Klépierre Confirms Its Growth Outlook

Regulatory News: The Supervisory Board met today to review the company’s business and financial statements for the six months ended June 30, 2007, as approved by the Executive Board on July 23, 2007. In millions of euros June 30, 2007 June 30, 2006 Change (%) Change on a constant portfolio basis Lease income 285.0 250.3 +13.9% +6.2% Shopping centers 249.3 222.6 +12.0% +5.9% Retail properties 11.4 1.1 N C N C Office properties 24.3 26.6 -8.9% +9.1% Net lease income 266.9 236.1 +13.0% Fee income 30.0 24.6 +22.1% Cash flow from operations 257.1 222.3 +15.7% In euros per share       Net current cash flow 3.24 2.81 +15.3% Net earnings 2.15 1.71 +25.8% Revalued Net Assets (1) 108.9 79.9 +36.4% (1) including transfer duties, after taxation of unrealized capital gains and fair value marking of financial instruments RENTS RISE BY 13.9% OVER THE FIRST HALF Shopping center rents were up by 12% over the first six months of 2007, reaching 249.3 million euros. Acquisitions made in 2006 contributed 8 million euros to rents for the first half, including Valenciennes - France (€1.6M), Novo Plaza – Czech Republic (€1.4M) and Braga – Portugal (€1,2M). 2007 acquisitions contributed 4.6 million euros over the same period. The 5.9% increase on a constant portfolio basis is the result of index-linked rent adjustment (+4.6%) and rental reversion (713 leases handled, +14.1%). Rents from retail properties totaled 11.4 million euros, 10.2 million euros of which were provided by the Buffalo Grill assets. Office rents rose on a constant portfolio basis by 9.1%, reflecting the impact of index-linked rent adjustment (+5.3%) and re-lettings concluded in 2006 (+3.8%). On a current scope basis, they declined by 8.9%, to 24.3 million euros, attributable to the 186.4 million euros in disposals that were carried out in 2006 and 2007. Fee income for the period reached 30 million euros. This 22.1% increase was almost exclusively attributable to the Shopping Center segment. NET CURRENT CASH FLOW PER SHARE: +15.3% Cash flow from operations increased by 15.7%, to 257.1 million euros. Net cost of debt was 76.2 million euros. The Group’s interest expense rose by 10.9 million euros, and net debt was 4.1 billion euros at the June 30, 2007 reporting date (+305 million euros versus December 31, 2006). The cost of the debt was stable over the first half of 2007 (4.3%), and was little impacted by higher interest rates due to the high level of debt hedged at fixed rates (79% at June 30, 2007). Thanks to the hedging strategy adopted, Klépierre’s performances are not very sensitive to interest rate movements. For example, on the basis of the financial structure of Klépierre at the June 30, 2007 reporting date, if the Euribor 3-month rate were to move to 5%, the impact on Klépierre would be a 0.08% increase in the cost of the debt, generating a surplus annual charge of around 3 million euros. Net current cash flow was 173.9 million euros for the period, up by 15%. Group share, it was 148.3 million euros, or 3.2 euros per share (+15.3%). The capital gains generated on the sale of properties (€73.8M) came to 21 million euros for the six months ended June 30, 2007 (compared with €11.2M one year earlier) and came from the sale of Office properties. Net income, group share, was 98.4 million euros. Expressed per share, it was 2.15 euros, an increase of 25.8%. OBJECTIVE TARGET OF ONE BILLION MAINTAINED FOR 2007 Klépierre (Paris:LI) is pursuing its development, with nearly 550 million euros invested to date—including 404 million euros in the first half of 2007. Acquisitions made during the period include the Rybnik and Sosnowiec centers in Poland, Larissa in Greece, and equity interest in 9 shopping malls. On July 19, 2007, Klépierre acquired the extension projects as well as the property ownership of the Leclerc hypermarkets located in two French shopping centers (in Blagnac and Saint Orens) for a total of 250.7 million euros (of which €138.4M outlaid to date). It already owns the existing malls. Extension projects, either inaugurated (like the one in Rambouillet) or to come (such as Claye-Souilly), represented 87 million euros, illustrating the rising momentum of the new agreement with Carrefour. In connection with projects under development (such as Angoulême and Montpellier), 45 million euros were also outlaid. Investments made during the period will provide additional full-year net rents of 21 million euros. Investments continue in the second half of the year with, in particular, the opening of Angoulême, the acquisition of Lublin (Poland) and Pilzen (Czech Republic), and the extensions of Orléans Saran and Elche (Spain). Investments are expected to reach a minimum of one billion euros in 2007. At June 30, 2007, Klépierre has visibility through 2011 on a reservoir of investments—in both shopping centers and retail properties—that total nearly 4.4 billion euros, of which more than 3 billion are controlled investments. France accounts for around 2 billion euros of the total. Developments for own account amount to 1.6 billion euros or 37% of the total, with the rest equally balanced between extensions and acquisitions. The average expected yield for the whole is above 6.5%. This high-quality portfolio gives the Group solid potential for profitable growth in the years to come. REVALUED NET ASSETS (RNAV): +11.8% OVER 6 MONTHS, +36.4% OVER 12 MONTHS The value of Klépierre’s real estate holdings including transfer duties was 10 billion euros (total share) and 8.9 billion euros (group share) at the June 30, 2007 reporting date. On a constant portfolio basis, shopping center assets increased in value by 5.3% during the six-month period ended, while the value of retail assets grew by 4.5% over the same period and the value of office assets increased by 9.7%. Over 12 months, the respective increases are 17.0%, 23.2% and 19.5%. These changes over the period reflect to a large extent the rental reversion of assets and, to a lesser extent, falling yields, which are down by an average of 10bps for the shopping centers and by 50bps for office properties. The annual yield rate used by the appraisers for the Shopping Center and Retail Properties was 5.7% (5% for Offices). Revalued Net Assets, including transfer duties, after deferred taxes on capital gains and fair value marking of financial instruments, was 108.9 euros per share, versus 79.9 euros per share on June 30, 2006, a 36.4% increase over 12 months (97.4 euros on December 31, 2006, +11.8% over six months). STOCK SPLIT Pursuant to the decision ratified by the shareholders at their annual meeting on April 5, 2007, a three-for-one stock split will be effected on September 3, 2007 OUTLOOK "The strength of our economic model is that it combines the dynamics of a real estate specialist with an industrial development logic that spans more than 10 countries in Europe,” commented Michel Clair, Chairman of the Klépierre Executive Board. "This original growth model allows us—even in less favorable environments, like those we are seeing right now—to continue to grow our net current cash flow by more than 10% over the medium term by investing 8 to 10% of the value of our holdings each year. For 2007, we confirm our forecast of double-digit growth in our net current cash flow and our intention of investing around one billion euros.” Upcoming events and releases: Three-for-one stock split (September 3, 2007) 2007 third quarter revenues (October 23, 2007) NOTES TO PRESS RELEASE JULY 26, 2007 Consolidated financial statements at June 30, 2007 I – HIGHLIGHTS OF THE PERIOD II – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES III – SEGMENT REVENUES AND EARNINGS IV – CONSOLIDATED EARNINGS AND CASH FLOW V – REVALUED NET ASSETS (RNAV) VI – FINANCING POLICY INCOME STATEMENT BALANCE SHEET CONSOLIDATED INCOME STATEMENT – SEGMENT PRESENTATION PROFORMA INCOME STATEMENT AT FAIR VALUE I– HIGHLIGHTS OF THE PERIOD 1 – Change in shopping center holdings of the Klépierre group On May 7, 2007, Klépierre acquired shopping centers located in the downtown areas of Rybnik and Sosnowiec, in Poland, from Plaza Centers Europe (PCE). This transaction was carried out within the framework of the development agreement that PCE and Klépierre concluded in 2005, pertaining in particular to 3 shopping centers located in Poland and 2 in the Czech Republic. These shopping centers, which were inaugurated last March, are fully leased up. Rybnik Plaza offers 18,075 sq.m of gross leasable area (GLA) and 81 retail outlets, while Sosnowiec Plaza measures 13,150 sq.m (GLA) for 75 retail outlets. The price paid to acquire the two centers was 90 million euros, including 73.8 million euros paid on the date of acquisition. Full year, gross rents of 6.8 million euros are expected for the two centers taken together. The remainder of the purchase price will be paid when full ownership of Lublin Plaza is acquired, most likely between now and the end of this year. In Hungary, Klépierre paid 14.2 million euros to acquire office space inside a real estate complex located in the Duna Plaza shopping center, which the group already owns. The space, which offers 11,566 sq.m of office premises, will generate annual rents of 1.2 million euros based on the current occupancy rate of 89%. The primary aim of this transaction is to facilitate the completion of an extension project in the center, which currently includes 224 retail outlets spread over 36,040 sq.m GLA. In Italy, the newly restructured Val Vibrata shopping center in Colonella (on the Adriatic coast) was inaugurated on April 19, 2007. In a bigger and fully renovated mall, the number of retailers has grown with the arrival of 20 new shops, including Esprit and Camaieu. In Greece, Klépierre paid 21 million euros to acquire the shopping mall surrounding the hypermarket Carrefour Larissa. 2 – Investment in the real estate of major retailers In France, via its subsidiary Klémurs, the Group acquired the company Cap Nord on March 29, 2007 and, in so doing, confirmed that Klémurs is able to respond to the outsourcing needs of major retailers. The owner of 14 retail assets whose total value is 37.2 million euros (GLA of 21 816 sq.m), Cap Nord should provide full-year gross rents of 2.3 million euros. On January 9, 2007, Klépierre acquired 100% of the equity interest in Progest and entered into a memorandum of understanding with respect to financial investments in various of the real estate companies belonging to the Group owned by Mr. Henry Hermand. Progest and its various entities hold equity interests in several shopping centers or retail facilities in operation, spread over 13 sites, located near to or within the city centers of large French cities. They offer GLA of more than 88 000 sq.m in total, including 36 000 sq.m for the percentages of ownership sold. Via this transaction, Klépierre enters 4 major shopping centers: Creil Saint-Maximin, Tourville-la-Rivière near Rouen, Le Belvédère in Dieppe and L’Océane to the south of Rezé, near Nantes. Four parcels of land also fall within the scope of the agreement. For the main land parcel, located in Forbach (57), the projected land use involves the creation of a retail business park measuring 42 000 sq.m and situated next to a shopping mall and a hypermarket. The sum invested is €109.6 million. Expected triple net rent in 2007 for the assets in operation is €6.4 million. After 19 months of work, the extension of the Belair center in Rambouillet was inaugurated in May 2007. The hypermarket was extended by 2 450 sq.m, while the size of the mall was multiplied by four. The mall now boasts 45 retail outlets (there were 25 in 2005), including 5 mid-sized units (with Zara and Darty). Klépierre is currently restructuring the retail park in Kerlann, located in the heart of the largest business and retail area around Vannes. This building, which spans 5 567 sq.m in all, was acquired in April 2007 from Castorama. It will host 3 retailers, including FNAC and its new peripheral concept, over 2 560 sq.m GLA, and Darty, over 2 200 sq.m. 3 - Offices: planned disposal process continues In the first quarter of 2007, Klépierre disposed of its last indivisible shares of ownership in the Front de Paris building in Levallois-Perret, as well as a property located at 5 Rue de Turin (in the 8th arrondissement of Paris), for a total amount of 73.5 million euros. These assets provided a combined total of 4.5 million euros in rents in fiscal year 2006. 