Deutsche EuroShop AG (DEQ) Earnings Call Transcript & Summary

Good afternoon, everyone, and thank you for joining the full year 2025 financial results conference call. My name is Matilde, and I'm the Chorus Call operator. Please be aware that everyone on the line is in listen-only mode and that this conference is being recorded. After the presentation, there will be a Q&A session. You may register for questions at any time by pressing * and 1 on your telephone. If you need operator assistance, press * and 0. Recording this conference for publication or broadcast is not permitted. At this point, I'm happy to turn things over to Hans-Peter Kneip. Please go ahead.

Thank you, Matilde. Good morning, ladies and gentlemen, and moin from Hamburg. Hans-Peter Kneip here. It's a pleasure to welcome everyone to today's conference call and to walk you through our financial results for fiscal year 2025, plus an update on recent developments and achievements at the company. You can be sure there are no April Fools' jokes today. What we have instead are transparent and solid results. As usual, after my brief presentation I'll be glad to take your questions. On behalf of my whole team, thank you for your time and for your continued interest in Deutsche EuroShop. Let me begin with an update on our business activities on slide 2. Versus 2024, footfall is down modestly by 0.4%, while our tenants posted a sales increase of 2.2%. Following a subdued first quarter, visitor numbers and tenant sales have both trended positively since then. I'll give you more detail, including a sector breakdown, shortly. Revenues declined slightly, by 0.4%, to €270.4 million. EBIT fell by 0.2 — by 0.9%, to €214.4 million, and FFO by 9.2%, to €147.6 million. Although contractual rents were higher, rental incentives granted, together with lower revenue from land tax apportionments and insurance expense, left revenues under the prior year.

On top of that, one-off expenses stemming from non-apportionable ancillary costs, together with higher financing costs, resulted in lower overall results. That should come as no surprise; the figures are entirely consistent with our most recent forecast. I can also report with pleasure that our key investment projects at the Main-Taunus-Zentrum and the Rhein-Neckar-Zentrum were finished on schedule and within budget, and they are adding to the success of the center. I'll give you more on that a bit later. Moving to slide 3. On funding, our position is comfortable. After the most recent financing measures and dividend payments, LTV comes in at 41.3% and liquidity at €387.4 million. That follows the dividend of €2.65 per share we paid out, totaling €200.7 million, in early July last year. For financial year 2025, we plan to propose a dividend of €1 per share to the AGM. Our funding position continues to be stable. Refinancings for the loans maturing in 2026 were already wrapped up in recent weeks, and nothing substantial needs refinancing before 2028. In June 2025, we successfully placed our first green bond, with an aggregate nominal amount of €500 million. That bond runs 5.3 years, until October 2030, and carries an annual interest rate of 4.5%.

Investors showed considerable appetite for the deal, which saw seven times oversubscription, highlighting how appealing Deutsche EuroShop is as a borrower. Trading of the bond takes place on the Euro MTF market of the Luxembourg Stock Exchange. Before issuing the bond, Deutsche EuroShop was assigned a long-term issuer rating of BB+ by S&P. S&P rates the new bond BBB-, a reflection of our solid investment grade credit profile. Now I'll turn to slide 4. Deutsche EuroShop is pursuing forward-looking measures beyond sustainable financing alone. In the autumn of last year, we released comprehensive ESG policies, available for you to view on our website. Within our new ESG policies you will find a code of conduct for employees and one for business partners and suppliers, along with topic-specific policies covering climate protection and energy, water, and environmental protection and waste. Work is also underway on a guideline for the use of artificial intelligence. Turning to slide 5. We have made substantial progress in optimizing our capital and financing structure. By publishing our Green Finance Framework last June, we laid the groundwork for potentially using green financing instruments. Sustainable Fitch has rated the framework "Excellent," the highest rating achievable.

Yesterday we released the matching allocation and impact report. This document covers, among other items, how the net proceeds from last year’s bond issue were allocated to certified green buildings, along with impact reporting and a few case studies. Moving to slide 6, we examine our centers more closely. For the final quarter of 2025, footfall came in at minus 0.7% while turnover rose 1.8%. As noted earlier, across all of 2025 we recorded a 0.4% decline in footfall and a 2.2% gain in retail sales. A soft first quarter, driven largely by seasonal effects, was more than compensated for by encouraging second and third quarters that delivered clearly positive footfall and turnover. We had expected somewhat stronger results from the fourth quarter, especially around Black Week and the lead-up to Christmas, yet on the whole the quarter was still satisfactory. I imagine it goes without saying that conditions for consumers stay difficult, shaped by, among other factors, continued volatile political developments and geopolitical conflicts. That said, we observe a modest uptick in consumer sentiment and higher tenant sales, especially in our foreign markets. Shoppers in Germany are still wary and keep spending relatively little at retail versus consumers in other European nations.

