Schroder UK Real Estate Fund Report and Audited Consolidated Financial Statements. For the Year Ended 31 March 2015

Transcription

1 For professional investors and advisers only Schroder UK Real Estate Fund Report and Audited Consolidated Financial Statements For the

2 Schroder UK Real Estate Fund Report for the Schroders Schroders is a global asset management company with billion under management at. Our clients include corporations, insurance companies, public authorities, charities, pension funds, high net worth individuals and retail investors. Our aim is to apply specialist asset management skills in serving the needs of our clients worldwide. With one of the largest networks of offices of any dedicated asset management company and almost 400 portfolio managers and analysts covering investment markets, we offer our clients a comprehensive range of products and services. Schroder Real Estate Investment management Schroders has managed real estate funds since 1971 and had 11.9 billion under management at. Schroder Real Estate Investment Management Limited is the Investment Manager of the Schroder UK Real Estate Fund. Our real estate team operates from six offices across Europe. We manage a broad range of open and closed ended real estate funds offering investors exposure to both diversified and sector focused portfolios. Lombard Street, London EC3

3 Schroder UK Real Estate Fund Report for the 1 Contents Key Information Summary* 03 Fund Manager s Report* Market Overview 10 Performance Analysis 12 Review of Portfolio Activity Report of the Authorised Corporate Director and statement of responsibilities* Investment Manager s Statement of Responsibility Independent Property Valuers Reports Depositary s Report and Statement of Responsibilities 32 Portfolio Statement* Independent Auditors Report 34 Statement of Total Return 36 Statement of Change in Net Assets Attributable to Shareholders 36 Balance Sheet 37 Cash Flow Statement 37 Notes to the Financial Statements 38 Distribution table 47 Unaudited General Information 48 Key Service Providers* 52 *Collectively these comprise the Authorised Corporate Director s Report

4 2 Schroder UK Real Estate Fund Report for the Palace House, London SE1

5 Schroder UK Real Estate Fund Report for the 3 Key Information Summary The Schroder UK Real Estate Fund (SREF or the Fund), previously known as the Schroder UK Property Fund, is Schroders flagship real estate fund launched in It provides investors with diversified exposure to 1.9 billion of UK commercial real estate and is managed by our highly experienced team. SREF seeks to provide investors with a blend of income and capital growth through investment in UK real estate. Its aim is to return 0.5% per annum (net of fees) above its benchmark 1 over rolling three year periods. It is currently outperforming over one, three and five years. The Fund is available to a broad range of domestic and international professional investors seeking to benefit from Schroders expertise. Performance Fund performance to % Net of Fees month performance history (to end of March) % Net of Fees year 3 years (% p.a.) 5 years (% p.a.) 10 years (% p.a.) Schroder UK Real Estate Fund Benchmark 1 Schroder UK Real Estate Fund Benchmark 1 Source: Schroders/AREF/IPD UK Quarterly Property Fund Index, Past performance is not a guide to future returns. 1 Benchmark is the AREF/IPD UK Quarterly Property Fund Index All Balanced Property Fund Index Weighted Average.

6 Schroder UK Real Estate Fund 4 Report for the Key Information Summary (continued) A Portfolio Diversified across the UK 1 Retail 28.4% GAV Offices 35.0% GAV Industrial 23.1% GAV Other property 13.6% GAV Scotland North East Greattte London Greater Yorkshire and mbersi Humberside North st West West Midlands East M s Midlands East Anglia Wales Wes st South West South Eastt 1 Map shows location of assets, both directly owned and those invested in via collective investment schemes. Marker is not proportionate to asset values. GAV: gross asset value.

7 Schroder UK Real Estate Fund Report for the 5 Diversified tenant base Tenant profile % (contracted rent) 1 Diversified sector and regional allocation Segment % GAV 1 Tata Steel UK Ltd Lloyds TSB Bank Plc Secretary of State Universal Music Operations Ltd Regus Ltd Care UK Ltd Pendragon Ltd B&Q Plc University of Law Sungard UK Ltd 1,064 other tenants1 3.4% 2.6% 2.4% 2.2% 2.1% 1.9% 1.9% 1.8% 1.6% 1.3% 78.8% 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 5.4% 5.8% 1.0% 11.3% 17.1% 14.6% 5.9% 16.1% 5.5% 9.2% 8.1% High quality and diversified assets Top 10 largest holdings Holding Sector NAV % City Tower, Manchester Offices 4.0% Bracknell Regeneration Partnership, Bracknell 2 Retail and Office 3.4% Acorn Industrial Estate, Crayford Industrial 3.2% Hartlebury Trading Estate, Worcestershire Industrial 3.2% West End of London Property Unit Trust (WELPUT) 3 Offices 3.1% Matrix, Park Royal, London NW10 Industrial 3.0% Davidson House, Forbury Square, Reading Offices 3.0% Mermaid Quay, Cardiff Other: Leisure 2.9% Kensington Village, London W14 Offices 2.9% Battersea Studios, London SW8 Offices 2.5% 1 Look through analysis 2 50:50 joint venture with Legal & General 3 Schroder in house fund Data subject to rounding. Source: Schroders, IPD,

8 6 Schroder UK Real Estate Fund Report for the Key Information Summary (continued) Portfolio Profile For the year to, the Fund had two share classes: net and gross. These classes have price parity and the summary information in the table below applies to both class of shares. As at/for the year to As at/for the year to Financial Information Gross Asset Value (GAV) 1,954.6m 1,514.4m Net Asset Value (NAV) 1,936.3m 1,489.5m NAV per share Number of shares in issue 49,315, ,954, Gross annual distribution per share Distribution yield 3.9% 4.1% Total NAV of scheme property 1,767.1m 1,432.7m Highest price per share in the year Lowest price per share in the year Portfolio Details Gearing (% NAV) 1.8% 2.8% Average unexpired lease length 7.2 Years 6.6 Years Void rate 3.4% 7.3% Benchmark void rate 6.1% 7.3% Net initial yield 5.0% 5.7% Reversionary yield 6.3% 6.7% Performance Annual Total Return 17.9% 13.1% Benchmark Total Return 16.6% 11.9% Fund Total Expense Ratio Total Expense Ratio 0.77% 0.81% Liquidity Annual number of shares subscribed for 6,362,349 4,564,724 Annual value of subscriptions 242,697, ,190,836 Annual number of shares redeemed 0 0 Annual value of shares redeemed 0 0 Annual number of shares matched on the secondary market 2,517,271 5,105,510 Annual value of shares matched on the secondary market 97,052, ,520,500

9 Schroder UK Real Estate Fund Report for the 7 Fund Manager s Report James Lass Fund Manager I am pleased to report that SREF has maintained its track record of outperformance in the past twelve months. This has been based on the consistent application of our investment process which is rooted in a detailed understanding of occupier and investment fundamentals. New investments have been made in good quality assets, which are expected to benefit from a broadening of economic activity across the UK, and in alternative sectors which offer an attractive income profile. We have also made excellent progress on two large projects in the South East which are expected to provide attractive returns on investment in the next two years, and a bedrock of income thereafter. SREF has seen strong interest from domestic and international investors. We are pleased to welcome an increasing number of insurance companies, private wealth managers and other institutions alongside longstanding UK pension fund and charity investors. We value the stability that a diverse investor base can bring. The prospects for the next year look encouraging. Economic expansion is likely to continue to generate rental growth across most market sectors, which SREF is well placed to capture. Further falls in investment yields are expected, albeit to a lesser degree than experienced in SREF s well diversified portfolio is positioned to provide a good balance of income and capital growth.

10 8 Schroder UK Real Estate Fund Report for the Fund Manager s Report (continued) Market Overview The past twelve months have been positive for UK commercial real estate. The UK economy grew by 2.4% over the 12 months to the end of Q1 2015, a larger expansion than any other developed market country. The unemployment rate of 5.6% is at a seven year low while wage growth has overtaken inflation for the first time in five years, increasing consumer spending power and confidence. Recent occupational figures reflect this optimism with a high take-up of space across both offices and industrial sectors. Schroders expects the first interest rate rise to be in 2016, in a response to this economic strength, and forecasts that rising employment rather than temporarily low inflation will be a key influence. Rental growth of between 2 5% is supportive of capital values and should compensate for any rise in interest rates in the short term, underpinning the positive outlook for returns. Mermaid Quay, Cardiff Investment Market Favourable fundamentals of low bond yields and accelerating rental growth have supported strong investor demand. The investment market was very busy in the past year and the total value of real estate transactions at 67.8 billion matched the previous annual record set in 2006 (source: Property Data). Investment demand has been widespread across international as well as domestic investors. Although central London offices were once again the most liquid part of the market, activity has also been strong in the regions and across sectors. Interest has been particularly evident in cities such as Manchester and Cambridge where demand from buyers outstrips supply from vendors. Transaction volumes in shopping centres and industrials have also picked up along with a number of deals in student accommodation and health care. Although the fall in oil prices means that interest from Middle Eastern and Russian buyers is likely to moderate in 2015, the most active foreign investors over the last twelve months have been from Asia and the US.

11 Schroder UK Real Estate Fund Report for the 9 As a result of strong competition in the investment market, the IPD All Property Initial Yield fell to 5.04% at the end of March 2015, its lowest level since early This looks reasonable in the context of 10 year gilt yields at around 2% and given prospects for steady rental growth over the next few years. Our pricing model suggests that the gap could narrow to % (from over 3%) without putting upward pressure on real estate yields. Occupational Market The pick-up in occupational demand over the last 12 months has been broad based, as the economic recovery has spread beyond London. Offices in the capital had already seen rental growth which has continued into 2015 (+11% over the last year). This reflects the strength of demand and supply pressures, with the vacancy rate of 6.4% its lowest level since 2006 (source: PMA). While office rental growth in the regions is a long way behind that in central London, there are some bright spots. Brighton, Cambridge, Cardiff, Edinburgh, Reading and Manchester all saw office rental growth of 3% or more over the last year (source: Investment Property Databank (IPD)). We expect office rental growth in the regions will probably continue at 2 4% pa through , and 1 2% pa from We are cautious partly because some cities still have quite high vacancy rates and partly because there are likely to be further cuts in public sector jobs after the general election. In the industrial sector, most regions are now seeing steady rental growth of 2 3% pa. The market is benefiting from both the growth in express parcels generated by online retailing and a cyclical recovery in small and medium sized enterprises (SMEs). The number of SMEs has grown by 10% in the last three years (source: Department for Business Innovation & Skills). In addition, the amount of space in standard industrial units has fallen over the last decade as estates have been redeveloped for housing, particularly in London and the South East. Despite strong consumer spending, large parts of the retail property market remain in the doldrums. While certain retailers are expanding (e.g. discount stores, restaurants), they remain outweighed by store closures (e.g. banks, bookmakers, fashion, phones), reflecting the rapid growth of mobile banking, internet gambling and online sales. Moreover, the recent U-turn by the major supermarkets to close, or sub-let space in their big stores, will add to vacancy out-of-town. Areas profiting from the positive trends in consumer expenditure include convenience retail schemes which are benefitting from the switch to click and collect and small basket shopping. Car showrooms are also attractive, with the Society of Motor Manufacturers recording the best year for car sales since Market Outlook Schroders expects that total returns from UK commercial real estate will be double digit in the coming year. Looking ahead, the pace of price appreciation is likely to ease from In its place, rental growth will play an increasingly important part in driving total returns, reflecting the strength of demand and supply pressures. Schroders forecasts annual returns of between 6 8% out to 2019, underpinned by an income return of around 5% per annum and rental growth of 2% per annum.