4 - Standard & Poor’s rating In January 2007, Standard & Poor’s revised Klépierre’s rating upward, from BBB+ with stable outlook to BBB+ with positive outlook. 5- Dividend payment At their annual meeting on April 5, 2007, the shareholders of Klépierre determined and declared a dividend payment of 3.2 euros per share, an increase of 18.5% over the preceding year. The dividend payment date was April 13, 2007. II - Summary of significant accounting policies Principles of financial statement preparation In accordance with European Regulation 1606/2002 dated July 19, 2002, the consolidated financial statements have been drawn up in conformity with IFRS rules, as adopted by the European Union and applicable at this date. International accounting standards include IFRS (International Financial Reporting Standards), IAS (International Accounting Standards) and their interpretations (SIC and IFRIC). The interim consolidated financial statements as at June 30, 2007 are presented in complete form and include the disclosure of all information required under IFRS. IFRS 7 and the revised version of IAS 1, which went into effect on January 1, 2007, are being applied in Klépierre’s financial reporting for the first time in the statements for the six months ended June 30, 2007. The accounting policies used in the preparation of the consolidated financial statements for the six months ended June 30, 2007 are identical to those used to prepare the annual consolidated financial statements for year-end 2006, with the exception of the new standards, interpretations and amendments to existing standards that apply to accounting periods beginning as of January 1, 2007 or after, and for which the Group did not opt for early adoption. Consolidated financial statements – Basis of preparation The consolidated financial statements include the financial statements of Klépierre S.A. and its subsidiaries at June 30, 2007. The financial statements of subsidiaries are prepared using the same frame of reference as those of the parent company in terms of time period and accounting methods. Subsidiaries are consolidated as of the date on which they are acquired, which is the date on which the Group acquired a controlling interest, a situation that prevails until the date on which this control ceases. The group’s consolidated financial statements are established using the historical cost method, with the exception of derivative financial instruments and financial assets that are being held for sale, which are measured and carried at their fair value. The book value of assets and liabilities that are hedged in accordance with a relationship of fair value hedging, and which are measured elsewhere at cost, is adjusted to reflect changes in fair value attributable to the risks being hedged. The consolidated financial statements are presented in euros. Scope of consolidation The Consolidated Financial Statements of Klépierre cover all companies over which it has majority control, joint control or significant influence. Potential voting rights that are currently exercisable or convertible are taken into account when determining the percentage of control held. A subsidiary is consolidated from the date on which the Group obtains effective control. The Group consolidates special purpose entities (SPEs) formed specifically to manage a transaction, even where the Group has no equity interest in the entity, provided that the substance of the relationship is that the Group exercises control (its activities are conducted exclusively on behalf of the Group, the Group has the decision-making and management powers). Accounting for business combinations According to IFRS 3, all business combinations covered by the standard must be accounted for as acquisitions. A business combination is defined as the grouping of separate entities or businesses into one reporting entity. On the acquisition date, the acquirer must allocate the cost of the business combination by recognizing, at fair value, the identifiable assets, liabilities and contingent liabilities of the acquired business (except for non-current assets held for sale). The difference between the purchase cost of the interest in the consolidated companies and the Group’s interest in the net fair value of the acquired identifiable net assets and liabilities is goodwill. On the date of acquisition, the buyer records positive goodwill as an asset. Total negative goodwill is immediately recognized in the profit and loss statement. Goodwill is no longer amortized, pursuant to IFRS 3 "Business Combinations.” On the other hand, it must be tested annually for impairment or more often if certain events or changes in circumstances indicate a possible impairment. For this test, goodwill is broken down by cash-generating unit (CGU), which is a homogeneous group of assets that generates identifiable cash flows. Intangible assets are recognized separately from goodwill if they are separately identifiable, i.e. if they arise from contractual or other legal rights or if they are capable of being separated from the activities of the entity acquired and are expected to generate future economic benefits. Any adjustments to assets and liabilities recognized on a provisional basis must be within 12 months of the acquisition date. Klépierre has chosen the option offered under IFRS 1 of not restating business combinations that were completed prior to January 1, 2004. Accounting treatment of the acquisitionof additional equity interest in a controlled entity Under IFRS 3, the acquisition of minority interests does not constitute a business combination. Since it is not considered to be a business combination, no specific accounting rules apply to this type of transaction. According to IAS 8.10, in the absence of a standard or interpretation that specifically applies to a transaction, Management must use its judgment in developing and applying an appropriate accounting policy for the type of transaction in question. The Klépierre group has opted for a policy that entails recognizing goodwill and revaluing the assets of the previously controlled subsidiary in proportion to the additional percentage of ownership acquired, at fair value on the date the additional acquisition was made. The percentage of interest held previously is not revalued. Currency translation The consolidated financial statements are presented in euros, which is Klépierre’s currency of operation and presentation. Each subsidiary of the Group determines its currency of operation, and all items in its financial statements are measured using this currency of operations. The Group’s foreign affiliates conduct certain transactions in a currency other than their currency of operation. These transactions are initially recorded in the currency of operation at the exchange rate in force on the date of the transaction. At the accounting cut-off date, monetary assets and liabilities stated in foreign currencies are converted into the currency of operation at the exchange rate in force on that date. Non-monetary items stated in foreign currencies, and which are measured at their historical cost, are converted using the exchange rate in force on the dates of the initial transactions. Non-monetary items stated in foreign currencies, and which are measured at fair value, are converted at the exchange rate on which this fair value was determined. On the accounting cut-off date, the assets and liabilities of these subsidiaries are converted into Klépierre SA’s currency of presentation, which is the euro, at the exchange rate in force on the closing date and their income statements are converted at the average weighted exchange rate for the year. Any translation differences that result are allocated directly to shareholders’ equity under a separate line item. In the event of the disposal of a foreign operation, the total accrued deferred exchange gain/loss, as recognized separately from equity, on that foreign operation is recognized in profit or loss. Investment property Nearly all of Klépierre’s real-estate assets meet the definition of "investment property.” Buildings occupied by the Group are recorded under property, plant and equipment (long-term fixed assets). At a meeting held on May 26, 2004, the Supervisory Board approved the adoption by Klépierre of IAS 40 using the cost model approach. To produce financial statements that are both complete and comparable to the financial statements of key competitors applying the fair value model to their investment property, Klépierre is providing pro forma financial data restating its investment property on a fair value basis. Fixed assets are recorded at cost, including duties and fees, and are amortized using the parts method. Long-term fixed assets are tested for depreciation whenever there is evidence of impairment at the accounting cut-off date. If evidence of impairment is found, the new recoverable amount of the asset is compared to its net carrying amount and any observed impairment is recorded. Gains or losses from the disposal of investment property are recorded under "Result from the sale of investment property and equity interests.” Leases Rental income from operating leases are recognized in income on a straight-line basis over the entire term of the lease. Stepped rents and rent-free periods are accounted for as an increase or decrease to lease income for the financial year over the life of the lease. The reference period is the first firm lease term. Any entry fees received by the lessor are equated with supplementary rent and allocated over the first firm lease term. Tenants who terminate their leases prior to the expiration date are liable for early termination fees. Such fees are allocated to the terminated contract and credited to income in the period in which they are recognized. When the lessor terminates a lease before it expires, the occupying tenant is entitled to the payment of an eviction indemnity. (i) Replacement of a tenant: If the payment of an eviction indemnity allows for the modification or maintenance of the level of performance of the asset in question (increase in rental price and hence in the value of the asset), this cost (under the revised version of IAS 16) can be capitalized in the cost of the asset, provided that the increase in value is confirmed by appraisal. If not, the cost is expensed when incurred. (ii) Building renovation requiring removal of the existing tenants: If eviction indemnities are paid in the context of the major renovation or reconstruction of a building requiring the prior removal of the existing tenants, they should be included among the preliminary expenses treated as additional parts of total renovation costs. Land and building leases are classified as operating or finance leases, in the same way as leases of other assets. Any premium paid for such leasehold represents pre-paid lease payments which are amortized over the lease term in accordance with the pattern of benefits provided. Pursuant to IAS 40, these initial payments are reclassified as prepaid expenses. Borrowing costs The benchmark treatment under IAS 23 is to recognize construction-related borrowing costs as an expense. The allowed alternative is to treat borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset as a part of the cost of the relevant asset. Klépierre has not opted for the benchmark treatment, since it considers it is preferable to account for construction-related borrowing charges as part of the cost of the assets acquired. As a result, these charges are capitalized over the construction period. Treasury shares All treasury shares owned by the Group are recognized at cost and deducted from