ing real estate 2008 annual report_tcm95-112241

ANNUAL REPORT 2008

INVESTINGFINANCINGDEVELOPING

http://www.ingrealestate.com

C — ING Real Estate Annual Report 2008

Who we areWe invest in, fi nance and develop quality real estate in all major global markets.

We are part of ING Group, a global fi nancial services institution that offers banking, life insurance, investments and retirement services to more than 85 million private, corporate and institutional clients in over 40 countries.

We work in partnership with other ING businesses to develop, launch and distribute real estate-based investment and fi nance solutions.

Our annual report is only available online. Download the PDF from www.ingrealestate.com

ING Real Estate B.V.P.O. Box 904632509 LL The HagueThe NetherlandsT + 31 70 34 18418

For more [email protected]

Commercial register of HaaglandenThe Hague no. 27096869

ING Bank/ING Wholesale Banking

Investing Financing Developing

ING Group

We manage commingled real estate funds, both listed and non-listed, and separate accounts. Our strategies span the risk/ return spectrum, from core to opportunistic. Operating across four continents we provide services to institutional, sovereign and retail investors.

For more information [email protected]

We are an international commercial real estate lender with roots in the Netherlands stretching back to the 1960s. From our offi ces in key countries we provide real estate fi nancing solutions to clients in major markets around the globe.

For more information fi [email protected]

We are a pan-European developer with a diversifi ed portfolio across real estate asset types and geographies. We participate in development activities worldwide through our investment funds.

For more information [email protected]

ING Real EstateCorporateDepartments

Welcome to our Annual Report, which aims to provide you with more information about our business, an understanding of our performance and knowledge of our marketplace.

In today’s markets where we face global uncertainty and economic turmoil, we remain committed to providing our clients with the right solutions for their real estate needs.

Across the world, our experts’ objective is to provide clients with insight into real estate across a broad spectrum of real estate activities: investing, fi nancing and developing.

MANAGEMENT BOARD REPORT

6Chief Executive’s business review

12Financial review

152008 strategy, targets and performance

16Our marketplace

18Our business

20Our clients

22Risk and compliance report

28Management Board

30Corporate responsibility

32Corporate governance

FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS

35Consolidated balance sheet

36Consolidated income statement

37Consolidated cash fl ow statement

38Consolidated statement of changes in equity

39Accounting policies

46Notes to the consolidated fi nancial statements

73Segment reporting

77Risk management

86PARENT COMPANY FINANCIAL STATEMENTS

94OTHER INFORMATION

94Auditor’s report

95Proposed result appropriation

96GLOSSARY

BUSINESSOVERVIEW

INSIDE FRONT COVERWho we are

2Performance overview

3Key fi gures

4Mission and values

5Global presence

Contents

2008 ING Real Estate Annual Report — 1

2 — 2008 ING Real Estate Annual Report

It was a tough year for ING Real Estate. The real estate markets were badly impacted by the slowdown of the global economy and the fi nancial crisis. This had a negative impact on our fi nancial performance.

Substantial fair value losses on our direct real estate investments and on our shares in listed and unlisted funds were the main cause of an overall loss before tax of EUR 192 million.

In spite of these market factors, and refl ecting the good growth of our loan portfolio in the fi rst nine months of the year, our total business portfolio declined only marginally to EUR 106.4 billion. The growth in our fi nancing activities offset lower assets under management driven by falling real estate valuations, adverse currency movements and a strong drop in the value of real estate listed securities. Our development portfolio remained stable.

TOTAL BUSINESS PORTFOLIOEUR 106.4 BILLION

20082007200620052004

106.4107.2

90.7

69.8

49.6

Development

Finance

Investment Management

RESULT BEFORE TAXEUR –192 MILLION

20082007200620052004

–192723637

383350

Fair value changes

Result before tax (excluding fair value changes)

NUMBER OF EMPLOYEES2,683

2,6832,549

2,100

1,7781,523

Performance overview


BUSINESS OVERVIEWKey fi gures

(in millions of euros unless otherwise indicated) 2008 2007 2006 2005 2004

Income excluding fair value changes 1,128 1,057 970 625 553

Income from fair value changes –625 217 119 160 74

Risk costs (additions to loan loss provision) 82 – –1 –3 13

Other impairments 60 –8 16 50 19

Operating expenses (excluding risk costs and other impairments) 553 559 438 355 245

Result before tax –192 723 637 383 350

Taxes 19 188 219 154 103

Result after tax –211 535 418 229 247

Minority interests –123 53 9 – 7

Net result –88 481 409 229 239

RESULT BEFORE TAX

Investment Management –562 430 312 265 170

of which fee business 78 174 – – –

of which investment portfolio –640 256 – – –

Finance 293 250 226 215 153

Development 77 43 98 –99 40

Other – – – 2 –13

BALANCE SHEET FIGURES

Total assets 43,497 38,950 29,432 24,534 21,282

Total equity (including current year result) 3,201 3,613 3,068 1,958 1,722

PORTFOLIO INFORMATION(1)(in billions of euros)

Investment Management portfolio 66.5 72.1 65.6 47.1 30.9

Development portfolio 3.0 3.0 2.5 2.5 2.1

Total assets under management 69.5 75.1 68.1 49.5 33.0

Loan portfolio 37.0 32.1 22.5 20.3 16.6

Total ING Real Estate portfolio 106.4 107.2 90.7 69.8 49.6

KEY RATIOS

Return on equity (before tax) –6.0% 20.0% 20.7% 19.5% 20.3%

Result before tax, growth –126.5% 13.6% 66.3% 9.4% 38.9%

Solvency (equity/assets) 7.4% 9.3% 10.4% 8.0% 8.1%

Cost/income ratio 122% 43% 42% 52% 42%

NON-FINANCIALS

Number of employees (FTEs) 2,683 2,549 2,100 1,778 1,523

Reconciliation of profi t before tax reported byING Real Estate B.V. and profi t reported by ING Group

(in millions of euros) 2008 Investment 2007 Total Management Finance Development Total

ING Real Estate B.V. statutory profi t before tax –192 –562 293 77 723

Entities managed by ING Real Estate but not in theING Real Estate B.V. consolidation group –31 –47 16 0 31

Adjustments to statutory fi nancial statements –5 0 0 –5 –8

Capital charges and Group overhead –69 –6 –69 6 –82

ING Real Estate profi t before tax reported by ING Group –297 –615 240 78 664

(1) The ING Real Estate portfolio includes the portfolio of entities managed by ING Real Estate that are not in the ING Real Estate B.V. consolidation group. This includes assets under management of Lion Industrial Trust, Lion Gables Apartment Trust and Lion Value fund (EUR 4.7 billion in total) and the loan portfolio of ING Real Estate Finance Australia (EUR 1.7 billion).


Mission and values

IntegrityWe want to be recognised as a trusted partner, acting in a way that inspires confi dence in our business and our real estate activities.

RespectWe should always have respect for and interest in each other. This is at the heart of all our relationships and a prerequisite for our global success.

PerformanceOur commitment to improvement and our focus on results for our clients lies at the heart of our business.

PassionWe care deeply about what we do, seeking to provide our clients with valued insight into real estate. Our approach is to be constructive and to be determined to do better.

Our missionWe aspire to be the leading provider of innovative real estate-based solutions and to exceed our clients’ expectations.

Our valuesOur internal values capture the key behaviours we want to see in our people. It is what we expect from everyone in their day-to-day activities. With a culturally diverse workforce, our values provide the four pillars which underpin our culture and unite our people globally:


04_BODY HEADING04_Body copy (a)

04_BODY HEADING04_Body copy (a)

OPERATIONAL REVIEWBUSINESS OVERVIEWGlobal presence


EUROPE1,882 EMPLOYEES

AWARDS18

NORTH AND SOUTH AMERICA494 EMPLOYEES

Third-party awards providerecognition of our activities and the contribution we make to the industry. These awards are an endorsement of our global reputation.

ASIA PACIFIC307 EMPLOYEES

Australia

China

Hong Kong, SAR

Japan

Singapore

South Korea

Taiwan

Belgium

Czech Republic

France

Germany

Hungary

Italy

Netherlands

Poland

Romania

Spain

Sweden

United Kingdom

Brazil

Canada

United States

From these countries we also serve Ireland, Malaysia, Mexico, New Zealand, the Philippines and Portugal.


The year 2008 was one of profound change, not just for ING Real Estate but for many businesses, particularly those operating in the real estate and fi nancial services sectors.

After a decade of continued growth it was disappointing that we reported an unsatisfactory result, mainly caused by signifi cant fair value losses of EUR 625 million on ING Real Estate’s direct and indirect real estate investments. This resulted in an overall loss before tax of EUR 192 million.

Despite diffi cult market conditions, our total business portfolio declined only marginally to EUR 106.4 billion at year-end compared with EUR 107.2 billion at year-end 2007.

THE REAL ESTATE MARKETSBetween 2003 and 2007 we saw very strong growth in demand for real estate investments driven by inexpensive and easily available capital, mainly in the form of debt. This phenomenon created a strong rise in the values of real estate. It was also a new phenomenon. In prior real estate cycles value creation came mainly from strong underlying real estate fundamentals, in particular from rental growth.

Chief Executive’s business review

IN THIS SECTION

Our results

The real estate markets

Impact on our strategy

Our business

Reducing capital and risk exposure

Cost reduction

Our people

Outlook

GEORGE JAUTZE, CHIEF EXECUTIVE OFFICER

RESULT BEFORE TAX % (In millions of euros) 2008 2007 change

Investment Management –562 430 –231

of which fee business 78 174

of which investment portfolio –640 256

Finance 293 250 17

Development 77 43 79

Result before tax (including fair value changes) –192 723 –127

Result before tax (excluding fair value changes) 433 506 –14



assume new reporting lines within ING Commercial Bank, as ING Wholesale Banking will be known in the future. The Investment Management business will become part of a new ING-wide global investment management business (part of the Insurer), once it has been created, until which time it will remain a stand-alone entity. The proposal made by ING Group is subject to the approval of the relevant Works Councils. While this changes the structure of our business, our specialist client service models will remain intact and the strategic objectives for each of our businesses will be the same, since these have been closely aligned to ING Group’s aim to manage risk, reduce capital exposure and reduce costs.

OUR BUSINESSOur activities cover a broad spectrum of the real estate sector – investing, fi nancing and developing – and our competitive advantage comes from the expertise and knowledge of real estate across the value chain. This does not mean that we always get things right but we believe that the research-led decision-making that pervades the culture of our organisation provides our clients with added value.

INVESTINGClients wishing to invest in real estate can do so through our Investment Management business, which has a global reach. It provides access to real estate through a broad range of funds and separate accounts spread across private equity, listed real estate equities and commercial real estate debt investments. We offer a number of investment strategies and provide access to both asset specifi c and diversifi ed portfolios.

The severely impacted real estate markets of 2008, which saw a strong correction in real estate values around the world, struck ourinvestment business hard. This was for two reasons: fair value losses on our direct and indirect real estate investments and declining fee income. In terms of fee income, which comprises management fees, transaction fees and performance fees, we saw much lower levels of transaction activity in 2008 and outperformance was harder to achieve. This had a negative impact on fee income, which declined to EUR 419 million (2007: EUR 467 million). In respect to real estate investment activities, these are undertaken to ensure alignment of interests with our clients as co-investors in our funds, as well as to acquire new investment assets and portfolios to launch a new fund. These activities generated a fair value loss of EUR 675 million, predominantly driven by our holdings in Australia, Canada and the US. These losses were a major contributory factor to our negative result in 2008 compared with 2007 when we recorded fair value gains of EUR 204 million in our Investment Management business.

During the year we also saw a decline in assets under management, mainly caused by the falling values of our listed and unlisted real estate investments, which was exacerbated by adverse currency movements. This was partially mitigated by new client infl ows. As a result assets under management only fell to EUR 66.5 billion, 8% lower than at year-end 2007.

By late 2007 we had concluded that this debt-driven era of real estate investment would be curtailed by the emerging fi nancial crisis and that future value generation would come from rental growth. The fi nancial crisis did bring the debt-driven era to an end. However, in common with many, we did not foresee the profound effect that the crisis would have on property values. Nor did we anticipate the speed and depth of the deterioration, particularly in the latter half of 2008. With respect to rental growth, by September 2008, it too became fully apparent that we were entering a period of deep global economic recession, the impact of which will inevitably be felt on rental incomes.

The result of this is that the real estate value equation has been eroded from both sides. On the one hand capital in the form of debt is no longer readily available, on the other it is unlikely that we will see rental growth in many of our markets until this period of recession is over.

IMPACT ON OUR STRATEGYBy the end of the fi rst quarter in 2008 it became clear that we would have to halt the ambitious growth strategy that we had been pursuing for a number of years. This was not an easy process. Until the end of 2007 we were still expanding as a result of the net infl ow of clients’ capital. Into early 2008 we were feeling the result of that phase of growth.

As the year progressed, it was apparent that for certain activities we would need to move swiftly from growth mode to sustaining our business portfolio. We would need to direct the business safely through the fi nancial and economic turmoil by managing our existing portfolio in a prudent way, to minimise the impact of market conditions both on our business and on our clients.

By the end of the year, this approach was in place across all our business units, as were the following three strategic priorities:

To focus strongly on client relationships• by putting client service at the centre of everything we do. Our clients, too, are adapting to a new reality. We need to make sure that we continue to provide them service and information in a timely manner, even if this is less favourable news. We also have to ensure that we manage as expertly as possible the capital entrusted to us.

To reduce our capital invested in real estate and risk exposure to •

real estate. We are seeking to reduce our direct investment in real estate, while carefully managing our development activities and our loan portfolio.

To continue our cost reduction programme,• aligning our costs to the current operating environment.

On 9 April 2009 as this document was being prepared, ING Group announced the result of its own strategic review, which included action to reduce complexity and risk. In order to reduce complexity it will be separating the Bank and Insurer, under one Group umbrella. As a result it is proposed that in the course of 2009 ING Real Estate’s business will be split. The intention is that our Finance and Development businesses will


Global businesses (indirect funds)Our real estate securities business experienced good net infl ows despite an environment where real estate stock prices were down by over 47% in 2008. Assets under management were impacted by market declines but our real estate securities activities showed good relative outperformance compared with benchmarks and peers. This resulted in signifi cant new business wins. New mandates in 2008 represented EUR 2.1 billion of assets under management and 22 new clients, the majority of which were global investment strategies. At year-end global assets under management by mandate represented 89% of the total. Mutual fund asset allocation platforms and defi ned contribution schemes were key to the success of retail mutual fund fl ows in 2008.

ING Real Estate Select is our multi-manager business. In the UK, across this sector there were widespread fund freezes on investor redemptions as many open-end funds struggled to maintain liquidity. However, our UK fund of fund, Osiris, dealt with all redemptions and remained open despite liquidity constraints in the underlying funds in which it invests and ended the year with positive infl ows. This proved to be our most challenging year since the introduction of the fund. Client communication was top priority.

Following the launch of Eurosiris in 2006, we launched our fi rst global fund of funds, Global Osiris.

New business fl ows continued throughout this business, with 19 new investments secured. Of these, six were for global strategies reinforcing this trend. FINANCINGClients wishing to fi nance their real estate activities can do so through our real estate Finance business. This business is active across a broad range of geographies and has a client base comprising international institutional investors, local clients, private investors and developers.

The commercial real estate fi nancing landscape changed dramatically in 2008 as a result of the crisis in the credit market and the disappearance of capital market products such as commercial mortgage-backed securities (CMBS). With many fi nancial institutions in diffi culty, new loans became scarce and more expensive. Market risks increased and bank funding declined further as a result. Transaction volumes were lower than the previous year.

In our domestic market, the Netherlands, market movements were less volatile than those experienced in other markets. This was a result of the relatively stronger capital position of the Dutch lending banks, the smaller size of transactions and the relatively high market share of private investors who have tended to rely less on capital market products than institutional investors.

In the fi rst three quarters of the year we benefi ted from the withdrawal of many lenders from the real estate markets. During this period we

As market conditions deteriorated, client communication and global intelligence were made higher priorities and we instigated a thorough strategic review of our new fund pipeline. We also augmented our risk management activities and implemented a review of our business in order to reduce the profi t volatility caused by our own direct and indirect investment in real estate. We believe that this will enable us to reduce over time the capital, and therefore risk, exposure of ING Group. In particular we are looking to bring our co-investment in funds into line with lower market norms as well as reduce the amount of capital directly invested in real estate.

Regional businesses (direct funds)The vast majority of assets under management are managed for our clients in unlisted and listed direct funds. In total we manage over 80 funds for a wide range of clients, of which only ten are open-end and open to redemption. A core focus of our teams has been to manage our banking covenants and carry out tactical sales either to deleverage our portfolios or to reduce the capital exposure of ING and other investors. At the same time we have increased our efforts in maintaining cash fl ow in the funds through pro-active asset and property management. The average occupancy level of the portfolio is 93%, which demonstrates the underlying quality of the assets in the funds. Our funds are well-diversifi ed by geography and asset type but in a global crisis cannot remain immune to market forces. Our investor base is predominantly institutional, the majority of which are major pension funds.

Although we launched no new commingled direct funds during the year, we won several new separate account mandates for direct property and we successfully launched a distressed debt fund.

ASSETS UNDER MANAGEMENT (In billions of euros) 2008 2007

Regional businesses (direct funds)

US 20.9 20.3

Clarion Capital 3.2

Clarion Partners 17.7

Continental Europe 19.9 17.2

Australia 5.7 7.1

UK 3.7 6.9

Canada 2.0 2.6

Asia 2.9 2.5

Global businesses (indirect funds)

ING Clarion Real Estate Securities 7.8 12.0

ING Real Estate Select (multi-manager) 3.6 3.5

Total 66.5 72.1



However, we are progressing with a number of regeneration and inner city projects across Europe, projects which were already under way and which have already passed our stringent risk criteria.

Retail Retail schemes are our core business. In 2008 construction began on the Überseequartier retail units, in Hamburg, Germany. We fi nalised the sale of the St. Stephen’s mixed-use scheme in Hull, UK, as well as the Alcalá Magna shopping centre in Madrid.

Retail refurbishment schemesThe restructuring and refurbishment of existing shopping centres is becoming a major component of our retail portfolio, as properties become outdated. In Belgium we progressed the refurbishment of Galeries de la Toison d’Or in Brussels. Completion is scheduled for late 2010. In the Czech Republic we completed the three-year extensive refurbishment of the Nisa Liberec shopping centre, near Prague, which re-opened and was sold in 2008. In the Netherlands we are currently extending the Boven ‘t IJ shopping centre in Amsterdam.

Residential We completed new residential projects in Belgium (Stadsplein, Genk), the Czech Republic (Hansapaulka, Prague), the Netherlands (Mahler 4, Amsterdam) and Spain (BonaVall, Valencia).

Offi ces We completed the extensive refurbishment of the EuroAlsace offi ce building in Paris, France. The structure of the original building dating back to 1870 was maintained, its brick and metal façade restored and new offi ce space created. The building houses a new underground car park. New apartments have been built above the offi ces.

We sold Crane Track in Amsterdam, the Netherlands. A former industrial remnant, the iconic building has brought life to a former brownfi eld site on the banks of the River IJ. Please also see page 31.

In respect to our development activities outside Europe, these are limited to our investment products, to create new assets as well as the potential for enhanced returns across our funds.

REDUCING CAPITAL AND RISK EXPOSUREING Real Estate is part of ING Group. In 2008 steps were taken to strengthen ING Group’s capital position, including a capital support facility of EUR 10 billion made available by the Dutch state.

In order to reduce capital invested in real estate and risk exposure we are in the process of reviewing our business portfolio. This may well result in our withdrawing from certain activities and/or markets. Already we have decided not to proceed with a number of funds that we had in

increased our total loan portfolio to EUR 37 billion until capital constraints curtailed our growth in the fourth quarter. The growth of the portfolio in combination with some margin improvement resulted in a result before tax of EUR 293 million, 17% higher than 2007. This was despite higher risk costs – up from nil to EUR 82 million – and increased funding costs, which were offset by higher volumes and margins.

Portfolio characteristics Our loan portfolio is well diversifi ed across asset types and geographies. The portfolio contains information on loan-to-value ratios, covenants and the probability of default. The loan book consists of 84% mortgage-secured facilities. The unsecured facilities are only granted to major institutional investors with strong fi nancial covenants.

The NetherlandsWe retained our position as a major player in the Netherlands, solidifying our home base. Our domestic portfolio grew to EUR 19.4 billion at year-end 2008 (2007: EUR 16.7 billion). The domestic portfolio accounts for 52.5% of our total lending portfolio (2007: 52%).

International marketsOur international business refl ected solid growth despite the changed market dynamics. The international loan portfolio increased to EUR 17.6 billion (2007: EUR 15.4 billion), which represents 47.5% of the total lending portfolio (2007: 48%).

DEVELOPINGIn 2008 our development activities delivered a result before tax of EUR 77 million, achieved mainly as a result of the sale of development projects, positive fair value changes in Spain and savings on selling and letting costs. This result was 80% higher than in 2007. Assets under management in our development portfolio remained stable at EUR 3.0 billion.

The disruption of the underlying fundamentals of real estate impacted many developers, resulting in reduced investor appetite which hampered the sales process of projects on the market. Weak economic performance and reduced consumer confi dence also eroded strong initial occupier demand for new products during the second half of the year. As the new economic reality is expected to have a long-lasting effect on property markets, many developers halted their expansion strategy and turned to reviewing the feasibility of maintaining their existing portfolios. This is an ongoing process as new circumstances continue to unfold.

We were no different. Following the expansion of our European development activities in 2007, in 2008 we directed our efforts to adapting our business operations to the deteriorating real estate markets. As a result we reassessed our development portfolio, which led us to withdraw from a number of projects, particularly in the UK, and to renegotiate contracts or defer several projects in our pipeline.


The Management Board and I would like to thank all our colleagues for their efforts during the year.

In October 2008, Robert Houston joined the leadership team as CEO of our Investment Management business and Management Board member designate. Robert replaced David Blight, who resigned to return to his native Australia. He was involved with ING Real Estate and its predecessor companies for 20 years and headed up our Investment Management activities from 2005.

On 16 April 2009 Robert Houston announced that he would be stepping down on 1 August 2009. We would like to thank Robert for the contribution he has made over 30 years to ING Real Estate and to the Investment Management business, in particular for his help in navigating this business through a diffi cult period over the last year.

The coming period will present more challenges for our people as we implement the split of the Real Estate business and the realignment of reporting lines within ING Group, subject to the approval of the Works Council. Over the past few years we have worked hard to create a strong culture, with high engagement levels. This is something that will help us through the transition period and an attribute of which we can all be proud. While the changes ahead will undoubtedly be testing, I know that the professionalism, energy and dedication of our people will help smooth the transition process.

OUTLOOKIn my 40-year career in real estate, which has spanned the recessions of the 1970s and 1990s, I have seen and managed substantial change across a number of organisations. The result of the proposed organisational changes at ING Group and its impact on ING Real Estate presents a number of different challenges and opportunities for us all.

Each of our businesses has developed enviable competencies in their respective activities and certain elements will remain unchanged. Real estate markets remain diffi cult, which will keep loan loss provisions, fair value losses and impairments at elevated levels. We will continue to serve some of the most highly respected real estate investors across the world while our own network of highly skilled real estate experts and our knowledge-base remains intact.

GEORGE JAUTZE CEO ING REAL ESTATE

our new business pipeline. Despite sound investment propositions, we have found that investor appetite for new products is limited now, as investors themselves struggle with the impact of the markets on their own portfolios and asset allocation strategies. At the same time we have already halted or slowed down some of our development activities and are examining closely whether we should be focusing further on a smaller number of core markets. In terms of our loan portfolio we have increased our efforts to preserve the quality of the loan portfolio, with a view to mitigating risk.

During the year we further enhanced our risk management processes across our business to ensure that we take an even more prudent approach to risk. We detail the steps taken to manage and mitigate the risks of our business in the risk and compliance report on pages 22-27.

COST REDUCTIONAt the beginning of the year our business was still responding to the substantial growth of prior years. And as a growth business our cost base was still expanding. This changed. In March 2008 we implemented a cost containment programme, which proved to be effective. We exceeded our initial cost containment target substantially and by year-end had restricted our full-year operational cost base (which excludes impairments and risk costs) to the same level as 2007.

In the fourth quarter of the year, however, as the full extent of the impact of market conditions became apparent on our business, we entered into a phase of further cost reduction. This has been implemented in three ways. First, we substantially reduced budgets for discretionary out-of-pocket spend across areas such as travel, marketing and information technology. Second, we implemented a headcount freeze and have been reducing external contract staff as much as possible. Third, and most regrettably, in a number of our offi ces we have had to make redundancies. In 2008 these were mainly made in Australia, Canada, the UK and the US, but in 2009 this programme has expanded across all our operations. This makes life extremely tough for our employees.

OUR PEOPLEIt was not an easy year for our people, who responded well to the changes in our strategy, our business and our marketplace. Not only have they had to implement a number of initiatives devised to improve our organisational effi ciency, but they have also had to deal with the rapidly changing market conditions, stringent cost containment measures and a drive to improve our communication with clients. It is to their credit that we succeeded on many fronts. In our Finance business we put in place a new client service model and implemented signifi cant process improvements into our day-to-day operations. In Development a number of programmes aimed at standardising processes and systems were introduced, which yielded substantial effi ciency gains. The redundancy programme had the greatest impact across the Investment Management teams, which also had to heighten their focus on client service.



The result of ING Group’s strategic review on ING Real Estate will beprofound. It is proposed that over the course of 2009 ING Real Estatewill be split(1), with its three businesses assuming new reporting lineswithin ING Group.

(1) Subject to approval from the relevant Works Councils


Impairments increased by EUR 68 million (2008: EUR 60 million against a release of EUR 8 million in 2007). This was largely due to impairments on projects in Spain and the UK.

As the real estate markets went into reverse, we put an expense containment programme in place at the end of the fi rst quarter. This resulted in full-year operating expenses of EUR 553 million (excluding impairments and additions to loan loss provisioning). This was around one percent lower compared to 2007 despite our increased business activities, an increase in FTEs and restructuring costs booked in the fourth quarter.

Although the number of FTEs increased by 5% in 2008, refl ecting the growth of our business activities early in the year, a hiring freeze was imposed and a headcount reduction programme implemented later in the year in response to the deteriorating market conditons. This resulted in a headcount reduction of 108 FTEs at year-end 2008.

FINANCIAL RESULTS BY BUSINESS

INVESTINGIt was a very diffi cult year for Investment Management as the real estate markets impacted strongly on both fee income and the value of our underlying real estate assets.

Increased downward pressure on valuations and adverse currency •

movements caused assets under management to fall by EUR 5.6 billion or 8% to EUR 66.5 billion compared to year-end 2007.

Loss before tax of EUR 562 million (2007: profi t before tax of EUR 430 •

million) which can largely be attributed to fair value losses. These totalled EUR 675 million and were incurred mainly in Australia, Canada and the US. These fair value losses represent a decline of EUR 879 million compared with 2007. Under IFRS unrealised gains or losses are booked through the income statement even though these are non-cash items.

Income excluding fair value changes was EUR 85 million lower at •

EUR 509 million (2007: EUR 594 million). This was primarily due to the fall in net commission income (asset management fees) resulting from the decrease in assets under management and much lower transaction volumes.

Expenses were slightly higher at EUR 373 million (2007: EUR 356 •

million). This increase was mainly due to severance payments incurred to achieve a reduction in headcount. The cessation of several fund launches resulted in additional costs in 2008. Normally these costs would have been incurred gradually over time.

Impairments were higher on development projects in the US and •

Australia.

TOTAL BUSINESS PORTFOLIOOur total business portfolio at year-end was marginally lower than the previous year at EUR 106.4 billion (2007: EUR 107.2 billion). Our loan portfolio increased by 15% or EUR 4.9 billion to EUR 37 billion but this increase was offset by a decrease of EUR 5.6 billion in assets under management in Investment Management to EUR 66.5 billion. Development assets remained stable at EUR 3.0 billion. Despite net client infl ows, the decline in assets under management occurred as a result of net lower values in listed and unlisted funds as well as adverse currency movements.

FINANCIAL RESULTSING Real Estate posted a loss of EUR 88 million after tax in 2008 compared with a profi t of EUR 481 million after tax in 2007. The loss before tax was EUR 192 million compared with a profi t before tax of EUR 723 million in 2007 and can be explained by the following:

INCOMETotal income at EUR 503 million in 2008 was 61% lower than last year. It can be concluded that the main driver for the EUR 915 million lower result before tax is the EUR 842 lower fair value changes, consisting of EUR 879 million lower fair value changes in Investment Management and EUR 37 million higher fair value changes in Development.

EXPENSESFinance risk costs totalled EUR 82 million in 2008 whereas no risk costs were booked in 2007. These were mainly a result of provisions in Spain and the US as well as smaller provisions in other countries.

Financial review IN THIS SECTION

Total business portfolio

Financial results and breakdown by business

Total real estate investment exposure

(In millions of euros) 2008

Result (profi t) before tax 2007 723

Lower fair value changes –842

Lower fee income Investment Management –48

Higher interest income Finance 122

Higher development income Development 27

Other income –30

Lower income –771

Higher additions to loan loss provision (risk costs) –82

Higher impairments –68

Lower operating expenses 6

Higher expenses –144

Result (loss) before tax 2008 –192



FINANCINGFinance continued to show good profi tability due to the growth of the loan portfolio and improved margins despite substantially higher risk costs.

Our total loan portfolio grew by 15% to EUR 37 billion •

(2007: EUR 32.1 billion). This growth was realised in the fi rst nine months of 2008 despite the diffi cult market conditions. Capital constraints restricted growth in the fourth quarter of 2008.

Profi t before tax rose by 17% to EUR 293 million •

(2007: EUR 250 million). The increase was mainly driven by the organic growth of our international and domestic business.

Income was 40% higher at EUR 453 million (2007: EUR 325 million). •

Higher revenues resulted from substantially higher interest income due to the growth of our fi nancing activities as well as somewhat higher portfolio margins and somewhat higher net commission income.

Risk costs totalled EUR 82 million in 2008 (2007: nil) and mainly •

relate to loans in Spain and the US.

Despite the 15% growth of our portfolio, operating expenses were •

only up by 4% at EUR 78 million (2007: EUR 75 million) and therefore improved the cost/income ratio for the Finance business.

DEVELOPINGBy its very nature, this business produces a volatile income component year-on-year since we generate profi t as development projects are completed and sold. Under IFRS profi t can only be realised following the delivery and sale of projects. Sales were high in early 2008 with sizeable projects sold. Income growth was supported by positive fair value changes of EUR 50 million (2007: EUR 13 million) that are reported under investment income, of which EUR 60 million was booked in the fourth quarter.

