Please activate JavaScript!
Please install Adobe Flash Player, click here for download
ePaper created 2015-05-08, 10:57:20 | version 1.38.0
57ANNUAL REPORT 2014 Deutsche EuroShop Basic information about the Group page 57 > Economic review page 57 > Remuneration report page 63 > Acquisition reporting page 64 > Declaration on corporate governance (section 289a HGB) page 64 > Report on events after the balance sheet datet page 61 > Outlook page 61 > Risk report page 62 > MANAGEMENT REPORT Basic informa- tion about the Group Group business model, targets and strategy Deutsche EuroShop AG (DES) is the only public company in Germany to invest solely in shopping centers in prime locations. On 31 December 2014, the Company held in- vestments in 19 shopping centers in Germany, Austria, Poland and Hungary. The Group gen- erates its reported revenue from rental income on the space it lets in the shopping centers. Due to its lean personnel structure, Deutsche EuroShop Group is centrally or- ganised. The Group managing company is Deutsche EuroShop AG. It is responsible for corporate strategy, portfolio and risk manage- ment, financing and communication. The Company’s registered office is in Ham- burg. Deutsche EuroShop is an Aktiengesell- schaft (public company) under German law. The individual shopping centers are managed as separate companies and, depending on the share of nominal capital owned, are either fully consolidated or accounted for using the equity method. More information on indirect or direct investments is provided in the notes to the con- solidated financial statements. Objectives and strategy The management focuses on investments in high-quality shopping centers in city centers 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 we achieve our high earnings targets. The Company may invest up to 10% of eq- uity in joint ventures in shopping center pro- jects 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. Profitable portfolio with stable value Deutsche EuroShop has a balanced and diversi- fied portfolio of German and European shop- ping centers. The management focuses on in- vestments in prime locations in cities with a catchment area of at least 300,000 in order to maintain a high level of investment security. Seizing opportunities and maximising value In line with our buy & hold strategy, the management is increasingly concentrating on shopping center quality and returns rather than rapid portfolio growth. The management constantly monitors the market and takes op- portunities to buy when they arise. Rapid decision-making processes and considerable flexibility regarding potential investments and financing structures allow Deutsche Eu- roShop to react to all competitive situations. At the same time, the Group’s management is committed to optimising the value of the ex- isting portfolio of properties. Tailored rent structure One key component of the rental model is a tai- lored rent structure. While city center property owners often focus on obtaining the highest possible rental rates for their properties – cre- ating a monolithic retail offering – Deutsche EuroShop’s management uses a calculation combining a range of factors to create an attrac- tive sector mix and optimise long-term rental income. Rental partners pay sector-specific and turnover-linked rent. Indexed minimum rents (based on the consumer price index) provide a guaranteed minimum level of income for Deutsche EuroShop during economic slow- downs. Shopping experience concept Deutsche EuroShop has outsourced center management to an experienced external part- ner: ECE Projektmanagement GmbH & Co. KG (ECE), based in Hamburg. ECE has been design- ing, planning, building, renting and managing shopping centers since 1965. The company is currently the European market leader, with 189 shopping centers under management. Deutsche EuroShop views professional center manage- ment as the key to successful shopping centers. In addition to guaranteeing standard opening hours and a friendly, bright, safe and clean shop- ping environment, the center management can employ unusual displays, promotions and ex- hibitions to make shopping an experience. Be- tween 500,000 and 600,000 shoppers come to the 19 DES centers every day, where they are impressed not only by the range of sectors represented, but also by promotional activities including car, talent and fashion shows as well as a wide variety of activities for children. As a result, the shopping centers become market places where there is always something new and spectacular on offer. Management system, research and development 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 leas- es. These indicators are revenue, EBT (earnings before taxes) excluding valuation gains/losses and FFO (funds from operations). The Supervisory Board supervises and ad- vises the Executive Board in its management activities in accordance with the provisions of German company law and its rules of proce- dure. It appoints the members of the Execu- tive Board and significant transactions