Investment Update Global Real Estate Fund Quarterly Update Q4 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 proved to be resilient despite elevated uncertainty as a result of geo-political surprises. A cyclical recovery is underway with improvement in global activity materialising quicker than anticipated. Market fears of deflation are fading with inflation beginning to accelerate quickly in most economies, but concerns remain about underlying inflation in Japan and the Eurozone. The UK economy showed a slight softening in economic activity in December but overall the economy appears to be holding up. Production staged something of a rebound while services activity remained robust. In the initial aftermath of the EU referendum, the Bank of England opted to provide proactive policy stimulus to support growth, but in November the BoE switched to a more neutral stance on the back of a resilient growth backdrop and a weaker sterling exchange rate. The European economy continued to grow at a modest pace in Q and data was solid at the end of Unemployment was at its lowest level in seven years and most business surveys were well into expansionary territory as Q4 drew to a close. Manufacturing activity has been supported by a slightly better global economic environment and the relative depreciation of the euro as US and Eurozone monetary policy continue to diverge. Whilst there are signs of rising inflation and consistent economic growth, monetary policy remains highly accommodative across Europe. The US economy ended the year with a strong showing in consumer spending supported by solid job growth translating into increased household wealth and rising confidence. Business equipment and intellectual capital spending improved, with industrial equipment a strong contributor. The Fed funds rate was increased in December and the prospect of higher rates in the US has attracted capital flows into the US dollar as investors seek higher returns. Weaker Asian currencies benefitted export-oriented economies in the region. Following stronger economic growth in Q3 2016, the economy of Japan provided further encouragement on the back of stronger retail sales and export performance. The lack of wage growth remains a concern. The Australian economy experienced a sharp slowdown in Q3 on the back of the cooling housing market. Household consumption growth slowed, business investment contracted and unemployment edged up. Real Estate Market Global real estate returns have started to soften as the rate of yield compression begins to slow across a number of key jurisdictions, whilst others such as the UK have experienced outward yield movement across a number of sectors in recent quarters. Notwithstanding this real estate fundamentals remain healthy and construction has been more muted during this cycle with has resulted in vacancy rates falling to a historic low. In the UK, the industrial sector performed best, underpinned by strong fundamentals. Central London, on the other hand, remains vulnerable to any change in the passporting regime that allows UK based firms to sell their financial services across other member states. As a result of subdued activity following the vote outcome in the UK, quarterly investment volumes were below the long term average in the final two quarters of the year. Overseas investors continue to be a key player in the UK market although their share of overall activity reduced from half of all activity in Occupier fundamentals on the European continent continued to improve. Take up in the key office markets are above the long term average, but demand continues to be driven by relocations, consolidation and cost control. There are signs of stronger net absorption in some markets and with take up eroding existing supply, office vacancy rates have trended down to the lowest levels in almost 10 years. Prime office rents increased significantly in select markets and incentives are falling. Investment appetite remains strong across the continent, but particularly for real estate in core markets. The US market is tight across all property types and new construction is starting to become a factor across more markets. Lenders are already beginning to tighten lending standards and developers continue to be more cautious this cycle. Rents are past peak levels in many markets, so there should be increasing pushback from tenants, but with vacancies expected to stay below long-term averages, US commercial real estate still has less downside, and more upside, than prior cycles. In aggregate, the U.S. market is historically tight and banks are already tightening lending standards, which should help extend the length of the cycle, giving landlords additional time to generate returns. The Asia Pacific real estate markets remain bifurcated. In Australia, Sydney and Melbourne continue to perform well on healthy fundamentals and the prospect of further yield compression. The Perth occupational market, on the other hand, remains weak. Tokyo offices have performed well on modest rental growth and some yield compression and there is evidence that much of the space which is to be delivered to the core markets in 2018 has already been pre-leased. The Singapore office market is bottoming and may exhibit attractive fundamentals again in the second half of Chart 1: The return of inflation? Jan 12 Jan 13 Jan 14 Jan 15 Jan 16 Australia Japan Eurozone US UK Source: Thomson Reuters Datastream as at 31 December 2016 Chart 2: Prime office rental growth YTD Q Stockholm London: M25 West Berlin Paris: La Défense Paris: WBD Barcelona Sydney Dublin Madrid Melbourne Hong Kong Tokyo Paris: CBD Paris: Central Stuttgart Dusseldorf Budapest Amsterdam Seoul Munich Frankfurt Prague Brisbane Perth Singapore Source: SLI, PMA_3Q 2016

