Schroder European Real Estate Investment Trust Investor update presentation Tony Smedley, Head of Continental European Real Estate Investment Andrew MacDonald, Head of Real Estate Finance July 2017 Marketing materials for professional investors only
Highlights
The European growth city strategy Nearing full investment and growing income Investment Finance European markets Growth strategy Investment: 26.2m invested during the quarter in Seville; 211 million invested in past 18 months Portfolio: 210m 1 in nine retail/office assets with high occupancy, 4.5year lease length NAV: 176.9m NAV as at 30 Jun ( 1.323 per share), representing NAV total return of 1.5% over the quarter Dividends: Increased to 1.5 Euro cents p.s. declared for Apr Jun, representing 4.4% yield, 116% cover 3 Markets: Broad based economic recovery Growth cities: Portfolio located in fastest growing cities in Europe Megatrends: urbanisation, infrastructure, demographic change Dividend: On track for target 5.5% once fully invested 2 Pipeline: In exclusivity to deploy 30m remaining capacity Accretive growth: grow portfolio through earnings enhancing acquisitions Income: portfolio yield 6.1%; over 8% post debt (pre costs) Value growth: portfolio value growth recovers stamp duty costs; further 0.6% this quarter Debt: 26% LTV at interest cost of 1.30%, 7 years duration Markets: rents rising, voids falling, supply response limited, asset price growth continues Market presence: deep local market knowledge and access of Schroder teams Scale benefits: improves diversification, liquidity and cost economies Source: Schroders, May 2017/Data: 1 Portfolio market value is based on 30 June 2017 independent valuation. Dividend is only a target and not guaranteed. Yield based on IPO issue price in Euro. Past performance is not a guide to future performance and may not be repeated. 3 yield based on IPO issue price in Euro 2
Portfolio, asset management and markets
Portfolio evolution Invested 210m 1, 9 assets in France, Germany and Spain Berlin, Germany Stuttgart, Germany Frankfurt, Germany Rennes, France Seville, Spain Retail Warehouse Office Retail Retail Retail Jan 2016 2017 0 210m 1 Paris, France Office Hamburg, Germany Office Biarritz, France Retail St. Cloud, Paris, France Office Source: Schroders, July 2017. 1 Portfolio market value is based on 30 June 2017 4
Recent acquisitions Paris and Seville St. Cloud, Paris, France Purchase Price Location Description Asset Management c. 30m / c. 2,000 per sq. m./ 9.5% net initial yield Saint-Cloud, an upscale mixed use suburb in West Paris 15,800 sqm office premises; the best quality space in a larger 65,000 sqm office complex; fully leased; multi-tenanted; modest rents of 215/sqm. Next to future Grand Paris train station Refurbish lift lobbies; re-gear leases to maintain attractive NIY and extend WAULT Strategy Re-gear leases Light refurbishment Metromar Shopping Centre, Seville, Spain 50% share Purchase Price Location Description Asset Management c. 52.5m (100%) / c. 2,200 per sq. m. / 6.2% net initial yield Mairena del Aljarafe, a growing suburb of Seville 23,500 sqm urban shopping centre servicing a catchment of 250,000 people within 15 minutes drive. Strong tenant mix Zara, Mango, Pull & Bear, Mercadona supermaket with a leisure point of difference (cinemas / restaurants) Lease vacancy, improve leisure offer, improve brand / signage / wayfaring / lighting and general vibrancy Strategy Lease vacancy Place making Source: Schroders, July 2017. 5
Portfolio overview Nine institutional grade assets in growth markets City Country Sector Valuation No. Tenants Contracted WAULT to Void rents break m m years % Paris (Boulogne) France Office 41.5 1 2.4 3.8 0.5 Paris (Saint-Cloud) France Office 33.1 11 3.1 2.0 2.9 Biarritz France Retail 21.6 9 1.3 4.2 1.0 Rennes France Retail 18.8 1 0.9 5.0 0.0 France Subtotal 115.1 22 7.7 3.3 1.5 Berlin Germany Retail 25.5 1 1.6 8.5 0.0 Hamburg Germany Office 16.5 15 1.2 6.7 0.6 Stuttgart Germany Office 15.1 4 0.8 8.0 0.4 Frankfurt Germany Retail 11.5 6 0.7 6.5 0.0 Germany Subtotal 68.6 26 4.3 7.6 0.2 Seville, Metromar Spain Retail 26.5 53 2.1 2.8 2.6 Total portfolio 210.1 101 14.0 4.5 1.3 Property allocation 7% 5% 8% 9% 10% 12% 20% 16% 13% Sector allocation 49% 51% Country allocation 12% 33% 55% Paris B-B) Paris (SC) Sevilla Berlin Biarritz Rennes Hamburg Stuttgart Frankfurt Office Retail France Germany Spain 6 Source: Schroders, July 2017.
