Deutsche EuroShop: 2020 business results impacted by the coronavirus pandemic - financial ratios stable

Hamburg, 23 March 2021 - The shopping center investor Deutsche EuroShop this evening published its preliminary and as yet unaudited results for the 2020 financial year. The coronavirus pandemic has left a clear mark on both the operating and measurement result. The negative repercussions currently look set to continue for the current financial year due to the ongoing lockdowns. Nevertheless, the Executive Board is of the opinion that Deutsche EuroShop still has a sound financial base and balance sheet structure. Stationary retail remains enduring popular among consumers. After each round of shop reopenings, customer footfall experienced dynamic growth, even if levels were still below those seen in 2019 due to the various restrictions still in place.

Revenue: €224.1 million (-3.2%)

Consolidated revenue was down 3.2% for the financial year, from €231.5 million to €224.1 million. This was partly due to a law change in Poland from mid-March to cushion the effects of the coronavirus pandemic, which included a provision allowing affected tenants to temporarily suspend payments of their rent (-€3.2 million). Where payment obligations on tenants were not suspended by the law, rents generally continued to be invoiced as contractually agreed during the closure phases.

EBIT: €161.2 million (-18.3%)

Concessions granted and expected on accumulated rent receivables were reported through impairments and the derecognition of receivables. The resulting expense increased sharply year on year to €29.2 million (2019: €1.7 million); of this, the share of receivables affected by insolvency or impaired amounted to €5.9 million. Earnings before interest and taxes (EBIT) at €161.2 million were well below the figure for the previous year (€197.5 million), largely due to the indicated impairments and decline in revenue as a result of the coronavirus.

EBT excluding measurement: €127.6 million (-21.8%)

The decline in EBIT and at-equity profit/loss plus the one-off interest refund in the previous year in connection with tax refunds caused EBT (excluding measurement gains/losses) to fall from €163.1 million to €127.6 million (-21.8%). Current interest expense was reduced by €5.5 million to €43.7 million as a result.

Measurement: EPRA NTA down by 11.6% to €37.38 per share

The measurement loss of €-427.6 million (previous year: €-120.0 million) resulted from the valuation of the Group's real estate assets according to IAS 40. Of this, €-353.8 million (previous year: €-94.2 million) resulted from the measurement of the real estate assets reported by the Group, and €-73.8 million (previous year: €-25.8 million) from the measurement of the real estate assets of the joint ventures recorded on the balance sheet according to the at-equity method. The average value of Group properties, after ongoing investments, fell by -10.7% (previous year: -2.9%).

The measurement loss was chiefly fuelled by the coronavirus pandemic and the significant impact this had on bricks-and-mortar retail. Alongside a slightly lower occupancy rate of 95.4% (-2.2 percentage points), the valuation was mainly influenced by an increase in average acquisition yields for shopping centers in Germany, investments in lease renewals, modernising and positioning the existing portfolio, changes to expected rental trends and longer post-rental terms.

The new key figure following the NAV, EPRA NTA (EPRA net tangible assets), stood at €37.38 per share as at 31 December 2020, down 11.6% on the prior year (€42.30).

Consolidated profit: €-251.7 million, €-4.07 per share

The large valuation loss resulted in a consolidated loss of €-251.7 million, after a consolidated profit of €112.1 million in the previous year. Earnings per share was €-4.07 (2019: €1.81). EPRA earnings, which exclude measurement gains/losses, fell significantly to €124.5 million or €2.02 per share, due mainly to impairments of rent receivables and the decline in revenue.

FFO: €123.3 million (-17.6%), €2.00 per share

Funds from operations (FFO) declined from €149.6 million to €123.3 million or by €0.42 per share to €2.00. As an income-based figure, FFO do not reflect the current increase in rent receivables, so the analysis of tenants' payment behaviour expressed in the collection ratio is also necessary. The collection ratio after rent reductions averaged 89.6% in 2020.

Continued strong financial ratios and liquidity position

As at year-end, the loan-to-value (LTV) ratio stood at 32.9% (2019: 31.5%). Based on the Group's pro-rata share in joint ventures and subsidiaries, this resulted in an absolute LTV ratio of 35.8%, which is still conservative in a sector comparison (2019: 33.7%).

The financing terms for consolidated borrowing as at 31 December 2020 were fixed at 2.18% p.a. with an average residual maturity of 5.1 years. The loans to Deutsche EuroShop are maintained as credit facilities with 23 banks and savings banks, and the Groups remains in a constructive and trusting dialogue with all financing partners in this ongoing exceptional situation. Two Group loans totalling €135.3 million are due for refinancing in mid-2021. Refinancing has already been concluded for a loan in the amount of €65.2 million. The second loan of €70.1 million is in the final stages of negotiation. Three additional loans totalling €226.0 million must be extended in 2022, one loan for €209.1 million in 2023, no loans in 2024 and one loan for €58.7 million in 2025.

At €2,314.8 million as at the end of the reporting year, equity (including third-party interests) was down €286.7 million on the previous year (€2,601.5 million), mainly attributable to the consolidated loss. The equity ratio remained very solid at 54.6% (2019: 57.1%).

Cash and cash equivalents were up €117.9 million as at the reporting date to €266.0 million if the short-term utilisation of a credit line (€30 million) is included.

