The Netherlands, Amsterdam, February 1999

Contact: Bertus Franssens, co-ordinator Property Securities Team

Phone: 31 (the Netherlands) – 20 (Amsterdam) – 628 3097

Fax: 31 - 20 – 628 3173

In this document we provide an outline of ABN AMRO Asset Management’s philosophy and investment process with respect to the management of international property securities portfolios.

A number of years ago ABN AMRO Asset Management recognised the trend within the institutional world to prefer indirect property investments over direct investments. Also, more and more institutional investors decided to invest more internationally, but faced the lack of knowledge about the different regional property markets. As a result ABN AMRO Asset Management introduced in September 1995 the four ABN AMRO Property Securities Funds, three regional funds (for America, Europe and the Far East) and the Global Property Securities Fund. These open-ended investment funds are listed on the Amsterdam Stock Exchange. Assets under management in the four funds amount to approx. USD 1 bln. Apart from the listed funds, the Property Securities Group is managing mandates/ separate accounts of approx. USD 0.5 bln.

ABN AMRO Asset Management realised that property markets are strongly local orientated. It is therefore that the focus is on investments in locally operating companies. In order to be closer to the different markets the ABN AMRO Property Securities Team operates out of three asset management centres: Hong Kong for the Far East (including Australia), Amsterdam for Europe and Chicago for America. The property portfolio managers and analysts working in the three centres combine many years of experience in both direct and indirect property.

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With the introduction of the ABN AMRO Property Securities Funds in September 1995, ABN AMRO Asset Management was one of the first investment managers providing its clients with the management of worldwide indirect property securities portfolios. In this respect the major strengths of ABN AMRO Asset Management are:

• ABN AMRO Asset Management is well aware of the fact that many investors seek the best possible substitute for direct property, while having the advantages of securitisation. It is therefore that there is a strong focus on the "property investment profile", implying that no investments are made in e.g. hotel companies, property brokerage firms, 100% project developers, etc.
• ABN AMRO Asset Management adheres to an active fundamentally orientated investment approach which is primarily based on our belief that an indirect property investment process should be based on a combined top-down/bottom-up approach.
• The combination of teamwork with an investment process that is well structured into several steps, ensures that we can offer our clients continuity over time and consistency across portfolios with similar mandates.
• ABN AMRO Asset Management stresses that ‘quality’ goes above (short term)‘valuation’. Selection of a high quality indirect property portfolio is achieved by applying a well defined risk analysis of each of the property companies invested in.
• The presence of a decentralised operational structure of property securities teams in all three Asset Management centers/regions (Amsterdam/London, Chicago and Hong Kong). In our belief this is a basic need for strong performing property portfolios as property markets, as well as the various property companies operating in these markets, are mainly driven by local factors.
• The close co-operation between property portfolio managers as well as property investment analysts in one single team. The Property Securities Team members are fully dedicated to ABN AMRO Asset Management’s property securities management.
• The Property Securities Team makes use of the local property market expertise of CB-Richard Ellis, one of the leading global property consultants, on an exclusive basis.
• Furthermore, ABN AMRO Asset Management’s presence in 24 countries and ABN AMRO Bank’s presence in 71 countries world-wide, enables the property securities teams to use the experience and market insights from local specialists when making investment decisions.
• Over the past years ABN AMRO Asset Management has been able to achieve the performance objective it has set for an actively managed global property securities portfolio. For a portfolio without additional restrictions this objective is an annualised 2% outperformance of the Global Property Securities Index (as calculated and maintained by Global Property Research) on a three years’ horizon, while maintaining risk at or below market level. The strong track record of the performance is mainly based on two sources of added value: geographical allocation and stock selection decisions by the property securities team. The ABN AMRO Property Securities Funds are benchmarked against the Global Property Securities Index, managed by GPR (Global Property Research).
• Investors can through separate accounts/mandates achieve tailor-made property investment solutions. Prior to the start of the management of a portfolio the investor’s objectives, preferences and constraints are identified and specified. Subsequently the appropriate investment policies and strategies are developed and implemented.
• As one of the largest financial organisations in the world, ABN AMRO Bank N.V. has the financial resources to ensure that we remain in the forefront of investment management techniques, continually upgrade our client servicing, expand into regions that will add value for our clients and maintain a pragmatic approach to safeguard our client’s assets.

