Investment Update Global Real Estate Fund Quarterly Update March 2016

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1 The Global Real Estate Fund quarterly update provides an overview of the market; fund performance, positioning and portfolio changes; and the fund manager s outlook for the months ahead. Economic Overview The global economy remains under pressure as strong growth momentum continues to elude the majority of economies. Efforts to haul developed economies out of the deflationary cycle have met with limited success and historically low interest rates have become a feature. Economic growth has been supported by a more cautious Federal Reserve helping to ease global financial conditions, while the European Central Bank (ECB) delivered a material loosening in policy. The US economy slowed in the first quarter of 2016, leaving growth at the slowest rate in two years. Apart from residential investment and services consumption, there were very few bright spots in the economy, but the probability of recession remains small. The US dollar depreciation has resulted in a de facto loosening of US monetary policy and pressure on businesses from the strong dollar and low commodity prices continues to abate. The economy has likewise lost steam on the back of uncertainty surrounding the EU referendum, a slowdown in the dominant services sector and an outright contraction in the smaller construction and production sectors. Firms are reluctant to hire in the run up to the referendum and weak inflation has limited the scope for wage growth. The Eurozone economy has been growing noticeably faster than the US and in early 2016 and it is now Europe that is helping to hold up the global economy. Eurozone growth occurred despite challenging headwinds, including the weak global growth backdrop and the surge in financial stress, which proved particularly acute in parts of the Eurozone banking sector. Negative interest rates failed to prevent deflation, complicating the ECB s objective. The Bank of (BOJ) disappointed when it opted to leave its various interest rates and pace of asset purchases unchanged following the move into negative interest rate territory earlier in the year. Despite the BoJ s efforts, deflation remains a threat and the stronger yen adds to downward price pressure. The economic growth forecast was revised down again, reflecting the government s plans to raise the consumption tax in The Reserve Bank of s presentation of the budget highlighted the magnitude of economic decline that has occurred. Inflation has fallen below the target and the official cash rate was lowered by 25bps to 1.75% in response to slower growth, falling inflation and reduced price pressures in the housing market. Real Estate Market The real estate markets remain buoyant, but market volatility, currency movements and political uncertainty have had a negative impact on investment volumes. A distinct slowdown can be seen in real estate transactions globally and investors are retreating to their domestic markets. Pricing has weakened and rental value growth has eased modestly in a range of sectors and markets in the. Risk aversion has led to a moderation in performance for poor-quality assets, but prime office markets such as the West End have not been spared either. Uncertainty caused by the EU referendum is having a negative impact on activity and affecting rents, with more occupiers delaying decisions until the real estate landscape is clearer. European real estate returns are likely to have peaked after a period of strong yield compression to new lows and performance is now driven by the income component. New development starts remain below the long term average and vacancy rates continue to fall, and this shortage of new supply is supporting rental growth. The exception is non-core European markets such as and, where the strong rally in rental growth is losing momentum and new development is expanding. The US commercial real estate market has been stable in the face of uncertainty around the presidential election and the timing of the Fed s next rate move. Lending for commercial real estate has tightened and investor caution has taken hold. Fundamentals remain strong in the technology driven office markets and the apartment markets with low supply outwith the luxury sector. The warehouse sector is benefitting from the expansion in e-commerce and whilst rental growth is modest, sustained demand is driving performance. There is still a fair amount of momentum left in the real estate market in. Negative interest rates are extending the real estate investment cycle and further yield compression is expected. Vacancy rates continue to fall in the Tokyo office market on the back of strong tenant demand. The shortage of modern stock is driving new development thus supporting rental growth. Whilst the real estate sector is slowing, we expect another year of healthy returns. Income growth is the main driver of performance and rental growth continues unabated in selected markets. Outward yield movement features in a handful of markets, but yields are stable in the majority of markets. Chart 1: GDP growth forecast changes January v % 6 Chart 2: Currency adjusted prime yields % March January NE Asia Asia Pacific SE Asia GLOBAL North America European Union Western Europe Euro zone Eastern Europe Latin America 0 Germany France USD GBP EUR JPY China US Source: Consensus Economics Source: Reuters Eikon, SLI, JLL 31