Looking at it that way, if the consumer mood in Germany also picks up, our portfolio could gain from a catch-up effect. A resurgence in economic growth might set that off — driven, for instance, by the structural measures and investment programs from the new federal government, which has now been in office for almost one year. On the other side, the ongoing war with Iran could carry longer-term consequences for inflation and interest rates, and those are very hard to gauge at present. Even so, we and our tenants are facing 2026 with optimism. I'd like to now examine more closely, on slide 7, the individual retail sectors and how they developed in Germany in 2025. This overview presents not only how turnover developed in each sector, but also the respective share of total tenant turnover and floor space, along with the occupancy cost ratio. Versus the end of 2024, our tenants in the German portfolio in the health and beauty segment did well, posting a 2.8% rise in sales. Drugstores and pharmacies like Drogeriemarkt, in particular, are the main drivers here and are continuing their success story. Electronics posted a sales gain of 1.1%, and food, including supermarkets and discounters, generated 0.8% higher sales.

Fashion textiles is our biggest tenant category — it accounts for 28% of sales and 41% of retail space in Germany — and it closed 2025 with a small decline of -0.5%. General retail, which covers bookstores, toys, household goods and jewelry, plus department stores, came in at -0.4%. Shoes and leather goods, sports, and services all finished 2025 in negative territory. All told, our German tenants raised like-for-like sales by just 0.1%, whereas tenants outside Germany did better, finishing at +3%. Across our whole portfolio, we recorded a gain of 0.8%. In absolute terms, sales from our tenants were 2.2% higher, as I already mentioned earlier. Lastly, this page illustrates that the average occupancy cost ratio — known as the OCR, meaning the proportion of rents and ancillary costs borne by our tenants compared with their revenues — comes to 11.3%. That is a healthy ratio, one that lets our tenants succeed in our shopping centers over the long run, and it demonstrates that our portfolio is well balanced and not over-rented. Now please turn with me to slide 8, where we look at how our rental contracts are distributed by maturity. The portfolio's weighted maturity is a bit higher, at 4.9 years.

Just 41% of our rental contracts come up for renewal in 2031 or later. Occupancy rose 0.3 percentage points to 95.7%, which is a high level. Slide 9 shows our top 10 tenants, and once again there were only minor changes. H&M is our largest tenant at a 2.6% share, with Deichmann and C&A next at 2.5% each. Those 10 biggest tenants represent just 22.5% of rental income. As slide 10 shows, our sector mix confirms balanced diversification across sectors. Fashion is still a focal point of our shopping centers, and it draws just as many customers as ever. Outside of fashion, the portfolio delivers a retailing mix with a large component of groceries, daily necessities, and other non-discretionary retail. That is a strong advantage, and visitors particularly value our well-balanced tenant mix, even or especially in an era of growing online retail. Contrary to popular belief, a well-curated fashion offering is still a strong draw for visitors, creating positive spillover effects for other retail segments within our centers. At the same time, we are actively working to diversify our sector mix further by expanding gastronomy and entertainment options, which are equally popular and help visitors stay longer.

That wraps up what I wanted to say about where things stand right now with our shopping centers. Next I'd like to walk you through the 2025 financial results, beginning with how our investment properties were valued, which is on slide 11. We saw a modest uptick in property values during 2025. Thanks to higher rent levels, valuations of our properties leveled off over the reporting year, and following multiple years of valuation declines, the portfolio posted a small value increase, recording a valuation gain of €14.4 million versus a valuation loss of €14.6 million a year earlier. Largely because of that valuation gain, along with capital put into the portfolio, market value excluding at equity rose by €54 million. Real estate assets were worth 1.4% more in 2025, following 0.7% in 2024. Our portfolio's net initial yield comes in at 6.22%, a touch under last year's figure. EPRA net initial yield is 5.89%, compared with 5.84% in 2024. How sensitive valuation results are to movements in the key value drivers appears in the table at the bottom right of this slide. Turning now to revenues on slide 12, they landed somewhat lower, at €270.4 million versus €271.4 million in 2024.