Tenant overview Over 100 tenants and weighted average lease term of 4.5 years Top 10 tenants Sector City Lease expiry to earliest termination Rent p.a. m % of total WAULT to earliest expiry years Credit risk assessment 1 ALTEN Technology Paris (Boulonge) 2.3 16.6% 3.8 Low 2 Casino Grocery Retail Rennes & Biarritz 1.9 13.2% 5.0 Low 3 Hornbach Retail Berlin 1.6 11.5% 8.5 Low 4 City BKK Insurance Hamburg 0.8 6% 7.7 High* 5 Land Baden-Württemberg Government Stuttgart 0.7 4.7% 8.6 Low 6 Thesee (Leyton) Consultancy Paris (Saint Cloud) 0.6 4% 2.2 Medium 7 Ethypharm Pharmaceutical Paris (Saint Cloud) 0.6 4% 0.5 Low 8 Filassistance Insurance Paris (Saint Cloud) 0.5 3.3% 2.0 Low 9 Garantie assistance Insurance Paris (Saint Cloud) 0.4 2.9% 2.0 Low 10 Moody's Analytics Financial Paris (Saint Cloud) 0.4 2.7% 2.1 Low Subtotal 9.6 68.7% 5.0 Remaining Tenants 4.4 31.3% 3.5 Total 14.0 100% 4.5 WAULT Portfolio weighted average unexpired lease term of 4.5 years Seville: c.3 years due to rolling breaks prevalent with the larger retailers (e.g. Inditex Group and cinema). This is mitigated by the fact that these retailers are trading well (sustainable effort ratios) and are long term occupiers (since 2007) Paris (St.Cloud): nature of tenant profile (SMEs) results in shorter term leases. Good progress being made with lease regears/extensions Source: Schroders, July 2017. *City BKK is part of a national insurance co-operative which mitigates their risk assessment as the co-operative must cover the liabilities of all members. For illustrative purposes only and should not be viewed as a recommendation to buy or sell. 7
Focus on growth cities not countries Major cities and regions enjoy faster economic growth Average GDP Growth 2017-2021, % per annum 3.0 2.5 2.0 1.5 1.0 0.5 Source: Oxford Economics, Schroders. July 2017 The forecast should be regarded as illustrative of trends. Actual figures will differ from forecasts. Please refer to Important Information regarding forecasts 8
Exposure to higher GDP growth, winning centres SEREIT portfolio located in highest growth regions of Western Europe SEREIT s Investment Universe SEREIT s portfolio vs. Investment Universe Outer ring shows SEREITs direct exposure as a % of value 20% 5% 19% Inner ring shows average for investment universe 47% 29% 80% Fastest Growing Regions Second Quartile Third Quartile Slowest Growing Regions Source: Oxford Economics, Schroders. July 2017 Total of 9 assets as at last valuation. Investment universe consisting of 1043 NUTS3 regions in countries shown on map. Data based on Oxford Economics GDP growth forecasts end-2016 end 2021 as at April 2017. The Schroder European Real Estate Investment Trust is referred to as SEREIT throughout this presentation 9
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Labour markets continue to recover Unemployment falling strong growth in office employment Office employment: Forecast growth in absolute employment between end-2016 to end-2021 Luxembourg Stockholm Berlin Madrid Amsterdam Oslo Cologne Frankfurt Lyon Hamburg Munich Stuttgart Lisbon Barcelona Paris Vienna Copenhagen Rotterdam Dusseldorf Brussels Helsinki Milan 0.0% 2.5% 5.0% 7.5% 10.0% 12.5% 15.0% 17.5% 20.0% International Labour Organisation (ILO) - Unemployment rates (%) 14.0 12.0 10.0 8.0 6.0 4.0 2.0 Germany France Italy Netherlands Sweden Source: PMA, Oxford Economics, April 2017. The forecast should be regarded as illustrative of trends. Actual figures will differ from forecasts. Please see the information slide at the end of this presentation. Countries mentioned are for illustrative purposes only and not a recommendation to buy or sell. 10
European occupier activity remains high Broad based recovery in occupier demand Take-up, 12m tolling Totals, 000 sq m 12,000 11,000 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 Germany France UK and Ireland Italy BeNeLux Iberia Sweden Source: JLL, Schroders. April 2017. Country figures based on major markets 11