12 10 Schroder UK Real Estate Fund Report for the Fund Manager s Report (continued) Performance Analysis In the twelve months to end March 2015, SREF outperformed its benchmark (AREF/IPD UK Quarterly Property Fund Index All Balanced Property Fund Index Weighted Average) by 1.3%. It was also ahead of benchmark over the last three and five years. The below diagram provides a summary of performance attribution over the past twelve months. Components of SREF s real estate total return: 12 months to March 2015 Fund Total Return SREF: 17.9 Benchmark: 16.6 Relative: 1.3 Real Estate Total Return SREF: 19.6 Benchmark: 17.9 Relative: 1.7 Income Return SREF: 5.3 Benchmark: 5.4 Relative: -0.1 Capital Growth SREF: 13.6 Benchmark: 11.8 Relative: 1.8 Attribution Relative Return: Structure Score SREF: 0.9 Attribution Relative Return: Property Score SREF: 0.8 Rental Value Growth Yield Impact SREF: 9.1 Benchmark: 3.4 Relative: 5.7 SREF: 6.9 Benchmark: 10.6 Relative: -3.7 Held Purchased Development Sold Indirect SREF: 1.6 SREF: -0.2 SREF: 0.0 SREF: 0.3 SREF: 0.0 Source: IPD,. Numbers have been rounded to one decimal place. Income: SREF portfolio s is based on a bedrock of income producing assets which are complemented by growth opportunities. Recent investments in good quality secondary assets have been accretive to the yield of the portfolio, over the period the income return was in line with benchmark. Rental Growth: A strategy of SREF is to actively manage assets to maximise rental growth and capital values. This is evident in the attribution analysis where superior rental growth has been achieved, although the degree of outperformance is overstated by IPD s attribution analysis. Over the last twelve months the void rate in the portfolio reduced from 7.7% to 3.4%. Letting of this vacant space enable us to capture rental growth which was broad based across the industrial and office portfolio. Offices in central London such as Battersea Studios saw the highest rental growth with rents moving from 20 psf to psf. Yield movement: The portfolio benefitted less than the benchmark from yield improvement although the degree of this underperformance is overstated by IPD s attribution analysis, balancing out the overstatement of rental growth.

13 Schroder UK Real Estate Fund Report for the 11 Attribution of SREF s property total return % Transactional activity was neutral to returns. The fund acquired a number of assets over the last year and the costs incurred marginally detracted from performance. This was offset by sales which in aggregate crystallised a positive return. SREF benefitted from a positive score for both structure (sector allocations) and stock selection (property). The positive structure score reflected our overweight position to office and industrial assets which outperformed the market, and our underweight to retail. Active asset management has driven stock specific excess returns. Top performers over the last twelve months included the offices in Shepherdess Walk, N1 where planning permission for an extensive redevelopment was achieved and Battersea Studios, SW8 where we let up the 25% vacant space and improved the rent achieved. Our retail warehouse exposure through Monks Cross, York underperformed the benchmark as did the developments at Bracknell and Croydon. These have lagged in the rising market although valuations have started to increase as each development progresses. In future years we expect these assets to contribute positively Property Structure St Retails South East St Retails Rest of UK Shopping Centres Retail Warehouses Offices City Offices West End Offices South East Offices Rest of UK Industrials South East Industrials Rest of UK Other Commercial All property

14 12 Schroder UK Real Estate Fund Report for the Fund Manager s Report (continued) Review of Portfolio Activity The role of asset management Careful stock selection is not just about the investments we buy, but as much about the investments we choose to hold in the portfolio. Every investment is held for its ability to contribute to the overall strategy and objective of the Fund, be that income, to capture rental growth or to be able to add value through active asset management at some stage through the performance cycle. SREF is a core fund, but our strategy does not preclude active asset management from being central to our investment approach. We drive performance through a focus on the delivery of annual business plans enshrined in the objectives of each investment manager. Such a strategy has been key to driving the outperformance we have achieved over the last three years. This has involved both refurbishment and re-letting of space. At certain times in the cycle, such as the current environment, when supply of quality modern space is tight and demand is strong, these value add opportunities can include redevelopment projects. These offer the potential for larger returns but more importantly, are an efficient use of equity enabling the creation of future core assets to generate a bedrock of long-term income. Tactical sector allocations as at Sector weightings relative to benchmark 1 % gross asset value Underweight Overweight Standard retail South East -0.8% Standard retail Rest of UK -0.4% Shopping centres -3.8% Retail warehouses -6.3% Offices Central London Offices South East 2.5% 4.1% Offices Rest of UK 0.3% Industrial South East 3.8% Industrial Rest of UK -2.6% Other 0.5% Cash 3.0% 1 Benchmark is the AREF/IPD UK Quarterly Property Fund Index All Balanced Property Fund Index Weighted Average.

15 Schroder UK Real Estate Fund Report for the 13 Purchases and Sales During the year ended Purchases London WC1 The University of Law Campus Sector Holding Lot size Central London Offices JV Over 50m London E1 Dept W Central London Offices Direct Between 25m and 50m Gilbran Property Unit Trust Standard Retail JV Between 25m and 50m Manchester City Tower Retail JV Over 50m Sales Sector Holding Lot size Enfield, 30/38 London Road Retail Direct Under 10m London W1 St Anne s Court, Dean Street Central London Offices Direct Under 10m Manchester Fujitsu, Central Park Rest of UK Offices Direct Between 25m and 50m London SW14, Upper Richmond Road, East Sheen Retail Direct Under 10m Birmingham Deykin Avenue Industrial Direct Under 10m Portfolio Turnover Ratio (PTR) The AREF Code of Practice requires the publication of the PTR which indicates how much of the turnover of the portfolio has been driven by investment in and withdrawals from the Fund. For the 12 month period to the PTR is 11%.

16 14 Schroder UK Real Estate Fund Report for the Matrix Park, Park Royal, London

17 Schroder UK Real Estate Fund Report for the 15

18 16 Schroder UK Real Estate Fund Report for the Fund Manager s Report (continued) Retail SREF s overweight/underweight retail positions relative to benchmark SREF Benchmark SREF Benchmark Standard Retail South East Standard Retail Rest of UK Shopping Centres Retail Warehouses Source: IPD UK PFI Indices The growth of the economy has translated to strengthening retail sales. Shoppers spending power has been further boosted by low inflation and falling prices. Traditional high streets, however, continue to be under pressure as consumer behaviour changes. The growth of click-and-collect, shifting grocery shopping habits and the preference for a destination experience have all contributed to this shift. Shoppers are therefore increasingly gravitating to larger schemes, convenience locations and online. While we continue to hold a structural underweight position to the retail sector we see significant differentiation in performance and outlook between towns and between formats. There are signs that for certain parts of the retail market, the outlook is more positive than at any time over the last seven years and as a result performance from retail property may surprise on the upside. SREF will be reducing its underweight to the sector as the development at Bracknell progresses. This asset, held in a joint venture with Legal & General, should be well placed to benefit if, as we expect, occupier take-up increases. The ground breaking ceremony in March marked the start of work on the scheme. When completed in 2017, it will offer a unique new retail and leisure experience in the affluent South East. The project has been largely de-risked through pre-letting activity. Anchor tenants include Fenwicks, Marks & Spencer, Cineworld and H&M. The cost of development is controlled through a fixed price contract with Mace as the principal contractor on the scheme. As well as delivering an attractive return profile of potential profit, it will also create a core income producing asset within the portfolio, offering modern retail formats desirable to retailers and consumers. The Fund will also target retail investments on an opportunistic basis where the fundamentals and pricing look attractive. It will continue to look for large format in-town schemes that provide the right accommodation to retailers, complementing their online strategies.

19 Schroder UK Real Estate Fund Report for the 17 Last year s acquisitions in Truro, Spalding and Chelmsford are in line with this strategy and offer attractive yields, affordable rents and strong trading performance. Lemon Quay, Truro is a primary retail destination in Cornwall. It benefits from a large catchment area with little competition and strong tourist trade. Asset management has enhanced the value of the scheme. In Q the Fund agreed terms with Primark for its flagship store in Cornwall (to open in 2016). The letting involves the redevelopment of the parade in order to reformat four stores into one. It will be a third anchor tenant for the parade, along with Marks & Spencer and Debenhams. We added to our car showroom exposure, buying the Gilbran Portfolio of 15 car dealerships. Car showrooms play an important role in a multi-channel retail strategy. They are the key touch-point between manufacturer and customer, no matter where the vehicle is subsequently bought. The portfolio offers a net initial yield of over 7% (all with fixed or inflation linked uplifts) and offers an attractive lease profile (averaging 13.5 years). We have sold of a number of smaller assets such as those in East Sheen and Enfield. This is in-line with our strategy of disposing of non-core assets. Retail Portfolio at Holding Sector Lot Size Bracknell Regeneration Partnership JV Shopping Centre and Standard Retail Over 50m Colchester Turner Rise Direct Retail Warehouse Between 25 and 50m Motor Retail LP JV (Other) Standard Retail Between 25 and 50m Norwich Hall Road Retail Park Direct Retail Warehouse Between 25 and 50m Truro Lemon Quay Direct Standard Retail Between 25 and 50m York Monks Cross JV Retail Warehouse Between 25 and 50m Chelmsford Meadows Retail Park Direct Retail Warehouse Between 10m and 25m Colchester Hythe Riverside Park Direct Retail Warehouse Between 10m and 25m Exeter High Street Direct Standard Retail Between 10m and 25m Frimley Albany Park Direct Retail Warehouse Between 10m and 25m Henderson UK Retail Warehouse Fund (HRWF) Indirect Retail Warehouse Between 10m and 25m Gilbran Property Unit Trust Indirect (Other) Standard Retail Between 10m and 25m Ipswich Interchange Retail Park Direct Retail Warehouse Between 10m and 25m Loughton High Road Direct Standard Retail Between 10m and 25m Southsea 2-42 Palmerston Road Direct Standard Retail Between 10m and 25m Spalding Retail Parks Direct Retail Warehouse Between 10m and 25m Bristol Maggs House Direct Standard Retail Between 5m and 10m Kingston Upon Thames 167/181 Clarence Street Direct Standard Retail Between 5m and 10m Loughton High Road Direct Standard Retail Between 5m and 10m Shipley Market Square Direct Standard Retail Between 5m and 10m Stanmore Buckingham House, The Broadway Direct Standard Retail Between 5m and 10m Woodley Crockhamwell Road Direct Standard Retail Between 5m and 10m Birmingham High Street, Harborne Direct Standard Retail Under 5m Dunfermline Duloch Park District Centre Direct Standard Retail Under 5m

20 18 Schroder UK Real Estate Fund Report for the Fund Manager s Report (continued) Office SREF s overweight/underweight office positions relative to benchmark SREF Benchmark SREF Benchmark Source: IPD UK PFI Indices Offices Central London Offices South East Offices Rest of UK We have maintained our overweight position to offices and continue to favour exposures benefitting from the growth of London and the South East. Our acquisition in Manchester complements this in providing exposure to the largest regional economy outside the capital. Current market conditions in central London are helping to break down traditional location boundaries, with occupiers increasingly footloose and willing to migrate to more fringe office locations to access suitable space. In part this is owing to the significant upgrading of London s transport and other infrastructure, such as Crossrail and the Northern Line extension to Battersea. In part also, rising rents in core City and West End markets are encouraging occupiers to seek more affordable locations in emerging submarkets. Recent purchases in Bloomsbury (The University of Law Campus) and Whitechapel (Dept W) as well as the development at Croydon, offers space to cater for current and future demand. This same occupational dynamic has, over the last few years, driven the emergence of King s Cross and Old Street Roundabout as office markets, and we believe will drive the growth of new areas in the next decade. Although central London has already seen a strong recovery in office rents over the last few years (+11% over the last 12 months), we believe that the upswing has a lot further to run. We have seen significant rental growth in the portfolio over the last twelve months, underpinning higher valuations. This has been particularly in evidence at Battersea Studios, an asset we bought in the first quarter of At purchase, over 25% of space was vacant. We have let up all of the available space and have moved rents on from 20 psf to psf supporting a 40% increase in valuation.

