For professional investors and advisers only
Schroder UK Property Fund
Report and Audited Consolidated
Financial Statements
For the Period Ended 31 March 2013
Schroder UK Property Fund
Report to 31 March 2013
Photography: Monks Cross, York.
Schroders Group
Schroders is a global asset management company with
£236.5 (€279.7/US$359.2) billion under management at
31 March 2013. Our clients include corporations, insurance
companies, local and 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 over 300 portfolio managers
and analysts covering investment markets, we offer our
clients a comprehensive range of products and services.
Schroder Property
Investment management
Schroders has managed property funds since 1971 and
had £10.5 (€12.4/US$15.9) billion under management
at 31 March 2013. Schroder Property Investment
Management Limited is the Investment Manager of the
Schroder UK Property Fund.
Our property team employs around 100 people across nine
European offices. We manage a broad range of open and
closed ended property funds offering investors exposure to
both diversified and sector focused portfolios.
Schroder UK Property Fund
Report to 31 March 2013
Contents
03
07
Key Information Summary*
Fund Director’s Report*
Market Overview
Performance Analysis
Investment Strategy
Review of Portfolio Activity
26
Report of the Authorised Corporate Director and statement
of responsibilities*
27
28
29
30
32
33
33
34
34
35
43
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
Unaudited Additional Information
Unaudited General Information
Key Service Providers*
*Collectively these comprise the Authorised Corporate Director’s Report
1
Schroder UK Property Fund
2
Report to 31 March 2013
Photography: Mermaid Quay, Cardiff.
Schroder UK Property Fund
3
Report to 31 March 2013
Key InformatIon
Summary
The Schroder UK Property Fund (SPF or the Fund) is
Schroders’ flagship property fund launched in 19711.
It provides investors with diversified exposure to over
£1.2 billion of UK commercial property and is managed
by our highly experienced property team.
SPF seeks to provide investors with a blend of income
and capital growth through investment in UK property.
Its aim is to return 0.5% per annum (net of fees) above its
benchmark2 over rolling three year periods. It is currently
outperforming over one, two and three years.
For the first time in its 42 year history1 it is available to a
broad range of domestic and international professional
investors seeking to benefit from Schroders’ expertise.
performance
Fund performance to 31 March 2013
12 month performance to 31 March
% Net of Fees
% Net of Fees
7
15
6.1
6
5
4.7
5
4.1
4
2.8
1.8
8.7
11.5
5.3
0.3
-5
1.8
1
6.4
0
3
2
10.2 8.8
10
-10
-15
0.3
0
-20
-1
-25
-1.4
-2
-27.3
-30
-2.0
-3
-30.4
-35
09
20
10
20
1
1
20
3
13
a
ye
rs
rs
a
ye
12
20
20
5
3
rs
a
ye
3
ar
ye
2
1
(%
(%
(%
a.
)
)
)
Benchmark 2
p.
a.
p.
a.
p.
Schroder UK Property Fund
Schroder UK Property Fund
Benchmark2
Source: Schroders/AREF/IPD UK Quarterly Property Fund Index, 31 March 2013. Past performance is not a guide to future returns.
1 Prior to the fund’s conversion to a Property Authorised Investment Fund (PAIF) on 31 July 2012, the Fund was known as the Schroder Exempt Property Unit Trust.
2 Benchmark shown is the AREF/IPD UK Quarterly Property Fund Index – All Balanced Property Fund Index Weighted Average, The Fund benchmark has changed
over time and a composite for 10 years is available upon request. Performance is calculated on a net asset value (NAV) to NAV price basis plus income distributed,
compounded monthly, net of fees and based on an unrounded NAV per share.
3 From 31 March 2012 to 31 July 2012 Schroder Exempt Property Unit Trust returned 0.7%. From 1 August 2012 to 31 March 2013 Schroder UK Property Fund
returned 1.1%. The composite return of these two time periods before and after conversion to a PAIF is 1.8%, which is the quoted annual return for the Fund to end
March 2013.
Schroder UK Property Fund
4
Report to 31 March 2013
Key Information Summary
(continued)
A Portfolio Diversified across the UK 1
Retail – 28.0% GAV
Offices – 38.6% GAV
Industrial – 17.7% GAV
Other property and cash – 15.7% GAV
Scotland
North East
t London
L
Greater
Yorkshire and
Humberside
No
North
W
West
West Midlands
East
Mi
Midlands
East Anglia
Wales
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 Property Fund
5
Report to 31 March 2013
Diversified tenant base
Diversified sector and regional allocation
Tenant profile % (contracted rent)
Segment % GAV
Fujitsu Services Ltd
3.8%
Standard Retail – South East
Lloyds TSB Bank Plc
3.7%
Standard Retail – Rest of UK
3.7%
QVC Ltd
3.4%
Shopping Centres
1.6%
Universal Music Operations Ltd
2.8%
Retail Warehouses
16.3%
Regus (UK) Ltd
2.8%
Offices – Central London
16.5%
Pendragon Plc
2.1%
Offices – South East
16.6%
B&Q Plc
1.9%
6.4%
Offices – Rest of UK
5.6%
Sungard Availability Services (UK) Ltd 1.8%
Industrial – South East
16.9%
Sportsdirect.com Retail Ltd
1.6%
Industrial – Rest of UK
Homebase Ltd
1.6%
Other
9.1%
74.5%
Cash
6.6%
763 other Tenants 1
0.7%
High quality and diversified assets
Top 10 largest holdings
Holding
Bracknell Regeneration Partnership2
Sector
NAV %
Retail
5.2%
QVC, Chiswick Park, London W4
Offices
4.9%
Acorn Industrial Estate, Crayford
Industrial
3.9%
Other – leisure
3.9%
Industrial
3.8%
Retail warehouse
3.7%
Mermaid Quay, Cardiff
Matrix Park Royal, London NW10
Monks Cross Shopping Park, York
Davidson House, Reading
Offices
3.6%
Kensington Village, London W14
Offices
3.2%
West End of London Property Unit Trust (WELPUT)3
Offices
3.2%
Fujitsu Office Complex, Manchester
Offices
Other assets and cash
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 2013.
3.1%
61.5%
6
Schroder UK Property Fund
Report to 31 March 2013
Key Information Summary
(continued)
Portfolio Profile
Performance numbers prior to 1 August 2012 relate to the Schroder Exempt Property Unit
Trust which was converted to Schroder UK Property Fund.
As at/For the
period to
31 March 2013
As at/For the
period to
31 March 2012
Financial Information
Gross Asset Value (GAV)
£1,285.0m
£1,321.7m
Net Asset Value (NAV)
£1,228.0m
£1,248.2m
£31.99
£32.69
38,389,736
38,185,964
£1.278533
£1.340935
NAV per share/unit
Number of shares/units in issue
Gross annual distribution per share/unit1
Distribution yield2
4.0%
4.1%
£1,153.9m
£1,207.8m
Highest price per unit in the period 1 August 2012 to 31 March 2013
£32.48
n/a
Lowest price per unit in the period 1 August 2012 to 31 March 2013
£31.99
n/a
5.0%
6.1%
7.1 Years
7.4 Years
8.5%
7.6%
Total Net asset value of scheme property3
Portfolio Details
Gearing (% NAV)4
Average unexpired lease length
5
Void rate6
Benchmark – void rate6
9.1%
7.8%
Net initial yield7
5.6%
5.4%
Reversionary yield7
6.8%
6.8%
Performance
Annual Total Return8
1.8%
6.4%
Benchmark Total Return
0.3%
5.3%
0.86%
0.81%
Fund total expense ratio
Total Expense Ratio9
Liquidity
Annual number of shares/unit subscriptions10
Annual value of subscriptions10
Annual number of shares/units redeemed11
Annual value of shares/units redeemed11
Annual number of shares/units matched on the secondary market12
Annual value of shares/units matched on the secondary market
12
1For the 8 month period to 31 March 2013, the gross distribution per share
was £0.837070.
2Total distributions paid per share over last 12 months, divided by latest NAV
per share. Calculated gross of tax and net of all fees, expenses and liabilities
(actual, estimated or contingent). For the 8 month period to 31 March 2013
the annualised distribution yield was 3.9%
3The net asset value of the scheme property represents the valuations as
provided by the independent standing valuers and does not include rent
incentive adjustments.
4Gearing is reported on a look through basis during the period under review.
All debt was held in indirect investments during the period.
5To first break or expiry, whichever is sooner.
6Expressed as a % of open market rental value.
7Includes all directly held properties, all joint ventures plus the quoted initial
yield on the indirect funds. Excludes land and development.
203,772
96,766
£6,856,246
£3,309,437
0
528,340
£0
£16,597,516
3,334,793
1,601,732
£100,604,373
£50,665,773
8From 31 March 2012 to 31 July 2012 Schroder Exempt Property Unit Trust
returned 0.7%. From 1 August 2012 to 31 March 2013 Schroder UK Property
Fund returned 1.1%. The composite return of these two time periods before
and after conversion to a PAIF is 1.8%, which is the quoted annual return for
the Fund to end March 2013.
9Total Expense Ratio, as defined by the Association of Real Estate Funds, as %
NAV. For the 8 month period to 31 March 2013, the TER was 0.86%.
10For the 8 month period to 31 March 2013 the number of share subscriptions
was 203,772 with a value of £6.9m.
11For the 8 month period to 31 March 2013 the number of shares redeemed
was nil with a nil value.
12For the 8 month period to 31 March 2013 the number of shares matched
on the secondary market was 2,658,650 with a value of £79.2m.
Schroder UK Property Fund
Report to 31 March 2013
Fund Director’s
Report
Ian Mason
Fund Director
The past year to 31 March 2013 has been a challenging environment across the global
economy. Against this backdrop I am pleased to report that it has been a year of great
progress for the Schroder UK Property Fund (SPF or the Fund).
We worked closely with our investors and the Regulator (at that time the Financial Services
Authority, “FSA”) to convert Schroder Exempt Property Unit Trust (SEPUT) to a Property
Authorised Investment Fund (PAIF). The conversion opens up the Fund to a broad investor
base, including domestic and international professional investors, for the first time in its 42
year history. This should meet a growing demand for investment into high quality real assets
such as UK commercial property.
During this period, the Fund outperformed its benchmark over rolling one, two and three
year periods.
Market Overview
The year to 31 March 2013 was plagued by risk, with the US fiscal cliff, Chinese hard
landing and the eurozone collapse all looming over the global economy. This had negative
implications for UK commercial property, as uncertainty about the global economic
recovery weighed on both investor sentiment and occupational demand. This was
reflected in the performance of UK commercial property, where the IPD (Investment
Property Databank) All Property income return of 6.0% was partly offset by a 2.8% fall
in capital values, leading to a total return of 3.0%1 in the year to 31 March 2013.
Investment Market
The investment market was dominated by two overriding themes. The first was the
continued importance of foreign capital. This is particularly evident in the central London
office market where cross border flows accounted for 57% of all transactions in London
in 20122. Whilst London continues to be the focus of the majority of this foreign capital,
increasingly we are seeing some foreign investors target the regions. The US investor
BioMed Realty Trust purchased a science park in Cambridge for £127 million, whilst we
have also seen global funds active in the student housing sector.
Another persistent feature of the investment market has been the widening of the yield gap
between prime and secondary property and the polarisation between London and the rest
of the UK. In 2012, most investors expressed a preference for prime assets with long income
streams, whilst yields rose in most markets outside of central London as demand for regional
1 Source: IPD Quarterly Index, Q1 2013.
2 Source: Real Capital Analytics.
7
8
Schroder UK Property Fund
Report to 31 March 2013
Fund Director’s Report
(continued)
markets remained subdued. The terms of banks actively lending to commercial property
remained prohibitive on all but the best stock and this exacerbated the prime/secondary
divide. However, from early 2013 we have seen a definite increase in the availability of
property debt. Cushman & Wakefield estimate that greater lending by banks and new
entrants such as debt funds and insurers will boost lending capacity in Europe by around
20% in 2013, compared with 2012. This increase has put downward pressure on loan
margins and we expect that some lenders will be willing to lend again on secondary assets.
