Investment Update SLI UK Real Estate Fund Quarterly Update Q3 2017

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1 The SLI UK Real Estate Fund quarterly update provides an overview of the market; fund performance, positioning and portfolio changes; and the fund manager s outlook for the months ahead. Economic Overview and Property Market Although forecasts for economic growth remain stronger than immediately after the Brexit referendum, economists generally expect a modest further slow-down in GDP growth for the UK economy as we move into Despite the expected moderation in the economy, returns from All Property remain robust at 10.4% p.a. in the twelve months to end September. This compares to 5.1% p.a. in the year to end June. Furthermore, UK property has recovered all of the capital losses incurred immediately post the Brexit referendum. Over the twelve months to end September, capital values rose by 4.5% p.a. against a decline of 0.5% p.a. in the twelve months to end June. Rental growth remains robust and rents have increased by 1.8% p.a. over the past year, up from the 1.4% p.a. increase in the previous period. As for the equity markets, the FTSE All Share and the FTSE 100 total returns rose by 2.1% and 1.8% respectively over the period 30/06/17 to 30/09/17. For listed real estate equities, total returns were static over the quarter. Retail was the laggard sector over the year to end September 2017, recording total returns of 7.6% p.a., this is despite returns in the sector being significantly ahead of the total returns delivered in the twelve months to end June. Retail capital growth continues to be the weakest across sectors also with values increasing by 1.4% p.a. over the twelve months to end September. Rents remained largely stable over the last twelve months, but within sectors, retail rental growth, at 0.6% p.a., continued to be considerably weaker than the other sectors. It was below office rental growth at 1.1% p.a. and industrials at 4.9% p.a. in the twelve months to end September. Despite muted earnings growth and inflationary pressure on disposable income, UK retail sales have held up relatively well. Volumes remain ahead of values as a result of the rising inflationary pressures that have materialised as a consequence of sterling s recent depreciation. The office sector remains a mixed picture with performance continuing to be relatively subdued in some parts of the market. Investment activity is much the same with elevated activity in the capital but fewer transactions in the regional markets. In terms of performance, the office sector is lagging the wider All Property performance year to date. Performance of offices remains ahead of the retail sector though although it is below industrial performance by some way. Economic Overview and Property Market For Central London, performance in the City is holding up better than for the West End. Both segments performance, however, is below All Property over the year to date. Rents have also started to fall in the capital with the declines currently more pronounced in the West End compared to the City. For investment, Central London continues to command a large share of overall investment, accounting for 35% of overall activity in 2017, this is up on the 27% share in Outside the capital, activity is more subdued with the rest of the UK s share of activity currently at 10% which is below the 16% level in Overseas investors remain a key component of the Central London investment demand attracted by the relative pricing and also the recent elevated currency depreciation. Overseas investors have accounted for 72% of all activity in the capital year to date; this is up from 66% last year. Central London activity continues to be boosted by several large deals with the sale of 20 Fenchurch Street (The Walkie Talkie) for 1.3bn being one of the largest deals over the current quarter. The industrial sector has continued to demonstrate its strength, generating a total return of 18.6% p.a. in the twelve months to end September. Industrial values continued to rise strongly delivering a capital gain of 12.2% p.a. Rental growth in the sector outperformed the market as a whole significantly recording growth of 4.9% p.a. over the same time frame. The differentials between South East and Rest of UK remained, with the South East industrial region delivering an impressive total return of 21.4% p.a. opposed to 14.6% p.a. for rest of the country. Year to date take-up levels remained healthy in comparison to historic standards, although they represented a fall from record peaks in recent years. For multi-let space, demand for trade counter and last mile delivery have been the driver whilst a resurgence of manufacturing, particularly in the Midlands have dominated the market for the logistic sector. Going forward, investor interest in the industrial sector will continue given the security of long-lease income, secure covenants and the structural change taking place caused by e-commerce and automation. The sector s market cycle is however, relatively well advanced, characterised by unusually high investment demand. The pricing is likely to remain competitive, but the focus remains on resilient income in good locations with positive fundamentals. Chart 1: Post BREXIT Property Performance Chart 2: Net Investment in UK Property by Investor Type 12 Month % Change Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 All Property Rental Growth All Property Total Returns All Property Capital Growth Value of UK Commercial Investment Purchases ( m) 6,000 4,000 2, ,000-4,000-6, Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q3 Institutions Quoted Property Companies Private Property Companies Overseas Investors Private Individuals Occupiers Financial/ Banks Others Source: IPD, Standard Life Investments Source: Propertydata, Standard Life investments

