For professional investors and advisers only
Schroder UK Real Estate Fund
Report and Audited Consolidated
Financial Statements
For the Year Ended 31 March 2015
Schroder UK Real Estate Fund
Report for the Year Ended 31 March 2015
Schroders Group
Schroders is a global asset management company with
£319.5 billion under management at 31 March 2015.
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 31 March 2015.
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
Schroder UK Real Estate Fund
Report for the Year Ended 31 March 2015
Contents
03
07
Key Information Summary*
Fund Manager’s Report*
08
10
12
Market Overview
Performance Analysis
Review of Portfolio Activity
24
Report of the Authorised Corporate Director
and statement of responsibilities*
26
27
29
32
34
36
36
37
37
38
47
48
52
Investment Manager’s Statement of Responsibility
Independent Property Valuers’ Reports
Depositary’s Report and Statement of Responsibilities
Portfolio Statement*
Independent Auditors’ Report
Statement of Total Return
Statement of Change in Net Assets Attributable to Shareholders
Balance Sheet
Cash Flow Statement
Notes to the Financial Statements
Distribution table
Unaudited General Information
Key Service Providers*
*Collectively these comprise the Authorised Corporate Director’s Report
1
2
Schroder UK Real Estate Fund
Report for the Year Ended 31 March 2015
Palace House, London SE1
Schroder UK Real Estate Fund
3
Report for the Year Ended 31 March 2015
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
1971. 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
benchmark1 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 31 March 2015
12 month performance history (to end of March)
% Net of Fees
% Net of Fees
20
20
17.9
17.9
16.6
16.6
15
15
1.8
13.1
11.9
10.7
9.4
10
11.5
10.2
9.8
10
8.4
8.8
8.7
6.4
4.2
5
4.3
5.3
5
1.8
0.3
0
0
Source: Schroders/AREF/IPD UK Quarterly Property Fund Index, 31 March 2015
Past performance is not a guide to future returns.
1Benchmark is the AREF/IPD UK Quarterly Property Fund Index – All Balanced Property Fund Index Weighted Average.
Benchmark 1
0
Schroder UK Real Estate Fund
1
20
1
1
20
2
1
20
3
1
20
4
1
20
.)
a
p.
)
a.
p.
)
a.
p.
(%
(%
(%
Benchmark 1
5
s
ar
s
ar
ye
ye
1
20
10
5
s
ar
ye
ar
ye
3
1
Schroder UK Real Estate Fund
Schroder UK Real Estate Fund
4
Report for the Year Ended 31 March 2015
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
1Map 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.
Schroder UK Real Estate Fund
5
Report for the Year Ended 31 March 2015
Diversified tenant base
Diversified sector and regional allocation
Tenant profile % (contracted rent)1
Segment % GAV1
Tata Steel UK Ltd
3.4%
Standard Retail – South East
5.4%
Lloyds TSB Bank Plc
2.6%
Standard Retail – Rest of UK
5.8%
Secretary of State
2.4%
Shopping Centres
1.0%
Universal Music Operations Ltd
2.2%
Retail Warehouses
11.3%
Regus Ltd
2.1%
Offices – Central London
17.1%
Care UK Ltd
1.9%
Offices – South East
14.6%
Pendragon Ltd
1.9%
Offices – Rest of UK
5.9%
B&Q Plc
1.8%
Industrial – South East
16.1%
University of Law
1.6%
Industrial – Rest of UK
5.5%
Sungard UK Ltd
1.3%
Other
9.2%
78.8%
Cash
8.1%
1,064 other tenants1
High quality and diversified assets
Top 10 largest holdings
Holding
City Tower, Manchester
Sector
NAV %
Offices
4.0%
Retail and Office
3.4%
Acorn Industrial Estate, Crayford
Industrial
3.2%
Hartlebury Trading Estate, Worcestershire
Industrial
3.2%
Offices
3.1%
Bracknell Regeneration Partnership, Bracknell2
West End of London Property Unit Trust (WELPUT)3
Matrix, Park Royal, London NW10
Industrial
3.0%
Offices
3.0%
Other: Leisure
2.9%
Kensington Village, London W14
Offices
2.9%
Battersea Studios, London SW8
Offices
2.5%
Davidson House, Forbury Square, Reading
Mermaid Quay, Cardiff
1 Look through analysis
2 50:50 joint venture with Legal & General
3 Schroder in house fund
Data subject to rounding.
Source: Schroders, IPD, 31 March 2015
6
Schroder UK Real Estate Fund
Report for the Year Ended 31 March 2015
Key Information Summary
(continued)
Portfolio Profile
For the year to 31 March 2015, 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
31 March 2015
As at/For the
year to
31 March 2014
Gross Asset Value (GAV)
£1,954.6m
£1,514.4m
Net Asset Value (NAV)
£1,936.3m
£1,489.5m
£39.26
£34.68
49,315,567.53
42,954,451.32
£1.509496
£1.575009
3.9%
4.1%
Financial Information
NAV per share
Number of shares in issue
Gross annual distribution per share
Distribution yield
Total NAV of scheme property
£1,767.1m
£1,432.7m
Highest price per share in the year
£39.26
£34.68
Lowest price per share in the year
£34.90
£32.36
1.8%
2.8%
Portfolio Details
Gearing (% NAV)
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%
Annual Total Return
17.9%
13.1%
Benchmark Total Return
16.6%
11.9%
0.77%
0.81%
Performance
Fund Total Expense Ratio
Total Expense Ratio
Liquidity
Annual number of shares subscribed for
Annual value of subscriptions
Annual number of shares redeemed
Annual value of shares redeemed
Annual number of shares matched on the secondary market
Annual value of shares matched on the secondary market
6,362,349
4,564,724
£242,697,697
£158,190,836
0
0
£0
£0
2,517,271
5,105,510
£97,052,711
£169,520,500
Schroder UK Real Estate Fund
Report for the Year Ended 31 March 2015
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 2014. SREF’s well diversified
portfolio is positioned to provide a good balance of income and
capital growth.
7
Schroder UK Real Estate Fund
8
Report for the Year Ended 31 March 2015
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.
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).
Mermaid Quay, Cardiff
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.
Schroder UK Real Estate Fund
Report for the Year Ended 31 March 2015
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 2008. 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
1.5–2.0% (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 2015–2016, and 1–2% pa from 2014–2019. 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 2003.
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 2014.
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.