That represents a decline of 0.4%. Contractual rents did go up, but rental income revenue dropped a bit overall, which came from incentives given to tenants — construction cost subsidies and rent-free periods among them. Largely because of the property tax reform, the German Grundsteuerreform, revenue from property tax apportionments and insurance expenses went down by €1.8 million. The split between Germany and abroad has moved somewhat toward foreign countries, where our share now stands at 22%. Turning to EBIT, take a look at slide 13. EBIT came in at €214.4 million, a modest drop of 0.9%. A key factor there was higher center operating expenses, driven by one-off costs tied to non-apportionable ancillary costs from renewing technical equipment and from storm damage, which the building insurance reimbursed. It's worth noting that property tax expenses have fallen on a sustainable basis thanks to the tax reform already mentioned. Slide 14 brings us to the financial result, down 30.4%, or €15.5 million, moving from -€51.1 million to -€66.7 million. Interest expenses rose by €13.5 million, reflecting interest on our inaugural green bond, loan increases from the prior year, and higher rates on follow-on loans.

The remaining financial result comprises interest income plus €2.7 million in expenses tied to terminating swaps as part of early loan repayments. Slide 15 shows EBT excluding valuation falling from €165.2 million to €147.8 million — a decline of 10.5%. That drop stemmed from the weaker financial result, driven largely by higher interest and other financial expenses. Interest income on short-term bank deposits came in below the prior year, at €4.6 million. As shown on slide 16, our consolidated result rose by 74.2%, from €123.5 million to €215.1 million, chiefly thanks to a better valuation result and lower taxes. EPS accordingly climbed from €1.62 to €2.84. Now please join me on page 17 for the FFO development. FFO fell from €162.6 million to €147.6 million, or per share from €2.14 to €1.95, reflecting the weaker EBIT and the reduced financial result. Next, let me move to the balance sheet on page 18. Following the June bond issue, total assets stand at €4.6 billion. That represents a €239.4 million rise versus the reporting date at the end of 2024, mainly from a higher cash balance and a modest uplift in property values.

By December 31, 2025, our current and non-current financial liabilities came to €2.1 billion — that's €283 million more than at the close of 2024, largely because of the €500 million bond we issued in June. We've repaid loans totaling €208.5 million, mostly funded from bond proceeds. On the partial repayment side, the loans for Herold-Center Norderstedt and Stadt-Galerie Hameln are now fully repaid. Consolidated cash and cash equivalents at December 31, 2025, are €387.4 million, an increase of €175 million versus the prior year. The main drivers here are the bond proceeds, on one hand, and the €200.7 million dividend payment plus the loan repayments I just mentioned, on the other. Non-current deferred tax liabilities fell by €59.6 million, down to €291.3 million, essentially reflecting the phased cut in the German corporate income tax rate from its current 15% to 10% in 2032. Total equity, including non-controlling interests, rose by €24.4 million. Our equity ratio dropped to 47.1%, and consolidated LTV is now 41.3%. EPRA LTV — calculated proportionally based on the group's share of all assets, so on a look-through basis — comes in at 43.4%. Turning to slide 19, we show our EPRA NTA, which, as a result of the €200.7 million dividend payment, has declined to €28.45 per share.

Compared with the prior year, that's a decline of 2%, and it implies roughly a 29% discount to the Deutsche EuroShop share price. If you turn to page 20, I'll share some updated details about how our financing is structured. As the balance sheet we just looked at shows, total debt comes to €2.1 billion. As of 31st December 2025, the average interest rate was 3.2%, while weighted maturity sat at a comfortable 4.9 years. Following the €500 million bond we issued in June, we're still well positioned, with credit metrics for investment grade that are strong and sustainable — among them an LTV of 41.3%, net debt to EBITDA of 7.6 times, and interest coverage of 4.2 times. Over on the right-hand side, you can examine Deutsche EuroShop's diversified, long-term maturity profile in greater detail, which now includes the bond maturing on 15th October 2030. Every refinancing falling due in 2026 has already been finished, and since 2027 brings only minor maturities, no larger refinancing obligations come up before 2028. Slide 21 sets out a summary of the key details of our green bond. Obtaining a corporate rating and accessing the capital market for future corporate financing marked a financial milestone for us. With our first bond successfully placed in June, we have broadened our funding sources and made our financing structure more diversified.

