For Investment Professionals only. M&G European Property Fund Investing responsibly

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1 For Investment Professionals only. M&G European Property Fund Investing responsibly

2 2 Our approach to Responsible Property Investment M&G Real Estate has a responsible property investment (RPI) strategy which seeks to ensure that our activities enrich the lives of the people and communities we operate in and by doing so create value for our investors, society and the environment. Our RPI strategy has four focus areas: Socio-economic benefit; Environmental excellence; Health, wellbeing and occupier experience; Smart, secure and connected. ENVIRONMENTAL EXCELLENCE SMART, SECURE AND CONNECTED Enrich the lives of people and communities by creating and managing world-class places delivering positive value for our investors, society and the environment SOCIO-ECONOMIC BENEFIT OUR APPROACH IS UNDERPINNED BY STRONG FOUNDATIONS HEALTH, WELLBEING & OCCUPIER EXPERIENCE ENHANCE & TRANSFORM Being at the forefront of identifying and influencing the drivers of change and shaping our investment strategies accordingly, we will continue to deliver strong returns for our investors in the long term. SAFEGUARD & FUTURE-PROOF Combining innovation with best-in-class management, we will set the bar for exceptional workplaces, homes and leisure destinations which have enduring appeal and benefit local communities and economies around the world.

3 3 Implementing the RPI strategy in the M&G European Property Fund Investors in the M&G European Property Fund (the Fund ) are increasingly interested in how the Fund manages RPI. As part of the development of the corporate RPI Strategy, we have also developed a complementary strategy for the Fund. Against each of the four key impact areas, we have set Fund specific 2020 objectives to drive RPI performance, as well as progress towards the overall M&G Real Estate RPI vision. The strategy and objectives will also help drive performance of the Fund in GRESB (see page 9 for details), which is an increasingly important sustainability benchmark for investors Fund RPI objectives Environmental excellence Secure green building certification for 50% of assets in the Fund (by value) Achieve a 20% reduction in energy intensity and associated GHG emissions Achieve a 10% reduction in water intensity (excluding sub-metered for tenant use) Divert 95% of waste from landfill and promote and increase recycling and reuse Health, wellbeing and occupier experience 500,000 people reached by our health, wellbeing and inclusivity programmes Implementation of an occupier engagement strategy (including an occupier satisfaction survey) Ensure an exceptional standard of safety and security in all the working environments we control Socio-economic benefit Six places to have benefited from community programmes Gather data to enable us to evaluate the socio-economic benefits of our investment activities Smart, secure and connected Development of a digital and physical connectivity framework to apply to our asset planning process Update our Urban Connectivity research and utilise its findings as part of our investment decision-making Within this report, we provide some examples of the initiatives that we have already undertaken, or that are planned, to deliver these goals. I hope you enjoy reading this report and finding out more about our new strategy. As always, we welcome any feedback you may have. David Jackson, Fund Manager

4 4 Environmental excellence Driving environmental improvements at our assets reduces operating costs, carbon emissions and the use of natural resources. This helps attract and retain occupiers, and ensures that we appropriately manage environmental risks. The Fund has procured the services of a third party environmental data specialist, Verco Advisory Services (Verco), to collect environmental data (energy, carbon, water, waste) on the assets in the portfolio. This independent analysis of data ensures robust and accurate reporting of data and allows us to measure and validate performance against our targets. In addition, this method enables us to produce INREV compliant reporting standards to our investors. All data qualifying notes and the underlying asset level data is available on request. Green building certification Currently 20% of assets in the Fund (based on December 2017 valuations) have green building certification (e.g. BREEAM, LEED, HQE), either achieved on construction or on their in-use performance. We are committed to enhancing asset value and also to improving the environmental performance of our portfolio, and accordingly, we continue to investigate and identify candidate assets to receive green building certifications. Once identified, we then undertake a gap analysis under the guidance of a third-party green building consultant. As a result, we currently have a certification pipeline of a further five assets, equating to 15% of the Fund s assets under management (as at December 2017), to gain the BREEAM In-Use rating during Green certification of the Fund s assets Driving energy and greenhouse gas (GHG) reduction We seek to drive energy efficiency across all assets in the portfolio. To this end, we have been implementing a programme of LED lighting replacements as we undertake refurbishment works and upgrade lighting at properties. For example, LED lighting was installed as part of our refurbishments of Databankweg and Jupiter House, in the Netherlands, and Von Gablenz Straße, in Cologne, Germany. During 2017, we performed a review of the energy contracts for four of our German assets and consequently moved all contracts to a green energy provider, delivering a cost reduction of up to 27%. We have also reduced energy and GHG intensity at our office and retail assets across the whole portfolio. Energy (kwh/m2)/ GHG(CO2e/m2) per square metre kwh C02 Energy use kwh C02 GHG 2015/ /17 kwh C02 Energy use kwh C0 2 GHG kwh Energy use Retail Industrial Office C0 2 kwh C02 GHG Source: M&G Real Estate as at end December % Certified assets 50% (AUM) 2018 planned Planned by % No certification 10% Source: M&G Real Estate as at end March 2018.

