31 December 2012 For professional investors only. Not suitable for retail clients

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1 Schroders Quarter Report Executive summary The global economy picked up in the second half of 2012, boosted by the belief in the reduced risk of a eurozone break-up, US fiscal cliff and Chinese hard landing. We now expect the eurozone to muddle through in 2013 although austerity is expected to continue to hold back growth in the short term. UK GDP growth is likely to remain sluggish in 2013 although we are starting to see more positive signs in recent months such as an improvement in consumer confidence and encouraging employment data. As UK corporates still have cash on their balance sheets this improved sentiment could lead to further business investment in We continue to focus on growth sectors in the property market, targeting pockets where rental growth is less correlated to the broader economic cycle and which are benefiting from long-term structural change. Performance As at 31 December 2012, SPF continued to outperform its benchmark over the one, two and three year periods. Key drivers of performance include: To outperform its benchmark 1 by 0.5% per annum, net of fees, over rolling three year periods 1,226.2 million 1,289.9 million 85.2 million Alternative investments. Investments in leisure, student accommodation and car showrooms have generated market beating returns. The combination of an attractive income return and inflation linked uplifts has outperformed the wider property market. Active asset management strategies. Over 2012 IPD report that capital values have decreased by 4.2% across the UK commercial property market. While yields have also moved out across the SPF portfolio, active asset management, such as the refurbishment and re-letting of Dean Street, London W1, have mitigated the impact of market movements. Overall SPF s portfolio fell by around 2% over 2012, although this has varied across assets. Asset allocation. SPF s underweight position to retail and its office and industrial bias to London and the south east have proven more resilient than the sector / geographical allocations of the Benchmark. SPF s best performing sector has been its office investments in central London. Low yielding and non income producing assets. Over 2012, income has been the main driver of returns. Investments which are not generating income, such as potential developments, have underperformed the market. 7.0% 5.1% 5.4% 6.9% 2 yr (% pa) 3 yr (% pa) 5 yr (% pa) AREF/IPD UK Quarterly Property Fund Index All Balanced Property Fund Index Weighted Average. 2 Look through analysis 3 Performance is calculated on a net asset value (NAV) to NAV price basis plus income distributed, compounded monthly, net of fees, gross of tax and based on an unrounded NAV per unit 4 AREF/IPD UK Quarterly Property Fund Index All Balanced Property Fund Index Median. This was the Fund s benchmark until conversion to a Property Authorised Investment Fund on 31 July Issued in January 2013 by Schroder Investment Management Limited. 31 Gresham Street, London EC2V 7QA. Registered No England. Authorised and regulated by the Financial Services Authority.

2 UK property market commentary Sentiment in the economy picked up in the second half of 2012, as the risk of a eurozone break-up, US fiscal cliff and Chinese hard landing all receded. We now expect the eurozone to muddle through in 2013, although austerity measures are expected to hold back growth in the short term. UK GDP growth is likely to remain sluggish in In recent months we have seen more positive news on employment growth, manufacturing output and inflation, though this is tempered by weak performance from the important services sector. Strong corporate balance sheets are expected to boost business investment once confidence returns. The West End and City office markets both benefitted from a pick-up in demand in the second half of 2012, with the insurance and technology, media and telecoms (TMT) sectors particularly active. However anecdotally we believe there are pockets of growth outside of London, such as the West Midlands industrial market where the resurgence in the automotive industry is leading to reduced supply and growth in rents. Performance has also been strong in some of the alternative property sectors, particularly in those areas where rental growth is less correlated to the broader economic cycle and which are benefiting from long term structural change. One such area is the healthcare sector, which can offer an attractive income return, fixed uplifts and where demand is underpinned by compelling demographic trends. After a challenging year on the high street, retailers will be hoping that the inflation squeeze eases in 2013 and that consumer confidence finally starts to pick up. Whilst it is too early to draw any conclusions about the success of the Christmas trading period, the results to date have been mixed. The likes of John Lewis and Next both announced strong growth in like-for-like sales, while Marks & Spencer and Morrisons both struggled. HMV became the first high profile retail casualty of the new year as internet continued to impact high street sales. The unwinding of property loan books is resulting in selective buying opportunities as stock is released onto the market at discounted prices. A recent survey by De Montfort University noted that 11% of outstanding loans secured against UK commercial property do not provide enough income to pay the interest on the loan, which suggests we may see further loans defaulting in Although there have been fears that an increasing supply of stock may slow a recovery in values, much of the property held by banks is poor quality and not attractive to institutional buyers. Equity only buyers are still active for better than average property, whilst UK REITs have had little difficulty raising capital through the corporate bond markets at a relatively low cost. The spread between commercial property and government bonds in the UK is currently over 4%, some way above the long term average of around 2%. With fixed income investments looking increasingly expensive, a growing number of investors have declared their intention to move up the risk spectrum into higher yielding growth assets, such as real estate. Returns in 2013 are forecast to follow a similar path to 2012, with capital values for prime assets staying firm and secondary property values likely to bottom out over the course of the year. Whilst the polarisation between prime and secondary and London and the rest of the UK has been a persistent theme since 2009, we have some reservations about whether this trend will continue in the longer term. Whilst we expect London s strength relative to the UK to continue, we believe that going forward good secondary properties will start to outperform prime. Whilst traditional, income-secure real estate is starting to look expensive, we prefer good quality assets maybe with shorter lease structures, where there are asset management opportunities to protect and drive income going forwards. 2