Occupational Market
2012 was the high street’s annus horribilis, with a number of high profile retailers going into
administration. The demise of HMV and Peacocks (amongst many others) is symptomatic of
some of the difficulties facing the retail sector; the former losing market share to the internet
while the latter was undermined by high debt financing costs.
The office market is growing increasingly polarised. In central London, demand has remained
fairly resilient although the occupier base is seemingly undergoing a structural change.
The TMT sector drove robust levels of take-up in the West End and fringe central London,
particularly ‘Silicon Roundabout’ to the East, whilst in the City the growth of the insurance
industry is largely offsetting the decline in investment banking. Most provincial office markets
remain subdued although there have been some pockets of growth that have defied the
wider malaise. These include technology clusters such as Cambridge which has also
benefited from the growth of the IT and creative sectors.
Industrial demand was fairly tepid in 2012, with rents broadly flat across most markets.
One ray of light is the UK car manufacturing industry which is enjoying something of a
renaissance and now exports more cars than it imports at any time since 1976. This is
prompting a host of matching initiatives in the supply chain, some of which is creating
demand for industrial units in the regions.
Building 8, Chiswick Park, London, W4.
Schroder UK Property Fund
9
Report to 31 March 2013
Market Outlook
There was a notable pick-up in sentiment in the first few weeks of 2013 as the major tail
risks were judged to have receded, and this sentiment fuelled a rally in the UK stock market.
Similarly, in the property investment market, there has been talk of a move from prime to
secondary, or to be more accurate, moving away from long bond-like leases, up the risk
curve to buildings where returns are more dependant on property fundamentals. More
debt has become available, but even without this, the weight of equity targeting the sector
remains strong and we anticipate that any quality assets (perceived as ‘good secondary’) will
be bid for competitively.
It is, however, important to understand that what is driving other markets (such as corporate
bonds and equities) is more a hunt for yield rather than a conviction that a significant
economic recovery is imminent. The underlying economy in the UK remains weak. While the
economy showed some signs of improvement in early 2013, we expect occupier demand in
most markets to remain subdued.
One area where performance has been more resilient is ‘alternative’ property sectors,
such as student accommodation, healthcare and leisure. In these sectors demand tends to
be less correlated to the broader economic cycle and some are benefiting from long term
structural change. ‘Alternative’ property sectors outperformed the traditional property sectors
in the past year and we expect this trend to continue.
We do believe that UK property will continue to enjoy strong and sustained support from
investors. As the chart below shows, it provides a relatively high and secure income stream
and with a rally in investment market sentiment, we would expect valuations to stabilise
and even in some instances to have strengthened before the end of the second quarter.
Prospects for the market in 2013 could be as high as 7 – 8% with industry participants
becoming more positive in recent quarters. Members of the Investment Property Forum1
(IPF) now expect total returns of 7.3% pa over the next 5 years, compared to 6.4% pa from
the same survey in November 2012.
Current yields versus long term ranges2
%
18
15
12
9
6
3
CBRE
Secondary
IPD All
Property
Average
CBRE Prime
UK Equities
UK
Corporate
Bond BBB
UK
Corporate
Bond AAA
10-yr Gilt
Cash
0
In their search for yield, investors are naturally attracted to the benefits of property as a
traditional, core element of a diversified portfolio. Income remains a key driver of total returns,
but being a real asset, a well structured portfolio of good quality assets will pick up growth as
and when the UK economy recovers. We believe that prime long lease real estate is starting to
look expensive and therefore risky. We prefer good quality assets with shorter lease structures,
where there are asset management opportunities to protect and drive income going forwards.
1 The Investment Property Forum (IPF) is a UK property investment organisation for individual members. It comprises 1,900
professionals all active in the property investment market. These members include investment agents, fund managers,
bankers, lawyers, researchers, academics, actuaries and other related professionals. The IPF regularly publish research
articles produced by its members. One of these is the Survey of Independent Forecasts for UK Commercial Property
Investment which is published four times per year. The report produces a consensus forecast by taking the average of
in-house forecasts provided by its Property Advisor and Fund Manager members.
2 Longest time period selected for each data series, based on availability of data, so ‘long term’ covers varying time
periods. Shortest time period relates to secondary UK real estate (13 years). Other data covers 15 year periods or longer.
Source: Schroders, Datastream, March 2013.
10
Schroder UK Property Fund
Report to 31 March 2013
Fund Director’s Report
(continued)
Performance Analysis
In the twelve months to end March 2013 SPF outperformed its benchmark, All Balanced
Funds in the IPD UK Pooled Fund Indices, by +1.4%. It was also ahead of benchmark
over the last two and three year periods. Performance can be broken down and analysed
in a variety of ways and the following performance tree, produced independently by IPD,
summarises each of these:
Components of SPF’s property total return
Property Total Return
Trust Total Return
SPF:
Benchmark:
Relative:
Income Return
SPF:
Benchmark:
Relative:
Capital Growth
5.5
6.0
-0.5
SPF:
Benchmark:
Relative:
Rental Value Growth
SPF:
Benchmark:
Relative:
-0.6
-0.7
0.2
Held
SPF:
SPF:
Benchmark:
Relative:
1.8
0.3
1.4
1.5
3.6
1.4
2.1
Attribution Relative
Return:
Structure Score
-1.8
-4.3
2.6
SPF:
Attribution Relative
Return:
Property Score
0.9
SPF:
1.1
Yield Impact
SPF:
Benchmark:
Relative:
-1.3
-3.3
2.1
Purchased
Development
SPF:
n/a
SPF:
-0.1
Sold
SPF:
0.5
Indirect
SPF:
0.2
Source: IPD, 31 March 2013.
Components of property total return: SPF vs Benchmark %
15.0
10.0
5.0
0.0
-5.0
-10.0
SPF
Bmk
SPF
Retail
Income Return
Source: IPD, 31 March 2013.
Bmk
SPF
Office
Bmk
SPF
Industrial
Rental Growth
Yield Impact
Bmk
Other
SPF
Bmk
All Property
Total Return
Schroder UK Property Fund
11
Report to 31 March 2013
Income: SPF’s income return was below benchmark by 0.5%, the initial yield is also similarly
below benchmark. Segments where the Fund are significantly below benchmark are South
East offices and rest of UK industrials. During the year one of the vacant industrial units at
Deykin avenue was sold; after year end Hartlebury Industrial Estate was purchased yielding
circa 10% which should re-align this segment with benchmark. South East offices are
skewed by the QVC building on Chiswick Park, which is in a “half rent” rent free period
and yields 3.8%. The total return of this asset has, however, compensated for the low
income return.
Rental Growth: On average SPF rents fell marginally over the year, however, they fell less
than benchmark. They were held up by stronger than average rental growth in City offices,
in particular, Shepherdess Walk benefitted from the strong market of “Silicon Roundabout.”
The rest of UK office rental values held firm, compared to falls in the benchmark. Other
also saw stronger than average rental growth, this was due to the re-letting and rent review
activity at Mermaid Quay, Cardiff which resulted in a re-rating across the scheme.
Yield movement: SPF yields rose less than those in the benchmark, due to the Fund
having more prime assets than average, yields on prime assets having risen (values fallen)
less than more secondary assets. SPF’s structural skew to Central London and South East
offices and industrial is proving to be defensive. As at March 2013 SPF’s equivalent yield
was 6.7% compared to 7.6% in the benchmark.
Attribution of SPF’s property total return %
Property
Structure
2.5
2
1.5
1
0.5
0
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
-1
St Retails – South East
-0.5
SPF benefitted from a positive score for both structure and stock selection (property).
The positive structure score was almost entirely down to our under weight position to
shopping centres, the worst performing segment of the market. From a stock selection
point of view our retail warehouses under performed the rest of the Fund, due to the fashion
park exposure through Monks Cross, York and the indirect investments in Hercules Unit
Trust and the Henderson Retail Warehouse Fund. The other retail warehouses performed
well, but not strong enough to out weigh the fashion park effect.
Overall, positive contributions to outperformance from both structure and property
demonstrates an effective investment process with both Top Down research and Bottom Up
stock selection and asset management dovetailing well over the last 12 months.
12
Schroder UK Property Fund
Report to 31 March 2013
Fund Director’s Report
(continued)
Investment Strategy
We believe that property markets are fragmented and inefficient. We aim to achieve the
Fund’s performance objective through detailed research and analysis, coupled with our
extensive network of contacts and asset management skills.
Our dedicated property research team identifies those sectors, regions and property
characteristics which are expected to outperform the property market. The development of
proprietary research tools has helped to identify locations with favourable market dynamics.
This helps the investment team shape the portfolio by targeting particular sectors and
properties which in aggregate could meet the Fund’s performance objective. Throughout the
process we remain focused on the quality of the assets – and their value – when managing
the portfolio. We aim to generate the majority of the target outperformance through good
stock selection and asset management, but sector strategy has always been an important
component of our overall policy, while style characteristics, such as a structured income
profile, are an increasingly important overlay.
Our strategy is focused on four areas:
–
Sector and geographical allocation. The overweight central London offices/
underweight retail/increasing non mainstream sector strategy (see chart overleaf)
has served us well over the past three to four years. The retail sector is undergoing
a structural shift and it is expected there will be a significant number of losers.
Tactical sector allocations as at 31 March 2013
Sector weightings relative to benchmark1
% gross asset value
Underweight
-0.2%
Standard Retail – South East
-3.7%
Standard Retail – Rest of UK
Shopping Centres
Retail Warehouses
Overweight
-4.4%
-4.2%
2.6%
Offices – Central London
7.6%
Offices – South East
1.1%
Offices – Rest of UK
7.3%
Industrial – South East
Industrial – Rest of UK -5.9%
0.4%
Other
Cash
-0.5%
1 Benchmark shown is the AREF/IPD UK Quarterly Property Fund Index – All Balanced Property Fund Index Weighted Average.
Schroder UK Property Fund
Report to 31 March 2013
Traditional high streets have been under pressure for over a decade as consumers and
retailers gravitate to larger schemes, convenience locations and online. We believe retail
schemes need to offer convenience and/or experience if they are going to succeed
in tomorrow’s retail market. Elsewhere, London’s global influence continues to create
demand from a diverse range of corporations, business services, technology and media
companies for central London offices. Regionally, we prefer the South East over the
rest of the UK because of the relative dynamism of London’s (globally-driven) economy
relative to the rest of the UK. Central London offices and retail property remain attractive
to both domestic and overseas investors and valuations continue to increase. The same
is not generally the case elsewhere. South East industrial property is similarly relatively
attractive for its yield, occupational demand and alternative land use value. We continue
to emphasise these sector and geographical allocations in the portfolio.
–
Benefiting from structural themes. We have uncovered mispriced opportunities by
looking outside the mainstream sectors for assets which have sound tenants with good
business models and long leases. Past purchases have included car showrooms and
convenience retail (both at initial yields of over 7%). Student accommodation has been a
longstanding investment, although the initial yield has now fallen to a still-above-average
6.7%1. Our most recent purchase which completed in the fourth quarter of 2012 was
an investment in healthcare. These sectors are less correlated with the economic cycle
and are benefiting from long term structural changes such as the UK’s demographic
profile. These assets often offer a liquidity premium with yields above average, because
they are less well understood by investors. They also benefit as these investments enter
the mainstream, as yields move towards the average. This was the case with retail
warehouses in the 1990s and we have started to see this with student accommodation
in the last decade.
Positioning for growth. While the UK economy faces challenges, owning properties
–
with good fundamentals is crucial for generating income today and rental growth in
the future. Investors’ search for safety has led to prime property appearing full priced.
