I am pleased to report on the activities of the Company during the first six months of 2008. Highlights from the period include the launch of the impressive plans for the development of the Battersea Power Station site in London and a series of positive
rent reviews within the Irish investment portfolio. The Directors are satisfied that, against an increasingly harsh economic environment in both Ireland and the UK, performance across the portfolio has been positive.

Your Company has focused on consolidating its existing portfolio and continues to
make solid progress with its asset management and development programmes. This is reinforced by the £71.7 million (4 per cent) increase on the aggregate property
portfolio value in the six months to 30 June 2008 benefiting from the strength of the
euro versus sterling which offset a modest decline in underlying asset values. This
resulted in a total property portfolio value of £1,848.1 million. Additionally, the fair
valuation of the currency swaps has added £32.0 million to the asset values.

The investment in its associate company, China Real Estate Opportunities Limited,
has risen to £63.7 million, a growth of 16% benefiting from positive asset valuations in China and the strength of the Renminbi against sterling.

The combined effect of these, and other movements, has been a small reduction
in the Diluted EPRA (European Public Real Estate Association) Net Asset Value from
143.9 pence per share to 134.2 pence per share, a decline of 7 per cent.

Irish economic overview
The effects of the international economic slowdown and credit crunch have impacted further and somewhat deeper on the Irish economy during the second quarter. Market commentators, including the Economic and Social Research Institute (“ESRI”), have revised forecasts downwards, particularly in light of recent emerging data. The downward revisions are such that the ESRI is now forecasting a contraction of the economy in 2008 with GNP and GDP in Ireland predicted to fall by 0.4 per cent in real terms over the full year. These figures should, however, be considered in context and compare relatively favourably to our European neighbours. Despite current conditions both GNP and GDP are expected to grow by approximately 2 per cent in 2009 (ESRI) and revert to the medium term sustainable growth rate of 3.75 per cent per annum thereafter. The slowdown in the economy will have many implications. In the absence of budgetary intervention the deficit in the public finances is forecast to grow. Unemployment levels may rise further mainly as a result of the slowdown in residential construction while inflation may rise to 4.5 per cent in 2008.

Irish Property Market
In line with most other property markets across Europe, current conditions in the Irish market remain challenging. Sentiment has deteriorated and there has been little transactional activity owing to both increased costs and lack of bank funding. On a positive note occupier demand has remained reasonably strong especially for property in prime locations. With occupiers continuing to take space and moderation in speculative development, there is a good prospect of the market avoiding a situation of significant oversupply.

Office Sector
Despite the current market conditions, the Dublin office sector performed well in the first six months of 2008 with almost 80,000 square metres of lettings signed.
Generally, transactions are taking longer to complete with greater incentives being negotiated by occupiers. Prime headline office rents in the city centre remain at approximately €670 per square metre. A number of large space enquiries from financial institutions and professional practices who commenced their searches in 2007, remain active and have yet to be fulfilled. Prime office yields are in the order of 4 to 4.5 per cent. (Source: CB Richard Ellis Research).

Retail Market
The Central Statistics Office (‘CSO’) reported that the volume of retail sales in Ireland fell by 3.2 per cent in the year to June 2008. This has had an impact on the retail market generally. Enquiries are still active and transactions are being negotiated, however lease incentives and inducements are becoming more common. National and international retailers continue to seek opportunities in the prime locations which are proving difficult to satisfy.

Industrial Market
There remains steady underlying demand for good industrial properties in prime locations driven by convenient access to motorway and port routes. The industrial
market has the ability to react quickly to enquiries generally due to the speed at which buildings can be developed. As credit conditions become tighter there has been an increase in letting activity by occupiers who previously would have preferred to buy their premises. Prime rents remain stable at approximately €130 per square metre (Source: CB Richard Ellis Research).

Residential Market
The stock overhang that built up towards the end of the recent building boom continues to put downward pressure on house prices and on residential construction activity levels. In the five year period to 2007, completions averaged just under 80,000 units per annum. On the basis of the trends in registrations and commencements, it is anticipated that the level of completions will fall to approximately 47,500 in 2008 and 33,000 in 2009. The reduction in output should help the market move towards equilibrium. Consumer confidence has been slow to return to the market with the marginal purchaser continuing to remain in the rental market and developers with unsold properties also putting this stock into the rental market (Source: AIB Economic Research).

Irish Property Portfolio
Under the current challenging market conditions the portfolio has performed in line with expectations with some noteworthy events.

We previously advised of our strategy to target growth from the investment side of the portfolio with an emphasis on the rent reviews due for settlement in 2008. This strategy is showing positive results. Two recent arbitration awards at Russell Court, St. Stephens Green have resulted in revised rents of 25 per cent and 22 per cent above the passing rents and over 10 per cent above the Estimated Rental Values previously assumed by the Company’s valuers. A similar pattern is seen in other areas where rent reviews are taking place, including Stillorgan Shopping Centre and Crampton Buildings, Dublin 2.

