revenue guidance for 2017 for the existing portfolio most recently announced in November 2016 with a range of €201–205 million. The acquisition of the Olympia Center will begin to impact consolidated revenue from 1 April 2017 and lead to a shift of that range by around €15 million to €216–220 million. EBIT in € million Goal 187 – 191 Goal 193 – 197 Result 178.6 Goal 175 – 179 REVENUE in € million Goal 216 – 220 Goal 220 – 224 Result 205.1 Goal 200 – 204 2016 2017 2018 Earnings before tax (EBT) excluding measurement gains / losses amounted to €134.5 million in the year under review. In November 2016, we raised our guidance for financial year 2017 to €133 – 136 million on account of the acquisition of the Saarpark Center, which went onto the balance sheet at-equity. Taking into account the Olympia Center and the more favourable refinancing emerging from current loan negotiations, we now expect to see 2017 EBT within a range of €145 – 148 million. For 2018, we calculate €154 – 157 million (+5.4%). EBT * in € million 2016 2017 2018 In 2018, the acquisition of the Olympia Center will impact consolidated revenue for a full year for the first time. Assuming revenue on the exist- ing portfolio remains the same, consolidated revenue should come to lie with a range of €220–224 million. Rising profit in 2017 and 2018 Earnings before interest and taxes (EBIT) were €178.6 million in 2016. Taking into account the acquisition of the Olympia Center, EBIT in the current year will come in within a range of €187 – 191 million. For 2018, we are expecting a range of €193 – 197 million. Goal 154 – 157 Goal 145 – 148 Result 134.5 Goal 127 – 130 * excluding measure- ment gains/losses 2016 2017 2018 FFO to increase out to 2018 Funds from operations (FFO) amounted to €129.9 million or €2.41 per share in the year under review. For 2017, we expect FFO to increase to within €140–143 million or €2.44–2.48 per share. FFO per share for 2017 have been calculated based on an average time-weighted number
R16 GROUP MANAGEMENT REPORT of shares of 57.6 million and takes into account the cash capital increase in March 2017. Assuming that the convertible bond is fully converted at the end of its term in November 2017, the average time-weighted number of shares will increase to 58.0 million and will result in an expected FFO per share of €2.42 – 2.46. For financial year 2018, the average time-weighted number of shares assuming full conversion will increase to €61.8 million and we expect an FFO of between €2.35 and €2.39 per share. In absolute terms, FFO should rise by 3.5% to €145 – 148 million. FFO FFO in € million Result Goal Goal 143 140 148 145 129.9 FFO per share in € 2.41 2.42 – 2.46 2.35 – 2.39 Number of shares in million 2016 53.9 2017 58.0 * 2018 61.8 * * after conversion of the convertible bond, time-weighted at the balance sheet date DIVIDEND POLICY We intend to maintain our long-term, reliable dividend policy and antic- ipate that we will be able to pay our shareholders a dividend of €1.45 per share for financial year 2017, and €1.50 per share for 2018. RISK AND OPPORTUNITY REPORT PRINCIPLES GOVERNING THE RISK MANAGEMENT SYSTEM AND INTERNAL CONTROL SYSTEM Deutsche EuroShop’s strategy is geared towards maintaining and sus- tainably increasing shareholders’ assets and generating sustainably high surplus liquidity from leasing real estate, thereby ensuring that the shareholders can share in the success of the company over the long term through the distribution of an appropriate dividend. The focus of the risk management system is therefore on monitoring compliance with this strategy and, building on this, on the identification and assess- ment of risks and opportunities as well as the fundamental decision on how to manage these risks. Risk management ensures that risks are identified at an early stage and can then be evaluated, communi- cated promptly and mitigated. Monitoring and management of the risks identified are the focus of the internal control system, which at Group level is essentially the responsibility of the Executive Board. The inter- nal control system is an integral part of the risk management system. Within the framework of its legal mandate for auditing the annual finan- cial statements, the auditor checks whether the early warning system for risks is suitable for detecting at an early stage any risks or devel- opments that might endanger the Company. Risk analysis involves the identification and analysis of factors that may jeopardise the achievement of goals. The risk analysis process answers the question of how to deal with risks given ongoing changes in the environment, the legal framework and working conditions. The resulting control activities are to be embedded into processes that are essential to the realisation of business targets. KEY FEATURES Risk analysis Under existing service contracts, the Executive Board of Deutsche EuroShop AG is continuously briefed about the business performance of individual property companies. Financial statements and financial control reports are submitted on a quarterly basis for each shopping center, with medium-term corporate plans submitted annually. The Executive Board regularly reviews and analyses these reports, using the following information in particular to assess the level of risk: 1. Portfolio properties • Trend in amounts outstanding • Trend in occupancy rates • Retail sales trend in the shopping centers • Variance against projected income from the properties
Deutsche EuroShop Annual Report 2016 R17 2. Centers under construction • Pre-leasing levels • Construction status • Budget status Risks are identified by observing issues and changes that deviate from the original plans and budgets. The systematic analysis of economic data such as consumer confidence and retail sales trends is also incor- porated into risk management. The activities of competitors are also monitored continually, as well. Risk inventory The risks identified in the course of the risk analysis are summarised in a risk inventory and evaluated in terms of their potential loss amounts and likelihood of their occurrence in consideration of compensatory measures (from a net standpoint). The risk inventory is regularly examined and updated when necessary. In the Supervisory Board meetings, the Executive Board reports on sig- nificant new risks and in the event of risks that jeopardise our portfolio issues a report immediately. ACCOUNTING-RELATED INTERNAL CONTROL SYSTEM Preparation of the financial statements is a further important part of the internal control system and is monitored and controlled at the level of the Group holding company. Internal regulations and guidelines ensure the conformity of the annual financial statements and the consolidated financial statements. The decentralised preparation of Group-relevant reports by the service provider is followed by the aggregation and consolidation of the individ- ual annual financial statements and the preparation of the information for reporting in the notes and Management Report in the accounting department of the holding company with the aid of the consolidation software Conmezzo. This is accompanied by manual process controls such as the principle of dual control by the employees charged with ensuring the regularity of financial reporting and by the Executive Board. In addition, within the scope of its auditing activities, the audi- tor of the consolidated financial statements performs process-inde- pendent auditing work, including with respect to financial reporting. ADVICE ON LIMITATIONS By virtue of the organisational, control and monitoring measures laid down in the Group, the internal control and risk management system enables the full recording, processing and evaluation of Company- related facts as well as their proper presentation in Group financial reporting. Decisions based on personal judgement, flawed controls, criminal acts or other circumstances cannot be entirely ruled out, however, and may limit the effectiveness and reliability of the internal control and risk management system that is in use. Consequently, the application of the systems used cannot guarantee absolute security as to the correct, complete and timely recording of facts in Group financial reporting. The statements made relate solely to those subsidiaries included in the consolidated financial statements of Deutsche EuroShop for which Deutsche EuroShop is in a position, directly or indirectly, to dictate their financial and operating policies. EVALUATION OF THE OVERALL RISK POSITION The overall risk position, shown in the matrix below, is mostly unchanged with respect to the previous year. The potential extent of losses is calculated on the basis of the impact for the year following the year under review. RISK MATRIX Valuation risk AMOUNT OF LOSSES high > €5 million Valuation and cost risks Rental risk Market and sector risks medium €1 – 5 million Risk of rent loss low up to €1 million Interest rate change and financing risks Currency risk Legal risk Personnel risk IT risk Risk of damage low 0% – 25% medium 25% – 50% high >50% LIKELIHOOD OF OCCURRENCE On the basis of the monitoring system described, Deutsche EuroShop AG has taken appropriate steps to identify developments that could jeopardise its continued existence at an early stage and to counteract them. The Executive Board is not aware of any risks that could jeop- ardise the continued existence of the Company.
R18 GROUP MANAGEMENT REPORT ILLUSTRATION OF MATERIAL RISKS AND OPPORTUNITIES Valuation risk The value of a property is essentially determined by its capitalised earnings value, which in turn depends on factors such as the level of annual rental income and management costs, the underlying location risk, the general condition of the property, the evolution of capital mar- ket interest rates and, in particular, the demand for shopping center properties. The appreciated of property values are also impacted by various macro-economic and regional factors as well as by factors specific to those properties, which are for the most part beyond the control of the company. The factors described are taken into account in the annual market valuations of our portfolio properties by independent appraisers. Changes in value are recognised in the income statement of the consolidated financial statements in accordance with the require- ments of IAS 40 and may thus increase the volatility of consolidated profit. Thus, the measurement gains and losses for group companies and companies recognised at-equity on the balance sheet in the year under review amounted to 52% of EBT (2015: 68%). In addition, the annual market valuations of our portfolio properties may also affect compliance with loan conditions on existing financing arrangements (e. g. compliance with debt ratios) as well as the terms of new financing and refinancing agreements. The assignment of external, independent appraisers with a great deal of experience in the industry, along with our own critical assessment of their appraisal, minimises the risk of measurement error. As part of efforts aimed at controlling value-driving factors, the company has adopted further measures towards minimising valuation risk. The main focus here is on professional management of the centers, costs and rentals at the shopping centers, which is ensured through the selection of suitable asset managers. All of our shopping centers are currently managed by ECE, the European market leader in the area of shopping center management, with active maintenance management ensuring that the properties are continuously kept in a sound general condition. Market and sector risks Retail trade will continue to undergo structural changes in the coming years due to changing demand behaviour on the part of consumers, the demographic shift and constant new forms of offerings. In addition to continued growth momentum in online commerce, in particular, retail trade establishments with large sales-floor space capable of offer- ing customers a broad range of products are performing successfully. Thanks to its business model, Deutsche EuroShop is in a position to benefit from this trend, especially as the customer experience aspect of shopping has further gained in importance in high-quality shopping centers and a continued trend towards shopping as a recreational and lifestyle activity is observable. Additional retail commercial space offered on the rental market, cre- ated for example through the building, expansion or modernisation of shopping or factory-outlet centers both in city centers and on the outskirts, as well as through the revitalisation of retail locations in in city centers, may cause realisable revenues in bricks-and-mortar retail trade to be distributed over more rental space overall and lead to lower retail productivity figures. The share of online commerce in total retail revenues also rose again in 2016, yet consumer behaviour greatly varies from sector to sector. Where books, consumer electronics and telecommunications are con- cerned, many customers prefer making online purchases, and increas- ing growth in online commerce is observable in the fashion apparel sector. Medication, jewellery, watches and food still tend to be bought in person, however. In addition to the rising share of online revenues along with potential pressure on bricks-and-mortar retail productivity, bricks-and-mortar retail is tackling floor-space restructuring and a focus on good retail locations with increasing interconnection between the offline and online worlds, product range optimisations and improvements in the quality of service and an emphasis on personal contact when shopping. Retailers find themselves at varying stages of progress in the implementation of such measures, the success of which is also significantly affected by size and industry. For instance, recent years have shown that increas- ing online commerce can pose challenges especially to SME retailers, leading to greater competitive and pricing pressures as a result. Larger or improved rental space offerings in the competitive environ- ment of our shopping centers and a potentially permanent redistribu- tion of retail revenues to online channels and the accompanying drop in productivity for bricks-and-mortar retailers harbour the risk that subsequent leases and / or renewals could be concluded at lower rent prices and / or under less favourable contractual terms. Deutsche EuroShop AG is actively confronting this trend with a vari- ety of measures. The tenant and sector mixes at our centers are con- tinuously and individually optimised on the basis of intensive market scrutiny, in order to increase the centers’ attractiveness for customers. The interconnection between the offline and online worlds is being supported in the form of center apps, among other initiatives. The lei- sure, customer experience and meeting point aspects of our centers is being enhanced through various measures, which, among other things, include improvements to the quality of the environment through the creation of more attractive new restaurant spaces and easier in-house navigation when searching for shops or parking spaces through the use of touchscreens and smartphone solutions. The conclusion of long-term leasing contracts with tenants with high credit ratings across every retail segment furthermore helps minimise market and sector risks.
Deutsche EuroShop Annual Report 2016 R19 Rental risk In particular, the long-term success of the Deutsche EuroShop AG business model depends on lease renewals for retail space and the generation of stable, and / or growing rental income in addition to low vacancy rates. Due to the long-term renting of retail space, Deutsche EuroShop AG is not as reliant on short-term economic developments as companies in other sectors are. However, given retail commerce’s greater dependency on the state of the economy, we cannot rule out the possibility of a change in economic conditions impacting Deutsche EuroShop AG’s business. Uncertainty concerning the performance of the economy going forward has increased significantly thanks to Brexit, the foreseeable economic protectionism associated with the change of government in the US and persisting geopolitical crises (Syria, Turkey, Ukraine). This uncertainty is exacerbated by a lack of agreement within the EU on the appropri- ate socio-economic policies for remedying the weak economic growth and sovereign debt levels of individual member states. The upcoming elections in the core EU countries of Germany, France and Italy in 2017 could also cause the necessary economic consolidation measures as well as investment decisions to be postponed until after the outcome of these is elections is known. Asset values in certain areas of the econ- omy are moreover thought to be exaggerated. An abrupt correction in asset prices in connection with a pronounced economic downturn could trigger another financial crisis. Against the backdrop of this rising uncertainty, negative consequences for economic growth and consum- ers’ purchasing behaviour cannot be ruled out. Economic fluctuations in addition to structural changes in the retail market affect demand for floor space, rent prices and contractual conditions. Thus, there is the risk that floor space is not rented or is rented at adequate prices or are rented under excessively unfavourable conditions, for example with respect to lease terms or service charge apportionments. Low contributions to revenues from leasing and / or rising vacancy rates are also possible. As a result, income would turn out to be less than budgeted, and distri- butions to shareholders might have to be reduced. If the rental income for a property company is no longer sufficient to meet its interest and repayment obligations, this could lead to the loss of the entire property. Our reaction to this risk is to transfer leasing management to pro- fessional, market leaders in asset management as well as to closely monitor the market with continuous and timely reporting on regular or foreseeable unscheduled leasing. In addition, we enforce a pref- erence for long-term leasing contracts involving high minimum rent price agreements. Risk of rent loss Deteriorating credit ratings among tenants may lead to defaults on leases and other financial burdens, with the risk of default on leases comprising the rent payments in their entirety, allocable ancillary costs and potential legal and reinstatement costs. Insolvency on the part of tenants, especially anchor tenants or shop chains, can moreover lead to temporary increases in vacancy rates. Risk is minimised by carefully selecting tenants, regularly analysing their sales growth and amounts outstanding and well as the early adop- tion of reletting measures in the event of negative developments. As a rule, tenants also put up commensurate security deposits, which are able to offset some of the financial burden in the event of default. The requisite valuation allowances are recognised on the balance sheet in individual cases. These amounted to €1.1 million (2015: €0.9 million) in the year under review. Depending on how the economy fares, an increase in such valuation allowances in the current year cannot be ruled out. Cost risk The complexity of the applicable court decisions and changes thereto could lead to corrections and objections in relation to ancillary costs, which in turn could lead to limits being enforced on passing the burden on to tenants and / or to subsequent reimbursements to same. Besides financial losses, this could also affect tenant satisfaction. Continuous examination of ancillary cost invoicing based on current legislation minimises this risk. Expenditure on maintenance and investment projects can turn out higher than budgeted on the basis of our past experience. Differences may also materialise owing to inaccurate assessment of maintenance requirements or deficiencies that are not identified or are identified too late. We minimise risks from cost overruns in current investment projects and maintenance measures by taking cost models for all identifiable risks into account in our calculations as a precautionary measure at the planning stage. In addition, more large-scale construction con- tracts are normally only awarded on a fixed-price basis to general contractors with strong credit ratings. During the building phase, pro- fessional project management is assured by the companies we com- mission. However, it is impossible to completely avoid cost overruns in individual cases.
