Remuneration Report

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Dear Shareholder

I am pleased to introduce the Remuneration Report for the year 2010.

The Remuneration report has been divided into three parts:

• Overview – summary of the total remuneration policy;
• Remuneration explained – disclosures on Executive Directors’ and senior managers’ pay outlining the incentive plans; and
• Remuneration in detail – detailed audited disclosures which are required by the Directors’ Remuneration Regulations.

The Remuneration Committee (the “Committee”) is responsible for determining the remuneration policy for the Company’s Executive Directors and for ensuring that the remuneration of senior managers and other employees is consistent with the Company's remuneration philosophy. The Committee has considered the performance of the Company over the year, the impact of the strategy set previously and the strategy for future years. The Committee, in light of the economic environment and current property market, has sought to reinforce the Company’s objectives through the implementation of the remuneration policy approved by shareholders in 2010. The Company has complied throughout the period with the requirements of the Combined Code in relation to Directors’ remuneration.

In reaching a view on performance, there is no doubt that the Company’s senior management team continue to respond appropriately to the economic and market cycle. The equity raising issue in 2009 can now be confirmed to have taken place at the low point in the cycle, allowing the Company to take full advantage of opportunities offered.

The Committee considered the key achievements over the year were as follows:

• The completion of the commitment of the proceeds from the 2009 equity raising.
• A further successful share offering concluding in August 2010 which has enabled the Company to reach a size which will generate new opportunities.
• A significant turnaround to achieve profits before tax of £2.6 million compared to the previous year’s £11.4 million loss.
• The consolidation of existing strategic partnerships with CTP, Wessex Investors, Beyond Green and Barwood, and the commencement of the new partnership with Patron Capital. Together with a number of other projects in partnership with sector specialists, these ventures provide diversity of income and risk, as well as geographic spread.
• The acquisition of the Henry Davidson Developments Group.
• A start to the investment of the proceeds of the 2010 equity raise. A number of assets and projects have been secured, in line with the strategy set out in the July 2010 prospectus, at prices which offer strong opportunities to add value.
• The investment portfolio has achieved another exceptional performance, achieving a total return of 15.2 per cent. Although only equal to the IPD Quarterly Index, it is noteworthy that this was achieved with no Central London exposure in the portfolio. The Index performance excluding Central London was 10.5 per cent.
• The development pipeline has been focused on regional development, particularly of the retail sector, whilst existing Central London development schemes and Slough have been maintained ready for the start of the next cycle.
• Management of the Company’s risk profile, including maintenance of a modest level of net debt throughout the year ensuring that there continued to be no need for recourse to shareholders for emergency equity funding.

The salaries for the Executive Directors have been kept at the 2010 levels. Following a market review of the fees of the Non-executive Directors it was agreed to increase their fees in line with market competitive levels.

During 2009 the Committee undertook a substantive review of its executive remuneration arrangements. This was to ensure that arrangements would support the Company’s strategy as it moved forward into the next stage of its development at the start of the next UK commercial property cycle.

During 2010 we made no changes to the framework introduced at that time.

The focused profit plans relating to the principal activities of the Company (development, investment and joint ventures) continue to be a key part of our performance-based pay arrangements, alongside the annual bonus and the performance share plan.

The Development Profit Plan (section c) has resulted in bonuses being paid to M S Weiner and another senior manager for the successful completion of the development at Wallington. New Development Profit Plan awards have been made to the Directors and senior managers.

The Committee has reviewed the awards for the Strategic Profit Plan and Joint Venture Profit Plan for 2010 (sections d and f).

The Investment Growth Plan (section e) resulted in a nil vesting as performance conditions were not satisfied for the 2010 Initial Bonus.

Awards under the Performance Share Plan were made on 23rd April 2010 to the Executive Directors and staff. An assessment of the performance condition for the award made under the Plan on 13th May 2008 resulted in a nil vesting.

A resolution will be proposed to the Shareholders at the Annual General Meeting seeking their approval of this report.

Michael Soames
Chairman, Remuneration Committee
1st March 2011

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The key objectives of the Company’s Remuneration policy are as follows:

• to ensure that Executive Directors and senior managers are rewarded in a way that attracts, retains, motivates and rewards management of the highest quality;
• to operate focused profit plans and share schemes designed to encourage Executive Directors and senior managers to align their long-term career aspirations with the long-term interests of the Company and shareholders’ expectations;
• to promote the attainment of both individual and corporate achievements measured against performance criteria required to deliver long-term growth and sustainability of the business; and
• to encourage sustained performance over the medium and long-term.