We think that better value lies in good quality property outside ‘prime’ where rents are
affordable and active management can add value. We research growth sectors of the
economy, areas where there are good matches between skilled jobs and an appropriately
skilled staff base. An example of this is the ‘Silicon Roundabout’ near Old Street in
London and specialist engineering hubs in Gloucester and the Cotswolds. Recent
investments such as Shepherdess Walk, London NW1 and Turner Rise Retail Park,
Colchester fit this category. These are properties which provide a high income return and
are let off low rental levels with opportunities to improve the quality of the space and/or
tenant mix. We have also been looking for value in the regions, where sustainable income
is more important as the prospects for rental growth are less certain. The aim is to build
a portfolio capable of capturing growth in the next phase of the economic cycle.
–
Income. An equally important theme that runs through the Fund is income.
We continue to ensure SPF has a diversified, secure and good quality income stream
through our active approach to asset management. As the chart shows opposite,
this is important for providing consistent returns from year to year to a core fund
strategy. Given our relatively weak economy, we also continue to take a defensive
stance and favour those parts of the market where rents are affordable and which
offer a high income return. This, again, has drawn us into the under-researched sectors
1 Source: UNITE.
13
14
Schroder UK Property Fund
Report to 31 March 2013
Fund Director’s Report
(continued)
which provide high and growing income streams quite often with rental increases
which are either fixed or linked to inflation. We have slowly been building a bedrock of
income with a defined growth profile to support our overall objective of increasing the
sustainable income distribution up towards 5%. Such a strategy takes time to evolve
but the benefits should start to be seen throughout 2013.
Components of UK property market returns: next phase – the occupier?
% rolling 12m IPD Monthly return
40
30
Capital markets cycle
Occupier markets cycle
Capital markets cycle
20
10
0
-10
-20
-30
-40
Mar 88 Mar 90 Mar 92 Mar 94 Mar 96 Mar 98 Mar 00 Mar 02 Mar 04 Mar 06 Mar 08 Mar 10 Mar 13
Income return
Rental value growth
Source: IPD/ Schroders.
Artist’s impression of the proposed new Bracknell town centre.
Yield (capital value) impact
Benchmark
Schroder UK Property Fund
15
Report to 31 March 2013
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. SPF 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 highly focused approach to the delivery of annual business plans enshrined in the
objectives of each investment manager.
Such a strategy has been key to driving the out performance we have achieved over the
last three years. This has involved both refurbishment and development as an important (but
measured) part of the Fund’s strategy. Looking forward, a key feature of the SPF portfolio is
the ability to continue to invest to create “tomorrow’s core” investments. At a time when the
investment market rally suggests increased competition, and therefore pricing risk, the ability
to invest equity into opportunities such as the care home portfolio, Bracknell and evolving
opportunities in Croydon, gives SPF a competitive edge.
Purchases and Sales
During the year ended 31 March 2013
Purchases
Name
Suffolk, Care homes1
Sector
Type
Lot size
Other
Direct
Between £25m and £50m
Sales
Name
London, Parker Tower2
Henderson UK Retail
Warehouse Fund
Birmingham,
Deykin Avenue
Sector
Type
Lot size
Central London Offices
Direct
Between £25m and £50m
Retail Warehouse
Indirect
Between £10m and £25m
Rest of UK Industrial
Direct
Under £10m
1Conditional agreement to fund the development of five care homes in partnership with Care UK and Suffolk County
Council. Development expected to commence in the second half of 2013.
2London, Parker Tower was sold in May 2012 prior to the conversion to the Schroder UK Property Fund and has been
included for information to cover the 12 month period to 31 March 2013.
The above three sales were part sales so the adjoining assets are still owned by the Fund
as at 31 March 2013.
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 2013 the PTR is 3.78%.
Schroder UK Property Fund
16
Report to 31 March 2013
Davidson House, Reading.
Schroder UK Property Fund
Report to 31 March 2013
17
18
Schroder UK Property Fund
Report to 31 March 2013
Fund Director’s Report
(continued)
Retail
SPF’s overweight/underweight retail positions relative to benchmark
2012
2013
25
20.5
19.2
20
18.6
16.3
15
10
8.3
6.6
5
9.0
5.9
3.8
6.7
6.4
7.4
6.0
3.7
1.9
1.6
0
SPF
Benchmark
SPF
Standard Retail – South East
Shopping Centres
Standard Retail – Rest of UK
Retail Warehouses
Benchmark
Traditional high streets have been under pressure for some years as consumers and
retailers gravitate to larger schemes, convenience locations and online. The retail sector
is undergoing a structural shift and there will be a significant number of losers. As a result,
we have maintained our underweight position to the retail sector.
We do, however, remain firmly of the view that the high street is not dead. We are a nation
of consumers but how we spend and what we spend disposable income on, is changing
in what is now described as a “multi-channel” world.
We recognise these changes as opportunities to realign the SPF portfolio with the new
economic forces, recognising that demand to occupy traditional retail space will be much
lower going forward and that on occasions, there is a need to challenge the IPD sector
benchmarks. Our themes are about spending for convenience, or spending for experience
rather than standard retail, shopping centres and out of town retail parks.
One strategy we have been pursuing has been to maintain our exposure to the consumer
but to sell “retail” and invest in the growth of the leisure experience. At a benchmark level this
means we have increased our underweight position to retail and increased our exposure to
“other” (which is how leisure is defined by IPD).
Our convenience strategy focuses on parades of shops in affluent suburban locations where
rents are still affordable to today’s retailers. At our parade in Southsea on the south coast,
we combined the ex-Clintons unit with the adjoining unit to secure a letting to Tesco Metro,
thereby cementing this location as a popular destination for local shoppers.
We believe the concept of showrooms will become increasingly recognised as part of multichannel selling. Our portfolio of car showrooms have not only performed well for the Fund
by providing a 7% yield with annual fixed uplifts, but proved the concept as they are an
Schroder UK Property Fund
19
Report to 31 March 2013
important “touch-point” between manufacturer and customer, even though the point of sale
may be via the internet. Arguably it is the ultimate in “click and collect”!
At Turner Rise Retail Park, Colchester, acquired in November 2011, we have continued
to implement the business plan and secured a letting to an internet retailer of furniture and
bedding who is rolling out a network of “showrooms” so that customers can experience the
goods before buying. The affordability of the rents we were able to offer was an important
consideration for a unit that also becomes a collection point and a storage facility for holding
stock on site rather than in a logistics warehouse. In addition, we have obtained consent to
widen the planning use of a unit to include food and have secured a letting to Iceland.
Bracknell
Following the successful opening of the Waitrose supermarket in Bracknell town centre,
Marks & Spencer and Cineworld have also exchanged conditional contracts to become
anchor tenants for the new 550,000 sq ft regeneration scheme. These lettings are a major
step forward in the regeneration of Bracknell and we expect other large retailers such as
H&M will also commit to pre-lettings in the near future.
Whilst we still need to reach a prudent threshold of pre lets before construction can begin,
we are, together with Legal & General (our joint venture partner) actively pursuing the
strategy of developing a major extension of the existing town centre investment. This will be
the first, exciting step to creating a unique, new retail and leisure experience in the affluent
South East, as well as providing an attractive return profile of potential profit as a reward for
the risk being taken by the Fund.
Henderson UK Retail Warehouse Fund
Retail Portfolio
at 31 March 2013
At the end of 2012, we took the opportunity to sell £16.2m of Henderson Retail Warehouse
Fund in two tranches and a discount to net asset value of 10%. This was a reflection of our
strategy to down weight our exposure to both fashion parks and also indirect investments.
Bracknell Regeneration Partnership
Holding
Sector
Lot Size
JV
Shopping Centre and
Over 50m
Standard Retail
York – Monks Cross
Norwich – Hall Road Retail Park
The Hercules Unit Trust (HUT)
Motor Retail LP
Frimley – Albany Park
Ipswich – Interchange Retail Park
JV
Retail Warehouse
Between £25m and £50m
Direct
Retail Warehouse
Between £25m and £50m
Indirect
Retail Warehouse
Between £25m and £50m
JV
(Other) – Standard retail
Between £10m and £25m
Direct
Retail Warehouse
Between £10m and £25m
Direct
Retail Warehouse
Between £10m and £25m
Indirect
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
Colchester – Hythe Riverside Park
Direct
Retail Warehouse
Between £10m and £25m
Colchester – Turner Rise
Direct
Retail Warehouse
Between £10m and £25m
Bristol – Maggs House
Direct
Standard Retail
Between £5m and £10m
Exeter – 232–240 High Street
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
Dunfermline – Duloch Park District Centre
Direct
Standard Retail
Under £5m
Birmingham – 42-60 High Street, Harborne
Direct
Standard Retail
Under £5m
Enfield – 30-38 London Road
Direct
Standard Retail
Under £5m
Kingston Upon Thames – 167/181 Clarence Street
Direct
Standard Retail
Under £5m
London SW14 – 270-282 Upper Richmond Road, East Sheen
Direct
Standard Retail
Under £5m
Henderson UK Retail Warehouse Fund (HRWF)
20
Schroder UK Property Fund
Report to 31 March 2013
Fund Director’s Report
(continued)
Office
SPF’s overweight/underweight office positions relative to benchmark
2012
2013
20
16.0
16.5
16.5
16.6
15
13.9
12.6
8.9
10
8.9
5.9
0
5.6
4.8
5
SPF
Benchmark
Offices – Central London
SPF
Offices – South East
4.5
Benchmark
Offices – Rest of UK
We have maintained our overweight position to offices but with a deliberate tilt to the growth
of central London and the defensive characteristics of the South East.
Investments into the regions such as the Lloyds Bank HQ, Cardiff, and Fujitsu Office
Complex, Manchester have been held for the security of high quality long-lease income
(Fujitsu has attractive fixed uplifts embedded in the lease). Whilst in the longer term, the
quality of the buildings and the affordability of the rents, should respond well, as and when
the economic recovery moves to these strategic regional capitals.
London W1, 82 Dean Street, Soho A high specification refurbishment was completed
following lease expiry. The improved office space was marketed from October 2011.
Despite a weak letting market, six of the seven floors are now let, with the final floor currently
under offer. Lettings achieved to date are above the initial business plan rental levels and
we estimate we have generated a total return to the Fund of 14% pa since the old lease
expired in October 2010. More importantly we have repositioned a Grade B building as
Grade A, 200 yards from the proposed new entrance to Crossrail, at a time when the market
is predicting a new wave of rental growth. We are also proud to say that, as part of the
project, the EPC rating was improved from an E (pre refurbishment) to a C, reducing carbon
emissions and providing energy cost savings for our customers. The building utilizes energy
efficient lighting and allows for sub-metering of energy and water consumption. It was also
designed to minimise the consumption of water through low flush toilets and Eco tap fittings.
Car parking spaces have been converted to provide cycle racks, showers and a drying room
for cyclists.
London W14, Kensington Village A rolling refurbishment took place on each of the floors
following a series of lease expiries. Successful letting activity has resulted in rental value
growing from £27.50 to the most recent letting at £33 per square foot over the past two
Schroder UK Property Fund
21
Report to 31 March 2013
years. It is now fully let with the main tenant being Universal Music Operations Limited.
The investment has increased in value by 17.8% over this period.
London W4, QVC, Building 8, Chiswick Park Our strategy has been to improve the
quality and quantum of SPF’s distribution yield. This can take time, particularly where new
income streams are created but rent free periods are granted. The granting of a lease should
protect and enhance value and the expiry of the rent free period will then trigger an increase
in the distributable income. One example is the rent free period granted to QVC, occupier
of 8 Chiswick Park, which expired in February 2013. From March, the distribution yield
increased by an annualised 0.2%.
London WC1, Parker Tower was sold by the Fund in the second quarter of 2012 for
£31 million (£596 capital value per sq ft). The property comprised 55,000 sq ft office space
which was located in Holborn in the mid town area of central London. It was let to British
Telecommunications Plc but only until September 2012 and they had already vacated the
building. The property accounted for 2.2% SPF’s net asset value and therefore would have
created a significant void. We considered a number of asset management initiatives, such
as refurbishing the office space or converting the property to residential accommodation.
However, in the current market environment we did not believe the risks associated with
these initiatives were justified or profitable compared to the sale price achieved from a
residential developer.