9
10
Schroder UK Real Estate Fund
Report for the Year Ended 31 March 2015
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
Real Estate Total Return
SREF:
Benchmark:
Relative:
SREF:
Benchmark:
Relative:
Income Return
SREF:
Benchmark:
Relative:
5.3
5.4
-0.1
Rental Value Growth
SREF:
Benchmark:
Relative:
9.1
3.4
5.7
Held
SREF:
1.6
17.9
16.6
1.3
Capital Growth
SREF:
Benchmark:
Relative:
13.6
11.8
1.8
19.6
17.9
1.7
Attribution Relative
Return:
Structure Score
SREF:
0.9
Attribution Relative
Return:
Property Score
SREF:
0.8
Yield Impact
SREF:
Benchmark:
Relative:
6.9
10.6
-3.7
Purchased
Development
SREF:
-0.2
SREF:
0.0
Sold
SREF:
Indirect
0.3
SREF:
0.0
Source: IPD, 31 March 2015. 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 £37.50 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.
Schroder UK Real Estate Fund
11
Report for the Year Ended 31 March 2015
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
1.50
Structure
1.25
1.00
0.75
0.50
0.25
0.00
-0.25
All property
Other – Commercial
Industrials – Rest of UK
Industrials – South East
Offices – Rest of UK
Offices – South East
Offices – West End
Offices – City
Retail Warehouses
Shopping Centres
St Retails – Rest of UK
St Retails – South East
-0.50
12
Schroder UK Real Estate Fund
Report for the Year Ended 31 March 2015
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 31 March 2015
Sector weightings relative to benchmark1
% gross asset value
Underweight
-0.8%
Standard retail – South East
-0.4%
Standard retail – Rest of UK
Shopping centres
Overweight
-3.8%
Retail warehouses -6.3%
2.5%
Offices – Central London
4.1%
Offices – South East
0.3%
Offices – Rest of UK
3.8%
Industrial – South East
Industrial – Rest of UK
Other
Cash
1
-2.6%
0.5%
3.0%
Benchmark is the AREF/IPD UK Quarterly Property Fund Index – All Balanced Property Fund Index Weighted Average.
Schroder UK Real Estate Fund
13
Report for the Year Ended 31 March 2015
Purchases and Sales
During the year ended 31 March 2015
Purchases
Sector
Holding
Lot size
London WC1 – The University of
Law Campus
Central London Offices
JV
Over £50m
London E1 – Dept W
Central London Offices
Direct
Between £25m and £50m
Standard Retail
JV
Between £25m and £50m
Retail
JV
Over £50m
Sector
Holding
Lot size
Retail
Direct
Under £10m
Central London Offices
Direct
Under £10m
Rest of UK Offices
Direct
Between £25m and £50m
London SW14, 270-282 Upper
Richmond Road, East Sheen
Retail
Direct
Under £10m
Birmingham – Deykin Avenue
Industrial
Direct
Under £10m
Gilbran Property Unit Trust
Manchester – City Tower
Sales
Enfield, 30/38 London Road
London W1 – St Anne’s Court,
Dean Street
Manchester – Fujitsu, Central Park
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 31 March 2015 the PTR is 11%.
14
Schroder UK Real Estate Fund
Report for the Year Ended 31 March 2015
Matrix Park, Park Royal, London
Schroder UK Real Estate Fund
Report for the Year Ended 31 March 2015
15
16
Schroder UK Real Estate Fund
Report for the Year Ended 31 March 2015
Fund Manager’s Report
(continued)
Retail
SREF’s overweight/underweight retail positions relative to benchmark
2014
20
2015
18.3
15
17.6
13.8
11.3
10
6.8
6.8
6.3
7.2
5.3
5
1.4
5.4
6.2
5.8
6.2
4.8
1.0
0
SREF
Benchmark
SREF
Standard Retail – South East
Shopping Centres
Standard Retail – Rest of UK
Retail Warehouses
Benchmark
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.
Schroder UK Real Estate Fund
17
Report for the Year Ended 31 March 2015
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 Q4 2014 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 31 March 2015
Holding
Sector
Lot Size
JV
Shopping Centre and Standard Retail
Over £50m
Direct
Retail Warehouse
Between £25 and £50m
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 – 232-240 High Street
Direct
Standard Retail
Between £10m and £25m
Frimley – Albany Park
Direct
Retail Warehouse
Between £10m and £25m
Bracknell Regeneration Partnership
Colchester – Turner Rise
Motor Retail LP
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 – 202-226 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 – 195-200 High Road
Direct
Standard Retail
Between £5m and £10m
Shipley – 20-40 Market Square
Direct
Standard Retail
Between £5m and £10m
Stanmore – Buckingham House, The Broadway
Direct
Standard Retail
Between £5m and £10m
Woodley – 81-107 Crockhamwell Road
Direct
Standard Retail
Between £5m and £10m
Birmingham – 42-60 High Street, Harborne
Direct
Standard Retail
Under £5m
Dunfermline – Duloch Park District Centre
Direct
Standard Retail
Under £5m
18
Schroder UK Real Estate Fund
Report for the Year Ended 31 March 2015
Fund Manager’s Report
(continued)
Office
SREF’s overweight/underweight office positions relative to benchmark
2014
20
2015
17.1
16.5
15
14.6
13.6
14.6
13.4
10
10.5
9.1
5.9
5.2
4.9
5
5.6
0
SREF
Offices – Central London
Benchmark
SREF
Offices – South East
Benchmark
Offices – Rest of UK
Source: IPD UK PFI Indices
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 2014. 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 £37.50
psf supporting a 40% increase in valuation.
Schroder UK Real Estate Fund
19
Report for the Year Ended 31 March 2015
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 31 March 2015
London W14 – Kensington Village
Manchester – City Tower
Reading – Davidson House
West End of London Property Unit Trust (WELPUT)1
Holding
Sector
Lot Size
Direct
Central London Office
Over £50m
Joint Venture
Regional Office
Over £50m
Direct
South East Office
Over £50m
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
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, 117-123 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
Indirect
Central London Office
Under £5m
London WC1 – The University of Law Campus
City of London Office Unit Trust (CLOUT)
1 Schroders inhouse fund
20
Schroder UK Real Estate Fund
Report for the Year Ended 31 March 2015
Fund Manager’s Report
(continued)
Industrial
SREF’s overweight/underweight industrial positions relative to benchmark
2014
20
2015
16.5
16.1
15
12.3
11.4
10
8.1
7.7
6.6
5.5
5
0
SREF
Benchmark
Industrial – South East
SREF
Benchmark
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 10 – 20 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 £10.50 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.
