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Deutsche Euroshop May Buy German Mall for $392 Million This Year

Deutsche Euroshop, Germany’s largest listed shopping-mall owner, is in talks to buy a German shopping center valued at as much as 300 million euros ($392 million).

The company may agree to make the acquisition by the end of this year, Chief Executive Officer Claus-Matthias Boege said. The Hamburg-based company already owns large malls in Germany, Poland, Austria and Hungary. Last month, Boege said the company doesn’t plan to make any further acquisitions because prices had become too high.

“If it happens, it will happen this year,” said Boege in an interview at a conference in Berlin.

Deutsche Euroshop is seeking to expand its 3.1 billion euro portfolio of properties by an average of 10 percent a year. The company hasn’t made any acquisitions in 2012, citing high prices and strong competition from bidders seeking a safe investment amid Europe’s sovereign debt crisis.

The company would pay for the purchase by tapping a 150 million euro credit line and borrowing as much as 150 million euros, according to company spokesman Patrick Kiss. The credit line would then be replaced by a share increase, he said.

Deutsche Euroshop has risen about 17 percent this year to 29.04 euros in Frankfurt trading. In that time, the MDAX index for medium-sized companies has climbed 24.1 percent.

“The market would welcome another acquisition,” said Kai Klose, an analyst at Berenberg Bank who has a buy rating on the stock. German shopping centers are considered a profitable investment because rents are expected to rise, he said. “International retailers are hesitant to expand in other European countries, but they’re happy to come to Germany for the stability.”

Larger Malls

Deutsche Euroshop typically buys malls with at least 25,000 square meters (270,000 square feet) of space. It owns the Main Taunus Zentrum in Frankfurt and the A10 Center in Berlin.

Yields for prime shopping centers in good locations fell by 10 basis points to 5 percent in the first half, according to data compiled by broker CB Richard Ellis Inc. That compares with about 5.75 percent in 2009. Deutsche Euroshop buys properties with yields of at least 5.50 percent, Kiss said.

The outlook for shopping centers is favorable because German unemployment is at a two-decade low of 6.8 percent, according to CBRE Group Inc. Household spending grew 0.4 percent in the second quarter compared with the first quarter, according to the Federal Statistics Office.

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