5 5 Case study: Oval, Frankfurt, Germany During 2017, we were delighted to achieve a BREEAM-DE In-Use (building management) "Excellent" certification for this 17,688 sq m office. Environmental excellence The Oval has been certified for environmental excellence. In 2017, the office elements of the building achieved a BREEAM-DE In Use (building management) Excellent rating (valid until 29 June 2018), as well as a BREEAM-DE In Use (asset performance) Very Good rating (valid until 5 June 2018). A range of initiatives in the building helped to achieve these ratings including LED lighting, waste heat recovery, and very strong waste management practices. Health and wellbeing and occupier experience The building features a central oval atrium that can be used by our occupiers and visitors. The space already features several trees, and we are considering ways we can improve the area to benefit the health and wellbeing of our occupiers and visitors. It has been shown that exposure to views and images of nature can boost positive feelings for users of buildings, so we are looking at strengthening the biophilic theme in the atrium, with the possible addition of green walls. We will also be reviewing whether we can run any health and wellbeing events for our occupiers during the year. Smart secure and connected The office is well-located within 300m of the main train station in one of Europe s most important financial centres. We have also installed electric car charging facilities for use by our occupiers and cycling facilities are also available.

6 6 Health, wellbeing and occupier experience Smart, secure and connected People want to live, work and play in places that make them feel happier, healthier and productive. Considering health, wellbeing and experiential factors in how we design and manage buildings enables the occupiers of our properties to have happy productive employees and our retail destinations to attract customers. Smart physical and digital infrastructure is crucial to the competitiveness and success of countries, cities and buildings, as well as positively benefiting inhabitants. Understanding connectivity solutions means we can more effectively identify investment opportunities and future proof investments. Occupier experience and engagement We are committed to creating strong relationships based on integrity, team spirit and customer focus with all our occupiers. By proactively developing relationships with occupiers, we can better understand their business needs and property requirements, which helps us to maximise occupancy rates and to enhance the returns of our assets. In addition, we aim to create and strengthen our relationships with local communities and visitors to our buildings, as this is important to the long-term success of our properties and our development projects. We have designed a customer occupier experience strategy to ensure that we put our occupiers at the heart of everything that we do. We have been conducting a full review of our occupier strategy to ensure that we remain best-in-class and the landlord of choice. The review includes a survey that we undertook across our European portfolio in order to get feedback from occupiers on their experience of our assets and also the services we provide. This will enable us to develop a plan for future occupier engagement, as well as to address any specific issues that have arisen. Health and wellbeing We believe that if people enjoy being in our buildings, investment performance will follow through lower vacancy rates and higher rents. We believe that assets and cities that are well-connected in terms of their digital and physical infrastructure are good places to invest, as they are more attractive to occupiers and are better future-proofed. Our recent Urban Connectivity research aimed to identify attractive locations among 64 European cities that are best placed from a connectivity perspective to offer sustainable property fundamentals and superior pricing opportunities. The research ranked those cities in terms of connectivity from best to worst. We are now starting to incorporate these rankings into our investment process. For example, we have recently acquired an office in one of the highest-rated cities in our study, Blekholmen 1 in Stockholm, (see case study page 7). The full report European Connectivity Rankings is available on our website. Many of the factors we see as an indicator of good connectivity at a city level can also work at an asset level. This is important as we are able to proactively influence the connectivity of an asset through active asset management initiatives, such as the installation of electric vehicle charging points at Oval (page 5). It is our aim to have delivered enhanced digital and physical connectivity at our assets by 2025 through the development of a framework of activities. An increasing number of studies are showing that occupiers are paying greater attention to the wellness aspect of the buildings they occupy. This trend is already being embraced by some of our occupiers a FinTech company at one of our assets in Badensche Straβe, Berlin in Germany has several wellness initiatives in place including wellness rooms, a games room as well as high quality breakout areas for their employees.