West End of London Property Unit Trust (WELPUT) Whilst SPF’s strategy is to reduce
its weighting to indirect investments, the holding in WELPUT has proved to be one of the
better performers in the portfolio over the 12 months to March 2013 generating trust level
returns of 14.7%. Its strategy has focused on the key growth areas of central London using
local market knowledge and specialist skills to extract value add from its portfolio, at a time
when bidding for prime assets is extremely competitive. The trust has redemption windows
in 2014 and 2017.
Office Portfolio at 31 March 2013
Holding
Sector
Lot Size
London W4 – Building 8, Chiswick Park
Direct
South East Office
Over 50m
London SE1 – Palace House
Direct
South East Office
Between £25m and £50m
London W14 – Kensington Village
Direct
Central London Office
Between £25m and £50m
London W1 – 81-82 Dean Street
Direct
Central London Office
Between £25m and £50m
Indirect
Central London Office
Between £25m and £50m
Cardiff – St William House
Direct
Rest of UK Office
Between £25m and £50m
Manchester – Fujitsu Office Complex, Central Park
Direct
Rest of UK Office
Between £25m and £50m
Reading – Davidson House
Direct
South East Office
Between £25m and £50m
Croydon – Gateway Site
Direct
South East Office
Between £10m and £25m
London WC2 – Craven House, 117-123 Kingsway
Direct
Central London Office
Between £10m and £25m
London EC1 – 4-7 Chiswell Street
Direct
Central London Office
Between £10m and £25m
London EC2 – 11/12 Appold Street
Direct
Central London Office
Between £10m and £25m
London EC3 – Lombard Street
Direct
Central London Office
Between £10m and £25m
London N1 – Shepherdess Walk
Direct
Central London Office
Between £10m and £25m
Croydon – AMP House
Direct
South East Office
Between £10m and £25m
London WC2 – 53 Parker Street
Direct
Central London Office
Between £5m and £10m
Bracknell – Bracknell Beeches
Direct
South East Office
Between £5m and £10m
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
Direct
South East Office
Under £5m
West End of London Property Unit Trust (WELPUT)
City of London Office Unit Trust (CLOUT)
Cranford – Europa House, Bath Road
22
Schroder UK Property Fund
Report to 31 March 2013
Fund Director’s Report
(continued)
Industrial
SPF’s overweight/underweight industrial positions relative to benchmark
2012
2013
20
16.7
16.9
15
9.6
10
8.0
6.7
6.7
5
1.2
0.7
0
SPF
Benchmark
Industrial – South East
SPF
Benchmark
Industrial – Rest of UK
Our sector strategy for industrial mirrors that for offices, with a defensive skew to the South
East. We do, however, increasingly feel that as the economy stabilises, there should be
opportunities to back the resilience of “UK Plc” and acquire dominant multi-let industrial
estates in the regions for attractive yields, where rents are both affordable and capital values
are below replacement costs.
Over the year a number of new lettings and rent reviews took place. Most notable was the
rent review for Cable & Wireless in Matrix, Park Royal, London NW10 where contracted
rent increased by 13%.
An industrial unit at Deykin Avenue, Birmingham was sold to an owner occupier for
around £6.5 million. The unit had not been occupied since 2009 following the tenant’s
administration and there were limited future letting prospects. The proceeds have been used
to invest in good quality income producing assets.
Two significant lettings were completed in Woking Business Park, Surrey for 51,000
and 32,000 sq ft units. We are also working with the local council who have just approved
the building of a new access road adjacent to the park. This will improve the road
communication to the park, broadening its appeal beyond the existing tenant base.
Other initiatives included Hackbridge Industrial Estate, where in the second quarter of
2011 we received outline planning consent for a mixed use residential led scheme. The site
had a number of lease expiries let to industrial tenants. We marketed the scheme to potential
purchasers for either development of the first phase or an outright purchase of the whole
scheme and received interest in both strategies. We are in the process of selecting a party
and hope to conclude this shortly.
Schroder UK Property Fund
23
Report to 31 March 2013
Industrial Portfolio at 31 March 2013
Holding
Sector
Lot Size
Crayford – Acorn Industrial Estate
Direct
South East Industrial
Between £25m and £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
London NW10 – Matrix, Park Royal
Direct
South East Industrial
Between £25m and £50m
London UB6 – Greenford
Direct
South East Industrial
Between £10m and £25m
Woking – Woking Business Park
Direct
South East Industrial
Between £10m and £25m
Welwyn Garden City – Quadrant Park
Direct
South East Industrial
Between £10m and £25m
Dunstable – Chiltern Park
Direct
South East Industrial
Between £5m and £10m
Dunstable – Arenson Centre
Direct
South East Industrial
Between £5m and £10m
Birmingham – Deykin Avenue
Direct
Rest of UK Industrial
Under £5m
Cannock – Walkmill Lane, land site
Direct
Rest of UK Industrial
Under £5m
Livingston – Limefields, 2nd land site
Direct
Rest of UK Industrial
Under £5m
Livingston – Limefields, land site
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
JV
South East Industrial
Under £5m
Sutton – Kimpton Industrial Estate
24
Schroder UK Property Fund
Report to 31 March 2013
Fund Director’s Report
(continued)
Alternative sectors
SPF’s overweight/underweight other position relative to benchmark
2012
2013
12
10.4
10
9.1
8.2
8.7
8
6
4
2
0
SPF
Benchmark
SPF
Benchmark
other
Over the period the Fund has increased its exposure to alternative sectors (or other as IPD
define them) and moved to an overweight position (versus the benchmark) by diversifying
into the care home sector1.
Leisure and student accommodation are also two of the major sub-sectors of “other” and
SPF’s investments in these sectors have delivered strong returns over the year to 31 March
2013. Tenants in our leisure investments West India Quay, London E14 and Mermaid Quay,
Cardiff have enjoyed strong turnover over the past year. This has resulted in good tenant
demand for these locations and driven rental growth.
Suffolk Care Homes1
We identified healthcare as an attractive non-mainstream sector where the drivers of
demand differ from the economic and business cycle and are set to benefit from the UK’s
ageing demographic profile. The sector is less vulnerable to the fluctuations of the economy
or the impact of the internet. It also offers an attractive income return.
SPF has agreed to fund five new care homes in Suffolk for around £28 million. The care
homes will be located on freehold sites in Framlingham, Haverhill, Mildenhall, Lowestoft and
Ipswich. These are affluent areas in the UK with an ageing population. The care homes will
be state of the art 60 and 80 bed care homes let to Care UK, one of the leading providers
of health and social services in the UK. They are the outsourced providers of Suffolk County
Council’s elderly care provision. Care UK will take 30 year leases on the care homes which
will be index-linked. It is envisaged the investment funding will begin in the second half of
this year and will yield over 7.0% on cost from the outset, further boosting the income profile
of the Fund.
1Conditional agreement to fund the development of five care homes in partnership with Care UK and Suffolk County
Council. Development expected to commence in the second half of 2013 and no equity was invested at 31 March 2013.
Schroder UK Property Fund
25
Report to 31 March 2013
Prior to investing in this sector we fully researched the business model of health care
operators with a focus on the affordability and long term sustainability of their cost base
including rent. We believe the rental levels agreed with Care UK are affordable and provide
a significant buffer should their operating costs increase or their occupancy rates be low.
This should help to maintain a strong income return from these care homes.
SPF’s weighting to non mainstream sectors
% of Funds total GAV
8
7
6.3
6.1
6
5
4
2.8
3
2.2
2
1.5
1
0.2
0
Car Parking
Student
Accommodation
Care homes1
Leisure
Car showrooms
Convenience
retail
IPD benchmark segments
1 Once fully funded
Other
Standard retail
As the chart shows, our strategic research is leading us to challenge the benchmark
sector positions where we have a conviction that these positions are overweight to risk
(retail) but mis-aligned to growth areas of the economy such as leisure, education and
health. Benchmark definitions can disguise both risk and opportunity in alternatives as well
as the traditional mainstream sectors.
Alternatives Portfolio at 31 March 2013
Holding
Cardiff – Mermaid Quay
Sector
Lot Size
Direct
Other – leisure
Between £25m and £50m
JV
Other – leisure
Between £25m and £50m
Indirect
Other – student
accommodation
Between £10m and £25m
Croydon – Car Park
Direct
Other – car park
Under £5m
Hartlepool – Jacksons Landing, land site
Direct
Other – leisure
Under £5m
Suffolk Care homes2
Direct
Other – care homes
Under £5m
London E14 – West India Quay
UNITE UK Student Accommodation Fund
2Conditional agreement to fund the development of five care homes in partnership with Care UK and Suffolk County Council. Development expected to commence
in the second half of 2013 and no equity was invested at 31 March 2013.
Schroder UK Property Fund
26
Audited Consolidated Financial Statements 31 March 2013
Report of the Authorised
Corporate Director and
statement of responsibilities
The Financial Statements
Authorised Status
We are pleased to present the Report
and Audited Consolidated annual
financial statements of the Schroder
UK Property Fund for the period ended
31 March 2013.
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 Property Fund (the
“Fund”) is an investment Fund with
variable capital incorporated in England
and Wales under registered number
IC000945 and authorised by the FCA
(Financial Conduct Authority, previously
the Financial Services Authority) 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 carry on Property Investment
Business and to manage cash raised
from investors for investment in the
Property 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 over rolling
three year periods. The Fund will seek
to diversify risk by holding a mixed
portfolio of retail, office, industrial and
other property throughout the UK.
The policy for achieving these
objectives is that the Fund will invest
in UK properties. 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 near cash.
The ACD is responsible for taking
reasonable steps for the prevention
and detection of fraud and other
irregularities.
We hereby approve the Report and
Consolidated Financial Statements
of the Schroder UK Property Fund
Annual General Meetings
for the period 1 August 2012 to
The Fund will not be holding any Annual 31 March 2013 in accordance with
the requirements of the Collective
General Meetings.
Investment Schemes Sourcebook
Statement of Responsibilities
of the FCA.
The Collective Investment Schemes
Sourcebook of the FCA requires the
Authorised Corporate Director (ACD)
to prepare financial statements for each
accounting period which give a true
and fair view of the financial position of
the Fund at the period end and of the
net income and net gains or losses on
the scheme property of the Fund for
the period then ended.
Schroder Unit Trusts Limited
In preparing the financial statements the 26 July 2013
ACD is required to:
• follow applicable accounting
standards;
• make judgements and estimates
that are reasonable and prudent;
• select suitable accounting policies
and then apply them consistently;
• prepare the financial statements on
the going concern basis unless it is
inappropriate to presume that the
Fund will continue in operation for
the foreseeable future; and
• comply with the Instrument of
Incorporation and the Statement
of Recommended Practice for
Authorised Funds.
The ACD is required to keep proper
accounting records and to manage
the Fund in accordance with the
Regulations and the Instrument
of Incorporation.
Schroder UK Property Fund
Audited Consolidated Financial Statements 31 March 2013
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.
Fund and for providing performance
information to IPD. All delegated
appointments by the Investment
Manager are on an advisory basis.
On 31 July 2012, the ACD appointed
Schroder Property Investment
Management Limited (“Schroder
Property”) to provide investment
management, property management
and advisory services to the ACD.
Schroder Property is a member of
the same group as the ACD.
Subject to the investment objectives
and restrictions contained in the OEIC
Regulations and the COLL Sourcebook
and the investment and borrowing
guidelines contained in this prospectus,
the Investment Manager has discretion
to take investment decisions and to
deal in investments in relation to the
investment 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 has
discretionary responsibility for
implementing investment policy and
is responsible to investors for the
performance of the Fund. Adherence
to such policies are monitored
quarterly through reporting by the
Investment Manager to the Property
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 the
team responsible for pricing the
Legal and product limits
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
which is 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 control better
the risks which may impact the Fund’s
ability to achieve its objectives. Any
changes will require the approval of
SIRF and the ACD.
The Investment Manager confirms that
these limits have not been breached in
the period to 31 March 2013.