21 Schroder UK Real Estate Fund Report for the 19 We are positive on the Manchester market where the economy is performing strongly. Our preferred exposure is to the city centre inline with the growing urban tendency of occupational demand, where employees prefer to live and work in proximity. Additionally, a shortage of good quality prime office space is supportive of the rental outlook in the central business district. In line with this strategy we disposed of Fujitsu Office Complex, an asset located on a business park to the north east of Manchester that was vulnerable to a shortening lease. We replaced this in the portfolio with City Tower, a mixed use scheme in a prime and central location, bought in a joint venture with two other Schroders real estate funds. The largest asset in the portfolio, its principal use is for offices. It offers a diversified income, well configured space and significant growth potential. Office Portfolio at Holding Sector Lot Size London W14 Kensington Village Direct Central London Office Over 50m Manchester City Tower Joint Venture Regional Office Over 50m Reading Davidson House Direct South East Office Over 50m West End of London Property Unit Trust (WELPUT) 1 Indirect Central London Office Over 50m Cardiff St. William House Direct Rest of UK Office Between 25m and 50m Croydon AMP House Direct South East Office Between 25m and 50m Croydon Gateway Site Direct South East Office Between 25m and 50m London E1 Dept W Direct South East Office Between 25m and 50m London EC1 4-7 Chiswell Street Direct Central London Office Between 25m and 50m London EC23 Lombard Street Direct Central London Office Between 25m and 50m London N1 Shepherdess Walk Direct Central London Office Between 25m and 50m London SE1 Palace House Direct South East Office Between 25m and 50m London SW8 Battersea Studios Direct South East Office Between 25m and 50m London WC1 Chenies Street Direct Central London Office Between 25m and 50m London WC1 The University of Law Campus Joint Venture Central London Office Between 25m and 50m Bracknell Bracknell Beeches Direct South East Office Between 10m and 25m London E14 Jubilee House Direct South East Office Between 10m and 25m London EC2 11/12 Appold Street Direct Central London Office Between 10m and 25m London WC2 Craven House, Kingsway Direct Central London Office Between 10m and 25m London WC2 53 Parker Street Direct Central London Office Between 10m and 25m Reading New Century Place Direct South East Office Between 5m and 10m Slough Capital Point, 33 Bath Road Direct South East Office Between 5m and 10m City of London Office Unit Trust (CLOUT) Indirect Central London Office Under 5m 1 Schroders inhouse fund

22 20 Schroder UK Real Estate Fund Report for the Fund Manager s Report (continued) Industrial SREF s overweight/underweight industrial positions relative to benchmark SREF Benchmark SREF Benchmark Industrial South East Industrial Rest of UK Source: IPD UK PFI Indices The Fund is overweight to industrial property. The sector offers an attractive yield and is benefitting from the growing economy. Our preference is for multi-let estates on the edge of towns and cities. This format is in demand from both traditional occupiers looking to expand as well retailers delivering online orders and supermarkets restocking convenience stores. The strongest parts of the market are in London, the South East and the Midlands, reflecting the lack of new building and the gradual loss of space to housing over the last years, supporting rental growth. The Fund has an established portfolio in the South East which has been complemented in recent years with regional acquisitions. There have been no new industrial purchases over the last year, however assets have been actively managed to maximise income and capital values. The Tetris Building, Greenford had been vacant since the administration of its previous tenant, Entertainment UK. It was subsequently Grade II listed by English heritage as an example of the early work of Norman Foster and Partners. In 2014 the building was refurbished and a 10 year lease secured with Royal Mail, adding over 1million income per year. At Sutton, the Fund completed a development of 130,000 sq ft. The scheme had been built with a pre-let agreed with a local lighting company at a rent of psf compared with existing rents on the Kimpton Industrial Estate of 9.00 psf. Significant deals taking up available space and increasing rents have been widespread, contributing to an outperformance of 8.3% compared with the benchmark (source: IPD). Driving this return were deals reached at Woking Business Park; Acorn Industrial Estate, Crayford; Matrix, Park Royal; Electra, Canning Town and at Hartlebury Trading Estate, Worcs. These have extended the average lease term of the Fund, improved its income and underpinned increased valuations.

23 Schroder UK Real Estate Fund Report for the 21 Industrial Portfolio at Holding Sector Lot Size Crayford Acorn Industrial Estate Direct South East Industrial Over 50m London NW10 Matrix, Park Royal Direct South East Industrial Over 50m Worcestershire Hartlebury Trading Estate Direct Rest of UK Industrial Over 50m Hackbridge Felnex Trading Estate Direct South East Industrial Between 25m and 50m London E16 Electra, Canning Town Direct South East Industrial Between 25m and 50m Sutton Kimpton Industrial Estate Direct South East Industrial Between 25m and 50m Woking Woking Business Park Direct South East Industrial Between 25m and 50m Wolverhampton Steelpark Direct Rest of UK Industrial Between 25m and 50m Dunstable Arenson Centre Direct South East Industrial Between 10m and 25m Dunstable Chiltern Park Direct South East Industrial Between 10m and 25m London UB6 Greenford Direct South East Industrial Between 10m and 25m Welwyn Garden City Quadrant Park Direct South East Industrial Between 10m and 25m Cannock Walkmill Lane, land site Direct Rest of UK Industrial Under 5m Livingston Limefields Direct Rest of UK Industrial Under 5m London UB6 Greenford, land site Direct South East Industrial Under 5m York Alexandra Court, James Street Direct Rest of UK Industrial Under 5m

24 22 Schroder UK Real Estate Fund Report for the Fund Manager s Report (continued) Alternative sectors SREF s overweight/underweight other positions relative to benchmark Source: IPD UK PFI Indices SREF Benchmark SREF Benchmark The Fund has maintained its overweight exposure to alternative real estate over the last 12 months. These assets offer diversification and are typically less sensitive to the economic cycle. Though performance has lagged the wider market over the last year, these are more defensive investments where above market income is a key driver of long term performance. The current alternative portfolio includes care homes, hotels, student accommodation, leisure assets and car showrooms. We have increased our exposure to car showrooms with the purchase of the Gilbran Portfolio in the third quarter, described in the earlier retail section. Elsewhere the fund has completed the development of five purpose-built care homes in Suffolk. These are let to Care UK, the outsourced provider of Suffolk County Council s elderly care provision. They provide inflation-linked income for a term of 30 years and yield of over 7%. Alternative assets are increasingly in demand as investors search for income. A particular beneficiary has been student accommodation where the volume of transactions is large and growing. In the first quarter of 2015, around 2.6 billion of student accommodation changed hands, more than was transacted in the more mainstream retail warehouse sector. This has driven strong returns in the Unite Student Accommodation Fund.

25 Schroder UK Real Estate Fund Report for the 23 Turner Rise Alternatives Portfolio at Holding Sector Lot Size Cardiff Mermaid Quay Direct Other leisure Over 50m London E14 West India Quay JV Other leisure Between 25 and 50m Suffolk Care Homes Direct Other care homes Between 25 and 50m Chatham Dickens World Direct Other leisure Between 10m and 25m UNITE UK Student Accommodation Fund Indirect Other student accommodation Between 10m and 25m Croydon Car Park Direct Other car park Under 5m Ipswich Care Home, Suffolk

26 24 Schroder UK Real Estate Fund Audited Consolidated Financial Statements for the Report of the Authorised Corporate Director and statement of responsibilities The Financial Statements We are pleased to present the Audited Consolidated Financial Statements of the Schroder UK Real Estate Fund for the year ended. The Fund Schroder UK Real Estate (the Fund ) is an investment Fund with variable capital incorporated in England and Wales under registered number IC and authorised by the FCA with effect from 31 July The Fund has an unlimited duration. The shareholders are not liable for any debts of the Fund. The investment objective of the Fund is to undertake Real Estate Investment Business and to manage cash raised from investors for investment in the Real Estate Investment Business, with the intention of achieving a blend of income and capital growth. The Fund s target return is to achieve 0.5 per cent per annum (net of all fees and expenses) above the benchmark (the AREF/IPD UK Quarterly Property Fund Index All Balanced Property Fund Index Weighted Average) over rolling three year periods. The Fund will seek to diversify risk by holding a mixed portfolio of retail, office, industrial and other real estate throughout the UK. The policy for achieving these objectives is that the Fund will invest in UK real estate. The Fund may also invest in transferable securities (including REITs, government bonds and unquoted companies), units in collective investment schemes, units in unregulated collective investment schemes (which may include unauthorised property unit trusts and limited partnerships), money market instruments, deposits, cash and cash equivalents. Authorised Status From 31 July 2012 the Fund was authorised as an Open-Ended Investment Fund under Regulation 12 of the Open-Ended Investment Companies Regulations Annual General Meetings The Fund will not be holding any Annual General Meetings. Statement of Responsibilities The Financial Conduct Authority s Collective Investment Schemes Sourcebook (COLL) requires the Authorised Corporate Director (ACD) to prepare accounts for each annual and half yearly accounting period, in accordance with United Kingdom Generally Accepted Accounting Practice, which give a true and fair view of the financial position of the fund and of its net revenue and the net capital gains on the property of the fund for the year. In preparing the accounts the ACD is required to: select suitable accounting policies and then apply them consistently; comply with the disclosure requirements of the Statement of Recommended Practice for Authorised Funds issued by the IMA in October 2010; follow generally accepted accounting principles and applicable accounting standards; prepare the accounts on the basis that the fund will continue in operation unless it is inappropriate to do so; and, keep proper accounting records which enable it to demonstrate that the accounts as prepared comply with the above requirements. The ACD is responsible for the management of the fund in accordance with its Instrument of Incorporation, Prospectus and COLL and for taking reasonable steps for the prevention and detection of fraud, error and noncompliance with law or regulations. The ACD s report and accounts for the year ended were signed on 29 June 2015 on behalf of the ACD by: J. Walker-Hazell P. Wallace Schroder Unit Trusts Limited 29 June 2015