Schroder UK Real Estate Fund
21
Report for the Year Ended 31 March 2015
Industrial Portfolio at 31 March 2015
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
22
Schroder UK Real Estate Fund
Report for the Year Ended 31 March 2015
Fund Manager’s Report
(continued)
Alternative sectors
SREF’s overweight/underweight other positions relative to benchmark
10
2014
2015
9.6
9.4
8.8
8.9
8
6
4
2
0
SREF
Benchmark
SREF
Benchmark
Source: IPD UK PFI Indices
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.
Schroder UK Real Estate Fund
23
Report for the Year Ended 31 March 2015
Turner Rise
Alternatives Portfolio at 31 March 2015
Cardiff – Mermaid Quay
London E14 – West India Quay
Suffolk Care Homes
Chatham – Dickens World
UNITE UK Student Accommodation Fund
Croydon – Car Park
Ipswich Care Home, Suffolk
Holding
Sector
Lot Size
Direct
Other – leisure
Over £50m
JV
Other – leisure
Between £25 and £50m
Direct
Other – care homes
Between £25 and £50m
Direct
Other – leisure
Between £10m and £25m
Indirect
Other – student accommodation
Between £10m and £25m
Direct
Other – car park
Under £5m
Schroder UK Real Estate Fund
24
Audited Consolidated Financial Statements
for the Year Ended 31 March 2015
Report of the Authorised
Corporate Director and
statement of responsibilities
The Financial Statements
Authorised Status
We are pleased to present the Audited
Consolidated Financial Statements of
the Schroder UK Real Estate Fund for
the year ended 31 March 2015.
From 31 July 2012 the Fund was
authorised as an Open-Ended
Investment Fund under Regulation
12 of the Open-Ended Investment
Companies Regulations 2001.
The Fund
Schroder UK Real Estate (the “Fund”) is
an investment Fund with variable capital
incorporated in England and Wales
under registered number IC000945
and authorised by the FCA with effect
from 31 July 2012. 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.
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.
Annual General Meetings
The ACD’s report and accounts for
The Fund will not be holding any Annual the year ended 31 March 2015 were
signed on 29 June 2015 on behalf of
General Meetings.
the ACD by:
Statement of Responsibilities
J. Walker-Hazell The Financial Conduct Authority’s
Collective Investment Schemes
Sourcebook (COLL) requires the
Authorised Corporate Director (ACD)
P. Wallace
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
Schroder Unit Trusts Limited
of its net revenue and the net capital
gains on the property of the fund for the 29 June 2015
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.
Schroder UK Real Estate Fund
Audited Consolidated Financial Statements
for the Year Ended 31 March 2015
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”).
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
The Schroders remuneration philosophy paid to AIFM Remuneration Code Staff
aims to reward performance and
at the time of this report.
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
25
Schroder UK Real Estate Fund
26
Audited Consolidated Financial Statements
for the Year Ended 31 March 2015
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 Group
(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.
The Investment Manager confirms that
these limits have not been breached in
the year to 31 March 2015.
Other risk controls such as Product
Limits shown in the table below
are also monitored as part of SIRF
which is a Group-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 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.
Legal limits
Product limits
Minimum 60% its assets (NAV) must form part of its Property Investment
Business
Sector exposure: Maximum absolute load difference +/- 50% vs benchmark.
Maximum divergence of central London +/- 10%. Maximum divergence in
alternatives +/- 10%.
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)
Investment in a single indirect vehicle: 15% NAV
Aggregate investment in indirect vehicles: 35% NAV
Aggregate investment in joint ventures: 35% NAV
Maximum borrowing (on/off balance sheet): 25% NAV
Investment in UK property related listed securities: aggregate 10% NAV –
individual 2.5% NAV
Investment on and off balance sheet in shorter/medium term leaseholds (less
than 50 years): 20% NAV
Maximum investment in undeveloped and non income producing land: 10%
NAV
Maximum speculative development: 15% 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
Schroder UK Real Estate Fund
Audited Consolidated Financial Statements
for the Year Ended 31 March 2015
Independent Property
Valuers’ Reports
BNP Paribas Real Estate
affect the properties and our valuations We have been provided with
As Standing Independent Valuer for the assume the properties are not adversely information from the relevant Property
Managers including tenancy schedules
Fund, we have valued immovables held affected by any form of pollution.
and floor areas and assumed that the
by the Fund as at 31 March 2015 in
In our opinion the aggregate of the
Fund’s interests are not subject to any
accordance with The Royal Institution of market values of the 46 immovables
onerous restrictions, to the payment
Chartered Surveyors and International
owned by the Fund as at 31 March
of any unusual outgoings or to any
Valuation Standards (RICS) and in
2015 was £1,174.305million. This figure
charges, easements or rights of way,
accordance with the COLL 8.4.13R
represents the aggregate of the values
other than those to which we have
of the Collective Investment Schemes
attributable to the individual immovables
referred in our reports. We rely upon the
Sourcebook. Schroder Unit Trusts
and should not be regarded as a
Property Manager to keep us advised
Limited, as ACD of the Fund, has been valuation of the portfolio as a whole in
of any changes that may occur in the
provided with a full valuation certificate
the context of a sale as a single lot.
investments. We are not instructed
and report. The immovables have
In
the
case
of
the
immovables
in
the
to carry out structural surveys nor
been valued on the basis of Market
course
of
development,
our
valuations
test any of the service installations.
Value as defined by the RICS Valuation
reflect
the
stage
reached
in
construction
Our valuations therefore have regard
Standards subject to existing leases.
and the costs already incurred at the
only to the general condition of the
Details of the nature and extent of
date of valuation. We have had regard
properties evident from our inspections.
the immovables, the tenure and
to the contractual liabilities of the parties We have assumed that no materials
tenancies, permitted uses, town
involved in the developments and
have been used in the buildings which
planning consents and related
any cost estimates which have been
are deleterious, hazardous or likely to
matters, have been supplied by the
prepared by professional advisers.
cause structural defects. We are not
Investment Manager, Schroder Real
instructed to carry out investigations
No allowance is made in our valuations
Estate Investment Management
into pollution hazards which might
for the costs of realisation, any liability
Limited (SREIM). The majority of the
affect the properties and our valuations
for tax which might arise on the event
properties form the subject of detailed
assume the properties are not adversely
of disposal or for any mortgage or
reports from ourselves. We have seen
affected by any form of pollution.
similar financial encumbrance over the
copies of all the leases but we have
property. Our valuations exclude VAT.