Assets under management in our development portfolio totalled •

EUR 3.0 billion at year-end 2008 remaining on par with 2007.

Profi t before tax rose by 80% to EUR 77 million (2007: EUR 43 million). •

The increase was achieved mainly as a result of the sale of development projects, positive fair value changes in Spain and savings on selling and letting costs.

Income at EUR 217 million increased by 43% (2007: EUR 151 million). •

Revenues were mainly higher due to the sale of development projects and positive fair value changes in Spain.

Impairment losses amounted to EUR 37 million, mainly on account of •

the UK and Spain, compared to impairment releases of EUR 20 million in 2007.

Operating expenses (excluding impairments) decreased by 19% to •

EUR 103 million (2007: EUR 128 million) mainly due to lower selling and letting costs.

(In millions of euros) 2008 2007

Interest result –144 –138

Investment income –243 297

Net commission income 419 467

Share of result from associates –193 128

Other income –4 44

Total income –166 798

Impairments 23 12

Operating expenses 373 356

Result before tax –562 430


Interest result 433 311

Net commission income 24 13

Other income –4 1

Income 453 325

Risk costs 82 –


Result before tax 293 250


Interest result –29 –32

Investment income 93 63

Net development income 115 82

Other income 38 38

Income 217 151

Impairments (reversals) 37 –20


Result before tax 77 43

INVESTING

FINANCING

DEVELOPING


TOTAL REAL ESTATE INVESTMENT EXPOSURE Real estate investment exposure represents ING Real Estate’s exposure to the fl uctuation in real estate prices, affecting both the value of real estate assets and income derived from those assets.

ING Real Estate’s total real estate investment exposure comprises real estate investment properties, which we own either directly or indirectly through our investments in funds. It also comprises real estate development projects and real estate assets held for sale. The total real estate investment exposure, including leverage, amounted to EUR 6.9 billion as at 31 December 2008 (2007: EUR 7.0 billion). Total invested equity amounted to EUR 3.1 billion. ING Real Estate’s exposure is well-diversifi ed by geography and real estate type. In 2008 the real estate markets worldwide saw substantial decreases in value across all real estate types.

Under IFRS fair value changes of real estate investment properties are accounted for in the income statement and contribute directly or indirectly to our overall result (through our share of profi t/loss in associates). In 2008 fair value changes refl ected a loss of EUR 625 million whereas in 2007 fair value changes totalling EUR 217 million made a positive contribution to profi t before tax. The 2008 fair value loss comprises EUR 354 million relating to investment properties directly owned by ING Real Estate, EUR 224 million reported by the real estate investment funds (associated companies), EUR 32 million relating to real estate equity securities and other fair value changes amounting to EUR 15 million.

Development projects and real estate assets held for sale are recognised at cost less impairments. In 2008 impairment losses totalled EUR 60 million compared with a gain of EUR 8 million in 2007.

The risk management note in the fi nancial statements on page 82 contains more information on our real estate exposure and a reconciliation to the balance sheet value.

INVESTMENT PROPERTIES OWNED BY ING REAL ESTATE Gross Fair 2008 Gross rental lettable area value revaluation incomePROPERTY PORTFOLIO Location (m2 x 1,000) (in EUR million) (in EUR million) (in EUR million)

Summit portfolio (100%) Canada 3,433 1,753 –354 147

Ocmador portfolio Asia 122 90 –27 12

RGD portfolio Netherlands 220 403 5 31

ING offi ces portfolio Netherlands 81 109 2 10

Torrejon Spain 0 96 61 0

Healthcare fund UK 0 55 –11 5

Dalton Park UK 14 35 –17 4

Shanghai Racket Club China 79 111 –9 14

IP Property Fund Asia Asia 45 36 0 3

Joondalup shopping centre Australia 130 94 1 8

Ivy Mall Asia 21 35 0 0

European fund properties Europe 57 93 –5 3

Directly held investment properties 2,910 –354 236

REAL ESTATE EXPOSURE BY SECTOR(AS AT 31 DECEMBER 2008)

Retail 31%

Offi ce 22%

Industrial 18%

Residential 16%

Other 13%

REAL ESTATE INVESTMENT EXPOSURE BY REGION(AS AT 31 DECEMBER 2008)

Continental Europe 28%

Netherlands 24%

Canada 16%

Australia 11%

Asia 9%

US 7%

UK 4%

Other 1%

FAIR VALUE CHANGES(IN MILLIONS OF EUROS)

20082007200620052004–625

217119160

74


MANAGEMENT BOARD REPORT2008 strategy, targets and performance

INVESTING

TARGETS (SET IN JANUARY 2008)

Tilt product offer towards value added and opportunistic funds.•

Deliver consistent investment performance.•

Increase cross-border investments.•

Further develop alternative products.•

Enter new markets.•

Strengthen our business in Asia•

PERFORMANCE

Put on hold due to market conditions.•

Commissioned global IPD performance measurement •

to benchmark the entire fund portfolio.

Of our funds that are benchmarked, 57% outperformed •

based on new IPD analysis methodology.

We increased cross-border investments by 7%.•

Put on hold due to market developments.•

We opened an offi ce in Brazil, South America. •

Our global multi-manager business appointed key personnel to head •

up its new offi ce in Asia and launched its fi rst global fund of funds.

FINANCINGTARGETS (SET IN JANUARY 2008)

Continue our geographic expansion.•

Expand our customer base by developing a new client model and •

new products.

Further streamline our internal organisation (shorter time-to-market).•

PERFORMANCE

We opened an offi ce in Hong Kong, Asia.•

We put a new client service model in place and developed new •

fi nance products appropriate for the changed market environment.

We implemented signifi cant business process improvements into •

our day-to-day operations and achieved faster time-to-market.

DEVELOPINGTARGETS (SET IN JANUARY 2008)

Strengthen client relationships.•

Introduce new product concepts.•

Expand across Europe through acquisitions.•

PERFORMANCE

We established strategic client service teams and intensifi ed •

our dialogue with clients and external stakeholders.

We launched the community shopping centre concept.•

Put on hold due to market conditions.•

CORPORATETARGETS (SET IN JANUARY 2008)

Improve our IT around the globe.•

Enhance our management capabilities worldwide through a new •

global leadership programme.

Enhance the quality of management information by introducing •

new business intelligence tools.

Further identify key risks and continue to enhance risk monitoring.•

Include sustainability in our day-to-day business and product •

offerings.

Improve internal synergy through joint business initiatives.•

PERFORMANCE

We are developing infrastructure for a global IT platform for our •

operations worldwide.

Six leadership development sessions were attended by •

150 participants from across the organisation.

We introduced new business intelligence tools in Development and •

Investment Management.

Risk awareness was intensifi ed company-wide and detailed risk •

exposure overviews and stress scenario implications were produced and monitored.

We formulated a sustainability policy and developed objectives and •

action plans for our business.

Initiatives include knowledge-sharing sessions among our three •

businesses.


We have one of the highest quality, dedicated in-house real estate research and strategy teams in the world. Through this network we aim to provide insight and expertise to inform our clients and support real estate decision-making.

Our marketplace

The events of 2008 defi ed all expectations. A seismic disruption to the global fi nancial system has triggered potentially the sharpest and longest global economic recession that most people will have experienced. We have embarked on a period that is becoming known as the great deleveraging.

A widespread and sharp correction in real estate prices is underway around the world and is likely to persist into 2009 and beyond. Public equity real estate prices have corrected fi rst and foremost

The deleveraging process will likely be painful. Most of the policy measures taken so far have been designed to avoid catastrophic fi nancial system failure and to mitigate the inevitable economic slowdown. Yet the economic outlook has already deteriorated rapidly. The outlook for developed economies as a group in 2009 is the weakest it has been since World War II. Consequently, the outlook for developing economies is now also much weaker than it once appeared. In such turbulent times, we believe that no country can be immune but rather, each country will likely be affected to varying degrees.

All asset classes have been impacted, including real estate, and all aspects of real estate have been affected, including public and private, equity and debt, residential and commercial. Public equity real estate prices have corrected fi rst and fastest. Private equity real estate prices are beginning to follow. Two effects are at work here. First, capital values are falling as investors reappraise their appetite for risk – there are few buyers and debt is costly, if available. Second, the global recession will likely lead to much weaker real estate market fundamentals in 2009 and 2010, much weaker than we thought as little as three months ago. This will also likely affect real estate values.

We believe there will likely be no quick return to the recent debt-driven era of real estate returns. Real estate pricing will likely return to traditional metrics – for institutional investors the main metric will likely be the risk premium and, for certain strategies, the cash fl ow. We believe identifying the point when unleveraged private real estate returns will again offer investors a suitable risk premium over the local risk-free rate is key. This will require investors to pay close attention to both current pricing and to prospects. It will depend on the speed and degree to which real estate price corrections arrive at a level where total returns (the income return together with potential growth in capital value) provide the appropriate property risk premium above long-term sovereign bond rates. In general terms, the necessary property risk premium may be expected to be at least at the top end of the historic range in each country.

As a result, core unleveraged real estate returns will likely be negative in many countries for 2008 and 2009. By 2010 we are likely to get back to more-or-less a pure income return. Thereafter, on the assumption that the global economy recovers, as real estate market fundamentals begin to stabilise, occupancy rates should begin to pick up and some rental growth may start to re-emerge in some sectors leading to an income and capital growth return in 2011. This is approximately a year later than we previously thought and the risk to this outlook probably remains skewed fi rmly to the downside.

However, ‘the great deleveraging’ will likely evolve in unpredictable ways in the year ahead. On the one hand, the decline in capital values could last longer and the recovery could come later and be weaker than we currently project. On the other hand, should long-term investors start to fi nd that lower pricing offers an opportunity to acquire assets that were previously tightly held, then confi dence could return to real estate capital markets sooner. Markets will need to be monitored very closely in 2009.

We publish a number of research publications on our website. The above extract is the Executive Summary of Global Vision 2009, which we published in January 2009.

For the full publication, please see our website www.ingrealestate.com



The events of 2008 defi ed all expectations. A seismic disruption to the global fi nancial system has triggered potentially the sharpest and longest global economic recession that most people will have experienced. We have embarked on a period that is becoming known as the great deleveraging.

Our business

BY REGION(AS AT 31 DECEMBER 2008)

US 31%

Continental Europe 29%

Securities 12%

UK 11%

Australia 8%

Asia 5%

Canada 4%

BY SECTOR(AS AT 31 DECEMBER 2008)

Retail 25%

Offi ces 21%

Securities 17%

Industrial 15%

Diversifi ed 12%

Residential 10%

OUR STRATEGIC PRIORITIES

Transition to a new phase of globalisation.•

Invigorating client relationship management.•

Protecting fund performance in a traumatic climate.•

Realigning the business in the light of market change.•

Reducing risks, capital exposure and costs.•

HOW WE ACHIEVED THESE PRIORITIES

We are developing the global strategies of our direct and indirect fund businesses.•

We have established a global portfolio management team.•

We have strengthened our global intelligence.•

We are intensifying client contact. •

We have reviewed our fund launch pipeline.•

We have implemented a cost reduction programme, including reducing headcount.•

We have initiated a programme to reduce our risks and capital exposure •

to real estate.

PROGRESS 2008

Over EUR 7 billion of new business was generated, primarily through new separate •

account wins.

Investment Property Databank (IPD) was appointed to measure the performance •

of our global fund portfolio.

Of our funds that are benchmarked, 57% outperformed based on new IPD analysis •

methodology.

A new monthly real estate monitor was introduced. •

Investing

Result before tax EUR –562 million(including fair value changes)

Result before tax EUR 113 million(excluding fair value changes)


Americas 28,647

Retail 3,831Industrial 3,979Offi ce 4,730Residential 2,232Other 13,875

Europe 27,317

Retail 10,548Industrial 2,618Offi ce 6,755Residential 2,812Other 4,584

Australia and New Zealand 5,578

Retail 1,037Industrial 1,699 Offi ce 1,668Residential 580Other 594

Canada 1,989

Retail 220Industrial 1,769Offi ce –Residential –Other –

Asia 2,925

Retail 1,045Industrial 22 Offi ce 772Residential 1,066Other 20

ASSETS UNDER MANAGEMENT (IN EUR MILLION)(AS AT 31 DECEMBER 2008)

Assets under management EUR 66.5 billion

Result before tax EUR 293 million Loan portfolio EUR 37 billion

Financing


Strengthening client relationships. •

Executing our transformation strategy.•

Adapting to the changed market dynamics.•

Portfolio management.•


We remain committed to serving our clients while pursuing selective growth.•

We have created a global network of specialist real estate fi nanciers to serve •

local markets with local experts.

We have integrated new business processes into our day-to-day operations.•

We have developed products appropriate for the current market environment. •

Through the hard work and dedication of our people. •

PROGRESS 2008

We achieved solid performance despite the volatile market conditions.•

We grew our loan portfolio. •

We have maintained our position as a major player in the Netherlands.•

We have increased our international business.•

Our business processes have been enhanced.•

LOAN PORTFOLIO BY REGION (AS AT 31 DECEMBER 2008)

Netherlands 52%

USA 13%

Spain 10%

France 7%

Australia 5%

Rest of Europe 5%

UK 4%

Italy 4%

LOAN PORTFOLIO BY REAL ESTATE TYPE(AS AT 31 DECEMBER 2008)

Retail 34%

Offi ces 28%

Residential 16%

Industrial 13%

Other 9%


DEVELOPMENT PORTFOLIO BY REAL ESTATE TYPE(AS AT 31 DECEMBER 2008)

Retail 39%

Offi ces 27%

Residential 22%

Industrial 6%

Other 6%

TOTAL PROJECT VALUE BY REGION(AS AT 31 DECEMBER 2008)

Netherlands 39%

Other Europe 23%

Eastern Europe 15%

Spain 14%

UK 9%

EUR 9.9 BILLION

TOTAL PROJECT VALUE BY REAL ESTATE TYPE(AS AT 31 DECEMBER 2008)

Residential 35%

Retail 27%

Offi ces 16%

Parking 16%

Other 4%

Industrial 2%

Result before tax EUR 77 million Assets under management EUR 3.0 billion

Developing


Strengthening client relationships.•

Adapting our business rapidly to the changed market dynamics.•

Achieving operational excellence.•

Intensifying our focus on sustainability in our core business.•


Through outstanding client service.•

Delivering quality projects and focusing on sales.•

Reassessing our portfolio and development pipeline to refl ect our commercial •

focus and risk appetite.

Control exposure by prudently managing our portfolio.•

Observing a cost control programme.•

Transforming our business processes.•

Establishing sustainability objectives and actions.•

PROGRESS IN 2008

Assets under management stable. •

We achieved the majority of our sales targets and increased our profi t.•

We reviewed our portfolio driven by the changed market conditions.•

We implemented cost reduction measures.•

We carried out business process improvements.•

We created a sustainability framework for our business.•



We report below on a number of actions implemented in 2008 in line with our renewed focus on clients. It is clear to us that one of the most important aspects of the way we manage relationships with our clients is to make sure that they remain fully informed. Clear and transparent communication has become central to our relationship management.

For the fi fth consecutive year we were ranked as the world’s largest real estate investment and fi nance company by leading US magazine Pensions and Investments.

INVESTINGAs market conditions deteriorated, client communication and global intelligence were made even higher priorities.

We set up a new global portfolio management team. The team is seeking to create strong investment performance and to source new opportunities to develop fee income for our business. The team’s analysts look at key performance measures, diversity, global reach, spectrum and risk profi le; with a focus on identifying trends and leveraging our platforms. This supports the development of new global investment strategies to complement our primarily regional and asset specifi c fund mix.

We are developing our sector knowledge by strengthening our global platforms: retail, offi ce and industrial.

Refl ecting our focus on client service, we developed our fi rst client extranet and increased our face-to-face client contact. Our regional investment seminars attracted high levels of attendance. More regular market review meetings were introduced as well as more intensive market reporting. This included a fortnightly real estate monitor to keep abreast of the rapidly changing US market.

FINANCINGWe put a new client service model in place tailored to the needs of our clients ranging from regional Dutch clients to global institutional investors. For example, to cater for cross-border and global lending transactions, specialist client service teams serve the local needs of our global clients. The opening of our Hong Kong offi ce in 2008 marks our presence in eight key markets around the world. In countries where our business does not have a presence, we leverage the international capabilities of the ING Wholesale Banking network.

In response to client demand we set up a new real estate Structured Products Group in London. The team has responsibility for developing structured fi nance products focusing on debt advisory, cross business line products and lending transaction support.

DEVELOPINGWe established strategic client service teams to serve our clients across the business and intensifi ed our dialogue with investors, retailers, tenants and municipalities. Relationships with retail clients were strengthened through our global retail platform with representatives from each of the ING Real Estate businesses. Together, we share best practices and work in partnership with retailers to develop shopping centres as destinations of choice in markets around the world.

We intensifi ed our relationship with external stakeholders. In 2008 we were one of the founding partners of the ULI European Urban Investment Network (UIN) together with the City of Barcelona. UIN is a new partnership with city government leaders, institutional investors and developers aimed at driving the rate of investment in Europe’s cities through public-private collaboration and innovation.

Visit www.ingrealestate.com/publications to read the report ‘Closing the investment gap in Europe’s cities’.

Our clients

We serve our clients by sharing our knowledge and expertise to deliver sound real estate decisions while remaining a trusted partner, committed to open and transparent communication.

TEN LARGEST FUNDS

Investment (In billions of euros) style Region

Diversifi ed Core US

ING Industrial Fund Australia Core Australia

Industrial Core US

ING Dutch Offi ce Fund Core plus Cont. Europe

ING Offi ce Fund Australia Core Australia

ING Summit Industrial Fund Core plus Canada

ING Dutch Residential Fund Core Cont. Europe

ING Dutch Retail Fund Core Cont. Europe

ING Retail Property Fund France Belgium CV Core Cont. Europe

ING Retail Property Fund Ibérica LP Core Cont. Europe


MANAGEMENT BOARD REPORTAWARDS WON INCLUDE:

Property Manager of the Year 2009—Global Pensions Awards

European Fund Managerof the Year 2008—Property Week

IPD Europroperty Award 2008—ING Dutch Retail Fund for consistent three-year investment performance

Investor of the Year 2008asiacre.com

Global Private Equity Real Estate (PERE) Award 2008—Asia-Pacifi c Award for China Opportunity Fund

ULI Global Award for Excellence 2008

ULI Award for Excellence 2008

MIPIM Green Building Award 2008

MIPIM Special Jury Award 2008

— Crane Track, Amsterdam Netherlands

ICSC Shopping Centre Award 2008— New large development

categoryZłote Tarasy, Warsaw, Poland

Retail Developer of the Year, Netherlands 2008—Vastgoedmarkt

Special High-Rise Sustainability Award 2008— WestendDuo, Frankfurt,

Germany

Excellence in Construction Award for the Eco-Awareness Category 2008, Landscape Contractors Association of Australia— Rosehill Industrial Estate, Sydney

Australia

Cambridge Historical Commission Preservation Award 2008— One First Street, Cambridge

MA, US


The composition of our total portfolio, which consists of a regionally diversifi ed portfolio of assets under management, a low-geared lending portfolio and (mainly pre-rented/pre-sold) development projects, refl ects our prudent risk mentality.

With a strong risk management organisation and stringent risk controls in place, we worked to heighten risk awareness across the organisation in anticipation of the rapidly changing market conditions in 2008. During the year we produced detailed risk exposure overviews and stress scenario implications for our stakeholders and the regulators. We kept a tight watch on developments in real estate markets around the world, amending risk limits and adapting policies, where necessary, in anticipation of a downturn in specifi c markets.

INTEGRATED RISK APPROACHTaking risk is inherent in our business activities. To ensure prudent risk taking throughout the organisation, we operate within a comprehensive risk governance framework developed together with our businesses. This is tightly embedded in our operational processes and ensures the proper identifi cation, measurement and control of risks across all levels of the organisation. Fully integrating risk management into our strategic planning and daily business activities ensures that we have control over our risk profi le. The integrated framework is in line with ING Group policies and complies with fi nancial regulations.

RISK MANAGEMENT FUNCTIONThe risk management function at ING Real Estate has the following departmental structure:

A separate credit/investment risk management department for •

each of our three businesses

Market risk management •

Operational risk management •

Compliance •

The risk departments have been set up independently from the businesses they support. They report directly to the Chief Risk Offi cer, who is a member of the Management Board.

ING

Gro

upR

isk

Man

agem

ent

Chief Risk Offi cer

ING Real Estate

Credit risk Market risk Operational risk Compliance

The credit/investment risk management departments manage portfolio risk for each business by setting specifi c risk policies and guidelines. Transactional risk is mitigated by evaluating extensive transaction due diligence for each new transaction, including detailed information about the legal structure, funding strategy, typical real estate characteristics and a transaction risk-adjusted return on capital (RAROC). In addition, transaction-specifi c risk is reviewed on an annual basis – and where required, on a more frequent basis or as part of specifi c stress analysis.

The transactional evaluation, which is part of the Signatory Approval Process (SAP), is applied within each business. This process involves obtaining approval from dual signatories, one representing risk management and the other representing the relevant business. It also defi nes clear roles and responsibilities which, among other things, depends on the transaction size. The outcome of extensive transaction due diligence is presented in the SAP evaluation which, for example, for fi nance would include the loan facility, the real estate specifi c characteristics of the transaction and RAROC. To the extent that a transaction falls outside the delegated authorities granted by the Executive Board of ING Group, it is processed through the ING Group Investment Committee for our Investment Management and Development businesses and through the ING Group Credit Committee for our Finance business.

A complete risk profi le for ING Real Estate (determined on the basis of various scenarios) is prepared on a quarterly basis and monitored by the Asset and Liability Committees and the Risk Committee. The risk profi le, of which our risk dashboard forms a key part, shows the various risk elements (credit risk, market risk, transfer risk, operational risk and business risk) and the aggregated elements both on a diversifi ed and an undiversifi ed basis. The two committees meet once a month to evaluate the company’s overall risk profi le and recent developments as well as providing advice on taking restrictive measures, where necessary. In 2008 this included pro-actively renegotiating projects and facilities in the light of the deteriorating market conditions as well as providing risk-based market analysis to support the Management Board’s decision-making on strategic reorientation.

Risk and compliance report IN THIS SECTION

Integrated risk approach

Risk management function

Risk profi le

Credit risk and real estate investment exposure

Risk measurement

Operational risk

Compliance risk management



When a new transaction is approved and accepted, it is added to our extensive credit data warehouse, which allows us to measure, monitor and manage the loan book and the changing credit conditions of the lending portfolio.

We have built up a high-quality lending portfolio based on the SAP process which is supported by a governance and policy framework.As a result, the credit portfolio is well spread across the various asset types and regions, with a natural concentration in the Netherlands. Average loan-to-value of the secured portfolio amounts to 68.7%. Only 12% of the portfolio consists of unsecured facilities.

REAL ESTATE INVESTMENT EXPOSUREING Real Estate carries three different categories of real estate investment exposure on its books:

1. Co-investment seed capital in its real estate funds (and related bridge capital exposure)

2. Exposure to development projects and assets held for sale

3. Buildings ING Real Estate owns and occupies

The level of risk ensuing from the exposure described above is infl uenced by the general state of the economy, infl ation, occupancy, yield and the state of the real estate market. Our policy for development projects is to mitigate this risk through fi xed-price construction contracts as well as pre-lease and pre-sale agreements where possible. As a result, investment

RISK PROFILE In accordance with our business model, the two dominant sources of risk at ING Real Estate are credit risk and market risk.

Credit risk is the risk that ING Real Estate runs for unexpected losses as •

a result of client default. This form of risk relates mainly to the lending facilities granted by fi nance activities.

Market risk includes the risk that ING Real Estate runs for unexpected •

losses as a result of a change in the real estate market (real estate pricing risk). Market risk relates mainly to the capital employed by investment management funds and development projects.

With respect to other sources of risk (for instance liquidity risk, interest rate risk, foreign currency risk, operational and business risk), the Management Board and the ING Group Executive Board have set clear targets to keep these risks to a minimum level.

CREDIT RISK EXPOSURE Credit risk is infl uenced by numerous factors, including lender specifi c characteristics, real estate specifi c characteristics and general market conditions. Our fi nancing business concentrates on lending to professional real estate investors secured by fi rst or second lien mortgages. Unsecured real estate lending is only permitted with prime corporate clients based on balance sheet ratio requirements and covenants. Furthermore our risk policy focuses on geographic diversifi cation, limiting unsecured fi nancing and certain types of assets and maximising loan-to-value ratios per type of transaction.

INVESTMENT MANAGEMENT RISK MANAGEMENT PROCESS

1. New fundinitiative

2. If approved

forward

3. Proposal to

SAP

4. If approved launch fund

5. Monitoring

phase

GlobalBoard

RegionalInvestmentCommittee

Riskadvice

approval approval approval

GlobalProduct

Committee

1. Receive client

request

2. Customer

due dilligenceprocess

3. Valuationand creditproposal

4. Signatory approvalprocess

5. Term sheet/

documentationnegotiation

6. Review/

monitoring phase

Credit risk management

Customer due diligence process

Go-no-go decisions

FINANCE RISK MANAGEMENT PROCESS


exposure is more or less directly vulnerable if the real estate prices of these investments go down. Real estate price shocks will have a direct impact on the reported net profi t only for the fi rst category (seed and bridge capital).

In the short term, our Investment Management business will continue to be confronted with challenging investment market conditions and the risks we face will certainly increase. We take the management of those risks very seriously to ensure that, at all times, they are mitigated to the greatest extent possible. Our business is well diversifi ed in style, geography, product structure and sector and we have put additional models in place to stress test our products and identify future fund risks.

Our overall real estate investment exposure amounted to EUR 6.9 billion in 2008. Out of this, fair value changes of approximately EUR 4.4 billion go through the ING Real Estate income statement, which in both fl ourishing and deteriorating markets directly infl uences the income statement of ING Group. To mitigate this risk we have built a portfolio of prime real estate assets, diversifi ed across real estate sectors and countries. But the most important risk mitigation action is carried out by actively managing the portfolio. For example, in 2007 a sales programme was initiated for specifi c parts of the portfolio based on the view (expected at that time) that markets could deteriorate. Position limits were also set on parts of the total exposure to limit the concentration in real estate.

RISK MEASUREMENT We continuously enhance our risk management systems and believe we are a leader in developing specifi c risk models for real estate risk as well as assigning market risk managers specifi c to the real estate business. We have designed risk models for all of the company’s investments, projects and loan portfolios. In modelling real estate risk, specifi c models exist for price risk which is particularly important for real estate investments. Development projects have different risk drivers.

Project development risk is determined by evaluating the potential deviation in expected project results. These are driven by the costs (activated costs and committed expenditures) and benefi ts of a project. We use a separate model to determine project development risk, taking into account process elements such as ‘go’ or ‘no-go’ decisions and specifi c development and construction elements, including the market rent, investor yields, market sales prices, vacancy levels, construction incidents and construction delays.

Portfolio risk, which is based on individual project risks, is determined by taking into account regional and sector diversifi cation. The model we use enables us to evaluate risk and reward clearly and provides insight into the quality and sustainability of income and earnings on an individual project basis.

DEVELOPMENT RISK MANAGEMENT PROCESS

1. Take

initiative

2. Defineconcept

3. Formalise

design

4. Manage

construction

5. Provide

after sales

Purchaseproposal

Write-offproposal

Developmentproposal

Preliminarycalculation

Constructionproposal

Finalcalculation

Go-no-go decisions

Researchproposal

Signatory approval process



In 2008 we integrated market risk into our strategic decision-making process. Our efforts in this respect are directed at raising the level of transparency and consistency of market risk measurement, reporting and management tools.

OPERATIONAL RISK Operational risk is the risk of direct or indirect loss resulting from inadequate or failed internal processes, people and/or systems and external events. It includes crisis management, personal and physical security as well as information management.

We developed risk maps for each of our businesses in 2008 to integrate operational risk management into our business processes. Risk maps detail the main risks and key internal controls for each business process and/or area. They form an important focus point and are an essential element of the system of internal controls. Risk maps are also used for testing and monitoring.

An important development in the reporting year was the introduction of the non-fi nancial risk dashboard. The dashboard provides insight into the defi ned level of risk for each risk category and the actions to be taken.

These categories are:Control risk•

Unauthorised activity risk•

Processing risk•

Employment practice risk•

Personal and physical security risk•

Information (technology) risk•

Crisis management and business continuity planning/disaster •

recovery planning risk

Compliance risk•

Internal fraud-related risk•

External fraud-related risk•

Apart from audit reports, incidents and management issues, integrated risk assessments are used for both the risk maps and non-fi nancial risk dashboard. Integrated risk assessments have been and continue to be executed to identify and measure the main risks and to defi ne any additional actions to be taken. Regarding information technology risks, in-depth monitoring is executed to assess the actual level of information technology-related risk and any follow-up actions to be taken. This is an integral part of non-fi nancial risk dashboard reporting.

EUROPEAN PROJECT DEVELOPMENT RISK(AS AT 31 DECEMBER 2008)

Retail 38%

Offi ces 25%

Residential 21%

Other 12%

Industrial 4%

LOAN PORTFOLIO BY RISK(AS AT 31 DECEMBER 2008)

Secured 84%

Unsecured 12%

Construction 4%


COMPLIANCE RISK MANAGEMENTING Real Estate operates in the global real estate marketplace as part of a major global fi nancial institution and as such is subject to both national and international regulatory supervision. We are committed to protecting ING’s reputation based on a long-standing culture of accountability, integrity and ethical business practice. Managing compliance risk and complying with applicable laws, regulations and ethical standards in both personal and business conduct is a responsibility that individual ING Real Estate employees share, regardless of their position.

The integrity of our organisation and the reputation for professional and ethical conduct that ING Group and ING Real Estate enjoy around the world are among our most important assets. In order to preserve this reputation ING Real Estate recognises that it needs to maintain the confi dence of its clients, shareholders, employees and other stakeholders by acting with professionalism and integrity.

We strive to ensure that we have a good understanding of, and strictly comply with the applicable laws, regulations and standards in each of the markets and jurisdictions where ING Real Estate operates. We are also committed to the continued embedding of, and adherence to, the compliance risk management standards, policies and guidelines set by ING Group. Regulatory compliance is essential because our long-term relationship with our clients depends on integrity and fairness.

ING BUSINESS PRINCIPLESING Real Estate attaches paramount importance to upholding its reputation, and the ING Business Principles play an important role in this respect. ING expects the highest levels of integrity from its employees, regardless of their position in the organisation. They are required to observe the ING Group Business Principles, which can be viewed on www.ingrealestate.com.