Pandemic continues to deal major blow to bricks-and-mortar retail

In order to contain the coronavirus pandemic, the authorities continued to implement widespread and far-reaching safety and quarantine measures at the beginning of 2021. As in the past financial year, retail stores that do not serve basic needs were mandated to close. There are only exceptions for food, drugstores, pharmacies, banking services and a limited number of other everyday products and services.

These incidence-related closures continue to place a heavy burden on the economic situation of the tenants affected. For many tenants, the Christmas season was heavily impacted by the closures in late autumn and then the renewed closures from mid-December 2020. Government support programmes were either unable to compensate for this or only to a limited extent. 18 of 21 shopping centers in our portfolio are currently in strict lockdown, which will again severely impair Easter trading.

The federal government has suspended the requirement to file for insolvency under certain conditions in an effort to mitigate the effects of the coronavirus pandemic and has now extended this exemption to the end of April 2021, but there is still a risk of further tenant insolvencies.

Partnership-based approach to sharing losses with tenants

Deutsche EuroShop is in continued dialogue with tenants via its service provider, ECE, in order to arrange rapidly implementable and cooperative support measures also in this phase of the pandemic. Among other things, at the beginning of 2021 the affected tenants of the German shopping centers were made an offer to share the incurred losses amounting to half of their net rent, limited to the closure periods since mid-December 2020 and for 2021. DES management remains convinced that, in this ongoing challenging situation, this provides the best foundation for shared and sustainable business success in future.

Further course of pandemic makes it impossible to make a forecast

The uncertainties facing the business operations of tenants in the DES centers, for the economy and for the consumer climate are still very high owing to the coronavirus pandemic. The repercussions depend, in particular, on the duration and extent of the pandemic, the efficacy of vaccinations and the vaccination status of the population, further official restrictions, legislation and support measures. At the present time, it is not possible to make an assessment of the negative effects on operating earnings and thus to provide a forecast for the 2021 financial year as a whole.

However, the Executive Board expects that revenue, EBIT, EBT (excluding measurement gains/losses) and FFO will be lower than the business figures achieved in 2020 due to the stricter operating restrictions and longer store closures overall compared with the first lockdown, which have been in place since the fourth quarter of 2020 and have lasted for almost the entire first quarter of 2021. The situation is expected to stabilise significantly in the second quarter of 2021, and particularly in the second half of the year. A new forecast will be issued as soon as this is feasible.

Continuation of conservative financing strategy: dividend of €0.04 per share planned

Since stores reopened in summer 2020, Deutsche EuroShop has succeeded in keeping its liquidity stable overall in spite of the highly adverse after-effects of the first lockdown and the impact of the reimposed store closures since the end of 2020. Given the continued government-mandated business closures in most operating markets coupled with existing restrictions on operations including any further ones anticipated in the medium term, it is important to proceed with extreme caution until the situation has stabilised with a view to the long term.

In order to ensure the Company's continued liquidity, the Executive Board has therefore decided to propose to the Annual General Meeting only to pay a dividend amounting to 4% of share capital (equivalent to a total dividend of €2,471,343.76 or €0.04 per share) from the unappropriated surplus remaining after allocation to other retained earnings in accordance with Section 254 (1) of the German Stock Corporation Act (AktG) and to carry forward the remaining amount of the unappropriated surplus of €41,311,535.84 to the new accounts.

Notwithstanding the recent suspension of or limits on dividend payments due to the coronavirus, we intend once this exceptional situation has stabilised to continue our dividend policy geared to sustainable business success and focused on continuity.

Letting activities and expansion of omni-channel offering

In spite of the difficulties created by the pandemic, a number of leases were concluded or extended last year, meaning that the average lease term of the portfolio remains almost unchanged at around five years.

Progress was likewise made last year on developing the omni-channel offering in the future. This is starting to play an especially important role not only for a growing share of online retail, but also for future business closure scenarios. In Germany, currently 2.8 million products from 780 stores are connected to the Digital Mall.

Alongside the growth in online sales, the crisis created by the pandemic has positively confirmed and very clearly demonstrated that consumers still highly value shopping in stores and in our attractive shopping centers. Footfall increased at the shopping centers quickly and decisively after businesses reopened - in spite of the many other restrictions in place - even if it is still lagging behind 2019 levels due to pandemic.

Continuity ensured on the Executive Board

The Supervisory Board of Deutsche EuroShop AG re-elected Wilhelm Wellner as a member of the Executive Board effective 1 January 2022 for a period of three-and-a-half years until the end of June 2025. Wilhelm Wellner has been CEO since July 2015.

The 2020 Annual Report with the final audited figures will be published in April 2021.

Webcast of the teleconference

Deutsche EuroShop will hold a conference call for analysts in English at 10 a.m. on 24 March 2021, which will be transmitted as a live webcast at www.deutsche-euroshop.com/ir

Deutsche EuroShop - The shopping center company

Deutsche EuroShop is the only public company in Germany to invest solely in shopping centers in prime locations. The SDAX-listed company currently has investments in 21 shopping centers in Germany, Austria, Poland, the Czech Republic and Hungary. The portfolio includes the Main-Taunus-Zentrum near Frankfurt, the Altmarkt-Galerie in Dresden and the Galeria Baltycka in Gdansk, among many others.

Key consolidated figures