Introduction
In the six month period ended 30 June 2004, the net assets of your Company have
decreased by 1.2 per cent. from £156.5m (restated from previously reported figure of £167.0m) to £154.6m. This has resulted in the net asset value per Ordinary share falling 6 per cent. from 43p (as restated) to 40.4p. The price of the Company’s Ordinary shares, 48.3p at the end of the period under review, has increased to 55p as at 17 September 2004.
At the period end the Company’s assets were primarily Irish and UK properties. The Irish property portfolio was valued at Euro 511.9m (31 December 2003 Euro 506.3m) and the UK portfolio, following a number of disposals detailed below, at £75.9m (31 December 2003 £107.5m). I am pleased to report that the property market has again remained stable. The majority of investments within the Company’s income portfolio have successfully been realised and at the period end the remaining income portfolio was valued at £5.8m (31 December 2003: £27.6m).

Irish Economic Overview
The Irish economy is enjoying a strong rebound in activity following the downturn in late 2001, sustained through 2002 and 2003. Figures from the Central Statistics Office (CSO) indicate that the Irish economy grew at an annual rate of just over 6 per cent. in the first 3 months of 2004. This surge in economic performance reflects more favourable international trading conditions and renewed confidence among consumers, underwritten by a tightening of the labour market.
While consumer expenditure remained moderate in 2003, increasing by only 1.9 per cent. on the previous year, there is evidence of a strong pick up in consumer confidence in 2004. The combination of an increase in earnings growth, an improvement in labour market conditions and a reduction in the savings ratio has created a positive environment for rising consumer expenditure. This is reflected by an increase in retail sales: the annual growth rate in consumer sales was 2.8 per cent. in the first quarter of the year relative to 0.6 per cent. in the final quarter of 2003.
The latest CSO figures indicate that the rate of inflation as measured by the consumer price index (CPI) increased moderately during the first half of the year but remains around the Euro-area average of just under 2 per cent.
Despite the strength of the recovery in much of the global economy, the overall Euro area recovery remains quite weak. The outlook is that the recovery in the Euro-zone generally will remain moderate in the medium term, constraining rises in interest rates.

Irish Property Market
The recovery in the performance of the Irish property market witnessed in the second half of 2003 has carried through into the first half of 2004. The Society of Chartered Surveyors/Investment Property Databank (SCS/IPD) Index indicates a total return of 12.2 per cent. in the 12 months to the end of June 2004. This compares with a total return of 6.3 per cent. over the corresponding period to June 2003.
The Dublin office market remains stable with vacancy levels declining. Renewed
confidence in the economy is generating increased enquiries from occupiers. This is highlighted by a recent report published by the OECD which confirms that the level of foreign direct investment into the Irish economy rose to an estimated $25.5bn in 2003, up 5 per cent. on the previous year. This is in contrast to Europe as a whole, where inward investment fell by 23 per cent. during 2003. Examples of specific foreign direct investment projects, which have impacted on the Dublin office market in the first half of 2004, include the establishment by two important players in the technology sector, E-Bay and Google, of their European headquarters in Dublin.
Rental levels have remained relatively unchanged during the first half of 2004 with prime rents for third generation space in the city centre around Euro 440 per sq. m. while those for second hand properties are in the region of b350 per sq. m.
The retail market continues to be the most buoyant sector. The aggressive expansion policies of both domestic and international retailers coupled with a continued lack of prime accommodation has further underwritten the strength of this market. The SCS/IPD Index recorded a total capital growth in retail values in the 12 months to the end of June 2004 at 19.2 per cent. with average rental values growing over the same period by 8.7 per cent. Most of the new retail stock due to be completed and brought to the market during the next 12 - 24 months is almost fully let, thereby ensuring a continuing scarcity of quality retail opportunities and underpinning values for the foreseeable future.
The residential market has also maintained a healthy level of growth during the first half of the year. After a record performance in 2003 when almost 70,000 new units were developed, indications to date suggest that this level could be replicated if not exceeded in 2004. Despite the increase in supply however, the market remains strongly underpinned with demand generated by population growth, rising living standards, falling household sizes and a benign interest rate environment.

Irish Property Portfolio
The sectoral breakdown of the Company’s Irish property portfolio (including properties held by Havenview) is as follows

The Irish property portfolio continues to perform well with the investment portfolio
producing modest capital appreciation during the first half of the year. Rent reviews in respect of a number of properties in the portfolio continue to generate rental growth and contribute to performance.
A particular highlight during the period was the confirmation of full planning permission, through our 50 per cent. joint venture company Havenview, for our major town centre mixed-use scheme at Ballymun. Based on the consents now received, this has the potential to become one of Ireland’s best shopping centre developments and is undoubtedly amongst the most exciting development projects in the Company’s portfolio.
We remain busy on the other development properties in the portfolio with applications for planning permission lodged during the period for development schemes on the Balgaddy site in Clondalkin, the Allegro site in Sandyford and the Blakes site in Stillorgan (the last two being held within Havenview).

