Germany continues to be Deutsche EuroShop’s most important market. After years of declining retail sales, the European Central Bank and most economic research institutes anticipate moderate economic growth in 2005 along with a slight increase in private spending. Due to our good locations, our index- and sales-linked leases and an occupancy rate of over 99%, we are optimistic that we will be able to further increase our income from operations in this environment.

Experts anticipate moderate economic growth
Although the German government expects GDP to grow by 1.6% in 2005, staff at the economic research institutes are somewhat more restrained, anticipating real GDP growth to remain within a corridor of 0.6% to 1.4%. Most of them expect to see an upswing in exports, but they remain sceptical about a rapid turnaround in domestic demand. They believe that private spending will only rise if high exports and capital expenditure improves the labour market situation. However, a significant improvement in the economy is unfortunately not on the horizon despite the tax relief at the beginning of 2005, since a slight increase in the savings rate is anticipated and private households will be impacted by higher health insurance premiums from mid-year onward.

Economic Forecasts for 2005
Forecasts for 2005 in Germany by German economic research institutes

in %
SVR Annual Report





  11/04 12/04 12/04 01/05 03/05 03/05 03/05
GDP, real 1.4 0.9 0.8 1.8 1.1 0.6 1.0
Consumption* 0.7 0.5 0.3 0.9 0.7 0.1 0.7

* = real spending by private households

SVR = German Council of Economic Advisors
IWH = Halle Institute for Economic Research
HWWA = Hamburg Institute of International Economics
IfW = Kiel Institute for World Economics
ifo = ifo Institute for Economic Research
RWI = RWI Essen
DIW = German Institute for Economic Research

Continuing our successful strategy

We expect the situation to improve somewhat in the retail sector in Germany. Nonetheless, competition makes it increasingly important to attract the most successful retailers of all types of goods to our shopping centers. Deutsche EuroShop will continue to pursue this strategy with the aim of uncoupling our business from the general trend in retail sales and generating further sales growth.

Planned increase in revenue of around 15%
After Forum Wetzlar was completed and opened successfully in February 2005, thus expanding our revenue-generating portfolio to include another shopping center, we expect that we shall continue to generate positive revenue and earnings in 2005. Our plan is to boost revenue to E68 – 72 million in 2005.

Forecast EBIT of E53-56 million
Our goal is to increase earnings before interest and taxes (EBIT) from € 48.6 million to € 53 – 55 million in currency-adjusted terms. By definition, gains and losses on fair value adjustments cannot be planned. Although earnings before taxes (EBT) were lifted in 2004 due to one-time gains on disposals and substantial income from the reversal of provisions, we expect currency-adjusted EBT to remain at the previous year’s level of € 28 – 30 million in the current financial year. This would correspond to an increase after adjustment for extraordinary effects of € 4.9 – 6.9 million or 20 – 30%.

65% occupancy rate in Klagenfurt one year before opening
The construction of City-Arkaden in Klagenfurt, currently our only uncompleted center, is continuing as planned. Demand by domestic and international retailers for retail space at this property is high. As a result, the pre-letting rate in mid-March 2005, more than a year before the opening, was already 65%. We are optimistic that all of the space in this shopping center as well will be let by the time it is completed.

Additional acquisitions planned
In terms of additional acquisitions, we are actively continuing to identify attractive investments in Germany and abroad. The quality and return we require from our shopping centers limits our choice of the possible properties offered for sale.

Unchanged strategy and dividend approach
We will continue to focus on quality in our efforts to optimise and expand our portfolio – this is more important to us than a rapid rate of growth. Our portfolio is solid and our ongoing business activities ensure long-term income. We are therefore under no pressure to invest and can take advantage of opportunities as they arise. The most important goal in our strategy is to generate a high free cash flow that we can distribute to our shareholders.

Active participant in the REIT debate
We are closely following and actively participating in the current debate about the introduction of real estate investment trusts (REITs) in Germany. Ultimately, global competition for real estate investments does not depend on the speed of introduction of these instruments, but instead on the quality of this new type of real estate company to be created and the laws required to achieve this. When the time is right, we will examine on behalf of Deutsche EuroShop and our shareholders whether and in what form transforming the Company would make sense in strategic and economic terms.

Hamburg, March 2005





Slight economic growth expected


















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Increase in EBIT




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