In our opinion the aggregate of the
not examined the title documents and
market values of the 9 immovables
we have therefore assumed that the
BNP Paribas Real Estate
owned by the Fund as at 31 March
Fund’s interests are not subject to any
2015 is £70.51million. This figure
31 March 2015
onerous restrictions, to the payment
represents the aggregate of the values
of any unusual outgoings or to any
Allsops LLP
attributable to the individual immovables
charges, easements or rights of way,
and should not be regarded as a
As Independent Valuer for the Fund,
other than those to which we have
valuation of the portfolio as a whole in
referred in our reports. We rely upon the we have valued immovables held
the context of a sale as a single lot.
by
the
Fund
as
at
31 March
2015
in
Investment Manager to keep us advised
accordance
with
The
Royal
Institution
of
of any changes that may occur in the
In the case of the immovables in the
Chartered Surveyors and International
investments. We are not instructed
course of development, our valuations
Valuation Standards (RICS) and in
to carry out structural surveys nor
reflect the stage reached in construction
accordance with the COLL 8.4.13R
test any of the service installations.
and the costs already incurred at the
of the Collective Investment Schemes
Our valuations therefore have regard
date of valuation. We have had regard
Sourcebook. Schroder Unit Trusts
only to the general condition of the
to the contractual liabilities of the parties
properties evident from our inspections. Limited, as ACD of the Fund, has been involved in the developments and
provided with a full valuation certificate
We have assumed that no materials
any cost estimates which have been
and report. The immovables have
have been used in the buildings which
prepared by professional advisers.
been valued on the basis of Market
are deleterious, hazardous or likely to
Value as defined by the RICS Valuation
cause structural defects. We are not
Standards subject to existing leases.
instructed to carry out investigations
into pollution hazards which might
27
Schroder UK Real
Estate
Fund
Property
Fund
28
Audited
Consolidated
Financial
Statements
Audited Consolidated
Financial
Statements
31 March 2013
for the Year Ended 31 March 2015
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.
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
Knight Frank
represents the aggregate of the values
attributable to the individual immovables
As Independent Valuer for the Fund,
and should not be regarded as a
we have valued immovables held
valuation of the portfolio as a whole in
by the Fund as at 31 March 2015 in
accordance with The Royal Institution of the context of a sale as a single lot.
Chartered Surveyors and International
In the case of the immovables in the
Valuation Standards (RICS) and in
course of development, our valuations
accordance with the COLL 8.4.13R
reflect the stage reached in construction
of the Collective Investment Schemes
and the costs already incurred at the
Sourcebook. Schroder Unit Trusts
date of valuation. We have had regard
Limited, as ACD of the Fund, has been to the contractual liabilities of the parties
provided with a full valuation certificate
involved in the developments and
and report. The immovables have
any cost estimates which have been
been valued on the basis of Market
prepared by professional advisers.
Value as defined by the RICS Valuation
No allowance is made in our valuations
Standards subject to existing leases.
for the costs of realisation, any liability
We have been provided with
for tax which might arise on the event
information from the relevant Property
of disposal or for any mortgage or
Managers including tenancy schedules similar financial encumbrance over the
and floor areas and assumed that the
property. Our valuations exclude VAT.
Fund’s interests are not subject to any
Knight Frank
onerous restrictions, to the payment
31 March 2015
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
Allsops LLP
31 March 2015
Schroder UK Real Estate Fund
Audited Consolidated Financial Statements
for the Year Ended 31 March 2015
Depositary’s Report and
statement of responsibilities
Statement of Responsibilities
Depositary’s Report
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.
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:
It is the duty of the depositary to take
reasonable care to ensure that the Fund
is managed in accordance with the
(i)has carried out the issue, sale,
FCA’s Collective Investment Schemes
redemption and cancellation, and
Sourcebook (COLL), as amended, the
calculation of the price of the Fund’s
Open-Ended Investment Companies
shares and the application of the
Regulations 2001 (SI 2001/1228), as
Fund’s revenue in accordance with
amended (‘the OEIC Regulations’), the
COLL and, where applicable, the
Fund’s instrument of incorporation and
OEIC Regulations, the instrument of
prospectus, in relation to the pricing of,
incorporation and prospectus of the
and dealings in, shares in the Fund; the
Fund, and
application of revenue of the Fund; and
(ii)has observed the investment and
the investment and borrowing powers
borrowing powers and restrictions
applicable to the Fund.
applicable to the Fund.
Natwest PLC
29 June 2015
29
30
Schroder UK Real Estate Fund
Audited Consolidated Financial Statements
for the Year Ended 31 March 2015
Schroder UK Real Estate Fund
31
Audited Consolidated Financial Statements
for the Year Ended 31 March 2015
Battersea Studios London SW8
Schroder UK Real Estate Fund
32
Audited Consolidated Financial Statements
for the Year Ended 31 March 2015
Portfolio statement
Direct Properties
Sector
Market Value
£’000 at
31 March 2015
Total Net
assets %
Market Value
£’000 at
31 March 2014
Total Net
assets %
110,580
5.7%
157,675
10.6%
327,725
16.9%
287,089
19.3%
Direct Properties up to £10m
Bristol – Maggs House
Standard Retail
Stanmore – Buckingham House
Standard Retail
Shipley – 20/40 Market Square
Standard Retail
Loughton – 195 - 200 High Road
Standard Retail
Woodley – 81/129, Crockhamwell Road, Reading
Standard Retail
Kingston Upon Thames – Clarence St
Standard Retail
Dunfermline – Units 1-11 Duloch Park
Standard Retail
Birmingham – 40/60 High Street, Harborne
Reading – New Century Place
Slough – Capital Point, 33 Bath Road
Standard Retail
South East Offices
South East Offices
Ipswich – Asterbury Place
Other – Care Homes
Lowestoft – Roman Hill
Other – Care Homes
Mildenhall Great Heath
Other – Care Homes
Haverhill – Chalkstone
Other – Care Homes
Framlingham – Mills Meadow
Other – Care Homes
Croydon – Car Park
Other – car park
Livingston Limefields (Land)
Industrial
York – Alexandra Court
Industrial
Greenford – Land at Rockware Ave.
