25 April 2007 – Peter Clarke, Executive Officer

1. Property Derivatives 25 April 2007 – Peter Clarke, Executive Officer We are real estate investors and create value by actively managing, financing and developing prime commercial property to provide the environment in which modern business can thrive.

2. What We Are • Largest UK REIT (by assets £16.4bn) • Market capitalisation £7.9bn1 • Total assets under management £20.4bn • Market leadership in Office & Retail (36m sq ft) • Focus on growth markets • London offices • Out of Town retail • Pro-active management style • Focused on customer trends • Attractive upside from development & asset management • High qualityassets • Prime locations with strong tenants • Average lease term 14 years to first break • Exceptional record of outperformance 1 As at close 30 March 2007

3. Why Use Derivatives? • Tactical asset allocation • Hedge risk/ability to reduce exposure - “short” position • Other reasons - quick form of entry and exit - provides instant exposure - direct investment in property is expensive (SDLT2 and other dealing costs c.7%) • Deal in smaller lot sizes

4. How Are Derivatives Dealt? • Generic ISDA Master Agreement • Specific confirmation for each deal • Normally with bank as counterparty

5. The Role of Banks • Most deals in the UK have had a bank as intermediary • Reduces complexity as mitigates counterparty risk and time spent assessing that risk • Banks are now trading for their own books, thus increasing liquidity

6. Important Considerations • Tax • Accounting • Valuation

7. Tax • Treatment of derivative needs to be considered • In the UK different treatment for income and capital may affect documentation • In new REIT regime different treatment of hedging risk than taking risk

8. Valuation • Two things required: • market data • valuation model • In UK daily market prices are provided by banks, brokers and on Bloomberg (code RE EU) • Valuation model will take prices to form a valuation curve for property leg and discount using interest rate swap curve. Value UBOR leg using interest rate swap curve. • May be more complicated, in particular if income/capital elements are split

9. Accounting • UK listed companies report under IFRS • IAS 39 requires that all derivatives are accounted for on the balance sheet at fair value • Changes in fair value are recognised through the P&L which matches movements in the value of investment properties

10. Other Issues • For public companies reporting of derivatives is a particular issue • In taking on risk one can be reasonably clear but hedging risk affects (economically) the balance of the portfolio. How to report this is a challenge. (example?)

11. Where We Go From Here • Liquidity and robust indices are primary conditions for successful market • 83%1 envisage enough future liquidity- 87%1 view IPD as a robust index • Other primary conditions include:- Education- Strong correlation with underlying market • Expected to increase the general level of interest in real estate as an investment

12. Food For Thought • Pricing of derivatives is driven by underlying property market • but will that always be so or is it just a function of an illiquid derivatives market? • In a perfect market, buyers and sellers would arbitrage out the property risk and prices would tend towards LIBOR. • A future money making opportunity?