equity. Proceeds from the sale of these shares are directly credited to equity, so that any gains or losses on the transaction have no effect on net profit and loss for the period. Measuring and recognizing financial liabilities With the exception of derivatives, all bonds and other financial liabilities are carried at amortized cost, computed using the effective interest rate. - Financial liabilities carried at amortized cost Under IFRS, redemption premiums on bond issues and debt issuance expenses are deducted from the nominal value of the loans concerned and applied in the calculation of the effective interest rate. - Application of the amortized cost approach to liabilities covered by fair value hedge Changes in the value of fair value hedges require (with respect to their effective part) an adjustment in the carrying value of the corresponding liability. Since the derivatives and underlying assets/liabilities involved in fair value hedges show similar characteristics in most cases, any ineffectiveness in the hedge relationship will have only minimal impact on income. If the swap is cancelled prior to extinguishment of the liability, the amount of the adjustment in the liability should be amortized over its residual life, based on the effective interest rate as computed at the date on which the hedge relationship is terminated. Measuring and accounting for derivatives instruments As the head of a Group of companies, Klépierre provides for virtually all of the Group’s financing needs and centrally manages its interest rate and currency exposures. This financial policy consists of putting in place at the Klépierre level any facilities needed to fund the Group’s activity as well as the relevant hedge instruments. Consistent with the decision to measure these assets using the cost method rather than the fair value method, Klépierre chose to apply hedge accounting to the relevant liabilities, an option provided under IAS 39. As a result of this decision, all changes in the value of financial instruments involving cash-flow hedges are reflected in equity, and hence have no impact on the profit and loss statement. - The adoption of hedge accounting has the following consequences : For existing fair value hedges on assets or liabilities, the hedged part is carried in the balance sheet at fair value. Any changes in this fair value are charged against profit and loss, offset by symmetrical changes in the fair value of the hedging instruments, to the degree that they are effective. For cash flow hedges, the effective part of the change in fair value of the hedge is carried directly as an offsetting entry to equity. The change in the value of the ineffective part is reflected in the profit and loss. The amounts recorded in equity are recorded in the profit and loss statement symmetrically with the way the hedged items are accounted for. - Determining fair value Financial assets and liabilities carried at fair value are measured using either listed market prices or valuation models that rely on market parameters. The term "model” refers here to mathematical calculation methods grounded in recognized theories of finance. For a given financial instrument, any market characterized by frequent transactions, narrow bid-offer spreads and on which instruments highly similar to the instrument being evaluated are traded may be considered an active and therefore liquid market. When quoted prices in an active market are available, they are used to determine fair value. Listed securities and derivatives traded on organized markets such as futures and options are valued in this fashion. Most over-the-counter derivatives, swaps, futures, caps, floors and single options are traded on active markets. They are valued using widely accepted models (DCF method, Black and Scholes model, interpolation techniques, etc.), based on quoted market prices for similar instruments and underlying assets. Segment information IAS 14 requires companies to provide segment reporting, choosing either business segments or geographical segments as their primary reporting format. Segments are identified on the basis of risk analysis and profitability so as to constitute homogeneous groups. Accordingly, the Klépierre group presents two levels of segment information: • Level 1: shopping center and office business; • Level 2: geographic region: France, Spain, Portugal, Italy, Greece, Hungary, Poland and Other "Europe”. Scope The Group consolidated 186 companies, compared with 135 at the 2006 year-end reporting date. The principal additions are: - 37 additions following the acquisition of full equity ownership of Progest by Kléber La Pérouse. 14 companies are fully consolidated: Progest, Boutiques Saint Maximim, SARL Belvédère Invest, SCI Plateau des Haies, SCI Boutiques d’Osny, SARL Forving, SCI Maximeuble, SCI La Rive, SCI Rebecca, SCI Aulnes Developpement, SARL Proreal, SCI Osny Invest, SCI Le Mais, SCI LC. ? 11 companies are proportionally consolidated: SCI Girardin, SCI Saint Maximin Construction, SCI Immobilière de la Pommeraie, SCI Pommeraie Parc, SCI Champs des Haies, SNC Parc de Coquelles, SCI le Grand Pré, SCI des Salines, SCI les Bas Champs, SCI des Dunes, SCI la Française. ? 12 companies are under equity method consolidation : SCI La Rocade, SCI l’Empéri, SCI Haute Pommeraie, SCI Halles Plérin, SCI Plateau de Plérin, SCI La Rocade Ouest, SCI du Plateau, SA Rézé Sud, SCI Sandri-Rome, SCI Sogegamar, SCI Achères 2000, SCI Champs de Mais. ? 4 Polish companies are fully consolidated following the acquisition of the Rybnik and Sosnowiec shopping centers. Rybnik Plaza sp Z.o.o and Sosnowiec Plaza Plaza sp Z.o.o hold the malls directly. They in turn are wholly owned by Klépierre Rybnik and Klépierre Sosnowiec, which in turn are subsidiaries of Klépierre SA. ? 3 companies are proportionally consolidated with the acquisition of the Larissa Thessalia shopping mall in Greece on June 11, 2007. Leg II Larissa Epe, owner of the mall, its parent, the Luxembourg based LEG II Hellenic Holdings, itself a subsidiary of Klépierre Luxembourg. ? The acquisition of 14 retail assets from the Mitiska NV group on March 29, 2007 led to the consolidation of 2 French companies. Klecapnor, a wholly owned subsidiary of Klémurs, is the holding company for Cap Nord, the owner of the assets. ? Klé Projet 1 has been brought into the scope of consolidation and is fully consolidated. A wholly owned subsidiary of Klépierre, this French company was set up for the purpose of carrying several development projects. On June 30, 2007, it acquired the Castorama department store in Vannes. ? 3 companies are fully consolidated in connection with the extension of the Givors mall. Klé Projet 2, a wholly owned subsidiary of Klé Projet 1, was set up for the purpose of acquiring full ownership of SCI Roseaux and SNC GSE GIER Services Entreprises. Both of these companies operate land on which the future extension will be built. ? 1 company is brought into the scope of consolidation following the acquisition of offices in Hungary. Set up at the beginning of this year, the Hungarian company Duna Office Plaza, which is wholly owned by Klépierre Participations et Financements, bought the office properties located in Duna Plaza from the group, which had owned them since 2004. III – BUSINESS ACTIVITY AND EARNINGS BY SEGMENT for the first half of 2007 I – Shopping center and retail segments 1 – Consumption notes 1.1. Economic environment1 The pocket of turbulence that the US economy is currently traversing seems to be having few repercussions on Europe. Growth for the Euro Area, still buoyed by strong domestic demand, is expected to reach 2.7% for the full year 2007. In most of the countries in which Klépierre has holdings, GDP growth is set to be more or less equal the already solid pace set in 2006: Spain (+3.6%), Italy (+2.0%), France (+2.2%), Greece (+3.9%), Slovakia (+8.7%), Poland (+6.7%) and the Czech Republic (+5.5%). Growth will be less than last year but will nonetheless maintain at satisfactory levels in Belgium (+2.5%) and in Hungary (+2.5%). In Portugal, growth will continue to gain significant strength in 2007 (+1.8%). In every country, a slowdown in inflation (2007 vs. 2006) and an improvement in the labor market will enhance household purchasing power over the year (for Hungary, this development is expected in 2008). Indeed, private consumption should continue to play the role of locomotive. 1.2. Aggregate revenue trends January - May 2007 Over the first five months of the year, revenues from Klépierre’s shopping mall business rose by 3.4% compared with the corresponding period in 2006, with most countries reporting a satisfactory level of business activity. The strongest gains were made in Belgium, with the successful launch of Louvain La Neuve (+18.3%) and Central Europe (Slovakia: +11.3%, Czech Republic: +5.7%). Activity was also brisk in the three major countries in which the Group operates: France (+3.2%), Italy (+2.1%) and Spain (+5.4%). Only Portugal (-1.7%) and Greece (-7.0%) were adversely impacted by the emergence of new competitors. All retail segments showed growth, with particularly good performances in Beauty/Health (+5.4%), Personal Products (+5.0%) and Culture/Gifts/Entertainment (+3.0%). Growth in the Household Goods (+1.6%) and Restaurant (+1.3%) segments was less impressive. 1.3. France’s performance in the first half of 20072 June was an exceptional month in France (Revenues for retailers: +12.0%). Two calendar-related factors— Mother’s Day was later this year (it was in May last year) and an extra Saturday—combined to help push mall revenues for the first half of the year up by 4.8%. Outside of urban areas, mall revenue growth was 5.6% for regional shopping centers and 5.3% for inter-communal centers. Retail sales growth was not as high for Klépierre’s downtown locations (+2.5%), due to work being done in the city center of Marseille (a tram is being built) and a new competitor in Poitiers (extension–renovation of the Géant Beaulieu center). By retail segment, Beauty/Health (+7.2%) and Personal Products (+6.4%) posted very good results. Other segments are also on a solid upward path: Culture/Gifts/Entertainment (+4.1%), Restaurant (+2.6%) and Household Goods (+2.2%). 1 Source: OECD forecasts (May 2007) 2 Excluding Valenciennes Place d’Armes and excluding the Angers St Serge and Melun Boissénart extensions. Based on 93% of all revenue data 2 – Rental business The rental management business showed substantial growth in Europe. Rents for the first half of 2007 totaled 249.3 million euros (222.6 million euros for the first six months of 2006), an increase of 16.8%. Of the total, additional variable rent represents 5.8 million euros. On a constant portfolio basis, rents rose by 5.9%. 