Klepierre : First-half 2019 financial report

I N T E R I M

F I N A N C I A L R E P O R T

F I R S T- H A L F 2 0 1 9

C O N T E N T S

1		MANAGEMENT REPORT	1
	1.1	Strategy	1
	1.2	Risk factors	2
	1.3	Business overview	3
	1.4	Business activity by region	9
	1.5	Net current cash flow	14
	1.6	Investments, developments and disposals	15
	1.7	Portfolio valuation	18
	1.8	Financial policy	23
	1.9	EPRA performance indicators	27
	1.10	Outlook	31
2		INTERIM CONDENSED
		CONSOLIDATED FINANCIAL
		STATEMENTS FOR THE SIX
		MONTHS ENDED JUNE 30, 2019	32

2.1 Consolidated statements of comprehensive income 33

2.2	Consolidated statements of financial position	34
2.3	Consolidated statements of cash flow	35
2.4	Statements of changes in consolidated equity	36
2.5	Appendices	37

3		STATUTORY AUDITORS'
		REVIEW REPORT ON THE FIRST
		HALF ‑YEARLY FINANCIAL
		INFORMATION	91
	3.1	Conclusion on the financial statements	91
	3.2	Specific verification	91
4		PERSONS RESPONSIBLE
		FOR THE DISCLOSURES	92

4.1 Statement of the person responsible

for the half‑year financial report

92

4.2 Persons responsible for audits & financial

disclosures

92

FOR MORE INFORMATION, PLEASE VISIT KLÉPIERRE WEBSITE:

w w w. k l e p i e r r e . c o m

1

M A N AG E M E N T

R E P O RT

1 .1 STRATEGY

Since 2013, Klépierre has focused on shopping centers only and has constantly upgraded the quality of its portfolio by pursuing a clear strategy aimed at anticipating retail trends to continuously enrich the shopping experience in the malls it owns and manages.

1.1.1 A leading, pan-European platform

Located in the most attractive regions in Continental Europe, Klépierre shopping centers offer international brands unique locations that enable them to develop and enjoy access to more than 150 million consumers in more than 50 cities.

The relevance of the Klépierre platform is built on a dense network of high potential territories. The Group targets Continental European metropolitan areas whose demographic or economic growth exceeds the national average and that offer opportunities to strengthen its positions. Klépierre is positioned in large catchment areas, wealthy regions and in growing cities.

The principal assets, whether they were developed by the Group or recently acquired, occupy leading positions in the heart of their catchment area.

conditions for the renewal of physical retail. This is the main purpose of its "Retail First" initiative.

Klépierre also pays increasing attention to its end customers through an active marketing policy and specific mall design guidelines, both aimed at enhancing the customer experience in its malls. This attention is embodied in two concepts that supplement Klépierre's client-centric management: Let's Play® and Clubstore®.

Retail First

As the principal landlord of most of the international retailers present in Europe, Klépierre interacts regularly with them. These privileged relationships enable Klépierre to facilitate their growth efficiently, whether this means optimizing their presence and store format or offering new points of sale. They also foster acceleration in terms of upgrading the retail mix through a better understanding of the challenges and needs of retail tenants.

1.1.2 Shop. Meet. Connect.®

In early 2018, Klépierre adopted a new baseline that better encapsulates its vision of a mall: Shop. Meet. Connect.® The Group develops shopping centers as local hubs where people can:

• Shop, because Klépierre is convinced that the type of physical retail it offers will continue to expand and flourish. Shoppers like going to Klépierre's shopping centers because they are places where new products are best showcased and brand loyalty is actually built and strengthened;
• Meet, because customers are looking for more than just shopping when they come to a mall. They are looking to have an experience;
• Connect, because Klépierre's shopping centers are not only part of retail's transformation to phygital, by integrating retailers' omnichannel platforms and offering digital services, they are also at the center of local ecosystems where multiple and diverse communities interact.

