Outlook

As the German economy returned to strong growth in 2010 and far exceeded the predictions made at the start of the year, the outlook for 2011 is also positive. That said, economic experts expect the rise to flatten out somewhat. There are significant hopes of a stronger leap forward in the domestic economy, especially private consumer spending, amid expectations of a perceptible boost to salaries in real terms across Germany. The first wage agreements concluded indicate that, after years of declining or stagnating salaries in real terms, an increase may be on the cards. The robust labour market in Germany has also been a cause of some surprise. Rising employment and falling unemployment at levels which have not been seen for decades are underpinning the positive outlook.

We expect this positive trend to be echoed in our shopping centers. The expansion and modernisation measures at the A 10 Center, the Altmarkt- Galerie in Dresden and the Main-Taunus-Zentrum are included in our planning and will be completed in 2011. Leasing agreements are already in place for the majority of the additional space. This also applies to rental agreements which are up for renewal during the second half of 2011 after expiry of the first ten-year term. At the present time, the occupancy rate across all our shopping centers continues at over 99%. At the end of 2010 the overall occupancy rate was 99.3%, showing no change in comparison with the previous year, and stood at 99.9% for retail space. Outstanding rents and necessary valuation allowances remain stable at a low level. We see no sign of a significant change in this satisfactory situation.

Transaction market gains pace

Due to the ongoing uncertainty on the financial markets and fears that inflation may rise sharply, the global demand for value-secured capital investments is on the increase. This is driving the demand for real estate, amongst other things, for which there is insufficient supply at present. Retail property in particular is a focus of interest among many institutional investors, leading to rising perceptions of appropriate purchase prices among potential vendors. Due to investment pressure on the part of many investors, we consider that there is currently a risk that prices on the real estate market may once again reach extremes. We will therefore be watching developments on the real estate market very carefully over the next few months. As in the past, we will only make further investments if the return that is achievable over the long term bears a reasonable relation to the investment risks. We will continue to grow even without making further investments, thanks to the contributions made by the expansion, modernisation and restructuring measures under way in our portfolio.

Altmarkt-Galerie

The expansion of the Altmarkt-Galerie Dresden was completed at the end of the first quarter of 2011 and opened to customers and visitors on 31 March. All retail spaces were let with the exception of one, meaning the number of shops will rise from around 95 to over 200. The hotel spaces are also let on a long-term basis, and the hotel itself is planned to open for summer 2011. Tenants have not yet been found for the office spaces but rental activities are in full swing. From experience, it is likely that the marketing process will take some time. Overall, predicted rental income is slightly above expectations and investment costs are entirely within budget despite considerable delays caused by the weather. An estimated investment expenditure of €20.7 million will be attributable to measures during the current financial year.

A10 Center

The expansion and modernisation measures underway at the A 10 Center are also within schedule. The new retail spaces within the A 10 Triangle are all let, and were opened at the beginning of April 2011. The first measures to modernise the property have begun and will be concluded by the end of 2011. It is anticipated that further investment expenditure of €32.5 million are expected to be required in 2011. Predicted rental income at the A 10 Center is also above expectations, and investment costs are being kept within budget.

Main-Taunus-Zentrum

The expansion measures at the Main-Taunus-Zentrum will be completed by the end of 2011. With the exception of a few residual areas (occupancy rate in March 2010: > 80%), new tenants have already been found for the retail space offering around 80 new shops. Predicted rental income is well above expectations, and investment costs are within budget. Of this amount, €37.0 million is likely to be attributable to the current financial year.

Scheduled reletting

We expect to see stable growth across our portfolio properties. In the City-Arkaden Wuppertal and the City-Galerie Wolfsburg, many rental agreements are due to expire on schedule in 2011 (ten years after their first opening). This gives us the opportunity to optimise the mix of tenants and sectors at these properties and to position them appropriately for the next ten years. The necessary investments (€3.3 million) will be financed from available liquidity reserves or operating cash flow.

Agreed transactions are the foundation for revenue and earnings planning

The Deutsche EuroShop Group’s revenue and earnings planning for 2011 and 2012 does not include the purchase or sale of any properties. The Billstedt-Center that was acquired on 1 January 2011 is taken into account in the planning, as are the effects arising from the full consolidation of the Phoenix-Center and the Main-Tainus-Zentrum. The results of the annual valuation of our shopping centers and exchange rate factors are not included in our planning since they are not foreseeable. Forecasts about the future revenue and earnings situation of our Group are based on
a) the development of revenue and earnings of the existing shopping centers,
b) the assumption that there will be no substantial reduction in revenue in the retail sector that would cause a large number of retailers to no longer be able to meet their obligations under existing leases.

Revenue climbs by 29% in 2011; increase of 6% expected in 2012

We are anticipating revenue of between €184 million and €188 million for financial year 2011. The purchase of the Billstedt-Center and the full consolidation of the Phoenix-Center and the Main-Taunus- Zentrum, in particular, will make a positive contribution to revenue. In addition, the expansion and modernisation measures at the A 10 Center, the Altmarkt-Galerie in Dresden and the Main-Taunus-Zentrum will also effect a significant increase in revenue. In the 2012 financial year revenue should increase again to between €198 million and €202 million.

Signifi cant growth in earnings over the next two fi nancial years

Earnings before interest and taxes (EBIT) amounted to €124.0 million in 2010. According to our forecast, EBIT will amount to between €157 million and €161 million in the current financial year (+28%). This is expected to increase to between €169 million and €173 million in 2012 (+7.5%).

Earnings before tax (EBT) excluding measurement gains and losses amounted to €63.9 million during the year under review. We expect the corresponding figure to be between €75 million and €78 million for the 2011 financial year (+20%) and between €84 and €87 million for the 2012 financial year (+11%).

Positive FFO trend

Funds from operations (FFO) amounted to €1.40 per share in the year under review. We expect this figure to be between €1.48 and €1.52 in 2011 (+7%) and between €1.60 and €1.64 in 2012 (+8%).

Dividend policy

We intend to maintain our long-term dividend policy geared towards continuity and to distribute a dividend of €1.10 per share to our shareholders again in 2011 and 2012.

Hamburg, 13 April 2011

Forward-looking statements
This Management Report contains forward-looking statements based on estimates of future developments by the Executive Board. The statements and forecasts represent estimates based on all of the information available at the current time. If the assumptions on which these statements and forecasts are based do not materialise, the actual results may differ from those currently being forecast.

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