R20 GROUP MANAGEMENT REPORT Financing and interest rate risks Interest rate levels are materially determined by underlying macro- economic and political conditions and therefore cannot be predicted by us. There is a risk that refinancing may only be available at higher interest rates than before. This would negatively impact EBT and FFO. At the balance sheet date, the group’s financing arrangements for the most part involve interest rate hedging. There is currently no dis- cernible risk to the group in connection with changes in interest rates based on upcoming new financing and refinancing agreements. On the basis of current interest rate levels and the available loan offerings, it is expected that refinancing can be concluded at lower interest rates than the original rates contracted and that the planned interest rates are attainable with sufficient certainty. We are constantly monitoring the interest rate environment so as to be able to react appropriately to interest rate changes. We minimise the interest rate risk for new property financing as far as possible by entering into long-term loans with fixed-interest periods of up to 15 years. Deutsche EuroShop AG uses derivatives that qualify for hedge account- ing to hedge interest rate risks. These interest rate swap transactions transform variable interest rates into fixed interest rates. An interest rate swap is an effective hedge if the principal amounts, maturities, repricing or repayment dates, interest payment and principal repay- ment dates, and the basis of calculation used to determine the interest rates are identical for the hedge and the underlying transaction and the party to the contract fulfils the contract. The Company counters the risk of default by stringently examining its contract partners. As a rule, interest rate swaps and their underlying businesses are reported as one item in the consolidated annual financial statements. Financial instruments are not subject to liquidity or other risks. A test of effec- tiveness for the hedges described is implemented regularly. An economic or financial crisis or stricter regulation of the financial sector could lead to a significant deterioration of banks’ lending pol- icies with respect to credit margins, financing terms and expiries as well as loan conditions, which would negatively affect the earnings and financial position of the company. Under extreme circumstances, the financing market could dry up altogether. The possibility cannot be completely excluded that, due for example to a deterioration in the results of operations of individual property companies, banks may not be prepared to provide refinancing or to extend credit lines. Deutsche EuroShop AG responded to this financing risk by concluding long-term loan agreements, avoiding the accumulation over time of loan dues and observing conservative debt ratios. Furthermore, the company main- tains long-term business relationships with a large number of banks in its target markets in order to secure the best possible access to the capital markets. Currency risk Deutsche EuroShop AG’s activities are limited exclusively to the Euro- pean economic area. Manageable currency risks arise in the case of the Eastern European investment companies. These risks are not hedged because this is purely an issue of translation at the reporting date and is therefore not associated with any cash flow risks. The currency risk from operations is largely hedged by linking rents and loan liabilities to the euro. There is a risk that if the Hungarian forint or the Polish zloty were to plummet against the euro for a long period of time, tenants would no longer be able to pay what would then be considerably higher rents denominated in a foreign currency. Risk of damage Real estate properties are subject to the risk of their total or partial destruction on account of external factors (e. g. damage from fire or flooding, vandalism, terror attacks), which can lead to maintenance costs and leasing defaults. These damages are hedged to the greatest possible extent thanks to insurance policies with high-credit rating insurers. It is however conceivable, that not all theoretically possible damages are adequately covered by insurance policies or that this insurance coverage cannot be maintained under adequate conditions due to changing conditions in the insurance market. In addition, insur- ers may deny their services or a deterioration in the credit rating of an insurer may lead to potential defaults on payments in connection with the enforcement of insurance claims. In order to avoid damages, our properties are actively secured by vir- tue of fire and burglary protection and anti-vandalism measures. The company counters the risk of payment default by selecting insurance partners with high credit ratings. Legal risk The concept for our business model is based on the current legal sit- uation, administrative opinion and court decisions, all of which may, however, change at any time. The Company is not currently aware of any legal risks that could have a major impact on its assets or results of operations. Personnel risk Given the small number of employees of Deutsche EuroShop AG, the Company is dependent on individual persons in key positions. The departure of these key staff would lead to a loss of expertise, and the recruitment and induction of new replacement personnel could tempo- rarily impair day-to-day business. This kind of impairment is kept to a minimum by means of representation policies and the documentation of material work processes.
Deutsche EuroShop Annual Report 2016 R21 IT risk Deutsche EuroShop’s information system is based on a centrally man- aged network solution. Corrective and preventive maintenance of the system is carried out by an external service provider. A detailed access policy ensures that staff and external service providers are granted access exclusively to systems they require for their work. A virus pro- tection concept and permanent monitoring of data traffic with respect to hidden and dangerous content are designed to protect against external attacks. All data relevant to operations is backed up on a daily basis on multiple storage media. In the event of a hardware or software failure in our system, all data can be reproduced at short notice. OPPORTUNITY REPORT Deutsche EuroShop AG forms part of a retail market undergoing dynamic structural transformation. Thanks to the positioning of our shopping centers at first-rate locations, broad sector diversification within the centers and their conceptional adaptation with an emphasis on leisure, customer experience and meeting point aspects, we see opportunities for success despite these structural changes, including in periods of stagnation. In the area of financing, the continued environment of low interest rates affords good opportunities of concluding refinancing and new financing agreements under more favourable conditions, which would positively impact EBT and FFO. In addition, there are opportunities for growth for Deutsche EuroShop AG, in keeping with its clearly defined, selective investment strategy, by acquiring further shopping centers or stakes therein. which would positively impact the results of operations. Further external growth can also enhance the diversification effect in the Company’ holdings portfolio. Due to the great degree of flexibility in the implementation of our acquisition and holdings structures, our good reputation with banks and as a reliable partner in the real estate market, the company is well positioned to be able to continue to operate in the transactions market in such a way as to exploit opportunities going forward. REMUNERATION REPORT The remuneration model of Deutsche EuroShop AG was changed in line with the German Act on the Appropriateness of Managing Board Remu- neration (VorstAG) and the requirements of the Corporate Governance Code and put before the General Meeting of June 2010 for approval. In the case of new or extended Executive Board memberships, the require- ments were examined and amended by the Supervisory Board. REMUNERATION SYSTEM FOR THE EXECUTIVE BOARD Remuneration for the Executive Board is set by the Supervisory Board. The remuneration system provides for a non-performance-related basic annual remuneration component based on the individual Exec- utive Board member’s duties, a performance-related remuneration component, and non-cash benefits in the form of a company car and contributions to a pension scheme. As a performance-related remuneration component, the bonus is dependent on the long-term performance of the Company. It is based on the weighted average over the financial year and the two previous financial years. Group EBT (excluding valuation gains / losses) for the financial year is taken into account at a weighting of 60% in the basis of calculation, that of the previous financial year at 30% and that of the financial year before that at 10%. Mr Wellner receives 0.25% of the calculation basis as a bonus and Mr Borkers 0.2%. The bonus is limited to 150% of the basic annual remuneration. The non-performance-related basic annual remuneration is €252 thousand for Mr Wellner and €173 thousand for Mr Borkers. In addi- tion, Mr Wellner is expected to receive a bonus of €328 thousand and Mr Borkers €259 thousand for 2016. The final amount of the bonuses will only be available after approval of the consolidated financial state- ments by the Supervisory Board, upon which they will be payable. Should the results of operations and net assets of the Company deterio- rate during the term of the respective employment contracts to such an extent that further payment of this remuneration becomes unreason- able, the rules of section 87 (2) of the AktG will apply. The Supervisory Board shall decide at its own discretion on the extent to which such remuneration shall be reduced. In the event that the employment contract is terminated prematurely by the Company without any good cause, the members of the Exec- utive Board shall be entitled to a settlement in the amount of the annual remuneration outstanding up to the end of the agreed contrac- tual term, but limited to an amount equivalent to a maximum of two annual remunerations (basic annual remuneration plus bonus). For the measurement of the annual remuneration amount, the average annual remuneration for the previous financial year and the probable annual remuneration for the current financial year shall be applicable. A new long-term incentive (LTI 2015) remuneration component was agreed in 2015. The amount of the LTI 2015 is based on the change in market capitalisation of Deutsche EuroShop AG over the period from 1 January 2015 (for Mr Wellner) and 1 July 2015 (for Mr Borkers) to 30 June 2018. Market capitalisation is calculated by multiplying the share price by the number of Company shares issued. According to the data provided by Deutsche Börse, the company’s volume-weighted market capitalisation stood at €1,932.3 million at 1 January 2015 and €2,195 million at 1 July 2015.
R22 GROUP MANAGEMENT REPORT Mr Wellner will receive 0.10% of any positive change in market capi- talisation over the above period of up to €500 million, and Mr Borkers 0.05%. For any change over and above this amount, Mr Wellner will receive 0.05% and Mr Borkers 0.025%. Payment under the LTI 2015 will be made in three equal annual instalments, the first being payable on 1 January 2019. In the event that the employment contract is terminated prematurely by the Company, any entitlements arising from the LTI 2015 until that date will be paid out prematurely. On 31 December 2016, the market capitalisation of the company stood at €2,024.7 million, which was €170.3 million lower than the figure as at 1 July 2015 and €92.4 million higher than as at 1 January 2015. The present value of the resulting potential entitlement under the LTI 2015 was €49 thousand at year-end. As a result, the €58 thousand provision created in the previous year was released again to some extent. REMUNERATION OF THE EXECUTIVE BOARD IN 2016 The remuneration of the Executive Board amounted to €1,099 thousand, which broke down as follows: Wilhelm Wellner Olaf Borkers Claus-Matthias Böge Total in € thousand CEO Joined: 01.02.2015 Member of the Executive Board Joined: 01.10.2005 CEO (until 30.06.2015) Departed: 30.06.2015 Contributions made 2015 2016 2016 (min) 2016 (max) 2015 2016 2016 (min) 2016 (min) 2015 2016 2016 (min) 2016 (min) 2016 Fixed remuneration Ancillary benefits Total One-year variable remuneration Multi-year variable remuneration LTI 2010 LTI 2015 Total Pension expense TOTAL REMUNERATION 537 598 (*) no maximum – – – – – 54 54 – – 458 587 54 1,099 1,712 1,937 54 2,149 231 17 248 252 18 270 168 13 181 173 15 188 150 8 158 289 328 0 378 252 259 0 259 225 0 0 0 (*) 238 0 0 0 (*) 289 328 0 0 490 259 0 0 671 447
Deutsche EuroShop Annual Report 2016 R23 In 2016, the Executive Board was in receipt of payments totalling €1,396 thousand: Wilhelm Wellner Olaf Borkers Claus-Matthias Böge Total CEO Joined: 01.02.2015 Member of the Executive Board Joined: 01.10.2005 CEO (until 30.06.2015) Departed: 30.06.2015 2016 (min) 2016 (max) 2015 2016 2016 (min) 2016 (min) 2015 2016 2016 (min) 2016 (min) 2016 in € thousand Income Fixed remuneration Ancillary benefits Total One-year variable remuneration (**) Multi-year variable remuneration LTI 2010 LTI 2015 Total Pension expense 2015 2016 231 17 248 252 18 270 168 13 181 173 15 188 150 8 158 – – 0 – 0 290 0 347 246 252 0 252 675 0 0 0 0 290 0 0 (*) 238 0 0 0 (*) 484 252 0 0 665 440 0 342 675 342 54 54 887 396 458 884 54 1,396 TOTAL REMUNERATION 248 560 (*) no maximum (**) Due to the preliminary nature of these calculations at the time the annual financial statements were drawn up, the figures published may vary slightly with respect to the approved fig- ures in the remuneration report for the previous year. Ancillary benefits include the provision of a car for business and private use. Contributions to a pension scheme have been recognised under pension expense. No advances or loans were granted to members of the Executive Board. The Company has not entered into any commitments or contingent liabilities in favour of these persons. The outgoing CEO, Claus-Matthias Böge, is to receive a total of €1,712 thousand under the Long-Term Incentive 2010, which covered the period to 30 June 2015. Since 2016, this amount has been paid at the start of each year in five equal instalments, finishing in 2020. The Company also paid an old- age pension contribution of €54 thousand for Mr Böge, which shall be paid until 2020. In the event that Mr Wellner is not re-elected to the Executive Board when his employment contract ends on 30 June 2018, he will receive a monthly transitional sum of €40 thousand for a period of six months. This transitional sum shall not be payable if Mr Wellner does not stand for re-election to the Executive Board. REMUNERATION SYSTEM FOR THE SUPERVISORY BOARD The remuneration of the Supervisory Board is based on section 8 (4) of the Articles of Association of Deutsche EuroShop AG. In accordance with the Articles of Association, the remuneration amounts to €50,000 for the chairman, €37,500 for the deputy chairman and €25,000 for each of the other members of the Supervisory Board. Committee member- ship is not taken into account when determining the remuneration of the Supervisory Board. Moreover, the remuneration does not contain any performance-related elements. The remuneration is determined on the basis of the business model and size of the Company as well as the responsibility associated with the role. The Company’s business and financial position is also taken into consideration.