2 Fund Positioning Top 10 assets (Direct only) Fund % Top 10 tenants (Direct only) % Contracted Rent Ginza Chome, Tokyo 11.7 Ogier Esplanade, Jersey 8.4 Revlon 5.5 Galeria Gniezno, 7.1 Citco St Georges Terrace, Perth 6.6 Dutch Heart Foundation & 5 Custom House Plaza, Dublin 6.5 Maxol Ltd 2.2 WTC Almeda Park, Barcelona 6.5 Mobelix St Kilda Rd, Melbourne 6.2 Castorama St Georges Terrace, Perth 4.7 Tachibana Co Ltd 1.7 Fleming Court, Dublin 4.0 Ansvar Insurance Limited 1.7 Retail Park Hana, 3.9 Carrefour 1.6 Top Ten direct assets at 31 Top 10 direct tenants at 31 Fund Facts Fund size Average lot size (direct) Average lease length Number of direct properties m 19.8m Number of tenancies years Distribution yield 2.4%* Standing void 5.72% Major refurbishment void 9.23% Source: Standard Life Investments at 31. *Yields are historic based on the preceding 12 months distributions as a percentage of the midmarket unit/share price at date shown. Yields will vary, do not include any preliminary charges, and investors may be subject to tax on distributions. % Contracted Rent Less than 5 years 64.0 Between 5 and 10 years 18.0 Between 10 and 15 years 5.0 More than 15 years 12.0 Cumulative performance % growth 3mths 6mths 1 yr 3 yrs 5 yrs Global Real Estate Fund Source: Standard Life Investments to 31. Fund performance is quoted net of institutional fees (GBP). Sector allocation Retail 17.3 Offices 82.7 % Source: Standard Life Investments at 31. Geographical breakdown United Kingdom Other* % Source: Standard Life Investments at 31. *Other includes France & Germany.

3 Investment Update Portfolio activity Properties in Focus Acquisitions and asset management Kandabashi, Tokyo, Occupier demand remained relatively resilient across most of our invested markets over the first quarter of We completed the letting of the two vacant retail floors at our building in Ginza, Tokyo, to a domestic retailer. This asset was around 30% vacant on acquisition and only one floor remains vacant at present. We also extended lease terms at our retail properties in Ostrava and Gniezno in and Olomouc,, further cementing the rental tone across these assets. We completed the sale of the office property at Kandabashi, Tokyo in January having completed all major asset management initiatives and delivering a net return to the fund of 9.6% p.a. since acquisition in In the listed real estate portfolio, we initiated a position in Ichigo Hotel REIT, early in the quarter, which is expected to grow through acquisitions, as well as being well-placed to benefit from strong inbound tourist growth in. We sold our off-benchmark positions in China Overseas Land and China Resources Land on concerns about the effectiveness of government policy to drive economic growth. In Europe, we added to Spanish holdings Hispania and Merlin, which offered attractive valuations and growth potential with rents at cyclical lows. Performance overview The Global Real Estate Fund returned 5.92% (net of institutional fees) over the three months to the end of. Valuations in the direct portfolio generally continued to increase over the quarter, with the exception of our two office properties in Perth,, where the weak occupational market continued to put downward pressure on capital values. Refurbishment works are continuing on both assets as we look to upgrade the buildings and bring the vacant space back to the market in time for the completion of the nearby Elizabeth Quay Development. The listed real estate portfolio under-performed the wider market during the quarter. In the US, CBD Office REITs negatively impacted returns due to volatility early in the quarter, and New York names in particular didn t recover from their early falls. A lack of exposure to the relatively resilient Canadian market also hindered relative performance. However, the fund experienced positive contributions from stock selection in (Invincible and Ichigo Hotel REIT) and underweight positions to the poorly performing markets of the and Hong Kong. Performance was also aided by favourable currency movement as the Euro strengthened relative to Sterling over the quarter. Acquired this high quality Grade A multi-let office asset in an off-market transaction in June Accessed through our strategic relationship with Sumitomo Mitsui Trust Bank. Property was 30% vacant on acquisition however intensive asset management campaign resulted in all vacant space being let up prior to disposal in January Asset management initiatives completed resulting in rental value growth and further inward yield movement, sale price equated to a net IRR of 9.6% per annum.