ABN AMRO Bank N.V. was formed in September 1991, with the merger of the two largest banks of the Netherlands: Algemene Bank Nederland N.V. (ABN) and Amsterdam-Rotterdam Bank N.V. (AMRO). However, the Bank’s history dates back to 1824 when King William I founded the Dutch Trading Society. Asset management services were first offered during the 1930's.

With assets of more than USD 490 billion, ABN AMRO Bank is within the top-ten largest financial institutions in the world. Headquartered in Amsterdam, ABN AMRO Bank has more than 1,700 locations in 71 countries and territories across the globe. With more than USD 14 billion in capital, 80,000 employees world-wide and AA/Aa1 credit ratings, ABN AMRO Bank holds a position of strength and stability.

ABN AMRO Asset Management’s activities are concentrated in a separate directorate within ABN AMRO Bank, the Global Asset Management Directorate. The directorate directly reports to ABN AMRO Bank’s Managing Board. ABN AMRO Asset Management is headquartered in both Amsterdam and London. The directorate is divided into 3 business units and 2 staff units. The Portfolio Management unit is responsible for the day-to-day management of the portfolios. Institutional Services (Business Development) is responsible for client servicing, marketing and sales, while Services (administration, IT, trading) is responsible for the monthly reporting, trading and execution. One of the staff units involved, very important in the whole process, is risk management and compliance. In this unit Portfolio and Personal compliance is controlled.

ABN AMRO Asset Management has been one of the strongest growers in asset management during the past years. By the end of 1998, ABN AMRO Asset Management managed over USD 100 billion world-wide on a segregated basis and in mutual funds.

The Global Property Securities team is a highly specialised equity management product group which operates from the three ABN AMRO Asset Management Centres of Excellence, Amsterdam/London, Chicago and Hong Kong in order to be closer to the markets and its players. Co-ordination takes place in Amsterdam.

Since 1995 the team has been managing two segregated property portfolios. Since the start of 1998, the management of five additional segregated portfolios (total > USD 400m) for new clients has been entrusted to ABN AMRO Asset Management.

We believe that investment in property securities enhances portfolio quality through diversification. Investment in property securities can be best made by way of a fundamental approach with a medium to long-term (approx. 2-3 years) horizon. In order to maintain the required investment profile, a Property Securities portfolio should be composed in a way that the typical "direct real estate characteristics" (due e.g. to the stable underlying cash flow) are maintained, meanwhile having the advantages of securitisation like better liquidity, allocation flexibility, price transparency. We believe in actively managing property portfolios to control risk (focus on ‘quality’) and to outperform the industry benchmark. Especially in the property industry it pays to invest globally by taking advantage of the distinct position of each country in the property cycle, while using the specific market knowledge of the best local players. The property industry is not a ‘global industry’and the correlation between different markets is relatively low.

We take a fundamental top-down, bottom-up approach to property investing. The rather strong independency between property markets, with various regional and local economic fundamentals, brings ABN AMRO Asset Management to believe an indirect property investment process should start with a Top-Down approach.

Our first priority is to establish long-term economic/demographic and property trends for the various regions, countries and (for the USA) sectors. Then we assess markets from both a valuation and a sentiment perspective. A determination of over- and under-weightings of regions, countries and (for the USA) sectors is then made.

1a. The Analysis Phase: TOP DOWN

The Analysis Phase basically provides all information needed for portfolio allocation and construction purposes, on a continuous basis. Typically, this analysis process is based on ABN AMRO Asset Management’s MVS framework. MVS stands for Macro, Valuation and Sentiment.

Direct property market research is applied to the office, retail, industrial and residential sectors. In general, vacancy levels, take-up and supply levels as well as rents and rental growth are carefully examined. CB-Richard Ellis, a world-wide operating property advisor, provides ABN AMRO Asset Management with local direct property market information (incl. future trends) on an exclusive basis.

Various supply side factors to be examined are for example lending policies of banks, availability of building land and construction capacity.

Demographic factors like population growth are key to the demand for real estate. Birth rate and ageing trends need to be examined as well. Macro-economic research is focussed on economic growth, consumer spending, job count trends and employment. All these fundamentals influence property demand for the various sectors in different ways.

Except from regional and country specific items, sector specific factors are important as well. Growth of retail sales and consumer spending are retail specific factors to look at. For the industrial sectors, specific factors are industrial production and employment growth rates. Income per capita, population growth and mortgage rates are specifically important for residential property analyses. Of specific importance for the office sector are growth of office employment and growth of public sector employment.