COMPLIANCE RISK MANAGEMENT CHARTERThe ING Group Executive Board carries ultimate responsibility for compliance of the ING businesses with applicable laws, regulations, ethical standards and for managing ING’s compliance risks. The ING Group compliance risk management charter and framework was approved by the ING Group Executive Board in August 2008, and has subsequently been adopted by the Management Board of ING Real Estate. The revised charter and framework represents a major step forward in clarifying the roles and responsibilities for managing compliance risk at ING and comprises principles, processes and tools that ING Real Estate management and compliance offi cers use to manage compliance risk.

To heighten awareness for operational risk management across the organisation, we held information sessions, discussed lessons learned and created and distributed an information booklet about operational risk management to all our offi ces in 2008.

CRISIS MANAGEMENTWe have measures in place to ensure the continuity of our business and to enable us to manage, evaluate and resolve crisis situations. Our business contingency plans include an emergency response plan, business continuity, disaster recovery and crisis communication plans.

PERSONAL AND PHYSICAL SECURITYThe objectives of personal and physical security are to prevent or minimise exposure to, or the consequences of criminal and environmental threats that may endanger the safety of, ING personnel or impact on ING Real Estate. We carry out security risk analyses and tests and take action on any weaknesses identifi ed.

INFORMATION RISK MANAGEMENTInformation risk management governs the trust and confi dence of our stakeholders and clients by establishing industry best practice and meeting regulatory requirements. This also relates to protecting all information against loss, misuse, damage or disclosure of company information so that confi dentiality and integrity is ensured and that the information is available when needed by those who need it.

The governance and control system in place at ING Real Estate and the quantitative evaluation methodology are fully in line with the policies and guidelines of ING Group. We implemented the following policies in 2008:

Anti-fraud policy •

IT risk and control programme (Phase II)•

Non-fi nancial risk dashboard – described above•

Risk management is discussed in more detail in note 39 to the fi nancial statements on pages 77-85.



FRAMEWORKThe compliance risk management framework has three components:

The compliance chart provides a roadmap that refl ects the key •

activities performed by a business unit to understand and manage its compliance risks.

The scorecard is a tool that allows a business unit to understand and •

manage its compliance risks.

The advisory component is the mechanism that ensures that the •

business receives specialised support and advice to help manage its compliance risk more effectively.

FINANCIAL ECONOMIC CRIME POLICY (FEC)In June 2008 the FEC policy and the related minimum standards were approved by the ING Group Executive Board and subsequently adopted by ING Real Estate. It replaces the ING Group Financial Economic Crime Policy of June 2006.

The FEC minimum standards form the basis for (local) procedures covering:

Customer due diligence and know your customer.•

Anti-money laundering and anti-terrorist fi nancing risks.•

PROGRESS IN COMPLIANCE RISK MANAGEMENT In 2008 the compliance e-learning course ‘Compliance, part of our business’ was rolled out as a mandatory course for every employee in the Netherlands.

In 2008 senior managers at ING Real Estate completed the ‘Leading compliance risk management in your business’ training programme, which provides deeper insight into the strategic value of compliance risk management, how to apply the framework and tools, and effectively embed the three lines of defence model.

CONDUCT-RELATED INTEGRITY RISK AREASThe management of our three businesses are responsible for implementing and ensuring adherence to the compliance risk management charter and framework and related policies. They receive support and advice from compliance offi cers.

The scope of compliance risk management covers four conduct-related integrity risk areas:

Client-related integrity risk, e.g. money laundering, terrorist fi nancing, •

political or reputational exposed persons, client engagements or transactions with sanctioned countries.

Integrity risk relating to the personal conduct of employees, •

e.g. market abuse and personal trading, violation of business principles or local codes of conduct, gifts or entertainment given or received and bribery.

Integrity risk relating to misconduct when providing fi nancial services, •

e.g. marketing, sales and trading conduct, transparency of product offerings, conduct of advisory business, complaint handling, data protection and privacy.

Integrity risk relating to misconduct at organisational level, •

e.g. organisational confl icts of interest, anti-trust regulation or competition law, new product approval, sector/industry standards and oversight of intermediaries.

LINES OF DEFENCE ING Real Estate has adopted a three-line defence model to manage compliance risks. This same model applies to all businesses across ING Group.

1. Business management, the fi rst line of defence, develops and carries out activities that reduce risk, such as business tracking and reporting and bears the consequences of losses.

2. Compliance risk management, the second line of defence, works with our legal department to identify laws, regulations and standards related to compliance risk. It then translates these into compliance obligations and assists business management to identify its compliance risks. It also helps fi nd ways to reduce risk, advises, and provides objective challenge and support on the design and implementation of business procedures.

3. ING’s Corporate Audit Services (CAS), the third line of defence, provides independent and objective assurance on how effectively the fi rst two lines of defence deal with the challenges of managing compliance risk.


GEORGE JAUTZE CEO ING REAL ESTATE

“Disappointingly, we recorded our fi rst ever loss in 2008 and, as a result of the turmoil in the global fi nancial and economic markets, revised our strategy and adjusted our objectives to the new operating reality.”

George Jautze (58), a Dutch national, joined ING in 1991 as manager of the Dutch Development Division of MBO, a real estate fi nance and development company and predecessor to ING Real Estate. He became a member of the Management Board in 2001, with responsibility for Investment Management and was appointed CEO of ING Real Estate in 2005. Prior to joining ING, he worked for several large Dutch real estate development companies. He holds a Bachelor’s degree in Engineering from Hogere Technische School (Institute of Technology) in The Hague.

RONALD NIJSENCHIEF FINANCIAL OFFICER

“We had a diffi cult year in 2008. Our total result was affected by unrealised losses on the investment portfolio. We successfully implemented cost-reduction measures in order to align costs with the reduced growth of our business.”

Ronald Nijsen (55), a Dutch national, began his career at NMB Bank in 1981 where he held various positions in asset and liability management. He became controller of the international division of ING Bank in 1995. He worked as General Manager at ING Group with responsibility for fi nancial and management accounting from 1999 to February 2007. He became a member of the Management Board and CFO in March 2007. He holds a degree in Econometrics from the University of Amsterdam.

WILLEM STEENHOVENCHIEF RISK OFFICER

“The unprecedented and worldwide turbulence in the fi nancial markets put the spotlight on risk management across the fi nancial industry. For ING Real Estate it was no different.”

Willem Steenhoven (48), a Dutch national, began his career in 1984 at NMB Bank. He held various commercial and management positions at ING Wholesale Banking and moved to Risk Management in 2001, taking up the position of Risk Manager for the Netherlands Division of ING Wholesale Banking in 2004. He joined ING Real Estate as Credit Risk Manager in March 2006 and was appointed to the Management Board as Chief Risk Offi cer on 1 March 2007.

Management Board



ROBERT HOUSTON CEO INVESTMENT MANAGEMENT

“As 2008 progressed, property values were hit hard across the globe. We changed our strategy to protect fund performance and to communicate to our investors the impact of unfolding circumstances.”

Robert Houston (59), a British national, joined the property industry in 1973 and founded Baring, Houston & Saunders in 1980, which evolved to become ING Real Estate Investment Management (UK) Limited. Robert was Chairman and Chief Executive until 2008 before taking up the role of Chief Executive of Investment Management. He is a Board member designate. He holds a degree in Urban Estate Surveying from Nottingham Trent University and is a chartered surveyor.

Robert Houston will be stepping down on 1 August 2009. His responsibilities will be assumed by George Jautze.

HEIN BRANDCEO FINANCE

“We achieved strong performance in 2008 despite volatile market conditions. As a specialist real estate lender we remain committed to our clients and to supporting them in today’s diffi cult market environment focusing on portfolio management.”

Hein Brand (54), a Dutch national, worked as Assistant to the Treasurer at Shell from 1980-1983, Branch Manager at NMB Bank from 1983-1989 and Branch Manager at ING Bank until 1996. He was responsible for restructuring large credit facilities at ING Credit Risk Management Europe as Global Head of Credit Restructuring from 1996 to 2001. He became a member of the Management Board in 2001, responsible for Finance. He holds a degree in Business Economics from the University of Groningen.

MENNO MAASCEO DEVELOPMENT

“It has been a challenging year, but we continued to deliver projects on schedule and we increased our profi t. We focused on adapting our business to the rapidly changed real estate landscape in 2008 in order to secure a well-balanced portfolio for the years ahead.”

Menno Maas (53), a Dutch national, joined ING Real Estate in July 2006 from Amvest, a real estate developer and investment management business, where he was Managing Director. Prior to joining Amvest in 1997, he held various real estate investment management positions at Dutch pension provider PGGM. He worked for ABN AMRO Project Development from 1985 to 1991. He holds a degree in Social Geography and Planning Sciences from the University of Groningen.


SUSTAINABILITY THEMES AND PRINCIPLESWe have identifi ed a number of sustainability themes that are relevant to real estate. These are based on current and anticipated statutory requirements, current knowledge about the impact of real estate, as well as market demand for sustainability as experienced by our offi ces around the globe.

Energy use and climate change•

Water use and management•

Waste reduction and management•

Functional adaptability and physical longevity•

Location and accessibility•

Health and safety•

Appeal to occupants•

Sustainable urbanism•

The priority and relevance of these sustainability criteria for ING Real Estate varies across our business, property sectors and regions according to differences in stakeholder demands, business needs, real estate characteristics as well as the degree of infl uence by decision makers.

We have adopted the following sustainability principles:

We believe sustainable real estate will deliver above average returns.•

We gather proof and collect evidence of the value of sustainable •

real estate.

We aim for thought leadership on sustainability.•

We promote categorising real estate-based sustainability aspects.•

We are open and clear on our sustainability achievements.•

We incorporate sustainability in our core processes.•

INVESTING We are committed to integrating sustainable property investment (SPI) practices into our daily business routine. In addition to the mitigation of our own environmental footprint, we recognise the need to invest in properties that reduce the adverse effects on the environment. As we are a global enterprise with operations across four continents, we have clients with sustainability requirements that are as diverse as the local markets in which we operate. Ultimately, the guiding principle for our SPI Policy is to actively engage our clients and other stakeholders in pursuing greater sustainability.

RESPONSIBLE BUSINESS PRACTICEIn pursuing sustainable growth and managing for value, we aim to exceed the expectations of our clients, without compromising our business principles. We comply with the ING Group Business Principles defi ning the standards of behaviour required by all ING employees and our main commitments towards our stakeholders.

We are committed to building long-term relationships with our clients worldwide by providing outstanding service. Strengthening client relationships is one of our strategic objectives. Client trust is driven by many factors and, among other things, depends on how easy we are to deal with, how responsive we are to clients’ needs, whether we fulfi l our promises and whether we treat our clients fairly.

SUSTAINABILITYIn 2008 we formalised a policy that underlines our commitment to sustainability. The policy defi nes our vision, ambition, themes and principles and is aligned with ING Group’s Corporate Social Responsibility Policy. The policy serves as a sustainability framework for our business.

We have adopted the ‘People, Planet and Profi t’ principle to identify the key role of real estate in relation to sustainability. We believe that this captures the inextricable relationship between economic performance (profi t), environmental protection (planet) and social consciousness (people). We are therefore committed to balancing and aligning all three aspects when practising sustainability.

PEOPLEReal estate (a developed area comprising buildings and their immediate environment) is key to human well-being as well as cultural, economic and social functioning. Sustainable real estate enhances both the physical and social well-being of occupants and communities.

PLANETReal estate is a major consumer of scarce natural resources (climate, energy, water and materials) and therefore there is great potential for reducing the use of these resources. Sustainable real estate does not consume natural and environmental resources beyond a sustainable level (in the sense that the availability of these resources to future generations is secured).

PROFITReal estate has high economic value and is instrumental in sustainable economic development. Long-term rental growth, tenant retention, lower running costs and stakeholder demands are key factors that increase the market value of sustainable buildings. We believe sustainability will help to deliver above average returns.

Corporate responsibility IN THIS SECTION

Responsible business practice

Sustainability

Charitable activities

We aim to pursue our business on the basis of sound business ethics and respect for our stakeholders because we recognise that they expect this from us.



Crane Track, winner of the 2008 MIPIM Green Building Award, embodies our vision of sustainable development. Designed by Trude Hooykaas, Crane Track is the result of our efforts in redeveloping a disused shipyard into a popular business centre for Amsterdam’s creative community. The building’s sustainable qualities include energy effi ciency, adaptability to the needs of future users, and the use of durable and recyclable materials.

We have embraced sustainable urbanism as a core criterion, which sets us apart from other players in the European market. The focus here extends beyond the characteristics of the individual building to incorporate public space.

We are involved in a number of inner city urban transformation schemes across Europe. Stadsplein Genk is a mixed-used scheme in Belgium that has revitalised the inner city of Genk, integrating retail and residential space with new city squares, parking facilities and cultural amenities. The second phase of the scheme opened in 2008.

In Australia we are developing new offi ce and retail projects with the aim of achieving a four or fi ve-star rating in benchmarks for energy effi ciency and sustainability. The recently completed RAC Head offi ce in Perth achieved a four-star Nabers Energy rating.

Sustainability initiatives We initiate and actively participate in industry initiatives to create engagement, defi ne standards and infl uence policy-making. In 2008 we were involved in the following initiatives:

In France we were among the initiators of Gigaro. The platform •

aims to bring together all the parties involved in sustainable urban development to focus on determining the resources required to bring to fruition better designs of towns, cities and urban development projects.

We were one of the founding partners of the Dutch Green Building •

Council and one of the major players in the real estate industry to sign a letter of intent underlining our commitment to sustainable construction in the Netherlands, an initiative praised by the Ministry of Housing, Spatial Planning and the environment (VROM).

CHARITABLE ACTIVITIESWe support the Chances for Children programme run by ING Group together with UNICEF, which is designed to provide children in Brazil, Ethiopia and India with access to primary education. We carried out several initiatives in 2008, including a lottery to raise funds for the programme. The ING Microfi nance Support programme is another programme we support. Employees are encouraged to share their knowledge and experience with individuals and new entrepreneurs in developing countries.

In 2008 a variety of sponsorship activities were carried out to raise funds for charitable causes in the countries where we operate.

Progress in 2008In 2008 we took the following sustainability initiatives with respect to fund and property management:

We joined forces with three European real estate fund managers •

to develop a Global Green Rating (GGR) system to appraise the environmental performance of commercial properties throughout Europe. The audit methodology is being piloted in France, Germany, Spain and the UK. Depending on the outcomes, the launch of an open scheme for the GGR system will be considered.

Our operations in the UK achieved ISO 14001 accreditation for •

environmental management in 2008.

In the US we established sustainability guidelines for new acquisitions, •

development projects and the asset management of our real estate fund investments. This initiative is based in part on the Leadership in Energy & Environmental Design Rating System (LEED) established by the US Green Building Council.

Our global multi-manager fund business operates in accordance with •

the UN Principles for Responsible Investment. In future, all funds will also be rated against this criterion.

A smart metering system was installed in over ten ING Offi ce Fund •

properties in Australia. The data collected will be used to implement and manage improvements in energy effi ciency.

FINANCINGThe impact of sustainability initiatives is greater for Development and Investment Management than for Finance, where we can control only a small share of the total real estate process, provide guidance and act as an advisor. We recognise the added value of sustainability in this area and aim to defi ne a sustainability framework for our fi nancing activities in 2009.

DEVELOPINGIn 2008 we defi ned a comprehensive sustainability framework for our development activities with the following objectives:

To achieve recognition as a truly sustainable developer in all •

local markets.

To achieve a ranking among the top 25% of the peer group in each •

local market for sustainability performance.

To incorporate at least two sustainable development projects in 2009 •

in the portfolio of each country of operation.

We apply six sustainability criteria to our development projects: sustainable urbanism, location and accessibility, energy and water, adaptability, longevity and appeal to occupants.


MANAGEMENT BOARDThe Management Board is responsible for providing leadership to the company and for ensuring that the right strategy, policies and controls are in place in order to deliver value, not only to ING but also to a wider group of stakeholders which benefi t from the company’s activities. This responsibility includes the day-to-day management of the company as well as fi nancial control, risk management and regulatory compliance.

The Management Board consists of the six members described earlier. They are appointed by the ING Group Executive Board for an indefi nite term of offi ce. The CEO of ING Real Estate reports directly to the ING Group Executive Board member responsible for Wholesale Banking.

The Management Board meet on a weekly basis and hold a meeting in the presence of key heads of corporate departments on a monthly basis.

REMUNERATIONThe remuneration received by the Management Board members is based on ING Group remuneration directives and relates to individual responsibilities and performance. It comprises the following key elements:

Base salary.•

A short-term variable performance-related incentive, partly in cash •

and partly in ING Group stock:

– 15% of the short-term variable performance-related incentive depends on the annual result of ING Group.

– 55% on achieving the ING Real Estate and ING Real Estate business unit medium-term plan targets for the reporting year.

– The remaining 30% is based on individual targets for each Management Board member.

Long-term incentives in stock options and/or performance shares •

based on the ING Group Long-Term Equity Ownership (LEO) option plan.

Pension and other benefi ts in line with ING Group policy. •

The remuneration of the Management Board in 2008 compared with 2007 is included in note 33 to the consolidated fi nancial statements.

EXTERNAL AND INTERNAL AUDITORAt ING Group’s Annual General Meeting on 22 April 2008, Ernst & Young were appointed to audit the fi nancial statements of ING Group and its subsidiaries for the fi nancial years 2008 to 2011. Ernst & Young have been the auditor for ING Group and ING Insurance since the establishment of ING Group in 1991 and KPMG Accountants was the auditor for ING Bank. For that reason, KPMG performed the audit for ING Real Estate B.V. since ING Real Estate is one of ING Bank’s subsidiaries.

GOVERNANCE STRUCTUREING Real Estate B.V. is a wholly-owned subsidiary of ING Bank N.V., which in turn is a wholly-owned subsidiary of ING Groep N.V., a listed fi nancial services company (www.ing.com). ING Group ranks among the world’s largest fi nancial institutions.

ING Real Estate has three distinct businesses: Investment Management, Finance and Development. The three businesses have their own regional or functional structure and a management team, headed by a Chief Executive Offi cer (CEO) and further consisting of a Chief Financial Offi cer (CFO)/Chief Operating Offi cer (COO) and general managers. The CEO and management team are responsible for the day-to-day business, strategy and fi nancial results within the context of the company’s overall strategy and fi nancial targets.

The three business units are individually responsible for their own results and wherever possible work together to achieve effi ciencies that will benefi t both our clients and the company.

The company is managed by the Management Board which is headed by the CEO of ING Real Estate. The Board members consist of the three business unit CEOs, a CFO and a Chief Risk Offi cer (CRO). Several corporate departments support the Management Board and the business units, including Corporate Control & Reporting, Risk Management, Information Management, Legal, Compliance, Human Resources, Corporate Communication, Treasury and Tax.

In 2008 the Management Board established a Remuneration Committee to align decision-making on compensation issues relating to ING Real Estate and ensure that the compensation approval process throughout the company is transparent, comparable, equitable and effi cient. The Remuneration Committee consists of the CEO and the CFO as well as the Global Head of HR, Global Head of Compensation and Benefi ts and the Global Head of HR at ING Wholesale Banking. The Remuneration Committee meets at least quarterly.

GOVERNANCE POLICYING Real Estate’s corporate governance policy is based on the following principles:

Clear and concise management responsibilities with personal •

accountability and empowerment.

Short reporting lines and focus on clarity and transparency. •

Management Board members sharing overall responsibility for •

the company’s strategic goals and day-to-day operations.

Corporate governance IN THIS SECTION

Our governance structure and policy

Management Board

External and internal auditor

Sarbanes-Oxley Act



The appointment of Ernst & Young as the sole external auditor meant that Ernst & Young succeeded KPMG as the external auditor for ING Real Estate from 2008 onwards. Ernst & Young were already responsible for auditing the fi nancial statements of all the investment funds managed by ING Real Estate. Based on the ING Group policy relating to the Independence of External Auditors, Ernst & Young – as the external auditor – may only provide audit and non-audit services to ING Real Estate with the permission of the ING Group Audit Committee. Services that have not been generally pre-approved by the Audit Committee should not be provided by Ernst & Young or should be specifi cally pre-approved by the Audit Committee on the recommendation of ING Real Estate management.

The internal audit department at ING Group, Corporate Audit Services (CAS), is an independent assurance function that also covers ING Real Estate. The responsibilities of CAS have been established by the INGGroup Executive Board under the responsibility of the ING GroupSupervisory Board. CAS’s scope of work includes coverage of allsignifi cant risks that can have an infl uence on achieving strategic goals and objectives. The department periodically assesses processesprocedures and operational risk.

SARBANES-OXLEY ACTAs a company listed on the New York Stock Exchange, ING Group and all its subsidiaries are required to comply with the SEC regulations adopted pursuant to Section 404 of the Sarbanes-Oxley Act (SOX), which took effect in the 2006 reporting year. The legislation requires the ING Real Estate CEO and CFO to report on, and annually certify, the effectiveness of fi nancial reporting and internal controls. The scope of this certifi cation is based on ING Group guidelines and materiality levels. In February 2009, ING Real Estate’s CEO and CFO signed the 2008 SOX 404 statement confi rming compliance with the above. We are continually looking for ways to improve the standardisation of processes and documentation without compromising the overall effectiveness of the control framework.

The Hague, the Netherlands20 April 2009

MANAGEMENT BOARDING REAL ESTATE


OTHER INFORMATION

PARENT COMPANY FINANCIAL STATEMENTS

35Consolidated balance sheet

36Consolidated income statement

37Consolidated cash fl ow statement

38Consolidated statement of changes in equity


46Notes to the consolidated fi nancial statements

73Segment reporting

76Notes to the consolidated cash fl ow statement

77Risk management

86Parent company balance sheet

87Parent company income statement

87Parent company statement of changes in equity


89Notes to the parent company’s fi nancial statements

94Auditor’s report

95Proposed result appropriation


FINANCIAL STATEMENTS



As at 31 December (in thousands of euros) Notes 2008 2007

ASSETS

Cash and bank balances 1 555,635 337,475

Financial assets at fair value through profi t or loss 2

non-trading derivatives 54,970 12,829

designated as at fair value through profi t or loss 60,200 93,644

Loans and advances 3 34,587,966 29,528,020

Investments in associates 4 1,047,393 1,092,855

Real estate investments 5 2,909,697 3,561,354

Property and equipment 6 32,343 33,367

Intangible assets 7 65,022 40,456

Real estate development projects 8 3,029,188 2,921,380

Other assets 9 1,154,964 1,328,814

Total assets 43,497,378 38,950,194

EQUITY

Shareholders’ equity (parent) 10 2,668,420 2,768,299

Minority interests 532,993 844,066

Total equity 3,201,413 3,612,365

LIABILITIES

Loans 11 37,731,818 32,809,925

Financial liabilities at fair value through profi t or loss 12

non-trading derivatives 36,011 8,796

Accrued interest and expenses 13 718,230 641,042

Other liabilities 14 1,809,906 1,878,066

Total liabilities 40,295,965 35,337,829

Total equity and liabilities 43,497,378 38,950,194

References relate to the notes starting on page 46 which form an integral part of the consolidated fi nancial statements.

Consolidated balance sheet



Consolidated income statement

For the years ended 31 December (in thousands of euros) Notes 2008 2008 2007 2007

Interest income 1,944,750 1,507,866

Interest expense 1,685,546 1,366,692

Interest result 25 259,204 141,174

Investment income 26 –150,135 360,177

Net gains/losses on disposals of group companies 4,690 45,302

Net commission income 27 443,196 479,120

Valuation results on non-trading derivatives 28 –38,444 –17,839

Net trading income 29 37,043 28,069

Share of result from associates 4 –190,338 129,253

Net development income 30 122,247 95,459

Other income 31 15,696 13,196

Total income 503,159 1,273,911

Addition to loan loss provisions 3 81,791 –314

Other impairments 32 60,064 –8,060

Staff expenses 33 393,222 370,185

Other operating expenses 34 159,678 189,189

Total expenses 694,755 551,000

Result before tax –191,596 722,911

Taxation 35 18,810 188,331

Net result (before minority interests) –210,406 534,580

ATTRIBUTABLE TO:

Shareholders of the parent –88,364 481,487

Minority interests –122,042 53,093

–210,406 534,580




For the years ended 31 December (in thousands of euros) Notes 2008 2007

RESULT BEFORE TAX –191,596 722,911

Adjusted for

depreciation and amortisation 16,165 8,873

addition to loan loss provisions 81,791 314

other impairments 60,064 –8,060

fair value changes 392,720 –85,864

share of result from associates 190,338 –129,253

additions to reorganisation and other provisions 7,319 29,538

foreign currency differences 9,903 –

Taxation paid –111,589 –47,482

Changes in

non-trading derivatives –20,916 –1,750

other assets –231,936 –945,455

other liabilities 104,752 608,447

other movements –36,338 43,760

Net cash fl ow from operating activities 270,677 195,979

Investments and advances

associates –387,783 –385,796

equity securities designated at fair value through profi t or loss –14,432 –53,120

real estate investment property –313,417 –78,671

property and equipment –7,099 –17,692

intangible assets –43,279 –7,084

loans and advances –12,219,637 –15,599,373

Disposals and redemptions

associates 113,573 139,765

equity securities designated at fair value through profi t or loss 9,065 103,241

real estate investment property 189,879 68,838

property and equipment 219 1,240

intangible assets 6,145 7

loans and advances 7,336,134 6,647,777

Dividends received from investments in associates 54,477 41,799

Net cash fl ow from investing activities –5,276,155 –9,139,069

Net proceeds from loans 5,232,456 8,779,859

Net cash fl ow from fi nancing activities 5,232,456 8,779,859

Net cash fl ow 38 226,978 –163,231

Cash and bank balances at beginning of year 337,475 503,464

Effect of exchange rate changes on cash and bank balances –8,818 –2,758

Cash and bank balances at end of year 555,635 337,475


Consolidated cash fl ow statement



Total shareholders’ Minority For the year ended 31 December (in thousands of euros) Share capital Share premium Reserves equity (parent) interests Total equity

Balance as at 31 December 2006 227 1,447,131 873,323 2,320,681 747,213 3,067,894

Changes in hedge reserves – – –1,308 –1,308 – –1,308

Exchange differences – – –24,088 –24,088 – –24,088

Employee stock options and share plans – – 3,085 3,085 – 3,085

Other movements – – –11,558 –11,558 43,760 32,202

Total amount recognised directly in equity – – –33,869 –33,869 43,760 9,891

Net result – – 481,487 481,487 53,093 534,580

– – 447,618 447,618 96,853 544,471

Balance as at 31 December 2007 227 1,447,131 1,320,941 2,768,299 844,066 3,612,365

Changes in hedge reserves – – 66,433 66,433 – 66,433

Exchange differences – – –79,729 –79,729 –125,538 –205,267

Employee stock options and share plans – – 4,028 4,028 – 4,028

Other movements – – –2,247 –2,247 –63,493 –65,740

Total amount recognised directly in equity – – –11,515 –11,515 –189,031 –200,546

Net result – – –88,364 –88,364 –122,042 –210,406

– – –99,879 –99,879 –311,073 –410,952

Balance as at 31 December 2008 227 1,447,131 1,221,062 2,668,420 532,993 3,201,413

See note 10 on page 53 for the movements in reserves.

Consolidated statement of changes in equity


CONSOLIDATED FINANCIAL STATEMENTSAccounting policies

AUTHORISATION OF FINANCIAL STATEMENTSThe consolidated fi nancial statements of ING Real Estate B.V. (‘ING Real Estate’) for the year ended 31 December 2008 were authorised for issue in accordance with a resolution of the Management Board on 20 April 2009. ING Real Estate B.V. is incorporated and domiciled in The Hague, The Netherlands and is indirectly a 100% subsidiary of ING Bank N.V. Its fi nancial statements are fi led with the Chamber of Commerce in The Hague. The principal activities of ING Real Estate are described in the business overview section of this report.

BASIS OF PRESENTATIONING Real Estate applies International Financial Reporting Standards as adopted by the European Union (‘EU’).

The following standards and interpretations became effective in 2008: International Financial Reporting Interpretation Committee (‘IFRIC’) 12 ‘Service Concession Arrangements’, IFRIC 14 ‘IAS 19 – The Limit of a Defi ned Benefi t Asset, Minimum Funding Requirements and their Interaction’ and ‘Reclassifi cation of Financial Assets: Amendments to IAS 39 Financial Instruments: Recognition and Measurement and IFRS 7 Financial Instruments: Disclosures’. None of these recently issued standards and interpretations have had a material effect on equity or result for the year.

The following new and revised standards and interpretations were issued by the IASB, which become effective for ING Real Estate as of 2009 (unless otherwise indicated):

Amendment to IFRS 1 ‘First-time •

adoption of IFRS’ (effective as of 2010);

Amendment to IFRS 2 ‘Share-based •

Payments’ – ‘Vesting Conditions and Cancellations’;

IFRS 3 ‘Business Combinations’ (revised) •

and IAS 27 ‘Consolidated and Separate Financial Statements’ (amended) (effective as of 2010);

IFRS 8 ‘Operating Segments’;•

IAS 1 ‘Presentation of Financial •

Statements’;

IAS 23 ‘Borrowing Costs’;•

Amendments to IAS 32 ‘Financial •

Instruments: Presentation’ and IAS 1 ‘Presentation of Financial Statements’ – ‘Puttable Financial Instruments and Obligations Arising on Liquidation’;

Amendments to IFRS 1 ‘First-time •

Adoption of IFRS’ and IAS 27 ‘Consolidated and Separate Financial Statements’ – Determining the cost of an Investment in the Separate Financial Statements’;

Amendment to IAS 39 ‘Financial •

Instruments: Recognition and Measurement’ – ‘Eligible Hedged Items’ (effective as of 2010);

IFRIC 13 ‘Customer Loyalty •

Programmes’;

IFRIC 15 ‘Agreements for the •

Construction of Real Estate’;

IFRIC 16 ‘Hedges of a Net Investment •

in a Foreign Operation’;

2008 Annual Improvements to IFRS;•

IFRIC 17 ‘Distributions of Non-cash •

Assets to Owners’ (effective as of 2010);

IFRIC 18 ‘Transfers of Assets from •

Customers’ (effective as of 2010);

Amendment to IFRS 7 •

‘Improving Disclosures about Financial Instruments’;

Amendment to IFRIC 9 and IAS 39 – •

‘Embedded Derivatives’.

ING Real Estate does not expect the adoption of these new or revised standards and interpretations to have a signifi cant effect on the consolidated fi nancial statements.