2 Fund Positioning Top 10 holdings Fund % Top 10 tenants Investment Update % Contracted Rent Leamington Shopping Park, Leamington Spa 4.96 Sainsburys / Argos 3.53 Monument Mall, Newcastle Upon Tyne 3.89 B&Q / Screwfix Church Street, Birmingham 3.11 Office Depot International 2.54 The Old Dairy, South Ruislip 2.98 Tesco 1.96 Isis Reach, Belvedere 2.71 Asda 1.95 Royal Avenue House, London 2.66 Allies & Morrison 1.67 The Gateway Retail Park, Beckton 2.52 DSG Retail 1.62 io Centre & Tradeway, Sutton 2.46 Weatherford Charlotte Street, London 1.99 UK Insurance /89 Southwark Street, London 1.88 T P Bennett 1.42 Fund Facts Fund size Average lot size Average lease length Number of properties 87 Number of tenancies 589 2,446.0m 21.75m 8.8 years Distribution yield 3.79%* Net current assets 22.63%^ Vacancy rate 6.32% *Yield at 30/09/17. Yields are historic based on the preceding 12 months distributions as a percentage of the midmarket unit/share price at date shown. Yields will vary, do not include any preliminary charges, and investors may be subject to tax on distributions. Based on institutional income shareclass. ^ The Net Current Assets figure includes cash or cash equivalents and any short term assets and liabilities within the fund. % Contracted Rent Less than 5 years 41.6 Between 5 and 10 years 33.1 Between 10 and 15 years 12.7 More than 15 years 12.7 Performance % growth 3mths 6mths 1 yr 3 yrs* 5 yrs* SLI UK Real Estate Fund IA Property Sector (UK Direct)# Data to end September, Fund performance net of Platform 1 fees. # Peer Group comprises 9 comparable UK commercial property funds in the IA Property Sector. *Returns are annualised. Sector allocation Geographical breakdown Offices Industrial Retail Other % SLI UK Property Fund Rest of London South East West Midlands Scotland North West & Merseyside North East London West End South West Eastern Mid-Town London East Midlands Wales City of London Yorkshire and Humberside %