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 typically 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: less than +/- 15% GAV (retail, office, industrial, other property)
vs benchmark
Minimum 60% its income must come from the Property Investment Business
Investment in a single indirect vehicle: 15% NAV
Maximum aggregate investment in indirect vehicles: 40% NAV
Aggregate investment in indirect vehicles: 35% NAV
Maximum 15% of the NAV invested in a single asset
Aggregate investment in joint ventures: 35% NAV
Maximum 20% of the NAV committed to development (on/off balance sheet)
Investment in UK property related listed securities: aggregate 10% NAV –
individual 2.5% NAV
Maximum borrowing (on/off balance sheet): 25% NAV
Investment on and off balance sheet in shorter/medium term leaseholds (less
than 50 years): 20% NAV
Maximum speculative development: 15% NAV
Maximum investment in undeveloped and non income producing land: 10%
NAV
Maximum on and off balance sheet percentage income from non government
tenant: 10%
Investment in undeveloped and non income producing land: 10% NAV
Maximum on balance sheet uncommitted cash: 10% NAV
Maximum on and off balance sheet debt: 25% NAV
27
Schroder UK Property Fund
28
Audited Consolidated Financial Statements 31 March 2013
Independent Property
Valuers’ Reports
BNP Paribas Real Estate
As Standing Independent Valuer for the
Fund, we have valued immovables held
by the Fund as at 31 March 2013 in
accordance with The Royal Institution
of Chartered Surveyors and International
Valuation Standards (RICS) and in
accordance with the COLL 8.4.13R
of the Collective Investment Schemes
Sourcebook. Schroder Unit Trusts
Limited, as ACD of the Fund, has been
provided with a full valuation certificate
and report. The immovables have been
valued on the basis of Market Value as
defined by the RICS Valuation Standards
subject to existing leases.
Details of the nature and extent of the
immovables, the tenure and tenancies,
permitted uses, town planning consents
and related matters, have been supplied
by the Investment Manager Schroder
Property Investment Management
Limited (SPrIM). The majority of the
properties form the subject of detailed
reports from ourselves. We have seen
copies of all the leases but we have
not examined the title documents and
we have therefore assumed that the
Fund’s interests are not subject to any
onerous restrictions, to the payment
of any unusual outgoings or to any
charges, easements or rights of way,
other than those to which we have
referred in our reports. We rely upon the
Investment Manager to keep us advised
of any changes that may occur in the
investments. We are not instructed to
carry out structural surveys nor test
any of the service installations. Our
valuations therefore have regard only to
the general condition of the properties
evident from our inspections. We
have assumed that no materials have
been used in the buildings which are
deleterious, hazardous or likely to cause
structural defects. We are not instructed
to carry out investigations into pollution
hazards which might affect the
properties and our valuations assume
the properties are not adversely affected
by any form of pollution.
In our opinion the aggregate of the
market values of the 41 immovables
owned by the Fund as at 31 March
2013 is £760.455 million. This figure
represents the aggregate of the values
attributable to the individual immovables
and should not be regarded as a
valuation of the portfolio as a whole in
the context of a sale as a single lot.
In the case of the immovables in the
course of development, our valuations
reflect the stage reached in construction
and the costs already incurred at the
date of valuation. We have had regard
to the contractual liabilities of the parties
involved in the developments and
any cost estimates which have been
prepared by professional advisers.
No allowance is made in our valuations
for the costs of realisation, any liability
for tax which might arise on the event of
disposal or for any mortgage or similar
financial encumbrance over the property.
Our valuations exclude VAT.
BNP Paribas Real Estate
31 March 2013
Allsops
As Independent Valuer for the Fund,
we have valued immovables held
by the Fund as at 31 March 2013 in
accordance with The Royal Institution of
Chartered Surveyors and International
Valuation Standards (RICS) and in
accordance with the COLL 8.4.13R
of the Collective Investment Schemes
Sourcebook. Schroder Unit Trusts
Limited, as ACD of the Fund, has been
provided with a full valuation certificate
and report. The immovables have been
valued on the basis of Market Value as
defined by the RICS Valuation Standards
subject to existing leases.
We have been provided with information
from the relevant Property Managers
including tenancy schedules and
floor areas and assumed that the
Fund’s interests are not subject to any
onerous restrictions, to the payment
of any unusual outgoings or to any
charges, easements or rights of way,
other than those to which we have
referred in our reports. We rely upon the
Property Manager to keep us advised
of any changes that may occur in the
investments. We are not instructed to
carry out structural surveys nor test any
of the service installations. Our valuations
therefore have regard only to the general
condition of the properties evident from
our inspections. We have assumed
that no materials have been used in
the buildings which are deleterious,
hazardous or likely to cause structural
defects. We are not instructed to carry
out investigations into pollution hazards
which might affect the properties and
our valuations assume the properties
are not adversely affected by any form
of pollution.
In our opinion the aggregate of the
market values of the 10 immovables
owned by the Fund as at 31 March 2013
is £66.355 million. This figure represents
the aggregate of the values attributable
to the individual immovables and should
not be regarded as a valuation of the
portfolio as a whole in the context of
a sale as a single lot.
In the case of the immovables in the
course of development, our valuations
reflect the stage reached in construction
and the costs already incurred at the
date of valuation. We have had regard
to the contractual liabilities of the parties
involved in the developments and
any cost estimates which have been
prepared by professional advisers.
No allowance is made in our valuations
for the costs of realisation, any liability
for tax which might arise on the event of
disposal or for any mortgage or similar
financial encumbrance over the property.
Our valuations exclude VAT.
Allsops LLP
31 March 2013
Refer to the Portfolio Statement for a listing of those
properties valued by BNP Paribas Real Estate and
Allsops LLP.
Schroder UK Property Fund
Audited Consolidated Financial Statements 31 March 2013
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
prospectus, in relation to the pricing of,
of incorporation and prospectus of
and dealings in, shares in the Fund; the
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
26 July 2013
29
30
Schroder UK Property Fund
Audited Consolidated Financial Statements 31 March 2013
Portfolio statement
Direct Properties
Sector
Market
Value
£’000 at
31 March
2013
Total net
assets
%
127,815
10.4%
212,340
17.3%
Direct properties up to £10m
Exeter – 232–240 High Street
Standard Retail
Bristol – Maggs House*
Standard Retail
Shipley – 20-40 Market Square*
Standard Retail
Stanmore – Buckingham House, The Broadway*
Standard Retail
Woodley – 81-107 Crockhamwell Road*
Standard Retail
Dunfermline – Duloch Park District Centre*
Standard Retail
Birmingham – 42-60 High Street, Harborne*
Standard Retail
Enfield – 30-38 London Road*
Standard Retail
Kingston Upon Thames – 167/181 Clarence Street
Standard Retail
London SW14 – 270-282 Upper Richmond Road,
East Sheen*
Standard Retail
Bracknell – Bracknell Beeches
South East Office
Reading – New Century Place
South East Office
Slough – Capital Point, 33 Bath Road
South East Office
Cranford – Europa House, Bath Road
London WC2 – 53 Parker Street
South East Office
Central London Office
Dunstable – Chiltern Park
Industrial
Dunstable – Arenson Centre
Industrial
Birmingham – Deykin Avenue
Industrial
Cannock – Walkmill Lane, land site
Industrial
Livingston – Limefields, land sites
Industrial
London UB6 – Greenford, land site
Industrial
York – Alexandra Court, James Street
Industrial
Hartlepool – Jacksons Landing, land site
Other – leisure
Croydon – Car Park
Other – car park
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
Ipswich – Interchange Retail Park
Retail Warehouse
Colchester – Hythe Riverside Park
Retail Warehouse
Colchester – Turner Rise
Retail Warehouse
Croydon – AMP House
South East Office
London WC2 – Craven House, 117-123 Kingsway
Central London Office
London EC1 – 4-7 Chiswell Street
Central London Office
London EC2 – 11/12 Appold Street
Central London Office
London EC3 – Lombard Street
Central London Office
London N1 – Shepherdess Walk
Central London Office
Frimley – Albany Park
Retail Warehouse
London UB6 – Greenford
Industrial
Woking – Woking Business Park
Industrial
Welwyn Garden City – Quadrant Park
Industrial
Total Market Value between £10m and £25m
*Properties valued by Allsop LLP
All direct properties not asterixed are valued by BNP Paribas Real Estate.
Schroder UK Property Fund
31
Audited Consolidated Financial Statements 31 March 2013
Portfolio statement
(continued)
Direct Properties
Sector
Market
Value
£’000 at
31 March
2013
Total net
assets
%
517,400
42.1%
60,675
4.9%
918,230
74.8%
Direct properties between £25m and £50m
Norwich – Hall Road Retail Park
Retail Warehouse
York – Monks Cross
Retail Warehouse
Cardiff – St William House
Rest of UK Office
Croydon – Gateway Site
South East Office
Manchester – Fujitsu Office Complex
Rest of UK Office
Reading – Davidson house
South East Office
London SE1 – Palace House
South East Office
London W14 – Kensington Village
Central London Office
London W1 – 81-82 Dean Street
Central London Office
Crayford – Acorn Industrial Estate
Industrial
Hackbridge – Felnex Trading Estate
Industrial
London E16 – Electra, Canning Town
Industrial
London NW10 – Matrix, Park Royal
Cardiff – Mermaid Quay
Industrial
Other – leisure
Total Market Value between £25m and £50m
Direct properties greater than £50m
London W4 – Building 8, Chiswick Park
Total Market Value greater than £50m
South East Office
Total Direct Properties
Joint Ventures
Bracknell Regeneration Partnership
Retail
63,796
London E14 – West India Quay
Other – leisure
29,000
Motor Retail LP
Standard retail
24,926
Office
1,536
Bracknell – Eagle House1
Sutton – Kimpton Industrial Estate
Industrial
Total Joint Ventures
1,378
120,636
9.8%
Collective Investment Schemes
West End of London Property Unit Trust (WELPUT)
Central London Office
39,259
Retail Warehouse
Other – student
accommodation
Retail Warehouse
27,804
13,634
City of London Office Unit Trust (CLOUT)
Central London Office
545
Austral House Unit Trust (AHUT)1
Central London Office
294
Basinghall Street Unit Trust (BSUT)1
Central London Office
Hercules Unit Trust (HUT)
UNITE UK Student Accommodation Fund
Henderson UK Retail Warehouse Fund (HRWF)
Total Collective Investment Schemes
Portfolio of investments
Net other assets (including cash)
Net Assets
1 These investments are in the process of being wound up.
16,748
84
98,368
8.0%
1,137,234
92.6%
90,810
7.4%
1,228,044
100.0%
32
Schroder UK Property Fund
Audited Consolidated Financial Statements 31 March 2013
Independent auditors’ Report
To the Shareholders of Schroder UK Property Fund
We have audited the consolidated
financial statements of Schroder
UK Property Fund (the “Fund”) for
the period from 1 August 2012 to
31 March 2013 which comprise the
statement of total return, the statement
of change in net assets attributable
to shareholders, the balance sheet,
the cashflow statement, the related
notes and the distribution table. The
financial reporting framework that has
been applied in their preparation is
applicable law and United Kingdom
Accounting Standards (United
Kingdom Generally Accepted
Accounting Practice) and the
Statement of Recommended Practice
‘Financial Statements of Authorised
Funds’ issued by the Investment
Management Association (the
“Statement of Recommended Practice
for Authorised Funds”).
Respective responsibilities of
ACD and auditors
As explained more fully in the ACD’s
Responsibilities Statement the ACD
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 International
Standards on Auditing (UK and 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 as required by paragraph
67(2) of the Open-Ended Investment
Companies Regulations 2001 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.