2.1. France Shopping centers Rents for the period came to 129.5 million euros (of which 3.8 million euros in additional variable rent), an increase of 16.3%. On a constant portfolio basis, rents rose by 9.4%, primarily attributable to: 103 changes in tenant mix, 79 lease renewals (+32% and +21%, respectively, compared with the previous rental terms and conditions) and 8 lease-ups of premises for 0.3 million euros The impact of index-linked rent adjustments: +7.1 %. Incidentally, the ICC cost of construction index for the second quarter of 2006, which applies to 80% of guaranteed rents, progressed by 7.1%. In addition, it should be noted that the vast majority of the other leases (16%) is still based on the index reading for the first quarter of 2006 (+7.2%), since the index for the first quarter of 2007 is not published until July 2007 (+1.69%). The adjustments will have an impact on the financial statements for the second half of 2007 and hence the year as a whole. The average impact of index-linked rent adjustments for the full year is expected to be 6.2%. Between 2006 and 2007, the additional variable rent, based on the revenues of retail tenants, increased by 5.5%. The change in scope versus June 30, 2006 is mainly attributable to the following factors: The collection over a full half-year of the rents from assets that entered the portfolio in 2006: the opening of the downtown mall in Valenciennes (Place d’Armes) and the acquisition of the peri-urban mall in Toulouse Purpan. The extension of some centers (Rambouillet, Angers St Serge and Blagnac) and the impact of the retail restructuring of the Montesson mall. The acquisition of equity over the course of the first half of 2007 in various companies belonging to Progest, the owners of retail malls, in particular Tourville La Rivière, Osny L’Oseraie and Creil, and the retail park Creil St Maximin. Uncollected rent receivables represented 0.7% of invoices (compared with 0.6% on June 30, 2006), and the financial occupancy rate was 99.2%, unchanged versus June 30, 2006. The average occupancy cost ratio (rents + utilities / revenues excluding tax) was 9.5% on June 30, 2007, compared with 8.9% on June 30, 2006. This trend reflects the considerable increase in the Insee Construction indices, with an impact on rents of more than 7%. The rate remains reasonable, however, and suggests that there is latitude for improvement in rental income when leases come up for renewal or premises are relet. The concentration of rents among retail tenants remains low, ensuring that the rental risk for the portfolio also remains low. Buffalo Grill is now Klépierre’s biggest partner in France, with 6.6% of total rents, followed by the PPR group with 3.8% (Fnac: 2.9%). Next is the Auchan group (3.5 %), the Vivarte group (2.8%), the Celio, Inditex, Camaïeu and Etam groups (2.2%), Go Sport (2.1%) and Armand Thiery (1.4%). Retail Rents from the retail segment reached 11.4 million euros at June 30, 2007. They include the 128 Buffalo Grill restaurant properties acquired in late December 2006 (9.6 million euros). On a constant portfolio basis, rents increased by 7.05%. This increase, which concerns the historic holdings of Klémurs (1 Truffaut and 1 BHV department store located in Paris, plus a group of storefront shops in Rouen), is fully attributable to the rise in the ICC cost of construction index that was published in October 2006. No leases were renewed or re-let. Taken together, the financial occupancy rate is 100% and the default rate is 0% to date. 2.2. Spain Rents totaled 32.1 million euros, an 8.7% increase. The only change in the portfolio was the acquisition of Molina de Segura in late June 2006. On a constant portfolio basis, rents rose by 2.2%. A change in accounting treatment was made during the first six months of the year. Variable rents are now accounted quarterly (same as for France), as opposed to being added in solely in the second quarter in previous years. When this difference (400 000 euros) is neutralized, the rise on a constant portfolio basis is 3.5%. During the first six months of 2007, 9 lease-ups, 54 re-lets (+10.7%) and 134 lease renewals (+1.1%) were conducted. Mall merchandizing includes so-called shared zone activities (telephone booths, ATMs) whose underlying economic concept is partly being repudiated or whose method of compensation has changed. A survey is being conducted by Ségécé Spain to find a suitable substitute activity. These activities, which are facing a rough time related to the very concepts they embody, accounted for more than half of all renewals, at lower rents. Outside these shared zone activities, 61 leases were renewed for a 6.4% increase in rent. The impact of index-linked rent adjustments was 2.50%. The default rate for the period was 1.5%, a slight increase compared with June 30, 2006 (1.4%). The financial occupancy rate was 97%, compared with 97.1% a year earlier. The occupancy cost ratio for the period was 11%, compared with 11.4% on June 30, 2006, reflecting the strong growth in retail revenues. The concentration of retail anchors remains low, with the top 10 retailers accounting for 29.3%. The Inditex group accounts for 5.9%, followed by Cenesa (5.2%), Alain Afflelou (2.7%), Belros et Yelmo (2.6%) and Mac Donalds (2.5%). The next four retailers account for between 2.4% and 1.4% of total rents. 2.3. Italy Rents from Italian holdings totaled 39.2 million euros, an increase of 6.8% that reflects the impact of the Giussano and Varese extensions. On a constant portfolio basis, the increase was 4.1%, reflecting 44 rental modifications: 15 re-lets (+23.3%) 25 renewals (+35.3%) 4 lease-ups The impact of index-linked rent adjustments is +1.77%. The default rate was 3.3%, unchanged since June 30, 2006. The financial occupancy rate was 97.6%, an improvement over June 30, 2006 (97.1%). The occupancy cost ratio was 9.4% on average, which suggest a positive context for future renewal campaigns in general and for the Rondinelle center in particular, where a renewal drive is planned for 2008 (occupancy cost ratio of 7.6% on June 30, 2007). The concentration of retailers is low. The top retail tenant is the Mediaworld group, which represents 5.7% of total rents, and the next 9 retailers (Inditex, Benetton, Risto, Miroglio, Oviesse, Piazza Italia, Cisalfa, Scarpe Scarpe and Intimissimi) represent between 3% and 2% individually. Taken together, the top ten retailers account for 27.6%. 2.4. Hungary Total rents for the period came to 14.5 million euros. The adverse change (-1.3%) on a current portfolio basis can be attributed to the fact that restructuring was not offset by external growth. The substantial merchandising remix that was initiated last year is being continued this year for the entire portfolio. One of its first manifestations is the replacement of the mid-sized food store chain Match, which during the six months just ended led to a decline in rents of 232 000 euros, related to vacancies and rental concessions made for new retail tenants (C&A, Hervis, CBA). Other major rental restructurings under way will pave the way for the addition of international retail brand names (Mediamarkt, Hervis) at Duna Plaza, Szeged and Szolnok. This portfolio saw a large number of new contracts signed: 45 lease-ups (+560 000 euros), 88 re-lettings (-4%) and 128 renewals (+0.5%). The low index-linked rent adjustment (+1,60%) only partly offset the impact of restructuring. Accordingly, on a constant portfolio basis, rents fell by 2.3%. The financial occupancy rate improved (96% at June 30, 2007, versus 94.8% at June 30, 2006) and the default rate was 3.8%, up compared with June 30, 2006 (3.1%), a consequence of the annual invoicing in June of variable rents. The concentration of retailers is relatively low, with the top ten anchors accounting for 26.3% of total lease income. Match is still the biggest tenant (4.8% versus 7% on June 30, 2006), followed by Mercur Star (3.6%), IT Cinema and Pesci Direkt (3.2%), Jeans Club and Palace Cinemas (2.3%), Humanic (2.1%), Fun (2%), Media Saturn (1.5%) and Laurus Invest (1.3%). In the absence of audited and historic data concerning the revenues of tenants, the occupancy cost ratio cannot be calculated at this time. 2.5. Portugal Total rents were 7 million euros, reflecting the impact of integrating the Minho Center in Braga, which was acquired in December 2006. On a constant portfolio basis, the 2.3% increase reflected indexation (+2.94%) and rental modifications: 2 lease-ups, 18 changes in tenant (-2%) and 1 renewal (+2.7%). These latter performances are attributable to poor business conditions and intensified competition for the Loures and Parque Nascente centers. The default rate took a turn for the worse (10.1% versus 8.6% one year earlier). This high rate is due to the temporary difficulties encountered by the Lourès center (competition) and, in particular by Parque Nascente, where several adverse factors combined in recent months (the invoicing of variable rent for 2006, the property tax and a dispute with the operator of a bowling alley - 263 000 euros). The financial occupancy rate was 95.9%, an improvement over June 30 2006 (93.8%), that came despite strong competition locally and a vacancy related primarily to the restructuring project under way at Parque Nascente. The occupancy cost ratio was 12.8%, consistent with the economic difficulties the country is currently experiencing. Retail concentration is average, with the top ten anchors representing 31.4% of total rents. The largest tenant is the Aki-Leroy-Merlin group (9.5%), followed by Toys R Us and Inditex (4.2% each). The next seven retail tenants account for between 2.7% and 1.5% of total lease income. 2.6. The Czech Republic – Slovakia Rents came to 7.2 million euros. On a current portfolio basis, Czech rents increased by 1.3 million euros with the acquisition of the Novo Plaza center in late June 2006. On a constant portfolio basis, rents were up by 3.9%, reflecting the combined impact of 13 re-lettings (+22.3% compared with former conditions), 12 renewals (+29.4%) and index-linked adjustments (+1.61%). In Slovakia, rents rose by 13.2% on a constant portfolio basis, thanks to major changes in tenant mix conducted in the course of the second half of 2006 (one MU covering 1 403 sq.m in particular). The impact of index-linked rent adjustment was 1.56%. The financial occupancy rates were 100% for Novy Smichov and 84.8% for Novo Plaza (which is still in the lease-up phase) in the Czech Republic, and 90.8% for Danubia in Slovakia. Default rates were 2.9%, 26.1% and 21.2%, respectively. For Slovakia, half of this high rate is attributable to a tenant dispute that is expected to be resolved by the end of this year. As for Novo Plaza, the rate is primarily related to problems related to the center’s launch and to technical problems encountered by some tenants (being resolved at this time). The occupancy cost ratio was 10.5% for Novy Smichov and 8.6% for Danubia. In the Czech Republic, the concentration of retailers is fairly low (the top ten retail anchors represent 26% of total rents). The biggest tenant is Palace Cinemas (7.4%), followed by H&M and C&A (3% and 2.8%, respectively). The next seven tenants account for between 2.3% and 1.3% individually. 2.7. Greece Rents totaled 3.1 million euros, an increase of 1.5% on a constant portfolio basis, thanks in particular to 5 re-lettings, 1 renewal (+7% and +17.1%, respectively, compared with the preceding rental terms and conditions), and the impact of indexation (+3.63%). The financial occupancy rate is 96.6%, a decline compared with June 30, 2006 (99.8%). Vacancy is concentrated in the Athinon center, with the departure of a mid-sized unit. A retail restructuring project is currently being considered. It should be noted that a price adjustment in Klépierre’s favor must be settled by the end of 2007 in light of the most recent rental conditions granted to the MU that left the center. The default rate is 3%, a slight improvement. The average occupancy cost ratio is 12.2%, unchanged compared with 2006. (This rate is based on a limited number of contracts – i.e. 52 leases). The concentration of rents is high in Greece, and exacerbated by the modest size of Klépierre’s portfolio in that country. The top ten retail tenants account for 67.8% of total rent, with STER Cinémas (25%) in first place, followed by Marinopoulos (11.7%) and Stadium Bowling (6.4%). The weight of the next seven oscillates between 5 and 2.5%. 2.8. Belgium Rents amounted to 5.9 million euros. On a constant portfolio basis, they progressed by 5.3% thanks to 2 lease-ups and 2 re-lets (+12.3%). The impact of index-linked rent adjustments was 1.77%. Since leases are indexed on the contract anniversary date (September), the full impact of indexation will be known in 3Q2007. Both the financial occupancy rate (97.7%) and the default rate (1.8%) showed improvement. The center has now been in operation for more than 18 months. The concentration of retailers is average. UGC represents 10.8% of total rent, Inditex 4.9%, H&M 4.4% and Esprit 3.7%. The ten largest retail tenants together account for 38.9% of total rents. 