R24 GROUP MANAGEMENT REPORT If any member of the Supervisory Board should leave the Supervisory Board during the financial year, they shall receive their remuneration pro rata. In accordance with section 8 (5) of the Articles of Association, expenses are also reimbursed. REMUNERATION OF THE SUPERVISORY BOARD 2016 The remuneration of the members of the Supervisory Board totalled €312 thousand (including 19% VAT) in the period under review, which breaks down as follows: in € thousand Reiner Strecker Thomas Armbrust Beate Bell Manuela Better Karin Dohm Dr. Henning Kreke Alexander Otto Klaus Striebich Roland Werner Manfred Zaß 2016 59.50 29.75 29.75 29.75 44.62 29.75 29.75 29.75 29.75 0.00 2015 52.61 29.75 29.75 29.75 37.74 29.75 29.75 29.75 15.98 27.55 312.37 312.37 No advances or loans were granted to the members of the Super- visory Board. No pensions are paid to former members of the Executive or Super- visory Boards or to their dependants. ACQUISITION REPORTING Deutsche EuroShop shares are traded on the Frankfurt Stock Exchange and other exchanges. As of 31 December 2016, 17.8% of shares were owned by Alexander Otto (2015: 17.33%). The share capital is €53,945,536, comprised of 53,945,536 no-par-value registered shares. The notional value of each share is €1.00. According to Article 5 of the Articles of Association, the Executive Board is authorised, with the Supervisory Board’s approval, to increase the share capital by up to a total of €26,972,768 through one or multiple issues of new no-par-value registered shares against cash or non- cash contributions before 19 June 2018 (“Authorised capital 2013”). The Executive Board decided, with the Supervisory Board’s approval, to increase the company’s share capital by utilising up to €4,700,000.00 of the authorised capital through the issue of up to 4,700,000 registered shares (no-par-value shares) with dividend rights from 1 January 2016 (the “New Shares”) for cash. A total of 4,459,460 new shares were issued at a subscription price of €37.00 per share. Around €165 million flowed into the company as a result. The capital increase was entered in the commercial register on 8 March 2017. The Executive Board is authorised, with the Supervisory Board’s approval, to issue, until 15 June 2016, convertible bonds with a total nominal value of up to €200,000,000 and a maximum term of ten years and to grant the holders of the respective, equally privileged, bonds conversion rights to new no-par-value shares in the Company up to a total of 10,000,000 shares (€10.0 million), as detailed in the terms and conditions for convertible bonds (“Bond conditions”; “Conditional capital 2011”). The convertible bonds may also pay a variable rate of interest, in which case, as with a participating bond, the interest may be dependent in full or in part on the level of the Company’s dividend. In connection with this authorisation, Deutsche EuroShop issued in November 2012 a convertible bond with a five-year term and a nominal value of €100,000,000, for which some 3.27 million no-par value shares are currently reserved in conditional capital.
Deutsche EuroShop Annual Report 2016 R25 A change-of-control arrangement has been agreed with two employees. Under this arrangement, if and insofar as the Company informs them that they will no longer be employed in their current positions, these employees will have a special right of termination with a notice period of one month up to the end of the quarter, which will be valid for twelve months from the date the change of control takes effect. DECLARATION ON CORPORATE GOVERNANCE (SECTION 289A HGB) A change of control arises if Deutsche EuroShop AG merges with another company, if a public takeover bid has been made under the German Wertpapiererwerbs- und Übernahmegesetz (WpÜG – Securi- ties Acquisition and Takeover Act) and accepted by a majority of share- holders, if the Company is integrated into a new group of companies or if the Company goes private and is delisted. The declaration on corporate governance, in conformity with section 3.10 of the Deutscher Corporate Governance Kodex (German Corporate Governance Code) and section 289a of the Handelsgesetzbuch (Ger- man Commercial Code – HGB) has been published on the Deutsche EuroShop website: www.deutsche- EuroShop.de/ezu Hamburg, 12 April 2017 In the event of such termination of the employment relationship, these employees will receive a one-time payment amounting to three months’ gross salary multiplied by the number of years that they have worked for the Company, but limited to a maximum of 24 months’ gross salary. Deutsche EuroShop Group does not currently have any other com- pensation agreements with members of the Executive Board or other employees for the event of a change of control. The material provisions governing Deutsche EuroShop AG, which include a change of control clause, primarily relate to bilateral credit facilities and various loan agreements. In the event of a takeover, the relevant lenders are entitled to terminate the facility and where appli- cable demand immediate repayment. A takeover is defined as a third party taking control of Deutsche EuroShop AG; the takeover may also be made by a group acting jointly. Forward-looking statements This Management Report contains forward-looking statements based on estimates of future developments by the Executive Board. The state- ments and forecasts represent estimates based on all of the informa- tion 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. Rounding and rates of change Percentages and figures stated in this report may be subject to round- ing differences. The rates of change are based on economic consid- erations: improvements are indicated by a plus (+); deterioration by a minus (–).
R26 CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED FINANCIAL STATEMENTS 2016 CONSOLIDATED BALANCE SHEET ASSETS in € thousand ASSETS Non-current assets Intangible assets Property, plant and equipment Investment properties Investments accounted for using the equity method Other financial assets Non-current assets Current assets Trade receivables Other current assets Cash and cash equivalents Current assets Note 31.12.2016 31.12.2015 1. 2. 3. 4. 5. 6. 29 267 3,520,824 515,361 52 8 365 3,356,655 411,031 59 4,036,533 3,768,118 6,601 7,277 64,046 77,924 5,605 7,192 70,699 83,496 TOTAL ASSETS 4,114,457 3,851,614
Deutsche EuroShop Annual Report 2016 R27 Note 31.12.2016 31.12.2015 53,945 961,970 900,233 53,945 961,970 751,944 1,916,148 1,767,859 1,242,754 1,359,896 359,365 324,559 49,083 309,528 293,113 52,314 1,975,761 2,014,851 202,827 1,394 649 6,644 11,034 222,548 47,711 621 489 7,056 13,027 68,904 7. 8. 10. 11. 9. 8. 12. 9. LIABILITIES in € thousand EQUITY AND LIABILITIES Equity and reserves Issued capital Capital reserves Retained earnings Total equity Non-current liabilities Financial liabilities Deferred tax liabilities Right to redeem of limited partners Other liabilities Non-current liabilities Current liabilities Financial liabilities Trade payables Tax liabilities Other provisions Other liabilities Current liabilities TOTAL EQUITY AND LIABILITIES 4,114,457 3,851,614
R28 CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED INCOME STATEMENT in € thousand Revenue Property operating costs Property management costs Net operating income (NOI) Other operating income Other operating expenses Earnings before interest and taxes (EBIT) Share of the profit or loss of associated companies and joint ventures using the equity method Interest expense Profit / loss attributable to limited partners Other financial income and expenditure Interest income Income from investments Net finance costs Measurement gains / losses Earnings before tax (EBT) Income taxes CONSOLIDATED PROFIT Earnings per share (€), basic Earnings per share (€), diluted Note 01.01. – 31.12.2016 01.01. – 31.12.2015 13. 14. 15. 16. 17. 18. 11. 19. 20. 24. 24. 205,136 -10,200 -10,198 184,738 1,410 -7,522 178,626 54,283 -52,918 -17,894 2,529 118 1 -13,881 116,774 281,519 -59,762 221,757 4.11 3.92 202,854 -9,407 -9,976 183,471 800 -7,975 176,296 68,355 -55,980 -17,020 2,273 229 1 -2,142 220,556 394,710 -85,428 309,282 5.73 5.46
Deutsche EuroShop Annual Report 2016 R29 STATEMENT OF COMPREHENSIVE INCOME in € thousand Consolidated profit Note 01.01. – 31.12.2016 01.01. – 31.12.2015 221,757 309,282 Items which under certain conditions in the future will be reclassified into the income statement: Actual share of the profits and losses from instruments used to hedge cash flows Change due to IAS 39 measurement of available for sale investments Deferred taxes on changes in value offset directly against equity Total earnings recognised directly in equity TOTAL PROFIT Share of Group shareholders 7. 7. 7. -836 -7 201 -642 221,115 221,115 5,594 -8 -1,222 4,364 313,646 313,646
R30 CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED CASH FLOW STATEMENT in € thousand Consolidated profit Income taxes Net finance costs Depreciation of intangible assets and property, plant and equipment Unrealised changes in fair value of investment property Distributions and capital repayments received Changes in trade receivables and other assets Changes in current provisions Changes in liabilities Cash flow from operating activities Interest paid Interest received Income taxes paid Net cash flow from operating activities Outflows for the acquisition of investment properties Inflows from disposal of intangible assets and property, plant and equipment Outflows for the acquisition of intangible assets and property, plants and equipment Inflows from the disposal of financial assets Outflows for the acquisition of non-current financial assets Cash flow from investing activities Inflows from financial liabilities Outflows from the repayment of financial liabilities Payments to limited partners Payments to Group shareholders Cash flow from financing activities Net change in cash and cash equivalents Cash and cash equivalents at beginning of period CASH AND CASH EQUIVALENTS AT END OF PERIOD Note 01.01. – 31.12.2016 01.01. – 31.12.2015 * 20. 17. 19. 3. 4., 5. 2., 12. 9. 20. 2. 3. 3. 8., 23. 8. 11. 7. 6. 6. 221,757 59,762 13,881 72 -116,774 21,952 -1,081 748 -2,817 197,500 -51,210 118 -5,445 140,963 -16,819 57 -52 2,819 -79,723 -93,718 80,000 -43,734 -17,338 -72,826 -53,898 -6,653 70,699 64,046 309,282 85,428 2,142 86 -220,556 17,724 657 -3,111 386 192,038 -54,272 229 -4,245 133,750 -11,068 0 -75 0 -800 -11,943 39,018 -63,204 -15,077 -70,129 -109,392 12,415 58,284 70,699 * In order to improve the presentation of the financial position, the cash flow statement has been revised and the statement from the previous year adjusted in line with the new recognition standards. In so doing, there were no changes in the cash flows from operating activities, investment and finance activities in the previous year. Essentially, the adjustments involved the disclosures previously made in the Annex in relation to interest and tax payments being transferred to the cash flow statement, the separate recognition of dividends and cash payments received and the unnetted recognition of inflows and outflows from financial liabilities.
Deutsche EuroShop Annual Report 2016 R31 STATEMENT OF CHANGES IN EQUITY in € thousand Note Number of shares outstanding Share capital Capital reserves Other retained earnings Statutory reserve Available for sale reserve Cash flow hedge reserve Total 01.01.2015 Total profit Dividend payments 31.12.2015 01.01.2016 Total profit Dividend payments 53,945,536 53,945 961,970 544,025 2,000 0 0 0 0 309,282 -70,129 0 0 53,945,536 53,945 961,970 783,178 2,000 53,945,536 53,945 961,970 783,178 2,000 0 0 0 0 221,757 -72,826 0 0 7. 7. -7 -8 0 -15 -15 -7 -37,591 1,524,342 4,372 313,646 0 -70,129 -33,219 1,767,859 -33,219 1,767,859 -635 221,115 0 0 -72,826 31.12.2016 53,945,536 53,945 961,970 932,109 2,000 -22 -33,854 1,916,148
R32 CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL YEAR 2016 GENERAL DISCLOSURES The Group parent company is Deutsche EuroShop AG, Hamburg, Ger- many. The Company’s registered office is Heegbarg 36, 22391 Ham- burg, Germany, and it is entered in the Hamburg commercial register under HRB 91799. Deutsche EuroShop AG focuses on acquiring, managing, using and selling investments of all kinds, and in particular investments in retail properties. The consolidated financial statements of Deutsche EuroShop AG have been prepared in accordance with the International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board (IASB), including the interpretations of the International Financial Reporting Interpretations Committee (IFRIC) and the supplementary provisions of German commercial law required to be applied under section 315a (1) of the Handelsgesetzbuch (HGB – German Commercial Code). All IFRSs and IFRIC interpretations endorsed by the European Commission and required to be applied as at 31 December 2016 have been applied. The Executive Board prepared the consolidated financial statements as at 31 December 2016 on 12 April 2017 and forwarded them to the Supervisory Board for examination and approval. In addition to the consolidated balance sheet, consolidated income statement and the consolidated statement of comprehensive income, the consolidated financial statements comprise the consolidated state- ment of changes in equity, the consolidated cash flow statement and the notes to the consolidated financial statements. Amounts are mainly presented in thousand of €. The preparation of the consolidated financial statements necessi- tates the use of estimates and assumptions. These affect the reported amounts of assets, liabilities and contingent liabilities at the balance sheet date, as well as the recognition of income and expenses during the reporting period. The actual amounts can differ from these esti- mates. Expected cash flows and the discount factor in particular are critical parameters for the measurement of investment properties (see the notes to section “2. Investment Properties”). A detailed list of the companies included in the consolidated financial statements forms part of the notes. The annual financial statements of the consolidated companies were prepared as at 31 December 2016, the reporting date of the consoli- dated financial statements. BASIS OF CONSOLIDATION AND CONSOLIDATION METHODS BASIS OF CONSOLIDATION Fully consolidated subsidiaries As at 01.01.2016 Additions Disposals Last revised 31.12.2016 Joint ventures included in consolidated financial statements in accordance with the equity method As at 01.01.2016 Additions Disposals Last revised 31.12.2016 Associates included in consolidated financial statements in accordance with the equity method As at 01.01.2016 Additions Disposals Last revised 31.12.2016 Domestic * Interna- tional * Total 9 0 0 9 3 0 0 3 12 0 0 12 Domestic * Interna- tional * Total 3 1 0 4 3 0 0 3 6 1 0 7 Domestic * Interna- tional * Total 4 0 -1 3 1 0 0 1 5 0 -1 4 * Companies are allocated in accordance with the segment allocation based on the loca- tion of the respective shopping center. This may be different from the company domicile.
Deutsche EuroShop Annual Report 2016 R33 Subsidiaries The consolidated financial statements include the financial statements of the parent company and of the companies controlled by it. Deutsche EuroShop AG gains control when it: • • • is in a position to take decisions affecting another company, is exposed to fluctuating returns and reflows from this holding, and is able, by reason of its decision-making capacity, to influence such returns. At every reporting date, a new assessment is carried out to establish whether or not an investee is controlled, by reference to whether cir- cumstances indicate that one or more of these criteria have changed. Financial information of subsidiaries with significant non-controlling interests Deutsche EuroShop AG holds a stake of 52.01% in Main-Taunus- Zentrum KG, Hamburg and exercises a controlling influence over the company. The other 47.99% of shares are in free float. The Company posted non-current assets of €714,000 thousand (previous year: €657,0000 thousand) and current assets of €13,035 thousand (pre- vious year: €13,699 thousand) on the balance sheet date. Non-cur- rent liability items amounted to €220,000 thousand (previous year: €220,000 thousand) and current liability items totalled €3,021 thousand (previous year: €3,696 thousand). The Company generated revenue of €35,031 thousand (previous year: €34,744 thousand) and profit (after earnings due to limited partners) of €42,539 thousand (previous year: €69,928 thousand). A dividend of €12,107 thousand (previous year: €12,125 thousand) was paid to limited partners in the year under review. Joint ventures Joint ventures in which Deutsche EuroShop AG has a majority of the vot- ing rights together with third parties are classified as joint operations and accounted for using the equity method. Following the acquisition of Saarpark-Center Neunkirchen KG, Hamburg, at the beginning of October 2016, the number of joint ventures increased from six to seven in the year under review. Deutsche EuroShop AG has a 75% stake in Stadt- Galerie Passau KG, Hamburg. On the basis of corporate agreements, Deutsche EuroShop AG does not hold the majority of voting rights or exercise sole control of this company. Associates In accordance with IAS 28, where Deutsche EuroShop AG can exercise a significant influence but not control over companies, these investments are measured using the equity method. Following the sale of Kom- manditgesellschaft PANTA Dreiunddreißigste Grundstücksgesellschaft m.b.H. & Co., Hamburg, the number of associates fell from five to four in the year under review. Investees Investments over which Deutsche EuroShop AG has neither signifi- cant influence nor control are measured at fair value, in line with the provisions of IAS 39. This relates to the stake in Ilwro Holding B.V., Amsterdam. Shareholdings The list of shareholdings as required by section 313 (2) HGB forms part of the notes to the consolidated financial statements. The list of share- holdings also includes a conclusive list of all subsidiaries that meet the conditions of section 264b HGB and have exercised the option of exemption from specific provisions regarding the preparation, auditing and disclosure of annual financial statements or management report. ACQUISITIONS AFTER THE BALANCE SHEET DATE On 7 March 2017, the Deutsche EuroShop Group signed a purchase agreement to acquire all shares of Olympia Brno s.r.o., Prague (Czech Republic). Olympia Brno is the owner of the “Olympia” shopping center located in Brno, Czech Republic. The transfer of benefits and encum- brances took place on 31 March 2017 upon payment of the provisional purchase price (€207 million) to the seller. The definitive purchase price will be determined on the basis of the interim financial statements of Olympia Brno as at 31 March 2017. The investment is being financed with equity from a cash capital increase (see section “7. Equity and reserves”) and through long-term loans. Due to the proximity between the transfer of benefits and encum- brances on 31 March 2017 and the preparation of the consolidated financial statements, the compilation of the information required for the provisional purchase price allocation has not yet been concluded. For this reason, the amendments recognised at fair value cannot be quantified at this time.