by the Executive Board are subject to its approval. The Supervisory Board comprises nine members, all of whom are elected by the Annual General Meeting. Members of the Executive Board are ap- pointed and dismissed on the basis of sections 84 and 85 of the Aktiengesetz (AktG – Ger- man Public Companies Act). Changes to the Articles of Association are made in accordance with sections 179 and 133 of the AktG, and the Supervisory Board is also authorised, without a resolution of the Annual General Meeting, to adapt the Articles of Association to new legal provisions that become binding on the Compa- ny, as well as to resolve changes to the Articles of Association that only relate to the wording. More information about the Executive Board and the Supervisory Board can be found in the declaration on corporate governance. A research and development (R&D) re- port is not required as part of the Management Report because Deutsche EuroShop does not need or pursue any research and development in connection with its primary business. Economic review Macroeconomic and sector-specific conditions Germany’s gross domestic product (GDP) rose by 1.6% in 2014, according to the German Fed- eral Statistical Office’s calculations. Positive stimuli came mainly from the German market – provided by increased consumer spending and higher investments. The German economy also profited again from strong foreign trade. On the labour market, the positive trend of recent years also continued: On average, 2.9 million peo- ple were registered as unemployed during the year, putting the unemployment rate at 6.7%. Consumer prices in Germany rose by just 0.9% versus 2013, mainly caused by the fall in en- ergy prices (-2.1%); taking energy prices out of the equation, the annual rate of increase in 2014 was +1.3%. In 2014, gross pay per employee rose by 3.8% according to the German Federal Statis- tical Office. In an environment still marked by high employment and very low interest rates, the propensity to consume rose again, and the savings rate continued its downward trend of many years in 2014, falling to 9.4% of dispos- able income (2013: 10.0%). Private consumer spending, which accounted for 55.2% of GDP, rose by 1.2%, after price adjustments, in 2014. The federal government also forecasts that the German economy will grow by 1.5% in 2015. According to provisional calculations from the German Federal Statistical Office, German retail sales posted nominal growth of 1.7% and real growth of 1.4% year-on-year. The rising importance of online retailing remains a major focus of attention in terms of sales growth in the stationary retail sector. According to figures from the German Retail Federation (HDE), online sales saw renewed, above-average growth to around €39.0 billion, an increase of 17%. The centers’ competitive position in the Deutsche EuroShop portfolio is determined both by business in the relevant city centres as well as the shopping centers in the catchment area. The city center locations also have to com- pete with other regional centers. For example, the city centers of Dortmund, Mannheim and Braunschweig are serious rivals to the Allee- Center in Hamm, the Rhein-Neckar-Zentrum in Viernheim and the City-Galerie in Wolfs- burg, respectively. There is additional competition for city center retail in the form of growing numbers of factory and designer outlets on greenfield sites outside the city limits. Development projects are currently underway for new outlet centers close to the DES properties in Hamm, Wup- pertal and Dessau. Retail sector Based on calculations from Jones Lang LaSalle, a real estate consulting firm, rental turnover on retail spaces leased in Germany in 2014 in- creased by 18% to 580,000 m2 . The high de- mand for larger spaces led to an increase in the average leased area to 590 m² (2013: 470 m²). With around 40% of rented floor space, textile retailers were the most significant de- mand group. Second place went to the cater- ing and food industry at approx. 20%; health and beauty took third place with nearly 10%. The stable demand for retail premises from retailers shows that they are continuing to pur- sue their bricks-and-mortar retail expansion strategies unfazed by the strong growth in on- line retail. One interesting trend is that retailers who used to conduct business exclusively on- line are expanding to bricks-and-mortar stores. Providers such as Planet Sports, Blue Tomato, my muesli or Shoepassion can be found with stores in city centers and shopping centers with increasing frequency. Internationalisation of German retail also continues to advance. According to CBRE, a commercial real estate services firm, nearly 22% of rentals were concluded by international retailers (2013: 19%) Their strong expansion was noticeable, particularly in the prime loca- tions. According to CBRE, the high frequency and visibility of the prime locations plays a key role in branding for international retailers and creates an appealing variety of retail concepts in German retail locations.