ABN AMRO Asset Management believes that direct property market analysis should be based on the Property Life Cycle. This cycle describes the state of development of a specific property market in time, based on macro-economic, demographic and direct property market fundamentals. This Life Cycle analysis clearly is a tool to be used when comparing direct property markets, both on a country as well as on a regional level.

Local units of ABN AMRO Asset Management provide macro economic and demographic input on local markets. The exchange of information is a continuous effort of the portfolio managers and analysts throughout the Asset Management network. In addition, the Global Property Team maintains contacts with external strategists, economists and CB-Richard Ellis.

For assessing the valuation of markets, information is obtained by means of aggregation of the valuation of the individual stocks from the Universes.

In general, various valuation standards are used for property shares. These standards can be split up into two general methods: Net Asset Value (NAV) and Cash flow based valuation methods.

NAV is determined by dividing the Estimated Rental Value (ERV) of a building, at the current market rent, by the appraisal-based investment yield, and deducting any net liabilities. However, ABN AMRO Asset Management believes cash flow based methods to be the most appropriate ways of looking at property shares. Cash Flow, in general, determines the dividend-paying ability of a company. A company should be able to fund the pay-out from recurring, normalised Cash Flow. Furthermore:

1. Cash Flow methods are forward-looking as opposed to NAV methods, which are backwards-looking. Most typical NAV methods are appraisal based, relying on past investment yields and rental transactions. However, the stock market is forward-looking, as investors look at future earnings.
2. The rent actually being received on a property is usually not at the current market rate. Typically, the rent was determined when the lease was drawn up, while the market rent is likely to have moved since then. Although NAV theoretically takes into account some of the over- or under-renting of a property, any assumptions are undisclosed. New investors are not willing to pay NAV if the actual rent is below ERV. Cash flow estimates incorporate these actual market circumstances.
3. Direct property markets are rather un-transparent. Property value calculations are often based on undisclosed assumptions, including details as rents, lease terms and occupancy rates. Therefore, Cash Flow methods are preferred in order to get around many of these untransparencies.
4. Cash Flow estimates do take management value into account. Property management costs money, a cost that is reflected in the company’s share price. Moreover, over time, exceptional management should deliver above average returns. Differences in cost-structure as well as specific expected market conditions due to smoothing effects are included in cash flow methods as well.
5. Finally, Cash Flow estimates include recurring capital expenses, necessary to maintain the competitiveness of a company’s property portfolio.

Therefore, ABN AMRO Asset Management believes that a real estate company should be valued on a multiple of recurring cash flow per share. Financial instruments in general are valued on their cash (or earnings) generating capacity. Property should be as well to our believe.

On a country level, each covered company is assigned an Underperform, Match or Outperform rating, based on a three years’ horizon.

Sentiment

Capturing sentiment by means of a single and objective measure is difficult. However, indicators like the number of news flows might reflect the general market stance towards specific financial products or regions. Sentiment might appear to play a role on company, country and regional levels, both in the short and longer term. Therefore, sentiment is included as a main part of the MVS framework. A current example favouring the indirect property markets is a global trend of financial institutions shifting direct property investments towards indirect property investments.

1b. The Analysis Phase: BOTTOM UP

When selecting individual property companies we first look at the ‘quality’. Only when a minimum level is present, we will look at ‘valuation’. Valuation remains to be corrected for the quality level.

The proprietary Property Company Risk Attributes Model is used in order to compare company specific risks on a regional, country and company level. The risk attributes defined are Management Operations Risk, Portfolio Risk, Debt/Leverage Risk and Liquidity Risk. During company visits, the ingredients of this tool are important issues to discuss. This important risk information is used in the allocation phase as well.

The structural attractiveness of a property company is being grounded on four criteria:

• Quality of Property Portfolio & Strategy

• Quality of Management

• Financial Strength.

• Liquidity of the stock (free float, trading volumes)

Above main criteria are sub-devided in approx. 30 sub-criteria. The Risk/quality analysis is equally applied to all property companies world wide.

Valuation of stock in the bottom-up process is preferably based on the cash flow from operations analysis. However local standards (like NAV, spread over govn’t bonds) are simultaneously applied.

Basically we look at the best investment opportunity within each country.

