SECURITY CAPITAL U S REALTY, 6-K, 2000-05-04

SECURITY CAPITAL U S REALTY
6-K, 2000-05-04
REAL ESTATE INVESTMENT TRUSTS

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934

For the month of April, 2000.

SECURITY CAPITAL U.S. REALTY
- -------------------------------------------------------------------------------
(Translation of Registrant's Name Into English)

25b, boulevard Royal, L-2449, Luxembourg
(Address of Principal Executive Offices)

(Indicate by check mark whether the registrant files or will file
annual reports under cover of Form 20-F or Form 40-F.)

Form 20-F X Form 40-F__________________
----------------

(Indicate by check mark whether the registrant by furnishing the
information contained in this form is also thereby furnishing the
information to the Commission pursuant to Rule 12g3-2(b) under the
Securities Exchange Act of 1934.)

Yes No X
--------------------- -----------

(If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): 82-_____.)

===============================================================================
<PAGE>

Security Capital is filing the following material as an exhibit to
this Form 6-K. This exhibit is incorporated by reference herein.

Exhibits.

99.1 Security Capital U.S. Realty 1999 Annual Report.

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.

SECURITY CAPITAL U.S. REALTY

Dated: May 2, 2000 By: /s/ Jeffrey A Cozad
-----------------------
Jeffrey A. Cozad
Managing Director

Outside front cover page

1999

ANNUAL REPORT

SECURITY CAPITAL U.S. REALTY

<PAGE>

inside front cover

Graphic: Sixteen pictures of various properties owned by investees of Security
Capital U.S. Realty

Graphic text in box on center right of page: SC-U.S. Realty is focusing its
financial and management resources exclusively on its strategic
investments. These include U.S. real estate investment trusts (REITs) in
high-growth market sectors including urban infill parking, self-storage
facilities, neighbourhood and urban infill retail centres, corporate office
parks and manufactured home communities.

<PAGE>

TO OUR SHAREHOLDERS

1999 was another challenging year for the public real estate sector in the
United States. The entire industry remained out of favour for the duration
of the year, suffering continued declines in stock price valuations. Public
real estate management teams across the industry struggled to understand
the complete disconnect between the positive performance, fundamentals and
prospects of real estate operating businesses and the continued decline in
public share prices. As a strategic owner of U.S. real estate investment
trusts (REITs), SC-U.S. Realty was not immune from the difficult public
market. While our share price reflects this difficulty, we have taken
several significant strategic steps to position the company to improve its
share-price performance in 2000 and beyond.

1999 results

o Total EBDADT (earnings before depreciation, amortisation and
deferred taxes) before special items for 1999 was $151.0
million or $1.84 per share, compared to $134.0 million or
$1.55 per share, in 1998.
o Per-share EBDADT before special items increased by 18.7% for the year.
o Internally generated free cash flow totalled $87.2 million in 1999.
o EBDADT return on capital invested in our six strategic businesses at cost
was 9.7%. Assuming a fully stabilised portfolio, this return would have
been 11.4%.
o Net asset value (NAV) per share at year-end 1999 was $24.70.
o During the second quarter, the Board of Directors authorised a $200
million share repurchase programme. On 29 March 2000, we announced the
completion of the programme and announced an additional $50 million share
repurchase programme.

Management's continued focus on the company's financial
health and flexibility is evidenced by the strength of the year-end 1999
balance sheet. SC-U.S. Realty's total-liabilities-to- total-assets ratio at
fair market value was 25.1% and debt outstanding on the $350 million line
of credit was $239.0 million. Free cash flow (after all expenses) generated
in 1999 and available for reinvestment amounted to $87.2 million.

<PAGE>

LONG-TERM PLAN TO UNLOCK SHAREHOLDER VALUE

During the second quarter of 1999, management initiated a multi-phase plan
designed to reposition the company with the objective of unlocking
shareholder value. The most important element of the plan is to focus
exclusively on our core business of strategically building leading U.S.
real estate operating companies. The intended result is improved stability
and predictability of earnings, and higher value for our shareholders.

1999 Accomplishments

Share Repurchase Programme

On 5 May 1999, the Board of Directors authorised a $100 million share
repurchase programme, which was completed and increased to $200 million in
June. On 29 March 2000, SC-U.S. Realty announced the completion of the $200
million programme, repurchasing 10,917,268 shares, representing
approximately 12.6% of the company's shares outstanding at the beginning of
the programme. At the same time, the company announced an additional share
repurchase programme of $50 million.

NYSE Listing/ADR Programme

SC-U.S. Realty listed its American Depositary Receipts (ADRs) on the New
York Stock Exchange (NYSE) on 24 June 1999, under the symbol RTY. Since
June, approximately 50% of the company's free float has been converted to
ADRs, which in our view, is a very positive indication of the potential
depth and liquidity of this new market. The average daily trading volume of
SC-U.S. Realty's ADRs was 35,645 in the fourth quarter of 1999, a 53.7%
increase over the average of 23,187 in the third quarter, the first full
quarter in which the ADRs were listed.

Reallocation of Special Opportunity Investments (SOI) Portfolio

In connection with the strategy to focus exclusively on strategic
investments, SC-U.S. Realty successfully completed the sale of its public
SOI portfolio. The company recognised approximately $65.6 million of EBDADT
losses, or approximately $0.80 per share, during 1999 as a result of the
SOI sales. However, even after accounting for the SOI losses during 1999,
the company had net realised gains since inception in 1995 of $11.8 million
from its SOI portfolio. These gains, combined with $52.6 million of
dividends, resulted in a compounded annual return for the SOI portfolio of
9.3% since inception, compared to the Wilshire Real Estate Securities Index
(WARESI) return of 6.1% during the same period. During the five-quarter SOI
liquidation period from 30 September 1998 to 31 December 1999, proceeds of
more than $345 million were realised from SOI sales. The proceeds were used
to fund the share repurchase programme and pay down debt.

<PAGE>

Investment in Security Capital Group

In connection with the sale of the public securities in SOI, the securities
of Security Capital Group Incorporated held in SOI were marked down to
market value and sold. The Security Capital Group mark down resulted in the
recording of a provision for loss during the fourth quarter of 1999 of
$69.2 million, or $0.84 per share, on SC-U.S. Realty's EBDADT statement,
attributable to the decline in market value of these securities. Proceeds
from the sale, which occurred in the first quarter of 2000, will be used to
pay down debt, as well as to repurchase shares. Given the company's use of
fair value accounting, the majority of the losses from SOI and Security
Capital Group had been reflected previously in the company's statements of
operations and statements of net assets; however, they were not recorded in
EBDADT until the fourth quarter of 1999.

Objectives for 2000 and Beyond

Strategic Capital Reallocation

We will continue to redeploy free cash flow and proceeds from the sale of
the Security Capital Group securities and other non-strategic assets to
repay debt and repurchase shares.

Public/Private Market Opportunity

SC-U.S. Realty expects to benefit from strategies being implemented by the
three public strategic investees - CarrAmerica, Regency Realty and Storage
USA - to take advantage of the deep discount that exists between the
private market value of their underlying assets and the public pricing of
their stock. By profitably selling assets in the private market, they are
generating capital to repurchase stock or fund expansion into new markets
or services, which will ultimately eliminate the discount in their stock
prices.

Portfolio Optimisation

We will optimise our strategic company portfolio. Strategic investees not
meeting our long-term objectives will be sold and proceeds will be used for
additional share repurchase, debt repayment and investment in a select
group of "leadership" companies. These companies must be able to achieve
the following:

o Internal growth through superior operations/revenue-enhancing customer
services.
o Value creation through development/redevelopment.
o Brand value.
o #1 or #2 market-share position.

Ultimately, SC-U.S. Realty's objective is to deploy capital in real estate
operating companies that meet these criteria.

<PAGE>

Capital Markets Activities

We will continue to focus on enhancing the company's capital markets
platform, with the objective of increasing the visibility and liquidity of
our shares and ADRs in the global marketplace. Integral to that process is
expanded coverage by Wall Street research analysts.

Strong Balance Sheet

We remain committed to maintaining balance sheet flexibility, sound
financial policies and investment-grade credit ratings.

FUTURE PROSPECTS

The company has significant financial resources from internal sources
available to implement this multi-phase plan. While difficult public stock
market conditions persisted in 1999, we continue to believe in the
long-term prospects of the public U.S. real estate industry and SC-U.S.
Realty's business plan. This strong conviction motivates the steps we are
taking to position the company to benefit from an improvement in industry
valuations. Management and the Board of SC-U.S. Realty continue to review
all strategic options to enhance shareholder value. We remain committed to
unlocking the significant shareholder value that exists today in SC-U.S.
Realty.

We would like to thank you for your continued support, and we
look forward to keeping you well informed of what we expect to be
demonstrable progress in the coming year.

William D. Sanders Jeffrey A. Cozad
Chairman Managing Director

29 March 2000

<PAGE>

THE U.S. PUBLIC REAL ESTATE MARKET TODAY

During 1999, for the second year in a row, the environment for the public
real estate sector in the United States remained extremely challenging.
This is only the second time since 1970 that the sector has posted
consecutive years of negative returns. Scepticism prevails despite evidence
from bellwether indicators of the public real estate sector's tremendous
value and the underlying strength of U.S. real estate. There are historic
differentials between multiples in public real estate and those in the
broader market, historic yield premiums versus Treasury and S&P dividend
yields, and a tremendous disconnect between public real estate stock prices
and real estate asset values.

Graphic: Comparative Stock Returns Chart inserted here
showing the total returns from January 1998 through December
1999 of the NASDAQ, S&P 500 and Wilshire Real Estate
Operating Company Index.

A SECTOR OUT OF FAVOUR

Why is the sector so out of favour? It is simply that public U.S. real
estate companies have not delivered what the market is looking for -
exceptionally high growth. Instead, these companies have experienced very
solid, but moderating, per-share growth rates (8% to 11%) coming out of a
cyclical rebound with average total returns of 20% to 30% and per-share
earnings growth of 14% to 17%. In our view, current market sentiment toward
publicly traded U.S. real estate companies does not reflect serious
concerns about industry fundamentals, corporate strategies or the potential
for long-term value creation. Rather, the lack of interest in this sector
over the past 24 months is a result of record-setting robust alternatives
in the broader equity market, particularly among the top names in NASDAQ
and S&P 500 stocks, which have created history's greatest bull market.

<PAGE>

Public real estate companies are not alone. As the chart
below indicates, small cap stocks across the gamut of industries have also
languished in the wake of the truly amazing total returns generated by the
thin segment of the equity universe leading this historic bull market.

Graphic: U.S. Comparative Stock Returns Chart inserted here
showing the total returns from January 1998 through December 1999
of the NASDAQ, S&P 500 and Russell 2000 Index.

The sustained divergence between the results of the high
flyers and the rest of the equity market, as well as these sector-specific
factors, continue to siphon capital not only from real estate securities
but also from the general equity market. Investments into dedicated real
estate mutual funds have been negative month-in, month-out, since the first
quarter of 1998. In 1998 alone, $1.6 billion flowed out of these funds. In
1999, the divested capital was almost $1.3 billion. These outflows have
reduced the aggregate value of real estate mutual funds to just under $8
billion, approximately 30% off their 1997 peak of $12 billion.

The result is a sector seriously out of favour, with even
blue-chip real estate operating companies continuing to trade below their
net asset value (NAV). When funds are flowing out of a given sector, it is
virtually impossible for trading patterns to change. SC-U.S. Realty has had
to live with this reality since year-end 1997.

Management is as disappointed as shareholders about the state
of the sector and its influence on SC-U.S. Realty's activities. While we
are highly optimistic things will improve, the question remains when.

BACK TO BASICS

Stepping back to consider the U.S. public real estate sector as an
investment allocation - what are the merits of the sector today? The
positives are numerous - healthy, sound real estate fundamentals are shown
on the facing page. From upper left: 1) Vacancy rates are at or near
historic lows, 2) rents have grown at a very healthy pace, 3) private
property values have appreciated, and 4) earnings have steadily increased.

<PAGE>

Graphic: National Vacancy Rates Chart inserted here in the
upper left hand corner showing the vacancy rated in the
office, industrial, retail and multifamily sectors from
January 1990 through September 1999.

Graphic: National Rental Rates Index inserted here in the
upper right hand corner showing the change in rental rates in
the office, industrial, retail and multifamily sectors from
January 1989 through September 1999.

Graphic: NCREIF Appreciation Index inserted here below the
National Vacancy Rates Chart showing the appreciation
component of the NCREIF quarterly index from October 1995
through September 1999.

Graphic: FFO Per Share Growth Index inserted here below the
National Rental Rates Index showing the growth in FFO of 119
companies in the Global Capital Management Group Real Estate
Securities Universe from December 1995 through December 1999.

Meanwhile, the public market has brought significant
discipline to the real estate industry, tempering the severe imbalances
that have crippled real estate fundamentals in the past. The public market
continues to add significant benefits in the form of liquidity, real-time
pricing, enhanced information flow and alignment of management's and
shareholders' interests. The discipline of the evolving public market is
reflected by management teams who have become more prudent in their capital
allocation decisions and more innovative in devising value-added operating
initiatives.

The underlying real estate fundamentals are very sound -
demand and supply are in excellent balance. Growth prospects are solid and
companies are generating strong cash flow streams, with dividend payout
ratios at historic lows. Demand for real estate is thriving, with strong
liquidity and price appreciation in the private markets of bricks and
mortar. This demand is driven largely by investors' need for
diversification as they reallocate investment returns into increasingly
defensive, non-index related investments.