2.9. Poland Rents totaled 10.6 million euros, up by 10.5% thanks to the acquisition last May of the Rybnik and Sosnowiec shopping centers. The Krakow Plaza and Ruda Slaska centers are currently being restructured. Krakow Plaza is being given a more competitive retail mix to deal more effectively with competing centers that have opened. The mall of Ruda Slaska, which recently saw the departure of its supermarket and neighboring shops, is being restructured with the arrival of a new supermarket chain that will serve as a major draw (Carrefour, lease signed on July 5, 2007). The impact on rental management is mixed: 1 lease-up, 28 re-lets (+17.8%) and 6 renewals (-26.7%). The negative performance of renewals is primarily due to the tenant for the mid-sized unit, Royal Collection (rent is down), at the Krakow Plaza, where the objective is to maintain the presence of strong retail anchors. The impact of indexation (+1.62%) only partially offset this situation, with rents on a constant portfolio basis up by 0.2%. The default rate for the period was 5%, compared with 6.9% on June 30, 2006, and the financial occupancy rate was 93.6%, versus 96% on June 30, 2006. This decline is attributable to the Ruda hypermarket (vacant on June 30, 2007 but re-let in July) as well as to the vacancy strategy carried out at the Krakow center in connection with the restructuring project. The concentration of retailers is low, with the top ten anchors representing 24.1% of total rents. The biggest tenant is Fantasy Park (4.6%), followed by Cinema City (3.4%), Reserved (2.9%), I.T. Poland Development (2.3%), Champion (2.1%), Smyk, Stokrotka, Rossmann and Sephora (1.8%), and Piotr i Pawel (1.6%). In the absence of audited and historic data concerning the revenues of tenants, the occupancy cost ratio cannot be calculated at this time. 2.10. Outlook for the second half of this year Leases that will come up for renewal between now and the end of the year 2007 for all of the Group’s European holdings represent 6.5% of contractually guaranteed rents, with important rental stakes in several countries. In Spain and the Czech Republic, for example, 10.3% and 9.6% of guaranteed rents, respectively, will come up for renewal. In Slovakia, the figure is 9%, in Portugal 8.4%, in Hungary 7.4% and in Poland 6.2%. In France and in Italy, expired leases are less numerous, representing 6.4% and 4.7% of the total in value terms, respectively. France Active renewal efforts, combined with restructuring and/or shopping center extensions continue to be an asset in terms of reversion. Accordingly, between now and the end of 2009, 622 leases will come up for renewal, representing 35.4 million euros in current value terms, for an average increase in guaranteed rents of around 15% excluding the impact of indexation. The indexation of minimum guaranteed rents has already had a significant impact on lease income, in particular the ICC index for the second quarter of 2006, which rose by 7.05% and which concerns some 80% of the shopping center rents in France. The index for the first quarter of 2007, published in July 2007, shows an increase of 1.69%. It will affect more than 16% of the rents within the portfolio when invoices for the second quarter of 2007 are sent out. The combination of the four Insee Construction indices (2nd quarter, 3rd quarter, 4th quarter 2006 and 1st quarter 2007) will produce global rental reversion of around 6.2% in respect of 2007. Italy In Italy, renewals continue to provide a strong source of the increase in rental value. Between now and the end of 2009, 270 leases (whose current total value is 16.9 million euros) will come up for renewal, with an average increase of +20% forecast. In fact, 37% of the expected rental capital gain over these three years will be generated in 2008 at the Rondinelle (Brescia) facility, one of the Group’s historical assets in Italy. Spain In Spain, 521 leases will come up for renewal between now and the end of 2009, with an average increase of 3.8%. Excluding leases for shared zones (ATMs, telephone booths), the increase is expected to be 4 to 5 %, applicable to 423 leases (10.1 million euros in current value terms). 3 - Development 3.1. Shopping centers 3.1.1 Shopping center investments made in the first six months of 2007 The first half of 2007 confirms the trend already observed in 2006, i.e. the steady rise of extension projects for the malls owned by Klépierre, particularly in France, with more than 70 million euros invested over this period. This development reflects the positive impacts of the additional clause no. 9 signed with Carrefour in mid-2006. Additional highlights of the first half of 2007 are provided below: - The first payments (€27.6M) for the purchase on the basis of plans of the Odysséum shopping center in Montpellier, a project that was acquired in partnership with Foncière des Pimonts – Icade. Ultimately, the global investment for Klépierre will come to 93 million euros. - The acquisition in the early part of this year of Progest holdings, with a 114.6 million euro installment paid over the period. - The acquisition of the Carrefour Larissa retail mall in Greece from Lassalle Investments (Ségécé Hellas was already managing the mall), for 21 million euros. - The acquisition of the Rybnik and Sosnowiec centers in Poland from the developer Plaza Centers Europe, for 74 million euros. - The acquisition of offices linked to the Duna Plaza shopping center in Budapest. This acquisition, which represents an investment of 14 million euros, gives Klépierre sole ownership of the Duna complex, making it easier to roll out an ambitious extension program for the shopping center. Finally, the first half of 2007 confirmed the strength of Italian operations, where Klépierre collaborated with the Finiper group on the extensions for the Val Vibrata and Varese malls. Acquisitions once again represented 70% of all activity in the first half of 2007. 3.1.2. Projected shopping center investments, second half of 2007 The second half of 2007 will see balance restored between development for own account and acquisitions, with the latter accounting for no more than 43% of all investments in the second half (i.e. 323 million euros). In terms of volume, extensions in France for the year should reach around 155 million euros. Similarly, the program aimed at extending our holdings, which was launched in Hungary, should begin to produce its initial effects. Also in the second half of the year, the long-awaited Gare Saint Lazare project in Paris should get under way, while the Cité du Meuble – Maisonément project in Cesson - began recently. The Champ de Mars mall in Angoulême will be opening on September 4, 2007. The highlight of the second half of 2007 is the signature on July 19 of the acquisition of the Blagnac and Saint-Orens hypermarkets, as well as two projects to extend the malls of these 2 centers. Also planned for the second half of the year: the pursuit of the leading Vallecas project to the southwest of Madrid the probable launch of one or two prestigious projects in European capitals the pursuit of the program whose aim is to extend the Hungarian holdings. It is also expected that plans to acquire several malls will take shape, in particular in Italy, Poland (Lublin Plaza), Portugal and the Czech Republic (Pilzen Plaza). 3.1.3. Development potential, 2007 - 2011 The development potential for the period running from the second half of 2007 through 2011, for controlled investments, is estimated to be nearly 2.9 billion euros. Extensions represent one-third of this volume, new projects under self-development a second third, and acquisitions another one-third. As an analysis of this outlook clearly demonstrates, the Klépierre Group is determined to return to the business of development for own account, in the interest of controlling production costs as well as the quality of its holdings. At the same time, the Group does not rule out the option of seizing any suitable acquisition opportunities that may arise. In order to carry out this major development program, Klépierre continues to build on the development teams in place locally wherever Klépierre has significant operations—particularly in France, Spain, Italy, Hungary and Poland. 3.2. Retail properties Retail property investments made over first six months of 2007 Over the first half of 2007, Klémurs acquired Cap Nord (comprised of a real estate portfolio of 14 retail assets with a total GLA of 21 816 sq.m) for 28.1 million euros. Cap Nord’s principal tenant is the retailer Mondial Moquette. The appraised value of the underlying real estate assets is 37.2 million euros, for expected full-year gross rents of 2.3 million euros. On June 29, 2007, Klémurs signed two preliminary contracts of sale (compromis de vente) to acquire ownership of the properties of two retail outlets in the Sephora chain, in Metz and in Avignon, for a total amount of close to 10 million euros. This investment should be finalized between now and the end of the year. Klémurs also pursued the process of exercising its options on Buffalo Grill assets being financed under finance leases. In all, 9 options were exercised during the period, bringing to 32 the number of Buffalo Grill assets owned outright. Projected investments, second half of 2007 Over the second half of the year under way, Klémurs expects to finalize the acquisition of 8 recently built Buffalo Grill properties and the two Sephora stores mentioned in the preceding paragraph. In addition, Klémurs has initiated talks with major retailers in the interest of developing long-term partnerships. The first results are expected as early as this half-year. Development potential, 2007 - 2011 Thanks to a number of factors—the singular position in Europe of the Klépierre group, present in more than 300 locations; the expertise of its management and development teams; and its financial strength—Klémurs is able to position itself as a genuine partner of large retailers. It can not only acquire and manage an existing portfolio of owned properties, but also support retailers in their future locations. The agreement negotiated in 2006 with Buffalo Grill illustrates this capability. Taking into consideration the investment opportunities under study, Klémurs remains confident that the real-estate outsourcing solution has great potential—particularly in France—and confirms its stated target of increasing the value of its holdings to 1 billion euros within 3 years. 