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Office development is subdued Limited building activity supportive of rental growth Office completions, million square metres Net-Additions (% of Stock) 7 6 5 4 3 2 1 Forecast 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0 0.0 Germany France Italy Spain Benelux Nordic Central Europe Other Net Additions (lhs) Source: PMA, Schroders. April 2017. Data for Europe ex. UK Note forecasts should be regarded as illustrative of trends. Actual figures will differ from forecasts. See Important Information regarding forecasts 12
Rotterdam Milan Utrecht Madrid** The Hague Amsterdam Brussels* Frankfurt/M Dublin Barcelona** Dusseldorf Manchester Paris* Lyon* Luxembourg* Hamburg London City Edinburgh London WE Berlin Munich Vacancy as % of overall stock Q1 17 Modern Grade A office space remains scarce This creates opportunity for rental growth/refurbishments 16 14 Vacancy Rate (%) Vacancy Rate Grade A 12 10 8 6 4 2 0 Source: JLL, April 2017 *Paris, Brussels, Luxembourg and Lyon based on vacancy in newly completed stock **Barcelona and Madrid estimated 13
Schroder European REIT Deploying remaining capital ( 28m) in line with strategy Opportunity Country Sector Pricing Yield Profile Comment 1 Barcelona Parcel Delivery (in exclusivity) Spain Logistics 9m 6.5% Core Fully let 9,000 sqm facility built to good specification, WAULT 5.5 years. 4.5m people within 30 kms. Rack rented. 2 Rummily Logistics Warehouse (in exclusivity) France Logistics 9m 6.5% Core Let to Nestle subsidiary, term expires 2025. Located 40kms from Geneva and 110kms from Lyon. 3 Valencia Parcel Delivery Spain Logistics 9m 6.5% Core Forward purchase of a new 9,000 sq metre parcel delivery unit. 8/18 year lease. Strong tenant. 4 Beersel Logistics Belgium Industrial/ Logistics 20m 6.3% Core+ Logistics asset located close to Brussels ring road. Off-market, likely to be 2018. Total 47m 6.4% Source: Schroders, July 2017. For illustrative purposes only and should not be viewed as a recommendation to buy or sell. Core assets typically exhibit the following attributes: high levels occupancy, well-located and established markets, and low levels asset management to be undertaken. Core+ assets are similar to core assets however there may be opportunities to perform asset management initiatives or generate higher rents than core assets upon review. 14
Financial review
Financial highlights June 30 NAV of 176.9m (132.3 cents per share ( cps ) ) Increase of 0.6% over the quarter Driven by valuation uplift and profit, partially offset by property acquisition costs NAV total return over the quarter of 1.5% Third interim dividend declared of 1.5 cents per share 116% covered from net income over the quarter Represents annualised dividend yield of 4.4% Fourth consecutive quarterly increase Targeting 5.5% dividend yield once fully invested 1 Overall loan-to-value 2 is 26% at a weighted average interest rate of 1.30% and a weighted duration of c. 7 years Approximately 30m of remaining investment capacity (including debt) 1 Yield based on the Euro equivalent of the issue price as at admission. This is a target only, based on a number of assumptions that may not materialise. There can be no guarantee that this target will be met. Source: Schroders, July 2017. Past performance is not a guide to future performance and may not be repeated. 2 Loan to value (LTV) this states the % amount of indebtedness of a company relative to the total size of the assets it holds. 16