R34 CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATION METHODS Under the purchase method, the cost is eliminated against the parent company’s interest in the re-valued equity of the subsidiaries at the date of acquisition or initial consolidation. Any remaining excess of identified net assets acquired over cost of acquisition is recognised as goodwill in intangible assets. Any excess of identified net assets acquired over cost of acquisition is recognised in income following a further reassessment. Joint ventures and associates are measured using the equity method. The cost of acquiring the investment is recognised here in income at an amount increased or reduced by the changes in equity corresponding to the equity interest of Deutsche EuroShop AG. Intragroup transactions are eliminated as part of the consolidation of intercompany balances, income and expenses. NEW ACCOUNTING STANDARDS The following new or amended standards and interpretations relevant for the business activities of the Group are required to be applied for the first time to the financial years ending on 31 December 2016: Amendments / standard Disclosure Initiative (Amendments to IAS 1) Date applied (EU) 01.01.2016 Clarification of permissible methods of depreciation and amortisation (Amendments to IAS 16 and IAS 38) 01.01.2016 Accounting for Acquisitions of Interests in Joint Operations (Amendments to IFRS 11) 01.01.2016 Amendments The amendments are designed to facilitate a restriction to essential and simplified information in the financial statements. According to the amendments, a revenue-based method is not considered to be an acceptable method of amortisation, whereas for intangible assets, there is simply the rebuttable presumption that such a method is not appropriate. The acquirer of interests in joint operations in circumstances in which the activity of the joint opera- tion constitutes a business as defined in IFRS 3 must apply all principles of IFRS 3 and other IFRSs in the accounting for business combinations, provided these do not contravene the guidelines in IFRS 11. Impact on the net assets, financial posi- tion and results of operations or cash flow of Deutsche EuroShop AG No material impact No impact No material impact Annual Improvements to IFRSs – 2010 – 2012 Cycle Annual Improvements to IFRSs – 2012 – 2014 Cycle 01.01.2016 Clarifications of numerous published standards No material impact 01.01.2016 Clarifications of numerous published standards No material impact
Deutsche EuroShop Annual Report 2016 R35 The following new or amended standards and interpretations relevant for the business activities of the Group are not yet compulsory and have not been applied prematurely: Amendments / standard Expected date of application (EU) Expected amendments IFRS 9 Financial Instruments 01.01.2018 IFRS 15 Revenue from Contracts with Customers 01.01.2018 IFRS 16 Leases 01.01.2019 The new IFRS 9 standardises the specifications for classifying and measuring financial assets and financial liabilities. The standard uses cash flow properties and the business model according to which they are managed as a basis in this regard. In addition, it provides for a new impairment model based on expected credit losses. IFRS 9 also includes new provisions regarding the application of hedge accounting in order to better represent a company’s risk management activities. IFRS 9 will replace the previous provisions of IAS 39. The standard provides a five-step model for recognising revenue that is to be applied to all contracts with customers. This specifies when (or over what time period) and what amount of revenue is to be recognised. The core requirement of IFRS 16 is that all leases and their associated contractual rights and obligations are to be recog- nised in the lessee’s balance sheet as a general principle. The lessee is required to account for lease liabilities for all future lease payments. At the same time, the lessee is conferred the right to use the underlying asset, which generally corresponds to the cash value of the future lease payments plus any direct costs incurred by the lessee. During the term of the lease, the lease liability is upheld financially on a similar basis to the pro- visions of IAS 17 for leases, while the right of use is amortised according to schedule, which generally leads to higher expenses at the beginning of a lease. In the case of lessors, meanwhile, the provisions of the new standard are similar to the previous provisions of IAS 17. Disclosure Initiative (Amendment to IAS 7) 01.01.2017 This release provides disclosures designed to help recipients of financial statements assess changes to financing liabilities. Recognition of Deferred Tax Assets for Unrealised Losses (Amendment to IAS 12) 01.01.2017 Clarification of accounting for deferred tax assets for unreal- ised losses with respect to available-for-sale financial assets. Impact on the net assets, financial position and results of opera- tions or cash flow of Deutsche EuroShop AG No material impact Due to the nature of the business model of the Group and its generation of rental income through the leasing of shopping center space, no material impact on the accounting of reve- nue is expected. Since the Group only has a limited number of lease obligations as a lessee, no material impact is expected. The Group is currently assessing this release but does not expect any material impact on the presentation of its cash flow. No material impact
R36 CONSOLIDATED FINANCIAL STATEMENTS CURRENCY TRANSLATION The Group currency is the euro (€). The companies located outside the eurozone that are included in the consolidated financial statements are treated as legally independent, but economically dependent, integrated companies. The reporting cur- rency of these companies is therefore different from the functional currency (€). Under IAS 21, annual financial statements prepared in foreign currencies are translated using the functional currency method, with the result that the balance sheet is to be translated as if the trans- actions had arisen for the Group itself, as the local currency of the integrated companies is deemed to be a foreign currency for these companies themselves. Monetary values are therefore translated at the closing rate and non-monetary items at the rate that applied at the time of initial rec- ognition. Non-monetary items to be reported at fair value are trans- lated at the closing rate. Items in the consolidated income statement are translated at average rates for the year or, in the event of strong fluctuations, using the rate that applied on the date of the transaction. Any translation differences that may arise if the translation rates of the balance sheet and consolidated income statement differ are rec- ognised in profit or loss. DETERMINATION OF FAIR VALUES The Group regularly reviews the determination of fair values for finan- cial and non-financial assets and liabilities. It also conducts a regular assessment of significant, non-observable input factors and carries out valuation adjustments. When determining the fair value of an asset or liability, the Group uses observable market data wherever possible. Based on the input factors used in the valuation techniques, the fair values are categorised into different levels of the fair value hierarchy in accordance with IFRS 13: Level 1: Fair values determined using quoted prices in active markets. Level 2: Fair values determined using valuation methods for which the input factors that are relevant for the fair value are based on directly or indirectly observable market data. Level 3: Fair values determined using valuation methods for which the input factors that are relevant for the fair value are based on unob- servable market data. In the case of assets or liabilities that are recognised at fair value on a regular basis, it is determined based on a reassessment at the end of the financial year whether reclassifications between the hierarchical levels occurred. In 2016, as in the previous financial year, no reclassi- fications between the hierarchical levels occurred. A closing rate of HUF 311.02 (previous year: HUF 313.12) and an average rate of HUF 311.46 (previous year: HUF 309.90) were used in the transla- tion of the separate Hungarian financial statements for Einkaufs- Center Arkaden Pécs KG, Hamburg, from forint (HUF) to euros. A closing rate of PLN 4.42 (previous year: PLN 4.26) and an average rate of PLN 4.36 (previous year: PLN 4.18) were taken as a basis for translating the sep- arate financial statements of the Polish property companies. INTANGIBLE ASSETS Intangible assets relate exclusively to software purchased by Deutsche EuroShop AG. Additions are measured at cost. These are amortised at 33% using the straight-line method over the expected useful life of three years. The method of depreciation and the depreciation period are reviewed annually at the end of each financial year. SIGNIFICANT ACCOUNTING POLICIES AND VALUATION METHODS REVENUE AND EXPENSE RECOGNITION Revenue and other operating income are recognised once the relevant service has been rendered or once the risk has passed to the customer. Operating expenses are recognised once the service has been utilised or at the time when they are booked through profit and loss. Interest income and expense are accrued. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is reported at cost, less scheduled depreciation and, where applicable, unscheduled write-downs (impair- ment charges). Operating and office equipment comprises company cars, office equip- ment, tenant fixtures, fittings and technical equipment belonging to Deutsche EuroShop AG, and is depreciated using the straight-line method over three to 13 years. The method of depreciation and the depreciation period are reviewed annually at the end of each finan- cial year.
Deutsche EuroShop Annual Report 2016 R37 INVESTMENT PROPERTIES Under IAS 40, investment property must initially be measured at cost at the date of acquisition. Property that is under construction and intended to be used as investment property following its completion also falls under the scope of IAS 40. Property held as a financial investment can be recognised either at amortised cost (cost model) or using the fair-value model. Subsequently, all properties must be measured at their fair value and the annual net changes recognised in income under measurement gains / losses (recurring fair value measurement). Investment prop- erty is property held for the long term to earn rental income or capital gains. Under IAS 40, investment property measured using the fair value model is no longer depreciated. Borrowing and initial rental costs that are directly attributable to the acquisition, construction or production of a qualifying asset are included in the cost of that asset until the time at which the asset is largely ready for its intended use. Income realised from the temporary investment of specifically borrowed funds up to the point when these are used to obtain qualifying assets is deducted from the capitalisable costs of these assets. All other borrowing costs are recognised in income in the period in which they occur. Maintenance measures relating to property, plant and equipment are recognised as an expense in the financial year in which they occur. LEASE AGREEMENTS In line with IAS 17, the tenancy agreements in the Deutsche EuroShop Group are classified as operating leases. The operating lease agree- ments relate to investment property owned by the Group with long-term leases. Rental income from operating leases is recognised in income on a straight-line basis over the term of the corresponding lease. The lessee has no opportunity to acquire the property at the end of the term. FINANCIAL INSTRUMENTS Financial assets and liabilities are recognised in the consolidated bal- ance sheet when the Group becomes a party to the contractual provi- sions governing the financial instrument. Financial instruments are generally recognised at fair value. The fair value is defined as the price that would be accepted or paid to transfer a liability in an arm’s length transaction between market participants. When measuring the fair value, it is assumed that the transaction upon which the price is based occurs on a main market to which the Group has access. The price is measured based on the assumptions that mar- ket participants would use for pricing. Derivative Financial Instruments Derivatives that qualify for hedge accounting in accordance with IAS 39 are used to hedge interest rate risks. These are fixed-rate swaps to limit the interest rate risk of variable interest rate loans, which have terms extending to 2027. The interest rate hedges are recognised at fair value (recurring fair value measurement) under “Other assets” or “Other liabilities”. Changes are recognised directly in equity, provided that the conditions of the underlying and hedge transaction are identi- cal. Hedge effectiveness tests are conducted regularly. If the effective- ness between the hedged item and the hedge does not exist, the hedge is measured as a derivative at fair value in profit or loss. Present value is calculated based on discounted cash flows using current market interest rates. The final maturities of the interest rate hedges and loan agreements are identical. Non-Current Financial Assets Non-current financial assets are classified as available for sale and include an investment in a Dutch corporation that is a joint venture controlled by Deutsche EuroShop jointly with partner companies. As Deutsche EuroShop, under the provisions of the shareholders’ agree- ment, exercises neither significant influence nor control over this com- pany, the investment is measured at fair value (recurring fair value measurement) in line with the provisions of IAS 39. Receivables and Other Current Assets Receivables and other current assets are recognised at amortised cost less write-downs. Allowances are established for trade receivables if it is no longer certain that payment will be received. This is reviewed on a case-by-case basis at the balance sheet date. They are written off if the receivable becomes uncollectable. Right to Redeem of Limited Partners The distinction between equity and liabilities under international accounting standards is set out in IAS 32 Financial Instruments: Pres- entation. In accordance with this standard, the equity interests of third- party shareholders in commercial partnerships are reclassified as lia- bilities due to the shareholders’ potential right of redemption. According to sections 131 et seq. HGB, shareholders in commercial partnerships have an ordinary legal right of termination of six months with effect from the end of the financial year, which the shareholders’ agreement can define from a long-term perspective, but cannot exclude. As a result of this stipulation, a liability rather than equity is recognised in the bal- ance sheet. This liability must be measured at fair value. Financial Liabilities Liabilities to banks / bank loans and overdrafts are reported at amor- tised cost. Discounts are deducted, which under IAS 39 must be amor- tised over the term of the loan agreement and recognised annually as an expense. The debt component of convertible bonds is measured using the market interest rate for a similar, non-convertible bond.
R38 CONSOLIDATED FINANCIAL STATEMENTS This debt component is measured as a liability at amortised cost using the effective interest method until converted or repayment becomes due. The remaining proceeds from the issue represent the value of the conversion rights. This is recognised in equity within the capital reserves. The financial liability increases over time, with an effect on net income, by the difference between the actual interest expense and the nominal interest rate. Trade Payables Trade payables are recognised at their repayment amount. Other Liabilities Other liabilities are recognised at amortised cost. Cash and Cash Equivalents Cash and cash equivalents include cash and bank balances (terms of up to three months) at their principal amounts. INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD Investments in associates and joint ventures are initially recognised at cost in the balance sheet and adjusted by changes in the Group’s share of the equity of the associate / joint ventures after the date of acquisition. At every reporting date, the Group reviews whether there are indications that the shares need to be impaired in relation to the amortised carrying amounts. DEFERRED TAXES In accordance with IAS 12, deferred taxes are recognised for all dif- ferences between the tax accounts and the IFRS balance sheet, using the currently enacted tax rate. At present, deferred taxes are primarily formed on the differences between the IFRS carrying amounts of the properties and their carrying amounts for tax purposes. A uniform corporate tax rate of 15% plus the solidarity surcharge of 5.5% was used for German companies, and in some cases a rate of 16.45% for trade tax. For Hungarian taxes, a tax rate of 9% (previous year: 19%), for Polish taxes a tax rate of 19% and for Austrian taxes a tax rate of 25% was assumed. In accordance with IAS 12.74, deferred tax assets on existing loss carryforwards are offset against deferred tax liabilities. OTHER PROVISIONS Under IFRS, other provisions may only be recognised if a present obli- gation exists towards a third party and payment is more likely than not. Non-current provisions are discounted.