7 7 Case study: Blekholmen 1, Stockholm, Sweden In line with our strategy of acquiring assets in major European hubs served by excellent transport links, we purchased Blekholmen 1, a 34,000 sq m, multi-let office scheme comprising six linked buildings. Smart, secure and connected The central business district in Stockholm, where Blekholmen is located, is relatively small, accounting for just 15% of the office market. Infrastructure development to build stronger connections has therefore been a priority and a facilitator of wider economic growth. For example, the development of a subway extension from the city centre to the Solna/ Sundbyberg district. Blekholmen is popular with a range of occupiers owing to its excellent transport links, being very close to Central train station and the subway. Digital infrastructure is of the highest quality, including high-speed broadband. Digital signs in the entrance of Blekholmen display real-time transport information to facilitate people getting around. Socio-economic benefit Real estate in Stockholm delivered 12.9% y-o-y rental growth in 2017, as strong economic growth alongside a healthy labour market continues to boost demand for modern office space. We see ourselves as contributing to this positive economic growth with the broad mix of 30 tenants, some of which encourage more businesses to spend time at Blekholmen. For example, UMA Kungsbron, a co-working space provider, has taken 2,350 sq m alongside a conference and meeting operator, attracting external businesses to use space at Blekholmen. Our RPI strategy extends to the occupiers that reside at our buildings. One of our tenants, state-owned Samhall, is one of Sweden s largest employers and leaders in creating innovative jobs for people with disabilities. Their work generates a positive socio-economic benefit for Sweden through investment in education and skill development. Environmental excellence Blekholmen has been certified for its environmental excellence, receiving a BREEAM In-Use rating of Very Good. Following our acquisition of the building in early 2017, green lease clauses have been signed, a commitment from both tenant and landlord to be more eco-friendly. We follow up with all tenants on their energy, water and waste consumption. The asset received the maximum score of 100 in the waste category. Health, wellbeing and occupier experience We promote and facilitate healthier ways to get to and from work. This is through promoting real-time public transport information alongside offering bike racks and showers in the basement. Three eateries are available on-site with the plaza creating a community feel to the six linked buildings. Alongside this, the mix of tenants in the co-working and meeting operator space encourages interaction at Blekholmen. This increases the availability of networking opportunities, supporting the businesses of visitors and occupiers who spend time there.

8 8 Socio-economic benefit We can create positive socio-economic outcomes by developing high quality places where people want to be. Through proactive participation in communities, we are able to support jobs, skills development and economic growth. At our shopping centres and retail parks, we support neighbouring communities through a huge range of activities, by providing space to community groups and to enable charity fundraising. Market Central Da Vinci in Milan, Italy, hosted its fourth annual Notte Bianca pop concert this year. This year s event attracted the highest number of visitors (32% more than the previous year) and occupiers saw a 9.5% increase in turnover compared to the previous year. Our ambition is to build on these activities and bring them together into a more structured programme to ensure that we are playing an active role in the largest communities in which we operate. As part of this, we will be increasing our community engagement activities at large offices and sharing best practice globally. Alongside our 2020 objectives, there are ten Strong foundations we believe must be in place to deliver our RPI objectives. The table below provides a summary of these for the M&G European Property Fund. The table shows the 10 strong foundations we believe must be in place to deliver and to embed our RPI aspirations. Strong Foundations: 1 Investor reporting & engagement 2 Risk management 3 Acquisitions 4 Asset planning & prioritisation 5 Leasing 6 Monitoring & guidance 7 Property management 8 Development & refurbishment 9 Supply chain management 10 Employee engaegment Provision of quarterly and annual updates on the RPI performance of the fund. This annual report is produced in line with the INREV Sustainability Reporting Requirements. Participation in the annual Global Real Estate Sustainability Benchmark survey with the target of improving performance by To minimise long-term exposure to material ESG risk by embedding consideration of ESG factors into investment decision-making. For example, we have recently reviewed our exposure to energy performance standards in the Dutch office market, following the announcement by the Dutch Government that from 2023 office buildings with an energy label of D or worse will be banned from being let. Our two offices in the Netherlands have energy ratings of B. Our investment team buying in the Netherlands are aware of this issue, and our due diligence checklist references the point to ensure we price in refurbishment costs if we were to buy an asset with a rating of D or below. Material RPI issues are integrated into acquisition due diligence processes, which ensures risks and opportunities have been appraised and priced accordingly. Annual asset plans incorporate measures to manage and/or improve RPI performance. Actions will be prioritised according to each asset s RPI impact and our ability as the landlord to influence this. During 2018, we will ensure green leases clauses are integrated into all new leases. We will also seek to provide greater information to our occupiers on how they can improve environmental, health and wellbeing performance of their space during any works and occupation. Engagement of an independent company, Verco, to support monitoring of environmental performance data. Property managers input data into Verco s system Carbon Desktop. Verco then analyses the data to ensure the highest levels of data quality and coverage. The outputs from their report are used for GRESB and INREV sustainability reporting requirements, as well as GHG protocol. Third party property managers have sustainability requirements integrated into their contracts and Service Level Agreements. Annual KPIs are set and are monitored regularly to ensure that property managers and their supply chain ensure the delivery of RPI initiatives and targets. Currently our sustainability standards are set on a development specific basis. We are reviewing whether we can develop a RPI framework for Europe which sets out some guiding principles for all developments. RPI standards and requirements are provided to suppliers as appropriate to their services. Monitoring is in place to ensure that contractual requirements are adhered to. All employees understand their role in the delivery of our RPI Strategy through training and briefings, and receive regular updates on the RPI performance of portfolios and assets they work on.