NAV movement over quarter 1.5% NAV total return underpinned by valuation growth NAV as at 31 March 2017 175.9 131.5 Unrealised gain in valuation of the property portfolio Transaction costs of investments made during the quarter m cps Comments 1.1 0.8 Hamburg 0.4m, Berlin 0.2m, Seville 0.2m, Stuttgart 0.15m and all other assets 0.15m (0.7) (0.5) Acquisition costs for Seville Net Operating Income 2.3 1.8 Annualised rent increased to 14m Other non-cash items (0.1) (0.1) Change in fair value of interest rate caps, FX etc Approved dividend payable (1.6) (1.2) Dividend for Mar Jun (1.2 cents ps), paid in July NAV as at 30 June 2017 176.9 132.3 Summary balance sheet As at 30 June 2017 ( m) Investment properties 210.1 External third-party loans (60.4m) Cash and other net assets 27.2 NAV 176.9 Performance Discrete yearly performance Q2 2016 Q2 2017 Share Price Total Return (GBP)¹ 8.8 NAV Total Return (Euro)² 5.2 NAV Total Return (converted to GBP)³ 10.5 Source: Schroders, July 2017 Numbers based on proportionally consolidated basis and therefore represent SEREITs share of joint ventures. 17
Final stages of capital deployment Property acquisitions generating income growth Total funds including debt Over 211m invested over 18 months Average acquisition income yield of 6.1% 12% Remaining investment capacity of c 30m Includes drawing additional debt up to 30% - 35% loan-to-value 88% Growth in annualised gross rental income million 15 12.0m Invested Available 14.1m 10 8.7m 8.7m 5 0 30-Sep-16 31-Dec-16 31-Mar-17 30-Jun-17 Paris - Boulogne Berlin Hamburg Stuttgart Frankfurt Rennes / Biarritz Paris - St. Cloud Seville Source: Schroders, July 2017. Past performance is not a guide to future performance and may not be repeated. *European Public Real Estate Association ( EPRA ). 18
Fully covered dividend Good progress towards yield target of 5.5% 1 p.a. Growth in dividend per share cents p.s. 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 Once fully invested, targeting annualised euro dividend yield of 5.5% 1 Dividend of 1.5 Euro cents per share declared in respect of period April - June, payable in September 2017 Represents annualised dividend yield of 4.4% 19 0.8 Increase from 1.2 Euro cents per share for January - March, equating to quarterly increase of 25% 116% covered from net income Will grow towards target yield as deployment of remaining capital is completed 1 Yield based on the Euro equivalent of the issue price as at admission. This is a target only, based on a number of assumptions that may not materialise. There can be no guarantee that this target will be met. Source: Schroders, July 2017. 0.9 1 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 1.2 1.5
Debt financing Current borrowing rates accretive to income returns Loans summary as at 30 June 2017 Loans by country Loans by maturity Loan Loan Amount LTV Maturity Interest Rate Hamburg/Stuttgart 14.0m 48% June 2023 0.85% Frankfurt / Berlin 16.5m 46% June 2026 1.31% 19% 30% 22% 44% French Hypermarkets 18.2m 45% July 2023 1.35% 51% 34% Seville 11.7m 45% May 2024 1.76% Total 60.4m 26% 1 7.0 Years 1.30% France Spain Germany 2023 2024 2026 Debt strategy Portfolio gearing capped at 35% loan-to-value ; loans targeted against assets where most accretive and may be up to 50% loan-to-value Seven of the nine portfolio assets have gearing secured against them; the two Paris offices are currently ungeared Property level income returns from existing portfolio increased from 6.1% to over 8% post gearing (pre costs and expenses) Different loan maturities to spread refinance risk Interest only to maximise income distribution 100% of interest rate exposure either fixed or capped; Likely to draw further debt against ungeared assets or future acquisitions, taking gearing to 30% - 35% loan-to-value 1. LTV based on gross asset value (GAV) of overall company. Source: Schroders, July 2017. 20
Summary and outlook