4 Forecasts Total returns have moderated across all markets in the absence of further yield compression, but the outlook for rental growth remains positive. On a global weighted view, we anticipate the global real estate market delivering low single digit returns on an annualised basis over the next three years with returns being driven mainly by the elevated income component. Our three year annualised forecasts for the have reduced again compared to last quarter as some of the expected increase in capital values has now passed. Two key factors support the outlook for Europe. The first is the on-going low interest rate environment. The yield curve has flattened and this is expected to help sustain low real estate yields through 2016 and into Only a substantially weaker occupier market or a shock to the investment market would dislocate the relationship at this point. The second factor supporting the outlook is the lack of development taking place. Net additions are picking up in some markets, but are still expected to average less than 1% per annum across the European office markets until Both the US economy and the real estate markets remain soft, but stable. The real estate yield margin over Treasuries remains comfortable and corporate bond spreads are tightening again. Real estate investment volumes appear to have peaked but yields are expected to remain stable. Pockets of high new supply are appearing, but in most cases it is quickly absorbed. The office and apartment markets driven by tech remain healthy and we still expect a fair amount of rental growth. The banking and finance driven markets such as New York continue to slow but we still don t expect a fall in rents. The House View changes reflect the increased volatility in China and disparities in real estate fundamentals, with the higher yielding n markets at the top and those sectors more directly affected by China at the bottom. We are seeing an improvement in returns on the lower end of the house view rank as these markets are starting to show signs of stability. Outlook The outlook for the global economy remains soft, and considerable headwinds remain. Uncertainty is expected to prevail in the short term while the outcome of the EU referendum in the and the presidential election in the US are undecided. The US will likely continue to grow at a slower clip, but fundamentals remain strong. The deceleration in growth in the is expected to continue as the BREXIT vote weighs on investment decisions. The outlook for Europe remains the most positive as strong labour markets continue to support domestic demand. In, even slow growth may be a challenge and price growth is expected to remain elusive. Economic growth is expected to slow in tandem with the cooling housing market and spill over effect on services. China remains the biggest risk in the global context as the shift away from unsustainable investment and credit-driven growth creates volatility and increased uncertainty. Easing is likely to continue which should help stabilise growth. The outlook for real estate remains positive despite political uncertainty and deflationary pressures. Tenant demand is expected to be sustained and low new supply to drive rental growth. Real estate yields continue to look fair value globally, relative to the yield on other assets. In a low-yielding environment the elevated yield on real estate remains attractive. Europe looks to offer some of the best returns for real estate investors over the next three years. Chart 3: Outlook for direct global real estate Global TR Ranking Q Very Light Light Neutral Heavy Very Heavy Portugal Hungary Germany Italy Denmark France Belgium Finland South Korea China Canada Hong Kong Latin America Singapore Canada Latin America 4.6% 3.4% -1.7% EU 4.9% 7.0% 4.7% Asia Pacific Global Weighted Three Year Avg. 5.5% Source: Standard Life Investments, 3 year All Property total return forecasts, 31, local currency, not risk-adjusted.

5 Important Information This information is for professional clients and investment professionals only and should not be relied upon by retail clients. Past performance is not a guide to future performance. The value of units/shares in the fund and the income from them can go down as well as up and is not guaranteed. Property investments are relatively illiquid compared to bonds and equities and can take a significant length of time to sell and buy. Information and opinions contained in this document have been compiled or arrived at by Standard Life Investments. Standard Life Investments accept no liability for any loss arising from the use hereof nor make any representation as to their accuracy or completeness. Any underlying research or analysis has been procured by Standard Life Investments for its own purposes and may have been acted on by Standard Life Investments or an associate for its or their own purposes. Standard Life Investments is the trading name of the Standard Life Investments group of companies which includes Standard Life Investments (Mutual Funds) Limited. Issued by Standard Life Investments (Mutual Funds) Limited. Registered in Scotland Number SC Further Information Web: *Any data contained herein which is attributed to a third party ( Third Party Data ) is the property of (a) third party supplier(s) (the Owner ) and is licensed for use by Standard Life**. Third Party Data may not be copied or distributed. Third Party Data is provided as is and is not warranted to be accurate, complete or timely. To the extent permitted by applicable law, none of the Owner, Standard Life** or any other third party (including any third party involved in providing and/or compiling Third Party Data) shall have any liability for Third Party Data or for any use made of Third Party Data. Past performance is no guarantee of future results. Neither the Owner nor any other third party sponsors, endorses or promotes the fund or product to which Third Party Data relates. **Standard Life means the relevant member of the Standard Life group, being Standard Life plc together with its subsidiaries, subsidiary undertakings and associated companies (whether direct or indirect) from time to time. FTSE, FT-SE, Footsie, [ FTSE4Good and techmark] are trade marks jointly owned by the London Stock Exchange Plc and The Financial Times Limited and are used by FTSE International Limited ( FTSE ) under licence. [ All-World, All- Share and All-Small are trade marks of FTSE.] The Fund is not in any way sponsored, endorsed, sold or promoted by FTSE International Limited ( FTSE ), by the London Stock Exchange Plc (the Exchange ), Euronext N.V. ( Euronext ), The Financial Times Limited ( FT ), European Public Real Estate Association ( EPRA ) or the National Association of Real Estate Investment Trusts ( NAREIT ) (together the Licensor Parties ) and none of the Licensor Parties make any warranty or representation whatsoever, expressly or impliedly, either as to the results to be obtained from the use of the FTSE EPRA NAREIT Developed Index (the Index ) and/or the figure at which the said Index stands at any particular time on any particular day or otherwise. The Index is compiled and calculated by FTSE. However, none of the Licensor Parties shall be liable (whether in negligence or otherwise) to any person for any error in the Index and none of the Licensor Parties shall be under any obligation to advise any person of any error therein. FTSE is a trade mark of the Exchange and the FT, NAREIT is a trade mark of the National Association of Real Estate Investment Trusts and EPRA is a trade mark of EPRA and all are used by FTSE under licence. Standard Life Investments Limited is registered in Scotland (SC123321) at 1 George Street, Edinburgh EH2 2LL. Standard Life Investments Limited is authorised and regulated by the Financial Conduct Authority. Calls may be monitored and/or recorded to protect both you and us and help with our training Standard Life, images reproduced under licence