Financial position

Principles and objectives of financial management

For the purposes of financing its investments, Deutsche EuroShop uses the stock exchange for procuring equity, as well as the credit markets for procuring loans. Within the Group, both individual property companies and Deutsche EuroShop borrow from banks. Deutsche EuroShop’s credit standing has been shown to be advantageous when negotiating loan conditions. The Group can also arrange its financing independently and flexibly.

Loans are taken out in euros for all Group companies. In general, the use of equity and loans for investments should be equally weighted and the equity ratio within the Group (including third-party interests) should not fall below 45%.

Financing of our real estate projects is done on a long-term basis. For this purpose, derivative financial instruments are also used which serve to hedge against rising capital market interest rates. An available credit line enables Deutsche EuroShop to react quickly to investment opportunities. Until used for investment, cash not needed is invested in the short term as term deposits to finance ongoing costs or pay dividends

Financing analysis

As of 31 December 2010, the Deutsche EuroShop Group reported the following key financial data:

in Mio. € 2010 2009 Change
Total assets 2,963.6 2,112.1 +851.8
Equity (incl. third-party interests) 1,527.4 1,044.4 +483.2
Equity ratio (%) 51.5 49.4 +2.1
Bank loans and overdrafts 1,288.2 934.2 +354.0
Loan to value ratio (%) 45 46 1

At €1,527.4 million, the Group’s economic equity capital, which comprises the equity of the Group shareholders (€1,249.6 million) and the equity of the third-party shareholders (€277.8 million), was €483.2 million higher than in the previous year. The equity ratio improved slightly by 2.1% percentage points to 51.5%.

Current and non-current bank loans and overdrafts rose from €934.2 million to €1,288.2 million in the year under review, an increase of €354 million. Of this, €31.5 million was used to finance the expansion measures at the Altmarkt-Galerie Dresden and the Main-Taunus- Zentrum. A further €186.0 million resulted from the first full consolidation of the Phoenix-Center and the Main-Taunus-Zentrum and from the increased participation in the Altmarkt-Galerie Dresden. The external financing of the purchase of the A 10 Center (€125.0 million) and the Billstedt-Center (€19.0 million) accounted for €144.0 million. Meanwhile, loans amounting to €13.7 million were repaid.

In addition, a non-current loan in the amount of €82.0 million was raised in the year under review to replace expiring loans for the Rhein- Neckar-Zentrum.

The bank loans and overdrafts in place at the end of the year are used exclusively to finance non-current assets. 47% of non-current assets were therefore financed by loans.

The current credit line amounting to €100 million was increased to €150 million, and this will be available to the Company until 2014.

Overall, the debt finance terms as of 31 December 2010 remained fixed at 5.03% (2009: 5.27%) for an average period of 6.5 years (2009: 7.1 years). Deutsche EuroShop maintains credit facilities with 17 banks which – with the exception of one in Austria – are all German banks.

Of 34 loans across the Group, credit terms were agreed with the financing banks on eight of these. These involve conditions relating to the capacity to repay, the level of debt and, in one case, a condition concerning the loan-to-market value ratio. All conditions were met.

At the start of 2011, a loan amounting to €85.1 million which was raised to finance the City-Arkaden Wuppertal KG was repaid early and partially replaced by two new loans in the amount of €81 million. The purchase of the Billstedt-Center is also to be partially financed by means of a loan amounting to €80 million, which is likely to be paid out around the middle of 2011. Scheduled repayments amounting to €17.9 million will be made from operating cash flow during the 2011 financial year, and no interest lock-ins for loans will expire. Over the period from 2012 to 2015, average repayment obligations will be around €19.8 million per year. Interest lock-ins for loans amounting to €54.6 million will expire in 2012, for €137.3 million in 2013, for €205.3 million in 2014 and for € 76.8 million in 2015.

Overview of the loan structure as of 31 December 2010
Enlarge picture

Current and non-current bank loans and overdrafts totalling €1,288.2 million were recognised in the balance sheet as of the reporting date. The difference between the total indicated in the table above and the amounts given here of €10.9 million relates to deferred interest and repayment obligations that were settled at the beginning of 2011.

Investment analysis

The 2010 financial year was marked by many different investment measures. Overall, €360.8 million was invested, of which €55.0 million was attributable to the acquisition of additional shareholdings in the Altmarkt-Galerie Dresden, which were transferred to the Group as a non-cash contribution. €305.8 million were cash transactions, €233.1 million of which was accounted for by the A 10 Center until 31 December 2010. €46.6 million was invested in the expansion measures in Dresden and Sulzbach, and €17.2 million in the acquisition of shareholdings in the Main-Taunus-Zentrum. Ongoing investments in portfolio properties amounted to €2.6 million.

Liquidity analysis

The Group’s operating cash flow of €72.1 million (2009: €63.2 million) is the amount that has been generated for the shareholders following the deduction of all costs from the leasing of the shopping center floor space. It serves to finance the dividends of Deutsche EuroShop AG and payments to third-party shareholders. The change is primarily attributable to the first contribution to earnings by the A 10 Center.

In addition to operating cash flow, cash flow from operating activities contains changes in receivables and other assets as well as other liabilities and provisions. In large part due to the purchase price paid for the Billstedt-Center, which amounted to €156.7 million, cash flow from operating activities stood at €-94.2 million, €154.7 million less than the previous year (2009: €60.5 million).

Cash flow from investing activities in the year under review amounted to €287.8 million and were thus considerably higher than in the previous year, in which €35.9 million was invested. This item includes the purchase price for the A 10 Center in Wildau, and also includes investments made in expansion measures at our properties in Dresden, Sulzbach and Wildau.

Cash flow from financing activities rose from €15.5 million in 2009 to €363.9 million in the year under review. Cash inflows from non-current financial liabilities, amounting to €166.2 million, resulted primarily from the raising of a new loan in relation to the A 10 Center, other payments for the expansion measures in Dresden and Sulzbach, as well as the raising of a short-term credit line by Deutsche EuroShop AG to finance the purchase price of the Billstedt-Center. Furthermore, there were three capital increases during the year under review, of which two were cash transactions and led to cash inflows in the amount of €253.7 million. Dividends paid to shareholders totalled €46.3 million. A capital increase was also completed for the Stadt-Galerie Passau, in which third-party shareholders participated in the amount of €4.2 million. Payments to third-party shareholders include the purchase prices of the shareholdings in the two centers in Wuppertal and Kassel acquired on 1 July 2010, and distributions paid out during the year under review.

Cash and cash equivalents fell from €81.9 million in 2009 to €65.8 million in the year under review.

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