OUR STATEGY IS TO EXPAND OUR DIRECT PROPERTY HOLDINGS, CONCENTRATING ON CREATING VALUE AND ACCELERATING OUR DEVELOPMENT PROGRAMME, PARTICULARY IN SOUTHERN EUROPE.

In 2000 we achieved a strategic increase in the level of control over our portfolio through direct investment and joint ventures. We increased our development activity in markets experiencing a supply "crunch", whilst keeping a watchful eye on future pipeline. We opened our second continental European office in Madrid, as part of our 50/50 joint venture in Spain with Grupo Lar Grosvenor.

The business generated strong underlying returns, given the healthy economic growth, particularly in southern Europe, and tight supply conditions coupled with growing demand. The bedding in of the Euro has had a positive effect on cross-border investment and, once bank notes are introduced on 1 January 2002, the impact at consumer level will be considerable.

Direct investments, held through our European office fund, Grosvenor European Prime Properties and Grupo Lar Grosvenor, a joint venture company, have a total committed investment portfolio of €750m.

Grupo Lar Grosvenor was established in June, with Spanish group, Grupo Lar, to invest in and develop commercial property in Spain. The company began with a substantial portfolio under management of over €600m, of which its participation is approximately 50%. We manage 4 operating shopping centres and have agreements to buy a further two, including Parque Principado in Oviedo - a 70,000 m2 centre due to open in spring 2001, with partners Sonae Imobiliára and Whitehall.

The office portfolio is concentrated in the prime business locations of Madrid and Barcelona and, including developments underway, amounts to 63,000 m2 in 9 buildings. Serrano 55, a 5,800 m2 project in downtown Madrid, was completed in the summer and let to Morgan Stanley. In Barcelona we agreed terms to forward purchase Gran Sarrià, a 13,500 m2 scheme to be completed in 2002 and concluded the acquisition of Frente Maritimo, a project of 6,400 m2 in two buildings on the sea front, which is due for completion in autumn 2001.

Grosvenor European Prime Properties, our joint venture with Société Foncière Lyonnaise, acquired two office buildings - 260, Calle Diputación in Barcelona and 21 rue des Pyramides in Paris. The portfolio now has 9 buildings in Paris, Madrid, Barcelona, Brussels and London. The decision was made to withdraw from London during 2001 and the proceeds will be re-invested in the Eurozone.

Sonae Imobiliária, in which we hold a 25% stake, is one of the most highly regarded retail and leisure specialists in Europe. During the year, gross property assets under management grew to €1.95bn, and net assets to €752m. Sonae Imobili‡ria's efforts were once again rewarded with prizes; Vasco da Gama, the 45,000 m2 centre in Lisbon, won the ICSC (Europe) Best Large Centre Award, and ICSC (North America) Design & Development Award.

Following the opening in November of the 17,400 m2 Sintra Retail Park, 100% pre-let, the company owns or co-owns 9 shopping centres and a retail park, amounting to 475,000 m2. Sonae's total gross lettable area under management is over 950,000 m2 with nearly 3,500 lease contracts. Sonae has 4 projects due for completion in 2001, totalling 162,500 m2 in Malaga, Madeira and the Algarve.

We retained two financial investments: 7.1% of publicly quoted French property company Société Foncière Lyonnaise, and 5% of private Spanish company Hermanos Revilla.

Top:
Vasco da Gama, Sonae Imobiliária's 45,000 m2 shopping centre won two ICSC awards.

From left to right:
6-8 rue Guimard, Brussels.

77 avenue des Champs-Elysées, Paris.

The central atrium at Calle Diputación, Barcelona.

21 rue des Pyramides, Paris.

Garbera Shopping Centre, San Sebastian.

Calle Serrano 55, Madrid.

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