3 Portfolio Update Transaction and Asset Management Activity During the quarter, we sold a BMW dealership in Stockport, Greater Manchester, for 8.8 million. We also completed the leasehold disposal of two further residential units located above the commercial holding at Hampstead High Street, London, realising a further 1 million. On-going asset management activity remains a key focus, as we seek to implement initiatives aimed at income and value enhancement. In the retail sector we have commenced the development of parade of three units at Gateway Retail Park, Beckton. The units have been pre-let to Dominos, Subway and Creams and on completion will generate a further 146,750 per annum of income and an enhanced capital value. Elsewhere in the retail sector we have achieved uplifts on rent at review with GAP and Hudson Flooring at Bligh s Meadow, Sevenoaks; a new lease with Farrow & Ball franchisees at Tudor Arcade, Dorchester and an agreement for lease with Absurd Bird for a 20 year term at an initial rent of 150,000 per annum at Stock Exchange Court, Glasgow. In the office sector Cor Financial Solutions have taken a 5 year lease at Cornhill in the City of London at an initial rent equating to psf; the final rent review in this cycle has been agreed at Ellenborough House, Cheltenham reflecting psf representing an uplift of c.20% and further letting activity has been achieved at 1 Marsden Street, Manchester as detailed in our Property in Focus opposite. The industrial sector continues to provide the strongest investment returns and asset management opportunities. At the Felbridge Centre, East Grinstead a new lease of unit 4 has established a new headline rent for the estate of 9.50 psf demonstrating rental growth of c. 10% over the short term. At Masthead Industrial Estate, Dartford, the Fund completed a renewal with Colorcon on a 10 year lease at an initial rent of 423,000 per annum ( 8.50 psf), an uplift of 20.9% on the previous rent and at Southern Cross Distribution Park, Southampton, the rent review on Building 210 has been documented at 299,570 per annum, an increase of c. 16% on the previous passing rent. We continue to analyse new investment opportunities that provide an attractive blend of high-quality income and asset management opportunities. Performance Overview The Fund returned 1.9% over the three months to the end of September, outperforming the peer group (*1) return of 1.5%. Both the Fund s unit price performance and the peer group returns will have been distorted over the longer term due to various pricing basis changes applied to a section of the contributors and therefore may not represent a true like for like performance measure at this stage. The Fund remained on the Bid price as at the end of September. Strong positions within the industrial sector, particularly an overweight position to South East Industrials were advantageous to returns. As capital growth through market yield compression slows, asset management will become increasingly important in driving returns. (*1)Source: Standard Life Investments / Morningstar. Fund returns net of Platform 1 fees. Peer group comprises 9 comparable UK commercial property funds in the IA Property Sector. Property in Focus Asset Management 1 Marsden Street, Manchester Grade A multi tenanted office building extending to 67,750 sq ft in the heart of Manchester s CBD Over transactions comprising 4 new lettings and 2 lease renewals representing c.40% of the net lettable office floor area have been completed. The building is now fully let with a new head line rent of 30 psf being established. The asset management activity has significantly enhanced the income profile and generated additional capital growth of c.5%. Very Heavy Heavy Neutral Light Very Light Alignment to House View: Q Sector South East Industrial Provincial Industrial Distribution warehouses (SE ex Build to Rent (Rest of UK) Distribution warehouses ( Distribution warehouses (Rest of UK) Major City Prime Shops Leisure Parks Grade A Rest UK Offices Rest of South East Offices (ex Build to Rent ( Hotels Regional Shop Centres (>50k m²) Retail Fashion Parks Medium Town Prime Shops Retail warehouses Bulky Goods Supermarkets Solus RW Outer London Offices Other Rest of UK Offices Business Parks Grade A City Offices District Shop Centres (<50k m²) West End & Midtown Offices Inner London Offices Secondary /Small Shops Grade B City Offices Secondary Shopping Centres House View Forecasts UK Real Estate Fund 6.6% 27.8% 27.6% 24.5% 8.7% -0.7% 11.2% Other 0% Source: Standard Life Investments, 30 September Figures above reflect forecast % annual total returns over the next 3 years. Projected returns are unleveraged, not risk adjusted and do not reflect the inclusion of transaction costs. We do not expect the structure of all our property funds to exactly match the above as there are stock specific, transaction costs and liquidity issues that may work against each fund achieving the ideal structure. Figures above exclude cash and cash like assets.

4 Forecasts and Outlook UK real estate continues to provide an elevated yield compared to other assets and the market has fully recovered the capital value losses that were sustained during the Brexit upheaval last year. In the current environment, the steady secure income component generated by the asset class is likely to be the key driver of returns going forward. From a sector perspective, we continue to favour industrial and logistics property, although pricing on prime assets is likely to remain competitive as the stable income component and positive market fundamentals remain appealing. We continue to expect Central London offices to be the most impacted sector from EU withdrawal given the linkages to European markets via cross border trading. Prime/good quality assets with stronger tenants on longer leases are likely to provide the best opportunities in the weaker economic environment we anticipate as we head into UK Sector Outlook Q Year View Very Heavy Heavy Neutral Light Very Light SE Industrial Provincial Industrial Distribution Wareh s (SE ex Build to Rent (Rest of UK) Distribution Wareh s ( Distribution Wareh s (Rest of UK) Major City Prime Shops Leisure Parks Grade A Rest UK Offices Rest of South East Offices (ex Build to Rent ( Hotels Regional Shop Centres (>50k m²) Retail Fashion Parks Medium Town Prime Shops Retail Wareh. Bulky Goods Supermarkets Solus RW Outer London Offices Other RoUK Offices Business Parks Grade A City Offices District Shop Centres (<50k m²) West End & Midtown Offices Inner London Offices Secondary /Small Shops Grade B City Offices Secondary Shopping Centres 6.6% 3.2% -0.7% Source: Standard Life Investments Note the forecast projections shown are three year annualised forecasts covering the period of Q

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