The total pay framework is based on a mixture of fixed and variable elements considered on a meritocratic basis at individual and Group level, taking into account the remuneration awarded to employees in the Group.

The balance between fixed and variable pay is considered appropriate, given that the various incentive plans/schemes ensure a significant proportion of a key individual’s remuneration package is performance related, thereby correlating with the interests of shareholders through either the attainment of growth in net asset value per share or total shareholder return.

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Role and constitution of the Committee

The Committee’s full terms of reference are set out on the Company’s website. Its principal role is to determine the total remuneration of the Executive Directors and to ensure that senior management remuneration is consistent with corporate policy. In addition to the support of the Chief Executive, and the Company Secretary, the Committee sought professional advice from external remuneration consultants Deloitte LLP and legal support from Linklaters LLP. Representatives of Deloitte LLP attended two meetings of the Committee by invitation. Deloitte LLP currently undertakes the audit of the Development Securities Retirement Benefit Scheme of which the Company is a Trustee, but otherwise undertakes no other work for the Company. Linklaters LLP are also the Group’s principal legal advisor.

The Remuneration Committee as constituted by the Board

The Committee met four times in the year under review.

Committee members	Considered independent Non-executive Directors	Meetings attended
M S Soames (Chairman)	Yes	4
V M Mitchell	Yes	4
D S Jenkins	Yes*	4

*Non-executive Chairman.

Following the Board evaluation process the effectiveness of the Committee was reviewed and the Committee was considered to be operating effectively. No member has any personal financial interest in the matters to be decided.

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Remuneration explained

a) Salary

The salaries of the Executive Directors are reviewed each year and are determined by reference to individual performance and in relation to comparable companies in the same business sector. The Committee have considered carefully the level of the base salaries payable to the Executive Directors with effect from 1st January 2011 and, having consulted Deloitte LLP, the Company’s remuneration consultant, have determined that the base salaries should remain at the 2010 level.

The Committee considers the salary increases of Executive Directors at the same time as increases proposed for all employees within the Company. It applies the same criteria to Executive Directors as are applied to all employees, taking account of any changes to roles as well as relevant market movements. For 2010 the zero increase that was applied for the Executive Directors was substantially below the average increases awarded to employees across the Company.

	2011 £’000	2010 £’000	2010/2011 Increase %
M H Marx	400	400	0.0
C J Barwick	325	325	0.0
M S Weiner	325	325	0.0
G Prothero	325	325	0.0

b) Annual bonus

The non-pensionable annual bonus is based on the performance of the Company during the year, team achievements and the specific contribution of the individuals concerned. With the exception of M H Marx, Executive Directors are set a target bonus of 37.5 per cent of salary and an above target maximum of 75.0 per cent. As M H Marx only occasionally qualifies for awards under the Development Profit Plan described below, his target bonus is 75.0 per cent of salary, with a maximum of 150.0 per cent.

The Committee has always taken a somewhat different approach to the annual bonus compared to our competitors in that the annual bonus has never been formulaically driven by the annual financial results but reflects a true measure of annual performance in the context of the length of the property cycle. The annual bonus in respect of the Executive Directors is determined principally by the four main drivers for the creation of shareholder value in our business: namely, accurate reading of the economic and market cycles in which we operate, the pipeline of future development projects, active management of the investment portfolio and the maintenance of the standards of excellence that are embedded within the Company’s corporate culture. Specifically this year consideration was given to the success of the investment of the proceeds of the 2009 and 2010 equity raising issues and the asset management at the properties purchased. In addition, the Committee measures the Company’s absolute and relative performance against its peer group companies during the year.

The Committee considered 2010 to be a year which had ‘Exceeded Target’ taking into account the achievements during the year. The following bonus awards were made in 2010, with 50.0 per cent of the bonus earned above target paid in shares which the recipient must hold for at least two years.

	2010 £’000	2009 £’000	2010 % of target maximum	2009 % of target maximum
M H Marx	378	378	63	80
C J Barwick	170	170	70	80
M S Weiner	170	170	70	80
G Prothero	170	170	70	80

c) Development Profit Plan

The Committee reserves the right to make awards under the Development Profit Plan to Executive Directors and other senior managers who have been instrumental in securing development opportunities for the Group.