Opinion on other matters
prescribed by the Collective
Investment Schemes
sourcebook
Scope of the audit of the
financial statements
–we have obtained all the information
and explanations we consider
necessary for the purposes of the
audit; and
An audit involves obtaining evidence
about the amounts and disclosures
in the financial statements sufficient
to give reasonable assurance that
the financial statements are free from
material misstatement, whether caused
by fraud or error. This includes an
assessment of: whether the accounting
policies are appropriate to the Fund’s
circumstances and have been
consistently applied and adequately
disclosed; the reasonableness of
significant accounting estimates
made by the ACD; and the overall
presentation of the financial statements.
In addition, we read all the financial
and non-financial information in the
annual report to identify material
inconsistencies with the audited
financial statements. If we become
aware of any apparent material
misstatements or inconsistencies we
consider the implications for our report.
In our opinion:
–the information given in the
Investment Manager’s Report for
the financial period for which the
financial statements are prepared
is consistent with the financial
statements.
Matters on which we are
required to report by exception
We have nothing to report in respect
of the following matters where the
Collective Investment Schemes
sourcebook requires us to report to
you if, in our opinion:
–proper accounting records for the
Fund have not been kept; or
–the financial statements are not
in agreement with the accounting
records and returns.
Opinion on financial statements
In our opinion the consolidated financial
statements:
–give a true and fair view of the
financial position of the Fund at
31 March 2013 and of the net
revenue and the net capital losses
of the scheme property of the Fund
for the period then ended; and
–have been properly prepared in
accordance with the Statement
of Recommended Practice for
Authorised Funds, the Collective
Investment Schemes sourcebook
and the Instrument of Incorporation.
PricewaterhouseCoopers LLP
Chartered Accountants
and Statutory Auditors
London
26 July 2013
Notes:
(a)The maintenance and integrity of the Schroders
website is the responsibility of the directors; 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
the preparation and dissemination of financial
statements may differ from legislation in other
jurisdictions.
Schroder UK Property Fund
33
Audited Consolidated Financial Statements 31 March 2013
Statement of total
return
For the period 1 August 2012 to 31 March 2013
Notes
Consolidated
Period from
1 August 2012 to
31 March 2013
£’000
Schroder UK
Property Fund
Period from
1 August 2012 to
31 March 2013
£’000
Net capital losses
4
(17,235)
(16,748)
Revenue
5
48,279
43,942
Expenses
6
(17,428)
(14,462)
4
–
30,855
29,480
–
–
Net revenue after taxation
30,855
29,480
Total return before distribution
13,620
12,732
Income
Loss attributable to minority interest
Net revenue before taxation
Taxation
8
Finance costs: distributions
7
Change in net assets attributable to
shareholders from investment activities
(33,254) (31,880)
(19,634) (19,148)
Statement of Change in
Net Assets Attributable
to Shareholders
For the period 1 August 2012 to 31 March 2013
Notes
–
–
1
1,240,822
1,240,336
6,856
6,856
Opening net assets attributable to shareholders
Transfer of net assets on 1 August 2012
Amounts receivable on issue of shares
Schroder UK
Property Fund
Period from
1 August 2012 to
31 March 2013
£’000
Consolidated
Period from
1 August 2012 to
31 March 2013
£’000
Amounts payable on cancellation of shares
–
–
Net amounts receivable on issue of shares
6,856
6,856
Change in net assets attributable to shareholders
from investment activities
(19,634)
(19,148)
1,228,044
1,228,044
Closing net assets attributable to shareholders
34
Schroder UK Property Fund
Audited Consolidated Financial Statements 31 March 2013
Balance Sheet
As at 31 March 2013
Notes
Consolidated
As at 31 March
£’000
Schroder UK
Property Fund
As at 31 March
2013 £’000
918,230
814,594
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 cash equivalents
11
Total other assets
Total assets
98,368
98,368
–
109,407
120,636
120,636
1,137,234
1,143,005
29,195
27,862
90,875
83,626
120,070
111,488
1,257,304
1,254,493
24,034
22,489
4,240
3,960
986
–
29,260
26,449
1,228,044
1,228,044
LIABILITIES
Creditors
12
Distribution payable
Net assets attributable to third party minority
investors
Total liabilities
Net assets attributable to shareholders
Cash flow statement
For the period from 1 August 2012 to 31 March 2013
Net cash inflow from operating activities
Notes
Consolidated
Period from
1 August 2012 to
31 March 2013
£’000
Schroder UK
Property Fund
Period from
1 August 2012 to
31 March 2013
£’000
15
30,269
29,909
Servicing of finance
Interest received
Distributions paid
Total cash outflow from servicing of finance
305
290
(29,211)
(27,920)
(28,906)
(27,630)
(7,886)
(9,951)
29,903
Financial investments
Purchases of investments
Sales of investments
22,504
Capital expenditure
(9,289)
(7,609)
Total cash inflow from financial investments
5,329
12,343
6,856
6,856
Financing
Amounts received on issue of shares
Total cash inflow from financing
6,856
6,856
Increase in cash in the period
14
13,548
21,478
Net cash at the start of the period
14
77,327
62,148
Net cash at the end of the period
14
90,875
83,626
Schroder UK Property Fund
Audited Consolidated Financial Statements 31 March 2013
Notes to the Financial
Statements
1. Accounting policies
All assets and liabilities of the Schroder
Exempt Property Unit Trust (the ‘Trust’)
were transferred to the newly formed
authorised Open Ended Investment
Company (OEIC) called Schroder UK
Property Fund (‘SPF’ or the Fund) on
31 July 2012. In accordance with The
prospectus, the assets and liabilities of
the Trust were transferred at net book
value to SPF and were accounted for
by the Merger Method of accounting.
(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 principle
accounting policies, which have been
applied consistently throughout the
period 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.
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 net asset value as
provided by the relevant managers,
in accordance with industry practice.
(d)Property purchases and sales
Acquisitions and disposals of
investment properties and collective
investment schemes are recognised
where, by the end of the accounting
period, there is a legally binding,
unconditional and irrevocable contract.
(e)Recognition of revenue
Rental revenue, deposit interest, and
other revenue is accounted for on an
accruals basis. The cost of any up front
lease incentives offered is recognised
as a reduction in rental income and
allocated over the shorter of the lease
term or the period until the first rent
review date in accordance with UITF28.
Service charge income and expenses
(c)Basis of valuation of investments are included in rental revenue and
other property operating expenses
(i)Properties owned by the Fund,
respectively. Interest receivable and
including investments in properties
payable are accounted for on an
owned through partnerships and
accruals basis.
trusts for land, are independently
valued on a market value basis in
(f) Treatment of management
accordance with Royal Institute
expenses
of Chartered Surveyors guidance.
Fees are recognised on an accruals
Development properties in the
basis and are charged in full to the
course of development are
Statement of Total Return. The
independently valued having
Manager has allocated 50% of the
management fees to income and
the remaining 50% to capital for the
calculation of distributable income.
(g)Treatment of development
and acquisition expenses
In accordance with Generally
Accepted Accounting Practice in the
UK, development and acquisition
expenses have been treated as costs
of purchasing property investments and
are accordingly treated as capital.
(h)Cash flow statement
In accordance with the requirements
of FRS 1 (Revised) and the IMA SORP
2010, a consolidated cash flow
statement has been provided.
(i)Tax
The Fund qualifies as a Property
Authorised Investment Fund (PAIF) for
tax purposes. Accordingly, the income
generated by its property investment
business will be exempt from tax. Any
dividend income it receives from United
Kingdom companies or, in general, from
non-United Kingdom companies will
also be exempt from tax.
The Fund would, however, be subject
to corporation tax in the event that
there should be a net balance of other
income, which will generally consist of
interest but could include other property
income, less deductible expenses
(including interest distributions).
Under the PAIF regulations, the
Fund make distributions gross to the
sole share class in an issue during
the period.
2. Distribution Policies
(a)Basis of distribution
Revenue is generated by the Fund’s
investments during each accounting
period. Where revenue exceeds
expenses, the net income of the
Fund is available to be distributed to
shareholders. All income is distributed,
at share class level, to the shareholders
35
Schroder UK Property Fund
36
Audited Consolidated Financial Statements 31 March 2013
notes to the financial statements
in accordance with the Fund’s
prospectus on a monthly basis.
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,
(continued)
scheme particulars and in the rules
governing the operation of open ended
investment companies.
(b) Credit and liquidity risk
The Fund can be exposed to credit risk
arising from the possibility that another
party fails to fulfil its obligations and
liquidity risk surrounding its capacity
to meet its liabilities.
Investments in immovable property
are relatively illiquid and more difficult
to realise than most equities or bonds.
If an asset cannot be liquidated in a
timely manner then it may be harder
to attain a reasonable price. The
liquidity risk, derived from the liability
to shareholders, is minimised through
holding cash which can meet the usual
requirements of share redemptions.
The Investment Manager’s policy for
managing this risk is to:
1.Operate a strict share redemption
policy such that shareholders may
only serve notice to redeem at the
end of each quarter.
2.Raise sufficient cash resources
within the Fund to finance a limited
number of redemptions.
3.Review the need for and maintain
as appropriate a borrowing facility.
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 period. The
Fund held £90.9 million of consolidated
cash at the end of the period and this
is exposed to interest rate risk.
Schroder UK Property Fund
37
Audited Consolidated Financial Statements 31 March 2013
4. Net capital gains/losses
Consolidated
Period from
1 August 2012 to
31 March 2013
£’000
Schroder UK
Property Fund
Period from
1 August 2012 to
31 March 2013
£’000
Losses in the period on investment properties
(4,139)
(2,173)
Losses in the period on Collective
Investment Schemes
(2,023)
(3,502)
Losses in the period on Joint Ventures
Net capital losses
(11,073)
(11,073)
(17,235)
(16,748)
Consolidated
Period from
1 August 2012 to
31 March 2013
£’000
Schroder UK
Property Fund
Period from
1 August 2012 to
31 March 2013
£’000
5.Revenue
Bank and deposit interest
327
299
34,997
30,746
Income from collective investment schemes
7,825
8,084
Service charge income
4,919
4,635
211
178
48,279
43,942
Consolidated
Period from
1 August 2012 to
31 March 2013
£’000
Schroder UK
Property Fund
Period from
1 August 2012 to
31 March 2013
£’000
Rental revenue
Other income
Total revenue
6.Expenses
Investment Management fees
5,125
4,800
Depositary fee
174
136
Valuers fee
189
154
Audit fee
150
150
5,723
4,852
Service charge expense
Other Fund level expenses
Other property operating expenses
Total expenses
262
168
5,805
4,202
17,428
14,462
38
Schroder UK Property Fund
Audited Consolidated Financial Statements 31 March 2013
notes to the financial statements
(continued)
7. Finance Costs
August 2012
Consolidated
Period from
1 August 2012 to
31 March 2013
£’000
Schroder UK
Property Fund
Period from
1 August 2012 to
31 March 2013
£’000
4,066
4,066
September 2012
4,767
4,011
October 2012
3,901
3,901
November 2012
4,512
3,864
December 2012
3,813
3,926
January 2013
4,042
4,042
February 2013
4,110
4,110
March 2013
4,043
3,960
33,254
31,880
Gross distribution for the period
Difference between net revenue after taxation and the distribution paid is analysed as follows:
Net revenue after taxation for the period
Expenses charged to capital
Gross distribution
Consolidated
Period from
1 August 2012 to
31 March 2013
£’000
Schroder UK
Property Fund
Period from
1 August 2012 to
31 March 2013
£’000
30,854
29,480
2,400
2,400
33,254
31,880
8.Taxation
The Fund qualifies as a Property Authorised Investment Fund (PAIF) for tax purposes.
Accordingly, the income generated by its property investment business will be exempt from
tax. Any dividend income it receives from United Kingdom companies or, in general, from
non-United Kingdom companies will also be exempt from tax.
The Fund would, however, be subject to corporation tax in the event that there should be a
net balance of other income, which will generally consist of interest but could include other
property income, less deductible expenses (including interest distributions).
Under the PAIF regulations, the Fund makes property income distributions and interest
distributions net of basic rate income tax except where the investor is entitled to gross
payment. As at 31 March 2013 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 no shares were in issue during the period.
