Deutsche EuroShop: Operational upswing continues in 2022

• Improved operating profit and continued positive outlook
• Higher interest rates had adverse effect on valuation of properties
• Consolidated profit of €21.4 million, funds from operations of €130.1 million
• FFO forecast predicts sharp uptick in 2023
• Proposed dividend will take into account stabilised business and liquidity

Hamburg, 21 March 2023 – Deutsche EuroShop this evening announced its preliminary and as yet unaudited results for financial year 2022.

“After the previous year was still largely overshadowed by the coronavirus pandemic, its impact and aftermath subsided in 2022 and we were able to record an improved operating result,” explained Hans-Peter Kneip, Member of the Executive Board. “Various stress factors remained, however, including the war in Ukraine, disrupted supply chains, the energy crisis and spiralling inflation, which will continue to weigh on our business in 2023.”

The shopping center company, which was acquired in the reporting year by Hercules BidCo GmbH (indirectly controlled by a bidding consortium consisting of investment funds managed and advised by Oaktree Capital Management, L.P. and CURA Vermögensverwaltung, the family office of the Otto family and parent company of the ECE Group), increased its operating profit, while consolidated profit decreased on the back of the weaker measurement result due to rising interest rates.

The balance sheet remains solid, long-term financing is secured and liquidity was further reinforced.

Revenue: €212.8 million (+0.5%)

In contrast to the previous year, which was significantly affected by store closures mandated by the authorities, tenants were able to open their stores throughout 2022. The rental concessions granted for the closure periods in 2021 are mainly reflected in the previous-year item “Write-downs and derecognition of receivables” and only to a small extent in revenue. As a result, revenue in 2022 was only slightly higher than in the previous year at €212.8 million, despite the fact that there were no closure periods.

EBIT: €152.4 million (-0.0%)

The expense from write-downs and derecognition of receivables fell year on year to €8.1 million (2021: €25.0 million). Other operating expenses, which mainly comprise general administrative costs and personnel costs, came in at €20.5 million (2021: €7.9 million), a significant increase on the previous year due in particular to higher consulting expenses in the context of the takeover bid, the preparation for the acquisition of further shares in shopping center investments in early 2023 in conjunction with a capital increase, as well as the severance payments to departing Executive Board members. Earnings before interest and taxes (EBIT) were thus down slightly on the previous year at €152.4 million (2021: €152.5 million).

EBT excluding measurement: €130.2 million (+3.7%)

At-equity (operating) earnings were impacted in the previous year by higher write-downs on rent receivables and revenue shortfalls as a result of the coronavirus pandemic, but improved in 2022 by €3.8 million to €29.5 million (2021: €25.7 million). The interest expenses of Group companies were reduced by a further €3.1 million. Positive contributing factors here included scheduled repayments and also the lower interest rates agreed for refinancing arrangements. The share of earnings attributable to limited partners increased by €2.5 million to €15.9 million due to improved EBIT. These developments combined boosted EBT (excluding measurement gains/losses) by 3.7% from €125.6 million to €130.2 million.

Measurement: EPRA NTA down by 1.6% to €37.81 per share

The significant increase in interest rates in the reporting year had a negative impact on the valuation of the Group’s real estate assets (IAS 40) and resulted in a measurement loss of €-106.3 million (2021: €-54.7 million). The average value of Group properties, after ongoing investments, fell by -3.0% (2021: -1.5%). The occupancy rate at the end of the year was unchanged from the previous year at 94.3%.

The new key figure EPRA Net Tangible Assets (EPRA NTA) stood at €37.81 per share as at 31 December 2022, down 1.6% on the prior-year level (€38.43).

Consolidated profit: €21.4 million, €0.35 per share

The lower measurement result compared to 2021 resulted in a lower consolidated profit of €21.4 million in 2022, following €59.9 million in the previous year. Earnings per share were €0.35 (2021: €0.97). EPRA earnings, which exclude measurement gains/losses, recovered to €129.6 million or €2.10 per share, in particular as a result of year-on-year lower write-downs on rental receivables.

FFO: €130.1 million (+6.4%), €2.11 per share

Funds from operations (FFO) increased by 6.4% from €122.3 million to €130.1 million, or by €1.98 per share to €2.11 per share. “The two main reasons for exceeding our original forecast, which we put at between €1.95 and €2.05 per share, were the lower level of rent defaults and smaller declines in rents than previously assumed,” explained Hans-Peter Kneip. “The collection ratio continued to normalise in 2022, averaging 98.5% versus 94.8% in the previous year.”

Continued strong financial ratios and liquidity position

As at year-end, the loan-to-value (LTV) ratio stood at 30.3% (2021: 30.5%). Based on the Group’s pro-rata share in joint ventures and subsidiaries, this resulted in an absolute EPRA LTV ratio of 33.1%, which is still conservative by sector comparison (2021: 33.2%).

The financing terms for consolidated borrowing as at 31 December 2022 were fixed at 2.43% p.a. with an average residual maturity of 6.8 years. The loans to Deutsche EuroShop are maintained as credit facilities with 18 banks and savings banks. All loans that fell due in financial year 2022 were extended or refinanced; the same applies to the loan of €209.1 million that matured at the beginning of 2023. No loans are due to mature in 2024, and only one financing arrangement in 2025 for a loan totalling €58.7 million.

At €2,343.4 million as at the end of the reporting year, equity (including third-party shareholders) was down €34.4 million on the previous year (€2,377.8 million), due to the dividend paid of €61.8 million and the consolidated profit of €21.4 million. The already strong equity ratio improved slightly to 55.7% (2021: 55.6%).

As at the reporting date, cash and cash equivalents were up €6.1 million to €334.9 million.

Forecast includes acquisition of shares and capital increase

The management of Deutsche EuroShop expects inflation to ease in 2023, but to remain at a high level for the time being. Even though the majority of leases provide for indexation, there is a risk that not all rent increases and non-allocable ancillary costs will be able to be enforced due to the economic burden on tenants. In view of the above, and given the acquisition of additional shares in six shopping centers and their financing by means of a subscription rights offering at the beginning of 2023, funds from operations between €153 million and €160 million or between €2.00 and €2.10 per share are expected for financial year 2023.

Dividend policy

One of Deutsche EuroShop’s key investment objectives is to generate an attractive liquidity surplus from the long-term leasing of shopping centers, which is distributed to shareholders in the form of regular dividends. The Company reviews opportunities to further increase its ability to distribute dividends in future years. In financial year 2022, Deutsche EuroShop increased its dividend capacity by reversing committed capital reserves. In principle, the Company aims to distribute funds in excess of its liquidity requirements to its shareholders. However, the distribution of dividends is highly dependent on prevailing economic conditions, financing needs for further growth and other factors.

With the effects of the pandemic subsiding and the operating business stabilising, the management assumes that it will be possible to reduce the Company’s cash position back to a normal level. For financial year 2022, the Executive Board, assisted by the Supervisory Board, is putting together a dividend proposal that will be announced upon presentation of the annual report containing the final audited figures on 27 April 2023.

Teleconference streamed live

Deutsche EuroShop will hold a conference call for analysts in English at 10 a.m. on Wednesday, 22 March 2023, which will be streamed live 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 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