27 Schroder UK Real Estate Fund Audited Consolidated Financial Statements for the 25 AIFM employee remuneration disclosure The Alternative Investment Fund Managers Directive requires Schroder Unit Trusts Limited to comply with certain disclosure, reporting and transparency obligations of the Directive, for funds that are considered to be alternative investment funds that it markets in the EU. This includes Schroder UK Real Estate Fund. Schroder Unit Trusts Limited does not have any employees but is a wholly owned subsidiary of Schroders plc ( Schroders ). The Schroders remuneration philosophy aims to reward performance and attract and retain talented employees. Schroders seeks to encourage enterprise whilst ensuring alignment with business objectives, avoiding unnecessary or excessive risk and meeting regulatory requirements. To maintain its position as an employer of choice, Schroders offers competitive terms and conditions across all aspects of remuneration, including salaries, benefits, pensions, paid leave and variable remuneration, with an appropriate balance of fixed and variable remuneration. Schroders defers significant portions of variable remuneration awards to provide higherpaid employees with potential upside but also downside risk through the link to the Schroders share price and a range of Schroders investment funds. Remuneration strategy across Schroders is governed by the Remuneration Committee, a committee of the Schroders Board. The Remuneration Committee has established an AIFM Remuneration Policy designed to ensure the requirements of the AIFM Remuneration Code in the UK Financial Services handbook are met proportionately for all AIFM Remuneration Code Staff, following the effective implementation date. The Remuneration Committee is responsible for overseeing the implementation of this Policy on behalf of the Board of Schroder Unit Trusts Limited. As meaningful remuneration data for AIFM Remuneration Code Staff will not be available until 2016, following the end of the first full performance period after Schroder Unit Trusts Limited becoming authorised as an AIFM, Schroder Unit Trusts Limited is not in a position to report total remuneration paid to AIFM Remuneration Code Staff at the time of this report.

28 26 Schroder UK Real Estate Fund Audited Consolidated Financial Statements for the Investment Manager s Statement of Responsibility The ACD has delegated to the Investment Manager the function of managing the investment and reinvestment of the assets of the Fund. On 31 July 2012, the ACD appointed Schroder Property Investment Management Limited to provide investment management, property management and advisory services to the ACD. On 24 November 2014, Schroder Property Investment Management Limited was renamed to Schroder Real Estate Investment Management Limited ( Schroder Real Estate ). Schroder Real Estate is a member of the same (Schroders plc) as the ACD. The Investment Manager has discretionary responsibility for implementing investment policy and is responsible to investors for the performance of the Fund. Adherence to such policies is monitored quarterly through reporting by the Investment Manager to the Real Estate Investment Risk Committee which is an integral part of the Schroders Investment Risk Framework (SIRF). The Investment Manager is also responsible for marketing the Fund, pricing and accounting for the Fund, providing all relevant information to valuers, managing agents and for providing performance information to IPD (Investment Property Databank). All delegated appointments by the Investment Manager are on an advisory basis. Subject to the investment objectives and restrictions contained in the OEIC Regulations and COLL (Collective Investment Schemes Sourcebook) and the investment and borrowing guidelines contained in the Prospectus, the Investment Manager has discretion to take decisions in relation to the management of the Fund, without prior reference to the ACD. As required by COLL, the Investment Manager must obtain the consent of the Depositary for the acquisition or disposal of immovable property. Legal and product limits The prospectus, which has been approved by the FCA, sets out the nature of permitted investments and the broad parameters within which the fund must be managed. If one of these is breached, depending on the nature of the breach, they are reportable to the FCA and subject to agreed remedies. These are shown as legal limits in the table below. The Investment Manager confirms that these limits have not been breached in the year to. Other risk controls such as Product Limits shown in the table below are also monitored as part of SIRF which is a -wide control process designed to ensure that products and portfolios are managed in a manner that is consistent with their performance objectives and corresponding risk profiles. From time to time the Investment Manager may propose revisions to the Product limits in order to better control the risks which may impact the Fund s ability to achieve its objectives. Any changes will require the approval of SIRF and the ACD. Legal limits Minimum 60% its assets (NAV) must form part of its Property Investment Business Minimum 60% its income must come from the Property Investment Business Maximum aggregate investment in indirect vehicles: 40% NAV Maximum 15% of the NAV invested in a single asset Maximum 20% of the NAV committed to development (on/off balance sheet) Maximum borrowing (on/off balance sheet): 25% NAV Investment on and off balance sheet in shorter/medium term leaseholds (less than 50 years): 20% NAV Maximum speculative development: 15% NAV Product limits Sector exposure: Maximum absolute load difference +/- 50% vs benchmark. Maximum divergence of central London +/- 10%. Maximum divergence in alternatives +/- 10%. Investment in a single indirect vehicle: 15% NAV Aggregate investment in indirect vehicles: 35% NAV Aggregate investment in joint ventures: 35% NAV Investment in UK property related listed securities: aggregate 10% NAV individual 2.5% NAV Maximum investment in undeveloped and non income producing land: 10% NAV Maximum on and off balance sheet percentage income from non government tenant: 10% Investment in undeveloped and non income producing land: 10% NAV Maximum on balance sheet uncommitted cash: 10% NAV Maximum on and off balance sheet debt: 25% NAV

29 Schroder UK Real Estate Fund Audited Consolidated Financial Statements for the 27 Independent Property Valuers Reports BNP Paribas Real Estate As Standing Independent Valuer for the Fund, we have valued immovables held by the Fund as at in accordance with The Royal Institution of Chartered Surveyors and International Valuation Standards (RICS) and in accordance with the COLL R of the Collective Investment Schemes Sourcebook. Schroder Unit Trusts Limited, as ACD of the Fund, has been provided with a full valuation certificate and report. The immovables have been valued on the basis of Market Value as defined by the RICS Valuation Standards subject to existing leases. Details of the nature and extent of the immovables, the tenure and tenancies, permitted uses, town planning consents and related matters, have been supplied by the Investment Manager, Schroder Real Estate Investment Management Limited (SREIM). The majority of the properties form the subject of detailed reports from ourselves. We have seen copies of all the leases but we have not examined the title documents and we have therefore assumed that the Fund s interests are not subject to any onerous restrictions, to the payment of any unusual outgoings or to any charges, easements or rights of way, other than those to which we have referred in our reports. We rely upon the Investment Manager to keep us advised of any changes that may occur in the investments. We are not instructed to carry out structural surveys nor test any of the service installations. Our valuations therefore have regard only to the general condition of the properties evident from our inspections. We have assumed that no materials have been used in the buildings which are deleterious, hazardous or likely to cause structural defects. We are not instructed to carry out investigations into pollution hazards which might affect the properties and our valuations assume the properties are not adversely affected by any form of pollution. In our opinion the aggregate of the market values of the 46 immovables owned by the Fund as at 31 March 2015 was 1, million. This figure represents the aggregate of the values attributable to the individual immovables and should not be regarded as a valuation of the portfolio as a whole in the context of a sale as a single lot. In the case of the immovables in the course of development, our valuations reflect the stage reached in construction and the costs already incurred at the date of valuation. We have had regard to the contractual liabilities of the parties involved in the developments and any cost estimates which have been prepared by professional advisers. No allowance is made in our valuations for the costs of realisation, any liability for tax which might arise on the event of disposal or for any mortgage or similar financial encumbrance over the property. Our valuations exclude VAT. BNP Paribas Real Estate Allsops LLP As Independent Valuer for the Fund, we have valued immovables held by the Fund as at in accordance with The Royal Institution of Chartered Surveyors and International Valuation Standards (RICS) and in accordance with the COLL R of the Collective Investment Schemes Sourcebook. Schroder Unit Trusts Limited, as ACD of the Fund, has been provided with a full valuation certificate and report. The immovables have been valued on the basis of Market Value as defined by the RICS Valuation Standards subject to existing leases. We have been provided with information from the relevant Property Managers including tenancy schedules and floor areas and assumed that the Fund s interests are not subject to any onerous restrictions, to the payment of any unusual outgoings or to any charges, easements or rights of way, other than those to which we have referred in our reports. We rely upon the Property Manager to keep us advised of any changes that may occur in the investments. We are not instructed to carry out structural surveys nor test any of the service installations. Our valuations therefore have regard only to the general condition of the properties evident from our inspections. We have assumed that no materials have been used in the buildings which are deleterious, hazardous or likely to cause structural defects. We are not instructed to carry out investigations into pollution hazards which might affect the properties and our valuations assume the properties are not adversely affected by any form of pollution. In our opinion the aggregate of the market values of the 9 immovables owned by the Fund as at 31 March 2015 is 70.51million. This figure represents the aggregate of the values attributable to the individual immovables and should not be regarded as a valuation of the portfolio as a whole in the context of a sale as a single lot. In the case of the immovables in the course of development, our valuations reflect the stage reached in construction and the costs already incurred at the date of valuation. We have had regard to the contractual liabilities of the parties involved in the developments and any cost estimates which have been prepared by professional advisers.

30 28 Schroder UK Property Real Estate Fund Fund Audited Audited Consolidated Consolidated Financial Financial Statements Statements 31 March 2013 for the No allowance is made in our valuations for the costs of realisation, any liability for tax which might arise on the event of disposal or for any mortgage or similar financial encumbrance over the property. Our valuations exclude VAT. Allsops LLP Knight Frank As Independent Valuer for the Fund, we have valued immovables held by the Fund as at in accordance with The Royal Institution of Chartered Surveyors and International Valuation Standards (RICS) and in accordance with the COLL R of the Collective Investment Schemes Sourcebook. Schroder Unit Trusts Limited, as ACD of the Fund, has been provided with a full valuation certificate and report. The immovables have been valued on the basis of Market Value as defined by the RICS Valuation Standards subject to existing leases. We have been provided with information from the relevant Property Managers including tenancy schedules and floor areas and assumed that the Fund s interests are not subject to any onerous restrictions, to the payment of any unusual outgoings or to any charges, easements or rights of way, other than those to which we have referred in our reports. We rely upon the Property Manager to keep us advised of any changes that may occur in the investments. We are not instructed to carry out structural surveys nor test any of the service installations. Our valuations therefore have regard only to the general condition of the properties evident from our inspections. We have assumed that no materials have been used in the buildings which are deleterious, hazardous or likely to cause structural defects. We are not instructed to carry out investigations into pollution hazards which might affect the properties and our valuations assume the properties are not adversely affected by any form of pollution. In our opinion the aggregate of the market values of the 5 immovables owned by the Fund as at 31 March 2015 is 33.54million. This figure represents the aggregate of the values attributable to the individual immovables and should not be regarded as a valuation of the portfolio as a whole in the context of a sale as a single lot. In the case of the immovables in the course of development, our valuations reflect the stage reached in construction and the costs already incurred at the date of valuation. We have had regard to the contractual liabilities of the parties involved in the developments and any cost estimates which have been prepared by professional advisers. No allowance is made in our valuations for the costs of realisation, any liability for tax which might arise on the event of disposal or for any mortgage or similar financial encumbrance over the property. Our valuations exclude VAT. Knight Frank

