FINANCIAL STATEMENTS Consolidated financial statements as of December 31, 2017 3 Klépierre applies the following rules: > derivatives are recognized at their trade date, since their measurement effectively takes account of any deferred start dates; > other financial instruments (especially liabilities) are recognized on the basis of their settlement date. Method used to calculate fair value of financial instruments Financial assets and liabilities recognized at fair value are measured either on the basis of market price or by applying measurement models that apply the market parameters that existed on the balance sheet date. The term “model” refers to mathematical methods based on generally-accepted financial theories. The realizable value of these instruments may differ from the fair value adopted when preparing the financial statements. For any given instrument, an active, and therefore liquid, market is any market in which transactions take place regularly on the basis of reliable levels of supply and demand, or in which transactions involve instruments that are very similar to the instrument being measured. Where prices quoted on an active market are available on the closing date, they are used to determine fair value. Listed securities and derivatives traded on organized markets such as futures or option markets are therefore measured in this way. Most OTC (Over The Counter) derivatives, swaps, futures, caps, floors and simple options are traded on active markets. They are measured using generally-accepted models (discounted cash flow, Black and Scholes, interpolation techniques, etc.) based on the market prices of such instruments or similar underlying values. Tax treatment of changes in fair value of financial instruments In Klépierre’s case: > the non-SIIC part of the deferred tax on financial instruments recognized at fair value is calculated pro rata of net financial income; > the financial instruments of foreign subsidiaries recognized at fair value generate a deferred tax calculation on the basis of the rates applying in the country concerned. Current and non-current financial liabilities amount to €9,586 million as > total investments amounted to €582 million including €296 million of December 31, 2017. of development expenses and capex mainly on Hoog Catharijne, Net indebtedness totaled €8,978 million, compared to €8,613 million Val d’Europe and Marseille Prado and other acquisitions made at December 31, 2016. Net indebtedness is the difference between during the year for an amount of €286 million. In the meantime, financial liabilities (excluding both fair value hedge and market value Klépierre received €263 million related to asset disposals in France, adjustment of Corio’s debts recorded at the acquisition date) plus Scandinavia and Spain; bank overdrafts minus available cash and marketable securities. > the free cash flow, minority contribution, and early close out costs The €365 million increase is mainly explained by: on debt and financial instruments represent the remainder and helped to reduce net debt by €802 million; > the 2016 dividend payment in April 2017, for €562 million and the > the appreciation of the euro against the Scandinavian currencies purchase of 9,761,424 of own shares for an aggregate amount of generated €64 million of negative foreign-exchange impact on €350 million; debt. KLÉPIERRE 2017 REGISTRATION DOCUMENT 95