In the Americas, our focus is to invest in key cities and property types where we can achieve superior returns. Experience, economic and market research, and an active ownership and asset management role all contribute to our success. By combining these tools with risk management in all areas of our business, we can deliver strong returns to our co-investors given their stated risk stance                                         180 Post Street, San Francisco

The relationship between our people and our co-investors, tenants and service providers is the source of our long-term value creation and competitive advantage, while our presence in San Francisco, Washington, D.C., Vancouver, B.C., and a planned new Toronto office gives us excellent market coverage.

This year marked the 50th anniversary of Grosvenor’s real estate activities in North America. Since our initial purchase of Annacis Island in Vancouver in 1953, we have focused on the real estate fundamentals and proven strategies that build long term value for us and partners. To commemorate the occasion, a sculpture, entitled “LightShed,” was donated to the city of Vancouver.
Our best performers in 2003 were retail and residential properties, led by consumers benefiting from low interest rates, rising home values and federal income tax cuts. Office and industrial properties performed less well, except in the Washington, D.C. market, which benefits from the sizable presence of the federal government. In the San Francisco Bay Area, vacancy rates in the office and research and development sectors exceeded 25% throughout the year due to the continuing impact of the technology sector collapse. Most observers estimate that it will be several years before this market regains a proper supply and demand balance.
Fuelled by strong capital markets, low interest rates and a scarcity of prime properties, the investment market remained strong throughout the year as capitalization rates fell for quality stock. Prices achieved for well-leased assets on long-term leases reached levels not seen since the late 1980s. When capitalization rates move upward, if there is no corresponding increase in net income levels, many investors will experience unfavorable value adjustments. We actively seek those assets that will perform well in such an environment.
In mid-2003, on behalf of our American Freeholds partnership, we successfully sold WestShore Plaza, a 1,100,000 sq ft (102,200 m2) shopping center in Tampa, Florida. The property had been positioned for sale following a series of renovation and expansion improvements over the last few years. In November, we sold our interest in Citibank Center in downtown Los Angeles. Made fashionable by the popular television series “LA Law”, which was filmed there, the 48-story high-rise office complex was 95% leased at the time of sale and was our last remaining major high-rise office building in the U.S.A.; we had owned the signature building since 1984.
In Canada, we successfully sold our interests in two community shopping centres: Cherry Lane in Penticton, British Columbia, originally developed in the mid -1970s and renovated over the years; and Semiahmoo Shopping Centre in suburban Vancouver, where our partner also sold its interest.
We are undertaking more development, with two office building developments in suburban Maryland under construction. Three Vancouver area developments are in the planning stages; two mixed-use retail/residential complexes, and one mixed-use commercial park.
Our residential program, primarily focused on the Greater Vancouver area and Seattle, continued to perform well. Grosvenor provides mezzanine financing to selected locally based developers for a specified return and share of the profits. Extensive research is first completed on the developer, product and market before we commit to any individual project. To date, we have invested in apartments, townhouses and single-family lot subdivisions. We also undertake direct development on our own or in joint ventures, an example of which is our joint venture development of a 265-unit condominium project with two floors of retail in North Vancouver. More than 90% of the residential units were successfully pre-sold prior to the start of construction.
In 2004, our strategy is to expand our residential program to California. We will continue to increase the number of quality community retail centers in our target markets while reducing our exposure to offices. The Washington, D.C. metropolitan area continues to be our preferred market for office investment but we will respond to opportunities in all of our target markets. Only in Canada will we target quality industrial parks, focusing on Vancouver and Toronto.

“Our in-depth residential strategy, coupled with an updated review of our overall business strategy, will see an expansion of our residential program to the California market in 2004.”

PORTFOLIO OVERVIEW

The Americas investment portfolio consists of more than 6.0 million sq ft (557,000 m2) of commercial space, including retail, office and industrial holdings. Our average occupancy rate during 2003 was 93%.
Leasing activity was strong overall, totalling more than 500,000 sq ft (46,000 m2). Two of our San Francisco Bay Area office/research and development properties had high vacancy rates commensurate with other properties in Silicon Valley. To capitalize on strong residential market activity we are considering the sale of a portion of one of our research and development parks in Silicon Valley for residential use.
In the retail sector, 308 North Rodeo Drive, in Beverly Hills, acquired in 2002, received City planning approval for redevelopment and expansion that will commence in early 2004. Our two retail properties in Union Square, San Francisco, continued to perform well at nearly full occupancy, as did those in North Michigan Avenue, Chicago. The year also marked our first retail property acquisition in the Washington, D.C. metropolitan area. Best Buy Metro Center, a 105,000 sq ft (9,750 m2), class A retail shopping center in Springfield, Virginia, was acquired at year end. The two regional malls we own in the U.S.A. performed well, driven by the consumer-led economic recovery. In Canada, our two suburban retail community centres in Vancouver enjoyed high occupancy levels and capital growth. At our successful retail project in Edmonton, the largest ‘power’ centre development in Canada, we carried out further development activity. Ikea opened their store along with Sears Home, Old Navy, Tommy Hilfiger and La Senza, joining such well-known firms as Wal-Mart, Home Depot and Cineplex. An additional 135 acres (55 hectares) are available for development, ensuring the continued long-term dominance of this retail location.
In the office sector, our two suburban office buildings in the Los Angeles metropolitan area experienced a 90% average occupancy in a challenging leasing environment. Our more than 1.0 million sq ft (93,000 m2) of office space in the Washington, D.C. metropolitan area performed well. On the West Coast, we continue to be challenged by a high vacancy rate in our suburban San Francisco office complexes. The market has a vacancy rate of more than 25% and rents have decreased by more than 80% from their market highs.
The industrial portfolio in Canada, consisting of more than 1.5 million sq ft (140,000 m2), saw occupancy levels averaging more than 99%.
In both the U.S.A. and Canada, we continue to expand our development program. In Vancouver, we are working on two major projects: one in the midtown Cambie Street corridor, where we plan to start construction in mid-2004 on a 280,000 sq ft (26,000 m2) mixed-use retail/residential development; and the other in Langley, where we have approximately 48 acres (19 hectares) available for sale and development at a strategic interchange. We are also involved in two sizable joint venture developments in Surrey, B.C. for more than 600 residential units. In the U.S.A., we continue to focus on office development in the Washington, D.C. area, and are pursuing retail development opportunities in all of our target markets.

	Number No.	Value £'m	Passing rent £'m	ERV £'m	Average yield %
Office	12	171.6	15.1	16.5	8.8
Industrial	4	57.7	3.6	3.7	6.3
Retail	13	139.3	10.2	12.7	7.3
Total	29	368.6	28.9	32.9	7.8

Average lease length in the Americas is 5.8 years