<PAGE>

THE FUTURE

Despite this positive operating performance, share prices of real estate
securities have continued to decline during 1999. However, we remain
optimistic about SC-U.S. Realty's future prospects. We are confident that,
over time, the capital markets will correct the gap between the value of
the underlying assets and the stock price of public real estate companies.
There is evidence of improving sentiment, and this should have a positive
influence on the pricing of real estate securities in the future.

o The fundamentals of the real estate business are sound.
Earnings trends are positive, corporate balance sheets are
healthy, management teams are taking NAV-accretive actions,
and opportunities to grow cash flow abound, thanks to
positive legislative initiatives.
o Public real estate companies offer tremendous value when
compared to current market alternatives.
o As the bull market roars on, it grows increasingly volatile.
Any break in the market's momentum - for example, negative
surprises in productivity statistics or declines in earnings
growth - will fuel demand for alternative, value-oriented
investments.
o The U.S. government has adopted a more favourable stance
toward the REIT sector. In the third quarter of 1999, the
REIT Modernization Act was approved, providing REITs
increased ability to develop service-related,
revenue-enhancing businesses based on their real estate
assets. This stance contrasts to that of 1997, when
exaggerated media headlines questioned whether the REIT
structure might be terminated.
o More incremental catalysts, including increased merger and
acquisition activity and leveraged buy outs, may potentially
boost valuations as well.

Our view of the public U.S. real estate sector is simple and,
we think, compelling. Public real estate companies are trading at deep
discounts to cash flow based valuations, and offer a safe, value-orientated
investment alternative in an otherwise expensive, volatile and tense global
equity market. U.S. real estate fundamentals are sound, and there is
significant evidence of several catalysts for price appreciation in real
estate securities.

The key focus of SC-U.S. Realty's management team continues
to be the elimination of the deep discount that exists between our share
price and the market value of the underlying assets. We remain confident
that the value of public real estate securities will increase and that
patient investors in the sector will be well rewarded.

Statements of Earnings Before Depreciation,
Amoritisation and Deferred Taxes (EBDADT)(1)
(in thousands US$, except per-share amounts)
<S> <C> <C> <C>

Year Ended 31 December 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
Income:
Equity in strategic investment positions' EBDADT
CarrAmerica $ 77,716 $ 72,648 $ 54,972
City Center Retail 19,517 6,232 (411)
CWS Communities 12,616 7,116 -
Pacific Retail (3) 7,722 47,852 28,950
Regency(3) 77,060 27,412 15,456
Storage USA 39,045 35,693 28,450
Urban Growth Property 14,833 6,621 (620)
- -----------------------------------------------------------------------------------------------------------------------------
Total equity in strategic investment positions' EBDADT $ 248,509 $ 203,574 $ 126,797
Dividends from special opportunity positions 8,925 20,908 17,594
Interest and other income 7,763 4,706 3,700
- -----------------------------------------------------------------------------------------------------------------------------
Total Income $ 265,197 $ 229,188 $ 148,091
- -----------------------------------------------------------------------------------------------------------------------------
Expenses:
General and administrative $ 36,079 $ 39,678 $ 27,155
Withholding tax on dividends received and other taxes(4) 28,707 18,697 19,162
Interest and related expenses 49,418 36,816 13,595
- -----------------------------------------------------------------------------------------------------------------------------
Total Expenses $ 114,204 $ 95,191 $ 59,912
- -----------------------------------------------------------------------------------------------------------------------------
EBDADT before special items $ 150,993 $ 133,997 $ 88,179
- -----------------------------------------------------------------------------------------------------------------------------
Realised gains (losses) from special opportunity positions $(65,587) $ 32,878 $ 41,073
City Center Retail special charge(2) (3,408) - -
Security Capital Group provision for loss(5) (69,220) - -
- -----------------------------------------------------------------------------------------------------------------------------
EBDADT after special items $ 12,778 $ 166,875 $ 129,252
- -----------------------------------------------------------------------------------------------------------------------------
Per Share Data(6):
EBDADT per share before special items and realised gains (losses) $ 1.84 $ 1.55 $ 1.34
Realised gains (losses) from special opportunity positions $ (0.80) $ 0.38 $ 0.62
City Center Retail special charge(2) $ (0.04) - -
Security Capital Group provision for loss(5) $ (0.84) - -
- -----------------------------------------------------------------------------------------------------------------------------
EBDADT per share $ 0.16 $ 1.93 $ 1.96
- -----------------------------------------------------------------------------------------------------------------------------
Weighted average shares outstanding (in '000s)(6) 82,281 86,562 65,903
</TABLE>
<PAGE>

(1) SC-U.S. Realty reports earnings before depreciation, amortisation and
deferred taxes (EBDADT), which the company believes provides the best
measure of operating performance for SC-U.S. Realty and its strategic
investees. EBDADT for SC-U.S. Realty is (a) SC-U.S. Realty's pro rata share
of the EBDADT of all its strategic investees, less (b) corporate overhead
and (c) interest expense and preferred stock dividends, other than interest
and dividends on convertible debt and all other convertible securities that
are anti-dilutive and (d) current tax expenses. In general, EBDADT will be
defined for SC-U.S. Realty and its strategic investees as: net earnings,
computed in accordance with generally accepted accounting principles, plus
real estate depreciation (depreciation is not added back for non-real
estate assets whose value is declining over time), plus amortisation of
non-cash items (e.g., goodwill), plus deferred tax expense, plus any losses
on the disposition of income-producing properties, plus other non-cash,
one-time expenses, plus unrealised losses, minus gains on the disposition
of income-producing properties, minus, unrealised gains, minus dividends
received by SC-U.S. Realty from its strategic investees. With respect to
investments in which SC-U.S. Realty has less than a 20% interest and does
not have the ability to significantly influence management, SC-U.S. Realty
includes only dividends or interest received in its EBDADT, EBDADT is not
to be construed as a substitute for net earnings in evaluating operating
results nor as a substitute for cash flow in evaluating liquidity.
(2) Equity in EBDADT from City Center Retail includes the add-back of $3.4
million of expenses relating to one-time employee severance costs. These
costs are shown as a special item.
(3) The merger between Regency and
Pacific Retail was completed on 28 February 1999.
(4) Includes withholding tax on dividends received from strategic
investment and special opportunity positions.
(5) On 31 December 1999, SC-U.S. Realty marked down its entire investment
in Security Capital Group securities to $95.8 million, resulting in a
provision for loss of $69.2 million. On 15 March 2000, SC-U.S. Realty
announced the sale of its entire Security Capital Group investment for
$96.9 million.
(6) Share and per-share amounts have been restated to reflect the reverse
stock split that took effect 18 June 1999.

Graphic located in lower right-hand corner showing SC-U.S. Realty EBDADT
for the last three calendar years.

<PAGE>
<TABLE>
<CAPTION>
Statements of Cash Flow from Operations
(in thousands US$, except per-share amounts)

Year Ended 31 December 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
Income:
Gross dividends
CarrAmerica $ 52,916 $ 51,999 $ 41,412
City Center Retail 6,990 - -
CWS Communities 9,057 4,783 -
Pacific Retail(1) 5,163 36,178 21,577
Regency 52,689 20,244 11,441
Storage USA 31,532 29,934 24,497
Urban Growth Property 10,160 4,338 -
- ----------------------------------------------------------------------------------------------------------------------------
Total dividends from strategic investment positions $ 168,507 $ 147,476 $ 98,927
Dividends from special opportunity positions(2) 8,925 20,908 17,594
Interest and other income 7,763 4,706 3,700
- ----------------------------------------------------------------------------------------------------------------------------
Total Income $ 185,195 $ 173,090 $ 120,221
- ----------------------------------------------------------------------------------------------------------------------------
Expenses:
General and administrative $ 36,079 $ 39,678 $ 27,155
Withholding tax on dividends received and other taxes(3) 28,707 18,697 19,162
Interest and related expenses(4) 33,202 27,430 13,595
- ----------------------------------------------------------------------------------------------------------------------------
Total Expenses $ 97,988 $ 85,805 $ 59,912
- ----------------------------------------------------------------------------------------------------------------------------
Cash Flow from Operations $ 87,207 $ 87,285 $ 60,309
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) In order to align the dividend record date of the former Pacific Retail
shareholders with the dividend record date of Regency, Pacific Retail paid
a pro rated dividend to its shareholders in the first quarter of 1999. As a
result, Pacific Retail shareholders only received 42 days worth of
dividends in the first quarter of 1999.

(2) SC-U.S. Realty sold over $240 million of special opportunity positions
in 1999, using the proceeds to retire outstandings on the company's line of
credit and to repurchase its shares. As a result of these activities,
dividends received from special opportunity positions declined in 1999
compared to 1998.

(3) Includes withholding tax on dividends received from strategic
investment and special opportunity positions.

(4) Includes cash interest paid on SC-U.S. Realty's 2% Senior unsecured
Convertible Notes.

Graphic located in lower right-hand corner showing SC-U.S. Realty retained
cash flow for the last three years.

Statements of Net Assets (Audited)
(in thousands US$, except per-share amounts)

At 31 December 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
ASSETS
Strategic Investment positions at value:
CarrAmerica (Cost $699,905; $699,851; $636,387, respectively) $ 604,247 $ 686,482 $ 838,343
City Center Retail (Cost $304,132; $304,035; $83,665, respectively) 304,132 304,035 83,300
CWS Communities (Cost $236,488; $153,563; $92,600, respectively) 236,488 153,563 91,646
Regency (Cost $759,807; $759,788; $749,154, respectively) 685,465 762,580 923,249
Storage USA (Cost $394,362; $394,272; $348,444, respectively) 355,911 380,178 422,265
Urban Growth Property (Cost $188,582; $181,082; $17,703 respectively) 188,582 181,082 17,241

Other investment positions at value:
Security Capital Group Incorporated (Cost $165,000; $165,000; $165,000,
respectively) 95,780 116,245 165,000
Private investment positions (Cost $42,019; $15,275; $7,399, respectively) 42,019 15,275 7,399
Public special opportunity positions (Cost $0; $298,756; $275,309, respectively) - 247,205 344,611
Total Investments $2,512,624 $2,846,645 $2,893,054
Cash and cash equivalents 2,732 2,994 1,970
Accounts receivable and other 15,530 23,989 6,796
Total Assets $2,530,886 $2,873,628 $2,901.820
LIABILITIES
Accounts payable and accrued expenses $ 6,033 $ 13,497 $ 12,382
Taxes payable 4,818 1,306 1,018
Line of Credit 239,000 262,500 130,000
Convertible notes 386,157 369,940 -
Total Liabilities $ 636,008 $ 647,243 $ 143,400
Total Net Assets (Shareholders' Equity) $1,894,878 $2,226,385 $2,758,420
Authorised 250,000,000 shares of $4.00 par value, 86,561,872 shared issued and
76,700,437 outstanding at 31 December 1999 and 86,561,872 shares issued and
outstanding at 31 December 1998 and 1997(1) $ 346,247 $ 346,247 $ 346,247
Share premium account 1,564,939 1,749,158 1,749,598
Paid-in Capital $1,911.186 $2,095,405 $ 2,095,845
Legal Reserve $ 30,375 $ 30,375 $ 27,304
Reserve for own shares 184,219 - -
Undistributed net operating income 219,144 148,152 73,324
Accumulated net realised gain 11,844 77,431 44,553
Unrealised (depreciation) appreciation on strategic investment and other
investment position (277,671) (124,978) 517,394
Acquisition of own shares (184,219) - -
Shareholders' Equity $1,894,878 $ 2,226,385 $ 2,758,420
Net Asset Value per share(1) $ 24.70 $ 25.72 $ 31.87
</TABLE>

(1) Share and per-share amounts have been restated to reflect the
reverse stock split that took effect 18 June 1999.

<PAGE>

DIRECTORS

Erich Coenen Claude Kremer Francois Moes
Member of the Board of Partner Member of the
Managing Directors Arendt & Medernach Executive Board
Commerzbank AG Banque Internationale a
Luxembourg

Jeffrey A. Cozad Jay O. Light William D. Sanders
Managing Director Professor, Harvard University Chairman (1)
Security Capital Graduate School of Security Capital
U.S. Realty Business Administration U.S. Realty

(1) Non-executive

PRINCIPAL OFFICES

Security Capital U.K. Affiliate U.S. Affiliate
U.S. Realty Security Capital U.S. Realty Security Capital
25b, boulevard Royal Management Ltd. Investment Research
L-2449 Luxembourg 7 Clifford Street Incorporated
Telephone London WIX ZUS England 11 South LaSalle Street
(352) 46 37 56 1 Telephone 44 20 7534 5600 Chicago, Illinois 60603
Facsimile Facsimile 44 20 7534 5795 USA
(352) 46 37 56 5555 Telephone
(312) 345-5800
Facsimile
(312) 345-5888

SHAREHOLDER INFORMATION

Stock Exchange Transfer Agent ADR Programme
NYSE: RTY First European Transfer Mr. Steven Kim
Amsterdam AEX Stock Exchange Agent S.A. Bank of New York
ISIN-Code: LU0060100673 11, boulevard 101 Barclay Street
Clearing Code: 45045 Grande-Duchesse 22nd Floor - West
Bloomberg Symbol: SCUS NA Charlotte New York, New York 10286
Reuters Symbol: CAPAu.AS L-1331 Luxembourg Telephone (212) 815 3967
Telephone Facsimile (212) 571 3050
(352) 25 47 01 1 Internet
Facsimile www.bankofny.com
(352) 25 47 01 500

Web site: www.sc-usrealty.com

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

Definition

For the purposes of this report, the term "SC-U.S. Realty" means
Security Capital U.S. Realty (the "Company") and its direct and indirect
wholly owned subsidiaries, including Security Capital Holdings S.A. (such
subsidiaries collectively referred to herein as "HOLDINGS"). All references
herein to "dollars" or "$" shall mean United States Dollars.