Industrial
Cannock – Land at Walkmill Lane
Industrial
Livingston XL (Land)
Industrial
Total Market Value up to £10m
Direct Properties between £10m and £25m
Loughton – 202-226 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, 117-123 Kingsway
Central London Offices
London EC15 – Jubilee House
Central London Offices
London EC2 – Appold Street
Central London Offices
London WC2 – 53 Parker Street
Total Market Value between £10m and £25m
Central London Offices
Industrial
Schroder
UK
Real
EstateFund
Fund
Schroder
UK
Property
33
Audited
Consolidated
Statements31 March 2013
Audited
ConsolidatedFinancial
Financial Statements
for the Year Ended 31 March 2015
Portfolio statement
Direct Properties
Sector
(continued)
Market Value
£’000 at
31 March 2015
Total Net
assets %
Market Value
£’000 at
31 March 2014
Total Net
assets %
622,375
32.1%
614,075
41.2%
Direct Properties between £25m and £50m
York – Monks Cross
Truro – Lemon Quay
Standard Retail
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
Colchester – Turner Rise
Cardiff – St William House
Retail Warehouse
Retail Warehouse
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
Direct Properties greater than £50m
Reading – Davidson House
Cardiff – Mermaid Quay
South East Offices
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
Total Direct Properties
350,100
18.1%
159,625
10.7%
1,410,780
72.9%
1,218,464
81.8%
Joint Ventures
Gilbran Property Unit Trust
Standard Retail
22,159
1.1%
–
–
Motor Retail LP
Standard Retail
29,630
1.5%
27,791
1.9%
Bracknell PUT
Retail
66,435
3.4%
67,721
4.5%
City Tower Unit Trust
Office
76,972
4.0%
–
–
Residential and Office
683
0.0%
–
–
2.0%
Ruskin Sq LLP
West India Quay UT
Store Unit Trust
Other – leisure
31,000
1.6%
29,900
Central London Office
34,294
1.9%
–
–
261,173
13.5%
125,412
8.4%
Retail Warehouse
15,965
0.8%
14,327
1.0%
Other – student
accommodation
19,506
1.0%
18,424
1.2%
Total Joint Ventures
Collective Investment Schemes
Henderson UK Retail Warehouse
UNITE UK Student Accommodation Fund
City of London Office UT
Central London Office
236
0.0%
238
0.1%
WELPUT
Central London Office
59,459
3.1%
49,873
3.3%
Total Collective Investment Schemes
Portfolio of investments
Net other assets (including cash)
Net Assets
95,166
4.9%
82,862
5.6%
1,767,119
91.3%
1,426,738
95.8%
169,148
8.7%
62,722
4.2%
1,936,267
100.0%
1,489,460
100.0%
Schroder UK Real
Estate
Fund
Property
Fund
34
Audited
Consolidated
Financial
Statements
Audited Consolidated
Financial
Statements
31 March 2013
for the Year Ended 31 March 2015
Independent auditors’ Report
To the Shareholders of Schroder UK Real Estate Fund
Report on the financial
statements
Our opinion In our opinion the Group financial
statements, defined below:
–– give a true and fair view of the
financial position of the Group and
the Fund as at 31 March 2015 and
of the net revenue, the net capital
gains of the scheme property and
the cash flows of the Group 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 Group financial statements of
Schroder UK Real Estate Fund, which
are prepared by Schroder Unit Trusts
Limited (the “Authorised Corporate
Director”), comprise:
–– the Group and Fund balance sheet
as at 31 March 2015;
–– the Group and Fund statement of
total return for the year then ended;
–– the Group and Fund statement of
change in net assets attributable
to shareholders for the year then
ended;
–– the Group and Fund cash flow
statement for the year then ended;
–– the notes to the Group and Fund’s
financial statements’, which include
a summary of significant accounting
policies and other explanatory
information; and
–– the reasonableness of significant
accounting estimates made by
the Authorised Corporate Director;
and the overall presentation of the
financial statements.
–– the distribution table
In addition, we read all the financial
and non-financial information in
The financial reporting framework
the Report and Audited Financial
that has been applied in their
Statements (the “Annual Report”)
preparation is applicable law and
to identify material inconsistencies
United Kingdom Accounting Standards
with the audited financial statements
(United Kingdom Generally Accepted
and to identify any information that
Accounting Practice), the Statement
is apparently materially incorrect
of Recommended Practice ‘Financial
based on, or materially inconsistent
Statements of Authorised Funds’
with, the knowledge acquired by
issued by the Investment Management
us in the course of performing the
Association (the “Statement of
audit. If we become aware of any
Recommended Practice for Authorised
apparent material misstatements
Funds”), the Collective Investment
or inconsistencies we consider the
Schemes sourcebook and the
implications for our report.
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
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
We conducted our audit in accordance
which the financial statements are
with International Standards on
prepared is consistent with the
Auditing (UK and Ireland) (“ISAs (UK &
financial statements.
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;
Schroder UK Real Estate Fund
Audited Consolidated Financial Statements
for the Year Ended 31 March 2015
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 4.5.12 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.
35
Schroder UK Real Estate Fund
36
Audited Consolidated Financial Statements
for the Year Ended 31 March 2015
Statement of total
return
Notes
Group
Year Ended
31 March
2015
£’000
Schroder UK
Real Estate Fund
Year Ended
31 March 2015
£’000
Group
Year Ended
31 March
2014
£’000
Schroder UK
Real Estate Fund
Year Ended
31 March 2014
£’000
Net capital gains / (losses)
4
209,350
209,350
107,262
107,262
Revenue
5
Income
Gain attributable to minority
interest
Expenses
6
94,402
92,020
80,409
77,078
5
–
3
–
(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
Total return before distribution
Finance costs: distributions
7
Change in net assets
attributable to shareholders
from investment activities
65,083
65,083
54,356
54,356
274,433
274,433
161,618
161,618
(70,321)
(70,321)
(58,392)
(58,392)
204,112
204,112
103,226
103,226
Statement of Change in
Net Assets Attributable
to Shareholders
Group
Year Ended
31 March
2015
£’000
Schroder UK
Real Estate Fund
Year Ended
31 March 2015
£’000
Group
Year Ended
31 March
2014
£’000
Schroder UK
Real Estate Fund
Year Ended
31 March 2014
£’000
1,489,460
1,489,460
1,228,044
1,228,044
Amounts receivable on
creation of shares
242,695
242,695
158,190
158,190
Change in net assets
attributable to shareholders
from investment activities
204,112
204,112
103,226
103,226
1,936,267
1,936,267
1,489,460
1,489,460
Notes
Opening net assets
attributable to shareholders
Closing net assets
attributable to shareholders
Schroder UK Real Estate Fund
37
Audited Consolidated Financial Statements
for the Year Ended 31 March 2015
Balance Sheet
Notes
Group
as at
31 March 2015
£’000
Schroder UK Real
Estate Fund
as at
31 March 2015
£’000