International Financial Reporting Standards as adopted by the EU provide several options in accounting policies. ING Real Estate’s accounting policies under International Financial Reporting Standards, as adopted by the EU and its decision on the options available, are set out in the section ‘Principles of valuation and determination of results’ below.

In this document the term ‘IFRS-EU’ is used to refer to International Financial Reporting Standards as adopted by the EU, including the decisions ING Real Estate made with regard to the options available under International Financial Reporting Standards as adopted by the EU.

CHANGES IN ACCOUNTING POLICIES AND PRESENTATIONThe presentation of, and terms used in, the balance sheet, the income statement, cash fl ow statement, statement of changes in equity and the majority of the notes have been changed to provide additional and more relevant information. Certain comparative amounts have been reclassifi ed to conform with the current period presentation. Total net result, total equity and total assets and liabilities of the comparative period have remained unchanged.

CRITICAL ACCOUNTING POLICIESING Real Estate has identifi ed the accounting policies that are most critical to its business operations and to the understanding of its results. These critical accounting policies are those which involve the most complex or subjective decisions or assessments, and relate to the determination of the fair values of

investment property, the determination of impairments on real estate projects, the determination of the fair values of fi nancial assets and liabilities and to the loan loss provision. In each case, the determination of these items is fundamental to the fi nancial condition and results of operations, and requires management to make complex judgements based on information and fi nancial data that may change in future periods. As a result, determinations regarding these items necessarily involve the use of assumptions and subjective judgements as to future events and are subject to change, as the use of different assumptions or data could produce materially different results. For a further discussion of the application of these accounting policies, reference is made to the applicable notes to the consolidated fi nancial statements and the information below under ‘Principles of valuation and determination of results’.

FAIR VALUES OF INVESTMENT PROPERTYReal estate investments are reported at fair value. All changes in fair value are recognised directly in the income statement. The fair value of real estate investments is based on regular appraisals by independent qualifi ed valuers. The fair values represent the estimated amount for which the property could be exchanged on the date of valuation between a willing buyer and willing seller in an at-arm’s-length transaction after proper marketing wherein the parties each acted knowledgeably, prudently and without compulsion. The valuations are based on the assumption that the properties are let and sold to third parties based on the actual letting status. The valuations are based on discounted cash fl ow analysis of each property. The discounted cash fl ow analyses are based on calculations of the future rental income in accordance with the terms in existing leases and estimations of the rental values when leases expire.

For each reporting period every property is valued either by an independent valuer or internally. Indexation is used when a property is valued internally. The index is based on the results of the independent valuations carried out in that period. Market transactions and disposals are monitored as part of the procedures to back test the indexation methodology. Valuations performed earlier in the year are updated if necessary to refl ect the situation at year end. The investment property of ING Real Estate Investment Management is externally valued at least every year.

The valuation of real estate involves various assumptions and techniques. The use of different assumptions and techniques could produce signifi cantly different revaluations.

The crisis and the instability in the fi nancial markets in 2008 have led to a reduced level of real estate transactions. Transactions which have occurred in 2008 include

distressed sales and bargain purchases with increased pricing volatility as a result. The appraisers have recognised this level of uncertainty by carefully valuing our investment property not only by using recent market transactions but also by using DCF methods and outcomes of other valuation methods. On a quarterly basis we are closely monitoring the valuations drawn up by our (external and internal) appraisers. To illustrate the uncertainty of our investment property a sensitivity analysis on changes in value of real estate is provided in the risk management section of this report.

IMPAIRMENTS OF REAL ESTATE DEVELOPMENT PROJECTSIf the carrying amount of a real estate project exceeds its recoverable amount, an impairment loss is recognised. The recoverable amount is the lower of cost and net realisable value, which is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

The identifi cation of impairment and the determination of the recoverable amount is an inherently uncertain process involving various assumptions and factors, including the fi nancial condition of the counterparty, expected future cash fl ows, observable market prices and expected net selling prices. The use of different assumptions could therefore produce materially different estimates of the recoverable amount and hence of the impairment losses recognised.

FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIESFair values of fi nancial assets and liabilities are determined using quoted market prices, where available. Market prices are obtained from independent market vendors, brokers, or market makers. In general, positions are valued taking the bid price for a long position and the offer price for a short position. In some cases where positions are marked at mid-market prices, a fair value adjustment is calculated. Furthermore, additional fair value adjustments may be necessary for liquidity or outdated data because transactions in a particular fi nancial instrument do not take place on a regular basis.

For certain fi nancial assets and liabilities no quoted market prices are available. For these fi nancial assets and liabilities fair value is determined using valuation techniques. These valuation techniques range from discounting of cash fl ows to valuation models, where relevant pricing factors including the market price of underlying reference instruments, market parameters (volatilities, correlations, credit ratings) and customer behaviour are taken into account. All valuation techniques used are subject to internal review and approval. Most data used in these valuation techniques are validated on a daily basis.


Valuation techniques are subjective in nature and signifi cant judgement is involved in establishing fair values for certain fi nancial assets and liabilities. Valuation techniques involve various assumptions regarding the pricing factors. The use of different valuation techniques and assumptions could produce materially different estimates of fair value.

Price testing is performed to assess whether the process of valuation has led to an appropriate fair value of the position and to an appropriate refl ection of these valuations in the income statement. Price testing is performed to minimise the potential risks for economic losses due to materially incorrect or misused models.

See Note 24 ‘Fair values of fi nancial assets and liabilities’ for the basis of the determination of the fair values of fi nancial instruments.

LOAN LOSS PROVISIONSLoan loss provisions are recognised based on an incurred loss model. Considerable judgement is exercised in determining the extent of the loan loss provision (impairment) and is based on the management’s evaluation of the risk in the portfolio, current economic conditions, loss experience in recent years and credit, industry and geographical concentration trends. Changes in such judgements and analyses may lead to changes in the loan loss provisions over time.

The identifi cation of impairment and the determination of the recoverable amount are an inherently uncertain process involving various assumptions and factors including the fi nancial condition of the counterparty, expected future cash fl ows, observable market prices and expected net selling prices.

Future cash fl ows in a portfolio of fi nancial assets that are collectively evaluated for impairment are estimated on the basis of the contractual cash fl ows of the assets in the portfolio and historical loss experience for assets with credit risk characteristics similar to those in the portfolio. Historical loss experience is adjusted on the basis of current observable data to refl ect the effects of current conditions that did not affect the period on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not exist currently. Current observable data may include changes in unemployment rates, property prices and commodity prices. The methodology and assumptions used for estimating future cash fl ows are reviewed regularly to reduce any differences between loss estimates and actual loss experience.

PRINCIPLES OF VALUATION AND DETERMINATION OF RESULTSCONSOLIDATIONING Real Estate comprises ING Real Estate B.V. and all its subsidiaries. The consolidated fi nancial statements of ING Real Estate comprise the accounts of ING Real Estate B.V. and each of those entities in which it either owns, directly or indirectly, more than half of the voting power or over which it has control of their operating and fi nancial policies, through situations including, but not limited to:

Ability to appoint or dismiss the •

majority of the board of directors;

Power to govern such policies under •

statute or agreement; and

Power over more than half of •

the voting rights through an agreement with other investors.

A list of principal subsidiaries is included in Note 19 ‘Principal subsidiaries’.

The existence and effect of potential voting rights that are currently exercisable or convertible are considered in assessing whether ING Real Estate controls another entity. For interests in investment vehicles the existence of control is determined taking into account both ING Real Estate’s fi nancial interests for own risk and its role as investment manager.

ING Real Estate B.V. holds control over ING Real Estate Finance (USA) LLC based on the fact that ING Real Estate B.V. can replace and dismiss members of the Board of Directors of ING Real Estate Finance (USA) LLC. It is therefore consolidated in the fi nancial statements of ING Real Estate. Furthermore ING Real Estate Finance N.V., a 100% subsidiary of ING Real Estate B.V., has entered in a put and call agreement with ING Financial Holdings Corporation, a 100% subsidiary of ING Bank N.V. This agreement gives ING Financial Holdings Corporation the right to put 100% of the shares of ING Real Estate Finance (USA) LLC and gives ING Real Estate Finance N.V. the right to call 100% of the shares of ING Real Estate Finance (USA) LLC at any time at a purchase price of 10 USD. Based on this put and call agreement no minority stake is recognised for ING Financial Holdings Corporation.

The results of the operations and the net assets of subsidiaries are included in the income statement and the balance sheet from the date control is obtained until the date control is lost. On disposal, the difference between the sales proceeds, net of directly attributable transaction costs, and the net assets is included in net result.

All intercompany transactions, balances and unrealised surpluses and defi cits on transactions between ING Real Estate companies have been eliminated. Where necessary, the accounting policies used by subsidiaries have been changed to ensure consistency with ING Real Estate’s policies. In general, the reporting dates of subsidiaries are the same as the reporting date of ING Real Estate B.V. There are no material restrictions on subsidiaries to transfer funds to ING Real Estate B.V.

ING Real Estate’s interests in jointly controlled entities are accounted for using proportionate consolidation. ING Real Estate proportionately consolidates its share of the joint ventures’ individual income and expenses, assets and liabilities, and cash fl ows on a line-by-line basis with similar items in ING Real Estate’s fi nancial statements. ING Real Estate recognises the portion of gains or losses on the sale of assets to the joint venture that is attributable to the other venturers. ING Real Estate does not recognise its share of profi ts or losses from the joint venture that result from the purchase of assets by ING Real Estate from the joint venture until it resells the assets to an independent party. However, if a loss on the transaction provides evidence of a reduction in the net realisable value of current assets or an impairment loss, the loss is recognised immediately.

USE OF ESTIMATES AND ASSUMPTIONSThe preparation of the consolidated fi nancial statements necessitates the use of estimates and assumptions. These estimates and assumptions affect the reported amounts of the assets and liabilities and the amounts of the contingent liabilities at the balance sheet date, as well as reported income and expenses for the year. The actual outcome may differ from these estimates.

The process of setting assumptions is subject to internal control procedures and approvals, and takes into account internal and external studies, industry statistics, environmental factors and trends, and regulatory requirements.

SEGMENTAL REPORTINGA business segment is a distinguishable component of ING Real Estate engaged in providing products or services that is subject to risks and returns that are different from those of other business segments. A geographical segment is a distinguishable component of ING Real Estate engaged in providing products or services within a particular economic environment that are subject to risks and returns that are different from those of

segments operating in other economic environments. The geographical analyses are based on the location of the offi ce from which the transactions are originated. The business lines of ING Real Estate are the primary segment reporting format. The geographical segments are considered the secondary.

FOREIGN CURRENCY TRANSLATIONFunctional and presentation currencyItems included in the fi nancial statements of each of ING Real Estate’s entities are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The consolidated fi nancial statements are presented in euros, which is ING Real Estate’s functional and presentation currency.

Transactions and balancesForeign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Exchange rate differences resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement, except when deferred in equity as part of qualifying cash fl ow hedges or qualifying net investment hedges.

Translation differences on non-monetary items, measured at fair value through profi t or loss, are reported as part of the fair value gain or loss. Non-monetary items are retranslated at the date the fair value is determined. Translation differences on non-monetary items measured at fair value through the revaluation reserve are included in the revaluation reserve in equity.

Translation differences in the income statement are generally included in Net trading income. Refer to Note 29 ‘Net trading income’, which discloses the amounts included in the income statement. Translation differences relating to the disposal of Available-for-sale debt and equity securities are considered to be an inherent part of the capital gains and losses recognised in Investment income.



CLASSIFICATION OF FINANCIAL INSTRUMENTSFinancial assets at fair value through profi t or lossFinancial assets at fair value through profi t or loss comprise two sub-categories: fi nancial assets held for trading and other fi nancial assets designated at fair value through profi t or loss by management. A fi nancial asset is classifi ed as at fair value through profi t or loss if acquired principally for the purpose of selling in the short term or if so designated by management. Designation by management will only take place if this eliminates a measurement inconsistency or if the related assets and liabilities are managed on a fair value basis. Transaction costs on initial recognition are expensed as incurred. See also Non-trading derivatives that do not qualify for hedge accounting. Interest income from debt securities and loans and receivables classifi ed as at fair value through profi t or loss is recognised in Interest income in the income statement using the effective interest method. Dividend income from equity instruments classifi ed as at fair value through profi t or loss is generally recognised in Investment income in the income statement when dividend has been declared. For all fi nancial assets classifi ed as at fair value through profi t or loss changes in fair value are recognised in Net trading income.

InvestmentsInvestments (including loans quoted in active markets) are classifi ed either as held-to-maturity or available-for-sale and are initially recognised at fair value plus transaction costs. Investment securities and loans quoted in active markets with fi xed maturity where management has both the intent and the ability to hold to maturity are classifi ed as held-to-maturity. Investment securities and actively traded loans intended to be held for an indefi nite period of time, which may be sold in response to needs for liquidity or changes in interest rates, exchange rates or equity prices are classifi ed as available-for-sale.

Available-for-sale fi nancial assetsAvailable-for-sale fi nancial assets are initially recognised at fair value plus transaction costs. For available-for-sale debt securities, the difference between cost and redemption value is amortised. Interest income is recognised using the effective interest method. Available-for-sale fi nancial assets are measured at fair value. Interest income from debt securities classifi ed as available-for-sale is recognised in Interest income in the income statement using the effective interest method. Dividend income from equity instruments classifi ed as available-for-sale is generally recognised in Investment income in the income statement when dividend has been declared. Unrealised gains and losses arising from changes in the fair value are recognised in equity. When the securities are disposed of, the related accumulated

remains in equity and is recognised when the forecast transaction is ultimately recognised in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is transferred immediately to the income statement.

Net investment hedgesHedges of net investments in foreign operations are accounted for similarly to cash fl ow hedges. Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognised in equity; the gain or loss relating to the ineffective portion is recognised immediately in the income statement. Gains and losses accumulated in equity are included in the income statement when the foreign operation is disposed of.

Non-trading derivatives that do not qualify for hedge accountingDerivative instruments that are used by ING Real Estate as part of its risk management strategies but do not qualify for hedge accounting under ING Real Estate’s accounting policies are presented as non-trading derivatives. Non-trading derivatives are stated at fair value with changes in the fair value taken to the income statement.

FINANCIAL ASSETSRecognition of fi nancial assetsAll purchases and sales of fi nancial assets classifi ed as fair value through profi t or loss, held-to-maturity and available-for-sale and trading that require delivery within the time frame established by regulation or market convention (‘regular way’ purchases and sales) are recognised at trade date, which is the date on which ING Real Estate commits to purchase or sell the asset. Loans and receivables are recognised at settlement date, which is the date on which ING Real Estate receives or delivers the asset.

De-recognition of fi nancial assetsFinancial assets are derecognised when the rights to receive cash fl ows from the fi nancial assets have expired or when ING Real Estate has transferred substantially all risks and rewards of ownership. If ING Real Estate neither transfers nor retains substantially all the risks and rewards of ownership of a fi nancial asset, it derecognises the fi nancial asset if it no longer has control over the asset. In transfers where control over the asset is retained, ING Real Estate continues to recognise the asset to the extent of its continuing involvement. The extent of continuing involvement is determined by the extent to which ING Real Estate is exposed to changes in the value of the asset.

value. Fair values are obtained from quoted market prices in active markets, including recent market transactions, and valuation techniques, such as discounted cash fl ow models and option pricing models, as appropriate. All derivatives are carried as assets when their fair value is positive and as liabilities when their fair value is negative.

The method of recognising the resulting fair value gain or loss depends on whether the derivative is designated as a hedging instrument and, if so, the nature of the item being hedged. ING Real Estate designates certain derivatives as hedges of highly probable future cash fl ows attributable to a recognised asset or liability or a forecast transaction (cash fl ow hedges), or hedges of a net investment of a foreign operation. Hedge accounting is used for derivatives designated in this way provided certain criteria are met.

ING Real Estate documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions, together with the methods selected to assess hedge effectiveness. ING Real Estate also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash fl ows of the hedged items.

Certain derivatives embedded in other contracts are measured as separate derivatives when their economic characteristics and risks are not closely related to those of the host contract, the host contract is not carried at fair value through profi t or loss, and if a separate instrument with the same terms as the embedded derivative would meet the defi nition of a derivative. These embedded derivatives are measured at fair value with changes in fair value recognised in the income statement. An assessment is carried out when ING Real Estate fi rst becomes party to the contract. A subsequent reassessment is carried out only when there is a change in the terms of the contract that signifi cantly modifi es the expected cash fl ows.

Cash fl ow hedgesThe effective portion of changes in the fair value of derivatives that are designated and qualify as cash fl ow hedges are recognised in equity. The gain or loss relating to the ineffective portion is recognised immediately in the income statement. Amounts accumulated in equity are recycled to the income statement in the periods in which the hedged item will affect net result. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time

Group companiesThe results and fi nancial position of all Group companies that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

Assets and liabilities included in each •

balance sheet are translated at the closing rate at the date of that balance sheet;

Income and expenses included in •

each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions);

All resulting exchange rate differences •

are recognised in a separate component of equity.

On consolidation exchange rate differences arising from the translation of a monetary item that forms part of the net investment in a foreign operation, and of borrowings and other instruments designated as hedges of such investments, are taken to shareholders’ equity. When a foreign operation is sold these exchange rate differences are recognised in the income statement as part of the gain or loss on sale.

Goodwill and fair value adjustments arising from the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the rate ruling at the balance sheet date.

FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIESThe fair values of fi nancial instruments traded in active markets (such as publicly traded derivatives and trading and available-for-sale securities) are based on quoted market prices at the balance sheet date. The quoted market price used for fi nancial assets held by ING Real Estate is the current bid price; the quoted market price used for fi nancial liabilities is the current ask price.

The fair values of fi nancial instruments that are not traded in an active market are determined using valuation techniques. ING Real Estate uses a variety of methods and makes assumptions that are based on market conditions existing at each balance sheet date.

See Note 24 ’Fair value of fi nancial assets and liabilities’ for the basis of the determination of the fair value of fi nancial instruments.

DERIVATIVES AND HEDGE ACCOUNTINGDerivatives are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured to their fair


security below its cost is considered in determining whether the assets are impaired. If any objective evidence exists for available-for-sale debt and equity investments, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that fi nancial asset previously recognised in the net result – is removed from equity and recognised in the income statement. Impairment losses on equity instruments can never be reversed. If, in a subsequent period, the fair value of a debt instrument classifi ed as available-for-sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in the income statement, the impairment loss is reversed through the income statement.

INVESTMENTS IN ASSOCIATESAssociates are all entities over which ING Real Estate has signifi cant infl uence but not control. Signifi cant infl uence generally results from a shareholding of between 20% and 50% of the voting rights, but also is the ability to participate in the fi nancial and operating policies through situations including, but not limited to, the following:

Representation on the board of •

directors;

Participation in the policymaking •

process; and

Interchange of managerial personnel.•

Investments in associates are initially recognised at cost and subsequently accounted for using the equity method of accounting.

ING Real Estate’s investment in associates (net of any accumulated impairment loss) includes goodwill identifi ed on acquisition. Its share of its associates’ post-acquisition profi ts and losses is recognised in the income statement, and its share of post-acquisition changes in reserves is recognised in equity. The cumulative post-acquisition changes are adjusted against the carrying amount of the investment. When ING Real Estate’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the ING Real Estate does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate.

Unrealised gains on transactions between ING Real Estate and its associates are eliminated to the extent of ING Real Estate’s interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by ING Real Estate.

amount and the present value of estimated future cash fl ows (excluding future credit losses that have not been incurred) discounted at the fi nancial asset’s original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account (‘Loan loss provision’) and the amount of the loss is recognised in the income statement under ‘Addition to loan loss provisions’. If the asset has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract.

For the purposes of a collective evaluation of impairment, fi nancial assets are grouped on the basis of similar credit risk characteristics. Those characteristics are relevant to the estimation of future cash fl ows for groups of such assets by being indicative of the debtors’ ability to pay all amounts due according to the contractual terms of the assets being evaluated.

Future cash fl ows in a portfolio of fi nancial assets that are collectively evaluated for impairment are estimated on the basis of the contractual cash fl ows of the assets in the portfolio and historical loss experience for assets with credit risk characteristics similar to those in the portfolio. Historical loss experience is adjusted on the basis of current observable data to refl ect the effects of current conditions that did not affect the period on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not currently exist.

When a loan is uncollectible, it is written off against the related loan loss provision. Such loans are written off after all the necessary procedures have been completed and the amount of the loss has been determined. Subsequent recoveries of amounts previously written off decrease the amount of the loan loss provision and are recognised in the income statement.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating), the previously recognised impairment loss is reversed by adjusting the provision. The amount of the reversal is recognised in the income statement.

IMPAIRMENT OF OTHER FINANCIAL ASSETSAt each balance sheet date ING Real Estate assesses whether there is objective evidence that a fi nancial asset or a group of fi nancial assets is impaired. In the specifi c case of equity investments classifi ed as available-for-sale, a signifi cant or prolonged decline in the fair value of the

The borrower has demonstrated •

signifi cant fi nancial diffi culty, to the extent that it will have a negative impact on the expected future cash fl ows of the fi nancial asset.

The credit obligation has been •

restructured for non-commercial reasons. ING Real Estate has granted concessions, for economic or legal reasons relating to the borrower’s fi nancial diffi culty, the effect of which is a reduction in the expected future cash fl ows of the fi nancial asset.

Historical experience, updated for •

current events where necessary, provides evidence that a proportion of a group of assets is impaired although the related events that represent impairment triggers are not yet captured by ING Real Estate’s credit risk systems.

ING Real Estate does not consider events that may be expected to occur in the future as objective evidence and, consequently, they are not used as a basis for concluding that a fi nancial asset or group of assets is impaired.

In determining the impairment, expected future cash fl ows are estimated on the basis of the contractual cash fl ows of the assets in the portfolio and historical loss experience for assets with credit risk characteristics similar to those in the portfolio. Historical loss experience is adjusted on the basis of current observable data to refl ect the effects of current conditions that did not affect the period on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not currently exist. Losses expected as a result of future events, no matter how likely, are not recognised.

ING Real Estate fi rst assesses whether objective evidence of impairment exists individually for fi nancial assets that are individually signifi cant, and then individually or collectively for fi nancial assets that are not individually signifi cant. If ING Real Estate determines that no objective evidence of impairment exists for an individually assessed fi nancial asset, whether signifi cant or not, it includes the asset in a group of fi nancial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment.

If there is objective evidence that an impairment loss on an asset carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying

fair value adjustments are included in the income statement as investment income. For impairments of available-for-sale fi nancial assets reference is made to the section ‘Impairment of other fi nancial assets’.

Loans and receivablesLoans and receivables are non-derivative fi nancial assets with fi xed or determinable payments that are not quoted in an active market. They are initially recognised at fair value plus transaction costs. Subsequently, they are carried at amortised cost using the effective interest method less any impairment losses. Loans and receivables are included in the following balance sheet lines: Cash and bank balances, Loans and advances and Other assets. Interest income from loans and receivables is recognised in Interest income in the income statement using the effective interest method.

Realised gains and losses on investmentsRealised gains and losses on investments are determined as the difference between the sale proceeds and (amortised) cost. For equity securities the cost is determined using a weighted average per portfolio. For debt securities the cost is determined by specifi c identifi cation.

OFFSETTING OF FINANCIAL ASSETS AND FINANCIAL LIABILITIESFinancial assets and fi nancial liabilities are offset, and the net amount reported in the balance sheet when ING Real Estate has a legally enforceable right to set off the recognised amounts and intends to either settle on a net basis or to realise the asset and settle the liability simultaneously.

LOAN LOSS PROVISIONSING Real Estate assesses periodically and at each balance sheet date whether there is objective evidence that a fi nancial asset or group of fi nancial assets is impaired. A fi nancial asset or a group of fi nancial assets is impaired and impairment losses are incurred if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset, but before the balance sheet date, (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash fl ows of the fi nancial asset or group of fi nancial assets that can be reliably estimated. The following circumstances, among others, are considered objective evidence that a fi nancial asset or group of assets is impaired:

The borrower has sought or has been •

placed in bankruptcy or similar protection and this leads to the avoidance or delays repayment of the fi nancial asset.

The borrower has failed in the •

repayment of principal, interest or fees and the payment failure has remained unsolved for a certain period.



elements of the design of the real estate before construction begins and/or the major structural changes once construction is in progress.

Property held for saleCompleted projects that have not yet been sold are shown separately. They are carried at the lower of cost and net realisable value. If the resulting carrying amount of the asset exceeds its recoverable amount, an impairment loss is recognised. The recoverable amount is the lower of cost and net realisable value, which is the estimated selling price in the ordinary course of business less the estimated costs necessary to make the sale.

The identifi cation of impairment and the determination of the recoverable amount are an inherently uncertain process involving various assumptions and factors, including the fi nancial condition of the counterparty, expected future cash fl ows, observable market prices and expected net selling prices. The impairment amount is recorded in the income statement.

If ING Real Estate holds the property until occupancy rates reach the level as intended by management in developing the property, the project remains classifi ed as property held for sale.

LEASESING Real Estate as the lessorWhen assets are held subject to a fi nance lease, the present value of the lease payments is recognised as a receivable. The difference between the gross receivable and the present value of the receivable is unearned lease fi nance income. Lease income is recognised over the term of the lease using the net investment method (before tax), which refl ects a constant periodic rate of return. When assets are held subject to an operating lease, the assets are included under real estate investments.

ING Real Estate as the lesseeThe leases entered into by ING Real Estate are primarily operating leases. When an operating lease is terminated before the lease period has expired, any payment required to be made to the lessor by way of penalty is recognised as an expense in the period in which termination takes place.

PURCHASE ACCOUNTING, GOODWILL AND OTHER INTANGIBLE ASSETSGoodwillING Real Estate’s acquisitions are accounted for under the purchase method of accounting, whereby the cost of the acquisitions is allocated to the fair value of the assets, liabilities and contingent liabilities acquired. Goodwill, being the

EquipmentEquipment is stated at cost less accumulated depreciation and any impairment losses. The cost of the assets is depreciated on a straight-line basis over their estimated useful lives, which are generally as follows: for data processing equipment two to fi ve years and four to ten years for fi xtures and fi ttings. Expenditure incurred on maintenance and repairs is charged to the income statement as incurred. Expenditure incurred on major improvements is capitalised and depreciated.

REAL ESTATE DEVELOPMENT PROJECTSProperty under developmentProperty under development are land and buildings under development for future sale in the ordinary course of business. Property under development where there is not yet a specifi cally negotiated contract (a contract by which the buyer is able to specify major structural elements of the design) is measured at direct construction cost incurred up to the balance sheet date. Costs that cannot directly be attributed to projects are expensed when incurred. These costs include research costs, selling costs and part of the paid interest costs. Borrowing costs are capitalised on the basis of the actual costs of the specifi c borrowing attached to projects under construction. Direct attributable costs to projects that form an integral part of the cost price include personnel expenses, construction materials and transport costs. Related borrowing costs are capitalised from the moment construction commences up to the completion date. If the resulting carrying amount of the asset exceeds its recoverable amount, an impairment loss is recognised. The recoverable amount is the lower of cost and net realisable value, which is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. The impairment amount is recorded in the income statement. Profi t is recognised using the completed contract method (on completion date of the property).

A project under construction is transferred to property held for sale directly after technical completion. Instalments received during construction are classifi ed as current liabilities.

The revenue of property under development where there is a specifi cally negotiated construction contract with the buyer is recognised using the percentage of completion method (pro rata profi t recognition). A specifi cally negotiated construction contract is an agreement for the construction of real estate when the buyer is able to specify: the major structural

transaction after proper marketing wherein the parties each acted knowledgeably, prudently and without compulsion. Market values are based on appraisals using valuation methods such as: comparable market transactions, capitalisation of income methods or DCF calculations, based on calculations of the future rental income and expenses in accordance with the terms in existing leases and estimations of the rental values when leases expire. Any gain or loss arising from a change in fair value is recognised in the income statement.

Subsequent expenditures are charged to the asset’s carrying amount only when it is probable that future economic benefi ts associated with the item will fl ow to ING Real Estate and the cost of an item can be measured reliably. All other repairs and maintenance costs are charged to the income statement.

Investment property is not reclassifi ed during redevelopment, unless the existing property is completely demolished to make way for a new property. Therefore, investment property under redevelopment continues to be measured at fair value. Investment property is reclassifi ed as a real estate project, and measured as such, when and only when there is a change in use evidenced by commencement of development with a view to sale. For a transfer from investment property to real estate projects, the property’s deemed cost shall be its fair value at the date of change in use.

Property under development for future use as investment property are measured at cost (less impairments) but are subsequently accounted for investment property at completion and measured at fair value. The resulting gain or loss upon transfer is recorded in the income statement.

Rent (or lease) incentives are discounts, bonuses, rent free periods or other contributions that ING Real Estate offers to tenants as means of encouragement to enter into a lease agreement. Rent incentives are initially recognised in the balance sheet as accrued assets at their cost. They are subsequently recognised in the income statement on a straight-line basis over the entire period of the lease. In determining the fair value of investment property rent incentives are considered to avoid double-counting.

PROPERTY AND EQUIPMENTProperty in own useProperty which is occupied by other ING Group companies are not considered to be property in own use for the fi nancial statements of ING Real Estate.

The existence of signifi cant infl uence in investment funds is determined taking into account both ING Real Estate’s fi nancial interests for own risk and its role as investment manager.

An impairment of an associate is recognised if the recoverable amount is lower than its carrying value. There must be objective evidence that an associate is impaired such as signifi cant changes in the market, economic or legal environment in which the associate operates indicating that the cost of the investment in an associate may not be recovered. A signifi cant (>25%) or prolonged (> six months) decline in the fair value of an associate below its cost is also objective evidence of impairment. The recoverable amount of an associate is the higher of its fair value (share price) less costs to sell or its estimated value in use (net asset value).

REAL ESTATE INVESTMENTSInvestment properties are those that are held either to earn rental income or for capital appreciation or for both. Investment properties are initially recognised at cost, being the acquisition cost at the time of purchase, and subsequently measured at fair value. ING Real Estate does not hold property under operating leases as a lessee which are classifi ed and accounted for as investment property. Acquisition cost comprises directly attributable expenditure (e.g. legal fees, taxes, transaction costs). Changes in the carrying amount resulting from revaluations are recorded in the income statement. On disposal the difference between the sale proceeds and book value is recognised in the income statement.

The fair value of real estate investments is based on regular appraisals by independent qualifi ed valuers. Each year every property is valued, either by an independent valuer or internally. Indexation is used when a property is valued internally. The index is based on the results of the independent valuations carried out in that period. Market transactions, and disposals made by the Group, are monitored as part of the procedures to back test the indexation methodology. The investment property of ING Real Estate Investment Management is externally valued at least every year. The valuations are based on the assumption that the properties are let and sold to third parties based on the actual letting status. Valuations drawn up earlier in the year are updated if necessary to refl ect the situation at year end.

