GROUP OVERVIEW 1 Main risk factors 1.8.3 Legal, tax and regulatory risks Risks relating to the SIIC tax rules Risks related to applicable regulations Since Klépierre benefits from the French “SIIC status” (or its equivalent in some countries where it operates), it is subject to special tax As an owner and manager of real estate assets, Klépierre must comply rules, referred to as the “SIIC rules.” As such, and subject to certain with a number of regulations in force in all countries where it operates. conditions, Klépierre is exempt from paying corporate income tax. These rules include laws and regulations on urban planning, building Although there are significant benefits involved in adopting the SIIC construction, commercial licenses, health and safety, environement, status, the rules are complex and pose certain risks for Klépierre and leases, corporate matters, labor and personal data protection. its shareholders: Changes in the legal and regulatory framework, as well as the loss of > the requirement for Klépierre to distribute a significant portion rights attached to an authorization, may require Klépierre to make of the profits earned in each fiscal year, which could, for example, changes to its business, assets or strategy. Klépierre may also suffer affect its financial position and liquidity; financially should one or more tenants in one of its shopping centers > Klépierre is exposed to the risk of future changes to the SIIC rules, fail to comply with the applicable standards which, for instance, could and certain changes could have a significant negative impact on take the form of a loss of rent following a store closure or a loss of Klépierre’s business, financial position and results of operations; marketability of the asset. The regulatory risks described in this paragraph could impose additional costs on Klépierre which could > Klépierre is also exposed to the risk posed by future interpretation have an adverse effect on its business, results of operations, financial of the SIIC rule provisions by the French tax and accounting position, and/or the value of the Klépierre asset portfolio. authorities. The specific risk associated with laws 1.8.4 Safety and security risks and regulations governing leases In certain countries in which Klépierre has operations and especially As buildings open to the public, Klépierre’s shopping centers are France, the contractual conditions applying to lease periods, lease exposed to security risks whose materialization may adversely affect voidance, lease renewal and rent indexation may be considered to the image, business or performance of said centers, or of Klépierre as be a matter of public policy. More specifically, some legal provisions a whole. Such security risks mainly include: in France limit the conditions under which property owners may > a terrorist attack, given the evolution of the terrorist threat increase rents to align them with market levels or maximize rental in Europe as described by Europol, the European Union’s law income. In France, certain types of lease must be entered into for enforcement agency. Even if the agency does not mention minimum periods, and the process of evicting tenants in the event of shopping centers as specific targets of terrorist attacks, it does non-payment may be lengthy. indicate that some terrorists’ modus operandi aim at groups Any change to the regulations applying to commercial leases, and or gatherings of people with the intent of causing numerous particularly their term, the indexation and capping of rents or the casualties; way in which eviction penalties are calculated, could have a negative > an abrupt or severe deterioration of public order in the perimeter effect on the value of Klépierre’s asset portfolio, as well as Klépierre’s of a shopping center that would lead customers or tenants to operating income and financial position. consider themselves no longer safe in the area. Litigation risks Klépierre’s shopping centers are also exposed to safety risks. The two main safety risks that may adversely affect the image, the business In the normal operation of its business, the Group may be involved in or the performance of said centers are a building collapse and a fire. legal proceedings or subject to audits by tax or regulatory authorities. More generally, any failure to comply with safety measures or control Such events may entail a financial risk and a risk to its reputation procedures imposed by the law could result in an official shutdown of and/or to its image. To Klépierre’s knowledge, as at the filing date of the site, with local consequences for the future of the business and this document, there was no material litigation with respect to the image of the center concerned. Group’s balance sheet that is not reflected in the financial statements. Information about provisions for liabilities and litigation is disclosed in note 5.8 to the consolidated financial statements. No provisions 1.8.5 Environmental risks considered individually represent a material amount. 1.8.5.1 Risks related to the environment No governmental or legal proceeding or arbitration of which Klépierre and the visitors’ health is aware to date, which is pending or threatened, is likely to have or has had a material impact on the financial position or profitability of In all the countries in which it operates, Klépierre complies with Klépierre and/or Group in the past twelve months. environmental protection laws applying to the presence or use of hazardous or toxic substances, and the use of facilities capable of generating pollution and impacting public health. 30 KLÉPIERRE 2017 REGISTRATION DOCUMENT