4 – Real estate services 5 – Segment earnings Shopping center segment Lease income from shopping center properties rose by 11.5% at June 30, 2007, to 251.9 million euros. Other lease income includes entry fees as well as a margin on the provision of electricity to tenants in the Hungarian and Polish shopping centers. The 24.6% decline, to 2.5 million euros, is due primarily to the increase in the cost of energy supply and to the recognition in 2006 of entry fees remaining to be spread after the termination of leases in the Créteil-Soleil and Melun-Boissénart centers. Land expenses were stable, and correspond to the allocation over several periods of building leases, mostly in France. The €1.4M increase in non-recovered rental charges is attributable primarily to the reclassification of a loss on the re-invoicing of Spanish shopping center utilities that were previously captured as deductions from rents (€0.6M). The remainder is principally due to a rise in the cost of vacancy resulting in part from restructuring projects under way in Hungary at the Duna, Kanizsa, Miskolc and Szeged centers, and from the acquisition of the Novo Plaza center in the Czech Republic in late June 2006. The €0.8M increase in owner’s building expenses is primarily the result of recent acquisitions in France (Progest holdings) and in Poland (the Rybnik and Sosnowiec centers). It also includes higher taxes, due in part to the payment of the imposta di registro tax by Italian property companies (Finance Act of July 2006). Net lease income was 232.6 million, an increase of 11.4%. Management and administrative income (fees) rose by 19.6% (+4.8 million euros). This increase is attributable in particular to higher fee income in France (+€3.5M), primarily due to the rise in development fees (+€2.4M) and in property management fees. At the international level, noteworthy increases concern Spain (+€0.5M), reflecting the combined effect of lease-up mandates for the Pajarete (Algesiras) and San Pablo (Sevilla) malls, on behalf of the San José company, and higher development fees on the Vallecas project, as well as Poland (+€0.2M), reflecting management fees for the Rybnik and Sosnowiec malls. Other income from operations includes the revenues generated by Galae, re-invoicing to tenants and tax refunds and miscellaneous indemnities. It rose by 1.5 million euros compared with June 30, 2006. Research expense was a loss of 0.6 million euros. At the June 30, 2006 reporting date, this cost were offset by the payment of an indemnity. The modest increase in payroll expense (+1.2 million euros or +4.2%) reflects the addition of 33 employees, notably in Poland, for the purpose of adapting the local structure to the group’s new acquisitions. General expenses rose by 1.1 million euros (+14%). Significant changes relate to computer and IT expenses, with the rollout of a European network, as well as certain tax adjustments (business tax). EBIDTA totaled 227.4 million euros, an increase of 13.6%. Depreciation and amortization for the period, plus provisions for investment properties, increased by 7.2 million euros due to portfolio growth with the acquisition of the Progest holdings (€1.7M); shopping centers in Valenciennes (€0.4M), Toulouse Purpan (€0.2M), Molina de Segura (€0.4M), Novo Plaza (€0.8M) and Braga (€0.5M); extensions for Varese and Guissano in Italy (€0.3M) and the Rybnick and Sosnoviec malls in Poland (€0.2M). Results from operations came to 159.8 million euros, an increase of 14.5%. After incorporating the results of companies accounted for by the equity method (1.1 million euros), where the increase is due to the integration of companies in the Progest portfolio, earnings for the shopping center segment came to 160.9 million euros for the six months ended June 30, 2007, an increase of 14.0%. Retail segment Lease income from the retail segment totaled 11.4 million euros for the six months ended June 30, 2007. The total includes rents from Buffalo Grill restaurants and various retail assets, mostly held by Cap Nord, a company whose equity was acquired on March 29, 2007. Building expenses primarily relate to fees paid to outside service providers, in particular for the appraisal of assets. Rental management and administrative fees paid to Klépierre Conseil have been eliminated from this presentation. Management and administrative income (fees) came to 0.6 million euros, and relate to fees paid to acquire Cap Nord. Payroll expense and general expenses totaled 0.4 million euros, and mainly reflect the percentage of head office expenses that are allocated to the beneficiaries of various corporate services (development, accounting, legal). After an amortization expense of 3.6 million euros, earnings for the retail segment came to 7.6 million euros for the first six months of 2007. II – Office segment 1- Trends in the Ile-de-France office market in the first-half of 2007 1.1. Rental market The Ile-de-France rental market remained robust:1 425 000 sq.m were let or sold in the course of the first six months of 2007, a slight decline compared to the same period in 2006 (-3%), with the following specificities: Growth in the small to mid-size floor area segment and slight decline in demand for spaces measuring more than 5 000 sq.m. Paris, the Western Crescent and La Défense accounted for nearly 72% of the leased volume. 30% of space let or sold pertained to new or restructured premises (the figure was 50% for the first six months of 2006). At June 30, 2007, immediate supply (2 433 000 sq.m) and future supply available within one year (3 486 000 sq.m) fell only slightly, in particular due to the fact that absorption was limited to deliveries alone. The vacancy rate remains at 5% on average, but the global figure hides some disparities: The Paris market remains tight (from 2% to 4%) The 1st Eastern Crown and La Défense continue to fall (<5%) The Western Crescent, the 1st Southern Crown and the 1st Northern Crown remain high (from 8% to 10.8%). Globally, average face rents are on the rise, particularly for prime products. Commercial incentives are declining more or less significantly depending on the location and quality of the property. 1.2. Investment market For the six months ended June 30, 2007, the volume of commitments was high at 10.1 billion euros, and comparable to the level observed for the corresponding period the previous year. Yields fell once again, reflecting the abundance of capital and the scarcity of supply, with investors anticipating higher rental values. But rising interest rates and the trend in the INSEE construction index could have an impact on the direction of yields over the medium term. 2 – Disposals and investments completed during the first six months of 2007 Two buildings and indivisible rights were disposed of in the first half of this year, relating to 13 466 sq.m for a total amount of 73.8 million euros net seller at prices that on average were higher (+11.4%) than the last appraised values. Office disposals in 2007 Floor area (sq.m) Levallois-Perret (92) – Front de Paris – Îlot 5 * 9 991 Paris 08è – 5, rue de Turin 2 596 Champlan (91) – 16 bis, rue de Paris 880 2 assets sold + 39.25% of indivisible rights for a total of 73.8 million euros * Including transfer duties The first six months of the year also saw the commencement of construction of the Sereinis building, developing floor area (OCSC) of around 13 000 sq.m. Designed by two renowned architects (A. Bechu and T. Sheehan), the building is located in Issy-les-Moulineaux (Forum Seine district). Delivery is expected for late 2008. This building will offer 6 floors of office space with an average floor area of 1500 sq.m, 319 parking slots over 6 underground levels and an inter-company employee restaurant with a seating capacity of 220. Klépierre has already committed 38.0 million euros, including 4.4 million euros during the first six months of 2007, of the 80.2 million euro amount for the entire construction project. 3 – Rental business Gross rental income for the first six months of 2007 came to 24.3 million euros, a decline of 2.4 million euros compared with the corresponding period in 2006. The loss of rents is mainly due to disposals made in 2006 and in the first half of 2007: - 4.3 million euros of lost rent on buildings sold in 2006 and 2007 + 1.9 million euros of additional rent on the constant portfolio. On a constant portfolio basis, rents rose by 9.1%, from 21.2 million euros on June 30, 2006 to 23.1 million euros on June 30, 2007. The 1.9 million euro increase breaks down as follows: Index-linked rent adjustment provided 1.1 million euros of additional rent compared with 2006 (+5.3%) Re-letting of leases signed in 2006 and 2007 produced 0.8 million euros of additional rent (+3.8%). Over the course of the first six months of 2007, 11 leases corresponding to new lease-ups, renewals or additional clauses were signed. They will generate 1.5 million euros over the full year. These newly signed leases concern useful weighted floor area (1) of 3 378 sq.m. Their financial terms and conditions are 13.4% higher than the preceding ones, before deduction of rent holidays or step rents granted to tenants. (1) Useful weighted floor area: Floor area after weighting for different types of spaces, such as "Offices, Archives – Parking Stalls – Company Restaurant" so that all spaces can be viewed with respect to the sq.m office price. The most significant transactions over the first 6 months of the year 2007 are summarized below: The renewal of the lease for premises measuring 1 090 sq.m, located in the building at 46 Rue Notre-Dame des Victoires (Paris, 2nd arrondissement). The re-letting of almost all vacant office space on December 31, 2006, with the exception of floor area in the building at 192 Avenue Charles de Gaulle in Neuilly (92), which will be re-let to new tenants in the second half of 2007 after necessary work is done to restore the building to standard rental conditions. For the six months ended June 30, 2007, the financial occupancy rate was 99.1% (versus 99.2% on June 30, 2006). At the June 30, 2007 reporting date, the lease portfolio represented global rents of 51.6 million euros, with lease terms (both exit option and expiration) given in the table below: Lease terms (€M) Year By date of next exit option % of total By date of expiration % of total 2007 1.1 2.1% 1.0 2.0% 2008 17.0 32.9% 12.4 23.9% 2009 15.2 29.5% 0.3 0.5% 2010 8.5 16.5% 0.7 1.4% 2011 5.0 9.7% 8.8 17.0% 2012 0.1 0.2% 5.0 9.7% 2013 0.0 0.0% 7.3 14.1% 2014 0.0 0.0% 3.2 6.2% 2015 and + 4.7 9.1% 12.9 25.0% Total rents 51.6 100.0% 51.6 100.0% Between now and the end of 2007, 6 677 sq.m will be re-let to new tenants and 2 990 sq.m will come up for renewal (6 leases). The total amount at stake for both re-lets and renewals is 2.7 million euros, a change of 5.1%. For 2008, 17 leases (29 153 sq.m) representing global current rent of 12.4 million euros will come up for renewal. The potential change for these leases is around 6.0%. 4 – Segment earnings For the first six months of 2007, lease income from office properties fell by 8.9%, to 24.3 million euros. This decrease reflects the disposals completed in 2006-2007, which generated a loss in rents of 4.1 million euros, partly offset by the building located at 5 Rue Meyerbeer that was acquired in late December 2006 (+€0.8M). Land expenses correspond to the amortization of the building lease for the 43 Grenelle building. Rental expenses not recovered were stable over the period. Owner’s building expenses fell, reflecting the impact of disposals. Net lease income was 23.2 million euros, a decline of 9.0%. Management and administrative income (fees) totaled 0.2 million euros, and includes in particular fees for the management of the Front de Paris building. The mandate has since been terminated, after the asset was sold on January 14, 2007. Other operating income includes an indemnity of 0.7 million euros, related to the settlement of a dispute with a tenant. At the June 30, 2006 reporting date, this item mainly included income from tax refunds. Payroll expense was stable at 1.1 million euros. EBIDTA totaled 23.1 million euros (-9.3%). Depreciation and amortization expense decreased by 18.4%, with disposals accounting for 1.2 million euros of the decline, primarily due to the Front de Paris building. The capital gain on the sale of a building (21.0 million euros) concerns the sale of the buildings located at 5 Rue de Turin, Champlan (91) and the share held in the Front de Paris building. Earnings from the office segment for the first six months of 2007 amounted to 37.4 million euros, an increase of 35.1%. IV – CONSOLIDATED EARNINGS AND CASH FLOW, PARENT COMPANY EARNINGS I – Consolidated earnings and cash flow Net lease income for the six months ended June 30, 2007 totaled 266.9 million euros, an increase of 13.0% compared with the previous half-year. Lease income was 287.6 million euros, with 251.9 million euros provided by the shopping centers, 24.3 million euros provided by office properties, and 11.4 million euros provided by retail properties. Compared with June 30, 2006, shopping center rents rose by 12.0% on a current scope basis and by 5.9% on a constant portfolio basis, while office rents fell by 8.9% on a current scope basis and rose by 8.1% on a constant portfolio basis. Management and administrative fees totaled 30.0 million euros, a 22.1% increase that is primarily attributable to the Shopping Center segment, where fee income rose by 21.3%, and more particularly to the rise in property development and management fees billed by Ségécé. Revenues generated abroad accounted for 41.0% of total revenues, compared with 43.0% for the six months ended June 30, 2006. Other operating income was attributable to work re-invoiced to tenants and miscellaneous gains. Building expenses totaled 20.7 million euros, an increase of 3.1 