BUSINESS FOR THE YEAR Portfolio valuation 2 2.6.1.2 Methodology used by external appraisers On December 31 and June 30 of each year, Klépierre updates the > over the past six years, appraisers will have been rotated for 82% fair market value of its properties. Since June 2015, five independent of the portfolio (in value). international appraisers are in charge of issuing independent fair The valuation process is centralized to ensure consistency in market values: Cushman & Wakefield (formerly DTZ), Jones Lang methodology, timeframe, and reports. This process is based on an LaSalle, CBRE, BNP Paribas Real Estate, and Colliers. Assignments international approach to the valuation of shopping centers in line were made for a three-year period after a tender process in which with the size of the investment market for this sector. many other appraisal firms participated. As last assignments were ended as of December 2017, a new tender process was launched to select independent appraisers. As a result of this process: > 24% of the portfolio (in value) will be valued by a different appraiser; 3 BREAKDOWN BY APPRAISER OF THE APPRAISED PROPERTY PORTFOLIO AS OF DECEMBER 31, 2017 Share in the total portfolio Appraiser Countries covered (in value) Cushman & Wakefield France 32% Denmark, Sweden and Norway Poland, Hungary, the Czech Republic and Slovakia The Netherlands and Turkey Jones Lang LaSalle France 38% Italy, Greece, Turkey and Belgium CBRE France 26% Spain and Portugal Italy and the Netherlands BNP Paribas Real Estate Germany 4% France (other retail properties) Colliers Italy (K2 Fund) 1% TOTAL 100% All appraisals are conducted in accordance with the professional are run on a 10-year period. Appraisers are provided with all relevant standards applicable in France (“Charte de l’Expertise en Évaluation information (detailed rent rolls, footfall, retailer sales, occupancy cost Immobilière”), the recommendations of the French stock exchange ratios, etc.) and make their own assessment of the future cash flows authority AMF dated February 8, 2010, and the RICS (Royal Institute to be generated by the property. They factor in their own leasing of Chartered Surveyors) standards. The fees payable to appraisers are assumptions (ERV, vacancy, incentives, etc.) as well as future capital agreed upon when the three-year assignment is signed, on a lump sum expenditures and non-recoverable operating expenses. The discount basis depending on the number and size of the assets to be appraised. rate varies from one property to another as it is a combination of the The appraisal documents are reviewed by the Group’s auditors and the risk-free rate and the risk premium attached to each property due Audit Committee. As of December 31, 2017, 98% of Klépierre’s portfolio to its location, quality, size, and technical specificities. The terminal was appraised. The fair market value of standing assets is appraised value is calculated based on the net rental income for the tenth year, using the discounted cash flow (DCF) method, which measures the capitalized by an exit yield. value of an asset by the present value of its future cash flows. DCFs 3 ASSUMPTIONS USED BY APPRAISERS FOR DETERMINING THE SHOPPING CENTER PORTFOLIO’S VALUATION(a) (b) Annual rent (c) (d) (e) Countries (in euros/sq.m) Discount rate Exit rate NRI CAGR France/Belgium 389 6.0% 4.6% 3.0% Italy 399 7.0% 5.6% 1.8% Scandinavia 288 7.0% 4.8% 2.7% The Netherlands 226 6.4% 6.2% 2.5% Iberia 273 7.7% 5.8% 3.7% Germany 228 5.2% 4.5% 0.9% CEE & Turkey 228 8.9% 7.1% 3.1% TOTAL 321 6.7% 5.2% 2.7% (a) Discount rate and exit rate weighted by shopping center appraised value (including transfer taxes, Group share). (b) Average annual rent (minimum guaranteed rent + sales based rent) per asset per sq.m. (c) Rate used to calculate the net present value of the future cash flows to be generated by the asset. (d) Rate used to capitalize the net rental income at the end of the DCF period to calculate the terminal value of the asset. (e) Compounded annual growth rate (CAGR) of the net rental income (NRI) as estimated by the appraiser on a 10-year period. The value obtained by a DCF method is then benchmarked using metrics such as EPRA net initial yield for comparable property, value per sq.m., and recent market transactions. KLÉPIERRE 2017 REGISTRATION DOCUMENT 59