Introduction

The Company is a research-driven real estate management company
focused on taking significant strategic investment positions (with board
representation, consultation and other rights) in value-added real estate
operating companies based in the United States. The Company's primary
capital deployment objective is to take a proactive ownership role in
businesses that it believes can potentially generate above-average rates of
return.

The Company, which was incorporated in July 1995, completed a $509.5
million initial private offering in October 1995 and has since funded the
following strategic investment positions:
<TABLE>
<CAPTION>

Initial Total Cost as of Total Value as of
Initial Funding Commitment 31 December 1999 31 December 1999
Company Date (in millions)(1) (in millions) (in millions)
- -------
<S> <C> <C> <C> <C>

CarrAmerica................. April 1996 $ 250 $ 700 $ 604(2)
City Center Retail.......... April 1997 $ 150 $ 304 $ 304(3)
CWS Communities............. December 1997 $ 300 $ 236 $ 236(3)
Regency..................... July 1996 $ 332(4) $ 760 $ 685(2)
Storage USA................. March 1996 $ 220 $ 394 $ 356(2)
Urban Growth Property....... April 1997 $ 150 $ 189 $ 189(3)
----------------
Total.................. $ 2,583 $ 2,374
================ ================
</TABLE>
<PAGE>

(1) See "Capital Deployment Activities" for additional
information regarding commitments.
(2) Based on the closing price on the New York Stock Exchang ("NYSE") of
common shares held on such date.
(3) Private real estate investment trust ("REIT") or real estate operating
company. See Note 2A to the Consolidated Financial Statements for the
methodology utilised to assess the value of investments in private
entities.
(4) Includes the initial commitment of $200 million to Pacific Retail which
merged with Regency on 28 February 1999. See Note 3A to the Consolidated
Financial Statements.

In addition to its six strategic investment positions, SC-U.S. Realty
has invested $42.0 million in private investment positions, all of which
are U.S. real estate operating companies. As of 31 December 1999, the value
of SC-U.S. Realty's private investment positions represented approximately
1.7% of SC-U.S. Realty's total assets.

SC-U.S. Realty has also invested $165.0 million in the common shares
and subordinated debentures of Security Capital Group Incorporated
("Security Capital Group"), which in aggregate accounted for approximately
3.8% of SC-U.S. Realty's total assets as of 31 December 1999. On 15 March
2000, SC-U.S. Realty announced the sale of its Security Capital Group
investment for $96.9 million.

As of 31 December 1999, SC-U.S. Realty had committed an aggregate of
$2.9 billion to both its strategic investment and other investment
positions, of which $2.8 billion had been funded. This compares to an
aggregate commitment of $3.2 billion as of 31 December 1998, of which $3.0
billion had been funded. The decrease in the aggregate commitment is the
result of the sale of the public special opportunity investment portfolio.

<PAGE>

On 24 June 1999, SC-U.S. Realty began trading its American Depositary
Receipts (ADRs) on the NYSE, under the ticker symbol "RTY." The company's
shares will continue to be listed and traded on the AEX Stock Exchange in
Amsterdam (ISIN-Code: LU0060100673).

Operating Results

Years ended 31 December 1999 and 1998

Net operating income decreased by $6.9 million, or 8.9%, to $71.0
million for the year ended 31 December 1999 as compared to $77.9 million
for the year ended 31 December 1998. The decrease is mainly attributable to
an increase in interest expense on the 2% Senior Unsecured Convertible
Notes due 2003 ($450 million aggregate principal amount at maturity) (the
"Convertible Notes") issued in May 1998. The company also experienced a
higher interest expense due to increased levels of borrowings on its $400
million unsecured line of credit, which was guaranteed by HOLDINGS (the
"Company Line"). On 30 December 1999, the Company Line was replaced by a
$350 million unsecured line of credit of HOLDINGS, which is guaranteed by
the Company (the "new HOLDINGS Line") (both lines referred to herein as the
"Lines of Credit"). Interest on the Convertible Notes increased $11.8
million, or 79.1%, to $26.6 million for the year ended 31 December 1999 as
compared to $14.8 million for the year ended 31 December 1998. This is due
to the Convertible Notes being outstanding for the full year. Interest on
the Lines of Credit increased $1.6 million, or 8.7%, to $20.0 million for
the year ended 31 December 1999 as compared to $18.4 million for the year
ended 31 December 1998.

Net Operating Income

Net operating income represents the difference between total revenues
and total expenses.

The following table sets forth information regarding SC-U.S. Realty's
net operating income during the years ended 31 December 1999 and 1998:

<PAGE>

Year ended 31 December
----------------------
1999 1998
----- ----
Amount % Amount %
--------- ------ ------ ------
(in thousands $, except %)

Total Revenues............ $161,043 100.0% $156,825 100.0%
Total Expenses............ 90,051 55.9 78,926 50.3
---------- ------ ------- -------
Net Operating Income...... $ 70,992 44.1% $ 77,899 49.7%
========= ====== ========= ======

The net operating income margin decreased to 44.1% during 1999 from
49.7% in 1998. This is primarily due to higher interest expense on (i) the
Convertible Notes and (ii) the Lines of Credit.

Total Revenues. The following table sets forth information regarding
SC-U.S. Realty's total revenues during the years ended 31 December 1999
and 1998:

Year ended 31 Decembe
-----------------------
1999 1998
------ ------
Amount % Amount %
---------- --- -------- ----
(in thousands $, except %)
<S> <C> <C> <C> <C>

Gross dividends from strategic investment positions
CarrAmerica........................................ $ 52,916 32.9% $ 51,999 33.2%
City Center Retail................................. 6,990 4.3 -- --
CWS Communities.................................... 9,057 5.6 4,783 3.0
Regency (1)........................................ 57,852 35.9 56,422 36.0
Storage USA........................................ 31,532 19.6 29,934 19.1
Urban Growth Property.............................. 10,160 6.3 4,338 2.8
----------- ------- --------- -----
Subtotal...................................... $168,507 104.6% $147,476 94.1%
Gross dividends from other investment positions......... 8,925 5.6 20,908 13.3
-----------
Total Gross Dividends......................... $177,432 110.2% $168,384 107.4%
Interest income from affiliate.......................... 3,575 2.2 3,575 2.3
Interest income from non-affiliate and other income..... 4,188 2.6 1,132 0.7
-----------
Total Gross Revenues.......................... $185,195 115.0% $173,091 110.4%
Withholding tax on dividends received................... (24,152) (15.0) (16,266) (10.4)
-----------
Total Revenues................................ $161,043 100.0% $156,825 100.0%
========- ===== ========- =====

</TABLE>

<PAGE>
- -----------------------
(1) On 28 February 1999 Regency merged with Pacific Retail.
In order to align the dividend record date of the former Pacific Retail
shareholders with the dividend record date of Regency, Pacific Retail
paid a pro-rata dividend to its shareholders in the first quarter of 1999.
As a result, Pacific Retail shareholders only received 42 days worth of
dividends in the first quarter of 1999. See Note 3A to the Consolidated
Financial Statements.

As the table indicates, most of SC-U.S. Realty's total revenues during
1999 and 1998 were derived from dividends from its strategic investment
positions.

"Interest income from affiliate" represents interest earned on SC-U.S.
Realty's $55 million aggregate principal investment in Security Capital
Group's 6.5% convertible subordinated debentures due 2016. The debentures
were purchased by SC-U.S. Realty in April 1996 ($11 million aggregate
principal amount) and in March 1997 ($44 million aggregate principal
amount) and are currently convertible into shares of Class A common stock
of Security Capital Group, at our option.

"Interest income from non-affiliate and other income" consist of
interest earned on cash balances and convertible debt of other investment
positions. The increase in this item between the year ended 31 December
1999 and the corresponding year in 1998 is attributable to higher interest
earned on the increased level of convertible debt held by SC-U.S. Realty
during 1999.

Total Expenses. For the year ended 31 December 1999, total expenses
amounted to $90.1 million, of which $32.5 million, or 36.1%, represented
fees paid to the Operating Advisor and $47.8 million, or 53.1%, represented
(i) interest on the Convertible Notes, (ii) interest on the Lines of Credit
and (iii) related expenses. During the year, general and administrative
expenses were approximately $3.6 million, or 4.0% of total expenses, taxes
were $4.6 million, or 5.1% of total expenses, and amortisation of
Convertible Notes deferred costs was $1.6 million, or 1.7% of total
expenses.

For the year ended 31 December 1998, total expenses amounted to $78.9
million, of which $35.2 million, or 44.6%, represented fees paid to the
Operating Advisor and $35.9 million, or 45.5%, represented (i) interest on
the $700 million secured line of credit of HOLDINGS (the "old HOLDINGS
Line"), which was replaced by the Company Line in December 1998, (ii)
interest on the Company Line, (iii) interest on the Convertible Notes and
(iv) related expenses. During the year, general and administrative expenses
were approximately $4.4 million, or 5.6% of total expenses, taxes were $2.4
million, or 3.0% of total expenses, and amortisation of Convertible Notes
deferred costs was $1.0 million, or 1.3% of total expenses. Interest
expense increased as a result of a full year of interest payments on the
Convertible Notes.

Net Realised Gains or Losses on Public Special Opportunity Positions

Historically, public special opportunity positions were investments in
publicly traded REITs, which were generally held for an intermediate term
of 12 to 18 months, although the sale of such positions could occur sooner
or later, depending on market or business conditions and on whether the
return objectives had been realised. The objective of these public special
opportunity positions was to realise attractive total returns through
dividends and share price appreciation and to provide SC-U.S. Realty with
an efficient method of maintaining a portion of its assets in relatively
liquid investments (which assets could be redeployed on relatively short
notice).

During the year ended 31 December 1999, all of the publicly traded
special opportunity investments, except for the investment in Security
Capital Group, were sold. During the year, net realised losses on public
special opportunity positions were $65.6 million and during the year ended
31 December 1998, net realised gains on public special opportunity
positions were $32.9 million.

Decrease/Increase in Appreciation of Strategic Investment and Other
Investment Positions

During the years ended 31 December 1999 and 1998, the principal factor
behind the movement in net assets resulting from operations was the change
in the unrealised appreciation of SC-U.S. Realty's strategic investment and
other investment positions.

During the year ended 31 December 1999, the largest part of the
decrease of $152.7 million in the unrealised appreciation was attributable
to the decrease in the appreciation of SC-U.S. Realty's investment in
CarrAmerica ($82.3 million, or 53.9% of the total decrease), followed by
Regency ($77.1 million, or 50.5%), and Storage USA ($24.4 million, or
16.0%). This decrease was partly offset by an increase in the appreciation
of SC-U.S. Realty's investment in other investment positions ($31.1
million, or 20.4%).
3
<PAGE>

During the year ended 31 December 1998, the largest part of the
decrease of $642.4 million in the unrealised appreciation was attributable
to the decrease in the appreciation of SC-U.S. Realty's investment in
CarrAmerica ($215.3 million, or 33.5% of the total decrease), followed by
Regency ($171.3 million, or 26.8%), the other investment positions ($169.6
million, or 26.5%), and Storage USA ($87.9 million, or 13.7%). In both
years, the decrease in the unrealised appreciation of the strategic
investments is the result of the decrease in the stock prices of the
investments principally due to the general decline in the REIT market.

Although the reduction in stock prices of SC-U.S. Realty's strategic
investment and other investment positions for the years ended 31 December
1999 and 1998, does not affect SC-U.S. Realty's net operating income, it
does adversely impact its net assets resulting from operations on its
Consolidated Statement of Operations. SC-U.S. Realty cannot predict the
future stock prices of its strategic investment and other investment
positions. Additional reductions in such stock prices would continue to
reduce net assets resulting from operations and, as a result, could have a
materially adverse impact on SC-U.S. Realty's Consolidated Statement of
Operations.

Years ended 31 December 1998 and 1997

Net operating income increased by $17.6 million, or 29.2%, to $77.9
million for the year ended 31 December 1998 as compared to $60.3 million
for the year ended 31 December 1997. The increase is mainly attributable to
an increase in dividends derived from a higher level of fundings to
strategic investees. Gross dividends from strategic investment positions
increased $48.6 million, or 49.1%, to $147.5 million for the year ended 31
December 1998 as compared to $98.9 million for the year ended 31 December
1997. Fundings to strategic investees increased by $564.6 million at cost,
or 29.3%, to $2.5 billion as of 31 December 1998 as compared to $1.9
billion as of 31 December 1997.

Net Operating Income

Net operating income represents the difference between total revenues
and total expenses.

