DES - Online Annual Report 2007 - Report of the Supervisory Board

›› “Particularly intensive and repeated discussions with the Executive Board focused on the Company’s strategy in light of increased prices for shopping centers.”

Dear Shareholders,

During the 2007 financial year, the Supervisory Board performed the duties incumbent on it according to the law and the Articles of Association and closely followed the performance of Deutsche EuroShop AG. It monitored and advised the Executive Board in its management of the business.The Executive Board informed us regularly, promptly and in detail of business developments.

Focus of advisory activities

We examined our Company’s net assets, financial position and results of operations, as well as its risk management, regularly and in detail. In this context, we checked that the formal conditions for implementing an efficient system of monitoring our Company were met and that the means of supervision at our disposal were effective. We ensured that all significant factors affecting the business were reported to us. Our discussions focused on the development of the portfolio properties, their sales trends, outstanding accounts, occupancy rates, construction measures and liquidity as well as investment cost trends for our new development projects.

Particularly intensive and repeated discussions with the Executive Board focused on the Company’s strategy in light of increased prices for shopping centers.

In these discussions, the Executive Board also presented various investment options and alternatives to the Supervisory Board. In addition, based on drafts prepared by external consultants, the impact of the German business tax reform was also discussed.

Current topics were discussed by the Chairman of the Supervisory Board and the Executive Committee of the Supervisory Board together with the Executive Board if required. Transactions requiring the approval of the Supervisory Board were discussed and resolved in the relevant meetings. All resolutions in the period under review were approved unanimously.

Meetings

During the 2007 financial year, four regularly scheduled Supervisory Board meetings took place. No Supervisory Board member participated in less than half of the Supervisory Board’s meetings.

In the first meeting on 19 April 2007, we completed the annual review of the efficiency of the Supervisory Board and approved the agenda for the Annual General Meeting. In this context, we selected the auditor who was proposed to the shareholders for election. As a result of the high measurement gains on our real estate portfolio in relation to operating profit at the end of 2006, we again set particular store by the explanations of the Executive Board provided in this respect. Once again, we determined that measurement gains and losses have a very significant influence on the income statement for our Company, as for all other real estate companies preparing their financial statements in accordance with IFRSs. Moreover, these measurement gains and losses are also determined by factors beyond the control of the Executive Board. Another topic of discussion was the RE IT legislation in Germany and its subsequent advantages and disadvantages for our Company.

In addition to discussing business performance in the meeting on 21 June 2007, we discussed individual recommendations of the German Corporate Governance Code and their application to our Company. In so doing, the decision was taken not to establish any age limitations for the corporate entities.

In the third meeting, on 13 September 2007, we focused more intensely on developments regarding construction progress on the Galeria Baltycka in Gdansk, Poland; the Stadt-Galerien in the German cities of Hameln and Passau, as well as expansion plans for the Main-Taunus-Zentrum near Frankfurt am Main. In addition, the peculiarities of the market for specialist retailer properties were discussed in order to deduce potential effects on the strategy of our Company.

The last meeting, on 23 November 2007, focused primarily on investment possibilities presented by the Executive Board with regard to project developments in their early stages.

A brief discussion also focused on the impact of the subprime crisis on our Company’s situation. Fortunately, the Executive Board was able to report that no negative impact is foreseeable. This was presented in a plausible manner based on loan agreements concluded at the start of the year as well as current negotiations.

Committees

The Supervisory Board has formed two separate committees, an Executive Committee and an Audit Committee, each with three members. We consider this to be appropriate, given the size of the Company and the number of Supervisory Board members. During the period under review, both committees met on 29 March 2007, and the Executive Committee met additionally on 13 September 2007. The members of these entities also consulted with one another by telephone as well.

Corporate Governance

In December 2007, together with the Executive Board, we issued an updated declaration of conformity with the recommendations of the government commission pursuant to Article 161 of the Aktiengesetz (AktG - German Public Companies Act) and made this permanently available on the Deutsche Euro- Shop website on 18 December 2007. A separate report on implementation of the German Corporate Governance Code is included in this Annual Report. At the end of 2007, the Supervisory Board members declared in writing that no conflicts of interest arose. The members of the Executive Board did the same at the start of 2008.

›› “The Company’s conservative strategy has proven itself successful.”

Financial statements of Deutsche EuroShop AG and the Group for theperiod ended 31 December 2007

At the Audit Committee meeting on 9 April 2008 and the Supervisory Board meeting on 17 April 2008, the Audit Committee and the Supervisory Board examined in detail the annual financial statements of Deutsche EuroShop AG in accordance with German commercial law, and the consolidated financial statements in accordance with International Financial Reporting Standards (IFRSs), each as at 31 December 2007, as well as the management report and group management report for financial year 2007.

The documents relating to the financial statements, the auditor’s reports and the Executive Board’s proposal for the appropriation of the unappropriated surplus were presented to us in good time. The auditor elected by the Annual General Meeting on 21 June 2007 - Hamburg-based BDO Deutsche Warentreuhand AG Wirtschaftsprüfungsgesellschaft - had audited the previous sets of financial statements and issued an unqualified audit opinion in each case. The auditor also confirmed that the accounting policies, assessment and consolidation methods in the consolidated financial statements complied with relevant accounting provisions. In addition, the auditor determined in the course of his assessment of the risk management system that the Executive Board has undertaken all required measures pursuant to Article 91, (2) of the AktG in order to identify risks promptly which could jeopardise the continued existence of the Company.

The auditor’s representatives took part in the discussion on the annual financial statements and the consolidated financial statements on the occasions of the Audit Committee meeting on 9 April 2008 and the Supervisory Board meeting on 17 April 2008 and explained their main findings.

Following its own examination of the annual financial statements of Deutsche EuroShop AG, the consolidated financial statements and the management reports appertaining thereto, the Supervisory Board did not raise any objections, agreed with the findings of the auditor’s examination and approved the annual financial statements of Deutsche Euro- Shop AG and the consolidated financial statements. The annual financial statements have thus been adopted. The Supervisory Board endorses the Executive Board’s proposal for the appropriation of the unappropriated surplus.

The 2007 financial year was characterised by a considerable deterioration of overall conditions for the real estate sector. The Company’s conservative strategy has proven itself successful. The efforts of the Executive Board and the staff also enabled our Company to enjoy a very positive performance. Thus, the Supervisory Board thanks the Executive Board and all employees for their successful accomplishments in the 2007 financial year.

Hamburg, 17 April 2008