Within ABN AMRO Asset Management a continuous exchange of thoughts and views results in allocation decisions on a continuous basis and formalisation of these decisions every three months. This allocation process is also based on a combined top-down/bottom-up structure. Funds are allocated to regions after which the regional portfolio managers allocate to countries and companies

Finally, in the Model Portfolio Construction phase the outcome of the previous preference determinations will lead to the construction of the model portfolio. However, various quantitative restrictions have been introduced to control the model portfolio’s risk exposure.

• The portfolio’s participation in a property company is maximised.
• Participations may not exceed 5% of outstanding shares and not exceed 10% of the company’s free-floating shares.
• The total amount invested in a company as a percentage of the portfolio’s actual size is maximised.
• This percentage is dependent on the portfolio’s actual size and is allowed to vary between 7% and 10%.
• The net cash position as a percentage of the portfolio’s actual size is maximised between 0% and 5%. In general, we do not ‘time against cash’ and remain fully invested.

3. The Customisation Phase

The final step to be accomplished, the transformation of the model portfolio into a portfolio according to the clients’ objectives and constraints, consists of the Final Portfolio Construction and Monitoring and Control sub-phases.

Each portfolio investment process starts with the identification and specification of an investor’s objectives, preferences and constraints, and the development of appropriate investment policies and strategies. Examples of investment constraints are: liquidity, personal trust considerations and tax considerations. Furthermore, asset-liability management studies may initiate specific portfolio restrictions as well.

Finally, the investment process results in a customised portfolio according to the client’s constraints interest and needs.

Global Property Research BV, an independent property consultant and research company, provides ABN AMRO with the benchmark index. This index covers a global universe that allows taking positions of acceptable magnitude without adversely influencing stock price movements. The index will therefore be easier to replicate, reducing tracking error. The benchmark is a free float weighted index.

ABN AMRO Asset Management finds the GPR approach very attractive, mainly because:

• The minimum free float market cap of USD50 m (this focus on free float improves the investability);
• The use of objective selection criteria with a focus on the "property investment profile" (other benchmarks include 100% project developers, contractors, property advisors, etc.);
• Exclusion of several sectors that – in our opinion – do not qualify for the typical property investor, like healthcare or hotels;
• GPR is a 100% independent benchmark organisation specialised in the property investment sector;
• Consistency across countries; the use of one index for all countries world-wide improves the transparency and consistency of the benchmark.

ABN AMRO Asset Management has decided to use an adapted version of the GPR-250 index as the benchmark for the ABN AMRO Global Property Securities Fund.

Main reasons for these adaptations are:

• Deletion of the "250 most traded stock" selection criteria, because the number of stocks per sub-region became too small (e.g. regarding separate accounts for Euro investments). As a consequence also the open-end property funds are included. Since the assessment of a fair "free float" in case of open-end funds is difficult to establish, 50% of the market cap will be assumed as such.
• On a regional level we continued with the weightings as per ultimo June 1998. This way the weighting of the Far East region is reduced (compared with the standard GPR-250). The reason is that in the Far East we do find relatively limited "property-investment-characteristics", this because of the high degree of project development activities and (a/o therefore) high volatility. Mainly from a diversification point of view this region is considered interesting. So within the region we do not make any more adaptations, as we had in the period September 1995 – June 1998.
• Africa is not included (re: South Africa).

The resulting benchmark, called the Global Property Securities Index, is just like the GPR-250 maintained and calculated externaly by the independent property researchers of Global Property Research B.V.

The performance objective for an actively managed global property securities portfolio without additional restrictions is an annualised 2% outperformance of the Global Property Securities Index, managed by GPR (Global Property Research) on a three years’ horizon, while maintaining risk at or below market level.

ABN AMRO Asset Management’s competitive edge is the result of several factors including:

• A highly disciplined, structured and transparent investment process.
• A property group structure that integrates portfolio managers and analysts.
• Strong focus on the ‘property investment profile’, implying that no investments are made in e.g. hotel companies, property brokerage firms, 100% project developers, etc.
• Selection of high quality indirect property investments (quality above valuation) by applying a well-defined risk analysis of each of the property companies invested in.
• Combined top-down / bottom-up approach.
• Cash flow based valuation preferred over NAV based valuation.
• Use of knowledge network ABN AMRO Asset Management and ABN AMRO Bank N.V. as well as of external advisor (CB-Richard Ellis).
• We realize that managing a property company is very much a ‘local’ business and therefor we invest almost exclusively in local players.
• Local presence close to the markets we are investing in, providing local market expertise.
• A track record of impressive investment performance.