The following table sets forth information regarding SC-U.S. Realty's
net operating income during the years ended 31 December 1998 and 1997:

Year ended 31 December
1998 1997
------- -------
Amount % Amount %
-------- ----- -------- -----
(in thousands $, except %)

Total Revenues............ $156,825 100.0% $102,917 100.0%
Total Expenses............ 78,926 50.3 42,608 41.4
---------- ------ -------- ------
Net Operating Income...... $ 77,899 49.7% $ 60,309 58.6%
========= ====== ========= ======

The net operating income margin decreased to 49.7% in 1998 from 58.6%
in 1997. This is due to a higher interest expense resulting from increased
levels of borrowing on the old HOLDINGS Line and the Company Line, as well
as interest expense on the Convertible Notes. These increases were
partially offset by lower interest rates on the old HOLDINGS Line and the
Company Line.

<PAGE>
Total Revenues. The following table sets forth information regarding
SC-U.S. Realty's total revenues during the years ended 31 December 1998
and 1997:
<TABLE>
<CAPTION>

Year ended 31 December
-----------------------
1998 1997
-------- -------
Amount % Amount %
---------- ---- -------- ----
(in thousands $, except %)
<S> <C> <C> <C> <C>

Gross dividends from strategic investment positions
CarrAmerica. $ 51,999 33.2% $ 41,412 40.2%
CWS Communities . 4,783 3.0 -- --
Regency(1)... 56,422 36.0 33,017 32.1
Storage USA. 29,934 19.1 24,497 23.8
Urban Growth Property . 4,338 2.8 -- --

Subtotal . $147,476 94.1% $ 98,926 96.1%
Gross dividends from special opportunity positions . 20,908 13.3 17,594 17.1
----------- ------ -------- ------
Total Gross Dividends . $168,384 107.4% $116,520 113.2%
Interest income from affiliate . 3,575 2.3 2,896 2.8
Interest income from non-affiliate and other income . 1,132 0.7 805 0.8
----------- ------ -------- -------
Total Gross Revenues $173,091 110.4% $120,221 116.8%
Withholding tax on dividends receive. (16,266) (10.4) (17,304) (16.8)
----------- ------- --------- --------
Total Revenues . $156,825 100.0% $102,917 100.0%
========- ====== ========= ======
</TABLE>

(1) On 28 February 1999 Regency merged with Pacific
Retail.

See Note 3A to the Consolidated Financial Statements.

As the table indicates, most of SC-U.S. Realty's total revenues during
1998 and 1997 were derived from dividends from its strategic investment
positions. The increase is mainly attributable to an increase in dividends
derived from a higher level of average fundings to strategic investees as
well as increased REIT dividend requirements from improved operating
results at the strategic investees.

"Interest income from affiliate" represents interest earned on SC-U.S.
Realty's $55 million aggregate principal investment in 6.5% convertible
subordinated debentures due 2016 issued by Security Capital Group. The
debentures were purchased by SC-U.S. Realty in April 1996 ($11 million
aggregate principal amount) and in March 1997 ($44 million aggregate
principal amount) and are currently convertible into shares of Class A
common stock of Security Capital Group, at our option.

"Interest income from non-affiliate and other income" consist of
interest earned on cash balances and convertible debt. The increase in this
item between the year ended 31 December 1998 and the corresponding year in
1997 is attributable to interest on convertible debt held by SC-U.S. Realty
during 1998 and during the second half of 1997.

Total Expenses. For the year ended 31 December 1998, total expenses
amounted to $78.9 million, of which $35.2 million, or 44.6%, represented
fees paid to the Operating Advisor and $35.9 million, or 45.5%, represented
(i) interest on the Convertible Notes, (ii) interest on the old HOLDINGS
Line, (iii) interest on the Company Line and (iv) related expenses. During
the year, general and administrative expenses were approximately $4.4
million, or 5.6% of total expenses, taxes were $2.4 million, or 3.0% of
total expenses, and amortisation of Convertible Notes deferred costs were
$1.0 million, or 1.3% of total expenses.

For the year ended 31 December 1997, total expenses amounted to $42.6
million, of which $24.6 million, or 57.8%, represented fees paid to the
Operating Advisor and $13.6 million, or 31.9%, represented interest on the
old HOLDINGS Line and related expenses. During the year, general and
administrative expenses were $2.5 million, or 5.9% of total expenses, and
taxes were $1.9 million, or 4.4% of total expenses.

The increase in fees paid to the Operating Advisor over the prior year
is primarily a result of the increased level and value of fundings to
strategic investees. Interest expense increased as a result of new
borrowings under the Convertible Notes and an increased average balance on
the old HOLDINGS Line and the Company Line, the proceeds of which were
utilised to fund a portion of the new investments. These increases in
interest expense were partially offset by a decline in the average interest
rates on the old HOLDINGS Line and the Company Line.

5
<PAGE>
Net Realised Gains on Public Special Opportunity Positions

Historically, public special opportunity positions were investments in
publicly traded REITs, which were generally held for an intermediate term
of 12 to 18 months, although the sale of such positions could occur sooner
or later, depending on market or business conditions and on whether the
return objectives had been realised. The objective of these public special
opportunity positions is to realise attractive total returns through
dividends and share price appreciation and to provide SC-U.S. Realty with
an efficient method of maintaining a portion of its assets in relatively
liquid investments (which assets could be redeployed on relatively short
notice).

During the years ended 31 December 1998 and 1997, net realised gains
on special opportunity positions were $32.9 million and $41.1 million,
respectively. In both cases, these gains were derived exclusively from the
disposition of publicly traded special opportunity positions.

Decrease/Increase in Appreciation on Strategic Investment and Other
Investment Positions

During the years ended 31 December 1998 and 1997, the principal factor
behind the movement in net assets resulting from operations was the change
in the unrealised appreciation of SC-U.S. Realty's strategic investment and
other investment positions.

During the year ended 31 December 1997, the main factor behind the
increase of $265.0 million in the unrealised appreciation of SC-U.S.
Realty's strategic investment and other investment positions was the
increase in the appreciation in SC-U.S. Realty's investment in Regency
($143.4 million, or 54.1% of the total increase), followed by CarrAmerica
($75.8 million, or 28.6%), Storage USA ($24.0 million, or 9.1%), and the
other investment positions ($23.6 million, or 9.1%).

Liquidity and Capital Resources

SC-U.S. Realty's total indebtedness as of 31 December 1999 was
approximately $625.2 million and the value of SC-U.S. Realty's total assets
was $2.5 billion. As of 31 December 1999, the closing share price on the
Amsterdam AEX Stock Exchange was $14.20 and the closing price of the ADRs
on the NYSE was $14.06. SC-U.S. Realty expects its principal sources of
liquidity to be from its receipt of dividends from strategic investments,
fundings from the new HOLDINGS Line and proceeds from sales of its other
investment positions. SC-U.S. Realty expects that these sources will enable
it to meet both its short-term and long-term cash requirements for its
funding commitments, working capital and debt repayment for the next twelve
months.

The lenders under the new HOLDINGS Line are Commerzbank
Aktiengesellschaft and a consortium of European and international banks. As
of 31 December 1999, $239.0 million was drawn and outstanding under the new
HOLDINGS Line. The earliest date on which the new HOLDINGS Line will expire
is 1 December 2001, but SC-U.S. Realty has the right on 1 December 2000 to
convert the then outstanding borrowings into a three- year term loan with
quarterly amortisation payments to be made over a three-year period, which
would effectively extend the final loan payment to 1 December 2003.
Borrowings under the new HOLDINGS Line (and the three-year term loan, if
applicable) bear interest at (a) the sum of (x) the greater of the federal
funds rate plus 0.5% per annum or the United States prime rate and (y) a
margin of 0% to 0.85% per annum (based on SC-U.S. Realty's current senior
unsecured long-term debt rating) or (b) at SC-U.S. Realty's option, LIBOR
plus a margin of 1.00% to 1.85% per annum (also based on SC-U.S. Realty's
current senior unsecured long-term debt rating). Additionally, there is a
commitment fee of 0.15% to 0.20% per annum (based on the amount of the line
which remains undrawn). All borrowings under the new HOLDINGS Line are
subject to covenants that SC-U.S. Realty must maintain at all times,
including: (i) unsecured liabilities may not exceed 40% of the market value
of a borrowing base of owned securities, (ii) shareholders' equity must
exceed the sum of $1.5 billion and 75% of the net proceeds of sales of
equity securities thereafter, (iii) a ratio of total liabilities to net
worth of not more than 1:1, (iv) a fixed-charge coverage ratio of not less
than 1.5:1, (v) an interest-coverage ratio of not less than 2:1 and (vi)
secured debt may not exceed 10% of consolidated market net worth. As of 31
December 1999,
SC-U.S. Realty was in compliance with these covenants.

Average daily borrowings under the new HOLDINGS Line and the Company
Line for the year ended 31 December 1999 were $297.9 million, at a weighted
average interest rate of 6.60% per annum.

6
<PAGE>

Through offerings of its shares, the Company received gross equity
proceeds aggregating $2.1 billion in the period between 1 January 1996 and
31 December 1997, of which $1.1 billion was received in 1997 and $1.0
billion in 1996. In addition, during May 1998, the Company issued $450
million (aggregate principal amount at maturity) of Convertible Notes. The
Convertible Notes were issued at a discount to their aggregate principal
amount at maturity. SC-U.S. Realty used the net proceeds of approximately
$352.7 million to repay borrowings under the old HOLDINGS Line which were
incurred principally for the purpose of funding commitments both to
existing and new strategic investment positions. Under the terms of the
Convertible Notes, the Company is not permitted to incur Senior
Indebtedness (as defined in the Indenture dated as of 22 May 1998, between
the Company and State Street Bank and Trust Company, as trustee, as
amended, the "Indenture") that is not subordinated to the same extent as
the Convertible Notes or to incur Secured Indebtedness (as defined in the
Indenture) that is by its terms senior in right of payment to the
Convertible Notes, except that the Company is permitted to guarantee, on a
secured and/or senior unsubordinated basis, the obligations of any wholly
owned subsidiary with respect to any Permitted Indebtedness (as defined in
the Indenture). As of and for the year ended 31 December 1999, SC-U.S.
Realty was in compliance with these covenants. The Convertible Notes are
convertible into shares at the option of the holder at any time prior to
maturity, unless previously redeemed, at a conversion rate equal to
26.39095 shares (giving effect to the reverse stock split) per $1,000
aggregate principal amount at maturity. The Convertible Notes may be
redeemed, in whole or in part, at the option of the Company on or after 23
May 2001 at the accreted value thereof, together with accrued and unpaid
interest. Upon a change in control of SC-U.S. Realty, each holder of the
Convertible Notes has the right, at the holder's option, to require SC-U.S.
Realty to repurchase such holder's Convertible Notes, in whole or in part,
at a purchase price equal to the accreted value thereof, together with
accrued and unpaid interest through the repurchase date.

On 5 May 1999, SC-U.S. Realty announced that its Board of Directors
had authorised a share repurchase programme of up to $100 million of the
Company's shares. On 29 June 1999 the Company announced that its Board of
Directors authorised an increase in the Company's share repurchase
programme to $200 million. As of 31 December 1999, SC-U.S. Realty had
repurchased 9,861,435 shares at an aggregate cost of $184.2 million,
representing approximately 11.4% of the Company's shares outstanding at the
commencement of the programme. This share repurchase programme has been and
will continue to be funded with proceeds received from the sale of the
public special opportunity investment portfolio together with the sale of
the common stock and debentures of Security Capital Group. During the year
ended 31 December 1999, the sale of SC-U.S. Realty's public special
opportunity investment portfolio realised net proceeds of $242.8 million.
In addition, SC-U.S. Realty announced on 15 March 2000 that it sold its
investment in Security Capital Group for $96.9 million.

Capital Deployment Activities

During the year ended 31 December 1999, SC-U.S. Realty deployed an
additional $90.7 million in strategic investment positions and disposed of
$308.2 million of public special opportunity positions. As of 31 December
1999, SC-U.S. Realty had outstanding contractual obligations of $109.9
million ($46.1 million to City Center Retail and $63.8 million to CWS
Communities).

SC-U.S. Realty's existing and committed fundings at cost as of 31
December 1999 were as follows:
<PAGE>

Total Total Cost
-----
Amount (Amount Amount to
------ ------- ---------
Committed Funded)(1) be Funded (1)
--------- ----------- -------------

(in thousands $)
<S> <C> <C> <C>

CarrAmerica (NYSE: CRE)................... $ 699,905 $ 699,905$ --
City Center Retail (Private).............. 350,232 304,132 46,100(2)
CWS Communities (Private)................. 300,329 236,488 63,841(2)
Regency (NYSE: REG)(3).................... 759,807 759,807 --
Storage USA (NYSE: SUS)................... 394,362 394,362 --
Urban Growth Property (Private)........... 188,582 188,582 --
Security Capital Group (NYSE: SCZ)........ 165,000 165,000 --
Private investment positions.............. 42,019 42,019 --
Total................................ $2,900,236 $2,790,295 $ 109,941
========== ========== ==========
</TABLE>

- -------------------
(1) Included in Total Amount Committed.
(2) Represents a contractual obligation.
(3) On 28 February 1999 Regency merged with Pacific Retail.
See Note 3A to the Consolidated Financial Statements.

7
<PAGE>

Capital deployed to additional strategic investment positions, as well
as further funding to existing strategic investees, will generally be
initially funded with borrowings under the new HOLDINGS Line. These
borrowings are expected to be reduced with internally generated free cash
flow, proceeds from the sale of other investment positions and the proceeds
from future issuances of debt or equity securities.