Work continues at pace on our two office development projects which are currently under construction, Block G, Central Park, Leopardstown, Dublin 18, (c. 17,650 square metres) and at Montevetro, Barrow Street, Dublin 4, (c. 19,500 square metres). These projects are on schedule for completion in August 2009 and November 2010 respectively and marketing of the space is underway.

At Baggot Buildings, Lower Baggot Street, Dublin 4, we have very recently received a Notification of a Decision to Grant Permission for an office development of approximately 24,500 square metres. This is a very exciting development prospect
in a pivotal location in the heart of Dublin 4. Similarly, in relation to our lands at Collinstown in west Dublin the recently published Draft for the Retail Strategy for
the Greater Dublin Area has designated the Collinstown land as a ‘Major Town Centre’ in the Metropolitan Area. This is excellent news and brings the lands a stage closer to development.

The first occupants have now moved into the Alto Vetro residential tower and the marketing of the remaining unitscontinues. This most striking building has been well received and has obtained wide coverage within local media.

In relation to Ballymun Shopping Centre, we continue to acquire units in order to obtain full vacant possession as part of the overall redevelopment plan: three acquisitions have been completed in the past two months. We continue to develop our plans for the New Centre and remain on target to lodge an application for planning permission in the fourth quarter of this year.

Considerable work is underway with the Bremore Port project. This is focused in particular on the working port design and the master planning of the hinterland. We believe that the Bremore development will create a major asset with significant development potential over a number of years. Our target is to apply for planning permission for the development of the port itself under Ireland’s Strategic Infrastructure Act in the spring of 2009.

We continue to review every element of the portfolio and take advantage of every opportunity to create and add value as opportunities arise.

The valuation of the portfolio as at 30 June undertaken by our independent valuers included a detailed review of every one of the investment properties and investment properties under development in the portfolio. We are confident that our valuations are prudent. This is evidenced by the pattern whereby our valuers’ estimates are consistently exceeded when open market tests are applied throughout the portfolio in rent reviews, lettings and sales.

UK economic overview
With UK CPI inflation above target at 3.8 per cent as at June 2008, it is not surprising that the Bank of England has in recent months opted to keep interest rates on hold at 5 per cent. However given that much of the upward pressure on prices originates from outside the UK, particularly with higher oil prices, there may be little scope for the Bank to ease the situation in the short term. The hold on interest rates in recent months has stabilised Sterling against the Euro, although in June 2008 it still remained around 15 per cent lower than in June last year (Source: CB Richard Ellis – UK Monthly Index June 2008).

The UK’s GDP recorded a slowdown in growth by increasing just 0.6 per cent in the first half of 2008, down from 1.3 per cent in the previous half year. (Source: The Office for National Statistics). Unemployment in the UK rose by 60,000 to 1.67 million in the second quarter of 2008, increasing the unemployment rate to 5.4 per cent from 5.2 per cent at the beginning of the year (Source: The Office for National Statistics).

The Bank of England’s Credit Conditions Survey confirmed that credit conditions have tightened significantly for both households and firms, with lenders expecting further reductions in credit availability and higher borrowing costs as a means of protecting themselves against higher default rates and falling house prices (Source: Bank of England Credit Conditions Survey 2008 Q2).

UK Property Market
The annualised all property total return for the 12 months to June 2008 was a decline of 13.9 per cent with the first half of the year showing a total return of minus 4.7 per cent. All property capital values across the UK fell by 7.4 per cent over the first half of 2008, compared to 11.9 per cent in the second half of 2007. Over the same periods all property rentals recorded growth of 0.3 per cent compared to 1.8 per cent in the prior year (Source: CB Richard Ellis – UK Monthly Index July 2008).

The UK’s retail property market was the strongest of any sector, returning minus 4.4 per cent for the first half of 2008, and minus 13.2 per cent over the last 12 months. All retail rental values rose 0.6 per cent, with standard shops reporting growth of 1.1 per cent whilst no growth was reported for retail warehouses. Similarly standard shops reported less of a decline in capital values of 6.6 per cent compared to 8.2 per cent for retail warehouses. Prime retail yields currently lie at 5.25 per cent ranging up to 7.25 per cent for secondary retail properties (Source: CB Richard Ellis – UK Monthly Index July 2008).

The UK’s office market returned minus 4.8 per cent over the first half of 2008, and minus 15.2 per cent over the last 12 months, making it the weakest of the three commercial sectors. Office rentsin Central London were the key driver of this weakness having fallen 0.7 per cent over the first half, with outer London and the rest of the UK offices still seeing some rental growth of 0.6 per cent and 0.3 per cent respectively. Prime office yields currently lie around 5 per cent in the West End and 5.85 per cent in the City, whilst vacancy rates remain relatively low at 2.5 per cent and 3 per cent respectively (Source: CB Richard Ellis – UK Monthly Index July 2008).

The UK’s industrial property market returned minus 5.3 per cent over the first half of 2008 and minus 13.5 per cent over the last 12 months. Industrial rents have remained relatively firm with growth of 0.7 per cent in the first half, being just 1.1 per cent higher than this time last year. Yields for prime industrial currently lie around 6.5 per cent Source: CB Richard Ellis – UK Monthly Index July 2008).