Deutsche EuroShop Annual Report 2016 R39 NOTES TO THE CONSOLIDATED BALANCE SHEET – ASSETS The additions mainly relate to the 1 April 2016 purchase of a property let to Karstadt which is adjacent to the shopping center in Dessau. The provision of €1,000 thousand established for this purpose in the previous year was offset against the additions. 1. PROPERTY, PLANT AND EQUIPMENT Other equipment, operating and office equipment Unrealised changes in market value relate to appreciation and depreci- ation in accordance with IAS 40. in € thousand Costs as at 01.01. Additions Disposals as at 31.12. Depreciation as at 01.01. Additions Disposals as at 31.12. Carrying amount at 01.01. CARRYING AMOUNT AT 31.12. 2016 568 19 -132 455 -203 -60 75 -188 365 267 2015 571 76 -79 568 -178 -76 51 -203 393 365 This includes the office equipment of Deutsche Euroshop AG, a company vehicle and tenant fixtures. 2. INVESTMENT PROPERTIES in € thousand 2016 2015 Carrying amount at 01.01. 3,356,655 3,060,179 Additions Recognised construction measures 7,217 8,602 128 10,940 The fair values of the properties in the period under review as at 31 December 2015 were determined by appraisers from Jones Lang LaSalle GmbH (JLL) in accordance with the guidelines of the Royal Insti- tution of Chartered Surveyors (RICS). As in previous years, the discounted cashﬂow method (DCF) was used. This method entails the calculation of the present value of future cash flows from the property in question as at the valuation date. In addi- tion, the net income from the property in question is determined over a detailed planning period of (usually) ten years and a discount rate applied. A residual value is forecast for the end of the ten-year detailed planning phase by capitalising the stabilised cash flows of the last budg- eted year using an interest rate (the capitalisation interest rate). In a sec- ond step, the residual value is discounted back to the measurement date. JLL applied the equated yield model in order to arrive at the discount and capitalisation interest rates. The capitalisation interest rate was derived for each property individually from initial rates of return from comparable transactions. At the same time, such determinants of value as inflation and changes in rent and costs were implicitly taken into account in the capitalisation interest rate. The risk profile specific to each property was also adjusted by reference to the relevant individ- ual indicators. Examples of such indicators include the quality of the property’s location and position, market trends and developments in the competitive environment. JLL likewise derived the discount interest rates from comparable transactions, albeit making adjustments for projected increases in rent and costs, since these had been explicitly shown in the relevant cash flow. JLL applied the same methods in valuing domestic and foreign real properties. Unrealised changes in fair value 148,350 285,408 CARRYING AMOUNT AT 31.12. 3,520,824 3,356,655 The following overview shows the key assumptions used by JLL to deter- mine the market values: Valuation parameter in % Rate of rent increases Cost ratio Discount rate Capitalisation interest rate 31.12.2016 31.12.2015 1.39 10.17 5.97 5.21 1.14 10.70 6.11 5.33
R40 CONSOLIDATED FINANCIAL STATEMENTS A 25 bp change in a material parameter (sensitivity analysis) of real estate appraisals would have the following pre-tax impact on meas- urement gains / losses (including the share attributable to at-equity consolidated companies): Sensitivity analysis – Valuation parameters Basis Change in parameter in € million Rate of rent increases Cost ratio Discount rate Capitalisation interest rate + 0.25 percentage points - 0.25 percentage points 1.39 + 0.25 percentage points - 0.25 percentage points 10.17 + 0.25 percentage points - 0.25 percentage points + 0.25 percentage points - 0.25 percentage points 5.97 5.21 148.0 -101.1 -9.0 10.4 -69.2 69.0 -106.6 114.2 in % 4.0 -3.0 -0.2 0.3 -1.9 1.9 -2.9 3.1 Over the forecast period, rents were assumed to increase on average over the long term at 1.39% (2015: 1.14%). On average, management and administration costs at 10.2% (2015: 10.7%) were deducted from the forecast rents. This resulted in an average net income of 89.8% (2015: 89.3%). Actual management and administrative costs amounted to 9.9% of rental income in the year under review (2015: 9.6%). The appraisal showed that, for the 2016 financial year, the real property portfolio had an initial yield before deduction of transaction costs of 5.24% compared with the previous year’s 5.46%, and an initial rate of return net of transaction costs (net initial yield) of 4.94%, the figure for the previous year having been 5.13%. The following shows details and disclosures in accordance with IFRS 13 for the hierarchical levels of the fair values of the Group’s investment properties as at 31 December 2016: in € thousand Level 1 Level 2 Level 3 Investment Properties 0 0 3,520,824 3. INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD in € thousand 2016 2015 Carrying amount at 01.01. 411,031 359,357 Additions for equity-accounted companies Capital contribution Distributions and capital repayments received Share of profit / loss Value adjustments Disposals Other changes 79,623 100 -21,952 54,283 -786 -2,819 -4,119 0 1,000 -17,723 68,355 42 0 0 CARRYING AMOUNT AT 31.12. 515,361 411,031 The properties are secured by mortgages. There are land charges in the amount of €1,346,901 thousand (previous year: €1,310,635 thousand). The rental income of the properties valued in accordance with IAS 40 was €205,136 thousand (previous year: €202,854 thousand). Directly associated operating expenses were €20,398 thousand (previous year: €19,383 thousand). Additions from investments accounted for using the equity method are the result of the acquisition of the 50% stake in the Saapark-Center Neunkirchen on 1 October 2016. The other changes relate to the deferred taxes of the joint venture Einkaufs-Center Arkaden Pécs, which in contrast to the previous year were recognised at joint venture level. The disposals relate to the sale of associate Kommanditgesellschaft PANTA Dreiunddreißigste Grundstücksgesellschaft m.b.H. & Co., in the reporting year. Joint ventures in which Deutsche EuroShop AG has a majority of the voting rights together with third parties are included in the consoli- dated financial statements in accordance with the equity method. They are important for the Group as a whole and operate shopping centers.
Deutsche EuroShop Annual Report 2016 R41 The joint ventures material to the overall Group posted the following asset and liability items and income items for the reporting year. The values do not correspond to the share attributable to the Group, but the total amounts: in € thousand Non-current assets Current assets thereof cash and cash equivalents Non-current liabilities thereof financial liabilities Current liabilities thereof financial liabilities Revenue Net interest income Income taxes Net profit Other income TOTAL PROFIT Allee-Center Magdeburg KG, Hamburg Immobilien kommandit- gesellschaft FEZ Harburg, Hamburg Stadt-Galerie Passau KG, Hamburg 31.12.2016 31.12.2015 31.12.2016 31.12.2015 31.12.2016 31.12.2015 255,000 248,000 274,000 248,000 178,000 170,000 1,922 807 0 0 747 0 2,205 972 0 0 905 0 4,051 3,411 3,332 2,241 122,547 52,516 122,547 52,516 3,635 2,195 69,300 66,682 1,279 750 0 0 1,394 1,026 0 0 310 324 0 0 15,891 16,073 13,856 12,375 9,681 9,627 2 0 1 0 -5,187 -5,810 0 0 0 0 0 0 20,583 15,446 26,134 31,323 16,649 31,648 0 0 0 0 0 0 20,583 15,446 26,134 31,323 16,649 31,648
R42 CONSOLIDATED FINANCIAL STATEMENTS in € thousand Non-current assets Current assets thereof cash and cash equivalents Non-current liabilities thereof financial liabilities Current liabilities thereof financial liabilities Revenue Net interest income Income taxes Net profit Other income TOTAL PROFIT Saarpark Center Neunkirchen KG, Hamburg ** EKZ Eins Errichtungs- und Betriebs Ges. m.b.H. & Co. OG, Vienna * Einkaufs-Center Arkaden Pécs KG, Hamburg 31.12.2016 31.12.2015 31.12.2016 31.12.2015 31.12.2016 31.12.2015 225,000 3,256 2,469 63,309 59,630 5,026 4,450 3,215 199 0 3,513 0 3,513 – – – – – – – – – – – – – 223,955 207,929 95,000 90,000 2,963 1,965 94,615 49,279 1,325 680 0 0 1,987 92,411 470 91,831 4,585 3,699 33,874 28,650 2,065 1,203 12,081 12,108 7,558 -3,792 -5,130 -1,354 0 0 2,566 3,272 2,854 28,266 28,266 2,284 1,543 7,347 -1,654 -268 20,036 25,578 13,325 16,754 0 0 0 0 20,036 25,578 13,325 16,754 * Includes the figures for the immaterial joint venture CAK City Arkaden Klagenfurt KG, Hamburg. The equity method valuation amounted to €955 thousand (previous year: €929 thousand) and the net loss for the year €69 thousand (previous year: €38 thousand). ** The joint venture was acquired as per 1 October 2016 and has been included on consoli- dated financial statements since this date. Prior-year statements are therefore not made. Under the equity method, the joint ventures developed as follows in the period under review: in € thousand Equity method valuation as at 01.01.2016 Additions for equity-accounted companies Share of profit / loss Value adjustments Distributions and capital repayments received Other changes EQUITY METHOD VALUATION AS AT 31.12.2016 Allee-Center Magdeburg KG, Hamburg Immobilien- kommandit- gesellschaft FEZ Harburg, Hamburg Stadt-Galerie Passau KG, Hamburg Saarpark Center Neunkirchen KG, Hamburg EKZ Eins Errichtungs- und Betriebs Ges. m.b.H. & Co. OG, Vienna Einkaufs- Center Arkaden Pécs KG, Hamburg 124,650 64,758 128,302 0 58,421 31,360 0 0 0 10,291 13,066 12,487 0 0 0 -6,852 0 -1,890 0 -6,562 0 79,623 1,757 -686 -733 0 0 10,018 0 -3,282 0 0 6,663 0 -2,081 -4,119 128,089 75,934 134,227 79,961 65,157 31,823
Deutsche EuroShop Annual Report 2016 R43 Trade receivables (after value adjustments) and other assets were, as in the previous year, not overdue on the balance sheet date. 6. CASH AND CASH EQUIVALENTS in € thousand 31.12.2016 31.12.2015 Short-term deposits / time deposits Current accounts Cash 6,230 57,806 10 8,819 61,866 14 64,046 70,699 4. TRADE RECEIVABLES in € thousand Trade receivables Allowances for doubtful accounts 31.12.2016 31.12.2015 8,509 -1,908 6,601 7,156 -1,551 5,605 Receivables result primarily from rental invoices and services for which charges are passed on. These were predominantly paid at the time the consolidated financial statements were prepared. The amounts rec- ognised at the reporting date are protected by means of guarantees, cash security deposits and letters of comfort. 5. OTHER CURRENT ASSETS in € thousand 31.12.2016 31.12.2015 Receivables from tenants Value added tax receivables Other current assets 1,652 2 5,623 7,277 592 367 6,233 7,192 Other current assets primarily consist of other receivables from tenants from heating and ancillary costs as well as prepaid costs to protect locations. RECEIVABLES in € thousand Trade receivables Other assets (previous year’s figures) Total Up to 1 year Over 1 year 6,601 (5,605) 7,277 (7,192) 13,878 (12,797) 6,601 (5,605) 7,277 (7,192) 13,878 (12,797) 0 (0) 0 (0) 0 (0)
R44 CONSOLIDATED FINANCIAL STATEMENTS NOTE TO THE CONSOLIDATED BALANCE SHEET – LIABILITIES Retained earnings consist of the remeasurement reserves, currency items and accumulated profits carried forward at the time of transi- tion to IFRS. 7. EQUITY AND RESERVES Changes in equity are presented in the statement of changes in equity. The share capital is €53,945,536, comprised of 53,945,536 no-par-value registered shares. All shares have been issued in full and have been fully paid up. The notional value of each share is €1.00. According to Article 5 of the Articles of Association, the Executive Board is authorised, with the Supervisory Board’s approval, to increase the share capital by up to a total of €26,972,768 through one or multiple issues of new no-par-value registered shares against cash or non- cash contributions before 19 June 2018 (“Authorised capital 2013”). As at 31 December 2016, no use had been made of this authorisation. On 7 March 2017, in order to finance the equity required for the acquisition of Olympia Brno (see section “Acquisitions after the bal- ance sheet date”), the Executive Board decided, with the Supervisory Board’s approval, to increase the Company’s share capital by utilising up to €4,700,000.00 of the authorised capital through the issue of up to 4,700,000 registered shares with dividend rights from 1 January 2016 (the “New Shares”) for cash. A total of 4,459,460 new shares were issued at a subscription price of €37.00 per share. Around €165 million flowed into the company as a result. The capital increase was entered in the commercial register on 8 March 2017. The Executive Board was authorised, subject to the approval of the Supervisory Board and until 15 June 2016, to issue convertible bonds with a total nominal value of up to €200,000,000 and to grant the hold- ers conversion rights to new no-par-value shares in the Company up to a total of 10,000,000 shares (€10.0 million) (conditional capital 2011). As part of this authorisation, Deutsche EuroShop AG issued a con- vertible bond on 20 November 2012. For further details, see section “8. Non-current and current financial liabilities”. At the Annual General Meeting on 28 June 2017, the Executive Board and Supervisory Board will propose that the unappropriated surplus be used to fund the corresponding dividend distribution of €1.40 per share. The previous year’s unappropriated surplus of €72,826 thou- sand was distributed in full to the shareholders. The dividend paid was €1.35 per share. The capital reserves contain amounts in accordance with section 272 (2) nos. 1, 2 and 4 of the Handelsgesetzbuch (HGB – German Commercial Code). Capital reserves also contain deferred tax assets at the expense of the capital increase amounting to €1,441 thousand. Other total profit is divided into the following components: 2016 in € thousand Measurement of investments (AfS) IAS 39 Cash flow hedges 2015 in € thousand Measurement of investments (AfS) IAS 39 Cash flow hedges Before taxes Taxes Net -7 -836 -843 0 201 201 -7 -635 -642 Before taxes Taxes Net -8 5,594 5,586 0 -1,222 -1,222 -8 4,372 4,364 8. NON-CURRENT AND CURRENT FINANCIAL LIABILITIES in € thousand Bank loans and overdrafts Convertible bond 31.12.2016 31.12.2015 Non- current Current Non- current Current 1,242,754 104,147 1,262,924 47,711 0 98,680 96,972 0 1,242,754 202,827 1,359,896 47,711 Bank loans and overdrafts relate to loans raised to finance property acquisitions and investment projects. Land charges on Company prop- erties totalling €1,346,901 thousand (previous year: €1,310,635 thou- sand) serve as collateral. Discounts are amortised over the term of the loan. In the year under review, €446 thousand (previous year: €1,100 thousand) was recog- nised in income. A total of €49,460 thousand (previous year: €52.522 thousand) was recognised in net finance costs as interest expense for bank loans and overdrafts.