Awards are eligible on projects where any phase is likely to produce profits in excess of £2.0 million. No more than 10.0 per cent of the profits of each development project is awarded in total. When any particular development project becomes unconditional, the Committee determines which individuals should receive awards under the Plan and the amount of the award. The bonus is dependent principally upon the amount of profit actually realised upon completion. 20.0 per cent of the award is retained until such time as the profit is actually realised, whereupon it will be re-evaluated to determine if any additional Executive Directors or senior managers have been instrumental in making a significant and material contribution in progressing the scheme through to completion and, if not, this retention would revert to the original participants.

In awarding annual bonuses and awards under the Development Profit Plan, there is no ‘double-counting’. The contribution of any team and individual performance, which leads to awards under the Development Profit Plan are disregarded in assessing the annual bonus.

The principal awards, omitting those schemes where current forecasts show a nil or nominal profit, have been made to the Executive Directors under the Development Profit Plan:

Additional awards under the Development Profit Plan have been made to senior managers.

Following practical completion of Wallington, M S Weiner received £75,694 from maturity of his Development Profit Plan award.

In addition to making awards under the Development Profit Plan for securing development opportunities, the Remuneration Committee retains the discretion to award bonuses to Executive Directors and other senior managers at any time for making an exceptional contribution towards the Company. Such awards will not be applied in securing any corporate acquisitions.

d) Joint Venture Profit Plan

The Committee reserves the right to make awards under the Joint Venture Profit Plan to Executive Directors and other senior managers who have been instrumental in securing profits generated from joint ventures.

Awards are made when joint ventures are likely to produce a total profit in any one year of more than £2.0 million. No more than 10.0 per cent of this profit is awarded in total. In any given year, the Committee determines which individuals should receive awards and the amount of the award for each of the joint ventures for the following year.

In assessing the profit from each joint venture, all profits remitted during the year on successful projects are cumulated and all projects which have either crystallised or are forecast to make a loss are deducted. Any actual profits/losses realised in subsequent years will be rationalised against forecast losses already taken into account.

In awarding annual bonuses, there is no ‘double counting’. The contribution of any team and individual performance which leads to awards under the Joint Venture Profit Plan is disregarded in assessing the annual bonus.

No payments have been made to Executive Directors during the year.

Awards for joint ventures have been made to an Executive Director and a senior manager.

e) Investment Growth Plan

The Committee reserves the right to award bonuses under the Investment Growth Plan. The performance condition under the award is that the total investment portfolio return must exceed 120.0 per cent of the All-Fund Universe Index as published by Investment Property Databank if the Index is greater than zero, or at least 0.1 per cent if the Index is less than or equal to zero and, in addition, represents at least one percentage point above the total return under the index. The total investment portfolio return represents the sum of income return, net of irrecoverable property expenses, together with capital growth.

The Initial Bonus represents a bonus pool of 5.0 per cent of the value determined by the excess of the total investment portfolio return over the benchmark index up to a cap of £1.0 million unless otherwise determined. The award is remitted following the end of the financial year when the award is determined, with an equivalent amount representing a Deferred Bonus assessed two years thereafter, provided that during the intervening period the total investment portfolio return exceeds a specified proportion of the index.

As at the date of this report the 2010 Annual All-Fund Universe Index had not been published by Investment Property Databank. A review against the All-Fund Index will be undertaken when the Index is made available. Based on performance during the year against the IPD Quarterly Index, no payments are expected to be made to eligible participants. Any subsequent change to this position, if any, will be disclosed in the 2011 Remuneration Report.

No Initial Bonus was paid in respect of 2008 therefore no Deferred Award was able to be tested.

f) Strategic Profit Plan

The Strategic Profit Plan was approved by shareholders in 2010. The Strategic Profit Plan is a cash incentive scheme designed to incentivise Executive Directors and senior management in all the principal activities of the Group, namely development, joint ventures and the investment portfolio. The Plan introduces a Group-wide collegiate aspect to rewarding success, and supporting co-operation as our executives deliver on the significant opportunities that exist across our market.

The bonus pool available for distribution represents an additional 4.0 per cent of the profits achieved (as adjusted) which count towards the maximum amount under both the Development Profit Plan and Joint Venture Profit Plan for that financial year and 2.0 per cent of each of the Initial Bonus and Deferred Bonus pools achieved under the Investment Growth Plan. Awards would be made to individuals at the discretion of the Committee. In doing so, the Committee will take into account whether individuals are already eligible for awards under the Development Profit Plan, Joint Venture Profit Plan and Investment Growth Plan. As a guideline, 75.0 per cent of the bonus pool will be allocated to the Executive Directors and 25.0 per cent to senior management.