2 Fund Positioning Top 10 assets (Direct only) Fund % Top 10 tenants (Direct only) % Contracted Rent 44 Esplanade, Jersey 8.0 Ogier 13.5 WTC Almeda House,Barcelona 8.0 Revlon 7.2 Galeria Gniezno,Poland 7.4 Dutch Heart Foundation & 5 Custom House Plaza, Dublin 6.9 Citco St Georges Terrace, Perth 6.6 Maxol Ltd St Kilda Rd,Melbourne, 6.6 Ansvar Insurance St Georges Terrace,Perth 4.8 Castorama 2.3 Fleming Court, Dublin 4.5 Mobelix 2.3 Retail Park Hana, Czech Republic 4.0 Carrefour 2.1 ExtraVerde, The Hague 3.4 Electro World 2.0 Top Ten direct assets at 31 December 2016 Top 10 direct tenants at 31 December 2016 Fund Facts Fund size Average lot size (direct) Average lease length Number of direct properties 14 Number of tenancies m 19.95m 5.7 years Distribution yield 2.74%* Standing void 17.14% *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 60.0 Between 5 and 10 years 21.0 Between 10 and 15 years 5.0 More than 15 years 14.0 Cumulative performance % growth 3mths 6mths 1 yr 3 yrs 5 yrs Global Real Estate Fund Source: Standard Life Investments to 31 December 2016 Fund performance is quoted net of institutional fees (GBP). Sector allocation Offices 20.1 Retail % Geographical breakdown Australia Ireland United States Poland Czech Republic Spain United Kingdom Japan Netherlands India Sweden France Germany %

3 Investment Update Portfolio activity Properties in Focus Acquisitions and asset management Asset Dispoal Ginza 1 Chome, Tokyo We made no direct real estate acquisitions during the quarter. Following the recent sale of the Ginza building in Tokyo, we targeted further transactions in the Eurozone and the Fund bid on a number of German industrial and office buildings throughout. However these markets are fiercely competitive and we were consistently outbid by debt backed buyers. Whilst we will continue to look for investment opportunities in the Eurozone we are also beginning to evaluate new markets which are at an earlier phase of the property cycle. Following the completion of the refurbishment of 55 St George s Terrace, Perth, there are signs that the leasing campaign is beginning to gain traction and we currently have a number of proposals out to tenants. We are currently undertaking an options analysis at 182 St George s Terrace on remodelling the ground floor area in order to improve amenities within the building. In Dublin, we have a few small suites coming back in our Office asset at Fleming Court however, there remains strong interest in the space with vacancy rates for quality office accommodation in Dublin currently at low single digits. We are also hopeful of shortly finalising the terms for the remaining space in our Office asset in Barcelona to Revlon who are an existing tenant. During the quarter, we used a proportion of the Ginza proceeds to increase the Fund s listed real estate exposure, focusing particularly on the US and Europe. This investment increased the Fund s listed exposure to circa 16%. At the end of the quarter the approximate split between the regions in the listed portfolio was USA 66%, Europe 21% and Asia 13%. The US REIT market is benefitting from the reflationary environment and an improvement in its growth prospects as it expects some form of tax or economic reform. We remain overweight Europe on the listed side in a few stock specific names as we continue to see stronger rental markets in our most favoured countries. Given the political climate in the USA and Europe we continue to closely monitor our strategy within these jurisdictions. Performance overview The Fund s net institutional share class returned +0.0% during the fourth quarter of 2016 with the appreciation of Sterling against the Fund s underlying basket of currencies erasing the positive returns derived from the direct portfolio. The Q4 return took H returns to +5.5% and 1 year returns to +16.2%. With the exception of the two Perth Office assets, the underlying direct portfolio continues to perform well, albeit the rate of capital appreciation has moderated somewhat in recent months across certain markets where the cycle enters its latter phases Modern grade A office accommodation comprising 38,590 sq ft spread over 13 floors that was acquired in Purchased in conjunction with our local partner, Sumitomo Mitsui Trust Bank, to mitigate local market risks from investment in new market. Successful asset management initiatives meant that business plan objectives were achieved ahead of planned time schedule. Asset was fully let on disposal and performance was maximised through a combination of sharp yield compression and positive rental value growth. Strong asset levels returns of 64% on purchase price (in sterling terms) have significantly contributed to overall Fund performance. Sale proceeds have been partly recycled into listed real estate and the fund is currently targeting further direct acquisitions.