Retail First consists of several initiatives that Klépierre implements as part of its leasing management. The main two are:

• Right-sizingwhich aims at ensuring that retailers are able to offer the right format at the right location. In many cases, it implies expanding or reducing the size of their stores, and/or relocating them in more appropriate sites within a given shopping center;
• Destination Food®, a comprehensive plan to develop and enhance the food and beverage offer in Klépierre malls.

Let's Play®

Let's Play® sums up the positioning of Klépierre malls. It consists of promoting shopping as a game and infusing a "retailtainment" spirit into all Klépierre shopping centers. Marketing efforts are harmonized across the portfolio to foster high-quality events and services that enrich the customer experience, always with a twist of fun.

1.1.3 Customer-centric mall management

Over many years, Klépierre has been evolving from a mere property owner to a retail-focused company concentrating its efforts on better serving its primary customers: retailers.

Retailers are experiencing the fast and profound revolution of their industry. Klépierre facilitates their transformation by creating the

Clubstore®

Clubstore® is Klépierre's comprehensive approach to the customer experience. The Group has developed a holistic set of detailed standards with respect to 15 touch points with customers, from digital access to welcome desks, from parking to storefronts, from lighting to sound and smell, from break zones to kids' entertainment, etc. These standards are being rolled out across the portfolio to offer a sense of hospitality and a seamless journey to all who visit Klépierre malls.

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1 MANAGEMENT REPORT Risk factors

1.1.4 Corporate and social responsibility policy: Act for Good®

In late 2017, Klépierre launched a new CSR approach: Act for Good® with Klépierre. This approach, which was developed with external stakeholders further combines the requirements of operational excellence with environmental, societal, and social performance. Act for Good® with Klépierre rests on three pillars:

• "Act for the Planet," which sums up the Group's ambition to make a positive contribution to the environment. Over the last six years, Klépierre has achieved excellent environmental results it can draw on in order to speed up innovation and differentiation across its industry;
• "Act for Territories," which illustrates the importance of the Group's local involvement in the regions in which it operates. While Klépierre malls pursue many local initiatives, this pillar is intended both to oversee these initiatives and increase their visibility, while strengthening the socio-economic fabric around its centers. It is being developed around employment, citizen engagement and the co-design of tomorrow's shopping centers;
• "Act for People," which is about the people involved with our shopping centers. It is devoted to the well-being of our visitors, our employees and our retail tenants' employees. It engages all of the communities with which the Group interacts and promotes value creation for everyone.

Each of the three pillars is broken down into specific quantified commitments, with a five-year timeframe (2022) supplemented by medium-term goals (2030).

1.1.5 Targeted development and strict financial discipline

Based on a conservative approach to risk management and constant asset value enhancement, the Group's development strategy favors the extension-refurbishment of shopping centers that have already carved out strong competitive positions. However, it does not rule out designing and developing new projects in its preferred regions that are exceptional due to their locations and quality.

Klépierre also works to constantly improve its debt conditions and its financial profile. Since April 2014, the Group has enjoyed an A− credit rating from Standard & Poor's, placing it among the world's top three real estate companies. This financial strength is further buttressed by robust operating results, a tightly-managed debt level, and a high level of hedging, ensuring efficient access to the capital markets.

1 . 2 RISK FACTORS

There has been no significant change in the risk factors identified and presented in the 2018 Registration Document. Readers are invited to refer to section 1.7.4 of the 2018 Registration Document filed with the AMF on March 6, 2019 under number D.19-0119.

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MANAGEMENT REPORT 1

Business overview

1 . 3 BUSINESS OVERVIEW

1.3.1 Economic environment

European economic growth slowed down during the first half of 2019, with eurozone Gross Domestic Product (GDP) expected to increase by just 1.2% for full-year 2019 (compared to 1.8% in full-year 2018). Weak external demand and low business confidence weighed on private investment, while trade tensions penalized exports over the period. Private consumption and public spending held up well however, supporting the labor market, with unemployment declining further to

33 2019 AND 2020 MACROECONOMIC FORECASTS BY GEOGRAPHY

7.9% and wages rising in most countries. Inflation is projected to be moderate at 1.2% in 2019 as a whole, reflecting modest domestic demand.