Consolidated
Period from
1 August 2012 to
31 March 2013
£’000
Schroder UK
Property Fund
Period from
1 August 2012 to
31 March 2013
£’000
Corporation tax at 20%
–
–
Current tax charge
–
–
(a) Analysis of charge in period
Schroder UK Property Fund
39
Audited Consolidated Financial Statements 31 March 2013
(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:
Consolidated
Period from 1
August 2012 to
31 March 2013
£’000
Schroder UK
Property Fund
Period from 1
August 2012 to
31 March 2013
£’000
13,620
12,732
2,724
2,546
(2,724)
(2,546)
–
–
Net revenue before taxation
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 SPF at 31
March 2013
Valuation
at 1 August
Capital
2012 contributions
£’000
£’000
Capital
distribution
£’000
Net capital
gains/
(losses)
£’000
Valuation at
31 March
2013 £’000
–
Croydon Gateway Unit Trust
98.0
44,754
2,065
478
47,297
Parker Tower Unit Trust
99.0
18,267
–
(18,247)
–
20
Schroder Emerging Retail
Property Unit Trust
99.0
73,310
–
(73,301)
–
9
Hackbridge Unit Trust
99.0
30,956
–
–
(129)
30,827
Lombard Street Unit Trust
99.0
19,442
–
–
840
20,282
Capital Point Slough
Unit Trust
99.0
9,075
–
–
226
9,301
96.1
2,514
–
100.0
–
1,280
City Property Unit Trust
Hackbridge Limited
198,318 3,345
(2,046)
(77)
–
(93,594)
391
–
1,280
1,338
109,407
At 31 March 2013, SPF’s holding in each of Parker Tower Unit Trust (PTUT), Schroder Emerging Retail Property Unit
Trust (SERPUT), 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 PTUT, SERPUT, 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. The Fund’s holding in the City Property Unit
Trust stood at 96.1% with the remaining 3.9% being held by an external investor. This minority interest is de-minimis.
10. Debtors
Consolidated
As at
31 March 2013
£’000
Rent receivable net of provision for doubtful debt
Schroder UK
Property Fund
As at
31 March 2013
£’000
979
900
2,419
2,700
Tenant deposits
4,580
4,580
UITF 28 accrued rents receivable
6,998
5,734
UITF 28 unamortised lease incentives
6,482
6,482
Monies due from managing agents
5,066
5,030
Other debtors and prepayments
2,671
2,436
29,195
27,862
Distributions due from property related investments
Total Debtors
40
Schroder UK Property Fund
Audited Consolidated Financial Statements 31 March 2013
notes to the financial statements
(continued)
11. Cash and cash equivalents
Cash and cash equivalents
Consolidated
As at
31 March 2013
£’000
Schroder UK
Property Fund
As at
31 March 2013
£’000
48,875
41,626
Bank deposits
42,000
42,000
Total cash and cash equivalents
90,875
83,626
Consolidated
As at
31 March 2013
£’000
Schroder UK
Property Fund
As at
31 March 2013
£’000
12. Creditors
Trade creditors
171
108
Deferred Rental Income
9,647
9,029
Tenant deposits
4,580
4,580
VAT payable
1,931
1,679
Amounts due on properties
2,165
2,165
Accrued SPF investment management fee
1,110
1,110
Other creditors and accruals
4,430
3,818
24,034
22,489
Total Creditors
13. Contingent liabilities and commitments
There were no contingent liabilities or commitments as at 31 March 2013.
14. Reconciliation of movement in net cash
Consolidated
Period from
1 August 2012 to
31 March 2013
£’000
Schroder UK
Property Fund
Period from
1 August 2012 to
31 March 2013
£’000
Cash and cash equivalents
As at 1 August 2012
77,327
62,148
Cashflows
13,548
21,478
As at 31 March 2013
90,875
83,626
Schroder UK Property Fund
41
Audited Consolidated Financial Statements 31 March 2013
15. R
econciliation of net revenue before taxation to net cash inflow
from operating activities
Net revenue before taxation
Increase in debtors
Increase in creditors
Net cash inflow from operating activities
Consolidated
Period from
1 August 2012 to
31 March 2013
£’000
Schroder UK
Property Fund
Period from
1 August 2012 to
31 March 2013
£’000
30,855
29,480
(593)
(1,925)
7
2,354
30,269
29,909
16. 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 £500 million of the Fund’s Net Asset Value (NAV) and 0.0125% per annum on any
excess over £500 million of the Fund’s NAV.
(b) Fees receivable by the ACD and the Investment Manager
The remuneration of the ACD and the Investment Manager is set out within the Fund
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 Fund
which utilise its matched bargain service. Such commission is not included
in these financial statements.
(c) Outstanding balances were due to the following which are considered to be
related parties under FRS8:
Schroder UK
Property Fund
As at
31 March 2013
£’000
Natwest plc
Schroder Property Investment Management Ltd
Schroder Unit Trusts Limited
36
1,110
154
(d) Distributions: gross distributions were receivable in the period from the following
investments which are considered related under FRS8 as they are managed or administered
by an associate of the ACD.
Schroder UK
Property Fund
Period
From 1 August
2012 to
31 March 2013
£’000
Bracknell Property Unit Trust
Croydon Gateway Property Unit Trust
Motor Retail Limited Partnership
1,704
484
1,421
Lombard Street Unit Trust
328
Capital Point Slough Unit Trust
793
West End of London Property Unit Trust
1,022
Schroder Emerging Retail Property Unit Trust
2,432
42
Schroder UK Property Fund
Audited Consolidated Financial Statements 31 March 2013
notes to the financial statements
(continued)
(e) Schroder UK Property Fund Feeder Trust
The Manager of the Schroder UK Property Fund Feeder Trust, which invests solely into
the Schroder UK Property Fund, is part of the same group as the ACD of the Schroder UK
Property Fund. During the period from 1 August 2012 to 31 March 2013, the Schroder UK
Property Fund Feeder Trust was paid gross distributions totalling £0.2 million.
17. Financial instruments
The primary financial instruments held by the Fund at 31 March 2013 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 assets and liabilities are represented by the values shown
in the balance sheet on page 16. There is no material difference between the value of the
financial assets and liabilities, as shown in the balance sheet, and their fair value.
Distribution table
Monthly distributions payable for the 8 months ended 31 March 2013 in pence per unit.
There were two share classes at 31 March 2013, a gross share class and a net share class
which was dormant during the period.
Aug-12
Sep-12
Oct-12
Nov-12
Dec-12
Jan-13
Feb-13
Mar-13
Gross Income Shares
Gross revenue
Income tax
Net revenue
Equalisation
10.647800 10.502600 10.211300 10.110900 10.268290 10.566479 10.711900 10.315792
–
–
–
–
–
–
–
–
10.647800 10.502600 10.211300 10.110900 10.268290 10.566479 10.711900 10.315792
–
–
–
–
–
–
–
–
Final distribution payable 10.647800 10.502600 10.211300 10.110900 10.268290 10.566479 10.711900 10.315792
Schroder UK Property Fund
43
Report to 31 March 2013
Unaudited
Additional information
Primary creations and redemptions
During the period to 31 March 2013, 203,772 shares were created and nil shares
redeemed on the primary market. At 31 March 2013, nil shares were awaiting either
creation or redemption.
Quarterly Volume of Secondary Market Trades
(£ million)
59.5
60
50
46.3
40
31.6
30
21.4
20
10
0
15.7
10.2
6.7
Q2
08
6.3
2.4
1.8
2.5 1.4
Q3
08
Q4
08
Q1
09
Q2
09
Q3
09
Q4
09
15.4
14.9
Q1
10
Q2
10
Q3
10
8.1
Q4
10
13.4
9.8
Q1
11
Q2
11
Q3
11
Q4
11
24.0
12.0
Q1
12
8.9
Q2
12
Q3
12
Q4
12
Q1
13
Source: Schroders, 31 March 2013.
Gross Annual Distribution
Paid per share/unit
Date
Gross Annual
Distribution
per share/unit1
Net Asset Value Distribution
per share/unit
Yield2
31 March 2013
£1.278533
£31.99
4.0%
31 March 2012
£1.340935
£32.69
4.1%
31 March 2011
£1.326611
£32.01
4.1%
31 March 2010
£1.543322
£30.30
5.1%
31 March 2009
£1.598533
£29.45
5.4%
Source: Schroders, 31 March 2013.
Gross Annual distribution information up to 31 July 2012 relates to the Schroder Exempt Property Unit Trust
which was converted to the Schroder UK Property Fund on 1 August 2012.
1 Distributions are gross of tax but net of expenses and fees. They are stated on a paid basis at the time of reporting.
2 The yield is calculated by dividing the annual distributions paid by net asset value per unit at the end of the period.
The yield is stated on a paid basis at the time of reporting.
44
Schroder UK Property Fund
Report to 31 March 2013
Unaudited additional information
(continued)
Cash and Gearing
Amount in
Cash (Capital)
at the end of
each year
Date
31 March 2013
Gearing
(% of NAV)
£80.7 million
5.0%
31 March 2012
£52.8 million
6.1%
31 March 2011
£125.6 million
6.9%
31 March 2010
£43.4 million
16.3%
31 March 2009
£5.9 million
20.3%
Source: Schroders, 31 March 2013.
Cash
The Fund is restricted to holding a maximum on balance sheet uncommitted cash balance
of 10% of NAV. There is no minimum restriction. As at 31 March 2013, the Fund had
counterparty exposure to Barclays (£12.0m) and Santander (£30.0m) through its bank
deposits as per note 11 of the financial statements. The Fund’s counterparty exposure is
governed by Schroder Group policies.
Gearing
The Fund is restricted to holding a maximum borrowing ( on/off balance sheet) of 25% of
NAV. At 31 March 13 the Fund had nil gearing on balance sheet. The Fund was exposed
to 5.0% by NAV of gearing solely through its indirect holdings. The Investment Manager
monitors specific details of the variable rate loans or interest terms of the gearing within the
indirect investments and specific details of the interest rate swaps, as is made available by
the respective managers. Such information is not published here, but will be made available
if appropriate. Figures for gearing are shown gross as the Fund does not have a restriction
requiring a minimum amount of cash to be held on the balance sheet. For information, the
net amount of gearing (gross debt minus cash) was -1.9%.
Fund share of indirect borrowing by holding
Collective Investment
Schemes (CIS)
CIS Total
NAV
£ Millions
CIS
Total debt
£ Millions
Debt as a %
of NAV (CIS)
SPF Share of
debt
£ Millions
SPF Share of
debt
as a % of
SPF NAV
Henderson UK Retail
Warehouse Fund
625.0
439.5
70.3%
9.6
0.8%
Hercules Unit Trust
879.5
629.0
71.5%
19.9
1.6%
Teesland IDG Sutton Unit Trust
3.2
4.7
146.9%
2.3
0.1%
UNITE UK Student
Accommodation Fund
685.3
624.3
86.1%
15.4
1.3%
West End of London property
Unit Trust
658.3
246.2
37.4%
14.7
1.2%
61.9
5.0%
Total
Source: Schroders/AREF/IPD Property Fund Index, 31 March 2013.
Total NAV, Total debt and Debt as a percentage of NAV are as published in AREF/IPD Property Fund Index and reflect the
total for the collective investment schemes. SPF share of debt and SPF share of debt as a percentage of SPF NAV are as
calculated by Schroders.
Derivatives
The Fund is entitled to use derivatives but did not use any during the period. Derivatives
may be used by the Investment Manager for the purposes of efficient portfolio management.
The aim of reducing risks or costs will allow the Investment Manager to enter into exposures
Schroder UK Property Fund
45
Report to 31 March 2013
of permissible assets using derivatives or forwards as an alternative to selling or purchasing
underlying assets. The maximum permissible derivative exposure will be determined by
Schroder Group Compliance and the Property Investment Risk Committee in conjunction
with the Fund’s Investment Committee. The Fund will follow accounting policies agreed with
the auditors and consistent with the prospectus in its treatment of derivatives.