The fair values are based on market values, being the estimated amount for which the property could be exchanged on the date of valuation between a willing buyer and willing seller in an at-arm’s-length


OTHER PROVISIONSA provision involves a present obligation arising from past events, the settlement of which is expected to result in an outfl ow from the company of resources embodying economic benefi ts; however the timing or the amount is uncertain. Provisions are discounted when the effect of the time value of money is material using a pre-tax discount rate. The determination of provisions is an inherently uncertain process involving estimates regarding amounts and timing of cash fl ows.

If real estate projects are sold and a rental guarantee is issued, reliable estimates of rental guarantees to be paid are recognised as a provision.

Reorganisation provisions include employee termination benefi ts when ING Real Estate is demonstrably committed to either terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal; or providing termination benefi ts as a result of an offer made to encourage voluntary redundancy.

INCOME RECOGNITIONInterestInterest income and expense are recognised in the income statement using the effective interest method. The effective interest method is a method of calculating the amortised cost of a fi nancial asset or a fi nancial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the fi nancial instrument or, when appropriate, a shorter period to the net carrying amount of the fi nancial asset or fi nancial liability. When calculating the effective interest rate, ING Real Estate estimates cash fl ows considering all contractual terms of the fi nancial instrument (for example, prepayment options) but does not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts. Once a fi nancial asset or a group of similar fi nancial assets has been written down as a result of an impairment, interest income is recognised using the rate of interest used to discount the future cash fl ows for the purpose of measuring the impairment loss.

Financial liabilities at fair value through profi t or loss comprise two sub-categories: fi nancial liabilities held for trading and other fi nancial liabilities designated at fair value through profi t or loss by management. Designation by management will take place only if this eliminates a measurement inconsistency or if the related assets and liabilities are managed on a fair value basis. ING Real Estate did not designate any fi nancial liabilities at fair value through profi t or loss. All other fi nancial liabilities are measured at amortised cost.

Financial guarantee contracts are contracts that require the issuer to make specifi ed payments to reimburse the holder for a loss it incurs because a specifi ed debtor fails to make payments when due, in accordance with the terms of a debt instrument. Such fi nancial guarantees are initially recognised at fair value and are subsequently measured at the higher of the discounted best estimate of the obligation under the guarantee and the amount initially recognised less, cumulative amortisation to refl ect revenue recognition principles.

OTHER LIABILITIESEmployee benefi ts – pension obligationsING Real Estate participates in a defi ned benefi t retirement plan in The Netherlands (the ING Pension Fund), which is sponsored by ING Group. The pension schemes of most personel abroad are defi ned contribution plans.

A defi ned benefi t plan is a pension plan that defi nes an amount of pension benefi t that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation.

The ING Group pension plan shares the risks between individual companies within the ING Group and consequently the liability specifi c to any one company within the ING Group cannot be determined. ING Group charges individual group entities with a portion of the total defi ned benefi t cost based upon the employees currently in service at that entity. ING Real Estate includes this charge in the income statement for the period. The information about the plan as a whole is disclosed in the annual report of ING Personeels VOF.

TAXATIONIncome tax on net result for the year comprises current and deferred tax. Income tax is recognised in the income statement but it is charged or credited directly to equity if the tax relates to items that are credited or charged directly to equity.

Deferred income taxDeferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated fi nancial statements. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred tax assets and liabilities are not discounted.

Deferred tax assets are recognised where it is probable that future taxable profi t will be available against which the temporary differences can be utilised. Deferred income tax is provided on temporary differences arising from investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference is controlled by ING Real Estate and it is probable that the difference will not reverse in the foreseeable future. The tax effects of income tax losses available for carry forward are recognised as an asset where it is probable that future taxable profi ts will be available against which these losses can be utilised.

Deferred tax related to fair value remeasurement of available-for-sale investments and cash fl ow hedges, which are charged or credited directly to equity, is also credited or charged directly to equity and is subsequently recognised in the income statement together with the deferred gain or loss.

FINANCIAL LIABILITIESBorrowings are recognised initially at their issue proceeds (fair value of consideration received) net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between proceeds, net of transaction costs, and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method.

If ING Real Estate purchases its own debt, it is removed from the balance sheet, and the difference between the carrying amount of the liability and the consideration paid is included in the income statement.

difference between the cost of the acquisition (including assumed debt) and ING Real Estate’s interest in the fair value of the acquired assets, liabilities and contingent liabilities as at the date of acquisition, is capitalised as an intangible asset. The results of the operations of the acquired companies are included in the income statement from the date control is obtained.

Goodwill is only capitalised on acquisitions after the implementation date of IFRS-EU (1 January 2004). Accounting for acquisitions before that date has not been restated; goodwill and internally generated intangibles on these acquisitions were charged directly to shareholders’ equity. Goodwill is allocated to cash-generating units for the purpose of impairment testing. These cash-generating units represent the lowest level at which goodwill is monitored for internal management purposes. This test is performed annually or more frequently if there are indicators of impairment. Under the impairment tests, the carrying value of the cash-generating units (including goodwill) is compared to its recoverable amount which is the higher of its fair value less costs to sell and its value in use.

Adjustments to the fair value as at the date of acquisition of acquired assets and liabilities that are identifi ed within one year after acquisition are recorded as an adjustment to goodwill; any subsequent adjustment is recognised as income or expense. However, recognition of deferred tax assets after the acquisition date is recorded as an adjustment to goodwill even after the fi rst year. On disposal of ING Real Estate companies, the difference between the sale proceeds and book value (including goodwill) and the unrealised results (including the currency translation reserve in equity) is included in the income statement.

Negative goodwill that arises if the cost of the business combination is less than the acquired fair value of all assets and liabilities is recognised in the income statement.

Computer softwareComputer software that has been purchased or generated internally for own use is stated at cost less amortisation and any impairment losses. Amortisation is calculated on a straight-line basis over its useful life. This period will generally not exceed three years. Amortisation is included in Other operating expenses.

Other intangible assetsOther intangible assets, such as management rights, are capitalised and amortised over their expected economic life.



ACCOUNTING POLICIES FOR THE CONSOLIDATED CASH FLOW STATEMENTThe statement of cash fl ows has been drawn up in accordance with the indirect method, classifying cash fl ows as cash fl ows from operating, investing and fi nancing activities. In the net cash fl ow from operating activities, the result before tax is adjusted for those items in the income statement, and changes in balance sheet items, which do not result in actual cash fl ows during the year.

For the purposes of the statement of cash fl ows, Cash and bank balances comprise balances with less than three months’ maturity from the date of acquisition, including cash and non-restricted balances with central banks, treasury bills and other eligible bills, amounts due from other banks and amounts due to banks. Investments qualify as cash and bank balances if they are readily convertible to a known amount of cash and are subject to an insignifi cant risk of changes in value.

Cash fl ows arising from foreign currency transactions are translated into the functional currency using the exchange rates at the date of the cash fl ows.

The net cash fl ow shown in respect of Loans and advances relates only to transactions involving actual payments or receipts. The Addition to loan loss provisions which is deducted from the item Loans and advances in the balance sheet has been adjusted accordingly from the result before tax and is shown separately in the statement of cash fl ows.

The difference between the net cash fl ow in accordance with the statement of cash fl ows and the change in Cash and bank balances in the balance sheet is due to exchange rate differences and is accounted separately for as part of the reconciliation of the net cash fl ow and the balance sheet change in Cash and bank balances.

Development incomeDevelopment income are revenues from the sale of property under development or held for sale in the ordinary course of business. Revenues are recognised when the property is technically completed and substantially all risks and rewards are transferred to the buyer. In general, this occurs when the legal title is transferred. Revenues are recognised only when they can be measured reliably. Revenues relating to constructions on behalf of third parties that have been specifi cally negotiated (when the buyer is able to specify major structural elements of design) are accounted for using the ‘percentage of completion method’. If a project is sold and a rental guarantee is issued, reliable estimates of rental guarantees to be paid are recognised as a provision.

EXPENSE RECOGNITIONExpenses are recognised in the income statement as incurred or when a decrease in future economic benefi ts related to a decrease in an asset or an increase in a liability has arisen that can be measured reliably.

Share-based paymentsShare-based payment expenses are recognised as the employees provide the service. A corresponding increase in equity is recognised if the services are received in an equity-settled share-based payment transaction. A liability is recognised if the services are acquired in a cash-settled share-based payment transaction. The cost of acquiring the services is expensed as a staff expense. Share-based payments are payments in shares of ING Group N.V. and not in shares of ING Real Estate B.V. because these are all, indirectly, held by ING Group N.V.

The fair value of equity-settled share-based payment transactions is measured at the grant date and the fair value of cash-settled share-based payment transactions is measured at each balance sheet date.

FIDUCIARY ACTIVITIESING Real Estate commonly acts as trustee and in other fi duciary capacities that result in the holding or placing of (real estate) assets on behalf of third parties. These assets and income arising thereon are excluded from these fi nancial statements, as they are not assets of ING Real Estate.

All interest income and expenses from trading positions and non-trading derivatives are classifi ed as interest income and interest expenses in the income statement. Changes in the ‘clean fair value’ are included in Valuation results on non-trading derivatives.

Fees and commissionsFees and commissions are generally recognised as the service is provided.

Asset management fees related to real estate investment funds are recognised on a pro-rata basis over the period the service is provided.

Outperformance fees are paid from the real estate investment funds managed by ING Real Estate usually at the end of a performance period. Outperformance fees are recognised, based on the actual performance of the fund, when they can be reliably estimated, which is normally in the last few years of the performance period.

Loan commitment fees for loans that are likely to be drawn down are deferred (together with related direct costs) and recognised as an adjustment to the effective interest rate on the loan. Loan syndication fees are recognised as revenue when the syndication has been completed and ING Real Estate retained no part of the loan package for itself or retained a part at the same effective interest rate as the other participants.

Commission and fees arising from negotiating, or participating in the negotiation of, a transaction for a third party are recognised on completion of the underlying transaction.

Lease incomeThe proceeds from leasing out assets under operating leases are recognised on a straight-line basis over the life of the lease agreement. Lease payments received in respect of fi nance leases when ING Real Estate is the lessor are divided into an interest component (recognised as interest income) and a repayment component. Lease incentives are recognised in the income statement on a straight-line basis.

Service costs paid to third parties and subsequently billed to tenants are netted only if ING Real Estate acts as a billing agent.


ASSETS1 CASH AND BANK BALANCES

2008 2007

Amounts held at ING Bank 284,858 69,819 Cash and other bank balances 270,777 267,656 555,635 337,475

2 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS

2008 2007

Non-trading derivatives 54,970 12,829 Equity securities designated as at fair value through profi t or loss 60,200 93,644 115,170 106,473

Equity securities designated at fair value through profi t or loss relate to investments in listed and non-listed real estate funds in which the company has no signifi cant infl uence nor control.

NON-TRADING DERIVATIVES BY TYPE

2008 2007

Derivatives used in cash fl ow hedges – 1,975 Other non-trading derivatives 54,970 10,854 54,970 12,829

3 LOANS AND ADVANCES LOANS AND ADVANCES ANALYSED BY TYPE

Netherlands Netherlands International International Total Total 2008 2007 2008 2007 2008 2007

Loans to, or guaranteed by, public authorities 19,153 28,004 2,937 59 22,090 28,063 Loans to banks 319,886 192,712 – – 319,886 192,712 Loans secured by mortgages 20,086,831 17,945,530 9,807,370 7,168,300 29,894,201 25,113,830 Loans guaranteed by credit institutions – – – 16,429 – 16,429 Other personal lending – – 1,181 6,927 1,181 6,927 Other corporate loans 1,868,000 2,098,486 2,589,954 2,104,720 4,457,954 4,203,206 22,293,870 20,264,732 12,401,442 9,296,435 34,695,312 29,561,167 Loan loss provisions –91,500 –31,508 –15,846 –1,639 –107,346 –33,147 22,202,370 20,233,224 12,385,596 9,294,796 34,587,966 29,528,020

LOANS AND ADVANCES ANALYSED BY SUBORDINATION

2008 2007

Non-subordinated 34,587,966 29,525,243 Subordinated – 2,777 34,587,966 29,528,020

As at 31 December 2008, Loans to banks includes receivables with ING Bank amounting to EUR 316 million (2007: EUR 193 million).

No individual loan or advance has terms and conditions that materially affect the amount timing or certainty of the consolidated cash fl ows of ING Real Estate. For detail on signifi cant concentrations see note 39 ‘Risk management’ section.

Notes to the consolidated fi nancial statements(amounts in thousands of euros, unless stated otherwise)



3 LOANS AND ADVANCES CONTINUEDLoans and advances include fi nance lease receivables, analysed as follows:

FINANCE LEASE RECEIVABLES

2008 2007

Maturities of gross investment in fi nance lease receivables within one year 50,843 102,593 more than one year but less than fi ve years 270,467 227,792 more than fi ve years 15,954 89,924 337,264 420,309 Unearned future fi nance income on fi nance leases –58,371 –129,986 Net investment in fi nance leases 278,893 290,323 Maturities of net investment in fi nance lease receivables within one year 33,213 87,171 more than one year but less than fi ve years 231,286 180,162 more than fi ve years 14,394 22,990 278,893 290,323

The allowance for uncollectable fi nance lease receivables included in the loan loss provisions amounted to EUR 53 at 31 December 2008 (2007: EUR 32).

No individual fi nance lease receivable has terms and conditions that would materially affect the amount, timing or certainty of consolidated cash fl ows of ING Real Estate.

LOAN LOSS PROVISIONS ANALYSED BY TYPE


Loans secured by mortgages –91,501 –31,509 –13,469 –1,327 –104,970 –32,836 Other corporate loans – – –2,377 –311 –2,377 –311 –91,501 –31,509 –15,846 –1,638 –107,347 –33,147

CHANGES IN THE LOAN LOSS PROVISIONS

2008 2007

Opening balance –33,147 –32,080 Write-offs 666 –394 Recoveries – 14,314 Increase in loan loss provisions –81,791 –14,000 Exchange rate differences –533 –44 Interest accrued on impaired loans and advances 7,458 –943 Closing balance –107,347 –33,147

Individual loan loss provision –78,079 –13,984 Collective loan loss provision (incurred but not reported) –29,268 –19,163 –107,347 –33,147



4 INVESTMENTS IN ASSOCIATES

Fair value Interest of listed Balance sheet Total Total Total Total held (%) associates value assets liabilities income expenses

2008 ING Industrial Fund Australia 18 13,833 163,824 2,376,568 1,033,067 166,272 147,024 Lion Properties Fund 5 124,573 4,135,399 1,757,135 313,337 771,104 ING Real Estate Asian Retail Fund Ltd 28 120,840 849,677 411,851 56,637 72,343 ING Retail Property Fund Australia 29 109,050 789,952 411,806 12,585 6,761 ING REI Investment DOF B.V. 3 71,375 2,679,082 383,040 196,524 212,176 ING European Infrastructure Fund 25 70,447 662,175 408,505 – 1,364 ING Offi ce Fund Australia 4 25,164 42,699 1,749,779 607,393 191,442 69,736 ING REI Investment REOFN B.V. 32 40,761 768,479 610,856 43,015 95,489 ING Korea Property Investments 15 37,424 385,694 188,651 27,712 –39,234 ING RE Asia Value Fund LP 30 32,513 190,820 83,515 3,938 14,829 China Opportunity Fund LP 8 27,085 403,018 49,726 14,938 8,897 RE Italian Retail Fund 33 25,756 351,650 272,740 35,582 72,538 Other investments in associates 181,046 1,047,393

Other investments in associates represents 24 associates with an individual balance sheet value of less than EUR 25 million.

Accumulated impairments have been recognised of EUR 31 million (2007: EUR 20 million).

For the above associates in which the interest held is below 20%, signifi cant infl uence exists based on the combination of ING Real Estate’s fi nancial interest for own risk and its role as investment manager. For associates in which the interest held is above 50%, control is held by other parties through agreements. ING Real Estate can exercise signifi cant infl uence over such investments.

The values presented in the table above could differ from the values presented in the individual fi nancial statements of the associates, due to the fact that the individual values have been brought in line with ING Real Estate’s accounting principles.



4 INVESTMENTS IN ASSOCIATES CONTINUEDThe fair value of an associate can substantially differ from its carrying value on the balance sheet of ING Real Estate. The share price of the (listed) associate is equal to its fair value, whereas the carrying value is based on the equity accounted amount less impairments. Impairments to the carrying amount are recognised only if the recoverable amount is lower than its carrying value. The recoverable amount of an associate is the higher of its fair value (share price) less costs to sell or its estimated value in use (net asset value).

In general the reporting dates of all material associates are consistent with the reporting date of ING Real Estate. However the reporting date of some signifi cant associates are not completely consistent with the reporting date of ING Real Estate, but, in any case, the difference between the reporting date of the associates and that of ING Real Estate will not be more than three months.

INVESTMENTS IN ASSOCIATES

Fair value Interest of listed Balance sheet Total Total Total Total held (%) associates value assets liabilities income expenses

2007 ING Industrial Fund Australia 18 302,618 302,663 3,124,765 1,337,693 411,233 167,947 Lion Properties Fund 5 146,614 4,502,091 1,666,071 659,893 155,458 ING Retail Property Fund Australia 29 149,894 957,652 399,494 179,420 100,146 ING Offi ce Fund Australia 6 69,384 82,534 2,133,578 763,066 442,814 155,458 ING Korea Property Investments 15 33,906 382,463 220,784 89,116 47,036 ING Real Estate Asia Retail Fund LP 46 188,633 790,963 389,941 29,146 2,204 Other investments in associates 188,611 1,092,855

CHANGES IN INVESTMENTS IN ASSOCIATES

2008 2007

Opening balance 1,092,855 723,444 Additions 365,049 257,507 Changes in the composition of the Group – 213,030 Transfers to and from Investments – 2,973 Share of results –172,675 150,002 Dividends received –51,477 –41,799 Disposals –113,573 –139,765 Impairments –17,664 –20,749 Exchange rate differences –74,857 –51,792 Other changes 19,735 4 Closing balance 1,047,393 1,092,855

In 2008, share of results of EUR –173 million (2007: EUR 150 million) less impairment of EUR 18 million (2007: EUR 21 million) are presented in the income statement in Share of result from associates of EUR –190 million (2007: EUR 129 million). Share of results includes negative fair value changes of EUR 224 million (2007: EUR 89 million positive).



5 REAL ESTATE INVESTMENTS CHANGES IN REAL ESTATE INVESTMENTS

2008 2007

Opening balance 3,561,354 3,530,459 Additions 286,504 251,012 Changes in the composition of the Group – –450,246 Transfers to and from other assets –186 101,538 Fair value gains/(losses) –354,332 88,765 Disposals –189,879 –68,837 Other movements – –3 Exchange rate differences –393,764 108,666 Closing balance 2,909,697 3,561,354

Real estate investments includes EUR 109 million (2007: EUR 107 million) of assets leased by ING Bank.

The total amount of rental income recognised in the income statement for the year ended 31 December 2008 was EUR 286 million (2007: EUR 308 million).

The total amount of direct operating expenses (including repairs and maintenance) arising from real estate investments that generated rental income for the year ended 31 December 2008 was EUR 74 million (2007: EUR 58 million). The total amount of direct operating expenses (including repairs and maintenance) arising from real estate investments that did not generate rental income for the year ended 31 December 2008 was EUR 6 million (2007: EUR 3 million).

APPRAISAL OF REAL ESTATE INVESTMENTS DURING THE LAST FIVE YEARS BY INDEPENDENTLY QUALIFIED VALUERS (IN PERCENTAGES)

Year of appraisal

2008 98 2007 1 2006 – 2005 1 2004 – 100

An analysis on the risks relating to changes in fair value of real estate investments is included in note 39 ‘Risk management’ section.



6 PROPERTY AND EQUIPMENT PROPERTY AND EQUIPMENT BY TYPE

2008 2007

Data processing equipment 3,455 1,979 Fixtures and fi ttings and other equipment 28,888 31,388 32,343 33,367

CHANGES IN EQUIPMENT

Fixtures and Fixtures and Data processing Data processing fi ttings and fi ttings and equipment equipment other equipment other equipment Total Total 2008 2007 2008 2007 2008 2007

Opening balance 1,979 1,129 31,388 21,846 33,367 22,975 Additions 3,469 1,787 6,809 16,957 10,278 18,744 Changes in the composition of the Group – –62 – 105 – 43 Disposals –30 580 –518 –1,822 –548 –1,242 Depreciation –1,878 –1,462 –4,732 –4,760 –6,610 –6,222 Exchange rate differences –85 7 –1,085 –983 –1,170 –976 Other changes – – –2,974 45 –2,974 45 Closing balance 3,455 1,979 28,888 31,388 32,343 33,367

Gross carrying amount as at 31 December 5,582 3,246 34,717 33,692 40,299 36,938 Accumulated depreciation as at 31 December –2,127 –1,267 –5,829 –2,304 –7,956 –3,571 Net book value 3,455 1,979 28,888 31,388 32,343 33,367

7 INTANGIBLE ASSETS CHANGES IN INTANGIBLE ASSETS

Goodwill Goodwill Software Software Other Other Total Total 2008 2007 2008 2007 2008 2007 2008 2007

Opening balance 16,130 10,444 5,786 3,172 18,540 16,688 40,456 30,304 Capitalised expenses – – 1,638 965 – – 1,638 965 Additions bought 9,427 16,459 9,798 2,422 28,968 2,643 48,193 21,524 Disposals –6,405 – – –7 – – –6,405 –7 Amortisation – – –4,482 –779 –5,157 –1,734 –9,639 –2,513 Impairments – –378 – – – – – –378 Changes in the composition of the Group – –10,114 – – – – – –10,114 Exchange rate differences 840 –281 245 13 –3,389 943 –2,304 675 Other changes –8,408 – 1,491 – – – –6,917 – Closing balance 11,584 16,130 14,476 5,786 38,962 18,540 65,022 40,456

Gross carrying amount as at 31 December 11,584 16,500 25,573 12,420 45,853 20,274 83,010 49,194 Accumulated amortisation as at 31 December – – –11,097 –6,634 –6,891 –1,734 –17,988 –8,368 Accumulated impairments as at 31 December – –370 – – – – – –370 Net book value 11,584 16,130 14,476 5,786 38,962 18,540 65,022 40,456



7 INTANGIBLE ASSETS CONTINUEDAmortisation of intangible assets is included in the income statement in Other operating expenses.

Additions to Goodwill in 2008 include EUR 5 million related to an earn-out fee for a prior year acquisition. Other intangible assets relate to management rights acquired in business combinations. The increase in 2008 mainly relates to acquired management rights of ‘Kantoren Fonds Netherlands’. The remaining amortisation period of the management rights is nine years.

8 REAL ESTATE DEVELOPMENT PROJECTS PROJECTS BY TYPE

2008 2007

Property held for sale 619,742 508,360 Property under development for third parties 2,409,446 2,413,020 3,029,188 2,921,380

CHANGES IN PROPERTY UNDER DEVELOPMENT FOR THIRD PARTIES

Property under Property under Property held Property held development development for sale for sale for third parties for third parties Total Total 2008 2007 2008 2007 2008 2007

Opening balance 508,360 333,552 2,413,020 2,223,898 2,921,380 2,557,450 Project investments 89,311 5,477 990,656 1,244,232 1,079,967 1,249,709 Disposals –24,707 –298,451 –679,193 –688,954 –703,900 –987,405 Exchange rate differences –84,881 17,507 –144,174 –41,905 –229,055 –24,398 Capitalised interest – – 91,860 72,647 91,860 72,647 Transfers 131,659 403,874 –201,197 –403,874 –69,538 – Impairments – 46,401 –92,209 6,976 –92,209 53,377 Impairment reversals – – 30,683 – 30,683 – Closing balance 619,742 508,360 2,409,446 2,413,020 3,029,188 2,921,380

Accumulated impairments have been recognised of EUR 148 million (2007: EUR 90 million).

Impairment reversal of property under development for third parties is mainly due to a revised expectation of the sales price of certain projects.

9 OTHER ASSETS OTHER ASSETS BY TYPE

2008 2007

Deferred tax assets 220,743 142,762 Income tax receivable 52,285 26,703 Accrued interest and rents 301,139 264,624 Other accrued assets 48,954 72,123 Other receivables 531,843 822,602 1,154,964 1,328,814

Disclosures in respect of deferred tax assets are provided in note 14 ‘Other liabilities’.

Other receivables includes receivables property under development third party (EUR 200 million), receivables and current accounts with ING Bank (EUR 62 million) and VAT receivable (EUR 53 million).



EQUITY10 SHAREHOLDERS’ EQUITY (PARENT) CAPITAL MANAGEMENT

ING Real Estate maintains an actively managed capital base to cover risks inherent in the business. The adequacy of ING Real Estate’s capital is monitored using amongst others tailor-made models and measures which are in line with the policies of ING Group, but take into account the particular real estate characteristics of ING Real Estate’s assets and liabilities. Being part of ING Group these measures and models also comply with the rules, ratios and regulations established by the Basel Committee on Banking Supervision (‘BIS rules/ratios’) and adopted by the Central Bank of the Netherlands in supervising the ING Group. The primary objectives of ING Real Estate’s capital management are to ensure compliance with externally imposed capital requirements and to maintain a healthy capital ratio. ING Real Estate manages its capital structure and makes adjustments to it in the light of change in economic conditions and the risk characteristics of its activities. No changes were made in the objectives, policies and processes from the previous year.

ING Real Estate manages as capital:

SHAREHOLDERS’ EQUITY (PARENT)

2008 2007

Share capital 227 227 Share premium 1,447,131 1,447,131 Revaluation reserve 40,483 –25,950 Currency translation reserve –129,076 –49,347 Other reserves 1,309,655 1,396,238 Shareholders’ equity (parent) 2,668,420 2,768,299

SHARE CAPITAL Ordinary shares (par value EUR 1,000)

Number x 1,000 Number x 1,000 Amount Amount 2008 2007 2008 2007

Authorised share capital 1,135 1,135 1,135 1,135 Unissued share capital 908 908 908 908 Issued share capital 227 227 227 227

No shares have been issued during 2008 or 2007.

DIVIDEND RESTRICTIONSING Real Estate B.V. and its Dutch Group companies are subject to legal restrictions regarding the amount of dividends they can pay to their shareholders. The Dutch Civil Code contains the restriction that dividends can only be paid up to an amount equal to the excess of the Company’s own funds over the sum of the paid-up capital, and reserves required by law. The Revaluation reserve, Share of associates reserve (included in Other reserves) and Currency translation reserve cannot be freely distributed. Additionally, certain Group companies are subject to restrictions on the amount of funds they may transfer in the form of dividends or otherwise to the parent company. Furthermore, in addition to the restrictions in respect of minimum capital requirements that are imposed by industry regulators in the countries in which the subsidiaries operate, other limitations exist in certain countries.

CHANGES IN REVALUATION RESERVE

Available-for- Net investment Cash fl ow sale reserve hedge reserve hedge reserve Total

2008 Opening balance – – –25,950 –25,950 Changes in hedge reserves – 56,932 9,501 66,433 Closing balance – 56,932 –16,449 40,483



10 SHAREHOLDERS’ EQUITY (PARENT) CONTINUED CHANGES IN REVALUATION RESERVE

Available-for- Net Investment Cash fl ow sale reserve hedge reserve hedge reserve Total

2007 Opening balance 7,398 – –65,161 –57,763 Changes in hedge reserve – – –7,017 –7,017 Net unrealised gains 7,949 – – 7,949 Realised gains –15,347 – – –15,347 Exchange differences – – 5,709 5,709 Other movements – – 40,519 40,519 Closing balance – – –25,950 –25,950

CHANGES IN CURRENCY TRANSLATION RESERVE

2008 2007

Opening balance –49,347 15,260 Exchange differences –79,729 –64,607 Closing balance –129,076 –49,347

CHANGES IN OTHER RESERVES

Share of Retained associates earnings Total

2008 Opening balance 79,466 1,316,772 1,396,238 Employee stock options and share plans – 4,028 4,028 Result for the year – –88,364 –88,364 Dividend – – – Other – –2,247 –2,247 Closing balance 79,466 1,230,189 1,309,655

CHANGES IN OTHER RESERVES

Share of Retained associates earnings Total

2007 Opening balance – 915,826 915,826 Employee stock options and share plans – 3,085 3,085 Result for the year – 481,487 481,487 Dividend – – – Other 79,466 –83,626 –4,160 Closing balance 79,466 1,316,772 1,396,238



LIABILITIES11 LOANS LOANS BY TYPE


Loans from ING Bank 31,708,666 28,250,197 4,447,945 2,864,591 36,156,611 31,114,788 Loans from other banks – – 1,043,506 1,240,825 1,043,506 1,240,825 Other loans 235,963 196,303 295,738 258,009 531,701 454,312 31,944,629 28,446,500 5,787,189 4,363,425 37,731,818 32,809,925

Other loans includes loans received from joint venture partners.

12 FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS

2008 2007

Derivatives used in cash fl ow hedges – 5,200 hedges of net investments in foreign operations 14,510 – Other non-trading derivatives 21,501 3,596 36,011 8,796

13 ACCRUED INTEREST AND EXPENSES

2008 2007

Accrued interests and rents 404,468 318,114 Accrued expenses 313,762 322,928 718,230 641,042

Accrued interest and third-party expenses 338,063 332,860 Accrued interest and expenses ING Bank 380,167 308,182 718,230 641,042

14 OTHER LIABILITIES OTHER LIABILITIES BY TYPE

2008 2007

Deferred tax liabilities 247,097 208,181 Income tax payable 266,499 261,435 Other taxation and social security contributions 41,898 59,067 Reorganisation and other provisions 43,273 52,181 Pre-payments property under development for third parties 485,002 567,265 Share-based payment plan liabilities – 412 Other 726,137 729,525 1,809,906 1,878,066

Deferred taxes are calculated on all temporary differences under the liability method using tax rates applicable to the jurisdictions in whichING Real Estate is liable to taxation.

Other includes pre-payments on client loans (EUR 242 million), other staff related liabilities (EUR 55 million), VAT payable (EUR 33 million) and current accounts with funds as well as regular accounts payables.



