FINANCIAL STATEMENTS 3Statutory Auditors’ report on the financial statements 3.4 Statutory Auditors’ report on the financial statements This is a translation into English of the statutory auditors’ report on the financial statements of the Company issued in French and it is provided solely for the convenience of English speaking users. This statutory auditors’ report includes information required by European regulation and French law, such as information about the appointment of the statutory auditors or verification of the management report and other documents provided to shareholders. This report should be read in conjunction with, and construed in accordance with, French law and professional auditing standards applicable in France. To the Annual General Meeting of Klépierre, Opinion Emphasis of matter In compliance with the engagement entrusted to us by your Annual We draw attention to Note 2.7 to the financial statements which sets General Meeting, we have audited the accompanying financial out the change in accounting principles related to the mandatory statements of Klépierre, for the year ended December 31, 2017. application, as of January 1, 2017, of the provisions relating to forward In our opinion, the financial statements give a true and fair view of the financial instruments and hedging options, in compliance with assets and liabilities and of the financial position of the Company as ANC Regulation no. 2015-05. Our opinion is not modified in respect at December 31, 2017 and of the results of its operations for the year of this matter. then ended in accordance with French accounting principles. The audit opinion expressed above is consistent with our report to Justification of assessments – the Audit Committee. Key audit matters In accordance with the requirements of Articles L. 823-9 and R. 823-7 Basis for opinion of the French Commercial Code (Code de commerce) relating to the justification of our assessments, we inform you of the key Audit framework audit matters relating to risks of material misstatement that, in our We conducted our audit in accordance with professional standards professional judgment, were of most significance in our audit of applicable in France. We believe that the audit evidence we have the financial statements of the current period, as well as how we obtained is sufficient and appropriate to provide a basis for our addressed those risks. opinion. These matters were addressed in the context of our audit of the financial Our responsibilities under those standards are further described in statements as a whole, and in forming our opinion thereon, and we do not the Statutory Auditors’ Responsibilities for the Audit of the Financial provide a separate opinion on specific items of the financial statements. Statements section of our report. Independence We conducted our audit engagement in compliance with independence rules applicable to us, for the period from January 1, 2017, to the date of our report and specifically we did not provide any prohibited non-audit services referred to in Article 5 (1) of Regulation (EU) No. 537/2014 or in the French Code of Ethics (Code de déontologie) for Statutory Auditors. Valuation of equity investments Risk identified Our response As at December 31, 2017, Klépierre held equity investments for the amount of We obtained an understanding of management’s controls over data used for the €9,781 million, mainly in companies owning shopping centers, such amount valuation of investment properties underlying net asset values and controls over being considered as a significant item in the balance sheet. management’s analysis of the variances in values in comparison with prior periods. As detailed in Note 2.2.4 to the financial statements, impairment tests for the The audit team, including our real estate valuation specialists, attended meetings with equity investments are based on the net asset value and the future cash-flows the external appraisers to understand the methodology applied, the main assumptions of the equity investments, where the net asset value is estimated mainly on the underlying their valuations of the investment properties and more particularly amongst basis of the appraisal value of the underlying investment properties. other inputs, market trends, recent market transactions and market yields. Determining the fair value of investment properties requires significant We assessed the competence, independence and integrity of the third-party judgement due to the large number of assumptions/estimates of the underlying appraisers. investment properties such as market rent levels, expected capital expenditures, We performed analytical procedures comparing assumptions and fair values on as well as prevailing market yields and market transactions. For development a year-on-year basis of the investment properties underlying the net asset value. assets, other factors such as projected costs to complete for developments, We benchmarked the latest assumptions used to relevant market information. leasing status and risks until completion are also considered. The valuations We performed specific procedures on the largest properties in the portfolio, retained by management are carried out by third-party appraisers at six-month where the valuation and variances were significant, and those where the intervals. assumptions used and movement in values suggested a possible outlier Accordingly, the valuation of equity investments is considered to be a key audit versus market data for the relevant sector. When required, we planned further matter due to the significance of the item in the financial statements as a whole, discussions with management. combined with the judgement exercised for determining the net asset value. We recomputed the net asset values based on the valuation of the underlying investment properties taking into account the related transfer taxes. We assessed the need of recognition of impairment of equity investments by recalculating and comparing the carrying amount of the equity investments to their net asset value. 156 KLÉPIERRE 2017 REGISTRATION DOCUMENT