31 Schroder UK Real Estate Fund Audited Consolidated Financial Statements for the 29 Depositary s Report and statement of responsibilities Statement of Responsibilities The depositary is responsible for the safekeeping of all of the property of the Fund (other than tangible moveable property) which is entrusted to it and for the collection of revenue that arises from that property. It is the duty of the depositary to take reasonable care to ensure that the Fund is managed in accordance with the FCA s Collective Investment Schemes Sourcebook (COLL), as amended, the Open-Ended Investment Companies Regulations 2001 (SI 2001/1228), as amended ( the OEIC Regulations ), the Fund s instrument of incorporation and prospectus, in relation to the pricing of, and dealings in, shares in the Fund; the application of revenue of the Fund; and the investment and borrowing powers applicable to the Fund. Depositary s Report Having carried out such procedures as we consider necessary to discharge our responsibilities as depositary of the Fund, it is our opinion, based on the information available to us and the explanations provided, that in all material respects the Fund, acting through the ACD: (i) has carried out the issue, sale, redemption and cancellation, and calculation of the price of the Fund s shares and the application of the Fund s revenue in accordance with COLL and, where applicable, the OEIC Regulations, the instrument of incorporation and prospectus of the Fund, and (ii) has observed the investment and borrowing powers and restrictions applicable to the Fund. Natwest PLC 29 June 2015

32 30 Schroder UK Real Estate Fund Audited Consolidated Financial Statements for the

33 Schroder UK Real Estate Fund Audited Consolidated Financial Statements for the 31 Battersea Studios London SW8

34 32 Schroder UK Real Estate Fund Audited Consolidated Financial Statements for the Portfolio statement Direct Properties Direct Properties up to 10m Bristol Maggs House Stanmore Buckingham House Shipley 20/40 Market Square Loughton High Road Woodley 81/129, Crockhamwell Road, Reading Kingston Upon Thames Clarence St Dunfermline Units 1-11 Duloch Park Birmingham 40/60 High Street, Harborne Reading New Century Place Slough Capital Point, 33 Bath Road Ipswich Asterbury Place Lowestoft Roman Hill Mildenhall Great Heath Haverhill Chalkstone Framlingham Mills Meadow Croydon Car Park Livingston Limefields (Land) York Alexandra Court Greenford Land at Rockware Ave. Cannock Land at Walkmill Lane Livingston XL (Land) Sector Standard Retail Standard Retail Standard Retail Standard Retail Standard Retail Standard Retail Standard Retail Standard Retail South East Offices South East Offices Other Care Homes Other Care Homes Other Care Homes Other Care Homes Other Care Homes Other car park Industrial Industrial Industrial Industrial Industrial Market Value at Total Net assets % Market Value at Total Net assets % Total Market Value up to 10m 110, % 157, % Direct Properties between 10m and 25m Loughton High Road Standard Retail Southsea 2-42 Palmerston Road Standard Retail Exeter Pearl Assurance House, High Street Standard Retail Bracknell Bracknell Beeches South East Offices Croydon AMP House South East Offices Spalding Retail Parks Retail Warehouse Chelmsford Meadows Retail Park Retail Warehouse Colchester Hythe Riverside Park Retail Warehouse Ipswich Interchange Retail Park Retail Warehouse Frimley Albany Park Retail Warehouse Chatham Maritime Other leisure Sutton Teesland Site B Industrial Greenford Tetris Industrial Welwyn Quadrant Park Industrial Dunstable Chiltern Park Industrial Dunstable Arenson Centre Industrial Sutton Kimpton Industrial Estate Industrial London WC2 Craven House, Kingsway Central London Offices London EC15 Jubilee House Central London Offices London EC2 Appold Street Central London Offices London WC2 53 Parker Street Central London Offices Total Market Value between 10m and 25m Industrial 327, % 287, %

35 Schroder UK UK Real Property Estate Fund Audited Audited Consolidated Consolidated Financial Financial Statements Statements 31 March 2013 for the 33 Portfolio statement (continued) Direct Properties Sector Market Value at Total Net assets % Market Value at Total Net assets % Direct Properties between 25m and 50m York Monks Cross Standard Retail Truro Lemon Quay Standard Retail London Battersea Studios South East Offices London N1 Shepherdess Walk South East Offices Croydon Ruskin Square South East Offices London SE1 Palace House South East Offices Norwich Hall Road Retail Park Retail Warehouse Colchester Turner Rise Retail Warehouse Cardiff St William House Rest of UK Offices London E16 Electra Industrial Estate Industrial Hackbridge Felnex Trading Estate Industrial Wolverhampton Steelpark Industrial Woking Woking Business Park Industrial London WC1 Chenies Street Central London Offices London E1 Mile End Road Central London Offices London EC3 68 Lombard Street Central London Offices London EC1 Chiswell Street Central London Offices Total Market Value between 25m and 50m 622, % 614, % Direct Properties greater than 50m Reading Davidson House South East Offices Cardiff Mermaid Quay Other leisure Worcestershire Hartlebury Trading Estate Industrial London NW10 Matrix Park, Park Royal Industrial Crayford Acorn Industrial Estate Industrial London W14 Kensington Village Central London Offices Total Market Value greater than 50m 350, % 159, % Total Direct Properties 1,410, % 1,218, % Joint Ventures Gilbran Property Unit Trust Standard Retail 22, % Motor Retail LP Standard Retail 29, % 27, % Bracknell PUT Retail 66, % 67, % City Tower Unit Trust Office 76, % Ruskin Sq LLP Residential and Office % West India Quay UT Other leisure 31, % 29, % Store Unit Trust Central London Office 34, % Total Joint Ventures 261, % 125, % Collective Investment Schemes Henderson UK Retail Warehouse Retail Warehouse 15, % 14, % UNITE UK Student Accommodation Fund Other student accommodation 19, % 18, % City of London Office UT Central London Office % % WELPUT Central London Office 59, % 49, % Total Collective Investment Schemes 95, % 82, % Portfolio of investments 1,767, % 1,426, % Net other assets (including cash) 169, % 62, % Net Assets 1,936, % 1,489, %

36 34 Schroder UK Property Real Estate Fund Fund Audited Audited Consolidated Consolidated Financial Financial Statements Statements 31 March 2013 for the Independent auditors Report To the Shareholders of Schroder UK Real Estate Fund Report on the financial statements Our opinion In our opinion the financial statements, defined below: give a true and fair view of the financial position of the and the Fund as at and of the net revenue, the net capital gains of the scheme property and the cash flows of the and the Fund for the year then ended; and have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice, the Statement of Recommended Practice for Authorised Funds, the Collective Investment Schemes sourcebook and the Instrument of Incorporation. This opinion is to be read in the context of what we say in the remainder of this report. What we have audited The financial statements of Schroder UK Real Estate Fund, which are prepared by Schroder Unit Trusts Limited (the Authorised Corporate Director ), comprise: the and Fund balance sheet as at ; the and Fund statement of total return for the year then ended; the and Fund statement of change in net assets attributable to shareholders for the year then ended; the and Fund cash flow statement for the year then ended; the notes to the and Fund s financial statements, which include a summary of significant accounting policies and other explanatory information; and the distribution table The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice), the Statement of Recommended Practice Financial Statements of Authorised Funds issued by the Investment Management Association (the Statement of Recommended Practice for Authorised Funds ), the Collective Investment Schemes sourcebook and the Instrument of Incorporation. In applying the financial reporting framework, the Authorised Corporate Director has made a number of subjective judgements, for example in respect of significant accounting estimates. In making such estimates, they have made assumptions and considered future events. What an audit of financial statements involves We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) ( ISAs (UK & Ireland) ). An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Fund s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Authorised Corporate Director; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Report and Audited Financial Statements (the Annual Report ) to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinions on matters prescribed by the Collective Investment Schemes sourcebook In our opinion: we have obtained all the information and explanations we consider necessary for the purposes of the audit; and the information given in the Authorised Corporate Director s Report for the financial year for which the financial statements are prepared is consistent with the financial statements.

37 Schroder UK Real Estate Fund Audited Consolidated Financial Statements for the 35 Other matters on which we are required to report by exception Propriety of accounting records and information and explanations received Under the Collective Investment Schemes sourcebook we are required to report to you if, in our opinion: proper accounting records have not been kept; or the financial statements are not in agreement with the accounting records and returns.we have no exceptions to report arising from this responsibility. Responsibilities for the financial statements and the audit Our responsibilities and those of the Authorised Corporate Director As explained more fully in the Report of the Authorised Corporate Director and statement of responsibilities, the Authorised Corporate Director is responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and ISAs (UK & Ireland). Those standards require us to comply with the Auditing Practices Board s Ethical Standards for Auditors. This report, including the opinions, has been prepared for and only for the Fund s shareholders as a body in accordance with paragraph of the Collective Investment Schemes sourcebook and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors London 29 June 2015 Notes: (a) The maintenance and integrity of the Schroder UK Property Fund website is the responsibility of the Authorised Corporate Director; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website. (b) Legislation in the United Kingdom governing b) Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

38 36 Schroder UK Real Estate Fund Audited Consolidated Financial Statements for the Statement of total return Income Notes 31 March 2015 Schroder UK Real Estate Fund 31 March 2014 Schroder UK Real Estate Fund Net capital gains / (losses) 4 209, , , ,262 Revenue 5 94,402 92,020 80,409 77,078 Gain attributable to minority interest 5 3 Expenses 6 (29,324) (26,937) (26,056) (22,722) Net revenue before taxation 65,083 65,083 54,356 54,356 Taxation Net revenue after taxation 65,083 65,083 54,356 54,356 Total return before distribution 274, , , ,618 Finance costs: distributions 7 (70,321) (70,321) (58,392) (58,392) Change in net assets attributable to shareholders from investment activities 204, , , ,226 Statement of Change in Net Assets Attributable to Shareholders Opening net assets attributable to shareholders Amounts receivable on creation of shares Change in net assets attributable to shareholders from investment activities Closing net assets attributable to shareholders Notes 31 March 2015 Schroder UK Real Estate Fund 31 March 2014 Schroder UK Real Estate Fund 1,489,460 1,489,460 1,228,044 1,228, , , , , , , , ,226 1,936,267 1,936,267 1,489,460 1,489,460