14 OTHER LIABILITIES CONTINUED CHANGES IN DEFERRED TAX

Change through Change through Additions Exchange Net Net liability equity net result (disposals) rate difference Other liabillity 2007 2008 2008 2008 2008 2008 2008

Investments 130,229 – –42,214 –5,141 –5,004 –42,782 35,088 Other provisions –4,859 – 3,950 – 12 –3,401 –4,298 Cash fl ow hedges 444 21,625 –1,165 – –10 –3,764 17,130 Unused tax losses carried forward –61,613 – 3,883 – 3,162 29,927 –24,641 Other 1,218 –491 5,295 3 3,112 –6,062 3,075 65,419 21,134 –30,251 –5,138 1,272 –26,082 26,354

COMPRISING deferred tax liabilities 208,181 37,561 –6,489 –5,136 –5,634 18,614 247,097 deferred tax assets 142,762 16,427 23,762 2 –6,906 44,696 220,743 65,419 21,134 –30,251 –5,138 1,272 –26,082 26,354

DEFERRED TAX IN CONNECTION WITH UNUSED TAX LOSSES CARRIED FORWARD

2008 2007

Total unused tax losses carried forward 266,301 287,845 Unused tax losses carried forward not recognised as a deferred tax asset 178,290 86,711 Unused tax losses carried forward recognised as a deferred tax asset 88,011 201,134

Average tax rate 28.0% 30.6% Deferred tax asset 24,641 61,613

Deferred income tax assets are recognised for tax loss carry forwards and unused tax credits only to the extent that realisation of the related tax benefi t is probable. The uncertainty of the recoverability of the tax losses and tax credits is taken into account in establishing the deferred tax assets. The following tax loss carry forwards and tax credits will expire as follows at 31 December:

TOTAL UNUSED TAX LOSSES CARRIED FORWARD ANALYSED BY EXPIRY ITEM

No deferred tax No deferred tax Deferred tax Deferred tax asset recognised asset recognised asset recognised asset recognised 2008 2007 2008 2007 Within one year – – 1,074 6,621 More than one year but less than fi ve years 3,045 81,569 45,324 13,910 More than fi ve years but less than ten years 7,959 – 18,477 – More than ten years but less than twenty years 167,286 5,142 22,160 63,382 Unlimited – – 976 117,221 178,290 86,711 88,011 201,134

CHANGES IN REORGANISATION AND OTHER PROVISIONS

Remaining risks Remaining risks Reorganisations Reorganisations on projects sold on projects sold Total Total 2008 2007 2008 2007 2008 2007 Opening balance 1,965 2,433 50,216 32,426 52,181 34,859 Additions 3,917 1,252 1,061 19,117 4,978 20,369 Charges –630 –1,463 –8,871 –13,069 –9,501 –14,532 Exchange rate differences – – –898 128 –898 128 Other changes –536 –257 –2,951 11,614 –3,487 11,357 Closing balance 4,716 1,965 38,557 50,216 43,273 52,181



14 OTHER LIABILITIES CONTINUEDThe remaining term of the provision for reorganisations is generally not more than fi ve years.

The amounts included in other provisions are based on best estimates with regard to amounts and timing of cash fl ows required to settle the obligation.

PENSION AND POST-EMPLOYMENT BENEFITSING Real Estate participates in a defi ned benefi t retirement plan in the Netherlands (the ING Pension Fund), which is sponsored by ING Group. The plan shares the risks between individual companies within ING Group and consequently the liability specifi c to any one company within ING Group cannot be determined. ING Group charges individual group entities with a portion of the total defi ned benefi t cost based upon the employees currently in service at that entity. ING Real Estate includes this charge in income statement for the period. For further disclosure of the pension costs and obligation related to ING Pension Fund we refer to the annual report of ING Personeel VOF.

The pension schemes of most personnel abroad are defi ned contribution plans. The costs related to these plans are processed in the income statement when they occur.

15 ASSETS AND LIABILITIES BY CONTRACTUAL MATURITY

Less than 1–3 3–12 1–5 Over Maturity 1 month months months years 5 years not applicable Total

2008 ASSETS Cash and bank balances 555,635 – – – – – 555,635 Financial assets at fair value through profi t or loss non-trading derivatives 54,916 54 – – – – 54,970 designated as at fair value through profi t or loss 27,070 129 2,116 25,037 5,848 – 60,200 Investments Loans and advances 991,993 68,465 5,190,294 17,389,666 10,947,548 – 34,587,966 Intangible assets – – – – – 65,022 65,022 Other assets 100,193 533,958 1,130,625 1,980,155 439,221 – 4,184,152 Remaining assets (where

maturities are not applicable) (1) – – – – – 3,989,433 3,989,433 Total assets 1,729,807 602,606 6,323,035 19,394,858 11,392,617 4,054,455 43,497,378

LIABILITIES Loans 822,998 1,685,805 4,637,415 19,593,615 10,991,985 – 37,731,818 Financial liabilities at fair value

through profi t or loss non-trading derivatives 34,294 2 132 345 1,238 – 36,011 Other liabilities 500,364 427,183 987,237 521,310 92,042 – 2,528,136 Total liabilities 1,357,656 2,112,990 5,624,784 20,115,270 11,085,265 – 40,295,965

(1) Included in remaining assets where maturities are not applicable are: Property and equipment, Real estate investments and Investments in associates.

Note: Due to their nature, Remaining assets consists mainly of assets expected to be recovered after more than 12 months.



15 ASSETS AND LIABILITIES BY CONTRACTUAL MATURITY CONTINUED

Less than 1–3 3–12 1–5 Over Maturity 1 month months months years 5 years not applicable Total

2007 ASSETS Cash and bank balances 337,475 – – – – – 337,475 Financial assets at fair value

through profi t or loss non-trading derivatives 12,829 – – – – – 12,829 designated as at fair value through profi t or loss 1 655 1,129 80,320 11,539 – 93,644 Investments Loans and advances –1,039,975 1,699,428 3,233,287 14,536,375 11,098,905 – 29,528,020 Intangible assets – – – – – 40,456 40,456 Other assets 276,078 423,118 1,351,006 1,443,071 756,921 – 4,250,194 Remaining assets (where

maturities are not applicable)(1) – – – – – 4,687,576 4,687,576 Total assets –413,592 2,123,201 4,585,422 16,059,766 11,867,365 4,728,032 38,950,194

LIABILITIES Loans 1,623,234 2,834,926 3,694,376 13,891,250 10,766,139 – 32,809,925 Financial liabilities at fair value

through profi t or loss non-trading derivatives 8,796 – – – – – 8,796 Other liabilities 311,876 525,332 981,641 600,264 99,995 – 2,519,108 Total liabilities 1,943,906 3,360,258 4,676,017 14,491,514 10,866,134 – 35,337,829

(1) Included in remaining assets where maturities are not applicable are: Property and equipment, Real estate investments and Investments in associates.

Note: Due to their nature, Remaining assets consists mainly of assets expected to be recovered after more than 12 months.

Amounts presented in the table by contractual maturity are on an undiscounted basis, excluding interest receivable/payable.



16 DERIVATIVES AND HEDGE ACCOUNTING USE OF DERIVATIVES AND HEDGE ACCOUNTING

As described in note 39 ‘Risk management’ section, ING Real Estate uses derivatives (principally interest rate swaps and forward foreign exchange contracts) for economic hedging purposes. The objective of economic hedging is to enter into positions with an opposite risk profi le to an identifi ed exposure to reduce that exposure. The accounting treatment of hedge transactions varies according to the nature of the instrument hedged and whether the hedge qualifi es under the IFRS-EU hedge accounting rules. Derivatives that qualify for hedge accounting under IFRS-EU are classifi ed and accounted for according to the nature of the instrument hedged and the type of IFRS-EU hedge model that is applicable. The three models applicable under IFRS-EU are: fair value hedge accounting, cash fl ow hedge accounting and net investment hedge accounting. Fair value hedge accounting is not applied within ING Real Estate. ING Real Estate’s accounting policies for hedge accounting are set out in section ‘Accounting policies for the consolidated balance sheet and income statement’.

To qualify for hedge accounting under IFRS-EU, strict criteria must be met. Certain hedges that are economically effective from a risk management perspective do not qualify for hedge accounting under IFRS-EU. The fair value changes of derivatives relating to such non qualifying hedges are taken to the income statement. With respect to exchange rate and interest rate derivative contracts, the notional or contractual amounts of these instruments is indicative of the nominal value of transactions outstanding at the balance sheet date; they do however not represent amounts at risk. The exchange rate derivatives refer to forward contracts in various currencies, with majority durations shorter than a year, and with a total nominal value of EUR 209 million long and EUR 557 million short. The fair value and carrying amount of the derivative fi nancial instruments is as follows:

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING

Assets Liabilities Assets Liabilities 2008 2008 2007 2007

Derivatives not held for hedge accounting 54,970 21,501 10,854 3,596 Derivatives held as cash fl ow hedge – – 1,975 5,200 Derivatives held as net investment hedge – 14,510 – – Accrued interest on derivatives 433 251 2,883 2,767 Total 55,403 36,262 15,712 11,563

CASH FLOW HEDGE ACCOUNTINGING Real Estate’s cash fl ow hedges principally consist of forward foreign exchange contracts. Forward foreign exchange contracts were used until mid 2008 to hedge cash fl ows relating to future sales revenues of real estate properties denominated in Asian currencies less the repayments of related loans in the same local currencies.

Gains and losses on the effective portions of derivatives designated under cash fl ow hedge accounting are recorded in Shareholders’ equity. The gains and losses on ineffective portions of such derivatives are recognised immediately in the income statement.

At 31 December 2008 and 31 December 2007, there were no non-derivatives designated as hedging instruments for cash fl ow hedge accounting purposes.

Certain Real Estate Investment funds in which ING Real Estate holds a minority interest apply cash fl ow hedge accounting. ING Real Estate accounts for these investments in associates under the equity accounting method and subsequently reports its share in the cash fl ow hedge reserve of these investments in equity.

The balance of the cash fl ow hedge reserve in equity at 31 December 2008 was EUR 16.4 million (2007: EUR 26.0 million) after deferred tax of which EUR 7.1 million is related to cash fl ow hedge reserves of investments in associates. This cash fl ow hedge reserve will be refl ected in the income statement over the remaining term of the underlying hedged items. The cash fl ows are expected to occur within one year after balance sheet date except for the hedges of investments in associates.

HEDGES OF NET INVESTMENTS IN FOREIGN OPERATIONSING Real Estate’s net investment hedges principally consist of derivative (currency forwards) and non-derivatives foreign currency denominated borrowings that are used to protect against foreign currency exposures on foreign subsidiaries.

Gains and losses on the effective portions of derivatives designated under net investment hedge accounting are recorded in Shareholders’ equity. The balance in equity is recognised in the income statement when the related foreign subsidiary is disposed. The gains and losses on ineffective portions are recognised immediately in the income statement.



16 DERIVATIVES AND HEDGE ACCOUNTING CONTINUEDAs at 31 December 2008, the fair value of outstanding derivatives under net investment hedge accounting was EUR –14.5 million (2007: EUR 0.0 million), presented in the balance sheet as negative fair values under liabilities.

As at 31 December 2008, the balance sheet value of non-derivatives (borrowings) designated under net investment hedge accounting was EUR 945 million (2007: EUR 0 million), presented in the balance sheet as loans under liabilities.

Accounting ineffectiveness recognised in the income statement for the year ended 31 December 2008 on derivatives and non-derivatives designated under net investments hedge accounting was EUR 0 million (2007: EUR 0 million).

17 ASSETS NOT FREELY DISPOSABLE

2008 2007

Loans and advances 501 7,561 Bank balances 53,104 25,819 Other assets 141,111 167,928 194,716 201,308

There are no terms and conditions relating to the collateral represented in the above table which are individually signifi cant.

18 CONTINGENT LIABILITIES AND COMMITMENTSIn the normal course of business ING Real Estate is a party in activities whose risks are not refl ected in whole or part in the consolidated balance sheet. In response to the needs of its customers, ING Real Estate offers fi nancial products related to loans. These products include traditional off-balance sheet credit-related fi nancial instruments.

CONTINGENT LIABILITIES AND COMMITMENTS

2008 2007

Obligations under development and construction contracts 1,200,270 1,318,826 Guarantees 826,936 656,530 Irrevocable facilities relating to Real Estate Finance 2,664,306 3,572,609 Equity commitments property funds 300,112 142,294 4,991,624 5,690,259

All irrevocable facilities relating to Real Estate Finance are granted to third parties.

FUTURE RENTAL COMMITMENTS FOR OPERATING LEASE CONTRACTS

2008 2007

Less than one year 29,342 24,874 One to fi ve years 95,532 92,497 Over fi ve years 144,789 110,844 269,663 228,215

The future rental and lease commitments mainly relate to a number of offi ces and cars leased by ING Real Estate.

FISCAL ENTITYTogether with its wholly-owned Dutch subsidiaries, ING Real Estate forms part of the fi scal entity of ING Bank N.V. for corporate income tax purposes. On the grounds of this, ING Real Estate is jointly and severally liable for the tax indebtedness of the fi scal entity as a whole. For value added tax, the Dutch subsidiaries conducting fi nancing and investment management activities form part of the fi scal entity ING Groep N.V. ING Real Estate and the Dutch subsidiaries conducting development activities are grouped in a separate fi scal entity called ING Vastgoed Ontwikkeling B.V.



19 PRINCIPAL SUBSIDIARIESThe principal subsidiaries of ING Real Estate B.V. are as follows:

ING Bewaar Management B.V. The NetherlandsING Insurance Investments Holding B.V. The NetherlandsING Real Estate Bishop B.V. The NetherlandsING Real Estate Development Holding B.V. The NetherlandsING Real Estate Finance N.V. The NetherlandsING Real Estate Investment Management Holding B.V. The Netherlands

20 COMPANIES ACQUIRED AND COMPANIES DISPOSEDDuring 2007 and 2008 no signifi cant companies have been acquired or disposed.

21 LEGAL PROCEEDINGSING Real Estate companies are involved in litigation and arbitration proceedings in the Netherlands and in a number of foreign jurisdictions, involving claims by and against them which arise in the ordinary course of their businesses, including in connection with their activities as lenders, employers, investors and taxpayers. While it is not feasible to predict or determine the ultimate outcome of all pending or threatened legal and regulatory proceedings, management does not believe that their outcome will have a material adverse effect on ING Real Estate’s fi nancial position or results of operations.

Because of the geographic spread of its business, ING Real Estate may be subject to tax audits in numerous jurisdictions at any point in time. Although ING Real Estate believes that it has adequately provided for all its tax positions, the ultimate resolution of these audits may result in liabilities which are different from the amounts recorded.

22 JOINT VENTURESJoint ventures are included proportionally in the consolidated fi nancial statements as follows:

MOST SIGNIFICANT JOINT VENTURES

Interest held (%) Assets Liabilities Income Expenses

2008 3W Vastgoed B.V. 50.0 109,059 83,915 –3,479 6,703 Mahler 4 VOF 33.3 99,781 86,134 6,938 97 ING Real Estate Joondalup B.V. 50.0 96,298 52,326 4,367 1,261 Dolce Vita Tejo 40.0 83,375 76,991 –19 142 Ontwikkelings Maatschappij Overhoeks C.V. 70.0 72,941 79,603 –13 1,078 IP Property Fund Asia Ltd. 52.7 66,250 19,691 6,461 643 SCCV Docks Vauban 50.0 59,094 59,544 81 – Belvédère Wijkontwikkelingsmaatschappij B.V. 33.3 47,314 42,313 –57 – SCCV La Confl uence llot C 50.0 45,833 45,655 81 124 King Kok Investments Ltd. 60.0 38,018 17,153 –4,794 597 Oakwood City Residence 85.0 37,560 1,483 –11,178 34 Others 572,055 403,614 34,282 13,470 1,327,578 968,422 32,670 24,149



22 JOINT VENTURES CONTINUED MOST SIGNIFICANT JOINT VENTURES

Interest held (%) Assets Liabilities Income Expenses 2007 3W Vastgoed B.V. 50.0 87,698 55,497 1,663 2,448 Mahler 4 VOF 33.3 33,296 26,490 236 921 Belvédère Wijkontwikkelingsmaatschappij B.V. 33.3 41,930 36,909 57 – Überseequartier Holding GmbH 28.3 5,557 38 367 1 Dolce Vita Tejo 40.0 36,332 29,792 61 585 D.C.U. Lugo XXI 49.2 14,971 1,459 1,116 571 Premier Developments Ltd. 50.0 9,327 8,308 830 184 IP Property Fund Asia Ltd. 52.7 83,387 36,821 58,347 4,150 ING Real Estate Joondalup B.V. 50.2 49,560 39,501 8,531 – Others 706,561 438,151 277,603 214,491 1,068,619 672,966 348,811 223,351

23 RELATED PARTIESIn the normal course of business, ING Real Estate enters into various transactions with related parties. Parties are considered to be related if one party has the ability to control or exercise signifi cant infl uence over the other party in making fi nancial or operating decisions. Transactions have taken place on an arm’s-length basis and include rendering or receiving of services, leases, transfers under fi nance arrangements and provisions of guarantees or collateral.

ING Real Estate forms part of ING Group. The following types of transactions are carried out at market conditions with the constituent members of ING Group:

Lease of offi ce buildings to ING entities (see note 5);•

Granting of interest-bearing loans by ING Bank N.V. and its subsidiaries (see note 11);•

Transactions with ING Bank N.V. relating to the payments of taxes, interest rate swaps and forward currency transactions because •

ING Bank N.V. is the head of the Dutch fi scal entity within which ING Real Estate is included;

Facility services provided by ING Group companies for a total amount of EUR 150 million including charges from ING Personeel VOF •

(see note 33) and ING Pension Fund (see note 14).

As at 31 December ING Real Estate held the following related party positions with joint ventures and associates:

TRANSACTIONS WITH JOINT VENTURES AND ASSOCIATES

Joint ventures Joint ventures Associates Associates 2008 2007 2008 2007

Receivables 104,689 40,161 310,159 750,127 Liabilities 56,601 50,371 – 307 Income received 8,932 3,705 170,380 145,719 Expenses paid 233 1,177 – 1,271

There are no signifi cant provisions for doubtful debts or individually signifi cant bad debt expenses.



24 FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIESThe following table presents the estimated fair values of ING Real Estate’s fi nancial assets and liabilities. Certain balance sheet items are not included in the table, as they do not meet the defi nition of a fi nancial asset or liability. The aggregation of the fair values presented below does not represent, and should not be construed as representing, the underlying value of ING Real Estate.

FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES

Estimated Estimated Balance Balance fair value fair value sheet value sheet value 2008 2007 2008 2007

FINANCIAL ASSETS Cash and bank balances 555,635 337,475 555,635 337,475 Financial assets at fair value through profi t or loss non-trading derivatives 54,970 12,829 54,970 12,829 designated as at fair value through profi t or loss 60,200 93,644 60,200 93,644 Loans and advances 35,278,652 29,845,526 34,587,966 29,528,020 Other assets(1) 531,843 822,603 531,843 822,603 36,481,300 31,112,077 35,790,614 30,794,571

FINANCIAL LIABILITIES Loans 38,118,172 32,512,597 37,731,818 32,809,925 Financial liabilities at fair value through profi t or loss non-trading derivatives 36,011 8,796 36,011 8,796 Other liabilities(2) 726,137 729,525 726,137 729,525 38,880,320 33,250,918 38,493,966 33,548,246

(1) Other assets do not include (deferred) tax assets, accruals, property held for sale, property under development for third parties and pension assets.

(2) Other liabilities do not include (deferred) tax liabilities, accruals, pension liabilities, property under development for third parties, share-based payment plans, other provisions and other taxation and social security contributions.

The estimated fair values correspond with the amounts at which the fi nancial instruments at our best estimate could have been traded at the balance sheet date between knowledgeable, willing parties in arm’s length transactions. The fair value of fi nancial assets and liabilities is based on quoted market prices, where available. Because substantial trading markets do not exist for all of these fi nancial instruments, various techniques have been developed to estimate their approximate fair values. These techniques are subjective in nature and involve various assumptions about the relevant pricing factors. Changes in these assumptions could signifi cantly affect the estimated fair values. Consequently, the fair values presented may not be indicative of the net realisable value. In addition, the calculation of the estimated fair value is based on market conditions at a specifi c point in time and may not be indicative of future fair values.

The following methods and assumptions were used by ING Real Estate to estimate the fair value of the fi nancial instruments.

FINANCIAL ASSETS CASH AND BANK BALANCES

The carrying amount of cash approximates its fair value.

NON-TRADING DERIVATIVES The fair values of derivatives held for non-trading purposes are based on quoted market prices, where available. For those securities not actively traded, fair values are estimated based on internal valuation techniques.

DESIGNATED AS AT FAIR VALUE THROUGH PROFIT OR LOSS The fair values of securities in the trading portfolio and other assets at fair value through profi t or loss are based on quoted market prices, where available. For those securities not actively traded, fair values are estimated based on internal valuation techniques.

INVESTMENTSThe fair values of equity securities are based on quoted market prices or, if unquoted, on estimated market values generally based on quoted prices for similar securities. Fair values for fi xed interest securities are based on quoted market prices, where available. For those securities not actively traded, fair values are estimated using values obtained from private pricing services or by discounting expected future cash fl ows using a current market rate applicable to the yield, credit quality and maturity of the investment.



24 FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES CONTINUEDLOANS AND ADVANCES For loans and advances that are repriced frequently and have had no signifi cant changes in credit risk, carrying amounts represent a reasonable estimate of fair values. The fair values of other loans are estimated by discounting expected future cash fl ows using interest rates offered for similar loans to borrowers with similar credit ratings. The fair values of mortgage loans are estimated by discounting future cash fl ows using interest rates currently being offered for similar loans to borrowers with similar credit ratings.

OTHER ASSETSThe carrying amount of other assets is not materially different to their fair value.

FINANCIAL LIABILITIES LOANS

The carrying values of loans that are repriced frequently approximate their fair values. The fair values of other loans are estimated by discounting expected future cash fl ows using interest rates offered for similar loans to borrowers with similar credit ratings.

FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSSThe fair values of securities in the trading portfolio and other liabilities at fair value through profi t or loss are based on quoted market prices, where available. For those securities not actively traded, fair values are estimated based on internal valuation techniques.

OTHER LIABILITIESThe carrying amount other liabilities are stated at their book value which is not materially different than fair value.



24 FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES CONTINUEDThe fair values of the fi nancial instruments carried at fair value were determined as follows:

METHODS APPLIED IN DETERMINING FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIES

Valuation Valuation Reference to technique technique not published price supported by supported by quotations market inputs market inputs Total

2008 ASSETS Non-trading derivatives – 54,970 – 54,970 Financial assets designated at fair value through profi t or loss 26,254 33,946 – 60,200 26,254 88,916 – 115,170 LIABILITIES Non-trading derivatives – 36,011 – 36,011 – 36,011 – 36,011

METHODS APPLIED IN DETERMINING FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIES

Valuation Valuation Reference to technique technique not published price supported by supported by quotations market inputs market inputs Total

2007 ASSETS Non-trading derivatives – 12,829 – 12,829 Financial assets designated at fair value through profi t or loss 58,193 35,451 – 93,644 58,193 48,280 – 106,473 LIABILITIES Non-trading derivatives – 8,796 – 8,796 – 8,796 – 8,796

REFERENCE TO PUBLISHED PRICE QUOTATIONSThis category includes fi nancial instruments whose fair value is determined directly by reference to published quotes in an active market. A fi nancial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis.

VALUATION TECHNIQUE SUPPORTED BY MARKET INPUTSThis category includes fi nancial instruments whose fair value is determined using a valuation technique (a model), where inputs in the model are taken from an active market or are market observable. If certain inputs in the model are not market observable, but all signifi cant inputs are, the instrument is still classifi ed in this category, provided that the impact of those elements on the overall valuation is insignifi cant. Included in this category are items whose value is derived from quoted prices of similar instruments, but for which the prices are (more than insignifi cantly) modifi ed based on other market observable external data.

VALUATION TECHNIQUE NOT SUPPORTED BY MARKET INPUTSThis category includes fi nancial assets/liabilities whose fair value is determined using a valuation technique (model) for which more than an insignifi cant level of the input in terms of the overall valuation are not market observable.

SENSITIVITIES OF FAIR VALUESReasonably likely changes in the assumptions used in the valuation techniques not supported by recent market transactions would not have a signifi cant impact on equity and net result.



25 INTEREST RESULT

2008 2007

Interest income on loans 1,908,361 1,394,225 Interest income on impaired loans 7,777 539 Total interest income on loans 1,916,138 1,394,764 Interest income on non-trading derivatives 19,372 27,005 Other interest income 9,240 86,097 Total interest income 1,944,750 1,507,866 Interest expense on deposits by banks 1,615,502 1,167,242 Interest expense other loans –10,074 20,479 Interest on non-trading derivatives 16,982 23,320 Other interest expense 63,136 155,651 Total interest expense 1,685,546 1,366,692 Interest result 259,204 141,174

Interest expense on deposits by banks mainly relate to ING Bank.

26 INVESTMENT INCOME

2008 2007

Rental income 285,613 307,754 Operating expenses –80,197 –60,964 Income from real estate investments 205,416 246,790 Dividend income 347 8,153 205,763 254,943

Realised gains/losses on disposal of equity securities –1,552 7,702 Realised gains/losses on debt securities –70 8,767 Change in fair value of real estate investments –354,276 88,765 Investment income –150,135 360,177

Income received from ING Group companies 9,716 9,716 Income received from third parties –159,851 350,461 Investment income –150,135 360,177

Income from real estate investments includes gross rental income from directly held real estate investments that are leased out to third parties, less direct operating expenses. ING Real Estate leases out its real estate investments under operating leases and defi nes a lease contact as a signed contract between landlord and tenant whereby the right to possession and use of property is transferred for a certain period of time. The period and conditions vary between regions and type of assets.



26 INVESTMENT INCOME CONTINUEDThe future aggregate minimum lease receivables under non-cancellable operating leases are as follows:

FUTURE OPERATING LEASE INCOME

2008 2007

Less than one year 189,915 196,884 One to fi ve years 533,305 606,894 Over fi ve years 372,874 722,196 1,096,094 1,525,974

CHANGE IN THE FAIR VALUE OF REAL ESTATE INVESTMENTS

Positive Negative revaluation revaluation 2008 2007

The Netherlands 15,132 8,862 6,270 1,112 Rest of Europe 78,999 16,951 62,048 45,976 North America – 387,790 –387,790 2,911 Asia – 35,646 –35,646 28,671 Australia 842 – 842 10,095 94,973 449,249 –354,276 88,765

An analysis on the risks relating to changes in fair value of real estate investments is included in note 39 ‘Risk management’ section.

27 NET COMMISSION INCOME FEE AND COMMISSION INCOME

2008 2007

Asset management fees 435,117 471,225 Brokerage and advisory fees –3,480 – Other 15,945 14,289 Fee and commission income 447,582 485,514 Management fees 1,783 4,842 Other 2,603 1,552 Fee and commission expenses 4,386 6,394 Net commission income 443,196 479,120

ASSET MANAGEMENT FEESAsset management fees are fees earned by ING Real Estate in its role as fund manager of real estate investment funds.

ING REAL ESTATE AS FUND MANAGER AND INVESTORING Real Estate sets up investment funds for which it acts as a fund manager and sole investor at the inception of the fund. Subsequently, ING Real Estate will seek third-party investors to invest in the fund, thereby reducing the interest of ING Real Estate. In general, ING Real Estate will maintain a small percentage of interest in these funds.

ING REAL ESTATE AS FUND MANAGERING Real Estate acts as fund manager for several funds. Fees related to these management activities are charged on at arm’s-length basis. In general, ING Real Estate as fund manager will hold these funds in a fi duciary capacity. Therefore, these funds are generally not included in the consolidated fi nancial statement of ING Real Estate.

Asset management fees is including transaction fees of EUR 27 million (2007: EUR 59 million) and incentive and out-performance fees of EUR 33 million (2007: EUR 44 million).

OTHER Other fee and commission income mainly relates to issued bank guarantees and lendings.



28 VALUATION RESULTS ON NON-TRADING DERIVATIVES

2008 2007

Change in fair value of derivatives relating to cash-fl ow hedges (ineffective portion) – –5,709 other non-trading derivatives –5,991 120 Net result on non-trading derivatives –5,991 –5,589 Valuation results on assets designated at fair value through profi t or loss (equity securities) –32,453 –12,250 Net valuation results –38,444 –17,839

29 NET TRADING INCOME

2008 2007

Results from foreign exchange transactions –9,903 –870 Income from property held for sale 46,946 28,939 37,043 28,069

Results from foreign exchange transactions include gains and losses from spot and forward contracts, options, futures, and translated foreign currency assets and liabilities.

Income from property held for sale relates to gains and losses recognised on the sale of real estate properties held for sale.

30 NET DEVELOPMENT INCOME

2008 2007

Project income 773,360 686,804 Project costs 651,113 591,345 Net development income 122,247 95,459

Net development income consists of income and costs related to development projects sold. Signifi cant projects sold in 2008 were Alcalá de Henares (Spain), Alsace (France), Kraanspoor (Netherlands), Genk Stadsplein (Belgium), Spuimarkt The Hague (Netherlands) and Hanspaulka Prague (Czech Republic).

31 OTHER INCOME

2008 2007

Other income 15,696 13,196 15,696 13,196

Other income mainly consist of sale of shares and other income received for restructuring loans.



32 OTHER IMPAIRMENTS OTHER IMPAIRMENT LOSSES AND REVERSALS OF IMPAIRMENTS RECOGNISED IN THE INCOME STATEMENT

Impairment Impairment Reversals of Reversals of losses losses impairments impairments Total Total 2008 2007 2008 2007 2008 2007

Property and equipment –1,463 –1,463 – – –1,463 –1,463 Property under development for third parties 92,209 37,571 –30,682 –44,546 61,527 –6,975 Goodwill – 378 – – – 378 Other intangible assets – – – – – – Other – – – – – – 90,746 36,486 –30,682 –44,546 60,064 –8,060

Impairments on Loans and advances are presented under Addition to loan loss provisions. Impairments on Associates are presented under Associates.

Impairment reversal of property under development for third parties is mainly due to a revised expectation of the sales price of certain projects.

33 STAFF EXPENSES

2008 2007

Salaries 291,748 286,536 Pension and other staff-related benefi t costs 12,812 10,984 Social security costs 27,655 22,227 Share-based compensation arrangements 3,900 3,585 Other staff costs 57,107 46,853 393,222 370,185

Share-based compensation arrangements includes an amount of EUR 2.4 million (2007: EUR 3.1 million) relating to equity-settled share-based payment arrangements and EUR 1.4 million (2007: EUR 0.4 million) relating to cash-settled share-based payment arrangements.