Monthly Share/Unit Prices
Date
Net Asset Value
Bid Price
Offer Price
31 March 2013
£31.99
£31.41
£33.51
28 February 2013
£32.07
£31.49
£33.60
31 January 2013
£32.08
£31.50
£33.61
31 December 2012
£32.07
£31.49
£33.60
30 November 2012
£32.19
£31.61
£33.73
31 October 2012
£32.25
£31.67
£33.79
30 September 2012
£32.26
£31.67
£33.79
31 August 2012
£32.40
£31.81
£33.95
31 July 2012
£32.48
£31.90
£34.02
30 June 2012
£32.42
£31.83
£33.96
31 May 2012
£32.55
£31.96
£34.10
31 April 2012
£32.65
£32.07
£34.21
Source: Schroders, 31 March 2013.
The monthly share/unit price is issued on the first working day of the month, based on closing values at the end of the
previous month. Over the last 12 months, the highest offer price was £34.21 and the lowest bid price was £31.41
Shareholder Breakdown
Internal investors are those entities managed or controlled by companies within the same
group as the Investment Manager of the Fund. The proportion of internal and external
investors is set out within the below table:
Number of
Shareholders
Total % Holding
by Shares in
Issue
Internal Investors
133
50.9%
External Investors
128
49.1%
Total Investors
261
100%
Corporate Pension Funds
168
56.3%
37
30.2%
Local Authority Pension Funds
Pooled Funds
Charities
3
3.7%
42
5.8%
Common Investment Funds
3
2.9%
SIPPs
2
0.0%
UK Corporate
1
0.2%
Insurance Companies
5
0.9%
261
100%
Total
Largest Investors by Ownership Band:
Less than 1% of units in issue
233
54.1%
1% or greater but less than 2%
22
30.2%
2% or greater but less than 4%
5
11.7%
4% or greater but less than 8%
1
4.0%
8% or greater
–
–
261
100%
Total
46
Schroder UK Property Fund
Report to 31 March 2013
Unaudited additional information
(continued)
Shareholder Breakdown
Largest Investor
4.0%
Largest Three Investors
9.1%
Largest Five Investors
13.7%
Largest Ten Investors
22.6%
Source: Schroders, 31 March 2013.
Liquidity
Details of indirect holdings (Collective Investment Schemes)
Closed-ended investment
NAV of
holding
(£’000)
% of SPF
NAV
%
ownership
of CIS
Hercules Unit Trust (HUT)
27,804
2.3%
3.2%
Termination
Date
September
2020
(Redemption
Window
September
2013)
Henderson UK Retail
Warehouse Fund (HRWF)
13,634
1.1%
If 75% of unitholders
agree the Fund can be
extended. If this is not
obtained, the Fund will
enter a 2 year orderly
wind down period.
December
2015
6.0%
July 2021
(Redemption
Window July
2014 and
July 2017)
The Trust can be
extended for successive
periods of whole years
of up to ten years in
total, with the agreement
of the unitholders by
Extraordinary Resolution.
n/a – UNITE
is an open
ended Fund.
Units can be redeemed
at any time (subject to
limitations imposed by
UNITE). The price that
redeeming unitholders
receive for their
redemption units shall
by at a discount of 2% to
the NAV.
Unit Trust (WELPUT)
3.2%
additional information
The Trust can be
extended for successive
periods of whole years
of up to ten years in
total, with the agreement
of the unitholders by
Extraordinary Resolution.
2.2%
West End of London Property
39,259
Terms of any extension/
Open-ended investment
UNITE
16,748
1.4%
2.5%
Schroder UK Property Fund
47
Report to 31 March 2013
Total Expense Ratio (as defined by AREF Code of Practice)
Fees and expenses table
% GAV
% NAV
Fund Management Fees
0.63%
0.66%
Fund Operating expenses
0.18%
0.20%
Total Expense Ratio1
0.81%
0.86%
0.49%
0.51%
Property Expense Ratio2
Real Estate Expense Ratio
1.30%
1.37%
Transactions Costs4
0.04%
0.04%
N/A
N/A
3
Performance Fees Charged
1The Total Expense Ratio (TER) is the sum of the fund management fees and the fund operating expenses as a ratio of
the NAV and GAV.
2The Property Expense Ratio (PER) is the total property expenses incurred by the fund (such as service charge short falls,
lease costs and maintenance and repairs) as a ratio of the NAV and GAV
3The Real Estate Expense Ratio is the sum of the TER and PER as a ratio of the NAV and GAV.
4Transaction costs include tax, professional fees and other costs associated with the purchase and sale of property
holdings. During the year to 31 March 2013, the sales and purchases as set out within the Fund Director’s Report
yielded transaction costs of £0.5m.
Schroder UK Property Fund
48
Report to 31 March 2013
Unaudited general
information
General Information
SCHRODER UK PROPERTY 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 property, 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.
The table on page 46 sets out the
percentage by NAV of the Fund’s
investment in closed-ended structures
as well as a brief summary of the
liquidation process for these assets.
Socially Responsible
Investment and Sustainability
Responsible Property Investment
(RPI) 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 RPI Policy can
be found at www.schroders.com/
getfunddocument?oid=1.9.678022
Purchase of Shares
Shares can be purchased in the
Schroder UK Property Fund through
the primary or secondary market.
Depending on the type of investor,
the purchase of shares will be through
either the Schroder UK Property
Fund or the Schroder UK Property
Fund Feeder Trust. Corporate bodies
(excluding nominees acquiring shares)
may only invest in the Schroder UK
Property Fund indirectly through the
Feeder Fund. Shares in the Schroder
UK Property 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 cutoff 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 SPF 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 2013 that
were not settled. Further, there were
no suspension of valuations and/or
redemptions at 31 March 2013.
Schroder UK Property Fund
49
Report to 31 March 2013
Redemption of Shares
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. Potential investors should
also provide the Registrar with any
documents required for anti-money
laundering purposes. The forms are
available from www.schroders.com/spf
or from the Investment Manager.
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 where dealing has been
suspended as set out in section 2.21
The SMF will not charge a redeeming
of the prospectus.
shareholder commission, but the
redeeming Shareholder will be
Where the ACD considers it to be in
responsible for costs in connection with
the best interests of the shareholders,
the transfer of its shares such as the
the ACD may defer redemptions on
preparation and execution of relevant
a dealing day to any one or more of
documentation and any taxation. The
the subsequent eight dealing days for
SMF, at its discretion, has the right
redemption i.e. the deferral period is
to charge the buyer commission at a
a maximum of 24 months from the
rate of 0.20 per cent applied to the net
original dealing day for redemption. A
consideration, subject to a minimum of
redemption will be deferred within this
timeline to a dealing day for redemption £50 for each and every trade. Where
applicable, stamp duty reserve tax
when the Fund has sufficient liquidity
is payable by the buyer on the net
to enable it to meet the redemption,
consideration at the prevailing rate.
providing it is in the best interests of
the shareholders to do so.
The ACD can, in extreme market
circumstances, as set out within
section 6.5 of the prospectus, fair
value any assets within the Fund to
a realisable value.
Secondary Market
The SMF operates a share matching
service between sellers and buyers
of shares. A waiting list of sellers and
buyers is kept and matching operated
on the following basis:
a. First, price: shares available from
sellers seeking the lowest price
per share will be offered to buyers
by order of the date of receipt of the
relevant form.
The ACD has appointed the Secondary
Market Facilitator, SMF (Schroder
Property Investment Management
b. Secondly, notification date: Where
Limited) to facilitate transfers of shares
there are multiple sellers looking to sell
on the secondary market in accordance
for any given price, preference will be
with the following:
given to sellers by order of the date of
receipt of the relevant form.
Where there are multiple buyers looking
to buy at the same price, for which
relevant forms were received on the
same date, matching will be allocated
pro rata to the number of shares
applied for. In all cases matching will be
allocated subject to any minimum trade
requirements stipulated by a party.
The SMF, when matching shares may
apply a minimum economic trade at its
discretion which is shares to the value
of £50,000 or such other amount as
the SMF determines from time to time.
The SMF will arrange the exchange
of shares between sellers and buyers
in the first 12 business days of every
month. The SMF will contact the seller
and buyer to obtain confirmation that
the terms of the arrangement are
acceptable before proceeding with the
transaction. The seller and buyer are
required to confirm acceptance of the
terms by return email within 24 hours.
Investors 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.
Fund Codes
Code
Bloomberg
ISIN Sedol SCEXPUT LN
GB00B8215Z66
B8215Z6
Prices for the Schroder UK Property
Fund can be obtained from
http://www.schroders.com/spf.
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
Schroder UK Property Fund
50
Report to 31 March 2013
Unaudited General information
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 Property Fund
Feeder Trust
The Schroder UK Property 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 Property 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 Property Fund
at a rate of 20%.
Management fees and
other expenses
Details of fees and expenses incurred
by the Fund are set out within Section
5 of the Fund prospectus and further
in notes 6 and 16 of the audited report
and accounts. In summary:
• The Annual Management Charge
is 0.30% of NAV and 0.40% of the
Gross Asset Value (GAV) of directly
held property and capital monies
(made up of 0.05% of NAV payable
to the ACD and 0.25% of NAV
and 0.40% of GAV payable to the
Investment Manager). The annual
management charge is allocated
50% to income and 50% to capital.
• The Depositary receives 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.
(continued)
• 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.
There is no performance fee and no fee
rebates are payable. The table on page
47 shows the Fund’s expense ratios as
required by the AREF Code of Practice
as at 31 March 2013.
Bid/Offer spreads
As at 31 March 2013, the offer spread
was 4.75% premium to NAV. The
bid spread was -1.8% 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 10% of investment.
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 Hercules Unit Trust
and 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
Vision handbook. SPF’s page on the
AREF website can be found at http://
www.aref.org.uk/funds/schroder-ukproperty-fund
The Investment Manager believes that
these Report and Accounts, together
within supporting documents referred
to herein, achieves the AREF standard
of Best Practice for reporting.
Schroder UK Property Fund
51
Report to 31 March 2013
Fund documentation
Additional Information
Manager Contacts
A copy of all Fund documentation
including the prospectus and regular
reports is available at www.schroders.
com/spf or available from the
Investment Manager upon request.
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 Property
Investment Management Limited.
For general information and queries
on secondary market availability,
please contact:
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.
Insurance and service
charge rebates
Service charge remuneration employed
by the Investment Manager earned
by the managing agents forms part of
their overall remuneration. Insurance
commission rebates are calculated
on an annual basis and rebates (if any)
are distributed to shareholders.
Disaster recovery
Schroder Group has a disaster
recovery plan which is audited,
externally, on an annual basis as part
of the AAF controls report.
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 Property Fund
Schroder Property Investment
Management Limited
31 Gresham Street
London EC2V 7QA
Tel: +44 (0)20 7658 6000
Schroder Property Investment
Management Limited is authorised and
regulated by the Financial Conduct Authority
Tom Dorey
Head of Property Product
tom.dorey@schroders.com
+44 (0)20 7658 3020
Ian Mason
Fund Director
ian.mason@schroders.com
+44 (0)20 7658 6618
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 Property 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
Schroder UK Property Fund
52
Report to 31 March 2013
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 Property 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 Property
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
Legal Adviser
Eversheds LLP
One Wood Street
London
EC2V 7WS
Independent Auditor
PricewaterhouseCoopers LLP
7 More London Riverside
London
SE1 2RT
Property 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 period
Prior to 1 August 2012 there was
no ACD as the Fund existed as an
unauthorised unit trust. Following
conversion to an authorised fund,
the Trustee role became that of a
depositary which was fulfilled by
National Westminster Bank PLC
(Natwest), a wholly owned subsidiary
of Royal Bank Of Scotland PLC.
Prior to this, the Trustee was Royal
Bank of Scotland PLC. There were
no further changes to key service
providers during the period.
The terms of all appointments
including remuneration and termination
provisions can be made available
upon request.
Schroder UK Property Fund
Report to 31 March 2013
West India Quay, London.
53
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