Key performance indicators
Since the business of property investment and development, especially that of Development Securities, which has a considerable emphasis on development activity, can only properly be judged over a long period, probably a complete cycle, annual performance indicators are of less relevance in the running of our business. Whilst Total Shareholder Return* is a good guide to relative performance, the importance of that measure needs to be moderated by both the risk profile which we are prepared to accept and the precise stage that has been reached in any property market cycle. Our average Total Shareholder Return* since January 2000, the date on which we would regard the present cycle to have commenced, is 17.0 per cent per annum. This compares to 17.1 per cent as similarly derived from the Real Estate sector index. One of the contributors to our comparative under-performance to date is the lower level of gearing* with which Development Securities has operated over the current cycle. It is therefore perhaps not unexpected that the consequent reduction in exposure to volatility risk should lead to a lower required and actual level of return. That said, we are of the view that the current stages of the cycle should generate superior returns from development activity, over those less active investment portfolios.
We also measure our overall investment portfolio performance against an appropriate IPD Index* in order to assess relative performance of this asset class. In 2007, the total return generated from our investment portfolio was 3.7 per cent, compared to the IPD UK Annual Property Index of negative 3.4 per cent. Over the last five years, our total annual return has been 17.1 per cent, as compared to 12.2 per cent of the IPD Index.
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