million euros or 17.7%. This increase reflects portfolio growth as well as the rise in vacancies due to restructuring projects under way in Hungary. Payroll expense for the period came to 32.4 million euros, versus 30.5 million euros for the preceding half-year period (+6.2%). This upward trend reflects a higher staffing level (+44 people overall), particularly in Poland, France and Portugal. Other operating expenses were 12.4 million euros, a 13.5% increase over the six months ended June 30, 2006. Significant changes relate in particular to computer and IT costs incurred in connection with the rollout of a European network and tax adjustments. The operating ratio (total expenses/net operating income) for the period was 14.8%, compared with 15.7% for the six months ended June 30, 2006. EBIDTA for the period totaled 257.3 million euros, a 15.2% increase over June 30, 2006. Depreciation and amortization for the period reached 78.9 million euros, a 12.5% increase (+ €8.8M) that primarily reflects the impact of new shopping center and retail property acquisitions, the impact of which was partly offset by the decline in amortization expense in the office segment following programmed disposals. The reversal of a 1.1 million euro provision includes the reversal of a provision for litigation. Results from operations totaled 179.5 million euros for the first half of 2007, an increase of 16.1% compared with 2006. The financial result for the period is a loss of 75.8 million euros, compared with 65.8 million euros on June 30, 2006. The group’s interest expense rose by 9.8 million euros, reflecting the increase in net debt, which went from 3 390 million euros on June 30, 2006 to 4 109 million euros on June 30, 2007. This increase was due to the significant investments made during the period. The cost of debt was stable at 4.3% for the first six months of 2007. Klépierre’s financing policy and financial structure are both described in more detail below (see section D on financing policy). Proceeds from the sale of assets amounted to 21.0 million euros, versus 11.2 million euros for the first six months of 2006. This item reflects the result of the sale of the buildings at 5 Rue de Turin, Champlan (91) and the share of ownership in the Front de Paris building. Since it elected SIIC status, Klépierre distinguishes three tax segments: The SIIC segment that includes Klépierre and all eligible French real-estate affiliates. Some of these companies have opted for regular tax status. French companies that are not eligible for SIIC status and hence have regular tax status. Foreign affiliates. For the six months ended June 30, 2007, the global tax expense for these three segments was 9.9 million euros: - 0.5 million euro tax charge (SIIC segment) - 1.5 million euro tax charge (French companies not eligible) - 7.9 million euro tax charge (Foreign affiliates). Consolidated net income for the six months ended June 30, 2007 is 115.9 million euros, an increase of 23.9%. Minority share of net income for the period is 17.5 million euros, exclusively generated by the shopping center segment, which brings the group share of net income to 98.4 million euros, an increase of 25.3%. Change in current cash flow Pre-tax current cash flow reached 182.5 million euros for the six months ended June 30, 2007, a 15.7% increase over June 30, 2006. Expressed in terms of group share, pre-tax current cash flow reached 154.5 million euros, a 15.4% one-year increase that translates into 3.4 euros per share. After-tax, net current cash flow reached 173.9 million euros, an increase of 15.0%. Group share, the total is 148.3 million euros, i.e. 3.2 euros per share and a 15.3% increase. V – REVALUED NET ASSETS (RNAV) 1 – Methodology Klépierre adjusts the value of its net assets per share on December 31 and June 30 of each year. The valuation method used entails adding unrealized capital gains to the book value of consolidated Shareholders’ equity. These unrealized gains reflect the difference between estimated market values and the net values recorded in the consolidated financial statements. Valuation of holdings Klépierre entrusts the task of assessing the value of its holdings to various appraisers. For office property holdings, Foncier Expertise and Atisreal Expertise (formerly Coextim) jointly perform this task. The Retail Consulting Group (RCG) values its shopping center holdings in all countries, with the exception of the shopping centers held by Klécar Foncier Iberica (for which appraisals are performed by Cushman-Wakefield) and those located in Hungary and Poland, where the task is performed by ICADE Expertise. The holdings appraised by the latter two firms represent 11% of Klépierre’s shopping centers in terms of number of properties. All of these appraisal assignments are awarded on the basis of the Real Estate Appraisal Guidelines (Charte de l’Expertise en Evaluation Immobilière) and in accordance with the recommendations issued by the COB/CNC "Barthès de Ruyter Work Group.” Fees paid to appraisers are set prior to their property valuation work, on a lump sum basis in accordance with the size and complexity of the assets being appraised, and independently of the appraised value of the assets. Offices The appraisers combine two approaches: the first entails a direct comparison with similar transactions completed in the market during the period, while the second involves capitalizing individual yields (observed or estimated). An analysis of these yields reveals that one of three situations prevails: lease income is either substantially equal to, higher than or lower than market value. If lease income and market value are substantially equal, the lease income used in the valuation is the actual lease income earned on the property. If lease income is higher than market value, the valuation uses market value and takes into account a capital gain calculated from the discounted value of the difference between actual lease income and market value. If lease income is lower than market value, the appraisers considered the scheduled term of the corresponding lease, at which time the rental price will be aligned with going rates. Pursuant to the French decree of September 30, 1953, the rental prices of properties that are used solely as office premises are automatically aligned with market rates when the leases in question come up for renewal. Consequently, the appraisers worked on the assumption that the owners of such property would be able to align rents with market rates when the corresponding leases came up for renewal, and took into account the current conditions of occupation in the form of a capital loss calculated as before. However, unlike prior valuation adjustments, the appraisers did not limit their approach to properties coming up for renewal in the three years to come, on the grounds that the investors participating in current market transactions make projections that extend beyond this three-year horizon. In the second case, the financial capital gain observed was added to the appraised value derived, equal to the discounted value (at a rate of 5.5 %) of the difference between actual lease income and market price until the first firm period of the lease expires. In the third case, a capital loss was deducted from the derived value, equal to the discounted value (at the rate of 5.5%) of the difference between actual lease income and market price until the lease expires. As of December 31, 2005, the appraiser reasons on the basis of the rate of return (yield) and not on the basis of the capitalization rate. In other words, the rate that was used is that applied to the income determined as before to derive an appraised value inclusive of transfer duties. Before, the rate used resulted in a valuation exclusive of transfer duties. The decision to use this rate results from an observation of the market, in the context of transactions actually completed by investors. To derive the appraised value exclusive of transfer duties, transfer duties and fees were deducted at the aforementioned rate. Shopping centers To determine the fair market value of a shopping center, appraisers apply a yield rate to net annual lease income for leased-up premises, and to net market price for vacant properties. The yield rate is applied after deduction of the net present value of all reductions or rebates on leases with minimum guaranteed rents and the net present value of all expenses on vacant premises. The discount rate used is equal to the yield rate applied to determine fair market value. Gross rent includes minimum guaranteed rent, variable rent and the market price of any vacant premises. Net rent is determined by deducting all charges from the gross rent, including management fees, expenses borne by the owner and not passed on to tenants, and charges paid on vacant premises. The appraiser determines the yield rate on the basis of numerous variables, in particular retail sales area, layout, competition, type and percentage of ownership, rental reversion and extension potential, and comparability with recent market transactions. As for rental reversion potential, the appraiser determines the market rental value for the shopping center in its present state on the basis of the shopping center’s location and the revenues generated by its tenants. The shopping center’s development potential is determined by calculating the difference between the market rental value and the current rents being charged. An internal rate of return is also calculated using a method that involves discounting a series of cash flows, generally to 10 years, based on a number of predefined assumptions. The estimated resale value at the end of this period is generally calculated using a cap rate that is equal to or slightly higher than that initially applied to the net end of period rent. In sum, the appraiser derives a current value by determining the yield rate that applies under prevailing market conditions, the current annual rent and the shopping center’s reversionary potential. He then verifies that the internal rate of return derived is consistent by calculating an IRR. This results in a value that is inclusive of transfer duties, from which duties (which are calculated at the rate indicated above for deriving a value exclusive of duties) must be deducted. Appraisal of the Ségécé Group This appraisal, which is performed on Klépierre’s behalf by Aon Accuracy, is primarily based on a range of estimates obtained using the Discounted Cash Flow (DCF) method. The DCF method consists of estimating the future cash flows of current business in the company’s portfolio before the explicit or implicit cost of financing is taken into account. In the second step, whose aim is to estimate the value of the business portfolio, these cash flows and the estimated future value of the portfolio of business at the end of the projected period (terminal value) are discounted using a reasonable rate. This discount rate, which is derived on the basis of the Modèle d’Équilibre Des Actifs Financiers (MEDAF) formula, is the sum of the following three factors: the risk-free interest rate, the systematic risk premium (average expected market risk premium times the beta coefficient of the business portfolio) and the specific risk premium (to account for that portion of the particular risk that is not already integrated in the cash flows). The third and last step consists of determining the value of the company’s own equity by extracting net financial debt on the date of valuation from the portfolio’s total value and, where applicable, the estimated value of minority interests on that same date. Assessing the value of debt and interest-rate hedging instruments Effective December 31, 2005, RNA incorporates the fair value of debt and interest rate hedging instruments that are not recorded under consolidated net assets pursuant to IAS 32-39, which essentially involves marking to market the fixed rate, non-hedged portion of debt. RNA including transfer duties and before taxation on unrealized capital gains The