Strategic Private Company Investments

City Center Retail Trust

Business Description and Strategy

City Center Retail was created to provide high quality customer
service on a national basis to top U.S. and international retailers in
attractive downtown and urban infill markets throughout the United States.
City Center Retail was established to acquire, develop, operate and own
well- designed and well-managed urban retail properties in attractive U.S.
markets for premier U.S. and international retailers.

On 30 March 2000, SC-U.S. Realty announced that City Center Retail had
sold 20 properties for approximately $193.4 million. Net proceeds to
SC-U.S. Realty from the sale, after debt repayment and closing costs, were
approximately $103.6 million. SC-U.S. Realty will record a loss on the
property sales of $14.7 million, which will be reflected in its Statement
of Net Assets and Statement of Operations in 2000. City Center Retail's
remaining assets consist of eight properties, with a total expected cost
upon completion of development and stabilisation of approximately $263.0
million.
<TABLE>
<CAPTION>

Financial Highlights 1999 1998 % Change
-------------------- -------- --------- ---------

(in thousands U.S. $, except %)
<S> <C> <C> <C>

Total Assets.......................... $437,235 $365,431 19.6%
Total Debt............................ $102,252 $ 41,080 148.9%
Total Debt to Total Assets............ 23.4% 11.2% --
Rental Revenues....................... $ 33,809 $ 17,705 91.0%
Net Operating Income.................. $ 26,764 $ 12,209 119.2%
Basic EBDADT per Share................ $ 0.53 $ 0.32 65.6%
Diluted EBDADT per Share.............. $ 0.53 $ 0.32 65.6%
Dividends per Share................... $ 0.23 -- N/M
Payout Ratio.......................... 43.4% -- --
U.S. Realty Commitment................ $350,232 $350,135 --
U.S. Realty Investment................ $304,132 $304,035 0.0%
U.S. Realty Percent Ownership(1)...... 99.9% 99.9% --

</TABLE>

- ------------------
(1) Based on common shares outstanding.

Geographic Breakdown of Assets
------------------------------
Chicago.................... 31%
Washington D.C. ........... 23%
South Florida.............. 18%
California................. 14%
Portland................... 8%
Philadelphia............... 6%
-----
Total................. 100%
====

Total Expected Number of
Year-end 1999 Portfolio Investment Properties
Summary
Operating properties........ $304,943 21
Under development........... 177,789 5
In planning................. 7,837 2
------------- --------
Total.................. $490,569 28
============== ========

<PAGE>

CWS Communities Trust

Business Description and Strategy

CWS Communities' mission is to become the dominant national developer,
owner, and operator of manufactured housing communities. This high-growth
business niche is a very attractive sector of the U.S. housing industry
because its current ownership is very fragmented, there are high barriers
to entry, and extremely favourable demographics and supply/demand
fundamentals exist. Moreover, the industry has very low turnover (90% - 95%
of homes are never moved from their sites) and low capital expenditures,
which favours high cash flows and predictable rent increases.

Currently the sixth largest manufactured home community company in the
United States, CWS Communities is being built around the strongest core
management team in the industry. The team has 30 years of experience in the
industry and has a strong development capability. The Company's private
company status offers attractive currency to sellers of large, private
portfolios and provides a competitive edge by enabling the Company to focus
on development.

Financial Highlights 1999 1998 % Change
-------------------- ---- ---- --------

(in thousands U.S. $, except %)

Total Assets.......................... $364,914 $228,041 60.0%
Total Debt............................ $ 78,605 $ 29,474 166.7%
Total Debt to Total Assets............ 21.5% 12.9% --
Rental Revenues....................... $ 37,974 $ 22,048 72.2%
Net Operating Income.................. $ 24,846 $ 13,710 81.2%
Basic EBDADT per Share................ $ 0.61 $ 0.55 10.9%
Diluted EBDADT per Share.............. $ 0.61 $ 0.55 10.9%
Dividends per Share................... $ 0.56 $ 0.47 19.1%
Payout Ratio.......................... 91.8% 85.5% --
U.S. Realty Commitment................ $300,329 $300,329 --
U.S. Realty Investment................ $236,488 $153,563 54.0%
U.S. Realty Percent Ownership(1)...... 94.2% 96.0% -

(1) Based on common shares outstanding.

Geographic Breakdown of Assets
------------------------------
Florida . 48%
Texas . 21%
AZ, NM, NV................. 11%
Georgia.................... 10%
California................. 8%
New Jersey................. 2%
-----
Total................. 100%
====

Total Expected Number of
Year-end 1999 Portfolio Summary Investment Homesites
- -------------------------------
Operating properties........ $352,668 14,097
Under development........... -- --
In Planning................. 7,758 330
------------- --------
Total.................. $360,426 14,427
============ =========

Urban Growth Property Trust

Business Description and Strategy

Urban Growth Property Trust's mission is to become the leading real
estate company focused on maximizing the long-term sustainable cash flow
and value of income-producing land in highly protected, urban U.S. markets.
The Company focuses on three main assets types: urban infill parking
assets, off airport parking facilities, and ground leases where there is an
opportunity to create value by restructuring existing leases.

<PAGE>

A typical value-creating investment for the Company would include: a)
under managed assets, where there is an opportunity to enhance value
through repositioning and active management; b) a change in an asset's use,
where value is created through unsubordinated land leases, or c) a
corporate land lease or fully optimized asset that is strategically located
and has long-term sustainable cash flow.

Financial Highlights 1999 1998 % Change
-------------------- ------ ------ -----------
(in thousands U.S. $, except %)

Total Assets.......................... $324,376 $251,980 28.7%
Total Debt............................ $118,669 $ 56,404 110.4%
Total Debt to Total Assets............ 36.6% 22.4% --
Rental Revenues....................... $ 33,077 $ 17,399 90.1%
Net Operating Income.................. $ 25,376 $ 14,118 79.7%
Basic EBDADT per Share................ $ 0.81 $ 0.70 15.7%
Diluted EBDADT per Share.............. $ 0.81 $ 0.70 15.7%
Dividends per Share................... $ 0.54 $ 0.42 28.6%
Payout Ratio.......................... 66.7% 60.0% --
U.S. Realty Commitment................ $188,582 $181,082 --
U.S. Realty Investment................ $188,582 $181,082 4.1%
U.S. Realty Percent Ownership(1)...... 98.8% 98.7% --

- ------------------------
(1) Based on common shares outstanding.

Geographic Breakdown of Assets
Chicago.................... 48%
Off-Airport................ 18%
Philadelphia............... 17%
Other . 17%
---
Total................. 100%
====

Number of
Total Expected Parking
Year-end 1999 Portfolio Summary Investment Stalls
- ------------------------------- ---------- ------
Operating properties........ $262,836 17,203
Under development........... 4,300 1,100
In Planning................. 10,800 2,000
-------------
Total.................. $277,936 20,303
============ =========

Impact of Year 2000 and the Euro

The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Certain
computer programs that have time-sensitive software may recognise a date
using "00" as the year 1900 rather than the year 2000. This could result in
a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process
transactions, send invoices or engage in similar business activities. It
could also result in various mechanical malfunctions occurring in the
property operations of SC-U.S. Realty's strategic investees.

SC-U.S. Realty adopted a Year 2000 compliance program in an attempt to
minimise or prevent the number and seriousness of any disruptions that
could have occurred as a result of the Year 2000 issue. Third party costs
to address the Year 2000 issue were less than $100,000 and internal costs
incurred for Year 2000 compliance issues were also less than $100,000.
SC-U.S. Realty does not anticipate any additional costs related to Year
2000 in the future.

SC-U.S. Realty has reviewed the impact of the Year 2000 issue on its
operations, accounting and financial reporting by interviewing Banque
Internationale a Luxembourg ("BIL"), which provides all custodial duties
for SC-U.S. Realty, such as custody of cash, securities deposits and
financial transactions, as well as certain administrative duties, such as
bookkeeping and the calculation of net asset value. In addition, the
Operating Advisor uses BIL for its accounting and financial reporting. BIL
has informed SC-U.S. Realty that all of its operating, communications and
accounting systems, were Euro compliant with effect from 1 January 1999 and
Year 2000 compliant by 30 June 1999.

As a result of SC-U.S. Realty's, its affiliates and its vendors' due
diligence and preparations, no significant Year 2000 related problems or
failures were experienced by SC-U.S. Realty prior to or after 1 January
2000 and no significant Year 2000 problems or failures are anticipated in
the future.

<PAGE>

SECURITY CAPITAL U.S. REALTY
CONSOLIDATED FINANCIAL STATEMENTS

At 31 December 1999
Audited

Auditors' Report............................................. 12

Consolidated Statements of Net Assets.......................... 13

Consolidated Statements of Operations.......................... 14

Consolidated Statements of Cash Flows.......................... 15

Consolidated Statements of Changes in Net Assets............... 16

Consolidated Statements of Changes in Shares Outstanding....... 16

Consolidated Financial Highlights.............................. 16

Consolidated Schedules of Strategic Investment Positions....... 17

Consolidated Schedules of Other Investment Positions........... 18

Notes to the Consolidated Financial Statements................. 19

<PAGE>

AUDITOR'S REPORT

To the Board of Directors and Shareholders of
Security Capital U.S. Realty
Luxembourg

We have audited the consolidated financial statements, which consist
of the consolidated statement of net assets, the consolidated statement of
operations, the consolidated statement of changes in net assets, the
consolidated statement of cash flows, the consolidated statement of changes
in shares outstanding, the consolidated financial highlights for the year,
and the consolidated schedules of investments and the notes to the
consolidated financial statements of Security Capital U.S. Realty (the
"Company") as of 31 December 1999 and 1998 and for each of the three years
ended 31 December 1999, 1998 and 1997. These consolidated financial
statements are the responsibility of the Board of Directors of the Company.
Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our audits in accordance with International Standards on
Auditing and United States generally accepted auditing standards. Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by the Board of Directors of
the Company, as well as evaluating the overall consolidated financial
statement presentation. We believe that our audits provide a reasonable
basis for our opinion.

In our opinion, the attached consolidated financial statements audited
by us present fairly, in all material respects, the financial position of
the Company and its subsidiaries at 31 December 1999 and 1998, and the
results of their operations and their cash flows and their financial
highlights for each of the three years ended 31 December 1999, 1998 and
1997 in conformity with Luxembourg legal and regulatory requirements and in
conformity with accounting principles generally accepted in the United
States.

Supplementary information included in the annual financial report has
been reviewed in the context of our mandate but has not been subject to
specific audit procedures carried out in accordance with the standards
described above. Consequently, we express no opinion on such information.
We have no observation to make concerning such information in the context
of the consolidated financial statements taken as a whole.

PricewaterhouseCoopers S.a.r.l. Luxembourg, 25 February 2000
Reviseur d'enterprises
Represented by

Pascal Rakovsky Thierry Blondeau

SECURITY CAPITAL U.S. REALTY
CONSOLIDATED STATEMENTS OF NET ASSETS

At 31 December 1999
(in thousands U.S. $, except per-share amounts)
Audited

1999 1998
-------- --------
<S> <C> <C>

ASSETS
Strategic investment positions at value (Note 3):
CarrAmerica (Cost $699,905; $699,851, respectively)...................... $ 604,247 $ 686,482
City Center Retail (Cost $304,132; $304,035, respectively)............... 304,132 304,035
CWS Communities (Cost $236,488; $153,563, respectively).................. 236,488 153,563
Regency (Cost $759,807; $759,788, respectively) (Note 3A)................ 685,465 762,580
Storage USA (Cost $394,362; $394,272, respectively)...................... 355,911 380,178
Urban Growth Property (Cost $188,582; $181,082, respectively)............ 188,582 181,082
Other investment positions at value (Note 3):
Security Capital Group Incorporated (Cost $165,000; $165,000,
respectively)......................................................... 95,780 116,245
Private investment positions (Cost $42,019; $15,275, respectively)....... 42,019 15,275
Public special opportunity positions (Cost $0; $298,756, respectively) -- 247,205
---------------
Total investments.................................................................. $2,512,624 $2,846,645
Cash and cash equivalents.......................................................... 2,732 2,994
Accounts receivable and other (Note 4)............................................. 15,530 23,989
-------------
TOTAL ASSETS....................................................................... $2,530,886 $2,873,628
==========- ==========

LIABILITIES
Accounts payable and accrued expenses (Note 5)........................... $ 6,033 $ 13,497
Taxes payable (Note 9)................................................... 4,818 1,306
Line of credit (Note 6).................................................. 239,000 262,500
Convertible notes (Note 7)............................................... 386,157 369,940
TOTAL LIABILITIES.................................................................. $ 636,008 $ 647,243
------------
TOTAL NET ASSETS (SHAREHOLDERS' EQUITY) $1,894,878 $2,226,385
==========- ==========
Authorised 250,000,000 shares of $4.00 par value, 86,561,872
shares issued and 76,700,437 outstanding at 31 December 1999
and
86,561,872 issued and outstanding at 31 December 1998 (Note 13)....... $ 346,247 $ 346,247
Share premium account (Note 14).......................................... 1,564,939 1,749,158
------------
PAID-IN CAPITAL.................................................................... $1,911,186 $2,095,405
Legal reserve (Note 12).................................................. 30,375 30,375
Reserve for own shares (Note 14)......................................... 184,219 --
Undistributed net operating income....................................... 219,144 148,152
Accumulated net realised gain............................................ 11,844 77,431
Unrealised depreciation on strategic investment and other investment
positions (277,671) (124,978)
Acquisition of own shares (Note 14)...................................... (184,219) --
-------------
SHAREHOLDERS' EQUITY............................................................... $1,894,878 $2,226,385
==========- ==========
Net Asset Value Per Share (Note 14)...................................... $ 24.70 $ 25.72

The accompanying notes form an integral part of the financial statements.