Twelve of the 19 loan agreements currently contain arrangements regarding covenants. There are a total of 17 different conditions on different debt service cover ratios (DSCR), interest cover ratios (ICR), changes in rental income, the equity ratio and loan-to-value ratios (LTV). The loan conditions have not been breached thus far and will not, according to current plans, be breached in future either. On 20 November 2012, Deutsche EuroShop AG issued convertible bonds with a five-year maturity and total value of €100 million. The initial con- version price is €30.62; the coupon is 1.75% per year and is payable semi-annually in arrears. The convertible bonds were issued at 100% of their nominal value of €100,000.00 each and can initially be converted to 3,265,839 shares in Deutsche EuroShop AG in accordance with the conversion ratio and the terms and conditions of the convertible bonds. No conversion rights were exercised by 31 December 2016. The amount of the convertible bond was divided into equity and debt components. The equity component accounted for a total amount of €7,140 thousand which was placed in capital reserves. Interest expense incurred for the convertible bond amounted to €3,458 thousand (previous year: €3,458 thousand) and is recognised in net finance costs. Deutsche EuroShop Annual Report 2016 R45 9. OTHER NON-CURRENT AND CURRENT FINANCIAL LIABILITIES 31.12.2016 31.12.2015 Non- current Current Non- current Current 48,659 0 50,452 0 0 0 3,017 909 922 0 0 0 0 3,246 874 778 in € thousand Interest rate swaps Value added tax Rental deposits Debtors with credit balances Other 424 6,186 1,862 8,129 49,083 11,034 52,314 13,027 In connection with borrowing, interest rate hedges (interest rate swaps) were concluded to hedge against higher capital market interest rates. Their present value totalled €48,659 thousand as at the reporting date. Other short-term liabilities are mainly comprise liabilities for heating and ancillary costs as well as prepaid rent. LIABILITIES in € thousand Total Current Non-current Financial Liabilities 1,445,581 (1,407,607) 202,827 (47,711) 1,242,754 (1,359,896) Trade Payables Tax liabilities Other Liabilities of which taxes 1,394 (621) 649 (489) 60,117 (65,341) 3,017 (3,277) (previous year’s figures) 1,507,741 (1,474,058) 1,394 (621) 649 (489) 11,034 (13,027) 3,017 (3,277) 215,904 (61,848) 0 (0) 0 (0) 49,083 (52,314) 0 (0) 1,291,837 (1,412,210)
R46 CONSOLIDATED FINANCIAL STATEMENTS 10. DEFERRED TAX LIABILITIES Deferred tax assets and liabilities are the result of tax effects of tem- porary differences and tax loss carryforwards: In measuring deferred taxes, the tax rates applicable in accordance with IAS 12 are those valid under current legislation at the date at which the temporary differences will probably reverse. In the year under review, a corporate tax rate of 15% was used for the companies in Germany. In addition, a solidarity surcharge of 5.5% on the calculated corporate tax and, in part, 16.45% in trade tax were recognised. The respective local tax rates were applied for foreign companies. The deferred taxes on interest rate swaps recognised in profit or loss relate to an interest rate swap for the Altmarkt-Galerie in Dresden which must be recognised in profit or loss following the acquisition of the remainder of the Altmarkt-Galerie in Dresden. 11. RIGHT TO REDEEM OF LIMITED PARTNERS in € thousand 2016 2015 Settlement claim as per 01.01. 293,113 226,849 Earnings contributions Share of measurement gains / losses Share of earnings recognised directly in equity Outflows SETTLEMENT CLAIM AS PER 31.12. 17,894 17,020 30,890 64,376 0 45 -17,338 -15,177 324,559 293,113 The right to redeem of limited partners includes the equity interests of third-party providers in the companies Main-Taunus-Zentrum KG, Forum Wetzlar KG and Einkaufs-Center Galeria Bałtycka G.m.b.H. & Co. KG, which are to be reported in accordance with IAS 32 as debt capital. in € thousand 31.12.2016 31.12.2015 Deferred tax assets Deferred tax liabilities Deferred tax assets Deferred tax liabilities 298,197 0 261,037 75,526 0 0 0 0 0 9,581 827 0 674 3,276 0 9,380 1,243 233 674 6,473 66,494 0 0 0 0 0 14,358 373,723 18,003 327,531 Investment Properties Investments accounted for using the equity method Other Liabilities Interest swaps (not recognised in profit or loss) Interest swaps (recog- nised in profit or loss) Other Provisions Other Corporation tax loss carryfor- wards Deferred taxes before netting Balance -14,358 -14,358 -18,003 -18,003 Deferred taxes after netting thereof attribut- able to: Domestic companies Foreign companies 0 359,365 0 309,528 316,761 42,604 359,365 267,783 41,745 309,528
Deutsche EuroShop Annual Report 2016 R47 12. OTHER PROVISIONS in € thousand Maintenance and construction work already performed but not yet invoiced Fees Other Last revised 01.01.2016 Utilisation Reversal Addition Last revised 31.12.2016 2,816 77 4,163 7,056 2,323 77 3,935 6,335 441 0 85 526 2,466 67 3,916 6,449 2,518 67 4,059 6,644 Other provisions contain the present value (€49 thousand) of a long- term incentive plan which was contractually agreed between the Exec- utive Board and employees of Deutsche EuroShop AG with effect from 1 July 2015. The term is three years, and the plan is linked to changes in the market capitalisation up to 30 June 2018. Please also refer to the details in the remuneration report, which is part of the manage- ment report. As in the previous year, all other provisions have a term of up to one year. NOTES TO THE CONSOLIDATED INCOME STATEMENT 13. REVENUE in € thousand 2016 2015 Minimum rental income 202,000 200,802 Turnover rental income Other of which directly attributable rental income in accordance with IAS 40 Investment Properties in € thousand Costs to protect location Operating costs that cannot be passed on Maintenance and repairs 1,975 1,161 1,566 486 205,136 202,854 Real property tax Write-downs of rent receivables 205,136 202,854 Other Other revenue relates primarily to compensation for use and settlement payments made by former tenants. of which directly attributable oper- ating expenditure in accordance with IAS 40 Investment Properties Ancillary costs which cannot be fully allocated are essentially operat- ing costs which cannot be completely passed on to tenants and from heating and ancillary costs in arrears for preceding years. The rental income reported here derives from operating leases and relates to rental income from investment properties with long-term leases. The future minimum leasing payments from non-terminable rental agreements classified as investment properties have the fol- lowing maturities: in € thousand Maturity within 1 year Maturity from 1 year to 5 years Maturity after 5 years 2016 186,865 606,549 228,959 2015 196,881 635,570 311,310 1,022,373 1,143,761 14. PROPERTY OPERATING COSTS 2016 -3,167 -2,912 -1,926 -1,112 -570 -513 2015 -3,474 -2,763 -1,152 -939 -640 -439 -10,200 -9,407 -10,200 -9,407
R48 CONSOLIDATED FINANCIAL STATEMENTS 15. PROPERTY MANAGEMENT COSTS in € thousand 2016 2015 18. SHARE OF THE PROFIT OR LOSS OF ASSOCI- ATES AND JOINT VENTURES ACCOUNTED FOR USING THE EQUITY METHOD CENTER MANAGEMENT / AGENCY AGREEMENT COSTS of which directly attributable oper- ating expenditure in accordance with IAS 40 Investment Properties -10,198 -9,976 in € thousand Profit / loss from joint ventures -10,198 -9,976 Profit / loss from associates 2016 54,282 1 2015 68,286 69 PROFIT / LOSS FROM EQUITY- ACCOUNTED COMPANIES 54,283 68,355 16. OTHER OPERATING INCOME in € thousand 2016 2015 Income from the reversal of provisions Exchange rate gains Other 526 9 875 1,410 312 30 458 800 17. OTHER OPERATING EXPENSES The profit / loss of equity-accounted companies includes a measure- ment loss before deferred taxes of €28,711 thousand (previous year: €47,180 thousand). 19. MEASUREMENT GAINS / LOSSES in € thousand 2016 2015 Unrealised changes in fair value 148,350 285,408 Profit / loss attributable to limited partners -30,890 -64,376 2016 2015 Ancillary acquisition costs of at-equity investments Other -686 0 0 -476 116,774 220,556 in € thousand Legal, consulting and audit expenses Personnel expenses Marketing costs Exchange rate losses Supervisory Board compensation Appraisal costs Write-downs Real estate transfer tax Other -2,411 -1,768 -446 -339 -316 -312 -72 0 -1,858 -7,522 -1,694 -2,830 -433 -248 -283 -312 -86 -8 -2,081 -7,975 Personnel expenses in financial year 2015 included €848 thousand for the Long-Term Incentive 2010, which ended in June 2015. Legal, consulting and audit expenses include €291 thousand for the audit of Group companies (previous year: €286 thousand). Ancillary acquisition costs of at-equity investments are the result of the acquisition of the 50% stake in the Saarpark-Center Neunkirchen. 20. TAXES ON INCOME AND EARNINGS in € thousand Current tax expense Domestic deferred tax expense Foreign deferred tax expense 2016 -5,605 -49,786 -4,371 -59,762 2015 -4,577 -72,586 -8,265 -85,428
Deutsche EuroShop Annual Report 2016 R49 TAX RECONCILIATION Income taxes in the amount of €-59,762 thousand in the year under review are derived as follows from an expected income tax expense that would have resulted from the application of the parent company’s statutory income tax rate to the profit before tax. This was calculated using a tax rate of 32.28%. 21. NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT The cash flow statement has been prepared in accordance with IAS 7 and is broken down into operating cash flow, cash flow from operat- ing activities, cash flow from investing activities, and cash flow from financing activities. in € thousand 2016 2015 Consolidated profit before income tax Theoretical income tax 32.28% Tax rate differences for foreign Group companies Tax rate differences for domestic Group companies Tax-free income / non-deductible expenses Tax effect from investments accounted for under the equity- accounted method Aperiodic tax expense / income 281,519 -90,874 394,710 -127,412 1,579 5,381 28,153 36,877 -796 -408 2,223 -47 0 134 CURRENT INCOME TAX -59,762 -85,428 In financial year 2016, the effective income tax rate was 21.2%. This did not include aperiodic tax expense in the amount of €47 thousand. Cash flow from operating activities is derived from consolidated profit using the indirect method. Net cash flow from operating activities, cash flow from investment activities and cash flow from financing activities are calculated using the direct method. Payments to acquire non-cur- rent financial assets mainly comprise the acquisition of joint venture Saarpark-Center Neunkirchen KG, Hamburg at the beginning of Octo- ber 2016. Cash and cash equivalents comprise cash and cash equivalents that may be converted into cash at any time. As in the previous year, the financial resources fund as at the reporting date corresponds to the cash and cash equivalents (see section 6 “Cash and cash equivalents”). 22. SEGMENT REPORTING Segment reporting by Deutsche EuroShop AG is carried out on the basis of internal reports that are used by the Executive Board to manage the Group. Internal reports distinguish between shopping centers in Germany (“domestic”) and other European countries (“abroad”). As the Group’s main decision-making body, the Deutsche EuroShop AG Executive Board first and foremost assesses the performance of the segments based on revenue, EBIT and EBT excluding measure- ment gains / losses. The valuation principles for the segment reporting correspond to those of the Group. Intra-Group activities between the segments are eliminated in the rec- onciliation statement. In view of the geographical segmentation, no further information pur- suant to IFRS 8.33 is given.