3 Strategy and key activities Capital market sentiment improved towards the end of 2012 and equity markets ended on a high. The rally seemed to owe more to relief that investors worst fears would be avoided than to any improvement in underlying fundamentals. Recent data from the ONS confirms that UK consumer spending and business sentiment remains subdued, meaning that UK commercial property rental values are likely to see little growth in the year ahead. Sector strategy has always been an important component of our overall policy, while style characteristics are an increasingly important overlay. Sales data for the Christmas period confirms our view that the retail sector is undergoing a structural shift where there will be a significant number of losers. Traditional high streets have been under pressure for some years as consumers and retailers gravitate to larger schemes, convenience locations and online. Elsewhere, London s global influence continues to create demand from a diverse range of corporations, business services, technology and media companies for central London offices. This demand has rippled out to the rest of the South East, but little further. SPF s underweight position to retail and overweight to South East offices is in line with our research views. Two other important themes run through the Fund. The first is income. The chart below shows how income has been a consistent driver of property total returns. We continue to ensure SPF has a diversified, secure and good quality income stream through our active approach to asset management. This is important for providing consistent returns from year to year. Given the weak economy, we also continue to take a defensive stance and favour those parts of the market where rents are affordable and which offer a high income return. Here, we have been able to take advantage of sectors away from the mainstream which provide high and growing income streams which are somewhat independent to the performance of the wider economy. In the past two years we have researched and invested in non-traditional areas such as car showrooms, student accommodation and healthcare where rents are often indexed to inflation as well as leisure and convenience retail. Components of UK property market returns: rolling 12m IPD Monthly return The second theme is having a portfolio with good quality property fundamentals. Investors search for safety has led to prime property appearing full priced. We think the best value lies in good quality property outside prime where active management can add value. Recent investments such as Shepherdess Walk, London NW1 and Turner Rise Retail Park, Colchester fit this category. These are properties which provide a high income return and are let off low rental levels with opportunities to improve the quality of the space and/or tenant mix. The aim is to build a portfolio capable of capturing growth in the next phase of the economic cycle. 3