<PAGE>

SECURITY CAPITAL U.S. REALTY
CONSOLIDATED STATEMENTS OF OPERATIONS

For the years ended 31 December 1999, 1998 and 1997
(in thousands U.S. $, except per-share amounts)
Audited
<S> <C> <C> <C>
1999 1998 1997
-------- ---------- -----------
REVENUES
Gross Dividends from strategic investment positions:
CarrAmerica............................................................ $ 52,916 $ 51,999 $ 41,412
City Center Retail..................................................... 6,990 -- --
CWS Communities........................................................ 9,057 4,783 --
Regency (Note 3A)...................................................... 57,852 56,422 33,017
Storage USA............................................................ 31,532 29,934 24,497
Urban Growth Property.................................................. 10,160 4,338 --
------------
$ 168,507 $ 147,476 $ 98,926
Gross Dividends from public special opportunity positions................... 8,925 20,908 17,594
------------
$ 177,432 $ 168,384 $116,520
Interest income from affiliate.............................................. 3,575 3,575 2,896
Interest income from non-affiliate and other income......................... 4,188 1,132 805
------------
TOTAL GROSS REVENUES........................................................ $ 185,195 $ 173,091 $120,221
Withholding tax on dividends received.................................. (24,152) (16,266) (17,304)
------------
TOTAL REVENUES.............................................................. $ 161,043 $ 156,825 $102,917
=========- =========- ========
EXPENSES
Operating advisor fees...................................................... $ 32,544 $ 35,220 $ 24,632
Custodian fees.............................................................. 475 459 470
Directors fees.............................................................. 155 103 85
Professional expenses....................................................... 1,500 1,843 810
Administrative expenses..................................................... 1,404 2,057 1,159
Amortisation of convertible notes deferred costs............................ 1,573 959 --
Taxes . 4,555 2,429 1,857
Line of credit arrangement and commitment fees.............................. 1,177 2,561 2,259
Interest on line of credit.................................................. 20,045 18,434 11,336
Interest on convertible notes............................................... 26,623 14,861 --
------------
TOTAL EXPENSES.............................................................. $ 90,051 $ 78,926 $ 42,608
-----------
NET OPERATING INCOME........................................................ $ 70,992 $ 77,899 $ 60,309
NET REALISED AND UNREALISED (LOSS)/GAIN ON
STRATEGIC INVESTMENT AND OTHER INVESTMENT
POSITIONS
Net realised (loss)/gain on public special opportunity positions............ $ (65,587) $ 32,878 $ 41,073
Net (decrease)/increase in appreciation on strategic investment and other
investment positions..................................................... (152,693) (642,372) 264,974
-----------
NET (LOSS)/GAIN ON STRATEGIC INVESTMENT AND OTHER
INVESTMENT POSITIONS..................................................... $(218,280) $(609,494) $306,047
----------
(DECREASE)/INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS............................................................... $(147,288) $(531,595) $366,356
========= ========= ========

The accompanying notes form an integral part
of the financial statements.

<PAGE>

SECURITY CAPITAL U.S. REALTY
CONSOLIDATED STATEMENTS OF CASH FLOWS

For the years ended 31 December 1999, 1998 and 1997
(in thousands U.S. $, except per-share amounts)
Audited
<S> <C> <C> <C>

1999 1998 1997
-------- -------- --------
Operating Activities:
(Decrease)/Increase in net assets resulting from operations.......... $(147,288) $(531,595) $ 366,356
Adjustments to reconcile (decrease)/increase in net assets resulting
from operations to net cash provided by operating activities:
Movement in unrealised gain........................................ 152,693 642,372 (264,974)
Movement in accretion on convertible notes......................... 16,217 9,387 --
Movement in convertible notes deferred costs....................... 1,573 959 --
Changes in operating assets and liabilities:
Accounts receivable and other................................. 6,886 (10,266) 1,498
Interest receivable from affiliate............................ -- -- 366
Accounts payable and accrued expenses......................... (1,233) (256) 2,488
Operating advisor fees payable................................ (6,230) 1,371 4,629
Taxes payable................................................. 3,512 286 625
------------
Net cash provided by operating activities................ $ 26,130 $ 112,258 $ 110,988
-----------
Investing Activities:
Fundings in strategic investment positions:
CarrAmerica........................................................ $ (54) $ (63,464) $ (207,971)
City Center Retail................................................. (97) (220,370) (83,665)
CWS Communities.................................................... (82,925) (60,963) (92,600)
Regency (Note 3A).................................................. (19) (10,634) (471,741)
Storage USA........................................................ (90) (45,828) (76,561)
Urban Growth Property.............................................. (7,500) (163,379) (17,703)
Fundings in Security Capital Group................................... -- -- (142,500)
Fundings in other investment positions, net.......................... 272,012 (31,323) (104,700)
-----------
Net cash provided/(used) in investing activities.............. $ 181,327 $(595,961) $(1,197,441)
----------
Financing Activities:
Net proceeds from shares offering.................................. $ -- $ -- $ 1,072,966
Net proceeds from convertible notes offering....................... -- 352,667 --
Offering expenses charged against the share premium account........ -- (440) --
Acquisition of own shares.......................................... (184,219) -- --
Net (repayments)/drawdowns from line of credit..................... (23,500) 132,500 (39,500)
------------
Net cash (used)/provided by financing activities.............. $(207,719) $ 484,727 $ 1,033,466
----------
Net (decrease)/increase in cash and cash equivalents.................... $ (262) $ 1,024 $ (52,987)
Cash and cash equivalents, beginning of the year........................ 2,994 1,970 54,957
------------
Cash and cash equivalents, end of the year.............................. $ 2,732 $ 2,994 $ 1,970
==========- ==========-=============
Supplemental disclosure of cash flow information:
Tax paid...................................................... $ 1,043 $ 2,141 $ 1,232
==========- ==========-=============
Interest paid on borrowings................................... $ 30,012 $ 22,987 $ 11,929
==========- ==========- ============

The accompanying notes form an integral part of the financial statements.

SECURITY CAPITAL U.S. REALTY
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

For the years ended 31 December 1999, 1998 and 1997
(in thousands U.S. $, except per-share amounts)
Audited
<S> <C> <C> <C>

1999 1998 1997
-------- ------- --------
OPERATIONS:
Net operating income..................................................... $ 70,992 $ 77,899 $ 60,309
Net realised (loss)/gain on public special opportunity positions......... (65,587) 32,878 41,073
(Decrease)/Increase in appreciation on strategic investment and other
investment positions.................................................. (152,693) (642,372) 264,974
-------------
(Decrease)/Increase in net assets resulting from operations.............. $ (147,288) $ (531,595) $ 366,356
CAPITAL TRANSACTIONS:
Net proceeds from offerings.............................................. $ --$ -- $1,072,965
(Decrease)/Increase in share premium account............................. (184,219) (440) --
Increase in reserve for own shares....................................... 184,219 -- --
Acquisition of own shares during the year................................ (184,219) -- --
-------------
(Decrease)/Increase in net assets resulting from capital transactions.... $ (184,219) $ (440) $1,072,965
NET ASSETS:
(Decrease)/Increase in net assets during the year........................ $ (331,507) $ (532,035) $1,439,321
Net assets at the beginning of the year.................................. 2,226,385 2,758,420 1,319,099
------------
Net assets at the end of the year (includes undistributed net operating
income of $219,144 for 1999, $148,152 for 1998, and $73,324 for
1997)................................................................. $1,894,878 $2,226,385 $2,758,420
==========- ==========- ==========
Per-share data:
Net Asset Value.......................................................... $ 24.70 $ 25.72 $ 31.87
CONSOLIDATED STATEMENTS OF CHANGES IN SHARES OUTSTANDING

For the years ended 31 December 1999, 1998 and 1997
Audited

Number of shares
<S> <C> <C> <C>

1999 1998 1997
-------- ----------- -----------
At the beginning of the year.................. 86,561,872 86,561,872 48,246,355
Issued during the year........................ -- -- 38,315,517
Acquisition of own shares during the year..... (9,861,435) -- --
------------ ---------- -----------
At the end of the year........................ 76,700,437 86,561,872 86,561,872
==========- ========== ==========
<CAPTION>

CONSOLIDATED FINANCIAL HIGHLIGHTS

For the years ended 31 December 1999, 1998 and 1997
Audited
<S> <C> <C> <C>

1999 1998 1997
-------- ------ ------
Per-share data:
Net Asset Value at the beginning of the year................................ $25.72 $31.87 $27.34
Net operating income........................................................ 0.86 0.90 0.92
Net change in movement in unrealised appreciation and realised gain on
strategic investment and other investment positions in the year.......... (2.65) (7.05) 4.64
Shares issued during the year............................................... -- -- (1.03)
Acquisition of own shares during the year................................... 0.77 -- --
--------- ------- --------
Net Asset Value per-share at the end of the year................................. $24.70 $25.72 $31.87
======- ======- ======

The accompanying notes form an integral part of the financial statements.

</TABLE>

<PAGE>

SECURITY CAPITAL U.S. REALTY
CONSOLIDATED SCHEDULES OF STRATEGIC INVESTMENT POSITIONS

At 31 December 1999
(in thousands U.S. $, except shares held and %)
Audited
<S> <C> <C> <C> <C> <C>

Number of Percentage of
Strategic Investment Positions Security Type Shares Held Cost Value Total Assets
- ------------------------------
CarrAmerica..................... Common Stock 28,603,417 $ 699,905 $ 604,247 23.9%
City Center Retail.............. Common Stock 30,390,000 304,132 304,132 12.0%
CWS Communities................. Common Stock 23,615,858 236,488 236,488 9.3%
Regency (Note 3A)............... Common Stock 34,273,236 759,807 685,465 27.1%
Storage USA..................... Common Stock 11,765,654 394,362 355,911 14.1%
Urban Growth Property........... Common Stock 18,824,100 188,582 188,582 7.4%
------------
Total investment in strategic
positions.................... $2,583,276 $2,374,825 93.8%
========== ========== ==========

At 31 December 1998
(in thousands U.S. $, except shares held and %)
Audited
<S> <C> <C> <C> <C> <C>
Number of Percentage of
Strategic Investment Positions Security Type Shares Held Cost Value Total Assets
- ------------------------------
CarrAmerica..................... Common Stock 28,603,417 $ 699,851 $ 686,482 23.9%
City Center Retail.............. Common Stock 30,390,000 304,035 304,035 10.6%
CWS Communities................. Common Stock 15,323,358 153,563 153,563 5.3%
Regency (Note 3A)............... Common Stock 34,273,236 759,788 762,580 26.6%
Storage USA..................... Common Stock 11,765,654 394,272 380,178 13.2%
Urban Growth Property........... Common Stock 18,074,100 181,082 181,082 6.3%
------------
Total investment in strategic
positions.................... $2,492,591 $2,467,920 85.9%
========== ========== ============

The accompanying notes form an integral part of the financial statements.

<PAGE>

SECURITY CAPITAL U.S. REALTY
CONSOLIDATED SCHEDULES OF OTHER INVESTMENT POSITIONS

At 31 December 1999
(in thousands U.S. $, except %)
Audited

Percentage of
Property Type Cost Value Total Assets
Private investment positions
Companies in which SC-U.S. Realty owns a 5% or greater interest:
Other.......................................................... $ 39,215 $39,215 1.6%
Companies in which SC-U.S. Realty owns less than 5% interest:
Other.......................................................... 2,804 2,804 0.1%
----------
Total investment in private investment positions......................... $ 42,019 $42,019 1.7%
Investment in Security Capital Group Incorporated........................ 165,000 95,780 3.8%
--------- -------- -------------
Total investment in other investment positions........................... $207,019 $137,799 5.5%
======= ======= =============
<CAPTION>

At 31 December 1998
(in thousands U.S. $, except %)
Audited
<S> <C> <C> <C>

Percentage of
Property Type Cost Value Total Assets
- -------------
Private investment positions
Companies in which SC-U.S. Realty owns a 5% or greater interest:
Other.......................................................... $ 14,446 $ 14,446 0.5%
Companies in which SC-U.S. Realty owns less than 5% interest:
Other.......................................................... 829 829 0.1%
-----------
Total investment in private investment positions......................... $ 15,275 $ 15,275 0.6%
Public special opportunity positions
Companies in which SC-U.S. Realty owns a 5% or greater interest:
Retail......................................................... $ 35,493 $ 37,646 1.3%
Companies in which SC-U.S. Realty owns less than 5% interest:
Office/Industrial.............................................. 107,905 97,658 3.4%
Hotel.......................................................... 79,600 41,356 1.4%
Multifamily.................................................... 29,044 28,727 1.0%
Storage........................................................ 10,227 11,350 0.4%
Diversified.................................................... 13,683 11,004 0.4%
Retail......................................................... 8,406 6,949 0.2%
Other.......................................................... 14,398 12,515 0.4%
----------
Total investment in public special opportunity positions................. $298,756 $247,205 8.5%
Investment in Security Capital Group Incorporated........................ 165,000 116,245 4.0%
---------
Total investment in other investment positions........................... $479,031 $378,725 13.1%
======= ======= ============

The accompanying notes form an integral part of the financial statements.