Employees of Investment Management, Finance and corporate staff working in the Netherlands are employed by ING Personeel VOF, a joint venture between ING Bank and ING Insurance. The direct remuneration costs of ING Personeel VOF employees working for ING Real Estate are invoiced at costs by ING Personeel VOF.

AVERAGE NUMBER OF EMPLOYEESThe following table provides a breakdown of the average number of employees (FTEs) during the year by business:

AVERAGE NUMBER OF EMPLOYEES

2008 2007

Management Board 6 6 Staff departments 284 245 Investment management business 1,529 1,288 Finance business 308 253 Development business 594 534 2,721 2,326

As at 31 December 2008 ING Real Estate employed 2,683 FTEs (2007: 2,549 FTEs).


33 STAFF EXPENSES CONTINUED KEY MANAGEMENT PERSONNEL COMPENSATION

Management Management Board Board 2008 2007

Base salary (1) 2,359 2,104 Short-term performance-related bonus(2) 750 3,739 Pension costs 133 175 Other (3) 600 298 3,842 6,316 Long-term incentives: Number of ING options granted(4) 54,425 60,938 Number of ING shares granted (4) 23,062 14,441 Fair market value of long-term incentives granted(5) 426 702

(1) In August 2008 David Blight resigned from the Management Board. Ronald Nijsen and Willem Steenhoven joined the Board in March 2007. Their remuneration is reported only for their period as a board member. The base salaries of the Management Board members were increased as of January 2008 on average by 8%, following a detailed benchmark survey in the real estate industry in 2007. For 2009 the base salaries are kept unchanged.

(2) The short-term performance-related cash bonuses over 2008 were reduced compared with 2007 due to lower performance of our business in 2008.

(3) Other key management remuneration elements were higher in 2008, due to one-off benefi t expenses.(4) For the reporting year 2008 the number of options and shares are reported that were granted in 2009 relating to performance in 2008.

This is a change in presentation compared with the Financial statements 2007. The 2007 comparative fi gures have been restated.(5) The fair market value of the long-term incentive award is calculated on the last trading day of the year for grants made to the Management

Board members for performance over the specifi ed year and is not updated for current market values. The 2007 comparative fi gure has been restated to conform with the 2008 presentation.

STOCK OPTION AND SHARE PLANSING Group has granted option rights on ING Groep N.V. shares and conditional rights on depositary receipts (share awards) for ING shares to a number of senior executives and staff of ING Real Estate. The purpose of the option and share schemes, apart from promoting a lasting growth of ING Group and its subsidiaries, is to attract, retain and motivate senior executives and staff. ING Group holds its own shares in order to fulfi l the obligations with regard to the existing stock option plan and to hedge the position risk of the options concerned (so-called delta hedge).

The option rights are valid for a period of fi ve or ten years. Option rights that are not exercised within this period lapse. Option rights granted will remain valid until expiry date, even if the option scheme is discontinued. The option rights are subject to certain conditions, including a certain continuous period of service. The exercise prices of the options are the same as the quoted prices of ING Groep N.V. shares at the date on which the options are granted.

The entitlement to the share awards for ING shares is granted conditionally. If the participant remains in the employment for an uninterrupted period of three years from the grant date, the entitlement becomes unconditional. In 2008 124,744 shares (2007: 96,336) have been granted to senior management and other employees remaining in the service of ING Real Estate.

Every year, the ING Group Executive Board will take a decision as to whether the option and share schemes are to be continued and, if so, to what extent.

CHANGES IN OPTION RIGHTS OUTSTANDING

Weighted Weighted Options Options average average outstanding outstanding exercise price exercise price 2008 2007 2008 2007

Opening balance 1,487,855 1,320,789 27.58 25.55 Granted 458,012 379,667 21.65 32.12 Exercised –9,731 –115,453 16.50 19.69 Forfeited –80,796 –40,113 30.13 27.01 Expired –623 –57,035 32.77 27.28 Closing balance 1,854,717 1,487,855 25.89 27.58

The weighted average share price at the date of exercise for options exercised in 2008 is EUR 24.07 (2007: EUR 32.48).



33 STAFF EXPENSES CONTINUED CHANGES IN OPTION RIGHTS NON-VESTED

Weighted Weighted Options Options average grant average grant non-vested non-vested date fair value date fair value 2008 2007 2008 2007

Opening balance 758,376 638,598 6.63 6.05 Granted 458,012 379,167 5.29 6.45 Vested –135,515 –220,276 4.43 5.58 Forfeited –48,619 –39,113 4.40 6.49 Closing balance 1,032,254 758,376 4.87 6.63

SUMMARY OF STOCK OPTIONS OUTSTANDING AND EXERCISABLE

Options Options outstanding Weighted exercisable Weighted as at average Weighted as at average Weighted 31 December remaining average 31 December remaining average Range of exercise price in euros 2008 contractual life exercise price 2008 contractual life exercise price

2008 0.00 – 15.00 122,561 4.18 12.55 122,561 4.18 12.55 15.00 – 20.00 138,947 5.46 18.70 130,850 5.20 18.71 20.00 – 25.00 698,054 8.12 22.28 254,699 6.25 23.28 25.00 – 30.00 260,475 2.82 29.02 260,475 2.82 29.02 30.00 – 35.00 580,802 7.82 32.41 – 0.00 0.00 35.00 – 40.00 53,878 2.18 36.36 53,878 2.18 35.36 1,854,717 822,463

SUMMARY OF STOCK OPTIONS OUTSTANDING AND EXERCISABLE

Options Options outstanding Weighted exercisable Weighted as at average Weighted as at average Weighted 31 December remaining average 31 December remaining average Range of exercise price in euros 2007 contractual life exercise price 2007 contractual life exercise price

2007 0.00 – 15.00 114,846 5.19 12.50 114,846 5.19 12.50 15.00 – 20.00 128,195 6.20 18.70 128,195 6.20 18.70 20.00 – 25.00 256,400 5.62 23.28 143,850 4.34 23.28 25.00 – 30.00 288,449 3.81 28.98 284,710 3.76 29.02 30.00 – 35.00 642,087 8.82 32.43 – 0.00 0.00 35.00 – 40.00 57,878 3.19 35.35 57,878 3.19 35.35 1,487,855 729,479

The aggregate intrinsic value of options outstanding and exercisable at 31 December 2008 was EUR 0 million and EUR 0 million respectively.

As of 31 December 2008 there was EUR 2 million of total unrecognised compensation costs related to stock options (2007: EUR 2 million). These costs are expected to be recognised over a weighted average period of 1.9 years (2007: 1.8 years).

The fair value of options granted is recognised as an expense under personnel expenses and is allocated over the vesting period of the options. The fair values of the option awards have been determined by using a Monte Carlo Simulation. This model takes the risk- free interest rate into account (3.55% to 4.92%), as well as the expected life of the options granted (fi ve to eight years), the exercise price, the current share price (EUR 18.70 to EUR 33.92), the expected volatility of the certifi cates of ING Group shares (25% to 39%) and the expected dividend yield (3.57% to 8.99%). The source for implied volatilities used for the valuation of the stock options is ING’s trading system. The implied volatilities in this system are determined by ING’s traders and are based on market data implied volatilities, not on historical volatilities.


34 OTHER OPERATING EXPENSES

2008 2007

Depreciation of property and equipment 6,742 6,280 Amortisation of intangible assets 9,423 2,593 Computer costs 16,776 17,347 Offi ce expenses 28,830 30,451 Travel and accommodation expenses 8,409 7,334 Advertising and public relations 34,294 49,600 External advisory fees 32,078 36,670 Addition/(releases) of provision for reorganisations and relocations 3,917 1,252 Other 19,209 37,662 159,678 189,189

35 TAXATION TAXATION BY TYPE


Current taxation 9,192 96,439 39,869 96,886 49,061 193,325 Deferred taxation –7,418 7,311 –22,833 –12,305 –30,251 –4,994 1,774 103,750 17,036 84,581 18,810 188,331

RECONCILIATION OF THE WEIGHTED AVERAGE STATUTORY INCOME TAX RATE TO ING REAL ESTATE’S EFFECTIVE INCOME TAX RATE

2008 2007

Result before taxation –191,596 722,911 Weighted average statutory tax rate 23.3% 30.6% Weighted average statutory tax amount –44,727 221,477 Associates exemption 14,271 2,110 Other income not subject to tax 59,291 –37,526 Expenses not deductible for tax purposes 13,222 6,114 Impact on deferred tax from change in tax rates –79 –2,926 Deferred tax benefi t from previously unrecognised amounts –30 83 Current tax benefi t from previously unrecognised amounts –44 –37 Write down/reversal of deferred tax assets –16,804 –11,718 Other adjustment to prior periods –6,290 10,754 Effective tax amount 18,810 188,331 Effective tax rate –9.8% 26.1%

The change in the effective tax rate in 2008 compared to 2007 is to a large extent caused by negative fair value changes for which no deferred tax asset is recognised.

Tax benefi ts from previously unrecognised amounts includes releases of tax provisions resulting from settlements with tax authorities. Signifi cant amounts included relate to closing of tax audits in the main tax jurisdictions of ING Real Estate.


CONSOLIDATED FINANCIAL STATEMENTSSegment reporting(amounts in thousands of euros, unless stated otherwise)

36 PRIMARY REPORTING FORMAT – BUSINESS SEGMENTSING Real Estate’s business segments relate to the internal segmentation by business lines. These include the business lines: Finance, Development and Investment Management. Each business line is headed by a member of the Management Board. The Management Board sets the performance targets and approves and monitors the budgets prepared by the business lines. Business lines formulate strategic, commercial and fi nancial policy in conformity with the strategy and performance targets set by the Management Board.

The accounting policies of the business segments are the same as those described under Accounting policies for the consolidated balance sheet and income statement. Transfer prices for inter-segment transactions are set at arm’s length. Corporate expenses are allocated to business lines based on time spent by head offi ce personnel, the relative number of staff or on the basis of income and/or assets of the segment.

ING Real Estate evaluates the results of its business segments using fi nancial performance measures called underlying result before taxation. Underlying result before taxation is defi ned as result before taxation excluding the impact of divestments and special items.

BUSINESS SEGMENTS

Investment Finance Development Management Total

2008 INCOME external 453,028 216,500 –166,369 503,159 Total income 453,028 216,500 –166,369 503,159 Segment result before taxation 293,287 76,727 –561,610 –191,596 Divestments – – – – Special items – – – – Underlying result before taxation 293,287 76,727 –561,610 –191,596 Segment assets 34,863,714 3,789,802 4,843,862 43,497,378 Segment liabilities 32,738,385 3,434,393 4,123,187 40,295,965 Share of result from associates – 3,502 –193,840 –190,338 Book value of associates – 18,869 1,028,524 1,047,393 CAPITAL EXPENDITURES ADDITIONS IN: Investment property 436 62,365 223,703 286,504 Property and equipment 758 1,720 7,800 10,278 SIGNIFICANT NON-CASH EXPENSES Depreciation and amortisation 541 2,127 13,497 16,165 Impairments – 58,501 32,822 91,323 Reversal of impairments – –21,726 –9,533 –31,259 Net addition to loan loss provisions 81,791 – – 81,791


36 PRIMARY REPORTING FORMAT – BUSINESS SEGMENTS CONTINUED BUSINESS SEGMENTS

Investment Finance Development Management Total

2007 INCOME external 324,562 151,267 798,082 1,273,911 Total income 324,562 151,267 798,082 1,273,911 Segment result before taxation 250,111 42,617 430,183 722,911 Divestments – – – – Special items – – – – Underlying result before taxation 250,111 42,617 430,183 722,911 Segment assets 29,951,186 3,683,417 5,315,591 38,950,194 Segment liabilities 27,673,507 3,527,280 4,137,042 35,337,829 Share of result from associates – 780 128,473 129,253 Book value of associates – 16,446 1,076,409 1,092,855

CAPITAL EXPENDITURES ADDITIONS IN: Investment property – 60,571 190,441 251,012 Property and equipment 11 3,339 15,437 18,787

SIGNIFICANT NON-CASH EXPENSES Depreciation and amortisation –754 4,475 5,152 8,873 Impairments – –18,735 10,674 –8,061 Reversal of impairments – – – – Net addition to loan loss provisions 314 – – 314



37 SECONDARY REPORTING FORMAT – GEOGRAPHICAL SEGMENTSING Real Estate’s three business lines operate in fi ve main geographical areas: Netherlands, Rest of Europe, North America, Asia and Australia. Geographical distribution of income is based on the origin of revenue.

GEOGRAPHICAL SEGMENTS

Netherlands Rest of Europe North America1 Asia Australia Total

2008 INCOME external 470,796 272,199 –142,551 4,170 –101,455 503,159 Total income 470,796 272,199 –142,551 4,170 –101,455 503,159 Segment result before taxation 182,677 87,623 –315,253 –20,674 –125,969 –191,596

Segment assets 24,303,949 10,699,601 7,177,342 834,155 482,331 43,497,378

CAPITAL EXPENDITURES ADDITIONS IN: Investment property 18,517 142,020 111,659 693 13,614 286,504 Property and equipment 3,314 4,746 1,805 390 23 10,278

(1) North America includes the US and Canada

GEOGRAPHICAL SEGMENTS

Netherlands Rest of Europe North America1 Asia Australia Total

2007 INCOME external 349,948 317,524 374,317 120,814 111,308 1,273,911 Total income 349,948 317,524 374,317 120,814 111,308 1,273,911

Segment result before taxation 157,860 172,031 209,777 97,348 85,895 722,911

Segment assets 22,120,686 9,345,646 6,141,420 1,028,644 313,798 38,950,194

CAPITAL EXPENDITURES ADDITIONS IN: Investment property – 158,775 78,546 1,039 12,652 251,012 Property and equipment 1,105 7,158 8,794 1,453 277 18,787

(1) North America includes the US and Canada


Note to the consolidated cash fl ow statement(amounts in thousands of euros, unless stated otherwise)

38 INTEREST INCLUDED IN NET CASH FLOW INTEREST RECEIVED AND PAID

2008 2007

Interest received 1,865,303 1,170,952 Interest paid 1,610,369 952,120 254,934 218,832



39 RISK MANAGEMENTING Real Estate faces several risks such as credit, liquidity, interest rate, real estate, equity and foreign currency risk. This chapter presents information about ING Real Estate’s exposure to each of the above risks and ING Real Estate’s objectives, risk policies and processes for measuring and managing these risks. Beyond that there are also operational, information, security and compliance risks attached to doing business. These types of risk are described in the operational review section of this report, not in this section.

The structure of this risk management section is as follows:

Key developments risk management 2008•

Risk management governance•

Risk management policies•

Credit risk•

Liquidity risk•

Market risk (which also includes real estate risk)•

KEY DEVELOPMENTS RISK MANAGEMENT 2008Although the whole of 2008 was characterised by signifi cant turmoil it was especially in the second half of the year, that volatility in the fi nancial markets intensifi ed. Equity markets came down signifi cantly and real estate prices were under pressure. Moreover credit spreads widened materially both in the US and Europe. As a result of ongoing and unprecedented volatility in the global fi nancial and real estate markets ING Real Estate incurred negative revaluations on its investment portfolio.

In a turbulent year like 2008, where the spotlights were put on risk management across the fi nancial industry it is diffi cult to single out particular key developments. On a strategic level the foundations for refocus of our risk management departments were already laid well in 2007 upon the early signs of the crisis – which were further accelerated during the course of 2008. Furthermore our increased conservative approach with respect to lending standards and the tight monitoring over Swiss Francs, individual sellers of residential properties and the covenant system of foreign unsecured loans paid of in 2008.

Other key achievements include the successful introduction of the Signature Approval Process (SAP) within Investment Management and Development, which has decreased processing time of investment and lending proposals and improved co-operation between the business lines and ING Real Estate staff departments. The risk awareness was increased throughout 2008 which has led to refocus the business attitude from growth to portfolio management. A fi nal key achievement was the introduction of the Risk Management Report, a concise overview of all risk related fi gures and narrative of all risk departments.

RISK MANAGEMENT GOVERNANCE Risk governance framework

ING Real Estate has a comprehensive risk management framework, consisting of a Central Risk Management Department (CRM), Business & Operational Risk and Compliance Department for each individual business line and a centralised Market Risk Department. Each risk department is set up independent from the business lines which they support and reports directly to the Chief Risk Offi cer (CRO) of ING Real Estate, who is part of the Management Board of ING Real Estate.

The Central Risk Management Departments manage portfolio risk for each business line by way of specifi c risk policies and transactional risk though the Signatory Approval Process. This SAP-process is in place for each business line and executed for each individual transaction. The process itself consists of transaction approval by way of dual signatories, one representing risk management and the other representing business line. In the evaluation the outcome of extensive transaction due diligence is presented, including transaction, funding and real estate typical characteristics and a calculation of a risk adjusted return on capital (RAROC) with regard to the transaction. To the extent a transaction falls outside of the delegated authorities granted by the Executive Board of ING Group, such transaction is processed at the highest credit risk committees at ING Group level, the ING Group Investment Committee (GIC) for Investment Management and Development and the ING Group Credit Committee – Transaction Approval (GCCTA) for Finance. The GIC meets on a monthly basis. The GCCTA meets two times a week.

The risk profi le of ING Real Estate with respect to market risk is managed within limits set by and in accordance with policies of ING Group. The overall risk profi le is monitored by Asset and Liability Committees (ALCOs) and the Finance & Risk Committee. The ALCO and Finance & Risk Committee Committee of ING Real estate both meet once a month to evaluate and advice on the overall risk profi le of ING Real Estate.

RISK MANAGEMENT POLICIESING Real Estate’s risk management policies are captured in risk policy papers. As ING Real Estate focuses on investment management, lending and development activities, policy papers are in place for each of these business lines, and where necessary differentiating for specifi c transaction characteristics. The policy papers are designed to identify and analyse risks, to set appropriate risk limits and controls, and to monitor the risks and adherence to limits. The policies and systems are regularly reviewed and updated to refl ect changes in market conditions and ING Real Estate’s activities.

CONSOLIDATED FINANCIAL STATEMENTSRisk management(amounts in thousands of euros, unless stated otherwise)


39 RISK MANAGEMENT CONTINUEDING Real Estate’s investment management activities, the core activity of Investment Management, are the management of real estate funds for third party investors. The funds include listed and unlisted real estate funds, funds-of-funds, listed and unlisted real estate securities funds and real estate debt investment funds. They cover the various real estate classes, including offi ces, shopping centres, residential areas, industrial buildings and infrastructure. The Investment Risk Policy Paper describes the framework for assessing, monitoring, reporting and managing the risks associated with the allocation of bridge and seed proprietary capital to each funds initiative. It indicates what the risk-adjusted return requirements are as well as the allocation and exposure limits.

ING Real Estate’s lending activities, which are the main business of Finance, concentrates on lending to professional real estate investors secured by fi rst or second lien mortgages. Unsecured real estate lending is only allowed to prime corporate clients based on balance sheet ratio requirements and covenants. Finance’s policy papers focus on geographical diversifi cation and limiting unsecured fi nancing and certain types of assets. Sector risk is captured by maximising Loan-To-Value ratios per type of transaction.

ING Real Estate is actively developing real estate projects, the main business of Development, throughout Continental Europe and the UK in each of the segments Retail, Residential en Offi ces. As such the policy of Development covers the main risks in these activities and prescribes how these risks should be handled, both qualitatively and quantitatively. This includes amongst others avoiding large upfront commitments, limited exposure to planning risk, thorough research and ensuring suffi cient pre-sales and pre-lease before starting construction. While the real estate investment risk purely depends on the characteristics of investment made, the project development risk is determined by evaluating the potential deviation in expected project results. These are driven by the costs (activated costs and committed expenditures) and benefi ts of the project. As such a separate model is in place to determine the project development risk, taking into account process elements like go-no-go decisions and specifi c development and construction elements which include amongst others the market rent, investor yields, market sales prices, vacancy, construction incidents and construction delays. An adequate risk/return balance should be applicable to all projects. Exposures are managed at both project and portfolio level. At a portfolio level attention is paid to diversifi cation across countries and segments.

To manage its traditional market risks ING Real Estate strictly adheres to the ING Group policies which have been endorsed by the asset and liability committee (ALCO) of ING Bank. As a result the interest rate and foreign exchange risks in each business activity are minimised to fractional positions only, supporting the business model of ING Real Estate which is focused on the development, fi nancing and management of real estate.

RISK METRICSCredit risks, market risks, business risk and operational risks are evaluated quantitatively through various risk metrics. The quantitative evaluation is harmonised with the risk evaluation of ING Group and includes:

the Earnings at Risk (EaR): the potential reduction in accounting earnings over the next year relative to expected accounting earnings, during •

a moderate (i.e. ‘1 in 10’) stress scenario.

Capital at Risk (CaR): the potential reduction of the current net asset value (based on fair values) over the next year relative to the expected •

value during a moderate (i.e. ‘1 in 10’) stress scenario.

Economic Capital (ECAP): the amount of capital that is required to absorb unexpected losses in times of severe stress (i.e. a ‘1 in 2000’ •

scenario) given ING Group’s ‘AA‘ target rating.

Value at Risk (VaR): the maximum one day marked-to-market value change of ING Real Estate’s assets and liabilities as a result of a ‘1 in 100’ •

change in fi nancial market conditions (VaR 1d, 99%) with respect to foreign currency and interest rate risk.



39 RISK MANAGEMENT CONTINUEDThe main differences and similarities between the risk metrics are illustrated below:

RISK METRICS

Earnings at risk Capital at risk Economic capital Confi dence interval 90% 90% 99.95% Stressed metric Accounting earnings Value Value Deviation from Expected accounting earnings Current net asset value based Current net asset value based (over next year) on fair values (over next year) on fair values (over next year) Interpretation Potential accounting earnings Potential value reduction of Potential value reduction reduction against expectation net value during a moderate of net value during an during a moderate stress stress scenario (i.e. 1 in 10) extreme stress scenario scenario (i.e. 1 in 10) (i.e. 1 in 2000)

The risk measures mentioned above are measures to quantify and compare on a like-for-like basis the risks within ING Real Estate. Evaluation of these risks and the total risk profi le takes place by monitoring the relationship between return and risk, for instance by reviewing the ‘RAROC’, the risk adjusted return on economic capital. Simultaneous evaluation of EaR and CaR takes place in the Risk Dashboard, a concept that is in place for each individual business line of ING Group. It evaluates quantitatively the overall risk profi le of ING Real Estate, and as such provides insight into the sustainability of earnings and the fi nancial strength, reviewed on a quarterly basis by the Management Board of ING Real Estate. The Risk Dashboard of ING Real Estate forms an integral part of the Risk Dashboard of ING Group.

The total Economic Capital as at December 2008 amounted to EUR 2.0 billion (2007: EUR 1.4 billion).

The following paragraphs describe the various risk categories sub-divided by types of risk and the measurement techniques employed for each risk type.

CREDIT RISK Within ING Real Estate credit risk is the risk of potential loss due to default by ING Real Estate’s debtors. Within ING Real Estate this risk is infl uenced by a multitude of factors, including lender specifi c characteristics, real estate specifi c characteristics and general market conditions. Credit risk arises mainly in Finance’s lending activities.

Credit rating methodologyTo determine the individual elements constituting credit risk in the lending portfolio (probability of default, loss given default and exposure at default), Finance has developed its own models which are compliant with the New Basel Capital Accord (Basel II) and are based on M-KMV methodology. In addition they are used to support the loan loss provisioning process and risk cost projections.

Risk management of the secured lending portfolio focuses on the credit risk of a lending facility, which is to a signifi cant extent determined by the rental income producing capacity of the underlying real estate asset. The probability of default of the facility is captured by the Income Producing Real Estate (IPRE) rating model. The underlying asset value is managed by either internal appraisal, by international expert valuations agencies or by a valuation model.

The credit risk of the unsecured lending portfolio is largely determined by the quality of the counterparty or the borrower. The rating of a borrower is determined by ING Group-wide rating models other than the specifi c Finance IPRE rating model.

Restructuring policyIn the event of default or potential default of interest and/or amortisation repayments, re-assessment and monitoring of the counterparty’s fi nancial position and underlying assets is necessary. A special department at Finance has been tasked with problem loans management and watch list fi le monitoring. This Credit Restructuring Department can employ a credit enhancement process to restructure the credit facility in which the client relationship is maintained. This can be accomplished through many means available to the creditors, the most common of which are (1) extending the repayment period, (2) selling assets, (3) selling business lines of the debtor, (4) forgiving part of the fi nancial obligations and (5) a combination of the above. The decision to enter into such a restructuring is made only after careful internal assessment and an internal approval. If ING Real Estate wishes to end the client relationship, the objective is to obtain a recovery or full repayment of the loan and interest payment. Borrowers who are not in default but who do have an increased risk profi le are monitored by means of a watch list. The Credit Restructuring Department is also responsible for the calculation of the loan loss provisions for individual problem loans and the collective loan portfolio.


39 RISK MANAGEMENT CONTINUED Collateral policy

It is Finance’s objective that 65% of the total portfolio consists of secured loans at minimum. Depending on the quality of the real estate asset, the type of fi nancing and the borrower and Loan-to-Value, collateral requirements have been defi ned in the various policy papers for secured fi nancing.

The major part of the portfolio is secured by mortgage on commercial property and sometimes enhanced by other collateral.

Past-due obligationsWe continually measure our portfolio in terms of payment arrears. Generally, an obligation is considered ‘past-due’ if a payment of interest or principal is more than one day late. In practice, the fi rst 5-7 days after an obligation becomes past due are considered to constitute operational risk. After this period, letters will be sent to the obligor reminding him of his (past due) payment obligations. If arrears still exist after 90 days, the obligation is generally considered as impaired and transferred to the Credit Restructuring Department. In order to reduce the number of arrears, we encourage our clients to authorise direct debiting from their accounts to ensure timely payments.

There is no signifi cant concentration of a particular type of loan structure in the watch list or in the problem loan portfolio. Generally, all loans with past-due fi nancial obligations of more than 90 days past due are automatically reclassifi ed as impaired. However, there can also be other reasons for declaring a loan impaired. These include, but are not limited to, our assessment of the customer’s perceived inability to meet his fi nancial obligations, or the customer fi ling for bankruptcy or bankruptcy protection. In some cases, a material breach of fi nancial covenants will also trigger a reclassifi cation of a loan to the impaired category.

Repossession policyIt is ING Real Estate’s general policy not to take repossession of assets of defaulted debtors. Rather Finance attempts to sell the assets from within the legal entity that has pledged these assets to Finance, in accordance with the respective collateral or pledge agreements signed with the obligors. In those cases where ING Finance does take possession of the collateral, ING Finance generally attempts to sell the asset as quickly as possible to prospective buyers. Based on internal assessments to determine the highest and quickest return for Finance, the sale of the repossessed assets could be the sale of the company as a whole (or at least all of its assets), or the assets could be sold over time.

Credit exposureThe following table presents the maximum exposure to credit risk of balance sheet and off balance sheet fi nancial instruments.

ING’s Real Estate’s maximum credit exposure as at 31 December 2008 and 2007 is represented as follows:

MAXIMUM CREDIT EXPOSURE

2008 2007

Cash and bank balances 555,635 337,475 Non-trading derivatives 54,970 12,829 Designated as at fair value through profi t or loss 60,200 93,644 Loans and advances public authorities 22,090 28,063 loans to banks 319,886 192,712 secured by mortgages 29,789,232 25,080,994 guaranteed by credit institutions – 16,429 other personal lending 1,181 6,927 other corporate lending 4,455,577 4,202,895 Other receivables 584,128 849,305 Maximum credit exposure on balance sheet 35,842,889 30,821,273

Off-balance sheet credit commitments guarantees 826,936 656,530 irrevocable facilities 2,664,306 3,572,609 Maximum credit exposure off balance sheet 3,491,242 4,229,139

Maximum credit exposure 39,334,141 35,050,412



39 RISK MANAGEMENT CONTINUEDThe maximum credit exposure for relevant items on the balance sheet is the balance sheet carrying value for the relevant fi nancial assets. For the off-balance sheet items the maximum credit exposure is the maximum amount that could be required to be paid.

Concentrations of credit risk exist when a number of counterparties are engaged in similar activities, or operate in the same geographical areas or industry sectors and have similar economic characteristics so that their ability to meet contractual obligations is similarly affected by changes in economic, political or other conditions. The following tables present the credit risk exposure by geographical region, by industry and by rating class.

LOANS AND ADVANCES BY GEOGRAPHICAL REGION

2008 2007

The Netherlands 55% 55% Rest of Europe 32% 35% North America 13% 10% 100% 100%

LOANS AND ADVANCES BY INDUSTRY

2008 2007

Real Estate companies 88% 70% Non-bank fi nancial institutions 4% 17% Service companies 2% 5% Builders and contractors 1% 3% Other 5% 5% 100% 100%

The top 25 clients represent 29% of the total loan portfolio.

LOANS AND ADVANCES BY RATING CLASS

2008 2007

A 5% 8% BBB 19% 23% BB 66% 59% B 7% 9% Watch/problem grade 3% 1% 100% 100%

Collateral Finance values the market value of the collateral on a annual basis. The loan portfolio is reviewed annually on a transactional level and quarterly on a portfolio level to monitor Loan-To-Value ratios, covenants and the risk profi le of the client. Appropriate actions are taken to improve a deteriorated security position. In 2008 Finance obtained no assets (2007: none) by taking possession of collateral held as security.

Restructured loans Restructuring activity is designed to manage customer relationships, maximise collection opportunities and, if possible, avoid foreclosure or repossession. The total number of clients with renegotiated loans that would otherwise be past due or impaired is 69 as at 31 December 2008 (2007: 66). Total outstanding amount (inclusive overdue interest payments) of these loans amounts to EUR 899 million (2007: EUR 141 million).


39 RISK MANAGEMENT CONTINUED Impairment losses

Finance assesses at each balance sheet date whether there is objective evidence that a fi nancial asset or group of fi nancial assets is impaired. A fi nancial asset or a group of fi nancial assets is impaired and impairment losses are incurred if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash fl ows of the fi nancial asset or group of fi nancial assets that can be reliably estimated.

Objective evidence that a fi nancial asset or group of assets is impaired includes, but is not limited to:

The borrower has sought or has been placed in bankruptcy or similar protection and this avoids or delays repayment of the fi nancial asset;•

The borrower has failed in the repayment of principal, interest or fees and the payment failure has remained unsolved for a certain period;•

The borrower has evidenced signifi cant fi nancial diffi culty, to the extent that it will have a negative impact on the future cash fl ows of the •

fi nancial asset.

Finance fi rst assesses whether objective evidence of impairment exists for fi nancial assets that are individually signifi cant. If Finance determines that no objective evidence of impairment exists for an individually assessed fi nancial asset, whether signifi cant or not, it includes the asset in a group of fi nancial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment.