4 Forecasts Total returns are moderating across all markets as the yield cycle matures, 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. In the UK, we have upgraded our forecasts and have moved the expected timeline for further declines in values into 2018 in line with the anticipated economic profile. Our view on sectors hasn t changed in that we continue to expect Central London to be the most vulnerable sector and industrials the most resilient in the current environment. In the low return/low yielding world we anticipate going forward, real estate yields continue to look respectable. Direct property in Europe continues to look attractive in a global context with modest capital value appreciation forecast to continue in Given that Europe is moving into a more mature position in the cycle, the strongest phase of capital appreciation is now behind us and yield compression will have a lesser impact on values. Rental growth expectations, supported by indexation from rising CPI, should support values over the next one to two years. Stronger signs of economic growth in early 2017 have led to a slight upgrade in rental market expectations for this year. In the US, the forecast for apartments has been lowered due to the oversupply of luxury CBD units beginning to impact rental growth. Conversely, historically low vacancies in logistics continue to provide landlords leverage, yielding raised expectations for industrial. Office and retail continue to see less demand than previous cycles, but also much less supply, which should allow the vacancies in those property types to continue receding. Some inflationary pressures are emerging in Asia Pacific, putting upward pressure on government bond yields, which in turn is pushing real estate yields up. Income has been the main driver of performance for some time already and the subdued development cycle and healthy tenant demand continue to drive rents up. The average total return forecasted for the next three years remains in low single digits, but Australian markets are high single-digits. Global TR Ranking 3yr return Very Heavy Heavy Neutral Light Very Light Hungary Australia India Portugal Netherlands Spain South Korea Germany Sweden France Denmark Ireland Czech Republic Italy Finland Belgium United States Poland UK Japan China Singapore Hong Kong Canada Latin America Offices Outlook The outlook for real estate remains positive despite political uncertainty. 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, but upward pressure is evident in select markets. Despite the uncertainty associated with the political wrangling, UK real estate continues to provide an elevated yield compared to other assets. Furthermore, lending to the sector is at a lower level than in 2007/2008 unlike in the Financial Crisis and liquidity remains reasonable. In the environment where the economic fundamentals are expected to soften further and with uncertainty remaining above normal levels, we expect lower returns from property than has been the case over the last few years. The outlook for European real estate returns remains anchored by two key elements: the modest cyclical recovery underpinned by domestic demand and the accommodative monetary policy environment. Income growth is becoming a more prevalent driver of total returns, with rental growth returning to a wider range of markets. While attractive risk-adjusted returns are forecast in core markets such as France, Germany and the Nordics, the recovering markets of Hungary, Spain and the Netherlands are expected to produce some of the strongest absolute returns. U.S. commercial real estate is likely to see increased demand for office and industrial space due to Trumponomics. Mexico will likely see less demand as a result of these new policies. Canada may also be adversely impacted, although negative impacts are likely to be smaller and mostly offset by the economic boost Canada would get from a stronger America. If the administration is successful in producing more goods in the U.S. and importing less, the industrial sector may see less demand for distribution centres near the ports and increased demand in the country s heartland. Not all gains will go to Middle America, however, as loosening financial regulations should be a boon for traditional financial hubs like New York. The structural change in the Tokyo office market has played out and we expect 2017 to be another strong year for Tokyo offices, followed by a period of weaker performance. Vacancy is expected to rise on the back of higher volumes of new supply, putting downward pressure on rent. No further yield compression is expected. Real estate fundamentals in Australia remain attractive despite the cooling economy. Limited, if any, yield compression is expected in the core markets on the back of relatively high real estate yields and a comfortable yield margin. Performance continues to be driven by both yield compression and rental growth.

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