UK Property Investment Market
In 2003, UK property delivered total returns of 11.3 per cent. according to the IPD Monthly Index and performance in the first half of 2004 appears to be a continuation on the same theme. In the first half of 2004, UK property generated a total return of 8.6 per cent. (IPD Monthly Index), comparing very favourably with returns on Equities (FTSE All Share Index) at 2.8 per cent. and Gilts (FTSE 5-15 year index) at 0.1 per cent.
The UK market recorded returns of 2.1 per cent. for June 2004 (IPD Monthly Index), the highest one-month return for over a decade. This strong performance is more significant when considered against the background of rising interest rates.
The drivers of this performance are starting to shift. While much of the total return
generated by property last year was delivered through capital value growth (mostly as a result of very strong demand from investors) rather than rental value growth (indicating a revival in occupational markets), there are signs that there is now some rental value growth appearing in some of the office sub-markets.
The hierarchy of sector performance has remained unchanged for some time now, with the retail sector performing best, industrial second and offices third. All three sectors benefited from capital value growth through sustained investment demand (and a relative lack of product) over the period, though unlike previous quarters office returns were not being held back by significant rental decline. Retail and industrial continued to benefit from clear rental value growth.

UK Property Portfolio
At 30 June 2004, your UK property portfolio comprised 22 properties, valued at £75.9m. The revised valuation reflects an increase in value (on a like for like basis) of 3.8 per cent. since December 2003.
The sectoral breakdown of the Company’s UK property portfolio is as follows:

The reduced size of the portfolio (there were 43 properties in your UK portfolio in
December 2003) results from disposals during the period under review totalling £38.4m, including the sale on 16 April of a portfolio of 19 properties, for a total consideration of £35.6m. The price achieved reflected a premium of nearly 13 per cent. over the value of the properties in December 2003. The properties identified for sale in this transaction were those where either asset management initiatives had been completed, or there was little short-term opportunity to add value. The premium price achieved reflected, in part, the strong investment demand for portfolios of such properties.
The retained portfolio comprises a mixture of retail, office and industrial property, located around the UK, and two individual office properties; one located in Guernsey and the other in the Isle of Man. The portfolio is currently generating an income yield of 8.1 per cent., and has only 3.5 per cent. vacancy.
A number of the assets have short-term asset management initiatives, including upcoming rent reviews and lease renewals, while others have interesting prospects for refurbishment or redevelopment. The future ownership of these assets is reviewed on an ongoing basis, in the context of the expected future performance of the individual assets, and the portfolio’s wider context within the Real Estate Opportunities group.

Financing
As reported in the last annual report, the Company has during the period under review repaid the outstanding b15m Income Portfolio facility and at the same time cancelled the Euro 188m interest rate swap for a cost of b15.3m. This was funded from sales of bond investments. In addition, the Company has subsequently repaid £25m of the UK property loan, closed out the £109m UK property swap for a profit of £26,000 and entered into an interest rate cap on the remaining UK property loan of £50m at 5.8 per cent. per annum until 25 July 2005.

Adjustment to Accounts for 2002 and 2003
In 2001, the Company took out a floating rate loan for b188m and, at the same time,
entered into an interest rate swap for the same amount, effectively fixing the interest
payable on the loan. b173m of the loan was repaid in two tranches in September and December 2002. The balance, b15m, was repaid in January of this year and, at the same time, the interest rate swap was broken at a cost of b15.3m (as referred to in Financing, above); this repayment and breakage was announced at the time and is recorded as a post balance sheet event in the Annual Report and Accounts of the Company for 2003. Likewise the UK property loan was not fully drawndown at the year end, having a balance of £69m at 31 December 2002 and £75m at 31 December 2003. The swap on this loan was closed as shown in Financing, above.
In the audited accounts of the Company for 2002 and 2003, both interest rate swaps were treated as hedging instruments and accordingly nil value was ascribed to them in the balance sheet (the fair value being indicated in a note to the accounts for both years).
Notwithstanding the advice given at the time by the Company’s auditors, KPMG Channel Islands Limited (“KPMG”), the Board has now been advised by KPMG that in so far as the loan to which the interest rate swap related had been repaid, the fair value of the swap should, in accordance with UK GAAP, have been provided for as a balance sheet item. On the basis of this new advice received from KPMG, a prior year adjustment has therefore now been made and this is reflected in the interim accounts which follow this statement.

Case Against Aberdeen
The Committee appointed to investigate the legal claims available to the Company for losses sustained in the income portfolio has made good progress under the chairmanship of Lord Browne-Wilkinson. Aberdeen and other advisers have been notified of the company’s expected claims and have been invited to provide information in relation to them. Pending further steps, it would not be appropriate to announce further details of the nature and extent of the proposed claims.

Outlook
The Board remains firm in its conviction that shareholders’ returns will be best enhanced by continuing to progress your Company’s development projects and by the continued good prospects for growth in the Company’s existing investment assets. I am particularly encouraged that consensus growth forecasts for the Irish economy remain exceptionally strong relative to the Euro-zone as a whole. This, coupled with the development potential of the Company’s principal property assets, justifies an optimistic outlook for the Company.

R Y F Horney
Chairman
20 September 2004