GROUP OVERVIEW Main risk factors 1 Risks related to any downgrading 1.8.2.3 Currency risk of the Klépierre credit rating Klépierre conducts its activities in certain countries that have not Klépierre’s existing credit rating is periodically reviewed by the rating joined the Eurozone (currently Denmark, Hungary, Norway, Poland, agency Standard & Poor’s. As at the date of this report, and since Czech Republic, Sweden and Turkey). In these countries, Klépierre’s April 2009, its long-term credit is rated “A-, stable outlook” and its exposure to currency risks derives from the following elements: short-term credit as “A-2, stable outlook.” These ratings depend on > local currencies could depreciate between the invoicing of rents Klépierre’s ability to repay its debts, as well as on its liquidity, key in euros and the payment of the aforesaid rents by the tenants, financial ratios, operational profile and general financial position, and which would create currency losses for Klépierre. Moreover, some other factors considered by the rating agency significant in respect of leases are not invoiced in euros, but in dollars (Central Europe, Klépierre’s business sector and the economic outlook more generally. Turkey) or in local currencies (particularly in Scandinavia), which Any downgrading of Klépierre’s credit rating could increase the creates an additional risk related to the rent amount effectively cost of refinancing its existing loans and could adversely impact the recovered in euros; ability of the Group to fund its acquisitions or develop its projects > fluctuations in local currencies also impact the level at which local under acceptable conditions. Any increase in interest charges would financial statements are translated into euros and integrated into compromise Klépierre’s earnings from operations and the return on Klépierre’s consolidated financial statements; development projects. If funding were not available under satisfactory conditions, Klépierre’s ability to grow its business through acquisitions > since a proportion of subsidiary’s expenses are denominated in the and development would be reduced. local currency, although their incomes (fees) are denominated in euros, any appreciation in the local currency may reduce operating 1.8.2.2 Interest-rate risk profit; Klépierre’s significant debt exposes it to risks due to interest rate > since rent bills are usually denominated in euros (apart from variations: Scandinavia and Turkey) tenants may have difficulty in paying their rent if their local currency depreciates significantly. Any resulting > the interest charges paid by Klépierre on its variable-rate debt deterioration in their solvency could have a negative impact on could therefore increase significantly; Klépierre’s rental income. > a significant increase in interest rates would impact negatively For details of the measures taken by the Group to reduce currency on the value of Klépierre’s holdings inasmuch as the yield rates risks, please refer to note 8.3 to the consolidated financial statements. applied by real estate appraisers to the rents of commercial Taking into account the measures described in the note mentioned buildings are determined partly on the basis of interest rates; above, the currency risk has been significantly reduced and remains > Klépierre uses derivative instruments such as swaps to hedge below 0.5% of the net asset value for a 10% depreciation against the against interest rate risks which enable it to pay a fixed or variable euro of the currencies of all the countries in which the group operates. rate, respectively, on a variable or fixed rate debt. This level of exposure to the currency risk is deemed not significant at the level of the Group. Developing an interest rate risk management strategy is a complex task, and no strategy can protect Klépierre fully against the risk 1.8.2.4 Counterparty risk posed by interest rate fluctuations. The valuation of derivatives also varies depending on interest rate levels. This is reflected in When Klépierre uses derivatives, such as swaps, to hedge against a Klépierre’s balance sheet, and there may also be an impact on its financial risk, its counterparty may be liable to Klépierre for certain income statement if hedging relationships are not sufficiently justified payments throughout the term of the instrument. Insolvency of said by documentation or if the existing hedges are only partly effective. counterparty may lead to delay or default in such payments, which The use made by Klépierre of interest rate hedge instruments could would have an adverse impact on Klépierre’s results of operations. expose Klépierre to additional risks, and particularly the risk of failure Klépierre has also received confirmed financing commitments from of the counterparties to such instruments, which could in turn result banks in the form of revolving credit facilities. Accordingly, Klépierre is in payment delays or defaults that would adversely impact on the exposed to counterparty risk, since the inability of the relevant banks results of Klépierre. to honor their commitments may prevent the Group from honoring its Quantified illustrations of the effects of interest rate fluctuations own financial commitments. before and after hedging are given in note 8.1 to the consolidated Klépierre is also exposed to counterparty risks in respect of its financial statements. short-term investments; since these investments are made in small amounts, simple forms and for a short term, this risk is, however, immaterial on the Group scale. The risk monitoring policy and control system implemented by Klépierre are presented in note 8.4 to the consolidated financial statements. Taking into account the nature of the risks described in the note mentioned above, and the measures taken to mitigate them, those risks are not considered significant at Group level. KLÉPIERRE 2017 REGISTRATION DOCUMENT 29