The Company investing in European growth cities Nearing full investment with potential for further growth High quality portfolio of over 200m located in growth cities across France, Germany and Spain Strong income profile with c. 100% occupancy and 4.5 year average lease length Good progress on asset management initiatives Low cost, long duration debt financing at 26% loan-to-value accretive to income return Dividend increase takes yield to 4.4% p.a.; target 5.5% when fully invested 1 Investor and occupier activity in target markets remains strong post Brexit vote; rents continue to rise Megatrends (e.g. urbanisation, infrastructure investment) support long-term focus on growth cities Targeting further accretive investments and equity issuances to fulfil growth ambitions; scale will improve share liquidity and cost economies 1 Yield based on the Euro equivalent of the issue price as at admission. This is a target only, based on a number of assumptions that may not materialise. There can be no guarantee that this target will be met. Source: Schroders, July 2017. 22
Important information Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested. Companies which invest in a smaller number of assets carry more risk than those spread across a larger number of assets. The Company may invest solely in property located in one country or region. This can carry more risk than investments spread over a number of countries or regions. The Company may borrow money to invest in further investments, this is known as gearing. Gearing will increase returns if the value of the assets purchased increase in value by more than the cost of borrowing, or reduce returns if they fail to do so. The fund holds investments denominated in currencies other than sterling, changes in exchange rates will cause the value of these investments, and the income from them, to rise or fall. The dividend yield is an estimate and is not guaranteed. 23
Important information The views and opinions contained herein are those of Tony Smedley, Head of Continental European Real Estate Investment, and Andrew MacDonald, Head of Real Estate Finance, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This presentation is for information purposes only and it is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Schroder Real Estate Investment Management Ltd ( SREIM ) does not warrant its completeness or accuracy. The data has been sourced by SREIM and should be independently verified before further publication or use. No responsibility can be accepted for error of fact or opinion. Reliance should not be placed on the views and information in the document when taking individual investment and/or strategic decisions. 24
Important information Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested. The forecasts included in this document should not be relied upon, are not guaranteed and are provided only as at the date of issue. Our forecasts are based on our own assumptions which may change. We accept no responsibility for any errors of fact or opinion and assume no obligation to provide you with any changes to our assumptions or forecasts. Forecasts and assumptions may be affected by external economic or other factors. Use of MSCI IPD data and indices: and database right MSCI and its Licensors 2017. All rights reserved. MSCI has no liability to any person for any losses, damages, costs or expenses suffered as a result of any use of or reliance on any of the information which may be attributed to it. For investment advice, speak to your Financial Adviser. If you don't already have an Adviser, you can find one at www.unbiased.co.uk or www.vouchedfor.co.uk. Issued in July 2017 by Schroder Real Estate Investment Management Limited, 31 Gresham Street, London EC2V 7QA. Schroder Real Estate Investment Management Limited is authorised and regulated by the Financial Conduct Authority. Registration number 1188240 England. UK12044 25
Contact Schroder Investment Management Limited, 31 Gresham Street, London EC2V 7QA. schroders.com