R50 CONSOLIDATED FINANCIAL STATEMENTS BREAKDOWN BY GEOGRAPHICAL SEGMENT in € thousand Revenue (previous year’s figures) in € thousand EBIT (previous year’s figures) in € thousand Net interest income (previous year’s figures) in € thousand EBT excl. measurement gains / losses (previous year’s figures) The reconciliation statement primarily discloses earnings before taxes and measurement gains / losses for equity-accounted companies in the amount of €24,066 thousand, of which €18,526 thousand are domestic and €5,540 thousand international. in € thousand Segment assets (previous year’s figures) of which investment properties (previous year’s figures) Domestic International Reconciliation 190,210 (187,874) 14,926 (14,980) 0 (0) Domestic International Reconciliation 170,388 (167,138) 13,123 (13,730) -4,885 (-4,572) Domestic International Reconciliation -47,204 (-48,378) -1,846 (-3,681) -3,750 (-3,692) Domestic International Reconciliation 111,946 (107,520) 8,346 (7,436) 14,235 (12,018) Total 205,136 (202,854) Total 178,626 (176,296) Total -52,800 (-55,751) Total 134,527 (126,974) Domestic International Total 3,852,529 (3,595,992) 3,271,000 (3,112,000) 261,928 (255,622) 249,824 (244,655) 4,114,457 (3,851,614) 3,520,824 (3,356,655)
Deutsche EuroShop Annual Report 2016 R51 OTHER DISCLOSURES 23. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT Interest rate hedges not recognised in profit or loss ** FVTPL 43,435 in € thousand Financial assets Non-current financial assets *** Trade receivables Other assets Cash and cash equivalents Financial liabilities Financial liabilities ** Right to redeem of limited partners Trade payables Other liabilities Interest rate hedges recognised in profit or loss ** in € thousand Financial assets Non-current financial assets *** Trade receivables Other assets Cash and cash equivalents Financial liabilities Financial liabilities ** Right to redeem of limited partners Trade payables Other liabilities Interest rate hedges recognised in profit or loss ** Measurement category in accordance with IAS 39 Carrying amounts 31.12.2016 Amortised cost Fair value recognised in income Fair value recognised in equity Fair value 31.12.2016 Amount stated in line with IAS 39 AfS LaR LaR LaR FLAC FLAC FLAC FLAC FLAC 52 6,601 2,537 64,046 6,601 2,537 64,046 1,445,581 1,445,581 324,559 324,559 1,394 4,551 5,224 1,394 4,551 52 5,224 52 6,601 2,537 64,046 1,549,252 324,559 1,394 4,551 5,224 43,435 43,435 Amount stated in line with IAS 39 Measurement category in accordance with IAS 39 Carrying amounts 31.12.2015 Amortised cost Fair value recognised in income Fair value recognised in equity Fair value 31.12.2015 AfS LaR LaR LaR FLAC FLAC FLAC FLAC FLAC 59 5,605 808 5,605 808 70,699 70,699 1,407,607 1,407,607 293,113 293,113 621 5,834 7,853 621 5,834 59 7,853 59 5,605 808 70,699 1,502,838 293,113 621 5,834 7,853 42,599 42,599 Interest rate hedges not recognised in profit or loss ** FVTPL 42,599 * Corresponds to level 1 of the IFRS 7 fair value hierarchy ** Corresponds to level 2 of the IFRS 7 fair value hierarchy *** Corresponds to level 3 of the IFRS 7 fair value hierarchy Measurement categories in accordance with IAS 39 Loans and Receivables (LaR), Available-for-Sale (AfS), Financial Liabilities measured at amortised cost (FLAC), Financial liabilities measured at fair value (FVTPL)
R52 CONSOLIDATED FINANCIAL STATEMENTS Carrying amounts, valuations and fair values according to measurement category With the exception of derivative financial instruments and other finan- cial investments measured at fair value, financial assets and liabilities are measured at amortised cost. Due to the predominantly short-term nature of trade receivables, other assets and liabilities and cash and cash equivalents, the carrying amounts on the reporting date do not deviate significantly from the fair values. The fair values of financial liabilities measured at amortised cost cor- respond to the cash values of debt-related payments based on current interest rate yield curves (Level 2 in accordance with IFRS 13). The derivative financial instruments measured at fair value are inter- est rate hedges. Here the fair value is equivalent to the cash value of future net payments expected to be received from hedging transac- tions (Level 2 in accordance with IFRS 13) based on current interest rate yield curves. Changes in the value of interest rate hedges measured at fair value in profit or loss in the amount of €2,629 thousand (previous year: €2,231 thousand) are reported under other financial income. RISK MANAGEMENT In risk management, the emphasis is on ensuring compliance with the strategy and, building on this, on identifying and assessing risks and opportunities, as well as on the fundamental decision to manage these risks. Risk management ensures that risks are identified at an early stage and can then be evaluated, communicated promptly and miti- gated. Risk analysis involves the identification and analysis of factors that may jeopardise the achievement of goals. MARKET RISKS Liquidity risk The liquidity of Deutsche EuroShop Group is continuously monitored and planned. The subsidiaries regularly have sufficient cash to be able to pay for their current commitments. Furthermore, credit lines and bank overdrafts can be utilised at short notice. A short-term credit line of €150,000 thousand may be used if required. As at 31 December 2016, the credit line utilisation totalled €80,000 thou- sand. The credit line is partially secured. The contractually agreed future interest and principle repayments of the original financial liabilities and derivative financial instruments are as follows at 31 December 2016: in € thousand Convertible bond Bank loans and overdrafts Carrying amounts 31.12.2016 Cash flows 2017 Cash flows 2018 – 2021 Cash flows from 2022 98,680 101,750 0 0 1,346,901 153,010 796,828 628,852 The amounts relate to all contractual commitments existing on the balance sheet date. The variable interest payments from interest rate hedges were determined on the basis of the most recently defined interest rates prior to 31 December 2016. The majority of the trade payables and other financial liabilities reported at the end of the finan- cial year will fall due in 2017. Credit and default risk There are no significant credit risks in the Group. The trade receiva- bles reported on the reporting date were predominantly paid up to the date of preparation of the financial statements. During the reporting year, write-downs of rent receivables of €1,112 thousand (previous year: €939 thousand) were recognised under property operating costs. The maximum default risk in relation to trade receivables and other assets totalled €13,878 thousand on the reporting date (previous year: €12,797 thousand). Currency and measurement risk The Group companies operate exclusively in the European Economic Area and conduct the greater part of their business in euro. This does not entail currency risks. With respect to the measurement risk of investment properties, please refer to the sensitivity analysis in section “2. Investment Properties“. Interest rate risk A sensitivity analysis was implemented to determine the effect of potential interest rate changes. Based on the financial assets and lia- bilities subject to interest rate risk on the balance sheet date, this shows the effect of a change on the Group’s equity. Interest rate risks arose on the balance sheet date only for credit borrowed and the associ- ated interest rate hedges. An increase in the market interest rate of 100 basis points would lead to an increase in equity (before taxes) of €12,893 thousand (previous year: €15,177 thousand). The majority of loan liabilities have fixed interest terms. On the reporting date, loans totalling €200,813 thousand (previous year: €205,640 thousand) were hedged using derivative financial instruments.
Deutsche EuroShop Annual Report 2016 R53 Capital management The Group’s capital management is designed to maintain a strong equity base with the aim of ensuring that its ability to repay its debts and financial well-being are maintained in the future. The Group’s financial policies are also based on the annual payment of a dividend. Basic earnings per share Basic earnings per share are determined by dividing the net income for the period to which shareholders of Deutsche EuroShop AG are entitled by the weighted average number of shares outstanding within the reporting period. in € thousand Equity Equity ratio (%) Net financial debt 31.12.2016 31.12.2015 2,240,707 2,060,972 54.5% 53.5% 1,381,535 1,336,908 Equity is reported here including the compensation claims by limited partners. Net financial debt is determined from the financial liabilities on the balance sheet date less cash and cash equivalents. Diluted earnings per share The diluted earnings are calculated by taking the average number of shares outstanding and adding the number of warrants granted in con- nection with the convertible bond. Due to the fact that the convertible bond was issued mid-year, the warrants issued in connection with the convertible bond were recognised on a pro rata basis in 2012. It is antic- ipated that the convertible bonds will be exchanged for shares in full. The profits / losses will be adjusted accordingly for interest expense and tax effects. OTHER FINANCIAL OBLIGATIONS 2016 2015 There are other financial obligations of €64.5 million arising from ser- vice contracts (previous year: €56.7 million). 221,757 309,282 53,945,536 53,945,536 There are financial obligations of €1.5 million which will arise in 2017 in connection with investment measures in our shopping centers. 4.11 5.73 HEADCOUNT 221,757 309,282 An average of five (previous year: four) staff members were employed in the Group during the financial year. 2,152 2,152 223,909 311,434 53,945,536 53,945,536 3,217,503 3,114,317 57,163,039 57,059,853 EVENTS AFTER THE BALANCE SHEET DATE In March 2017, the Deutsche EuroShop Group acquired the property company of the Olympia Center in Brno (see section “Acquisitions after the balance sheet date”) and carried out a capital increase in order to finance the required equity by utilising the authorised capital (see section “7. Equity and reserves”). No further significant events occurred between the balance sheet date and the date of preparation of the financial statements. 24. EARNINGS PER SHARE Group shareholders’ portion of profits / losses (€ thousand) Weighted number of no-par value shares issued Basic earnings per share (€) Group shareholders’ portion of profits / losses (€ thousand) Adjustment of interest expense for the convertible bond (€ thousand) Profits / losses used to calculate the diluted earnings per share (€ thousand) Weighted number of no-par value shares issued Weighted adjustment of potentially convertible no-par value shares Average weighted number of shares used to determine the diluted earnings per share Diluted earnings per share (€) 3.92 5.46
R54 CONSOLIDATED FINANCIAL STATEMENTS THE SUPERVISORY BOARD AND EXECUTIVE BOARD SUPERVISORY BOARD The Supervisory Board of Deutsche EuroShop AG is composed of nine members. As at 31 December 2016, the following members with membership of other statutory supervisory boards and membership of comparable supervisory bodies of business enterprises in Germany or other countries made up the Supervisory Board: Dr. Henning Kreke, Hagen / Westphalia Chairman of the Executive Board, Douglas Holding AG, Hagen / Westphalia (until 27 January 2016) Managing partner, Jörn Kreke Holding KG, Hagen / Westphalia and Kreke Immobilien KG, Hagen / Westphalia • Douglas GmbH, Dusseldorf (Chair, since 19 August 2016) • Douglas Holding AG, Hagen / Westphalia (Chair, since 27 January 2016) • Thalia Bücher GmbH, Hagen / Westphalia (since 26 January 2017) Reiner Strecker, Wuppertal, Chairman Personally liable partner, Vorwerk & Co. KG, Wuppertal • akf Bank GmbH & Co. KG, Wuppertal Karin Dohm, Kronberg im Taunus, Deputy Chairwoman Global Head of Regulatory Affairs, Deutsche Bank AG, Frankfurt • Deutsche Bank Europe GmbH, Frankfurt (Chair, since 14 November 2016) • Deutsche Bank Luxembourg S.A., Luxembourg (since 1 September 2016) • Deutsche Holdings (Luxembourg) S.a.r.l., Luxembourg Alexander Otto, Hamburg Vorsitzender der Geschäftsführung, Verwaltung ECE Projektmanagement G.m.b.H., Hamburg • DDR Corp., Beechwood, USA • Peek & Cloppenburg KG, Dusseldorf • Sonae Sierra Brasil S.A., São Paulo, Brazil • Verwaltungsgesellschaft Otto mbH, Hamburg Klaus Striebich, Besigheim Managing Director Leasing, Verwaltung ECE Projektmanagement G.m.b.H., Hamburg • MEC Metro-ECE Centermanagement GmbH & Co. KG, Dusseldorf (since 1 June 2016) (Chairman) • Metro AG, Dusseldorf (since 19 February 2016) • Unternehmensgruppe Dr. Eckert GmbH, Berlin Thomas Armbrust, Reinbek Member of Management, CURA Vermögensverwaltung G.m.b.H. & Co., Hamburg • ECE Projektmanagement G.m.b.H. & Co. KG, Hamburg (Chair) • TransConnect Unternehmensberatungs- und Beteiligungs AG, Munich (Chair) • Platinum AG, Hamburg (Chair) • Paramount Group Inc., New York, USA • Verwaltungsgesellschaft Otto mbH, Hamburg Beate Bell, Cologne Managing Director, immoAdvice GmbH, Cologne • Hochtief AG, Essen Manuela Better, Munich Member of the Board of Management, Deka Bank Deutsche Girozentrale, Frankfurt and Berlin • Deka Investment GmbH, Frankfurt (Deputy Chair) • Deka Immobilien GmbH, Frankfurt (Deputy Chair) • Deka Immobilien Investment GmbH, Frankfurt (Deputy Chair) • Landesbank Berlin Investment GmbH, Berlin (Deputy Chair) • S Broker AG & Co. KG, Wiesbaden (since 15 August 2016, Deputy Chair since 22 August 2016) • S Broker Management AG, Wiesbaden (since 15 August 2016, Deputy Chair since 22 August 2016) • WestInvest Gesellschaft für Investmentfonds mbH, Dusseldorf (Deputy Chair) • DekaBank Deutsche Girozentrale Luxembourg S.A., Luxembourg Roland Werner, Hamburg Chairman of the Board of Management, Bijou Brigitte modische Accessoires AG, Hamburg EXECUTIVE BOARD Wilhelm Wellner, Hamburg, CEO Olaf Borkers, Hamburg, Member of the Executive Board The remuneration of the members of the Supervisory Board totalled €312 thousand in the period under review (previous year: €312 thousand). The remuneration of the Executive Board totalled €1,099 thousand (previous year: €3,330 thousand), which includes performance- related compensation in the amount of €587 thousand (previous year: €2,716 thousand). The previous year’s amount includes the Long-Term Incentive 2010 (LTI 2010) of €1,712 thousand for Claus-Matthias Böge, CEO, who departed on 30 June 2015; this is to be paid out in five equal instalments at the beginning of each year until 2020. The LTI 2010 expired on 30 June 2015. On 1 July 2015, the term of a new Long-Term Incentive 2015 (LTI 2015) commenced, a reserve for which amounting to €49 thousand existed during the reporting year. For further details, please see the supplementary disclosures on remu- neration in the management report.
Deutsche EuroShop Annual Report 2016 R55 CORPORATE GOVERNANCE The Declaration of Conformity with the German Corporate Governance Code required by section 161 of the Aktiengesetz (AktG – German Pub- lic Companies Act) has been issued jointly by the Supervisory Board and the Executive Board, and was made available to shareholders via publication on the Internet in November 2016. OTHER DISCLOSURES In line with section 160 (1) no. 8 AktG, we give notice that the following investments and changes to voting rights have been registered to our Company in conformity with the duty of disclosure in accordance with section 21 of the Wertpapierhandelsgesetz (WpHG – Securities Trad- ing Act). Shareholder Shareholding report as at Event … % New voting rights share % thereof held as treasury shares % of which indirectly attributable % Credit Suisse Group AG, Zurich, Switzerland 23.06.2014 ... falls below threshold (3) Credit Suisse AG, Zurich, Switzerland 23.06.2014 ... falls below threshold (3) Gemeinnützige Hertie-Stiftung, Frankfurt 03.02.2015 ... falls below threshold (3) DESAG Vermögensverwaltung G.m.b.H., Hamburg AROSA Vermögensverwaltungs- gesellschaft m.b.H., Hamburg Alexander Otto Benjamin Otto Johannes Schorr BlackRock, Inc., Wilmington, DE, Vereinigte Staaten von Amerika 28.05.2015 28.05.2015 ... exceeds threshold (3, 5, 10, 15) ... exceeds threshold (10, 15) 28.05.2015 ... exceeds threshold (15) 28.05.2015 ... falls below threshold (5, 3) 08.02.2016 ... exceeds threshold (3) 09.12.2016 ... exceeds threshold (5) 0.28 0.28 2.99 15.01 15.01 17.33 1.48 3.37 5.01 0.00 0.27 2.99 15.01 0.00 0.65 1.48 1.12 0.00 0.28 0.01 0.00 0.00 15.01 16.68 0.00 2.25 4.48* * We were also notified by BlackRock, Inc. of a securities lending transaction (0.37%) and contracts for differences (0.17%). The total fees invoiced by the auditor for the consolidated financial statements for the 2016 financial year amounted to €295 thousand (previous year: €290 thousand), of which €291 thousand (previous year: €286 thousand) related to auditing services. Other audit-related ser- vices were also provided by the auditor in the amount of €4 thousand (previous year: €4 thousand).