9 9 GRESB 2017 Results We actively participate in the Global Real Estate Sustainability Benchmark (GRESB) survey that ranks funds in terms of sustainability. The infographics and chart show the performance of the Fund in Every year, we focus on improving the performance of the Fund in GRESB. To this end, we have developed an action plan to help us improve our performance, with key actions to be undertaken in 2018 shown below. We are focused on improving our performance in the stakeholder engagement section in particular performance of M&G European Property Fund 100 Management & Policy GRESB Green Star GRESB Average 63 Peer Average 63 Implementation & Measurement GRESB Average 60 Peer Average Implementation & Measurement Management & Policy GRESB Average 72 Peer Average 77 This Entity Peer Group Avg. Peer Group GRESB Average GRESB Universe Asia Europe North America Oceania Globall y Diversified Participation and score GRESB Improvement: key focus areas Areas for improvement Actions Objective Increase % of technical building To reduce energy and water consumption Undertake assessments at the largest assets where not done assessments and improve waste management Increase % of assets with water efficiency measures Increase % of environmental data gathered at assets Continue to drive energy and water reduction assets and increase diversion from landfill Increase % of buildings with a green building rating Implement an occupier engagement programme Implement cos-effective water efficiency measures. Build longer term initiatives into service charge/asset management plans Gather data from assets where landlord purchased Seek to increase data provision from tenants Ensure energy and water reductions at our largest consuming assets (Tier 1). Seek to increase % of waste diverted from landfill/recycled Implement green building certification programmes Undertake an occupier satisfaction survey (partial introduction in 2018). Use feedback to make improvement. Review occupier engagement programmes and seek to improve engagement To reduce water consumption To enhance asset planning and prioritisation To improve monitoring and guidance To reduce energy and water consumption and improve waste management To enhance asset planning and prioritisation To improve green certification rating To improve occupier engagement Implement a structured community programme Ensure community engagement/charitable initiatives in place at larger assets Implement a health and wellbeing programme at larger assets and develop a strategy to roll-out more broadly To reach more people with our health wellbeing and inclusivity programmes To improve community engagement

10 Nioki Doggett Associate Director Client Service +44 (0) For Investment Professionals only. This document is for investment professionals only and should not be passed to anyone else as further distribution might be restricted or illegal in certain jurisdictions. The distribution of this document does not constitute an offer or solicitation. Past performance is not a guide to future performance. The value of investments can fall as well as rise. There is no guarantee that these investment strategies will work under all market conditions or are suitable for all investors and you should ensure you understand the risk profile of the products or services you plan to purchase. This document is issued by M&G Investment Management Limited (except if noted otherwise below). The services and products provided by M&G Investment Management Limited are available only to investors who come within the category of the Professional Client as defined in the Financial Conduct Authority s Handbook. They are not available to individual investors, who should not rely on this communication. Information given in this document has been obtained from, or based upon, sources believed by us to be reliable and accurate although M&G does not accept liability for the accuracy of the contents. M&G does not offer investment advice or make recommendations regarding investments. Opinions are subject to change without notice. In Australia, M&G Investment Management Limited does not hold an Australian financial services licence and is exempt from the requirement to hold one for the financial services it provides. M&G Investment Management Limited is regulated by the Financial Conduct Authority under the laws of the UK which differ from Australian laws. In Singapore, this document is issued by M&G Real Estate Asia Pte Ltd. This document may not be circulated or distributed, whether directly or indirectly, to persons in Singapore other than (i) an institutional investor pursuant to Section 304 of the Securities and Futures Act, Chapter 289 of Singapore (the SFA ) or (ii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA. M&G Investments and M&G Real Estate are business names of M&G Investment Management Limited and are used by other companies within the Prudential Group. M&G Investment Management Limited is registered in England and Wales under numbers with its registered office at Laurence Pountney Hill, London EC4R 0HH. M&G Investment Management Limited is authorised and regulated by the Financial Conduct Authority. M&G Real Estate Limited is registered in England and Wales under number with its registered office at Laurence Pountney Hill, London EC4R 0HH. M&G Real Estate Limited forms part of the M&G Group of companies. M&G Investment Management Limited and M&G Real Estate Limited are indirect subsidiaries of Prudential plc of the United Kingdom. Prudential plc and its affiliated companies constitute one of the world s leading financial services groups and is not affiliated in any manner with Prudential Financial, Inc, a company whose principal place of business is in the United States of America. SEP 18 / IM2196