Group
as at
31 March 2014
£’000
Schroder UK Real
Estate Fund
as at
31 March 2014
£’000
1,410,780
1,263,965
1,218,464
1,104,279
95,166
95,166
82,862
82,862
ASSETS
Investment Assets
Investment Property
Investment in Collective Investment Schemes
Investment in Subsidiaries
9
Investment in Joint Ventures
Total Investment Assets
Debtors
10
Cash and bank balances
11
Total other assets
Total assets
–
172,114
–
115,880
261,173
260,490
125,412
125,412
1,767,119
1,791,735
1,426,738
1,428,433
34,033
25,750
22,074
21,366
169,628
150,126
80,898
73,547
203,661
175,876
102,972
94,913
1,970,780
1,967,611
1,529,710
1,523,346
27,168
25,130
29,960
28,235
6,214
6,214
5,651
5,651
1,131
–
939
–
–
–
3,700
–
34,513
31,344
40,250
33,886
1,936,267
1,936,267
1,489,460
1,489,460
LIABILITIES
Creditors
12
Distribution payable
Net assets attributable to third party
minority investors
Long term liabilities – Loans
13
Total liabilities
Net assets attributable to shareholders
Cash flow statement
Net cash inflow from operating activities
Notes
Group
Year Ended
31 March 2015
£’000
Schroder UK Real
Estate Fund
Year Ended
31 March 2015
£’000
Group
Year Ended
31 March 2014
£’000
Schroder UK Real
Estate Fund
Year Ended
31 March 2014
£’000
16
50,332
57,595
71,102
66,598
(69,707)
(69,707)
(56,795)
(56,795)
165
129
253
230
(69,542)
(69,578)
(56,542)
(56,565)
Servicing of finance
Distributions paid
Interest received
Total cash outflow from servicing of finance
Financial investments
Purchases of investments
(158,557)
(189,572)
(279,084)
(284,754)
Sales of investments
62,560
62,560
136,763
136,763
Capital expenditure
(38,758)
(27,121)
(40,406)
(30,311)
(134,755)
(154,133)
(182,727)
(178,302)
242,695
242,695
158,190
158,190
–
–
–
–
242,695
242,695
158,190
158,190
88,730
76,579
(9,977)
(10,079)
Total cash (outflow) from financial
investments
Financing
Amounts received on issue of shares
Amounts paid on cancellation of shares
Total cash inflow from financing
Increase/ (decrease) in cash in the year
Net cash at the start of the year
80,898
73,547
90,875
83,626
Net cash at the end of the year
169,628
150,126
80,898
73,547
Schroder UK Real Estate Fund
38
Audited Consolidated Financial Statements
for the Year Ended 31 March 2015
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.
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
(e)Recognition of revenue
Kingdom companies or, in general, from
Rental revenue, deposit interest, income
non-United Kingdom companies will
from collective investment schemes
also be exempt from tax.
and other revenue is accounted for
on an accruals basis. The cost of
The Fund would, however, be subject
any up front lease incentives offered
to corporation tax in the event that
is recognised as a reduction in rental
there should be a net balance of other
income and allocated over the shorter
income, which will generally consist of
of the lease term or the period until the interest but could include other property
first rent review date in accordance
income, less deductible expenses
with UITF28. Service charge income
(including interest distributions).
and expenses are included in revenue
Under the PAIF regulations, the
and other property operating expenses
Fund make distributions gross to
respectively. Interest receivable and
the sole share class in an issue
payable are accounted for on an
during the period.
accruals basis. Provisions for doubtful
debts are taken as a reduction to rental 2. Distribution Policies
revenue and recognised where debts
(a)Basis of distribution
are outstanding for greater than Revenue is generated by the Fund’s
six months.
investments during each accounting
(f) Treatment of management
period. Where revenue exceeds
expenses
expenses, the net income of the
Fees are recognised on an accruals
Fund is available to be distributed to
basis and are charged in full to the
shareholders. All income is distributed,
Statement of Total Return. The
at share class level, to the shareholders
Schroder UK Real Estate Fund
Audited Consolidated Financial Statements
for the Year Ended 31 March 2015
notes to the financial statements
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
(continued)
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 31 March 2015.
39
40
Schroder UK Real Estate Fund
Audited Consolidated Financial Statements
for the Year Ended 31 March 2015
notes to the financial statements
(continued)
4. Net capital gains
Group
Year Ended
31 March 2015
£’000
Schroder UK Real
Estate Fund
Year Ended
31 March 2015
£’000
Group
Year Ended
31 March 2014
£’000
Schroder UK Real
Estate Fund
Year Ended
31 March 2014
£’000
Gains for the period on
direct properties
191,805
167,136
87,354
85,110
Gains for the period on
Collective Investment
Schemes
12,340
37,693
12,086
14,330
Gains for the period on
Joint ventures
5,205
4,521
7,822
7,822
209,350
209,350
107,262
107,262
Net gains on
investment properties
For both the Fund and the Group year ended 31 March 2015 £5.5million out of
£209.4million net gains were realised gains (2014: £34.5million out of £107.3million).
5.Revenue
Group
Year Ended
31 March 2015
£’000
Bank and deposit
interest
Schroder UK Real
Estate Fund
Year Ended
31 March 2015
£’000
Group
Year Ended
31 March 2014
£’000
Schroder UK Real
Estate Fund
Year Ended
31 March 2014
£’000
165
129
253
230
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
144
104
623
598
94,402
92,020
80,409
77,078
6.Expenses
Group
Year Ended
31 March 2015
£’000
Investment Management
Fees
Schroder UK Real
Estate Fund
Year Ended
31 March 2015
£’000
Group
Year Ended
31 March 2014
£’000
10,836
10,475
Depositary fee
266
266
215
215
Valuers fee
436
397
372
340
Audit fee
8,377
Schroder UK Real
Estate Fund
Year Ended
31 March 2014
£’000
8,072
180
137
195
150
10,691
9,908
8,759
7,421
Other company level
expenses
1,419
773
1,002
358
Other property operating
expenses
5,496
4,981
7,136
6,166
29,324
26,937
26,056
22,722
Service charge expense
Total expenses
Schroder UK Real Estate Fund
41
Audited Consolidated Financial Statements
for the Year Ended 31 March 2015
7. Finance Costs: distributions
Group
Year Ended
31 March 2015
£’000
April
5,785
Schroder UK
Real Estate Fund
Year Ended
31 March 2015
£’000
5,785
Group
Year Ended
31 March 2014
£’000
4,285
Schroder UK
Real Estate Fund
Year Ended
31 March 2014
£’000
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
70,321
70,321
58,392
58,392
Gross distribution for the
year
Difference between net revenue after taxation and the distribution paid is analysed as follows:
Group
Year Ended
31 March 2015
£’000
Net revenue after taxation for
the year
Expenses taken to capital
Gross distribution
65,083
Schroder UK
Real Estate Fund
Year Ended
31 March 2015
£’000
65,083
Group
Year Ended
31 March 2014
£’000
54,356
Schroder UK
Real Estate Fund
Year Ended
31 March 2014
£’000
54,356
5,238
5,238
4,036
4,036
70,321
70,321
58,392
58,392
8.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 31 March 2015 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.
