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DES GB2013 E

DEUTSCHEEUROSHOPANNUALREPORT2013/GROUPMANAGEMENTREPORT 120 Since disposable income growth is muted or stagnant, there is very limited scope for sales growth in the stationary retail sector. As many customers see leisure and the experience as important factors when shopping, more floor space will need to be dedicated to staging shop- ping experiences than to the straight sale of goods. With ancillary costs rising, notably with the increased renewable energy levy (EEG), retailer margins will come under further pressure. Meanwhile, invest- ments are expected to deliver ever-higher returns. The centers’ competitive position is determined both by business in the relevant city centers and – in the case of the Billstedt-Center Ham- burg and the Herold-Center in Norderstedt – by the presence of other shopping centers in neighbouring districts of Hamburg. The city center locations also have to compete with other regional 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 growing numbers of factory and designer outlets on greenfield sites outside the city limits. Development projects are currently underway for new outlet centers close to the Hamm and Dessau centers, while an existing outlet complex in Wolfsburg is being extended. RETAIL SECTOR Based on calculations from Jones Lang LaSalle, rental turnover on retail spaces leased in Germany in 2013 decreased by 17% to 492,000m2 . Rental spaces in excess of 1,000m2 accounted for 12% of rental contracts. Demand for smaller retail premises of under 250m2 remained high, accounting for 53% of all leases. With 39% of rented floor space, textile retailers were the most sig- nificant demand group. General clothing and women’s clothing were the dominant segments within this group. Second place went to the catering and food industry at 21%; health and beauty took third place with 12%. REAL ESTATE MARKET Transaction volumes rose by 21% to €30.7 billion according to figures from Jones Lang LaSalle, meaning that Germany’s commercial real estate investment market continued to grow in 2013. Retail real estate accounted for just under 26% of transactions. Investments in German shopping centers totalled €2.8 billion in 2013. This came close to the €3.0 billion posted in 2012, but does not reflect demand, which far exceeded the range of suitable properties available for sale. More than one third of all commercial real estate investment in euros went into shopping centers in 2013, compared with 40% in 2012. As real estate investors continued to focus on security in 2013, top returns on shopping center investments remained at record-high lev- els in Germany. According to figures from Jones Lang LaSalle, top returns came in at 4.70% in 2013, down slightly year-on-year (4.75%). SHARE PRICE PERFORMANCE Deutsche EuroShop shares started the year at €31.64. In the first four months, share prices hovered between €30.50 and €32.00 before reaching a new record-high in mid-May, with an Xetra closing price of €34.48 on 20 May 2013. Stock markets then lost ground and Deutsche EuroShop shares dropped down to €29.45 on 24 June. The share price hit a year-to-date low shortly after the dividend distribution. In the ensuing weeks, share prices moved within a slightly broader range of €30.50 to €33.20. The share price closed the year up at €31.83, which represented a gain of 4.5% including dividends (2012: +32.7%). EVALUATION OF THE FINANCIAL YEAR The Executive Board of Deutsche EuroShop is satisfied with the past financial year. Growth was boosted by the acquisition of the Herold- Center in Norderstedt on 1 January 2013. The acquisition of third- party interests in the Altmarkt-Galerie in Dresden on 1 May 2013 also pushed up earnings. In May 2013, we adjusted the forecasts published in the Annual Report 2012. Target revenue was revised to between €186  million and €189 million and came in at €188.0 million (2012: €178.2 million) on the reporting date, corresponding to an increase of 5.5%. Earnings before interest and taxes (EBIT) were forecast at between €162 million and €165 million, and actual EBIT was slightly above both the forecast range and the 2012 results at €165.8 million, an improvement of 9.4% (2012: €151.6  million). We expected earnings before taxes (EBT) excluding valuation gains/losses (including at-equity investments) of €113 to €116 million. At €129.2 million, EBT came in well above the forecast range, due to €15.8 million in exceptional proceeds from sales, representing an improvement of 41% year-on-year (2012: €95.1 million). Funds from operations (FFO) also exceeded the fore- cast, coming in at €2.08 per share (forecast: €1.99 to €2.03 per share). Deutsche EuroShop has therefore proven once again that it has an outstanding shopping center portfolio and is well positioned.

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