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ePaper created 2015-11-12, 17:35:25 | version 1.42.00
Management ReportDeutsche EuroShop 2 Interim Report 9M 2015 EBIT slightly below previous year’s level Earnings before interest and tax (EBIT) de- creased by €1.3 million from €132.3 million to €131.0 million. Net finance costs improved by low interest rates Net finance costs totalled €–37.2 million, €4.5 million better than the €–41.7 million re- corded the previous year. As a result of the on going repayments and cheaper refinancing for the Forum Wetzlar, it was possible to reduce inter- est expense by a total of €2.0 million. A positive, non-cash valuation effect from an interest rate swap for the financing of the Altmarkt-Galerie Dresden produced a €2.9 million improvement in other financial expenses. The net profits of the at-equity consolidated companies rose by €0.4 million, and the share of earnings of third- party shareholders went up by €0.7 million. Valuation gains / losses A valuation loss of €2.8 million (previous year: €4.4 million) was recorded, which included in- vestment costs incurred by our portfolio prop- erties. Adjusted EBT excluding valuation gains / losses up 3.3% Earnings before taxes (EBT) climbed €4.8 mil- lion, from €86.2 million to €91.0 million. After adjustment for valuation gains, this amount rose from €90.9 million to €93.9 million (+3.3%). Income taxes Taxes on income and earnings came to €17.4 mil- lion (previous year: €16.7 million). €4.0 million of this (previous year: €3.5 million) was attribut- able to taxes to be paid and €13.4 million (previ- ous year: €13.2 million) to deferred taxes. 5.9% increase in consolidated profit At €73.6 million, consolidated profit was up €4.1 million compared with the previous year (€69.5 million). Basic earnings per share in- creased from €1.29 to €1.37 (+6.2%). EPRA earnings per share rose 3.7% from €1.36 to €1.41. 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 turn- over-linked commercial rents ensure that the high earnings targets are achieved. 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 general economic environment continues to look upbeat. The weak euro is ensuring that order books remain full, and the export industry is a key driver of economic growth and job creation. The unemployment rate at the end of September 2015 fell to a record low of 6.2%. The ongoing strength in the labour market, rising wages in real terms, very low inflation and continued low in- terest rates are keeping consumer spending and confidence in Germany high. Consumer spending remains one of the cornerstones of the German economy. German retail sales rose by 2.5% year- on-year in real terms in the first nine months of 2015. Strong growth in online shopping made a major contribution to this increase. Results of operations Revenue up 0.9% Revenue for the reporting period came in at €151.0 million. This is 0.9% higher on a like-for- like basis than in the same period of the previous year (€149.7 million). Operating and administrative costs for property: 10.0% of revenue Center operating costs were €15.1 million in the reporting period, compared with €13.7 million in the same period of the previous year, which was mainly due to higher current operating costs and write-downs. Costs therefore stood at 10.0% of revenue (previous year: 9.2%). Non-recurring effect impacts other operating expenses Other operating expenses totalled €5.5 million, €1.0 million higher than the previous year’s level (€4.5 million). This increase was largely linked to the positive share price performance and the associated increase in the provisions set aside for the long-term incentive for Executive Board members and employees expired after five years in June 2015.