39 Schroder UK Real Estate Fund Audited Consolidated Financial Statements for the 37 Balance Sheet Notes as at Schroder UK Real Estate Fund as at as at Schroder UK Real Estate Fund as at ASSETS Investment Assets Investment Property 1,410,780 1,263,965 1,218,464 1,104,279 Investment in Collective Investment Schemes 95,166 95,166 82,862 82,862 Investment in Subsidiaries 9 172, ,880 Investment in Joint Ventures 261, , , ,412 Total Investment Assets 1,767,119 1,791,735 1,426,738 1,428,433 Debtors 10 34,033 25,750 22,074 21,366 Cash and bank balances , ,126 80,898 73,547 Total other assets 203, , ,972 94,913 Total assets 1,970,780 1,967,611 1,529,710 1,523,346 LIABILITIES Creditors 12 27,168 25,130 29,960 28,235 Distribution payable 6,214 6,214 5,651 5,651 Net assets attributable to third party minority investors 1, Long term liabilities Loans 13 3,700 Total liabilities 34,513 31,344 40,250 33,886 Net assets attributable to shareholders 1,936,267 1,936,267 1,489,460 1,489,460 Cash flow statement Notes Schroder UK Real Estate Fund Schroder UK Real Estate Fund Net cash inflow from operating activities 16 50,332 57,595 71,102 66,598 Servicing of finance Distributions paid (69,707) (69,707) (56,795) (56,795) Interest received Total cash outflow from servicing of finance (69,542) (69,578) (56,542) (56,565) Financial investments Purchases of investments (158,557) (189,572) (279,084) (284,754) Sales of investments 62,560 62, , ,763 Capital expenditure (38,758) (27,121) (40,406) (30,311) Total cash (outflow) from financial investments (134,755) (154,133) (182,727) (178,302) Financing Amounts received on issue of shares 242, , , ,190 Amounts paid on cancellation of shares Total cash inflow from financing 242, , , ,190 Increase/ (decrease) in cash in the year 88,730 76,579 (9,977) (10,079) Net cash at the start of the year 80,898 73,547 90,875 83,626 Net cash at the end of the year 169, ,126 80,898 73,547

40 38 Schroder UK Real Estate Fund Audited Consolidated Financial Statements for the Notes to the Financial Statements 1. Accounting Policies (a) Basis of accounting All of the financial statements have been prepared under the historical cost basis, as modified by the revaluation of investments, and in accordance with the Statement of Recommended Practice for Authorised Funds issued by the IMA in October 2010 (SORP 2010). The Fund is a non-ucits Fund. The principle accounting policies, which have been applied consistently throughout the year are set out below. (b) Consolidation Consolidated Financial Statements have been prepared in accordance with FRS 2 Accounting for Subsidiary Undertakings. The Consolidated Statement of Total Return, Consolidated Statement of Change in Net Assets attributable to Shareholders, Consolidated Balance Sheet and Consolidated Cash Flow Statement include the financial statements of each sub-fund and its subsidiary undertakings. Intra-group transactions are eliminated fully on consolidation. (c) Basis of valuation of investments (i) Properties owned by the Fund, including investments in properties owned through partnerships and trusts for land, are independently valued on a market value basis in accordance with Royal Institute of Chartered Surveyors guidance. Development properties in the course of development are independently valued having regard to the stage reached in the construction and taking account of any agreed letting and of any contractual liabilities to advance further monies. Where legal completion of a purchase is not fully executed at the date of the Consolidated balance sheet, but takes place subsequently, or in the case of development properties purchased for development where no work has yet taken place, the property is shown at cost unless, in the opinion of the Manager, there may be a material difference between cost and valuation on completion. (ii) Collective Investment Schemes are valued at the bid price as provided by the relevant managers, in accordance with industry practice. (iii) Subsidiaries and joint ventures are valued at the NAV price as provided by the relevant managers, in accordance with industry practice. (d) Property purchases and sales Acquisitions and disposals of investment properties and collective investment schemes are recognised where, by the end of the accounting period, there is a legally binding, unconditional and irrevocable contract. (e) Recognition of revenue Rental revenue, deposit interest, income from collective investment schemes and other revenue is accounted for on an accruals basis. The cost of any up front lease incentives offered is recognised as a reduction in rental income and allocated over the shorter of the lease term or the period until the first rent review date in accordance with UITF28. Service charge income and expenses are included in revenue and other property operating expenses respectively. Interest receivable and payable are accounted for on an accruals basis. Provisions for doubtful debts are taken as a reduction to rental revenue and recognised where debts are outstanding for greater than six months. (f) Treatment of management expenses Fees are recognised on an accruals basis and are charged in full to the Statement of Total Return. The Manager has allocated 50% of the management fees to income and the remaining 50% to capital for the calculation of distributable income. (g) Treatment of development and acquisition expenses In accordance with Generally Accepted Accounting Practice in the UK, development and acquisition expenses have been treated as costs of purchasing property investments and are accordingly treated as capital. (h) Cash flow statement In accordance with the requirements of FRS 1 (Revised) and the IMA SORP 2010, a consolidated cash flow statement has been provided. (i) Tax The Fund qualifies as a Property Authorised Investment Fund (PAIF) for tax purposes. Accordingly, the income generated by its property investment business will be exempt from tax. Any dividend income it receives from United Kingdom companies or, in general, from non-united Kingdom companies will also be exempt from tax. The Fund would, however, be subject to corporation tax in the event that there should be a net balance of other income, which will generally consist of interest but could include other property income, less deductible expenses (including interest distributions). Under the PAIF regulations, the Fund make distributions gross to the sole share class in an issue during the period. 2. Distribution Policies (a) Basis of distribution Revenue is generated by the Fund s investments during each accounting period. Where revenue exceeds expenses, the net income of the Fund is available to be distributed to shareholders. All income is distributed, at share class level, to the shareholders

41 Schroder UK Real Estate Fund Audited Consolidated Financial Statements for the 39 notes to the financial statements (continued) in accordance with the Fund s prospectus on a monthly basis. Income equalisation will not apply to the Fund. Revenue attributable to accumulation shareholders is retained at the end of the distribution period and represents a reinvestment of revenue. (b) Apportionment to multiple share classes The allocation of revenue and expenses to each share class is based on the proportion of the Fund s assets attributable to each share class on the day the revenue is earned or the expenses are suffered. (c) Expenses In determining the net revenue available for distribution, expenses related to the purchase and sale of investments are capitalised and do not reduce distributions. 3. Risk Management Policies (a) Market risk and valuations of property The exposure to market risk arising from the prevailing general economic conditions and market sentiment, may affect the balance sheet and total return of the Fund. Immovable property and immovable property-related assets are inherently difficult to value due to the individual nature of each property. As a result, valuations are subject to uncertainty and are a matter of an independent valuers opinion. There is no assurance that the estimates resulting from the valuation process will reflect the actual sales price even where a sale occurs shortly after the valuation date. Market risk is minimised through holding a geographically diversified portfolio that invests across various property sectors. The Manager adheres to the investment guidelines and investment and borrowing powers established in the Prospectus, Scheme Particulars and in the rules governing the operation of open ended investment companies. (b) Credit and liquidity risk The Fund can be exposed to credit risk arising from the possibility that another party fails to fulfil its obligations and liquidity risk surrounding its capacity to meet its liabilities. Investments in immovable property are relatively illiquid and more difficult to realise than most equities or bonds. If an asset cannot be liquidated in a timely manner then it may be harder to attain a reasonable price. The liquidity risk, derived from the liability to shareholders, is minimised through holding cash which can meet the usual requirements of share redemptions. The Investment Manager s policy for managing this risk is to: 1. Operate a strict share redemption policy such that shareholders may only serve notice to redeem at the end of each quarter; 2. Raise sufficient cash resources within the Fund to finance a limited number of redemptions; 3. Review the need for and maintain as appropriate a borrowing facility; and, 4. Reserve the right to defer payment of redemptions. (c) Currency risk All financial assets and financial liabilities of the Fund are in Sterling, thus the Fund has no exposure to currency risk at the balance sheet date. (d) Interest rate risk The Fund has the ability to access debt facilities, but did not have any debt facilities during the year. The Fund held 169.6million of group cash at the end of the period and this is exposed to interest rate risk. There were no changes to the risk management policies during the year to.

42 40 Schroder UK Real Estate Fund Audited Consolidated Financial Statements for the notes to the financial statements (continued) 4. Net capital gains Gains for the period on direct properties Gains for the period on Collective Investment Schemes Gains for the period on Joint ventures Net gains on investment properties Schroder UK Real Estate Fund Schroder UK Real Estate Fund 191, ,136 87,354 85,110 12,340 37,693 12,086 14,330 5,205 4,521 7,822 7, , , , ,262 For both the Fund and the year ended 5.5million out of 209.4million net gains were realised gains (2014: 34.5million out of 107.3million). 5. Revenue Bank and deposit interest Schroder UK Real Estate Fund Schroder UK Real Estate Fund Rental revenue 70,166 66,594 60,426 57,224 Income from collective investment schemes 14,855 16,442 11,779 12,637 Service charge income 9,072 8,751 7,328 6,389 Other income Total revenue 94,402 92,020 80,409 77, Expenses Investment Management Fees Schroder UK Real Estate Fund Schroder UK Real Estate Fund 10,836 10,475 8,377 8,072 Depositary fee Valuers fee Audit fee Service charge expense 10,691 9,908 8,759 7,421 Other company level expenses Other property operating expenses 1, , ,496 4,981 7,136 6,166 Total expenses 29,324 26,937 26,056 22,722

43 Schroder UK Real Estate Fund Audited Consolidated Financial Statements for the Finance Costs: distributions Schroder UK Real Estate Fund Schroder UK Real Estate Fund April 5,785 5,785 4,285 4,285 May 5,774 5,774 4,526 4,526 June 5,856 5,856 4,553 4,553 July 5,622 5,622 5,118 5,118 August 5,735 5,735 4,539 4,539 September 5,719 5,719 4,755 4,755 October 5,695 5,695 4,756 4,756 November 5,732 5,732 4,800 4,800 December 5,620 5,620 5,070 5,070 January 6,007 6,007 5,129 5,129 February 6,477 6,477 5,179 5,179 March 6,299 6,299 5,682 5,682 Gross distribution for the year 70,321 70,321 58,392 58,392 Difference between net revenue after taxation and the distribution paid is analysed as follows: Net revenue after taxation for the year Schroder UK Real Estate Fund Schroder UK Real Estate Fund 65,083 65,083 54,356 54,356 Expenses taken to capital 5,238 5,238 4,036 4,036 Gross distribution 70,321 70,321 58,392 58, Taxation The Fund qualifies as a Property Authorised Investment Fund (PAIF) for tax purposes. Accordingly, the income generated by its real estate investment business will be exempt from tax. Any dividend income it receives from United Kingdom companies or, in general, from non-united Kingdom companies will also be exempt from tax. The Fund would, however, be subject to corporation tax in the event that there should be a net balance of other income, which will generally consist of interest but could include other real estate income, less deductible expenses (including interest distributions). Under the PAIF regulations, the Fund makes real estate income distributions and interest distributions net of basic rate income tax except where the investor is entitled to gross payment. As at the Fund had two authorised share classes: the gross share class on which distributions were made without deduction of income tax, and the net share class of which distributions were made with deduction of income tax.