However, the tapering off of the real economy was offset by an unexpected fall in interest rates to an all-time low; at the beginning of the year, the macroeconomic consensus had been for a gradual tightening of financing conditions.

	Real GDP growth rate		Unemployment rate			Inflation rate
Geography	2018	2019E	2020E	2018	2019E	2020E	2018	2019E	2020E
EUROZONE	1.8%	1.2%	1.4%	8.2%	7.9%	7.7%	1.8%	1.2%	1.5%
France	1.6%	1.3%	1.3%	9.1%	8.7%	8.5%	2.1%	1.1%	1.3%
Belgium	1.4%	1.2%	1.3%	6.0%	5.7%	5.6%	2.3%	1.6%	1.5%
Italy	0.7%	0.0%	0.6%	10.6%	11.7%	12.3%	1.2%	0.6%	1.0%
Scandinavia
Norway	1.4%	1.8%	2.1%	3.8%	3.6%	3.5%	2.8%	2.5%	2.1%
Sweden	2.4%	1.6%	1.6%	6.3%	6.2%	6.2%	2.0%	1.7%	2.0%
Denmark	1.4%	2.1%	1.7%	5.0%	4.9%	4.8%	0.8%	1.2%	1.7%
Iberia
Spain	2.6%	2.2%	1.9%	15.3%	13.8%	12.7%	1.7%	1.0%	1.6%
Portugal	2.1%	1.8%	1.9%	7.0%	6.3%	5.9%	1.2%	0.7%	1.3%
CE & Other
Czech Republic	2.9%	2.6%	2.5%	2.2%	2.1%	2.1%	2.1%	2.6%	2.2%
Poland	5.1%	4.2%	3.5%	3.9%	3.5%	3.3%	1.8%	1.9%	3.0%
Hungary	5.0%	3.9%	3.0%	3.7%	3.4%	3.1%	2.9%	3.0%	3.8%
Turkey	2.6%	−2.6%	1.6%	11.0%	13.3%	14.0%	16.3%	17.3%	12.6%
Netherlands	2.6%	1.6%	1.5%	3.8%	3.6%	3.9%	1.6%	2.2%	1.4%
Germany	1.5%	0.7%	1.2%	3.4%	3.1%	2.8%	1.9%	1.5%	1.7%

Source: OECD Economic Outlook, May 2019. Data correspond to the percentage change over the previous year.

1.3.2 Retailer sales

On a like-for-like basis,(1) total retailer sales at Klépierre malls rose by 1.6% over the first six months of 2019, accelerating slightly compared to full-year 2018 (growth of 0.9%). The overall trend improved during the second quarter of the year, with retailer sales up 2.8% (versus 0.3% in the first quarter), supported partly by a favorable calendar effect, notably relating to the timing of Easter.

On a geographical basis, the most dynamic regions were Iberia (up 6.0%) and Central Europe & Other (up 5.3%). Growth in Spain came out at 5.8% on the back of supportive consumer spending trends and the leading positioning of Klépierre malls, further boosted by

recent re-tenanting initiatives. The performance of Central Europe & Other was mostly driven by strong growth in the Czech Republic and Hungary (up 8.9% and 5.0%, respectively). Following the dissipation of the "yellow vest" protests, retailer sales growth recovered to expand by 0.7% in France under the impetus of greater purchasing power and dynamic re-tenanting activity. Retailer sales in Italy also improved, with growth of 0.9% over the first six months of the year, thanks to a very solid second quarter (up 2.9%) and notwithstanding a challenging economic environment.

(1) Like-for-like change is on a same-center basis and excludes the impact of asset sales, acquisitions and foreign exchange.

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