DIRECT MARKET REPORT GERMAN RETAIL - Europe Real Estate

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• For a more exact view on the retail market one should distinct the various sub segments and regions. Yields in Germany for retail warehouses/parks are still 100 basis-points higher than the ones for prime shopping centres and expected to fall further seen the strong market demand. However, the market is expected to become mature now the attention has been so intense. A study performed by Hahn estimates that warehouses increase their market share by more than 3% to 25% by 2010. Many warehouses will size more than 800m 2 , which correlates to the increase in food discount stores (e.g. Lidl, Aldi). 56.7% of all investors are considering retail warehouse centres the most attractive form of investment; • Prime shops in high streets that contain a long-term contract with an international fashion chain (e.g. H&M) are extremely popular. We expect the demand for high street shops to be ongoingly strong and supply limited; • For prime inner city shopping centres and large dominant modern out-oftown centres –both well let and actively managed- we expect yields to dive below 5% overall. The lower rate of return and the implied lower investment risk of shopping centres are partly attributable to their selected location (e.g. inner city locations) or in the diversified tenant mix; • Other operating retail formats like hypermarkets, specialist retailers, old fashioned outdated supermarkets and shopping centres are currently in their saturation phase and therefore less promising from an investor point of view. Supermarkets peaked in terms of market share already back in 2000. The only chance to survive is to adapt and remodel themselves to current and future market conditions; • Not many dedicated German retail players are on our radar screen. The best known listed players are Deutsche EuroShop, the Hahn Group, Dawnay Day Treveria, BBI Immobilien and GWB. All have quite a distinctive business model. By taking retail sales performance, demographics, provision and demand into account for the various retail products, segments and regions we very much fancy Deutsche EuroShop and BBI Immobilien. o Deutsche EuroShop focuses on prime inner-city centres throughout Germany, Austria, Poland and Hungary that bear long-term leases which are indexed and are financed conservatively. The average portfolio yield today is 5.4%, total portfolio size EUR 2.6bn. 2007 was a year of consolidation but in 2008 both centres in Hamelin (March ’08) and Passau (autumn ’08) are delivered. Pre-letting rates for both properties are already high, 95% respectively 76%. Further sourcing opportunities are in place (ECE). o BBI went through a transformation from the oldest listed brewery in Germany to a real estate player which invests exclusively in specialist retail, gardening and mid-sized shopping centres in Bavaria and Baden-Württemberg, acquired mostly off-market from local companies and regional developers. The current average property yield is 6.9% and quite some revaluation potential is in place. Target is to grow from approximately EUR 150m today to more than EUR 750m. “A lot of people went into the market and out again. They were never going to undertake asset management in Germany”. Tony Quayle – Edinburgh House German retail update - 28/11/2007 4
Introduction Following the record result on the German property market (+12% y.o.y.) totalling EUR 15.5bn for retail property transactions in 2006 –the Karstadt Portfolio included- one assumes a further increase for 2007 as a consequence of very favourable market conditions; the economy is buoyant, the unemployment rate falls, interest rates are still relatively low –even after the peak in July 2007 and current credit crunch. For this year at least another 5% growth in overall property investments is expected. Exhibit 1 Transaction volume Germany for all segments Source: Jones Lang Lasalle Retail properties are regarded as one of the safest investments due to increasing rents –even though somewhat slowly in Germany- and low volatility of total return throughout the years compared to e.g. offices. Especially outside the largest cities (Berlin, Munich and Hamburg) the returns on retail have been buoyant since 2003. However, average rental growth used to be higher in the top three cities (0.6%/annum) compared to smaller regional cities. Most property –both offices and retail- has been sold by German open-ended funds during last years. It is expected that the exodus of their assets is coming to a stand-still. In the first 9 months of 2007 they collected EUR 6.9bn and signed purchase agreements for EUR 8.3bn. They tend to shift from passive buy & hold strategies to active asset management with more focus. The open-ended funds currently bear too much liquid means; Hausinvest Global (a Commerzbank subsidiary) keeps more than 28% in cash. In order to make it to the promised 6% dividend yield one should make it yielding (currently 5.3%). Even Deka Bank, the worst hit fund manager in recent years has returned to the market and bought two properties in Hamburg last month. Foreign parties are still over-represented in Germany; of all disposals 3/4 th was initiated by a German party and that same share was purchased by a foreign party so far this year. Demand from Anglo-Saxon investors remains very strong, especially for shopping centres, even though the highly leveraged investors backed-up since this summer. On the long term many specialists expect a gradual decline of new capital flowing into the market and furthermore that many funds are exiting their assets by then (>2010). We are convinced that the pressure of capital will continue to be in place for the 2-3 years to come seen the huge amount of cash still available for investment purposes. German retail update - 28/11/2007 5
Page 1 and 2: www.petercam.com Real Estate Novemb
Page 3: Executive Summary “The secret of
Page 7 and 8: The ZEW Indicator of Economic Senti
Page 9 and 10: 2 Destatis 3 Federal Statistical Of
Page 11 and 12: Consumer Price Index Consumer price
Page 13 and 14: Exhibit 11 Division median net inco
Page 15 and 16: Exhibit 14 Population, purchase pow
Page 17 and 18: Exhibit 16 Life cycles of the vario
Page 19 and 20: Corporate tax rate to 15.8% In the
Page 21 and 22: (30%) 4 . The preference for hyperm
Page 23 and 24: Exhibit 20 Indexed space developmen
Page 25 and 26: Exhibit 23 Shopping centre pipeline
Page 27 and 28: y approximately 25 basis points by
Page 29 and 30: spread of DIY over shopping centres
Page 31 and 32: Rental levels Not only prime assets
Page 33 and 34: Exhibit 30 Retail yields and rents
Page 35 and 36: acquisition of new shopping centres
Page 37 and 38: Dawnay Day Treveria • Bloomberg t
Page 39 and 40: Exhibit 34 Portfolio overview BBI I
Page 41: Petercam Institutional Research and

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