valuation of properties is initially presented inclusive of property transfer duties. Properties that are held for sale under a firm commitment on the date of the valuation are valued at their probable selling price, less related fees and taxes. For properties acquired less than six months before the date of the calculation, acquisition prices are used. Klépierre does not adjust the values of shopping centers under development, even in cases where building permits have been granted. Until these shopping centers open, they are carried in the consolidated financial statements at cost, and this figure is used to calculate revalued net assets. The Ségécé group is appraised annually using the method described in detail above. Equity interests in other service subsidiaries, including Klégestion and Klépierre Conseil, are not reappraised. This initial calculation provides revalued net assets "including transfer duties and before taxation on unrealized capital gains.” RNA excluding transfer duties A second calculation is made to establish revalued net assets excluding transfer duties. Duties on office properties are calculated individually using the rates set forth below. Duties on shopping centers are calculated property by property for companies that own several real-estate assets, or on the basis of revalued securities if the company owns only one property asset. This approach was considered to be the most relevant considering that investors are more likely to acquire shares in companies that own shopping centers and that Klépierre generally is more likely to seek other backers for its projects than to sell full ownership in shopping centers. Naturally, transfer duties are calculated on the basis of applicable local tax regulations. For France, the rate used for transfer duties is 6.20%. Klépierre did not opt to use the most advantageous rate (1.8%) for properties that still fall within the scope of the VAT since it does not currently plan to sell within the prescribed deadline. RNA excluding transfer duties and after taxation of unrealized capital gains A third calculation is made to establish revalued net assets excluding transfer duties and after taxes on unrealized capital gains. In the consolidated balance sheet, deferred taxes are recognized pursuant to accounting regulations in force, on the basis of appraised property values, for the portion which corresponds to the difference between the net book value and the tax value as determined by capital gains tax rates in force in each country. At the June 30, 2005 reporting date, the RNA calculation was adjusted to include the tax on unrealized capital gains corresponding to the difference between the net book value and fair value on this same basis. At the December 31, 2005 reporting date, and to align its practices with those of its principal peers, Klépierre considered the type of ownership of its properties, using the same approach as that used to determine transfer duties. For office properties, the treatment is based entirely on property ownership, but since the entire scope benefits from tax exempt status as an SIIC, there is no unrealized taxation. For the shopping centers, and depending on the country, taxes on unrealized capital gains are based on the tax rate applied to the sale of buildings for companies that own several properties, and at the tax rate applicable to securities for companies that only own one property. II – Revalued Net Assets (RNAV) at June 30, 2007 Appraisal results The value of Klépierre’s real estate holdings including transfer duties was 10 billion euros (total share) and 8.9 billion euros (group share). Total share, shopping centers represent 85.4%, retail properties represent 4.1%, and offices represent 10.5%, while the group share percentages are 84.3%, 3.9% and 11.8%, respectively. On a constant portfolio basis, shopping center assets increased in value by 5.3% during the six-month period ended, while the value of retail assets grew by 4.5% over the same period and the value of office assets increased by 9.7%. Over 12 months, the respective increases are 17.0%, 23.2% and 19.5%. HOLDINGS, TOTAL SHARE (transfer duties included) HOLDINGS, GROUP SHARE (transfer duties included) Offices On a constant portfolio basis, the value of Klépierre’s office assets increased by 19.5% on a total share basis over 12 months (and by 9.7% over six months). Based on appraised values at June 30, 2007 (transfer duties included), the average yield on the portfolio was 5.0%, a decline of around 50bps. Over 12 months and on a current portfolio basis, the increase in the value of assets also takes into account the acquisition in December of an office property located at 5 Rue Meyerbeer in Paris and a project under development in Issy-les-Moulineaux, for which the stated book values were used for the calculation of RNAV. The office portfolio is valued at 1 047.5 million euros. 4 of these properties have an estimated unit value that exceeds 75 million euros, representing 46.4% of the total appraised value of this portfolio. 15 have a unit value of between 75 million and 15 million euros, representing 53.5% of the total appraised value of this portfolio, and 2 have a unit value of less than 15 million euros. Shopping centers On a constant portfolio basis, Klépierre’s shopping center holdings, including transfer duties, increased in value by 17.0% in light of the rental reversions and the decline in yields. The average yield on the portfolio at June 30, 2007 was 5.7%, including transfer duties, based on appraised values, a decline of 10bps compared with December 31, 2006. On a current portfolio basis, the increase in the value of assets includes the acquisition of the two Polish shopping centers, Rybnik and Sosnowiec, the Progest group and the Rambouillet center in France, the Larissa center in Greece, Novo Plaza in the Czech Republic, the Braga center in Portugal, the extension of Varese in Italy and of Molina de Segura in Spain, as well as various projects under development, for which their stated book values in the group’s financial statements were used to calculate RNAV. The shopping center portfolio is valued at 8 544,9 million euros (7 466.8 million euros in group share). 31 of these properties have an estimated unit value that exceeds 75 million euros, representing 49.9% of the total estimated value of this portfolio, 87 have a unit value between 75 million and 15 million euros, and 122 have a unit value of less than 15 million euros. Retail properties On a constant portfolio basis, retail property holdings, including transfer duties, increased in value by 23.2%. This increase in value only pertains to the 3 assets and must be interpreted with caution. The average yield for the portfolio was 5.9% based on appraisals (transfer duties included) at June 30, 2007. On a current portfolio basis, the increase in value of these assets includes the acquisition of the Buffalo Grill restaurant properties and Cap Nord retail assets. The value of the retail properties portfolio on June 30, 2007 was 405.5 million euros (341.1 million euros in group share). For the six months ended June 30, 2007 RNAV rose by 36.4%. On the basis of appraisals including transfer duties, revalued net assets after deferred taxes on capital gains and marking to market of debt came to 108.9 euros per share, versus 79.9 euros per share on June 30, 2006 and 97.4 euros on December 31, 2006, a six-month increase of 11.8% and a 36.4% increase in 12 months. Revalued net assets excluding transfer duties, after deferred taxes on capital gains and marking to market of debt came to 102.7 euros per share, as opposed to 74.5 euros on June 30, 2006 and 91.5 euros on December 31, 2006. VI – Financing policy 1 – Financial resources Consolidated net debt of Klépierre went from 3 804 million euros on December 31, 20065 to 4 109 million euros on June 30, 2007.2 This 305 million euro increase results primarily from investment outflows (367 million euros) and the dividend payout (148 million euros), and was partly offset by cash flow generated by disposals (74 million euros) and free cash flow for the year. This debt was mainly financed via lines of credit that were set up in 2006, as well as via the stepped-up use by Klépierre of commercial paper. In Italy, the extension of the Varese center was financed by a 15-year property finance lease, on which the outstanding principal amount was 17 million euros on June 30, 2007 in the consolidated financial statements of Klépierre. In Portugal, two bank loans were repaid and then refinanced by Klépierre, for a total amount of 57.4 million euros. At the June 30, 2007 reporting date, available credit lines totaled 177 million euros. In July 2007, an additional sum of 400 million euros was authorized following the signature of a new bank credit facility. Klépierre wanted to concentrate its 2007 financing transactions in order to obtain optimal terms and conditions, and intends to refinance this credit in the second half of 2007 by setting up long-term financing for a larger sum. Based on authorized credit terms on June 30, 2007, the average duration of the Group’s debt is 5.4 years (including the back-up line). The breakdown by type of financing remains diversified. 2- Interest rate hedges Against a backdrop of strong pressure on interest rates in the first half of this year, Klépierre took advantage of its existing hedges and opted to finance its additional needs with floating rates, with short-term rates still lower than long-term yields. Consequently, the proportion of Klépierre’s fixed-rate or fixed-rate hedged debt to total financing debt went from 85% at the beginning of the year to 79% on June 30, 2007. This hedged rate does not take into account the swaps with staggered start dates that Klépierre contracted in order to address financing or fixed rate hedge due dates in the years to come – due dates that will most likely be renewed given Klépierre’s investment program. Accordingly, on June 30, 2007, the Group had €50M in 7-year swaps with a December 2007 start date (at the level of Klémurs), and 300 million euros in 7-year swaps with a July 2008 start date. In July 2007, the hedge was strengthened by 200 million euros via a 3-year swap starting in July 2008. Globally, on June 30, 2007 the Group’s fixed-rate hedges have an average duration of 5 years for an average fixed rate of 3.6% (excluding credit margin). As was the case on December 31, 2006, the Group’s swap portfolio is almost entirely composed of plain vanilla swaps. Situation at June 30, 2007 3- Financial ratios and financial rating Klépierre’s financial ratios were globally maintained and in some cases improved over the first six months of 2007. (total share) June 30, 2007 December 31, 2006 June 30, 2006 Loan-to-value 41.1% 41.7% 43.1% EBIDTA / Interest expense 3.40 3.42 3.40 Net current cash flow / Net debt 8.5% 8.1% 8.9% These levels fall within the range of objectives used by Standard and Poor’s for its BBB+ rating of Klépierre’s debt, i.e.: - Loan-to-value = 50% - Net current cash flow / Net debt = 7% - EBITDA / Interest expense = 2.5%. The outlook associated with this rating went from stable to positive in January 2007. 4 – Cost of debt The historic cost of the debt (ratio of interest expense to average financing debt) was 4.3% for the first six months of 2007. It was also 4.3% for all of 2006. The rise in short-term interest rates thus had little impact on the cost of Klépierre’s debt over the six-month period, thanks to the high percentage of fixed-rate debt or fixed at the beginning of the period, and to the marginal amount of floating rate debt under terms and conditions negotiated when the banking market was at its lowest. The cost of the debt projected on the basis of the financial structure and rates at the June 30, 2007 reporting date was 4.4%. A 100bp rise in interest rates would lead to an increase in the average cost of debt of 0.21%, with a negative impact on net current cash flow of 8.6 million euros. 2 Excluding the revaluation of debt related to the Fair Value Hedge swap