44 42 Schroder UK Real Estate Fund Audited Consolidated Financial Statements for the notes to the financial statements (continued) Schroder UK Real Estate Fund Schroder UK Real Estate Fund (a) Analysis of charge in period Corporation tax at 20% Current tax charge (b) Factors affecting the current tax charge for the period Taxable income is charged at the standard rate of corporation tax for authorised funds (20%). The reconciliation of the income statement tax charge to the standard rate on profits before tax is set out below: Schroder UK Real Estate Fund Schroder UK Real Estate Fund Total return before distribution 274, , , ,618 Corporation tax at 20% 54,887 54,887 32,324 32,324 Effects of: Revenue not subject to taxation (54,887) (54,887) (32,324) (32,324) Current tax charge for the year (note 8a) (c) Provision for deferred tax There was no provision required for deferred tax at the balance sheet date. 9. Investment in subsidiaries Percentage ownership by SREF at 31 March 2015 Valuation at 1 April 2014 Capital contributions Capital distributions Net capital gains Valuation at 31 March 2015 Croydon Gateway Unit Trust ,913 31,015 13,806 92,734 Hackbridge Unit Trust ,406 7,266 40,672 Lombard Street Unit Trust ,013 4,281 29,294 Capital Point Slough Unit Trust ,262 9,262 Hackbridge Limited (134) ,880 31,015 (134) 25, ,114 At, SREF s holding in each of Hackbridge Unit Trust (HackUT), Lombard Street Unit Trust (LSUT) and Capital Point Slough Unit Trust (CPSUT) stood at 99.0%. The Fund owns two shares in Hackbridge Limited representing 100.0% of the shares in issue. Hackbridge Limited is a Jersey registered limited Company incorporated on 1 May Hackbridge Limited holds the remaining 1.0% interests in HackUT LSUT and CPSUT. The Fund s holding in Croydon Gateway Unit Trust stood at 98.0%, with a minority interest of 2.0% held by an external investor.

45 Schroder UK Real Estate Fund Audited Consolidated Financial Statements for the Debtors Rent receivable net of provision for doubtful debts Distributions due from collective investment schemes as at Schroder UK Real Estate Fund as at as at Schroder UK Real Estate Fund as at 2,937 2,683 2,286 2,215 3,643 4,050 2,238 2,470 Tenant deposits 6,460 6,445 6,352 6,352 UITF 28 accrued rents receivable UITF 28 unamortised lease incentives Monies due from managing agents 5,929 5,468 3,436 3, ,881 1,155 3,459 3,311 2,616 2,658 Monies due from associates 7,428 Other debtors and prepayments 3,255 2,972 3,265 3,080 Total Debtors 34,033 25,750 22,074 21,366 Monies due from associates relates to loans between Croydon Gateway Limited Partnership and Ruskin Square Phase One LLP. 11. Cash and bank balances as at Schroder UK Real Estate Fund as at as at Schroder UK Real Estate Fund as at Cash and bank balances 44,628 25,126 30,898 23,547 Deposits 125, ,000 50,000 50,000 Total Cash and bank balances 169, ,126 80,898 73, Creditors as at Schroder UK Real Estate Fund as at as at Schroder UK Real Estate Fund as at Trade creditors Deferred Rental Income 13,153 12,545 12,515 12,515 Tenant deposits 6,460 6,445 6,352 6,352 VAT payable 1,770 2,054 1,546 1,546 Amounts due on properties 1,932 1,070 2,925 2,502 Accrued SREF investment management fee Other creditors and accruals ,835 1,998 5,866 4,564 Total Creditors 27,168 25,130 29,960 28,235

46 44 Schroder UK Real Estate Fund Audited Consolidated Financial Statements for the notes to the financial statements (continued) 13. Long term liabilities loans The Homes and Communities Agency Loan was paid back in full on 6 March Contingent liabilities and commitments As at, the Fund had committed 26.8million to the development of a series of Care Homes, with 25.8million having been spent to date. As at 13.0million had been spent, and the commited balance was 26.8million. 15. Reconciliation of movement in net cash Schroder UK Real Estate Fund Cash and cash equivalents As at 1 April ,898 73,547 Cashflows 88,730 76,579 As at 169, , Reconciliation of net revenue before taxation to net cash inflow from operating activities Year ended Schroder UK Real Estate Fund Year Ended Year ended Schroder UK Real Estate Fund Year ended Net revenue before taxation 65,083 65,084 54,356 54,356 (Increase)/decrease in debtors (11,960) (4,384) 7,122 6,496 (Decrease)/increase in creditors (2,792) (3,104) 9,624 5,746 As at 50,331 57,595 71,102 66, Related parties (a) Fees receivable by the Depositary As depositary, Natwest plc is entitled to a fee equivalent to % per annum on the first 500million of the Fund s Net Asset Value (NAV) and % per annum on any excess over 500million of the Fund s NAV (2014: no change from 2015). (b) Fees receivable by the ACD and the Investment Manager The remuneration of the ACD and the Investment Manager is set out within the Company Prospectus. These fees are charged in full to the Statement of Total Return. 50% of such fees are allocated to capital and not deducted from distributions for the purpose of determining the value of such distributions. The Investment Manager also earns commission from individual shareholders of the Company which utilise its matched bargain service. Such commission is not included in these financial statements.

47 Schroder UK Real Estate Fund Audited Consolidated Financial Statements for the 45 (c) Outstanding balances were due to the following which are considered to be related parties under FRS8: There is no difference between the Fund and the level. Schroder UK Real Estate Fund as at Schroder UK Real Estate Fund as at Natwest plc Schroder Real Estate Investment Management Ltd Schroder Unit Trusts Limited (d) Distributions: gross distributions were receivable in the year from the following investments which are considered related under FRS8 as they are managed or administered by an associate of the ACD. There is no difference between the Fund and the level. Schroder UK Real Estate Fund Year to Schroder UK Real Estate Fund year to Bracknell Property Unit Trust 1, Motor Retail Limited Partnership 1,722 1,513 Lombard Street Unit Trust Capital Point Slough Unit Trust West End of London Propery Unit Trust City Tower Unit Trust 2,451 Store Unit Trust 25 Gilbran Property Unit Trust 637 Hercules Unit Trust 221 (e) Schroder UK Real Estate Fund Feeder Trust The Manager of the Schroder UK Real Estate Fund Feeder Trust, which invests solely into the Schroder UK Real Estate Fund, is part of the same group as the ACD of the Schroder UK Real Estate Fund. During the year to, the Schroder UK Real Estate Fund Feeder Trust was paid gross distributions totalling 2.8million (2014: 1.4million). The Schroder UK Real Estate Fund Feeder Trust incurred an audit fee during the year to 31 March 2015 of 15,450 (2014: 15,450), which is borne in full by the Schroder UK Real Estate Fund. 18. Financial instruments The primary financial instruments held by the Fund and at a level at were property related investments, cash, short term assets and liabilities to be settled in cash. The Fund did not hold, and was not a counterparty to, any derivative instruments either during the year or at the year end. The policies applied to the management of the financial instruments are set out in note 3. The fair values of the Fund s and the s assets and liabilities are represented by the values shown in the balance sheet on page 37. There is no material difference between the value of the financial assets and liabilities, as shown in the balance sheet, and their fair value.

48 46 Schroder UK Real Estate Fund Audited Consolidated Financial Statements for the notes to the financial statements (continued) 19. Portfolio transaction costs There is no difference between the Fund and the level with respect to the portfolio transaction costs. Analysis of total purchase costs Purchases in year before transaction costs For the year ended For the year ended 189, ,311 Stamp Duty 1,110 9,157 Legal Fees 111 1,108 Agents Fees 278 2,130 Other Fees Total purchase costs 1,531 12,994 Gross purchase total 191, ,305 Analysis of total sales costs Gross sales in year before transaction costs For the year ended For the year ended 62, ,435 Legal Fees Agents Fees 463 1,009 Other Fees 0 36 Total sales costs 673 1,236 Total sales net of transaction costs 61, , Subsequent events On 23 June 2015 the Schroder UK Real Estate Fund acquired a portfolio of assets in Hammersmith for 153million.

49 Schroder UK Real Estate Fund Audited Consolidated Financial Statements for the 47 Distribution table Monthly distributions payable for the year ended in pence per unit. There were two share classes at, a gross share class and a net share class. Gross Income Shares Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Gross revenue Income tax Net revenue Final distribution payable Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Gross Income Shares Gross revenue Income tax Net revenue Final distribution payable Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Net Income Shares Gross revenue Income tax ( ) ( ) ( ) ( ) ( ) ( ) Net revenue Final distribution payable Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Net Income Shares Gross revenue Income tax ( ) ( ) ( ) ( ) ( ) ( ) Net revenue Final distribution payable

50 48 Schroder UK Real Estate Fund Report for the Unaudited general information General Information SCHRODER UK REAL ESTATE FUND (the Fund ) is an investment company with variable capital incorporated in England and Wales under registered number IC and authorised by the FSA with effect from 31 July The Fund has an unlimited duration. Shareholders are not liable for the debts of the Fund. Accordingly, the information in this document is directed at eligible counterparties, authorised persons, professional clients, existing investors in the Fund and clients and newly accepted clients of other firms within the Schroder, where appropriate steps have been taken to ensure that investment in the Fund is suitable, where necessary. This material should not be relied upon by persons of any other description. In any case, a recipient who is in any doubt about investment in the Fund should consult an authorised person who specialises in investments of this nature. The Fund s past performance is not a guide to the future. Liquidity The Fund invests in real estate, the value of which is generally a matter of a valuer s opinion. There is no recognised market for shares in the Fund and an investment is not readily realisable. It may be difficult to trade in the shares or to sell them at a reasonable price. The price of shares and the income from them may fluctuate upwards or downwards and cannot be guaranteed. Socially Responsible Investment and Sustainability Responsible Real Estate Investment is at the heart of our investment philosophy. We believe that a successful responsible investment programme should deliver enhanced returns to investors, improved business performance to tenants and tangible benefits to local communities and wider society. A copy of Schroders Policy can be found at com/en/uk/realestate Purchase of Shares Shares can be purchased in the Fund through the primary or secondary market. Depending on the type of investor, the purchase of shares will be through either the Schroder UK Real Estate Fund or the Schroder UK Real Estate Fund Feeder Trust. Corporate bodies (excluding nominees acquiring shares) may only invest in the Schroder UK Real Estate Fund indirectly through the Feeder Fund. Shares in the Schroder UK Real Estate Fund can be transferred between corporate and non corporate bodies through the Feeder Fund on the secondary market. The Dealing Day for subscription for shares is the first business day of each month. Application forms, top-up forms and cleared funds must be received by the Registrar before the cut-off point for subscriptions. Forms received after this time will be carried forward to the following dealing day for subscription. Applicants may amend or withdraw an application form or a top up form at any time up until the cut-off point for subscriptions. Thereafter, applicants have no right to amend or withdraw their application. Settlement is due by midday on the business day before the relevant dealing day for subscription. Applicants are required to transfer funds via CHAPS or another form of electronic payment unless the Registrar agrees to an alternative method of payment. The Investment Manager has the power to limit the creation of new shares having regard to the amount of unallocated cash being held in the Fund from time to time. Details of the investor s waiting list is to be found in the SREF prospectus in section 2.1 and has been summarised below: Applicants may be placed on a waiting list prior to the issue of Shares. The ACD may elect to limit the number of shares issued on any dealing day for subscription, and if so, shares will be allocated to valid applicants pro rata to the number of shares applied for. Where applicants do not receive shares to satisfy their full application the unallocated application will be carried forward to the next dealing day for subscription at which shares are issued. Where the issue of shares is limited at any dealing day for subscriptions applicants may instruct the ACD to seek to arrange for the shortfall in the application to be met on the secondary market for such time until the next dealing day for subscription. If the shortfall in shares applied for is not met on the secondary market, shares will be issued in line with the allocation made at the dealing day for subscription on which shares are issued, with orders carried over from previous dealing days taking priority. There were no redemption notices received at that were not settled. Further, there were no suspension of valuations and/or redemptions at. Redemption of Shares Redemption forms must be received by the Registrar before the relevant cut off point for redemptions, that is midday on the date falling three months prior to the business day before the relevant dealing day for redemption. Once a redemption form has been received, this can be settled either by cancelling shares or placing on the secondary market. Either way, redeeming shareholders will only receive the prevailing bid price. Valid instructions will be processed by the Registrar at the bid price on the relevant dealing day for redemption (that falls three months after the relevant cut-off point for redemption), except in the case