42
Schroder UK Real Estate Fund
Audited Consolidated Financial Statements
for the Year Ended 31 March 2015
notes to the financial statements
(continued)
Group
Year Ended
31 March 2015
£’000
Schroder UK
Real Estate Fund
Year Ended
31 March 2015
£’000
Corporation tax at 20%
–
–
–
–
Current tax charge
–
–
–
–
Group
Year Ended
31 March 2014
£’000
Schroder UK
Real Estate Fund
Year Ended
31 March 2014
£’000
(a) Analysis of charge in period
(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:
Group
Year Ended
31 March 2015
£’000
Schroder UK
Real Estate Fund
Year Ended
31 March 2015
£’000
Group
Year Ended
31 March 2014
£’000
Schroder UK
Real Estate Fund
Year Ended
31 March 2014
£’000
274,433
274,434
161,618
161,618
54,887
54,887
32,324
32,324
(54,887)
(54,887)
(32,324)
(32,324)
Total return before distribution
Corporation tax at 20%
Effects of:
Revenue not subject to taxation
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 Valuation at
Capital
Capital
March 2015 1 April 2014 contributions distributions
Net capital
gains
Valuation at
31 March
2015
Croydon Gateway Unit Trust
98.0
47,913
31,015
–
13,806
92,734
Hackbridge Unit Trust
99.0
33,406
–
–
7,266
40,672
Lombard Street Unit Trust
99.0
25,013
–
–
4,281
29,294
Capital Point Slough Unit
Trust
99.0
9,262
–
–
–
9,262
100.0
286
–
(134)
–
152
31,015
(134)
25,353
172,114
Hackbridge Limited
115,880
At 31 March 2015, 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 2005.
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.
Schroder UK Real Estate Fund
43
Audited Consolidated Financial Statements
for the Year Ended 31 March 2015
10. Debtors
Group
as at
31 March 2015
£’000
Schroder UK Real
Estate Fund
as at
31 March 2015
£’000
Group
as at
31 March 2014
£’000
Schroder UK Real
Estate Fund
as at
31 March 2014
£’000
Rent receivable net of
provision for doubtful debts
2,937
2,683
2,286
2,215
Distributions due from
collective investment
schemes
3,643
4,050
2,238
2,470
Tenant deposits
6,460
6,445
6,352
6,352
UITF 28 accrued rents
receivable
5,929
5,468
3,436
3,436
922
821
1,881
1,155
Monies due from
managing agents
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
34,033
25,750
22,074
21,366
UITF 28 unamortised
lease incentives
Total Debtors
Monies due from associates relates to loans between Croydon Gateway Limited Partnership
and Ruskin Square Phase One LLP.
11. Cash and bank balances
Group
as at
31 March 2015
£’000
Cash and bank balances
Schroder UK Real
Estate Fund
as at
31 March 2015
£’000
Group
as at
31 March 2014
£’000
Schroder UK Real
Estate Fund
as at
31 March 2014
£’000
44,628
25,126
30,898
23,547
Deposits
125,000
125,000
50,000
50,000
Total Cash and bank
balances
169,628
150,126
80,898
73,547
12. Creditors
Group
as at
31 March 2015
£’000
Trade creditors
Deferred Rental Income
Schroder UK Real
Estate Fund
as at
31 March 2015
£’000
Group
as at
31 March 2014
£’000
Schroder UK Real
Estate Fund
as at
31 March 2014
£’000
37
37
33
33
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
981
981
723
723
2,835
1,998
5,866
4,564
27,168
25,130
29,960
28,235
Accrued SREF investment
management fee
Other creditors and
accruals
Total Creditors
44
Schroder UK Real Estate Fund
Audited Consolidated Financial Statements
for the Year Ended 31 March 2015
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 2015
14. Contingent liabilities and commitments
As at 31 March 2015, 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 31 March 2014
£13.0million had been spent, and the commited balance was £26.8million.
15. Reconciliation of movement in net cash
Group Year Ended
31 March 2015
£’000
Schroder UK Real Estate
Fund Year Ended
31 March 2015
£’000
Cash and cash equivalents
As at 1 April 2014
80,898
Cashflows
As at 31 March 2015
73,547
88,730
76,579
169,628
150,126
16. Reconciliation of net revenue before taxation to net cash inflow
from operating activities
Group
Year ended
31 March 2015
£’000
Schroder UK Real
Estate Fund Year
Ended
31 March 2015
£’000
Group
Year ended
31 March 2014
£’000
Schroder UK Real
Estate Fund
Year ended
31 March 2014
£’000
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
50,331
57,595
71,102
66,598
As at 31 March 2015
17. Related parties
(a) Fees receivable by the Depositary
As depositary, Natwest plc is entitled to a fee equivalent to 0.0224% per annum on the
first £500million of the Fund’s Net Asset Value (NAV) and 0.0125% 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.
Schroder UK Real Estate Fund
45
Audited Consolidated Financial Statements
for the Year Ended 31 March 2015
(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 Group level.
Schroder UK
Real Estate Fund as at
31 March 2015
£’000
Natwest plc
Schroder Real Estate Investment Management Ltd
Schroder Unit Trusts Limited
Schroder UK
Real Estate Fund as at
31 March 2014
£’000
23
35
899
723
82
162
(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 Group level.
Schroder UK
Real Estate Fund Year to
31 March 2015
£’000
Schroder UK
Real Estate Fund year to
31 March 2014
£’000
Bracknell Property Unit Trust
1,419
816
Motor Retail Limited Partnership
1,722
1,513
322
212
Capital Point Slough Unit Trust
713
626
West End of London Propery Unit Trust
986
731
2,451
–
25
–
Gilbran Property Unit Trust
637
–
Hercules Unit Trust
221
–
Lombard Street Unit Trust
City Tower Unit Trust
Store Unit Trust
(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 31 March 2015, 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 Group level at 31 March 2015
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 Group’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.
