OUR STRATEGY IS MARKEDLY DIFFERENT FROM OTHER PROPERTY COMPANIES. IT ALLOWS US TO UTILISE OUR SKILL AND NOT BE TRAPPED BY A LARGE UNWIELDY PORTFOLIO. IT ALLOWS US TO PUT INTO PRACTICAL EFFECT OUR BELIEF IN THE POWER OF PARTNERSHIP AND TEAMWORK.

Our intention is to generate earnings from our own efforts rather than general market movements. It is in not in our interest (nor our occupiers') for rents to rise excessively. It follows that the correct measure of our performance is 'added value'; this is not easy to determine and we continue to search for better analysis. In the meantime, the most universally understood measure of performance in the industry remains total return. In 2000, the Group's total return on capital was 16.4%. Our three-year average total return now stands at 17.1% pa, compared to our average cost of capital of 11.3% for the same period.

We are a multifaceted Group. Our earnings are derived from property development, investment and fund management. These activities are specialised, independent but also complementary. We are further diversified geographically, with four regions managing capital invested in 15 countries. This allows for regional variations in strategy but the constant dialogue and co-ordination maintains a coherent picture.

Although it is barely discernible in the short term, there is a fundamental shift occurring in the way in which commercial, retail and residential occupiers use property. The rapid advance and easy accessibility of communications technology means that the design, specification and location of buildings are constantly evolving. If we are to retain our credibility and the loyalty of our business partners, we must be able to anticipate and adjust to these changes. Our involvement in many different markets around the world makes this exercise even more productive.

Our development strategy is centred on the returns - whether income or capital - we can derive from our expertise. The development programme may not wholly accord with our aspirations for our own capital. So, we adjust our capital exposure to development separately from the programme itself. We are raising the amount of development activity throughout the Group led by the UK where we are increasingly involved in comprehensive city centre development projects, utilising our long experience of city centres around the world. The completed value of the committed development programme is £1.0bn.

Within the £1.9bn investment portfolios, we maintain an appropriate local balance of office, residential, business park and retail property. We are shifting the emphasis away from retail property except in the evolving Continental European market, where we now have interests in 20 shopping centres in Spain, Portugal, France and Greece. Our strategy of concentrating office investments in major international marketplaces continues and we believe that cities such as San Francisco, London, Paris, Madrid and Sydney will provide a stable platform for our 'added value'Õ strategy in spite of the current volatility. In 2000, we also re-entered the Hong Kong office market. The residential market may be the most stable of all in the long term, there being few locations in the world where there is not a constant demand for more or higher quality housing. This sector comprises 18% of the portfolio, activity being mainly in London, Hong Kong and Tokyo.

We continue to grow our fund management business which provides a stable income flow and a source of opportunities for other parts of the Group. In particular, fund management allows us to deploy our skill and generate earnings from a much wider capital base. The value of third party capital under management is £2.3bn.

Our strategy is markedly different from other property companies. It demands that we be innovative and market led. It allows us to utilise our skill and not be trapped by a large unwieldy portfolio. It means we must search for new and better ways of doing things. It allows us to put into practical effect our belief in the power of partnership and teamwork. This all contributes to an exciting environment which to my mind completes a virtuous circle in effective business management.

One thing is apparent from our experience in different international markets and that is not to fear shorter leases. We have been advocates of change in leasing practices in the UK and our own flexible lease policy on the London Estate has been very successful. I believe that a much wider use of shorter leases is about to occur; the important thing is to create a marketplace which offers real choice to consumers. Occupiers and investors have varying objectives and these need to be accommodated in reaching agreement over lease terms.

The Group has 350 staff in 12 offices around the world. The many events of 2000 reported in this document are the product of their efforts in conjunction with all of our business partners.

Jeremy Newsum
15 March 2001

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