51 Schroder UK Real Estate Fund Report for the 49 where dealing has been suspended as set out in section 2.21 of the Prospectus. Where the ACD considers it to be in the best interests of the shareholders, the ACD may defer redemptions on a dealing day to any one or more of the subsequent eight dealing days for redemption i.e. the deferral period is a maximum of 24 months from the original dealing day for redemption. A redemption will be deferred within this timeline to a dealing day for redemption when the Fund has sufficient liquidity to enable it to meet the redemption, providing it is in the best interests of the shareholders to do so. The ACD can, in extreme market circumstances, as set out within section 6.5 of the Prospectus, fair value any assets within the Fund to a realisable value. Secondary Market The ACD has appointed the Secondary Market Facilitator, SMF (Schroder Real Estate Investment Management Limited) to facilitate transfers of shares on the secondary market in accordance with the following: Shareholders or potential investors wishing to buy shares on the secondary market should complete an application form (potential investors) or top-up form (existing shareholders), detailing their secondary market requirement in the investment details section; Shareholders wishing to sell shares should complete a redemption form specifying they wish to sell via the secondary market. All completed forms should be provided to the SMF via the Registrar; and, Potential investors should also provide the Registrar with any documents required for anti-money laundering purposes. The forms are available from or from the Investment Manager. The SMF will not charge a redeeming shareholder commission, but the redeeming Shareholder will be responsible for costs in connection with the transfer of its shares such as the preparation and execution of relevant documentation and any taxation. The SMF, at its discretion, has the right to charge the buyer commission at a rate of 0.20 per cent applied to the net consideration, subject to a minimum of 50 for each and every trade. Where applicable, stamp duty reserve tax is payable by the buyer on the net consideration at the prevailing rate. The SMF operates a share matching service between sellers and buyers of shares. A waiting list of sellers and buyers is kept and matching operated on the following basis: a. First, price: shares available from sellers seeking the lowest price per share will be offered to buyers by order of the date of receipt of the relevant form. b. Secondly, notification date: Where there are multiple sellers looking to sell for any given price, preference will be given to sellers by order of the date of receipt of the relevant form. Where there are multiple buyers looking to buy at the same price, for which relevant forms were received on the same date, matching will be allocated pro rata to the number of shares applied for. In all cases matching will be allocated subject to any minimum trade requirements stipulated by a party. The SMF, when matching shares may apply a minimum economic trade at its discretion which is shares to the value of 50,000 or such other amount as the SMF determines from time to time. The SMF will arrange the exchange of shares between sellers and buyers in the first 12 business days of every month. The SMF will contact the seller and buyer to obtain confirmation that the terms of the arrangement are acceptable before proceeding with the transaction. The seller and buyer are required to confirm acceptance of the terms by return within 24 hours. Investers may wish to note that other matching services are provided by third party brokers. All trades are however subject to registration on the terms set out above. Secondary market activity On the secondary market units valued at 97.1million were traded between investors over the 12 month period. This represents 5.0% of the shares in issue at the end of the period under review. Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Source: Schroders March 2015

52 50 Schroder UK Real Estate Fund Report for the Unaudited General information (continued) Fund Codes Code Bloomberg SCEXPUT LN ISIN GB00B8215Z66 Sedol B8215Z6 Prices for the Schroder UK Real Estate Fund can be obtained from Distributions The income of the Fund, after deduction of all expenses and liabilities (actual, estimated or contingent) of the Fund including any deductions in respect of taxes, is distributed to shareholders in proportion to the number of shares held by them. Distributions are calculated on a monthly basis, with the distributions paid to shareholders on the last working day of the following month. During the period all distributions were paid gross. The prospectus does not provide the ability for either the ACD or Investment Manager to defer or suspend distributions. Schroder UK Real Estate Fund Feeder Trust The Schroder UK Real Estate Fund Feeder Trust is an umbrella unit Trust whose objective is to achieve a blend of income and capital growth by investing solely in the Schroder UK Real Estate Fund. Investors into the Feeder Trust receive monthly distributions. The Feeder Trust is subject to corporation tax on property and interest distributions it receives from the Schroder UK Real Estate Fund at a rate of 20%. Management fees and other expenses Details of fees and expenses incurred by the Fund are set out within Section 5 of the Fund Prospectus and further in notes 6 and 16 of the audited Report and Financial Statements. In summary: The Annual Management Charge is 0.30% of NAV and 0.40% of the Gross Asset Value (GAV) of directly held property and capital monies (made up of 0.05% of NAV payable to the ACD and 0.25% of NAV and 0.40% of GAV payable to the Investment Manager. The annual management charge is allocated 50% to income and 50% to capital. The Depositary receives % per annum of the first 500m of NAV and % of the balance. The Standing Independent Valuer will receive an initial fee of 0.03% of the first valuation of a property on purchase, capped at 20,000 and thereafter a fee of 0.03% of the valuation per annum. The Registrar is paid a transaction based fee subject to a minimum of 75,000 per annum. The Investment Manager bears the cost of employing managing agents to collect rents and perform the usual property manager s duties as delegated by the Investment Manager. Bid/Offer spreads As at, the offer spread was 4.51% premium to NAV. The bid spread was 1.48% discount to NAV. Our key principles when setting bid and offer prices are to review prices regularly, to treat shareholders equitably and to adopt a consistent approach. Our assumption, when calculating the offer price, is that new money will be invested in line with strategy, principally into direct property at full purchase cost. We make an allowance for capital expenditure to maintain the existing portfolio. Capital expenditure may vary but in normal circumstances is considered to be a minimum of 10% of new money. The bid price assumes full sale costs are incurred on direct assets, while indirect assets are marked to market. Cash is priced at a zero spread. Valuation and Pricing policy A detailed explanation of our pricing methodology is contained within the Prospectus and further information is available upon request from the Investment Manager. The Fund Prospectus, along with the notes to the financial statements, sets out: the methodology used to value the properties and other investments of the Fund and the valuation of direct properties having to be undertaken monthly. It should further be noted that the Fund s investment in the Henderson UK Retail Warehouse Fund is held at a stale price one month in arrears on account of the receipt of the NAV of this investment being received after the valuation date of the Fund. For the valuation of the Fund s investment in WELPUT, an unadjusted price is used in accordance with market practice. For the valuation of the Fund s investment in UNITE a capital only price is taken which is issued by the UNITE Fund Manager. AREF Code of Practice The Fund is a member of the Association of Real Estate Funds (AREF). The aim of the Code of Practice is to achieve high standards of transparency across the unlisted sector and promote consistency of reporting to allow investors to compare different funds. The Fund completes the AREF/ IPD Pooled Property Questionnaire each quarter, which is made available to all investors and which forms the basis of its entry in IPD Property Fund

53 Schroder UK Real Estate Fund Report for the 51 Vision handbook. SREF s page on the AREF website can be found at The Investment Manager believes that these Report and Financial Statements, together within supporting documents referred to herein, achieves the AREF standard of Best Practice for reporting. Fund documentation A copy of all Fund documentation including the prospectus and regular reports is available at com/sref or available from the Investment Manager upon request. A copy of Schroders AAF controls report which has been externally audited is available from the Investment Manager upon request. Conflicts of interest The Investment Manager is responsible for identifying all conflicts of interest and for referring such matters to Schroder Compliance or such other parties in accordance with the s conflict of interest policy. Disaster recovery Schroder has a disaster recovery plan which is audited, externally, on an annual basis as part of the AAF controls report. Additional Information The Fund may be suitable for professional investors who wish to hold a direct property portfolio but do not want to commit the considerable executive time and expertise necessary to organise and supervise such a portfolio and/or are not of a sufficient size to obtain a viable property portfolio with an appropriate spread of risk. The property in the Fund is professionally and actively managed by chartered surveyors employed by the Investment Manager, Schroder Real Estate Investment Management Limited. We welcome the opportunity to meet shareholders, potential shareholders and their advisers to explain more fully the strategy and progress of the Fund. Please contact the Investment Manager who can also provide copies of the Prospectus, application forms and latest share prices, at the address below. Schroder UK Real Estate Fund Schroder Real Estate Investment Management Limited 31 Gresham Street London EC2V 7QA Tel: +44 (0) Schroder Real Estate Investment Management Limited is authorised and regulated by the Financial Services Authority Manager Contacts For general information and queries on secondary market availability, please contact: Olivia Pember Product Manager olivia.pember@schroders.com +44 (0) James Lass Fund Manager james.lass@schroders.com +44 (0) For valuations, to place trades, tax reclaims, dividend/distribution information, please contact the Registrar: Northern Trust Global Services Ltd. Schroder Unit Trusts Limited Schroder UK Real Estate Fund PO BOX 3733 Wootton Bassett Swindon SN4 4BG Tel: +44 (0) Fax: +44 (0) schrodersenquiries@ntrs.com

54 52 Schroder UK Real Estate Fund Report for the Key service providers Authorised Corporate Director Schroder Unit Trusts Limited 31 Gresham Street London EC2V 7QA Investment Manager Schroder Real Estate Investment Management Limited 31 Gresham Street London EC2V 7QA Schroder Unit Trusts Limited and Schroder Real Estate Investment Management are authorised and regulated by the FCA. Registrar Northern Trust Global Services Limited 50 Bank Street Canary Wharf E14 5NT Depositary National Westminster Bank plc 135 Bishopsgate London EC2M 3UR Standing Independent Valuers BNP Paribas Real Estate Advisory & Property Management Limited 90 Chancery Lane London WC2A 1EU Allsops LLP 33 Wigmore Street London W1U 1BZ Knight Frank LLP 55 Baker Street London W1U 8AN Legal Adviser Eversheds LLP One Wood Street London EC2V 7WS Independent Auditors PricewaterhouseCoopers LLP 7 More London Riverside London SE1 2RT Real Estate Managers Jones Lang LaSalle 40 Berkeley Square Bristol BS8 1HU Deloitte Real Estate Asset and Property Management Abbots House Abbey Street Reading RG1 3BD Changes to key service providers during the year The Schroder UK Real Estate Fund changed its name from the Schroder UK Property Fund with effect from 20 March There were no other changes to key service providers during the year. The terms of all appointments including remuneration and termination provisions can be made available upon request.

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