</TABLE>

18
<PAGE>

SECURITY CAPITAL U.S. REALTY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1--ORGANISATION

Security Capital U.S. Realty (the "Company") (NYSE: RTY) (Amsterdam
AEX Stock Exchange ISIN Code: LU0060100673, Bloomberg Symbol: SCUS NA,
Reuters Symbol: CAPAu.AS) was incorporated on 7 July 1995 and is a
research-driven real estate management company focused on taking
significant strategic investment positions (with board representation,
consultation and other rights) in value-added real estate operating
companies based in the United States. The Company's primary capital
deployment objective is to take a proactive ownership role in businesses
that it believes can potentially generate above-average rates of return.
The Company is organised in Luxembourg as a Societe d'Investissement a
Capital Fixe (a company with a fixed capital). On 24 June 1999 the
Company's ADRs began trading on the New York Stock Exchange ("NYSE") under
the ticker symbol "RTY".

The Company owns its assets through its direct and indirect wholly
owned subsidiaries, including Security Capital Holdings S.A. (such
subsidiaries collectively referred to herein as "HOLDINGS"). All accounts
of HOLDINGS have been consolidated with the Company and all significant
intercompany transactions have been eliminated upon consolidation.
References herein to SC-U.S. Realty are to the consolidated entity
consisting of Security Capital U.S. Realty and HOLDINGS, unless noted
otherwise.

NOTE 2--SIGNIFICANT ACCOUNTING POLICIES

The financial statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") in the United States and
with Luxembourg regulatory requirements. The preparation of financial
statements in accordance with GAAP requires the Company's management to
make estimates of certain reported amounts in the financial statements.
Actual results may differ from those estimates.

A. Fair Value Basis of Presentation

SC-U.S. Realty accounts for its investments at fair value in
accordance with the U.S. specialised industry accounting rules prescribed
by the American Institute of Certified Public Accountants (AICPA) Audit and
Accounting Guide for Investment Companies (the "Guide"). Thus, SC-U.S.
Realty's investments in publicly traded companies are valued at market
determined by using closing market prices on the NYSE, or other recognised
stock exchanges when appropriate, as of the balance sheet date, subject to
an appropriate adjustment for transfer restrictions, if any. For privately
held investments in which SC-U.S. Realty has an ownership interest, SC-U.S.
Realty will, whenever the Board of Directors believes significant
developments have occurred affecting the value of an investment and on at
least an annual basis, utilise valuation evidence and methodologies
appropriate to the nature of the investment to derive fair value. These
will include external valuations, cash flow valuation techniques and
valuation information derived through placements of private companies'
securities as well as review by management for other specific indicators of
changes in value relating to property performance and/or significant
changes in local or general market conditions. The Board of Directors, in
its discretion, may permit some other method of valuation to be used if it
determines that such valuation better reflects the fair value of any assets
of the Company.

Under fair value accounting, unrealised gains or losses are determined
by comparing the fair value of the securities held to the cost of such
securities. Unrealised gains or losses relating to changes in fair value of
SC-U.S. Realty's investments are reported as a component of net earnings.
Deferred income taxes, if any, are recorded at the applicable statutory
rate as the estimate of taxes payable as if such gains were realised. Under
current tax laws, and in light of SC-U.S. Realty's operating methods and
plans, SC-U.S. Realty's investment gains generally are not subject to
income taxes.

As of 31 December 1999 and 1998, 30.5% and 22.8%, respectively, of
SC-U.S. Realty's investments were in private or untraded securities valued
at their fair value as determined by the Board of Directors, using the
methodology described above. This value may differ from the value that
would have been used had a trading market for these securities existed. The
valuation of assets assumes that any assets disposed of would be sold in an
orderly process; any forced sale of assets under short-term pressures,
which is not foreseen, could adversely affect realisable values.

B. Accounting for Investments and Income

All purchases and sales of publicly traded securities are recorded as of
the trade date (i.e., the date that SC-U.S. Realty's broker actually
executes an order to buy or sell). All purchases and sales of privately held

19
<PAGE>

SECURITY CAPITAL U.S. REALTY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

securities are recorded as of the date the actual purchase or sale is made.
Dividend income is recorded on the ex-dividend date for each dividend
declared by an issuer. Dividends received are presented on a gross basis.
HOLDINGS may be entitled to refunds on a portion of the withholding tax
because the withholding tax is not levied on the portion of dividends which
is a return of capital. Interest income is recorded on the accrual basis.
Interest received is stated net of withholding taxes. Realised gains and
losses on sales of shares are determined on the average cost method.

C. Cash and Cash Equivalents

SC-U.S. Realty considers all cash on hand, demand deposits with
financial institutions and short-term, highly liquid investments with
original maturities of three months or less to be cash equivalents.

D. Deferred Financing Costs/Discounts

Underwriting fees relating to the issuance of the $450 million
aggregate principal amount at maturity of the Company's 2% Senior Unsecured
Convertible Notes due 2003 (the "Convertible Notes") are capitalised and
amortised over the term of the obligation. Discounts on the Convertible
Notes are accreted as a component of interest expense using the effective
interest method over the term of the obligation.

E. New Accounting Pronouncements

During June 1998, the Financial Accounting Standards Board (FASB)
issued SFAS No. 133 "Accounting for Derivative Instruments and Hedging
Activities". This statement provides new accounting and reporting standards
for the use of derivative instruments. Adoption of this statement is
required by the Company effective 1 January 2001. Management intends to
adopt the statement as required in fiscal 2000. Although the Company has
not historically used such instruments, it is not precluded from doing so.
Management believes that the impact of such adoption will not be material
to the financial statements.

F. Reclassification

Certain 1997 numbers have been reclassified to conform to the 1999
presentation.

NOTE 3--INVESTMENTS

SC-U.S. Realty aims to have over 95% of its assets deployed in
strategic investment positions and less than 5% invested in other
investment positions.

A. Strategic Investment Positions

Strategic investment positions represent significant (minimum of 25%
of each issuer's fully diluted common stock outstanding) equity ownership
positions in public companies or in private companies. With private
companies which SC-U.S. Realty sponsors, it expects to own substantially
more than 50% of the voting shares. SC-U.S. Realty will be the largest
shareholder of its strategic investees, have representation on their boards
of directors, and will influence their operations and strategies through
ongoing consultation and research. Strategic investees are characterised by
the perceived potential for a superior market niche and the ultimate
potential for market preeminence with a focused strategy and product.

The merger of Pacific Retail and Regency occurred on 28 February 1999.
Shareholders of Pacific Retail received 0.48 shares of Regency common stock
for each common share of Pacific Retail they owned. For the years ended 31
December 1999, 1998 and 1997 the financial information for Pacific Retail
has been reflected in the financial information of Regency.

B. Other Investment Positions

Other investment positions primarily consist of ownership positions of
less than 10% of the fully diluted stock in entities taxed as real estate
investment trusts ("REITs") under the Code and other U.S. real estate
companies. The investments have and will take the form of either direct
investments in, or public market purchases of, shares of companies that
SC-U.S. Realty believes possess the requisite fundamentals to generate

<PAGE>

SECURITY CAPITAL U.S. REALTY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

strong cash flow growth and/or value appreciation. In exceptional
circumstances, and to a very limited extent, SC-U.S. Realty has made
investments in companies that are not publicly traded. Typically such an
investment has been in a company that does not at the time of investment
fulfill the criteria for a strategic investment position.

As of 31 December 1999 and 1998, SC-U.S. Realty had deployed a total
of $165.0 million in securities of Security Capital Group Incorporated
("Security Capital Group"). This amount is made up of an investment of
$110.0 million (representing 52,430.9 shares of Class A common stock and
$55.0 million aggregate principal amount of 6.5% convertible subordinated
debentures due 2016) and an additional $55.0 million (representing
1,964,286 shares of Class B common stock) invested during Security Capital
Group's initial public offering in September 1997. On 13 January 2000, the
Board of Directors determined that the securities of Security Capital Group
should be sold. On 22 February 2000, SC-U.S. Realty sold all the common
stock of Security Capital Group, receiving net proceeds of $57.0 million,
and on 14 March 2000, SC-U.S. Realty sold all the debentures of Security
Capital Group, receiving net proceeds of $39.9 million. As of 31 December
1999, the company carried its entire investment in Security Capital Group
securities at $95.8 million, reflecting fair market value on that date.

NOTE 4--ACCOUNTS RECEIVABLE AND OTHER

At 31 December
--------------
1999 1998
--------- ---------
(in thousands U.S. $)

Dividends........................................ $ 6,701 $ 8,162
Receivable from brokers on investments sold...... -- 8,219
Deferred issue costs on Convertible Notes(1)..... 5,354 6,927
Interest......................................... 3,473 580
Refund of withholding tax........................ -- 97
Other............................................ 2 4
---------- ---------
$ 15,530 $23,989
======== =======

(1) Represents the underwriting fees of $7.9 million relating to the issuance
of the Convertible Notes (see Note 7). The fees have been deferred and
will be fully amortised over a period of five years starting from the issue
date of 22 May 1998.

NOTE 5--ACCOUNTS PAYABLE AND ACCRUED EXPENSES

At 31 December
---------------
1999 1998
------- -------
(in thousands U.S. $)

Operating advisor fees.................... $ 2,384 $ 8,614
Interest payable on Line of Credit........ 1,108 762
Interest payable on Convertible Notes..... 1,068 975
Custodian fees............................ 70 110
Acquisition of own shares................. 239 --
Other..................................... 1,164 3,036
---------
$ 6,033 $13,497
======== =======

NOTE 6--LINE OF CREDIT

On 30 December 1999, the $400 million unsecured line of credit of the
Company, which was guaranteed by HOLDINGS (the "Company Line"), was
replaced by the $350 million unsecured line of credit of HOLDINGS, which is
guaranteed by the Company (the "new HOLDINGS Line") (both lines referred to
herein as the "Lines of Credit").

In an effort to secure investment-grade credit ratings, on 8 December
1998, SC-U.S. Realty converted its $700 million secured line of credit of
HOLDINGS (the "old HOLDINGS Line"), into the Company Line from Commerzbank
Aktiengesellschaft and a consortium of European and international banks, of
which $262.5 million was drawn and outstanding as of 31 December 1998.
SC-U.S. Realty received investment-grade ratings

<PAGE>

SECURITY CAPITAL U.S. REALTY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

from each of Moody's Investor Service (Baa3), Standard & Poor's Ratings
Services (BBB-) and Duff & Phelps Credit Rating Co. (BBB-). On 30 December 1999
the new HOLDINGS Line was extended for an additional year and reduced to $350
million.

The earliest date on which the new HOLDINGS Line will expire is 1
December 2001, but SC-U.S. Realty has the right on 1 December 2000 to
convert the then outstanding borrowings into a three-year term loan with
quarterly amortisation payments to be made over the four- year period,
which would effectively extend the final loan payment to 1 December 2003.
Borrowings under the new HOLDINGS Line (and the three-year term loan, if
applicable) bear interest at (a) the sum of (x) the greater of the federal
funds rate plus 0.5% per annum or the United States prime rate and (y) a
margin of 0% to 0.85% per annum (based on SC-U.S. Realty's current senior
unsecured long-term debt rating) or (b) at SC-U.S. Realty's option, LIBOR
plus a margin of 1.00% to 1.85% per annum (also based on SC-U.S. Realty's
current senior unsecured long-term debt). Additionally, there is a
commitment fee of 0.15% to 0.20% per annum (based on the amount of the line
which remains undrawn). All borrowings under the new HOLDINGS Line are
subject to covenants that SC-U.S. Realty must maintain at all times,
including: (i) unsecured liabilities may not exceed 40% of the market value
of a borrowing base of owned securities, (ii) shareholders' equity must
exceed the sum of $1.5 billion and 75% of the net proceeds of sales of
equity securities thereafter, (iii) a ratio of total liabilities to net
worth of not more than 1:1, (iv) a fixed-charge coverage ratio of not less
than 1.5:1, (v) an interest-coverage ratio of not less than 2:1 and (vi)
secured debt may not exceed 10% of consolidated market net worth. As of 31
December 1999, SC-U.S. Realty was in compliance with these covenants.

SC-U.S. Realty's total indebtedness under the new HOLDINGS Line as of
31 December 1999 was $239.0 million, and under the Company Line as of 31
December 1998 was $262.5 million.

Average daily borrowings under the Lines of Credit was $297.9 million
for the year ended 31 December 1999. Average daily borrowings under the
Company Line and the old HOLDINGS Line was $274.4 million for the year
ended 31 December 1998. The weighted average interest rates for these same
periods were 6.60% per annum and 6.67% per annum, respectively.

