FINANCIAL STATEMENTS Corporate financial statements as of December 31, 2017 3 2.2.2 Mergers goodwill (technical loss) accounting 2.2.3 Property, plant and equipment principles Recognized as a result of mergers or transfers of all assets and Definition and recognition of components liabilities measured at their book value, a technical, or “false”, loss Based on Fédération des Sociétés Immobilières et Foncières (French arises when the net value of the acquired company’s shares as stated Federation of Property Companies) recommendations concerning in the assets of the acquiring company exceeds the net book asset components and useful life, the component method is applied as contributed. follows: To determine whether the merger loss is “true” or “false”, it must be > for properties developed by the companies themselves, assets compared to the unrealized capital gains on assets recognized or not are classified by component type and measured at their realizable in the accounts of the acquired company less liabilities not recognized value; in the accounts of the acquired company where recognition is > where investment properties are held in the portfolio (sometimes not mandatory (e.g., pensions accruals, deferred tax liabilities) for long periods), components were identified depending the (Article 745-4 of the French General Accounting Code). type of assets: business premises, shopping centers, offices and Technical losses were presented under “Goodwill” until December 31, 2015. residential properties. Merger losses are accounted in accordance with the Regulation 2015- Four components have been identified for each of these asset types 06 (approved as of December 4, 2015). (in addition to land): Allocation of technical losses > structures; Pursuant to Article 745-5 of the French General Accounting Code, > facades, cladding and roofing; as of transaction date, the entity allocates the technical losses to the > general and technical installations (GTI); relevant transferred assets and recognized in the accounts of the > fittings. acquired entity: > firstly, to the identifiable assets transferred when the unrealized When applying regulations 2004-06 and 2002-10, investment capital gain can be reliably estimated; properties has been split by components using the following percentages (according to FSIF template): > the remainder (if any) is allocated to the goodwill related to the acquired company. Shopping centers Depreciable life Components properties (Straight Line) The underlying assets transferred may be comprised of intangible assets, property, plant and equipment, financial assets or current Structures 50% 35 to 50 years assets. Facades 15% 25 years GTI 25% 20 years Amortization of technical losses Fittings 10% 10 to 15 years Technical losses follow the same accounting treatment as the underlying asset to which they are allocated (Article 745-7 of the All component figures are based on assumed “as new” values. The French General Accounting Code). As a result: Company has therefore calculated the proportions of the fittings, technical installations and facade components on the basis of the > if the asset is amortized: the allocated technical losses must be periods shown in the table applied since the date of construction or depreciated at the same rate, namely over the remaining useful most recent major renovation of the property asset concerned. The life of this asset starting the merger date; proportion for structures is calculated on the basis of the proportions > on the other hand, if the asset is not amortized: no amortization previously identified for the other components. charge is recorded for the allocated technical losses. In accordance with the recommendations of the Fédération des Sociétés Immobilières et Foncières (French Federation of Property Impairment of technical losses Companies), the depreciable lives have been determined in such a As the technical losses are allocated for accounting purposes to the way as to obtain a zero residual value on maturity of the depreciation underlying assets transferred: schedule. > they must be included in the net book value of these assets for Depreciation is calculated on the basis of the useful lifespan of each impairment testing; component. > they must be impaired when the present value of the underlying The maintenance expenses involved in multi-year capital repairs asset falls below its net book value, plus the share of the losses programs or major refurbishments governed by legislation, regulations allocated. The impairment is set against the technical losses first. or the standard practices of the entity concerned must be recognized from the outset as distinct asset components, unless a provision has been recognized for capital repairs or major refurbishments. This convention is intended to cover those maintenance expenses whose sole purpose is to verify the condition and serviceability of installations and to carry out maintenance to such installations without extending their working life beyond that initially intended, subject to compliance with the applicable accounting recognition conditions. KLÉPIERRE 2017 REGISTRATION DOCUMENT 137