There has been a marked slowdown in activity in the UK housing market as buyers are finding it increasingly difficult to obtain cheap mortgage finance due to banks’ tightening lending criteria. UK house prices have seen their eighth consecutive monthly fall, with Nationwide reporting a drop of 6.3 per cent over the 12 months to June 2008. Figures from the British Bankers’ Association reveal that mortgage approvals were down to just under 28,000 in May 2008, 56 per cent lower than the same time last year.

UK property portfolio
Progress with the plans for development of Battersea Powerstation has been substantial with the public launch of the scheme on 20 June 2008. The proposed £4 billion project envisages a 300 metre eco-chimney, 800,000 square metres of space for apartments and offices, a hotel and a 6 acre park. Following the launch, consultation is underway with officers and members, including the Leader of the London Borough of Wandsworth, statutory consultees of the Greater London Authority, the Mayor of London, English Heritage, the Commission for Architecture and the Built Environment (“CABE”) and the Government Office for London. A series of technical meetings are taking place and the formal review presentations are being arranged with the CABE Design Review Panel and the English Heritage London Advisory Committee.

Initial feedback has been widely positive and allows the scheme to progress now to a more detailed level of design which will enable a planning submission to be made by early 2009.

Public consultation is also currently underway following the launch. There was a strong press presence at the launch with a news broadcast from the powerstation
by the BBC, ITV and Channel 4. The widespread media coverage following the launch has been largely supportive. More than 6,000 people have visited the on site consultation suite and taken walking tours around the powerstation. In response to the question ‘Do you approve of the proposed masterplan’, 67 per cent of people have responded ‘yes’ in a detailed questionnaire.

London Borough of Wandsworth has recently completed the preparation of its Core Strategy, including transportation. Particularly important is the recognition in the Core Strategy that transport provision is the key to unlocking the development potential of the area. Specific reference to the potential extension of the Northern Line Tube to Battersea and tariff mechanism to assist in its delivery is made within the Core Strategy. Meanwhile, as previously advised, we are continuing the development of the Nine Elms Opportunity Area Planning Framework in conjunction with the Greater London Authority which is modeling the viability of the Tube with Transport for London.

In addition to the very popular Consultation Suite there is a flurry of activity on site with various movie productions and events helping to meet our short term revenue forecasts in addition to the ongoing remedial works being carried out on the powerstation.

Financial review
The Company is adopting International Financial Accounting Standards (IFRS) for the first time and, as a consequence, the Income Statements and Balance Sheets for the prior periods commencing from 31 December 2006 have been restated. The most significant impacts of the introduction of IFRS is to reflect revaluations of property portfolio through the Income Statement and to provide for deferred taxation on those revaluations. A further change in presentation adopted by the group has been the inclusion of EPRA Earnings per Share and Net Asset Value per Share calculations. EPRA is the European Public Real Estate Association and it represents the publicly traded real estate sector in Europe. EPRA strives to establish best practices in accounting, reporting and corporate governance, to provide high quality information to investors and to create a framework for debate and decisionmaking on the issues that determine the future of the sector.

The property portfolio value has grown by 4 per cent since December 2007, benefiting from the strength of the Euro versus sterling which has offset a modest decline in underlying asset values. The investment in our associate company, China Real Estate Opportunities Limited, has risen to £63.7 million, a growth of 16% benefiting from positive asset valuations in China and the strength of the Renminbi (RMB) against sterling. Further, the Euro strength has resulted in the value of the derivatives growing by £32.0 million. However, there has been a decrease in the Diluted EPRA NAV in the six months by 9.7p which equates to 7 per cent due in large part to the costs of financing and operating the portfolio.

During the period, a scheme of arrangement was approved by the court in order to cancel the ZDP shares and issue new ZDP shares to a subsidiary, REO Securities Limited. The entire amount of the Company’s share premium account was cancelled and used to eliminate the deficit in the Company’s revenue reserves. The impact of this was to reduce the share premium by £405.7 million and increase the revenue reserves by the same amount.

As at 30 June 2008, the net debt had risen to £1,391.7 million, an increase of £118.6 million since 31 December 2007. This largely reflects capital expenditure on investment properties and investment properties under development and financing costs. The Company has continued to maintain strong relationships with its primary lending banks in Ireland and the UK and in an illiquid environment has continued to be able to source debt to finance the development of its properties. 94 per cent of the Company’s debt is on fixed rates and the weighted average cost of secured debt is 6.1 per cent per annum. These figures reflect the prudent approach to interest rate risk which the Company has pursued during the past few years.

The Board has decided not to pay an interim dividend in order to conserve cash in an increasingly difficult banking environment and to take advantage of opportunities that the credit crunch may provide.

Over the coming months, the most significant risks presented to the business surround the uncertain state of the Irish and UK economies. In particular, weaker
property markets are evident which are affecting valuations while the banking sector is adopting a more careful approach in assessing its lending policies.

Outlook
Despite a tough economic climate at present in both the UK and Ireland, the range of projects within the portfolio underpins the prospects for continuing growth in the medium term. Nevertheless, the general outlook for the remaining six months of 2008 is one of caution.

Ray Horney
Chairman
28 August 2008