NOTE 7--CONVERTIBLE NOTES

At 31 December
1999
(in thousands U.S. $)
Convertible Notes proceeds....................... $ 360,554
Accumulated accretion on Convertible Notes....... 25,603
-------------------
$ 386,157
==================

The Company completed a convertible debt offering in May 1998. The
Convertible Notes are convertible at the option of the holder at any time
prior to maturity at a conversion rate equal to 26.39095 shares (giving
effect to the reverse stock split) of the Company, each having a par value
of $4.00 (the "Shares"), per $1,000 aggregate principal amount at maturity
of the Convertible Notes. Interest is payable semi-annually at the rate of
2.0% per annum on 22 May and 22 November of each year commencing on 22
November 1998. Effective 1 January 1999, the interest rate payable on the
Convertible Notes was increased to 2.5% per annum. The 2.5% per annum
interest rate was in effect until SC-U.S. Realty listed certain equity
securities on the NYSE and registered the Convertible Notes and related
equity securities for resale. SC-U.S. Realty completed these steps on 30
July 1999 and as of 1 August 1999, the interest rate on the Convertible
Notes was reduced to 2.0% per annum. The Convertible Notes were sold at a
discount to their principal amount at maturity and additional interest will
accrete at an annual rate of 6.75% less the 2.0% payment, compounded
semi-annually, to par by 22 May 2003. The Convertible Notes may be
redeemed, in whole or in part, at the option of the Company on or after 23
May 2001 at their accreted value, together with accrued and unpaid
interest. Upon a change in control of the Company, each holder of
Convertible Notes shall have the right, at the holder's option, to require
the Company to repurchase such holder's Convertible Notes, in whole or in
part, at a purchase price equal to their accreted value, together with
accrued and unpaid interest through the repurchase date.

Conversion of the Convertible Notes would be anti-dilutive for the
year ended 31 December 1999.

<PAGE>
SECURITY CAPITAL U.S. REALTY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

NOTE 8--ADVISORY AGREEMENT

SC-U.S. Realty has an advisory agreement with Security Capital U.S.
Realty Management S.A. (the "Operating Advisor"), a wholly owned subsidiary
of Security Capital Group. This agreement requires the Operating Advisor to
provide SC-U.S. Realty with advice with respect to strategy, investments,
financing and certain other administrative matters affecting SC-U.S.
Realty. The Operating Advisor has agreed to identify tangible capital
deployment opportunities in U.S. real estate companies and evaluate such
companies' competitive positions, management expertise, strategic
direction, financial strength and prospects for long-term sustainable
per-share cash flow growth. The Operating Advisor also advises SC-U.S.
Realty on obtaining board and committee representation and management
rights from strategic investees. The agreement automatically renews for
successive two-year periods unless either party gives notice it will not
renew. The Operating Advisor subcontracts for certain services through
affiliates based in London, United Kingdom and Chicago, Illinois, United
States. The Operating Advisor is entitled to an advisory fee, payable
monthly in arrears, at an annual rate of 1.25% of the average monthly value
of invested assets (excluding investments in Security Capital Group
securities and investments of short-term cash and cash equivalents). SC-
U.S. Realty pays its own third-party operating and administrative expenses
and transaction costs, although the Operating Advisor's fee will be reduced
to the extent that third-party operating and administrative expenses (but
not transaction costs) exceed 0.25% per annum of the average monthly value
of invested assets (excluding investments in Security Capital Group
securities and investments of short-term cash and cash equivalents). Such
third-party operating and administrative costs as a ratio of the average
monthly value of assets were 0.08%, 0.09% and 0.13% for the years ended 31
December 1999, 1998 and 1997, respectively.

SC-U.S. Realty pays fees to (i) Banque Internationale a Luxembourg as
Administrative Agent, Corporate Agent and Paying Agent, (ii) First European
Transfer Agent S.A. as Registrar and Transfer Agent, and (iii) Security
Capital European Services S.A. as Domiciliary Agent and Service Agent, in
accordance with usual practice in Luxembourg. Such fees are payable
quarterly and are based on SC-U.S. Realty's gross assets.

NOTE 9--TAXATION

The Company, as separate from HOLDINGS, is not liable for any
Luxembourg tax on income. The Company is liable in Luxembourg for a capital
tax of 0.06% per annum of its net asset value. Cash dividends and interest
received by the Company or HOLDINGS on their investments may be subject to
non-recoverable withholding or other taxes in the countries of origin. U.S.
withholding tax rates of 15% were generally in effect for dividends
received for all periods presented.

Under the current United States-Luxembourg tax treaty, the Company
believes that HOLDINGS qualifies for a 15% rate of withholding tax on
dividends of operating income from the REIT investments currently held by
HOLDINGS and from its future REIT investments (if any). The Company also
believes that HOLDINGS will qualify for a 15% rate of withholding tax under
the proposed United States- Luxembourg tax treaty ratified by the United
States on most, if not all, of the REIT investments currently held by
HOLDINGS and from future REIT investments (if any). The Company's beliefs
are based on the advice of tax counsel and the manner in which management
intends to operate the Company. There can be no assurance that these
favourable rates will be achieved as to all such investments. These
benefits are also dependent on HOLDINGS meeting the "limitations on
benefits" test under Article 24 of the proposed new treaty. The tests
prescribed by Article 24, particularly in terms of stock ownership
requirements, base erosion and publicly traded criteria, are inherently
factual in nature. Such tests will only need to be applied to HOLDINGS at a
future, and presently indeterminate, point in time and will be dependent on
the particular facts at such time. However, management will use its best
efforts to ensure that HOLDINGS meets the conditions for claiming the
reduced treaty withholding tax rate at the relevant times and the Company
currently believes that such conditions will be met.

HOLDINGS, an ordinary corporate taxpayer under Luxembourg law, owns
all of the consolidated group's interests in REITs and other U.S. real
estate companies. Corporations which are resident Luxembourg taxpayers are
taxed on their worldwide net income, determined on the basis of gross
income less costs incurred. Certain items of income and capital gains are
excluded from the calculation of income received for tax purposes,
including income and capital gains from certain investments which meet
certain holding period (generally one calendar year) and size requirements.
HOLDINGS operates so as to have the highest possible percentage of its
investments qualify for the exclusion. Interest accrued on advances from
the Company to HOLDINGS is deducted in determining HOLDINGS' taxable
income.

23
<PAGE>
SECURITY CAPITAL U.S. REALTY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Income paid from HOLDINGS to the Company is subject to various levels
of tax, including withholding taxes. Gross cash (but not accrued) interest
payments from HOLDINGS to the Company are subject to withholding tax at a
rate of 3.75%. No dividends were paid to the Company during the reporting
periods.

For the years ended
31 December

1999 1998 1997
------- ------- -------

(in thousands U.S. $)

Gross cash interest payments..... $89,783 $25,262 $15,264
======= ======= =======
Capital tax...................... $ 1,188 $ 1,481 $ 1,285
Withholding tax.................. 3,367 947 572
---------
$ 4,555 $ 2,428 $ 1,857
======== ======== ========

NOTE 10--DIRECTORS' SHARE OPTION EQUIVALENTS

Each of the Company's independent directors has received share option
equivalents ("SOE") of 25,000 Shares at strike prices ranging from $17.20
to $28.88 per Share. All grants of SOEs were for services rendered by the
Board of Directors subsequent to their grant. A SOE granted prior to 30
June 1998 does not represent a right to purchase Shares from the Company,
but a right to receive a restricted cash payment equal to the excess, if
any, of the net asset value of 25,000 Shares on the day of exercise over
the strike price, which was the net asset value on the date of grant. Such
payments must be applied to the purchase of Shares to be issued at net
asset value on the date of exercise. SOEs granted after 30 June 1998 do not
represent a right to purchase Shares from the Company, but a right to
receive a restricted cash payment equal to the excess, if any, of the
closing stock price of 25,000 Shares on the day of exercise over the strike
price, which was the closing stock price on the date of grant. Such
payments must be applied to the purchase of Shares to be issued at the
closing stock price on the date of exercise. Directors were granted a
vested right to exercise one half of their SOEs immediately, and rights to
the balance vest on the fourth anniversary of their issuance. The right to
exercise all SOEs expires five years from the date of grant.

For the years ended 31 December

1999 1998 1997
-------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Number Price Number Price Number Price
SOEs outstanding at beginning of the year..... 150,000 $ 20.94 125,000 $22.54 100,000 $ 20.96
SOEs issued................................... 25,000 19.60 50,000 17.20 25,000 28.88
SOEs forfeited................................ (12,500) 20.00 (12,500) 21.90 -- --
SOEs exercised................................ (12,500) 20.00 (12,500) 21.90 -- --
---------
SOEs outstanding at end of year............... 150,000 $ 20.87 150,000 $20.94 125,000 $ 22.54
=======- ======= =======- ======= ======= =======
SOEs currently exercisable.................... 75,000 $ 20.87 75,000 $20.94 62,500 $ 22.54
========- ======= ========- ======= ======== =======
</TABLE>

No SOEs have expired during the years represented above, except for a
SOE in respect of 12,500 Shares granted to a director in October 1998 upon
his retirement. The retiring director exercised the remaining part of such
SOE in respect of 12,500 Shares in September 1999. The Company accrues a
liability for the total SOEs granted. Since the SOEs are redeemable in
cash, this accrual is adjusted for changes in the Company's net asset value
or closing stock price, as the case may be, at each balance sheet date with
the resultant change representing a charge (reduction) to administrative
expenses for the period in the consolidated statement of operations. The
charges were $(256,000), $561,000 and $526,500 for the years ended 31
December 1999, 1998 and 1997, respectively.

24
<PAGE>

SECURITY CAPITAL U.S. REALTY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

NOTE 11--COMMITMENTS

SC-U.S. Realty's existing and committed fundings at cost as of 31
December 1999 were as follows:

Total Total Cost Amount
----- ---------- ------
Amount (Amount to be
------ --------- -------
Committed Funded)(1) Funded(1)
--------- ----------- ----------

(in thousands U.S. $)

CarrAmerica (NYSE: CRE).............. $ 699,905 $ 699,905$ --
City Center Retail (Private)......... 350,232 304,132 46,100(2)
CWS Communities (Private)............ 300,329 236,488 63,841(2)
Regency (NYSE: REG) (3).............. 759,807 759,807 --
Storage USA (NYSE: SUS).............. 394,362 394,362 --
Urban Growth Property (Private)...... 188,582 188,582 --
Security Capital Group............... 165,000 165,000 --
Other private investments............ 42,019 42,019 --
------------
Total........................... $2,900,236 $2,790,295 $109,941
========== ========== ========

- -------------------
(1) Included in Total Amount Committed.
(2) Represents a contractual obligation.
(3) On 28 February 1999 Regency merged with Pacific Retail. See Note 3A to
the Consolidated Financial Statements.

SC-U.S. Realty's existing and committed fundings at cost as of 31
December 1998 were as follows:

Total Total Cost Amount
Amount (Amount to be
Committed Funded)(1) Funded(1)
--------- ---------- --------

(in thousands U.S. $)

CarrAmerica (NYSE: CRE)................. $ 699,851 $ 699,851 --
City Center Retail (Private)............ 350,135 304,035 46,100(2)
CWS Communities (Private)............... 300,329 153,563 146,766(2)
Regency (NYSE: REG) (3)................. 759,788 759,788 --
Storage USA (NYSE: SUS)................. 394,272 394,272 --
Urban Growth Property (Private)......... 181,082 181,082 --
Security Capital Group.................. 165,000 165,000 --
Other private investments............... 15,275 15,275 -
Public special opportunity positions.... 298,756 298,756 -
----------- ---------- ----------
Total.............................. $3,164,488 $2,971,622 $192,866
========== ========== ========

<PAGE>

- -------------
(1) Included in Total Amount Committed.
(2) Represents a contractual obligation.
(3) On 28 February 1999 Regency merged with Pacific Retail.

See Note 3A to the Consolidated Financial Statements.

Capital deployed to additional strategic investment positions, as well
as further funding to existing strategic investees, will generally be
initially funded with borrowings under the new HOLDINGS Line. These
borrowings are expected to be reduced by internally generated free cash
flow and the proceeds of future issuances of debt or equity securities.

NOTE 12--LEGAL RESERVE

According to Luxembourg law, an annual transfer of 5% of the net
profit to a legal reserve is required until this reserve equals 10% of the
value of the issued Share capital. No transfer will be made in 2000 as a
result of the decrease in net assets resulting from operations for the year
ended 31 December 1999.

NOTE 13--REVERSE STOCK SPILT

On 17 May 1999, SC-U.S. Realty's shareholders approved a one-for-two
reverse stock split. The effective date of the reverse stock split was 18
June 1999, when every two shares of SC-U.S. Realty were automatically
converted into one share. The shares issued and outstanding as of 31
December 1998 have been restated from 173,123,743 shares to reflect the
reverse stock split.

<PAGE>

SECURITY CAPITAL U.S. REALTY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

NOTE 14--SHARE REPURCHASE PROGRAMME

On 5 May 1999, SC-U.S. Realty announced that its Board of Directors
had authorised a share repurchase programme of up to $100 million of the
Company's shares and on 29 June 1999 the Company announced that its Board
of Directors authorised an increase in the Company's share repurchase
programme to $200 million. In reviewing the Company's capital allocation
strategy, management and the Board of Directors concluded that the complete
disconnect between the Company's current public market valuation and the
underlying value of the company has created an excellent investment
opportunity in comparison to current investment alternatives in the
marketplace. As of 31 December 1999, SC-U.S. Realty had repurchased
9,861,435 shares for an aggregate cost of $184.2 million, representing
approximately 11.4% of the Company's shares outstanding. The Net Asset
Value per-share as of 31 December 1999 has been calculated on 76,700,437
shares.

<PAGE>

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<PAGE>

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<PAGE>

inside back cover

Graphic: Seventeen pictures of various properties owned by investees of
Security Capital U.S. Realty

<PAGE>

Outside back cover page

SECURITY CAPITAL U.S. REALTY