Awards will be subject to a risk underpin such that the Committee must be satisfied that performance has not been achieved as a result of inappropriate financial risk (e.g. very high levels of gearing), and that the level of financial and business risk is in line with the Company’s stated strategy. In making awards to individuals, the Committee will also take into account the overall performance of the Company.

No awards have been approved under the Strategic Profit Plan in respect of 2010.

g) Performance Share Plan

Awards under the Performance Share Plan are made on the basis that shares will be acquired subject to the satisfaction of performance conditions over a three-year period, with no retesting. Performance is measured by comparing the Total Shareholder Return (‘TSR’) achieved by the Company with the individual constituent members of the FTSE Real Estate Investment Trust Index and the FTSE Real Estate Investment Services Index. There is a sliding scale of vesting as follows:

1. 25.0 per cent of the award will vest if the Company’s TSR equals the median TSR of the comparator group;
2. 100.0 per cent of the award will vest if the Company’s TSR equals or exceeds the 85th percentile TSR of the comparator group; and
3. pro rata vesting will apply in-between the above points.

In addition, the Committee must be satisfied that there has been a sustained improvement in the Company’s underlying financial performance over the performance period (typically by considering the change in net asset value). For awards from 2010, a risk underpin (as described above) will also apply.

On 23rd April 2010, awards were made under the Performance Share Plan to M H Marx of 112,676 shares in the Company representing 75.0 per cent of salary, and to C J Barwick, M S Weiner and G Prothero of 61,033 shares each representing 50.0 per cent of salary. As part of the realignment of the incentive remuneration package last year, these awards represent 50.0 per cent of the 2009 award levels. In total, 527,621 shares were, at the discretion of the Committee, awarded to 31 employees and the four Executive Directors.

The performance condition under the award made on 13th May 2008 has now been assessed and there is a nil vesting.

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Historical Total Shareholder Return Performance

The above graphs demonstrate the Company’s TSR as represented by share price growth plus reinvested dividends, against both the FTSE Real Estate Investment Trust Index and the FTSE Real Estate Investment Services Index. The FTSE All Share Real Estate Index used in previous years has ceased to be published and having reviewed the constituents of the previous index it is considered that the constituents of these two indices are the most appropriate for comparison of the Company’s business performance against that of its competitors. The Company is a constituent of the FTSE Real Estate Investment Services Index, but a number of constituents of the FTSE Real Estate Investment Trust Index are also considered as within the Company’s peer group.

h) Option Scheme 1993

The Option Scheme 1993 is a share-based bonus scheme approved by shareholders in that year. It allows individuals to benefit from movements in the price of the Company’s shares over the period between the third and tenth year following grant. The Directors may at the date of grant limit the aggregate notional bonus which may become payable.

No new grants have been made during the year and none are currently outstanding.

i) Share option schemes

The Executive Share Option Scheme 1995 was approved by shareholders in that year. This was replaced by the Executive Share Option Plan 2005 which was approved by the shareholders at the 2005 Annual General Meeting on 12th May 2005. The options under both schemes were granted on the basis that they may only be exercised if a performance condition is satisfied.

Options over 120,000 shares were granted to six senior managers under the Executive Share Option Scheme 2005.

The performance condition for those options outstanding is to measure the average net asset growth of the Company over three consecutive financial years against the growth in the Investment Property Databank Index (All Property). The options will vest on a sliding scale with 50.0 per cent if average net asset growth is at least equal to that of the Index, 100.0 per cent if in excess of the Index by 4.0 per cent per annum and pro rata vesting in between. The performance condition will not be retested after the end of the performance period. The performance condition is considered appropriate as the Index measures against the Company’s added value.

It is the intention of the Remuneration Committee that no further grants be made to Executive Directors unless in exceptional circumstances, for example, a new appointment or an acute retention requirement. Grants to senior managers may continue in the future as appropriate.

