GROUP OVERVIEW 1 Main risk factors These risks may result in investment projects being delayed, canceled 1.8.2 Risks related to Klépierre’s financing or completed at a cost above that initially estimated in the budgets policy and financial activities prepared by Klépierre, which could in turn affect its financial results. The exposure of Klépierre to the range of financial risks and the policy 1.8.1.9 Risks related to the leasing of assets it applies to manage and hedge against those risks are described in greater detail in note 8 to the consolidated financial statements and Klépierre is responsible for leasing the shopping centers it develops section 1.9 on internal control and risk management of the current and other real estate assets it acquires, and therefore bears the risk chapter. of any leasing failures. Klépierre may encounter difficulties in securing retailers that are both attractive to consumers and prepared to accept 1.8.2.1 Liquidity risk the level and structure of rents that it offers. The retail real estate sector in which Klépierre operates is a rapidly-evolving business Klépierre’s strategy depends on its ability to raise financial resources in environment in which change is driven by customer demand. Klépierre the form of loans or equity for the purpose of funding its investments risks being unable to let its centers with enough retailers to ensure and acquisitions and refinancing maturing debts. Klépierre is high occupancy rates, or with retailers attractive enough to achieve committed to distributing a significant proportion of its profits to high rental yields. This could in turn affect Klépierre’s business its shareholders in order to qualify for SIIC status. It therefore relies volumes and operating income. significantly on debt to fund its growth. This method of funding may Similarly, when existing leases expire, Klépierre could find itself unable not be available under advantageous conditions. This situation could to let or re-let vacant units within an acceptable period and/or under occur, among other things, in the event of a crisis in capital markets conditions as favorable as those offered by its current leases. Klépierre or debt markets, the ocurrence of events impacting on the real estate might not be able to attract a sufficient number of tenants or high- sector, a reduction in the rating of Klépierre debt, restrictions imposed profile retailers into its shopping centers, and may not be successful in by covenants included as part of loan contracts, or any other change maintaining occupancy rates and lease income at satisfactory levels. to the business, financial position or shareholding profile of Klépierre This could in turn have an adverse impact on Klépierre’s revenues, capable of influencing the perception that investors or lenders have operating income and profitability. of its creditworthiness or the attractiveness of investing in the Group. Klépierre is also exposed to the general risks associated with all types 1.8.1.10 Risks related to the departure of borrowing, and particularly the risk of operating cash flows falling to or closure of flagship chains a level at which the debt could not be served. If such a shortfall were to occur, the result could be an acceleration or early repayment and Klépierre’s shopping centers are often supported by one or more the calling in of any security given, with the possibility of the assets “anchor tenants” with high levels of customer appeal. A decline in concerned being seized. the attractiveness of such retailers, any slowdown or cessation in The Group’s debt maturity schedule and the management of liquidity their businesses (particularly as a result of an unusually depressed risk are treated in further detail in the notes to the consolidated economy), any failure to renew their leases, any termination of their financial statements (notes 5.11 and 8.2). leases and any delay in re-letting the vacated premises could result in a decline in attractiveness of the shopping centers concerned. The Taking the matters described above into account, Klépierre is in a resulting decline in footfall could trigger lower sales volumes for other position to deal with all its future maturing finance. In particular, its stores, which would thus have a significant negative effect on the liquidity position as of December 31, 2017 covers its refinancing needs total rental yield from certain centers, and Klépierre’s financial position for the next two years as forecasted as of the same date. and growth prospects. This risk is all the more serious that the failing anchor tenant may be the hypermarket, which, in many cases, belong Risks related to the covenants contained to the shopping center co-owner. in certain loan agreements 1.8.1.11 Risks related to human resources In addition to the usual covenants, the loan agreements entered into by Klépierre also contain covenants obliging Klépierre to comply Klépierre works in a highly competitive and changing industry with specific financial ratios, as detailed in chapter 2 “Business of the that requires its employees at every level to be major players in year”, section 2.8, of the registration document. If Klépierre were to implementing Group strategy. This is why human resource-related breach one of its covenants and be unable to remedy that failure risks are strategic risks for Klépierre: within the time contractually allowed, the lenders could demand early > A decline in the Group’s appeal as an employer or reduced ability repayment of the loan or seize the assets concerned where the loan to retain talented employees, especially in key positions; this risk is secured. Some loan agreements also contain cross default clauses exists in particular as result of the relatively small scale of the allowing lenders to demand early repayment of outstanding amounts Klépierre organisation and individuals’ high employability in the event that Klépierre fails to meet the covenants contained in other loan agreements (unless any shortcoming is regularized within > Mismatch between employees’ skills and the Group’s requirements the period allowed). Consequently, any failure to meet its financial or failure to adapt employees to operating challenges resulting in commitments could have an adverse impact on Klépierre’s financial particular from changes in consumption position, its earnings, its flexibility in conducting its business and pursuing growth (for example, by impeding or preventing certain > Deterioration of health at work as result among others of acquisitions), its ability to meet its obligations, and its share price. requirements of the competitive market on which Klépierre At the date of this report, Klépierre has satisfied all its obligations operates. arising from the financial commitments described above. 28 KLÉPIERRE 2017 REGISTRATION DOCUMENT