Schroder UK Real Estate Fund
46
Audited Consolidated Financial Statements
for the Year Ended 31 March 2015
notes to the financial statements
(continued)
19. Portfolio transaction costs
There is no difference between the Fund and the Group level with respect to the portfolio
transaction costs.
For the year ended
31 March 2015
£’000
For the year ended
31 March 2014
£’000
189,572
260,311
1,110
9,157
Analysis of total purchase costs
Purchases in year before transaction
costs
Stamp Duty
Legal Fees
111
1,108
Agents Fees
278
2,130
32
599
Other Fees
Total purchase costs
1,531
12,994
Gross purchase total
191,103
273,305
For the year ended
31 March 2015
£’000
For the year ended
31 March 2014
£’000
62,560
137,435
Legal Fees
210
191
Agents Fees
463
1,009
0
36
Analysis of total sales costs
Gross sales in year before
transaction costs
Other Fees
Total sales costs
Total sales net of transaction costs
673
1,236
61,887
136,199
20. Subsequent events
On 23 June 2015 the Schroder UK Real Estate Fund acquired a portfolio of assets in
Hammersmith for £153million.
Schroder UK Real Estate Fund
47
Audited Consolidated Financial Statements
for the Year Ended 31 March 2015
Distribution table
Monthly distributions payable for the year ended 31 March 2015 in pence per unit. There
were two share classes at 31 March 2015, a gross share class and a net share class.
Apr-14
May-14
Jun-14
Jul-14
Aug-14
Sep-14
13.280518
13.195050
13.009631
12.185308
12.306445
12.260089
Gross Income Shares
Gross revenue
Income tax
–
–
–
–
–
–
Net revenue
13.280518
13.195050
13.009631
12.185308
12.306445
12.260089
Final distribution payable
13.280518
13.195050
13.009631
12.185308
12.306445
12.260089
Oct-14
Nov-14
Dec-14
Jan-15
Feb-15
Mar-15
12.036931
12.056387
11.804000
12.539145
13.507647
12.768422
Gross Income Shares
Gross revenue
Income tax
–
–
–
–
–
–
Net revenue
12.036931
12.056387
11.804000
12.539145
13.507647
12.768422
Final distribution payable
12.036931
12.056387
11.804000
12.539145
13.507647
12.768422
Apr-14
May-14
Jun-14
Jul-14
Aug-14
Sep-14
Net Income Shares
Gross revenue
13.280518
13.195050
13.009631
12.185308
12.306445
12.260089
Income tax
(2.656104)
(2.639010)
(2.601926)
(2.437062)
(2.461289)
(2.452018)
Net revenue
10.624414
10.556040
10.407705
9.748246
9.845156
9.808071
Final distribution payable
10.624414
10.556040
10.407705
9.748246
9.845156
9.808071
Oct-14
Nov-14
Dec-14
Jan-15
Feb-15
Mar-15
Net Income Shares
Gross revenue
12.036931
12.056387
11.804000
12.539145
13.507647
12.768422
Income tax
(2.407386)
(2.411277)
(2.360800)
(2.507829)
(2.701529)
(2.553684)
Net revenue
9.629545
9.645110
9.443200
10.031316
10.806118
10.214738
Final distribution payable
9.629545
9.645110
9.443200
10.031316
10.806118
10.214738
Schroder UK Real Estate Fund
48
Report for the Year Ended 31 March 2015
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 IC000945 and authorised by
the FSA with effect from 31 July 2012.
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 Group, 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 www.schroders.
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 31 March 2015 that
were not settled. Further, there were
no suspension of valuations and/or
redemptions at 31 March 2015.
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
Schroder UK Real Estate Fund
49
Report for the Year Ended 31 March 2015
where dealing has been suspended
as set out in section 2.21 of the
Prospectus.
www.schroders.com/sref or from
the Investment Manager.
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 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 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.
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:
Secondary Market
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.
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
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 email 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.
Q1 2015
Q4 2014
Q3 2014
Q2 2014
Q1 2014
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.
Q4 2013
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.
Q1 2013
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
Q3 2013
Q2 2013
Q4 2012
Q3 2012
Q2 2012
Q1 2012
Q4 2011
Q3 2011
Q2 2011
Q1 2011
0
10
20
30
40
50
60
Source: Schroders March 2015
70
80
Schroder UK Real Estate Fund
50
Report for the Year Ended 31 March 2015
Unaudited General information
Fund Codes
notes 6 and 16 of the audited Report
and Financial Statements. In summary:
Code
Bloomberg
ISIN Sedol (continued)
SCEXPUT LN
GB00B8215Z66
B8215Z6
Prices for the Schroder UK Real Estate
Fund can be obtained from
http://www.schroders.com/sref.
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
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 0.0224% per
annum of the first £500m of NAV and
0.0125% 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 31 March 2015, 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
Schroder UK Real Estate Fund
Report for the Year Ended 31 March 2015
Vision handbook. SREF’s page on the
AREF website can be found at http://
www.aref.org.uk/funds/schroder-ukrealestate-fund
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 www.schroders.
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 Group Compliance or such
other parties in accordance with the
Group’s conflict of interest policy.
Disaster recovery
Schroder Group 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)20 7658 6000
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)20 7658 3552
James Lass
Fund Manager
james.lass@schroders.com
+44 (0)20 7658 3980
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) 870 870 8059
Fax: +44 (0) 20 7643 3892
Email: schrodersenquiries@ntrs.com
51
52
Schroder UK Real Estate Fund
Report for the Year Ended 31 March 2015
Key service providers
Authorised Corporate Director
Schroder Unit Trusts Limited
31 Gresham Street
London
EC2V 7QA
Depositary
National Westminster Bank plc
135 Bishopsgate
London
EC2M 3UR
Investment Manager
Schroder Real Estate Investment
Management Limited
31 Gresham Street
London
EC2V 7QA
Standing Independent Valuers
BNP Paribas Real Estate Advisory
& Property Management Limited
90 Chancery Lane
London
WC2A 1EU
Schroder Unit Trusts Limited and Schroder Real
Estate Investment Management are authorised and
regulated by the FCA.
Allsops LLP
33 Wigmore Street
London
W1U 1BZ
Registrar
Northern Trust Global Services Limited
50 Bank Street
Canary Wharf
E14 5NT
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 2015. 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.
Electra, London E16
S
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Issued in June 2015 by Schroder Unit Trusts Limited, 31 Gresham
Street, London, EC2V 7QA. Registered Number 4191730 England.
Authorised and regulated by the Financial Conduct Authority. w47051
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