BUSINESS FOR THE YEAR Investments, development, and disposals 2 2.4 Investments, development, and disposals 2.4.1 Investment market In 2017, European commercial real estate investments reached > €187.6 million were devoted to the development of the shopping €259 billion, a 17% increase compared to 2016. Over the same period, center portfolio. This concerns three main projects aimed at retail transactions remained stable (up 2% to €50.5 billion), the strengthening the Group’s positions in the most dynamic regions of European shopping center industry continued to lose attractiveness Continental Europe: Hoog Catharijne (Utrecht, The Netherlands), among investors. Shopping malls only accounted for 36% of the Prado (Marseille; France), and Val d’Europe in France (see the investment volume over 2017, compared to 54% in 2014. following “Development pipeline” section for more information on This year, investors favored the continental investments, which now projects); account for c. 80% of the total transactions compared to c. 70% > €95.6 million were invested in the standing assets (see the over the last decade. Germany became the first European market following “Capital expenditure on like-for-like portfolio” section for in terms of retail investment with a €10.3 billion volume this year. more information on projects) and €17.8 million in other types of Overall, investments were particularly dynamic in countries where capital expenditure (capitalized financial interests, letting fees and Klépierre operates such as in the Scandinavia countries (€5.2 billion other capitalized expenses). of transactions), the Netherlands (€3.9 billion) or Spain (€3.6 billion). The volume of transactions remained flat in France (€3.9 billion) thanks to several deals closed in Q4 this year. Even though the share 2.4.3 Development pipeline of shopping center deals in the overall retail investment volume decreased, investors’ appetite for prime products remained strong, 2.4.3.1 Development pipeline overview driving the yield down, even below their pre-crisis level for most of countries where Klépierre operates (France, Spain or Germany). The Group’s development pipeline represented €3.1 billion worth Upcoming months should bring more clarity on the interest rate of potential investments (compared to €3.3 billion at the end of environment, which is expected to support the recovery of investment December 2016), including €0.8 billion worth of committed projects(3) volumes across the continent. with an average expected yield of 6.3%, €1.0 billion worth of controlled projects(4), and €1.4 billion of identified projects(5). On a Group-Share 2.4.2 Capital expenditure basis, the total pipeline represented €2.6 billion: €0.7 billion committed, €0.7 billion controlled, and €1.2 billion identified. Total capital expenditure incurred in 2017 amounted to €586.6 million, The Group focused its development capabilities on France, Belgium, split as follows: Scandinavia, Italy, The Netherlands, and Spain: > €285.6 million were dedicated to acquisitions: > 76% of committed and controlled projects are extension- — Nueva Condomina: in May 2017, Klépierre acquired Nueva refurbishment schemes aimed both at capitalizing on shopping Condomina, the leading retail hub in the region of Murcia, destinations that have demonstrated their leadership and at Spain. Covering approximately 110,000 sq.m. (encompassing a accelerating the retail offer transformation; 73,000-sq.m. shopping center and a 37,000-sq.m. retail park), > 24% of committed and controlled projects are greenfield projects Nueva Condomina boasts an exceptional mix of 178 shops. located in some of the most dynamic cities of Europe and In 2016, it attracted nearly 11 million visitors and generated integrated into large urban development programs supported by €257 million in retailer sales(1). Based on annualized net rental efficient transportation networks and residential building projects. income (NRI) of €12.5 million at the time of the acquisition, the EPRA Net Initial Yield stood at 5.4%. 3 GEOGRAPHIC BREAKDOWN OF THE ESTIMATED COST Since the acquisition, Klépierre has been implementing asset OF COMMITTED AND CONTROLLED DEVELOPMENT management and leasing initiatives to reduce vacancy, which PROJECTS (ON A TOTAL-SHARE BASIS) stood at 15% in May 2017. The vacancy rate having already been lowered to 7.7% at the end of December 2017, Klépierre is 5% 40% confident in its ability to generate an 18% uplift in annualized Others France-Belgium NRI by 2019, as announced last May(2); 14% — Nový Smíchov (Prague, Czech Republic): Klépierre Italiy acquired from Tesco circa 7,000 sq.m. (for a total amount of €28.6 million), with the latter downsizing its hypermarket. This acquisition will allow Klépierre to rightsize Zara (over 3,000 sq.m.) or Sephora (1,000 sq.m.); 26% The Netherlands — Blagnac (Toulouse, France): an additional €35.5 million was dedicated to the acquisition of retail units surrounding Blagnac shopping center in order to secure neighboring real 16% estate ownership for potential future asset management and Scandinavia development operations on this powerful retail hub; (1) Including sales estimates for Apple, Primark, Cinesa and Leroy Merlin. (2) 2019 targeted NRI vs. current annualized NRI as of April 30, 2017. (3) Projects that are in the process of completion, for which Klépierre controls the land and has obtained the necessary administrative approvals and permits. (4) Projects that are in the process of advanced review, for which Klépierre has control over the land (acquisition made or under offer, contingent on obtaining the necessary administrative approvals and permits). (5) Projects that are in the process of being defined and negotiated. KLÉPIERRE 2017 REGISTRATION DOCUMENT 55