4 Suffolk Care Homes SPF has agreed to fund five new care homes in Suffolk for around 28 million. The care homes will be located on freehold sites in Framlingham, Haverhill, Mildenhall, Lowestoft and Ipswich. These are affluent areas in the UK with an ageing population. The care homes will be state of the art 60 and 80 bed care homes let to Care UK, one of the leading providers of health and social services in the UK. They are the outsourced providers of Suffolk County Council s elderly care provision. Care UK will have 30 year leases on the care homes which will be index-linked. 3D visualisation of Framlingham Care Home We identified healthcare as an attractive non-mainstream sector where the drivers of demand differ from the economic and business cycle and are set to benefit from the UK s changing demographic profile. The sector is less vulnerable to the fluctuations of the economy or the impact of the internet. It also offers an attractive income return. It is envisaged the investment will begin in the second half of this year and will yield over 7.0% on cost from the outset. Prior to investing in this sector we fully researched the business model of health care operators with a focus on the affordability and long term sustainability of their cost base including rent. We believe the rental levels agreed with Care UK are affordable and provide a significant buffer should their operating costs increase or their occupancy rates be low. This should help to maintain a strong income return from these care homes. SPF sold units valued at 16.2 million in Henderson UK Retail Warehouse Fund as part of its ongoing strategy to reduce indirect investments, which now only represent 8.0% net asset value (NAV). It also reduces Fund level gearing to 5.1% NAV and from a sector perspective, the Fund is no longer overweight to retail warehouses. Proceeds will be reinvested into good quality directly owned property. Bracknell Following the successful opening of the Waitrose supermarket in Bracknell town centre, Marks & Spencer and Cineworld have also exchanged conditional contracts to become anchor tenants for the regeneration scheme. These lettings are a major step forward in the redevelopment of the scheme and we expect other large retailers will also confirm plans to take space. CGI of Marks & Spencer unit in Bracknell Retail administrations Over the last 12 months a number of major retailers have gone into administration. While the impact on SPF has been mitigated by its underweight position to retail, it has still been impacted. The keys administrations to impact the portfolio in 2012 include: Clinton Cards 0.6% This was the largest administration to affect SPF during Clinton Cards occupied five units in a number of our high street and town centre investments. In three of the five units Clinton remained but with a new lease. The other two units were vacated, both have since been let to 4

5 new tenants. Comet 0.2% The impact was through SPF s investment in Hercules Unit Trust and Henderson UK Retail Warehouse Fund. JJB Sports 0.2% The impact was through SPF s investment in Hercules Unit Trust. HMV 0.2% The potential impact on SPF will be limited to around 0.2% of passing rent through SPF s holding in Hercules Unit Trust and a retail unit in Bracknell. HMV also occupy a unit in Electra Industrial Park, London E14 but they served a notice to break in 2012 and would have been vacating the property in June We have already commenced marketing this space and the remainder of the industrial park is 100% let. They have paid rent up until March 2013 so the administration will potentially result in a loss of two months rent. The impact would have been larger as HMV used to occupy a unit in Monks Cross Retail Park. However, in advance of their lease expiry we permitted them to surrender the lease and were able to re-let it to Poundland at a higher rental level. Game Group 0.1% Game occupied two units in Bracknell and York. Following administration they continued to trade in both properties and we are negotiating new leases. Other retail administrations to impact the Fund have been less than 0.1%. 5

6 Portfolio analysis Bracknell Retail and Office 4.9% QVC Building, Chiswick, London Offices 4.9% Acorn Industrial Estate, Crayford Industrial 3.9% Matrix, Park Royal, London NW10 Industrial 3.8% Monks Cross Shopping Park, York Retail Warehouse 3.8% Mermaid Quay, Cardiff Leisure 3.7% Davidson House, Forbury Square, Reading Offices 3.6% Kensington Village, London W14 Offices 3.2% West End of London Property Unit Trust (WELPUT) Offices 3.2% Fujitsu Office Complex, Central Park, Manchester Offices 3.1% Lots size bands, by GPV Tenant profile, % contracted rent 0-2.5m 0.6% 2.5-5m 2.5% 5-10m 9.4% 10-25m 21.1% 25-50m 52.2% m 14.2% m 0.0% Fujitsu Services Limited 3.8% Lloyds TSB Bank Plc 3.7% QVC Ltd 3.4% Universal Music Operations Limited 2.8% Regus (UK) Limited 2.8% Pendragon PLC 2.0% B&Q Plc 1.9% Sungard Availability Services (UK) Ltd 1.8% Sportsdirect.com Retail Ltd 1.6% Homebase Ltd 1.6% 747* other tenants 74.6% Source: Schroders, subject to rounding, GPV: gross property value; *look through analysis Relative Segment Positions, %* Absolute Segment Positions, % -3.6% -4.2% -4.2% -5.7% -0.4% 0.1% 1.5% 1.1% 0.1% 7.9% 7.4% % 0.00% 15.00% Standard Retail South East Standard Retail Rest of UK Shopping Centres Retail Warehouses Offices Central London Offices South East Offices Rest of UK Industrial South East Industrial Rest of UK Other Cash Source: Schroders, 31 December 2012, figures may vary marginally from those reported by IPD due to rounding. *Positions relative to benchmark. Data subject to rounding. Benchmark positions have changed from Q due to the long leased properties funds no longer being a constituent of SPF s Benchmark. 6

