Deutsche Euroshop bracing for another tough year in shopping centres

As a proxy for the German shopping centre business as a whole, SDAX-listed Deutsche Euroshop (DES) is worth further study, as it's the only public company in Germany to invest solely in shopping centres in prime locations. Not surprising its full-year figures, released last week, made for sobering reading. However, there were some redeeming features, largely to do with the company's own financial structuring, still relatively conservative compared with other European players in the sector.

Operating profits at DES collapsed, while turnover fell only slightly, leading to an overall net loss, said the company when presenting its preliminary figures in Hamburg last week. For the current year a further decline in sales and operating results is projected.

Of the group's 21 shopping centres, 18 are currently in hard lockdown so that this year's Easter business is also severely impaired. While the German government has extended the grace period to the end of April during which companies would be obilged to file for insolvency where trading is no longer feasible, DES said it IS facing the risk of further tenant insolvencies. It remains in constant close contact with its tenants through its service provider and centre operator ECE. An offer was made at the beginning of the year, for example, to tenants badly affected by the Christmas closure to share the loss amounting to half of the net rent.

The company currently has investments in 21 shopping centers in Germany, Austria, Poland, the Czech Republic and Hungary. The portfolio includes the Main-Taunus-Zentrum near Frankfurt, the Altmarkt-Galerie in Dresden and the Galeria Baltycka in Gdansk, among many others.

Looking ahead, DES management said it was looking ahead to the second half of the year, and will issue a new forecast as soon as reasonably possible, it said.

For 2020, earnings before interest and taxes (EBIT) fell 18% year-on-year to €161m, mainly due to impairment charges and sales declines as a result of the pandemic. Sales decreased only moderately by 3% to €224m. The bottom line was a consolidated loss of €252m , compared to a profit of €112m million euros a year earlier. The decline in shopping center valuations in particular had dragged the company into the red. Funds from operations (FFO) fell by 17.6% to €123.3m. 

DES had a year-end LTV ratio of 32.9%, which is fairly conservative. It has borrowing facilities with 23 banks, and is paying 2.18% per annum for its consolidated borrowing, with an average residual maturity of 5.1 years.

The group plans to pay a dividend of 4 cents per share for 2020, or 4% of share capital. With the share price trading at about €18.00, any dividend at all is one of the stock's main attractions, but in line with sector peers, the stock price has been in steady decline over the past five years.