Deutsche EuroShop AG Interim Report H1 2015 - Basic Information about the Group / Economic Review

Management ReportDeutsche EuroShop 2 Interim Report H1 2015 Operating and administrative costs for ­property down slightly to 8.8% of revenue Center operating costs were €8.9 million in the reporting period, compared with €9.2 million in the same period of the previous year. Costs therefore stood at 8.8% of revenue (previous year: 9.2%). Other operating expenses of €4.0 million Other operating expenses came to €4.0 million, €1.1 million higher than the previous year’s lev- el (€2.9 million). This increase was linked to the positive share price performance and the asso- ciated need to increase the provisions set aside for the long-term incentive for Executive Board members and employees expiring after five years in June 2015. EBIT in line with the previous year Earnings before interest and tax (EBIT) decreased marginally, down €0.1 million from €88.3 mil- lion to €88.2 million. Improvement in net finance costs Net finance costs totalled €–24.7 million, €3.3 mil- lion better than the €–28.0 million recorded the previous year. In all, interest expense was reduced by €1.0 million thanks to cheaper refinancing. A positive measurement effect of €2.3 million from the interest rate swap financing for the Altmarkt- Galerie Dresden produced an improvement in oth- er financial expenses. The net profits of the at-equi- ty consolidated companies rose by €0.4 million and the share of earnings of third-party shareholders went up by €0.4 million. Valuation gains / losses The measurement loss was €2.0 million (previous year: loss of €2.9 million) and included invest- ment costs incurred by our portfolio properties. Adjusted EBT excluding valuation gains / losses up 5% Earnings before taxes (EBT) climbed €4.1 million, from €57.4 million to €61.5 million. After adjust- ment for valuation gains, this amount rose from €60.6 million to €63.6 million (+5%). Income taxes Taxes on income and earnings came to €11.9 mil- lion (previous year: €11.1 million). €2.7 million of this (previous year: €2.3 million) was attributable to taxes to be paid and €9.2 million (previous year: €8.8 million) to deferred taxes. 7% increase in consolidated profit At €49.7 million, consolidated profit was up €3.4 million compared with the previous year (€46.3 million). Basic earnings per share increased from €0.86 to €0.92 (+7%). EPRA earnings per share rose 4.4% from €0.91 per share to €0.95. Basic Information about the Group Group structure and ­operating activities Business model Deutsche EuroShop is an Aktiengesellschaft (public company) under German law. The Com- pany’s registered office is in Hamburg. Deutsche EuroShop is the only public company in Germany to invest solely in shopping centers in prime loca- tions. A total of 19 shopping centers in Germany, Austria, Poland and Hungary are held in the real estate portfolio. The shopping centers are held by independ- ent companies, in which Deutsche EuroShop holds stakes of 100% in eleven cases and between 50% and 75% in the other eight. Depending on the share of nominal capital owned, these com- panies are either fully consolidated or accounted for using the equity method. The Group gener- ates its reported revenue from rental income on the space it lets in the shopping centers. The Group managing company is Deutsche EuroShop AG. It is responsible for corporate strategy, portfolio and risk management, financ- ing and communication. The Deutsche EuroShop Group has a central structure and lean personnel organisation. The share capital is €53,945,536, comprised of 53,945,536 no-par-value registered shares. The notional value of each share is €1.00. 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 liquidity from long-term leases in shopping centers, which is paid out to shareholders in the form of an annual dividend. In order to achieve these targets, the Company 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 equity in joint ventures in shopping center projects in the early stages of development. New investments should be financed through a balanced mix of equity and borrowing, where- by external financing may not exceed 55% of the Group’s total assets over the long term. As a general rule, long-term interest rates are fixed when loans are taken out or renewed with the goal of keeping the duration (average fixed inter- est ­period) at over five years. Management system The Executive Board of Deutsche EuroShop AG manages the Company in accordance with the provisions of German company law. The Execu- tive Board’s duties, responsibilities and business procedures 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 sustain- able and stable value growth and a high liquidity surplus generated by long-term leases. These in- dicators are revenue, EBT (earnings before taxes) excluding valuation gains / losses and FFO (funds from operations). Economic Review Macroeconomic and ­sector-specific conditions The prospect of continued labour market strength, low inflation and still-low interest rates are keep- ing consumer spending and confidence in Germa- ny high, even though the retail sector also expects a small deterioration in the generally positive con- sumer sentiment. The unemployment rate at the end of June 2015 stood at 6.2%. Consumer spend- ing continues to be a cornerstone of the German economy. German retail sales (including online spending) rose by 2.5% year-on-year in real terms in the first six months of 2015. The weak euro is currently producing full order books for export- oriented companies. Results of operations Revenue up 0.9% Revenue for the reporting period came in at €100.6 million. This is 0.9% higher on a like-for- like basis than in the same period of the previous year (€99.7 million).

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