7 Shareholder information Minimum investment 100,000 Annual management charge (AMC) 0.30% per annum of the Fund s Net Asset Value 0.40% per annum on the Gross Value of direct holdings and capital cash Total expense ratio (TER) % Frequency of pricing Monthly Valuation point 8am on the first business day of each calendar month. Distribution frequency Monthly paid last business day Pricing methodology Dual priced Distribution yield (% NAV) 2 4.0% Shareholder dealing Subscriptions Monthly Redemptions Quarterly, subject to 3 months notice at quarter end Dealing cut-off 12 noon on the last Business Day of the calendar month Secondary market dealing Please phone Alice Wilcox on +44 (0) Number of shares in issue 38,235,409 NAV per share Offer price per share Bid price per share Offer spread NAV +4.75% Bid spread NAV -1.8% Number of new shares issued Q4 49, Number of shares redeemed Q4 Nil 2012 Number of shares matched Q ,446 Fund codes Schroder UK Property Fund Schroder UK Property Fund Feeder Trust ISIN GB00B8215Z66 GB00B Sedol B8215Z6 B Calculated in accordance with AREF guidelines 2 Calculated gross of tax, net of fees and expenses. Distributions are paid monthly on the last business day of each calendar month 7

8 Product Manager For general enquiries and placing trades Phone +44 (0) Registrar For all fund servicing queries Phone +44 (0) For professional investors only. The Schroder UK Property Fund ( the Fund ) is authorised by the Financial Services Authority (the FSA ) as a Qualified Investor Scheme ( QIS ). Only investors that meet the requirements for eligibility to invest in a QIS, as specified in COLL 8, Annex 1 of the FSA s Handbook, may invest in the Fund. Investors and potential investors should be aware that past performance is not a guide to future returns. No warranty is given, in whole or in part, regarding the performance of the Fund and there is no guarantee that the investment objectives of the Fund will be achieved. The price of units shares and the income from them may fluctuate upwards or downwards and cannot be guaranteed. Property-based pooled vehicles, such as the Fund, invest in real property, the value of which is generally a matter of a valuer's opinion. It may be difficult to deal in the shares of the Fund or to sell them at a reasonable price because the underlying property may not be readily saleable, thus creating liquidity risk. There is no recognised market for shares in the Fund and, as a result, reliable information about the value of shares in the Fund or the extent of the risks to which they are exposed may not be readily available This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Potential investors are advised to independently review and/or obtain independent professional advice and draw their own conclusions regarding the economic benefit and risks of investment in SPF and legal, regulatory, credit, tax and accounting aspects in relation to their particular circumstances. Any investment in the Fund must be based solely on the prospectus, or any other document issued from time to time by the Manager of the Fund in accordance with applicable laws. The information and opinions have been obtained from sources we consider to be reliable. No responsibility can be accepted for errors of fact or opinion. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. A potential conflict with the Manager's duty to the shareholder may arise where an Associate of the Manager invests in shares in the Fund. The Manager will, however, ensure that such transactions are effected on terms which are not materially less favourable to the shareholder than if the potential conflict had not existed. Use of IPD data and indices: and database right Investment Property Databank Limited and its Licensors All rights reserved. IPD has no liability to any person for any losses, damages, costs or expenses suffered as a result of any use of or reliance on any of the information which may be attributed to it. For the purposes of the Data Protection Act 1998, the data controller in respect of any personal data you supply is Schroder Unit Trusts Limited ( SUTL ). Personal information you supply may be processed for the purposes of investment administration by any company within the Schroder Group and by third parties who provide services and such processing and which may include the transfer of data outside of the European Economic Area. SUTL may also use such information to advise you of other services or products offered by the Schroder Group unless you notify it otherwise in writing. This document is intended for the use of the addressee or recipient only and may not be reproduced, passed on or published, in whole or in part, for any purpose, without the prior written consent of Schroder Unit Trusts Limited. Issued by Schroder Investments Limited, 31 Gresham Street, London EC2V 7QA. Registration No, England. Authorised and regulated by the Financial Services Authority. 8