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Deutsche EuroShop AG Half-Year Financial Report 2016 - Basic Information about the Group/Economic Review

Basic Information about the Group GROUP STRUCTURE AND ­OPERATING ACTIVITIES Business model Deutsche EuroShop is an Aktiengesellschaft (public company) under German law. The Company’s registered office is in Hamburg. Deutsche EuroShop is the only public com- pany in Germany to invest solely in shopping centers in prime locations. A total of 19 shop- ping 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 property companies without staff of their own, for which Deutsche EuroShop holds stakes of 100% in eleven shopping centers and between 50% and 75% in the other eight. Depending on the share of nominal capital owned, these compa- nies are either fully consolidated or accounted for using the equity method. The operational management of the shopping centers is con- tracted out to external service providers under agency agreements. The Group managing company is Deutsche EuroShop AG. It is responsible for corporate strategy, portfolio and risk management, fi- nancing and communication. The Deutsche EuroShop Group has a central structure and lean personnel organisation. 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.   Objectives and strategy The management focuses on investments in high-quality shopping centers in city centres and established locations offering stable,long- term value growth. Another key investment target is the generation of high surplus liquid- ity from long-term leases in shopping centers, which is paid out to shareholders in the form of an annual dividend. To this end, the Com- pany 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 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. 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 gen- eral rule, long-term interest rates are fixed when loans are taken out or renewed, with the goal of keeping the duration (average fixed in- terest period) at over five years. 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 proce- dures 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 meas- urement gains / losses and FFO (funds from operations). Economic Review MACROECONOMIC AND SECTOR-­ SPECIFIC CONDITIONS The prospect of continued labour market strength, low inflation and extremely low in- terest rates are stimulating consumer spend- ing in Germany’s retail sector. The unemploy- ment rate at the end of June 2016 stood at 5.9%. Private consumption remains a driver of economic development in Germany. According to the Federal Statistical Office, German re- tail sales (including online spending) rose by 2.3% year-on-year in real terms in the first six months of the year. RESULTS OF OPERATIONS Revenue up 1.2% Revenue for the reporting period came in at €101.8 million. This is 1.2% higher on a com- parable basis than in the same period of the previous year (€100.6 million) and is in line with expectations. Operating and administrative costs for property as expected at 9.9% of revenue Centre operating costs were up slightly at €10.1 million in the reporting period, com- pared with €8.9 million in the same period of the previous year, chiefly as a result of higher maintenance expenses and non-allocable an- cillary costs. Coming to 9.9% of revenue, these were in line with the budgeted costs. Other operating expenses of €3.4 million Other operating expenses came to €3.4 mil- lion, €0.6 million lower than the previous year’s level (€4.0 million). The previous-year period specifically included higher personnel costs in conjunction with the long-term incen- tive plan that ended in 2015. 2 Deutsche EuroShop AG  Half-year Financial Report 2016 H1

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