GROUP OVERVIEW 1 Main risk factors 1.8 Main risk factors Klépierre conducted a review of its risks. With the exception of the > the profitability of Klépierre’s real estate letting activities depends risks presented thereafter, Klépierre has not identified any risks that on the solvency of its tenants. During periods of difficulty in the could have a materially adverse impact on its business. economy, tenants may delay payment of rent, fail to pay rent at However, other risks and uncertainties partially or entirely unknown all, or encounter financial problems that would cause Klépierre to by Klépierre, considered non-material or whose occurrence was not review tenancy conditions downwards. foreseen as at the filing date of this document, may also have an adverse effect on its business. Should any of the risks described 1.8.1.2 Risks related to the real estate market thereafter materialize, Klépierre’s business, financial position, results Klépierre may not always execute its investments and divestments at at operations or prospects could be affected. the most opportune time or at favorable financial conditions due to The relevant management control procedures and management tools the fluctuation that the real estate market may face. In overall terms, a used by the Group are described in the following section on internal downturn in the commercial real estate market, mainly characterized control and risk management. by a widespread decline in asset prices or rent levels, could have a negative effect on Klépierre’s investment and disposal policy, as well as on the development of new assets, the value of its asset portfolio, 1.8.1 Risks related to Klépierre’s the conduct of its business, its financial position, its operating income strategy and activities and its future prospects. 1.8.1.1 Risks related to the economic environment More specifically, a downturn in the real estate market could have a significant negative effect on the conditions applying to Klépierre Since the majority of the Klépierre real estate asset portfolio comprises financing, and therefore on the business itself. In particular: shopping centers, changes in the key macroeconomic indicators of > Klépierre covers part of its financing needs by selling existing real the countries in which Klépierre operates are likely to impact its lease estate assets. In unfavorable market conditions, these assets could income and real estate portfolio value, as well as shape its investment take longer to sell and achieve lower prices than expected, which and new asset development policy, and therefore its growth prospects. could limit the flexibility of Klépierre in the way it implements its The key factors likely to affect Klépierre’s business are as follows: development strategy; > the economic environment is likely to encourage or depress > certain covenants related to loan agreements signed by Klépierre demand for new retail space and therefore affect the growth and its subsidiary companies depend, among other things, on the prospects of Klépierre’s shopping center portfolio (in terms of asset value. Unfavorable market conditions could reduce the value construction of new centers, extension of existing centers and of Group assets, making it more difficult for Klépierre to comply acquisition or disposal transactions). It may also have a long-term with the financial ratios stipulated under loan agreements. If impact on occupancy rates and the ability of tenants to pay Klépierre were to find itself unable to maintain these ratios, it could their rent; be obliged to sell assets or raise funds by issuing equity securities in order to repay the debt or ask lenders to amend certain loan > a downward trend or slower growth in the indices against which agreement provisions. At December 31, 2017, the Loan-to-Value most rents payable under Klépierre leases are indexed may also ratio referred to in the loan agreements was 36.8%, giving Klépierre compromise Klépierre’s rental income, as could any change in substantial room for maneuver given the maximum limit of 60% set the indices used for this purpose. The overall impact on all the in said agreements. Assuming the level of debt remains the same, leases in the Klépierre portfolio could be reduced by the fact that the value of the property portfolio would have to decline by more indexation is country specific (usually against national inflation than 39% to reach this limit. indices or, in the case of France, indices specific to commercial leases); 1.8.1.3 Risks related to the international operations > the ability of Klépierre to increase rents—or even to maintain of Klépierre’s business them at current levels—depends, at the point of lease renewal, principally on its tenants’ current and forecast revenue levels, Klépierre owns and operates shopping centers in 16 countries in which in turn depend in part on the state of the economy. Tenants’ continental Europe. Some of these countries may have risk profiles revenue trends also impact on the variable element of rents; higher than those of Klépierre’s major markets (France, Scandinavia, > any prolonged worsening of the macroeconomic situation of Italy). The economic and political context of these countries may be countries in which Klépierre’s portfolio is located, which would less stable, their regulatory frameworks and entry barriers may be less have a negative effect on Klépierre’s lease income and operating favorable and business conducted in local currencies that may prove income as a result of the loss of lease income and the increase in more volatile than the euro. The risks posed by individual countries, non-rebillable expenses (where vacant premises require repairs combined with a failure to manage those risks effectively, may have and renewals before they can be re-let, these costs cannot be an adverse impact on the operating income and financial position of passed on to tenants); Klépierre. The breakdown of Klépierre’s business and performance by country is presented in chapter 2 “Business of the year”, section 2.1 of the registration document. 26 KLÉPIERRE 2017 REGISTRATION DOCUMENT