For the purposes of a collective evaluation of impairment, fi nancial assets are grouped on the basis of similar credit risk characteristics. Those characteristics are relevant to the estimation of future cash fl ows for groups of such assets by being indicative of the debtors’ ability to pay all amounts due according to the contractual terms of the assets being evaluated.

Financial assets that are past due at 31 December 2008 but not impaired amount to EUR 7.0 million (2007: EUR 6.5 million).

MARKET RISK Market risk encompasses the risks that ING Real Estate runs unexpected losses as a result of market related incidents. This risk category includes fi nancial risks like interest rate risk, foreign currency risk and derivative exposure, but also real estate investment risk and real estate development risk. Real estate price risk arises from the possibility that real estate prices will fl uctuate affecting both the value of real estate assets and earnings related to real estate activities.

Due to the fact that the Board of ING Group and ING Real Estate decided that risks relating to interest risk and foreign currency risk have to be maintained at absolute frictional levels, the main source of market risk is related to the real estate exposure of ING Real Estate. This risk arises mainly in the investment management activities and the development activities of ING Real Estate and is infl uenced by a multitude of factors, including real estate specifi c characteristics, fund and/or project related characteristics and general market conditions.

MARKET RISK METHODOLOGYTo determine the individual elements constituting real estate market risk in ING Real Estate’s portfolio specifi c models have been developed for investment risk (for which the price risk on real estate is the main driving risk factor) and project developing risk. Real estate price risk includes both the market risks in the investment portfolio and the development risk of ING Real Estate. The real estate price risk for ING Real Estate is calculated by stressing the underlying market variables. The stress scenario does at a portfolio level take into account all diversifi cation effects across regions and real estate sectors. Also, the leverage of participations in the real estate investment funds is taken into account. For the real estate development process, in addition to price risk, the risk drivers of vacancy rate and construction delays are taken into account. Furthermore the risk model differs for each development phase (e.g. research, development, construction) to appropriately refl ect the risk taken in each phase. Using correlations, all risk drivers, and stages are used to calculate a possible market value loss. The models have been developed by the Risk Management department of ING Real Estate in close cooperation with the business lines and with risk management departments of ING Group. These models compute Economic Capital, Capital at Risk and Earnings at Risk for all relevant real estate risks at ING Real Estate. The models account for the diversifi cation effects across projects, regions and real estate sectors. They use country specifi c stress scenarios, which include market movements.

MARKET RISK EXPOSURES Real estate risk exposure

ING Real Estate faces real estate risk with respect to the following asset classes:

Investment property (directly held by ING Real Estate);•

Participations in real estate investment funds (associates and fi nancial assets at fair value through profi t or loss);•

Properties under development or held for sale.•

ING Real Estate classifi es property in use by other ING subsidiaries as investment property. ING Real Estate itself does not hold property in own use.



39 RISK MANAGEMENT CONTINUED RECONCILIATION BETWEEN CARRYING AMOUNT AND REAL ESTATE EXPOSURE Investment property 2,910 Participations in real estate investment funds 1,108 Properties under development or held for sale 3,029 Total 7,047

Minority stake on Canadian assets –880 Leverage of real estate funds 645 Other 88 Total real estate exposure 6,900

Revalued through the income statement 4,386 Not revalued through the income statement 2,514

ING Real Estate’s real estate exposure (i.e. including leverage and committed purchases and corrected for the minority stake on Canadian assets) is EUR 6.9 billion of which EUR 4.4 billion is revalued through the income statement and EUR 2.5 billion is not revalued through the income statement (except for impairments) but is booked at cost or lower net realisable value.

Note that total real estate exposure differs from the equity at stake since real estate exposure includes leverage, committed purchases and is corrected for signifi cant Canadian minority stake. As such while the total real estate exposure that is revalued through the income statement amounts to EUR 4.4 billion the balance sheet value at stake is limited to EUR 3.1 billion (corrected for Canadian minority stake).

The real estate exposure of ING Real Estate is well diversifi ed across real estate segments and regions. Please note that this exposure, which is at risk for ING Real Estate, differs from the Real Estate exposure of ING Group due to the fact that within ING Group the insurance division also has real estate exposure on its balance sheet. In addition it is important to also distinguish the real estate risk exposure of ING Real Estate from the ‘assets under management’ (AUM) of ING Real Estate due to the fact that these AUM are mainly managed for third parties. As a consequence the risk embedded in the AUM class is related only to the fee income of ING Real Estate and no direct price risk is run on those assets.

Total real estate exposure of ING Real Estate is distributed as follows:

TOTAL REAL ESTATE EXPOSURE

Residential Retail Offi ce Industrial Other Total

2008 Europe 645 1,307 1,213 214 457 3,836 US 151 48 96 46 123 464 Australia 25 348 94 126 180 773 Asia 244 277 99 7 19 646 Other 3 165 31 857 125 1,181 1,068 2,145 1,533 1,250 904 6,900


2007 Europe 660 1,193 988 95 226 3,162 US 202 54 120 42 84 502 Australia 77 510 81 276 35 979 Asia 226 409 95 9 3 742 Other 149 125 – 1,377 8 1,659 1,314 2,291 1,284 1,799 356 7,044

84 —2008 ING Real Estate Annual Report

39 RISK MANAGEMENT CONTINUED REAL ESTATE EXPOSURE REVALUED THROUGH THE INCOME STATEMENT (INVESTMENT PROPERTY AND PARTICIPATIONS IN REAL ESTATE

INVESTMENT FUNDS)


2008 Europe 1 454 1,002 133 98 1,688 US 73 41 96 46 99 355 Australia 3 261 93 126 33 516 Asia 244 277 99 7 19 646 Other 3 165 31 857 125 1,181 324 1,198 1,321 1,169 374 4,386

REAL ESTATE EXPOSURE NOT REVALUED THROUGH THE INCOME STATEMENT (AT COST OR LOWER NET REALISABLE VALUE, IMPAIRMENTS THROUGH THE INCOME STATEMENT)


2008 Europe 644 853 211 81 359 2,148 US 78 7 – – 24 109 Australia 22 87 1 – 147 257 Asia – – – – – – Other – – – – – – 744 947 212 81 530 2,514

The crisis in the fi nancial markets could possibly have future various adverse economic implications, on the global credit market, and could possibly lead to a further slowdown of the world economy in general. These global economic factors could possibly have future negative consequences for the value of real estate assets and the results of the entity due to potential increases of real estate yields and therefore decreases in value of investment properties, impairment of goodwill and investments in associated companies and decreases in fair value or impairment of fi nancial instruments and other assets.

The sensitivity of ING Real Estate’s real estate and the impact on income statement is shown in table below. The table shows an impact on the income statement if the real estate prices decrease by 1%. An increase of 1% in real estate prices will result in a similar positive impact on result. This table excludes the sensitivity of the portfolio of real estate assets not revalued through the income statement. Impairments on this portfolio could also have a negative impact on the result. Impairments are recognised if the carrying amount of the property under development or held for sale exceeds its net realisable value (estimated selling price minus costs to complete minus costs to sell).

SENSITIVITY ANALYSIS REAL ESTATE EXPOSURE


2008 Europe 0.0 –4.5 –10.0 –1.3 –1.0 –16.8 US –0.7 –0.4 –1.0 –0.5 –1.0 –3.6 Australia 0.0 –2.6 –0.9 –1.3 –0.3 –5.1 Asia –2.4 –2.8 –1.0 –0.1 –0.2 –6.5 Other 0.0 –1.7 –0.3 –8.6 –1.3 –11.9 –3.1 –12.0 –13.2 –11.8 –3.8 –43.9

The Economic Capital due to real estate market risk amounted to EUR 1.2 billion (2007: EUR 1.0 billion), which is 61% (2007: 70%) of the total Economic Capital of ING Real Estate. The other risks include credit risk, non-fi nancial risk, fi nancial market risks and transfer risk.



39 RISK MANAGEMENT CONTINUED Interest rate and foreign exchange rate risk exposure

While the fi nancial risks of ING Real Estate are maintained at frictional levels, ING Real Estate does employ a number of risk measures to monitor these market risks. The most important measure in this respect is the Value-at-Risk (VaR).

VaR quantifi es, based on a one-sided confi dence level of 99%, the maximum overnight loss that could occur due to changes in risk factors (e.g. interest rates and foreign exchange rates) if positions remain unchanged for a time interval of one day. The VaR of ING Real Estate amounted to EUR 0.95 million at year end (2007: EUR 0.96 million).

LIQUIDITY RISKLiquidity risk is the potential risk that ING Real Estate will be unable to meet its obligations as they come due because she cannot: liquidate assets or obtain adequate funding (‘funding liquidity risk’); or easily unwind or offset specifi c exposures without signifi cantly lowering market prices because of inadequate market depth or market disruptions (‘market liquidity risk’).

LIQUIDITY RISK POLICYING Real Estate adheres to the ING Bank funding and liquidity risk policy in place. Consequently, structural non-frictional open liquidity positions at ING Real Estate are prohibited. Temporarily open positions due to the specifi c nature of the real estate business can only exist after approval of ALCO ING Bank.

The ALCO ING Real Estate maintains policies and procedures for all funding and liquidity risk related issues at ING Real Estate level and reviews compliance to this policy. ALCO ING Real Estate reviews future balance sheet projections on liquidity and funding aspects and provides information on local funding and liquidity problems to ensure timely and correct information to ING Bank.

On a daily basis the Treasury department of ING Real Estate manages and co-ordinates the funding activities of ING Real Estate within the guidelines set by ALCO ING Real Estate. The Treasury of ING Real Estate is not allowed to breach the frictional liquidity risk limits in place.

On a periodic basis Market Risk Management at ING Real Estate monitors the liquidity position of ING Real Estate and the compliance to the liquidity risk limit. In case of limit violations Market Risk Management of ING Real Estate proposes risk mitigating actions.

LIQUIDITY RISK EXPOSUREReference is made to note 15 where a table is provided summarising the maturity profi le of ING Real Estate’s assets and liabilities at year-end.

40 SUBSEQUENT EVENTSOn 9 April 2009 ING Group announced a new strategy. The strategy includes decisive action to reduce complexity and risk. In order to reduce complexity it will be separating the Bank and Insurer, under one Group umbrella. As a result of the changes announced by ING Group, a stand-alone Real Estate company no longer fi ts into the refocused business. Therefore, the following organisational realignment is proposed:

Real Estate Investment Management to become part of a new ING-wide global investment management business, once it has been created.•

Real Estate Finance and Real Estate Development to become part of ING Commercial Bank, as ING Wholesale Banking will be called in the •

future.

By decoupling the three areas and aligning the businesses differently within the ING organisation we will maintain our specialist client models while increasing our focus on reducing risk and capital exposure, particularly for Real Estate Development and Real Estate Investment Management. These organisational changes are subject to Works Council approval and will occur in 2009 as soon as it is practical.

The proposed organisational realignment of ING Real Estate within ING Group does not impact the ability to continue business activities.

AUTHORISATION OF FINANCIAL STATEMENTS

The Hague, 20 April 2009

MANAGEMENT BOARDING Real Estate B.V.


Parent company balance sheet

For the years ended 31 December before result appropriation (in thousands of euros) Notes 2008 2007

ASSETS

Amounts due from ING Bank 43,426 –

Loans and advances to ING Real Estate Group companies 32,889,143 29,063,616

Investments in ING Real Estate Group companies 1 2,239,912 2,365,270

Intangible assets 2 4,061 3,015

Equipment 3 1,248 384

Other assets 4 523,533 685,415

Total assets 35,701,323 32,117,700

LIABILITIES

Amounts due to ING Bank 31,708,664 28,664,031

Loans and advances due to ING Real Estate Group companies 825,239 327,343

Other liabilities 5 499,000 358,027

Total liabilities 33,032,903 29,349,401

EQUITY

Share capital 227 227

Share premium 1,447,131 1,447,131

Share of associates reserve 79,466 79,466

Currency translation reserve –129,076 –49,347

Other reserves 1,359,036 809,335

Unappropriated result –88,364 481,487

Total equity 6 2,668,420 2,768,299

Total liabilities and equity 35,701,323 32,117,700

References relate to the notes starting on page 89 which form an integral part of the parent fi nancial statements.



For the years ended 31 December (in thousands of euros) 2008 2007

Result of ING Real Estate Group companies after taxation –69,238 508,270

Other results after taxation –19,126 –26,783

Net result –88,364 481,487

Parent company income statement

Share of Currency Share associates translation OtherFor the years ended 31 December (in thousands of euros) Total Share capital premium reserve reserve reserves

Balance as at 31 December 2006 2,320,681 227 1,447,131 – 15,260 858,063

Changes in hedge reserves –1,308 – – – – –1,308

Employee stock options and share plans 3,085 – – – – 3,085

Exchange rate differences –24,088 – – – –64,607 40,519

Other –11,558 – – 79,466 – –91,024

Net result 481,487 – – – – 481,487

Dividend – – – – – –

Balance as at 31 December 2007 2,768,299 227 1,447,131 79,466 –49,347 1,290,822

Changes in hedge reserves 66,433 – – – – 66,433

Employee stock options and share plans 4,028 – – – – 4,028

Exchange rate differences –79,729 – – – –79,729 –

Other –2,247 – – – – –2,247

Net result –88,364 – – – – –88,364

Dividend – – – – – –

Balance as at 31 December 2008 2,668,420 227 1,447,131 79,466 –129,076 1,270,672

Other reserves include Revaluation reserve, Retained earnings and Unappropriated result.

Parent company statement of changes in equity



BASIS OF PRESENTATIONThe parent company accounts of ING Real Estate are prepared in accordance with the fi nancial reporting requirements included in Part 9 of Book 2, of the Dutch Civil Code. The accounting policies with regard to presentation and disclosures are in accordance with the fi nancial reporting requirements included in Part 9 of Book 2, of the Dutch Civil Code. The principles of valuation and determination of results stated in connection with the consolidated balance sheet and income statement are also applicable to the parent company balance sheet and income statement. Investments in Group companies and investments in associates are initially recognised at cost and subsequently accounted for by the equity method of accounting.

The income statement has been drawn up in accordance with Section 402, Book 2, of the Dutch Civil Code.

A list containing the information referred to in section 379 (1), Book 2, of the Dutch Civil Code has been fi led with our offi ce of the Commercial Register of The Hague, in accordance with section 379 (5), Book 2, of the Dutch Civil Code.

Changes in balance sheet values due to changes in the Revaluation reserve of the associates are refl ected in the Share of associates reserve, which forms part of Shareholders’ equity. Changes in balance sheet values due to the results of these associates, accounted for in accordance with ING Real Estate accounting policies, are included in the income statement. Other changes in the balance sheet value of these associates, other than those due to changes in share capital, are included in Other reserves, which forms part of Shareholders’ equity.

A statutory reserve is carried at an amount equal to the share in the results of associates since their fi rst inclusion at net asset value less the amount of profi t distributions to which rights have accrued in the interim. Profi t distributions which can be repatriated to the Netherlands without restriction are likewise deducted from the Share of associates reserve.

Accounting policies for the parent company fi nancial statements


ASSETS1 INVESTMENTS GROUP COMPANIES

Balance sheet Balance sheet Interest held value Interest held value (%) 2008 (%) 2007

Name of investee ING Real Estate Finance N.V. 100 1,754,979 100 1,582,713 ING Real Estate Investment Management Holding B.V. 100 263,207 100 223,457 ING Insurance Investments Holdings B.V. 100 –178,820 100 250,747 ING Real Estate Development Holding B.V. 100 314,907 100 250,887 ING Real Estate Finance (USA) LLC 100 84,945 100 58,386 ING Real Estate Bishop B.V. 100 –1,305 100 –1,413 Other 1,999 493 2,239,912 2,365,270

CHANGES IN INVESTMENTS IN GROUP COMPANIES

2008 2007

Opening balance 2,365,270 2,106,845 Results from Group companies –69,238 508,270 Dividends received –46,310 –210,026 Exchange rate differences –16,116 –25,396 Other changes 6,306 –14,423 Closing balance 2,239,912 2,365,270

2 INTANGIBLE ASSETS CHANGES IN INTANGIBLE ASSETS

Software Software 2008 2007

Opening balance 3,015 2,395 Additions 1,016 947 Depreciation –493 –327 Other changes 523 – Closing balance 4,061 3,015

3 EQUIPMENT CHANGES IN EQUIPMENT

2008 2007

Opening balance 384 – Additions 1,022 462 Depreciation –158 –78 Closing balance 1,248 384 Gross carrying amount as at 31 December 1,482 462 Accumulated depreciation as at 31 December –234 –78 Net book value 1,248 384

Notes to the parent company fi nancial statements (in thousands of euros, unless stated otherwise)



4 OTHER ASSETS OTHER ASSETS BY TYPE

2008 2007

Derivatives 92,457 21,557 Income tax receivable 22,318 11,548 Accrued interests and rents 383,661 299,256 Other accrued assets 897 197 Other receivables 24,200 352,857 523,533 685,415

As at 31 December 2008, Other assets includes an amount of EUR 427 million (2007: EUR 533 million) from ING Real Estate Group companies and an amount of EUR 50 million (2007: EUR 137 million) from ING Bank.

LIABILITIES AND EQUITY5 OTHER LIABILITIES

2008 2007

Derivatives 92,833 21,003 Accrued interest 372,244 299,370 Other accrued costs 4,754 8,523 Deferred tax liabilities 4,490 –245 Income tax payable 11,345 11,582 Other taxation and social security contribution –1 – Other amounts payable 13,335 17,794 499,000 358,027

As at 31 December 2008, Other liabilities includes an amount of EUR 403 million (2007: EUR 305 million) to ING Real Estate Group companies and an amount of EUR 62 million (2007: EUR 16 million) to ING Bank.

6 EQUITY CAPITAL AND RESERVES

2008 2007

Share capital 227 227 Share premium 1,447,131 1,447,131 Share of associates reserve 79,466 79,466 Currency translation reserve –129,076 –49,347 Other reserves 1,359,036 809,335 Unappropriated result –88,364 481,487 2,668,420 2,768,299

Other reserves includes Revaluation reserves of EUR 195 million (2007: EUR 143 million) and Retained earnings of EUR 1,164 million (2007: EUR 666 million).



6 EQUITY CONTINUED SHARE CAPITAL

Ordinary shares Ordinary shares Ordinary (par value Ordinary (par value shares Eur 1,000) shares Eur 1,000) Number x 1,000 Amount Number x 1,000 Amount 2008 2008 2007 2007

Authorised share capital 1,135 1,135 1,135 1,135 Unissued share capital 908 908 908 908 Issued share capital 227 227 227 227

No shares have been issued during 2007 and 2008.


Net Real estate Available-for- investment Cash fl ow investment sale reserve hedge reserve hedge reserve reserve Total

2008 Opening balance – – –25,950 169,356 143,406 Changes in hedge reserves – 56,932 9,501 – 66,433 Net unrealised gains – – – – – Realised gains – – – – – Exchanges differences – – – – – Other movements – – – –14,547 –14,547 Closing balance – 56,932 –16,449 154,809 195,292


Net Real estate Available-for- investment Cash fl ow investments sale reserve hedge reserve hedge reserve reserve Total

2007 Opening balance 7,398 – –65,161 166,463 108,700 Changes in hedge reserves – – –7,017 – –7,017 Net unrealised gains 7,949 – – – 7,949 Realised gains –15,347 – – – –15,347 Exchanges differences – – 5,709 – 5,709 Other movements – – 40,519 2,893 43,412 Closing balance – – –25,950 169,356 143,406


6 EQUITY CONTINUED RETAINED EARNINGS AND UNAPPROPRIATED RESULT

Retained Retained Unappropriated Unappropriated earnings earnings result result Total Total 2008 2007 2008 2007 2008 2007

Opening balance 665,929 340,290 481,487 409,073 1,147,416 749,363 Transfer to retained earnings 481,487 409,073 –481,487 –409,073 – – Employee stock options and share plans 4,028 3,085 – – 4,028 3,085 Other changes 12,300 –86,519 – – 12,300 –85,519 Result for the period – – –88,364 481,487 –88,364 481,487 Dividend – – – – – – Closing balance 1,163,744 665,929 -88,364 –481,487 1,075,380 1,147,416

The Revaluation reserve, Share of associates reserve and Currency translation reserve cannot be freely distributed. The reserve for cash fl ow hedges is included in the revaluation reserve on a net basis. Retained earnings and other reserves can be freely distributed except for an amount equal to the negative balance in each of the components of the currency translation reserve, share of associate reserve and real estate investment reserve. Unrealised gains and losses on derivatives, other than cash fl ow hedges, are presented in the income statement and are thus part of Retained earnings.

In consolidated fi nancial statements the revaluations on real estate investments are included in the income statement. For the parent company accounts however, Dutch law requires these revaluations to be included in a Revaluation reserve.

7 MATURITY OF CERTAIN ASSETS AND LIABILITIES ANALYSIS OF CERTAIN ASSETS AND LIABILITIES BY MATURITY

Less than 1–3 3–12 1–5 Over Maturity not 1 month months months years 5 years applicable Total

2008 ASSETS Amounts due from ING Bank 43,426 – – – – – – Loans and advances to ING Real Estate Group companies 135,799 826,235 6,704,597 15,586,607 9,635,905 – 32,889,143 LIABILITIES Amounts due to ING Bank 1,867,138 1,197,508 3,529,561 17,966,170 7,148,287 – 31,708,664 Loans and advances due to ING Real Estate Group companies 567,338 51,183 126,932 63,214 16,572 – 825,239

ANALYSIS OF CERTAIN ASSETS AND LIABILITIES BY MATURITY

Less than 1–3 3–12 1–5 Over Maturity not 1 month months months years 5 years applicable Total

2007 ASSETS Amounts due from ING Bank – – – – – – – Loans and advances to ING Real Estate Group companies 162,834 1,450,866 7,384,279 10,257,895 9,807,742 – 29,063,616 LIABILITIES Amounts due to ING Bank 3,657,545 1,652,750 3,283,957 10,247,546 9,822,233 – 28,664,031 Loans and advances due to ING Real Estate Group companies 59,177 91,958 169,089 7,119 – – 327,343



GUARANTEESING Real Estate B.V. has issued statements of liabilities in connection with article 403 of the Dutch Civil Code and other guarantees for a number of ING Group companies.

Together with its wholly-owned Dutch subsidiaries, ING Real Estate forms part of the fi scal entity of ING Bank N.V. for corporate income tax purposes. On the grounds of this, ING Real Estate is jointly and severally liable for the tax indebtedness of the fi scal entity as a whole. For value added tax, the Dutch subsidiaries conducting fi nancing and investment management activities form part of the fi scal entity ING Groep N.V.

REMUNERATIONSee Note 33 ‘staff expenses’ to the consolidated fi nancial statements.

FEES FOR AUDIT SERVICES AND NON-AUDIT SERVICESFor a disclosure, as required in article 2:382a Dutch Civil Code, of the fees for audit services and non-audit services provided by ING Real Estate’s auditors we refer to the consolidated fi nancial statements of ING Groep N.V.

AUTHORISATION OF PARENT COMPANY FINANCIAL STATEMENTS


MANAGEMENT BOARDING Real Estate B.V.

Other information

AUDITOR’S REPORTTo the Shareholder and the Management Board of ING Real Estate B.V.

REPORT ON THE FINANCIAL STATEMENTSWe have audited the accompanying fi nancial statements 2008 of ING Real Estate B.V., The Hague. The fi nancial statements consist of the consolidated fi nancial statements and the parent company fi nancial statements. The consolidated fi nancial statements comprise the consolidated balance sheet as at 31 December 2008, the consolidated income statement, consolidated statement of changes in equity and consolidated statement of cash fl ows for the year then ended, and a summary of signifi cant accounting policies and other explanatory notes. The parent company fi nancial statements comprise the parent company balance sheet as at 31 December 2008, the parent company income statement and the parent company changes in equity for the year then ended and the notes.

Management’s responsibilityManagement is responsible for the preparation and fair presentation of the fi nancial statements in accordance with International Financial Reporting Standards as adopted by the European Union and with Part 9 of Book 2 of the Netherlands Civil Code, and for the preparation of the report of the Management Board in accordance with Part 9 of Book 2 of the Netherlands Civil Code. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of the fi nancial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Auditor’s responsibilityOur responsibility is to express an opinion on the fi nancial statements based on our audit. We conducted our audit in accordance with Dutch law. This law requires that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the fi nancial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the fi nancial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the fi nancial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the fi nancial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the fi nancial statements.

We believe that the audit evidence we have obtained is suffi cient and appropriate to provide a basis for our audit opinion.

Opinion with respect to the consolidated fi nancial statementsIn our opinion, the consolidated fi nancial statements give a true and fair view of the fi nancial position of ING Real Estate B.V. as at 31 December 2008, and of its result and its cash fl ow for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union and with Part 9 of Book 2 of the Netherlands Civil Code.

Opinion with respect to the parent company fi nancial statementsIn our opinion, the parent company fi nancial statements give a true and fair view of the fi nancial position of ING Real Estate B.V. as at 31 December 2008, and of its result for the year then ended in accordance with Part 9 of Book 2 of the Netherlands Civil Code.

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTSPursuant to the legal requirement under 2:393 sub 5 part e of the Netherlands Civil Code, we report, to the extent of our competence, that the Management Board report is consistent with the fi nancial statements as required by 2:391 sub 4 of the Netherlands Civil Code.


For Ernst & Young Accountants.

Signed by R.J.W. Lelieveld

94 — ING Real Estate Annual Report 2008


OTHER INFORMATION

PROPOSED RESULT APPROPRIATIONAccording to Article 13 of ING Real Estate’s articles of association, the net profi t is distributed as follows:

1. The profi t evidenced by the adopted fi nancial statements shall be at the disposal of the General Meeting of Shareholders.2. The General Meeting of Shareholders shall be authorised to make one or more interim dividends payable.3. Distribution of profi t shall take place after adoption of the fi nancial statements that distribution is justifi ed.

PROPOSED RESULT APPROPRIATION

Net result at the disposal of the General Meeting of Shareholders –88,364

Deduct from Other reserves 33,319

Deduct from Share of associates reserve 55,045

Cash dividend –

Glossary

ASSETS UNDER MANAGEMENT (AUM)In general: The term used by investment managers and advisors to defi ne the size of their fi rms’ activities and commonly expressed as the total fair market value of all assets under the control of the manager, regardless of encumbering debt or other fi nancing structure.

Specifi cally: At real estate Investment Management, assets under management are the gross asset value of properties that the investment manager manages for itself and its clients.

At real estate Development, assets under management are the properties in the development portfolio that are being developed, under construction or that have been completed.

CLOSED-END FUNDA commingled fund whereby entry and withdrawal are closed to investors. All participants are treated pro rata and discretion usually resides with the sponsor or advisor. Such funds are fi nite with a typical life of fi ve to ten years.

COMMUNITY SHOPPING CENTREA medium-sized shopping centre. May contain a small department store and coordinated small shops. Larger than a neighbourhood shopping centre and smaller than a regional centre.

COST/INCOME RATIOOperating expenses, excluding additions to the loan loss provision but including other impairments, expressed as a percentage of total income.

FAIR VALUE CHANGESUnder IFRS – the International Financial Reporting Standards – fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction. Changes in the fair value of investment property have to be reported in the income statement in the reporting period in which the changes occur. Fair value changes are only realised on the sale of property. See the accounting policies included in the fi nancial statements for details.

FULL-TIME EQUIVALENTS (FTES)The ratio of the total number of paid hours during a period (part time, full time, contracted) by the number of working hours in that period – Mondays through Fridays.

INVESTMENT PROPERTY DATABANK (IPD)A global information business dedicated to the supply of independent market indices, benchmarks, performance analysis and training to the real estate industry. See: www.ipd.com

INVESTMENT PORTFOLIOThe investment portfolio held by our real estate Investment Management business comprises real estate, which is owned either directly or indirectly through our investment funds.

LOAN-TO-VALUE RATIO The ratio of the value of the loan principal divided by the property’s appraised value.

MANDATEWritten authorisation and/or command by a person, group or organisation to another to take a certain course of action – in this case an investment.

MIXED-USE PROJECTA project which incorporates two or more property uses, for example, an offi ce building with retail space, an apartment building with offi ce space or a shopping centre with leisure facilities such as a cinema or swimming pool.

MORTGAGE LIEN An encumbrance on a property used to secure a loan. The holder of the lien has a claim to the property in case of loan default. The priority of the claim depends on the order of recording and any subordination agreements. Thus a fi rst mortgage generally has prior claim to all other mortgage lien holders.

OPEN-END FUNDA commingled fund that does not have a fi nite life and that continually (usually at the end of each calendar quarter) accepts new investor capital and continually consummates new property investments.

OUTPERFORMANCEFund outperformance has been measured based on new IPD analysis methodology. This incorporates only funds with a specifi ed relative benchmark on a three-year annualised basis.

RAROCRisk-adjusted return on capital.

REAL ESTATE MARKET FUNDAMENTALSThe factors driving the value of real property (i.e. the supply, demand and pricing for land and/or developed space in a given geographic or economic region or market).

RISK DASHBOARDA tool which provides insight into the quality and sustainability of ING Real Estate’s income and earnings. It forms an integral part of ING Group’s risk dashboard.

SEPARATE ACCOUNTA non-commingled account under the control of an investment manager for the purpose of acquiring, owning, managing and disposing of assets for the benefi t of a single client. TOTAL PROJECT VALUETotal project value represents assets under management in our Development business and forecast project investments at sales values. TOTAL REAL ESTATE INVESTMENT EXPOSUREReal estate asset exposure represents ING Real Estate’s exposure to the fl uctuation in real estate prices, affecting both the value of real estate assets and income derived from those assets.

URBAN LAND INSTITUTE (ULI)A non-profi t education and research institute with focus on the use of land in order to enhance the total environment. See: www.uli.org

96 — ING Real Estate Annual Report 2008

DISCLAIMERCertain of the statements contained in this Annual Report are statements of future expectations and other forward-looking statements. These expectations are based on management’s current views and assumptions and involve known and unknown risks and uncertainties. Actual results, performance or events may differ materially from those in such statements due to, among other things: (i) general economic conditions, in particular economic conditions in ING’s core markets, (ii) performance of fi nancial markets, including emerging markets, (iii) interest-rate levels, (iv) currency exchange rates, (v) general competitive factors, (vi) changes in laws and regulations and (vii) changes in the policies of governments and/or regulatory authorities. ING Real Estate assumes no obligation to update any forward-looking information contained in this document.

Produced by ING Real Estate, The Hague, the NetherlandsDesigned by sasdesign.co.uk

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