R56 CONSOLIDATED FINANCIAL STATEMENTS RELATED PARTIES FOR THE PURPOSES OF IAS 24 Deutsche EuroShop’s subsidiaries, joint ventures and associates as well as the members of its Executive Board and Supervisory Board and their close family members are regarded as related parties for the purposes of IAS 24. The remuneration of the Supervisory Board and the Executive Board is described in the “Supervisory Board and Executive Board” section and also in the remuneration report portion of the group management report. Fees for service contracts with the ECE Group totalled €14,470 thou- sand (previous year: €15,686 thousand). This amount was partially off- set by income from lease agreements with the ECE Group in the amount of €6,779 thousand (previous year: €6,447 thousand). Receivables from ECE were €4,429 thousand, while liabilities were €191 thousand. Transactions with related parties involving the provision of goods and services were at standard market rates. Hamburg, 12 April 2017 Deutsche EuroShop AG The Executive Board Wilhelm Wellner Olaf Borkers
Deutsche EuroShop Annual Report 2016 R57 SHAREHOLDINGS List of shareholdings in accordance with section 313 (2) of the Handels- gesetzbuch (HGB – German Commercial Code) as at 31 December 2016: Company name and domicile Fully consolidated companies: DES Verwaltung GmbH, Hamburg DES Management GmbH, Hamburg DES Shoppingcenter GmbH & Co. KG, Hamburg * A10 Center Wildau GmbH, Hamburg Main-Taunus-Zentrum KG, Hamburg Forum Wetzlar KG, Hamburg Objekt City-Point Kassel GmbH & Co. KG, Pullach * Stadt-Galerie Hameln GmbH & Co. KG, Hamburg * Altmarkt-Galerie Dresden GmbH & Co. KG, Hamburg * Einkaufs-Center Galeria Bałtycka G.m.b.H. & Co.KG, Hamburg Einkaufs-Center Galeria Bałtycka G.m.b.H. & Co. KG, Sp. kom., Warsaw, Poland CASPIA Investments Sp. z o.o., Warsaw, Poland Joint ventures: Allee-Center Magdeburg KG, Hamburg Stadt-Galerie Passau KG, Hamburg CAK City Arkaden Klagenfurt KG, Hamburg Saarpark Center Neunkirchen KG, Hamburg EKZ Eins Errichtungs- und Betriebs Ges.m.b.H. & Co OG, Vienna, Austria Immobilienkommanditgesellschaft FEZ Harburg, Hamburg Einkaufs-Center Arkaden Pécs KG, Hamburg Associates: Kommanditgesellschaft Sechzehnte ALBA Grundstücksgesellschaft mbH & Co., Hamburg EKZ Vier Errichtungs- und Betriebs Ges.m.b.H., Vienna, Austria Kommanditgesellschaft PANTA Fünfundsiebzigste Grundstücksgesellschaft m.b.H. & Co., Hamburg City-Point Beteiligungs GmbH, Pullach Investees: Interest in equity 100% 100% 100% 100% 52.01% 65% 100% 100% 100% 74% 99.99% 100% 50% 75% 50% 50% 50% 50% 50% 50% 50% 50% 40% Ilwro Holding B.V., Amsterdam, Netherlands ** 33.33% * For these companies, exemption from the disclosure obligation in accordance with section 264b HGB was made use of. ** As at 31 December 2016, the company reported equity of €157 thousand and a loss of €26 thousand.
R58 CONSOLIDATED FINANCIAL STATEMENTS AUDITOR’S REPORT We have audited the consolidated financial statements – comprising the balance sheet, statement of comprehensive income, income statement, statement of changes in equity, cash flow statement and the notes – and the group management report prepared by Deutsche EuroShop AG, Hamburg, for the financial year from 1 January 2016 to 31 December 2016. The preparation of the consolidated financial statements and the group management report in accordance with IFRS as adopted by the EU and the supplementary provisions of German commercial law required to be applied under section 315a(1) of the Handelsgesetzbuch (HGB – German Commercial Code) is the responsibility of the Compa- ny’s management. Our responsibility is to express an opinion on the consolidated financial statements and the group management report based on our audit. We conducted our audit of the consolidated financial statements in accordance with section 317 of he HGB and German generally accepted standards for the auditing of inancial statements promulgated by the Institut der Wirtschaftsprüfer (IDW – Institute of Public Auditors). Those standards require that we plan and perform the audit such that mis- statements materially affecting the presentation of the net assets, financial position and results of operations in the consolidated finan- cial statements in accordance with the applicable financial reporting standards and in the group management report are detected with reasonable assurance. Knowledge of the business activities and the economic and legal environment of the Group and expectations as to possible misstatements are taken into account in the determination of audit procedures. The effectiveness of the accounting-related inter- nal control system and the evidence supporting the disclosures in the consolidated financial statements and the group management report are examined primarily on a test basis within the framework of the audit. The audit includes assessing the accounting information of the areas of the company included in the consolidated financial statements, the determination of the companies to be included in the consolidated financial statements, the accounting and consolidation principles used, and significant estimates made by the legal representative, as well as evaluating the overall presentation of the consolidated financial state- ments and the group management report. We believe that our audit provides a reasonable basis for our opinion. Our audit has not led to any reservations. In our opinion, based on the findings of our audit, the consolidated financial statements comply ith IFRS as adopted by the EU and the supplementary provisions of German commercial law required to be applied under section 315a(1) of the HGB and give a true and fair view of the net assets, financial position and results f operations of the Group in accordance with these requirements. The group management report is consistent with the consolidated financial statements, as a whole provides a suitable understanding of the Group’s position and suitably presents the opportunities and risks of future development. Hamburg, 12. April 2017 BDO AG Wirtschaftsprüfungsgesellschaft (signed) Reese Auditor (signed) Hyckel Auditor
Deutsche EuroShop Annual Report 2016 R59 RESPONSIBILITY STATEMENT BY THE EXECUTIVE BOARD We declare that to the best of our knowledge, in line with the accounting policies to be applied, the consolidated financial statements present a true and fair view of the net assets, financial position and results of operations of the Group and the Group Management Report presents the situation of the Group and the course of business including busi- ness performance which is a fair and accurate view, and describes the essential opportunities and risks of the likely development of the Group. Hamburg, den 12. April 2017 Wilhelm Wellner Olaf Borkers
R60 SERVICE GLOSSARY Adverstising value equivalence Index number for the assessment of the monetary value of an editorial article. It is based on the advertising rate of the medium. Annual financial statement Under German (HGB) accounting principles, the annual financial state- ments consist of a company’s balance sheet, profit and loss account, the notes to the financial statements and the manage ment report. The annual financial statements of a public company are prepared by its executive board, audited by a certified public accountant (in Germany: Wirtschaftsprüfer) and adopted by the super visory board. Coverage Information provided on a listed public company by banks and financial analysts in the form of studies and research reports. DAX Germany’s premier equity index. The composition of the DAX is estab- lished by Deutsche Börse AG on the basis of the share prices of the 30 largest German companies listed in the Prime Standard in terms of market capitalisation and market turnover. Discounted-cashflow-modelL (DCF) Method for the assessment of companies which is used to determine the future payments surplusses and discount them to the valuation date. Benchmark A standard of comparison, e.g. an index which serves as a guideline. Dividend The share of the distributed net profit of a company to which a share- holder is entitled in line with the number of shares he or she holds. Cash flow per share (CFPS) The cash flow per share is calculated by dividing the cash flow by the number of shares issued by a company. The cash flow per share is taken as the basis for calculating the price / cash flow ratio. EBIT Earnings before interest and taxes. DES calculation: EBT excluding net finance costs and measurement gains / losses (also see the consolidated income statement). Class of assets Division of the capital and real estate market into different classes of assets or asset segments. EBT Earnings before Taxes. Consumer price index Also called the cost-of-living index, this is calculated in Germany by the Federal Statistical Office on a monthly basis. The CPI is the most important statistical indicator of a change in prices; the price of a bas- ket of goods during a given period is compared with the price of the same basket during the base year. This change is also known as the inflation rate. Core Designation of a real estate investment and / or individual properties as well as the name of an investment style. The term refers to the rela- tionship between risk and return. Core designates mature, transparent, sufficiently large markets or high-quality, wellsituated properties that are fully let on a long-term basis to tenants with strong credit ratings. Other return / risk categories are valueadded and opportunistic. Corporate governance The rules for good, value-driven corporate management. The objective is to control the company’s management and to create mechanisms to oblige executives to act in the interests of their shareholders. Covenants A clause in a loan agreement which pertains to and contractually defines the binding warranties to be adhered to by the borrower during the term of a loan. EBT (excluding measurement gains / losses) DES calculation: EBT less measurement gains / losses (including at-equity profit / loss) and less the deferred taxes included in at- equity profit / loss. E-commerce Direct commercial relationship between supplier and buyer via the internet including the provision of services. EPRA European Public Real Estate Association: EPRA is an Amsterdam-based organisation that represents the interests of the major European real estate companies in the public sphere and supports the development and market presence of European real estate corporations. EPRA earnings EPRA earnings represent sustained operating earnings and thus lay the foundation for a real estate company’s ability to pay a dividend. To cal- culate this, the profit / loss for the year is adjusted to reflect any income components that have no sustained, recurring impact on operational performance. The DES calculation is performed using the currently valid version of the EPRA Best Practice Recommendations, which can be found at http://www.epra.com/regulation-and-reporting/bpr/
Deutsche EuroShop Annual Report 2016 R61 EPRA NAV EPRA NAV measures the net asset value of a company based on a busi- ness model with a long-term focus. To do so, Group equity is adjusted for assets and liabilities that are unlikely to be realised if held over the long term. The DES calculation is performed using the currently valid version of the EPRA Best Practice Recommendations, which can be found at http://www.epra.com/regulation-and-reporting/bpr/ International financial reporting standards (IFRS) International Financial Reporting Standards are based on International Accounting Standards (IASs). Since 1 January 2005, listed companies have been required to apply IFRSs. IASs / IFRSs focus on the deci- sion-usefulness of accounts. The key requirement with regard to the annual financial statements is fair presentation that is not qualified by aspects of prudence or risk provision. Fair value The Fair Value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). Loan-to-value ratio (LTV ratio) Ratio of net financial liabilities (financial liabilities less cash and cash equivalents) to non-current assets (investment properties and invest- ments accounted for using the equity method). Food court Catering area of a shopping center, in which different vendors sell food at stations about a common seating area. Mall Row of shops in a shopping center. Free cash flow The surplus cash generated from operating activities recognised in the profit and loss account. This expresses a company’s internal financ- ing power, which can be used for investments, the repayment of debt, dividend payments and to meet funding requirements. Funds from operations (FFO) Inflow of funds from operations used to finance our ongoing invest- ments in portfolio properties, scheduled repayments on our bank loans and the annual distribution of dividends. DES calculation: Consolidated profit after adjustment for measurement gains / losses (including at-equity profit / loss), the non-cash expense of conversion rights and deferred tax expense. Gearing Ratio which shows the relationship between liabilities and equity. Hedge accounting Financial mapping of two or more financial instruments that hedge one another. ifo business climate index The ifo Business Climate Index is an important forward indicator for economic development in Germany. In order to calculate the index, the ifo Institute asks approximately 7.000 companies every month for their assessment of the economic situation and their short-term cor- porate planning. Interest rate swap Exchange of fixed and variable interest pay able on two nominal amounts of capital for a fixed period. By means of an interest rate swap, interest rate risks may be controlled actively. Market capitalisation The current quoted price for a share multiplied by the number of shares listed on the stock. MDAX German mid-cap index comprising the 50 most important securities after the DAX members. exchange. Market capitalisation is calculated for individual companies, sectors, and entire stock markets, thus ena- bling comparisons bet ween them. Measurement gains / losses DES calculation: Measurement gains / losses comprise unrealised changes in the market value of properties held as a financial invest- ment (investment properties) before taxes. In the case of fully consol- idated companies, the portion of the company that does not belong to the Group is deducted. Measurement gains / losses of associates and joint ventures accounted for using the equity method are contained in the at-equity profit / loss. Measurement gains / losses (including at-equity profit / loss) DES calculation: Measurement gains / losses plus the measurement gains / losses included in at-equity profit / loss. Multi channeling Using a combination of online and offline communication tools in marketing. Net asset value (NAV) The value of an asset after deduction of liabilities. With regard to shares, the NAV constitutes their intrinsic value. The net net asset value (NNAV) is calculated by deducting deferred taxes from the NAV.
R62 SERVICE Net finance costs Net finance costs at DES comprise the following income statement items: Share of the profit or loss of associates and joint ventures accounted for using the equity method, interest expense and income, the share of profit attributable to limited partners, income from invest- ments and all other financial income and expenditure. Peer-group A share price performance benchmark consisting of companies from similar sectors, put together on the basis of individual criteria. Performance The term performance describes the percentage appreciation of an investment or a securities portfolio during a given period. Retail space Space in a building and / or an open area that is used for sales by a retail operation and that is accessible to customers. Service areas required for operational and legal purposes are not taken into account, nor are stairways or shop windows. The retail space is part of the leasable space of a business. Roadshow Corporate presentations to institutional in vestors. Savings ratio Share of savings of the income available in households. Subprime Mortgage loan to borrower with a low degree of creditworthiness. TecDAX The successor to the NEMAX 50, comprising the 30 largest German listed technology securities in terms of market capitalisation and mar- ket turnover. Volatility Statistical measure for price fluctuations. The greater the fluctuations in the price of a security, the higher its volatility. Xetra An electronic stock ex-change trading system that, in contrast to floor trading, uses and open order book, thus increasing market transpar- ency. The trading hours are currently 9,00 a.m. to 5,30 p.m.
LEGAL Published by Deutsche EuroShop AG, Heegbarg 36, 22391 Hamburg Phone.: +49 (0)40 - 41 35 79 0, Fax: +49 (0)40 - 41 35 79 29 www.deutsche-euroshop.com, firstname.lastname@example.org Editor in chief Patrick Kiss Editorial management Nicolas Lissner Editors responsible Dr. Philipp Sepehr, Dr. Tanja-Maria Lachhammer, Rolf Bürkl Concept Deutsche EuroShop AG, Hamburg Deutsche EuroShop Annual Report 2016 R63 Art Direction / Layout Silvester Group, Hamburg Pictures Deutsche EuroShop, ECE, Katja Velmans, Patrick Kiss, plainpicture.com, istockphoto.com Digital prepress Albert Bauer Companies, Hamburg Production Müller Ditzen AG, Bremerhaven English Translation CLS Communication AG, Basel, Switzerland Responsible for the editorial content Deutsche EuroShop AG, Hamburg The production of and the paper used for this Annual Report have been certified in accordance with the criteria of the Forest Steward- ship Council ® (FSC ®). The FSC ® prescribes strict standards for forest management, thus helping to prevent uncontrolled deforestation, human rights violations, and environmental damage. Printed carbon neutral to offset greenhouse gas emissions Disclaimer Information on wording: Wherever any terms indicating the male gen- der only (he, him, etc.) have, in the interests of simplicity, been used in this Annual Report, such references should be construed as refer- ring equally to the female gender. Author contributions: Sections of text bearing an author’s name do not necessarily reflect the views of Deutsche EuroShop AG. The authors in question are responsible for the content of the texts. Trademarks: All trademarks and brand or product names mentioned in this Annual Report are the property of their respective owners. This applies in particular to DAX, MDAX, SDAX, TecDAX and Xetra, which are registered trademarks and the property of Deutsche Börse AG. Rounding and rates of change: Percentages and figures stated in this report may be subject to rounding differences. The prefixes before rates of change are based on economic consider- ations: improvements are indicated by a plus (+); deteriorations by a minus (–). Forward-looking statements: This Annual Report contains forward-looking statements based on estimates of future develop- ments 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. Publications for our shareholder: Annual Report (in English and German), Quarterly Statement 3M 2017, Quarterly State- ment 9M 2017 and Interim Report H1 2017 (in English and German). Online Annual Report: The Deutsche EuroShop Annual Report can be downloaded in PDF format or accessed as an interactive online report at deutsche-euroshop.com. This Annual Report is also available in German. In the event of conflicts the German-language version shall prevail.