That €500 million bond saw demand at seven times the amount offered, which shows how much institutional investors trust both the retail real estate sector and Deutsche EuroShop specifically, and also their readiness to put money into our shopping centers as qualifying sustainable projects under our Green Finance Framework. Moving to a portfolio update on slide 22. The Food Garden has become the standout feature at the Main-Taunus-Zentrum near Frankfurt, bringing a vibrant, urban feel to the center. This high-quality, diverse dining and food area opened last April. The Food Garden occupies roughly 7,000 square meters at the core of the shopping center, constructed to strict sustainability standards on the site of a former department store building. Every unit in the Food Garden is leased to top-tier tenants. Anyone who hasn't seen it yet should visit the project in person. Our IR team would also be glad to arrange guided tours. Customer and tenant reactions have been terrific, and that comes through clearly in the center's footfall. Since the opening, visitor numbers have risen 12%. Incidentally, this area operates seven days a week and draws big crowds on Sundays too. On slide 23, we have an update on the Rhein-Neckar-Zentrum near Mannheim.

We finished a bigger investment project and expanded the center with appealing tenants in food, sports, and entertainment. Since February 2025, a new, modern standalone L'Osteria has been offering visitors highlights from the Italian kitchen. Beyond that, three exciting tenants moved into the renovated former Bauhaus building, delivering lots of what we call retailtainment. A trampoline park and a thriving cycling store each serve as an attraction. An interactive indoor entertainment venue — a so-called family action concept, featuring a dark-light minigolf course and an escape room experience — opened right before Christmas. Just a few meters away sits an indoor skydiving center that is performing very well. These tenants are benefiting one another positively, and we anticipate additional synergies with the neighboring existing cinema and restaurants, which should give the whole center yet another boost. This new leisure area now carries a name capturing the variety and energy of the site: The Food & Fun Park. Beginning on slide 24, I'd like to go into further detail about our ESG initiatives, since climate protection continues to be a top priority for Deutsche EuroShop. We strongly believe sustainability and profitability need not be mutually exclusive — much as an engaging shopping experience and environmental responsibility can go together.

We keep a close watch on our CO2 output and power usage, and we're taking steps to bring those down going forward. Alongside that, we actively back a wide variety of local and regional efforts spanning environmental, social, and economic fields. Turning to slide 25, you'll notice that 20 of our 21 properties hold the prestigious gold certificate from the German Sustainable Building Council at present, while one has received platinum. Starting in 2025, renewable sources have supplied 100% of the electricity at all 21 sites, and every domestic location is provided for through a power purchase agreement. EPRA has now given us its Sustainability Best Practice Recommendations Gold Award for the ninth consecutive time. Lastly, let me move to slide 26 and the outlook. For the 2026 financial year, we are once more issuing guidance on our key figures: revenue, EBIT, EBT, and FFO. Operationally, we foresee positive development in the 2026 financial year and expect a slight upward trend in revenue as well as in EBIT. For EBT excluding measurement gains or losses, and for FFO, we anticipate a slight decline relative to the 2025 financial year, reflecting a planned lower financial result.

To give you a bit more detail, our guidance is for funds from operations of €1.77 to €1.87 per share, which comes to a total of between €134 and €142 million. That forecast rests on expected revenue of between €269 and €277 million, EBIT of €211 to €219 million, and EBT excluding valuation of €134 to €142 million. Ladies and gentlemen, many thanks for the trust you have placed in Deutsche EuroShop. We are looking back on an encouraging year 2025. The geopolitical and economic backdrop is still challenging, and there is room for improvement in the retail sector, but there are good reasons to be optimistic for 2026. You can count on us to keep investing in our shopping centers in a targeted, strategic, and sustainable way so as to create future value for our shareholders. That brings my presentation to a close. Thank you for your attention. I am now happy to take your questions. Matilde, back to you.

We're going to start the Q&A portion now. If you'd like to pose a question, you can press * and 1 on your phone. A tone will sound to let you know you've joined the queue. Should you want to drop out of the question queue, just press * and 2. Those of you on the phone who are asking questions, please turn off the loudspeaker mode while doing so. Anybody with a question can press * and 1 right now. Our first question is from Christian Auzanneau of AlphaValue. Please go ahead.