Following the declaration of a 28.5 pence special dividend on 19th February 2003, the Committee resolved that option holders may receive, upon exercise of those options then outstanding, a cash bonus equivalent to the special dividend as equitable compensation.

j) Savings related option scheme

The Save As You Earn Option Plan 2005 was approved by shareholders at the 2005 Annual General Meeting. The third grant under the Plan was made on 28th October 2008. There were no grants for 2010. The options may be exercised after three years at a price not less than 80.0 per cent of the market value of the shares at the time of invitation. Following recent equity raised the outstanding options were adjusted in accordance with a formula proposed by Linklaters LLP and approved by HMRC creating a revised option price of 274.1645 pence over 70,993 options in favour of the 27 remaining members of staff.

k) Directors' contracts

Non-executive Directors:	Notice period in letter of appointment, terminable by either party (months)	Fixed term expiry at AGM
D S Jenkins (Chairman)	12	2013
V M Mitchell	6	2012
M S Soames	6	2012
S C Bates	6	2013

The fees of the Non-executive Directors are determined by the Board within the aggregate limit set by the Articles of Association. No Director participates in any discussion about their own remuneration. The fees of the Non-executive Directors were reviewed by the Board with effect from 1st October 2010 based on advice received from the Company’s remuneration consultants, Deloitte LLP. Following P V S Manduca stepping down on 7th May 2010 no compensation was paid to him for loss of office as Non-executive Director or Audit Committee Chairman. Non-executive Directors do not participate in the Company’s share option schemes, performance share plan or pension scheme.

Non-executive Director fees	2011 £’000	2010 £’000
Chairman	90.0	60.0
Basic Non-executive fee	40.0	30.0
Chairmanship of either Audit or Remuneration Committee	7.5	7.5
Membership of either Audit or Remuneration Committee	2.5	2.5
Senior Independent Director fee	5.0	2.5

Executive Directors may accept appointment to an external non-executive directorship to gain experience, provided this does not create any conflict of interest and for which they may retain any attributable fees. The only Executive Directors to have received any external non-executive directorship fees during the year were M H Marx, who received £35,000 from Nationwide Accident Repair Services PLC and C J Barwick, who received £45,000 from London & Continental Railways Limited.

l) Retirement benefits

Qualifying members of staff are invited to join the Development Securities PLC retirement benefits scheme, which is a contracted-in money purchase scheme, including appropriate life assurance. Since the Company’s policy is to render pension payments on a defined contribution basis, this avoids the uncertainty of pension liabilities to the Company, which would be the case had a defined benefit scheme been adopted. M H Marx and G Prothero have separate personal pension arrangements, whilst C J Barwick and M S Weiner are members of the Company scheme. The maximum contributions by the Company towards the approved Company scheme and any alternative arrangements may not exceed a total of 17.5 per cent of salary.

m) Executive Directors’ shareholding requirement

During 2003, it was determined that Executive Directors should align themselves with shareholders’ interests, with any new Executive Director obliged to establish a beneficial shareholding to the value of one-half of their basic salary within two years of appointment, rising to an amount equivalent to basic salary after four years. M H Marx, C J Barwick, and M S Weiner have all met the amount equivalent to basic salary, with G Prothero yet to reach this level. Directors’ shareholdings are disclosed below.

The interests of the Directors, all of which were beneficial, in the share capital of the Company, were:

Ordinary shares	2010 Number	2009 Number
D S Jenkins	34,325	24,230
M H Marx	529,525	367,665
C J Barwick	272,399	188,507
M S Weiner	138,937	94,299
G Prothero	61,396	25,450
V M Mitchell	3,544	2,502
M S Soames	58,900	41,577
S C Bates	—	—
	1,099,026	744,230

All Directors took up their full entitlement under the Placing and Rights Issue.

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Remuneration in detail – Directors’ emoluments (audited)

The total Directors’ remuneration was as follows:

	2010 £’000	2009 £’000
Emoluments	2,622	3,549
Company contributions to money purchase pension schemes	233	200
	2,855	3,749

The remuneration of the individual Directors who held office during the year is set out below:

Benefits in kind received during the year comprise motor vehicles, cash in lieu of a motor vehicle, fuel and medical insurance.

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1. None of the Directors had a beneficial interest in the shares of any subsidiary company.
2. The mid-market price of the shares at the close of business on 31st December 2010 was 225.0 pence and the range during 2010 was 192.50 pence to 341.75 pence.
3. No options lapsed or were exercised during the year, except as disclosed above.
4. The performance condition under the Performance Share Plan award granted on 13th May 2008 has been tested during 2011, giving rise to a nil vesting. There were no further transactions between 31st December 2010 and the date of this report.

Approved by the Board and signed on its behalf by:

M S Soames
Chairman of the Remuneration Committee
1st March 2011

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Further reading

• Financial Statements