the Supervisory Board of Deutsche EuroShop AG discussed the Company's business and strategic development in depth at four regular meetings in the past financial year. Throughout the year, it regularly advised the Executive Board on the management of the Company and supervised its conduct of the business. The Executive Board reported to us regularly, promptly and at length.

Focus of the advisory activities

The main focus of the reporting by the Executive Board on the Company’s operating activities, which are continuously monitored as part of risk management, was on the development of our individual shopping center investees. The Executive Board reported to us in detail on the portfolio properties, their sales trends, outstanding accounts, the occupancy rate, construction measures and the liquidity of the investees. The Board also informed us about construction progress, the letting situation and investment cost trends for new development projects.

In addition, we were informed by the Executive Board about the Company’s liquid assets, price and volume trends for Deutsche EuroShop’s shares and investor relations activities.

Transactions that required the consent of the Supervisory Board in accordance with the Articles of Association or in line with the rules of procedure of the Supervisory Board or the Executive Board were discussed and resolved at the Supervisory Board meetings. In addition, urgent decisions were taken following the circulation of the relevant documents. Where decisions had to be taken that could have led to conflicts of interests, the Supervisory Board members affected did not participate in the votes, and abstained from voting in the case of decisions taken following the circulation of documents. Apart from these decisions, all resolutions were adopted unanimously during the period under review.

Meetings and committees

In addition, specific topical issues were discussed at regular meetings between the Executive Board and the Executive Committee of the Supervisory Board.

In our first meeting on 15 April 2004, we discussed in depth the sale of the Centro Commerciale Friuli in Udine, and the related items and conditions. The conclusion of a preliminary sales contract was approved following the circulation of the relevant documents at the beginning of May.

In addition, we discussed and resolved the proposals to be made to the Annual General Meeting, particularly the intended amendments to the Articles of Association and the proposals for the elections to the Supervisory Board.

In the second meeting on 17 June 2004, the modifications to and revisions of the rules of procedure of the Supervisory Board and the Executive Board in line with the provisions of the German Corporate Governance Code, proposed by the Executive Board in conjunction with the Executive Committee of the Supervisory Board, were approved.

We were also informed by the Executive Board of the status of the roof renovation measures at Centro Commerciale Friuli, after completion of which the final sales contract was to be concluded.

By way of a letter dated July 12, 2004, the Executive Board presented us with a comprehensive decision document on the acquisition of a 50% interest in City Arkaden Klagenfurt KG, the owner of the City-Arkaden shopping center currently under construction in Klagenfurt. Due to its urgent nature, this decision document was approved following circulation to the Board members.

In the third meeting on 15 September 2004, the report on the first six months of 2004 was discussed. Detailed information was given on the status of the IFRS conversion work, and on the effects on the Company’s net assets and results of operations. In particular, the question of whether the Company should apply the fair value model or the cost model under IAS 40 was discussed at length. After considering the advantages and disadvantages, we decided on the fair value model, even though this could lead to greater earnings volatility in future.

In addition, we examined in detail the draft German legislation designed to implement the European Market Abuse Directive, so as to ensure that the Company's workflows are aligned with the new regulations in good time.

The fourth meeting on 24 November 2004 addressed the report on the first three quarters of 2004 and the planning for financial year 2005.

In the period under review, the Executive Committee met once on 26 March 2004 and the Audit Committee met twice on 12 January 2004 and on 26 March 2004, in addition to the regular Supervisory Board meetings.

Appointments to the Supervisory Board

At the close of the Annual General Meeting on 17 June 2004, Dr. Tessen von Heydebreck resigned from the Supervisory Board. The Supervisory Board wishes to thank Dr. von Heydebreck for his hard work and positive contribution during his two-year membership of the Supervisory Board.

Following DB Real Estate Management GmbH's binding declaration that it was waiving its right to appoint two Supervisory Board members, Thomas Armbrust and Dr. Michael Gellen formally resigned their positions. The Annual General Meeting praised their previous work for Deutsche EuroShop and reelected them – together with Dr. Bernd Thiemann – for a five-year term of office as members of the Supervisory Board.

In the meeting of the Supervisory Board following the Annual General Meeting, Dr. Gellen was reappointed as Deputy Chairman of the Supervisory Board and a member of the Audit Committee, and Mr. Armbrust as a member of the Executive Committee and the Audit Committee.

Audit opinion issued

The Company’s bookkeeping system and annual financial statements, the management reports for the Company in accordance with German GAAP, and the consolidated financial statements including the Group management reports in accordance with International Financial Reporting Standards (IFRSs) as at 31 December 2004 were audited by KPMG, Deutsche Treuhandgesellschaft AG Wirtschaftsprüfungsgesellschaft, Frankfurt am Main, and issued with an unqualified audit opinion in each case. Representatives of the auditors attended the meeting of the Supervisory Board convened to discuss the financial statements and the meetings of the Audit Committee and provided explanations. The auditors' reports were provided to the Supervisory Board. The Supervisory Board concurs with the findings of this audit.

Adoption of the annual and consolidated financial statements

The Supervisory Board reviewed and approved the annual financial statements of the Company as at 31 December 2004, the management report and the proposal on the utilisation of the net profit prepared by the Executive Board. The annual financial statements have thus been adopted. In addition, the Supervisory Board reviewed and approved the consolidated financial statements as at 31 December 2004 and the Group management report.

The Supervisory Board wishes to thank the Executive Board and the employees for their hard work and achievements for the Company in financial year 2004.

Hamburg, 14 April 2005

Manfred Zaß, Chairman